UIT-I

LESSON - 1
ATURE AD PROCESS OF MAAGEMET
Introduction:
Management is universal in the modern industrial world. Modern
societies are often described as ‘Societies of organisations. In the modern day
living each of us isthe associated with some kind of organisations like colleges,
hospitals. business enterprises religious and social organization banks, insurance
corporations, transport corporation etc., All these organisations affect our lives
in many ways. Despites the his difference in their functioning and approaches,
all the organisations are trying to achieve their own objectives. Organisations
cannot achieve the objectives effortlessly Several activities iave to be performed
in cogesive way.
Organisations require the making of decisions, the co-ordinating of
activities, the handling of people, and the evaluation of performance directed
toward group objectives. Numerous managerial activities have their own
particular approach to specific types of problems and are discussed under
different heading as business management, bank management, transport
management, tourism management. Financial management, Production
management, Marketing management, Personal and management etc., All have
some common Principles or elements. The management functions facilitate the
performance of activities of organisation in a systematic fashion to accomplish
the objectives.
Meaning and Definition of Management:
Management means many things to many people. Economist regard it as
a factor of production. Socialist view it as a class or group of persons. While
Management practioners treat it as a process. The trade unionist consider
Management as an exploiting set of people. In simple term. ‘Management is
what a manager does’ Mary Parker Follet says Management in its true sense, a
process by which an organisation realises its objectives in a planned way.
Management is a set of activities (Inluding planning and decision making,
organizing, leading and controlling) directored at an organization resources

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(human, financial, physical and information) with the aim of achieving
organizational goals in efficient and effective manner.

Inputs from the Planning &

environment Decision Organising

Human Making
resources

Effectively

Efficiently
Goals attained

Financial
resources

Physical
resources

Information
resources Controlling Leading

Management is basically concerned with ideas, things and people, It is

very difficult to define the term Management precisely. In fact, there are various
definitions on Management. But none has been universally accepted. Nor can
any one definition covers all the facet of Management, given its dynamic nature.
The following are few definitions of Management given by eminent authors on
the subject.
According to James A.F. Stoner, “Management is the process of planning,
organising, leading and controlling efforts of organisation members and of using
all other organisationsal resources to achieve stated organisational goals”
According to Dr.Jarnes Lundy, “Management is a task of planning,
coordinating, motivating and controlling the efforts of others towards specific
objectives”
According to Henry Fayol, to manage is to forecast and plan, to organise,
command, to coordinate and control.
Peter F. Drucker defines Management as, “an economic industrial
society”. !t means taking action to making the desired results to pass.

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 E.F.L. Breach defines as. “Management is concerned with seeing that the
job gets done, its tasks are centred on planning, and guiding the operations that
are going on the enterprise”
According to George R. Terry. Management is a distinct process
consisting of planning, organising, actuating. and controlling, performed to
determine and accomplish the objectives by the use of people and resources.
Almost all the above definitions suggest the following

Management is a process because all managers irrespective of their levels in
the organization engage in certain interrelated activities in order to achieve
the desired goals.

Managers use all the resources of the organisation, both physical as well as
human.

Management aims at achieving the organisation goals. To achieve the
objectives, every organisation uses certain inputs like materials, machinery,
money and the service of men. These inputs are drawn from the environment
in which the organisation exists. Whether an organisation is engaged in
business or not the various inputs are judiciously used to produce the outputs.
This process which involve conversion of inputs into outputs is common to
all organisations and it is shown in the following exhibit.

IPUT -OUTPUT MODEL

INPUT TRANSFORMATION OUTPUT

PROCESS

EXTERNAL
ENVIRONMENT

This output of the firm may be a physical product or service. Since a

business organization is an economic entity, the justification for its existence lies
in producing goods and services that satisfy the needs of the people. Here arises
the question of effectiveness in transforming the inputs into outputs. How

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effectively the goods and services are produced is a matter of concern for any
society, given the scarcity of resources. Effective management plays a crucial
rote in this context.
ature of Management :
Inspite of the growing importance of management as an academic
discipline immensely contributing to the quality of human life, the concept is
still clouded by certain misconceptions.
No doubt, management as an academic body of knowledge has come a
long way in the last few years. It has grown in saturate and gained acceptance all
over the world. Yet, it is a paradox that the term Management’ continues to be
the most misunderstood and misused.
A study of the process of management reveals the following points about
the nature of management.
Management is a Universal process
Where there is human activity, whether individual or joint, there is
management. The process of management can be noticed in all spheres of life.
The basic nature, of management activity are the same whether the organisation
to be managed is a family, a club, a trade union, a trust, a municipality, a
business concern or the government. slight variations in approach and style may
be there from organisation to organisation, but the management activity is
basically the same every where.
Management is a factor of production:
Management is regarded as a factor of production. Just as land, labour
and capital have to be brought together and put to effective use for the
production and distribution of goods and services. Similarly managerial skills
have also to be acquired and effectively used for the purpose.
In the modern industrial setup, where the pattern of production has
become capital- intensive, qualified and efficient managers are essential to reap
the fruits of huge investment, in business. Infact, the more important would be
the role of management.

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Management is goal oriented:
The most important goals of all management activity is to accomplish the
objectives of an enterprise. These objectives may be economic, socio-economic,
social and human, and management at different levels seeks to achieve these in
different ways. But at all times management has definite objectives to pursue
and it employs all the resource as it command – men, money, materials,
machines and methods in the pursuit of the objectives.
Management is supreme in thought and action :
Determination of the objectives of an enterprise tests the collective
wisdom and sense of imagination of its management. The objectives should be
neither too hjgh sounding or difficult to achieve, nor too low-pitched to rob
workers of their sense of, achievement. But mere setting of objectives will be of
no avail of there is no vigorous action to achieve them.
Management scores over other activities the respect. It sets realisable
objectives and then masterminds action on all fronts to accomplish them.
Managers belong to that rare breed of men who are not only aware of what to be
achieved and how, but also possess the capability and courage to accept the
challenges of doing it.
Management is a group activity:
The basic requirement of successful management is replacement of with
“we”. An enterprise will not be able to achieve its objectives if only one or a few
individuals or departments thereof are efficient, the rest being indifferent. For
example, even the best performance by the production department will become
meaningless if the sales department does not make efforts to sell the products or
if finance department does not ensure adequate availability of funds.
For the success of an enterprise, it is necessary that all the human and
physical resources at its disposal men money, materials, machines etc. - are
efficiently coordinated to attain the maximum levels of productivity. It is well
known that the combined productivity of different resources will always be
much higher than the total of individual productivity of each resources. The test
of managerial ability lies in coordinating the various resources and to achieve
maximum combined productivity. With proper management, one plus one does
not mean two, but eleven. This is also called the multiplier effect of management
activity.
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Management is a dynamic function:
Management is a dynamic function of a collective enterprise which is
constantly engaged in casting and recasting the enterprise in the world of an
ever-changing business environment. Not only this, it also sometimes initiates
moves that reforms and alter the business environment. If an enterprise is well-
equipped to face the changes in business environment brought about by
economic, social, political, technological or human factors, it can soon adapt
itself to a changed environment, or make innovation to attune itself to it. For
example; in the fact of fall in the demand for a particular product, the enterprise
can be kept in readiness to explore new markets or switch over to production of
new goods with ready demand.
Management is a social science
Management Consists in getting things done by others, This involves
dealing with individuals each one of who has a different level of sensitivity,
understanding and dynamism. In fact no definite principles or rules can be laid
down in respect of human behaviour, These change from individual to individual
and from situation to situation. No doubt, a manager may seek guidelines from
the established principles ‘and rules but he cannot base his decisions on them.
Management is an important organ of society:
Management as an activity has carved for itself and important place in
society. In fact, there is an interaction between management and society. While
the society influences the managerial actions, managerial actions influence the
society. By their decisions, management of large undertakings influence the
economic, social political, religious, moral and institutional behaviour of the
members of society. This has created an impact on the social and moral
obligations of business management which cannot 5e easily ignored.
Management is a system of authority:
It is the job of management to bring about a harmonious arrangement and
pattern among the different resources employed in an undertaking. In fact, its
role s a factor of production puts an obligation on it to be methodical in plans
and procedures, and systematic and regular in their implementation. For this it is
necessary that the authority vested in the management is to be exercised properly
and correctly. This call for well-defined lines of command, delegation of suitable
authority and responsibility at all levels of decision-making. Unless there is
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proper balance between authority and responsibility at each level of decision
making, the organisation might not succeed in the task of accomplishment of its
objective.
Management is a profession:
Management makes a judicious use of available means (various factors of
production) to accomplish certain pre4etermined ends (organisational aims and
objectives). To achieve this successfully, managers need to possess managerial
knowledge, and training. Moreover, they have to conform to a recognizes code
conduct and remain conscious of their social and human obligations. And for
this they are amply rewards are well paid and well provided y the organisation
for which they work. Moreover they enjoy considerable social prestige too.

MAAGEMET PROCESS
Management is an activity consisting of a distinct process the
management process - which is primarily concerned with the important task of
goal achievement. No business enterprise can achieve its objectives until and
unless all the members of the unit make an integrated and planned effort under
the directions of central coordination agency. In management terminology, this
central co-ordinating agency is technically known as “MANAGEMENT” and
the methodology of getting things done is known as ‘Management process’ The
process, in general, is defined as a series of actions or operations conducting to
an end. The logic of the management process is that particular functions are
performed in a sequence through time. In other words whatever functions are
performed by a manager and the sequence in which they are performed is called
‘Management process’.
Ordinarily there are two main functions of each manager, Viz. ,i)
Decisions making and ii) Implementation of the decisions; and collectively these
two fall under the’ expression ‘Management process! Planning, Organising,
Actuating and involved in the achievement of business goals are known as
‘Management process
Planning:
The first essential function to be performed by a manager is to determine
what must be done by the member in order to accomplish the work. The broad

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aspects of the workload must be determined. In addition, when how the work
will be done are indicative of the manager’s work in this phase. Planning
involves the formulation of what is to be done; how, when and where it is to be
done; who is to do it and how results are to be evaluated. It is the most important
step in the prop of getting results. It enables the management to be a step ahead
of each activity. Take initiative to make use of any opportunity .and anticipate
problems before they actually arise. The process of Planning involves:
1. Crystallisation of determination of the corporate objective - It means that
first of all the target to be achieved should be well defined. The top
management must lay down the objectives of the company as far as
possible in quantified terms;
2. Collection and classification of information — It means that relevant
information relating to the objectives should be properly collected and
classified.
3. Development of the alternative courses of action;
4. Evaluation of the alternatives interms of objectives, feasibility and
consequences;
5. Selection of the optimum course of action - The manager is often faced
with alternative course of action. He must adopt the one which has the
highest probability of yielding the maximum benefit or gain for himself
and the company.. This selection from alternative courses of action is
sometimes referred to as the ‘principle of alternative planning ‘
6. Establishment of policies, procedures, methods, schedules programmes,
systems, standards and budgets. It means that the plans must be detai1ec
flexible so that they are capable of being re-adjusted in case there is any
change in the working conditions and/or objectives.
Planning is intellectual in nature, it is a mental work. It is looking ahead
and preparing for the futures Planning is, of course, decision-making, since it
involves selection among many choices. Planning emphasises the fact that if we
known where we are going, we are more likely to get there. Good mangers
always to draft plan which will make things happen in the desired way. This is
also stressed by the saying —“ Good managers make things happen.”

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Organising :
The course and make-up of action having been determined, the next step,
in order to accomplish the work, is to distribute or allocate the necessary
component activities among the members of the group. This distribution,
executed by the manager, is guided considerations of such things as the nature of
the component the people of the group and the physical facilities available.
Normally these component activities are grouped and assigned so that
accomplishment with minimum efforts time and cost will be realised. Grouping
activities and resources in a logical fashion is known as organizing. It involves
determining how activities and resources are to be grouped.
a. Division of work into component activities;
b. Assigning people to task,
c. Defining responsibilities;
d. Delegation of authority; and
e. Establishment of structural relationships to secure coordination.
Authority is the key to the managerial job, and the delegation of authority
is the key to the organisation. We cannot speak of manager unless he has
authority and we cannot speak of creating an organisation unless authority is
delegated.
Actuating
To carryout physically the activities from the planning and organizing, it
is necessary for the manager to take initiatives to start and continue the action
as long as they are needed in order to accomplish the task by the members of the
group. This process of actuating involves:
1. Providing effective leadership;
2. Integrating people and task and convincing them to assist in the
achievement of the overall objectives;
3. Effective communication; and
4. Providing climate for subordinates’ development.

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 This function is known as ‘Actuating’. The word’ actuate ‘ means
literally, ‘move to action’,and its use is thus appropriate for this managerial
function that deals with the supplying of stimulative power to the group.
Controlling:
Managers have always found it desirable to check up or follow up what is
being done in order to make sure that the work delegated to other is progressing
satisfactorily toward the predetermined objectives. The establishing of a sound
plan, the allotting of component activities required by this plan and the
successful actuating of each member do not assure that the undertaking will be a
success. Discrepancies, imponderables, misunderstanding and unexpected
hindrances may arise. Such contingencies must be known quickly to the manager
so that corrective action may be this function by the Controlling involves a series
activities. They are:
1. Continuous observation and study of periodic results performance in
order to identify potential problems;
2. Pinpointing significant deviations;
3. Ascertain their exact causes; and
4. Initiation and implementation of the corrective action.
Controlling thus tends to complete the full cycle of the process of
management through which mangers accomplish results.

EED FOR MAAGEMET:

Management is an essential accompaniment of all social organisations
and it is to be found everywhere as a distinct, separate and dominant activity.
The importance of management cannot be over emphasized. The significance of’
Management’ may be outlined in the following paragraphs:
To Meet the challenges of change:
In recent years the challenge of change has become intense and critical.
The complexities of modern business can be overcome only by scientific
management.

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For effective utilization of the Seven M’s:
There are seven M’s in business, viz., men, materials, money, machines,
methods markets and management. Management stands at top of all these Ms. It
determines and controls all other factors of business.
For the Development of resources:
Good management procures good business by creating vital dynamic and
life- giving force in the organisation.
Management directs the Organisation:
Just as the mind directs and controls the body to fullfil its desire,
similarly management directs and control the organisations to achieve the
desired goal.
Integrate various interest:
In the group efforts, there are various interest group and they put pressure
over other groups for maximum share in the total output. Management balance
these pressure and integrate the various interests.
Management provides stability:
In the modern society the management provides stability by changing and
modifying the resources in accordance with the changing environment of the
society.
Management Provides Innovation:
Management provides new ideas, imaginations and visions to the
organization and necessary life for better and greater performance:
Management Provide co-ordination and establish team-spirit:
Management co-ordinates the activities of the different departments in an
enterprise and establishes team-sprit amongst the personnel.
To Tackle business Problems:
Goods management serves as a friend, philosopher and guide in tackling
business problems. It provides a tool for the best way of doing a task.

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A Tool of Personality Development:
Management is necessary not only for direct things, but also for the
development of men. It makes the personality of the people and attempts to raise
their efficiency and productivity.

MAAGERIAL FUCTIOS
Management is widely regarded as a process. A manager irrespective of
his level in the organisation performs a series of functions. Surprisingly there
is no consensus among the management thinkers on the classification of
managerial functions. The number of functions and all the terminology used to
describe them or not alike, Henry Fayol identifies five function Viz., planning,
organising, commanding, coordinating and controlling. For instance, Newman
and Summer recognise only four functions namely organising, planning, leading
and controlling. Luther Gulick’s popular catch word POSDCORB suggests
seven functions planning, organising, staffing, directing, coordinating, reporting,
and budgeting and Koontz and O’ Donel classify the functions in to planning,
organising, staffing, directing and controlling.
In general, managerial functions may be divided into two categories.
They are
A. Main functioning, and
B. Subsidiary Functions.
Main Functions:
Planning:
Planning is the process of thinking before doing. It determines what is to
be done, how and where it is to be done, who is to do it and how results are to be
evaluated. It is important for the attainment of business objectives with limited
use of resources. It helps in critical appraisal of the relative merits and demerits
of alternative policies. It provides the way to select the best methods for
achieving predetermined targets.

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Organising:
It is the process of dividing work into convenient tasks of duties, or
grouping of such duties in the form of posts, delegating authority to each so that
work is carried out as planned. Organisation contributes to the efficiency of the
enterprise. Through this process the activities necessary for goal achievement
are performed and repetitions duplication of activities are avoided, thereby
reducing the operating cost in the organisation.
Staffing:
It means manning the position created by organisation process. This
process includes the selection of the candidates for position, fixing financial
compensation, training and development, promotion, transfer etc. Staffing assists
in the section of the right man for the right job. The manager can conveniently
perform the duties of the analysis, job description, appraisal of efficiency, etc.,
which come under staffing function.
Direction :
Once subordinates are oriented the superior has a continuous
responsibility of guiding and leading them for better work performance and
motivating them to work with zeal, confidence, and enthusiasm Direction assists
in this tasks. Direction is the key to the achievement of desired result.
Co-ordination:
Coordination means integration. It ensures a proper tempo for all
activities and avoids duplication of efforts. It provides for an optimum use of
resources. It leads to completion of production. It develops team spirit and
atmosphere of cooperation among staff
Motivation:
It is the act of stimulating a person to get a desired course of action. It is
concerned with the will to work. It seeks to know the incentives for work and
tries to find out the means whereby the realization can be helped an encouraged.
It is a constructive force in management by objectives and direction.
Control :
Control means reviewing of the employees in the light of target of the
plan. It is exercised by agreeing upon a time and following up to ensure that the
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timing is observed. It is also established by setting target and by comparing
results with what is expected. It assists the management in making the necessary
changes in the policies when there are deviations.

SUBSIDIARY FUCTIOS
Communication:
Communication can be viewed as a transfer of message from one
individual to another. If communication is to be effective, the message
transferred should be understood by the receiver properly, communication
stands for sharing of ideas in common. It refers to the various means of
transmitting information from one individual to another and from one place to
another.
Decision Making:
Decision making is a process of arriving at the best possible choice for a
solution within a reasonable period of time. It is an important function of
management. Management without decision is like a man without backbone. It
helps to set definite objectives, prepare personnel and introduce innovations.
Innovation:
This function relates to research and development, which is essential in
this age of competition. All big business houses have started Research and
Development (R & D) department to keep pace with modern techniques and up
to date demand.
Relevance of Management
Management is a universal activity practiced by all. It is as common as
walking, reading or playing. The basic characteristics of efficient management
are common whether the unit to be managed is as small as a family or large
enough as a business social, political or religious organization. Irrespective of
the nature, size and the type, management has its relevance to all type of
organizations like insurance, hospitals, educational institutions like schools,
colleges and universities, hostels, hotels, social service organization like service
clubs etc.

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Management in profit – seeking organization:
Most of what we know about management comes from large profit –
seeking organization because their survival has long depended on efficiency and
effectiveness. Examples of large business include industrial firms, commercial
banks, insurance companies, retailers, transport companies, public utilities,
communication companies and service organizations.
All though many people associate management primarily large
businesses, effective management is also essential for small business, which play
an important role n the country’s economy. In recent years, the importance of
international management has increased dramatically. International management
is not, however, confined to profit-seeking organizations.
Management in non-profit organization:
Intangible goals such as education, social services, public protection and
recreation are often the primary aim of non profit organization. Although these
organization may not have to be profitable to attract investors, they must still
employ sound management principles and practices if they are to survive and
work towards their goals.

MAAGEMET – A SCIECE OR A ART:

Generally, a controversy arises whether the management is a science or
an art. It is said the management is the oldest of arts and the youngest of
science’. This explains the changing nature of management. But to have an
exact answer to the question it is necessary to understand the meaning of the
terms ‘science’ and ‘art’.
Management as a Science:
Before trying to examine whether the management is a science or not, we
have to understand the nature of science. Science may be a described as a
systematized body of knowledge pertaining to an act of study and contains
some general truths explaining past events or phenomena. It is systematized in
the sense that relationships between variables and limit have been ascertained
and underlying principal discovered. Three important characteristics of science’
are;

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 1. It is a systematised body of knowledge and uses scientific methods for
observation;
2. Its principles are evolved on the basis of continued observation and
experiment; and
3. Its principles are exact and have universal applicability without any
limitations
Further, science may be classified into two groups. (a) positive science -
which deals with ‘what ought to be’ aspect. Examples of scientific principles are
that two atoms of hydrogen and one atom of oxygen form one molecule of
water; anything is thrown towards the sky, according to the law of gravitation, it
will come down to the earth; if water is boiled, it turns into vapour and so on.
Judging from these criteria, it may be observed that management too is a
systematized.. body of knowledge and its principles have evolved on the basis of
observation not necessarily through the use of scientific methods. How ever, if
we consider science a discipline in the sense of our natural science one is able to
experiment by keeping all factor and varying one at a time. In the natural science
it is not only possible to repeat the same conditions over and over again, which
enables the scientist to experiment and to obtain a proof. This kind of
experimentation-cannot be accompanied in the art of management since we are
dealing with the human element. This puts a limitation on management as a
science. It may be designated as ‘inexact’ or ‘soft science’.
Management as an art:
Art refers to the ‘know-how to accomplish a desired result. The focus is
one way of doing things As the saying goes ‘practice makes a man perfect’,
constant practice of the theoretical concepts (knowledge base) contributes for the
formation of skills. The skills can be acquired only through practice. In a way
the attributes of science and art are the two sides of a coin. Medicine,
engineering, accountancy and the like require skills on the part of the
practitioners and can only be acquired through practice. Management is no
exception. As an university gold medalist in surgery may not necessarily turn out
to be a good surgeon, similarly a management graduate from the best of the
institute may not be very effective in practices. In both the case the application
of knowledge acquired through formal education, required ingenuity, correct

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understanding of the variables in the situation, pragmatism and creativity in
finding solutions to problems.
Effective practice of any art requires a thorough understanding of the
science underlying it. Thus science and art are not mutually exclusive, but are
comp1ementary. Executives who attempt to manage without the conceptual
understanding of the management principles and techniques have to depend on
luck and intuition. With organized knowledge and the necessary skill to use
such knowledge, they have a better chance to succeed. Therefore, it may be
concluded that management is both a science and an art.

SUMMARY
Organisations engaged in business or non-business using the inputs to
produce the output (may be products or service). The conversion of inputs into
outputs depends on the effectiveness of management. Management is an activity
consisting of a distinct process say management process. Which is primarily
concerned with the important task of goal achievement. Management as a
discipline has both the elements of science components and the arts, while skills
and talent required for the use of the principles constitute the art. The process of
management is understood under the two groups of functions namely main
functions and subsidiary functions. The main functions of management includes
planning, organising, directing, staffing, coordinating, motivating and
controlling. The subsidiary functions include communication, decision-making
and innovation.

Review Questions
1. ‘Management is getting things done through people’ - comment.
2. Discuss the importance of management as an input of economic growth.
3. Describe whether management is a science or an art.
4. Discuss the important functions of management.

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CASE
Traditional Manager or Professional Manager
Mr.Ravi. a brilliant young man obtained his MBA degree from an Indian
University in 1991 with specialisation in the area of finance. His basic degree Is
B.E. in Chemical Engineering. The engineer background coupled with the
management education aroused in him new spirits to strike on his own. Careful
and systematic analysis of the various opportunities enabled him finally to zero
in on the production and marketing of polythene bags that are increasingly used
by fertilizer and cement industries. The location of a fairly good number of units
of these two industries in the South influenced his decision of the product
choice. The fact that technology involved is not complicated or volatile further
reinforced his belief about the market potential.
To reap certain locational advantages, he preferred to set up the unit in a
fast growing district headquarters town in Tamilnadu connected with a good
network of transport and communication facilities. But the cost of land as well as
its availability became a problem. With the limited funds at his disposal he could
not afford to buy land and construct the unit which involved the commitment of
substantial portion of his meager funds. On enquiry he came to know of certain
sick units in the industrial estate in the as outskirts of the town, which had ceased
to function for sometime in the 4th past. The machinery in a few such units
having been already auctioned, ills the sheds were available for sale/lease. This
opportunity came in handy art for Mr. Ravi. He took on lease one such shed and
spent about one lakh to effect a few changes to suit his requirements.
He started contacting the suppliers for the plant and machinery. He is
confident of obtaining financial assistance to meet the fixed as well as working
capital requirements of the business. But at the same time, he is are also
confused of the multiplicity of organisations/agencies that have come up to cater
to the needs of small-scale entrepreneurs. He doesn’t have hat adequate
knowledge of the assistance available and the incentives offered by all these
agencies.
Further eventhough he doesn’t foresee any problems In the technical
aspects relating to production, he is rather apprehensive of marketing the
product. The demand for his product, being a derived one, Is 1nfluenced two
factors one, the demand for fertilizers, cement and other bulk commodities and

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two, the extent of the success made in replacing the gunny bags which are still in
wider use. To add to his bother, Government of India of late has made use of
gunny bags mandatory to protect the Jute Industry which has been languishing
and is likely to vanish. However, all these problems could not deter the spirit of
Mr. Ravi who Is fully determined and bent on going ahead.

Please Answer:
1. Is Mr. Ravi, a professional manager? Substantiate your answer with the
characteristics of a professional manager.
2. Does Mr. Ravi face any problem? If so, analyse the problem.
3. Has he acted in a professional way in analysing the environment before
taking a decision? How could he have averted the problem?



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 UIT - 1
LESSON - 2
EVALUATI OF MAAGEMET THOUGHT
Introduction
The practice of management is as old as human civilization, In fact, much
of the progress of mankind over the centuries may be attributed to the effective
management of resources. The irrigation systems, existence of public utilities,
the construction of various monuments like Taj Mahal, and the Egyptian
pyramids of the bygone era amply demonstrate the practice of management in
the olden days. The ancient civilizations of Mesopotomia, Greece, Rome and
Indus-valley displayed the marvelous results of good management practices.
However, the study of management in a systematic way as a distinct body of
knowledge is only of recent origin. That is why, management is often described
as ‘oldest of an arts and youngest of the sciences’. Thus the practice of
management is not new. It has been practiced for thousands of years. But the
science part of it ‘the systematic body of knowledge’ is, no doubt, a
phenomenon of the present century.
The traditional management practices remained quite stable through the
centuries until the birth of Industrial revolution in the mid 18th century. The
industrial revolution brought about the substitution of machine power for man
power through several scientific inventions. As a result, within a few decades,
the picture of industrial activity had undergone a metamorphic change. Man’s
quest for new ways of doing things, coupled with his ingenuity in adopting the
scientific and technological inventions in the production of various goods and
services resulted in:
1. Mass production in anticipation of demand;
2. Advent of corporate form of organisation which facilitated such large
scale production;
3. Spectacular improvements in the transport and communication facilities;
4. Increase in competition for markets,
5. The establishment of the new employer-employee relationship and so on.
Industrial revolution which sowed the seeds of modern management.

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Early contributions:
The development of a systematic management thought is attributed to the
20th century. But this should not create the impression that it is the phenomenon
of this century alone. Attempts at solving management problems date back to
antiquity. For example, the importance of organisation and administration in the
bureaucratic state of antiquity is evident on the interpretation of the early
Egyptian papyri dating back as early as 1300 B.C. The parables of confucious
gave practical suggestions for adequate public administration and advise to the
selection of unselfish, honest and capable officers.
There are many examples in Greek, Roman and other civilizations which
used scientific principles of management and administration. The military
leaders also used many such principles. The Roman catholic church had the most
formal organisation in the history of western civilization. Striking examples of
these techniques are the development of the hierarchy of authority with its scalar
territorial organisation, the specialisation of activities along functional lines, and
the early, intelligent use of the staff device. The cameralists were a group of
German and Austrian public administrators from 16th to 18th century.
The Scientific management stage:
The first identifiable stage of management thought in the United States
was the scientific management which started with Taylor. But there were some
precursors to Taylor who made some significant contributions.
James Watt. Jr., and Mathew Rabinson Boulton, sons of the pioneers
who invented and developed the steem engine, were the earliest users of
scientific approach to management. They managed the Soho Engineering
Foundry in Great Britain from 1876 and developed quite a number of
management systems. They developed market research and forecasting, planning
machine layout and standardisation of components. They also developed some
important casting systems, training and development programmes, welfare
programmes, productivity based payments and so on.
Robert Owen was another pioneer of the early nineteenth century. He
concentrated on the personnel side and carried out many experiments. He is
rightly referred to as “the father of modern personnel management”. He
improved working conditions and benefits as he thought that these would
improve productivity.

21
 Charles Babbage, “the father of the computer” invented the mechanical
calculator. He wrote a book entitled “On the Economy of Machinery and
Manufacturers” published in 1832. He was more interested in the economics of
division of labour and developed scientific principles regarding this.
Another important personality was Henry Varnum Poor who as the editor
of the American Railroad Journel emphasised the need for a managerial ‘system’
and clear organisation structure.
It was only with the advent of Frederick W. Taylor and his work, ‘The
principles of Scientific Management’ published in 1911 that greater attention has
been paid to scientific management as a separate discipline.
Industrial problems have been increased due to the advent of large scale
factory system, mass production and mechanization. People needed some
specific principles and methods for solving the problems. The initial impetus in
the scientific management movement was Taylor. He was more concerned with
engineering aspect and the problems of workers and productivity oriented
wages.
Then came Henry Fayol ‘Father of Modern Operation Management
Theory’. He, as a Frenchman who developed management theory and principles
and published his book. in Frennch and it was translated in English later.
While some compare and contrast Fayol, Taylor & Uwick generously
praises their contributions and places them in the prospective. The work of
Taylor and Fayol was of course, essentially complementary. They both realized
that the problems of personnel and its management at all levels is the “Key” to
industrial success. Both applied scientific methods to this problems. That worked
primarily on the operative level from the industrial hierarchy upwards, while
Fayol concentrated on the Managing Director and worked downwards, was
merely a reflection of their very different careers. But Fayol’s capacity to see
and acknowledge this publicly was an example of his intellectual integrity and
generosity of sprit. They gave France a unified management body more than
twenty years before the same ideal began to be realised in Great Britain “.
There were also some important figures in the followers of Taylor. Some
of them were Carl George Barth who developed mathematical techniques. Henry
L. Gantt who is best known for development of graphic methods of depicting
plans and making possible better managerial control. Frank and Lillian Gilbreth

22
who concentrated on lessening motions involved in doing work, and finally
Edward A. Filene who hired Gilbreth to help him apply scientific management
methods to his family’s Boston department store.
Major Schools of Management Thought:
The various approaches to the study of management as propounded by
specialists from different disciplines have come to be called the Schools of
Management Thought’. The major schools of management theory are:
1. Management process schools;
2. Empirical School;
3. Human Behaviours or Human relations school;
4. Social School;
5. Decisions Theory school;
6. Mathematical or Quantitative Management School;
7. Systems Management school;
8. Contingency School.
Management process school or the Operational approach:
This school regards management as a process of getting things done
through and with people operating in organised 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 belongs
school are William Newman, Summers, McFarland, Henry, J.D. Mooney, A.C.
Railey, Lyndall Urwick and Harold Komtz.
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 generalise from
the experience and 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 analysing the
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experience of successful managers or the mistakes of poor managers, we
somehow 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 Association like the
American Management Association.
The main features of this approach are
1. Management is the study of managerial experiences,
2. The managerial experience can be passed over to the practitioner and students.
3. The techniques used in successful cases can be used by future managers,
4. Theoretical research can be combined with practical experiences.
The human relations approach (or) the human behaviours school
This school takes particular note of psychological factors underlying the
human behaviours in organised groups under the given situation. It is based upon
the fact that managing involves getting things done with and through people;
therefore management must centred on inter-personal relations. This approach
has been called the ‘Human Relations’, ‘Leadership’ or ‘Behavioural Science’
approach. Exponents of this schools of thought seek to apply existing and newly
developed theories, methods and techniques of the relevant social science to the
study of intra and inter personal relations from ‘personality dynamics’ to
‘relations of cultures’. The stress is on the ‘people’ part of management and the
‘understanding’ aspects of this the motivation of the individual and adherents of
this school are heavily oriented towards psychology and sociology. The range of
thought in this school are (a) the human relations and how manager can
understand and use this relations (b) the manager as a leader and how he should
lead others (c) a study of group dynamics and inter-personal relationships.
From the early 1930’s and the Hawthorne experiments there has been a
great interest in the human behaviours school. Human behaviour must be
recognized as a key and certainly it is one of the most important factors in
executive development. There is great agreement on the point that human beings
have goals and value for certain need satisfying behaviours highly. We do find
people exercising their material instincts, valuing job security, striving for
organisational and social acceptance and working for monetary rewards which of
course, can be used to satisfy many needs. The human behaviour school of

24
thought sometimes goes too far in insisting that people need to made happy so
that organization can function effectively. Managers have to take a middle-of-the
road position in their approach to the human behaviour aspects of management.
If they do a poor job they should be ensured demoted or disciplined in some
manner. Without recognition and reward employees lack motivation to do a job.
The social systems school
This school of thought is closely related to the human behaviour or the
human relations school of thought. It looks upon management as a social system
i.e., as a system of cultural inter-relation These can be formal organisational
relationships or any kind of a system of human relationships. Heavily
sociological in nature, this approach to management. does what the study of
sociology does; it identifies the nature of the cultural relationships or various
social groups and attempts to show them as a related and usually integrated
system. The spiritual father of this school was the late Chester Barnard who
developed a theory of co-operation. The focus of this school of thought is on the
study of the organisation as a co-operative or collaparative system. A social
system is a unit or entity consisting of various social sub-systems called the
groups.
Decision theory school
Decision theory approach concentrates on rational decisions - the
selection of a suitable course of action from various possible alternatives. This
approach may deal with the decisions itself or with the persons or organizational
group who make the decision, or with an analysis of the decision process. By
expanding the view-point well beyond the process of evaluating alternatives,
many use the theory to examine the nature of organisation structure; the
psychological and social reactions of individuals and groups, the development of
basic information for decisions and the analysis of value considerations with
respect to goals, communication networks and incentives. The scientific
approach to decision-making involves some of these factors
1. Define the problem;
2. Collect all relevant information;
3. Develop alternatives;
4. Examine all the alternatives and the solutions;

25
 5. Test the solutions, (if you can make this possible);
6. Select a course of action
7. Implement the action;
8. Evaluate the results of the action.
The Mathematical school
In this group, we have those theorists who see management as a system of
mathematical models and process. We have the operations researchers or
operations management, or organisation, or planning or decision-making is a
logical process it can be expressed in terms of mathematical symbols and
relationship. This approach forces the analyst to define a problem and allows for
the insertion of symbols for unknown data through logical methodology which
provides a powerful tool for solving complex phenomena.
The modern managers may normally face some of the following problems.
(a) Increase in the size and the complexity of organization structures,
(b) Increase in paperwork which stifle the ability to produce,
(c) Communication problems created by (a) and (b);
(d) The need for instantaneous management response in the decision-making
areas (which requires up-to- date, accurate, comprehensive information),
(e) increase in demands on management with less budget, and
(f) increase in sheer number of people to be dealt with by government and
business structures, particularly in India.
In United States, executives have turned increasingly to use computer
applications to solve these problems. Some of these computer applications
include airline reservation systems, processing census reports, compiling
technical information into data banks, banking operations, machine processed
accounting and addressing for magazine subscriptions, total systems approaches
to organizational needs logistics applications, issuance of payroll checks to large
numbers of employees (i.e., Treasury department or large corporate applications)
etc. Where a volume of paper reports or data is involved, computer applications
can make the work more manageable. It is important for executives to think
about certain very flat basic statements that are made about automation.

26
The systems approach school
This school is of recent origin having developed in later 1960’s. It is an
integrated approach which considers the management in its totality based on
empirical data. According to this approach, attention must be paid to the overall
effectiveness of a sub-system in isolation from the sub-system. The main
emphasis is on the interdependence and inter-relatedness of the various sub-
systems, from the point of view of the effectiveness of a large system. Its
essential features are as follows:

A system has a number of sub-systems, parts and sub-parts,

All the sub-systems, part and sub-parts are mutually related to each other.
This relationship is in the context of the whole and is very complex. A
change in one part will effect changes in others;

The systems approach emphasises the study of the various parts in their inter
relationships 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 utilised by any other school of management thought.

The boundary of a system may be classified into two parts:
o closed system that has no environment, that is no outside systems
which impinge on it or for which no outside systems are to be
considered, and
o open system that has an environment, that is, it possesses systems
with which it relates, exchanges and communicates.
The main contributors to this school of thought are Kenneth, Boulding,
Johnson, Cast, Rosen Zweig and C.W. Churchman. Another important
contributor is Martin particularly in the area of management audit system.
The contingency approach school of management
The contingency approach to management emphasises the fact that
management is a highly practice-oriented and action-packed discipline.
Managerial decisions and actions initiatives are to be matters of pragmatism and
not of principles. The environment of organisations and managers is very
complex, uncertain, ever changing and diverse. It is the basic function of
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managers to analyse and understand the environments in which they function
before adopting their techniques, processes and practices. The choice of
approaches as also their effectiveness is contingent on the behaviour and
dynamics of situational variables, there is no universally valid one best way of
doing things. Management theory and principles tend to be deterministic, while
the pace, pattern and behaviour of events defy and deterministic or dogmatic
approaches. What is valid and good in a particular situation need not be so in
some other situation.
Contingent thinking helps managers in several ways in performing their
function of planning, organising, direction and control. It widens their horizons
beyond the theory of management, its concepts, principles, techniques and
methods. It helps them to broad base their approach from mere technique
orientation to problem- situation orientation. It leads them to be sensitive, alert
and adaptive to situation behavioural variables, while tailoring their approaches
and styles. It guides them to adopt open system view points, to look at things and
situations in an integrated and multi-dimensional manner and to get away from s
contingency thinking enlarges the art of freedom of operation of managers. They
are not handicapped by having to apply same methods, practices and processes
to diverse situations, they can think of innovating new approaches or a blend of
known approaches on the basis of their compatibility and context. For example,
different structural designs are valid for different strategic and tactical needs of
organisations on the one hand and realities of the situations, one the other. This
was demonstrated by Joan Woodward in her research-studies. Another example,
close supervision and control may be appropriate for some categories of
employees and work situations, while general supervision will work better in
some other situations.
Contribution by F.W. Taylor - Scientific management
Frederic Winslow Taylor gave up going and started his career shopfloor
as a machinist in 1875. He studied engineering in a evening college and rose to
the position of chief engineer in his organisation. He invented high speed steel
cutting tools and spent most of his life as a consulting - engineer.
Taylor is called “the father of Scientific management”. His experience
from the bottom-most level in the organisation gave him an opportunity to know
at first problems of the workers. Taylor’s principal concern was that of
increasing efficiency in production, not only to lower costs and raise profits but

28
also to make possible increased pay for workers through their higher
productivity.
Taylor saw productivity as the answer to both higher wages and higher
profits and he believed that the application of scientific method, instead of
custom and rule of thumb could yield this productivity without the expenditure
of more human energy or effort.
F.W. Taylor’s principles
Taylor published a book entitled “The principles of Scientific
Management” in 1911. But his ideas about scientific management are best
expressed in his testimony before a committee of the house of Representatives in
1912. He said as follows:
“Scientific management is not any efficiency device, not a device of any
kind for securing efficiency; nor is it may bunch or group of efficiency devices.
It is not a new system of figuring costs; it is not a new scheme of paying men; it
is not a piece work system; it is not a bonus system; it is not a premium system;
it is no scheme for paying men; it is not holding a stop watch on a man and
writing things down about him; it is not time study; it is not motion study, not an
analysis of the movements of men; it is not the printing and loading & unloading
of a ton or two of blanks on a set of men and saying “Here’s your system; go and
use it”. It is not divided foremanship or functional foremanship; it is not any of
the devices which the average man calls to mind when scientific management is
spoken of ...”
Now, in its essence, Scientific management involves a complete mental
revolution of the part of the working man engaged in any particular
establishment or industry a complete mental revolution on the as to their duties
toward their work, toward their fe!lowmen, and toward their employees and it
involves the equally complete mental revolution on the part of those on the
management’s side - the foreman, the superintendent, the owner of the business,
the board of directors - a complete mental revolution on their part as to their
duties towards their fellow workers in the management, toward their workmen
and toward all of their daily problems.
The great mental revolution that takes place in the mental attitude of the
two parties under scientific management is that both sides take their eyes off the
division of the surplus as the all important matter, and together turn their

29
attention toward increasing the size of the surplus which becomes so large that it
is unnecessary to quarrel over how it should be divided. They come to see that
when they stop pulling against one another, and instead both turn and push
shoulder to shoulder in the same direction, the size of the surplus created by their
joint efforts is truly appreciable. They both realize that when they substitute
friendly co-operation and mutual helpfulness of antagonism and strife they are
together able to make this surplus so enormously greater than it was in the past
that there is ample room for a large increase in wages for the workmen and an
equally great increase in profits for the manufacturer”.
The fundamental principles that Taylor saw underlying the scientific
approach to management may be summarised as follows :

Replacing rules of thumb with science (organised knowledge);

Obtaining harmony in group action, rather than discord;

Achieving co-operation of human beings, rather than chaotic individualism;

Working for maximum output, rather than restricted output;

Developing all workers to the fullest extent possible for their own and their
company’s highest prosperity.
Taylor concentrated more on productivity and productivity based wages He
stressed on time and motion study and other techniques for measuring work.
Apart from this in Taylor’s work there also runs a strongly humanistic theme. He
had an idealist’s notion that the interests of workers, managers and owners
should be harmonized,
Contribution by Henry Fayol - Principles of Management
Henry Fayol is claimed to be the real “father of modern management”. He
was a Frenchman born in 1841 and was an engineer with a mining company. He
improved the company from a virtual bankrupt condition to high success. From
his practical experience he developed some techniques. He brought out some
basic principles which he felt could be used in all management situations
irrespective of the organisational framework.
He wrote a book entitled ‘General and Industrial management’ in French
which was later on translated into English. It is now considered as one of the
classics of management literature. The book mainly covers the aspects of the

30
immutable and repetitive character of the management process and the concept
that management can be taught in the class room or the work place. He also laid
down the principles of management which he deemed important for any
organisation. The principles are as follows.
I. Division of Work
This is the principle of specialisation which is so well expressed by
economists as being necessary to efficiency in the utilization of labour. Fayol
goes beyond shop labour to apply the principles to all kinds of work, managerial
as well as technical.
2. Authority and responsibility
In this principle Fayol finds authority and responsibility to be related with
the latter, the corollary of the former and arising from the latter. He conceives of
authority as combination of official authority deriving from a manager’s official
position, and personal authority, “compounded of intelligence, experience, moral
worth, past services etc.”.
3. Discipline
Holding that discipline is “respect for agreements which are directed as
achieving obedience, application, energy and the outward marks of respect”,
Fayol declares that discipline requires good superiors at all levels, clear and fair
agreements and judicious application of penalties.
4. Unit of command
This is the principle that an employee should receive orders from one
superior only.
5. Unity of direction
According to Fayol, unity of direction is the principle that each group of
activities having the same objective must have one hand and one plan. As
distinguished from the principle of unity of command, Fayol perceives unity of
direction as related to the functioning of personnel.
6. Subordination of individual interest to general interest
In any group the interest of the group should supersede that of the
individual; when these are around to differ, it is the function of management to
reconcile them.
31
7. Remuneration of personnel
Fayol perceives that remuneration and methods of payment should be fair
and afford the maximum satisfaction to employee and employer.

8. Centralization
Although Fayol does not use the term ‘Centralization of Authority’ his
principle definitely refers to the extent to which authority is concentrated or
dispersed in an enterprise. Individual circumstances will determine the degree of
centralization that will give the best over all yield.
9. Scalar Chain
Fayol thinks of the scalar chain as a line of authority, a ‘chain of’
superiors’ from the highest to the lowest ranks and held that, while it is an error
of subordinate to depart ‘needlessly’ from lines of authority, the chain should be
short-circuited when scrupulous following of it would detrimental.
10. Order
Breaking this principle into ‘material order’ and social order’, Fayol
thinks of it as the simple edge of” a place for everything (everyone), and
everything (everyone) in its (his) place”. This is essentially a principle of
organization in the arrangement of things and persons.
11. Equity
Fayol perceives this principle as one of eliciting loyalty and devotion from
personnel by a combination of kindliness and justice in managers dealing with
subordinates.
12. Stability of tenure of Personnel
Finding that such instability is both the cause and effect of bad management.
Fayol points out the dangers and costs of unnecessary turnover.
13. Initiative
Initiative is conceived as the thinking out and execution of a plan. Since it is one
of the “keenest satisfactions for an intelligent man to experience,” Fayol exhorts
managers to “sacrifice personal vanity” in order to permit subordinates to
exercise it.

32
14. Esprit de corps
This is the principle that ‘union is strength’ an extension of the principle of unity
of command. Fayol here emphasizes the need for team-work and the importance
of communication in obtaining it.
Contribution by Peter F. Drucker - MBO
Drucker is a highly respected management thinker. He is a prolific writer
and has published several books and articles on the management practices. He is
so versatile that there is hardly any area in management which is not touched by
him. He has drawn heavily from his consultancy experience spread over the last
four to five decades. Drucker perhaps is the only western management thinker
who is admired by even the socialist black countries also. His views on
management may be summarised as follows
1. Management as a practice
According to Drucker, management has two important functions; say
innovation and Marketing. He has treated management as a discipline as well as
a profession. For him, management is more a practice. It is always goal oriented
His comment on the purpose of business as the creation of customer if
understood and in the right way helps any organisation to achieve success.
Drucker’s view on innovation are equally important for the emphasis they
place on new product development. He argues that “new products should drive
out the existing products”, rather than the other way round. As such, he is
against bureaucratic management for it stifles the innovative spirit and the
initiative among the people in the organisation. He contents that modern
organisations are knowledge based organisation and describes the modern
workers as knowledge workers considering their skills, and innovative abilities.
2. Functions of management
Drucker points out three basic functions of management. The actions of
management should contribute to:
1. The achievement of purpose and mission of the institution;
2. Make the work productive and the worker achieving; and
3. Effective management of social responsibilities.

33
3. Objective setting
Drucker has attached great importance to objective setting. He has
specified that objectives should be set for all the key result areas of business. To
make the objective setting and their achievement more meaningful, he has given
a new tool, what is popularly known as ‘Management by Objectives (MBO)’.
MBO is regarded as one of his most important contributions to the discipline of
management. He has discussed the concept in great detail in his book “The
practice of Management” (1954). MBO is a process whereby superiors and
subordinates jointly identify the common objective, set the results that should be
achieved by subordinates and assess the contribution of each individual. It is
viewed more as a philosophy than as a tool or technique to achieve the
objectives.
4. Orientation towards justice
Drucker is a great visionary and futureologist. He was ahead of others in
visualising the future trends that affect the society. He visualised the concept of
modern organisation and its impact on the society several years ago. His views
on the many facets of the modern corporations have almost all become reality
now. To put is in his own words, he describes the present age as the ‘age of
discontinuity’.
5. Federalism
Drucker has advocated the concept of federalism, Federalism according to
him, involves centralised control in a decentralised structure. Federalism has
certain positive values over other methods of organising. These are as follows:

It sets the top management free to devote itself to major policy formulation
and strategy development.

It defines the functions and responsibilities of the operating people,

It creates yardsticks to measure twin success and effectiveness in operating
jobs; and

It helps to resolve the problem of continuity through giving education to the
managers of various units while in an operating position.
Drucker’s realistic way of looking at the organisations and society has earned
him the status of ‘a management guru’. His contributions have made tremendous
impact on the management practices all over the world. He is one of the few
34
contemporary management thinkers who is highly admired in Japan. Similarly,
the contributions of Peter’s and Waterman who extensively studies a few
American companies known for their excellence in modern management
practices in so less significant. Mckingsly consultancy firm’s contribution of the
“7S” model for the management of the firm and Edward Deming’s preachings
on ‘Quality Control’ created tremendous impact on modern management all over
the world in the recent past. Michael Porter’s work on competitive strategy
turned a new leaf in the strategic management area. His book on competitive
strategy suggest the ways and means that help organisations and nations to gain
competitive edge.

Summary
Though management has been in practice in some form or other since
time immemorial, the development of a systematic body of knowledge dates
back to the last few decades. Industrial revolution has immensely contributed for
the development of management thought. Over the years, it has drawn heavily
from various disciplines like economics, psychology, sociology, operations
research and so on. The contribution of prominent thinkers who have created an
everlasting impact on management have been discussed in this lesson in detail.
An attempt is made to expose the learner to the historical development of
management over the years.

Review Questions
1. Analyse the contribution of F.W. Taylor and Henry Fayol to the Modern
Management Thought and discuss how they differ in their approach.
2. Give a brief account of evolution of management thought from the early
pioneers to the modern times.
3. Assess the role of Peter F. Drucker in the development of management
thought.

35
CASE:
Incentive Maintenance
You are an industrial engineer in a manufacturing plant. There is an
incentive plan for production employees in which the various therbligs have
been timed and the necessary allowances added to produce standard times for
each of the rank-and-file production jobs.
Now your boss asks you to develop a work measurement plan – and
perhaps an incentive plan later – for the maintenance employees. But
maintenance jobs are different. Repair of a machine or correction of malfunction
may be a simple matter of replacing an easily changed part, or it may necessitate
a number of jobs – and the work of several different crafts. Also, the extent of
the work to be performed cannot be known – some cases, until the machine is
completely dismantled.
How would you go about developing the plan that your boss has asked for?
The Inefficient Cleaners
In the Biltmore factory, each department has one or two clean-up men
who clean around the machines and also take care of the washroorns, hallways,
and other areas. The cleaning job has the lowest status of an in the plant,
although the pay is fairly good because the plant has found it difficult to get
enough cleaners.
There are twenty cleaners in all. They report to the foremen of the
departments in which they work, but the foremen are very dissatisfied with them.
A common complaint is that as soon as a man knows what is expected of him
and learns to do it right, he quits. Moreover, the cleaners re frequently absent
and often come late.
Mayo and Taylor are engaged as consultants to work on this problem.
Each works independently, and each makes a separate set of recommendations.
Questions
1. What do you think their recommendations would be?
2. Can you think of any new problems that acceptance of ‘either solution, or of
both solutions, might cause?
3. What would you yourself do?

36
 UIT – I
LESSON – 3
RELEVACE OF MAAGEMET
ITRODUCTIO
Management s the integrating force or agency, consisting of some basic
functions, for accomplishing the objectives of an organisation. Ever since his
creation, man has been aware that in most endeavours he can accomplish
relatively little alone. It is due to this reason that he has found it expedient and
even necessary to join hands with others in order to attain his goals. The co-
ordination of human effort is an essential part of all group action. Wherever and
whenever objectives are to be achieved through organised and co-operative
endeavour, management becomes essential for directing and unifying the group
efforts towards a common purpose. MANAGEMENT’ is like a pipeline ; the
inputs are feeded at the one end and they are processed through management
functions like planning, organising, directing and controlling and ultimately we
get the end results or outputs in the form of goods and services, productivity,
satisfaction, information, etc.

Fig. Management’ is the integrating force in all organised activity.

In essence, management is a social function ; it can take us from some
condition we do not want to one that we want—by proper planning, organising,
directing and controlling the human and material resources to achieve the

37
desired goals. Let us first discuss the different concepts of this essential, distinct
and leading social institution—’Management’.

THE HAIMA’S COCEPT OF MAAGEMET

Theo Habnann, in his popular book ‘Professional Management—Theory
and Practice has used the word ‘Management’ in three different senses : (i) as
noun, (ii) as a process, and (iii) as a discipline.
Management as a oun
Firstly, as a noun, ‘Management’ is often used in ref to the group c
managerial personnel of an enterprise. The managerial group includes all those
which have supervisory responsibility over others and the chief executives of
the nterprise. Thus, all persons in an industrial enterprise from the Managing
Director the General Manager to the first line of supervisor, fall under the
category ‘Management’.
Management as a Process
Secondly, the term ‘Management’ is also used as way of referring to the
process of managing; the process of planning, organising, staffing, guiding,
supervising and controlling. George R. Terry too has described management as
distinct process consisting of planning, organizing, actuating and controlling
applied towards the efforts of the members of the group to utilise efficiently the
group’s human efforts, materials, machines, methods and money in order to
achieve the predetermined objective. The following figure illustrates in
elaboration of this definition in diagrammatic form:

38
 Starting at the top and reading downward, the entity of management can’t
identified as a distinct process consisting of the fundamental functions of
planning organizing, actuating and controlling. These functions are applied to
the efforts of the members of the groups in order to utilize efficiently available
resources of the group human efforts, materials, machines, methods and money
for the purpose achieving pre-determined objectives.
Management as a Discipline
Thirdly, sometimes the word ‘Management’ is used to connote neither t
activity nor the personnel who exercise it, but as a substantive describing the
subject the body of knowledge and practice as a whole, the discipline. Strictly
speaking, management is a functional concept and does not include the persons
who practice management. Persons assuming management functions are usually
designated a ‘Managers’, ‘Executives’ or Administrators’.

MAAGEMET IS WHAT MAAGEMET DOES

Just as an authority on ‘Money’ has defined it by saying that ‘Money is
what money does’ and that ‘Money is a matter of functions four—medium,
measure, standard and store;’ on the same lines, it may be said that
‘Management’ is the sum of the three different steps involved in it. viz.,

39
(1) Formation of policy and its translation into, plans, (2) Execution and
implementation of plans, and (3) Exercising administrative control over the
plans. These three tasks of management may be titled as ‘Planning’s
‘Implementing’ and ‘Controlling’.

Dr. James Lundy’ in the opening of his famous book, Effective Industrial
Management, has observed that: “Management is principally a task of planning;
coordinating, motivating and controlling the efforts of others towards a specific
objective. It involves the combining of the traditional factors of production
(land, labour and capital) in an optimum manner, paying due attention, of course,
to the particular goals of the organization”. This definition broadens the scope of
management and includes within its orbit, three major management activities,
viz., (a) Planning, (b) Implementing, and (c) Controlling. Planning is the
determination of the course or objectives of a business, division or department to
achieve maximum profit effectiveness, the establishment of policies, and the
continuous seeking and finding of new and better ways to do things.
Implementing applies to the ‘doing’ phases. After plans have been prepared,
personnel must be selected and assigned to their jobs ; they must be trained and
motivated to perform properly. Activities must be implemented in terms of the
plans initially developed; subordinates must be supervised and directed and the
efforts of groups doing different kinds of work must be co-ordinated. This may
include (i) selecting personnel, (ii) training personnel, (iii) motivating personnel,
(iv) delegation, (v) direction, and (vi) co-ordinating. Controlling refers to the
evaluation of the performance of those who are responsible for executing the
plans agreed upon. This may include : (i) controlling adherence to plans, and (ii)
appraising performance. According to a well-known authority on management,
Henry Fayol, “To manage is, to forecast and to plan, to organise, to command, to
co-ordinate and to control. To foresee and provide means examining the future
and drawing up the plan of action. To organise means building up the dual
40
structure, material and human of the undertaking. To command means
maintaining activity among the personnel. To co-ordinate means binding
together, unifying and harnessing all activity and effort. To control means seeing
that everything occurs in conformity with established rules and expressed
command.”
According to Peter Drucker, the primary job of management is
‘economic’. Management must always, in every decision and action, put
economic performance is first. It can only justify its existence and its authority
by the economic results it produces. There may be great non-economic results ;
the happiness of the members of the enterprise, the contribution to the welfare or
culture of the community etc. Yet management has failed lilt fails to produce
economic results. It has failed if it does not supply goods and services desired by
the consumer at a price, the consumer is producing capacity of the e resources
entrusted to it. The first definition of management is, therefore, that it is an
economic organ, indeed the specifically economic organ clan industrial society.
Every act, every decision, every deliberation of management has its dimension
as an economic dimension.

MAAGEMET IS THE ART OF GETTIG THIGS DOE THROUGH AD

WITH PEOPLE
This definition of management emphasises the accomplishment of tasks
through the efforts of people. It also distinguishes between management and
non- managers. The former category consists of those who have to guide, direct
and coordinate the efforts of others towards certain specific objectives and the
later comprises of workers, operatives or non-managers who actually perform
the different tasks. In short, management is getting things done through others
(people). It may be inducted from this statement that non-managers have
responsibility for their own work while the managers are responsible for their
own work as also for the work of their subordinates.
Getting things done means to get tasks and activities carried out. It
implies that management is not a mere philosophy but a highly performance-
oriented- function. Management gets things done through people, viz., members
of the organisation, comprising of both managers and non-managers. A manager,
whatever t be his level in the organisation, has to get things done through his
subordinates. At higher levels, the subordinates are themselves mostly managers.
41
It means ‘management of managers’. At supervisory levels, subordinates are
non-managerial ‘white collar’ or ‘blue collar’ workers. Organisations are man-
made units ; management is the chief organ entrusted with the task of making
them purposeful and productive entities by securing the co-operation of people
who occupy various positions and are assigned different roles, Management gets
things done through people both as individuals and as members of work groups.
Getting things done through the people is really an art, which consists of a
range of skills acquired and refined in the course of practice. The skills which
are required to get things done through people include conceptual skills,
technical skills, administrative skills, social skills and so on. In order to get
things done through people, management has to plan the things which are to be
done. This ‘planning’ entails formulation of objectives, strategies, policies and
programmes at the higher level of management. These are all to be
operationalised into concrete action plans. The tasks to be carried out to achieve
the goals are to be determined and assigned to individuals and work units. It is
called ‘organisation’. Then the roles of various job- holders and their inter-
relationships are to be designed and defined. Thus, the management has to get
things done in an organised and disciplined manner. Besides planning and
organising tasks, management of people involves creation of appropriate work
climate of goodwill, trust and challenge of people to do the assigned tasks and to
comply with the requirements of organisational performance, Management has,
thus, to devise the techniques and methods of getting things done. It has to be
aware of and sensitive to the needs, aspirations, feelings, goals and values of
people at work. Management has to provide effective leadership, foster team
spirit, activate bilateral and multilateral communication channels, enlist peoples’
participation, commitment and contribution through an appropriate system of
cash and non-cash incentives. Further, the obstacles, problems and distortions in
the work environment are to be removed or minimised. There should be a proper
system to monitor the performance of people, to detect deficiencies and
deviations, and n feed back information them for rectification of deficiencies
and so on. This art of management is increasingly to be based on the science of
management. Management researchers and students are engaged in systematic
and scientific studies on how to effectively get things done through people so
that the job rises above the level of mere art. Professor Harold Koontz agrees
with this concept of management. He has defined it as “The art of getting things
done through and with people in formally organised groups.. It is the art of

42
creating an environment in which people an perform as individuals and yet co-
operate towards attainment of group’s goals. It is the art of removing blocks to
such performance, a way of optimising efficiency in reaching goals.”
However, there is a danger in defining management in terms of getting
things done through people. This gives the misleading impression that the only
purpose of management is the accomplishment of tasks and that management
consists in getting people to perform the tasks by hook or by crook, by threat or
by persuation and so forth. In yester years, management was regarded as getting
things done by others But today, such a notion is strongly condemned as it is
against the canons of humanity. Management is not slave-driving nor is it a set
of clever tricks whereby you can get people to do your job. These techniques of
getting things done through and by the people may work for sometime but you
cannot oppress or befool people all the time. Hence, according to the modem
concept of management, it is the art of getting things done through and with the
people in formally organised groups.

MAAGEMET IS PRIMARILY DIRECTIO

An important concept about ‘Management’ is that it is primarily DIREC
TION. Just as in cinematograph it is observed that on the screen the lips are
moved by ‘X’, song is actually given by ‘Y, and direction by ‘Z’. Out of al these
persons, the most important is Mr. ‘Z’, the Director, because all the three
persons act according to the wire-pulling done and signals given by him. In an
orchestra too, the Director is the most important person because each member of
the group of instrumentalists acts as per his signals and indications. Similarly, in
each industry, the important departments are: finance, purchase, production and
sales. All these departments play their respective role, but the force that co-
ordinates these departments is the Management’. Management is primarily an
executive function to determine what you want people to accomplish, check
periodically on how well they are accomplishing it and to develop methods by
which they will perform more effectively. Mobilising the physical, human and
financial resources and planning their utilisation for business operations in such
a manner as to reach the defined goals can be referred to as ‘management’

43
MAAGEMET IS THE DEVELOPMET OF PEOPLE
It is cent percent correct that business is not the management of things. It
is, in the words of Applev Lawrence, “The development of people and not the
direction of things.” It is the selection, the training, the supervision and the
development of people The following words from the statement of a head of an
American Corporation are quite Illuminating in this connection
“We do not build automo6lles, refrigerators, shoesirings: we bulk! men. The
men build products.”
“Management is the attainment of pre-established goal by the direction of
human performance along pre-established lines. Managers do not wait for the
future, they make the future” Truly speaking, the basic objective of
‘management’ is to assist the entire organisation from top to bottom in bringing
about an improvement in knowledge, skill, habits and attitudes that will
ultimately express itself productively in work and constructively in human
relations. Man-management involves the instituting of an improvement in
behaviour or potential behaviour. According to this definition, it can be said
truthfully that management is nothing but the development of (i) people and (ii)
the over-all tone under which they work.
Management is the development of people and not the direction of things
The following discussion is quite illuminating in this connection Well there are
two important elements which make up the ‘art of management’ : (i) Human and
(ii) Physical resources. The term hi resources includes personnel administration,

44
training, development of human environments, development of the natural
talents of the people, development of human personality, etc. similarly the term
physical resources includes finance or money, raw materials, buildings, plant
machinery and other equipments. The task of ‘Management’ is to manage
administer both these resources; but the management of human resources is
comparatively more important. Most of the under-developed and developing
countries of the world are rich in physical resources, but due to poor human
element. they could not prosper. For example, India is popularly known as ‘A
rich country inhabited by the poor’.

The following chart also indicates that ‘MANAGEMENT’ directs the

Human Resources and the men or the human resources make the best and
intensive utilisation of the physical resources, which ultimately accelerate the
‘Productivity’. In this age of science and electronics the computers too are fed
and operated by human beings, they do not minimise the importance of human
factor. If the people are efficient, the computers too will work precisely and
accurately. The personality of a man is just like flower-in-a budding-stage;
which can be improved by ‘Management’. Just as the gardener, by providing
light, manure and water, protects

45
the plants which ultimately provide flowers and fruits, similarly in the garden-
like industry the ‘Management-Gardener’ develops and improves the human
resources and its personality that ultimately results in improved productivity In
short, the development of any factory or industry depends upon the development
of its people who handle the physical resources. It shall not be out of place to
give the example of U.S.A. to cement this concept. The Americans have made
the best utilisation of the available physical r and by increasing productivity they
have made their life richer and happier.

SCOPE OF MAAGEMET
Although it is difficult to precisely define the scope of management, yet
the following may be included in it:
1. Subject-matter of Management. Planning, Organisation, Direction, Co
ordination and Control form the subject-matter of management.
2. Functional Areas of Management. Functional areas of management include
(i) Financial Management; which includes forecasting c control,
management accounting, budgetary control, statistical control, financial
planning and. management of earnings.

46
(ii) Personal Management; which includes recruitment, training, transfer
promotion, demotion, retirement, termination, labour-welfare and social
security industrial relations, etc.
(iii) Purchasing Management; which includes inviting tenders for raw
materials, placing orders, entering into contracts, materials control, etc.
(iv) Production Management; which includes production planning, production
control techniques, quality control and inspection, time and motion
studies, etc.
(v) Maintenance Management; which relates to the proper care and
maintenance of the buildings, plant and machinery, etc.
(vi) Transport Management; which includes packing, warehousing,
transportation by rail, road air, etc.
(vii) Distribution Management; which includes marketing, market-research,
price-determination, market-risk and their avoidance, advertisement,
publicity, sales promotion, etc.
(viii) Office Management; which includes the proper layout, staffing and
equipment of the office.
(ix) Development Management; which relates to experimentation, research,
etc.
3. Management is an inter-disciplinary approach. For the correct application of
the management principles study of commerce, economics, sociology,
psychology and mathematics is very essential.
4. The principles of management are of universal application.
5. Three essentials of management are:
(i) Scientific method,
(ii) Human relations, and
(iii) Quantitative technique.
6. Modern management is an agent of change. The techniques of management
can be improved by proper research and development

47
THE MAAGER AD HIS JOB
More often than not it is said that a particular person is a ‘Manager’ if he
has an independent well-furnished room in the business establishment, number
of telephone on his big aristocratic table, a tip-top female secretary and so on.
Certain Oil In persons go to the extent of saying that a Manager is a person who
does not do anything himself. These notions are false and baseless. As a matter
of fact, a Manager is a person who gets things done through and with the people
in formally organised groups. The Manager is the, key-man in the organisation
pyramid. The Manager essentially deals with the people and resources. His job
is to co-ordinate activities of people and optimise the use of resources so as to
reach the defined goals. According to Haimann, a Manager plans, organises,
staffs, directs and controls. Usually, the chief executive in an organisation is
designated as Managing Director if he is a member of the Board of Directors or
a General Manager when he is not member of that body. But in both the cases,
the primary esponsibi1ity is to implement the policies and the decisions of the
board and to carry to it the those matters which are necessary. As observed by
Peter Drucker, the Manager performs three types of work simultaneously: (i)
managing a business; (ii) on Co- managing managers; and (iii) managing
workers and work.
The dual role of the Manager is apparent from the figure given below. He
occupies a prominent place in between the Board of Directors and the
Subordinate Managers. Since the Manager is a member of the group next above
and at the same time the leader of the group reporting to him, he is best placed to
bring to his group interpretation of the goals, decisions, attitude and actions of
the higher group. The Manager, thus, becomes the interlocking tie between
higher and lower levels of the organisation and the natural and most effective
channel for communication.
The duties of the Manager can be defined in a nut-shell as “to decide what
has to be done, to tell somebody to do it, to listen to reasons and get the work
done.”

48
 Ordinarily, he is responsible for : (1) Carrying on to effect the policy laid
down by the Board of Directors; (2) Communication and interpretation of policy
for information and instructions of subordinate executives; (3) Keeping the
operations of the company under constant review and presenting to the board
periodically the accounts and statistics showing the progress and current position
of company’s affairs; (4) Maintaining definitions and structure of responsibilities
of executive and supervisory positions in the organisation upto date in
requirements: (5) Approving the manufacturing, distributing, development plans
submitted by the senior executives concerned; (6) Giving decisions and
interpretation of policies when for good reasons a departure from agreed policy
arises; (7) Ensuring adequate arrangements to safe guard the continuity of
supplies to the customers: (8) Having periodical meetings with the senior
executives to review performances against budget standard: (9) Ensuring
adequate coordination of activities throughout the organisation; and (10)
Ensuring adequate facilities for development of executive and supervisory staff.
The special duties of a Manager may be as follows : (1) To consider
suggestions from subordinate executives in regard to company’s policy and
submit them objectively to the Board of Directors; (2) to review the reports
received from specialist executives in relation to their own fields; (3) To ensure
that all executives understand the nature and importance of budgetary control
principles and application of such principles to the activities carried out within
their own jurisdiction; (4) To give adequate attention and promoting high level
of morale among the executive staff and throughout the organisation.

49
 From a review of the above duties and responsibilities it may be inducted
that the job of a Manager requires an inter-disciplinary approach—an approach
which is based on many subjects like psychology, sociology, economics and
mathematics. He has to deal with a variety of persons with varying
temperaments and levels of intelligence. Hence, he should be an expert of human
relations. A Chartered Accountant, howsoever well-up he may be in his subject,
may not be a success as a Manager, if he does not know how people behave
individually and in groups in different situations. It shall not be out of place to
mention that accountant is also a Manager as he produces information for the use
of other Managers through his department. He should know to create an
environment where people are motivated to work hard. He must know how to
make the optimum use of scarce resources. This purpose can be achieved by
using quantitative techniques, known as ‘operational research’. He should also
be conversant with the basic concepts of the decision- making theory and
decision models. Besides, he should also be able to quickly grasp the
significance of all, i.e., happening in the organisation and around it, in the
industry, in the country and the world over.

MAAGEMET AD ADMIISTRATIO

The two teams ‘management’ and ‘administration’ are often used
synonymously. In this title we shall focus on management but most of what is
said is also applicable to administration.
The distinction between management and administration is also related to
the level of organization. As Dalton E. McFarland put it, “In business firms,
administration refers to higher, policy-determining level. One seldom regards
the first – line supervisor as an administrator; he is a manager. In the health care
fields and in many service organization, problems (such as individual’s chronic
disease) are managed but programmes (such as flu vaccine distribution) are
administered”.
Administration may be defined as “the guidance, leadership and control
of the efforts of a group of individuals towards some common goals”. Other
often prefer the synthetic term ‘administrative management’ (which nization, to
distinguish it from ‘operative management’ which, as the name implies, is
concerned with the operational aspects of the business. Some experts like Oliver

50
Sheldon draw a distinction between administration and management by
suggesting definition of their own.
The Definition
The former is defined as that function in the industry which is concerned
with policy – determination, the co-ordination of finance, production,
distribution as also the establishment of organization and ultimate control of the
executives. Contrarily, the latter is the process concerned with execution of the
policies within certain limits set by the administration and employment of the
organization for the purpose of accomplishing objectives laid down by the
former.
The Essence of Administation
In fact it was Ordway Tead who has made an interesting analysis of the
essence of administration. He, in fact, analysed the process of administration
into ten distinct elements concerned with establishment of objectives of the
organization, laying down of broad policies for structuring, and stimulation of
the organization, evaluation of the total outcome and, above all, looking ahead.
Contrarily, management endeavours to attain aims and objectives as laid down
by administration and within the organization.
It is, therefore, clear that administration is more important at higher levels
whereas management is more important at lower levels in the firm’s
organizational pyramid. This is shown in the figure below:
Top Management
Administration (Chief Executive
Management Ladder

President)

Management
Bottom Management
( Foreman, Supervisor )

51
 Thus administration is a top-level function while management is a bottom
level one. The fundamental point of distinction between these two aspects is that
whereas the former is the process of laying down broad policies and goals of the
organization, the latter directs and guides the operational or functional aspects of
the organization towards realizing the objectives set forth by the former.
A closer look reveals that the scope of management is broader than that of
administration. In so far as management comprises both the process of planning
and policy-making as also their execution, management embraces both
administrative management of administration and operative management.
However, the cardinal point is that the distinction drawn above between
the two aspects of organization serves no real purpose. In fact, the process of
management is the same in all enterprises and at all levels in the organization. In
truth, management is as much responsible for planning of personnel are
supposed to discharge both the above functions. Of course, it is true that
planning is more important and broader at higher levels of organization. Yet it is
equally valid that every management, irrespective of its hierarchy in the
organizational set up, has to do some sort of planning and the process of
planning is essentially the same at all levels.
The Importance of Management
Earlier in this chapter we noted that ‘management is effective utilisation
of human and material resources to achieve the enterprise’s objectives. The
implication of this statement (or definition) is simple enough. In general,
management tasks include whatever is necessary to make the best possible
utilization of an enterprise’s resource. Mary Parker Follett defined management
as ‘getting thing done through people’. The implication is that managers do not
do the same things as other employees – at least not regularly. The manager’s
task includes ‘making good use of the enterprise’s employees. Thus managers
communicate, help motivate and develop the potential of employees.
The other managerial tasks are ‘those designed to make the most of
effective use of the enterprise’s financial, material and human resources”.
These tasks, as we have already noted, include “planning and decision making,
building and developing the organization, and creating and monitoring control
systems’.

52
 In order to survive, business enterprises must achieve their objectives.
All enterprises are responsible to certain groups such as shareholders for their
performance. The manager’s role is to take correct decisions in times of crisis
and guide the enterprise in times of trouble. In truth, good management makes
all the difference between the success and failure of enterprises. Some financial
analysts attribute differences n share prices to shareholder’s evaluation of
managers. J.A. Schumpeter, the great economist, referred to management and
entrepreneurship as ‘the management, says that ‘management is the life giving
organ of the enterprise’s tween success and failure by performing four key tasks:
achieving economic performance, creating productive work, discharging the
social responsibilities of a business, and managing the time dimension. Finally,
U.S. multinationals have overwhelmed European because of the superior skills
of American management.
To conclude, with W.F. Glueck, ‘without managers it is difficult to get
management tasks performed effectively. Management contributes to the
success of an enterprise in a crucial way’.

53
REVIEW QUESTIOS
1. Define ‘Management’ and discuss in this connection the three notions
enunciated by Theo Haimann.
2. ‘Management is what Management does.’ In the light of this statement
carefully discuss the essential steps involved in management.
3. ‘Management is getting things done through people.’ Comment.
4. ‘Management is development of people and not the direction of things.’
(Appley Lawrence). Explain.
5. How far do you agree with the view that management is a process for the
utilisation of growth-inputs?
6. ‘Management is he force which leads, guides and directs an organisation
in the accomplishment of the pre-determined objects.’ Discuss and give a
suitable definition of management.
7. ‘Management is known by the contribution it makes.’ Discuss.
8. ‘Management is the driving force that inspires an undertaking, knits it
into an entity and creates the conditions and relat4onship which bring
about a full use of all its powers and resources.’ Amplify this statement.
9. a. Distinguish between management processes, principles, and practices,
b. What do you understand by universality of concept of Management?
10. a. “Management contains both elements, those of a science and those of
an Art” – Comment.
b. What are the attributes of a profession? Is management a perfession?
11. Write notes on
a. Contingency approach to management.
b. Systems approach to management

54
CASE :
The Boeing Co. was formed in Seattle in 1916. The firm was first called
Pacific Aero Products Company, but was later re named United Aircraft &
Transport Corporation. The company grew rapidly and soon had several
divisions. In 1934, concerned about lack of competition in the aircraft industry,
the U.S. government decreed that firms could not simultaneously manufacture
aircraft and provide aircraft services or operations. The firm’s owners were thus
forced to sell everything but their aircraft manufacturing business, which was
renamed The Boeing Co.
From the beginning, Boeing managers made a commitment to keep in
close contact with customers to ensure that the firm was making a product that
its customers wanted. Through the years, this approach has served the firm well.
Boeing’s original focus was on military aircraft. Its primary bomber, the
B-47, was popular with pilots be cause of its speed and maneuverability.
Because it used so much fuel, however, its range was somewhat limited. After
conversations with the Air Force, Boeing developed a new bomber, the 8-52.
This eight-jet bomber became a centerpiece in the Air Force’s long- range
bombing arsenal.
When World War II was over, Boeing began to develop plans for its first
commercial plane, the Boeing 707, During that era, another U.S. firm, the
Douglas Aircraft Company, had become the dominant supplier of commercial
aircraft in the United States. Just as Boeing was introducing its 707, Douglas
brought out the DC-8.
Recognizing that the appeal of the DC-8 was its longer range and wider
body, Boeing responded by making the 707 one inch wider than the DC-8 and
changing to a larger wing to expand its range arid capacity. Those moves began
to win new orders for the 707. Boeing also offered the 707 in a variety of
customized versions and, as a result, the plane caught up with and eventually
outsold the DC-8.
Soon Boeing developed the 727 and then the 737 to fill other market
niches. The 747, 757, and 767 expanded seating and flight range even more.
Boeing. worked with a single customer, Pan American World Airways, to
develop the 747 as a large-capacity plane that would fly higher and faster and
carry less fuel per passenger than any existing plane. By carefully meeting the

55
needs of one customer, Boeing developed a product that was attractive to several
customers; the 747 was a resounding success.
Boeing’s domination of the commercial airline manufacturing market was
challenged in the late 1 980s and early 1 990s by Airbus, a manufacturing
consortium formed in France with British, German, and Spanish partners and
associate members from Belgium and the Netherlands. Airbus has become the
second-largest manufacturer of commercial jets in the world. But Boeing
appears to have withstood the attack so far, still controlling 60 percent of the
world wide market for commercial planes.
Repeating and recycling its history of customer responsiveness, then, has
enabled Boeing to maintain its number-one position in commercial aircraft
manufacturing and to point out with pride that Boeing has built more than half
the jets ever flown.

Questions
1. What have been major components to Boeing’s success?
2. How does an understanding of Boeing’s history aid you in understanding its
approach to management to- day?
3. Is Boeing likely to be able to continue to be as successful in the future? Why
or why not?



56
 UIT – II
LESSON – 4
PLAIG
Meaning, ature and Importance of Planning
Planning is ‘task number one’ of management. It is the determination of a
course of action to achieve a desired result. Planning concentrates on setting and
achieving objectives of an organisation. It is deciding in advance what to do,
how to do it, when to do it and who is to do it. Planning bridges the gap from
where we are to where we want to go. Planning makes it possible to occur which
would not otherwise happen. It is an intellectual process ; it is characterised as
the process of thinking before doing. It is cent per cent mental work. It requires a
mental predisposition to - think before acting, to act in the light of facts rather
than of guesses, and generally speaking, to do things in an orderly way. Planning
function of management precedes all other managerial functions. Without setting
the goals to be reached and line of actions to be followed, there is nothing to
organise, to direct, or to control in the organisation. Only after having made his
plans can the Manager organise, staff, direct and control. Planning actually is the
foundation of management. The vital supporting columns of’organising’,
‘actuating’ and ‘controlling’ upon ‘planning’ ; and all these combined together
make up the bridge or ‘Process of Management’.

57
 Planning governs the survival, progress and prosperity of any
organisation in a competitive and ever-changing environment. Further, the
planning function is performed by managers at every level of management.
However one should not induct from this view that planning is an isolated
activity required in the beginning only. It is really a continuous and unending
process to keep the organisation as a going concern and other functions are also
performed simultaneously.
DEFIITIOS:
Planning is deciding in advance what is to be done. It involves the
selection of objective policies, procedures and programmes from among
alternatives. A plan is a pre-determined course of action to achieve a specified
goal. It is a statement of objectives to be achieved by certain means in the future.
In short, it is a blue-print for action. The following definitions of planning are
quite illuminating
• David Cleland and William King: “Planning is the process of thinking
through and making explicit the strategy, actions and relationships
necessary to accomplish an overall objective or purpose.”
• George R. Terry: “Planning is the selecting and relating of facts and the
making and using of assumptions regarding the future in the visualization
and formulation of proposed activities believed necessary to achieve
desired results.”
• Louis A. Allen : “Management planning involves the development of
forecasts, objectives, policies, programmes, procedures, schedules and
budgets.”
• Billy E. Goetz : “Planning is fundamentally choosing and a planning
problem arises only when an alternative course of action is discovered.”
• Theo Haimann: “Planning is deciding in advance what is to be done.
When a manager plans, he projects a course of action for the future,
attempting to achieve a consistent, coordinated structure of operations
aimed at the desired results.”
• Koontz 0’ Donnell : “Planning is an intellectual process, the conscious
determination of courses of action, the basing of decisions on purpose,
acts and considered estimates.”

58
 • George B. Galloway : “Planning is the opposite of improvising. In simple
words, it is organised foresight plus corrective hindsight Conceived as a
process, planning embraces a series of steps : (i) the determination of
objectives to be sought, (ii) research to understand the problem, (iii) the
discovery of alternative solutions, (iv) policy-making choosing between
alternatives, including the frequent choice of doing nothing, (v) the
detailed execution of the chosen alternative known in physical planning
as layout or design.”
• A (ford and Beatty: “Planning is the thinking process, the organised
foresight, the vision based on fact and experience that is required for
intelligent action.”
CHARACTERISTICS OF PLAIG
On the basis of the above definitions, the following characteristics of
planning can easily be identified:
• Planning is very closely associated with the goals or objectives of the
organisation. The goals may be express or implied ; however, well-
defined goals lead to efficiency in planning.
• Planning is mainly concerned with looking ahead in the future.
Forecasting provides the necessary raw material for correct planning.
• Planning involves the selection of the best alternative.
• Planning is required at all levels of management. However, its scope and
importance increase at successively higher levels.
• Planning is an inter-dependent process ; it co-ordinates the activities of
various departments, sections and sub-sections.
• Planning is flexible as it is based on future conditions which too are
dynamic.
• Planning is a continuous and unending process.
• Planning governs the survival, growth and prosperity of any organisation.

59
ATURE OF PLAIG
Certain important elements which describe the nature of planning may be
enumerated as below:
• Planning is goal-oriented. Every plan must contribute in some positive
way towards the accomplishment of group objectives. Planning has no
meaning without being related to goals ; it becomes an empty mental
exercise if it does not keep the objectives of the organisation in view.
• Primacy of Planning. Planning pervades all managerial activity ; it is the
function of every manager. It facilitates organising, staffing, directing,
motivating and controlling.
• Pervasiveness of Planning: Planning has been described as the most basic
of all managerial functions. It is found at all levels of management—top
management looks after strategic planning ; middle management is in
charge of administrative planning and lower management has to
concentrate on operation planning.
• Planning is directed towards efficient economy and accuracy. In planning,
the manager evaluates the alternatives on the basis of efficiency, economy
and accuracy. A good plan should not only attain optimal relationship
between output but should also bring the greatest deal of satisfaction to
those implementing it..
• Planning aims at Co-ordination. Planning co-ordinates the what, who,
how, where and why of planning ; without the co-ordination of different
activities, one cannot have united and synchronised efforts.
• A planner cannot overlook the critical factors like money, manpower,
materials, machinery and management. These limiting factors must be
taken into account while formulating a plan.
• Elasticity in planning. The process of planning should be adaptable to
changing environmental conditions.
• Planning is an intellectual process and the quality of planning will vary
according to the quality of the mind of the manager.

60
 • Planning involves continuous collection, evaluation and selection of data.
It involves scientific investigation and analysis of the possible alternative
courses of action and the best alternative becomes the ‘plan’.
• Planning is looking ahead and control is looking back but both are
inseparable—the Siamese twins of management. Unplanned action cannot
be controlled. Any attempt to control without plans would be
meaningless.
• Problems of planning. The basic questions that are to be answered in
framing a plan are seven. (i) Why is the particular action necessary ? It
relates to the purpose of choosing a particular course of action. (ii) What
is to be done? It indicates the different stages of the activity, their detailed
analysis, the sequential arrangements and so on. (iii) Where will it be
done ? (iv) When will it be done ? (v) Who will do it ? (vi) With which
will it be done? and (vii) How will it be done?

IMPORTACE OF PLAIG
Planning is an orderly approach to the task of management. In the absence
of planning, business decisions would become random, ad hoc choices, like a
pilot who has started without knowing whether he wished to fly to Bombay,
Calcutta, Madras or Delhi. As a managerial function planning is important due to
the following reasons
• To manage by objectives. All the activities of an organisation are
designed to achieve certain specified objectives. However, planning
makes these objectives more concrete and tangible by focussing attention
on them.
• To offset uncertainty and change. Future is always full of uncertainties
and changes, However, some of the uncertainties and changes can be
predicted on the basis of forecast. Thus, planning foresees the future and
makes the necessary provision for it. Even where the future is certain for
sometime, planning is necessary to evaluate the alternate courses of action
and determine the ones leading to the continuous growth and prosperity
of the organisation.

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 • To secure economy in operation. Planning involves the selection of most
profitable course of action that would lead to the best result at the
minimum costs.
• To help in co-ordination. Co-ordination is, indeed, the essence of manage
ment, the planning is the base for it. Without planning it is not possible to
co-ordinate the different activities of an organisation.
• To make control effective. The controlling function of management
relates to the comparison of the planned performance with the actual
performance. In the absence of plans, a manager will have no standards
for controlling other’s performance. In short, planning without control
would be a fruitless exercise and control without planning is an
impossibility.
• To increase organisational effectiveness. Mere efficiency in the
organisation is not important ; it should also lead to productivity and
effectiveness. Planning enables the manager to measure the organisational
effectiveness in the context of the stated objectives and take further
actions in this direction.

FEATURES OF A GOOD PLA

According to L.F. Urwick, ‘Good Plan’ is that which (i) is based on a
clearly defined Objective, (ii) is simple, (iii) provides for a proper analysis and
classification of actions, i.e., which establishes standards, (v) is flexible, (v) is
balanced, and (vi) uses available resources to the utmost before creating new
authorities and new resources. The best test of effective planning is its realistic
and viable nature. A good plan must be pragmatic and must lead the organisation
forward on the path of progress and prosperity. A good plan opens up new
avenues, new ways of doing things and reveals specific opportunities previously
unknown to the planner.

ADVATAGES OF PLAIG
The advantages of planning may be summarised below:
1. The business objectives can be easily secured through plans because
planning enables a purposeful and orderly set of activities instead of
62
 random action. It provides co-ordinated efforts and reduces risks and
uncertainties.
2. Planning facilitates the process of decision-making.
3. Planning helps the management to implement future programmes in a
systematic manner so that the management may get the maximum benefit
out of the programmes chalked out. It enables all the activities to be
conducted in an orderly and coordinated manner to achieve the common
goals of the organisation.
4. With the rapid growth of technological development, it is essential for a
manager to keep abreast of the latest technology, otherwise the products
are likely to get obsolete. Planning helps in this process.
5. Planning indirectly leads to large-scale economies by avoiding waste of
men, money, materials and machinery.
6. Planning leads to budgeting and budgeting leads to budgetary control;
thus the success of budgetary control depends considerably on effective
planning. It is at the planning stage that the future prospects of an
undertaking are taken care of.
7. Planning encourages the sense of involvement and team spirit. Planned
targets provide a basis upon which good performances can be rewarded
and poor performances can be taken care of.
8. Planning is the essence of all management activities: once planning is
done well, other activities automatically follow.
9. A greater utilisation of the resources and available facilities can be made
because of planning. This reduces costs and results in higher profitability.
The managerial process will go through many cycles before the desired
objectives are realized. Hence, it is advisable to look at the p1ann function as a
continuous function of the manager.

LIMITATIOS OF PLAIG
Some of the limitations of business planning are as following: (1) it has
been considered as a time-consuming and expensive device. Further, the framing
of plans involves money, energy and also risk without giving any guarantee as to

63
the realization of assured goals. (2) due to the heavy cost of planning and the risk
involved in it, similar business concerns which are short of capital and which
expect quick results cannot afford to have a planning programme. (3) Planning
makes the entire organizational setup extremely rigid. (4) Planning leads to
probable results and not assured goals. (5) Last, but not the least, machinery of
planning cannot be free from bias, forecasting methods, statistical data supplied,
etc., are all inaccurate and the results of operation research cannot be applied to
all cases that-come under planning. (6) In the planning process, the quality of the
output is only as good as the quality of input. (7) Tendency towards inflexibility
or reluctance to change, once the plans are framed, is another limitation of
planning. (8) Planning encourages a false sense of security against risk or
uncertainty. (9) Emergencies demand on-the-spot decision, but planning delays
it. (10) Standing plans demand repetitive operations, but in the absence of such
operations, plans lose their significance.
In order to avoid the failure of planning, the following suggestions should
be kept in mind: (1) avoid serial planning if possible : (2) do not wait to start the
second range of planning until the first stage is finished ; (3) try to have parallel
planning with lots of cross-checking ; and (4) see that all plans move forward at
the same time.

PLAIG IS ECOOMIC
Planning is economic in the sense that it minimizes costs. Planning leads
to systematic, orderly and purposeful working of an enterprise. All efforts are
directed towards a desired result, haphazard approaches are minimized, activities
are coordinated and duplications are avoided. Minimum time is necessary for the
completion of all planned activities because only the necessary work is done.
Facilities are used to their best advantage and guesswork is eliminated. In this
connection, it shall not be out of place to quote F. G. Moore who said:”.. . When
we say planning is economic we do not mean to overlook its costs. Too much
and too detailed planning is wasteful. You can’t afford to put every minor detail
down on paper. When you plan your vocation, you probably decide where you
will go and when you will be at certain places, but you don’t plan what you will
eat for breakfast every day. And so it is with business plans. They need to cover
the ‘big specifics’ but every minor detail. Nor can you afford to have middle and
lower level men spending all their time in planning. They would never get their

64
day’s work done. And even top men never have enough time to plans as
thoroughly as they would like. You have to get on with less than perfect plans
and less than complete plans.”
It should also be noted that a manager should plan in good times as well
as in bad times. More often than not, managers do not pay any heed towards
planning during periods of prosperity. Due to their successful operations in good
times, they are lulled into the belief that they have a sixth sense and intuitive
perception with which they can always succeed. And when the business falls on
bad times, they attribute their poor results to circumstances beyond their control.
According to Haimannn, “Realistically speaking, it is true that under such
circumstances both success and failure are the result of conditions beyond the
manager’s control. However, these consequences could be mitigated if the
manager had developed plans enabling the enterprise to capitalize fully on good
times and to minimize the efforts of bad times.” Moreover, it is also essential
that both long-range and short-range planning should be Integrated and
coordinated.
PLAIG LEVELS
The planning function has to be performed at all the three levels of
management right from apex or top management down to the first line managers,
viz., foremen or supervisors. In participative management even the operatives
take keen interest in planning their work. Of course, the higher one goes in the
management structure, the more time will be spent on the planning functions.
The planning functions of the different managers in the hierarchy of
management may be outlined as below:
TOP MAAGEMET
Apex or top management has to devote much more time to planning and
policy making. It normally undertakes strategic planning covering a time span of
one to five or even ten years. Strategic planning mostly relates to resource
mobilisation. It is also concerned with the strategies or courses of action,
programmes, policies, procedures and standards that will determine the
procurement, use and disposition of these resources. In short, top management is
concerned with strategic plans which are long-range plans.

65
MIDDLE MAAGEMET
Middle management has to formulate short-term and/or tactical plans and
devotes relatively less time to planning and more time to coordination an
communication. It is concerned with administrative or tactical planning that
supports the strategic planning. Specific plans for the different areas of
management discipline, such as, personnel, production and marketing are
implemented by middle management. Examples of administrative or tactical
planning are: Research and Development, Marketing, Manufacturing, Finance
etc. Administrative plans are mostly medium-range plans.

Fig. Planning Fun in Management Hierarchy: time interval of planning Decision

LOWER MAAGEMET
Lower management is directly concerned with operational planning. At
this level, the first-line managers such as the heads of departments and sections
concentrate on planning of daily, weekly and monthly operations. In short, it
relates to short-range plans. Typical examples of operational planning are : plans
for finished goods inventories to meet current market demands, plans to
accelerate research project which are behind schedule, plans of routing,
scheduling and dispatch in production, cash – flow budget, etc. All operational
plans are concerned with the planning structures and repetitive activities in the
different department of the organization.

66
REVIEW QUESTIOS
1. What is Planning? Assess its role in management.
2. “Planning is looking ahead and control is looking back.” Comment.
3. “Planning should be defined as the selection from alternative policies,
procedures and programmes.” Explain.
4. Briefly discuss the nature of planning.
5. Evaluate the importance of planning in modern business.
6. Evaluate the importance of planning in modern business.
7. Is planning economic? Also point out the limitations of planning.
8. Comment upon the planning activities at different levels of management.
9. Define ‘Planning’. Discuss the essential character of Planning.
9. Briefly explain the future of a good plan.

CASE :
The Shelley Company has been purchasing one of the main ingredients in
its product from outside vendors, but it has been plagued with shortages and
difficulties in getting deliveries within a reasonable space of time. The top
executives have therefore decided to consider producing the ingredients in a
company-owned facility.
Now the company has two possibilities: It may purchase an existing plant
and convert it to its own use, or it may acquire land and build a plant of its own.
Instead of appointing a single committee to consider each course of action and
make a recommendation, the president decides to appoint two committees. One
of these is to determine the reasons why purchase of an existing plant is the
better alternative, and the other is to take the opposite viewpoint and advocate
building a plant. Both commit tees, of course, must do a considerable amount of
research in order to support their viewpoints.
You are a member of one of these committees (choose which one), and
the head of it asks you to suggest some of the things the committee should do
and some of the facts it should ascertain.

67
 Write a report for him, listing the steps you would suggest. Do you think
this is a good way of deciding the issue? Why or why not?
American Colonial period, the lamp makes an impressive addition to
window, mantelpiece, and end table displays. It has been well received by the
public and provided a steady reliable income for Modern Medallion.
Up until 1976, the lamp was sold through specialty and gift shops at a
price of $25.95, which meant a sizable profit for the retailers. Then the company
decided to offer the lamp as a Bicentennial item and sell it throughout the
country through department stores, hardware stores, and furniture stores as well
as through the gift shops and specialty outlets. In keeping with the Bicentennial
theme, it set a retail price of $17.76 and planned magazine and TV exposure of
the product stressing the Bicen tennial theme. Any retailer who attempted to sell
the lamp for a higher or lower price would lose the benefit of this advertising
since the price was directly connected to the Bicentennial celebration.
The lamp was only one of hundreds of items manufactured by Medallion.
Other major categories included bronze statuary; commemorative coins and
medals; metal baskets and containers for homes and offices; door latches; drawer
handles; and miscellaneous functional and decorative hardware.
Questions :
1. Was this good planning? Why or why not?
2. What do you suppose happened?
3. If the company decided to use another product as its Bicentennial specialty,
which should it choose?



68
 UIT – II
LESSON – 5
COMPOETS OF PLAIG

CLASSIFICATIO OF PLAS
In the process of planning several specific plans are prepared which may
broadly be classified into two categories: Standing and Single-Use Plans.

Examples of ‘Standing Plans’ are Mission, Objectives, Policies,

Procedures, Rules, Strategies etc. The Standing or Repeated-Use Plans are
formulated by the Managers at different levels and are meant for repeated use as
and when the occasion demands. Programmes, Projects, Schedules, Budgets and
Standards are examples of ‘Single-Use Plans’. The basic difference between
Standing and Single-Use plans lies in the fact that Standing Plans are used over a
long period of time whereas the Single-Use Plans are used only for specific
periods. The components of both these types of plans are explained in the
following paragraphs.
STADIG OR REPEATED-USE PLAS
These include the following
1. Mission
Every organisation must have a mission ; then only it becomes
meaningful or purposive. The ‘mission’ of a business organisation may be two-
69
fold : (i) production and distribution of goods and services in order to satisfy the
basic needs of the consumers, and (ii) provision of employment and a source of
income to the people whereby they might be in a position to purchase their
desired goods and services; The mission is the central guiding concept
describing the fundamental reason for the existence of an organisation, It
indicates the line of business and reflects upon philosophy of management. lii
short, the mission gives a clear-cut idea about basic long-run commitment of an
organization.
2. Objectives
Definition. Objectives may be defined as the goals which an organisation
tries to achieve. Objectives are also described as the end-points of planning. In
the words of Koontz and O’ Donnell ‘Objective is a term commonly used to
indicate thee- t (i) ii point of a management programme.” According to Dalton
E, McFarland, “Objectives are the goals, aims or purposes that organisations
wish to achieve over varying periods of times” ‘Objectives’ is a wider term and
‘Mission’ is part a and the parcel of it Objectives decide where we want to go,
what we want to achieve and next what is our destination. Objectives constitute
the purpose of the enterprise and ends re without them no intelligent planning
can take place.
Characteristics. Important characteristics or features of objectives are as
below : (i) The objectives must be pre-determined. (ii) The objectives must be
reduced to black and white A clearly defined objective provides the clear
direction for managerial efforts (iii) Objectives must be realistic, i e they must be
within the reach of the organisation. (iv) Objectives must be measurable. (v)
Objectives must : have social sanction. Restrictions on organisational
objectives are put through social rules, norms or customs. (vi) Objectives are
usually plural. As Drucker puts it, “The search for one objective is essentially a
search for a magic formula that will make judgment unnecessary. Objectives are
needed in every area where performance and results directly and vitally affect
the survival and prosperity of the business.” Peter Drucker has recommended
eight key areas in which business firms have to set their objectives Market
standing, innovation, physical and financial resources, manager performance and
development, worker performance and attitude, productivity, profitability and
public accountability. (vii) All objectives are interconnected and mutually
supportive. (viii) Objectives may be short-range, medium-range and long- range.

70
(ix) Objectives may be constructed into a heirarchy, e.g., overall, major,
divisional, departmental, etc.
Advantages. Good management is management by objectives. According
to L.Gulick, “In administration God helps those administrators who have a
clearly defined objective.” An organisation can grow and prosper in an orderly
and progressive manner only if well-defined goals have been established to
guide its progress Certain specific benefits of sound and carefully chosen
objectives are as follows : (1) Clear definition of objectives encourages unified
planning. The unifying effect arises when the plans prepared by different
departmental heads are adjusted to a common objective. (2) Objectives provide
motivation to people in the organisation. Objectives help in providing the sense
of unity, harmony and accomplishment to cooperative efforts. (3) When the
work is gdal-oriented, unproductive tasks can be avoided. (4) Objectives provide
standards which aid in the control of human efforts the in an organisation. (5)
Objectives serve to identify the organisation and to link it to hem the groups
upon which its existence depends. (6) Objectives act as a sound basis for the
developing administrative controls. (7) Objectives contribute to the management
and process ; they influence the purpose of the organisation, policies, personnel,
and leadership as well as managerial control. (8) Objectives indicate, the
contribution to be made by each unit and thus it is the basis for decentralisation.
(9) MB (Management by Objectives) programme cent per cent depends upon
clear cut objectives.
Types of Objectives. Mere maximisation of profit cannot be the sole
objective of an enterprise. Objectives may be external as well as intenwi.
‘Service of the customer’ is the primary external objective of an enterprise.
Consumerism may develop when business forgets its primary responsibility
towards the consumers. As a social institution business must maintain and
develop the quality of life ; it should prevent all type of pollution. Moreover, in
addition to its social obligation towards the consumers, business must fulfil the
expected responsibilities towards the society, community and the government.
The internal objectives of an organi relate to (i) maximum profitability, (ii)
maximum service and satisfaction to employees, and (iii) fair return on the
shareholder’s investments.
Hierarchy of Objectives. Objectives set up by top management act as the
ends and the middle managements plan to achieve those objectives (or ends).

71
Thus at the next lower level the objectives act as the means. Each level of
objectives stands as ends relative to the level below it and as means relative to
the level above it ; this is known as what we call ‘Means-ends Chain of
Objectives The following diagram beautifully illuminates this point•
HIERARCHY OF OBJECTIVES

Setting of objectives. The following considerations play an important

role n the setting of ob : (1) Organisational objectives are of multiple character;
hence pressing and dominant objectives should be given priority over others
through the constant adjustment of short-run emphasis on such objectives. (2)
Co-ordination and balance should be maintained between the overall objectives
of the organisation and the departmental goals; (3) Translation of major
objectives into operating objectives should be in tangible and meaningful terms.
(4) Objectives should be realist rather than idealistic. (5) Objectives may be
(a)major or minor, (b) short-term or long-term, and (c) economic or social.
Major objectives relate to the chief purpose of the Organisation and minor
objectives are subordinate to but consistent with the major objectives. In the
short term an enterprise may concentrate more on satisfying customers with

72
good products at cheap price, keeping in view the long-term objective of
maximum profit. Short-term objectives should be treated as steps towards long-
term objectives. Economic objectives are goals with respect to the market place.
Social objectives refer to the company’s intentions towards its employees,
shareholdei1 and the public at large. (6) Objectives have to be set up for each
person and for each responsibility centre. For example, the foreman on the shop
floor as well as the departmental manager should know what exactly they live to
achieve and how? Setting up detailed quantitative objectives is an essential task
of planning.
2. Policies
Meaning and Definition. Policy-making is another most important
component of business planning. Policies are guides to action. They provide
abroad guideline as to how the objectives of an organisation are to be achieved.
In the words of Joseph L. Massie, “Policies include that body of understanding
(generally known by members of the group), which makes the action of each
member of the group in a given set of circumstances more pr to other members.”
According to Koontz and Q’ Donnell, “Policies are general statements or
understandings which guide or channel thinking in decision-making of
subordinates.”
Features of sound policy. The following features of a policy emerge from
the above definitions: (i) The policy tries to contribute to the organisational
objectives. (ii) Policy is formulated through the various steps in the decision-
making process. (iii) Policy can be interpreted from the behaviour of the top
management. (iv) Policy provides guidelines to the members of the organisation
for choosing a particular course of action. (v) Policy-making is the task of all
managers ; however, the higher manager is in the organisation, the more
important is his role in policy-making. (vi) A sound policy must be flexible in its
implementation. (vii ) A policy should be uniform in its application ; it must be
fair to all, offering equity and justice to those who are affected by it.
Relationship and distinction between Policies and Objectives. Objectives
are end-points of planning, while policies prescribe the broad ways in which the
objectives can be realised. Objectives and policies may be distinguished along
the following lines : (i) Objectives are basic to the existence and functioning of
air organisation but policies are not. While we cannot visualise an organisation
without a mission or objective, it is possible for an organisation to function

73
without policies (ii) Objectives are ends ; policies are means to ends ; they throw
light on the question of how objectives are to be achieved. Objectives and
policies are related to each other in an ends-means chain or hierarchy. (iii)
Objectives are stated in broad ideological terms and tend to take the shape of
vague, abstract aspirations expectations and intents of an organisation. Policies,
on the other hand, give meaning and content to objectives, clarify the intents of
top management and express its aims in more specific terms. (iv) Objectives are
often branded as official or stated goals which in many cases remain on paper. In
contrast, policies indicate the real intents of the organisation and reflect its true
character. (v) Objectives are meant to be achieved but policies are meant to be
observed by managers. Policies clarify the perspectives of managers for handling
the managerial problems in a disciplined manner.
Importance. The importance of policies can be judged from the following
points—(i) Policies lead to a uniform pattern of action in respect of various
matters relating to an organisation. (ii) Policies speed up decision-making since
they provide a framework within which the decisions can be taken. (iii) Policies
help both men and boss to work for a better performance. (iv) Policies help in
securing effective Co ordination of efforts and activities in the organisation.
Classification of Policies. Alford and Beatty have classified the industrial
policies as follows:
1. Top management policies are those derived from top management
planning. They include policies concerned with long-range product
selection, sales forecasting, sizing the enterprise, process selection,
machine selection, determining plant needed, and budget.
2. Upper middle management policies are those which are special to a
function, such as sales, production, research, finance accounting and are
made by the vice-president or other executive responsible for these
functions. They should he in harmony with the major policies of the
enterprise.
3. Middle management policies are those which grow out of the planning of
junior executives, superintendents of departments or divisions and others
in like positions. These men are functional, product or area specialists
within the sales, production, research, finance, or accounting sub-division
of the enterprise.

74
4. Foremen policies are those directly related to the accomplishment of the
set for his small sub-division or the whole enterprise. They include the
policies concerned with the assignment of the jobs to the best suited men,
the provision for adequate tools by which to do the job, and so forth.
5. Operating force policies are those found in little notebooks in the
possession of each worker. These state his rule or code for doing each job
that he is called upon to do. From it, the worker knows how long each job
should take, what, tricks of the trade are required, and what quality
features are emphasized. He does not trust to his memory to complete a
respective job satisfactorily, for he has an established policy to follow for
this recurring situation.
6. Sales policies may be concerned with determining location of markets,
selecting channels of distribution, dividing the total market Into branch or
dealer areas, pricing the product, determining sales incentives,
establishing advertising policies, setting up sales control policies, and
establishing sales volume and expense budgets.
7. Production Policies may be concerned with the making of a production
budget, selection of junior executives, the organization and co-ordination
of their activities, factory layout, inventory control, collective bargaining
and labour relations, selection of system for quality, cost and production
control, and the like.
8. Research policies may be concerned with the selection of projects for
investigation, the choice of personnel and mechanisms for carrying out
these activities, the determination of research budgets, the measurement
of results and similar matters.
9. Financial Policies. In the area of finance a number of policies would be
required, such as: (i) The method of raising funds and the ratio between
the various types of sources of funds. How much risk the company can
undertake ? What return does it expect on the funds procured and how
much of the control aspect management is willing to give? (ii) Policy for
the use of the funds and the ratio between different types of assets. (iii)
The credit policy and the distribution policy towards customers. (iv) The
dividend policy, i.e., how much dividends are to be declared out of the
profit earned. (v) Provision for working capital requirements and other
matters of this type.
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10. Costing Policy. It may include the policy for selecting the method of
costing, the method of allocating, apportioning, re-apportioning and
absorbing overheads, etc. .
11. Accounting Policy. This may include the following: (i) The basis of
valuation of stock of finished goods. It is a matter of policy whether the
finished goods are valued at total cost or at direct cost or at works cost;
(ii) The issue price of raw materials, whether to follow FILO or LIFO or
average cost or any other method of pricing (iii) Depreciation policy. i.e.,
which method of depreciation be followed:
12. The treatment of deferred revenue expenditure, intangible assets,
fictitious assets and preliminary expenses ; (v) Capitalisation of
expenditure during construction period ; (vi) Policy for provision of
doubtful debts, investment losses, etc.
13. Marketing Policy. Here a number of policies in market analysis, business
law, display and salesmanship may be followed.
14. Promotion Policies. The objectives of the promotion policy may be: (i) to
utilise fully the managerial resources of the organisation ; (ii) to provide a
fair opportunity to all for advancement and promotion ; and (iii) to base
the promotion on an objective assessment of merit and not merely
seniority.
In order to achieve the above objectives, the following policy
guidelines may be laid down : (a) Promotions will be based on merit. A
vacancy can be filled by promotion where the individual concerned fulfils the
requirements of the job for its most effective performance, in terms of
education, professional qualifications, experience, knowledge of the job,
background, personality and personal qualities, etc. Factors like age, health
and effect on morale or other aspirants will be considered. (b) All
appointments in senior management cadres will be made by the Board of
Directors as a whole, through recruitment, promotion or rotation. (c) In case
of promotions to vacancies below the senior management level, these will be
recommended to the Board by the line director in consultation with the
personnel director. (d) High-fliers will be identified through annual appraisal
system at as early a stage as possible. A list of such persons be maintained by
the personnel director.

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 15. Product Policies. These may include the following : (1) The company will
deal in the whole range of engineering products for construction projects.
(ii) The products of the company will be meant mainly for government
and industrial customers. (iii) The company will purchase as many of the
components as possible from small-scale industrial units and will
concentrate largely on assembling. (iv) The company will try to
differentiate its products from those of the rival manufacturing units in
terms of shape, design and other specifications. (v) The company will
book bulk orders and make its products available according to the
specifications provided by the clients.
Policies are also classified according to their origin as originated,
appealed, implied and imposed policy. An Originated Policy is that which is
formulated by the managers in the organisation for their subordinates’ action as
well as their own action. The broad policy laid down by the top management
becomes a guide for the managers at the lower levels of the organisation who
formulate policies for the benefit of their subordinates. Appealed Policy arises
from the appeal made by a subordinate to his superior for deciding an important
case. Appealed policy decisions are mostly to solve current problems or issue.
An Implied Policy is one that is inducted from the action and behaviour of the
top management. An Imposed Policy is a policy that is imposed by some
external force like the government, trade union or a trade association. Labour
policies formulated to comply with labour laws or meet the terms of a collective
agreement belong to this category.
Essentials of the Policy Formation. According to Alford and Beatty, the
essentials of policy formation may be listed as below
1. A policy should be definite, positive and clear. It should be understood by
everyone in the organisation.
2. A policy should be translatable into the practices and peculiarities of every
department and division of the organisation.
3. A policy should be flexible and at the same time have a high degree of
permanency.
4. A policy should be formulated to cover all reasonably anticipatable
conditions.
5. A policy should be founded upon facts and sound judgment.
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6. A policy should conform to economic principles, statutes and regulations and
should be compatible with the public interest.
7. A policy should be a general statement of the established rule to follow in
recurring situations ; rather than one prescribing detailed procedure.
Policy Manual. When the policies are reduced to black and white and
compiled into a book or manual, that may be designated as a ‘Policy Manual’.
The organization is considerably strengthened by having a Policy Manual,
because the statement of policy, then becomes readily available for reference and
guidance. Some of the advantages of a policy manual may be enumerated as
follows (1) Lessen misinterpretation, misunderstanding, and resulting friction
because the policies are stated in writing. (2) Provide a check list of current
policies which can be used to determine whether or not they are being adhered
to. (3) Constitute useful instructional device for acquainting the personnel with
the principles and procedures required to make the policies effective in the
operation of the enterprise.
4. Procedure
Meaning. A ‘Procedure’ is a standing plan describing a customary method
of handling a future activity. The term ‘Procedure’ refers to a specific
administrative directive prescribing the sequential manner in which a repetitive
activity is to be initiated, carried forward and completed in a goal-oriented
manner. Procedures are meant to standardize and routinise the pattern and, pace,
of work flow at the operational level. They provide the framework for doing
routine things in a rational and expeditious fashion so that there is little
duplication of effort, waste motion and confusion. They help the process of
streamlining and simplifying administrative activity. In the words of George R.
Terry, “A Procedure is a series of related tasks that make up the chronological
sequence and the established way of performing the work to be accomplished.”
For example, the procedure of scientific selection of employees may have the
following steps : (i) Preliminary interview, (ii) Application blank, (iii) Reference
check, (iv) Employment tests, (v) Final interview, (vi) Supervisor’s approval,
(vii) Medical checkup, (viii) Appointment, and (ix) Induction or Orientation.
Importance and Benefits. Procedures help to standardize and streamline
the day-to-day activity in organisations. Whether for procuring funds, for
manpower recruitment, for receiving and inspecting materials and stores, for

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sanctioning expenditures or for granting leave, certain standard operating
procedures are laid down as a basis for the operators to know how to process the
matter in a systematic manner without leaving loose ends, in the best interest of
the organisation as reflected from the management’s approval of the procedures.
A procedure has the following ad vantages : (i) It ensures uniformity of action ;
(ii) It decreases the need for further decision-making laying down a standard
path to follow; (iii) It increases co-ordin tion among the personnel in the
organisation and its departments : and (iv) It provides a good standard for the
manager to appraise his employees. Procedures serve as tools of managerial
direction, co-ordination and control of specific activities within the organisation.
Managers formulate procedures for observance by people in work situations so
that ‘Management by System’ takes hold ; well-laid down procedures tend to
become working habits of people to the extent that they structure, smoothen and
simplify the patterns of their work performance. Any intentional deviation from
well-established procedures without adequate reason is bound to be frowned
upon by those who have laid them and/or who are affected by them.
Policies and Procedures distinguished. (i) Procedures are guides to action
while policies are guides to decision-making. (ii) Policies are determined by top
management in general, after considering a wide range of important variables ;
procedures are formulated at relatively lower managerial levels. (iii) In the ends-
means chain policies occupy a higher position than procedures ; in fact the latter
are derived from the former; policies form the basis for determination of
procedures. (iv) Policies form part of the organisations strategic postures in
combination with objectives and long range plans, to enhance the capability of
the organisation to cope with complex external environment. Procedures are
more tactical; they are operational devices for the efficient guidance of routine or
‘steady state’ organisational activity. Their scope is limited. (v) Policies are
relatively flexible and they allow managers a measure of discretion and latitude
in deciding upon relevant issues. Procedures are more deterministic and are
meant to be observed as faithfully as possible. (vi) Policies serve as bridges
between organisational purpose and performance while procedures serve as
bridges between activities and outcomes. (vii) A policy-centred thinking on the
part of managers is considered a healthy sign and is encouraged in organisations,
but in the case of procedures, a single minded focus on them is regarded as
inimical to organisational goals.

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 Setting a Procedure. The following points should be kept in view while
setting a procedure: (i) The basic principle of procedures is that they should be
kept to the minimum possible. (ii) Procedures should be based on adequate facts
of the particular situation, not guesses or wishes. (iii) Procedures to be effective
must be recognised as a system of interrelated activities in a network. (iv) While
designing a procedure proper balance should be kept between stability and
flexibility. (v) Procedures should be reviewed at intervals and necessary changes
should be made as per research and development programmes.
5. Rules and Methods
Rules and Methods are Standing Plans in a formal organisatlon, in
association with policies and procedures. They are meant for repeated reference,
ready guidance and strict adherence by people in work situations.
Meaning of Rule. The term ‘RULE’ is defined as a prescriptive directive
to people on their conduct and action. Rules are almost in the nature of
‘commandments’ seeking to discipline, structure and restrain behaviour and task
performance of people in formal organisational settings. A rule is in the nature of
a decision made by the management regarding what is to be done and what is not
to be done in a given situation. A rule is definite and rigid ; it allows no
deviation or discretion to subordinates. Generally the breach of rules carries a
penalty. Illuminating examples of rules are : (i) Employees are to retire once
they attain the age of 58 years ; (ii) Smoking is prohibited inside the factory; (iii)
Officers are not entitled for over-ti allowance ; (iv) All purchases are to be made
only through calling tenders.
Rule and Procedure Differentiated. More often than not, a rule is
confused with policy because both provide guidelines for action, However, there
is a difference between these two. A ‘Policy ‘provides guidelines for managerial
action by defined areas of discretion, whereas in a ‘Rule’ there is no such
discretion. Rules are impersonal and are meant for observance irrespective of the
personalities involved. Rule is a rule allowing no liberty or leniency. For
example, a rule like ‘No Smoking’ is applicable to each and every person
working in the concern or passing through the prohibited area. Even the chief
executive is bound by such a rule.
Rule and Procedure Differentiated. A rule is also different from a
procedure. As a matter of fact, a procedure may be looked upon as a sequence of

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rules; however, a rule may or may not be a part of a procedure. For example,
‘Smoking is prohibited’ is unrelated to any procedure, but if somebody violate it,
he may be penalised according to a certain set of procedures. Rule does not
prescribe a time sequence for an action whereas procedure does so.
Meaning of Method. A Method’ is a prescribed process in which a
particular operation of a task is to be performed. It specifies the ‘one best way’
of performing each step in a task. It defines the technology of individual
operations in a work situation. As compared to procedure, ‘Method’ describes
how one particular step of a procedure is to be performed. Method involved only
one department and one person, while a procedure may involve many
departments and many persons in an organisation. A method is meant to be a
complete guidance to individuals in their performance of tasks. The most
important advantage of Taylor’s scientific management movement was the
determination of standardized, simplified and efficient methods of performing
physical task by operatives. In the modern 0 & M (Organisation and Methods)
area of activity, much attention is devoted to develop and refine methods of
carrying out clerical, administrative and managerial tasks. In modern computer
systems also, standard methods are generated to instruct the computer what
operations it has to perform in processing data.
Methods and Rules Distinguished. It is clear from the above discussion
that there are important differences between methods and rules. The main points
of difference may be outlined as below:
(1) Methods are meant for efficient and Consistent performance of tasks ; they
link inputs and outputs in operational situations. Rules, on the other hand,
are in the nature of cautions, taboos and norms. They state in clear terms
what must and must not be done. They have very little to do with efficiency
of performance.
(2) Standardization of methods also calls for standardization of the related
working conditions within which tasks are performed ; otherwise
observance and application of methods become difficult on the part of
individuals. In case of rules. no such standardization of conditions is
needed.
(3) Much research and analysis goes into formulation of methods. It is not a
simple or routine task. But rules are formulated by management, on the

81
 basis of its conmon-sense, applicable legal requirements and judgment n the
light of personal values and corporate objectives.
(4) In general, violation of or deviation from methods, though rare, by
individual employees does not attract penalty whereas the violation or by-
passing of rules is viewed seriously by management and some penalty is
attached to such lapses.
(5) Rules are often regarded as official, formal, authoritative and bureaucratic.
They are also associated with control, order, coercion and conformism.
Methods are generally free from such associations. They are more viewed
as scientific, objective, rational, logical means of ensuring standardization,
simplification and systematisation of work. Rules are ‘enforced’ by
management whereas there is little appearance of enforcement in case of
methods.
(6) Methods relate to physical and other tasks and define the way how thcy . to
be performed. Rules relate to individuals and groups and define the way
how they have to behave in particular situations.
6. Strategies
Literally speaking, the term Strategy’ stands for the war-art of the military
general, compelling the enemy to fight as per our chosen terms and conditions.
A strategy is a special kind of plan formulated in order to meet the challenge of
the policies of the competitors. In another way Edmund P. Learned has defined
‘strategy’ as “the pattern of objectives, purposes or goals and major policies and
plans for achieving these goals, stated in such a way as to define what business
the company is in or is to be and the kind of company it is or is to be.” Koontz
and 0’ Donnell have called the former as ‘Competitive Strategy’ and the latter as
‘Grand Strategy’. The purpose of grand strategy is to determine and
communicate through a system of major objectives and policies, the probable
shape which the organization is likely to take in future. David I. Cleland and
William R. King, in their popular work, ‘A System Approach’ have beautifully
pointed out that “Strategy is the complex plans for bringing the organisation
from a given post* to a desired position in a further period of time.” The
principal purpose of ‘Competitive Strategy’ is to encounter the forces of
competitors so that competition is faced boldly and scientifically. Keeping this
purpose in view, Haynes and Massier have defined strategy as “the planning for

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unpredictable contingencies about which fragmentary information is available.”
According to C. T. Hardwick and B.F. Landuyt, “The word strategy is used to
signify the general concept and salient aspect of gamesmanship as an
administrative course designed to bring success.” Strategy may also be designed
by the general forces operating in an industry and the economy. For example, if
the management anticipates an economic recession, it may decide upon a
strategy of reduced stocks, fewer staff, reduced expenses, etc. According to force
Haimann, “Strategy is an interpretative policy. It is a policy that has been
formulated by the top management for the purpose of interpreting and shaping
the meaning of other policies.
Characteristics of Strategy. The following characteristics emerge from the
above definitions of ‘Strategy’ : (1) It is the right combination of different
factors. (2) It relates the business organisation to its environment. (3) It is an
action to meet a particular challenge, to solve particular problems or to attain
a desired objective. (4) Strategy may need contradictory action. For example,
today a manager may adopt a particular course of action but tomorrow he may
revise the same due to changes in situations. (5) Strategy is forward looking. (6)
It is a means to an end and not an end in itself. (7) It is a means of coping
with or managing the events and changes in the external environment. (8) It is
formulated at the top management level. (9) It is generally long-range in nature
but short-range moves are also specified in it. (10) It is and flexible and
dynamic. (11) It involves assumption of certain calculated risks. (12) It is action-
oriented and more specific than objective. (13) It is generally meant to cope with
a competitive setting, in which the behaviour of competitors and other
adversaries of the enterprise affects its own functioning and performance.
Strategy and Policy Distinguished. Policy is a guide to the thinking and
action of those who make decisions, while Strategy relates to the direction in
which human and physical resources are to be used in order to maximise the
change of achieving a selected mission in the face of competition and other
hurdles. Secondly, policy is a contingent decision, whereas strategy is a rule for
making decision. Thirdly, the implementation of policy can be delegated
downward in the organisation whereas the strategy cannot, since it requires a
last-minute executive decision.
Strategy Formulation. A perfect strategy can be built only on perfect
knowledge of the plans of others in the industry, This may be done by the

83
management putting itself in the position of a rival and then trying to estimate
their plans. There are three phases in strategy formation, viz. Determination of
objectives, (‘2) Ascertaining the specific areas of strengths and weaknesses in
the total environment, and (3) Preparing the Action Plan to achieve the
objectives in the light of environmental forces. The following factors will
determine the right strategic decisions (i) It must be appropriate in the light of
available resources ; (ii) It must be workable ; (iii) It must involve acceptable
risks ; (iv) The timing of the action plan must be appropriate ; (v) The action
plan must be based on reliable anticipations of (vi) future trends and conditions ;
(vi) There should be a perfect co-ordination between and the objectives and
strategies ; and (vii) Strategy must fulfil ethical and social responsibilities.
Appropriateness of a business strategy and its evaluation. Since a
business strategy is a pragmatic plan of action to achieve desired goals, there is
an ever- present need to measure its appropriateness. Seymour Tiles offers six
criteria for evaluating the appropriateness of a business strategy
1. Internal Consistency. The strategy of an organisation must be
consistent with its other strategies and also its goals, policies and plans. Serious
internal inconsistency in business strategy is bound to give birth to problems in
the course of its implementation.
2. Consistency with the environment. The strategy must be consistent
with the external environment. It has both static and dynamic aspects. In a static
sense, it implies judging the strategy with its suitability to the existing
environment. in a dynamic sense, it implies judging the efficacy of strategy with
the changing environment. The strategy selected should enhance the confidence
and capability of the enterprise to manage and adapt with or gain command over
the environmental forces.
3. Appropriation in the light of available resources. Strategy needs a
realistic assessment of the resources of the enterprise—men, money and
materials— both existing resources as also the resources, the enterpirse can
command. The resources of an enterprise also include the skills of management
and other manpower, command over sources of scarce raw materials, production
facilities, technology, marketing capabilities, and image, and so on. It is
advisable that the individual enterprise formulates its strategy within the
limitations imposed by its resources. The objective is to ensure that the
enterprise’s resources are not over stretched or over-strained on the one hand and

84
to utilise the existing/commandable resources in the best possible manner, on the
other
4. Acceptable degree of risk. Any major strategy carries with it certain
elements of risk and uncertainty because it covers a relatively longer future
horizon and because it seeks to cope with a complex environment. The amount
of risk inherent in a strategy should be within the bearable capability of the
enterprise. Resources should not be committed irrevocably, nor should they be
concentrated on a single or narrow range of ventures. Also, there should be
much between risk and returns, financial and otherwise.
5. Appropriate time horizon. Time is the essence of any strategy. A good
strategy not only provides what objectives would be achieved, it also indicates
when those objectives would be achieved, in selecting an appropriate time
horizon, the organisation must pay careful attention to the goals being pursued.
An optimal time span cannot be mathematically determined ; it is a matter of
environmental conditions, the objectives to be sought and the judgment of
management.
6. Workability. Last, but not the least, the strategy must have enough
degree of workability. It must be feasible and should produce the desired results
within the constraints and parameters known to management. It must be realistic
and relatively simple and intelligible at the level of interpretation and
implementation.

ADVATAGES OF STADIG PLAS

The advantages of standing plans may briefly be summarised as below:
(i) Managerial effort and time can be minimised. (ii) It facilitates the delegation
of authority. (iii) Effective control can be enforced. (iv) Standard operating
procedures and methods evolve considerable use of the ‘one best way’ under
scientific management. (v) it helps in co-ordinating the different activities of an
organisation. (vi) Standing plans enable the performance of work by persons
with less experience and ability. (vii) it is easy to train people under recognised
policies and procedures. Job rotation is also feasible.
The only disadvantage is that the manager’s discretion is reduced. It is
apparent from the following diagram:

85
SIGLE – USE PLAS
Single-use plans are devised to meet the demands of a particular situation
and are not meant to serve as standing guides to thinking and action. These
include the following.
Meaning. A ‘Programme’ may be defined as single-use comprehensive
plan designed to implement the policies and accomplish the objectives. It gives a
step by- step approach to guide the action necessary to reach a pre-determined
goal. It is really a combination of policies, procedures, rules, budgets, task
assignments etc. for the specific purpose of carrying out a particular course of
action. It is designated as ‘single-use plan’ because a programme cannot be used
in the same form again, once its objective is achieved. The expansion
programme of a cotton mill is a case in point. A programme may be a major or a
minor one ; along-term, medium-term or a short- term one. Generally, a
programme is supported by the required capital and operating budgets.
Essential features of a programme. (1) It is a single-use but
comprehensive plan. (2) It lays down the principal steps for accomplishing a
mission. (3) It gives a • step-by-step approach to guide the action plan. (4) It is
guided by the objectives and strategies and covers many other types of plans. (5)
It is a time-table of the future action. (6)It ensures smooth, efficient and
integrated functioning of an organisation. (7) Programmes involve an integrated
and coordinated planning approach.
Basic steps in programming. (i) The various activities needed to achieve
the objective are first to be divided into clear-cut steps. (ii) The steps are then to
be arranged in a proper sequence. (iii) Then the programme team should be
decided, i.e., who will do what, where, when and how? (iv) Determine the
86
various resources required for each step. (v) The time required for each step
should also be ascertained. (vi) Assign definite dates for each part of a
programme. (vii) Overall or Master Schedule for the Programme should also be
prepared.
2. Projects
Meaning. A single step in a programme is known as a ‘Project’. A project
is a single-use plan which is part of a general programme. It may be defined as
any scheme or a part of a scheme for investing resources, which can be analysed
and evaluated as an independent unit. It is actually a proposal of investment
which can be separately appraised through cost-benefit analysis.
Essential features’. (i) It is a non-recurring plan. (ii) The activity is
definable in terms of specific objective. (iii) It involves time-bound activities.
(iv) Project approach is needed when (a) the work to be done is special requiring
expertise from different departments; (b) the work is very complex; (c) high cost
is involved; (d) errors and omissions are to be minimised; and (e) ‘one-shot’ and
time-bound activities are needed. It is a one-time crash programme. A project
has a distinct mission and a clear termination point. Advantages. When the
programme is set up in projects, the task of management becomes easier. There
is a precise allocation of duties with a clear sense of responsibility and, due to
easy control, the implementation of the plan too becomes easier.
3. Schedules
Scheduling is a process of establishing a time sequence for the work to be
done. It is an essential part of an action plan. It prescribes the exact time when
each step would begin and when it would terminate. When the tasks to be done
and the persons who must do them are ascertained, the only important thing
attracting the attention of the management is ‘scheduling’.
4. Budgets
Meaning. A budget is a single-use plan expressed in quantitative terms. It
is always expressed in numerical terms ; hence it is also known as what we call
‘Numerised Plan’. According to Koontz and O’Donnell, “A budget as a plan is a
statement of expected results expressed in numerical terms.” Budgets may be
prepared in terms of time, money, materials or other units required to perform
work and accomplish specified results. Since most values are ultimately

87
convertible to monetary units, money budgets are commonly used. The
preparation of budget is planning. It calls for the compilation of all relevant facts
and figures like any other plan.
Essential features of a Budget. (1) Budget plays a dual role ; it is a
planning instrument on the one hand and a control device on the other.
Budgeting actually provides a means for controlling operations. (2) Usually
there is a separate budget for each unit and a master budget for the entire
organisation. (3) Usually budgets are prepared for the financial year, but there
may be monthly or quarterly budgets also. (4) Budgets can set standards of
performance so very necessary for the control process.
The budgets may be prepared for various groups of activities. Examples
of certain important budgets are : (i) Materials budget, (ii) Production budget,
(iii) Personnel budget, (iv) Sales budget, (v) Cash flow budget, and (v) Profit
budget. Budgets are most widely used instruments for planning and control. As a
type of plan, budget has the advantage that the departmental and organisational
goals are expressed in exact numerical terms. This makes the co-ordination or
departmental plans easier.
5. Standards
Generally speaking, all plans are considered as standards. from a specific
point of view, a ‘Standard’ is a norm or criteria against which performance is
compared and evaluated. In short, a ‘Standard’ is a guide for performance
evaluation.
A company may set up a variety of standards expressing the anticipated
results of the plans. Qualitative and quantitative standards are established in each
area of business, e.g., physical standards, quality standards, personnel standards,
performance standards, standards of service and conduct, etc. Financial ratios
(such as liquidity ratios, current ratio etc.) are very popular in financial
management as standards of ‘ economic performance.
KIDS OF ETERPRISE PLAS
An enterprise may have the following types of plans:
• Business or Divisional Plans. If an enteprise has separate divisions for
different products like radios, television sets, electric computers and spare

88
 parts; divisional plans can be prepared for each one of these divisions
separately.
• Functional Plans. These relate to the various functions of the enterprise.
For example, a marketing plan may be prepared for the enterprise as a
whole as also for each of the divisions of the enterprise.
• Geographic or Regional Plans. If an organisation has got regional
divisions, it may have plans for each division or zone. They are also
Known as territorial plans.
• Corporate Plan. It relates to the complete plan for the entire organisation.
• Long, medium and short-range plans. Long-range plans extend to 10 or
20 years ; medium-range plans extend to 5 years and short-range plans
generally extend to one year.

REVIEW QUESTIOS
1. Policies are guide for managerial action.’ Discuss this statement and give at
least two examples of policy in any area of business management.
2. Policies establish the framework upon which planning procedures and
programmes are constructed.’ Discuss and show the area of policy formation.
3. Define Policy. Is it related to objectives ? What is its role in management?
4. What characteristics do policies have? Discuss the major policies set by top
management group. - Also discuss how the upper middle management
policies are developed from the top management policies?
5. What are the features of a sound policy? How are the policies formulated and
communicated?
6. What policies are determined by the operating force? Discuss the part that the
lines of communication within a plant play in policy formation.
7. Indicate the effect of external factors on policy formation. Also describe the
advantage to be derived from a policy manual.
8. Policies are the guiding principles established by the company to govern
actions, usually under repetitive conditions.’ Discuss showing the area of
policy formula%.jon.
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9. What is a Procedure? Distinguish between policy and procedure. )

CASE :
Commercial brewing has long been an important business in the
Netherlands. Indeed, two breweries there date back to the thirteenth century
Currently there are twenty breweries in the Netherlands, and Heineken N. V.
owns four of them—Heineken, Amstel, Brand, and De Ridder.
Heineken is the number-one imported beer in terms of sales revenue in
the U.S. market, and it is sold in more countries than any other beer. It recently
moved from third to second place in terms of beer sales in the world (behind
Anheuser-Busch Companies but now ahead of Miller Brewing Company).
Although Europe and the Americas comprise a large proportion of its sales, it
exports to more than 160 countries, and it is expanding its international
operations.
The typical Heineken expansion move involves first exporting its brands
to a particular country to establish a brand image and to test the market. Then, if
the market appears promising, it licenses its brands to a local brewer. Finally, as
that relationship develops and if sales continue to be strong, it will obtain partial
ownership or enter into a joint venture with the local firm. This keeps the local
brands relatively low priced while allowing the Heineken brand to be a higher-
priced, premium brand.
Heineken maintains the quality of its brands by carefully controlling the
use of its special yeast, Heineken-A. Twice a month shipments of that yeast are
sent to each of the breweries that make Heineken around the world. Careful
quality control and premium pricing have been Heineken’s strategy for success
in the global marketplace.
Despite its success, international competition remains fierce and is
increasing. Anheuser-Busch began negotiations with the Czechoslovakian
government-owned brewery, Budvar (the brewer the original Budweiser beer).
Heineken countered by opening negotiations with Pilsner Urquell, another major
Czechoslovakian brewery. Miller obtained a 20 percent interest in Canada’s
Molson Breweries and Miller’s parent company, Philip Morris, bought into
Femsa, the Mexican brewery that makes Dos Equis.

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 Heineken, on the other hand, bought a controlling interest in Komaromi
Sorgyar, a Hungarian brewer, to strengthen its position in Eastern Europe. In
addition. it acquired breweries in France, Greece, Italy, Spain, and Ireland. By
1994 numerous plans were under way to strengthen its U.S. position through a
new advertising campaign, an expansion of Amstel Light, and the possibility of a
new brand.
Rumors that Heineken was to be a takeover tar get for Philip Morris in
late 1992 proved false as Heineken had no interest in selling. It trimmed its
workforce, closed or sold out-of-date breweries, and installed a new
computerized system so that whole salers in the Netherlands could use personal
computers to place orders directly with the company. By doing all of these
things, Heineken has been able to maintain the premium image for its products
without incurring premium costs in their manufacture. Heineken has also
expanded its beverage line. It acquired several distilleries to establish a presence
in the wine and spirits business. And it entered the soft-drink market including
becoming the distributor for Pepsi-Cola in the Netherlands.
Questions
1. Why is Heineken not afraid of a company several times its size like Anheuser-
Busch or Philip Morris?
2. Do you think Heineken should continue to control the yeast used by its
breweries from the Nether lands? Why or why not? What are the advantages and
disadvantages of doing so?
3. What pressures are likely to affect the long-term sales of Heineken’s
products? HRw might it prepare for or counter those pressures? -



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 UIT – II
LESSON – 6
PLAIG PROCESS
It is very difficult to prescribe a fixed process of planning for the
organisations for all types of plans ; however, the major steps involved in
planning may be lines of enumerated as below:
STEPS I PLAIG PROCESS
1. Analysis of External Environment
2. Analysis of Internal Environment
3. Define the Enterprise Mission
4. Determination of Objectives
5. Forecasting Planning Premises
6. Determining Alternative Course of Action
7. Evaluating Alternative Courses
8. Selecting the Best Course OR Developing Strategies
9. Establishing the Sequence of Activities
10. Formulation of Strategic or Long-Range Plan
11. Formulation of Functional or Tactical Plan
12. Formulation of Action Programme.
13. Reviewing and Re-cycling the Planning Process.
Step o. 1
AALYSIS OF EXTERAL EVIROMET
Before doing the actual planning, the management must carefully analyse
the external environment prevailing in the region/country. The term ‘external
environment’ covers a wide field. Socio-economic-cuin-political conditions
prevailing in the country can be included in it, e.g., social and economic status of
the different classes of the society (such as upper class, middle class and lower
class), social aspirations and expectations of the people, prevailing wage rate,
development of science and technology, psychology of the customers, market
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conditions, nature of competition, p trade-cycle, political conditions, etc.
Although these factors are uncontrollable and unpredictable, yet the enterprise
has to adapt its plans, policies, strategies and programmes according to changing
trends in the external environment. It is actually a preceding process of actual
planning and, therefore, it cannot strictly be called as a part of the planning
process. However, awareness of such factors is very important for subsequent
planning process.
Step o. 2
AALYSIS OF ITERAL EVIROMET
Searching and objective self-analysis of the resources of the organisation
is also an important pre-condition before actual planning. It is technically known
as ‘Re source Audit’. Plans, policies, strategies, budgets etc. are to be adjusted
according to the internal resources of the organisation relating to men, machines,
materials, know- how, finance, etc. The following questions may be asked while
analysing the internal environment: (i) Do we have enough resources of
men, money, materials, machines, managerial man-power etc. ? (ii) Do we have
aggressive or defensive competition ? (iii) Do we have upto date plant,
equipment and work environment? (iv) Do we have effective system of
communication ? (v) Is the employee morale high? (vi) Is our profitability O.
Kay ? (vii) Is our managerial leadership effective and so on. Such an analysis
will give an exact idea about the strengths a weaknesses of the enterprise.
Resource audit is the real starting point of planning.
Step o. 3.
DEFIE THE ETERPRISE MISSIO
After analysing the external and the internal environment, the top
managent should define the corporate mission. The statement relating to the
‘Mission’ should describe the fundamental reason for the existence of an
organisation. It may cover up answers to the following basic questions: (i) What
is our business ? (ii) What will our business be? (iii) What should our business
be ? (iv) Who are our customers? What do they buy and why? (vi) What are our
social obligations? and so Statement of the ‘mission’ provides the best climate
for successful business planning.

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Step o. 4
DETERMIATIO OF OBJECTIVES
The next step in planning is a statement of the objectives to be achieved
by enterprise. The organisational objectives must be spelled out in key areas a.
operations and should be divided according to various departments and section.
The objectives must be clearly specified and measurable as far as possible.
Every member of the organisation should be familiar with its objectives indicate
what basically is to be done, where the primary emphasis is to be placed and
what is to be accomplished by the network of policies, procedures, rules, budget
programmes and strategies.
Step o. 5
FORECASTIG PLAIG PREMISES
In preparing plans for the future, the management has to make some
prediction about the future shape of things. According to Henri Fayol, the entire
plan of enterprise is made up of a series of separate plans called ‘Forecasts’.
Although management has to prepare forecasts for each of the major areas of its
operation there are three forecasts which would be of fundamental importance to
the viz., (i) General business forecasts, (ii) Sales forecast, (iii) Capital f
Whenever the management plans its business operations and its organisational
set up for the years ahead, it has to take into account the past, the present and
prevailing socio-economic-cum-political environment. Forecasting is a systems
attempt to probe into the future by inference from known facts relating to the r
the present. Intelligent forecasting is essential for variable planning premises
assumptions. Planning premises are actually assumptions and predictions about
future. They act as environment of plans in operation and are thus the basis of
planning. The management should have no stone unturned in reducing the
element of guesswork in preparing forecasts by collecting relevant data using
the scientific techniques of analysis and inference. The process of forecasting
generally involves the following steps (i) Developing the basis
through systematic investigation of the economy, products and industry ; (ii)
Estimation of future business operations ; (iii) Regulation of forecasts, i.e.,
comparing the actual operations with the forecasts prepared in order to find out
the reasons for any deviations from the forecasts ; iv) Review of the forecasting
process.

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Step o. 6
DETERMIIG ALTERATIVE COURSE OF ACTIO
It is a common experience of all thinkers that an action can be performed
in several ways, but there is a particular way which is the most suitable for the
organisation. The management should try to find out these alternatives and
examine them carefully in the light of planning premises.
Step o. 7
EVALUATIG ALTERATIVE COURSES
Having sought out alternative courses and examined their strong and
weak points, the next step is to evaluate them by weighing the various factors in
the light of planning premises and goals. A number of methods in Operations
Research have been developed to evaluate the various alternatives.
Step o. 8
SELECTIG THE BEST COURSE OR DEVELOPIG STRATEGIES
The next step—selecting the course of action—is the point at which the
plan is adopted. It is the real point of decision-making. After evaluating the
various alternatives, the best and the fittest alternative is selected. Finding the
best way to go there, where we want to be, is called ‘Strategy Deve1opment
Sometimes, the evaluation discloses that more than one alternative is equally
good. In such a case, the manager should select several rather than one and
combine them in action. Strategy determination adopts the rational decision-
making process (i) Alternative opportunities to achieve the objectives are listed ;
(ii) These are compared and evaluated on the basis of marginal analysis and/or
on the basis of cost-benefit analysis ; (iii) Top management then picks up two or
three strategies in order of priority. This is how the corporate strategies can be
developed.
Step o. 9
ESTABLISHIG THE SEQUECE OF ACTIVITIES
After the best programme is decided upon, the next task is to work out its
details, formulate the steps in full sequence, to break it down for each section or
department, for each product and component of product and for each month,

95
quarter, week etc. Ultimately, the manager will get the final plan of action in
concrete terms.
Step o. 10
FORMULATIO OF STRATEGIC OR LOG-RAGE PLA
According to Steiner, “Strategic planning is the process of determining
the fundamental or central concept of the corporation describing the mission or
creed, major corporate objectives, policies and strategies that will govern the
acquisition, use and disposition of resources (human and non-human both) to
achieve the over all corporate objectives and goals. Objectives include mission
or purposes, as well as specific objective at each level of management desired by
an organisation. Policies are broad guidelines to action and Strategies are the
preferred means to allocate resources to achieve the desired objectives (ends). In
strategic or long-range planning, we cover all important areas of business
activities, such as, profits, capital expenditure for growth or diversification,
organisation structure, managerial philosophy, pricing, leadership in the market,
finance, personnel, advertising, industrial relations, know-how capabilities,
product planning and development, research and development, management
development, social responsibilities and similar other topics.
Step o. 11
FORMULATIO OF FUCTIOAL OR TACTICAL PLA
Tactical plans relate to each area of operation, e.g., purchase, production
finance, personnel, marketing, research and development, etc. These
departments will formulate their goals in conformity with the major corporate
objectives.
Step o. 12
FORMULATIO OF ACTIO PROGRAMMES
There are three important constituents of an action plan : (1) the time-limit of
performance, (ii) the allocation of tasks to individual employees, and (iii) the
timetable or schedule of work so that the functional objectives are achieved
within the pre-determined period.

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Step o. 13
REVIEWIG AD RECYCLIG THE PLAIG PROCESS
‘Planning’ (Deciding what to do), ‘Action ‘(Doing it) and ‘Control the
actual with the planned) are closely related managerial functions. These phases
of the management process cannot be completely separated in practice. The
systems approach emphasizes that through control mechanism these phases
should be properly integrated. Through feedback mechanism an attempt is made
to secure that which was originally planned. To do this we have to compare the
actual performance with the performance predicted from the plan and then we
have to take necessary corrective actions to ensure that actual performance as per
planned goals.

George R. Terry has discussed the following eight major steps in planning:
1. Clarify the problem. According to Terry, the following questions will help in
this step : (i) What is the real aim or purpose of the plan to be formulated ? (ii)
Does this aim or purpose require a brand new plan or will a modified existent
plan suffice? (iii) What will the accomplishment of this aim mean to the
enterprise ? (iv) Is the contemplated aim in conflict with any existent goals of the
enterprise so that adjustments or eliminations of any present plans will be in
order?
2. Obtain complete information about the activities involved. To assist in this
step, the following questions may be asked : (i) Have all pertinent data been
collected? (ii) Are the data sufficiently broad to cover all activities which may be
affected ? (iii) Have any possible sources of data been overlooked? (iv) Have
operating personnel been solicited for suggesti6ns?

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3. Analyse and classify the information. As a guide in this step, ask: (1) Are
apparent relationships among data real and confirmed by key operating
personnel? (ii) Has information been tabulated or charted to facilitate analysis
?(iii) Are all usable data being included? (iv) With further study can any steps in
the present flow work probably be eliminated?
4. Establish planning premises. Helpful in this step are the following questions :
(i) What important assumptions regarding the future are being made in her order
to evolve the plan? (ii) Are the premises inclusive and do they cover all
important contingencies ? (iii) Has all reasonably available information
concerning the planning premises been obtained and evaluated ? (iv) What
premises must be carefully watched in order to detect changes which bring about
a serious effect upon any plan based upon these premises?
5. Determine alternate plans. Here the following questions may be considered
(i) Are these possible plans in keeping with top-management members’ basic
objectives and methods of operation? (ii) Will mechanisation expedite the work?
(iii) For each plan, how much adjustment will be needed in the event it is
adopted? (iv) Are cost, speed and quality requirements satisfied?
6. Choose proposed plan. At this stage, considerations contributing to the proper
solution include : (i) Is the proposed plan simple or complex ? (ii) Will it be
readily accepted by the operating personnel ? (iii) Does it process flexibility to
adjust to varying conditions ? (iv) What new equipment, space, personnel,
training and supervising will be needed?
7. Arrange detailed sequence and timing of proposed plan. The translation of the
plan and its relation to all activities affected by it are now worked out. Here
these questions might be asked : (i) Has a carefully worked out time schedule
been established ? (ii) Are detailed instructions written to cover the plan ? (iii)
Are all persons concerned adequately informed of the plan and given the major
reasons for it? (iv) Are the required paper forms and supplies available?
8. Provide progress checkup to proposed plan. For this step, ask : (1) Are records
and reports included to keep operating personnel hands advised of progress ? (ii)
Will sufficient data over a reasonable period lie collected to measure the results
? (iii) In what range or within what limits will results be considered satisfactory
? (iv) What remedial action is proposed if results indicate weaknesses?

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EFFECTIVE COMMUICATIO OF PLAS
It is essential that the plans are properly and effectively communicated to
all the managers concerned. This, of course, is not necessary if they have
participated planning. But, wherever such participation in planning is not
possible, it is the duty of top management to have the plans properly
communicated to all the manager. An uniformed manager is an ineffective
manager. The better informed a manager is a to the plans, the better will he be
able to do his job and the more he will contribute to the objectives of the
enterprise.
ESTABLISHIG A CLIMATE FOR PLAIG
The following points should be borne in mind for establishing a proper
climate for planning
1. Planning should not be left to chance. Every senior manager should remove
the obstacles to planning and try to establish a climate in which his subordinates
may plan. 2. Planning must start at the top. 3. Planning must be organised. A
good organisation structure, through appropriate grouping of activities and clear
delegation of authority, establishes an environment for planned performance. A
Long-range planning must be integrated with short range. 5. Welcome the
changes : It must be an objective of the manager to build in his organisation an
awareness of change and an ability to forecast it, and also construct an attitude of
welcoming change.
EXECUTIO OF PLAS
The basic step involved in the execution of plans may be summarised as below:
1. Divide the total operations necessary to achieve the objective into parts:
the kind of work, the quality and the quantity should also be indicated.
2. Note the necessary and the relationship between each of these parts.
3. Decide who is to be responsible for doing each part.
4. Estimate the time required for each part.
5. Assign definite date when each part is to take place.

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REVIEW QUESTIOS
1. Enumerate the principal steps in the process of planning. Describe them
briefly.
2. What do you mean by planning premises? Describe important planning
premises.
3. Distinguish between: (i) Forecasting and Planning (ii) Strategic and
Tactical Planning..
4. Which of the following statements are correct? —
(i) A plan must rigidly lay down the standards of performance.
(ii) Planning is a mental process which determines the course of an
uncertain future.
(iii) Master strategy must be fixed once for all; it should be determined
only by the Board d Directors.
(iv) In formulating the strategy the impact of synergy should never be
under-emphasised ; synergy means that the combined effect of two or
more co-operative acts is greater than the effect if the actions were taken
independently.
(v) It is no use planning for too long in the future since the future is
always uncertain. (vi) The functional plan relates to the particular
function.
Hints : Correct statements are (ii), (iv) and (vi)
5. If all decisions involve commitments and if the future is always uncertain,
how can a manager guard against costly mistakes?
6. How should a Production Manager of a big firm, say, the Hindustan
Lever, plan his operations?
7. If you are asked to take steps to make sure that adequate planning has
been accomplished In a company, what would you do ?

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CASE :
The Combination Walk Stick
Ella Mentrie and Noah Payne worked together to develop a combination
cane, night stick, and alpenstock. This versatile but sturdy stick can be used for a
variety of purposes: (I) for assistance in walking, (2) as a preventive aid in case
of threatened street assault or mugging, and (3) as a valuable support when
climbing over rocks or hilly terrain.
Ella and Noah computed their fixed costs to be $3,000 a month if they
were to go ahead and manufacture their patented stick. The variable costs for
each cane come to $10. Several high-quality stores (e.g. Abercrombie and Fitch)
have expressed strong interest and are willing to pay $20 for each cane.
Ella and Noah have access to tools and equipment that can produce up to
1,000 canes a month. Fashionable retailers such as the aforementioned A & F
have promised in total to buy 400 cane-sticks a month. Considering the above
data:

Questions
1. How many canes must be made each month in order for Ella and Noah to
cover all costs?
2. Will they make any money if only 400 canes a month are produced?
Flimm and Flamm Advertising Agency has proposed a $1,000-per- month
promotion campaign, which they assure Ella and Noah will stimulate the
market and easily sell all the canes that can be made. This advertising
expenditure would increase fixed costs to a total of $4,000 a month.
Assuming that $20 each continues as the selling price and that variable
costs remain at $10:
3. What will the new breakeven point be (i.e., number of canes)?



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 UIT – II
LESSON – 7
DECISIO MAKIG
The life of a manager is a perpetual choice-making activity. Executives at
all levels work on decisions constantly. Hundreds of decisions are consciously or
unconsciously made in a company every day. “Whatever a manager does,” wrote
Peter F. Drucker, “he does through making decisions.” The business executive,”
observed John McDonald, “is by profession a decision-maker. Uncertainty is his
opponent, overcoming it is his mission. Whether the outcome is a consequence
of luck or of wisdom, the moment of decision is without doubt the most creative
event in the life of the executive.” Decision-thanking permeates all management
activities; hence, it is sometimes described as “The total task of Manager’ or
‘The Heart of Managing’.
WHAT IS DECISIO-MAKIG?
To come to a decision means to cut off deliberations and to come to a
conclusion. Decision-making is a process of selection and the aim Is to select the
best alternative. A decision is an act of choice wherein an executive forms a
conclusion about what must and must not be done in a given situation. It is a
conclusion that the manager has reached as to what he or others should do at
some later time. It is a solution selected after examining several alternatives.
Various authors have defined decision-making as follows
1. D.E. McFarland. “A decision is an act of choice wherein executive forms
a conclusion about what must be done In a given situation. a decision
represents a course of behaviour chosen from a number of possible
alternatives.”
2. George R. Terry. “Decision-making is the selection based on some
criteria from two or more possible alternative.”
3. R.S. Davar. “Decision-making m be defined as the selection based on
some criteria of one behaviour alternative from two or more possible
alternatives. To decide means ‘to cut off’ or in practical content, ‘to come
to a conclusion.”
Decision-making involves two or more alternatives because if there is
only one alternative, there is no decision to be made. Frequently, not more than

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two alternatives are present, as exemplified by the ‘yes’ or ‘no’ type or the ‘do’
or ‘not to do’ type of situation. The following figure shows a situation for which
there are five possible behaviour alternatives, A1, A2, A3, A4 and A5. Moving to
the right on the figure, of these five alternatives, three are available for choice.
A2 for example, is outside the sphere of discretion and hence is eliminated, the
decision-maker is unaware of A. The possible outcomes for each available
alternative are A3, O1, A3, O2 and A3, O3. Comparing the outcomes of the
various available alternatives, A3 O1, A3 O2 and A3 O3 are considered most
favourable, and hence, A3 is the decision followed. The decision is based on the
criterion or basis believed important in the particular situation.

CHARACTERISTICS OF A DECISIO
The definition of decision involves following characteristics:
1. Decision is the choice of the best course among alternatives.
2. Decision is the end process preceded by deliberation and reasoning.
3. Decision-making is a mental process because the final selection is made
after thoughtful consideration.
4. Decision involves rationality because through decisions an endeavour is
made to better one’s happiness.
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 5. Decision is aimed at achieving the objectives of the organisation.
6. It also involves the evaluation of the available alternatives because only
through critical appraisal one can know the best alternative.
7. It may also be negative and may just be a decision not to decide.
8. Decision making involves a certain commitment. This commitment may
be for short run or long run depending upon the type of decision.
9. Decision relates the means to the ends

IMPORTACE OF DECISIO-MAKIG
The importance of decision-making cannot be over-emphasized.
According to Melvin T. Copeland, “Administration essentially is a decision-
making process and authority is responsibility for making decisions and for
ascertaining that the decisions made are carried out. In business, whether the
enterprise be large or small, changes in condition occur, shifts in personnel take
place, unforeseen contingencies arise. Moreover, just to get wheels started and to
keep them turning, decisions must be made.”
At the heart of planning is decision-making—the selection of a suitable
course of action. It is an important function of management. Management
without decisions is like a man without backbone. Nothing can be performed
without taking decisions.
Every aspect o functions, such as, planning, organization, motivation and
control is determined by decisions, the result of which is the performance in the
organization. The days of ‘hit-and-miss’ methods in management are over, and
have been replaced by new concepts and scientific techniques. Decision-making
is, therefore, vital to all management activities. It helps set definite objectives,
prepare plans of action, determine organizational structure, motivate personnel
and introduce innovations.

TYPES OF DECISIOS
Decisions may be of different types ; some of the important types of
managerial decisions are as below:

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1. Programmed and on-programmed Decisions
Simon has classified all decisions into two classes : (i) Programmed
decisions, and (ii) Non-programmed decisions. Such classification of decisions
is made on the basis of the use of operations research.
1. Programmed decisions are normally of repetitive nature and are taken
within the broad policy structure. An organisation can develop specific
processes for handling these decisions, e.g., standing operating
procedures and policies. Programmed decisions have short-run impact
and are taken by lower level managers, such as, granting leave to an
employee, purchase of materials in normal routine, etc. For example, if
there is a habitual absentee in absentee have a set procedure to deal with
him and you need not refer the problem to the Personnel Manager or to
the Board of Directors in order to arrive at a solution. If a manager spends
applicable time in dealing with programmed decision, he is wasting time
which he could more profitably spend in dealing with non-programmed
decisions.
2. Non-programmed decisions are of non-repetitive nature. Their need arises
because of some specific circumstances, such as, opening of a new
branch, introducing a new product in the market etc. They involve
judgement, intuition and creativity. Such decisions are taken by top
management. For example, if a large number of employees suddenly
started absenting themselves without information it would constitute a
problem involving the non-programmed decision. No routine decision can
be taken in such a case merely by issuing a charge-sheet to all the workers
and taking disciplinary action against each one of them. The management
should thoroughly probe into the causes and consequences of such a
problem.
2. Major and Minor Decisions
Decisions may be classified as Major and Minor. For example, if it relates
to the purchase of a big machine worth, say a lakh of rupees, it is a major
decision. On the other hand, purchase of fountain pen ink or a few reams of
paper are minor matters and may be decided by the Office Superintendent.

105
3. Routine and Strategic Decisions
Routine decisions are also known as tactical decisions. They are taken in
the context of day-to-day operations of the organisation. They are not very
important. Mostly they are of repetitive nature and do not require much analysis
and evaluation and can be made quickly. Authority for taking such decisions is
generally delegated to middle and first-line managers. They do not involve any
high risk or uncertainty. For instance, sending samples of a product to the
Government investigation centre is a routine decision.
Strategic or Basic decisions relate to policy matters and usually involve
large investments or expenditure of funds. These decisions are mostly non-
repetitive in nature. These decisions are taken by higher level of management
after careful analysis and evaluation of various alternatives. A slight mistake in
these decisions is bound to injure the entire organisation. Examples of strategic
decisions are : major capital expenditure decisions, all decisions affecting
organisation, productivity, pricing, location and size of the business, change in
product line etc.
4. Policy and Operative decisions
Policy decisions are taken by top management and they mostly relate to
basic policies. Such decisions are very important and they have a long-term
impact. Big’ concerns generally publish their policy decisions in the form of a
‘Policy Manual’ which becomes the basis for other operative decisions.
Operative decisions relate to the day-to-day operations of the enterprise.
They are generally taken by middle and lower level management who are more
closely related with the supervision of actual operations. Whether to give profit
bonus to employees or not is a matter of policy to be decided by top
management ; but calculating the bonus in respect of each employee is an
operating decision which can be taken at a much lower level.
5. Organisational and Personal decisions
The executive makes organisational decisions, when he acts formally as a
company officer. Such decisions reflect the basic policy of the company. They
can be delegated to others.
Personal decisions relate to the executive as an individual and not as
member of an organisation. Such decisions cannot be delegated.

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6. Individual and Group decisions
As is apparent, individual decisions are taken by a single individual in the
context of routine or programmed decisions where the analysis of variables is
simple and for which broad policies are already provided.
Group decisions are taken by a group or a standing committee constituted
for this specific purpose. Such decisions are very important for the organisation,
because they involve the participation of a large number of persons.
7. Long-term, Departmental and on-economic decisions
Decisions may also be classified as long-term, departmental and non
economic. In the case of long-term decisions, the period covered is long and the
risk involved is more. Departmental decisions are taken by the departmental
heads and relate to the department only. Decisions relating to non-economic
factors (such as technical values, moral behvaiour, etc.) may be termed as non-
economic decisions. While taking decisions on these factors, care should be
taken to see that justice is done to all and as a result of this decision, no new
problem is created for the organization.

THEORIES OF DECISIO-MAKIG
Three major theories of decision-making are : (1) The Intuition or the
Traditional Theory, (ii) The ‘Classical Theory, and (iii) The Administrative Man
or the behavioural Theory.
More-often-than-not, decisions are taken by intuition, i.e., without really
considering carefully all the alternatives. Actually, many of the decisions taken b
most of us are on ‘intuition’ or ‘hunch’ ; in other words, a person just decides
upon course of action because he feels that the particular course is the best one.
This Traditional or the Intuition Theory. Scientifically speaking, this kind of
feeling has no rationale behind it nor can anybody explain why he is feeling that
way. The person who makes decision on the basis of intuition or feeling
represents one extreme form of decision-making process.
On the other extreme is the totally rational man who takes all his
decisions after a careful probing into all the alternatives. The Classical Theory
implies that decisions are made rationally and are goal-directed. It is essentially
a theory of decision-making under conditions of certainty. This theory is subject

107
to the following criticism (1) It is a normative rather than a descriptive theory.
(2) It is based on the assumptions of a rational-economic man. (3-) It is based on
conditions of certainty, which is a rare phenomenon. (4) It implies that
managerial goals are stable but in actual practice theory are subject to revision
due to environmental changes. (5) Organisations have plural goals and these
goals are often conflicting with one another.
According to the Administrative Man or Behavioural theory, decisions
are made on the basis of a limited, approximate model of the real situation.
Herbert A. Simon designates it as the ‘Principle of Bounded Rationality
According to Simon a person makes decisions not only on an absolutely logical
analysis of facts, but also on his intuition, habit, way of thinking and value
system. A decision involves both questions of fact and of value ; questions of
fact relate to ‘what is’ and questions value relate to ‘what ought to be’. In short,
usually a person takes decision based on this thinking of ‘what out to be’. It is
because (i) The man does not have full knowledge of alternatives nor does he
have full knowledge of the consequences of each alternative. (ii) The future is
uncertain and one has to necessarily imagine it. In doing so he is mostly affected
by his value system, i.e., how he looks at things. (iii) A decision-maker just takes
up a course of action which satisfies and meets his requirements.

RATIOAL TECHIQUE OF DECISIO-MAKIG

In making a decision, the manager should observe certain steps and
follow them in the proper sequence. The decision-making process can be divided
into the following important stages
1. Diagnosing the problem or defining it
Sound diagnosis is the crucial first phase of decision-making. A manager
should proceed just like a doctor who first takes into account all the symptoms
before prescribing the medicine. It is not an easy task. As Peter Drucker points
out, the books and articles on leadership are full of advice on how to make fast,
forceful and useful decisions, but there is no more foolish and n more time-
wasting advice than to decide quickly what a problem really is. Defining the
problem in most instances is a time-consuming task, but it is time well spent. In
defining the problem the manager should find the critical or strategic factor or
factors, and he would be wise to restrict himself to these. As Chester I. Barnard
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has pointed out, the theory of the strategic factor is necessary to an appreciation
of the process of decision-making. There are three basic elements of sound
diagnosis (i) Identify the gap between the results desired and the existing or
predicted state of affairs ; (ii) Find out the direct root cause of the gap between
the actual situation and the desired situation ; and (iii) Analyse the over-all
situation and see whether it places any limits within which a satisfactory solution
may be found out.
2. Secure and analyse pertinent facts
After defining the problem, the manager can then set about to analyse it.
The first step in analysis of the problem is to assemble the facts. There are three
important principles of analysis and classification (i) the futurity of the decision
(i.e., to what length of the time does the decision commit the business to a course
of action) ; (ii) the impact of the decision on other areas and functions ; (iii) the
qualitative considerations which come into the picture. The purpose of
classification is to ensure that the decision made takes a comprehensive view of
the business as a whole rather than the immediate or the local problem.
3. Develop alternative solutions or courses of action
The next step for the manager, after having defined and analysed the
problem is to develop alternative solutions. The purpose of finding alternative
solutions is to make the best decision, after a careful consideration of the most
desirable courses of action in the circumstances of the case. According to Peter
F. Drucker, “Of course, searching for and considering alternatives does not
provide a man with an imagination he lacks. But most of us have infinitely more
imagination than we ever use. A blind man, to be sure, cannot learn to see. But it
is amazing how much a person with normal eyesight does not see, and how
much he can perceive through systematic training of the vision. Similarly, the
mind’s vision can be trained, disciplined and developed. And the method for this
is the systematic development of the alternative solutions to a problem.”
The Creative Process. The more a person can think of the alternative
solutions, the better is the chance of choosing the best solution after weighing
the pros and cons of each alternative. The capacity to think in a creative manner
is a great asset to decision-maker. The organisation should try to stimulate an
atmosphere of creativity. The following guidelines provided by Frederic D.
Randall may be of some use to the decision-maker

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 1. Creative thinking demands a genuinely free exchange of information
among men at different levels of authority. Formal communication
programmes are not enough.
2. The ‘crash’ or emergency approach discourages creativity and should not
be applied any more than necessary to problems, in need of solution,
especially those of a vital and long-run effect.
3. In planning and control the conditions that stimulate imagination should
be taken into account.
4. A group’s understanding about the consequences of failure is an
exceedingly powerful force. in determining creative potential.
5. Conditioned thinking, such as, may stem from a strict policy of promotion
from within, blocks the creative process, unless management takes
counter measures.
There are five principal stages of the creative process;
1. Saturation. It means that familiarising one self thoroughly with a problem
together with its context is an important process of creativity; unless one
thoroughly acquaints himself with the problem and its setting, no creative
result is likely to emerge.
2. Deliberation. Second. a perfect knowledge about the problem and
assembling of the relevant data is an essential element of creativity.
3. Incubation. This term refers to the sub-conscious activity which precedes
hitting up a fresh and proper solution. It is a simple psychological
phenomenon that a creative mind spends a great deal of time in becoming
familiar with the problem, in gathering the relevant data and in co-relating
the various elements and pattern them into possible combinations. The
conscious mind gets tired and frustrated in this exercise. Hence, it is
advisable that at this stage the conscious mind be switched off from the
problem and the sub-conscious mind be allowed to take over. It may be
noted that the conscious mind is the centre of logical thinking and the
sub-conscious mind directs itself to problems which are of interest to the
conscious mind. When the conscious mind is relaxed, the sub-conscious
works and often gives birth to excellent ideas.

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 4. Illumination. This is the stage when an idea actually springs in the mind
of the decision-maker. More-often-than-not, ideas illuminate while taking
a walk, driving home from work or during some other period of mental
relaxation.
5. Accommodation. This stage consists of modifying the original idea,
reframing or polishing it and making it practical for use.
How to increase creativity in groups ? Well, the simple answer to this
question is that opportunities be provided to the members of the group for some
sort of exchange of ideas. The schemes of management-get-together and brain-
storming may help in making a group more creative. Brain-storming encourages
the group members to give all sorts of ideas without bothering whether the
particular idea is workable or not. It has been experienced that an hour or so of
brain-storming produces a large number of ideas which could be scrutinised and
combined to produce a workable original solution.

4. Decide upon the Best Solution or Optimum Course of Action

After developing the alternatives the manager should test each of them by
imagining that he has already put each into effect. He should try to foresee the
probable, desirable and under consequences of adopting each alternative. It
would be useful to list down all the advantages and disadvantages of all possible
courses of action. In classifying the alternatives and in listing the advantages of
each alternative, distinction between tangible factors and intangible factors must
be made. It is always good to try to measure all the tangible advantages and
disadvantages in terms of a common denominator, i.e., money. Once the merits
and demerits of various alternatives have been listed, the next stage would be to

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concentrate only on differences, because then only it would be possible for a
person to take an immediate decision.
5. Convert the Decision into Effective Action
After having defined the problem, analysed the problem and having
developed and evaluated alternative solutions, the manager can select from these
alternatives the best possible solution. The knowledge gained by past experience
is generally a helpful guide in arriving at the final decision. But it must always
be viewed with the future in mind, and the underlying circumstances of the past
and present must be considered. Once the final choice is made, the next stage is
to implement the decision. This is not a part of choice activity, but is a post-
choice activity clustering around implementation of the selected course of
action.
6. Implementing and Verifying the Decision
Effectiveness of decision in achieving the desired goals depends on its
implementation. Best decisions are futile if they are not effectively implemented.
It is just possible that a good decision may be hurt by poor implementation. In
this sense, implementation is more important than the actual activity of choosing
the alternative. Further, follow-up system is essential to modify decisions, if
necessary. In management cycle we have planning – action – control –
replanning – action - control This is an on-going process Such a follow-up
system will ensure the achievement of objectives. It is exercised through
effective control.
Simon’s Approach to Decision-making
Ordinarily, there are three different stages in the process of decision-
making. What is the problem ? What are the alternatives ?Which alternative is
best ?Herbert Simon has presented them into : (i) Intelligence Activity: This is a
basic or foundation stage during which problems are discovered or diagnosed
and objectives are clearly defined. (ii) Decision Activity: In this stage, specific
authority and responsibility to pursue the new idea further is entrusted to either a
particular manager or a team of managers who possess the necessary skill and
aptitude in this regard. (iii) Choice Activity: En this stage, the team has to
appraise and evaluate the alternative ideas within the framework of the decision
criteria.

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 It is a common experience of all top management people that every major
business decision involves several sub-decisions at every stage ; several
problems crop up during the major decision-making process. Certain problems
lead to solutions while others create more problems. ‘Thus, decision-making
process is less a neat, streamlined and smooth activity and more a complex
alternative and heuristic venture requiring patience, perseverance, creativity and
judgment.’

ADMIISTRATIVE PROBLEMS I DECISIO -MAKIG

SQC in administration for decision-making. In modern industrial
organizations, there are variety of managerial and administrative problems, some
of which are quite complex and are required to be tackled properly and
judiciously if an organization has to thrive efficiently. A good number of higher
managerial control techniques are, therefore, now available to management for
smooth and efficient operation of an organization, viz., Operations Research
(modern quantitative approach to problems) ; Management Accounting
including Inter-firm Comparison Ratio Analysis and Breakeven Analysis ; Cost
Analysis and Cost Control ; Industrial Engineering ; Market Research ;
Managerial Economics, Behavioural Science to Management problems, etc. To
the modern managerial tools and techniques, statistical methodology and
technique (SQC) is a must since it is vital aid to business managers to make
systematic analysis and interpretation of data for quick and effective decisions in
different functional areas of management and administration. Whether SQC is
applied in administration or production or in any other technical branches of an
organization it is an important aid to management for its decision making
process, for it indicates the facts and figures to management which enable it to
arrive at some kind of decisions in different problem areas of administration.
Moreover, maintenance and presentation of the required information and data in
the forms of charts, graphs and diagrams help management to a considerable
degree for general information of decision.
Although there are various areas even in the administrative branches of an
organization on which decisions are required to be taken by management, here
are a few administrative areas specifically related to the personnel element
which SQC is of immense help in study and analysis of problems and in
providing relevant data and facts with logical conclusions for management

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decisions : (a) Executives’ Time- spent analysis; (b) Training for improving
personnel efficiency ; (c) Control of clerical operations; (d) Control of employee
absenteeism; (e) Control of overtime work for employees ; and (I) Scientific
merit-rating of employees, etc.
Correctness of decisions. Correctness of decisions is a very important
problem of management. For arriving at correct decisions, the executive should
analyse the situation and must have confidence about his capacity to solve the
problem. If an analysis of the information is correct and systematic, the decisions
too are bound to be accurate.
Decision environment. The effectiveness of a decision very much
depends upon the organizational and physical environments. If the general
environment is satisfactory there will be mutual cooperation, proper
understanding and it will provide better scope of research, analysis and thinking.
Timing of decisions. Timing too plays an important role in the decision-
making. Decisions without any purpose, timing and event are not business
decisions. Decisions would be vain, if they are not taken at the right time.
Effective communication of decisions. Besides timing, effective
communication of the decisions is also an important administrative problem of
management. Decisions taken must be communicated to those for whom they are
meant and in the language that might be understood by all. The decisions to be
communicated must be clear, simple, logical and free from any ambiguity.
Participation in decision-making. The philosophy behind participation in
decision-making is that all the members of an enterprise should be encouraged to
take an active part in arriving at definite conclusions. The extent of participation
should depend upon the willingness of the top executive. More often than not,
the top executives feel that decision-making is their monopoly and it is below
their dignity to invite suggestions from the subordinates. Organization in which
participation is at a minimum are said to be ‘Authoritarian’ in nature whereas
where there is great participation are called ‘Democratic’ organisation. In the
case of an authoritarian organization, direction and control are lodged at the top
and decisions are taken by one or a few at the top level. On the other hand, in the
case of democratic organization, people at the lowest rung of the ladder will
have a greater say in decision-making.

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 Implementation of decisions. Once the decision is- finally made, it is the
primary duty of the manager and his subordinates to carry it out with all energy
and zeal at their command. In the course of making the decision, the manager
may have consulted hired specialists or intra-organizational staff agencies, but
the final decision is his and he has to accept full responsibility for the choice.
The higher up the ladder he climbs, the lonelier is he in respect Of his decisions.
The kudos may not so readily be acknowledged, but any setback will have
accusing fingers pointing at him. He may lose of his so-called friends for, in the
jungle of management politics, the friend is a friend for acts of favour. He
demands his pound when it comes to the plums. If he does not get it, he will
sulk, he will conspire and make any unholy alliance, with the where object of
topping the one with whom he has never lost favour. This often temps every
manager, howsoever, efficient and forthright he may be, into taking decisions
with a subjective slant and with a view of favouring an individual rather than
benefiting the enterprise. The higher up this happens, the greater is the danger to
the enterprise. And if it happens once too often, neither the manager nor the
management can survive in this fast developing industrial area.

GUIDELIES FOR EFFECTIVE DECISIO MAKIG

The following guidelines may be suggested as an aid to effective decision
making:(l) Define the goals, (2) Ensure that the decision contribute to the goal.
(3) Adopt a diagnostic approach to decision-making, (4) Involve subordinates in
decision-making process, (5) Ensure successful implementation of the decision,
(6) Evaluate the results and (7) Be flexible and revise the decision which do not
yield the desired results.

DECISIO TREE
Meaning
Where a series of decision reaching some way into the future have to be
made, it is possible to draw a ‘decision tree’ showing the decision to be reached.
Where choices of decisions have to be made at various stages, the possible
outcome of each choice is shown s ‘branch’, thereby aiding management in
making the choice. Decision tree is actually a graphic method by which a
decision-maker can see alternative solutions to him, their respective outcome as
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probabilities associated with each of them and evaluate the comparative outcome
to find out the optimum one.
Uses of Decision Tree
A manager may make use of decision tree for making decisions which
otherwise are not easy to make. A basic value of decision tree lies in expressing
all outcomes or events in quantitative forms which provide precision in decision-
making. Since a large number of techniques have .been developed to take into
account the impact of large number of variables, the use of decision tree even
increased.
Limitations of Decision Tree
Although decision tree is simple in essence, yet it may get complex in
application. The main difficulty in analysing decision tree is that even with
simple two or three branch forks, the tree can be quite complex; it may turn into
a bush. Secondly, there is often inconsistency in assigning probabilities for
different events. Notwithstanding these limitations, a decision tree offers a
solution of the decision situation better than any other technique.

REVIEW QUESTIOS
1. “Administration essentially is a decision-making process....” Amplify this
statement and discuss its nature. What types of decisions are business
executives generally called upon to take?
2. Discuss the importance of decision-making in business administration and
management
3. What is the significance of decision-making? What procedure should be
followed in arriving at a correct decision?
4. Briefly describe the technique of decision-making.
5. Carefully examine the different administrative problems in decision-
making.
6. “Decision-making is the primary task of manager.” Discuss and explain
the process of scientific decision-making.

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 7. “Good decision-making must be evaluated against future events.
Experiences and facts are matters of history and belong to the past.”
Comment.
8. Discuss the essential steps in decision-making. How can you make quick
and Correct decisions in a big commercial unit?
9. Discuss the distinguishing features of modern decision-making in
management.
10. What are the various stages in the process of rational decision-making?
Discuss with reference to a business decision.

CASE :
Sitting in a simple of fice, he personally negotiates the severance pay
contract for an employee. Later he reviews an editor- al in a company
newspaper, discusses sports programming in Asia, and considers a proposal
dealing with a local part of his business. This description sounds like an
executive in a relatively small company handling fairly routine day-to-day
decisions, right?
Now consider your reaction when a few details are added: the employee’s
severance pay contract was that of Chevy Chase after his aborted TV talk show;
the newspaper was the New York Post; the sports programming was in regard to
Star TV, an expanding Asian satellite network: the proposal was from Ticket-
Master and was in regard to tile possibility of exchanging guns for sports tickets
at a local Fox TV station; arid the “he” was Rupert Murdoch— the billionaire
head of The News Corp., which owned all of those various companies in early
1994.
Keeping up with the exact holdings of The News Corp. is difficult
because Murdoch is constantly buying, selling, and reorganizing those
companies to achieve his vision of an electronic future. In addition, Murdoch
tends to step in and make decisions for al most all of his companies at one time
or another.
Murdoch decided to buy the rights to broadcast National Football League
(NFL) games over his Fox network and planned to carry those broadcasts over
many of his worldwide television stations, too. He did riot have enough

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programming for many of those stations, so this decision was to prove effective
both domestically for Fox and internationally for News Corporation as well.
Less than a year after he decided to purchase Star TV, Murdoch moved to
totally change its strategy. Star TV is based in Hong Kong and operated five
channels at the time of the purchase. Critics had suggested that Murdoch would
not be able to transfer the success he had obtained with Britain’s British Sky
Broadcasting television and America’s Fox net work to the Asian market
because of the cultural, political, and geographical problems facing such a move.
After all Asians are segmented by a variety of different languages, religions, and
social systems. The critics appeared to be right when Murdoch made a speech in
London suggesting that satellite television would end totalitarianism. The
Chinese government promptly banned satellite dishes for all but a select few
government officials and their friends. But it anyone could do it, Murdoch might
be the one.
Murdoch’s decision-making style has been de scribed as more instinctive
than analytical. He tends to make quick decisions and has frequently been
wrong, although he argues that speed is necessary to pursue many opportunities.
Critics believe, how ever, that he has simply been rash on occasion.
Nevertheless, his success is indisputable and serves to answer most of his critics.
But one element of his decision-making style may lead to considerable
concern. He does it all himself. No one has been groomed to take over should
any thing happen to him. Further, the organization’s cul ture is so strongly built
around his style that it would be very difficult for anyone else to manage a
smooth transition in the event of an emergency. The future of The News Corp.
without Rupert Murdoch may be the biggest concern in the next few years.
Questions
1. How would you describe Murdoch’s decision- making style? How would you
rate its effect
2. Why might someone noted for making quick, tough decisions be an
appropriate executive for a rapidly growing global organization? Why might
such a person not be appropriate?
3. What might be done to avoid disaster in the event of an unexpected and
sudden transfer of power at News Corporation?

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 UIT - II
Lesson - 8
DECISIO - MAKIG
ITRODUCTIO
Decision-making is an integral part of most of the top managers' duties.
Not even a single day passes without taking decisions particularly in modern
organisations. Hence, management and decision-making are considered as
inseparable. Infact, whatever a manager does, he can do it only by taking some
decisions. All matters relating to planning, organisation, staffing, directing and
controlling are engrossed in decision-making process. That is why it is aptly
pointed out that management is essentially a decision-making process. The
survival and future success of any enterprise is directly related to the ability to
take timely and appropriate decisions by the executives. Thus, decision-making
is said to be the heart of management.

Lot of planning exercise is to be initiated by the manager before taking

any viable decision. Questions like what to do, when to do and how to do are to
be examined clearly before allocating resources on different mananagerial
activities. Unfortunately, these resources are scarce. So, the manager has to
carefully plan and decide what to do or what not to do. Wrong decisions quite
often are proved to be either costly or futile exercise. To prevent such losses,
decision-making process remains to be the core area in all planned activities of
the modem corporations.

Meaning
Koontz and Weihrich have defined this concept are "the selection from
among alternatives of a course of action." According to this definition, picking
one course of action among alternatives available is termed as decision-making.
In the words of George Terry, "decision-making is the selection of a particular
course of action, based on some criteria, from two or more possible alternatives."
We may define this concept as "the process of choosing between various
alternatives for achieving a specified goal. Every decision must take into
consideration needs and future uncertainties. The famous decision theorist,
Herbert Simon has identified three major steps in the decision-making process.

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The first step involves he recognition and understanding of the real problem. In
the second phase, various alternatives may be developed. The third step involves
careful assessment of alternatives available for taking a better decision. :

Characteristics

 Decision-making is a continuous process.

 The question of decision-making comes into picture only when, there are
alternatives.
 A decision-making process must always be rational and purposeful.
 Decision-making is an Intellectual process supported by good reasoning
and sound judgement.
 Decision-making is all pervasive in the sense that all levels of managers
need to take decisions of varied nature.
 Decision-making is always related to future only.

Types of Decisions
Managerial decisions may be broadly classified under two categories- the
first category includes the typical, routine and unimportant decisions and the
second category covers most Important, vital and strategic decisions. Apart from
this classification, decisions are taken at different levels for meeting different
problems. The following paragraphs present a bird's eye view of different type of
decisions taken by the executives from time to time.

(i) Organisational Vs Personal Decisions

Chester. I. Bernad has explained about this classification of decisions.

Decisions taken by the manager in his official capacity are termed as
organisational decisions. These decisions have a direct bearing on the
functioning of the firm. Also, the authority for taking such decisions can be
delegated to the subordinates. For instance, decisions relating to reward systems
or transfer of workers can be cited as examples under this category. In contrast,
to this, sometimes, decisions may be taken by the manager in his Individual
capacity. Such decisions are termed as personal decisions. They may partly

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affect the personal life and partly affect the organisation. For instance, decision
to quit the organisation comes under this category.

(ii) Routine Vs Strategic Decision

Routine decisions Involve little risk and uncertainty. Hence, they do not
call for extraordinary Judgement and thinking. They are mostly related to day-to-
day conduct of the business. Most of the routine decisions are taken repetitively.
That is why they are normally taken at lower levels of management. On the
otherhand, strategic decisions are taken by the top-level management. Either
they are concerned with policy matters or with long-term commitments of the
organisation. They require thorough understanding, analyses and best judgement
pertaining to location of the plant, type of technology and channel of distribution
are the best examples of this type.

(iii) Policy Vs Operating Decisions

Policies act as guidelines for future action. Hence, decisions pertaining to
policies are usually taken by the top management. They are considered to be
very important since they affect the total organisation. While operating
decisions are administrative in character, they help in translating policies into
action. For Instance, decision relating to a new incentive scheme may be termed
as a policy decision. Decisions relating to the methodology of implementation of
such incentive scheme are termed as operating decisions.

(iv) Programmed Vs on-programmed Decision

Programmed decisions usually deal with routine and repetitive problems.
For dealing such problems, systematic policies, procedures and rules are
established. Programmed decisions can be taken with little ease as everything
goes according to some set of rules. As against this, non-programmed decisions
cover mainly unexpected events and challenges. Each of such problems is a
special one. In otherwords, each problem is unique in nature. For dealing with
such special problems, executives usually refer them to the top management. For
tackling such situations, the manager needs expertise, intuition and creative
thinking.

(v) Individual Vs Group Decisions

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 Decisions taken by the Individual in his personal capacity are known as
individual decisions. Organisations which are small in size can accommodate
this type of decision-making process. When organisations grow in size and
stature, complex problems do come into picture. Group decisions are considered
to be the best under such situations. Group decisions represent the thinking of
more than one executive. The commonly held belief is that "two brains can
certainly think in a better way than one."

Having discussed some of the important types of decisions in the earlier

paragraphs, a brief attempt is made to identify some common elements in the
decision making process. These elements form as important steps for carrying
out decision-making process systematically. The various steps Involved in the
decision-making process are explained with the help of the following figure.

FIGURE
DECISIO MAKIG PROCESS

Defining Analysing Developing

Problem Problem Alternatives

Feed Evaluation of
Back Alternatives

Follow up Implementing Selection of

Action Decision Action

Step (1) Defining the problem

The first step is to determine what the real problem is. A problem is half-
solved when it is correctly diagnosed.

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 Money and effort are going to be wasted it problem is not determined
correctly. That is why, accurate diagnosis of the real problem is necessary to find
out right solution. One should look at the real causes and for the remedial
measures by touching the inner details of the problem. Touching only the outer
surface of the problem and arriving at decisions may lead to fallacious
conclusions.

Step (2) Analysing the Problem

Once the problem is dearly defined, men, it must be analysed in the light
of data pertaining to various factors that the surmount the decision. Every
situation may have some advantages and limitations. Necessary emphasis should
be laid on locating the limitations and obstacles in achieving a desired result.
Necessary care should be exercised in avoiding personalized bias in judging
certain factors. Analysis of crucial factors provides a sound basis for making
effective decisions.

Step (3) Developing Alternatives

The analysis off the problem becomes complete once it throws light on
several alternatives solutions. In fact the success of decision- making process
much depends upon the ability to an executive In developing alternative
solutions to a given problem. This requires lot of imagination, experience and
judgement exploring the positive or negative impact of such alternatives forms
as a solid base for sound decisions.

Step (4) Evaluating Alternatives

Once the alternatives are developed, the next step is to evaluate them in
terms of their cause, time, impact, objectives etc. Many a time, either marginal
cost or cost -benefit analysis is used to bring out the tangible benefits of each of
such alternatives. Each alternative solution may have its own merits and de-
merits. They should be compared with other alternatives for the purpose
appraising the real impact. Peter F Drucker has identified, risk, economy, time
and limitations as important criteria for evaluating the consequences of different
alternatives.

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Step (5) Selecting the beat possible solution

Selection usually involves choice making. It is the last step in decision-

making process. The manager has m select such an alternative course of action
which can make the maximum contribution to the goal. It is not always possible
to select the best alternative, for a given problem. That is why the manager has
to rely upon such course of action which can yield good results under a given set
of circumstances and limitations.

Step (6) Implementing the decision

Once the best alternative is selected, it must be implemented. This step

mainly deals with the execution of the decision taken. It involves development
of step by step plans, selling the idea to subordinates and seeking co-operation
from the needy people. At this stage, the decision is converted into action. The
decision must be implemented in the right time and that too in a proper way.

Step (7) Evaluation of Decisions

The final step in decision-making process is evaluation. The actual results

of the decision should be compared with the expected results in order to locate
the reasons for deviations. This review is a continuous process and it generates
information for necessary feedback for further improving the decision-making
process in future.

Rationality In decision-making

The term 'rationality' refers to objective and intelligent action decision is

said to be rational if appropriate means are chosen to accomplish desired
objectives. It implies that decision-maker tries to maximise the values in a given
situation by choosing the most suitable course of action. A good decision
depends on the maker's being consciously aware of the factors that set the stage
for the decision. Obtaining complete rationality is not always possible. That is
the reason why people prefer to take satisfactory decisions instead of ideal or
optimum decisions. Managers are not always confronted by the problem of
rationality in decision-making. In practice, they confine themselves to few

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important alternatives which have limited risks combined with favourable
consequences.

Limits of Rational Decision-making

Managers are not always rational in their decision-making. They cannot

always abide by the demands of rationality in decision- making process. There
are some limitations which are briefly explained in the following lines.

(a) Since decisions are related to future, Managers cannot foresee all the
consequences accurately. Moreover, lack of complete knowledge about the
problem also makes it impossible to choose a good decision.

(b) Because of time and cost constraints, all complex variables that have a
bearing on decision cannot be examined fully. Hence, the decision-maker is
forced to strike a balance between complete rationality and hard realities on the
ground. The Impact of all the variables cannot be ascertained because some of
them may be Intangible.

(c) The consequences of various alternatives cannot be anticipated

accurately. Hence, decisions taken under uncertainty cannot guarantee the
success of decision-making process.

(d) Human factors like value systems, perceptions, social factors,

institution etc., are the main limits on rational decision-making. Managers,
being-human beings, are greatly influenced by their personal beliefs, attitudes
and biases. Because of this, the capability of a decision-making process varies
from individual to Individual and from situation to situation.

Every manager is vitally concerned with the above limitations in his

approach to rational decision-making. He has to collect all the relevant
Information and try to overcome the above limits on rationality and choose the
most rational decision for solving any given problem.

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Barriers to effective Decision-making

Apart from the above limitations, decision-making process remains to be

ineffective because of the existence of various barriers in organisation structure.
These barriers impede the process of identification of problems, its analysis and
the development of the solutions. Elbing has identified some of the important
barriers that can block managerial effectiveness in choosing the most suitable
decision. Some of them are listed below.

 The tendency of a human being to evaluate a given problem with pre-

conceived notions, acts as a stumbling block in understanding the real
situation.
 Though it is dangerous, managers feel safer if they do not change what is
familiar. Eventually, the ineffective decision of a familiar way becomes
accepted rather than considering new and innovative means.
 Many managers fall to demarcate the symptoms from the main problem.
 Many managers have a tendency to respond to the problem
instantaneously without proper information and thinking. If they gather
more Information, they become more aware of their options.
 Similarly, the tendency to equate a new challenge with that of old
experience is common with many managers. This often causes managers
to look for what is familiar rather than what is unique in new problem.

The above problems are mainly responsible for either indecision or for
half-decisions in the modem organisations. Knowledge of the above problems
will surely help the managers in arriving at pragmatic decisions. The following
suggestions can be offered to overcome the above barriers so as to make the
managers more effective in decision-making process.

 Avoid premature evaluation.

 Initiate impartial probing by avoiding personal biases on the
outcome.
 Develop a sound system that can supply adequate information for
making decisions.

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  Encourage group leaders to respond to a given situation and
compare the pros and cons of the solutions offered by the two
groups for making an effective decision.
 Encourage innovative thinking among the sub-ordinates so as to
identify the crux of Ac problem without waste of time and money.
 When decisions of critical and pivotal in nature are to be taken,
encourage group thinking. For this, the problem is to be presented
to the subordinates first and they are asked to develop as many
solutions as possible in a free environment

TECHIQUES OP DECISIO-MAKIG
(1) Brainstorming
Brainstorming is the oldest and widely followed technique for
encouraging creative thinking. It was originally developed by A.F. Osborn. It
Involves the use of a group. This is an approach to improve problem discovery
and solving by encouraging subordinates to give their ideas and solutions in a
free environment- It starts on the premise that when people interact in free
environment, they will generate creative ideas. Continuous interaction through
free discussions may result in spontaneous and creative thinking. The larger the
number of solutions, the fairer are the chances in locating an acceptable solution.
Established research proves that one hour brainstorming system Is likely to
generate 50-150 ideas. It is interesting to note that while most of them are
proved to be impracticable, at least, some of them merit serious consideration.
This group process is not without limitations. It consumes lot of time and
therefore, is an expensive exercise. Secondly, it emphasises only quantity of
solutions which more often than not proved to be superficial. By overcoming the
above limitations, a modern manager can use this as an effective tool.

(2) Synectics

When compared to Brainstorming. synectics is a new concept developed

by Williamb J.J. Gordon, The term 'synetics' is derived from a Greek word
which refers to "Fitting together of diverse elements". It starts on the premise
that this concept encourages novel thinking for the development of alternatives
through putting together different ideas whjch are distinct from each other. A

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given problem is presented to a group of people with different backgrounds and
varied experiences.

It is the responsibility of the group leader to present the problem and lead
the discussions in order to stimulate creative solutions. This approach ensures on
the spot evaluation of members suggestions. The leader who is a technical expert
is always assisting the group in evaluating the feasibility of their ideas.
Experience shows that synetics has been less widely used than "Brainstorming".
When the problem is real tough and challenging, this approach is used for
effective decision-making. Like Brainstorming it also suffers from the same
range of limitations

(3) Operations Research

The origin and development of operations research is attributed to

military operations and applications in Und World War. The war put tremendous
pressure on the use of available scarce resources for various strategic and tactical
operations. The success of operations research in developing options of effective
and efficient nature was instrumental in making this approach rather dependable
in decision-making process. Now-a-days, greater emphasis has been laid on the
use of mathematical models to reflect different options and constraints in a
situation and their effect on a selected goal. This quantitative approach to
decision-making is usually referred as "Operations Research". Of late, it has
become an Invaluable tool in the kit of a decision-maker. Operations Research
employs optimizing models like Linear Programming, Project Management,
Inventory Control, Decision Theory and Waiting Line Theory.

Operations Research is the systematic method of studying the basic

structure, functions and relationships of an organisation as an open system. It
always adopts a systems approach to management in getting things done. It is
constantly interested in developing optimal solution with limited resources in a
given situation. It covers six steps in its approach to problem solving. They
are:(a) Identification of a problem; (b) construction of a mathematical model to
investigate the problem;(c) developing a good so1utlon:(d) testing of the model
in the light the data available; (e) identifying and setting up of control points (f)
Implementation of the option as a solution to a critical problem (putting a

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solution to work). In essence, Operations Research attempts to develop the best
solution that will contribute to organisational goals.

Limitations of Operation Research

(i) Operations Research technique is not a panacea to all the problems of

modem management. In other words, it is not the end. (ii) Since Operations
Research does not take intangible aspects into consideration, subjective
judgement becomes difficult under this model.(iii) As the Operations Research
technique directly depends upon the use of mathematical and statistical tools, it
is increasingly becoming complex and costly exercise, (iv) Since decision
making is a human process, it cannot be predicted properly. At the same time,
the impact of such factors cannot be measurable.

(4) Delphi Technique

It is a technique normally used for forecasting future events. It is a group

decision-making technique. Under this method, independent opinions are sought
from the members repeatedly so as to develop a best solution to a given problem.
The success of Delphi technique depends upon a simple technique of
understanding the problem from the other man’s perspective. This ensures
success. Though it is a useful technique, since it Involves time and cost, it can
not be tried in all situations.

REVIEW QUESTIOS

1. Describe the nature of decision-making.

2. What are the main features of the classical model of the decision-making
process?
3. What are the steps in rational decision-making? Which step do you think
is the most difficult to carryout? Why?
4. How do quantitative tools and techniques improve the decision-making
process?

129
 CASE STUDY (1)

Renuka Tin manufacturing was facing problems in meeting production

schedules and producing quality products. In view of recent trends in
globalization of Indian market, good number of orders were received from
developed nations. The problems of meeting rush orders from foreign countries
is placed before the operations research department. The OR department has
located some weaknesses of the unit like lack of automatic equipment and poorly
designed production process. To overcome these weaknesses, the management
has proposed to invest Rs. 70,00.000 for buying new automatic equipment and
rearranging the production process. It is contemplated to increase the output by
40 per cent by committing Rs.70 lakhs of Investment. It is expected that this
Increase in output will enable the unit to meet foreign orders without disrupting
the normal business. Further, It Is estimated that new facilities and reorganised
production process coming together will generate savings which can pay off
Rs.70 lacks in three years.

QUESTIOS

1. If you are a Manager, would you advocate additional investment based on the
recommendations of OR department?
2. What additional information would you seek before the decision is
implemented?
3. What controls do you suggest for getting projected saving as a matter of
reality?



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 UIT - III
Lesson - 9
ORGAISATIO

ITRODUCTIO

Organisation is a mechanism or structure, which helps the activities to be

performed effectively. The organisation is established for the purpose of
achieving the business objectives. The business objectives may differ from one
business to another. Whatever may be the business objectives there is a need of
an organisation. The word "Organisation" is derived from the word “Organism”
which means an organised body with connected interdependent parts sharing
common life. When a group of persons working together to achieve a common
goal, the problems, such as who decides what issues, who does what works and
what action should be taken on the basis of certain conditions may arise.

Meaning

Organisation is the detailed arrangement of work and work conditions in

order to perform the assigned activities in an effective manner. Organisation can
be compared to a human body. The human body consists of hands, feet, eyes,
ears, nose, fingers, mouth etc. These parts are performing their work
independently and at the same time one part cannot be a substitute to another.
The same principles can be identified in the organisation also. The organisation
consists of different departments. Each department performs work independently
and cannot be a substitute to another.

Definition

Haney, “Organisation is a harmonious adjustment of specialised parts for

the accomplishment of some common purpose or purposes.”

McFarland, “An identified group of people contributing their efforts

towards the attainment of goals is called organisation.”

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 Alien, “The process of identifying and grouping the work is 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.”

Mooney and Reily, “Organisation is the form of every human association

for the attainment of a common purpose.”

Chester Bernard, “A system of co-operative activities of two or more

persons is called organisation.”

R.C. Davis, “Any group of people, large or small, which has been
implemented adequately and is co-operating willingly under the direction of
competent executive leadership in an effective, economical accomplishment of
certain common objective.”

G.R. Terry, “Organising is the establishing of effective behavioural

relationships among persons so that they may work together effectively and gain
personal satisfaction in doing selected tasks under given environmental
conditions for the purpose of achieving some goal or objective.”

Koontz O’Donnel, “Organising involves the establishment of an

international structure of roles through determination and enumeration of the
activities required to achieve the goals of an enterprise and each part of it; the
grouping of these activities, the assignment of such groups of activities to the
manager, the delegation of authority to carry them out and provision for co-
ordination of authority and information relationship, horizontally and vertically,
in the organisation structure.”

Louis Al Alien, “Organisation is that 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.”

Oliver Sheldon, “Organisation is the process of so combining the work

which individual or groups have to perform with the facilities necessary for its

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creation that the duties so performed provide the best channels for the efficient,
systematic, positive and co-ordinated application of the available efforts.”

Spriegel, “In its broadest sense, organisation refers to the relationship

between the various factors present in a given endeavour.... Factory organisation
concerns itself primarily with the internal relationships within the factory such as
responsibilities of personnel arrangement and grouping of machines and material
control. From the stand-point of the enterprise as a whole, organisation is the
structural relationship between the various factors in an enterprise.”

Wheeler, “Internal organisation is the structural framework of duties and

responsibilities required to personnel in performing various functions within the
company.... It is essentially a blue print for action resulting in a mechanism for
carrying out function to achieve the goals set up by company management.”

FUCTIOS OF ORGAISATIO

From the above definitions, it is understood that the functions of

organisation include determination of activities, grouping of activities, allotment
of duties to specified persons, delegation of authority, defining relationships and
co-ordination of various activities.

♦ Determination of activities

It includes the deciding and division of various activities required to

achieve the objectives of the organisation. The entire work is divided into
various parts and again each part is sub-divided into various sub-parts. For
example, the purchase work may be divided into requisition of items, placing of
an order, storage and so on.

♦ Grouping of activities

The next function of organisation is that the identical activities are

grouped under one individual or a department. The activities of sales such as
canvassing, advertisements and debt collection activities are grouped under one
department i.e., sales department.

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♦ Allotment of duties to specified persons

In order to ensure effective performance, the grouped activities are

allotted to specified persons. In other words the purchasing activities are
assigned to the Purchase Manager; the production activities are assigned to
Production Manager; the sales activities are assigned to Sales Manager and the
like. Besides, adequate staff members are appointed under the specified persons.
The specified persons are specialised in their respective fields. If there is any
need, appropriate training would be provided to such persons.

♦ Delegation of authority

Assignment of duties or allotment of duties to specified persons is

followed by delegation of authority. It will be very difficult to a person to
perform the duties effectively, if there is no authority to do it. While delegating a
authority, responsibilities are also fixed. Thus, the Production Manager may be
delegated with the authority to produce the goods and fixed with the
responsibility of producing quality goods.

♦ Defining relationship

When a group of persons is working together for a common goal, it

becomes necessary to define the relationship among them in clear terms. If it is
done, each person will know who is his boss, from whom he has to receive
orders and to whom he is answerable. In another sense, each boss should know
what authority he has and over which persons.

♦ Co-ordination of various activities

The delegated authority and responsibility should be co-ordinated by

Chief Managerial Staff. The reason is that there must be a separate and
responsible person to see whether all the activities are going on to accomplish
the objectives of organisation or not.

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PRICIPLES OF ORGAISATIO

The work can be completed in time whenever a technique or a principle is

adopted. So, the success or failure of an organisation depends upon the
principles to be followed in the organisation. The principles of organisation may
be termed as a tool used by the organisation. Some experts like Taylor, Fayol
and Urwick have given the principles of organisation. They are briefly discussed
below.

Principle of definition

It is necessary to define and fix the duties, responsibilities and authority

of each worker. In addition to that the organisational relationship of each worker
with others should be clearly defined in the organisational set up.

Principle of objective

The activities at all levels of organisation structure should be geared to

achieve the main objectives of the organisation. The activities of the different
departments or sections may be different in nature and in approach, but these
should be concentrated only for achieving the main objectives.

Principle of specialisation or division of work

Division of work means that the entire activities of the organisation are
suitably grouped into departments or sections. The departments or sections may
be further divided into several such units so as to ensure maximum efficiency.
This will help to fix up the right man to the right job and reduce the waste of
time and the resources.

The work is assigned to each person according to his educational

qualification, experience, skill and interest. He should be mentally and
physically fit for performing the work assigned to him. The required training
may be provided to the needy persons. It will result in attaining specialisation in
a particular work or area.

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Principle of co-ordination

The objectives of the organisation may be achieved quickly whenever co-

ordination exists among the workers. At the same time each work can be done
effectively by having the co-ordination. The final objective of all organisations is
to get smooth and effective co-ordination.

Principle of authority

When many persons are working together in one place, there will be a
difference of power and authority. Of these persons, some will rule and others
will be ruled. Normally maximum powers are vested with the top executives of
the organisation. These senior members should delegate their authorities to their
subordinates on the basis of their ability. In certain cases, the subordinates are
motivated through the delegation of authority and they perform the work
efficiently with responsibility.

Principle of responsibility

Each person is responsible for the work completed by him. Authority is

delegated from the top level to the bottom level of organisation. But, the
responsibility can be delegated to some extent. While delegating the authority,
there is no need of delegation of responsibility. So, the responsibility of the
Junior staff members, should be clearly denned.

Principle of explanation

While allocating the duties to the persons, the extent of liabilities of the
person would be clearly explained to concerned person. It will enable the person
to accept the authority and discharge his duties.

Principle of efficiency

Each work can be completed efficiently wherever the climate or the

organisational structure facilitates the completion of work. The work should be
completed with minimum members, in less time, with minimum resources and
within the right time.
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Principle of uniformity

The organisation should make the work distribution in such a manner that
there should be an equal status and equal authority and powers among the same
line officers. It will avoid the problems of dual subordination or conflicts in the
organisational set up. Besides, it increases co-ordination among the officers.

Principle of correspondence

Authority and responsibility should be on parity with each other. If it is

not so, the work cannot be effectively discharged by any officers whatever his
ability may be. At the same time, if authority alone is delegated without
responsibility, the authority may be misused. In another sense, if responsibility is
delegated without the authority, it is a dangerous one.

Principle of unity of command

This is also sometimes called the principle of responsibility. The

organisational set up should be arranged in such a way that a subordinate should
receive the instruction or direction from one authority or boss. If there is no
unity of command in any organisational set up, the subordinate may neglect his
duties. It will result in the non-completion of any work. In the absence of unity
of command, there is no guidance available to the subordinates and there is no
controlling power for the top executives of the organisation. Further, some
subordinates will have to do more work and some others will not do any work at
all.

Principle of balance

There are several units functioning separately under one organisational set
up. The work of one unit might have been commenced after the completion of
the work by another unit. So, it is essential that the sequence of work should be
arranged scientifically.

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Principle of equilibrium balance

The expansion of business activities requires some changes in the

organisation. In certain periods, some sections or departments are overloaded
and some departments are underloaded. During this period due weightage should
be given on the basis of the new work load. The overloaded sections or
departments can be further divided into sub-sections or sub-departments. It
would entail in the effective control over all the organisational activities.

Principle of continuity

It is essential that there should be a re-operation of objectives, re-

adjustment of plants and provision of opportunities for the development of future
management. This process is taken over by every organisation periodically.

Principle of span of control

This is also called span of management or span of supervision or levels of

organisation. This principle is based on the principle of relationship.

Span of control refers to the maximum number of members effectively

supervised by a single individual. The number of members may be increased or
decreased according to the nature of work done by the subordinate or ability of
the supervisor. In the administration area, under one executive nearly four or five
subordinates may work. In the lower level or the factory level, under one
supervision the twenty or twenty five number of workers may work. The span of
control enables the smooth functioning of the organisation.

Principle of leadership facilitation

The organisational set up may be arranged in such a way that the persons
with leadership qualities are appointed in key positions. The leadership qualities
are honesty, devotion, enthusiasm and inspiration.

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Principle of exception

The junior officers are disturbed by the seniors only when the work is not
done according to the plans laid down. It automatically reduces the work of
middle level officers and top level officers. So, the top level officers may use the
time gained by reduction in workload for framing the policies and chalking out
the plans of organisation.

Principle of flexibility

The organisational set up should be flexible to adjust to the changing

environment of business. The organisation should avoid the complicated
procedures and permit an expansion or contraction of business activities.

The scalar principle

This is also called chain of command or line of authority. Normally, the

line of authority flows from top level to bottom level. It also establishes the line
of communication. Each and every person should know who is his superior and
to whom he is answerable.

Principle of simplicity and homogeneity

The organisation structure should be simple. It is necessary to understand

a person who is working in the same organisation. If the organisation structure
becomes a complex one, junior officers do not understand the level and the
extent of responsibility for a particular activity. The simplicity of the
organisational structure enables the staff members to maintain equality and
homogeneity. If equality and homogeneity are maintained in one organisation, it
is possible to determine whether the staff members discharge their duties to
realise the objective of organisation.

Principle of unity of direction

This is also called the principle of co-ordination. The major plan is

divided into the sub plans in a good organisational set up. Each sub plan is taken
up by a particular group or department. All the groups or departments are
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requested to co-operate to attain the main objectives or in implementing major
plan of the organisation.

Principle of joint decisions

In the business organisation, there are number of decisions taken by the

officers to run the business. If a complicated problem arises more than one
member examines the problems and takes the decisions. Whenever the decision
is taken jointly, the decision gives the benefit for a long period and the decision
is based on various aspects of the organisational set up.

SPECIAL FEATURES OF ORGAISATIO

Organisation is the pioneer step of the management. The functions of

management are sitting over the strong organisational set up. A Palace may be
constructed only when a very strong foundation is laid. The same principle is
followed here. Organisation is the foundation of management. Without
organisation, the functions of management such as planning, organising,
staffing, directing, co-ordinating and controlling cannot succeed.

Organisation supplied the human and material resources and helps to

achieve the objectives of business. The organisation provides the means or
techniques with strong efforts for more production and effective completion of
the work. Organisation increases the certainty and promptness in the completion
of work by assigning fixed duties to every person. Whenever the duties are
fixed, it automatically develops team spirit towards the realisation of common
goals. Initially the total work of the enterprise can be divided into various parts
and then linked with all the parts as and when the need arises to achieve main
objectives. The connection of various parts of the organisation is given by the
authority relationship of organisational structure. The relationship may operate
upward, downward, and sidewise of the organisation.

 Division of labour

The total work can be divided into many parts for effective performance
of the work. Each part of work may be completed by one person or a group of
persons. But, all the parts of the work are done with the aim to achieve main

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objective of the organisation. The work is assigned to a person who is
specialised in that particular work.

If there is a paper division of labour, no person will be allowed to do

anything according to his own way unless and otherwise he is not well equipped.
The division of labour results in the creation of specialised persons because a
person does the same work again and again. No waste of time, energy and
resources are some of the advantages of division of labour. In addition to this,
the division of labour results in the increase of quality output and quantity of
product without any additional capital.

 Co-ordination

Different persons are assigned different works in one organisation. But,

all the works are performed to achieve the objectives. It implies that there is a
need of co-ordination among the workers in an organisation. Each and every
department or section of the organisation should have relationship with each
other, to get mutual co-operation.

 Objectives

The objectives of the organisation should be denned clearly. The

objectives cannot be achieved without the existence of a good organisation
structure. In turn, the organisation cannot exist without objectives for a long
period.

 Authority-responsibility structure

An organisation means an arrangement of position of executives by

adopting a rank system. In other words, a subordinate has one boss and a
superior has control over the subordinate specifically. The position of each of the
executives is defined with regard to the extent of authority and responsibility
vested in him to discharge the duties.

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 Communication

Every organisation has its own communication system and the methods.
The success of management depends upon the effective system of
communication. The reason is that each and every person working in an
organisation should know the techniques and the importance of communication.
The channels of communication may be divided into formal, informal,
downward and upward or horizontal.

IMPORTACE OF ORGAISATIO

Organisation creates the relationship between top level executives and

lower level staff members. The top level executives perform the functions, like
planning, organising, staffing, directing, controlling the lower level people. The
actual work is completed at lower level of the organisation. In this way the
organisation maintains the relationship with each other in an enterprise.

 Facilitates Administration

Administration aims at earning the highest profit by utilizing the available

resources properly. There is a planning, policy making, direction and co-
ordination in the administration level to achieve the objectives. Besides, the
administration classifies the activities of the business department-wise and
appoints the officers, assistant, supervisors, executives to facilitate the
achievement of objectives.

There should be an effective administration to achieve the objectives of

the business. Duplication of work, wrong planning, inefficient personnel, lack of
motivation, improper allocation of duties and responsibilities absence of co-
ordination, communication gap, improper instructions are the ingredients of
ineffective administration. This ineffective administration can be removed by
having a sound organisation. Alien observes “A properly designed and balanced
organisation facilitates both management and operation of the enterprise.
Inadequate organisation may not only discourage but also actually preclude
effective administration.”

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 Increase the efficiency of management

Under good organisation, there is a chance of exhausting the workers’

ability in full and utilisation of resources effectively. Confusion, delays and
duplication of work are avoided in good organisation. It automatically motives
the employees who are working in an organisation and increases the efficiency
of management.

 Facilitates growth and diversification

The structure of the company depends upon the structure of the

organisation. The structure of the company can be changed whenever the growth
and expansion activities are earned out. The growth of business means an
increase in the scale of operation and diversification means starting of
production of a new type of products. Changes in the organisation may result in
the appointment of additional staff members, de-centralisation of authority and
responsibility, raising of additional capital, identification of the consumers’
satisfaction and preferences, expansion of sales promotion activities and the like.

 Ensures optimum utilisation of material resources and human efforts

Division of work and specialisation are the tools used to achieve the
objective of optimum utilisation of material, resources and human efforts. Right
man, right time and the right job can also be applied to them. Good organisation
increases the efforts of the employees and the working facilities.

 Adoption of new technology

The effectiveness of an enterprise is measured by the reaction of staff

members to the adopting of a new technology. In the scientific world, there is a
lot of innovations and invention identified in the area of production, distribution
and personnel management. If the new technology is adopted by the enterprise,
the maximum Benefit can be obtained in any field or activity. A flexible
organisational structure is needed to adopt a new technology.

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 Places proportionate importance to the various activities of the
enterprise

Organisation classifies the entire business activities into departments.

Each department is receiving attention according to its importance it has in the
achievement of business objectives. Money and efforts are spent in proportion to
the contribution made by each and every department. It does not mean that less
important department activities are neglected. It means that due importance is
given to each department according to its contribution towards the achievement
of the objectives.

 Encourages creativity and initiative

A sound organisational structure will give an opportunity for the staff to

show their hidden which will help the enterprise to achieve the business goals
and earn higher profit. Clear distribution of authority and responsibility,
incentives offered for specialised work and freedom given to personal work,
increases the spirit of constructive and creative approach in management.

 Facilitates co-ordination

The activities of different departments are grouped together to achieve the

business objectives. Each department performs its own function in a closely
related manner and not as competitors.

 Facilitates training and development of managerial personnel

A sound organisation provides training to new staff members before

placement and gives refresher training to the existing staff members to improve
their efficiency. The training may be given within the company or outside the
company according to the training facilities available. Nowadays training
institute give training to the needy persons with the help of the different experts
from various fields. These training institutes are collecting data directly from the
field used in the training.

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 Prevents the growth of secret, influence and corruption

Sound organisation develops the morale, honesty, devotion to duty and

loyalty of business, organisation. Normally these help remove the corruption,
secret and influence. Only the unsound organisation develops the secret,
influence and corruption.

CLASSIFICATIO OF ORGAISATIO

The organisation can be classified on the basis of authority and

responsibility assigned to the personnel and the relationship with each other. In
this way, an organisation can be either formal organisation or informal
organisation.

FORMAL ORGAISATIO

The formal organisation represents the classification of activities within

the enterprise, indicates who reports to whom and explains the vertical journal of
communication which connects the chief executive to the ordinary workers. In
other words, an organisational structure clearly defines, the duties,
responsibilities, authority and relationships as prescribed by the top
management.

In an organisation, each and every person is assigned the duties and given
the required amount of authority and responsibility to carry out this job. It
creates the co-ordination of activities of every person to achieve the common
objectives. It indirectly induces the worker to work most efficiently. The inter
relationship of staff members can be shown in the organisation chart and
manuals under formal organisation.

CHARACTERISTICS OF FORMAL ORGAISATIO

The important characteristics of a formal organisation are given below:

1. It is properly planned.
2. It is based on delegated authority.
3. It is deliberately impersonal.

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 4. The responsibility and accountability at all levels of organisation should
be clearly defined.
5. Organisational charts are usually drawn.
6. Unity of command is normally maintained.
7. It improves for division of labour.

ADVATAGES OF FORMAL ORGAISATIO

1. The definite boundaries of each worker is clearly fixed. It automatically

reduces conflict among the workers. The entire building is kept under
control.
2. Overlapping of responsibility is easily avoided. The gaps between the
responsibilities of the employees are filled up.
3. Buck passing is very difficult under the formal organisation. Normally
exact standards of performance are established under formal organisation.
It results in the motivating of the employees.
4. A sense of security arises from classification of the task.
5. There is no chance for favouritism in evaluation and placement of the
employee.
6. It makes the organisation less dependent on one man.
Keith Davis observes that formal organisation is and should be our
paramount organisation type as a general rule. It is the pinnacle of man's
achievement in a disorganised society. It is man's orderly, conscious and
intelligent creation for human benefit.

ARGUMETS AGAIST FORMAL ORGAISATIO

1. In certain cases the formal organisation may reduce the spirit of initiative.
2. Sometimes authority is used for the sake of convenience of the employee
without considering the need for using the authority.
3. It does not consider the sentiments and values of the employees in the
social organisation.
4. The formal organisation may reduce the speed of informal
communication.
5. It creates the problems of co-ordination.

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IFORMAL ORGAISATIO
Informal organisation is an organisational structure which establishes the
relationship on the basis of the likes and dislikes of officers without considering
the rules, regulations and procedures. These types of relationship are not
recognised by officers but only felt. The friendship, mutual understanding and
confidence are some of the reasons for existing informal organisation. For
example, a salesman receives orders or instructions directly from the sales
manager instead of his supervisors.

The informal organisation relationship exists under the formal

organisation also. The informal organisation relationship or informal relations
give a greater job satisfaction and result in maximum production.

According to C.J. Bernard, “Informal organisation brings cohesiveness to

formal organisation. It brings to the members of a formal organisation a feeling
of belonging, status of self respect and gregarious satisfaction. Informal
organisations are important means of maintaining the personality of the
individual against certain effects of formal organisation which tend to
disintegrate personality.”

CHARACTERISTICS OF IFORMAL ORGAISATIO

1. Informal organisation arises without any external cause, i.e., voluntarily.

2. It is a social structure formed to meet personal needs.
3. Informal organisation has no place in the organisation chart.
4. It acts as agency of social control.
5. Informal organisation can be found on all levels of organisation within the
managerial hierarchy.
6. The rules and traditions of informal organisation are not written but are
commonly followed.
7. Informal organisation develops from habits, conduct, customs and
behaviour of social groups.
8. Informal organisation is one of the parts of total organisation.
9. There is no structure and definiteness to the informal organisation.

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ADVATAGES OF IFORMAL ORGAISATIO
The advantages of informal organisations are briefly explained below:
1. It fills up the gaps and deficiency of the formal organisation.
2. Informal organisation gives satisfaction to the workers and maintains the
stability of the work.
3. It is a useful channel of communication,
4. The presence of informal organisation encourages the executives to plan
the work correctly and act accordingly.
5. The informal organisation also fills up the gaps among the abilities of the
managers.

DISADVATAGES OF IFORMAL ORGAISATIO

The disadvantages of Informal Organisation are summarized below:
1. It has the nature of upsetting the morality of the workers.
2. It acts according to mob psychology.
3. Informal organisation indirectly reduces the efforts of management to
promote greater productivity.
4. It spreads rumour among the workers regarding the functioning of the
organisation unnecessarily.

DIFFERECE BETWEE FORMAL ORGAISATIO AD IFORMAL

ORGAISATIO
Some of the differences between Formal Organisation and Informal
Organisation are discussed below:

Formal Organisation Informal Organisation

1. It arises due to delegation of
authority.
2. It gives importance to terms of
authority and functions.
3. It is created deliberately.
4. The formal authority is attached
to a position.
It arises due to social interaction of
people.
It gives importance to people and
their relationships.
It is spontaneous and natural.
The informal authority is attached to
a person.

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 5. Rules, duties and responsibilities
No such written rules and duties
of workers are given in writing.followed in informal organisation.
6. Formal organisation comes from Informal organisation comes from
outsiders who are superior in the
those persons who are objects of its
line of organisation. control.
7. Formal authority flows from Informal authority flows from
upwards to downwards. upwards to downwards or
horizontally.
8. Formal organisation may grow Informal organisation tends to remain
to maximum size. smaller.
9. It is created for technological It arises from man’s quest for social
purposes. satisfaction.
10. Formal organisation is There is no such permanent nature
permanent and stable. and stability.

THEORIES OF ORGAISATIO

Organisation theory means the study of the structure, functioning and

performance of organisation and the behaviour of individual and groups within
it.

The various theories of organisation are given below:

1. Classical theory
2. Neo-classical theory
3. Modem theory
4. Motivation theory
5. Decision theory

The explanation of the above theories are given below:

1. CLASSICAL THEORY

The classical theory mainly deals with each and every part of a formal
organisation. The classical theory was found by the father of scientific
management, Frederick W. Taylor. Next a systematic approach to the
organisation was made by Monney and Reicey.

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 The classical theory is based on the following four principles:
• Division of labour
• Scalar and functional processes
• Structure and
• Span of control
• Division of labour

This theory fully depends upon the principle of division of labour. Under the
division of labour, the production of a commodity is divided into the maximum
number of different divisions. The work of each division is looked after by
different persons. Each person is specialised in a particular work. In other words,
the work is assigned to a person according to his specialisation and the interest
he has in the work. The division of labour results in the maximum production or
output with minimum expenses incurred and minimum capital employed.

• Scalar and functional processes

The Scalar process deals with growth of organisation vertically. The

functional process deals with the growth of organisation horizontally. The scalar
principles refer to the existence of relationship between superior and
subordinate. In this way, the superior gives instructions or orders to the
subordinates (various levels of management) and gets back the information from
the subordinate regarding the operations carried down at different levels or
stages. This information is used for the purpose of taking decision or remedial
action to achieve the main objectives of the business.

The Scalar chain means the success of domination by the superior on

subordinate from the top to the bottom of organisation. The line of authority is
based on the principle of unity of command which means that each subordinate
does work under one superior only.

• Structure

The organisational structure may be denned as the prescribed patterns of

work related behaviour of workers which result in the accomplishment of
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organisational objectives. The organisational structure is used as a tool for
creating a relationship among the various functions which make up the
organisation.

Specialisation and co-ordination are the main issues in the design of an

organisational structure. The term specialisation includes the division of labour
and the usage of special machines, tools and equipments- Specialisation is
obtained when a person is requested to do a single work and it results in the
increase in productivity. The facilities or advantages of suitable training, easy
allocation of work, job scheduling and effective control are also obtained from
specialisation. Co-ordination means an orderly performance in operations to
achieve organisational objectives. Normally the business units are organised on a
functional basis. The functions are performed by different persons of different
nature. It is also necessary to co-ordinate the various functions to achieve the
main objectives and at the same time a function does not conflict with any other
function.

• Span of control

Span of control means an effective supervision of maximum number of

persons by a supervisor. According to Brech, “Span refers to the number of
persons, themselves carrying managerial and supervisory responsibilities, for
whom the senior manager retains his over-embrassing responsibility of direction
and planning, co-ordination, motivation and control.”

From the above discussion, we can know that the classical theory emphasised
unity of command and principle of co-ordination. Most of the managers’ time is
wasted in the co-ordination and control of the subordinates. In many
organisations a single supervisor supervises the work of 15-20 workers and does
not follow the principle of span of control. Some of the experts hold that a
manager can supervise 4-8 members at higher levels and between 8-20
members at the lower levels of the organisation. But according to Lyndall
Urwick, a maximum of 4 members at higher levels and between 8-12 members
at lower levels can be supervised by the superior to constitute an ideal span of
control.

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CHARACTERISTICS OF CLASSICAL THEORY
1. It is based on division of labour.
2. It is based on objectives and tasks of organisation.
3. It is concerned with formal organisation.
4. It believes in human behaviour of the employees.
5. It is based on co-ordination of efforts.
6. Division of labour has to be balanced by unity of command.
7. It fixes a responsibility and accountability for work completion.
8. It is centralised.

CRITICISM OF CLASSICAL THEORY

1. This theory is based on authoritarian approach.
2. It does not care about the human element in an organisation.
3. It does not give two way communication.
4. It underestimates the influence of outside factors on individual behaviour.
5. This theory neglected the importance of informal groups.
6. The individual is getting importance at the expense of the group.
7. It also ignores the influence of outside factors on individual behaviour.
8. The generalisation of the classical theories have not been tested by strict
scientific methods.
9. The motivational assumptions underlying the theories are incomplete and
consequently inaccurate.

2. EO-CLASSICAL THEORY

This theory is developed to fill up the gaps and deficiencies in the

classical theory. It is concerned with human relations movement. In this way, the
study of organisation is Teased on human behaviour such as how people behave
and why they do so in a particular situation. The Neo-classical scholars used
classical theory as the basis for their study and modified some of the principles
for the study. The Neo-classical have only given new insights rather than new
techniques.

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 The scholars also pointed out the practical difficulties of the working of
scalar and functional processes. The main contribution of this theory highlights
the importance of the committee management and better communication.
Besides, this theory emphasized that the workers should be encouraged and
motivated to evince active participation in the production process. The feelings
and sentiments of the workers should be taken into account and respected before
any change is introduced in the organisation.

The classical theory was production-oriented while Neo-classical theory

was people-oriented.

COTRIBUTIOS OF EO-CLASSICAL THEORY

1. Person should be the basis of an organisation.
2. Organisation should be viewed as a total unity.
3. Individual goals and organisation goals should be integrated.
4. Communication should be moved from bottom to top and from top to
bottom.
5. People should be allowed to participate in fixing work standards and
decision-making.
6. The employee should be given more power, responsibility, authority and
control.
7. Members usually belong to formal and informal groups and interact with
others within each group or sub-group.
8. The management should recognise the existence of informal organisation.
9. The members of sub-groups are attached with common objectives.

CRITICISM OF EO-CLASSICAL THEORY

A survey conducted by American Management Association indicates that
most of the companies reported found little or nothing useful in behavioural
theory. According to Ernest Dale, neither classical theory nor neo-classical
theory provides clear guidelines for the actual structuring of jobs and provision
for co-ordination.

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3. MODER THEORY

The other name of Modern Theory is Modern Organisation Theory.

According to one authority it was organised in the early 1950s. This theory
composed of the ideas of different approaches to the management development.
The approach is fully based on the empirical research data and has integrating
nature. The approach reflects the formal and informal structures of the
organisation and due weightage is given to the status and roles of personnel in an
organisation.

Like the general system theory, modern organisation theory studies:

1. The parts (individual) in aggregates and the movement of individuals and

out of the system.
2. The interaction of individual with the environment found in the system.
3. The interaction among individual in the system.

ESSETIALS OF MODER THEORY

The following are some of the essentials of Modern Theory.

1. It views the organisations as a whole.
2. It is based on systems analysis.
3. The findings of this theory are based on empirical research.
4. It is integrating in nature.
5. It gives importance to inter-disciplinary approach to organisational
analysis.
6. It concentrates on both quantitatives and behavioural science.
7. It is not a unified body of knowledge.

CRITICISM OF MODER THEORY

The Modem Theory has the following criticism:

1. This theory puts old wine into a new pot.

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 2. It does not represent a unified body of knowledge. There is nothing new
in this theory because it is based on past empirical studies.
3. This theory forms only the questions and not the answers.
4. It is based on behavioural, social and mathematical theories. These are
management theories in themselves.

4. MOTIVATIO THEORY

It is concerned with the study or work motivation of employees of the

organisation. The works are performed effectively if proper motivation is given
to employees. The motivation may be in monetary and non-monetary terms. The
inner talents of any person can be identified after giving adequate motivation to
employees. Maslow's hierarchy of needs theory and Honberg’s two factor theory
are some of the examples of motivation theory.

5. DECISIO THEORY

The other name of decision theory is decision-making theory. This theory

was given by Herbert A. Simon. He was awarded Nobel Prize in the year 1978
for this theory. He regarded organisation as a structure of decision-makers. The
decisions were taken at all levels of organisation and important decisions (policy
decisions) are taken at higher levels of organisation. Simon suggested that the
organisational structure be designed through an examination of the points at
which decisions must be made and the persons from whom information is
required if decisions should be satisfactory.

REVIEW QUESTIOS
1. What is meant by division of work?
2. What is meant by Unity of Command?
3. Explain “The scalar principles”.
4. What is “Formal organisation?”
5. What is “Informal organisation?”
6. Explain the term “Formal organisation”.
7. Discuss some of the problems and benefits of informal organisation.
8. State what advantages does planning confer to the organisation.
9. What are the three types of informal groups in the informal
organisation? What is the composition of each group?

155
 CASE STUDY

In 1928 Soichiro Honda opened a branch of a Tokyo automotive repair

shop in Hamamatsu. He repaired and raced cars, and that passion led to his
developing metal spokes to replace the wooden ones usually used in the wheels.
In 1937 he formed another company to manufacture piston rings. After bombs
and an earthquake destroyed most of his factory, he sold it to Toyota Motor
Corp. in 1945. Then in 1946 he founded the Honda Technical Research Institute
to motorize bicycles. Soon he was manufacturing engines, and in 1948 he
renamed the company Honda Motor Co., Ltd., and began to make motorcycles.
In the 1960s Honda began to make lightweight trucks, sports cars, and small
cars. In the 1970s, thanks to extremely high oil prices, Honda's small cars
became tremendously successful. Honda expanded its line and even opened a
production facility in the United States.

Soichiro Honda developed organizational processes that were highly

egalitarian. Known as the Honda Way, ideas and decisions began at the bottom
of the organization and slowly made their way through numerous committees to
various levels of directors at the top. Numerous waigaya or bull sessions were
needed to hammer out agreements among those involved. With the tremendous
competition facing Honda Motor as a large company, however, this bottom-up
approach seemed less effective. Large numbers of people were involved in
lengthy discussions, and frequently they made compromises that ended up
lowering the marketability of the cars. Indeed, Honda's Accord fell from first
place among sales in the United States to fourth.

In 1990 Nobuhiko Kawamoto became Honda's president. A former

engineer, he decided that a large, international organization necessitated a more
top-down organizational structure. Middle-level managers draft their job
guidelines, and their pay is based in part on the extent to which they accomplish
the goals specified in those guidelines. Clear chains of command have been
established, and the number of approvals needed for most projects has been
reduced substantially. Kawamoto is clearly in charge, although he still meets
with directors and engages in at least limited waigaya as part of the managerial
process, Kawamoto divided the organization by product lines so that the strong
performance in motorcycles and power equipment would not hide the weak
performance in automobiles. He established cost-cutting efforts, particularly
156
sharing components across car lines to reduce both the cost of manufacture
(because different plants could use the same technology and tools) and the cost
of supplies (because larger batches could be ordered at lower costs).

The first big test of how well the new structure was to function was the
1994 Accord, the first car to be designed, manufactured, and sold under the new
structure. The idea underlying the 1994 Accord was simple: design a single basic
Accord to satisfy American tastes. Nearly one hundred U.S. engineers moved to
Japan for two to three years to participate in the design of this car. Honda
learned how to make the same car in both Japan and the United States without
expensive retooling, an important step in keeping costs under control, in late
1993 the 1994 models reached showrooms, and the real test of the restructuring
began.

QUESTIOS

1. Describe the structural changes Kawamoto made at Honda Motor. What

basic organizing concepts can you identify?
2. Do you believe that the restructuring undertaken by Kawamoto will be
successful? Why or why not?
3. What new skills would a manager need to' be successful in the
organization as structured by Kawamoto as opposed to those needed in
the previous structure?



157
 UIT – III
LESSON - 10
DEPARTMETATIO
One.of the key factors in designing an organisation structure is allocation
of duties on the principle of specialisation. But the criterian of specialisation can
be adopted in the narrow range of functions. For this the working of an
undertaking has to be split into different units for the purpose of smoothly
conducting the affairs with an eye on efficiency, economy and profitability. The
splitting of the working of an undertaking into various units is called as
departmentation.
Departmentation refers to the organisational device of classifying the
activities or operation of an undertaking into functionalised categories. Modern
enterprises tend to be larger in size and complex technological operations. All
the activities cannot be managed by a single individual or the Board in a
common sweep. Therefore, departments or sections are created for all major
activities of the undertaking to bring the administrative and operational
functions within compact compass of specialisation and the range of managerial
convenience. The size of an undertaking may be large but departmentalising the
big sized undertaking into manageable units based on functions, area, product or
process. Hence the departmentation enables Large firms also to derwe the
benefits of small functional organisation and at the same time softening the
disadvantages that normally arise due to increasing size and diversity.
Departmentation limits the number of persons to be managed by inducting them
into different departmentation. Thus, it ensures suitable span of control. It
makes direction and control effective by confining the managerial focus to well-
knit and functionally conceived units product-wise, process-wise, or area-wise.
Costs and revenues can be determined only if the enterprise is parcelled out into
departments for administrative convenience. Allocation of duties selection of
specialised staff fixation of responsibility will have decisive character under
departmentalised organisational set up. Sharing of authority and spreading of
responsibility are the underlying factors of departmentation subject to
coordinating authority of top management.

158
Process of deparmentation
1. Departmentation is done through the following process:
2. Identification of tasks or duties;
3. Analysis of details of each task;
4. Description of the functions;
5. Entrusting the groups of functions to separate specialist heads and
providing them with suitable stafi
6. Delineation of scope of authority and responsibility of departmental
heads.
Types of departmentation
Work of an undertaking is divided into departments in the following five ways
1. By functions;
2. By process;
3. Byproducts;
4. By location or area or territary; and
5. By customers.
I. Functional departmentation

159
 This is perhaps the most logical and basic form of departmentation.
Functional departmentation is the process of dividing the organisation into units
on the basis of the firm’s major activities. It involves grouping employees
according to broad tasks they perform. Normally separate departments are
created for all the key activities of the business. For example, in a manufacturing
company the activities essential to the existence of the company are production,
marketing and finance. However, in non-manufacturing concern these functions
differ. In a transport company, the key areas may be operations, sales and
finance. Thus, public utility concerns like electricity, transport, banking,
insurance and hospitals have their own distinct key functional areas. In all these
cases, under functional departmentation, major or primary departments are
created along the key functional areas of the respective businesses.
If the organisation or given department is large, or in other words, as the
organisation grows, major departments can be subdivided. These subdivisions
are called derivative departments. The essential idea is to make increased use of
specialisation. A typical functional organisation with major functions and
derivative functions are shown in the following figure.
Functional departmentation
The following are the advantages and disadvantages of functional
departmentation.
Advantages
1. It is the most logical and simple form of departmentation;
2. It makes supervision easier, since each manager has to be an expert in only his
functional area of operation.
3. It makes efficient use of specialised resources and skills.
4. It fosters development of expertise in specialise
Disadvantages
1. Functional departmentation is often found to be inadequate to meet the
growing needs of the business, particularly as the organisation expands or
diversifies activities;
2. Further, decision-making becomes slow as the functional managers have
to get the approval of the headquarters;

160
 3. It is also difficult to determine accountability in a functional structure. If a
product fails, the question as to who is responsible cannot be easily
answered; and
4. Functional managers tend to develop narrow perspective and loose sight
of the bigger picture, Members of each department feel isolated from
those in other departments. For example, manufacturing department may
be obsessed with cost reduction and meeting the delivery dates neglecting
the quality control. As a result, marketing department may be flooded
with complaints.
2. Process Departmentation
The manufacturing activities may be sub-divided on the basis of their
process of production. Similar machines are grouped into separate sections that
are utilised for a distinct operation of the job. For example, lathe machines, drill
machines, grinding machines, and so on are placed in each distinct unit. Cost and
economy considerations urge the use of electronic office equipments and other
costly machines on the basic of this sub-division. It is however, not a suitable
method to be utilised in any mass production arrangement.
3. Products Departmentation
One of the most common ways in which businesses grow is by increasing
the number of products they make and sell. If the organisation is successful,
several product lines may attain such high sales that they require a separate
division. Large organisations like shaw wallace, kirloskar, voltas, ITC,
Hindustan lever, have coped with the expansion of their product lines by
creating separate departments or divisions for the various products they make.
Under product departmentation, a single manager, often referred to as the brand
or product manager, is a delegated authority over all activities required to
produce and market that product. As against the functions in the functional
departmentation, basic products or services become the primary or major
departments in the product departmentation, as shown in the following figure.

161
Product Departmentation

Advantages
1. Product departmentation paces attention and effort on the basic products,
the success of which is critical to the survival of the organisation.
2. Since the revenues and costs are assigned to a particular product, cost
centres can be established, high profit areas can be encouraged and
unprofitable product lines can be dropped. Thus, responsibility for cost
reduction and profits can be established at the division level;
3. Proper coordination of all functional areas can be achieved as all the
functional managers work as a team under close supervision of the
product manager. Since the department or division is multi-functional, it
often operates like a complete company.
4. Enables quick response to changes in environment as compared with
functionally organised firm.
5. Provides managers a training ground in general management which is
useflul in overcoming narrowness of interest; and
6. Expansion and diversification of activities is made easy by creating new
departments for the new products that are added to the existing one’s.

162
Disadvantages
1. Requires more persons with general management abilities as more and
more departments are for the various products.
2. The product departments may try to become too antonomous, thereby
presenting top management with a control problem.
3. It is also common to find product departments engaged in the duplication
of efforts. Each product units has its own functional departments. They
may not be sufficiently large to make maximum use of facilities. Thus
product departmentation becomes an expensive organisational form.

4. Territorial Departmentation
When an organisation operates in different geographical areas, each with
distinct needs, it is desirable to create the departments along geographical lines.
The process of creating departments along the geographical lines is termed
territorial departmentation This type of organisation makes it easier for the
organisation to cope with variations in laws, local customs and customer needs.
Public utilities like transport companies, insurance companies etc. adopt
territorial departmentation. Similarly, a large scale organisation operating both in
domestic and international markets may have separate departments or divisions
may be created for different region of the world. Many multinational companies
organise their global activities with regional headquarters in different regions of
the world.

163
Chairman

Advantages
1. Territorial departmentation makes possible concentration on markets and
marketing channels in different geographical areas.
2. Develops opportunities for more efficient marketing activities because of
better face-to-face communication with local interests; and
3. Makes possible effective utilization of locally available resources besides
being able to cater to the region-specific variations in terms of preferences
and sentiments of the people.
Disadvantages
1. In this type of departmentation, there are problems in training people to
think in terms of markets rather than products.
2. Requires more persons with general management abilities; and
3. Increases problem of top management control because of the distance
between the corporate headquarters and the regional offices.
5. Customer Departmentation
Some organisations sell a wide variety of goods or services that appeal to
different groups of customers, each of which has distinguished needs. In such a
case, departments are created around customer groups. Customers are the key to
the way activities are grouped. For example, commercial banks organise their
164
activities around customer groups to cater to their specific needs. As such there
are separate departments or divisions for agricultural, industrial and merchant
banking operation. Similarly, we find Blue Star Company organising its air-
conditioning business around domestic and industrial air-conditioning units.
Advantages
1. Customer departmentation facilitates concentration on customer needs.
This is almost in line with the customer orientation professed by any
organisations these days.
2. Customers feel that they have an understanding supplier. For example, the
manufactures may sell to wholesalers and industrial buyers. Wholesalers
requires a product of dependable quality plus a service that includes
installation and repair of the product and the specific training of
employees.
3. Helps the organisation to set the correct feel of the market dynamics in
terms of preferences of the customers, competitors’ strategies, etc.
Disadvantages
1. Difficult to coordinate operations between competing customers’
demands;
2. Requires considerable expertise on the part of managers in understanding
customers’ problems and specific needs;
3. There is a possibility of under utilisation of facilities and employees
specialised in terms of customer groups. Small organisations particularly
can not afford the expenditure involved because some amount of
duplication of the facilities is inevitable.

Conclusion
Span of management is one of the important principle of organising has
been analysed in detail. It refers to the number of subordinates that a superior
can effectively manage The principle suggests that there is a limit on the number
of subordinates that can be managed by superior This limitation gives rise to the
levels in the organisation. if the span is wide, it would result in a flat structure. if

165
it s narrow. the result would be tall structure. Both types have merits and
demerits
The process of a Creation of departments within the organisation is
known as departmentation. It results in the design of a structure in organisation.
Different patterns of departmentation are used by organisations depending on
their specif requirements say functional, product, process, territorial and
customer. These method of departmentation are analysed with the merits and
demerits of each type.

Review questions
1. What do you mean by span of management? What are the factors
affecting the effective span? -
2. What does Graicunas formula for a manager’s choice of span What are
the limitations of Graicunas approach?
3. What is meant by departmentation ? Suggest suitable bases for
departmentation with merits and demerits.
4. What are the basic characteristics of functional departmentation? Analyse
its merits and demerits.

CASE: COFUSIO I AUTO PARTS LIMITED

Auto parts Limited, a medium-size company engaged in the manufacture
of automobile components was started by Mr.Reddy, a technocrat in 1988.
Things went on well for a couple of years. Problems began to surface in the early
nineties because of the recession, in general, in the automobile industry. Since
the demand for the company’s products is a derived one, the company could not
insulate itself from the fluctuating fortunes of the automobile industry. As the
parent industry began to cross the recession, happy days are once again here for
the Auto parts Limited. Because of the quality products that the company is
known for, several internationally reputed automobile companies are also eager
to source their requirements for components with Auto parts Limited.
All these developments should naturally make Mr.Reddy, a happy man these
days. But he is ‘concerned with certain organisational problems and is

166
wondering as to how to organise the company in the light of tremendous
potential for growth. He is particularly tired of being the only one in the
company responsible for profits. The company, since Inception has been
organised on functional lines. He has good managers heading the functions
departments like manufacturing, finance, sales, advertising and product research,
but none of them could be held responsible for profits. He often finds it difficult
even to hold them responsible for the contribution of their respective areas to
company profits. Besides, each manager began to complain against the other.
For instance, sales manager, the other day, complained that he could not be fully
responsible for sales when advertising was ineffective, when the products
wanted in the market were not readily available from manufacturing. He further
complained that the manufacturing department did not heed to their suggestions
regarding certain modifications in the products. In turn, the manager in charge of
manufacturing argued that financial controls did not allow his department to
carry a large inventory of everything and he was obsessed with cutting down the
costs.
Mr.Reddy is really sick of these internal squabbles among the functional
heads and is seriously considering the idea of, breaking the company down into
six or seven product divisions with a manager for each with complete
responsibility over the product Including the profit. But he feels that this would
not be economical since many of the products are produced with the same
equipment and raw materials. Further, a sales person calling on a customer (the
automobile company or the spare parts dealers in the market) could far more
economically handle a number of related products than one or a few.
Confronted with the above dilemma, Mr. Reddy came to the conclusion
that the best thing to do Is to set up six product managers reporting to a product
marketing manager. Each product manager would be given responsibility for one
or a few products and would oversee all aspects of manufacturing, product
research, sales and advertising. Thus, In essence each product manager would be
responsible for the performance and profits of the products assigned to him.
Mr.Reddy is bent on reorganising the company on the lines presented
above and to hope for the best. But still he is not clear in his thinking and has
some confusion about the new reporting relationships that would emerge after
the proposed reorganisation exercise is over.

167
Questions
1. What Is the exact problem in the case? Do you view the problem very serious?
or, is Mr. Reddy over reacting?
2. What are your comments on the scheme of things that Mr. Reddy proposes to
reorganise?
3. What would you do to avoid any confusion and to help the company achieve
its ambitious go of emerging as a leader In the auto components industry?



168
 UIT - III
Lesson - 11
SPA OF COTROL
The term ‘span of control’ is also known as 'span of authority’ ‘span of
supervision’ and ‘span of management’. In modem organisation, the term “span
of management” is gaining currency because span is related more of
management than of control and supervision. Modem executives believes that
control and supervision nearly constitute an integral part of management
process.
No single executive can control and supervise all the activities of a large
sized company. Every executive needs the assistance of several subordinates in
sharing the work. The top executive, irrespective of his education and
experience, takes the support of others since he is incapacited by human
limitations. This gives rise to the need for others assistance in controlling the
activities.
Meaning
Span of control implies the limitation on the number of subordinates that
one manager can effectively supervise at a particular time. The quality of
supervision becomes poor and coordination becomes weak when large number
of subordinates work under a single executive. On the other hand. If the number
of subordinates la too small, the abilities of the executives may not be used fully.
A balance between these two extremes must be maintained in order to use full
potentialities of the executive. The problem of span of control arises because an
executive has limited time knowledge and capacity. No one can effectively
supervise an infinite number of subordinates. A manager can pay attention only
on a limited number of subordinates. Deciding the optimum number of
subordinates that a manager can effectively supervise at a particular time is not
an easy job. May be it is varying from manager to manager. Hence, span of
control is a person to person concept.
According to Peter F. Drucker, span of control refers to the limit of
number of subordinates reporting directly to a superior. Koontz and O Donnell
used this term to represent the limit on the number of persons that an Individual
can effectively manage. Opinions are divided on what should be the appropriate
limit/span. Different authorities have suggest different levels for effective
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supervision. For example, Lyndal F.Urwick suggested that no executive can
effectively supervise the work of more than five subordinates. J.C. Worthy
suggested the number of 20. These suggestions given by various experts reveal
the fact that there is no one Ideal number that can be universally applied. In real
life, spans differ from situation to situation. In a research survey of hundred
large companies conducted by the America management Association, the
number of executives reporting to the top executives varied from 1 to 24. While
26 top executives had 6 or less than 6 subordinates. In respect of others it was
9. A similar study conducted on 41 smaller companies reveals some interesting
points. Top executives of 25 companies supervised 7 or more subordinates.
Smaller type of studies revealed comparable results.

Problems of levels (Span)

1. Existence of too many levels is expensive because the organisation has
to bare the burden.
2. Too many levels (span) complicate the free flow of communication.
Omissions and mis-interpretations. Increase with wide spans. That is
why it has been rightly said that levels are "filters" of communications.
3. Existence of too many levels and numerous departments create
problems even in planning and control process. A well defined plan
looses clarity and coordination as it passed on to the lower and lower
levels. In a similar way control becomes difficult with too many
managers.
4. Handling of superior - subordinate relationships on smooth lines is a
must for the success of any enterprise. Larger spans and too many
managers may complicate the harmonious relationships between
workers and management
5. Division of activities among various departments and creation of
hierarchical levels are not completely desirable as departmentalisation is
not an end for achieving effectiveness in organisation.

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Graicunas Theory
V.A.Graicunas a French management consultant explains, with the Help
of mathematical calculations, that as the number of subordinates increased
arithmetically, the number of relationships among them increased geometrically.
Graicunas has identified three types of superior - subordinate relationships -
direct, cross and group relationships. The direct single relationship arises from
the direct contacts of the superior with his subordinates. The cross relationships
refer to the mutual relationships among subordinates working under a common
superior. The direct group relationships arise between the superior and
subordinates in all possible combinations.
Ex :- ‘B' is a supervisor and he" has two subordinates
‘X’ and ‘Y’. Graicunas calculated the possible number of
relationships as follows:
(i) Direct relationships = B–X
2
B–Y

(ii) Group relationship = B X& Y

2
B Y&X
When a third subordinate ‘Z’ reports to ‘B’, several new relationships
arise by taking the total number of relationship to 18. The number of various
relationships in a particular case can be calculated with the help of the following
formula:
r = n (2n-1 + n-1)
Where ‘r’ refers to the total number of relationships, and ‘n’ stands for
number of subordinates on the basis of the above formula; the number of
possible relationships with different number of subordinates are summarised
below:

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 o. of subordinates o. of relationships
1 1
2 6
3 18
4 44
5 100
6 222
7 490
8 1,080
9 2,376
10 5,210
11 1,04,86,154

The above table illustrates how arithmetical increase in the number of

subordinates results in increase in the number of relationships in a geometric
proportion. Graicunas has prescribed a maximum of six subordinates as the most
desirable span of control. But in reality, relationships as per Graicunas formula
do not occur dally. One thing is clear that it throws sufficient light on the fact
that every subordinate adds pressure on the superior's work of maintaining
relationship at the spot. To summarise the findings and principles of this theory:
• There is a limit to the number of subordinates that an individual manager can
effectively control.
• The exact number of such span depends upon the situation and its underlying
variables like pressure of work-load, energy, knowledge and attention of the
superior, degree of team-work.
Criticism
(i) The span of control cannot be rigid arid universal. The actual span
of control is determined by a number of factors which have not
been covered by Graicunas Theory.

172
 (ii) This theory ignores the frequency and severity of relationships
that have not been dealt within this theory.
(iii) The Graicunas’ theory has left out certain possible cross
relationships like ‘B’ to XV, X to YB and Y to XB etc.
(iv) This theory only explains one side of the coin ie., superior
relationships with subordinates. It grossly ignores the superior's
side ways and upward relationships.
Span of Control and Levels of organisation
Organisation levels exist because there is a limit to the number of persons
a manager can supervise effectively. Ever growing organisation must add new
levels to its structure. Determination of appropriate span of control to suit the
levels of organisation is very important for two reasons. Firstly, the span of
control effects the efficient use of superior and subordinate relationships for
obtaining better performance. Narrow span results in under-utilisation of
manager's services and over-controlling of subordinates. On the other hand, too
wide span may lead to over-straining of manager and lack of effective control
over subordinates.
Secondly, span of control has an important bearing on the shape of
organisation structure. While a narrow span results in a "tall" organisation, a
wide span leads to a 'flat' structure. This can be effectively depicted through
diagrams (A and B).

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 DIAGRAM - A
ORGAISATIO WITH ARROW SPAS

(i)

(ii)

(iii)

(iv)

Spans : 2 Levels of Authority : 12

DIAGRAM - B
ORGAISATIO WITH WIDE SPAS

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Spans : 9
Narrow span refers to the existence of too many levels in the organisation.
The main advantage of narrow span is that effective leadership and control can
be directly exercised on subordinates. Superior can easily communicate and
effectively coordinate the efforts of his subordinates since their number is small.
Direct contact, close supervision and tight control can help improve the
performance pattern. Organisations with narrow spans suffer from several
limitations. Too may levels hinder two way communication when a message has
to pass through different levels. Its effectiveness may be reduced. Large number
of managers is required which results in additional salaries and high cost of
management. Thirdly, a tall structure may have its adverse impact over morale
because of the absence of close link between top executive and bottom worker.
To overcome these difficulties of narrow span (tall structure), some of the
modern companies have adopted wide span structures. Wide span prevails in flat
Organisations. Here, one can find fewer levels of authority. It indicates that the
chain of command is short. Because of this, communication tends to be quicker
and more effective. Employees also develop morale because they feel that they
are nearer to the top executive. This system allows delegation of authority and
development of subordinates. It is common that subordinates feel more
autonomous and independent in wide span organisational structures. Despite
these advantages, flat organisations are subject to many disadvantages. Firstly,
supervision and control tend to be loose and less effective because a single
executive may not have enough time and energy to supervise all subordinates.
Secondly, the problem of co-ordination gets magnified with 'wide spans. Due to
this, the performance of subordinates is likely to be pruned. Flat structure with
wide span is not at all suitable to large manufacturing organisations that have
developed business vertically.

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 Decking the best span is not that much easy. The span of control must be
arrived at by proper balancing of two important factors such as organisational
levels and supervisory load. Not only that, this span of control is directly
affected by another two important variables such as capacity of the top executive
to manage his work and capacity of subordinates in carrying out the work. Apart
from these factors, there are many other factors which help us in determining the
actual size of span of control. They are explained briefly in the following
paragraphs:
 Management Policies
They have a great bearing on span of control. If the policies are clear and
comprehensive, it results in Increase in span of control. Clarity in plans,
definiteness in fixing up responsibility and use of standing plans reduce the
pressure of decision making by the top executive. Hence, span control will
increase.
 ature of work
If the nature of work is routine, uniform, typical and mundane, it can be
effectively monitored and regulated through programmed decisions. It leads to
increase in the span of control. In contrast to this, volatile and complex work
together with high risk-decisions are usually found at the top management. That
is why at top level, one can find limited span of control.
 Line and Staff relationships
If a line manager receives adequate staff help, he can bear high level of
work-load and can have a larger span of control. Existence of good superior and
subordinate relationships based on faith and mutual confidence is an essential
pre-requisite to widen the span of control. On the other hand, if the superior is
tactless in handling the relationships with subordinates, he will have limited span
of control.
 Quality of subordinate
If subordinates are experienced and well-trained In challenges through
self-confidence and control, they will need minimum supervision from the boss.
It will certainly improve the span of control.

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 Other Factors
The span of control in practice is affected by a good number of factors.
For eg: Time availability, degree of decentralisation, control practices. They are
bound to have impact over the size of span. We may come across limited span
when the work is to be supervised through personal observation. Similarly,
wider span of control may prevail when the work of the subordinates can be
controlled through written reports.

COCLUSIO
Span of control or supervision has assumed unique importance at present.
The modem business has grown in size complexity, diversity and coverage.
Problems of the top executives have increased considerably. The biggest task
before the chief executive is how to reduce the work-load of less important
nature in order to keep close control over important and critical activities. The
modem managements are trying to obtain better results through practising
different techniques. Span of control comes handy in easing out his work-load.

REVIEW QUESTIOS
(1) What do you understand by ‘span of control’? How would you' determine
the optimum span of control in a given situation?
(2) Discuss critically the theory propounded by V.A. Graicunas.
(3) Explain the factors that help to determine the actual span of control in any
business.
(4) How does the span of control influence the organisation structure? Discuss
in brief the comparative merits and demerits of narrow and wide spans.

CASE STUDY (1)

Planning and Control at Kitplay Ltd.
Kitplay Ltd. has been very successful since 1977 in selling Toys in India.
The success of this Company is attributable to two person - Mr. Dilip - technical
expert, Mr. Parimal the marketing genius. However, the success did not last for a

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very long time partly because of the introduction of the LEO Toys and Personal
Computers. The Company is fast losing its market. Kitplay Company thought of
exercising tight control and professional approach in management, Mr. Arjun
was lured from Plastics India Ltd to give Kitplay a new direction.
To bring the Company under control, Mr. Arjun employed cost cutting
measuring to improve its profitability. Spending on Research has been increased
so that new products may be developed to retain its market share. Efforts were
made to reduce duplication and friction among the departments. A new
reporting procedure is evolved for improving effectiveness in communication.
All efforts are made to control the inventory level which was hither to a serious
problem. These measures combined with a successful strategy of launching new
products have helped the Company in achieving tremendous success. As a result,
out put is increased by 200 per cent and profit by 150 per cent with in two years.

QUESTIOS
1) What is relationship between planning and controlling.
2) How coordination is helpful in this case?



178
 UIT - III
Lesson - 12
DELEGATIO OF AUTHORITY
AD DECETRALIZATIO

ITRODUCTIO
Authority is the power to make decisions which guide the action of
others. Delegation of authority contributes to the creation of Organisation. No
single person is in a position to discharge all the duties in an organisation. In
order to finish the work in time, there is a need to delegate authority and follow
the principle of division of labour. Delegation permits a person to extend his
influence beyond the limits of his own personal time, energy and knowledge.
DEFIITIO OF AUTHORITY
Henry Fayol, Authority is the right to give orders and the power to exact
obedience.
Konntz and O’Donnell, “Authority is the power to command others to
act or not to act in a manner deemed by the possessor of the authority to further
enterprises or departmental purposes.”
Terry, “Authority is the power to exact others to take actions considered
appropriate for the achievement of a predetermined objective.”
According to Barnard, “Authority is the character of a communication
(order) in a formal organisation by virtue of which it is accepted by a contributor
to or member of the organisation as governing the action he contributes; that is,
as governing or determining what he does or is not to do so far as the
organisation is concerned.”
Daris defines authority as the right of decision and command.
Louis Alien, “The sum of the powers and rights entrusted to make
possible the performance of the work delegated.”
Simon, “The power to make decisions which guide the actions of another.
It is a relationship between two individuals — one superior, the other
subordinate. The superior frames and transmits decisions with the expectation

179
that they will be accepted by the subordinates. The subordinate expects such
decisions and his conduct is determined by them.”
Dr. Paterson defines, “The right to command and expect and enforce
obedience.”
Strong says, “Authority is the right to command.”
Massie defines, “The formal right to exercise control.”
Tannenbau defines, “The concept authority describes an interpersonal
relationship in which one individual, the subordinate, accepts a decision made by
another individual the superior, permitting that decision directly to affect his
behaviour.”

CHARACTERISTICS OF AUTHORITY
The characteristics of authority are briefly explained below:
Basis of getting things done
Authority gives a right to do things in an organisation and affect the
behaviour of other workers of the organisation. It leads to the performance of
certain activities for the accomplishment of the denned objectives automatically.
Legitimacy
Authority implies a legal right (within the organisation itself) available to
superiors. This type of right arises due to the tradition followed in an
organisation, custom or accepted standards of authenticity.
The right of a manager to affect the behaviour of his sub-ordinates is
given to him on the basis of an organisational hierarchy.
Decision-making
Decision-making is a pre-requisite of an authority. The manager can
command his sub-ordinates to act or not to act. This type of decision is taken by
the manager regarding the functioning of an office.
Implementation
Implementation influences the personality factors of the manager who is
empowered to use authority. The subordinates or group of subordinates should

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follow the instructions of the manager regarding the implementation of decision.
The personality factor of one manager may differ from another manager.

SOURCES OF AUTHORITY
There are broadly three theories regarding the sources from which
authority originates. They are:
 The formal authority theory
 The acceptance of authority theory
 The competence theory
Brief explanations of the above three theories are given below:

THE FORMAL AUTHORITY THEORY

According to this theory, the authority flows from top to bottom through
the structure of an organisation. In other words, the authority flows from the
General Manager to his departmental manager and in turn, from the
departmental manager to his superintendent and the like. This is explained in the
following diagram.

BOARD OF DIRECTORS

GENERAL MANAGER

SALES MANAGER

SALES REPRESENTATIVES

WORKERS

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 The Formal Authority Theory is otherwise called Traditional Authority
Theory and Top Down Authority Theory.
In the case of public limited company, the authority is in the hands of
shareholders and they delegate their authority to top management and in turn, a
part of this authority is delegated to the middle management.

THE ACCEPTACE OF AUTHORITY THEORY

Chester Bannard gave this theory.
According to this theory, the authority flows from the superior to the
subordinates whenever there is an acceptance on the part of the subordinates.
The subordinates should accept the authority but there is no compulsion made by
the superior- If the subordinates do not accept the command of their superior,
then the superior cannot be said to have any authority over them.
According to Bannard, “An individual will accept the exercise of
authority if the advantages accruing to him from accepting plus the
disadvantages accruing to him from not accepting exceed the advantages
accruing to him from not accepting plus the disadvantages accruing to him for
accepting and conversely, he will not accept the exercise of authority if the latter
factors exceed the former”.
The authority of a superior will be effective only when there is
willingness on the part of the subordinate to accept authority and ineffective
when there is lack of readiness to accept the authority on the part of the
subordinate. The subordinate will not analyse each and every order of the
superior to accept it or not. In fact, certain orders of the superior are accepted by
the subordinate without a second thought. If an order of the superior is accepted
by the subordinate without any hesitation it is known as zone of acceptance.
Zone of acceptance will be determined by a number of factors.
1. The subordinate believes that rewards will be given him in appreciation of
his efforts and skills.
2. Sincere services of subordinate to the organisation will be rewarded.
3. A subordinate thinks that he has to accept the authority in a particular
situation.

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 4. The non-acceptance of authority will result in dismissal a the subordinate
from organisation.
5. It is also accepted on account of special knowledge that man may possess.
6. It is accepted because a subordinate is aware of his status in the
organisation.
7. There is no other way available than to accept authority.
8. It is the duty of the subordinate or it may be the policy of the organisation
to impose the authority.
9. People have confidence in the person giving orders.

COMPETECE THEORY
This type of authority is invested with the persons by virtue of the office
held by them. The personal power of this type of persons is based on the
leadership qualities of the person concerned. In an organisation, only one person
gets a higher position than others in course of time on the basis of leadership
qualities possessed by him.

DELEGATIO
It is impossible for any person to execute all the work in an organisation
to achieve the objectives of the organisation. Similarly, in a growing concern
also, a single person could not be vested with entire decision-making authority.
So, the superior assigns duties or responsibilities to his subordinates and also
delegates necessary authority to them.
MEAIG
Delegation is a process which enables a person to assign a work to others
and delegate them with adequate authority to do it.
DEFIITIO
Louis A. Alien, "Delegation is the dynamic of management, it is the
process a manager follows in dividing the work assigned to him so that he
performs that part which only he, because of his unique organisational

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placement, can perform effectively and so that he can get other to help them with
what remains."
McFarland, "Delegation is the primary formal mechanism by which the
net work of authority relationship is established."
E.F.L. Brech, "Delegation means, in brief, the passing to others of a share
in the four elements of the management process that is to say, in the command of
the activities other people and in the responsibility for the decision that will
determine the planning, co-ordination and control of the activities of such other
people."
Terry, "Conferring authority from the executive or organisational unit to
another in order to accomplish particular assignments."
Hodge and Johnson, "A process whereby a superior divides his total work
assignment between himself and subordinate managers or operative personnel in
order to achieve both operative and management specialisation.
Dougcas C. Basil, "Delegation consists of granting authority or the right
to decision-making in certain defined areas and charging the subordinate with
responsibility for carrying through an assigned task."

IMPORTACE OF DELEGATIO
Delegation is considered to be one of the most important methods of
training subordinates-and building morals. The delegation of authority helps the
manager to concentrate on the important work of planning, organising and
controlling.
Delegation is a universal process, wherever human beings work in
groups, one or the other form of delegation is practised by them. In our
democratic India, the people delegate their authority to the members of the
legislatures. The members of legislatures delegate their authority to any one of
the elected leaders who in turn delegates some of his authority to the cabinet
ministers chosen by him.
An individual can accomplish several simple and complex works.
Delegation enables a person not only to discharge his responsibility but also to
discharge it effectively and economically. To a business unit which has different
branches situated at different places, there is no alternative except delegation. It
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is acknowledged that delegation of authority is one of the surest and the best
methods of getting better results. A very good superior can use the delegation of
authority as a tool for motivating and eliminating cumbersome information
system.

ELEMETS OF DELEGATIO
The following are the three elements of delegation:
Assignment of duties or responsibilities
This work is being done only at the time, when a superior has no time to
accomplish all the work. The superior automatically assigns the work of
responsibility to his immediate subordinate.
Delegation of authority
If the work is assigned to any subordinate, there will be a need for
authority to accomplish it. |
After the delegation of authority, the subordinate can get powers to
accomplish the tasks in a specified time and in order.
Accountability
Accountability means that the subordinate is answerable to his immediate
senior. If there is any mistake or fault committed by the subordinate, the
subordinate should accept responsibility for it. In certain cases, the assignment
may be made to the subordinate if the work is not accomplished as per the
instructions issued by the superior. The superior (one who delegates authority) is
answerable to the management but not the subordinate (to whom authority is
delegated).

PRICIPLES OF DELEGATIO
Delegation to go by results expected
The nature of duty has equal rank with the extent of delegation of
authority. It should be noted that the objectives of the organisation are to be
accomplished in time. The superior should clearly know what he expects from
the subordinate before the delegation of authority.

185
on-delegation of responsibility
A superior can delegate authority but not responsibility. Assigning duties
does not mean delegation of responsibility. The superior should be in touch with
the subordinates to know whether duties are performed and the authority
exercised properly. The ultimate responsibility for the performance of duties
remains with the superior.
Authority and responsibility should commensurate with each other
A subordinate can discharge his duties effectively and efficiently if there
is proper delegation of authority otherwise, a subordinate cannot succeed in
accomplishing the assigned tasks.
Authority without responsibility will make the subordinate a careless
person. Likewise responsibility without authority will make the subordinate an
inefficient person. So there should be a proper balance between authority and
responsibility.
Unity of command
The principle of unity of command insists that a subordinate should get
instruction from only one superior. In other words, a subordinate should be
assigned duties and responsibilities by only one superior and he is accountable
only to the concerned superior.
If a subordinate gets orders, instructions and directions from more than
one superior, it will create uncertainty and confusion in the organisation. In such
a situation, the subordinate will find it very difficult to determine whose
instructions, orders or directions he should carry out first.
Well definition of limitations of authority
A person knows well that an authority alone can delegate the authority
properly. There should be .written manuals which help person to understand the
authority in right direction. This will avoid confusion regarding the delegation of
authority and enable effective functioning of the concerned person.

186
TYPES OF DELEGATIO
A brief explanation of the different types of delegation is given below:

• General
• Specific
• Written
• Unwritten
• Formal
• Informal
• Downward
• Accrued
• Sideward

General Delegation
General delegation means granting authority to the subordinate to perform
various managerial functions and exercise control over his subordinates. At the
same time, the same persons are regulated and supervised by the top
management.
Specific Delegation
Under specific delegation, the orders, instructions or directions are
delegated to particular person specifically. For example, the Personnel manager
may be delegated authority for selection of personnel, training of personnel,
placement of personnel and the like. .
Written Delegation
This type of delegation is made by written orders, instructions etc. The
proper usage of words is essential to this type of delegation.

187
Unwritten Delegation
Unwritten delegation means the authority is delegated on the basis of
custom, conversion or usage. Here, there is no evidence available for future
reference.
Formal Delegation
The duties and authority are shown in the organisational structure of the
enterprise. For example, the production manager is assigned the responsibility
and accompanying authority to maintain and increase the production.
Informal Delegation
In certain cases, a person has to use the authority without getting it from
top management. The reason is that he can perform his assigned duties
effectively in time-
Downward Delegation
Downward delegation states when a superior could delegate duties and
authority to his immediate subordinate. This type of delegation is followed in
most of the organisations.
Accrued Delegation
Under this type of delegation, a subordinate can delegate his authority to
his immediate superiors. It occurs seldom in an organisation.
Sideward Delegation
A person delegates authority to another person who is also in the same
rank as he is in the organisation.

ADVATAGES OF DELEGATIO
The delegation of authority gives several advantages to the organisation.
The important advantages of the delegation of the authority are given below:
Basis of effective functioning
Delegation lays the basis for effective functioning of an organisation. It
creates the relationship with others and achieves various objectives of the
organisation.
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Saving of time
Delegation of authority enables the superior to allot more time to
important matters like planning, organising, staffing, directing, co-ordinating,
controlling and decision-making.
Reduction of work
Delegation relieves the superior from attending to the routine matters.
Normally the routine matters are allocated to subordinates. It helps the superior
to carry out more responsible work alone.
Opportunity for Development
Delegation of authority gives a very good opportunity to the subordinate
to grow.4t helps in identifying the best person among the various subordinates
for development.
Benefit of specialised service
Delegation helps the superior to get the benefit of specialized knowledge
of various persons at lower levels. For example, production is delegated to the
production manager, sales to the sales manager, legal matters to the lawyer and
the like.
Efficient running of branches
If the business has any branch, the branch affairs or activities are looked
after by a separate person. He is supposed to be incharge of this branch. When
he can get adequate authority with responsibility he could work for the smooth
and effective functioning of the particular branch.
Interest and initiative
Whenever the delegation of authority takes place, the subordinate may do
the work with interest. In certain cases the subordinate by himself takes initiative
to do the work properly.
Satisfaction to subordinates
Delegation of authority will satisfy the self-actualization need of the
individuals.

189
Expansion and diversification of business activity
The subordinates are fully trained in decision-making in various fields of
the business by using the delegation of authority.
This type of talents of subordinates can be used by the top management in
the expansion and diversification of the business activities.

PROBLEMS OF DELEGATIO
Every superior is expected to delegate part of his duties and responsibility
to his subordinates. A single person cannot perform all the work. So, delegation
is a very important characteristic of the organisation.
The proper delegation of authority is made only at the time of a proper
balance between feelings of superior and subordinates.

I. HESITATIO O THE PART OF SUPERIOR

The following are the reasons for the lack of willingness on the part of the
superior to delegate authority.
Perfectionism
Many superiors think that he is better than others- This is true to some
extent. The reason is that the superior may have had experience in doing and
developed a degree of skill. If such a practice is followed by a superior, he is not
a loyal employee of the organisation. He should open the door to this
subordinate to develop his abilities by delegating authority.
Autocratic attitude
Some superiors prefer to retain the powers in their hands. These persons
don't have belief in the delegation of authority and they interfere with the limited
authority of their subordinates.
Directions
Many superiors have lack of ability to direct the subordinates.
Subordinates may misinterpret the instructions which the superior gives. Then
the superiors cannot get the expected efficiency from the subordinate.

190
Confidence
Superiors have lack of confidence in subordinates. Without confidence
nobody can delegate anything to others. In the society life cannot he lived
without reposing in the ability of others so, each superior is expected to delegate
his powers, to his subordinates. If the delegation is not made, the superior has no
chance to gain experience from delegation of authority. Confidence is developed
gradually on the basis of the success of the delegation of authority.
Control
The superior has control over his subordinates. He wants to retain the
control over his subordinates and keep up the importance of his role. Hence he
hesitates to delegate his authority. Besides, the superior feels that he might be
dominated if he delegates his authority.
Avoidance of risk
Risk may arise through the delegation of authority to a subordinate.
Whatever may be the risk, the superior will have to take the responsibility for it.
But only few managers are ready to run the risk.
Competition
Subordinates learn much than the superior by taking advantage of
delegation of authority. This results in the emergence of more talented persons
than the superior. This is not liked by the superior and he avoids competition in
future.
Inability of the subordinate
The subordinates does not have any ability to accept any new work. The
superior, who knows this fact, hesitates to delegate powers.
Inability of the superior
If the superior is an inefficient person, the work method and procedures
designed by him are likely to be faulty. So, the superior wants to keep all the
authority with himself.

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II. HESITATIO O THE PART OF SUBORDIATES
Sometimes the subordinates are not willing to accept delegation
eventhough the superiors are very much interested in delegation. The reasons for
not accepting the authority by the subordinates are given below:
Love of spoon-feeding
If a subordinate has been given a chance to take a decision he may not
like to decide things himself.
Easier to ask
Subordinates often find it easy to ask their superiors for an answer than to
find it out for themselves. Some superiors will accept only one solution to a
problem and allow the subordinates to find out other solutions by themselves. In
such a situation, a subordinate does the work effectively and goes to his superior
for an answer.
Fear of criticism
Sometimes, a subordinate may fear that even for a silly mistake in a
decision, his superior may criticise his subordinate. This suppresses the
initiatives of the subordinate and destroys his self confidence.
Lack of information (or) resources
A subordinate may hesitate to-accept any new work due to lack of
information or resources to do the work effectively.
Lack of self confidence
Lack of self confidence in a subordinate is also one of the reasons for not
accepting any authority.
Other work
Subordinate may feel that they will not be able to finish any additional
work along with the existing work. Subordinates think that if they accept
authority, they may be forced to accept more work in the future.
Inadequate incentives
A subordinate may not come forward to accept any authority if there is no
personal gain in doing so.

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Fear of failure
Some subordinates feel that they may fail and so they do not want to
accept additional responsibilities.

EFFECTIVE DELEGATIO
The superior has the aim to practice and encourage delegation for the
efficient accomplishment of the organisational objectives. Hence, it is necessary
that the nature and content of each job should be scientifically analysed to
pinpoint the job that can be entrusted to subordinates.
Normally minor and routine types of jobs are entrusted to the
subordinates. The superior is not ready to perform even the ordinary routine jobs
but at the same time there are certain jobs which cannot entrusted then; for
example, the preparation of budget, formulation of policies and framing rules
and regulations.

STEPS IVOLVED I SUCCESSFUL DELEGATIO

The following steps will aid more successful delegations of authority.
Establishment of definite goals
The purpose of delegation is to enable efficient accomplishment of
organisational objectives. But delegations will be meaningless if the objectives
are not properly defined. Subordinates may hesitate to accept the authority, if
they do not know exactly what is expected of them.
Developing personal discipline for supervision
Superior should have faith in the ability of his subordinates and tolerate
the mistakes committed by them. Then, every subordinate will be ready to accept
the authority for efficient performance.
Establishment of definite responsibility
The authority and responsibility of each subordinate should be in clear
terms. This will avoid the duplication of delegation.

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Motivation
Subordinates are ready to accept the responsibility if proper motivation is
available to them. Motivation may be by means of increased wages and the like.
Determining what to delegate
This will necessitate the appraisal of the capacity of the people and needs
of the jobs. Only delegatable authority alone will be delegated.
Training
Subordinates should be properly trained in handling delegated work.
Technical and non-technical training should be given to the subordinates. The
non-technical training includes the development of the morale self confidence
and leadership qualities of the subordinates.
Report
After delegation of any authority, the subordinate is expected to submit a
report on it. Only in this way the superior will be freed from authority jobs to
concentrate on other important functions.
Control
The superior is held responsible to the top management even after the
delegation of authority. So it is necessary to establish a suitable control system to
keep a careful watch over the performance of subordinates. If the superior finds
a deviation from the predetermined procedures he should take corrective action
in time.

PRE-REQUISITES FOR EFFECTIVE DELEGATIO OF AUTHORITY

A supervisor can delegate his authority after acquiring knowledge of the
following pre-requisites of effective delegation:

The supervisor must understand the authority and responsibility of their own.

The supervisors must decide the portion of his authority that he wants to
delegate to subordinates.

The supervisor should have thorough knowledge of the abilities and
inabilities of subordinates.

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The supervisor must ensure that the subordinates have understood the
delegated work in right direction.

The supervisor should delegate only the routine functions to subordinates.

The supervisor must understand the need, importance and value of
delegation.

The supervisor should delegate the work which can be performed
independently.

The supervisor must dissuade the subordinate from being tempted to take
decision by themselves.

The supervisor must release the decision-making powers to his subordinates.

There should be adequate communication network within the organisation.

There should be a clear definition of standard of accountability.

Delegation must be done in accordance with overall plan for the completion
of the work.

The delegation of authority should be confined to the organisational
structure.

COMMO FAULTS I DELEGATIO

Close supervision
The supervisor has to supervise his subordinates even after delegation of
authority. The advantages of delegation of authority will not be available to the
organisation if there is no close supervision and if the subordinates are not made
to act independently.
Lack of direction
The supervisor fails to provide adequate direction to his subordinates. It
places the subordinates in a position in which they do not know what is expected
of them.

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Lack of accountability
The efficient use of delegated work cannot be checked by a supervisor.
This is a great handicap to the superior. As a result of this a sense of
irresponsibility infuses the subordinates.

DECETRALISATIO
Decentralisation means that each section has its own workers to perform
activities within the department. There will be no general office to provide these
services. Under the decentralisation, separate staffs are allocated to each
department for performing those activities which cannot be centralized.

ADVATAGES OF DECETRALISATIO
A brief explanation of the advantages of decentralisation is presented
below:
Savings of time
All paper work relating to the basic operations of the business originates
from the departmental officers. Decentralisation enables the department staff
members to complete the work early.
Greater efficiency and output
The workers of a particular department are well versed in the technology
followed in that department. Hence, there is a possibility of increasing their
efficiency. The greater efficiency leads to increase in output and minimising the
cost.
Maintenance of secrecy
If the secrecy of the business is disclosed, it may make the organisation
realise a loss. Next, if a separate department is put incharge of the maintenance
of secrecy under decentralisation, the loss may be avoided and the secrecy
maintained.

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Departmental loyalty
The staff attached to a particular department for a number of years
develops a sense of loyalty to the department. It results in the increase of output
and improvement of the performance of the individual.

DISADVATAGES OF DECETRALISATIO
The disadvantages of decentralisation are explained below.
o proper division of work
The work load of the organisation cannot be evenly divided to be given to
each department.
Duplication of work
If the same type of work is performed in more than one departments, i.e.,
duplication of work, separate machines and equipments are used to perform the
duplication of work.
o standardization
There is no possibility of adopting a standard procedure to perform the
same type of work in all departments. Besides, it brings about difficulties in
selection and training in each department.
Heavy expenditure
A large number of staff members and supervisors are required under this
arrangement. It leads to increase in the cost of operation.

RESPOSIBILITY
Responsibility always arises from the superior-subordinate relationship.
The essence of responsibilities is obligation. If a person is entrusted with any
work, he should, be held responsible for the work that he completes.
MEAIG
Responsibility is the obligation to do something. In other words,
responsibility is the obligation to perform the tasks, functions or assignments of
the organisation.

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DEFIITIO
Theo Haimann, "Responsibility is the obligation of a subordinate to
perform the duty as required by his superior."
Davis, "Responsibility is an obligation of the individual to perform the
assigned duties to the best of his ability under the direction of his executive
leader."
Strong, "Responsibility is an obligation to perform certain functions and
achieve certain results."
McFarland, "Responsibility is the duties and activities assigned to a
position or to an executive."

ELEMETS OF RESPOSIBILITY
The following are the basic elements of responsibility:
1. It arises from superior-subordinates relationship.
2. It results from contractual agreement.
3. The responsibility cannot be transferred to anybody.
4. It is created by acceptance of authority.
5. There is an essence of obligation.
6. The responsibility may be general or specific.
7. Responsibility is a continuing process by nature.
Delegation of authority and responsibility is necessary for an effective
functioning of an organisation. Responsibility without authority is an empty
vessel. Authority without responsibility is very dangerous one. Both, authority
and responsibility are necessary to an individual.

REVIEW QUESTIOS
1. What is decentralisation?
2. What are the sources of authority?
3. What is meant by delegation?
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 4. State and explain the difficulties in delegation.
5. Compare and contrast centralisation with decentralisation.
6. What are the types of delegation?
7. What are the different advantages of decentralisation?
8. Explain the various differences between the concept of centralization and
decentralisation.
9. What are the merits and demerits of decentralisation?
10. What are the advantages of centralisation?
11. Describe the term “Delegation.”

CASE STUDY
Reorganisation of a large Corporation
You are head of a large corporation that has grown by acquisition of other
companies, each of which produces a different product. The practice has been to
leave each acquisition under its original managers and simply make it a
subsidiary of the corporation.
Each company has its own board of directors, which has all the powers
that the board of an independent company possesses. The only change has been
that your corporation has acquired a majority of the shares outstanding, and it
can therefore influence the board, even overrule it. Your company has gained by
the acquisitions simply because, as a stockholder, it receives dividends on its
shares.
But some difficulties have developed. The subsidiaries are, in some
cases, setting their prices too high, with the result that their sales are falling off.
In other instances, some subsidiaries have been introducing products that
compete with those of other subsidiaries, which seems to be a waste. In
addition, there seems to be duplication of facilities that might well be handled
centrally.
You decide to reorganize the whole corporation. What are some of the
steps you might take?

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 UIT – III
LESSON - 13
COMMITTEES
Committee Organisation
Committees are very extensively used in the modern organisations at
various levels. The committees are also called variously as board, commission,
task force, team etc. Committee is a group of persons to whom, as a group, some
matter is committed: It is appointed by an authority with some delegated powers.
It brings into decision making the experience and expertise of two or more
persons.
Types of committees
be broadly classified into advisory committees and executive committees.
When committees are entrusted with staff authority, they are known as advisory
committees. They play only an advisory role and cannot enforce implementation
of their advice or recommendation. Works committee, new product development
committee, finance committee, marketing committees etc. are the some of the
examples for advisory committees. On the other hand whenever committees are
vested with authority (power) they are called executive committee. Executive
committees not only take decisions, but also have the authority to implement
them. The board of directors is an example of executive committee.
Committees may be either permanent or temporary (adhoc). They may
also be formal or informal. A formal committee .which finds a place in the
organisation chart with specific authority and responsibility. In general, formal
committees are permanent in nature whereas informal committees may be
temporary or permanent. They may also be classified into adhoc committee and
standing committees. The former is constituted for a specific purpose and then
disbanded after it has performed the assigned task. The latter is more permanent
and exists as long as there is need for it in the organisation.
Reasons for the use of committee
The committees are widely used in modern organisation. The following
are some major factors responsible for the popularity of committee form of
organisation.

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Group participation
Committee facilitates the involvement and participation of more than one.
Two heads are better than one. Many of the inadequancies or limitations of an
individual are compensated by collective wisdom and thinking. The Committee
meetings become the forum for cross-examination and fertilisation of ideas. The
exchange of information, view points, beliefs and experience, help in examining
the issues involved more thoroughly which may not be possible in an individual
judgement
Diffusion of authority
The fear of concentration of authority in one individual is another reason
for the constitution of committees. No single member of the committee can have
absolute authority. Whatever the decision of the committee, it has to be approved
by atleast majority members.
Consolidation of authority
In committee form of organisations, the authority of all the members will
be pooled up. The authority of different individuals which is otherwise splintered
is consolidated in the committee form, The collective authority thus pooled up
enables the committee to decide on matters which are beyond the scope
authority.
Representation of interested groups
A committee must be appointed with representation to all those who are
affected by a particular decision. It provides not only an opportunity for
participation but also satisfies the ego of individual members. The members
naturally feel that they are also a party to decision and therefore they tend to be
loyal to the decision.
Co-ordination becomes easy
In Committee facilitate inter-departmental coordination. The interaction
that takes place among the members and the way how the information is shared
by them, contribute for better co-ordination of the plans and thereby inter-
departmental activities.

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A tool of Management development
Committee can also be used as a tool of management development. It
widen the manager’s perspective and knowledge about some important tasks in
the organisation. His participation in the committee meetings and the exposure
thus gained enable him to understand the larger picture. Valuable learning takes
place where individuals can take an integrated view to solve the problems.
Avoidance of action
More often committees are used to avoid action on a problem. At times, a
manager may be unwilling to take action, but he cannot afford to avoid action
also. The best option open to him is to refer the matter to a committee. A
committee can be used to smoothen the tempers and pasSions of people. It is
also used as a means to overcome resistance, pressure, or opposition from parties
involved in an issue.
Limitations of committee’s
The committee form of organisations are not free from Certain
limitations. Committees are subject to mismanagement and misuse. The
following statements on committee reflects the darker side of the use of
committees.
“a place where the loneliness of thought. is replaced by the togetherness of
nothingness”.
“a committee is made up of the unfit selected by the unwilling to do the
unnecessary”.
The following are the limitations of committees.
High cost in tune and money
The constitution of a committee is an expensive affair, The time and
money involved are quite considerable. The executive time has got opportunity
cost. After a series of meetings, if no decision is taken or the outcome is
insignificant the expenditure of resources and the executive time spent will
become waste and the exercise is meaningless. It will be still ridiculous if a
committee is assigned a problem that could be solved by a single individual.

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o prompt decisions
Committee is not conducive for quick decisions. Arriving decisions in a
committee after following the necessary formalities is a time consuming process.
Indecision
Quite often committee meeting end up in no decision. Meetings get
adjourned for want of quorum and time for thorough discussions. Besides, many
.decisions may be taken on the basis of compromise.
Minority Tyranny
Committees normally tend to seek unanimous or near unanimous
decisions. Minority members who hold a different view are therefore in a strong
position. Similarly, majority can also put pressure on minority members to force
them to arrive at the decision.
Splitting of Responsibility
Since many members are involved in the decision making process of the
committee, no individual is held responsible if the outcome of the decision in
adverse So, no member feels the responsibility for group action.
Effective use of committees
As the emphasis on the group decision making and participation
increases, so also the use of committees in the company’s affairs. If adequate
care is exercised in respect of the following factors, the committees can be
effectively used for better decision making.
1. Authority and scope of the committee must be clearly defined.
2. The size of the committee must be optimum.
3. Utmost care must be exercised in selection of members for the committee.
4. Careflul setection of the subject matter to be entrusted to the committee.
5. Effectiveness of the role played by the chair person or leader of the
committee must be taken care of.

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Summary
Line position may be defined as those directly responsible for achieving
the organisation’s goals. Staff positions provide expert advice and service to the
line Staff authofity ranges from being limited to advising on request, to
compulsory consultation, to concurrent authority, to functional authority. ‘The
characteristics, advantages and disadvantages of line and staff relationship have
been discussed in the first part.
In the second part of the lesson functional authority, its advantages and
disadvantages, committee form and major issues related to committees etc., have
been dealt with.

REVIEW QUESTIOS
1. What are the merits and demerits of management by committees?
2. “A Committee is made up of the unfit selected by the unwilling to do the
unnecessary” – comment.
3. “Good committee management is through adherence to the basic precepts
of the human relations approach to organization.
4. Give suggestions to make committees more effective.

CASE :
Supermarket Organisation
The XYZ supermarket was originally organized by a grocer who
persuaded a butcher, a delicatessen owner, and a produce specialist to join the
venture. The store flourished and soon became a chain.
For a long time, the heads of the various departments were directly
responsible for the purchasing, warehousing, advertising, marketing,
merchandising, sales promotion, and sales of their products. Each department
manager had his own organization. For example, directly under the meat
manager was a chain meat merchandiser who supervised branch meat managers,
who in turn supervised district meat managers, and the store meat manager
reported to the meat merchandiser in charge of his district.

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 Those in charge of the other departments each had a similar organization,
and all the executives were chosen either because they had owned their own
stores or had worked in food stores specializing in one of the various products.
Graphically a product department’s organization was:

Chain
Merchandiser

Branch
merchandiser

District
Merchandiser

Store
Department
manager

or less in a staff capacity. This was made up of the vice president of operations,
branch managers, district managers, and store managers. The last was generally
the grocery department manager, whose responsibilities included supervision of
the “front end,” i.e., cashiers and baggers. He was also responsible for
bookkeeping, personnel, housekeeping and sanitation, customer relations, the
handling of money, and liaison with the maintenance department. Graphically:

205
 Vice president
Operations

Branch
merchandiser

District
Manager

Store
Manager

The relationship between the two management group may be shown as

follows:
As the growth of this chain (and others) continued, competition became greater
and fiercer. Predictably, the downward pressure on everyone’s profits became
heavier and heavier, and top management ca about for ways to contain costs;
predictably, it began to direct attention t the number of people employed. It also
began to consider maintenance costs, fuel and energy usage, excess inventories,
costs of warehousing I and costs of store deliveries, among others. I

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 Effectively Staff Effectively Line

Vice President Chain

operations Merchandiser

Branch Branch
Manager merchandiser

District District
Manager Merchandiser

Store Store
Manager Department
manager

For the purpose of this case, however, discussion will be limited to the
personnel question, although the others should be kept in mind. The flow of
authority was forced to go in the opposite direction, from the entrepreneurial
group to the operations group.
Whereas the district delicatessen merchandiser, for example, had
authority to staff the store delicatessen departments as he thought they should be
staffed to attain maximum customer response, under the new concept he was
forced either to negotiate with the district manager on hiring, or to accept the
number of people arbitrarily set by the latter.

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 Effectively Line Effectively Staff

Vice President Chain

operations Merchandiser

Branch Branch
Manager merchandiser

District District
Manager Merchandiser

Store Store
Manager Department
manager

The operations group gradually assumed more and more authority.

Eventually, the constraints and restraints imposed on the departmental
executives brought them completely under the control of the other group. In fact,
it became necessary to write job descriptions that delineated the authority of
each executive in the departmental group side by side with that of his operations
group counterpart. Then, when a matter of authority or responsibility arose, it
was necessary to choose column A or column B.

Questions
1. Which form of organization do you think worked best? Why?
2. Which form of organization was closer to a behavioral form? Explain.
3. Which form of organization was most likely to encourage innovation Why?



208
 UIT - IV
Lesson - 14
STAFFIG

ITRODUCTIO
In the new enterprise, the staffing function follows the planning and
organising function. In the case of running an enterprise, the staffing function is
a continuous process. So, the manager should perform the staffing function at all
times. The staffing function includes the recruitment, selection, training,
development, transfer, promotion and compensation of personnel.
It is obvious that the management must ensure a constant availability of
sufficient number of efficient executives in an enterprise for the efficient
functioning of the enterprise. The selected personnel should be physically,
mentally and temperamentally fit for the job.
DEFIITIO
According to Koontz and O'Donnell, "The managerial function of staffing
involves managing the organisation structure through proper and effective
selection, appraisal and development of personnel to fill the roles designed into
the structure."
S. Benjamin has defined staffing as, “The process involved in identifying,
assessing, placing, evaluating and directing individuals at work.”
According to Theo Hainmann, "Staffing function is concerned with the
placement, growth and development of all those members of the organisation
whose function is to get things done through the efforts of other individuals."

ELEMETS OF STAFFIG
While performing the staffing function, the manager has to see that men
are fit for jobs and jobs are not altered for men. The major elements of staffing
are given below:
 Effective recruitment and selection
 Proper classification of personnel and pay fixed for them
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  Proper placement
 Adequate and appropriate training for development
 Satisfactory and fair transfer and promotion
 Sound relationship between management and workers
 Adequate provision for retirement

FUCTIOS OF STAFFIG
Manpower planning
Manpower may be planned for short-term and long-term. The short-term
manpower planning may achieve the objectives of the company at present
conditions. The long-term manpower planning should be concerned with the
estimation of staff members required in future.
Development
Development is concerned with the development of staff members
through adequate and appropriate training programme. The training is given only
to the needy persons.
Fixing the employment standards
It involves the job specification and job description. These enable the
management to select the personnel and train them scientifically. Job description
is a systematic and organised written statement of the duties and responsibilities
in a specific job. Job specification is a statement of personal qualities that an
individual must possess if he is to successfully perform the job.
Sources
It is concerned with the method by which the staff members are selected.
The sources may be internal and external sources. Internal source means that a
vacancy is filled up by the company out of the staff members available within
the company. The external source means that a vacancy is filled up by the
company from outside the company. The person selected may be unemployed or
working in any other company.

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Selection and placement
It includes the process of selection of the staff members. The placement
includes giving a job to a person on the basis of his ability, education, experience
and the like.
Training
The training may be arranged by the company itself. In certain cases, the
staff members may be sent out by the company to get the training. The expense
is borne by the company. The training may be required not only by the new staff
members but also by the existing staff members.
Other functions
The other functions of staffing includes co-ordination, promotion,
transfer, record maintenance regarding employees, rating of employees,
motivation etc.

PROCESSIG OF STAFFIG
The selection and placement of personnel involves the following
processes. They are briefly discussed below:
Planning
The term planning of staff members includes estimation of the number of
staff members required to the company in various grades. It is based upon the
size of the company and the policy followed by the company.
Requirement and selection
It deals with the selection of qualified applicants to fill the jobs in the
organisation. A standard procedure may be followed while selecting the staff
members. The procedure may be valid for different types of personnel.
Training of developments
It is concerned with providing training to new staff members as well as
the existing staff members. The working efficiency of the staff members may be
developed through the training programmes.

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Performance operation
It deals with assessment of the work performed by the staff members in
an organisation. A standard may be fixed in order to evaluate the efficiency of
the staff members.

PROPER STAFFIG
Proper staffing means providing adequate qualified staff members for the
purpose of effective functioning of office. The chief executives or the general
manager undertakes this function. Identifying appropriate staff members is a
difficult task. So, some of the staffing functions may be assigned to a separate
department in the large concern.

ADVATAGES OF PROPER STAFFIG

♦ It helps in the recruitment of efficient staff members.
♦ It helps the proper placement of staff members according to their ability.
♦ Proper selection, training and development of staff members, will result
in the maximum production in an organisation.
♦ Increasing the efficiency of the workers will increase the earning capacity
of the workers.

RECRUITMET
Recruitment is the process of finding the apt candidates and inducing
them to apply for the job in an organisation. The recruitment should be a sound
one. If it is not so, the morale of the staff will be vary low and the image of the
company will be tarnished.
The success of any recruitment depends upon the procedure followed by
the company while recruiting the members. Jobs with low salary or uninteresting
jobs or difficult jobs cannot be filled up by the company very easily. Every
company has to recruit its staff members but the quantum of recruitment may
vary from one company to another company. The variation may be due to the

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size of the company, recruitment policy of the company, nature of the job and
the like.

MEAIG
Recruitment means the discovery of the staff members for the present and
future jobs in an organisation.
DEFIITIO
According to Dalton E. McFarland, "The term recruitment applies to the
process of attracting potential employees of the company."
Edwin B. Flippo, "Recruitment is the process of searching for prospective
employees and stimulating them to apply for the jobs in the organisation."

SOURCES OF RECRUITMET
The source of recruitment is based on the policy followed by the
company. The job can be filled up out of the employees of the company or from
outside the company.
If the job is filled up out of the present employees of the company it is
said to be the internal source of the company.
If the same job is filled up from out of the candidates available in the
society it is said to be the external source. A clear picture of the internal sources
and the external sources is given below.

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 SOURCES OF RECRUITMET

Internal External

Transfer Promotion

Walk-in-Interview)
(Company Invitations and
Advertisement
Recommendations
Gate Applicants
(Govt. & Private)
Employment Exchange
Personal Consultants

Educational Institutions
Waiting List
Unsolicited Applications

Jobbers and Contractors

Field Trips
Leasing
ITERAL SOURCES
Whenever a job falls vacant, it can be filled up by giving a promotion to
the present employee of the company. It is based on the promotion policy
followed by the company. In certain cases, a same cadre staff member is deputed
to the job by the company. This is called a transfer. This is also based on the
transfer policy followed by the company.

ADVATAGES
 It increases the morale among the staff members of the company.
 Giving promotion keeps the employee happy.
 It attracts efficient staff members.
 The training expenses may be reduced to some extent.
 A person who has got a promotion, inspires the staff members to acquire
a thorough knowledge of his job.
 Internal promotion helps the staff members to derive job satisfaction.

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  A promoted staff member may make use of his past experience in the new
post.
 It increases the security of the job of the staff member.
 A new responsibility can be entrusted safely to the promoted staff
members on the basis of the contents of Service Register,
 It ensures the continuity of job to the staff members and stability of the
organisation.
 It induces the staff members to work hard to get promotion.
 Such expenses as on advertisement, recruitment, test and interview are
avoided.

DISADVATAGES
 If the higher post is filled internally, the company will not be able to get
fresh and original ideas and initiative from the staff members.
 The outsiders do not have a scope to show their ability in the performance
of the work.
 An under qualified person may be appointed in the higher post.
 If the promotion is a guarantee to the internal staff members after the
expiry of a specific period, the concerned staff member does not care to
work efficiently.

EXTERAL SOURCES
There are various external sources of recruitment. They are briefly
explained below:
Advertisement
When a company wants to inform the public that it has a vacancy, it puts
up an advertisement. The details of the job and the qualification of the
candidates are briefly given. The company may receive the applications in
response to the advertisement. After that, an interview will be conducted. In
certain cases, walk-in-interview method may be adopted by the company. In the

215
walk-in-interview method, the applications are not received from the candidates.
The date and time and place of the interview are mentioned in the advertisement.
In this way a person can be recruited through an advertisement.
Recommendations
Here, recommendation means appointment of a person on getting a
recommendation letter from a person reliable and well known to the company. In
certain cases, an employee of the company may bring the candidates to the
company for the purpose being appointed, when the company does not conduct
an interview for selection.
Gate applicants
The educated unemployed youth may contact the company to get
employment. These candidates may not have any recommendations. Even the
company might not have issued any advertisement for the Post. The candidate
personally approaches the appointing authority of the company. If such
candidate is found fit for any one of the posts which are vacant at that time, the
candidate is appointed.
Employment exchange
The job seekers register their names with their qualification with the
employment exchange. The company can get a list of candidates who have
requisite qualifications to fit in a job. Out of the listed candidates, any one of
them can be selected. The employment exchange is of two kinds, i.e., public
employment exchange and private employment exchange. The public
employment exchange is run by the government. The private employment
exchange is run by a private party. The private can get a commission both from
the job seekers and the company. But the public employment exchange does not
demand any such commission both from the job seekers and the company.
Personnel consultants
Private consultant is a separate specified agency doing the function of
recruitment of the personnel on behalf of the company. In other words, the
functions of personnel department of any company are performed by the
personal consultants. It receives the applications from the candidates, verifies the
applications, conducts interviews and selects the candidates. The Personnel
consultant receives fees from the company for its service.

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Educational institutions
Universities, colleges and institution are formed to offer specific courses.
The education institutions make an arrangement for campus interview. The
business concerns come to the campus of educational institutions to recruit the
students for various posts. The selected students are requested to join the post
after completing the course.
Waiting list
The business concern prepares a waiting list of candidates who have
already been interviewed. But, they are not appointed for lack of vacancy.
Whenever a vacancy arises, the vacancy may be filled up by the company out of
the waiting list.
Unsolicited applicants
Unsolicited application means the application received through mail from
the candidate. The applications brings the information regarding the name and
address of the candidate, his age, educational qualification, experience, area of
interest etc. If there is any vacancy at that time, the candidate will be recruited
for the specified post. Normally, this type of applications is considered for the
posts at the lower level.
Jobbers and contractors
The casual vacancy may be filled up by the company through the jobbers
and contractors. Normally unskilled candidates are appointed in this way. They
are available at short notice and for a small salary. This type of candidates is
brought by the jobbers and contractors to the place of work and they receive
some wages from the company for this service.
Field trips
A company may send a group of experts to the towns and the cities where
the various kinds of candidates required by the company are available. In this
case, a prior advertisement may be issued in newspapers. The advertisement
contains information regarding the date, venue and time of the interview. The
interview is conducted in different places. This is the procedure followed to
recruit the candidates under field trips.

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Leasing
This type of source of recruitment is followed by the public sector
organisation. The reason is that the organisation wants to manage the problems
particularly at higher level. Before recruiting the staff members, the period of
service is fixed by the company and it is conveyed to the staff members.
MERITS
There are some advantages to the company if the appointment is made
through external sources. These advantages or merits are discussed below:
• Choice
A company can recruit a person out of a large number of applicants. Each
and every candidate's plus points and minus points are taken into consideration
for the purpose of recruitment. Then, the best candidate can be selected by the
company.
• ew outlook
If a new person is recruited by the company, a new way of approach may
dawn to solve the problem. A new way of approach will give maximum benefits
to the company.
• Wide experience
If the recruited new candidate has experience in various fields, the
company can get the benefit of the candidate's experience.

DEMERITS
The external sources also have some demerits. They are listed below:
• Grudging of old employees
If a candidate is recruited from external sources the existing staff may
have a grudge against him. It results in demoralisation of the staff members.
• Lack of co-operation
The existing staff members do not extend their co-operation to the person
who is selected from out of external sources. In addition to this, the existing staff
members make the new man count difficulties and try to cast slur on his name.

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• Expensive
Recruitment of a person from outside the company requires a lot of
formalities. The formalities include issuing advertisement, receiving the
applications, screening the applications, dispatching the interview letters,
fixation of interview date, time and place, formation of an interview committee
etc. Completing all the above said procedures involves a lot of expenditure.
• Trade union
If the trade union of the company is very strong, it is very difficult to
convince the trade union and recruit a person outside a company.
• Danger of non-adjustment
If a newly recruited person fails to adjust himself to the working
conditions of the company, it leads to more expenditure in looking for his
replacement. Besides, it causes to irritation and quarrel between the recruited
person and the existing staff members.

SELECTIO
Selection is the device used in an organisation to select a suitable person
who has required educational qualifications, skills, abilities, personality and the
like. When an organisation gets more number of applications than needed, the
application in excess are rejected. In other words, a screening test may be
conducted through which unsuitable candidates may be rejected. Selection
procedure starts with the end of recruitment.
MEAIG
Selection is the process adopted by an organisation to select adequate
number of persons who are fit for the job.
IMPORTACE OF SELECTIO
Selection is a tough task at present. The reason is that the available
candidates are more qualified than what is required. They have higher education
qualifications and experience. So, more care is needed in the selection of proper
personnel.

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  Manager is informed about the complexities of selection and weakness
and limitations of various selection techniques. Managers know the
probabilities of error.
 The high degrees of education and employment opportunities have made
the labour market or buyers' market. The economic security has made it a
sellers' market.
 The inexperienced candidates cannot meet the requirement of today's job.
Now, education is developed in such a way that training is given within
the study. A person with adequate and desired experience gets selected
for the job.
 Managers know the techniques used to discover the deficiencies in
candidates.
 Today's public policy has imposed many new restrictions with respect to
those who can and should be hired and what kind of selections are
acceptable.
 If the job specifications are not clearly described, it makes the selection
procedure a difficult one.
 Selection requires high cost but results in a very high rate of return.

STAGES OF SELECTIO PROCEDURE

It may be said that recruitment is a positive function of the management.
But selection is a negative function of management. The reason is that
eliminating applications is more difficult than selecting them.
Normally, the selection procedure has the following stages:
1. Receiving and screening of applications
Prospective employees are requested to submit the applications in white
paper or in a prescribed form. In both the cases, full particulars of the employees
should be given. Any omission may disqualify the particular candidate. The
information relates to the name of the candidate, age, educational qualification,
date of birth, experience, parents' name and occupation, address for
communication and the like. The same information is kept as a permanent record

220
in the organisation. If the number of applicants exceeds the actual requirement,
the organisation may select more candidates than required.
2. Initial interview
It is otherwise called preliminary interview. The object of conducting this
interview is to know whether the applicant is physically and mentally fit for the
job. Questions are put to the candidate for evaluation. These questions are
relating to his qualifications, experience, interest, age, nativity and the like. Only
a minimum time is spent for this interview. Candidates who have passed in
initial interview are called for the next selection procedure.
3. Application blank
A specific format is followed by an organisation for this selection
process. The nature of the format varies for each job. The same form is not used
for all jobs in an organisation. The reason is that different qualifications and
skills are required for different jobs. Care should be taken to ensure that the
candidates provide brief and pointed answers for queries raised in the form.
Besides, irrelevant answers should be avoided and all relevant information
should be given in the form.
The advantages of application blank in the selection procedure are
explained below:
 Acts as an Urgent test device
The applicants have to find precise answers for the queries raised in the
form. This test is used to find the quick understanding capacity and problem-
solving capacity of the candidate.
 Shy candidate
Some candidates may find it difficult to give answer in the face to face
meeting with the employer. They may give answers through this form. Shy
candidates and slow candidates may use this process.
 Aid to build trust among applicants
Whenever the applications are issued to applicants for filling up, there is a
confidence among the applicants as they are for the job in question.

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 Basis for final interview
The answers given in application form are used as basic things to frame
questions for the final interview.
 Aid to preparing waiting list
Candidates may be found fit for the job but they cannot be absorbed
immediately. These candidates are placed under waiting list. The information
provided in the form is used for the preparation of waiting list.
4. Test
The test is conducted by the organisation for the purpose of knowing
more about the applicants to select or reject. Normally, many organisations ask
the applicants questions to know more about their aptitude, interest, general
awareness etc.
Tests can be classified into two kinds. They are Proficiency Test and
Aptitude Test. Proficiency Test refers to the testing of the skills and abilities
possessed by the candidate. Aptitude test refers to measuring of the skills and
abilities which may be developed by the applicant to perform the job in future.

KIDS OF TEST

Proficiency Test Aptitude Test

Efficiency
Temperament Achievement Interest
Intelligence

Personality

Situational

Judgement

Test Test Test

(a) Temperament tests are used to measure the likes, dislikes and habits of
an individual. It is helpful to find out whether a particular individual can
put up himself in a society or not.

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(b) Achievement test is used to measure the level of knowledge for
performing the work assigned to an individual. It is otherwise called
performance test or trade test. Sometimes, achievement test is conducted
theoretically, i.e., answers are received by putting questions to the
individual. For example, an accounting test may measure the accounting
performance of an Accountant in terms of accuracy and neatness.
(c) Efficiency test is used to know how quickly and efficiently an individual
uses his hands to accomplish the work assigned to him. It is otherwise
called dexterity test.
(d) Interest test is used to discover the individual's interest in doing the work
assigned to him/her. It is assumed that an individual who is interested in
one type of work does better than the one who is not interested. Interest
of an individual may be relating to outdoor activities, accounting,
clerical, social service etc. It is otherwise called Vocational Test.
(e) Intelligence Test is used to measure the mental ability, capacity and
general awareness of the individual. The most common intelligence tests
used for management purposes are group tests, individual tests, self-
evaluation test, self-administered tests, performance tests, verbal
comprehension, word fluency, memory, inductive reasoning, test of
reasoning, number facility, speed of perception and the like. The
Intelligence Test is conducted agewise. If the management selects the
highly intelligent people, its training process is easy and training
expenses are low.
(f) Personality Test is conducted to measure courage, initiative, emotion,
confidence, reaction, ability to mix with others, ability to motivate,
general behaviour of individual, cheerfulness, leadership, patience and
domination of character.
(g) Situational Test is conducted to measure the reactions of applicants to a
particular situation. Besides, the applicant's ability to succeed in his job
in this situation is also measured.
(h) Judgement Test is conducted to measure the ability of an individual in
applying the knowledge, intelligence and experience to solve the
problems presented before him.

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ADVATAGES OF TEST
(a) Tests help the employer to find whether a candidate is fit for the job or
not.
(b) Besides, tests help in checking candidates claims in respect of his
qualification, experience etc.
(c) Tests avoid the scope for personal preference of a particular candidate.
(d) Standards of job performance can be established with the help of this test.
(e) Labour turnover can be reduced.
(f) Applicant is also satisfied with the method of selection, eventhough he is
not selected.
(g) Tests reduce the cost of selection and placement.
(h) Tests highlight the hidden talents and overlooking of these can be
avoided.
(i) Test may be conducted for transfer and promotion.
(j) Administrative expenses regarding training may be reduced to some
extent.
(k) Failure in performing the job is reduced.

DISADVATAGES OF TEST
(a) Hundred percent best selection is not possible through test. So, test is
used as a supplementary method of selection.
(b) Test is more suitable to an organisation to which for limited number of
jobs more number of candidates have applied.
(c) If the number of applicants is small, it is desirable to adopt interview
rather than the test.
(d) Test is not able to measure the combination of characteristics required for
various jobs.
(e) Some candidates do not reveal their talents through test.

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 (f) The actual performance of a candidate cannot be found out through the
test.
(g) Test does not provide any basis for motivation.
Test has some advantages and limitations or disadvantages. But it may be
stated that more accurate selection is possible through test. According to Felix
M. Lopez, “When test are used properly, they can help substantially in selection,
particularly and most especially in selection for managerial positions. All tests
provide clues about an applicant which, when confirmed by other information,
enable the assessor to make fairly accurate predictions of job effectiveness. They
suggest hypothesis about the applicant's intellectual capacities, aptitudes,
vocational attitudes or personality dynamics, each of which must be confirmed
or rejected by data drawn from other areas of the applicant's background.”

PRE-REQUISITES OF EFFECTIVE TEST

The limitations of the test can be avoided if the management takes the
following precautions while conducting tests:
(a) Validity
An effective test has validity. The validity of the tests depends upon the
degree of prediction of the job performance successfully. Thus, a test should
accurately predict the criteria of job success.
(b) Reliability
Reliability of a test refers to getting the same result from any candidate
tested for any number of times. So, it is the duty of the management to bear in
mind the reliability of a test.
(c) orms
The management should fix the norms for selection. Some companies
prescribe minimum marks for selection and some companies prescribe cut off
marks for selection. But, these should be pre-determined.

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(d) o partiality
Management should ensure that tests have validity. Proper weightage
should be given to the scores obtained in tests and personal biases should be
avoided.
(e) Specialisation
Test administration, scoring and interpretation require technical
competence and training in testing. These should be handled by properly trained
and competent persons. If not, results may be horrible.
(f) Supplementary
A candidate cannot be selected or rejected on the basis of performance in
test. The test should be considered as a supplementary in the selection process.
The final selection of any candidate should be based on the information given in
application, performance in interview, if any conducted, in addition to the test
performance.

5. Checking References
Sometimes, the applicants are requested to furnish references. References
are in a high status in society. Applicants may include the name and address of
parent educational institutions and present employer. The information furnished
in the applications are checked from these persons. If the referee is a present
employer, the applicant's job performance, salary drawn particulars, reasons for
leaving the job etc. are checked.
A letter of recommendation may also be treated as a reference. The
prospective employer can collect information about the applicant regarding his
character, conduct ability etc. from the referee. Some managements do not take
much interest in this regard. The verification of references might give correct
information about the applicant. Some applicants may give incorrect information
regarding experience, past salary drawn and reasons for leaving the job. But
these are identified with the help of checking references.
Many managements which do not hold good opinion about the applicant
are not ready to give references. At the same time, some applicants have some

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well-wishers who are referred as reference, and no negative answer is received
from those references.
6. Interview
Interview is considered as a method of personal appraisal through face to
face conversation and observation. The management selects a candidate through
interview by one or more persons. The interviewing persons are experts in the
interview technique and they have a thorough knowledge in their respective
fields. Interview helps the employer to evaluate the candidate regarding the
personality, smartness, intelligence, attitude etc.
In any interview, the interviewer has dominant position over the
interviewee. The interview is divided into two, i.e., preliminary interview and
final interview. The preliminary interview has been discussed already. Here, the
final interview is discussed. The final interview is conducted only for candidates
who succeed in the preliminary interview. The candidate should succeed in two
stages of final interview. In the first stage the personnel department makes a
thorough evaluation of a candidate. In the second Stage, the successful
candidates from the first stage are sent to the functional department where
additional hands are required- The candidate who has successfully passed the
second stage is selected.

KIDS OF ITERVIEW
There are a number of kinds or types of interviews conducted by the
management. Some of the interviews are briefly explained below.
(a) Direct interview
Under this type of interview, straight-away questions are put before the
applicant to get answers for them. Face to face conversation is going on during
the interview. The in-depth knowledge of applicant is not observed under this
type of interview. But, the skills, character, area of interest and attitudes of the
applicant can be identified to some extent.
(b) Indirect interview
Questions are not raised directly by the interviewer before interviewee.
The particular applicant is requested to express his views on any topics as he

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likes. The interviewer carefully listens to what the applicant expresses. The
interviewer does not interpret the applicants’ views. The applicant has full
freedom of expression. The personality of the applicant is easily assessed by the
management.
(c) Patterned interview
A number of standard questions are framed well in advance which are to
be put before the applicant. The answers for these questions are found while
framing the questions and answers are written near the questions. These are used
for verification purpose when answers are given by the applicant during the
interview. This is the procedure adopted under this type of interview to evaluate
the suitability of the applicant.
(d) Stress interview
Irritating questions are put before the applicant by the interviewer. If any
applicant gets angry when these type of questions are put to him, the particular
applicant is evaluated as unfit for the job. For example, the Interviewer may ask,
"How many legs does an eight legged insect have?" or "Dear Mr. Ramesh, what
is your name?" These are some questions which irritate anybody in normal
conditions. If an applicant gets angry over these questions he/she is rejected as
unfit for the job.
(e) Systematic in-depth interview
Under this type of interview, the interviewer asks any one of the questions
initially. Then, he proceeds step-by-step to get an integrated view of the skills
and personality of the applicants.
(f) Board or panel interview
A group of persons called interviewers ask the applicant questions in the
area of interest of the applicants. Immediately after the interview, they evaluate
the performance of an applicant based on the answers given by the applicant.
(g) Group interview
It may be otherwise called group discussion or house party technique. A
number of applicants are interviewed simultaneously. A common topic is
presented before the group. One group consists of six to eight members. Each
applicant is allotted a number. They may call other members of the group by

228
calling concerned member's number. They are restricted to use their names. The
applicants are selected or rejected on the basis of performance in group
discussion.

PRICIPLES OF ITERVIEW
The interview technique should be an effective one. The following
principles are adopted by the management in order to make an interview
effective.
 The management should define the specific objectives of an interview.
 Next, the management has to prepare the procedure followed to achieve the
specified objectives.
 The interviewers should ask the questions which are related to the job to be
filled.
 The interviewer must create a rapport with the interviewee before starting the
interview.
 The interviewees are requested to express their opinions or views freely
without any hesitation.
 The tension or nervousness of the applicants are removed by the interviewer.
 The interviewer should listen to the answers given by the applicants
carefully.
 The evaluation of the performance of the applicant is done immediately after
the interview is over.
 The interviewer may say "thanks" to the applicants while closing the
interview. This carries much better impression about the interview and
interviewer.

PROCESS OF ITERVIEW
The following procedure may be adopted for an interview:

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Review of background information
The interviewer has to collect the information regarding the applicant's
biodata and the job for which he has applied. This process is known as review of
background information.
Preparation of questions
The interviewer has to prepare the questions in the area in which the
applicant is interested. The question is presented by the interviewer in an
understandable way. The answers are received from the applicant one by one.
The next question is raised only after getting full answer to the first question.
The sub-questions may be raised by the interviewer during the interview, if need
arises.
Putting the applicant at ease
There is a mental and emotional strain to the applicants. These may be
removed by the interviewer. These are possible through proper understanding of
applicants and sympathy with the applicants by the interviewer during the
interview.
Outsiders except interviewers and the applicants are not allowed to be
present in the interview room. All the necessary facilities and comforts are
arranged by the management in order to put the applicant at ease. Some
mannerism like causing interruptions through raising number of sub-questions
unnecessarily or raising eyebrows or pouting lips frequently are avoided by the
interviewer.
Drawing out the best applicant
Some set of questions are not asked in an interview. So, it is a very
difficult task to draw the best applicant out of the interview performance. The
interviewer has to follow acceptable norms to select an applicant for
appointment. But, the norms should be correct and they should provide a basis to
select a suitable person.
Concluding the interview
The applicant has left the room after the interview is over. The
interviewer immediately assesses the applicant's performance in the interview.
Some interviewers have taken notes during the interview. These notes may be

230
used to assess the applicant. The next applicant is called for an interview after
the process is over.
Final Selection
Finally, a suitable applicant is selected on the basis of performance in the
above-mentioned test and interview. Only the required number of applicants are
selected by the management. The competent authority has to approve the
selection of the applicants.
In the case of big organisations, a separate department known as
personnel department is incharge of selection. The personnel department
manager selects the applicant and approves it. The appointment order will be
sent to the applicant without delay. Normally the applicants are selected
provisionally.
Medical Examination
It is otherwise called physical examination. This is carried out for the
purpose of finding physical fitness of the prospective employee. Many
organisations do not follow the process of medical examination. The reason is
that there is no need for medical examination to certain jobs. Medical certificate
is received from the doctor after medical examination is over. This certificate is
attached to the joining report of the new employee. Some applicants may be
educationally qualified for the job but physically unfit for the job. For certain
jobs minimum physical fitness is required according to the nature of the job.
Placement
The applicants are placed on probation basis only after completing all the
formalities. The probation period may vary from one job to another job
according to the nature of the job. The maximum probation period for any job is
two years. It may be extended to three years in extraordinary circumstances. The
new employees are observed keenly over the probation period. These new
employees are regularised on the completion of probation period successfully.
Orientation
Orientation refers to providing the information regarding the organisation
briefly to new employees. The term information includes co-workers of new
employees, superior, sub-ordinates, location of work place, duties, authorities,
responsibilities, canteen, lavatory, entrance, exit gate and the like.
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 The orientation programme is carried out through lectures or films. The
new employees are taken round the offices and plant and the new employees are
introduced to the existing employees. A printed literature may also be used to the
orientation programme. The orientation programmer helps the new employee to
acquire a knowledge of the organisation functioning without any delay. It
facilitates to effective performance of a job by the new employee.

PROMOTIO
Meaning
Promotion may be defined as the placement of an employee to a better job
which results in the increasing of prestige, salary, powers, duties, responsibilities
and it requires more knowledge and skills to perform the job.
Every employee has the aspiration to get promotion and is ready for
acquiring the additional qualification and experience fit for the job. Higher posts
and key posts are filled up by the management through promotion policy. This
promotion policy persuades the employees to be loyal to the management.
Basis for promotion
The promotion is given to any employee on a widely acceptable basis.
The basis may be seniority or competence. Seniority refers to the possession of
more number of years of service in the same organisation than those of the other
employees. Competence refers to the accomplishment of a particular job
effectively than the other employees.
Senior employee prefers seniority to competence for promotion. Senior
people argue that they have more experience in the job than others. So, they
demand seniority as the basis for promotion. The juniors and management
people are in favour of competence.
Whenever the management fixes competence as the basis for promotion,
all the employees including senior people are ready to increase their knowledge
and skills to get promotion. If promotion is denied to senior people, they do not
devote their full attention to perform the job. The younger ones may command
the old people if the competence is the basis for promotion. It will be just like a
son commanding his father.

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 Unfit persons may also be eligible to get promotion if the management
prescribes seniority as the basis for promotion. Besides, senior people are not
ready to acquire additional knowledge and skills which are necessary for the jobs
to which they seek promotion.
Hence, it is concluded that the same management may follow both criteria
for promotion. Seniority is the basis for promotion to a job which does not
require much competence. Competence is the basis for promotion to a job which
requires much competence.

QUALITIES OF GOOD PROMOTIO POLICY

A promotion policy followed by any management should have the
following qualities or characteristics:
(a) Whatever the promotion policy followed by the management that
should be widely published and strictly adhered to.
(b) Each and every employee should work in all jobs in an organisation to
get thorough knowledge and experience.
(c) A detailed and accurate job description should be prepared in each
job. The employees can know the qualifications and experiences
required for each job through job description.
(d) The promotion is given to any employee through widest publicity.
(e) Employees are permitted to acquire qualifications and experience
through job training, vocational courses and the like.
(f) Each and every promotion is recommended by line officers and
approved by the top executive of the management.
(g) An employee has a right to represent his views and opinions regarding
promotion if promotion is denied to that employee.
(h) The promotion is given to an employee who gives his consent for
promotion.

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REVIEW QUESTIOS
1. What do you know about proficiency test?
2. What is meant by indirect interview?
3. What are the sources of recruitment? What factors are to be considered
while giving promotion?
4. Which is the right basis — seniority or merit for promotion?
5. Describe the steps in recruitment and selection. What should be the
features of sound promotion policy?
6. What are the different methods of selection?

CASE STUDY
Mr. Shesian, the Managing Director of M/s. Vinay Chemicals Ltd., is an
intelligent and dynamic individual, ever aggressive in making a success of
whatever he undertook. For some time he was disturbed over report that many
senior and junior personnel of the company had been making a bee-line for a
newly-established firm of competitors. Apparently, the offers made by the
competing firm were too lucrative and tempting for his employees to be declined
off hand.
On investigation, it was found that many competing firms had no training
department of their own. For this reason, they had found in Venny Chemicals,
which operated a full-fledged training department to provide an intensive
training to employees of all ranks, a good place to fish for trained personnel.
No doubt, the desire to hook the workers of Vinny Chemicals was
noticeable in all competitors. But the newly established firm had broken all
canons of good business behaviour by an open declaration of its desire that all
those who had served Vinny Chemicals for more than two years would be
straightway recruited by it on a 25% increase in their present salary plus all other
matching perks.
Questions
1. Is establishment of a training department inadvisable?
2. Is it safe to employ trained workers from other similar organisations?

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 UIT - IV
Lesson - 15
THEORIES OF MOTIVATIO

Several theories have been propounded by eminent personalities

explaining the reasons and process of motivation. Understanding these theories
acts as a foundation for understanding the work behaviour of the people. Some
of the significant theories have been explained in the following paragraphs.
THEORY 'X’ AD THEORY ‘Y’
Douglas McGregor proposed two different theories namely Theory 'X'
and Theory Y' in 1960. Basically, these two theories explain about the human
nature. While theory 'X' deals with the negative aspect, theory T dealing with
positive aspect of the human behaviour. Theory 'X' involves traditional
approach and based upon the following four assumptions held by the managers
about the workers.
 Workers dislike work and are lazy.
 Since workers dislike work, they must be controlled with punishment to
achieve the goals.
 They don't want to take up responsibilities for themselves and seek formal
direction from the boss whenever possible.
 Workers place security of their job above all other factors associated with
work and display little ambition.
As against these negative views about the human behaviour and its
nature, McGregor listed out four different assumptions under theory Y. They
are:
 Workers can view the work as natural as rest or play ;
 Workers can exercise self - direction and self-control given the proper
environment;
 An average worker can accept responsibility and learn to grow;
 Workers are creative, imaginative and resourceful.

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 Frankly speaking, the above two theories have nothing to do with
motivation. They explain about the nature of human behaviour under two sets of
different assumptions-
The assumption under theory 'X' that workers must be coerced and
regulated for accomplishing objectives is akin to the characteristic policy which
has become obsolete method in managing people. However, these theories
enable us to understand how the manager should mould his behaviour under two
sets of situations for getting things done.

EED HIERARCHY THEORY

The most well known theory of motivation is Abraham Maslow's
hierarchy of needs. He proposed that in every human being there exists a
hierarchy of five needs. They are:
 Physiological or basic needs (eg. food. water, clothing, shelter
etc.);
 Safety and Security needs (eg. security of job, protection from
harm etc.);
 Love needs (eg. affection, friendship, belongingness, etc.);
 Esteem needs (eg. self respect, status, recognition, achievement
etc.);
 Self-actualization needs (eg. growth, fulfilment of ambition.
bringing out the real potential etc.).

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HIERARCHY OF EEDS

Self
actuali
-zation

Esteem Needs

Social or Love
Needs

Safety Needs

Basic Needs

According to Maslow, if lower need is satisfied, the person moves up the

ladder to the next higher order need. It means that if basic needs are satisfied,
workers can be motivated by fulfilling the next higher order needs i.e. safety
needs. This theory implies that workers are motivated by fulfilling unsatisfied

237
needs rather than by satisfied need. Maslow separated the five needs into low
(basic and safety needs) and higher (love, status and self actualisation) order
needs. While lower order needs are predominantly satisfied externally, higher
order needs are satisfied internally. This theory has received wide recognition
among the practising managers because of its logical link. This does not mean
that this theory is free from criticism. The first criticism is that this theory has
not specifically mentioned about work related needs.
Secondly, the strength of each need varies from Individual to individual.
Hence, strict ordering of human needs in the above hierarchy could not be
proved empirically. Thirdly it is criticised that it only deals with the content of
motivation rather than the process of motivation.

Two - Factor Theory

Frederik Herzberg and his associates conducted a research study and have
identified two sets of factors. According to this study, motivation depends upon
satisfaction. The two sets of factors affect satisfaction or dissatisfaction of
workers. The first set of factors are termed as maintenance factors. They are
salary, job security, working conditions, quality of supervision, interpersonal
relationships, company's policy and administration. These factors are related to
job environment Presence of these factors is necessary to avoid dissatisfaction
among workers. These factors ought to be maintained as a matter of compulsion
in every work situation.
The second set of factors are related to the content of the job. They
include growth, advancement, recognition, achievement, accepting; increased
responsibility etc. According to Herzberg, these factors are motivational factors
which stimulate the worker to better levels of families. Hence, these factors are
termed as satisfiers. To sum up, while the first set of factors have to be
maintained as a matter of compulsion in order to remove dissatisfaction the
second set of factors alone are responsible for motivating people.
This theory is also not free from criticism. Firstly, there is too much
botheration about satisfaction, dis-satisfaction and the point of no satisfaction.
There is no guarantee that satisfaction leads to productivity in all cases.
Secondly, the concept of satisfaction is influenced by a good number of off the
job and on the job" factors. Thirdly, the impact of situational variables have been

238
ignored in this theory. Fourthly, like need hierarchy theory, it is also concerned
with the content of motivation and not with the process of motivation.
Vroom's Expectancy theory: Victor Vroom proposed this theory as an
alternative to the content models explained in the earlier paragraphs. It is the
most widely known theory of motivation for the purpose of understanding the
process of motivation. According to this theory, a person's desire to work at any
time can be conditioned by two factors.
a) Existence of one or more personal goals on the part of the employee; and
b) His expectation as to the relative worth of his performance for the
attainment of such goals. When the worker believes that his performance
will lead to the fulfillment of personal goals, he tends to become a high
producing worker and vice-versa.
It has been stated by Vroom as given below:
Force (Motivation) = Valence x Expectancy
Here the term Valence' stands for the strength of an individual's inference
for an outcome and expectancy to the probability that a particular action will
lead to a desired outcome. This theory establishes four important links in the
process of motivation.
Efforts -Performance —Rewards/Awards "Goals.
This theory has three important Implications to managers. Firstly, It is
necessary to provide appropriate rewards to satisfy the individual needs.
Secondly, managers are required to establish a close link between efforts and
performance between performance and rewards and finally between rewards and
personal goals. Thirdly, this theory recognises the fact that there is no
universally acceptable method for motivating people because of the influence of
contingency factors from time to time.

Achievement Theory
David Me Clelland has identified three basic motivating needs such as
need for power, need for affiliation, and need for achievement Though all these
three needs are important to management in understanding the process of
motivation, to Mc Clelland need for achievement is of paramount importance. It

239
is concerned with predicting the behaviour of workers who have either high or
low needs for achievement.
Need for power has a great concern for exercising control and influence.
People with this need tend to be forceful, outspoken and demanding in obtaining
the work. People with need for affiliation are likely to be concerned with
maintaining pleasant relationships. People with a high need for achievement
have a strong desire for success. They love challenges.
Achievement motivated people are blessed with some special
characteristics. They are not gamblers and they dislike succeeding by chance.
They like job situations. They like moderately challenging goals. They can
influence their efforts through continuous feedback of their performance. They
tend to become task-oriented people since they are vitally concerned with their
personal achievements.
The findings of this theory proved that achievement motivated people
mainly come from middle-class families. This study further reveals that the need
for achievement would be stimulated through class-room instructions and
training programmes. This theory urges people to act on the basis of internally
driven stimulus to improve their performance. This theory has received wide
recognition.

E R G Theory
It is an improved model over Maslow's and Herzberg's theory on
motivation. Clayton Alderfer identified three groups of basic needs – Existence,
Relatedness and Growth. The existence needs are concerned with physical well
being and survival (food, clothing, shelter, good-working environment etc). The
relatedness needs emphasise the Importance of interpersonal and group
relationships. The growth needs are concerned with individual's inner desire for
his personal development. This theory does not see the needs as a hierarchy as
stated by Maslow. It does not contend that a lower level need has to be fulfilled
before satisfying a higher level need. Under this theory, a person's background
may dictate that the relatedness needs will take precedence over unfulfilled
existence needs. It further assumes that the more the growth needs are satisfied,
the more they will increase their intensity. In other words, this theory suggests

240
that one class of needs might remain strong Irrespective of the fact whether the
other class of needs has been satisfied or not.
Having discussed some of the important theories of motivation, a brief
attempt is made to discuss the Management techniques that can be tried to
increase motivation in work situations. Management generally uses financial and
non-financial techniques to motivate employees.
Financial Motivators
The commonly accepted belief is that Motivation is directly or indirectly
connected with money. It is true that money acts as a vehicle through which
most of the higher order needs can be fulfilled. That is the reason why most of
the organisations use money incentive as a means of offering satisfaction among
staff. Productivity linked wages, bonus, profit-sharing, leave with pay, medical
reimbursement, leave travel concession are included under this type of
motivation. Experience proved that money is a most reliable motivator. Money
as a reward for accomplishment is now accepted as a base for designing
compensation methods.
Besides money, there are some other motivators which deal either 'with
personal development or with the environment of the employees. Date Yoder has
identified that workers who set their own goals are capable of motivating.
Therefore, goal Identification and participative management also have a great
role to play in motivating the people.
on-Financial Motivators
As the heading above states, they are not at all connected with money. In
turn, they are connected with the position, work- culture and psychological
mood of the employees. Some of the most commonly used measures under this
heading are:
♦ Praise and recognition;
♦ Status and pride;
♦ Job enlargement;
♦ Job enrichment;
♦ Job security:
♦ Quality of work life.

241
 Recognition of the services of one employee may be shown in the form of
praise. It may be in the form of patting on the back of the employee,
recommending him for promotion or for entrusting confidential work etc.
Similarly, provision of costly furniture, wall-decoration, personal assistance will
certainly enable the employees to feel proud which in turn would stimulate them
for better results. Enlarged jobs may be entrusted to work group so as to make
them more responsive from planning phase to implementation stage. It makes
the Job less monotonous. Another method of motivating the people is job
enrichment. Through this, job is made more interesting and challenging. It
provides an opportunity for psychological growth of an employee. Job security is
equally important. It implies that the employee will be continued with all
economic and social security measures within the same plant. This kind of
arrangement, no doubt, encourages the worker to deliver better performance.
Another concept gaining currency in modem organisations for motivating
people is the quality of work life. Though this concept connotes different
meanings to different people, it refers to all aspects of worker's life w1th special
reference to his personal and work environment. It includes fair compensation,
good working conditions, security, growth, protection, identity etc.

Summary
The concept motivation cannot be studied in isolation. Motivating the
work force is a complex and challenging assignment. A good number of factors
Influence motivation in a variety of ways. Hence, it should be viewed from
systems analysis. After all, motivation is purely a psychological process. The
basic process of motivation involves understanding about the needs, drives,
action, and satisfaction of the people at work. The above theories propose
different approaches to work motivation. While some of those theories are rigid,
some of them are dynamic. Understanding all these theories is important for
effective management of human resource. It is the primary responsibility of
every manager to create favourable climate either by offering financial or non-
financial Incentives for motivating the work force in a desired way.

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REVIEW QUESTIOS
1. Define the concept 'Motivation'? Bring out the significance of motivation in a
modem organisation.
2. Compare and contrast Maslow's Hierarchy of Needs Theory and Herzberg's
Two Factor Theory.
3. Explain the salient features of Vroom's Expectancy Theory of Motivation.
4. What is need for achievement? Explain how Me Clelland was successful in
explaining the process of motivation through his theory.
5. "Theory X and Theory Y" are not theories of motivation, instead they explain
the nature of human behaviour with some basic assumptions - Comment.
6. Explain the role played by financial and non-financial Incentives In
motivating the work force.

CASE STUDY (1)

You are in-charge of a small departmental store and have three
subordinates - Ram, Ravi and Gowtham. The key to the success of your
departmental store is to keep these employees as motivated as possible. Here is a
brief summary profile on each of these subordinates.
Ram is the type of employee who is hard to figure out. His absenteeism
record is much higher than average. He greatly loves his family (a wife and three
small children) and thinks they should be central to his life. The best way to
describe Ram is to say that he is kind of a throwback to the hippie generation
and believes deeply in the values of that culture. As a result the things that a
Company can offer him realty inspire him very little. He feels that the job is
simply a means of financing his family's basic needs and little else. Overall, Ram
does an adequate Job and is very conscientious, but all attempts to get him to do
more have failed. He has charm and is friendly, but he is Just not "gung - ho" for
the Company. He is pretty much allowed to "do his own thing" as long as he
meets the minimal standards of performance.
Ravi is in many respects opposite to Ram. Ravi is a likable guy, but
unlike Ram. Ravi responds well to the Company's rules and compensation
schemes and has a high degree of personal loyalty to the Company. The problem

243
with Ravi is that he will not do very much independently. He does well with
what is assigned to him, but he is not very creative or even dependable when he
is on his own. He is also a relatively shy person and not very assertive when
dealing with people outside the department. This hurts his performance to some
degree because he cannot immediately sell himself or the department to other
departments in the Company or to top management.
Gowtham, on the other hand, is a very assertive person. He will work for
money and would readily change jobs for more money. He really works hard for
the Company but expects the company also to work for him. In his present job,
he feels no qualms about working a sixty hour week, If the money is there. Even
though the company did not give him a raise on the precurse that he was already
making too much, he is quite a driver.
A manager at his last place of employment indicated that, while Gowtham
did do an excellent job for the Company, his personality was so strong that they
were glad to get rid of him. His former boss noted that Gowtham just seemed to
-be pushing all the time. If it was not for more money, it was for better fringe
benefits; he never seemed satisfied.
Question:
1. Can you explain Ram's, Ravi's and Gowtham's motivation by one or more of
the work motivation models discussed in this chapter?



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 UIT - IV
Lesson - 16
DIRECTIG
While planning, organising and staffing can be considered as preparatory
managerial functions, controlling is intended for checking the things in a way as
we desire. The connecting link between these functions is directing. It is the live
link that establishes meaningful interaction among superiors and subordinates
through proper directions and guidelines. It is ‘Directing’ which initiates
organised action with the purpose of fulfilling the corporate objectives. It thus
creates appropriate work environment that facilitates efficient discharge of duties
by the human beings. Thus it has become one of the important functions of
Management to achieve organisational goals through proper instructions and
guidelines.
In order to clearly understand the direction function of Management, the
following definitions are helpful:
DEFIITIO
Haimann, “Directing consists of the process and techniques utilised in
issuing instructions and making certain that operations are carried on as
originally planned.”
Koontz and O’Donnel, “Direction is the interpersonal aspect of managing
by which subordinates are led to understand and contribute effectively to the
attainment of enterprise objective.”
Urwick and Breach, "Directing is the guidance, the inspiration, the
leadership of those men and women that constitute the real core of the
responsibilities of management."
J.L. Massie, "Directing concerns the total manner in which a manager
influences the actions of his subordinates. It is the final action of a manager in
getting others to act after all preparations have been completed."
Earnest Dole, "Direction is telling people what to do and seeing that they do
it to the best of their ability. It includes making assignments, corresponding
procedures, seeing that mistakes are corrected, provided on-the-job instruction
and of course, issuing orders."

245
 A review of the above definitions reveal that the direction function consists
of issuing instructions, exercising supervision, providing leadership and securing
motivation from the workers. Some of the important features of Direction
function, to sum up, have been listed below :
• It indicates scalar chain. It means that the top management directs the
middle management which in turn influences the operations people.
• It encourages the Supervisor to act as a guide, interpreter, teacher and co-
ordinator.
• The direction function is not a static function but it is a living function. In
other words, it deals with guiding, training and motivating the
subordinates in a desired manner.
• The most Important characteristic of direction function is that it deals
with the human factor.
• Direction function mainly deals with use and development of human
factor.
Failing to understand the role of the human factor in the realization of
organisational goals, leads to inefficiency and closure of the organisation.
Hence, Direction function makes the executives to think in terms of (a) issuing
instructions (b) proper supervision (c) motivation (d) leadership and (e)
communication. It is a well known fact that without paying proper attention to
the above points, no manager can succeed in obtaining the goals.

PRICIPLES OF DIRECTIO
Generally, the manager should understand the needs, motives and
attitudes of his subordinates. He should change his strategies according to the
people and situation. However, the following principles of direction may be
useful to the manager.
1. Harmony of objectives
Individuals have their own objectives. Organisation has its own
objectives. The management should co-ordinate the individual objectives with
organisation objectives. Direction should be in such a way that the individuals
can integrate their objectives with organisation objectives.

246
2. Maximum individual contribution
Every member's contribution is necessary for organisation's development.
Hence, the management should adopt a technique of direction which enables
maximum contribution by members.
3. Unity of direction or command
An employee should receive orders and instructions only from one
superior. If not so, there may be indiscipline and confusion among subordinates
and disorder will ensue.
4. Efficiency
Subordinates are requested to participate in decision-making process.
Then, they would have a sense of commitment. This will ensure implementation
of decisions. It will increase the efficiency of subordinates.
5. Direct supervision
Managers should have direct relationship with their sub-ordinates. Face to
face communication and personal touch with sub-ordinates will ensure
successful direction.
6. Feedback information
Direction does not end with issuing orders and instructions to the
subordinates. Sometimes, suggestions given by the sub-ordinates are necessary
for the development of the management. So, the development of feedback
system furnishes reliable ideas to the management.
7. Effective communication
The superior must ensure that plans, policies and responsibilities are fully
understood by the subordinates in right direction.
8. Appropriateness of direction techniques
There are three direction techniques available to the management. They
are authoritarian, consultative and free-rein. But, the direction techniques should
be selected according to the situation.

247
9. Efficient control
The management should monitor the behaviour and performance of
subordinates to exercise efficient control over the sub-ordinates. Effective
control ensures effective direction.
10. Comprehension
The extent of understanding by subordinates is more important than what
and how orders are communicated to them. This is very useful in proper
direction of subordinates.
11. Follow through
Direction is a continuous process. Mere issuing orders or instruction is
not an end itself. Direction is necessary; so, the management should watch
whether the subordinates follow the orders and whether they face difficulties in
carrying out the orders or instructions.

ISSUIG ORDERS OR ISTRUCTIOS

An order is used by the management as a tool for direction. An order can
be issued only by a supervisor. The supervisor has right to enforce his order over
his subordinates. In the words of Koontz and O'Donnel, "As a directional
technique, an instruction is understood to be a charge by a superior requiring a
subordinate to act or refrain from acting in a given circumstance."

CHARACTERISTICS OF A GOOD ORDER

1. An order should be reasonable and enforceable over sub-ordinates.
2. A clearly defined order should be easily understandable.
3. An order should be such a one as to facilitate the achievement of the
objectives of an organisation.
4. An order should be complete in all respects.
5. An order should exhort willingness and acceptance from the subordinates.
6. A written order is preferable to an oral order.
7. Appropriate tone is used by the superior while issuing an order.
248
 8. An order should specify the time within which a job should be completed.
9. An order should be intelligible.

TECHIQUES OF DIRECTIO
There are three techniques of direction followed by the management.
They are briefly explained below:
1. Consultative direction
The supervisor or superior has consultation with his sub-ordinates before
issuing a direction. The consultation is made to find out the feasibility,
enforceability and nature of problem. It does not mean that superior is not
capable of acting independently. Ultimately, the superior has right to take any
decision and give direction. The co-operation of subordinates is necessary for
successful implementation of any direction. Better motivation is available to the
sub-ordinates under this direction technique. The supervisor could instill high
morale into the subordinates.
2. Free-Rein direction
The subordinate is encouraged to solve the problem independently under
this direction technique. The superior assigns the task generally. The
subordinates should take initiative to solve the problem. Only highly educated,
efficient and sincere subordinates are required to apply these direction
techniques.
3. Autocratic direction
This direction is just opposite to free-rein direction technique. Here, the
supervisor commands his subordinates and has close supervision. The supervisor
gives clear and precise orders to his sub-ordinates and acts accordingly. There is
no way left to the sub- ordinates to show their initiatives.

IMPORTACE OF DIRECTIO
Direction is also one of the important functions of the management.
Direction is necessary to implement the administrative policies and decisions
effectively. The subordinates are properly motivated through direction. Direction

249
provides a leadership in a business. Direction is also concerned with getting co-
operation among subordinates. Direction is the essence of management and also
regarded as a continuous function of management.
• Direction initiates action.
• Direction co-ordinates the group efforts.
• Direction ensures maximum individual contribution.
• Direction reduces the reluctance to put up with changes in the
organisation.
• Direction provides stability and balance in the organisation.
• Direction helps to achieve the objectives of an organisation.

CHARACTERISTICS OF DIRECTIO
The characteristics of direction are discussed below:
♦ Direction is also one of the managerial functions and so performed by all
levels of executives in an organisation.
♦ Management initiates action through direction.
♦ Direction is continuous throughout the life of the organisation.
♦ Initially, direction is started at top level management. In other words, the
subordinates are directed only by superiors.
♦ Subordinates do the things as per the original plan.
♦ Direction creates link between preparatory functions and control function
of management. The term preparatory function includes planning,
organising and staffing.

LEADERSHIP
Management and Leadership are often confused as the same. No doubt,
leading is an essential function of management. But, that does not mean that
management is just leading. It involves many things like planning, organising,
staffing and controlling people. All these managerial functions become stale if
250
managers do not know how to lead people. Particularly in modern organisations,
somebody should show the way to others for attaining the goals. This
characteristic feature is termed as 'leadership'. It is neither mere direction nor
motivation. It is a live wire between plan and action. Ability to lead effectively is
one of the keys for successful management. The leader must basically and
clearly understand the attitudes, the values, the flow of authority and the purpose
of organisation. It means that the essence of leadership is followership. Without
followers there can not be a leader.
The concept of leadership has been defined by many authors in different
ways, Koontz and O’Donnell have defined this concept as "the art of influencing
people so that they will strive willingly and enthusiastically towards the
achievement of group goals." It emphasises the fact that the leaders help the
groups in understanding the objectives of the organisation. Thus leadership is an
endless process of influencing people so that they will strive willingly and
enthusiastically towards the achievement of group goals.

FUCTIOS OF LEADERSHIP
1) Every leader, as a superior, has to delegate a part of his authority to the
subordinates.
2) Once authority is delegated, the leader must try to motivate the people to
better levels of performance.
3) The leader must try to create good climate, for achieving maximum
operational efficiency.
4) Promoting and protecting new novel areas.
5) A leader must always try to develop his own people from within.
Hence leadership is not bossing. The functions of a leader includes, apart
from ordering, "teaching, inspiring, guiding, interacting, initiating and solving
problems". It is an endless personal process. This personal ability to lead
effectively is one of the keys to become a successful manager. In other words,
people have to follow the manager in order to make him a leader. Hence, the
essence of leadership is followership. Motivation and leadership are closely
related with each other as the leader tries to understand the reasons for why
people act as they do.

251
IGREDIETS OF LEADERSHIP
(i) Power : A leader must know the nature and source of power
besides its effective use in a responsible way.

(ii) Understanding people: A leader must have the ability to comprehend the
needs, feelings, beliefs, values of subordinates and
different motivational forces.

(iii) Inspiring followers : It is a rare ability. A leader must always try to

induce and inspire his subordinates. He may have all
personal qualities like charm and appeal that may
encourage the people to do what the leader wants.

(iv) Style of leadership : The manner in which the leader adopts his
capabilities to suit the situation conducive to goal
realisation.

Leadership is an important aspect of managing. This ability varies from

individual to Individual that all depends upon the leader's explicit and implicit
pattern of behaviour of influencing his subordinates. Considerable amount of
research has been done on this aspect. It is difficult to summarise the whole
quantum of theory in this chapter. However a brief attempt is made to identify
some major theories which form the base for different leadership styles.

TRAIT THEORY
This theory derives this belief from the philosophy of ancient Greeks and
Romans that leaders are born and not made. But the acknowledged leaders like
Napolean, Hitler, Lincoln, Ceasar, Kennedy, Mahatma Gandhi, Martin Luther
King have no uniform intellectual. social, physical and psychological
characteristics. To prove the concept of trait theory as valid, one has to identify
specific characteristics that all leaders possess. To sum up, Stogdil has identified
some of the important traits as follows:

252
 a) Physical traits (appearance, energy, height etc.)
b) Intelligence traits (understanding, comprehending, decision making etc.)
c) Personality traits (adjustability, aggressiveness, enthusiasm, will
power, self confidence etc.)
d) Task related traits (initiative, perseverance, achievement, etc.)
e) Social traits (co-operation, Interpersonal relationship, group cohesion
etc.)
In addition to the above traits some more characteristics like ambition,
honesty, creativity and charisma have been identified as key traits. It is true that
all leaders need not possess all the traits. And sometimes even non-leaders may
possess either most or all of them. The trait approach to leadership has been
blessed with the following limitations.
1) It neglects the needs of the followers.
2) It fails to recognise the relative importance of various traits under
changing conditions.
3) It doesnot separate the cause and the effect (whether leaders
invariably possess self-confidence or success makes the leaders to
build confidence).
Different authors have propounded different theories explaining the
leadership behaviour and styles. The following section details the various styles
of leadership.

STYLES OF LEADERSHIP
For the purpose of easy understanding, leadership styles may be
conveniently studied as follows:
(a) Styles based on the use of authority
(b) Styles based on behaviour
(c) Other miscellaneous styles

253
Each of these styles is explained below :
Styles based on the use of authority
Depending upon how a leader uses his authority one can identify three
basic styles. (i) autocratic, (ii) democratic/participative, and (iii) free-rein type.
(i) Autocratic leader believes in power. He passes orders unilaterally and
expects ready compliance. He believes that he is able to control people
through rewards and punishment.
(ii) Democratic leader believes in sharing Ideas and opinions. He consults
subordinates In the process of decision making. He encourages two-
way communication and participation of subordinates in all types of
decisions.
(iii) Free-rein leadership is no leadership at all. The leader uses no or little
power. He gives complete freedom to subordinates. People are
encouraged to set their goals and means of achieving them. They are
given high degree of independence in manning their operations.
Real time situations vary from company to company and from manager to
manager. There is no single uniform style of managing people in organisations.
A manager may be autocratic at one instance (enforcing the rule regarding safety
devices) and democratic at the other (consulting the followers regarding change
of time at work schedule).
Styles baaed on behaviour
Circumstances change constantly creating new situations and challenges.
The behaviour of the leader is moulded by the changing patterns of group
attitudes and experiences. Different dimensions of a leader's behaviour have
been thoroughly probed through Ohio studies.
According to these studies a leader's behaviour is influenced by two
aspects initiating structure and consideration.
(i) Initiating structure and consideration
Initiating structure refers to the extent to which a leader defines and
organises his own role as well as the roles of his subordinates. It spells out the
task behaviour of a leader. On the other hand consideration refers to the degree
by which the leader's behaviour is characterised by mutual trust, respect for

254
subordinates and regard for their feeling. It indicates relationship behaviour. As
initiating structure and consideration are two distinct features, existence of one
does not; mean the absence of the other. Actual behaviour of a leader in a given
situation may consist of, combination of these two aspects. The following
diagram (A) gives the gist of the findings of the Ohio state studies on leadership:
The above four quadrants have been representing various combination of
task and relationship behaviour that a leader can exhibit at a particular point of
time. Actual behaviour varies among these four alternative combinations
depending upon the situation.
(ii) Managerial Grid
Robbert R. Black and James S. Mouton have developed five different
styles of leadership through this concept of Managerial Grid. This concept has
been exclusively used for training the managers through enabling them by
identifying the various skills of leadership styles. This concept has been mainly
based upon two important factors - (a) concern for production (Task orientation)
and (b) concern for people (Relationship orientation). The essence of this theory
is presented in the following diagram (B).
In the diagram, concern for production is shown on the horizontal axis
and concern for people is identified on the verticle axis. The scale recorded
varies from 1-9. It indicates that the concern for production/people becomes
more important to the leader as his ranking advances from 1-9 gradually. The
five styles of leadership are briefly explained in the following lines.
(a) Impoverished (1-1)
As the rating indicates, this styles involves little concern for both people
and production. Leaders under this style have minimum Involvement in their
jobs and mostly act as messengers, passing information from supervisor to
subordinates.
(b) Country-club (1-9)
A sort of informal environment is .created wherein everyone can
coordinate the effort and accomplish the objectives in a relaxed and friendly
atmosphere which is putting emphasis more on the needs of the people,
bothering little about production.

255
 Diagram (A)
OHIO STUDIES : LEADERSHIP
HIGH

HIGH HIGH
CONSIDERATION (RELATIONSHIP
CONSIDERATION CONSIDERATION
AND AND
LOW HIGH
BEHAVIOUR)

STRUCTRUE STRUCTRUE

LOW LOW
CONSIDERATION CONSIDERATION
AND AND
LOW HIGH
STRUCTRUE STRUCTRUE

LOW INITIATING STRUCTURE (TASK BEHAVIOUR) HIGH

256
 Diagram (B)
8 MAAGERIAL GRID

1-9 9-9
CONCERN FOR PEOPLE (HIGH)
7

COUNTRY CLUB TEAM

6
5
4

5-5
3

MIDDLE ROAD
2
1

IMPOVERISHED TASK
1-1 9-1

0 1 2 3 4 5 6 7 8 9
CONCERN FOR PRODUCTION (HIGH)

(c) Task
It is another extreme style of leadership commonly referred to as
Autocratic Style. Here leaders are concerned only with developing efficient
operations by arranging a tight structure and conditions of work. They have little
or no concern for people.

257
(d) Team
It is also an extreme style of leadership. Here, the leaders display a rare
quality or ability inter-wooven with the production needs of the enterprise with
the needs of the Individuals. In other words, these leaders believe that the
highest concern for production as well as people alone can accomplish the
organisational objectives.
(e) Middle of the Road (5-5)
In reality, a leader may fall under any one of the above four styles.
Sometimes, he may have a typical style which can be placed somewhere on the
grid. Some leaders may have maximum concern for production as well as for
people. They set the objectives at moderate levels considering the feelings of the
people. Adequate level of production and satisfaction can be reaped through this
style.
The Managerial Grid is a useful tool for identifying different leadership
styles. The answer to the question what kind of leader he is depends upon the
personality, characteristics, enterprising ability, environment and other
situations.
(iii) Tri-dimensional leadership style
While the managerial grid and Ohio State studies have based upon two
factors - Task oriented and relationship oriented for explaining the styles of
leadership. Prof.W.J.Reddin has suggested effectiveness as the third factor in
deciding the style of leadership. The term 'effectiveness' refers to how the
leader's personality interrelated with the situation to which he is subjected to-
operate his activities. In this Tri-dimensional leadership style theory, how
effective or ineffective are the leaders in a given situation can be understood
very easily. When one's style is appropriate to a given situation, he is termed as
effective and vice-versa.
The basic styles are integrated with the concept of effectiveness and/or
summarised below:
a) High task and low relationship behaviour is termed as "dedicated" style.
b) High task and high relationship is viewed as "Integrated" style.

258
 c) Low task and high relationship behaviour Is considered as related style;
and
d) Low task and low relationship behaviour Is known as "separated style".
Depending upon the effectiveness or ineffectiveness of the leader in a given
situation, 3-D style identifies the following real time challenging situations.

Basic styles Effective styles Ineffective styles

a) Dedicated Benevolent Autocrat Autocrat
b) Integrated Executive Compromiser
c) Related Developer Missionary
d) Separated Bureaucrat Deserter

(C) Other styles

None can succeed in explaining the best style of leadership because it
depends upon various factors. No leader can be rigid or free all the time. He has
to adopt different behaviour in different situations- Since all the existing theories
have been proved to be inadequate, the situation is set for the development of
contingency theories.
Some of the important contingency theories have been explained in the
following paragraphs.

1) Fielder's Contingency Model

Fred E. Fielder and his associates of the University of Illinois have
suggested a contingency approach to leadership. According to this approach,
people become leaders not only by virtue of their personality attributes but also
by virtue of various situational factors including leader's ability to interact with
group members. This theory holds that three major situational factors determine
the success or otherwiseness of a given leader. They are:

259
(a) Position power
This indicates the degree of power of a position which permits a leader to
secure group members' compliance with his direction. In other words, a leader
with clear position in power can obtain good followership more easily.
(b) Task-structure
Here, the leader's success depends upon how clearly he spells and sells
assigned tasks through his people so that subordinates are made more
responsible and accountable for their performance.
(c) Leader-members relationships
This is the most important dimension. While the power of a position and
task structure are largely under the control of an organisation, developing
effective relationships depends upon the liking and willingness on the part of
subordinates to a given leader.
To sum up, a particular situation appears to be most favourable to the
leader when he is liked by his followers, when he gives clear-cut direction about
the job, and when he is blessed with appropriate position.
On the other hand, the situation becomes unfavourable to the leader when
he is disliked, faces vague and unstructural jobs and has little power. Fielder's
research has proved that task-oriented leaders would be more effective under
"unfavourable" or "favourable" situations. In contrast, relationships oriented
leaders tend to exhibit better performance under situations that are moderately
suitable to leaders.
(2) Path-Goal theory of Leadership
This theory is based upon the findings of various motivational as well as
leadership theories already proposed by various authors. Robbert House, who
suggested the "Path Goal Theory", believes that the main function of a leader is
to (a) clarify and set goals; (b) help subordinates find the best way for achieving
the set-goals; and (c) remove obstacles, if any.
This theory is not suggesting any particular style. On the other hand, ft is
only suggesting the applicability of a relevant leadership style under different
situations. The success of a leader depends upon how well h& can set the goals
for his subordinates and help them in attaining the same with minimum

260
difficulty. Well established Path-Goal relationship leads to high rate of success
through greater satisfaction among subordinates. When jobs are unclear and
difficult to achieve, subordinates are frustrated. They look forward for directions
from the leader. The key to this approach is that the leader can influence the
paths via behaviour in goals.
(3) Leadership Continuum
Real time leadership styles vary between the two extreme varieties
Authoritarian and Democratic. Evolving different styles suitable to different
situations has been well explained by Robbert Tannenbaum and Warren
H.Schmidt through "Leadership Continuum Model". This model suggests a
range of styles that can be adopted to different situations. According to this
theory, leadership effectiveness is the function of the leader, the follower and the
situational variables. As per this theory, the following are the most important
elements that may influence a leader's style.
a) Forces operating in the leader's personality such as confidence,
judgement, value systems, feeling of security, preference to a particular
style etc.,
b) Forces operating in subordinates including their knowledge, experience,
tolerance, willingness to accept responsibility etc.
c) Forces of a given situation: The work situation is made up of a number of
forces like team spirit, pressure of time, behaviour of workers during
emergency situations. They also exert lot of pressures on leaders.
d) Forces of the organisational environment: Elements like planning,
organising, directing and controlling have a definite influence on the
organisational environment. They also influence the subordinate's
motives, expectations, rewards and relationships.
e) Influence of the social environment via Labour Unions. Government
Regulations. Consumer Courts and other outside parties may significantly
affect the leader's behaviour.
Function of Leadership style
Whatever might be the style, every leader has to perform some functions.
Since leadership is the process of Influencing people, it has to perform multi-

261
dimensional functions in obtaining the willing contributions of the subordinates.
Some of the significant functions of leadership are briefly explained below:
1) Planning and organsing the organisational activities In a desired manner.
2) Influencing the subordinates to accomplish the goals through reward and
punishment.
3) Motivating and directing the subordinates to better levels of performance
through proper guidance from time to time.
4) Understanding the subordinates' expectations and aspirations and
obtaining their willing cooperation in the realisation of organisational
goals.
5) Remove ambiguities and issue clarifications In order to make them more
responsible on the job.
6) Creating a favourable organisational climate so as to retain and develop
human resource.
7) Understanding the macro economic influence over the organisation and
steer the Company on the path of success.

COCLUSIO
There is no one best way of leading the people. Various theories
propounded by eminent authors have only suggested the varieties of ways that
are available for leaders in different situations. One has to grasp the knowledge
to understand the total theory on the subject. Every leader has to adopt his own
style depending upon the situation. How the leader Influences the people Is not
important. What Is Important is how a leader helps subordinates in
accomplishing organisational as well as personal goals.

REVIEW QUESTIOS
1) What is Direction? Explain the scope and role of the direction function in
modem organisations?
2) What arc-the principles of direction? Comment on the various aspects
relating to the direction function.

262
 3) Define the concept of Leadership. Mention some of the important
qualities of a good leader.
4) Comment on the five main Leadership positions depicted in managerial
grid’. Which one would you advocate?

CASE STUDY 1
Problem of Leadership at the Top
The Board of Directors of Ferrow Alloys Company has been searching
for a right person to become president of its 'Metals Division'. The Board of
Directors has appointed a "Search Committee" to look after this issue. Since the
search committee has failed to locate a proper person for this post, it has asked
the Directors to recommend the name of any known person with suitable
background. At last, the Board has received the nomination of Mr. Stanley, a
nephew of Mr. Joseph, the largest shareholder in the Company. The search
Committee has decided to recommend Mr. Stanley's name for presidentship.
They have accepted this proposal and Mr. Stanley was made president. In his
first meeting with his executives, he put his mind like this....
"Let us work together in improving the efficiency of the operations. Each
one of you will be given an opportunity to comment on the standards that will be
set for you; it would be nice, if you could think individually. It I would be too
nice, if you could think the point from the group's perspective. Let us stand
unitedly and surpass the old records. The success of this Company will depend
upon the ability of leadership and willingness on the part of employees in
carrying out the decisions.
I solicit your support from all angles".
QUESTIOS
1) What do you think of Mr. Stanley's leadership style?
2) Describe Mr. Stanley's perception of the best leadership styles using the
'Situational Theory of Leadership"?

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 CASE STUDY 2
Choice of a Leader
Mr. Rajesh is the Managing Director of a Paints Manufacturing
Company. To increase sales, the Board of Directors wanted to start a full-fledged
marketing department. Mr. Rajesh is entrusted with the task of finding a suitable
candidate to head the proposed marketing department. After considering a
number of candidates, he has narrowed down his choice to two persons: Venkat
and Rajesh.
Mr. Venkat has an excellent trackrecord in the company. During his
fruitful association with the company, to be precise, ten years, he has always
shown a high degree of enthusiasm and Initiative in his work. He is still young
(35 years) dynamic and aggressive. He is result-oriented and is, naturally, more
interested in ends rather than means. One of the workers, testifying his
leadership qualities, remarked thus: "Though he is harsh at times, you will know
where you stand when you work with him. When you have done a good job, he
lets you know it". Mr. Venkat is willing to shoulder additional responsibilities.
He decides things quickly and when action is required, he is 'always on his toes'.
During his 15 years tenure in the Company, Mr. Rajesh has endeared
himself to all his colleagues by his superior workmanship and pleasing manners.
He always believes in the principle of employee participation in the decision
making process. Unlike Mr. Venkat, he encourages his subordinates to come out
with innovative ideas and useful suggestions. Before arriving at a decision he
always makes it a point to consult his subordinates. Not surprisingly, all his
subordinates are very pleased to work under him and. praise his leadership
qualities. Company records also bear evidence for the Increase In the production
soon after Rajesh became the head of his department.

QUESTIOS
1) Analyse the leadership qualities and styles of Mr. Venkat and Mr. Rajesh.
2) Between the two people, whom would you recommend for the position of
a marketing manager.


264
 UIT – V
Lesson - 17
COTROL
ITRODUCTIO
Controlling is an important element of management process. It is mainly
concerned with measurement and correction of performance in order to attain
pre-determined goals. Planning and controlling are closely inter-connected with
each other. Plans cannot be carried out automatically. The managers have to
regulate the activities, review the progress and steer the operations to conform to
plan. Hence, control is concerned with the attainment of organisational
objectives through regulating Individual performance. It is not an exaggeration
to state that the success or failure of any organisation depends upon the control
process. It touches every facet of the managerial activity.
Control process in the organisation can be compared with that of a
thermostat which regulates the room temperature. Controlling is the function of
every manager. It Is mainly concerned with the execution of plans in a desired
way so as to obtain better results, in the words of Henry Fayol: “Control consists
in verifying whether everything occurs in conformity with the plans adopted, the
instructions received and principles established”. Its object is to point out
weaknesses in order to rectify them and prevent recurrence". In a way, it is
acting as a facilitating function.
Definition
According to EFL Brech. "Control is checking performance against pre-
determined standards contained in the plans with a view to ensure adequate
progress and satisfactory performance". As per this definition, control guides
actions towards some pre-determined goals.
In the words of George R. Terry, "Controlling Is determining what is
being accomplished, that is evaluating the performance takes place according to
plans". This definition emphasised the fact that the managerial activity of
controlling compels the events to conform to plans through appropriate
corrective measures.
To understand the real meaning of control, the definition given by T.
Halman is useful. To him, "Control is the process of checking to determine

265
whether or not plans are being adhered to, whether or not proper progress is
being made towards the objectives and goals and acting if necessary, to correct
any deviations". This definition summarises the purpose of control. As per this
definition, control involves measurement of performance against standards set
for the purpose of initiating corrective action. The above definitions give rise to
the following characteristics for control concept.
Last Function of Management
Control follows other managerial functions like planning, staffing,
organisation and directing. Hence, it is considered as the last function.
All Pervasive
Control ensures consistency in action in a desired way; Control affects
other managerial functions and. In turn, affected by them. Hence, it is termed as
all pervasive.
Continuous Process
There is a wrong notion that control is needed when something is going
wrong. It is a dynamic process of measuring, checking and regulating the
managerial activities in an un-interrupted manner. As the process of
management is incomplete without controlling, controlling is considered, as an
unending process.
Forward Looking
Past activities can neither be Improved nor controlled. Control does not
only deal with the "post-mortem of what has happened but also regulates the
activities for improved performance in the near future. Thus, control is looking
at future through the eyes of the past.
Objectivity
Control is not an end in itself. It is only a means for accomplishing pre-
determined objectives. Control without objective lacks sense and proves to be
unworthy of its existence.

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Delegation
Control becomes meaningless without proper: authority. When authority
is delegated, control compels the delegator to discharge his duties in a proper
way.
Feed back
It refers to efficient system of reporting back for effective control.
Continuous monitoring and review of operations are essential for effective
control in any organisation.
Information
Information is key to success. Control depends upon the information
regarding the actual performance. Accurate and timely availability of feedback is
the basis for the success of control
Planning Vs Control
There is a close relationship between planning and control. These two are
supplement to each other. While planning is looking ahead, control makes use of
standards for improving future on the basis of the past experience.

BASIC COTROL PROCESS

The basic control process involves three steps: (i) Establishing standards;
(ii) Measuring performance; and (iii) Compare the results with standards and
correcting deviations. The details of these three steps are given below.
Establishment of Standards
The term standard refers to 'norm’ or some criteria of, performance.
Standards are either qualitative or quantitative goals to be' attained. To illustrate
some of the standards, we may consider the following verifiable goals,
performance, productivity, profitability, etc., are the best examples of
quantitative standards. Innovations, social responsibility and morale are the
examples of qualitative standard. The management may establish standards on
the basis of past experience. These standards are helpful to management either
for measuring the performance or Judging the success or failure of the
organisation.

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Measurement of Performance
It is essentially a comparison process wherein the actuals are measured
against standards for the purpose of detecting the deviations but measurement is
not always practicable. Yet, a forward looking manager has to work it out to
prevent reoccurrence of mistake committed by the management The purpose of
the measurement of performance is to alert the management about the probable
departures from the established path appropriate actions.
Correction of Deviation
Control does not end with the measurement of performance and its
comparison with standards. Appropriate corrective action is to be taken on the
basis of feedback obtained. Taking corrective action seems to be more
appropriate while the work is in progress. When the actuals differ from that of
standards, reasons for such variances are analysed to identify the root causes.
Once reasons are known, it is easy to take corrective action at an
appropriate time. For this purpose, the management needs control information.

FIGURE
COTROL PROCESS

STANDARDS OPERATIONS ACTUALS

CORRECTIVE ACTION FEED - BACK

The basic control process is shown in above figure. It illustrates that the
desired performance in the form of standards are laid down from plans. Actual
performance is the result of management operations like Organising, Staffing &
Directing. Measurement and comparison of actual performance gives rise to

268
identification of deviations. Corrective action is initiated on the basis of analysis
of causes for the occurrence of deviations. All appropriate measures must be
launched to correct deviations which form the basis of future desired
performance.
That is why effective control system should try to overcome the
weaknesses of traditional feedback system of getting communication to be
modified as feed forward system. The main difference between these two
systems lies with the flow of information, while Information to the end product
of feedback, it to the Input of the control system in feed forward tie. It to an
innovative way of monitoring real time information to adopt the functioning of
the organisation to suit the dynamic conditions.
Feedback Control
The term 'Feedback' refers to tile process of adjusting future actions on
the basis of information about post performance. It to vital to the management
because it guides corrective actions. A good control system always depends
upon effective feedback of information. But feedback always consumes time.
Management control cannot be instantaneous because of this time lag. The
traditional view la that planning to a forward looking exercise, controlling is a
backward looking exercise. But a good control system should be futuristic. That
to why Harrold Koontz observed that: since past can not be changed, effective
control should be aimed at preventing present and future deviations from plans.
The present age of computerisation comes handy to obtaining feedback on a real
time baste. It means that it inculcates "act now" philosophy in control process.
Importance of Control
The importance of control in an organisation need not be over
emphasized. Many benefits accrue out of effective control system. To highlight
the importance of control, the benefits of control are summarised in the
following paragraphs.
Facilitate Decision Making
The purpose of control is to take corrective actions. Corrective measures
involve right decisions so as to bring the actual performance to that of a desired
level. Majority of the executive decisions are centering around control points.
Hence, control facilitates decision making process in. any organisation,

269
Checks on Delegated Authority
No single manager can obtain the total things in the organisation. He has
to delegate authority for the purpose of getting things done through his
subordinates. Control enables the manager to check whether or not the delegated
authority is being properly used by the subordinates.
Basis for Future Action
Through the evaluation of final results control helps in spotting mistakes
and weaknesses in the process of implementation of plans. Control supplies
useful information for future planning and organizing. A good control system
enables the manager to correct the shortcomings in order to pave a smooth route
for future activities. Such a system of control guides and directs action towards
the organisational objectives.
Improves Employees Morale
Effective control system enables the management to identify changes that
are effecting the organisation so that subordinates can take advance action to
cope-up with threats and opportunities created by such change. It allows timely
feedback of information to the subordinates for taking appropriate measures to
protect their positions. This ensures a sense of security and comfort among
employees which in turn, contributes to higher degree Of motivation and morale.
Promotes Efficiency in Operations
Control enables the manager to take note of the activities, to detect
deviations arid to make adjustments in operations. It ensures him that the
enterprise moves in a way as planned. It tells the manager whether the objectives
are being achieved or riot. If not, it helps the manager to revise the plans for
achieving goals. Thus control contributes to organisational efficiency.
Basic of Co-ordination
Control tells the managers what to do and what not to do for the purpose
of establishing harmony among various divisions. Control provides unity of
direction and tries to establish equilibrium between means and ends. Thus
control promotes co- ordination between different units of the organisation.

270
Exerts Psychological Pressures
Control influences the behaviour of the employees in a positive way.
Workers become cautious in their duties because their performance is subject to
evaluation and control. A good control system brings necessary pressure on the
employees to become good doers. Not only that control makes the people to act
promptly for minimising the wastages and losses.
Limitations of control
Establishing a control system it self is not a panacea for all the Ills of
organisation.
Absence of Proper Standards
The success of an organisation depends upon both tangible and intangible
factors. While tangible factors are easily controllable, Intangible aspects like
quality of supervision, inter personal relationships, public relations, brand
loyalty etc., cannot be quantified for establishing standards.
Limitations of Corrective Action
Operating conditions of a business are highly dynamic and volatile. It is
not possible to take corrective actions all the time. No business enterprise would
have incurred losses had the corrective action been proved to be corrective or
productive. It means that there are several limitations in taking corrective
actions.
Human Reaction
Controls Invite opposition from the subordinates because they interfere in
their freedom. Controls will not work unless people accept them. People oppose
controls when they are biased, unreliable and subjective.
Coat of Control
Establishing a good control system is not so easy. It needs elaborate
effort, time and money. In modem organisations where man-machine systems go
hand in hand, establishing a control system is a complicated process. This may
result in excessive cost than the benefits of control.

271
Pre-requisites of Control
An effective and adequate system of controlling must fulfil the following
requisites.
Plan
There is a close inter-relationship between planning and controlling.
They are not substitutes but supplement to each other. Plans without control are
worthless and control without plans are meaningless. Controls must be always
based on plans.
Proper Organisation Structure
Any control process yields good results only when the responsibility for
detecting the deviations and initiating corrective actions is clearly defined and
identified along the lines of hierarchy throughout the organisation. Controls, to
be effective, must be supported by a good organisational structure.
Suitability
A sound control system must suit the needs of the enterprise. Control
points designed for a manager are Inappropriate for a supervisor. Controls must
be tailored to the needs of an organisation.
Promptness
A good control system should detect and report the mistakes before the
matter becomes serious. It should allow prompt action by the management at
correct time.
Forward Looking
Controls should be forward looking character. They should be directed
towards future. Since past to dead things can be improved through control
system In future control becomes useless if it falls to predict future.
Flexibility
Control should not be static. They should remain workable under
dynamic business conditions. Since controlling is a continuous activity, it should
be flexible enough to be adopted to changing conditions of an organisation.

272
Objectivity
As far as possible, control should serve a specific purpose. They should
develop impartial standards for the purpose of minimising friction.
Economical
The benefits from control should be greater than cost. Controls are
feasible and desirable when their expected benefits exceed costs. Expensive and
Inappropriate control should be avoided.
Simple
A good control system should be easy to understand and simple to
administer. Too elaborate and complicated control system, quite often, fells to
deliver the goods.
Acceptable
Controls will not work unless people accept the same. They should be
acceptable to those to whom they are applicable. Since control is for people, it
must be acceptable to the people.
Integrated Control System
Control touches each and every activity of the organisation. Whether the
activities are strategic or routine, the control should strive to obtain
effectiveness. Control covers all levels of managers from top to bottom. They
affect other managerial functions in a great way. But some controls may be
disliked by subordinates on the pica that they are unreasonable and unacceptable.
This type of dislike among employees about control process should be removed
by creating a favourable environment. Lest, the effectiveness of control is
destroyed through the resistance of employees. To overcome the above
difficulties and to obtain cooperation and participation of employees in the
matters of control, the management has to develop an integrated system of
control. Any control that is Intimately interconnected and intertwined with other
managerial functions is termed as an Integrated Control System. It is of vital
Importance to modern management in view of their operation in complex
environment. The details of such an integrated system are summarised below:

273
Control and Planning
Since control refers to the use of activity for compelling events to
conform to plans. It is evident that these two functions arc inter-related.
Planning, involves setting the activities and controlling keeps them on the right
track. Planning is meaningless without control and control is blind without
proper plans. The planning function contributes to the smooth discharge of
control by way of providing control standards through programs and budgets.
Control function contributes to the adoption of new and revised plans.
Control and Organising
The term organising refers to a formal grouping of activities for the
purpose of achieving organisational objectives. It ensures that objectives are
achieved through optimum utilisation of resources in an orderly manner and that
too in the shortest possible time. Resources like money, material, machinery and
skilled manpower are limited. These resources must be effectively used and
controlled. It may no longer be possible for one man to control all the operations.
That is why it is necessary to delegate some responsibility and authority to the
subordinates. Control becomes easy when authority is delegated. Control
receives negative response and becomes Ineffective when authority is
centralised. Not only that effectiveness of control directly depends upon the
method of grouping of activities and level of delegation of authority.
Control and Directing
It is the heart of administration. Since it tells the people what to do how to
do, Where to do and when to do. Activities like leadership and communication
play an important rote in influencing the behaviour of subordinates in securing
desired performance. This aspect is closely related with control function. While
leadership guides action, control compels these actions to adhere plans.
Communication ensures free flow of timely and relevant Information. Control
uses this Information as a feedback for taking corrective action. Information is
backbone for regulating the activities in any organisation.
COCLUSIO
In order to make the control process as an effective tool in the hands
management, it should be integrated with other managerial functions. All
Important and critical aspects should be brought under the purview of control
process for obtaining better results. Control should not be isolated from the main
274
stream of managerial functions. Control function becomes effective when it is
Integrated with other managerial functions. Control is not a perfect substitute for
sound managerial practices and cannot ensure business success on its own
merit. For obtaining results, the management has to develop an integrated
approach.

REVIEW QUESTIOS
1. What is control? Discuss the basic steps in the control process.
2. "Planning is looking ahead and control is looking back" Comment.
3. Discuss the nature and characteristics of control process.
4. Examine the 'Pros and Cons' of Controlling.
5. Briefly explain the basic requirements of a good control system.
6. Explain the need for integrated control system in modem business
organisations.

CASE STUDY (1)

The Chairman of the Reliance Finance Corporation Mr. Aditya was too
critical about the on going things of the company. He invited his Executive Vice-
president Mr. George and Controller of Finance Mr. Merchant for discussions.
While all of them were in deliberations, Mr. Aditya complained that he was not
informed about the Inner details of the operations of the company on time and he
was getting information only when small and controllable issues become crises.
Mr. Aditya was under the impression that he was kept in dark by his team of
executives and was further isolated by non-receipt of important Information. He
suggested to his senior executives to design a system within 15 days which can
inform everything to him in time. But Mr. George Is surprised to hear the
comments of his Boss Mr.Aditya. After the closure of the meeting Mr.George
wondered: "While everything lies in the periodical reports submitted by him to
the Chairman, why still he is craving for a system?".

275
QUESTIOS
(1) Whether the Chairman was getting needy information or not?
(2) If you are Mr.George what you would do to keep the Chairman happy
through effective control?

CASE STUDY (2)

HIDUSTA CORPORATIO
Hindustan Corporation is a leading consumer product manufacturing
concern. It is a multi-product and multi-unit organisation. Though its products
are enjoying good brand loyalty, the entry of competitive products from 'Asian
Tigers' (Countries like Thailand, Taiwan, Singapore etc.) has caused alarming
situation. The Chairman and Managing Director of the Hindustan Corporation
Mr. Abhlman reviewed the situation and came to the conclusion that the
company can withstand the pressures of close competition only when its scare
resources are optimally used with effective cost control. Mr. Abhiman
summoned all of his plant Managers and informed about the precarious situation.
He further ordered each one of them to install an effective control system within
10 days. The Plant Manager, in turn, called the Asst. Manager and passed on the
order to him. The Asst. Manager then assigned the task to his Foreman to attend
the same.
After 10 days, the Foreman informed to the Asst. Manager that he could
not find a control system suitable to the company's need despite his review of
current literature from reputed journals.

QUESTIOS
(1) Do you think that the Foreman should have worked little hard in tracing a
suitable system of control through books and journals?
(2) Suggest ways and means open for developing effective control system?



276
 UIT - V
Lesson - 18
COORDIATIO
Harmonious relationships between the various divisions and departments
of an organisation is a must for its smooth functioning. The activities of the
various divisions have to he blended and unified so as to give them a
commonness of the purpose. Hitherto, the concept coordination was viewed as
one of the functions of management. Now, it is regarded as the essence of the
management process. It helps in achieving harmony among individual efforts
towards the accomplishment of group goals. Group goals can not be achieved
automatically. Individual efforts must be integrated and synchronized in order to
attain common objectives. It is a dynamic concept. It implies an orderly
arrangement of group efforts to ensure unity of action. According to Henry
Fayol. “to co-ordinate is to harmonize all the activities of a concern so as to
facilitate its functioning on the path of success. Probably in smaller organisation,
there is no need for coordination where all activities are performed by one
person. With the increasing growth and complexity of modern organisations,
the need for coordination becomes Inevitable. Lack of proper coordination
results in inefficient operations, delays, frustrated feelings and waste of time.
Meaning
According to E. F. L. Brech. "Coordination is balancing and keeping
together the team by ensuring suitable allocation of task to the various members
and seeing that tasks are performed with due harmony among the members
themselves."
According to Me Farland, "Coordination is the process whereby an
executive develops an orderly pattern of group efforts and secures unity of action
in the pursuit of common purpose." This definition views coordination as the
task of-integrating the individual needs with that of the organizational goals
through proper linking.
Characteristics
The above observations reveal the following features of coordination.

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 • Coordination is not a distinct function. But, represents the essence of
management.
• The outcome of the coordination is to attain the common purpose.
• Coordination is essential in all work situations where people work
together.
• Coordination is a continuous and an on going process.
• Coordination does not arise spontaneously or by force. It is the result of
concerted action.
• Coordination is required in group efforts but not in individual efforts.

eed for Coordination

Existence of disintegrating forces emphasises the need for greater
coordination among various divisions of an enterprise. These disintegrating
forces may act as barriers to effective coordination. They are summarized below:
Increasing Specialisation
Coordination becomes essential when the principle of specialisation has
been practised in work situation. The activities of the unit may be divided on the
basis of product, function, region or some other form. The greater the number of
units, the larger the number of specialisations. Every executive is mostly
worried about his unit's performance. It results In conflicting Interests within
the same organisation. A good coordination paves the way for effective
integration of efforts of all people for the accomplishment of a common goal.
Empire building motive
As stated above, each executive is deeply motivated by the performance
of his own unit in question. This kind of attitude may well fulfil his personal ego
but isolates him from others. Organisational goals can not be accomplished with
this kind of tendency. Coordination is essential to ease out this situation.
Personal conflicts between employees
Employees are human beings. Personal rivalries, jealousies and politics in
the work situation are bound to create problems to the management. For

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example, conflicts between line and staff and differences between production
and sales personnel create problems in the smooth functioning of an
organisation. Coordination helps in harmonizing group efforts.
Subordination of individual interest to that of organisational interest
Individual interests are Important for developing loyalty, Integrity, hard
work, Initiation and motivation. Organisational Interests are much more
important than individual interests. For achieving this, subordination of
Individual needs to that of organisational goals is a must. The purpose of
coordination is to attain this desired end.
The importance of coordination need not be over emphasised. The
primary task of management is to coordinate effectively all the activities. It is the
end result of managerial process. It is a creative force through which members of
the organisation are encouraged to contribute to group goals voluntarily,
willingly and enthusiastically. It emphasizes system's approach to management.
The various functions of management can not be viewed in Isolation, but has to
be viewed in totality. Coordination allows personal satisfaction on one hand
and social satisfaction on the other hand. It, thus, promotes efficiency and tones
up the general level of employee morale.
Types of Coordination
Depending upon the nature and coverage, coordination may be studied
under different types. On the basis of its coverage, coordination may be divided
into two types, such as, internal and external. Another type of classification is
possible on the basis of its flow under two headings, mainly, vertical and
horizontal coordination.
Internal and External Coordination
Coordination between units of the same organisation is termed as internal
coordination. It summarises the activities of different units so as to make the
organisation store effective. Organisations are not free from the influence of
eternal environment. Hence, establishing a close link between organisations and
external environment is a must either to survive or surpass the growing
competition. External environment includes technology, competition, market
forces, customers, Government policy etc.. External co-ordination tries to
coordinate all these forces upto the advantage of an organisation.

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Vertical and Horizontal Coordination
Coordination between different levels of hierarchy down the line is
termed as "vertical coordination". It ensures that all levels of people, from top to
the bottom, work in harmony. It is greatly facilitated by a technique like
delegation of authority to the lower levels of hierarchy. Coordination between
people of the same cadre and between different departments at the same level is
termed as "Horizontal Coordination".
Another classification depending upon its content views co-ordination
from a different angle.
Procedural and Substantive Coordination
Procedural coordination implies the specifications of different units in the
same organisation. On the other hand, substantive coordination is concerned
with the content of organisational activities.
Principle of Coordination
Mary Parker Follet has laid down the following four principles for
effective coordination. These principles help every manager in discharging his
functions.
• Early Start
Thinking function of the management precedes the doing function. The
task of coordination becomes relatively easy if it starts at the planning stage.
Free exchange of ideas helps in clearing doubts and remove misunderstanding.
Hence, plans must be prepared in consultation with all people. Plans become
successful if coordination is practised at initial stage. Securing coordination
becomes impossible at later stages like execution of work.
• Direct Personal Contact
It stresses the importance of direct contact in removing conflicts and
misunderstanding. Effective coordination is best achieved through direct
personal contact. Direct communication is the most effective way to convey real
feelings to facilitate greater coordination.

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• Continuity
Coordination is an unending process. It cannot be left to chance. The
management has to continuously strive hard to maintain perfect balance among
different units/people. Continuous coordination helps the manager in adjusting
and re- adjusting the range of activities so as to minimise wastages,
misunderstanding and apathy.
• Integration
The fourth principle of coordination calls for integration of efforts for
achieving a common purpose. For this purpose, coordination demands reciprocal
relationship among all the concerned.
• Independence and Coordination
Coordination influences all functional activities of management. In a
similar way, all other activities influence coordination. This is termed as
"Interdependence". Such as “interdependence” is imperative for the success of
any organisation. Such interdependence of work units has been categorically
classified under three heads by James D Thompson. They are
(a) Pooled interdependence;
(b) Sequential interdependence; and
(c) Reciprocal interdependence.
(a) Pooled Interdependence
When departments/units/divisions are not directly dependent on each
other, but indirectly responsible for over all performance of the enterprise, it is
termed as "Pooled interdependence". It represents a situation where failure of
one unit/division leads to the failure of the entire enterprise. Each
unit/department makes its own contribution and supports the main system in its
own way,
(b) Sequential interdependence
It refers to a situation where the output of one department become the
input of the other. This type of interdependence usually exists in process
industry.

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(c) Reciprocal Interdependence
It refers to two way interdependence. Here, the output of one becomes
input of the other and vice a versa.

Approaches for Achieving Effective Coordination

Different organisations adopt different mechanisms for achieving
effective coordination. There is no single method of coordinating the managerial
activities that can be universally acceptable. J.D. Thomson has identified three
important categories of approaches for achieving effective coordination. All of
them are Integrative mechanisms. Each one of them is explained below.
1. Integration through standardization: It involves the development of
standard rules and procedures through which the job holders/ departments
have to direct their activities in order to ensure consistency in operations.
2. Plans and Schedules: Separate plans and schedules may be prepared for
each departments or units. At corporate level, all plans are merged and
integrated so as to obtain optimum results. Coordination becomes easy
since departmental plans are flexible than standards.
3. Mutual adjustments: Activities of company are coordinated through
mutual adjustments among the sister units/departments on contingency
basis. Here cooperation is assured between the needy units for the
purpose of getting the things done.
In traditional organisations coordination is sought to be achieved through
standardisation and planning. The usual methods followed by the traditional and
bureaucratic organisations for achieving effective coordination are listed below,
1. Developing elaborate system of rules and procedure for sorting out
recurring problems.
2. Non-routine problems arc to be referred to higher-ups.
3. Where decisions relating to new policy matters have to be taken up, they
may be referred to special committees.

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 Traditional organisations could able to reap advantages through following
the above mechanisms for obtaining higher degree of coordination among sister
units. This traditional approach is best suitable to normal and predictable
conditions. But this kind of approach is inadequate to meet the requirements of a
modern organisation under a dynamic environment. More sophisticated methods
have been developed by the researchers for the purpose of improving
coordination. John Child suggested the following forms of coordination for
improved functioning of the organisations.
1. For understanding business problems and offering solutions, direct
contact between managers and employees facilitates greater coordination.
2. While too much rapport is required between employees and departments,
better coordination may be obtained through the appointment of liaison
officers.
3. While there are inter departmental conflicts which cannot be solved
immediately, coordination may be attained through special task forces
which would deal special situations.
4. Special committees may be appointed to deal with the recurring problems
of inter departmental conflicts.
5. An organisation which is too big with several divisions may find it
difficult to coordinate the total range of activities a systematic manner. To
ease out this problem, a coordinating department may be created within
the organisation on par with other departments to perform this special
function.
6. If things are too complicated, matrix type of organisation may be
developed for establishing effective coordination- Under this method,
functions of some of the personnel may be integrated with the functions
of other departments, this kind of arrangement encourages effective
understanding between various divisions/departments. This facilitates
higher degree of coordination among the member units of organisation.
Van de Ven and others proposed three approaches as basis for
coordination. They are summarized below.

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Impersonal mode
This model envisages designing of rules procedures and programmes
suitable for smooth functioning of, the organisation.
Personal mode
Here, human beings are encouraged to find out how things are going on
and to discriminate what to do and what to do through effective feed back.
Personal Involvement surely contributes to effective coordination.
Group mode
When operations are large, a single individual cannot coordinate properly.
This model suggests establishment of committees, task forces, meetings etc. The
logic behind this approach to that "two brains can think better than one brain."
As stated earlier, no single approach to coordination is proved to be useful
to all organisations. The suitability of a particular approach to coordination
depends upon factors like size of the organisation, complexity of its work, nature
of work force, certainty and uncertainty conditions delegation of authority etc.
The process of coordination becomes useful and meaningful only with the
delegation of appropriate authority
In order to minimise the problems of over riding departmental interest for
the cause of the organisational objective effective coordination is needed. For
example, a finance manager may issue's direction that no overtime allowance be
paid to workers. At the same time, production manager is worried about realising
production target. He may issue another direction that production workers are
entitled to overtime allowance. This might have been done in his anxiety to
realise production target. This situation results in misunderstanding and
conflicts, solution for this type of problem lies with effective coordination
among member departments.
Coordination process is essential to make unified whole out of diversified
functions on smooth lines. It pervades all the managerial activities from planning
to controls. Big organisations are now creating separate departments for
coordination among departments. New rules and procedures may be developed
to minimise problems like red-tapism overriding goals, blind loyalty and friction.

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Co-ordination Vs Co-operation
The term co-operation refers to collective efforts of people who associate
themselves voluntarily to achieve some predetermined objective It indicates
about the .willingness of individual to help each other. It is the result of
voluntary attitudes of people in organisation. However it cannot be a, substitute,
for coordination. While co-operation facilitates coordination, coordination is
all inclusive including, cooperation. Coordination involves deliberate effort, on
the part of management to bring together the activities of various
individuals/divisions/units In order to provide unity of action. Coordination does
not arise automatically. It requires conscious efforts, whereas cooperation is the
results of voluntary efforts put by file people. Thus this scope of coordination
among wider than cooperation.

Summary
The term coordination refers to orderly arrangement of group efforts for
the purpose of accomplishment of objectives. It is the basic responsibility of
every manager. It is a continuous process. Unlike previously it is not viewed as
a distinct activity but considered as the quint essence of management. The
problem of coordination comes into picture when management is dealing with
group efforts but not with Individual efforts. The term coordination should not
be confused with cooperation. The significance of coordination results in
efficiency, morale and optimum use of resources. On the basis of scope and
coverage, coordination may be divided into different types. Namely internal Vs
external, vertical Vs. Horizontal, procedural Vs. substantive. Different
techniques are, available for achieving higher degree of coordination. Similarly
different managements deal the problem of coordination through different
approaches. Whatever the approach, it has to clarify the role, of manager
regarding his authority and responsibility, for the purpose of attaining optimum
use of resources to the common cause of the organisation.

REVIEW QUESTIOS
1. "Coordination is the very essence of management" Do you agree? Give
reasons.

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 2. What is Coordination? Discuss the essential characteristics.
3. Describe the Importance of coordination. Discuss the techniques of
achieving effective coordination.
4. Write short notes on the following:
a) Types of Coordination
b) Principles of Coordination
c) Approaches to Coordination

CASE STUDY (1)

Modern Foods
Modern Foods has been facing the twin problems of productivity and
morale at Delhi Plant. A new plant at Kanpur has been set-up by taking all
precautions to overcome the problems of Delhi Plant. The work activities
together with pay norms have been entrusted to a "coach" instead of to a
"supervisor" at Kanpur Plant. At new Plant, workers organised themselves as a
‘team’ and decided what to do, when to do and how to do? This approach
facilitates wider span of management and greater clarity in goal pursuit Costs
and labour turnover have come down. In fact, Modern Food accepted the new
plant as a model unit
After five years, many executives resented this system and they were
under the Impression that their authority and expertise were ignored.
Competition between teams and team leaders developed and this has created the
problem of coordination. Workers felt uncomfortable about deciding pay rates of
their fellow-workers. Due to pressure of changing scene, some aspects of the
plant system have been changed. Supervision is made stiff and more
management positions are created. This created an impression that the
management is not happy with the experiments of Kanpur Plant.
QUESTIOS
1. Why did Modern Foods try a new way of getting things done at Kanpur
Plant?
2. Identify the Coordination problems witnessed in this case.
3. Suggest ways of maintaining morale through better coordinated efforts.

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 UIT – VI
LESSON – 19
RECET TREDS AD EW PERSPECTIVES I
MAAGEMET

1. CORE COMPETECE
In the 1980s, top executives were assessed on their ability to reorganize
their corporations; in the 1990s top executive will be ‘judged on their ability to
identify, cultivate, and exploit core competencies that make growth possible.
Core competence is defined by the following three criteria:
1. It provides potential access to a wide variety of markets.
2. It makes a significant contribution to the perceived customer benefit of the
end product.
3. It is difficult for competitors to imitate.
Few companies are likely to build world leadership in more than five or
six fundamental competencies. In the long run, if the organization is to be
competitive in the global market place, it will derive its competitiveness from its
ability to bring high – quality, low-cost products to market faster than its
competitors. In order to do this, an organization will need to consist of “a
portfolio of competencies rather than a portfolio of business”.
Many companies have the technical resources to build competencies but
key executives lack the vision to do so. The concept challenges executives to
rethink the concept of the corporation itself. If you accept the notion of a
company as a set of core competencies, the task of management “is to build
competencies and the administrative means for assembling resources spread
across multiple business”.
FIRMS ACQUIRE HIGHER DEGREE OF COMPETITIVE ADVATAGE
OLY BY BUILDIG CORE COMPETECES
We have seen in the foregoing sections that firms develop competitive
advantage by working with one or more of the various competitive advantage
factors. Analysis shows that in many cases, companies and competition soon

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coverage on product – price – differentiation – attributes. They reach a stage
where there is little scope left to different further, whether on product, service or
any other conceivable attributes. At such a stage where there is a saturation, only
corporations who enjoy core competencies in the root
technology/process/expertise keep gaining. And, in today’s technology driven
world, technology is one main source of core competency. Through command
over technologies and processes firms bring out proprietary products which lend
competitive advantage to them.
Prof. C.K. Prahalad in his HBR article on The Core Competence of the
Corporation knowledgeably discusses the concept of core competencies and its
role in building long-term competitive advantage. Through an examination of a
large bunch of internationally successful companies and their world famous
products, Prof. Prahalad drives home the point that it is not a particular product
as such that lends these corporations a world dominance. Behind the product,
there is the core competency the interwoven technology/process/expertise. For
example, Sony has a core competence in miniaturisation; it can make any
product tiny. Philip’s has optical media expertise. It has achieved its competence
in this field as a result of a decade long research and development. Honda has a
core competence in engines which gives it a competitive advantage in diverse
products like car, motorcycle, lawn mower and generator. Canon’s core
competence lie in optics, imaging and microprocessor controls that together lend
Canon distinct competitive advantage in products as diverse as copiers, laser
printers, cameras and image scanners. JVC built up core competence in video
recording/video tape technology which finally gave JVC unique and novel
products in these fields. Yamaha introduced the digital piano, Komatsu
developed the underwater remote-controlled bulldozer and Casio brought the
small-screen colour LCD television. Behind every one of these inventions, there
lie the distinct core competencies of these corporations, which are built out of
the corporations’ command over several technologies.
Building core competence becomes essential to competitive advantage
building because, advantages emanating from the product-price- performance-
trade offs are almost always short term. Especially in an era where technologies
are altering existing boundaries of businesses, advantage can last only through
competence enjoyed at the very roots of products. And only through expertise
over several technologies and a complete command in their infinite variety of
uses, a company can occupy a highly advantageous position. DuPont’s core
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competence in chemical technology, I core competence in electronics and NEC’s
core competence in telecommunications, semiconductors and mainframes will
see them through any exacting competitive situations.
To build core competencies, it is not necessary for companies to invest
heavily in fundamental research. What is required is a corporation’s commitment
to look for relevant technologies in its field, harness them, develop the human
expertise to understand them and work on them like building blocks, so that the
corporation has the basic strength to push out any product based on demands of
changing times and patterns. In fact, companies who always make it a policy to
manufacture the crucial components of their products instead of outsourcing
them quite often enjoy the scope for core competence building, while those who
as a policy decide to source their crucial components from outside suppliers
deny themselves the opportunity to build core competencies in their business.
The latter, may enjoy some cost advantage, which may ultimately give them a
competing edge in the price-marketing factors. But, in the long term, such a
corporation could be foregoing an opportunity for core competence building in
its chosen business. When the manufacture of crucial components are just seen
as a cost centre, the chances of éore competence building are getting lost. For
example, the American Auto giant Chrysler tends to view engines as just one
more component for its car assembly. But in the case of Honda, it would never
give up the responsibility of manufacturing its engines. Honda has also
centralised all its critical engine-related R&D in Japan, while it does not mind
out- sourcing body parts overseas and sharing responsibility for body-design
with its affiliates worldwide. No wonder, Honda could build up a core
competence in engines, arid use it as the back up for gaining competitive
advantage in several product categories.
In the changed context of India today, the crucial task before corporate
managements is just not to build some short term competitive advantage but to
endow the organisation with a portfolio of core competencies. The batttle for
global leadership is being waged on the strength of core competence and not on
some brands as is being perceived by many. Behind the visible and apparent
battle of the brands, there lies a substantive war between core competencies of
corporations. The latter is always behind the scene.
Only by looking at the global corporations, can Indian companies get an
idea of core competence building. Because, in the historic evolution of business,

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Indian business is only now reaching a stage where they can put into practice
such an advanced concept. And the economic liberalisation has made the ground
conducive to such an effort. Indian Companies must set themselves the task of
core competence building.
2. TOTAL QUALITY MAAGEMET
The last few years have seen unprecedented growth in the quality
profession ISO 9000 Series has just been a step towards TQM. There is a great
deal of profit by quality improvements in products and services. Indian
Companies have realised that improvements in products and services, business
processes and people is inescapable. In business terms it has been realised that
quality is the single greatest factor in achieving market success for any company.
Instead of trying to increase sales to gain profit, which route also increases
operating cost, quality improvement becomes a shortcut to improved profits.
Quality improvement itself enhances sales indirectly by generating
customer demand and this will have its own momentum in the market. The heart
of TQM philosophy is the conviction that error free work is possible to achieve.
It is also phrased as doing right the first time, working smarter and zero defects.
Perhaps one may not achieve the target but the mind is set for a perfect work.
The founder of IBM Thomas J. Watson once said that “it is better to aim at
perfection and miss than to aim at imperfection and hit it”.
The idea of prevention is therefore pivotal to TQM Programme. it may be
difficult to find practical support for this but this is the aim of all quality
assurance. The diligent use of measurement, process controls, data driven
elimination of waste and error is the emphasis. Documentation of work process,
quality audits and quality assurances prevents quality problems. Fundamentally
this is about developing a strong value in everybody so as not to pass something
on which we know is wrong.
The let out clause for poor performance is “to err is human”. The
conventional work-practices seem to have an anticipation of failure built in
them. Then for managers & employees, TQM preoccupation with prevention
involves a 360 degrees shift from the normal attitude towards the work
performance. They normally set up a dual standard one for their own expecting
quality service and good products and the other for their work life expecting
safety nets to catch the mistakes. They attempt to set right the shoddy work.

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 An acceptable quality level (AQL) sets up a dual standard. This then
offers a diametrically opposite mindset to total quality. The company instead of
focusing on zero defects, encourages defects by setting AQLs. A classic example
is in the paper manufacturing industry. The fibre loss and the finishing losses are
conveniently accepted between 5% and 11%. The impact on the environment by
the letting of the fibre to escape into the effluent and the loss of the precious
forest based raw material bamboo and wood, becomes nobody’s concern.
Ultimately in a monthly review meeting an explanation is tabled attributing the
situation to some reason and it is accepted. The production is less to that extent,
though there is an input of the precious resource. This is a testimony to the need
to p errors from occurring rather than fixing them after the fact.
THE ZERO DEFECT ISSUE
Some see a conflict between zero defects, doing things right the first time
and risk taking. Philip B. Crosby holds the opinion that the real risk takers, like
people who go into space, make sure that they do the things right first time and
they do it before going. Risk taking involves time to lay out the requirements,
and to get clear on everything that is known. Things which are not known are to
be planned for.
When the rest of the operation is well based, the unknown becomes
something that can be dealt with. The risk aspect comes up only when people are
too lazy or preoccupied to work out the requirements. Requirements need
thought. Everyone has to know the charter of the organisation, and they have to
understand their personal role in making it all happen.
Zero defects is doing what we agreed to do when something has been
agreed with the customer. This implies clear requirements, training, a positive
attitude and a plan. It is not leaping off into the unknown. Zero defect is a reality
and is a goal too. It is a result of thinking things out. According to Philip B.
Crosby discrepancies occur only because they are expected to happen. They just
fix rather than prevent.
Error prevention should be more than a rhetoric for making TQM
progress. Doing right the first time should become a standard performance. It
should virtually mean surpassing old standards. The preventive action guards
against compounding of errors and passing them on to the customers. For this
purpose everyone will have to be his own inspector. The people employed know

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more about the operational side and they should be encouraged to come out with
suggestions. Implementing many of them would do the trick.
In addition improving procedures and documents would help the service
side. Therefore in a way doing right things first must become a personal
standard. Perhaps a change overnight by implementing TQM may be impossible.
Further telling people why and when the “old ways” will stop, gains more
credibility. At this point a word about perfectionism may be appropriate. It is
orientated towards meeting the customer needs. Failure to train, communicate
and manage TQ on a day to day basis will prevent from becoming a standard
operating procedure and attaining perfection.
Human resources are considered the most vital and valuable resources of
an organisation, as the productivity and quality outputs of an organisation are
directly linked to people working for it. Further, the organisational performance
is assessed in terms of its employees’ performance. At the same time, it is also
observed that human resources are very difficult to manage considering the
variation present in the individuals in terms of their skills, background,
education, culture, and attitudes. However, it is natural to demand that the
individuals perform according to the expectations and needs of the organisation.
Thus there is a need to ascertain employees’ performance in the light of
organisational requirements, and ensure quality in the products and services
delivered. According to Moss (1989) the traditional performance appraisal (PA)
process has been accepted as a legitimate means of assessing and evaluating
individual effort in the work-place. This kind of measurement of performance
gains further importance due to the fact that all employees are responsible as
individuals, and as a team for ensuring quality in the products and services
which an organisation delivers. Wilkinson (1992) comments that involvement of
all employees in monitoring their own work with the aim of constantly
maintaining and improving quality leads to total quality management (TQM).
Thus any organization aiming for TQM must ascertain its employees’
involvement and commitment to quality, which can be determined through the
PA process. In this paper, first the concepts of PA are discussed, and a critical
view of PA is made to expose its limitations. Next, the modifications required
are highlighted, followed by the development of a link between performance
appraisal and TQM in a logical form. The article concludes emphasizing the
transformation of PA process into TQM process.

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TRASFORMIG PA TO TQM
Total Quality Management (TQM) an approach to management that
focuses on quality as the key to success. According to Saunders and Graham
(1992), TQM requires teamwork, wherein all employees of an organisation work
towards a common goal. It is imperative that every employee of the organisation
understands the objectives, and synchronises his or her effort with others,
accomplishing the intended objectives. Wilkinson (1992) states that TQM
attempts to emphasize that all employees are ultimately involved in serving the
final customer, so that quality matters at all stages, while teamwork and
cooperation are essential. Furthermore, everyone should strive for continuous
improvement rather than relaxing when targets are achieved. Every person has a
common focus, so that people with different jobs, abilities, and priorities are able
to communicate with each other in pursuit of a common organisational purpose.
Since TQM strongly advocates continuous improvement, it becomes necessary
to identify the strengths and weaknesses of all employees. This is where PA can
lend a helping hand to find out the areas that call for improvement. This means
the outcome of PA process is used not for punitive action when deficiencies
exist, but to identify the action to bring in improvement so that a weak performer
is converted to a ‘star’ performer. Such a constructive application PA is what is
desperately needed to achieve TQM.
TQM which insists on continuous improvement and emphasizes the role
of people, can definitely thrive when PA is used as a diagnostic tool. This is
because PA identifies the deficiencies in an individual, and TQM advocates
employee quality improvement through education and training to overcome
those deficiencies. Once the employees realise the benefits of PA to them and to
the organisation, they would be more willing to participate in PA process. Such a
voluntary involvement ensures improvement of quality products and services
delivered by the system.

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3. BECH MARKIG
Besides the popular reengineering technique associated with TQM, other
techniques, such as benchmarking, are also receiving attention. Benchmarking is
the process of comparing work and service methods against the best practices
and outcomes for the purpose of identifying changes that will result in higher-
quality output. Benchmarking incorporates the use of organizational behavior
techniques. Although it should not be equated with goal setting benchmark
metrics can be used to set targets that are pursued, identified. And then used as a
basis for future action. The benchmarking process involves looking both inside
and outside the organization for ways of improving the operation.
Benchmarking offers a number of benefits to organizations. First, this
technique helps organizations compare themselves against successful companies
for the purpose of identifying improvement strategies. Second, benchmarking
enables organizations to learn from others. Third, it helps create a need for
change by showing the organization how procedures and work assignments
should be altered and resources reallocated. There are a wide variety of
examples in which benchmarking has helped organizations improve their total
quality.
Benchmarking is a continuous management process that helps 1irn
identify the benchmark, compare themselves to the benchmark and to use that
knowledge in designing a practical plan to achieve superiority in the market
place. The measurement of relative performance lakes place along the three
components of a total quality programme - products and services, business
processes and procedures and people. This brings about changes that lead to
quantum and continuous improvements in products, processes and services that
result in total customer satisfaction and competitive advantage. The strategy
consultants McKinsay & Co viewed benchmarking as a skill, an attitude and a
practice that ensure an organisation always has its sights set on excellence, not
merely on improvement.
Benchmarking involves observing competition for companies in other
industries that exemplify best practice in some activity, function and process and
then comparing one’s own performance to theirs. This externally oriented
approach makes people aware of improvements that are orders of magnitude
beyond what they would have thought possible. In contrast, internal yardsticks
that measure current performance in relation to prior period results, current

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budget or the results of the other units within the company rarely have such an
eye-opening effect. Moreover, these internally focused comparisons have the
disadvantage of breeding complacency through a false sense of security and of
stirring up more energy for intramural rivalry than for competition in the market
place.
Benchmarking emerged as a management tool in 1979 when Xerox
Manufacturing Operations decided to compare the unit manufacturing cost and
the features of their copying machines to those of the competition from Japanese
Photocopier companies. In the early days of benchmarking, the emphasis was on
measurement per se and on straightforward comparisons of performance
parameters like productivity and efficiency measures within and between
companies whether in a manufacturing or service environment. Subsequently
competitive benchmarking became more prominent with a gradual shift in
attention to business processes within a more diverse range of business functions
which had a key influence on overall performance. The main locus of
benchmarking activity, at present, is on best practices, information on which is
obtained by active collaboration with best in class companies having comparable
business processes irrespective of the industry they belong to. Benchmarking
identifies and quantifies performance gaps and determines how much a company
needs to improve to be at the highest possible levels of functional performance
and helps ensure continuing sustained competitive advantage at all management
levels.
Some organization use benchmarking at the very start of projects so that
all planning and organizing efforts are conducted in light of state-of-the art
developments in the industry. This strategy typically begins with the formation
of a team that defines the project’s goals and carefully identifies the areas in
which benchmarking will be used. In the case of new-product development, for
example, IBM Rochester gathered a team of technical and marketing people to
create anew minicomputer, the AS/400. During this process, the IBM Rochester
group looked both in house and at a verity of outside firms in order to gain
insights into how to build the highest quality minicomputer in the shortest
amount of time. In house they examined IBM Raleigh, which had a world-class
defect-prevention process, and IBM Manassas, which had outstanding hardware
process documentation. The outside companies it benchmarked were (1) Xerox,
from which it learned about the benchmarking process in general; (2) Motorola,
which proceeded information on reducing quality defects; (3) 3M, which
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provided information that helped IBM Rochester’s resource manufacturing
planning capability; (4) Hewlett-Packard, which provided insights into the
effective use of service representatives; and (5) Japanese firms, from which the
company learned a great deal about just-in-time inventory. As a result of its
benchmarking efforts, IBM Rochaster was able to produce that exceeded all
expectations.
Other organizations use benchmarking in carrying out their day-to-day
activities. Common examples include developing benchmarking strategies to
reduce manufacturing setup time, increase the number of customers served per
hour, and cut delivery time. Benchmarking is also being used in training and
development to create programs that are cost effective and ensure that personnel
are performing their jobs as well as anyone else in the industry. This human
resources focus is a new twist in benchmarking, but one that will be receiving
increased attention during the years ahead. A good example is provided by
Magnavox.
All division managers at Magnavox were asked to provide annual training
cost data to the corporate human resources (HR) department. The HR
department quickly realized that there was no uniform thinking among the
division regarding how to define training costs. Some divisions counted only
direct costs, such as labor, materials, and outside consulting fees. Others
included the wages of all participants and support personnel. The HR people
then set about determining how to measure thesis costs uniformly and how to
use this information to benchmark against other firms. In all, there were fourteen
training measures or what are now commonly called metrics (see table 2.1). In
each case the company identifies the specific metric, how it was to be calculated,
and an example of how other firms were doing in this area.
The company examined data for the United States at large as well as for
Baldrige winners in particular. The latter data were obtained from a survey
questionnaire, a common method of benchmarking. As a result of this project,
Magnavox is now able to track (1) the percent of payroll that is spent on
training; (2) the percent of the work force that receives training; (3) the average
percent of improvement in on-the-job performance as a result of training; (4) the
amount of money that training saves the organization; and (5) the productivity
and efficiency of its human resource development staff.

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 There are four types of benchmarking activity - internal, functional,
competitive and generic. Internal benchmarking is done with an organisation and
typically between closely related divisions, similar plants or operations or
equivalent business units, using common or shared performance parameters as a
basis for comparison. Because of the relative case of starting a new activity
internally, the lowest resources implication and the greater assurance of gaining
co-operation, this is the area in which many organisations choose to start bench-
marking activities. Functional benchmarking is a comparison of performance
and procedures, between similar business functions, but in different
organisations and industries. Being externally focused, it is a more positive
approach than internal benchmarking.
Encouraging innovation
One way to excite customers is through innovations. Competitive
benchmarking encourages innovation throughout an organization. It is the
process of continually comparing a company’s performance on critical customer
requirements against the best in the industry (direct competitors) in order to
determine which areas should be targeted for improvement. Competitive
benchmarking focuses on direct competitors within the same industry with
specific comparable business operations or an indirect competitors in related
industries having complementory business operations. Generic benchmarking
can be undertaken with external companies in different industries which
represent the best- in-class’ for particular aspect of the selected business
operations. Benchmarking is undertaken in almost any area of business
endeavour. The key performance variables for measurement, analysis and
comparisons can be found in operational areas such as production, distribution,
installation and field service. The key is to be clear about the needs and what is
important to improve.
An effective benchmarking process has the following five steps:
- Determine the key performance areas to be benchmarked. They may include
product and services, customers, business processes in all departments and the
organisation, business culture and the calibre and training of employees
- Identify the most relevant competitors and, best-in-class companies.
- Set the key standards and variables to measure.
- Measure regularly and objectively
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- Develop an action plan to gain or maintain superiority.
Specify programmes and actions to close the gap, implement and monitor
ongoing performance.
The key task in benchmarking is to select the areas of a business in which
it would be most beneficial and practical to attempt to benchmark and the
specific parameters to use. The parameters should cover the significant cost,
time and quality measures that affect the key customer deliverables, the existing
and potential competitive pressure points, anticipated trends in new technology,
the critical business processes involved and the identification of possible new
areas of competitive advantage. The 5 Ps approach developed by McKinsay &
Co. for evaluating the parameters involves the partners (suppliers and
customers), people, procedures and systems, product and process design and
physical configuration. The best practices benchmarking process can be seen as
one of encouraging people to stand back from established practices and to look
above the fence. This facilitates taking a critical look outside the company and
learning from what others are doing in comparable business activities.
Benchmarking is essentially a team activity. A team approach should be
encouraged by seeking ideas, suggestions and cooperation through a process of
external consultation. New ways of working can be introduced which utilise the
talents and abilities of employees more effectively. The internal teams used in
obtaining and analyzing benchmarking data will make recommendations to
change, improve or remove processes, systems and practices. The active
involvement of employees at all levels ensures their continuing interest and
commitment. Benchmarking thus acts as a powerful agent for change and
motivation. Once the benchmarking habit has been seen to provide benefits, it
can then be institutionalised on a gradual basis, either as a part of a routine
reporting system or as part of a broader continuing improvement process. Care
should be taken with target setting. The targets should not only be clear,
achievable and realistic, but equally demanding and providing tangible benefits
to the, company, together with a sense of achievement for the participant
DESCRIPTIO OF WORKIG GROUP:
The major goal of the Benchmarking Methodology Working Group is to
make a series of recommendations concerning the measurement of the
performance characteristics of various internetworking technologies; further,

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these recommendations may focus on the systems or services that are built from
these technologies.
Each recommendation will describe the class of equipment, system, or
service being addressed; discuss the performance characteristics that are
pertinent to that class; clearly identify a set of metrics that aid in the description
of those characteristics; specify the methodologies required to collect said
metrics; and lastly, present the requirements for the common, unambiguous
reporting of benchmarking results.
Because the demands of a class may vary from deployment to
deployment, a specific non-goal of the Working Group is to define acceptance
criteria or performance requirements.
An ongoing task is to provide a forum for discussion regarding the
advancement of measurements designed to provide insight on the operation
internetworking technologies.
If you’re serious about improving company’s performance and achieving
an industry-leading position, there’s simply no substitute for a quality
benchmark report.
Three strategic reasons for using benchmark ratios:
1. Set Goals and Action Programs. Know where you are, and know where
you’re going. Benchmark ratios are inherently measurable and
comparable, which makes them ideally suited for management-by-
objective incentive programs. They help you focus your attention on the
most controllable aspects of your business. Success and failure can be
clearly evaluated.
2. Monitor Performance. Keep your eye on the ball. Benchmark ratios
provide an objective standard by which to measure performance. By
tracking key measurements at regular intervals, busy executives can pay
closer attention to those key factors that affect a company’s performance.
Follow the numbers, and the numbers will set you free.
3. Share the Results. Tell the world about your great results. Benchmark
ratios enable your current and future stakeholders to objectively evaluate
your company’s condition. Lenders, creditors, investors, and employees
will use them to better understand your strengths and weaknesses. Use

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 your ratios to get a loan, negotiate better payables/receivables rates,
attract investors, and retain employees.
4. ETERPRISES RESOURCE PLAIG (ERP )
• In this age of competition for survival it is essential for any industrial
organisation or business enterprise to evolve ways and means to keep its
operational efficiency at the peak. With the advent of information
technology there have been efforts to utilise its gifts for the purpose of
improving all kinds of industrial and commercial activities. But the latest
trends involve the total integration of information technology with
operational domains. Enterprise Resource Planning (ERP) is an excellent
exercise which achieves such an integration with remarkable results in
terms of productivity.
• ERP aims at definite competitive advantage in manufacturing, marketing,
accounting, human resources and other areas in industrial organisations. It
cuts across the interdepartmental boundaries in an enterprise. It is said
that ERP links information islands. We often find that in several
organisations there is a tendency for the various departments to function
as if they were independent empires main training unhealthy rivalries.
• The fact that the functions carried Out by them are complementary may
be forgotten. ERP however effectively integrates islands of information
within the organisation ensuring total transparency, information sharing,
healthy dialogue, a uniform system, elimination of wastage caused by
misunderstandings and improvement in overall productivity. ERP is
sometimes defined as an integrated suite of application software modules
which will provide adequate information for the enhancement of
productivity and competitiveness. This is achieved by optimising the use
of 4M resources: Men, Machines, Materials and Money.
• Success in business depends on the timely and effective gathering of vital
information, disseminating it as quickly as possible, and making decisions
based on it. ERP software provides the essential infrastructure for the
speedy dissemination of information across the diverse functions and
locations.
• The traditional system of software development envisages separate style
for each function such as inventory, production and marketing. The focus

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 being on functions, decisions at the top managerial level involve delays
owing to constraints in accessing information. Any reform in the style of
business is a slow process, since each individual department would raise
its problems. ERP, the new business computing paradigm, on the other
hand addresses the entire organisation in one stroke. A continuous
improvement as in total quality management can easily be planned and
implemented. Quick response to new customer needs or market trends is
effected. Updating the comprehensive data warehouse at the top
managerial level is carried out online. Legacy systems which demand
expensive support are eliminated. ERP solutions have spread not only to
manufacturing industries, but to businesses such as communication,
banking, insurance, financing and healthcare.
• Traditional inventory control dictated the style of software packages in
the Sixties. The Seventies saw the emergence of MRP (Material
Requirement Planning), which moved about the fulcrum of a master
schedule; this again operated primarily in the area of inventory. The next
decade witnessed the evolution of MRP II (Manufacturing Resource
Planning), which embraces other functions such as processing,
manufacture and distribution. The efficacy of the system naturally made it
attractive to other functions, and so it gradually spread its tentacles to
finance, human resources. and project management. MRP II was found to
be a misnomer since it covered extensive domains and therefore ERP was
found to be a meaningful term as replacement.
An effective ERP system should necessarily fulfil various requirements.
We have to realise that the system implementation involves substantial financial
inputs and the end results should invariably justify the investment. The system
should not be rigid; it should permit easy customisation, adaptation to new
environments and periodical upgradation. It has to be tailor-made to suit to the
requirements of the organisation. Its client/server capabilities and security arc
significant concerns. Initial investment as well as maintenance cost should be
within affordable limits. Most importantly it should give early results.
5. STRATEGIC ALLIACES
Business Management today involves more than anything else the ‘ of an
organisation with its environment. Environment provides opportunities and
wields threats. An organisation should try to exploit opportunities and overcome

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threats. Strategic alliance with the environment helps exploiting opportunities
and overcoming threats. In the process organisation strengths are multiplied and
weaknesses are reduced. Strategic alliance with the environment needs to be
carefully planned and tactfully executed. Strategic management involves
effecting the strategic alliance of the organisation with the environment by
formulating and implementing strategies directed at effecting the alliance.
Formulation of strategies and implementation of the same thus constitute the
core functions of strategic management.
The term strategy refers to the art or knack of commanding and
maneuvering resources to attain a decisive advantage through fruitful
exploitation of opportunities provided by the environment or keeping at bay
certain threats wielded by the environment. Liberalisation and globalisation are
changes in the business environment with new found opportunities and expected
and unexpected threats. For instance, businesses now can tap foreign capital
resources an opportunity. At the same time in the domestic product market
competition builds up a threat. Through strategic alliances competitive forces are
converted into collaborative efforts for common benefits. Thus strategic
alliances among competing businesses are strategic responses of businesses to
the changing environment.
According to management expert Griffin, a strategy has essentially four
basic areas. Scope, resource, uniqueness and synergy are these four areas. The
scope of a strategy defines its functional, geographical, product service and
relational limits. Functional limits refer to marketing, production etc.
geographical limits are concerned with markets covered. Product limits define
product lines and range. An4 relational limits deal with whether the dealings are
internal to the organisation or are external to the organisation or both. Scope of a
strategy thus prescribes the level of concentration or spread of the span of
activities of the organisation.
The resources of a strategy refer to what and how much of resources the
organisation will employ across various areas. Domestic or foreign private
capital, fresh equity or accumulated reserves, senior or mid-level executives, in-
house R&D or outsourced R&D, etc be used is to be decided.
Uniqueness of a strategy refers to the distinctive competence of the
organisation on the strength of which the strategy is built to attain leverage over
its competitors as well as other strategic alternatives. Close to consumers

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through own retail establishment, speed of action, technological edge, etc may
be the distinct advantages.
Finally synergy of a strategy comes. Synergy is a system concept
meaning that the output of the whole system is greater than the outputs of the
individual sub sytems working independently of each other. The advantage of
being a system is the synergy. Should there be no synergy, there need be no
system. The scope, resources and uniqueness of the strategy should give
synergistic result. While designing a strategy the management must see that all
the four constituents of a strategy are present.
STRATEGIC MIX AD STRATEGY FORMULATIO
The strategic-mix has three levels. At the top is corporate strategy, at one
level below is the business strategy and at the bottom is the functional strategy.
There is a hierarchy of strategies.
Corporate strategy is about the course charted for the whole of the
organisation. It deals with the “what” aspect. It is also known as the “grand”
strategy. Corporate strategy depends on the corporate goal. And corporate goals
could range from on the one end, a curtailment goal to on the other a
diversification goal with status-quo and growth goals in between.
The curtailment goal calls for a retrenchment strategy. It is a bold attempt
to do away with excess fat, units that are causing entropy, divisions that are not
pro-synergistic and functions that have lost strategic significance. In a way it is
about turn-around or downsize of an organisation. Most public sector units need
this strategy at present. The status-quo goal calls for a stability strategy. Here the
organisation is pretty happy with the present. It neither wants to add on a few
wings nor shed some feathers. It is a consolidation-oriented goal. And hence
adopted after retrenchment or after hectic growth phase or so. Mature companies
adopt this strategy. The expansion goal calls for growth strategy, wherein scale
advances through more geographical coverage are attempted. there is
“geographical” spread and rise in market share. Market coverage is being
mastered here.
Finally, backward and forward expansion goal comes with a
diversification strategy. Related and unrelated diversification are possible. It
should be noted that competitive distinctiveness and synergy are not lost. It is
quite possible with unrelated diversification strategic management may call for

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division of the business into strategic business units (SBUs), each with own
mission, vision and strategic initiatives. Then with respect to each such SBU,
suitable corporate level strategy may have to be drawn up. Corporate level
strategic alternatives for “stars,” “cash cows,” “question marks” and “dogs” may
have to be formulated.
In formulating corporate strategy, indepth environmental analysis and
organisational analysis need to be made to know how the strengths and
weaknesses of the organisation can be matched with the opportunities and
threats of the environment.
“Business Strategies” are concerned with the ‘how;. How should the
organisation approach its aligning with the environment? There are four
approaches here. Griffin puts up them as follows. Defender, Reactor, Analyser
and Prospector strategies are these. These strategic alternatives emerge from
certainty-uncertainty conditions of the environment and the firm’s response.
Defender strategy is of the most unassuming form. It is pro status-quo.
The firm is satisfied with the present. This is suitable in a certainty environment.
The firm perhaps has a narrow niche market. The firm has no big ambitions. But
when discontinuous changes take place in the environment, the firm adopting
defender strategy might have no territory to defend. It can, however, work if
distinct and core competences are the bases on which the firm’s plans and
actions are founded. Analyser strategy is one where the firm is not silent, but
steadily modifying its course in tune with the changing environment and
competitors’ strategies. It suits the risk-type environment, where, which way the
environment is changing, can be known by adopting probabilistic forecasting
models. New products and markets are scouted for in a moderate way. Laggards
are gently given up, while cash-cows receive the full thrust. A mix of
diversification, expansion and retrenchment goals are thus found here.
Prospector strategy looks out for new opportunities and learns about the
same. In an uncertain environment discontinuous changes are the reality. So
prospector strategy suits such environment. Excep tional ability to give up old
customs and imbibe new cultures is the backbone of the prospector strategy.
Finally the Reactor strategy has found favour with a few. It is ill-
conceived one and as such is not tuned to environment. No opportunity is reaped
but quite a number of threats are faced. In the end, instead of strengthening

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strengths, weaknesses get strengthened. A visious cycle perhaps results here to
the detriment of the firm.
Functional strategies address the operative functional areas like
production, marketing, finance, personnel and R&D. Production strategy
addresses choice of plant, location, scale of production, etc. Marketing strategy
deals with the 5 Ps product, place, price, promotion and public relations. Finance
strategy governs capital structure, assets portfolio, risk-return trade-off, working
capital management, etc. Personnel strategy is concerned with recruitment,
selection, compensation, development and separation of human resources. And
R&D strategy deals with R&D base, support, competitiveness, etc.
6. BUSIESS PROCESS REEGIEERIG (BPR):
Business Process Reengineering means not only change -- but dramatic
change. What constitutes dramatic change is the overhaul of organizational
structures, management systems, employee responsibilities and erlon11ance
measurements, incentive systems, skills development, and the use of information
technology. Business Process Reengineering, (BPR) can potentially impact
every aspect of how we conduct business today. Change on this scale can cause
results ranging from enviable success to complete failure.
Successful BPR can result in enormous reductions in cost or cycle time. It
can also potentially create substantial improvements in quality, customer service,
or other business objectives. The promise of BPR is not empty -- it can actually
produce revolutionary improvements for business operations. Reengineering can
help an aggressive company to stay on top, or transform an organization on the
verge of bankruptcy into an effective competitor. The successes have spawned
international interest, and major reengineering efforts are now being conducted
around the world.
On the other hand, BPR projects can fail to meet the inherently high
expectations of reengineering. Recent surveys estimate the percentage of BPR
failures to be as high as 70%. Some organizations have put forth extensive BPR
efforts only to achieve marginal, or even negligible, benefits. Others have
succeeded only in destroying the morale and momentum built up over the
lifetime of the organization. These failures indicate that reengineering involves a
great deal of risk. Even so, many companies are willing to take that risk because
the rewards can be astounding.

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“Business Reengineering is the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical, contemporary
measures of per fbrmance, such as cost, quality, service, and speed.”
-- Dr. Michael Hammer
Today, many organizations have acquired extensive experience in
performing BPR. Many of these experts are still not in agreement on every
activity necessary for performing BPR; yet, the core activities have remained
stable during the continuous debate. The disagreements may be, in part, due to
the uniqueness of each organization. Because organizations differ, the activities
necessary to successfully perform BPR may also differ.
WHAT IS PROCESS REEGIEERIG?
Work process reengineering as developed by corporate America refers to
the major redesign and restructuring of core business processes. It is most
effective when a particular process is identified that is impeding the growth or
competitiveness of an organization, or when a particular process is only
minimally meeting a business need. Reengineering is defined by the “bounded”
process that is the target of the reengineering initiative. The reengineering
process should:
• be applied across multiple functions within an organization;
• have the support of upper management; and leverages information
technologies to overhaul, support, and
• dramatically improve work processes.
Many corporations have found that over time core processes within their
organization become inefficient, bureaucratic, cumbersome and lose their
intended focus. Routine practices often add tasks and steps that do not add value
to the core business goal. These inefficiencies slow down the organization,
detracting from the intended goals.
The process reengineering model used by EPA’s Office of Reinvention
was designed to bring about meaningful, lasting change to the XL Process. It
employs a structured change process to meet the identified business needs in an
effective and efficient manner. This effort will result in a more user friendly,
reengineered process that is quicker, more cost effective, produces a consistently

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superior result, and provides more focused stakeholder involvement and
information exchange.
REEGIEERJG BUSIESS PROCESS
One of the most important competitive strategies today is business
process reengineering(BPR),most often simply called reengineering. We 1 that
reengineering is more than automating business processes to make modest
improvements in the efficiency of business operations. We defined reengineering
as a fundamental rethinking and radical redesign of business processes to
achieve dramatic improvements in cost, quality, speed, and service also BPR
combines a strategy of promoting business innovation with a strategy of making
major improvements to business processes so that a company can become a
much stronger and more successful competitor in the marketplace.
However figure points out that while the potential payback of
reengineering is high, so is its risk of failure and level of disruption to the
organizational environment Making radical changes to business processes to
dramatically improve efficiency and effectiveness is not an easy task. While
many companies have reported impressive gains, many other have failed to
achieve major improvements they sought throught reengineering projects. That’s
why organizational redesign approaches are an important enabler of
reengineering, along with the use of information technology. For example, one
common approach is the use of self directed cross Junctional or multidisciplinary
process team & Employees from several departments or specialties including
engineering, marketing, customer service, and manufacturing may work as a
team on the product development process. Another example is the use of case
manager, who handle almost all task in a business process, instead of splitting
tasks among many different specialists..
COMMO STEPS WHE PERFORMIG BPR
Project Phases Required For Successful BPR
Phase I: Begin Organizational Change
Phase 2: Build the Reengineering Organization
Phase 3: Identify BPR Opportunities
Phase 4: Understand the Existing Process
Phase 5: Reengineer the Process
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Phase 6: Blueprint the New Business System
Phase 7: Perform the Transformation
The tasks experts agree upon to successfully perform BPR can be grouped
into seven steps, or phases. All successful BPR projects begin with the critical
requirement of communication throughout the organization.

COCLUSIO
Business Process Reengineering (BPR) is that the fundamental rethinking
and radical redesign of business process to achieve dramatic improvement in
critical contemporary measures of performance such as cost, quality, service and
speed.
That it indicates three points
1. Be applied across multiple functions within an organisation.
2. Have the support of upper management and leverages information
technologies to overhaul, support, and
3. Dramatically improve work processes.
It is very much useful for every business.

REVIEW QUESTIOS
1. Discuss the recent trends in management.
2. What is core competence? How it is useful for an organization?
3. Discuss the advantage of strategic alliances
4. What is TQM? Why is it so important today?
5. Write a note on
a. Business Process reengineering.
b. Bench Marking

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CASE
One argument that surrounded the NAFTA debate before its passage was
that many U.S. plants would be to Medco simply because labor coats were lower
there That argument is proving simplistic. Quality Coils, with home offices in
Bristol, Connecticut, manufactures electronic coils used in refrigerators and
washing machines. With sales approaching $9 million, it began to feel the pinch
of rising labor casts So in 1985 it began to relocate some of its assembly
operations to Juarez, Mexico Late in 1992 the company transferred the abs back
to Connecticut. Lower wage rates in Mexico were a primary reason for the
move to Mexico, but labor was also the reason for moving back to Connecticut.
The jobs involved are very labor intensive. U S. workers produced about
three times as much as Mexican workers and the wages were not sufficiently low
to offset the differential in productivity. When officials from Connecticut visited
the plant. productivity would rise to match U.S. levels, but when they left it
would fall back to lower levels. Lo cal managers could not seem to sustain the
desired higher levels of conduct In additional Qualification Coils needed to have
very flexible arid short manufacturing cycles to match its customers’ orders, but
the Mexican plant could produce only long runs of the simplest products Quality
Coils learned that there is more to relocating to Mexico than simply lower wages
Locating production facilities in Mexico can be desirable, but companies
must to their homework be fore making such a decision. That homework must
include more variables than Jet labor costs. Cultural differences and the business
climate must be studied, too. The Mexican Foundation total Quality. MFTQ was
started to promote a culture and consciousness of quality in Mexico. Using their
unique skills and reforming their weaknesses., Mexican businesses are
successful in developing a special form of total quality management MFTO is
providing training or managers and leaders who can bong people together for
common goals. If Mexico can successfully develop a quality culture to
accompany its lower wages, it should he able to compete much more
successfully for manufacturing facilities from around the world.
One example of its success is that of Melitta North America. Melitta NA
is the $100 million U.S. subsidiary of Germany’s Melitta Group. The automatic
drop coffeemakers with which it supplies the U S. market used to be mane o’
Costa. Recently, however’, it moved those facilities to Mexico. A maquiladora
contractor’ assembles 18,000 coffee makers a week with quality that matches

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that from China. With lower transportation and logistics costs, the Mexican plant
is clearly the better choice.
One should no simply, conclude, however, that proximity to the U.S.
market means that transportation and logistic costs will automatically he lower.
Mexico’s uneven geography can present problems for efficient transportation.
The country has no naviable rivers, and airports are a relatively recent
development. Highways and the railroad system are the most viable modes of
transport, but they may require significant government outlays to keep them
maintained.

Discussion Questions
1. What are the advantages and disadvantages of locating production facilities in
Mexico?
2. What variables would you argue that a company should use when making a
decision to locate or relocate a manufacturing facility? Why?
3. On balance, does it appear that NAFIA has helped or hurt the Mexican effort
to get plants to relocate there? Why?



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 MODEL QUESTIO PAPER
PAPER 1.1 : MAAGEMET COCEPTS
Time: 3 hours Maximum Marks : 100

PART – A (5 x 8 = 40)
Answer any Five Questions

1. Write about F.W. Taylor’s Time & Motivation Study.

2. What is Strategic planning?
3. Distinguish between formal and informal organisation.
4. Distinguish between line and Staff authority
5. What is informal communication?
6. Examine the need for co-ordination.
7. What do you mean by feed forward control?
8. Write in brief about Management by exception?

PART – B (4 x 15 = 60)
Answer any Four Questions
Question o.15 is Compulsory

9. Compare and contrast F.W. Taylar’s Contribution and Henry Fayol’s to

the Modern Management.
10. Explain the process planning. What precautions do you take while
planning for an uncertain future?
11. In the present day Indian business context, what factors mostly influence
the design of organisation structure? Which type of structure do you
prefer, for a fast growing software unit in the IT sector?
12. Explain the process of delegation of authority. What measures do you
suggest to make delegation effective?
13. Explain how conflicts are managed in organisations.
14. What are the steps in the staffing process? Describe each step.
15. Attend the following Case and answer the questions:



311
LIST OF REFERECE BOOKS
1. Koontz and O’Donnel “Management : A Systems approach”, Tata
McGraw Hill.
2. Griffin, “Management”, A.I.T.B.S. Publishers & Distributors.
3. Stoner, et.al, “Management” Prentice Hall.
4. W. Haynes, “Principles and Practice of Management” New Central book
agency.
5. S.C. Saksena, “Principles and Practice of Management” Sahitya Bhavan.
6. Weihrich & Harold Koontz, “Management – A Global Perspective”,
McGraw Hill.

OTHER REFERECES

7. The Hindu
8. India Today
9. Business Today
10. Business World
11. Economic Times
12. Business Line



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 UNIT - 6
BUSIESS PROCESS OUTSOURCIG

Essentially outsourcing is about delivering lower-cost, better-quality

services and flexibility that businesses would not otherwise be able to achieve. It
can be a complex activity at times.

There is a principle in economics that says companies should focus on

what they are good at and this makes perfect sense. Companies have to focus on
many business critical, but non-core, and hygiene activities on a continual basis,
such as keeping IT services functioning, processing accounts and managing
customer relationships. Following the economic principle, outsourcing it that it
allows businesses to do what they are best at, transferring non-core activities to
outsourcing companies that specialise in delivering such services.

Outsourcing can be used either tactically to fill gaps and cut costs, or
strategically to underpin greater business transformation. Where point solutions
are the most appropriate, it can avoid the need for more drastic measures by
lowering cost through efficiency improvements. Similarly businesses under
organisational strain, with few resources or little time to implement new
practices, can use outsourcing to achieve their aims quickly and effectively.

Outsourcing is almost always linked to reducing cost, and cost is a key

lever in deciding to outsource, but it is not the whole story. Outsourcing can
enable strategic business goals by removing the need to focus on non-core
activities and reduce organisational and technological strain. It provides access
to world-class capabilities and technologies and access to volume flexibility
while giving management a sharper focus on core activities.

Traditionally, outsourcing has been about doing the same things, but
better, cheaper and faster. The motivation has been cost reduction rather than
paradigm change. But, transformational outsourcing has changed all that,
delivering a step change in an organisation's speed, agility and flexibility.

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 Transformational outsourcing combines consulting, technology and
outsourcing to stimulate and facilitate business change. Where traditional
outsourcing was about doing the same things, transformational outsourcing is
about creating a new business model - a step change in performance on the key
dimensions of speed, agility and flexibility.

Choosing what and where to outsource

The decision of what to outsource and where to deliver services from is

critical. In terms of what to outsource, it is about transferring non-core,
repeatable and technology-driven activities to better-equipped specialist service
providers. But the line between what is core and non-core has blurred. Finance
and accounting, for example, used to be thought of as central to business and
while it is a critical process, it is not normally what the business is selling.

If a specialist service provider can perform core business activities faster,

for less money and improve quality along the way, this could be a valid option.
Ultimately, what to outsource is a judgement based on the right outsourcer for
the right service.

Once considered bad practice, today it is feasible to outsource problems.

Conventional wisdom said only well-run operations should be outsourced and
problems should be fixed in-house. The logic was based on the argument that it
was too complex to use third parties to fix and run problems. That logic is
misplaced, and outsourcers are geared up for and have many years experience of
problem solving. By investing in often expensive skilled resources, processes
and tools, they can resolve problems for multiple clients by sharing the
investments as necessary. Outsourcers also have substantial experience in rapid
operational performance improvement. Effectively leveraging an outsourcer's
core competence and investments can help to solve problems and achieve a
shorter time to benefits.

Challenging the suggestion that maintaining service quality through

outsourcing is difficult enough without having other cultures and methods
involved, outsourcers are setting up operations in locations where there are high

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volumes of qualified and skilled graduates, very capable of delivering business
and IT services. India, Poland and China are exemplary. The fact that their costs
are lower than those in the Western world should not cloud the issue of quality.

Additionally, governance and measurement frameworks monitor and

manage the service delivery, and with commercial models based on risk and
reward, services more often improve than remain static.

Moving to an outsourced environment

As theoretical decisions become practical activities, the move to an

outsourced environment involves transferring people, assets, knowledge and
processes – all part of the enterprise. It is natural for concerns to arise about how
smoothly the transfer will go and what the implications will be to the business.
Here management is key and any misconceptions need to be corrected before
they create obstacles to success.

In taking on and delivering a service, outsourcers rely on staff, knowledge

and processes to execute it effectively. Therefore it is not in the interests of the
outsourcer to lose any of the skills or knowledge required to deliver the service.
In many cases staff transfer with the services, retaining embedded skills and
knowledge in the service. Additionally, where staff do not transfer, joint
transition teams capture and document both processes and tacit knowledge as
part of the transfer, embedding these into the outsourced environment.

Perceptions about the implications of outsourcing for employees are also

close to many people’s hearts and minds. Of course, some outsourcing
arrangements require relocation or reduced staff levels and this must to be
managed sensitively, balancing the needs of all stakeholders in the context of
external competitive pressures. More often however, staff are transferred with
the service, creating a positive effect.

For the employees, joining an outsourcing company can result in a

broader choice of career paths with greater opportunities.

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 In successful transition, culture is key. Changes mean an unsettling time
and the more established the company considering outsourcing the greater the
impact of cultural change. The bottom line is that culture is not lost, but evolved.
In part, governance and the relationship between two companies drive culture.
But many outsourcing companies’ cultures are never static. As the companies
grow through large influxes of staff following outsourcing contracts, new
employees have a strong influence on ensuring that their new culture is
reinvigorated on a regular basis.

Beyond people issues is the erroneous concern that outsourcing means

losing control. The logic for this assertion goes something like this: "If we own
and manage all our assets and resources in-house, then we have the freedom to
make whatever resource allocation decisions we want to target whatever
outcomes we want". This is true, but misses the bigger picture. Control is about
governance and in this context the adage ‘what gets measured, gets managed’ is
pivotal. Well-structured governance allows companies to influence the things
that matter, chiefly business outcomes.

Typically, outsourcing relationships have tighter targets for outcomes

than in-house operations and measurement tends to be more rigorous. So,
perhaps counter-intuitively, outsourcing can mean tightening control rather than
losing it. In practice, for many organisations the freedom to make choices is
limited by, for example, the availability of the right skills or too great a focus on
fire-fighting. In contrast, an outsourcing relationship offers access to a wider
pool of skills and resources, making choice real.

It is impossible to plan and contract for all eventualities in outsourcing,

especially in longterm agreements. The contract is the start of a relationship and
it is the relationship that drives success in outsourcing. The deal and the contract
are about setting the framework of top-down, aligned and mutually beneficial
goals within which the relationship operates. Experience of implementing and
fine-tuning outsourcing arrangements suggests that success is generated more by
the quality of the relationships than by the fine details of the contract.

Relationships of this nature need to be managed effectively with

appropriate measures of success, clear procedures for addressing the unforeseen
and effective governance structures and procedures. There needs to be built-in
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room for manoeuvre so that both parties can ensure the partnership is as
appropriate to their circumstances and business imperatives at the end of year
five as it was on day one.

Manage the service

After transition and go-live, the ongoing management of outsourced

services initially creates a nervous tension. Services that have been managed and
delivered in-house for many years are in the hands of an external party. The
concern is that these services will be out of reach in terms of control and change.

This is not the case. Good outsourcing arrangements are based on

partnerships and clear guiding principles that support the long-term goals of the
business. Service level agreements (SLAs) are one part of a good governance
structure, designed to scope and agree on how services are delivered. They are
not, however, a sufficient base for the ongoing management of services. As a
business becomes more adaptive and volatile, the more flexibility it needs and
the less critical SLAs become.

In essence, SLAs are a means of helping to control and manage the

relationship between the client and supplier. They are not a substitute for the
relationship and the misconception that regular interaction and involvement is
not needed in light of some service agreements is potentially disastrous.

Indeed, regular interaction flies in the face of the notion that outsourcing
decreases flexibility. The thinking behind the assertion goes like this: “Once we
outsource services to a tightly-defined delivery agreement, there is no scope for
flexibility”. This argument bypasses the fact that outsourcing is about supporting
business outcomes and highlights the fact that flexibility means different things
to different organisations.

When the daily management of in-house services is about trying to

maintain control and fire-fighting, the degree of flexibility is quite high.
Resources, time and money can be directed to problem areas at will. In an
outsourcing arrangement, that level of flexibility will indeed decrease, as the
delivery of services and management of resources is performed externally.

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 By moving into a more efficient, effective and controlled outsourced
environment, degrees of freedom actually increase. It is in the interests of service
providers to find ways of removing recurring problems to deliver smooth
services that are easily managed. It lowers their costs and enables the freedom to
proactively forecast demand and be better prepared to deliver the right service at
the right time.

This is a prerequisite to being able to adapt and change services. By

providing a service delivery environment that can change with volatility,
strategic flexibility increases and demand from new business initiatives can be
met. The commercial framework with the service provider will be key in
governing how quickly this can be achieved, but planning for strategic growth
early in outsourcing commercial negotiations does help to create flexibility.

BUSIESS PROCESS REEGIEERIG

The Business Process Reengineering method (BPR) is defined by

Hammer and Champy as 'the fundamental reconsideration and radical redesign
of organizational processes, in order to achieve drastic improvement of current
performance in cost, service and speed'. Value creation for the customer is the
leading factor for BPR and information technology often plays an important
enabling role.

Davenport (1992) prescribes a five-step approach to the Business Process

Reengineering model:

1. Develop the business vision and process objectives: The BPR method is
driven by a business vision which implies specific business objectives such
as cost reduction, time reduction, output quality improvement.

2. Identify the business processes to be redesigned: most firms use the 'High-
Impact' approach which focuses on the most important processes or those
that conflict most with the business vision. Lesser number of firms use the
'Exhaustive approach' that attempts to identify all the processes within an
organization and then prioritize them in order of redesign urgency.
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3. Understand and measure the existing processes: for avoiding the repeating of
old mistakes and for providing a baseline for future improvements.

4. Identify IT levers: awareness of IT capabilities can and should influence

BPR.

5. Design and build a prototype of the new process: the actual design should not
be viewed as the end of the BPR process. Rather, it should be viewed as a
prototype, with successive iterations. The metaphor of prototype aligns the
Business Process Reengineering approach with quick delivery of results, and
the involvement and satisfaction of customers.

As a 6th step of the BPR method some mention to adapt the

organizational structure and governance model towards the newly designed
primary process.

When should BPR be used?

Although it is difficult to give generic advice on this, some factors that can be
considered are:
• is the competition outperforming the company by factors?
• are there many conflicts in the organization?
• is there an extremely high frequency of meetings?
• excessive use of non-structured communication? (memos, emails, etc)
• is it possible to consider a more continuous approach of incremental
improvements?

Critics of the BPR approach

Reengineering has earned a bad reputation because such projects have

often resulted in massive layoffs. In spite of the hype that surrounded the
introduction of Business Process Reengineering, partially due to the fact that the
authors of Reengineering the Corporation reportedly bought huge numbers of

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copies to reach the top of the bestseller lists, the method has not entirely lived up
to its expectations.

The main reasons seem to be that:

BPR assumes that the factor that limits organization's performance is the
ineffectiveness of its processes. This may or may not always be true. Also
BPR offers no means to validate this assumption.

BPR assumes the need to start the process of performance improvement

with a "clean slate", i.e. totally disregard the status quo.

BPR does not provide an effective way to focus the improvement efforts
on the organization's constraints.

Sometimes, or maybe quite often, a gradual and incremental change may

be a better approach.

BPR is culturally biased towards the way of thinking of nations.

ETERPRISE RESOURCE PLAIG (ERP)

Enterprise resource planning is a term derived from material resource

planning. ERP are management information systems that integrate and automate
many of the business practices associated with the operations or production
aspects of an organisation. ERP systems typically handle different functions of
an organisation such as planning, manufacturing, logistics, distribution,
inventory, shipping, invoicing and accounting. It is a system that integrates all
of these functions into a single system, designed to serve the needs of each
different department within the enterprise. It is more of a methodology than a

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piece of software, although it does incorporate several software applications,
brought together under a single, integrated interface.
Enterprise Resource Planning software can aid in the control of many
business activities, like sales, delivery, billing, production, inventory
management and human resources management.
ERPs are often called back office systems indicating that customers and
the general public are not directly involved. This is contrasted with front office
systems like customer relationship management systems that deal directly with
the customers or supplier relationship management (SRM) systems that deal
with the suppliers.
ERPs are cross-functional and enterprise wide. All functional
departments that are involved in operations or production are integrated in one
system. In addition to manufacturing, warehousing and shipping, this would
include accounting human resources, marketing and strategic management.
In the early days of business computing, organisations used to write their
own software to control their business processes. This is an expensive approach.
Since many of these processes occur in common across various types of
businesses, common reusable software may provide cost-effective alternatives to
custom software. Thus some ERP software caters to a wide range of industries
from service sectors like software vendors and hospitals to manufacturing
industries and even to government departments.
Because of their wide scope of application within the firm, ERP software
systems rely on some of the largest bodies of software ever written.
Implementing such a complex and huge software system in an organisation
usually involves an army of analysts, programmers, and users, and often
comprises a very expensive project in itself for bigger organisations, especially
transnationals.
Enterprise resource planning systems are often closely tied to supply
chain management and logistics automation systems. Supply chain management
software can extend the ERP system to include links with suppliers.
To implement ERP systems, organisations often seek the help of an ERP
vendor or of their-party consulting organisations. Consulting in ERP involves
two levels, namely business consulting and technical consulting. A business
consultant studies an organisation’s needs. Technical consulting often involves
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programming. Most ERP vendors allow changing their software to suit the
business needs of their customer.
Some risks to watch out for in implementing an ERP system include:

Incompatibility of the ERP system with the operational level legacy
systems (existing/ old information systems).

User Resistance/ Revolt – Users who fear being downsized may
sabotage the system.

Mismatch between ERP system and organisational culture – If a
system attempts to implement best practices inappropriate to the
organisation, the system may suffer from “culture clash”
consequences.

Inability to control technology.

Illogical processing.

Inability to stop processing quickly.

Cascading errors.

Repetition of errors.

Concentration of data.

Inability to substantive processing.

Concentration of responsibility.

ADVATAGES
The benefits from enterprise resource planning are claimed to include:
• Facilitates macro level decision making by having access to
consolidated data/information.
• Transparency across entire organisation.
• Integration of all standard business process (human resources,
financials, operation).
• Lower inventory carrying costs.

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 • Lower ordering costs.
• Lower accounting and record keeping costs.
• Lower investment in equipment.
• Lower investment in plant.
• Reduced assembly line down-times.
• More flexible production processes.
• Reduced errors due to better coordination.
• The cost and efficiency improvements (mentioned above) could
increase profitability or increase market share (at a lower price).
• Reduced number of stock-outs.
• Reduced fulfillment times.
• Increase process transparency for the customer.
• Allow greater product customization, and thereby better match the
exact needs of the customer.
• The customer satisfaction improvements (mentioned above) could
increase sales volume, increase sales revenue (due to a higher
effective price, i.e. no discounts), increase market share, and increase
profitability.

DISADVATAGES
The limitations and pitfalls of the enterprise resource planning are
claimed to be:
• The systems can be very expensive to install and maintain.
• ERP are often seen as too rigid and difficult to adapt to the specific
workflow and business process of some organisations, this is cited as
one of the main cause of their failure.
• Some systems can be difficult to use.

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 • The system is no better than the weakest link in the chain – a problem
in one department or at one of the partners will affect all the other
participants.

Regardless of how an organisation approaches it, ERP is sure to bring

significant changes to how an organisation does business. It tinkers with the
workflows, and alters long-standing processes. Organisations often meet with
resistance on the part of employees who are reluctant to let go of their proven
methods. Employees may also fear for their jobs; since ERP makes such radical
changes to business processes. It’s not unusual for job descriptions to change or
be eliminated altogether.
Once implemented however, the ERP system brings tremendous
advantages. Because all systems are joined together, all departments can more
easily share information. The workflow that takes place between departments
can become much more automated, and ultimately, customers are better served
because the individual using the customer-facing applications will have access to
every bit of information regarding each relevant process. For example, someone
in sales would easily be able to log into a single system to determine the status of
a customer order that it still in manufacturing. All this comes at a cost though;
training costs are high because employees must not only learn how to use new
software, they must also learn new processes.

SUPPLY CHAI MAAGEMET

Supply chain management is the combination of art and science that goes
into improving the way your company finds the raw components it needs to
make a product or service, manufactures that product or service and delivers it to
customers.
The following are five basic components for supply chain management.
 Plan: This is the strategic portion of supply chain management. A
strategy is required for managing all the resources that go toward meeting
customer demand for your product or service. A big piece of planning is
developing a set of metrics to monitor the supply chain so that it is
efficient, costs less and delivers high quality and value to customers.

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  Source: Choose the suppliers that will deliver the goods and services the
organisation need to create a product or service. A set of pricing, delivery
and payment processes with suppliers are to be developed and metrics for
monitoring and improving the relationships need to be created. The
processes for managing the inventory of goods and services received from
suppliers, including receiving shipments, verifying them, transferring
them to the manufacturing facilities and authorizing supplier payments
need to be put together.
 Make: This is the manufacturing step. The activities necessary for
production, testing, packaging and preparation for delivery are to be
scheduled. As the most metric-intensive portion of the supply chain,
quality levels, production output and worker productivity are to be
measured.
 Deliver: This is the part that many insiders refer to as "logistics". The
receipt of orders from customers, develop a network of warehouses, pick
carriers to get products to customers and set up an invoicing system to
receive payments need to be coordinated.
 Return: The problem part of the supply chain. A network for receiving
defective and excess products back from customers and supporting
customers who have problems with delivered products need to be created.
Supply Chain Management Software
Supply chain management software is possibly the most fractured group
of software applications on the planet. Each of the five major supply chain steps
previously outlined composes dozens of specific tasks, many of which have their
own specific software. There are some large vendors that have attempted to
assemble many of these different chunks of software together under a single
roof, but no one has a complete package. Integrating the different software
pieces together can be a nightmare.
Perhaps the best way to think about supply chain software is to separate it
into software that helps plan the supply chain and software that helps to execute
the supply chain steps themselves.
Supply Chain Planning (SCP) Software uses fancy math algorithms to
help improve the flow and efficiency of the supply chain and reduce inventory.
SCP is entirely dependent upon information for its accuracy. In case of a

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manufacturer of consumer packaged goods for example, don't expect planning
applications to be very accurate if the organisation cannot feed them accurate,
up-to-date information about customer orders from retail customers, sales data
from retailer customers' stores, manufacturing capacity and delivery capability.
There are planning applications available for all five of the major supply chain
steps previously listed. The most valuable (and complex and prone to error) is
demand planning, which determines how much product the organisation will
make to satisfy different customers' demands.
Supply Chain Execution (SCE) Software is intended to automate the
different steps of the supply chain. This could be as simple as electronically
routing orders from manufacturing plants to suppliers for the stuff the
organisation need to make its products.

Is ERP Software Required to Install Supply Chain Software?

This is a very controversial subject. ERP is needed to install SCP
applications because they are reliant upon the kind of information that is stored
in the most quantity inside ERP software. Theoretically the information could be
assembled to feed the SCP applications from legacy systems (for most
companies this means Excel spreadsheets spread out all over the place), but it
can be nightmarish to try to get that information flowing on a fast, reliable basis
from all the areas of the company. ERP is the battering ram that integrates all
that information together in a single application, and SCP applications benefit
from having a single major source to go to for up-to-date information. Most
chief executives who have tried to install SCP applications say they are glad they
did ERP first. They call the ERP projects "putting your information house in
order." Of course, ERP is expensive and difficult, hence the organisation want to
explore ways to feed SCP applications the information they need without doing
ERP first.
SCE applications are less dependent upon gathering information from
around the company, so they tend to be independent of the ERP decision. But
chances are that, SCE applications communicate with ERP in some fashion. It's
important to pay attention to SCE software's ability to integrate with the Internet
and with ERP or SCP applications because the Internet will drive demand for
integrated information. For example, to build a private website for
communicating with the customers and suppliers, the organisation has to pull

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information from SCE, SCP and ERP applications together to present updated
information about orders, payments, manufacturing status and delivery.
Goal of Installing Supply Chain Management Software
Before the Internet came along, the aspirations of supply chain software
devotees were limited to improving their ability to predict demand from
customers and make their own supply chains run more smoothly. But the cheap,
ubiquitous nature of the Internet, along with its simple, universally accepted
communication standards have thrown things wide open. Now, theoretically
anyway, the organisation can connect the supply chain with the supply chains of
their suppliers and customers together in a single vast network that optimizes
costs and opportunities for everyone involved. This was the reason for the B2B
explosion; the idea that everyone you do business with could be connected
together into one big happy, cooperative family.
Of course, the reality behind this vision is that it will take years to come
to fruition. But considering that B2B has only been around for a few years, some
industries have already made great progress, most notably consumer-packaged
goods (the companies that make products that go to supermarkets and drug
stores), high technology and autos.
When the customers ask the people on the front lines in these industries
what they hope to gain from their supply chain efforts in the near term, they will
all respond with a single word: visibility. The supply chain in most industries is
like a big card game. The players don't want to show their cards because they
don't trust anyone else with the information. But if they showed their hands they
could all benefit. Suppliers wouldn't have to guess how much raw materials to
order, and manufacturers wouldn't have to order more than they need from
suppliers to make sure they have enough on hand if demand for their products
unexpectedly goes up. And retailers would have fewer empty shelves if they
shared the information they had about sales of a manufacturer's product in all
their stores with the manufacturer.
Supply Chain Collaboration
Take consumer packaged goods as an example of collaboration. If there
are two companies that have made supply chain a household word, they are Wal-
Mart and Procter & Gamble. Before these two companies started collaborating
back in the '80s, retailers shared very little information with manufacturers. But

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then the two giants built a software system that hooked P&G up to Wal-Mart's
distribution centers. When P&G's products run low at the distribution centers,
the system sends an automatic alert to P&G to ship more products. In some
cases, the system goes all the way to the individual Wal-Mart store. It lets P&G
monitor the shelves through real-time satellite link-ups that send messages to the
factory whenever a P&G item swoops past a scanner at the register.
With this kind of minute-to-minute information, P&G knows when to
make, ship and display more products at the Wal-Mart stores. No need to keep
products piled up in warehouses awaiting Wal-Mart's call. Invoicing and
payments happen automatically too. The system saves P&G so much in time,
reduced inventory and lower order-processing costs that it can afford to give
Wal-Mart "low, everyday prices" without putting itself out of business.
Cisco Systems, which makes equipment to hook up to the Internet, is also
famous for its supply chain collaboration. Cisco has a network of component
suppliers, distributors and contract manufacturers that are linked through Cisco's
extranet to form a virtual, just-in-time supply chain. When a customer orders a
typical Cisco product-for example, a router that directs Internet traffic over a
company network-through Cisco's website, the order triggers a flurry of
messages to contract manufacturers of printed circuit board assemblies.
Distributors, meanwhile, are alerted to supply the generic components of the
router, such as a power supply. Cisco's contract manufacturers, some of whom
make subassemblies like the router chassis and others who assemble the finished
product, already know what's coming down the order pipe because they've
logged on to Cisco's extranet and linked in to Cisco's own manufacturing
execution systems.
Soon after the contract manufacturers reach into Cisco's extranet, the
extranet starts poking around the contractor's assembly line to make sure
everything is kosher. Factory assemblers slap a bar code on the router, scan it
and plug in cables that simulate those of a typical corporate network. One of
those cables is a fire hose for Cisco's automated testing software. It looks up the
bar code, matches it to a customer's order and then probes the nascent router to
see if it has all the ports and memory that the customer wanted. If everything
checks out-and only then-Cisco's software releases the customer name and
shipping information so that the subcontractor can get it off the shop floor.

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 And there you have it. No warehouses, no inventory, no paper invoices,
just a very nosy software program that monitors Cisco's supply chain
automatically, in real-time, everywhere, simultaneously. The chain runs itself
until there's a problem, in which case the system alerts some poor human to get
off his duff and fix something. Supply chain software junkies call this
"management by exception." You don't need to do anything unless there is
something wrong.
If there's a weakness to these collaborative systems, it's that they haven't
been tested in tough times-until recently. Cisco's network was designed to handle
the company's huge growth. Distributed decision making is great if the decisions
have mostly to do with making and selling more things. But Cisco and its
network were caught completely off guard by the recent tumble in the economy.
It took awhile to turn all the spigots off in its complex network when demand for
its products plummeted and Cisco and its supply chain partners got stuck with a
lot of excess inventory-as did most other big manufacturers in high technology.
Cisco was forced to take a hard look at its supply chain planning capability. SCP
software is much better at managing growth than it is at monitoring a decline and
correcting it.
Barriers in Installing Supply Chain Software
Gaining trust from suppliers and partners:
Supply chain automation is uniquely difficult because its complexity
extends beyond the company's walls. The employees of the organisation will
need to change the way they work and so will the people from each supplier that
you deal with. Only the largest and most powerful manufacturers can force such
radical changes down suppliers' throats. Most companies have to sell outsiders
on the system. Moreover, the organisation’s goals in installing the system may
be threatening to those suppliers, to say the least. To get supply chain partners to
agree to collaborate with the organisation, it has to compromise and help the
partners to achieve their own goals.
Internal resistance to change:
If selling supply chain systems is difficult on the outside, it isn't much
easier inside. Operations people are accustomed to dealing with phone calls,
faxes and hunches scrawled on paper, and will most likely want to keep it that
way. If people are not convinced that using the software will be worth their time,

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they will easily find ways to work around it. They cannot disconnect the
telephones and fax machines just because they have supply chain software in
place.
Many mistakes at first.
There is a diabolical twist to the quest for supply chain software
acceptance among the employees. New supply chain systems process data as
they are programmed to do, but the technology cannot absorb a company's
history and processes in the first few months after an implementation.
Forecasters and planners need to understand that the first bits of information they
get from a system might need some tweaking. If they are not warned about the
system's initial naiveté, they will think it is useless. Once employees understood
that they would be merging their expertise with the system's increasing accuracy,
they began to accept and use the new technology.
Readymade Supply Chain Software Vs Own Software
Public (many-to-many) B2B exchanges and private (you to everyone else
in your supply chain) exchanges began with grand promises of auctions and
procurement savings for members, but few suppliers were tempted. Since then,
most of these websites have morphed into becoming online hosts for supply
chain software. For small companies that can't afford to buy the software on their
own, the public exchanges will probably be their source. But for now many of
the offerings are immature and aren't getting much use. Companies that can
afford to are building their own private connections with their trading partners
online rather than going through public exchanges. But even these companies
will eventually use the public exchanges when they can. Building and
maintaining software just is not a great deal if there is someone out there willing
to do it.
The ambitious public exchanges, with their independence and neutrality,
hold out the hope of attracting more buyers and suppliers together in one place,
but the level of specificity of a public exchange's supply chain software will
probably never reach the depth that a company could build with a select few
suppliers in a private exchange. So most decision makers are saying they will
use public exchanges for the generic supply chain connections they make, and
build their own for the really strategic deep, supply chain relationships they
have.

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REVIEW QUESTIOS:
1. Critically comment Business Process Outsourcing.
2. What is Business Process Reengineering? What are the approaches to
Business Process Reengineering model?
3. What is ERP? What are its advantages and disadvantages?
4. What is Supply Chain Management? What are its objectives?

References:
TONY KELLY, THE MYTHS OF OUTSOURCING: ADDI-G CLARITY
A-D REALITY TO MARKET MISCO-CEPTIO-S, CAPGEMINI
Christopher Koch, Executive Editor, Investigations can be reached at
ckoch@cio.com.

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