UNIT-II PLANNING AND DECISION MAKING 9

General Framework for Planning -Planning Process, Types of Plans, Management by

Objectives; Development of Business Strategy. Goal Setting techniques. Decision
making and Problem Solving -Programmed and Non Programmed Decisions, Steps in
Problem Solving and Decision Making; Bounded Rationality and Influences on
Decision Making; Group Problem Solving and Decision Making.

PLANNING

Organizations have to typically plan for long-range and short-range future direction. By forecasting
and predicting the market and socio-political-economic trends, managers can plan to determine where
they desire the company to be in future. Planning involves determining various types and volumes of
physical and other resources to be acquired from outside, allocating these resources in an efficient
manner among competing claims and to make arrangement for systematic conversion of these
resources into useful outputs. Since plans are made to attain goals or objectives, every plan should
lead to the achievement of the organization’s purpose and objectives. An organized enterprise exists
to accomplish group objectives through willing and purposeful co-operation. Planning bridges the gap
between where the organization stands currently and wishes to be in future. In the absence of
planning, events are left to chance.

Planning means looking ahead and chalking out future courses of action to be followed. It is a
preparatory step. It is a systematic activity which determines when, how and who is going to
perform a specific job. It is the basic management function which includes formulation of one or more
detailed plans to achieve optimum balance of needs or demands with theavailable resources. Planning
is deciding best alternative among others to perform different managerial functions in order to achieve
predetermined goals.

 According to Urwick, “Planning is a mental predisposition to do things in orderly way, to

think before acting and to act in the light of facts rather than guesses”.
 According to Koontz & O’Donell, “Planning is deciding in advance what to do, how to do
and who is to do it. Planning bridges the gap between where we are to, where we want to
go. It makes possible things to occur which would not otherwise occur”.

NATURE OF PLANNING

 PLANNING IS GOAL-ORIENTED:
 Planning is made to achieve desired objective of business.
 The goals established should general acceptance otherwise individual efforts &
energies will go misguided and misdirected.
 Planning identifies the action that would lead to desired goals quickly &
economically.

 PLANNING IS LOOKING AHEAD:

 Planning is done for future.
 It requires peeping in future, analyzing it and predicting it. Thus planning is based on
forecasting.

 PLANNING IS AN INTELLECTUAL PROCESS:

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  Planning is a mental exercise involving creative thinking, sound judgement and
imagination.
 It is not a mere guesswork but a rotational thinking.
 A manager can prepare sound plans only if he has sound judgement, foresight and
imagination.
 Planning is always based on goals, facts and considered estimates.

 PLANNING INVOLVES CHOICE & DECISION MAKING:

 Planning essentially involves choice among various alternatives. Therefore, if there is only
one possible course of action, there is no need planning because there is no choice. Thus,
decision making is an integral part of planning.
 A manager is surrounded by no. of alternatives. He has to pick the best depending upon
requirements & resources of the enterprises.

 PLANNING IS THE PRIMARY FUNCTION OF MANAGEMENT :

 Planning lays foundation for other functions of management.
 It serves as a guide for organizing, staffing, directing and controlling.
 All the functions of management are performed within the framework of plans laid out.
Therefore planning is the basic or fundamental function of management.

 PLANNING IS A CONTINUOUS PROCESS:

 Planning is a never ending function due to the dynamic business environment.
 Plans are also prepared for specific period f time and at the end of that period, plans are
subjected to revaluation and review in the light of new requirements and changing conditions.

 PLANNING IS ALL PERVASIVE:

 It is required at all levels of management and in all departments of enterprise.
 Of course, the scope of planning may differ from one level to another. The top level may be
more concerned about planning the organization as a whole whereas the middle level may
be more specific in departmental plans and the lower level plans implementation of the
same.

PURPOSE OF PLANNING

 To manage by objectives: All the activities of an organization are designed to achieve

certain specified objectives. However, planning makes the objectives more concrete by
focusing attention on them.
 To offset uncertainty and change: Future is always full of uncertainties and changes.
Planning foresees the future and makes the necessary provisions for it.
 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 management, the planning
is the base of it. Without planning it is not possible to co-ordinate the different
activities of an organization.
 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 management will have no standards for controlling other's performance.
 To increase organizational effectiveness: Mere efficiency in the organization is not
important. It should also lead to productivity and effectiveness. Planning enables the
manager to measure the organizational effectiveness in the context of the statedobjectives
and take further actions in this direction.

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Planning Process (Steps in Planning)
As planning is an activity, there are certain reasonable measures for every manager to follow:
(1) Setting Objectives

● This is the primary step in the process of planning which specifies the objective of an organisation, i.e. what an
organisation wants to achieve.
● The planning process begins with the setting of objectives.
● Objectives are end results which the management wants to achieve by its operations.
● Objectives are specific and are measurable in terms of units.
● Objectives are set for the organisation as a whole for all departments, and then departments set their own
objectives within the framework of organisational objectives.
Example:
A mobile phone company sets the objective to sell 2,00,000 units next year, which is double the current sales.
(2) Developing Planning Premises
Planning premises refer to the expected environmental and internal conditions. Thus, planning premises are external
and internal.
External premises include total factors in task environment like political, social,
technological, competitors’ plans and actions, government policies, etc.
Internal factors include organization’s policies, resources of various types, and the
ability of the organization to withstand the environmental pressure. The plans are
formulated in the light of both external and internal factors.
Example:
The mobile phone company has set the objective of 2,00,000 units sale on the basis of forecast done on the premises of
favourable Government policies towards digitisation of transactions.
(3) Identifying Alternative Courses of Action

● Once objectives are set, assumptions are made.

● Then the next step is to act upon them.
● There may be many ways to act and achieve objectives.
● All the alternative courses of action should be identified.
Example:
The mobile company has many alternatives like reducing price, increasing advertising and promotion, after sale
service etc.
(4) Evaluating Alternative Course of Action

● In this step, the positive and negative aspects of each alternative need to be evaluated in the light of objectives
to be achieved.
● Every alternative is evaluated in terms of lower cost, lower risks, and higher returns, within the planning
premises and within the availability of capital.
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Example:
The mobile phone company will evaluate all the alternatives and check its pros and cons.
(5) Selecting One Best Alternative

● The best plan, which is the most profitable plan and with minimum negative effects, is adopted and
implemented.
● In such cases, the manager’s experience and judgement play an important role in selecting the best alternative.
Example:
Mobile phone company selects more T.V advertisements and online marketing with great after sales service.
(6) Implementing the Plan

● This is the step where other managerial functions come into the picture.
● This step is concerned with “DOING WHAT IS REQUIRED”.
● In this step, managers communicate the plan to the employees clearly to help convert the plans into action.
● This step involves allocating the resources, organising for labour and purchase of machinery.
Example:
Mobile phone company hires salesmen on a large scale, creates T.V advertisement, starts online marketing activities
and sets up service workshops.
(7) Follow Up Action

● Monitoring the plan constantly and taking feedback at regular intervals is called follow-up.
● Monitoring of plans is very important to ensure that the plans are being implemented according to the
schedule.
● Regular checks and comparisons of the results with set standards are done to ensure that objectives are
achieved.
Example:
A proper feedback mechanism was developed by the mobile phone company throughout its branches so that the actual
customer response, revenue collection, employee response, etc. could be known.

TYPES OF PLANS

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1.STRATEGIC PLANS : Strategic plans define the framework of the organization’s vision and how
the organization intends to make its vision a reality. It is the determination of the long-term objectives
of an enterprise, the action plan to be adopted and the resources to be mobilized to achieve these
goals. Since it is planning the direction of the company’s progress,it is done by the top management of
an organization. These plans provide the framework and direction for lower level planning.
 Mission: The mission is a statement that reflects the basic purpose and focus of the
organization which normally remain unchanged. The mission of the company usually answers
the question “why” the organization exists? Properly crafted mission statements serve as
filters to separate what is important from what is not, clearly state
which markets will be served and how, and communicate a sense of intendeddirection to the
entire organization.
Mission of Ford: “We are a global, diverse family with a proud inheritance, providing
exceptional products and services”.
 OBJECTIVES: Objectives are the ends towards which the activities are directed. They are
the end result of every activity. An objective
 Should be related to single activity
 Should be related to result and not to activity to be performed
 It should be measurable or must be measured in quantitative term;
 It must have a time limit for achievement of objective;
 It must be achievable or feasible. For example, increase in sale by 10% or decrease in
rejections by 2%.

 STRATEGY: A strategy is a comprehensive plan to achieve the organisational

objectives. Strategy emphasizes on
 Determining long term objectives.
 Adopting a particular course of action.
 Allocating resources for achieving the objectives.
Strategy formulation is the task of top level people and it is must to scan and understand clearly
the business environment before framing the strategy.

2.TACTICAL PLANS: Tactical plans describe the tactics that the managers plan to adopt to
achieve the objectives set in the strategic plan.

 Tactical plans span a short time frame (usually less than 3 years) and are usually
developed by middle level managers.
 It details specific means or action plans to implement the strategic plan by units within
each division.
 Tactical plans entail detailing resource and work allocation among the subunits within each
division.

3. OPERATIONAL PLANS: Operational plans are short-term (less than a year) plans developed to
create specific action steps that support the strategic and tactical plans. They are usually developed by
the manager to fulfill his or her job responsibilities. They are developedby supervisors, team leaders,
and facilitators to support tactical plans. They govern the day- to-day operations of an organization.
Operational plans can be
 STANDING PLANS: Standing plans are also known as Repeat Use Plans. These plans focus
on situations which occur repeatedly. Standing plans are used over and over again. They are
made once but retain their value over a period of years.

 RULES: Rules spell out special actions or non-actions of the employees. There is no
discretion allowed in rules. Rules are supposed to be followed strictly and if rules are not
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 followed then strict actions can be taken against employees who disobey the rules. Rules
generally guide the general behaviour of the employees and employees cannot make any
changes in them.
 POLICIES: A Policy is a standing plan that furnishes broad guidelines for taking action
consistent with reaching organizational objectives. Policy can be defined as
organization’s general response to a particular problem or situation. Policy acts asa guide
to take decisions in unexpected situation.

Policy formation always encourages initiatives of employees because employeeshave to

deal with situations and the way of handling the situation is decided in consultation
with the employees.

 Certain schools and colleges may have a policy of admitting students who have
scored more than 60%
 “No credit sale policy”, in business firms

 PROCEDURES: A Procedure is a standing plan that outlines a series of related actions

that must be taken to accomplish a particular task. Procedures outline more specific
actions than policies do. Procedures are required steps established in advance to handle
future conditions.

 SINGLE USE PLANS: Single use plans are one time use plan. These are designed to achieve
a particular goal and are made to meet the needs of unique situations. The duration or length
of single use plan depends upon the activity or goal for which it is made. It may last one day
or it may last for weeks or months if the project for which it is made is long.

 PROGRAMMES: A Program is a single use plan to carry out a special project within an
organization. The Project itself is not intended to remain in existence over the entire life of
the organization. It contributes to the organization’s long term success. Programmes are the
combination of goals, policies, procedures and rules.
 BUDGET: Budget is the statement of expected result expressed in numerical terms. A Budget
is a single user financial plan that covers a specified length of time. It details how funds will
be spent on labour, raw materials, capital goods, information systems, marketing and so on, as
well as how the funds will be obtained. In budgets the results are always measurable and most
of the time these are financial in nature but it does not mean that company prepares only
financial budget.

 Financial budget : It is also known as profit plan of the company because it includes
the expected income and related expenditures with that income and the profit which
the company will earn in the coming year.
 Operational budget: It is prepared where instead of finance hourly units are used
stating expected hours the employees will be working. Lower level managers
generally prepare operational budgets.
 Cash budget: This budget estimates the expected cash inflow and cash outflow over
a period of time. Cash inflow comes from sales and cash outflow is in the form of
expenses. Businessmen can find out net cash position by subtracting cash outflow
from cash inflow.

4. CONTINGENCY PLANS: Intelligent and successful management depends upon a constant

pursuit of adaptation, flexibility, and mastery of changing conditions. Strong management
requires a “keeping all options open” approach at all times. Unexpected problems and events
frequently occur. So managers need to have alternative plans in queue to face the
contingencies.

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OBJECTIVES

Objectives or goals are the ends towards which every activity is aimed-they are the results to be
achieved. Objectives are a prerequisite for planning. No planning is possible without setting up of
objectives. While enterprise objectives are the basic plan of the firm, a department may also have its
own objectives. Though departmental objectives will contribute to the attainment of enterprise
objectives but the two sets of goals may entirely be different. For example, the objective of the
enterprise may be to earn a certain amount of profit, while selling its products.

Enterprise objectives influence the management philosophy and practice. Objectives have greater
influence on the working of an organization. All other types of plans such as policies, strategies,
procedures, rules, budgets etc. assist in the attainment of stated enterprise objectives in an economical
and efficient manner. Objectives are related to the future and are an essential part of the planning
process.

MANAGEMENT BY OBJECTIVES

The expansion of business in size and changes in technology have necessitated a new thinking in
managerial approach. A number of new techniques of management have been developed in the recent
past and Management by Objectives (MBO) is one of them. MBO is one of the techniques by which
executives can improve organizational performance and effectiveness. The idea of MBO was
contributed by Donaldson Brown and Alfred Sloan in 1920s and Edward Hagenin in 1930s. Peter
Drucker, known as father of MBO technique, coined this term in 1954.

The process of setting objectives in the organization to give a sense of direction to the employees
is called as Management by Objectives. It refers to the process of setting goals for the employees so
that they know what they are supposed to do at the workplace. Management by Objectives defines
roles and responsibilities for the employees. Management by objectives guides the employees to
deliver their level best and achieve the targets within the stipulated time frame.

According to Koontz and Weihrich, “Management by objectives is a comprehensive managerial

system that integrates many key managerial activities in a systematic manner and that is consciously
directed toward the effective and efficient achievement of organizational and individual objectives.”

FEATURES OF MBO

 MBO is not merely a technique but a philosophy to management. A technique is applicable

only in specified areas but a philosophy or approach guides and influences every aspect of
management.
 In this approach various objectives of the organization and of individuals are collectively
decided by superiors and subordinates. These objectives become the targets which are to be
achieved by various persons in the organization. The review of objectives is also done
collectively.

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  The corporate, departmental and individual objectives are used as a yardstick to measure
performance. A comparison of targets and actual results will enable managers to judge the
performance of subordinates and top level will similarly assess the performance of managers.
 MBO provides for a regular review of performance. This review is normally heldonce in
a year. It emphasizes initiative and active role by the manager who is responsible for
achieving the objectives.
 The objectives in MBO provide guidelines for appropriate system and procedures.The degree
of delegation of authority, fixation of responsibility, allocation of resources etc. can be
decided on the basis of objectives of various individuals.

PROCESS OF MBO

The process of MBO involves six key steps that incorporates managerial activities in such a
systematic way, which is directly influenced towards efficient and effective achievement individuals
and organizational objectives.

Process of MBO

 Determining Organizational Goals - The first phase in the MBO process is to define the
organizational objectives. These are determined by the top management and usually in
consultation with other managers. Once these goals are established, they should be made
known to all the members. In setting objectives, it is necessary to identify "Key-Result Areas'
(KRA).
 Determining Employees’ Objectives - After the organizational goals are defined, the
subordinates work with the managers to determine their individual goals. It is the
responsibility of the manager to ask employees about what goals they can accomplish within a
specific time period and what resources they will use to achieve the goal. Allocation of
resources should also be done in consultation with the subordinates.
 Constant Monitoring Progress and Performance - The process of MBO is not to provide
additional effectiveness to managers across the organization. Constant monitoring of progress
and performance of the employees are also essential. Monitoring performance and progress
involves
 Defining short and long term plans and objectives
 Installing efficient and effective controls

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  Composing sound structure of the organization
 Performance Evaluation-As per the basic concept of MBO, the performance evaluation
comes under the responsibility of concerned managers and is made by their participation.
Performance appraisals are extremely important to both employee and employer, as they are
often used to provide predictive information related to possible promotion.
 Providing Feedback - Feedback on behavior, attitude, skill or knowledge helps the
employees to know about the job expectations their managers have for them. Mostly, the
feedback is provided in periodic meetings where supervisors and their subordinates review
the performance and progress towards achievement of goals. Moreover, feedback also helps
individuals to know their weakness.
 Performance Appraisal – There should be periodic reviews of progress between a manager
and the subordinates. These reviews would determine if the individual is making satisfactory
progress. They will also reveal if any unanticipated problems have developed. They also
improve the morale of subordinates since the manager takes an active participation in the
subordinate’s work and progress.

ADVANTAGES OF MBO

 All managers have a clear idea of the important areas of their work and of the
standards required.
 The performance of staff can be assumed and their needs for improvementhighlighted.
 Greater participation may improve morale and communication.
 It makes individuals more aware of organisational goal.

DISADVANTAGES OF MBO

 It takes a few years to be effective.

 Some companies always tend to raise goals. If these are too high, employees become
frustrated.
 Appraisals are sometimes made on personality traits rather than on performance.
 Some employees do not want to be held responsible and goals forced upon them maylead to
ill-feeling.

STRATEGIES

The word ‘strategy’ has long been used in the content of military action plans. It was used to state the
grand plans made in the light of what it is believed an adversely might or might not do. Managers now
use strategies in the broader areas of business operations. A strategy is a comprehensive and
integrated plan designed to assure that business objectives are accomplished. The long term objectives
of the enterprise are determined and requisite resources are allocated and deployed to achieve the
desired results. The purpose of strategies is to determine a picture of the kind of enterprise that is
envisaged. Strategies do not attempt to outline the programmes for achieving objectives but they
furnish a framework for guiding thinking and action.

TYPES OF STRATEGIES

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 CORPORATE STRATEGY – It gives the choice of direction of the firm as a whole. It
focuses on the objective of achieving business success in the long term. It occupies the
highest position of strategic decision making and such decisions are usually made be the top
management of the firm.
 Stability strategy: this type of strategy is used by an organization in cases where the
organization is satisfied with the current situation and therefore it does not want to move
away from such a position. Stability strategy will be adopted by an organization if it is
satisfied by dealing with the same product or service, providing its services to the same
group of consumers and maintaining the same market share.
 Growth strategy: Growth is related with expansion and diversification of the business
operations. A growth strategy can be implemented in the organization through market
development, product development, merger or diversification.
 Retrenchment strategy: An organization may decide to retreat or change from its current
position for the purpose of improving its position or sometimes in order to survive.
 Combined strategy: A combined strategy reflects the mix of the strategies that have been
mentioned above. For example, it is possible that a large organization may adopt growth
strategy in one area and at the same time it may also adopt the retreat strategy in another
particular area.

BUSINESS LEVEL STRATEGY

 COST LEADERSHIP STRATEGY: Cost leadership strategy means selling the goods at the
cheapest price in the market. Cost leadership strategies are business tools that give companies
a competitive advantage in the economic marketplace. The firm aims at becoming the Lowest
Cost Producer. The firm can compete on the price with every other industries and earn higher
unit profits. Competitive advantage is achieved by driving down costs. A successful cost
leadership strategy requires that the firm is the cost leader and is unchallenged in this position.

 Wal -Marts everyday low prices (EDLP) strategy. Wal-Mart's ability to obtain consumer
goods at the cheapest possible price and pass these savings on to consumers. Wal-Mart’s
relationships with suppliers and purchase in large volumes enabled it to reduce prices.

Generic Business Strategies

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  DIFFERENTIATION STRATEGY: Differentiation strategy is opted when the
development of a particular product, may increase its market value. So some unique attributes
are added to the product and will be released in the market and may be sold at a higher price.
Customers should perceive it to be better than or different from the products of the
competitors. Uniqueness of the product may allow the firm to charge a premium price for it. A
differentiation strategy calls for the development of a product or service that is unique .
 Drivers: Major Drivers for Differentiation Strategy are Unique Product Features , Unique
Product Performance, Exceptional Services, New Technologies , Quality of Inputs,
Exceptional Skill or experience .

Examples:
 Titan watches with gold studded gems, diamonds and precious metals -- This is an
example of Differentiation by Design.
 Dominos Pizza with their ‘30 minute’s delivery or free concept’ -- This is an example of
Differentiation by Service.
 Maggi with their ‘2 minute noodles’ – This is an example of Differentiation by
Positioning.
 Mercedes- Benz automobiles -- This is an example of Differentiation by Brand.

 FOCUS STRATEGY: The third business level strategy is focus. Focus is different from
other business strategies as it is segment based and has narrow competitive scope. This
strategy involves the selection of a market segment, or group of segments, in the industry and
meeting the needs of that preferred segment (or niche) better than other market competitors.
This is also known as niche strategy. In focus strategy, the competitive advantage can be
achieved by optimizing strategy for the target segments.
Focus strategy has two variants. They are:
 Cost focus - Cost focus is where a firm seeks a cost advantage in the target segment. This is
basically a niche-low cost strategy whereby a cost advantage is achieved in focuser’s target
segment.
 Differentiation focus – Differentiation focus is where a firm seeks differentiation in the
target segment. In this, the firm offers niche buyers something different from rivals. Firm
seeks differentiation in its target segment. Differentiation focus exploits the specific needs of
buyers in specified segments. Eg. MayBach luxury car which is targeted to segment where
customers can afford to pay a sum as large as Rs.5.4 crores.

CORPORATE PORTFOLIO ANALYSIS – BCG MATRIX

When the company is in more than one business, it can select more than one strategic alternative
depending upon demand of the situation prevailing in the different portfolios. Portfolio analysis is an
analytical tool which views a corporation as a basket or portfolio of products or business units to be
managed for the best possible returns. When an organization has a number of products in its portfolio,
it is quite likely that they will be in different stages of development. Some will be relatively new and
some much older.
The aim of portfolio analysis is (a) to analyze its current business portfolio and decide which
businesses should receive more or less investment (b) to develop growth strategies, for adding
new businesses to the portfolio ( c)to decide which business should not longer be retained

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 BCG Matrix

BCG growth share matrix is based on the observation that a company’s business units can be
classified into four categories based on combinations of market growth and market share relative to
the largest competitor, hence the name “growth-share”. The growth-share matrix thus maps the
business unit positions within these two important determinants of profitability

 Question Mark (or Problem Child) - A business unit that has a small market share in a
high growth market. These business units require resources to have growth in market share,
but whether they will succeed and become stars is unknown.
 Star - A business unit that has a large market share in a fast growing industry. Stars may
generate cash, but because the market grows rapidly they require investment to maintain their
lead. If successful, a star will become a cash cow when its industry matures.
 Cash Cow - A business unit that has a large market share in a mature, slow growing industry.
Cash cows require little investment and generate cash that can be used to invest in other
business units.
 Dog - A business unit that has a small market share in a mature industry. A dog may not
require substantial cash, but it ties up capital that could better be deployedelsewhere. Unless a
dog has some other strategic purpose, it should be liquidated if there is little prospect for it to
gain market share.

POLICIES

Policies are general statements or understandings that guide managers’ thinking in decision making.
They usually do not require action but are intended to guide managers in their commitment to the
decision they ultimately make. Policies are standing plans. These are broad-based statements of
understanding or general statement of intent. Policies define an area or provide limits within which
decisions are to be made and ensure that the decision will be consistent with and contribute to an
objective. Policies are types of plans that allow decision- makers some discretion to carry out a plan.
Otherwise, there will be no difference between policies and rules. Policies must allow for some
discretion.

TYPES OF POLICIES

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  ORIGINATED POLICIES - Top management of business organizations formulates
policies for the important functional areas. Such policies are called originated policies.
 APPEALED POLICIES - When a dilemma appears in a unit of the organization over
some issue, the unit head appeals his superiors for a decision. This appeal moves upward
in the vertical hierarchy of the organization till a most suitable decision is made. Such
decisions becomes a ruling on the issue and such rulings in turn becomes appealed
policies.
 IMPLIED POLICIES - Implied policies are not explicit policies, still a functionary can
take decisions on certain day to day matters that are not specifically stated in the approved
policies assuming that it will come under the broad policy framework of the organization
and will be accepted by the top management.
 EXTERNALLY IMPOSED POLICIES - Externally Imposed Policies are imposed by
external agencies like Governments, Legal Authorities, Industry Associations, Trade
Unions etc. Labour Laws issued by Governments, Court of justice verdicts, Demands of
Associations etc also come under this category of policies.
POLICY FORMULATION PROCESS
Policy formulation process involves creating policies for the organization and it is an integral part in
the process of planning. In order to ensure that the operations of the organization are run smoothly,
proper policies have to be formulated by the managers.
 Identifying the policy area: The first and foremost step in policy formulation is to
identify the particular area which requires policy formulation. At the same time, care
should be taken to identify the objectives as well as the demands of the organization. For
example, when the managers are formulating policy related with marketing, they should
keep in mind the expectations and the thrust areas of marketing for the organization.
 Identifying various alternative policies: While creating a policy for the organization,
the managers should identify all the policy alternatives that are available to them in a
particular case. The available alternatives can be decided with the help of analyzing the
external as well as internal environment of the organization. While the internal
environment of the organization can help in describing the strengths and weaknesses of
the organization, the external environment can help in identifying the opportunities and
threats that are being faced by the organization.
 Assessing the alternatives: The various alternatives that are available need to be
evaluated, keeping in mind the goals of the organization. The managers should evaluate
how these alternatives can contribute towards the achievement of its goals by the
organization. Therefore factors like resource requirements, costs and benefits provided by
each alternative have to be carefully examined by the managers. Moreover managers
should also evaluate the impact of different alternatives on the environment of the
organization.
 Selecting the most appropriate policy: After careful examination of all the available
alternatives, managers should select the alternative that is most appropriate for their
organization. Selecting a policy for the organization involves a long-term commitment. If
a particular alternative is not satisfactory, then managers should try out other alternatives.
 Testing a policy: Before implementing a policy in the organization, managers should
first implement the policy on a trial basis. This can help the managers in evaluating if the
policy selected by them can achieve the objectives for which it

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 was created. At the same time, when the policy has been implemented on a trial basis,
valuable suggestions may be received from other members of the organization regarding
the policy. These suggestions can help in introducing the necessary changes in the policy
due to which it becomes even more effective.
 Implementation of the policy: When the policy has been proved to be successful in the
trial period it can be implemented in the organization. However, it is very important that
such a policy should be explained in detail to all the persons who are responsible for
implementing the policy. This in turn will help the employees to be aware of the purpose
and objective behind the policy and it will also help in the proper implementation of the
policy.

DECISION MAKING

Decision Making is the core of planning. A plan cannot be said to exist unless a decision - a
commitment of resources, direction or reputation - has been made. Decision-making is the process of
identifying a set of feasible alternatives and choosing a course of action from them. Weihrich and
Koontz defines decision-making as the selection of a course of action from among alternatives.
Effective and successful decisions make profit to the company and unsuccessful ones make losses.
Therefore, corporate decision making process is the most critical process in any organization.
Decisions are judgments which directly affect a course of action.

FEATURES OF DECISION MAKING

 Decision making implies that there are various alternatives and the most desirable
alternative is chosen to solve the problem or to arrive at expected results.
 The decision-maker has freedom to choose an alternative.
 Decision-making may not be completely rational but may be judgmental andemotional.
 Decision-making is goal-oriented.
 Decision-making is a mental or intellectual process because the final decision is made
by the decision-maker.
 A decision may be expressed in words or may be implied from behaviour

TYPES OF DECISIONS

 PROGRAMMED AND NON PROGRAMMED DECISIONS

 PROGRAMMED DECISIONS: Programmed decisions are routine and repetitive and are
made within the framework of organizational policies and rules. These policies and rules
are established well in advance to solve recurring problems in the organization. Programmed
decisions have short-run impact.
 NON-PROGRAMMED DECISIONS: Non-programmed decisions are decisions taken to
meet non-repetitive problems. Non-programmed decisions are relevant for solving unusual
problems in which various alternatives cannot be decided in advance. A common feature of
non-programmed decisions is that they are novel and non- recurring and therefore, readymade
solutions are not available.

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  STRATEGIC AND TACTICAL DECISIONS

 STRATEGIC DECISIONS: Strategic decisions are decisions which are of crucial

importance. Strategic decisions focuses mainly on allocation of resources and contribution to
the achievement of organizational objectives. Decisions like plant location, product
diversification, entering into new markets, selection of channels of distribution, capital
expenditure etc are examples of basic or strategic decisions.
 TACTICAL DECISIONS: Routine decisions or tactical decisions are decisions which are
routine and repetitive. They are derived out of strategic decisions. Tacticaldecision relates to
day-to-day operations of the organization and has to be taken very frequently. Tactical
decision is mostly a programmed one. The outcome of tactical decision is of short-term nature
and affects a narrow part

DECISION MAKING PROCESS

Decision Making Process

 Specific Objective: The need for decision making arises in order to achieve certain specific
objectives. The starting point in any analysis of decision making involves the determination
of whether a decision need to be made.
 Problem Identification: The next step is identifying the problem. A problem is a felt need, a
question which needs a solution. The objective of problem identification isthat if the problem
is precisely and specifically identified, it will provide a clue in finding a possible solution. A
problem can be identified clearly, if managers go through diagnosis and analysis of the
problem.
 Diagnosis: Diagnosis is the process of identifying a problem from its signs and symptoms. A
symptom is a condition or set of conditions that indicates the existence of a
problem. Diagnosing the real problem implies knowing the gap between what is and what
ought to be, identifying the reasons for the gap and understanding the problem in relation to
higher objectives of the organization.
 Analysis: Diagnosis gives rise to analysis. Analysis of a problem requires
 Who would make decision?
 What information would be needed?
 From where the information is available?
Analysis helps managers to gain an insight into the problem.

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  Search for Alternatives: A problem can be solved in several ways. But, all the ways may not
have equal contribution. Therefore, the decision maker must try to find out the various
alternatives available in order to get the most satisfactory result of a decision. A decision
maker can use several sources for identifying alternatives:
 His own past experiences
 Practices followed by others and
 Using creative techniques.
 Evaluation of Alternatives: After the various alternatives are identified, the next step is to
evaluate them and select the one that will meet the choice criteria. The decision maker must
check proposed alternatives against limits, and if an alternative does not meet them, he can
discard it. Having narrowed down the alternatives which require serious consideration, the
decision maker will go for evaluating how each alternative may contribute towards the
objective supposed to be achieved by implementing the decision.
 Choice of Alternative: The evaluation of various alternatives presents a clear picture as to
how each one of them contribute to the objectives under question. A comparison is made
among the likely outcomes of various alternatives and the best one is chosen.
 Action: Once the alternative is selected, it is put into action. The actual process of decision
making ends with the choice of an alternative through which the objectives can be achieved.
 Results: When the decision is put into action, it brings certain results. These results must
correspond with objectives which in turn will lead to the conclusion that decision is made
and implemented properly.

RATIONAL DECISION MAKING MODEL

Rational decision making is a multi-step process for making choices between alternatives. The
process of rational decision making favors logic, objectivity, and analysis over subjectivity and
insight..

Rational Decision Making Model

 Defining the problem - This is the initial step of the rational decision making process. First
the problem is identified and then defined to get a clear view of the situation.

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  Identify decision criteria - Once a decision maker has defined the problem, he or she needs
to identify the decision criteria that will be important in solving the problem. In this step, the
decision maker is determining what’s relevant in making the decision. This step brings the
decision maker’s interests, values, and personal preferences into the process. Identifying
criteria is important because what one personthinks may be relevant for one and irrelevant for
another. Also it should be kept in mind that any factors not identified in this step are
considered as irrelevant to the decision maker.
 Weight the criteria- The decision-maker weights the previously identified criteria in order to
give them correct priority in the decision.
 Generate alternatives - The decision maker generates possible alternatives that could succeed
in resolving the problem. No attempt is made in this step to appraise these alternatives. The
focus should only to list them.
 Rate each alternative on certain criterion - The decision maker must critically analyze and
evaluate each alternative. The strengths and weakness of each alternative become evident as
they are compared with the criteria and weights established in second and third steps.
 Compute the optimal decision- Evaluating each alternative against the weighted criteria and
the alternative with the highest total score is finally selected.

DECISION MAKING UNDER DIFFERENT CONDITIONS

Everyday a manager has to make hundreds of decisions in the organization. Managers need to deal
with reality where many things are really unknown. There are three conditions that managers may
face while they make decisions. They are (a) Certainty, (b) Risk and (c) Uncertainty.

 CERTAINTY - A state of certainty exists only when the managers know the available
alternatives as well as the conditions and consequences of those actions. There is little
ambiguity and relatively low possibility of making a bad decision. It assumes that manager
has all the necessary information about the situation. Hence, decisions under certainty means
a perfectly accurate decision will be made time after time. Of course, decision making under
certainty is rare.
 RISK - A state of risk exists when the manager is aware of all the alternatives, but is
unaware of their consequences. The decision under risk usually involves clear and precise
goals and good information, but future outcomes of the alternatives are just not known to a
degree of certainty. A risk situation requires the use of probability estimates. The ability to
estimate may be due to experience or due to incomplete but reliable information or
intelligence. Statistical analysis can be applied to the calculation or probabilities of success or
failure.
 UNCERTAINTY - In today's complex environment most important decisions are made
under a state of uncertainty where there is no awareness of all the alternatives and also the
outcomes. To make effective decisions, managers must require as much relevant information
as possible. Such decisions require creativity and the willingness to take a chance in the face
of such uncertainties. In such situations, managers do not even have enough information to
calculate probabilities and degrees of risk. So, statistical analysis is of no use. Hence,
managers need to make certain assumptions about the situation in order to provide a
reasonable framework for decision making. Intuition, judgment, and experience always play
major roles in the decision making

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 process under conditions of uncertainty. Greater the amount of reliable
information, the more likely the manager will make a good decision. Hence,
manager should make sure that the right information is available at the right
time.

GOAL SETTING TECHNIQUE

What is goal setting?
Goal setting is the process of identifying specific, measurable, and time-bound objectives that you want
to achieve. This helps you and your organization to establish clear targets and prioritize the efforts,
providing a roadmap to success.
But, goal setting is not just about listing down the things we want to achieve. It’s important to have a
proper framework in place to make sure we stay on track and make consistent progress. This is what goal
setting is all about: clearly define your goals, set a path to achieve them and track the progress you make
along the way.
Why is Goal Setting Important?
Goal setting plays a pivotal role in our personal and professional growth, and understanding its
significance can help you unlock your full potential. Here are the top reasons why goal setting is
essential for success:
1. Provides clarity and direction
When you set clear goals, you outline the path toward your dreams, giving your life a sense of direction.
This clarity helps you focus your efforts on what truly matters, eliminating distractions and boosting
productivity.
2. Fosters employee motivation and commitment
Establishing clear goals can inspire employees to push their boundaries and strive for objectives that
might initially seem challenging.
A study shows that a goal-oriented work environment leads to higher employee engagement, as
individuals feel more invested in the organization’s success. This connection to the company’s mission,
backed by research, promotes a positive atmosphere and facilitates enhanced teamwork and overall
performance.
3. Improves time management
Goals help you prioritize tasks and allocate your time efficiently, ensuring that you invest your energy in
activities that bring you closer to your objectives. This enhanced time management ultimately leads to
better work-life balance and reduced stress.
Skills Required for Effective Business Goal Setting
To set and achieve meaningful business goals, it’s essential for individuals and teams to develop specific
skills that can streamline the process and increase the chances of success. Here are some crucial skills for
effective business goal-setting:
1. Strategic thinking
This skill helps you visualize the big picture, which is essential for creating a roadmap for your
company’s future. By understanding where your business is headed, you can set goals that align with
your organization’s mission and long-term objectives.
2. Market research
To set realistic and relevant goals, it’s crucial to stay informed about your industry. Gaining expertise in
market research allows you to identify opportunities, threats, and areas for growth, helping you make
informed decisions about your business objectives.
3. Resource allocation and prioritization
One of the most important skills for managers is the ability to allocate resources and prioritize tasks.
This is especially important when you’re managing multiple projects at once. By creating a timeline and
budget, you can coordinate your efforts with those of other employees while keeping costs down.
Moreover, efficiently managing resources is key to achieving business goals. Mastering this skill ensures
you’re focusing on the most impactful objectives and using your resources wisely.
4. Collaboration and teamwork
Teamwork is at the heart of setting and achieving business goals. Building strong collaboration skills
helps ensure that everyone is on the same page and working towards the same objectives, regardless of
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their department or role.
5. Adaptability and flexibility
The ability to pivot when circumstances change is invaluable in the business world. Cultivating
adaptability and flexibility helps you adjust your goals and strategies as needed, keeping your company
on track for success.
Goal Setting Methods
1. S.M.A.R.T Goal
This approach helps you to keep your focus on choosing employee goals that will produce better
business results. Let’s dig more into this goal setting approach.

1. Specific: Ensure your goals are clear and specifically defined. For example, a goal could be
increasing the social media presence of your organization, but a specific goal will be increasing
the social media followers of LinkedIn.

2. Measurable: Goals should be always measurable. Eg: Increasing social media followers of the
organization to 15K by end of December.

3. Achievable: Your goals should be achievable and fits in your present schedule. For instance, if
you want to achieve 15K followers by end of December, make sure you have enough time to
organize campaigns, and preparation for the campaigns is in progress.

4. Realistic: The goals should not be wage and be realistic. You cannot have 1 million followers on
social media if you started the account just this week.

5. Time-bound: There should be a time frame attached to your goal which will give you the
motivation to work towards it. For example, Increasing the social media followers of the
organization to 15K by end of December.

2 BSQ – Big, Small, and Quick

As the name suggests this Goal technique focuses on

1. Think Big, 2. Act Small, 3. Move Quick.

Think Big is about crafting your biggest goal. Act Small is the sequence of milestones you set that you
must hit along the way. Move Quick is the time frame you set in place to follow. It is a proven fact that
timelines increase goal attainment.

The Act Small goals are the key part that makes this framework so effective.

The small goal part gives specificity and acts as a guiding light towards the ultimate goal. Achieving
each of these sub-goals boosts your confidence and motivates you to move at a faster pace.

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For example, a company aims to elevate employee skills. The BSQ goal setting would look something
like this.

● Think Big: The main goal is to elevate overall employee skill levels significantly.
● Act Small: The plan involves setting smaller goals along the way – acquiring new software
proficiency, completing online courses, and participating in workshops.
● Move Quick: A specific schedule is set for each goal – mastering software in two weeks,
finishing online courses in a month, and attending workshops within three months.

3 Objective and key results

OKRs stands for Objectives and Key Results. In this goal-setting approach, goals are set quarterly and
are based on objectives (things you want to achieve) and the key results are the numbers that you must
hit to achieve the objective.

The goals are set up for the entire organization and everyone has access to these goals.

The departments then set their goals and key results they should achieve to reach their department goal
and at a large to achieve the company’s goal.

Let us understand this by example: Your organization’s goal is to achieve 5000 new customers by end of
this quarter.

Now each department will set its goals aligned with the main goal of the company.

If you want 2,000 new readers by the end of the year, you may consider an outreach program, for which
maybe you need to hire new employees or train current employees.

Set specific goals for the outreach that can help you achieve the larger goal of 2,000 new readers. Work
upon and reevaluate your smaller goals as you move forward.

4 WOOP goals

Wish, Outcome, Obstacle and Plan are the words the acronym WOOP is derived from. The steps to use
this goal technique include:

Wish: Wish for a goal that excites you. The positive feeling attached to the goal will motivate and drive
you forward.

Outcome: Imagine the outcome of the set goal with minute detailing. Work towards those details to

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achieve your goal.

Obstacle: Consider what all can hinder your way to achieving the set goals and try to remove those
obstacles.

Plan: Plan your way ahead to remove obstacles and ways to achieve your goals.

For example: Launching A New Product Line with WOOP Goals

● Wish: Imagine launching a game-changing product line, igniting motivation.

● Outcome: Visualize product success, high demand, and profitability.
● Obstacle: Identify challenges, plan alternatives for supply and marketing.
● Plan: Develop launch strategy, assign roles, adjust dynamically to ensure success.

Group decision-making
Group decision-making commonly known as collaborative decision-making is a
situation faced when individuals collectively make a choice from the alternatives before them.
The decision is then no longer attributable to any individual group member as all the
individuals and social group processes like social influence contribute to the decision outcome.
The decisions made by groups are mostly different from those made by individuals. For
example, groups tend to make decisions that are more extreme than those made by individual
members, as individuals tend to be biased.

Advantages of Group Decision Making

Group decision making has two advantages over individual decision making.
Synergy
It is the idea that the whole is greater than the aggregate of its parts. When a group
makes a decision collectively, its judgment can be powerful than that of any of its members.
Through discussing, questioning, and collaborative approach, group members can identify more
complete and robust solutions and recommendations.
Sharing of information
Group decisions take into account a wider scope of information as each group member
may contribute distinct information and expertise. Sharing information increases understanding,
clarifies issues, and facilitates movement towards a collective decision.

Disadvantages of Group Decision Making

The major disadvantages of group decision making are as follows −

Diffusion of Responsibility
Group decision making results in distribution of responsibility that results in lack of
accountability for outcomes. In this way, everyone is responsible for a decision, and no one
really is. Moreover, group decisions can make it easier for members to refuse personal
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responsibilities and blame others for bad decisions.
Lower Efficiency
Group decisions can sometimes be less efficient than individual decisions. It takes
additional time because there is a need of active participation, discussion, and coordination
among group members. Without good facilitation and structure, meetings can get eliminated in
trivial details that may matter a lot to one person but not to the others.
Groupthink
One of the biggest disadvantage of effective group decision making is groupthink. It is a
psychological phenomenon that occurs within a group of people in which the wish for harmony
or conformity results in an illogical or dysfunctional decision-making outcome.
By refraining themselves from outside influences and actively suppressing opposing
viewpoints in the interest of minimizing conflict, group members reach a consensus decision
without critical evaluation of substitute viewpoints.
Groupthink sometimes produces dehumanizing actions against the out-group.
Group Decision-Making Techniques
In order to eliminate group think and group shift from a group, we can use four
different techniques that will help us make a collaborative decision that is best for
the group. These techniques are −
● Brainstorming
● Nominal group thinking
● Didactic technique
● Delphi technique
Brainstorming
This technique includes a group of people, mostly between five and ten in number,
sitting around a table, producing ideas in the form of free association. The main focus is on
generation of ideas and not on evaluation of these ideas.
If more ideas can be originated, then it is likely that there will be a unique and creative
idea among them. All these ideas are written on the blackboard with a piece of chalk so that all
the team members can see every idea and try to improvise these ideas.
Brainstorming technique is very effective when the problem is comparatively precise
and can be simply defined. A complex problem can be divided into parts and each part can be
dealt with separately at a time.
Nominal Group Thinking
This technique is similar to brainstorming except that this approach is more structured. It
motivates individual creativity. Members form the group for namesake and operate
independently, originate ideas for solving the problem on their own, in silence and in writing.
Members do not communicate well with each other so that strong personality domination is
evaded.
The group coordinator either collects the written ideas or writes them on a large
blackboard so that each member of the group can see what the ideas are. These ideas are further
discussed one by one in turn and each participant is motivated to comment on these ideas in
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order to clarify and improve them. After all these ideas have been discussed, they are evaluated
for their merits and drawbacks and each actively participating member is needed to vote on each
idea and allot it a rank on the basis of priority of each alternative solution.
The idea with the highest cumulative ranking is selected as the final solution to the
problem.
Didactic Interaction
This technique is applicable only in certain situations, but is an excellent method when a
situation actually demands it. The type of problem should be such that it generates output in the
form of yes or no. Say for example, a decision is to be made whether to buy or not to buy a
product, to merge or not to merge, to expand or not to expand and so on. These types of
decision requires an extensive and exhaustive discussion and investigation since a wrong
decision can have serious consequences.
There are many advantages as well as disadvantages of this type of situation. The group
that makes the decision is divided into two sub-groups, one in favor of the “go” decision and the
opposing in favor of “no go” decision.
The first group enlists all the “pros” of the problem solution and the second group lists
all the “cons”. These groups meet and discuss their discoveries and their reasons.
After tiring discussions, the groups switch sides and try to find weaknesses in their own
original standpoints. This interchange of ideas and understanding of various viewpoints results
in mutual acceptance of the facts as they exist so that a solution can be put together around these
facts and ultimately a final decision is reached.
Delphi Technique
This technique is the improvised version of the nominal group technique, except that it
involves obtaining the opinions of experts physically distant from each other and unknown to
each other.
This isolates group members from the undue influence of others. Basically, the types of
problems sorted by this technique are not specific in nature or related to a particular situation at
a given time.
For example, the technique could be used to explain the problems that could
be created in the event of a war. The Delphi technique includes the following steps
−
● The problem is first identified and a panel of experts are selected. These experts are
asked to provide potential solutions through a series of thoughtfully designed
questionnaires.
● Each expert concludes and returns the initial questionnaire.
● The results of the questionnaire are composed at a central location and the central
coordinator prepares a second set of questionnaire based on the previous answers.
● Each member receives a copy of the results accompanied by the second questionnaire.
● Members are required to review the results and respond to the second questionnaire. The
results typically trigger new solutions or motivate changes in the original ideas.
● The process is repeated until a general agreement is obtained.

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 Group problem solving
Group problem solving is the process of bringing together stakeholders who through
their analytical decision making abilities can influence the outcome of the problem.
Group problem-solving is the process of gathering all expert people, analyzing the
problem, finding a solution for it through discussions, and reaching a decision to take action.

Step 1: Define the Problem

Begin this portion of the exercise by asking people to write individually on an index
card what they think the problem is. This may seem redundant or simplistic for some seemingly
obvious problems (e.g., budget shortfall). However, individual responses may point to
confounding issues, related problems, or causative items.

After writing individually, ask everyone to share. (If it's a very sensitive issue, collect
the cards, shuffle the cards, and then ask one person to read them.)

● How are things now versus the way you would like them to be?
● How long has the problem existed?
● How frequently does it occur?
● Who is affected by the problem?
Step 2: Analyze the Problem

During this step, a group should analyze the problem and the group’s relationship to the
problem.

Whereas the first step involved exploring the “what” related to the problem, this step
focuses on the “why.” At this stage, group members can discuss the potential causes of the
difficulty.

Group members may also want to begin setting out an agenda or timeline for the group’s
problem-solving process, looking forward to the other steps.

Step 3: Generate Possible Solutions

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 During this step, group members generate possible solutions to the problem. Again,
solutions should not be evaluated at this point, only proposed and clarified. The question should
be what we could do to address this problem, not what we should do to address it.

It is perfectly OK for a group member to question another person’s idea by asking

something like “What do you mean?” or “Could you explain your reasoning more?”
Discussions at this stage may reveal a need to return to previous steps to better define or more
fully analyze a problem.

Since many problems are multifaceted, group members must generate solutions for each
part of the problem separately, making sure to have multiple solutions for each part. Stopping
the solution-generating process prematurely can lead to groupthink.

Step 4: Evaluate Solutions

During this step, solutions can be critically evaluated based on their credibility,
completeness, and worth.

Once the potential solutions have been narrowed based on more obvious differences in
relevance and/or merit, the group should analyze each solution based on its potential effects—
especially negative effects.

Groups that are required to report the rationale for their decision or whose decisions may
be subject to public scrutiny would be wise to make a set list of criteria for evaluating each
solution.

Additionally, solutions can be evaluated based on how well they fit with the group’s
charge and the abilities of the group.

Step 5: Implement and Assess the Solution

Implementing the solution requires some advanced planning, and it should not be rushed
unless the group is operating under strict time restraints, or delay may lead to some kind of
harm.

Although some solutions can be implemented immediately, others may take days,
months, or years. As was noted earlier, it may be beneficial for groups to poll those who will be
affected by the solution as to their opinion of it or even do a pilot test to observe the solution’s
effectiveness and how people react to it.

Before implementation, groups should also determine how and when they would assess
the solution’s effectiveness by asking, “How will we know if the solution is working or not?”

Since solution assessment will vary based on whether or not the group is disbanded, groups
should also consider the following questions;

● If the group disbands after implementation, who will assess the solution?
● If the solution fails, will the same group reconvene, or will a new group be formed?

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Bounded rationality:
Humans are primarily rational, and we want to believe that we make decisions based on
logic and reason. But the truth is that we are often irrational creatures driven by emotions and
prejudices, and this is what psychologists call “bounded rationality.”

Bounded rationality occurs when we make decisions based on limited information. It

may lead to suboptimal decisions as it only considers some available options.

What is Bounded rationality?

Meaning 1:

Boundary rationality is a theory in psychology and economics that suggests that people
don’t always make perfectly rational decisions. Instead, use simplified decision-making forms.
This means that we often make suboptimal choices.

Meaning 2:
Bounded rationality is a human decision-making process in which we attempt to
satisfice, rather than optimize. In other words, we seek a decision that will be good enough,
rather than the best possible decision.
Where this bias occurs?
Imagine you are at the grocery store buying eggs. You look at the various brands and
decide to buy a carton of eggs that is labelled “cage-free”. This decision satisfies your desire to
be ethical by choosing eggs from chickens that are not kept in cages.
However, when we make quick decisions based on labels like “cage-free” we often
don’t actually know what those terms mean. Our decision is made on a false sense of rationality,
because we do not have all the information available. Maybe we don’t have the time to find out
that “cage-free” means both “free-run” and “free-range”, and only “free-range” chickens have a
chance to go outside.1 We may make decisions that satisfy a certain criterion, such as being ethical,
without making the most optimal choice for that criterion.
Individual effects
According to the decision-making process of bounded rationality, we are not inclined to
find out all the necessary information that would be required to make a rational decision,
because of cognitive and temporal limitations. This causes us to make choices that are
satisfactory rather than optimal.
Our choices are still rational, considering the information that is realistically available to
us, but may not be rational in lieu of all the possible information and resources. While it is
difficult to behave according to perfect economic rationality, which is to maximize benefits
while diminishing costs, making decisions based on bounded rationality can cause us to be
inconsistent with our objectives.
Systemic effects
In any organization or institution, there are complex webs of decision-making.
The decisions that ought to be made by institutions are often with economic principles in
mind, but these do not take into account the reality that humans do not function in a perfectly
rational way.
While organizations want to make decisions that reflect their economic values and
objectives, these decisions are made by individuals. Individuals are influenced by more than
26
mere logic, and sometimes, decision-making individuals in companies have to make quick
decisions that will impact the rest of the organization. With constraints like time, the choice that
is made may only be satisfactory rather than optimal for the company’s objectives.
Rationality becomes all the more complex in a company where an individual’s optimal
choice may not match the optimal choice for the company. Here, the rationality of CEOs and
other decision-makers are bound in a different way, by their environment which asks them to
put the needs of the company before their own. Bounded rationality is sometimes a necessary
imperfection when we understand decision-making as part of a network, rather than theorize
rationality based on a ‘perfect’ subject that is not a part of these complexities.
Why it happens?
On a daily basis, we have to make hundreds of decisions based on available alternatives.
Since we have to make so many decisions in a limited period of time, we are not able to take the
time to gather all the information about, or map out the potential effects, of each alternative.
Think about how much information would have to be stored in our brains at any given moment
for us to be able to make perfectly rational decisions.
Since we are limited by brain capacity (partially due to cognitive biases), time and
available information, we have to make decisions using shortcuts. These shortcuts make it
easier for us to make decisions, but they challenge our ability to be rational, sometimes leading
us to make suboptimal choices.
Creativity and Innovation in Managerial Work:
The ability to think, create, and implement creative solutions takes practice. Sharpening
the creative potential within your organizational innovation development can be led through
implementation processes. Creativity can indeed spark innovation, and innovation can, in turn,
motivate entrepreneurship.
What is creativity and innovation management?
Put simply, creativity and innovation management is the act of balancing creativity and
innovation in your workplace.
Fueling creative thinking can be a difficult endeavor, especially in a work
environment. Creativity doesn’t always come naturally, and it’s not uncommon for
staff to feel stuck at times, especially when there are approaching deadlines and
additional stress factors. Solution ideation 一 another term for coming up with a
new idea and solutions 一 and managing creativity can be difficult tasks.
That’s where innovation management comes in. Using tools designed to help foster
creativity and encourage innovative ideas, the best innovation management techniques can help
you solve problems, including those that you’ve been putting off for ages.
A word about creativity and innovation: they may seem like similar concepts, but there
is a significant difference between the two due to their focus. Creativity is typically centered
around original thought and knowledge, which unleashes potential and is an integral part of idea
generation. Innovation, on the other hand, is used to turn the creative idea that you come up
with into a viable solution. Hand in hand, they are powerful ways to disrupt and adapt, and to
create the next great idea, which is increasingly important in today’s ever-changing world.
How to brainstorm creative ideas?
If you’re looking to encourage new ideas from your team, try these methods to start:
Rapid ideation: Everyone in a group writes down as many ideas as possible within
a set time limit. Brainstormers won’t be able to self-censor as easily with the
element of speed. None of these ideas have to be fleshed out or thought through
一 even scraps or fragments are fine. Generating the bad ideas can open the door
for good ones. This can be done to get the juices flowing.
27
Brainstorm using different mediums and settings: Some people find that they can brainstorm
better when it’s on colorful sticky notes, and others find that they can get their ideas out better
with a whiteboard and a handful of dry-erase markers. Encouraging the creative process
collectively in different settings, using various tools. Brainstorm individually and with a group.
Learn hands-on brainstorming techniques with Stanford’s Introduction to Design Thinking and
Innovation at Work content and find out what works best for your team.
Figure storming: Pick a famous person and try to guess how they would solve the problem that
you’re facing. By doing so, you’ll be able to approach your problem from a different
perspective.
Starbursting: Identify who, what, when, where and why in regards to the problem. By
understanding the problem inside and out, you’ll have a better time finding a solution for it.
How to create an innovation process
So your team has a bunch of new ideas, what’s next? There are a few steps that you can
take to build a good problem-solving method and become a master of creativity. The following
is an example of an innovation process step-by-step.
1) Encounter a problem that needs to be resolved.
2) Define the problem correctly.
3) Choose a brainstorming activity to spark your creativity.
4) Gather relevant material and work through it, considering different solutions and
approaches that you can take to solve the problem.
5) Discuss your idea with your teammates to gauge its viability.
6) Walk away from the problem before returning to it.
7) Start implementing your idea.
This is just one example of a creativity and innovation process. Practice it with your team to
see what drives innovation for you. You can tweak the process, inserting different steps or
designing a different process that works better. Design thinking, the experimental-based,
solution-process, might work for you and your company. With time you’ll be able to start
bringing your idea to fruition quickly and efficiently.

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 PART A

1. Why is Planning essential for an organization?

 To manage by objectives
 To offset uncertainty and change
 To secure economy in operation
 To help in co-ordination
 To make control effective
 To increase organizational effectiveness

2. What is Planning ?
Planning is the fundamental management function, which involves deciding
beforehand, what is to be done, when is it to be done, how it is to be done and
who is going to do it. It is an intellectual process which lays down
organisation’s objectives and develops various courses of action, by which
the organisation can achieve those objectives. It chalks out exactly, how to
attain a specific goal.

3. What are the various objectives of Planning?

 To attain pre determined goals
 To achieve economy in operations
 To provide specific direction
 To bring certainty in future events

4. What is meant by Decision Making?

Decision Making can be defined as a course of action purposely chosen from a
set of alternatives to achieve organizational or managerial objectives or goals.
Decision making process is continuous and indispensable component of
managing any organization or business activities.

5. State the various types of Plans.

 Strategic Plan- Mission, Objectives, Strategies
 Tactical Plan
 Operational Plan – Single Use Plans and Standing Plans
 Contingency Plan

6. Explain the need for SWOT Analysis.

The SWOT analysis is a useful technique for understanding all sorts of
situations in business and organizations. SWOT is acronym for STRENGTHS,
WEAKNESSES, OPPORTUNITIES and THREATS. It helps to minimize the
effect of weaknesses in the business, while maximizing strengths.

29
7. What is meant by Policies? Classify them.
Policies are general statements or understandings that guide managers’ thinking in decision
making. Policies are standing plans. These are broad-based statements of understanding or
general statement of intent.
Policies are classified as Originated Policies, Appealed Policies, Implied and Externally
Imposed Policies

8. What are the guidelines that need to be followed while setting objectives?
 While setting the objectives, the past performance must be reviewed, since past
performance indicates what the organization will be able to accomplish in future.
 The objectives should be set in realistic terms i.e., the objectives to be set should be
reasonable and capable of attainment.
 Objectives must be consistent with one another.
 Objectives must be set in clear-cut terms.

9. Define MBO.
Management by objectives (MBO) is defined as a comprehensive managerial system that
integrates many key managerial activities in a systematic manner and that is consciously
directed towards the effective and efficient achievement of organizational and individual
objectives - KOONTZ &WEIHRICH

10. What are the benefits of MBO?

 Encouraging Organizational Goals
 Better Management
 Clarifying Organizational Goals
 Better Control

11. Define the term Strategic Planning.

Strategic planning is an organizational management activity that is used to set priorities,
focus energy and resources, strengthen operations, ensure that employees and other
stakeholders are working toward common goals and establish agreement around intended
outcomes/results.

12. Define strategy.

Strategy is the unified, comprehensive and integrated plan that relates the strategic advantage
of the firm to the challenges of the environment and is designed to ensure that basic objectives
of the enterprise are achieved through proper implementation process – Chandler

13. Explain the importance of decision making in management.

Decision making s related to planning, organizing, directing and controlling functions of a
manager. Decision making is important to achieve the organizational goals/objectives
within given time and budget. Decision-making is a pervasive function of managers aimed
at achieving organizational goals.

14. List out the various steps in the Decision Making Process.
 Setting Specific Objectives
 Identification of Problems

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  Search for alternatives
 Evaluation of alternatives
 Choice of alternatives
 Taking Action
 Accomplishing Results

15. What are Programmed Decisions?

Programmed decisions are routine and repetitive and are made within the framework of
organizational policies and rules. These policies and rules are established well in advance to
solve recurring problems in the organization. Programmed decisions have short-run impact.

16. What is a Policy?

A Policy is a standing plan that furnishes broad guidelines for taking action consistent with
reaching organizational objectives. Policy can be defined as organization’s general response
to a particular problem or situation. (eg) “No credit sale policy”, in business firms
17. Defining planning premises.
Planning premises are defined as the anticipated environment in which plans are expected to
operate. They include assumptions or forecasts of the future & known conditions that will
effects the operation of plans.

18. Explain in brief about the two approaches in which the hierarchy of objectives can be
explained?
There are two approaches in which the hierarchy can be explained.
 top-down approach
 bottom-up approach

19. What is the significance of rational decision making?

Rational decision making is a multi-step process for making choices between alternatives.
The process of rational decision making favors logic, objectivity, and analysis over
subjectivity and insight.

20. What is a Procedure?

A procedure is a systematic way of handling regular events. It is stated in terms of steps to be
followed in carrying out certain kinds of work. According to Terry, a procedure is series of
related tasks that make up the chronological sequence and the established way of performing
the work to be accomplished.

21. What is a Rule?

A specific statement telling the people what should or what should not be done.

22. What is a Budget?

A statement of expected results expressed either in financial terms or in terms of labor hours,
machine hours, units of product, or such other measurable terms. They are devices for both
planning and control.

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23. Distinguish between “risk” and “uncertainty” in decision making.
“Risk” condition exists when the probabilities of occurrence of various outcomes of the
decision are known. “Uncertainty” condition exists when these probabilities are unknown.

24. What is KRA?

KRA-Key Result Areas are identified on basis of organizational objectives and planning
premises where organizational health can be measured.

25. What are the weakness of MBO ?

Failure to teach the philosophy of MBO, Failure to give guidelines, difficulty in setting goals,
Emphasis on short term goals, inflexibility, time consuming

26. What are the characteristics of Objectives?

 Objectives are multiple in number
 Objectives may be either tangible or intangible
 Objectives have a priority
 Objectives are generally arranged in a hierarchy

27. What are the various decision making conditions?

Decision making under certainty; Decision making under risk; and Decision making under
uncertainty.

28. Distinguish between “risk” and “uncertainty‟ in decision making.

“Risk” condition exists when the probabilities of occurrence of various outcomes of the
decision are known. “Uncertainty” condition exists when these probabilities areunknown.

29. What is top down approach ?

Top down approach means that the top level management provides guidelines to the bottom level
management.
30. What is bottom up approach?
Bottom up approach means that the low level management provides information to the top
level management

PART B

1. Define Planning. Explain the various steps involved in the Planning Process in detail
2. Explain the different types of Strategies.
3. Explain the decision making process in detail. Also discuss how decision making under
different conditions are made.
4. Discuss the concept of Management By Objectives(MBO) in today’s Organizations.
5. Categorize the various types of Plans.
6. Discuss the Nature and Purpose of Planning.
7. Write Short notes on :
(i) Programmed and Non-Programmed Decisions
(ii) Strategic and Operational Planning
8. What are the essentials of formulating policies? How would you show your
understanding on framing policies and classifying them?

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 ORGANIZING

Organizing is the function of management which follows planning. It is a function in which the
synchronization and combination of human, physical and financial resources takes place. All the three
resources are important to get results. Therefore, organizational function helps in achievement of
results which in fact is important for the functioning of a concern. Organizing is the function of
management that involves developing an organizational structure and allocating human resources to
ensure the accomplishment of objectives. The structure of the organization is the framework within
which effort is coordinated. The structure is usually represented by an organization chart, which
provides a graphic representation of the chain of command within an organization. Decisions made
about the structure of an organization are generally referred to as organizational design decisions.

Definitions:

 “Organizing is the establishment of authority relationships with provisions for co- ordination
between them, both vertically and horizontally in the enterprise structure” -
- Koontz and O ‘Donnell
 “Organizing is the process of identifying and grouping the work to be performed, defining
and delegating the responsibility and authority and establishing a pattern of relationship for
the purpose of enabling people to work most effectively to accomplish the objective”- – Louis
A. Allen.

NATURE OF ORGANISING

 Division of Work: Division of work is the basis of an organization. In other words, there can
be no organization without division of work. Under division of work the entire work of
business is divided into many departments .The work of every department is further sub-
divided into sub works. In this way each individual has to do the same work repeatedly which
gradually develops an expertised person .
 Coordination: Under organizing different persons are assigned different works but the aim
of all these persons is to attain the objectives of the enterprise. Organization ensures that the
work of all the individuals depend on each other’s work even though it happens to be
different. The work of one person starts from where the work of another person ends. The
non-completion of the work of one person affects the work of everybody. It is therefore
essential to have proper coordination among different works, departments and posts in the
enterprise.
 Plurality of Persons: Organization is a group of many persons who work together to fulfil a
common purpose. A single individual cannot create an organization.
 Common Objectives: There are various parts of an organization with different functions to
perform but all move in the direction of achieving a general objective.
 Well-defined Authority and Responsibility: Under organization a chain is established
between different positions right from the top to the bottom. It is clearly specified as to what
will be the authority and responsibility of every position. In other words, every individual
working in the organization is given some authority for the efficient work performance and it
is also decided simultaneously as to what will bethe responsibility of that individual in case
of unsatisfactory work performance.

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  Organization is a Universal Process: Organization is needed both in business and non
business organizations. Organization is essential where two or more than two people work
jointly. Therefore, organizing has the quality of universality.
 Organization is a Dynamic Process: Organization is related to people and theknowledge and
experience of the people undergo a change. The impact of this change affects the various
functions of the organizations.

FORMAL AND INFORMAL ORGANISATIONS

Organizations are basically classified on the basis of relationships. There are two types of
organizations formed on the basis of relationships in an organization

FORMAL ORGANIZATION – It refers to a structure of well defined jobs each bearing a measure
of authority and responsibility. It is a conscious determination by which people accomplish goals by
adhering to the norms laid down by the structure. This kind of organization have a set up in which
each person is responsible for his performance. Formal organization has a formal set up to achieve
pre- determined goals.

Characteristic Features of formal organization

 Formal organization structure is laid down by the top management to achieve organizational
goals.
 Formal organization prescribes the relationships amongst the people working in the
organization.
 Organizational structures are consciously designed to enable the people of the organization to
work together for accomplishing the common objectives of the enterprise.
 In a formal organization, individuals are fitted into jobs and positions and work as per the
managerial decisions. Thus, the formal relations in the organization arise from the pattern of
responsibilities that are created by the management.
 A formal organization is bound by rules, regulations and procedures.
 In a formal organization, the position, authority, responsibility and accountability of each
level are clearly defined.
 Organizational structure is based on division of labor and specialization to achieve efficiency
in operations.

Advantages of formal organization

 The formal organizational structure concentrates on the jobs to be performed. It,
therefore, makes everybody responsible for a given task.
 A formal organization is bound by rules, regulations and procedures. It thus ensureslaw and
order in the organization.

Disadvantages of formal organization

 The formal organization does not take into consideration the sentiments of
organizational members.
 The formal organization does not consider the goals of the individuals. It is designedto
achieve the goals of the organization only.

34
  The formal organization is bound by rigid rules, regulations and procedures. This makes
the achievement of goals difficult.

INFORMAL ORGANIZATION - It refers to a network of personal and social relationships which

spontaneously originates within the formal set up. Informal organizations develop relationships which
are built on likes, dislikes, feelings and emotions. Therefore, the network of social groups based on
friendships can be called as informal organizations. There is no conscious effort made to have
informal organization. It emerges from the formal organization and it is not based on any rules and
regulations as in case of formal organization.

Characteristics features of informal organization

 Informal organization is not established by any formal authority. It is unplanned and arises
spontaneously.
 Informal organizations reflect human relationships. It arises from the personal and social
relations amongst the people working in the organization.
 Formation of informal organizations is a natural process. It is not based on rules,
regulations and procedures.
 The inter-relations amongst the people in an informal organization cannot be shown inan
organization chart.
 In the case of informal organization, the people cut across formal channels of
communications and communicate amongst themselves.
 The membership of informal organizations is voluntary. It arises spontaneously and not by
deliberate or conscious efforts.
 Membership of informal groups can be overlapping as a person may be member of a number
of informal groups.
 Informal organizations are based on common taste, problem, language, religion, culture, etc.
It is influenced by the personal attitudes, emotions, whims, likes and dislikes etc. of the
people in the organization.

Benefits of Informal organization

 The presence of informal organization in an enterprise makes the managers plan and act
more carefully.
 Informal organization acts as a means by which the workers achieve a sense of
security and belonging. It provides social satisfaction to group members.
 An informal organization has a powerful influence on productivity and jobsatisfaction.

Disadvantages of informal organization

 Quick in spreading rumours
 Informal Organization may bring negative results as it opposes the policies and changes of
management.
 Informal structure gives more importance to satisfaction of individual interest as
compared to organizational interest.

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DIFFERENCES BETWEEN FORMAL AND INFORMAL ORGANISATIONS

FORMAL ORGANISATION INFORMAL ORGANISATION

1. Formal organization is established with the 1. Informal organization springs on its
explicit aim of achieving well-defined goals. own. Its goals are ill defined and intangible.
2. Formal organization is bound together by 2. Informal organization is characterized by a
authority relationships among members. A generalized sort of power relationships. Power in
hierarchical structure is created, constituting top informal organization has bases other than
management, middle management and rational legal right.
supervisory management.

3. Formal organization recognizes certain tasks 3. Informal organization does not have any
which are to be carried out to achieve well-defined tasks.
its goals.
4. The roles and relationships of people in 4. In informal organization the relationships
formal organization are impersonally defined among people are interpersonal.
5. In formal organization, much emphasis is 5. Informal organization is characterized by
placed on efficiency, discipline, conformity, relative freedom, spontaneity, homeliness
consistency and control. and warmth.
6. In formal organization, the social and 6. In informal organization the socio -
psychological needs and interests of psychological needs, interests and aspirations of
members of the organization get little members get priority.
attention.
7. The communication system in formal 7. In informal organization, the
organization follows certain pre-determined communication pattern is haphazard, intricate
patterns and paths. and natural.
8. Formal organization is relatively slow to 8. Informal organization is dynamic and
respond and adapt to changing situations and very vigilant. It is sensitive to its
realities. surroundings.

For an efficient organization, both formal and informal organizations are required. A formal
organization can work independently. But informal organization depends totally upon the formal
organization. Formal and informal organization helps in bringing efficient working organization and
smoothness in a concern.

ORGANISATION STRUCTURE

An organizational structure defines how activities such as task allocation, coordination and
supervision are directed toward the achievement of organizational goals. Organizational structure
can also be considered as the viewing glass through which individuals see their organization and its
environment. Depending upon a company's needs, there are several organizational structures that can
be used .An organizational structure is a framework that allots a specific space for a particular
department or an individual and shows its relationship to the other. An organization structure shows
the authority and responsibility relationships between the various positions in the organization by
showing who reports to whom. It is an established pattern of relationship among the components of
the organization

36
IMPORTANCE OF ORGANISATIONAL STRUCTURE

 Properly designed organization can help improve teamwork and productivity by providing a
framework within which the people can work together most effectively.
 Organizational structure determines the location of decision-making in theorganization.
 Sound organization structure stimulates creative thinking and initiative among
organizational members by providing well defined patterns of authority.
 A sound organization structure facilitates growth of enterprise by increasing its capacity to
handle increased level of authority.
 Organizational structure provides the pattern of communication and coordination.
 The organizational structure helps a member to know what his role is and how it isrelated
to other roles.

TYPES OF ORGANIZATION STRUCTURE

 FUNCTIONAL ORGANIZATION STRUCTURE: A functional organization structure is a

hierarchical organization structure wherein people are grouped as per their area of
specialization. These people are supervised by a functional manager with expertise in the
same field. This expertise helps him effectively utilize the skills of employees, which
ultimately helps organizations in achieving its business objectives.

In a functional organizational structure, the whole work in the organization is divided into
various departments. Similar type of work and transactions are put in one department under
the control of a departmental manager or head. Various departments are also known as
functional areas of management viz., Purchases, Sales, Finance, Production, and Personnel
etc. The respective managers of these departments will be responsible for carrying out
various activities of their departments in the organization. For example, marketing manager
will be responsible for carrying out marketing activities and personnel manager will be
responsible for looking after the personnel matters in all the departments of the organization.
The underlying idea of functional organization at the top level of management is that a
subordinate anywhere in the organization will be controlled and commanded directly by
number of managers operating in different departments.

Functional Organizational Structure

37
Merits

 Better division of labour takes place which results in specialization of functions.

 Effective Control- Management control is simplified as the mental functions are
separated from manual functions.
 Efficiency- Greater efficiency is achieved because of every function performing a limited
number of functions.
 Economy- Specialization compiled with standardization facilitates maximum production and
minimization of economical costs.

Demerits

 Confusion- The functional system is quite complicated to put into operation, especially when
it is carried out at low levels.
 Lack of Co-ordination- Disciplinary control becomes weak as a worker is commanded not
by one person but a large number of people. Thus, there is no unityof command.
 Difficulty in fixing responsibility- Because of multiple authority, it is difficult to fix
responsibility.
 Conflicts- There may be conflicts among the supervisory staff of equal ranks. They may not
agree on certain issues.

 LINE ORGANIZATIONAL STRUCTURE: It is a business organization with self-

contained departments. Authority travels downwards from top and accountability upwards
from bottom along the chain of command, and each department manager has control over his
or her department's affairs and employees. A line organization has only direct, vertical
relationships between different levels in the firm. Line departments is directly involved in
accomplishing the primary goal of the organization. For example, in a typical firm, line
departments include production and marketing. In a line organization authority follows the
chain of command.

Line Organizational Structure

Merits

38
 Simplest- It is the most simple and oldest method of administration.
 Unity of Command- In these organizations, superior-subordinate relationship is maintained
and scalar chain of command flows from top to bottom.
 Fixed responsibility- In this type of organization, every line executive has got fixed
authority, power and fixed responsibility attached to every authority.
 Flexibility- Since the authority relationships are clear, line officials are independentand can
flexibly take the decision.
 Prompt decision- Due to the factors of fixed responsibility and unity of command, the
officials can take prompt decision.

Demerits

 Over reliance- The line executive’s decisions are implemented to the bottom. This results in
over-relying on the line officials.
 Lack of specialization and Coordination- A line organization flows from top to bottom and
there is no scope for specialized functions. Whatever decisions are taken by the line officials,
in certain situations lead to wrong decisions
 Inadequate communication- The policies and strategies which are framed by the top
authority are carried out in the same way. This leaves no scope for communication from the
other end.

 LINE AND STAFF ORGANIZATION STRUCTURE: The line and stafforganization is an

improvement over the line organization and functional organization. The line organization
concentrates too much on control whereas the functional system divides the control too much.
But Line and staff Organizational structure ensures a proper balance between the two. This
type of Organizational structure has its origin from the military organizations. The
commanders in the field who are line officers who are assisted by the staff that helps them in
formulating strategies and plans by supplying valuable information.

In organizations also line officers get the advice of the staff which is very helpful in carrying
on the task in an efficient manner. However, staff’s role is advisory in nature. The line
authority flows from top to bottom and the staff authority is exercised by the specialists over
the line managers who advises them on important matters. The staff officers do not have any
power of command in the organization as they are employed to provide expert advice to the
line officers. The 'line' maintains discipline and stability; the 'staff' provides expert
information.

Line and Staff Organizational Structure

39
Merits

 Relief to line of executives- In a line and staff organization, the advice and counseling that is
provided to the line executives help them to concentrate on the execution of plans and they
get relieved of focusing their attention to many areas.
 Benefit of Specialization- Line and staff through division of whole concern into two types of
authority divides the enterprise into parts and functional areas. This paves the way for every
officer to concentrate in his own area.
 Better co-ordination- Line and staff organization through specialization is able to provide
better decision making and concentration remains in few hands. This feature helps in bringing
co-ordination in work as every official is concentrating in their own area.
 Benefits of Research and Development- Through the advice of specialized staff the line
executives get time to execute plans by taking productive decisions which are helpful for a
concern.
 Training- Due to the presence of staff specialists and their expert advice line executives can
give more concentration in decision making.

Demerits

 Lack of understanding- In a line and staff organization, two authority flows at the same
time. This results in the confusion between the two. As a result, the workers are not able to
understand as to who is their commanding authority.
 Line and staff conflicts- Line and staff are two authorities which are flowing at the same
time. The factors of designations and status influence sentiments which are likely to create
conflicts
 Costly- In line and staff concern, the concerns have to maintain the high remuneration of staff
specialist. This proves to be costly for a concern with limited finance.

DIFFERENCES BETWEEN LINE ORGANIZATION & LINE AND STAFF

ORGANIZATION

LINE ORGANIZATION LINE&STAFF ORGANIZATION

The organization in which the authority The organization structure, in which
and responsibility moves downward, and specialist are added to the line
accountability flows upward, is called line managers to provide guidance and
organization. support, is called line and staff
organization.
Command Authority Command and Advice Authority
Strict Discipline Loose discipline
Line executives are generalist. Staff executives are specialist.
Absolute centralization Partly centralized and partly
decentralized
Suitable for small organization with Suitable for large organization with
less number of employees. more number of employees.

40
  MATRIX ORGANIZATIONAL STRUCTURE

A matrix organizational structure is a company structure in which the reporting

relationships are set up as a grid, or matrix, rather than in the traditional hierarchy. It is an
organizational structure that facilitates the horizontal flow of skills and information. It is used
mainly in the management of large projects or product development processes, drawing
employees from different functional disciplines for a team without removing them from their
respective positions.
A matrix structure is, in a sense, a combination and interaction of project and functional
structures and is suggested to overcome the problems associated with project and functional
structures individually. The key features of a matrix structure are that the functional and
project lines of authority are super-imposed with each other and are shared by both functional
and project managers. Employees in a matrix organization report on day-to-day performance
to the project or product manager whose authority flows sideways (horizontally) across
departmental boundaries. Employees have dual reporting relationships - generally to both a
functional manager and a product manager. They also continue to report on their overall
performance to the heads of their departments whose authority flows downwards vertically
within his or her department.

Matrix Organizational Structure

Merits:
 Resources can be used efficiently, since experts and equipment can be shared across
projects.
 Products and projects are formally coordinated across functional departments.
 Information flows both across and up throughout the organization.
 Employees are in contact with many people, which helps them to share informationand can
speed the decision process.
 Staffers have to work autonomously and do some self-management between their
competing bosses. This can enhance motivation and decision making in employees .

Demerits:
 Feeling of insecurity: - Those employees who are specially appointed for the projects may
have a sense of insecurity after the completion of the project.

41
  Lack of effective coordination: - In a matrix organization there will be a problem of
maintaining effective coordination among project workers, functional workers and among the
workers from various functional area
 Difficult to maintain balance: There will be two types of specialists functional and project
specialist. To maintain a balance between these two specialist is a difficult task.
 Violation of unity of command: - Since the employees get command from two superiors-
functional or departmental manager and project manager quite often employees are found to
be in a state of confusion. Unity of command principle is violated.

PROJECT ORGANIZATIONAL STRUCTURE

A project organization is a temporary organization designed to achieve specific results by using teams
of specialists from different functional areas in the organization. They can be viewed as temporary
organizational structures formed for specific projects for a specific period of time and once the goal is
achieved, these are dismantled

The project team focuses all its energies, resources and results on the assigned project. For example,
the goal of an organization may be to develop a new automobile. For this project, the specialists from
different functional departments will be drawn to work together. These functional departments are
production, engineering, quality control marketing research, etc.

When the project is completed, these specialists go back to their respective duties. These specialists
are basically selected on the basis of task related skills and technical expertise rather than decision-
making experience or planning ability. Some of the examples of projects are: research and
development projects, product development, construction of a new plant, housing complex, shopping
complex, bridge etc.

DEPARTMENTATION

Depart mentation refers to the process of grouping activities into departments. Departmentation is
the process of grouping of work activities into departments, divisions, and other homogenous units.
This facilitates communication, coordination and control, thus contributing to the organizational
success. Since the units are independent and semi- autonomous, it provides satisfaction to the
managers which in turn improves efficiency and effectiveness.

 Depart mentation by Product: In this type, departments are formed according to the type of
products and it is more useful in multi-line corporations. Product departmentation organizes
employees based on which product line or set of services they work with. Each product line
has a department of its own, and each department has specialists in all of the functions needed
to produce and sell that product, such as marketing, manufacturing, accounting and human
resources.

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 Depart mentation By Product

The departments in this type of company operate autonomously from each other and are
often better at responding to changing circumstances in a flexible way where product
expansion and diversification, manufacturing and marketing characteristics of the product are
of primary concern. The general policies are decided upon by the top management within the
philosophical guidelines of the organization.

 Departmentation by Functions: Functional departmentation organizes employees based on

function or skill set. Salespeople and marketers work together in the marketing department,
employees involved in making the company's products work in the manufacturing department
and employees involved in designing new products work in the research and development
department.

Depart mentation By Functions

This type of organizational structure works best in smaller organizations without too many
distinct product lines.

 Departmentation by Customers: This type of departmentalization is used by those

organizations that deal differently with different types of customers. Thus, the customers form
the basis for grouping of activities.

Departmentation By Customers

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 Many banks have priority services for customers who deposit a given amount of money with
the bank for a given period of time. Similarly, business customers get better attention in the
banks than other individuals.

 Departmentation by Geographic Area: If an organization serves different geographical

areas, the division may be based on geographical basis. Such divisions are specially useful for
large scale enterprises that are geographically spread out such as banking, insurance, chain
department stores or a product that is nationally distributed.

Depart mentation By Geographic Area

 Depart mentation by Time: Certain Organizations like Hospitals and other public utility
companies such as telephone companies that work around the clock are generally
departmentalized on the basis of time shifts.

Depart mentation By Time

For example, the telephone company may have a day shift, on evening shift and a night shift,
and for each shift a different department may exist, even though they are all alike in terms of
objectives.

SPAN OF CONTROL

The span of control is the number of subordinates for whom a manager is directly responsible. Span
of control is simply the number of staff that report to a manager. Some companies also have an ideal
span of control, which is the number of reports they feel a manager can effectively manage.
Span of management, also known as ‘span of control’, refers to the number of people a manager
directly manages. In a wider span of control, a manager has many subordinates who report to him. In
a narrow span of control, a manger has fewer subordinates under him.

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  Capacity of Superior: Here the capacity means the ability of a superior to comprehend the
problems quickly and gel up with the staff such that he gets respect from all. Also, the
communication skills, decision-making ability, controlling power, leadership skills are
important determinants of supervisory capacity. Thus, a superior possessing such capacity can
manage more subordinates as compared to an individual who lack these abilities.
 Capacity of Subordinate: If the subordinate is trained and efficient in discharging his
functions without much help from the superior, the organization can have a wide span. This
means a superior can manage a large number of subordinates as he will be required just to
give the broad guidelines and devote less time on each.
 Nature of Work: If the subordinates are required to do a routine job, with which they are well
versed, then the manager can have a wider span. But, if the work is complex and the manager
is required to give directions, then the span has to be narrower.
 Degree of Decentralization: If the manager delegates authority to the subordinates then he is
required to give less attention to them. Thus, higher the degree of decentralization, the wider
is the span of management. But in case, subordinates donot have enough authority, then the
manager is frequently consulted for the clarifications, and as a result superior spends a lot of
time in this.
 Planning: If the subordinates are well informed about their job roles, then they will do their
work without consulting the manager again and again. This is possible only because of the
standing plans that they follow in their repetitive decisions. Through a proper plan, the burden
of a manager reduces manifold and can have a wider span of management.
 Staff Assistance: The use of staff assistance can help the manager in reducing his workload
by performing certain managerial tasks such as collecting information, processing
communications and issuing orders, on his behalf. By doing so, the managers can save their
time and the degree of span can be increased.
 Supervision from Others: The classical approach to the span of management, i.e., each
person should have a single supervisor is changing these days. Now the subordinates are
being supervised by other managers in the organization such as staff personnel. This has
helped the manager to have a large number of subordinates under him.
 Communication Techniques: The mode of communication also determines the span of
management. If in the manager is required to do a face to face communication with each
subordinate, then more time will be consumed. As a result, the manager cannot have a wider
span. But in case, the communication is in writing and is collected through a staff personnel;
the manager can save a lot of time and can have many subordinates under him.

The span of management is also called as the span of supervision or span of control, which
influences the complexity of the individual manager’s job and determine the shape or
configuration of the organization.

CENTRALIZATION AND DECENTRALIZATION

CENTRALIZATION- It is said to be a process where the concentration of decision making is in a

few hands. All the important decision and actions at the lower level, all subjects and actions at the
lower level are subject to the approval of top management. According to Allen,

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“Centralization” is the systematic and consistent reservation of authority at central points in the
organization.

Under centralization, the important and key decisions are taken by the top management and the other
levels are into implementations as per the directions of top level. For example, in a business concern,
the owner decides about the important matters and all the rest of functions like product, finance,
marketing, personnel, are carried out by the department heads and they have to act as per instruction
and orders of the owner.

Generally, it has been seen that centralization proves to be successful in case of small enterprises.
This is due to the reason that in such a case, the operations are limited and the proprietor of the
organization is able to personally look after all the activities of the organization. This style of
management proves to be effective when a need arises to take decisions in an emergency. However,
when the business of the organization expands, it becomes difficult to control all the activities and
therefore a need arises for decentralization.

ADVANTAGES OF CENTRALIZATION:

 Reduced cost - The standardised procedure and method helps in considerably reduction of
office cost. Office cost is reduced as it does not emphasizes on more specialists, and more
departmental machines and equipment.
 Uniformity in action — Uniformity in action is established throughout the organisation
because of central administrative control. The same executive supervises the work and same
type of office equipments are used which ensure uniform performance of activities.
 Personal leadership - Centralisation encourages and permit personal leadership. The
introduction of personal leadership facilitates quick action, aggressive marketing and
attainment of pin-pointed objective or purpose.
 Flexibility - Centralisation permits flexibility and adaptability of the organisation to the
changed circumstances. Occasional pressure of extra clerical work is handled with the existing
staff.
 Improved quality of work- Improved quality of work is possible because of standardised
procedure, better supervision and use of improved- machinery.
 Better co-ordination - Centrlisation facilitate better coordination among various operations.
Direct control and supervision are facilitated which results in less likelihood of conflict of
authority and duplication of work.

DISADVANTAGES OF CENTRALIZATION :

 Delay in work - Centralisation creates loss of man-hours and delay in performance of work
because of transmission of records from and to the central control room. Quick decision is not
possible which also results delay in office work.
 Remote control - Better supervision is not possible as the executives are under heavy pressure
of work. Slackness in work is developed in the absence of better control and supervision.
 No loyalty- In centralisation there is no subordinate's initiative in work because they are
required to do such works which they were asked for. Workers work like machine which
results in no involvement in work and absence of zeal. All these factors stand as barrier in
the development of loyalty to work.

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  No Secrecy—Secrecy is not possible in centralised set up organisation because here orders
and decisions flow from one place and are conveyed to all.
 No special attention—In centralisation no special attention is given to special work as all
works are done at one place

DECENTRALIZATION: Decentralization is a systematic delegation of authority at all levels of

management. In a decentralization concern, authority in retained by the top management for taking
major decisions and framing policies concerning the whole concern. Rest of the authority may be
delegated to the middle level and lower level of management.

The degree of centralization and decentralization will depend upon the amount of authority
delegated to the lowest level. According to Allen, “Decentralization refers to the systematic effort to
delegate to the lowest level of authority except that which can be controlled and exercised at central
points.

IMPLICATIONS OF DECENTRALIZATION

 There is less burden on the Chief Executive as in the case of centralization.

 In decentralization, the subordinates get a chance to decide and act independently which
develops skills and capabilities.
 In decentralization structure, operations can be coordinated at divisional level which is not
possible in the centralization set up.
 In the case of decentralization structure, there is greater motivation and morale of the
employees since they get more independence to act and decide.
 In a decentralization structure, co-ordination to some extent is difficult to maintain as there
are lot many department divisions and authority is delegated to maximumpossible extent, i.e.,
to the bottom most level .

The degree of centralization and de-centralization can be affected by many factors like nature of
operation, volume of profits, number of departments, size of a concern, etc. The larger the size of a
concern, a decentralization set up is highly suitable .

ADVANTAGES:

 Reduces the burden on top executives: Decentralisation relieves the top executives of the
burden of performing various functions. Centralisation of authority puts the whole
responsibility on the shoulders of an executive and his immediate group. The only way to
lessen their burden is to decentralise the decision-making power to the subordinates.
 Facilitates diversification: Under decentralization, the diversification of products, activites
and markets etc.,is facilitated.
 To provide product and market emphasis: A product loses its market when new products
appear in the market on account of innovations or changes in the customers demand. In such
cases authority is decentralised to the regional units to render instant service taking into
account the price, quality, delivery, novelty, etc.
 Executive Development: When the authority is decentralised, executives in the organisation
will get the opportunity to develop their talents by taking initiative which will also make them
ready for managerial positions. The growth of the company greatly depends on the talented
executives.

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  It promotes motivation: Since local managers are given a large degree of authority and local
autonomy, they tend to weld their people into closely knit integrated groups. This improves the
morale of employees as they get involved in decision-making process.
 Better control and supervision: Decentralisation ensures better control and supervision as
the subordinates at the lowest levels will have the authority to make independent decisions.
 Quick Decision-Making: Decentralisation brings decision making process closer to the
scene of action. This leads to quicker decision-making of lower level since decisions do not
have to be referred up through the hierarchy.

DISADVANTAGES:

 Uniform policies not Followed: Under decentralisation, it is not possible* to follow

uniform policies and standardised procedures. Each manager will work and frame policies
according to his talent.
 Problem of Co-Ordination: Decentralisation of authority creates problems of co-
ordination as authority lies dispersed widely throughout the organisation.
 More Financial Burden: Decentralisation requires the employment of trained personnel to
accept authority, it involves more financial burden and a small enterprise cannot afford to
appoint experts in various fields.
 Require Qualified Personnel: Decentralisation becomes useless when there are no
qualified and competent personnel.
 Conflict: Decentralisation puts more pressure on divisional heads to realize profits at any
cost. Often in meeting their new profit plans, bring conflicts among managers.

DELEGATION OF AUTHORITY

The Delegation of Authority is a process wherein the manager assigns responsibility to its
subordinate along with the certain authority to accomplish the task on the manager’s behalf.
Delegation of Authority implies division of authority and power downwards to the subordinate.
Delegation emphasizes on entrusting someone to do parts of the job since a manager alone cannot
perform all the tasks assigned to him. In order to meet the targets, the manager should delegate
authority. Delegation of authority can be defined as subdivision and sub-allocation of powers to the
subordinates in order to achieve effective results.

Delegation of authority is a process in which the authority and powers are divided and shared amongst
the subordinates. When the work of a manager goes beyond his capacity, there should be some system
of sharing the work. Therefore, delegation of authority has become an important tool in organization’s
function.

Definition:

 Delegation means assigning work to others and giving them authority to do it.”
- F. G. Moore
 “Delegation means conferring authority from one executive or organisational unit toanother
in order to accomplish particular assignment.” —George R. Terry
 “Delegation is an act of comparing authority by some higher source of authority.”

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IMPORTANCE OF DELEGATION OF AUTHORITY

 Delegation leads to better decisions.

 Delegation relieves the manager from heavy work load.
 Delegation helps to improve the motivation and morale of subordinates.
 Delegation speeds up decision making.
 Delegation facilitates training of subordinates.
 Delegation creates a formal organization structure.
 Delegation of authority is the ground on which the superior-subordinate relationshipstands.
 Delegation of authority in a way gives enough room and space to the subordinates toflourish
their abilities and skill.

STEPS AND GUIDELINES FOR EFFECTIVE DELEGATION

 Assignment of Duties to Subordinates: Before the actual delegation of authority, the

delegator must decide on the duties which he wants the subordinate or the group of
subordinates to perform. Here, the manager lists the activities to be performed along with the
targets to be achieved, and the same is spelled out to the subordinates. Thus, in the first stage,
the duties are assigned to the subordinates as per their job roles.
 Transfer of Authority to perform the duty: At this stage, an adequate authority is delegated
to the subordinate which is essential to perform the duty assigned to him. A manager must
make sure; that authority is strictly delegated just to perform the responsibility, as more
authority may lead to its misuse by the subordinate.
 Acceptance of the Assignment: At this stage, the subordinate either accepts or rejects the
tasks assigned to him by his superior. If the subordinate or the delegate, refuses to accept the
duty and the authority to perform it, then the manager looks for the other person who is
capable of and is willing to undertake the assignment. Once the assignment gets accepted by
the subordinate, the delegation process reaches its last stage.
 Accountability: The process of delegation of authority ends at the creation of an obligation
on the part of the subordinate to perform his responsibility within the powers assigned to him.
Once the assignment is accepted by the subordinate, then he becomes responsible for the
completion of the duty and is accountable to the superior for his performance.

Thus, the process of delegation of authority begins with the duties assigned to the
subordinates and ends when the subordinate is obliged to carry out the operations as intended.

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 CONTROL

Controlling consists of verifying whether everything occurs in confirmation with the plans adopted,
instructions issued and principles established. Controlling ensures that there is effective and efficient
utilization of organizational resources so as to achieve the planned goals. Controlling measures the
deviation of actual performance from the standard performance, discovers the causes of such
deviations and helps in taking corrective actions. In the words of Koontz and O'Donnell "Managerial
control implies measurement of accomplishment against the standard and the correction of deviations
to assure attainment of objectives according to plans." Controlling can also be viewed as detecting and
correcting significant variations in the results obtained from planned activities.

According to Brech, “Controlling is a systematic exercise which is called as a process of checking

actual performance against the standards or plans with a view to ensure adequate progress and also
recording such experience as is gained as a contribution to possible future needs.”

FEATURES OF CONTROLLING FUNCTION

 Controlling is an end function- A function which comes once the performances are made in
conformities with plans.
 Controlling is a pervasive function- It is performed by managers at all levels and in all type
of concerns.
 Controlling is forward looking- Effective control is not possible without past being
controlled. Controlling always look to future so that follow-up can be made whenever
required.
 Controlling is a dynamic process- Since controlling requires taking reviewal methods,
changes have to be made wherever possible.
 Controlling is related with planning- Planning and Controlling are two in separable
functions of management. Without planning, controlling is a meaningless exercise and without
controlling, planning is useless.

PROCESS OF CONTROLLING

 Establishment of standards- Standards are the plans or the targets which have to be
achieved in the course of business function. They can also be called as the criterions for
judging the performance. Standards generally are classified into two-

 Measurable or tangible - Those standards which can be measured and expressed are called
as measurable standards. They can be in form of cost, output, expenditure, time, profit, etc.
 Non-measurable or intangible- There are standards which cannot be measured monetarily.
For example- performance of a manager, deviation of workers, their attitudes towards a
concern. These are called as intangible standards.

Controlling becomes easy through establishment of these standards because controlling is

exercised on the basis of these standards.

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 Steps in Controlling Process

 Measurement of performance- The second major step in controlling is to measure the

performance. Finding out deviations becomes easy through measuring the actual performance.
Performance levels are sometimes easy to measure and sometimes difficult. Measurement of
tangible standards is easy as it can be expressed in units, cost, money terms, etc. Quantitative
measurement becomes difficult when performance of manager has to be measured.
Performance of a manager cannot be measured in quantities. It can be measured only by-

 Attitude of the workers

 Their morale to work
 The development in the attitudes regarding the physical environment, and
 Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly, quarterly, yearly
reports.
 Comparison of actual and standard performance- Comparison of actual performance with
the planned targets is very important. Deviation can be defined as the gap between actual
performance and the planned targets. The manager has to find out two things - extent of
deviation and cause of deviation. Extent of deviation means that the manager has to find out
whether the deviation is positive or negative or whether the actual performance is in
conformity with the planned performance. The managers have to exercise control by
exception. He has to find out those deviations which are critical and important for business.
Minor deviations have to be ignored. Major deviations like replacement of machinery,
appointment of workers, quality of raw material, rate of profits, etc. should be looked upon
consciously.
Once the deviation is identified, a manager has to think about various cause which has led to
deviation. The causes can be-
 Erroneous planning
 Implementation of plans is defective
 Supervision and communication is ineffective, etc.
 Taking remedial actions- Once the causes and extent of deviations are known, the manager
has to detect those errors and take remedial measures for it. There are two alternatives here
 Taking corrective measures for deviations which have occurred; and
 After taking the corrective measures, if the actual performance is not in conformity with
plans, the manager can revise the targets. It is here the controlling process comes

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 to an end. Follow up is an important step because it is only through taking corrective
measures, a manager can exercise controlling.
TYPES OF CONTROL

 FEED FORWARD CONTROL: The objective of feed forward control or preliminary

control is to anticipate the likely problems and to exercise control even before the activity has
started or problem has occurred or been reported. It is future directed. This kind of control is
very popular in airlines. They go in for preventive maintenance activities to detect and
prevent structural damage, which may result in disaster. These controls are evident in the
selection and hiring of new employees. It helps in taking action beforehand.

Feed forward controls are future-directed and they attempt to detect and anticipate problems
or deviations from the standards in advance of their occurrence. They are in- process controls
and are much more active, aggressive in nature, allowing corrective action to be taken in
advance of the problem. Feed forward controls thus anticipate problems and permit action to
be taken before a problem actually arises.

 CONCURRENT CONROL: Concurrent control is also called steering control because it

allows people to act on a process or activity while it is proceeding, not after it is proceeding,
nor after it is completed. Corrections and adjustments can be made as and when the need a
rises. Such controls focus on establishing conditions that will make it difficult or impossible
for deviations from norms to occur.

It involves the regulation of ongoing activities that are part of transformation process to
ensure that they conform to organizational standards. The technique of direct supervision is
the best-known form of concurrent control. Concurrent control is designed to ensure that
employees’ activities produce the correct results and to correct the problems, if any, before
they become costly. In case of computer typing, if the spelling is wrong or construction is
incorrect, the programme immediately alerts the user.

An example of concurrent control is the development by companies of job descriptions and

job specifications. It may be recalled that job description identifies the job that has to be
done, thus clarifying working relationships, responsibility areas, and authority relationships. It
thus assists in preventing unnecessary duplication of effort (work) and potential organisational
conflict.

 FEEDBACK CONTROL: Feedback control is future-oriented. It is historical in nature and

is also known as post-action control. The implication is that the measured activity has already
occurred, and it is impossible to go back and correct performance to bring it up to standard.
Rather, corrections must occur after the act.

Corrective action is taken after analysing variances with the planned standards at the end of
the activity. It is also known as ‘post action control’, because feedback control is exercised
after the event has taken place.Such control is used when feed forward or concurrent is not
possible or very costly; or when exact processes involved in performing a work is difficult to
specify in advance.

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