UNIT I

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

LEVELS OF MANAGEMENT
The three levels of management are as follows

1. The Top Management

It consists of board of directors, chief executive or managing director. The top management
is the ultimate source of authority and it manages goals and policies for an enterprise. It
devotes more time on planning and coordinating functions.
The role of the top management can be summarized as follows –

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 1

 a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets, procedures,
schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world.
g. It provides guidance and direction.
h. The top management is also responsible towards the shareholders for the performance
of the enterprise.

2. Middle Level Management

The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. They devote more
time to organizational and directional functions. In small organization, there is only one layer
of middle level of management but in big enterprises, there may be senior and junior middle
level management. Their role can be emphasized as –
a. They execute the plans of the organization in accordance with the policies and
directives of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of lower-level management.
d. They interpret and explain policies from top level management to lower level.
e. They are responsible for coordinating the activities within the division or department.
f. It also sends important reports and other important data to top level management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring lower-level managers towards better
performance.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 2

 3. Lower-Level Management
Lower level is also known as supervisory / operative level of management. It consists of
supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,
“Supervisory management refers to those executives whose work has to be largely
withpersonal oversight and direction of operative employees”.
In other words, they are concerned with direction and controlling function of management.
Their activities include
a. Assigning of jobs and tasks to various workers.
b. They guide and instruct workers for day-to-day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation in the
organization.
e. They communicate workers problems, suggestions, and recommendatory appeals
etc. to the higher level and higher-level goals and objectives to the workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct contact
with the workers.

Management as an Art
The main elements of an art are –
 Personal Skills
 Practical know-how
 Application of knowledge
 Result orientation
 Creativity
 Constant practice aimed at perfection

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 3

 Management is basically an art because of the following reasons –

 A manager applies his knowledge and skills to coordinate the efforts of his people
 Mgt seeks to achieve concrete practical results
 Mgt is creative. It brings out new situation and converts into output
 Effective Mgt lead to realization of Organizational and other goals. Mastery in Mgt
requires a sufficiently long period of experience in, managing.

Management as Science
The essential elements of science
 Systematized body of Knowledge
 Underlying principles and theories developed through continuous observation, inquiry,
experimentation and research.
 Universal truth and applicability.
 Organized body of knowledge can be taught and learnt in class room and outside.
 Mgt is a social science. It contains all the essentials of science. It is an inexact science.
 PERT, CPM, Cost A/C, Finance, MBO etc

Thus, the theory Science) and practice art of Mg t go side by side for the efficient
functioning of an organization.

ROLES OF MANAGER
Henry Mintzberg identified ten different roles, separated into three categories. The categories he
defined are as follows

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 4

 a. Interpersonal Roles
The ones that, like the name suggests, involve people and other ceremonial duties. It can be
further classified as follows
• Leader – Responsible for staffing, training, and associated duties.
• Figurehead – The symbolic head of the organization.
• Liaison – Maintains the communication between all contacts and informers that compose
the organizational network.
b. Informational Roles

Related to collecting, receiving, and disseminating information.

• Monitor – Personally seek and receive information, to be able to understand the
organization.
• Disseminator – Transmits all import information received from outsiders to the members
of the organization.
• Spokesperson – On the contrary to the above role, here the manager transmits the
organization‟s plans, policies and actions to outsiders.
c. Decisional Roles
Roles that revolve around making choices.
• Entrepreneur – Seeks opportunities. Basically, they search for change, respond to it, and
exploit it.
• Negotiator – Represents the organization at major negotiations.
• Resource Allocator – Makes or approves all significant decisions related to the allocation
of resources.
• Disturbance Handler – Responsible for corrective action when the organization faces
disturbances.

FUNCTIONS OF MANAGEMENT
Management has been described as a social process involving responsibility for economical and
effective planning & regulation of operation of an enterprise in the fulfillment of given purposes.
It is a dynamic process consisting of various elements and activities. These activities are
different from operative functions like marketing, finance, purchase etc. Rather these activities
are common to each and every manger irrespective of his level or status.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 5

Different experts have classified functions of management. According to George & Jerry, “There
are four fundamental functions of management i.e., planning, organizing, actuating and
controlling”. According to Henry Fayol, “To manage is to forecast and plan, to organize, to
command, & to control”. Whereas Luther Gullick has given a keyword „POSDCORB‟ where
„P‟ stands for Planning, O for Organizing, S for Staffing, D for Directing, Co for Co-ordination,
R for reporting & B for Budgeting. But the most widely accepted are functions of management
given by KOONTZ and O‟DONNEL i.e.,Planning, Organizing, Staffing, Directing and
Controlling.
For theoretical purposes, it may be convenient to separate the function of management but
practically these functions are overlapping in nature i.e., they are highly inseparable. Each
function blends into the other & each affects the performance of others.

1. Planning
It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-
determined goals. According to KOONTZ, “Planning is deciding in advance – what to do,
when to do & how to do. It bridges the gap from where we are & where we want to be”. A
plan is a future course of actions. It is an exercise in problem solving & decision making.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 6

 Planning is determination of courses of action to achieve desired goals. Thus, planning is a
systematic thinking about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It is all
pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties,
risks, wastages etc.
2. Organizing
It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals. According to
Henry Fayol, “To organize a business is to provide it with everything useful or its
functioning i.e., raw material, tools, capital and personnel‟s”. To organize a business involves
determining & providing human and non-human resources to the organizational structure.
Organizing as a process involves:
• Identification of activities.
• Classification of grouping of activities.
• Assignment of duties.
• Delegation of authority and creation of responsibility.
• Coordinating authority and responsibility relationships.

3. Staffing
It is the function of manning the organization structure and keeping it manned. Staffing has
assumed greater importance in the recent years due to advancement of technology, increase
in size of business, complexity of human behavior etc. The main purpose o staffing is to put
right man on right job i.e., square pegs in square holes and round pegs in round holes.
According to Koontz&O‟Donnell, “Managerial function of staffing involves manning the
organization structure through proper and effective selection, appraisal & development of
personnel to fill the roles designed un the structure”. Staffing involves:
• Manpower Planning (estimating man power in terms of searching, choose the person
and giving the right place).
• Recruitment, selection & placement.
• Training & development.
• Remuneration.
• Performance appraisal.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 7

 • Promotions & transfer.
4. Directing
It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the
enterprise which sets it in motion the action of people because planning, organizing and
staffing are the mere preparations for doing the work. Direction is that inert-personnel aspect
of management which deals directly with influencing, guiding, supervising, motivating sub-
ordinate for the achievement of organizational goals. Direction has following elements:
• Supervision
• Motivation
• Leadership
• Communication
(i) Supervision- implies overseeing the work of subordinates by their superiors. It is theact of
watching & directing work & workers.
(ii) Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zealto
work. Positive, negative, monetary, non-monetary incentives may be used for this purpose.
(iii) Leadership- may be defined as a process by which manager guides and influencesthe
work of subordinates in desired direction.
(iv) Communications- is the process of passing information, experience, opinion etcfrom
one person to another. It is a bridge of understanding.
5. Controlling
It implies measurement of accomplishment against the standards and correction of deviation
if any to ensure achievement of organizational goals. The purpose of controlling is to ensure
that everything occurs in conformities with the standards. An efficient system of control
helps to predict deviations before they actually occur. According to Theo Haimann,
“Controlling is the process of checking whether or not proper progress is being made towards
the objectives and goals and acting, if necessary, to correct any deviation”. According to
Koontz &O‟Donnell “Controlling is the measurement & correction of performance activities
of subordinates in order to make sure, that the enterprise objectives and plans desired to
obtain them as beingaccomplished”.
Therefore, controlling has following steps:

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 8

 (i) Establishment of standard performance.
(ii)Measurement of actual performance.
(iii) Comparison of actual performance with the standards and finding out deviation if
any.
(iv) Corrective action.

EVOLUTION OF MANAGEMENT THOUGHT

The practice of management is as old as human civilization. The ancient civilizations of
Egypt (the great pyramids), Greece (leadership and war tactics of Alexander the great) and Rome
displayed the marvelous results of good management practices.
The origin of management as a discipline was developed in the late 19th century. Over
time, management thinkers have sought ways to organize and classify the voluminous
information about management that has been collected and disseminated. These attempts at
classification have resulted in the identification of management approaches. The approaches of
management are theoretical frameworks for the study of management. Each of the approaches of
management are based on somewhat different assumptions about human beings and the
organizations for which they work.
The different approaches of management are
a) Classical approach,
b) Behavioral approach,
c) Quantitative approach,
d) Systems approach,
e) Contingency approach.
The formal study of management is largely a twentieth-century phenomenon, and to some degree
the relatively large number of management approaches reflects a lack of consensus among
management scholars about basic questions of theory and practice.
a. THE CLASSICAL APPROACH:
The classical approach is the oldest formal approach of management thought. Its roots pre-date
the twentieth century. The classical approach of thought generally concerns ways to manage
work and organizations more efficiently. Three areas of study that can be grouped under the
classical approach are scientific management, administrative management, and bureaucratic
management.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 9

(i) Scientific Management.
Frederick Winslow Taylor is known as the father of scientific management. Scientific
management (also called Taylorism or the Taylor system) is a theory of management that
analyzes and synthesizes workflows, with the objective of improving labor productivity. In other
words, Traditional rules of thumb are replaced by precise procedures developed after careful
study of an individual at work.
(ii) Administrative Management.
Administrative management focuses on the management process and principles of
management. In contrast to scientific management, which deals largely with jobs and work at the
individual level of analysis, administrative management provides a more general theory of
management. Henri Fayol is the major contributor to this approach of management thought.
(iii) Bureaucratic Management.
Bureaucratic management focuses on the ideal form of organization. Max Weber was the
major contributor to bureaucratic management. Based on observation, Weber concluded that
many early organizations were inefficiently managed, with decisions based on personal
relationships and loyalty. He proposed that a form of organization, called a bureaucracy,
characterized by division of labor, hierarchy, formalized rules, impersonality, and the selection
and promotion of employees based on ability, would lead to more efficient management. Weber
also contended that managers' authority in an organization should be based not on tradition or
charisma but on the position held by managers in the organizational hierarchy.

b. THE BEHAVIORAL APPROACH:

The behavioral approach of management thought developed, in part, because of
perceived weaknesses in the assumptions of the classical approach. The classical approach
emphasized efficiency, process, and principles. Some felt that this emphasis disregarded
important aspects of organizational life, particularly as it related to human behavior. Thus, the
behavioral approach focused on trying to understand the factors that affect human behavior at
work.
(i) Human Relations.
The Hawthorne Experiments began in 1924 and continued through the early 1930s. A
variety of researchers participated in the studies, including Elton Mayo. One of the major
conclusions of the Hawthorne studies was that workers' attitudes are associated with

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 10

productivity. Another was that the workplace is a social system and informal group influence
could exert a powerful effect on individual behavior. A third was that the style of supervision is
an important factor in increasing workers' job satisfaction.

(ii) Behavioral Science.

Behavioral science and the study of organizational behavior emerged in the 1950s and
1960s. The behavioral science approach was a natural progression of the human relations
movement. It focused on applying conceptual and analytical tools to the problem of
understanding and predicting behavior in the workplace.
The behavioral science approach has contributed to the study of management through its
focus on personality, attitudes, values, motivation, group behavior, leadership, communication,
and conflict, among other issues.
c. THE QUANTITATIVE APPROACH:
The quantitative approach focuses on improving decision making via the application of
quantitative techniques. Its roots can be traced back to scientific management.

(i) Management Science (Operations Research)

Management science (also called operations research) uses mathematical and statistical
approaches to solve management problems. It developed during World War II as strategists tried
to apply scientific knowledge and methods to the complex problems of war. Industry began to
apply management science after the war. The advent of the computer made many managements
science tools and concepts more practical for industry.
(ii) Production And Operations Management.
This approach focuses on the operation and control of the production process that
transforms resources into finished goods and services. It has its roots in scientific management
but became an identifiable area of management study after World War II. It uses many of the
tools of management science.
Operations management emphasizes productivity and quality of both manufacturing and
service organizations. W. Edwards Deming exerted a tremendous influence in shaping modern
ideas about improving productivity and quality. Major areas of study within operations
management include capacity planning, facilities location, facilities layout, materials requirement

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 11

planning, scheduling, purchasing and inventory control, quality control, computer integrated
manufacturing, just-in-time inventory systems, and flexible manufacturing systems.

d. SYSTEMS APPROACH:
The simplified block diagram of the systems approach is given below.

The systems approach focuses on understanding the organization as an open system that
transforms inputs into outputs. The systems approach began to have a strong impact on
management thought in the 1960s as a way of thinking about managing techniques that would
allow managers to relate different specialties and parts of the company to one another, as well as
to external environmental factors. The systems approach focuses on the organization as a whole,
its interaction with the environment, and its need to achieve equilibrium.
e. CONTINGENCY APPROACH:
The contingency approach focuses on applying management principles and processes as
dictated by the unique characteristics of each situation. It emphasizes that there is no one best
way to manage and that it depends on various situational factors, such as the external
environment, technology, organizational characteristics, characteristics of the manager, and
characteristics of the subordinates. Contingency theorists often implicitly or explicitly criticize
the classical approach for its emphasis on the universality of management principles; however,
most classical writers recognized the need to consider aspects of the situation when applying
management principles.

CONTRIBUTION OF FAYOL AND TAYLOR

F.W. Taylor and Henry Fayol are generally regarded as the founders of scientific

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 12

 management and administrative management and both provided the bases for science and art of
management.

Taylor's Scientific Management

Frederick Winslow Taylor well-known as the founder of scientific management was the first to
recognize and emphasis the need for adopting a scientific approach to the task of managing an
enterprise. He tried to diagnose the causes of low efficiency in industry and came to the
conclusion that much of waste and inefficiency is due to the lack of order and system in the
methods of management. He found that the management was usually ignorant of the amount of
work that could be done by a worker in a day as also the best method of doing the job. As a
result, it remained largely at the mercy of the workers who deliberately shirked work.
Hetherefore, suggested that those responsible for management should adopt a scientific
approach in their work, and make use of "scientific method" for achieving higher efficiency.
The scientific method consists essentially of
(a) Observation
(b) Measurement
(c) Experimentation and
(d) Inference.
He advocated a thorough planning of the job by the management and emphasized the necessity
of perfect understanding and co-operation between the management and the workers both for the
enlargement of profits and the use of scientific investigation and knowledge in industrial work.
He summed up his approach in these words:
• Science, not rule of thumb
• Harmony, not discord
• Co-operation, not individualism
• Maximum output, in place of restricted output
• The development of each man to his greatest efficiency and prosperity.

Elements of Scientific Management: The techniques which Taylor regarded as its

essentialelements or features may be classified as under:
1. Scientific Task and Rate-setting, work improvement, etc.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 13

2. Planning the Task.
3. Vocational Selection and Training
4. Standardization (of working conditions, material equipment etc.)
5. Specialization
6. Mental Revolution.
1. Scientific Task and Rate-Setting (work study): Work study may be defined as the
systematic, objective and critical examination of all the factors governing the operational
efficiency of any specified activity in order to effect improvement.
Work study includes.
(a) Methods Study: The management should try to ensure that the plant is laid out in the
bestmanner and is equipped with the best tools and machinery. The possibilities of eliminating or
combining certain operations may be studied.
(b) Motion Study: It is a study of the movement, of an operator (or even of amachine) in
performing an operation with the purpose of eliminating useless motions.

(c) Time Study (work measurement): The basic purpose of time study is to determine
theproper time for performing the operation. Such study may be conducted after the motion
study. Both time study and motion study help in determining the best method of doing a job and
the standard time allowed for it.
(d) Fatigue Study: If, a standard task is set without providing for measures to eliminate
fatigue,it may either be beyond the workers or the workers may over strain themselves to attain
it. It is necessary, therefore, to regulate the working hours and provide for rest pauses at
scientifically determined intervals.
(e) Rate-setting: Taylor recommended the differential piece wage system, under which
workersperforming the standard task within prescribed time are paid a much higher rate per unit
than inefficient workers who are not able to come up to the standard set.

2. Planning the Task: Having set the task which an average worker must strive to perform toget
wages at the higher piece-rate, necessary steps have to be taken to plan the production
thoroughly so that there is no bottlenecks and the work goes on systematically.
3. Selection and Training: Scientific Management requires a radical change in the methodsand
procedures of selecting workers. It is therefore necessary to entrust the task of selection to a

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 14

central personnel department. The procedure of selection will also have to be systematized.
Proper attention has also to be devoted to the training of the workers in the correct methods of
work.
4. Standardization: Standardization may be introduced in respect of the following.
(a) Tools and equipment: By standardization is meant the process of bringing about
uniformity.The management must select and store standard tools and implements which will be
nearly the best or the best of their kind.
(b) Speed: There is usually an optimum speed for every machine. If it is exceeded, it is likely
toresult in damage to machinery.
(c) Conditions of Work: To attain standard performance, the maintenance of
standardconditions of ventilation, heating, cooling, humidity, floor space, safety etc., is very
essential.
(d) Materials: The efficiency of a worker depends on the quality of materials and the method
ofhandling materials.
5. Specialization: Scientific management will not be complete without the introduction
ofspecialization. Under this plan, the two functions of 'planning' and 'doing' are separated in the
organization of the plant. The `functional foremen' are specialists who join their heads to give
thought to the planning of the performance of operations in the workshop. Taylor suggested
eight functional foremen under his scheme of functional foremanship.

(a) The Route Clerk: To lay down the sequence of operations and instruct the
workersconcerned about it.
(b) The Instruction Card Clerk: To prepare detailed instructions regarding different aspects
ofwork.
(c) The Time and Cost Clerk: To send all information relating to their pay to the workers and
tosecure proper returns of work from them.
(d) The Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism.
(e) The Gang Boss: To assemble and set up tools and machines and to teach the workers tomake
all their personal motions in the quickest and best way.
(f) The Speed Boss: To ensure that machines are run at their best speeds and proper tools
areused by the workers.
(g) The Repair Boss: To ensure that each worker keeps his machine in good order andmaintains

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 15

cleanliness around him and his machines.
(h) The Inspector: To show to the worker how to do the work.
6. Mental Revolution: At present, industry is divided into two groups – management
andlabour. The major problem between these two groups is the division of surplus. The
management wants the maximum possible share of the surplus as profit; the workers want, as
large share in the form of wages. Taylor has in mind the enormous gain that arises from higher
productivity. Such gains can be shared both by the management and workers in the form of
increased profits and increased wages.

Henry Fayol's 14 Principles of Management:

The principles of management are given below:
1. Division of work: Division of work or specialization alone can give maximum productivity
andefficiency. Both technical and managerial activities can be performed in the best manner only
through division of labor and specialization.
2. Authority and Responsibility: The right to give order is called authority. The obligation
toaccomplish is called responsibility. Authority and Responsibility are the two sides of the
management coin. They exist together. They are complementary and mutually interdependent.
3. Discipline: The objectives, rules and regulations, the policies and procedures must
behonoured by each member of an organization. There must be clear and fair agreement on the
rules and objectives, on the policies and procedures. There must be penalties (punishment) for
non-obedience or indiscipline. No organization can work smoothly without discipline -
preferably voluntary discipline.
4. Unity of Command: In order to avoid any possible confusion and conflict, each member ofan
organization must receive orders and instructions only from one superior (boss).
5. Unity of Direction: All members of an organization must work together to
accomplishcommon objectives.
6. Emphasis on Subordination of Personal Interest to General or Common Interest: This
isalso called principle of co-operation. Each shall work for all and all for each. General or
common interest must be supreme in any joint enterprise.
7. Remuneration: Fair pay with non-financial rewards can act as the best incentive or
motivatorfor good performance. Exploitation of employees in any manner must be eliminated.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 16

Sound scheme of remuneration includes adequate financial and nonfinancial incentives.
8. Centralization: There must be a good balance between centralization and decentralization
ofauthority and power. Extreme centralization and decentralization must be avoided.
9. Scalar Chain: The unity of command brings about a chain or hierarchy of command
linkingall members of the organization from the top to the bottom. Scalar denotes steps.
10. Order: Fayol suggested that there is a place for everything. Order or system alone cancreate
a sound organization and efficient management.
11. Equity: An organization consists of a group of people involved in joint effort. Hence,
equity(i.e., justice) must be there. Without equity, we cannot have sustained and adequate joint
collaboration.
12. Stability of Tenure: A person needs time to adjust himself with the new work
anddemonstrate efficiency in due course. Hence, employees and managers must have job
security. Security of income and employment is a pre-requisite of sound organization and
management.
13. Esprit of Co-operation: Esprit de corps is the foundation of a sound organization. Union
isstrength. But unity demands co-operation. Pride, loyalty and sense of belonging are responsible
for good performance.
14. Initiative: Creative thinking and capacity to take initiative can give us sound
managerialplanning and execution of predetermined plans.

Types of Business Organizations

When organizing a new business, one of the most important decisions to be made is choosing the
structure of a business.

a) Sole Proprietorships
The vast majority of small business starts out as sole proprietorships . . . very dangerous. These
firms are owned by one person, usually the individual who has day-to-day responsibility for
running the business. Sole proprietors own all the assets of the business and the profits generated
by it. They also assume "complete personal" responsibility for all of its liabilities or debts. In the
eyes of the law, you are one in the same with the business.
Merits:
• Easiest and least expensive form of ownership to organize.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 17

• Sole proprietors are in complete control, within the law, to make all decisions.
• Sole proprietors receive all income generated by the business to keep or reinvest.
• Profits from the business flow-through directly to the owner's personal tax return.
• The business is easy to dissolve, if desired.

Demerits:
1. Unlimited liability and are legally responsible for all debts against the business.
2. Their business and personal assets are 100% at risk.
3. Has almost been ability to raise investment funds.
4. Are limited to using funds from personal savings or consumer loans.
5. Have a hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
6. Employee benefits such as owner's medical insurance premiums are not directly deductible
from business income (partially deductible as an adjustment to income).

b) Partnerships
In a Partnership, two or more people share ownership of a single business. Like proprietorships,
the law does not distinguish between the business and its owners. The Partners should have a
legal agreement that sets forth how decisions will be made, profits will be shared, disputes will
be resolved, how future partners will be admitted to the partnership, how partners can be bought
out, or what steps will be taken to dissolve the partnership when needed. Yes, its hard to think
about a "break-up" when the business is just getting started, but many partnerships split up at
crisis times and unless there is a defined process, there will be even greater problems. They also
must decide up front how much time and capital each will contribute, etc.
Merits:
• Partnerships are relatively easy to establish; however, time should be invested in developing
the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners' personal taxes.
• Prospective employees may be attracted to the business if given the incentive to become a

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 18

 partner.
Demerits:
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnerships have a limited life; it may end upon a partner withdrawal or death.

c) Corporations
A corporation, chartered by the state in which it is headquartered, is considered by law to be a
unique "entity", separate and apart from those who own it. A corporation can be taxed; it can be
sued; it can enter into contractual agreements. The owners of a corporation are its shareholders.
The shareholders elect a board of directors to oversee the major policies and decisions. The
corporation has a life of its own and does not dissolve when ownership changes.
Merits:
• Shareholders have limited liability for the corporation's debts or judgments against the
corporations.
• Generally, shareholders can only be held accountable for their investment in stock of the
company. (Note however, that officers can be held personally liable for their actions, such as
the failure to withhold and pay employment taxes.)
• Corporations can raise additional funds through the sale of stock.

• A corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S corporation status if certain requirements are met. This election enables
company to be taxed similar to a partnership.
Demerits:
• The process of incorporation requires more time and money than other forms of organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible form business income, thus this income can be taxed twice.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 19

d) Joint Stock Company:
Limited financial resources & heavy burden of risk involved in both of the previous forms of
organization has led to the formation of joint stock companies these have limited dilutive.
The capital is raised by selling shares of different values. Persons who purchase the shares are
called shareholder. The managing body known as; Board of Directors; is responsible for policy
making important financial & technical decisions.
There are two main types of joint stock Companies.
(i) Private limited company.
(ii)Public limited company
(i) Private limited company: This type company can be formed by two or more persons. Te
maximum number of member ship is limited to 50. In this transfer of shares is limited to
members only. The government also does not interfere in the working of the company.
(ii) Public Limited Company: Its is one whose membership is open to general public. The
minimum number required to form such company is seven, but there is no upper limit. Such
companies can advertise to offer its share to genera public through a prospectus. These public
limited companies are subjected to greater control & supervision of control.
Merits:
• The liability being limited the shareholder bear no Rick& therefore more as make persons are
encouraged to invest capital.
• Because of large numbers of investors, the risk of loss is divided.
• Joint stock companies are not affected by the death or the retirement of the shareholders.
Disadvantages:
• It is difficult to preserve secrecy in these companies.

• It requires a large number of legal formalities to be observed.

• Lack of personal interest.

e) Public Corporations:
A public corporation is wholly owned by the Government Centre to state. It is established
usually by a Special Act of the parliament. Special statute also prescribes its management pattern
power duties & jurisdictions. Though the total capital is provided by the Government, they have
separate entity & enjoy independence in matters related to appointments, promotions etc.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 20

Merits:
• These are expected to provide better working conditions to the employees & supported to be
better managed.
• Quick decisions can be possible, because of absence of bureaucratic control.
• More Hexibility as compared to departmental organization.
• Since the management is in the hands of experienced & capable directors & managers,
these ate managed more efficiently than that of government departments.
Demerits:
• Any alteration in the power & Constitution of Corporation requires an amendment in the
particular Act, which is difficult & time consuming.
• Public Corporations possess monopoly & in the absence of competition, these are not
interested in adopting new techniques & in making improvement in their working.

f) Government Companies:
A state enterprise can also be organized in the form of a Joint stock company; A government
company is any company in which of the share capital is held by the central government or
partly by central government & party by one to more state governments. It is managed b the
elected board of directors which may include private individuals. These are accountable for its
working to the concerned ministry or department & its annual report is required to be placed ever
year on the table of the parliament or state legislatures along with the comments of the
government to concerned department.
Merits:
• It is easy to form.
• The directors of a government company are free to take decisions & are not bound by
certain rigid rules & regulations.
Demerits:
• Misuse of excessive freedom cannot be ruled out.
• The directors are appointed by the government so they spend more time in pleasing their
political masters & top government officials, which results in inefficient management.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 21

CLASSIFICATION OF ENVIRONMENTAL FACTORS
On the basis of the extent of intimacy with the firm, the environmental factors may be classified
into different types namely internal and external.

1. INTERNAL ENVIRONMENTAL FACTORS

The internal environment is the environment that has a direct impact on the business. The
internal factors are generally controllable because the company has control over these factors. It
can alter or modify these factors. The internal environmental factors are resources, capabilities
and culture.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 22

i) Resources:
A good starting point to identify company resources is to look at tangible, intangible and human
resources.
Tangible resources are the easiest to identify and evaluate: financial resources and physical
assets are identifying and valued in the firm‟s financial statements.
Intangible resources are largely invisible, but over time become more important to the firm than
tangible assets because they can be a main source for a competitive advantage. Such intangible
recourses include reputational assets (brands, image, etc.) and technological assets (proprietary
technology and know-how).
Human resources or human capital are the productive services human beings offer the firm in
terms of their skills, knowledge, reasoning, and decision-making abilities.
ii) Capabilities:
Resources are not productive on their own. The most productive tasks require that resources
collaborate closely together within teams. The term organizational capabilities are used to refer
to a firm‟s capacity for undertaking a particular productive activity. Our interest is not in
capabilities per se, but in capabilities relative to other firms. To identify the firm‟s capabilities
we will use the functional classification approach. A functional classification identifies
organizational capabilities in relation to each of the principal functional areas.
iii) Culture:
It is the specific collection of values and norms that are shared by people and groups in an
organization and that helps in achieving the organizational goals.

2) EXTERNAL ENVIRONMENT FACTORS

It refers to the environment that has an indirect influence on the business. The factors are
uncontrollable by the business. The two types of external environment are micro environment
and macro environment.

3) MICRO ENVIRONMENTAL FACTORS

These are external factors close to the company that have a direct impact on the organizations
process. These factors include:

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 23

i) Shareholders
Any person or company that owns at least one share (a percentage of ownership) in a company is
known as shareholder. A shareholder may also be referred to as a "stockholder". As organization
requires greater inward investment for growth, they face increasing pressure to move from
private ownership to public. However, this movement unleashes the forces of shareholder
pressure on the strategy of organizations.

ii) Suppliers
An individual or an organization involved in the process of making a product or service available
for use or consumption by a consumer or business user is known as supplier. Increase in raw
material prices will have a knock-oneffect on the marketing mix strategy of an organization.
Prices may be forced up as a result. A closer supplier relationship is one way of ensuring
competitive and quality products for an organization.

iii) Distributors
Entity that buys non-competing products or product-lines, warehouses them, and resells them to
retailers or direct to the end users or customers is known as distributor. Most distributors provide
strong manpower and cash support to the supplier or manufacturer's promotional efforts. They
usually also provide a range of services (such as product information, estimates, technical
support, after-sales services, credit) to their customers. Often getting products to the end
customers can be a major issue for firms. The distributors used will determine the final price of
the product and how it is presented to the end customer. When selling via retailers, for example,
the retailer has control over where the products are displayed, how they are priced and how much
they are promoted in-store. You can also gain a competitive advantage by using changing
distribution channels.

iv) Customers
A person, company, or other entity which buys goods and services produced by another person,
company, or other entity is known as customer. Organizations survive on the basis of meeting
the needs, wants and providing benefits for their customers. Failure to do so will result in a failed
business strategy.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 24

v) Competitors
A company in the same industry or a similar industry which offers a similar product or service is
known as competitor. The presence of one or more competitors can reduce the prices of goods
and services as the companies attempt to gain a larger market share. Competition also requires
companies to become more efficient in order to reduce costs. Fast-food restaurants McDonald's
and Burger King are competitors, as are Coca-Cola and Pepsi, and Wal-Mart and Target.

vi) Media
Positive or adverse media attention on an organization‟s product or service can in some cases
make or break an organization. Consumer programmers with a wider and more direct audience
can also have a very powerful and positive impact, forcingorganizations to change their tactics.

4)MACRO ENVIRONMENTAL FACTORS

An organization's macro environment consists of nonspecific aspects in the organization's
surroundings that have the potential to affect the organization's strategies. When compared to a
firm's task environment, the impact of macro environmental variables is less direct and the
organization has a more limited impact on these elements of the environment.
The macro environment consists of forces that originate outside of an organization and generally
cannot be altered by actions of the organization. In other words, a firm may be influenced by
changes within this element of its environment, but cannot itself influence the environment. The
curved lines in Figure 1 indicate the indirect influence of the environment on the organization.
Macro environment includes political, economic, social and technological factors. A firm
considers these as part of its environmental scanning to better understand the threats and
opportunities created by the variables and how strategic plans need to be adjusted so the firm can
obtain and retain competitive advantage.
i) Political Factors
Political factors include government regulations and legal issues and define both formal and
informal rules under which the firm must operate. Some examples include:
• tax policy
• employment laws

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 25

 • environmental regulations
• trade restrictions and tariffs
• political stability
ii) Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of
capital. The following are examples of factors in the macroeconomy:
• economic growth
• interest rates
• exchange rates
• inflation rate
iii) Social Factors
Social factors include the demographic and cultural aspects of the external macro environment.
These factors affect customer needs and the size of potential markets. Some social factors
include:
• health consciousness
• population growth rate
• age distribution
• career attitudes
• emphasis on safety

iv) Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels,
and influence outsourcing decisions. Some technological factors include:
• R&D activity
• automation
• technology incentives
• rate of technological change.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 26

ORGANIZATIONAL BEHAVIOR
MEANING
OB refers to the behavior of individuals and groups within organizations and the interaction
between organizational members and their external environments.

NATURE OF OB
1. What are organizations?

Organizations are sets of people who work together to achieve shared goals.

2. Why do organizations Exist?

 Increased specialization and division of labor
 Technology
 The external environment
 Investment
 power and control

3. Organizational Effectiveness

What is important is that societies need effective organizations. Effective organizations

produce quality goods at reasonable cost.

The Individual
Individual behavior organizationalInterfac
in organization e relationship.
settings.

The organization
environment.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 27

 IMPORTANCE OF OB
 The field of OB uses scientific research to help us understand and predict organizational
life (culture & climate).

 OB helps us influence organizational events.

 OB helps an individual understand himself/herself and others better

 OB will help the manager understand the basis of motivation and what he or she should
do to motivate subordinates.

 The field of OB is useful for maintaining cordial industrial relationship.

 The subject of OB is also useful in the field of all functions of management.

 OB helps an individual to shape his or her career.

HISTORICAL EVOLUTION OF OB
 Interest in the welfare of workers is age old but experts trace the development of OB
from the beginning of the 19th century.

 Prior to the 19th century, the troubles of an average worker were miserable. He had to
work under in human working conditions as he had no other option.

 The industrial revolution benefited the worker in the form of increased wages and
reduced working hours. Robert Owen, Andrew J.N. and Tata were the pioneers in
providing welfare facilities to workmen.

 Taylor revived interest in human resources at work. But he wanted to increase production
by rationalizing everything.

 The great depression, the labour movement and results of the Hawthorne studies gave
birth to the human relations movement.

 The human relations movement developed fast. The movement lost its flavor and gave
place to organizational behavior.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 28

 FOUNDATIONS OF INDIVIDUAL BEHAVIOR:

Organizational behavior is the study of both group and individual performance and action
within an enterprise. This field of study scans human behavior in the working atmosphere.

It determines its effect on job structure, performance, communication, motivation, leadership,

decision making abilities etc. The way an individual behaves and behavior as a group have
two perspectives - internal and external.

Behavior Analysis at Different Levels:

Behavior as an individual or in a group is always analyzed by everyone in the organization. It

is analyzed at three different levels -

 Individual level of analysis.

 Group level of analysis.
 Organizational level of analysis.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 29

 SYLLABUS
UNIT- 1

INTRODUCTION TO MANAGEMENT PRACTICES AND

ORGANIZATIONAL BEHAVIOR

Management Meaning, Levels, Management as an Art or Science-

Evolution of Management Thought-Classical, Behavioral and
Management Science Approaches-Management Functions and Roles-
Contribution of F.W. Taylor, Henry Fayol.
Importance of OB- Historical Development & Contribution Disciplines-
Foundation of Individual Behavior and Individual Decision Making.

R.Naveen Prakash, B.E, MBA., \AP\MBA\ Adhiyamaan College of Engineering,Hosur Page 30