Revision Notes
Class 12 Business Studies
Chapter 2 - Principles Of Management
Principle
A principle is a statement which provides a guide to thought and action. Principle
serves as the foundation for a system of belief or behaviour or for a chain of
reasoning.
Principles of Management
● Principles of management are broad and fundamental truths that establish
relation between cause and their effects.
● These principles serve as guidelines for managerial decision-making and
their course of action.
● It is through principles that management predicts the result of their actions.
● Management principles are not as rigid as principles of science as this deals
with human behaviour and thus are to be applied creatively as the situation
demands.
Nature of Principles of Management
The nature of principles of management is given below:
● Universality: Principles of management have universal validity. These are
applicable to all types of organizations, business as well as non-business,
small as well as large enterprises and at different levels of authority. As
these principles are universal, it can be applied in different managerial
situations.
● Human Behaviour: Management has to deal with human behaviour,
therefore the principles aim at influencing human behaviour. They are
general guidelines to action and can be applied according to the situation
as they are based on complex human behaviour which cannot be controlled.
● Created by practice and experimentation: Scientists through research,
experiments, knowledge and expertise have developed the principles. The
principles are used to solve different managerial problems with the help of
observation, analysis and experience.
● Dynamic & Flexible: These principles are not rigid and can be adapted
and modified by the practicing managers depending upon the situation and
changes in the business environment. They are flexible and dynamic in
nature.
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● Cause and Effect relationship: They establish a relationship between
cause and effect so that they can be used in different situations.
● Contingent: The principles are relative and not absolute. Depending upon
the current situation at a certain point of time, the principles are applied.
As per the organization needs and prevalent situations these principles are
applied.
Significance of the Principles of Management
● Providing managers with useful insights into reality: Through
principles of management, managers get insights of real work situations.
Use of principles will increase their knowledge , ability and understanding
of various managerial situations and circumstances.
● Optimum utilization of resources and effective administration:
Optimum utilization of resources means maximum benefit with minimum
cost. The principles have been developed from experience of various
experts so as to improve managerial efficiency. The principles guide
managers to work in a systematic way without wastage of time and
resources so as to avail maximum benefit.
● Scientific decisions: Decisions must be based on facts, and should be
justified in terms of intended purpose. They should be realistic, practical,
and able to be measured and evaluated. Principles are free from bias and
prejudice.
● Meeting the changing environmental requirements: Principles of
Management are flexible and dynamic in nature and thus help the
organization to achieve its goal even in the changing business environment.
● Fulfilling social responsibility: Principles of management also provides
direction to the managers in fulfilling social responsibilities along with
helping them in achieving organizational goals. Principles help managers
to make optimum use of human and material resources. With efficient use
of resources, there is improvement in the quality of work and increase in
standard of living of the society.
● Management training, education and research: Principles of
management are the important aspect for the managers and are helpful in
enhancing the knowledge, which forms the basis for management training
and research.
Taylor’s Scientific Management
“Scientific management is the art of knowing exactly what you want your men to
do and then seeing that they do it in the best and cheapest way.”
F.W Taylor
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F.W Taylor also known as ‘Father of Scientific Management’ was the first expert
to lay down the foundation of management as a science consisting of fundamental
principles and use of these scientific methods to solve managerial problems.
Principles of Scientific Management:
The basic principles of scientific management are as follow:
● Science, Not Rule of Thumb: Each and every task performed in an
organization should be based on a scientific study and analysis instead of
hit and trial method. There should be a scientific plan along with
standardised equipment to do work efficiently and effectively. Hence to
simplify the tasks, and promote ease in its performance, new techniques
and methods need to be developed and the management should not keep
using the age old methods and techniques.
● Harmony, Not Discord: There should be complete harmony between
management and workers in order to achieve the organizational goals. It
implies that there should be a healthy working environment. In order to
respect each other’s role and avoid any kind of conflict, Taylor brought a
complete revolution in management policies (Mental Revolution).
● Cooperation Not Individualism: There should be complete cooperation
and coordination between the labour and management so as to achieve
organizational goals instead of individualism. Constructive suggestions
from employees must be encouraged which will also refrain workers from
going on a strike and making unreasonable demands.
● Development Of Each And Every Person To His Or Her Greatest
Efficiency And Prosperity: Taylor suggested management on scientific
planning of operational work and that the workers should focus on
performance of quality work. The principle suggests taking actions for the
development of competencies of all people working in the organization.
They should be selected through a proper scientific process and should be
given rigorous training and thereafter as per the ability of the person, work
should be assigned. This will increase the overall productivity by utilizing
the skills of the workers completely.
Techniques of Scientific Management
● Functional Foremanship: Functional foreman-ship is a technique in
which planning and execution are considered different. Supervision is
divided into several specialized functions and each function is to be
entrusted to a foreman. This principle is an extension of Fayol’s principle
of division of work and specialisation. It takes place through eight
personnel, namely divided under heads Planning and Production Incharge:
Planning incharge
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o Instruction Card Clerk
o Route Clerk
o Time And Cost Clerk
o Disciplinarian.
Production Incharge
o Speed Boss
o Gang Boss
o Repair Boss
o Inspector
● Standardization and Simplification of work: Standardization refers to
the process of developing standards for every business activity in order to
maximize output. Simplification is a process to remove unessential
varieties, sizes of products or services. The cost of labour, machines and
tools can be saved through simplification and standardisation. It leads to
optimum utilization of resources and increase in turnover.
● Method Study: The purpose of method study is to find out one best
possible way of doing the job in order to attain maximum efficiency and
for optimum utilization of resources and to improve quality and satisfaction
of customers.
● Motion Study: It is the science of identifying and eliminating wasteful
movements in the process of work resulting from unnecessary, incidental
and unproductive motions of the workers. This will help to complete the
task in less time.
● Time study: It determines the standard time needed to perform a well-
defined job. The objective of time study is to determine the number of
workers to be employed, frame suitable incentive schemes & determine
labour costs.
● Fatigue study: Fatigue study determines time and frequency of rest
intervals in completing an assigned task. Workers will be able to replenish
their lost energy during the rest time, avoiding accidents, rejections, and
industrial illness.
● Differential Piece Wage System: This differentiates efficient and
inefficient workers and links wages and productivity. The standard output
per day is established and two-piece rates are used: higher for those who
achieve equal to or more than standard output i.e. efficient workers and
lower rates for the inefficient and slow-paced workers. Thus, efficient
workers will be rewarded & inefficient will be motivated to improve their
performance.
For example, the standard output per worker per day is 20 units and the
workers who produce more than the standard will get Rs. 100 per unit and
the ones who will produce less than the standard will be paid Rs. 80 per
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unit. An efficient worker making 21 units will get 21x100= Rs. 2100 per
day whereas a worker who makes 18 units will get 18×80 = Rs. 1440 per
day. The difference of Rs 660 will motivate the inefficient worker to work
more efficiently, and get higher wages.
Fayol’s Principles of Management
Henry Fayol, a French Industrialist through his experience and study developed
general theory of management. He suggested fourteen principles of management.
Principles of Management developed by Fayol
1. Division of work: Division of work means division of the total task into
smaller jobs and allocating it to employees. The entire work is divided into small
tasks and a trained specialist who is competent enough to perform that job does
each work. Thus, it results in greater efficiency, specialization and increased
productivity.
For example, to open a bank account, there are different counters in a bank, and
each employee handles a different task in the same procedure.
2. Authority and Responsibility: Authority refers to the power or right to take
decisions and get the work done whereas responsibility refers to the obligation to
complete the job assigned on time.
These two always go hand in hand. Mere responsibility without authority makes
an executive less interested in discharging duties. Similarly, giving authority
without assigning responsibility may lead to misuse of power.
3. Discipline: Discipline means obedience , respect of authority and following
the rules regulations. It is necessary to ensure a smooth working environment in
the organization. Good supervision at all levels and an established system of
penalties will help to maintain discipline in the organization.
4. Unity of Command: According to Fayol, for every individual employee there
should be only one superior who can assign him responsibilities and to whom he
is accountable. This will avoid confusion, conflict and duplication of work.
For example, an employee is asked by one superior to accept only cash payments,
while the other superior asks him to accept both cash and credit card payments.
Hence, no unity of command is there, which adds confusion to the employee’s
mind
5. Unity of Direction: All the units of an organization should move towards the
same objectives through coordinated and focused efforts. There should be only
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one head and one plan for a group of individuals having the same objective.
Hence unity of action is ensured through this principle.
Difference between Unity of Command and Unity of Direction
Basis For Comparison Unity of Command Unity of Direction
Meaning As per this principle , an According to this
employee should get principle, there should
orders from one superior be one head and one plan
only and be accountable for a group of activities
to him only. having the same
objective.
Purpose To prevent overlapping To prevent repetition of
of orders and activities.
instructions, duplication
of work, confusion and
indiscipline.
Relation It relates to the It relates to activities of
functioning of people. the organization.
Outcome Unity of Command Unity of direction leads
results in effective and to unity of action and
efficient functioning of coordination of efforts .
both superior as well as
subordinates.
Relationship Unity of command deals Unity of direction deals
with the relationship of with the relationship of
superior and activities in support of
subordinate. organizational plans and
objectives.
Importance Unity of command helps Unity of direction results
to fix the responsibility in efficient functioning
of each person in the of group activities to
organization. achieve organizational
goals.
6. Subordination Of Individual Interest To General Interest: The interest of
an organization should take priority over the interest of any individual employee.
In simple words the organization interest needs to be prioritized over individual
interest.
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For example, the organizational objective to achieve a certain objective should be
prioritised over an individual’s personal objective to get higher salary with lowest
work.
7. Remuneration of Employees: All the employees working in the organization
should have fair pay and compensation. To establish a reasonable standard of
living, the employees should be given fair wages. The remuneration should be
according to the paying capacity of the organization.
8. Centralization and Decentralization: Centralization means concentration of
decisions making authority with centre, whereas its dispersal among more than
one person is Decentralization. No organization can be completely centralized or
completely decentralized, so a balance of both must be created.
9. Scalar Chain: The formal lines of authority and flow of communication
between superiors and subordinates from the highest to the lowest ranks is known
as scalar chain. This chain should not be violated but in case of emergency
employees at the same level can contact through Gang Plank by informing their
immediate superiors in order to make quick communications.
Such as in the diagram, normally there is a certain route followed like by superior
A to employee B, C, D or to employee G, H and I for communication but in case
of emergency an employee C can communicate with employee H( because of
same level), this is an exception to scalar chain, called as Gang Plank.
B G
C H
Gang Plank
D I
10. Order: In an organization, there must be material and social order. According
to Fayol “People and material should be in suitable places at appropriate times
for maximum efficiency”. Material order means a place for everything and
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everything in the right place and social order means a place for everyone and
everyone should be at their designated place.
11. Equity: Management should treat employees with justice and equality. Good
sense and experience are needed to ensure fairness to all employees who should
be treated as fairly as possible without any sort of discrimination. Hence,
irrelevant favoritism or penalties should be avoided.
12. Stability of Personnel: To preserve organisational efficiency, employee
turnover should be kept to a minimum. Personnel should be chosen and appointed
after a thorough selection process, and the chosen person should be retained for
a certain amount of time to let the employee demonstrate results, as learning and
getting accustomed to a new job takes time.
13. Initiative: Workers should be motivated to develop and implement
improvement plans. Initiative means taking the first step with self-motivation. It
entails formulating and carrying out a strategy.
14. Esprit De Corps: Management should foster team spirit, unity and harmony
among employees. Hence efforts should be made to ensure group cohesion in the
organization.
Fayol versus Taylor
Basis Henry Fayol F.W Taylor
Basis of formation Personal Experience Observations and
experimentation
Focus Improve overall Increase the productivity
efficiency of the of people working in the
management. enterprise.
Applicability Universal applicability Applicable only to
specialized situations.
Perspective Top level of Operative level of
management Management
Personality Practitioner and Scientist (known as
researcher. ‘father of scientific
management’)
Techniques General theory on Scientific Management
management
