GE3751 PRINCIPLES OF MANAGEMENT

OBJECTIVES:
To enable the students,
➢ To study the evolution of Management,
➢ To study the functions and principles of management and
➢ To learn the application of the principles in an organization.

UNIT I INTRODUCTION TO MANAGEMENT AND ORGANIZATIONS

Definition of Management – Science or Art – Manager Vs Entrepreneur -
types of managers managerial roles and skills – Evolution of Management –
Scientific, human relations , system and contingency approaches – Types of
Business organization - Sole proprietorship, partnership, company-public and
private sector enterprises - Organization culture and Environment – Current
trends and issues in Management.

UNIT II PLANNING
Nature and purpose of planning – planning process – types of planning –
objectives – setting objectives – policies – Planning premises – Strategic
Management – Planning Tools and Techniques – Decision making steps and
process.

UNIT III ORGANISING

Nature and purpose – Formal and informal organization – organization
chart – organization structure – types – Line and staff authority –
departmentalization – delegation of authority – centralization and
decentralization – Job Design - Human Resource Management – HR Planning,
Recruitment, selection, Training and Development, Performance Management ,
Career planning and management.

UNIT IV DIRECTING
Foundations of individual and group behaviour – motivation – motivation
theories – motivational techniques – job satisfaction – job enrichment –
leadership – types and theories of leadership – communication – process of
communication – barrier in communication – effective communication –
communication and IT.

UNIT V CONTROLLING
System and process of controlling – budgetary and non-budgetary control
techniques – use of computers and IT in Management control – Productivity problems
and management – control and performance – direct and preventive control –
reporting.

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 PRINCIPLES OF MANAGEMENT
WHOM????- Those who are leading a group of people (Team work).

• Manager
• Supervisor
• Engineer
• Entrepreneur
• Politician
• Team leader
• Prime Minister
• Chief Minister., etc

WHY????- Team work:

A bond which promotes strength, unity, reliability and support.

❖ To improve the effectiveness of the resources,

❖ To satisfy their social needs,
❖ To interact with each other’s ideas and  Share common beliefs.

WHAT ????

➢ What is Management?
Management is the process of planning, Organizing, Directing,
Staffing and controlling the various activities of the people to achieve the
objectives of an organization.

➢ What is an organization?
An organization is a group of people working together to create surplus.

➢ What is Principles of Management?

Principles of Management are the essential, underlying factors that form
the foundations of successful management.

UNIT - I OVERVIEW OF MANAGEMENT

Definition of Management – Science or Art – Manager Vs Entrepreneur - types of

managers - managerial roles and skills – Evolution of Management – Scientific,
human relations , system and contingency approaches – Types of Business
organization - Sole proprietorship, partnership, company-public and private

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sector enterprises - Organization culture and Environment – Current trends and
issues in Management.

1.1. DEFINITION OF MANAGEMENT:

❖ Management is the process of giving direction and controlling the various

activities of the people to achieve the objectives of an organization.
❖ According to Knootz and Weihrich “Management is the process of designing
and maintaining of an environment in which individuals working together in
groups efficiently accomplish selected aims”.

1.2. NATURE OF MANAGEMENT:

➢ Managers carry out their managerial function.
➢ Applies to any kind of Organisation.
➢ Applies to managers at all Organisational levels.
➢ Aim is to create a surplus.
➢ Concerned with productivity, implies effectiveness and efficiency.
➢ Management of 4 M’s in the Orgn– Men, Machine, Materials S money.

1.4. CHARACTERISTICS OF MANAGEMENT :

 Management is Universal.
➢ Management is dynamic.
➢ Management is a group of managers.
➢ Management is Purposeful.
➢ Management is goal oriented.
➢ Management is integrative Function.
➢ Management is a Social process.
➢ Management is a Multi-faceted discipline.
➢ Management is a continuous process.  Management is a system of authority.
➢ Management is intangible.
➢ Management is profession, an art as well as a science

1.5. FUNCTIONS OF MANAGEMENT:

1. Planning-What to do, when to do S how to do.

2. Organizing -Identification and grouping the activities to be performed.
3. Staffing- Recruiting,Training S development.
4. Directing- • Supervision •Motivation • Communication
5. Controlling-Checking and verifying the activities.

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1. Planning:
➢ It is the basic function of management.
➢ It deals with chalking out a future course of action S 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 S how to do. It bridges the gap from where we are S
where we want to be”.
➢ A plan is a future course of actions.
➢ Planning is necessary to ensure proper utilization of human S nonhuman
resources.
➢ 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”.
➢ 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 :
➢ The main purpose of staffing is to put right man on right job.
➢ According to Kootz S O’Donell, “Managerial function of staffing involves
manning the organization structure through proper and effective selection,
appraisal S development of personnel to fill the roles designed un the
structure”.
➢ Staffing involves:

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 • Manpower Planning (estimating man power in terms of searching, choose the
person and giving the right place).
• Recruitment, selection S placement.
• Training S development.
• Remuneration.
• Performance appraisal.
• Promotions S transfer.
4. Directing:
➢ It is that part of managerial function which actuates the organizational methods
to work efficiently for achievement of organizational purposes.
➢ 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
5. Controlling:
➢ The purpose of controlling is to ensure that everything occurs in conformities
with the standards.
➢ 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 S O’Donell “Controlling is the measurement S
correction of performance activities of subordinates in order to make sure
that the enterprise objectives and plans desired to obtain them as being
accomplished”.
➢ Therefore controlling has following steps:
(i) Establishment of standard performance.
(ii) Measurement of actual performance.
(iii) Comparison of actual performance with the standards and
finding out deviation if any.

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 ( iv ) Corrective action.

1.6. MANAGEMENT IS SCIENCE OR ART?

MANAGEMENT AS A SCIENCE
❖ Science is a systematic body of knowledge pertaining to a specific field of study
that contains general facts which explains a phenomenon.
❖ These principles are developed through scientific method of observation
and verification through testing. Science is characterized by following main
features:

1. Universally acceptance principles –

❖ Scientific principles represent basic truth about a particular field of

enquiry.
❖ Management also contains some fundamental principles which can
be applied universally like the Principle of Unity of Command i.e.
one man, one boss. This principle is applicable to all type of
organization.

2. Experimentation S Observation –
❖ They have been developed through experiments S practical
experiences of large no. of managers. E.g. it is observed that
reasonable remuneration to personal helps in creating a
satisfied work force.

3. Cause S Effect Relationship –

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 ❖ If workers are given bonuses, fair wages they will work hard but
when not treated in fair and just manner, reduces productivity
of organization.

4. Test of Validity S Predictability –

❖ Principles of management can also be tested for validity. E.g.
principle of unity of command can be tested by comparing two
persons - one having single boss and one having 2 bosses. The
performance of 1st person will be better than 2nd.

MANAGEMENT AS AN ART
❖ Art implies application of knowledge S skill to trying about desired
results.
❖ An art may be defined as personalized application of general
theoretical principles for achieving best possible results.

Art has the following characters –

1. Practical Knowledge:
❖ Every art requires practical knowledge therefore learning of theory is
not sufficient.
❖ It is very important to know practical application of theoretical
principles. E.g. to become a good painter, the person may not only
be knowing different colour and brushes but different designs,
dimensions, situations etc to use them appropriately.
❖ A manager can never be successful just by obtaining degree or
diploma in management; he must have also know how to apply
various principles in real situations by functioning in capacity of
manager.

2. Personal Skill:
❖ Although theoretical base may be same for every artist, but each
one has his own style and approach towards his job.
❖ That is why the level of success and quality of performance differs
from one person to another. E.g. there are several qualified
painters but M.F. Hussain is recognized for his style.
❖ Similarly management as an art is also personalized.
❖ Every manager has his own way of managing things based on
his knowledge, experience and personality, that is why some
managers are known as good managers (like Aditya Birla, Rahul
Bajaj) whereas others as bad.

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 3. Creativity:
❖ Every artist has an element of creativity in line. which requires
combination of intelligence S imagination.
❖ Management is also creative in nature like any other art.
❖ It combines human and non-human resources in useful way so as to
achieve desired results..(ex: Ilayaraja )
4. Perfection through practice: Practice makes a man perfect.
5. Goal-Oriented: Every art is result oriented as it seeks to achieve concrete
results. In the same manner, management is also directed towards
accomplishment of pre-determined goals.

Conclusion:
 MANAGEMENT AS BOTH SCIENCE AND ART
Management is both an art and a science. The above mentioned points
clearly reveal that management combines features of both science as
well as art.
They are complementary to each other (like tea and biscuit,
bread and butter etc.).

1.7. LEVELS OF MANAGEMENT:

❖ The term “Levels of Management’ refers to a line of separation between

various managerial positions in an organization.
❖ The number of levels in management increases when the size of the
business and work force increases and vice versa.
❖ The level of management determines a chain of command, the amount of
authority S status enjoyed by any managerial position.

The levels of management can be classified in three broad categories:

1. Top Level Management / Administrative Level

2. Middle Level Management / Executory
3. Low Level Management / Supervisory / Operative / First-Line
Managers
Managers at all these levels perform different functions. The role of managers at all
the three levels is discussed below:

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 LEVELS OF MANAGEMENT
1. Top Level of 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.

Their role can be emphasized as

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 S policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls S 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.

2. Middle Level of 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 -

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 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 S 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.

3. Lower 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 with personal 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 S 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.

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MANAGERIAL SKILLS:
✓ Conceptual skills.
✓ Human Skills.
✓ Technical Skills.
✓ Design Skills – Decision making.

NEED FOR MANAGEMENT:

✓ To increase efficiency.
✓ To crystallize the nature of Management job.
✓ To improve research in Management.
✓ To attain social goals.

IMPORTANCE OF MANAGEMENT
✓ Achievement of group goals.
✓ Optimum utilization of resources.
✓ Fulfillment of social obligations.
✓ Economic growth.
✓ Stability.
✓ Human Development.
✓ Meets the challenge of change.

SKILLS FOR MANAGEMENT LEVELS:

TIME SPENT IN CARRYING OUT MANAGERIAL FUNCTIONS:

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1.8. DIFFERENCES BETWEEN ENTREPRENEUR AND MANAGER

1. A person, who creates an enterprise, by taking a financial risk in order to get

profit, is called an entrepreneur.

An individual who takes the responsibility of controlling and administering the

organisation is known as a manager.

2. An entrepreneur focuses on business start-up whereas the main focus of a

manager is to manage ongoing operations.
3. Achievements work as a motivation for entrepreneurs. On the other hand, the
primary motivation is the power.
4. The manager’s approach to the task is formal which is just opposite of an
entrepreneur.
5. An entrepreneur is the owner of the enterprise while a manager is just an
employee of the company.
6. A manager gets salary as remuneration for the work performed by him.
Conversely, profit is the reward for the entrepreneur.
7. An entrepreneur’s decisions are driven by inductive logic, courage, and
determination; that is why the decision making is intuitive. On the contrary, the
decision making of a manager is calculative, as they are driven by deductive logic,
the collection of information and advice.
8. The major driving force of an entrepreneur is creativity and innovation. As
against this, a manager maintains the existing state of affairs.
9. While entrepreneur is a risk taker, the manager is risk averse.
COMPARISON CHART

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 BASIS FOR
ENTREPRENEUR MANAGER
COMPARISON

Meaning Entrepreneur refers to a person Manager is an individual who

who creates an enterprise, by takes the responsibility of
taking financial risk in order to controlling and administering
get profit. the organization.
Focus Business startup Ongoing operations

Primary Achievement Power

motivation

Approach to Informal Formal

task

Status Owner Employee

Reward Profit Salary

Decision Intuitive Calculative

making

Driving force Creativity and Innovation Preserving status quo

Risk Risk taker Risk averse orientation

1.9. ROLES OF A MANAGER ( Mintzberg)

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 1. Interpersonal Role - Interacting with people inside and outside the
organisation.
(i) Figurehead – as a symbolic head of an organisation, the manager
performs routine duties of a legal nature.
(ii) Leader – Hiring, Training, motivating and guiding subordinates.
(iii) Liaison - Interacting with other managers outside the organisation
to obtain favours and information.

2. Informational Role – Serving as a focal point for exchange of Information. (iv)

Monitor – Seeks and receive information concerning internal and external
events so as to gain understanding of the organisation and its environment.
(v) Disseminator – Transmits information to subordinates,
peers and superiors within the Organisation.
(vi) Spokesperson – Speaking on behalf of the organisation and
transmitting information on organisation plans, policies and actions
to outsiders.

3. Decisional Role – Makes important decision

(vii) Entrepreneur – Initiating changes or improvements in the activities
of the organisation.
(viii) Disturbance handler- Taking charge and corrective action when
organisation faces unexpected crises.
(ix) Resource allocator – Distributing organisation’s resources like
money, time, equipment and labour.
(x) Negotiator – Representing the organisation in bargaining and
negotiations with outsiders and insiders.

1.10. 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.

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 ❖ 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.

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  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.
(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.

 THE BEHAVIORAL APPROACH:

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 ❖ 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 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.

 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):
❖ 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 management 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.

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 ❖ It has its roots in scientific management but became an identifiable area of
management study after World War II.
❖ 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 planning, scheduling,
purchasing and inventory control, quality control, computer integrated
manufacturing, just-in-time inventory systems, and flexible manufacturing
systems.

 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

 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.

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HENRY FAYOL'S 14 PRINCIPLES OF MANAGEMENT:
The principles of management are given below:

1. Division of work: The work should be divided into different task and each
task is performed by a person who is specialised in that area.
2. Authority and Responsibility: The right to give order is called authority.
The obligation to accomplish 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 be honoured by each member of an organization. There must be
penalties (punishment) for non-obedience or indiscipline. No organization can
work smoothly without discipline.
4. Unity of Command: In order to avoid any possible confusion and conflict,
each member of an organization must receive orders and instructions only from
one superior (boss).
5. Unity of Direction: All members of an organization must work together to
accomplish common objectives.
6. Emphasis on Subordination of Personal Interest to General or
Common Interest: This is also 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 motivator for good performance. Exploitation of employees in
any manner must be eliminated.
8. Centralization: There must be a good balance between centralization and
decentralization of authority and power. Extreme centralization and
decentralization must be avoided.
9. Scalar Chain: The unity of command brings about a chain or hierarchy of
command linking all members of the organization from the top to the bottom.
10. Order: Fayol suggested that there is a place for everything. Order or system alone
can create 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 and
demonstrate efficiency in due course. Hence, employees and managers must have
job security.
13. Esprit of Co-operation: Union is strength. But unity demands co-operation.
14. Initiative: Creative thinking and capacity to take initiative can give us sound
managerial planning and execution of predetermined plans.

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SCIENTIFIC MANAGEMENT:

Father of Scientific Management F.W. Taylor (1856 –1915)

“The art of knowing exactly what you want men to do and see that they do it in the
best and cheapest way.”
Management a Science based upon certain clearly defined principles.
Principles of Scientific Management,
 Science not rule of thumb.
❖ Harmony not discord.
❖ Co-operation not individualism.
❖ Maximum output in place of restricted output.
❖ Development of each individual to his greatest efficiency and prosperity.
❖ Mental Revolution – Workers and Management, Workmen towards their work,
their fellowmen and towards their employees. Mental attitude of the two
parties.
Techniques of Scientific Management
1. Time Study
2. Motion Study
3. Scientific task Planning
4. Standardization and simplification
5. Differential piece rate system
6. Functional foremanship – According to Taylor, one supervisor cannot be an
expert in all aspects of work supervision.
In system of Functional Foremanship in which eight supervisors supervise a
workers job.
a. Route Clerk
b. Instruction card clerk
c. Time and cost clerk
d. Shop disciplinarian
e. Gang boss
f. Speed boss
g. Repair boss
h. Inspector

1.11. BUSINESS ORGANIZATION

❖ A business organization is an individual or group of people that collaborate to
achieve certain commercial goals.
❖ Some business organizations are formed to earn income for owners. Other
business organizations, called non-profits, are formed for public purposes.
❖ These businesses often raise money and utilize other resources to provide or
support public programs.

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TYPES OF BUSINESS ORGANIZATION:
1. PRIVATE SECTOR- it is the part of the economy, sometimes referred to as
the citizen sector, which is run by private individuals or groups, usually as a
means of enterprise for profit, and is not controlled by the State.

2. PUBLIC SECTOR-
❖ The part of an economy that is controlled by the state.
❖ The public sector is the part of the economy concerned with
providing various governmental services.
❖ In most countries the public sector includes such services as the
military, police, infrastructure (public roads, bridges, tunnels, water
supply, sewers, electrical grids, telecommunications, etc.), public
transit, public education, along with health care and those working
for the government itself, such as elected officials.
❖ The public sector might provide services that a non-payer cannot be
excluded from (such as street lighting), services which benefit all of
society rather than just the individual who uses the service.

3. PRIVATELY HELD-
A privately held company or close corporation is a business
company owned either by non-governmental organizations or by a
relatively small number of shareholders or company members which does
not offer or trade its company stock (shares) to the general public on the
stock market exchanges, but rather the company's stock is offered, owned
and traded or exchanged privately.

4. PUBLICALLY HELD-
A public, publicly traded, publicly held company, or public
corporation is a corporation whose ownership is dispersed among the
general public in many shares of stock which are freely traded on a stock
exchange or in over the counter markets. In some jurisdictions, public
companies over a certain size must be listed on an exchange.

5. SOLE PROPRIETORS- owned by a single person.

Merits:
❖ Easiest and least expensive form of ownership to organize.
❖ 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.

22
 Demerits:
❖ Unlimited liability and are legally responsible for all debts against the
business.
❖ Their business and personal assets are 100% at risk.
❖ Has almost been ability to raise investment funds.
❖ Are limited to using funds from personal savings or consumer loans.
❖ Have a hard time attracting high-caliber employees, or those that are
motivated by the opportunity to own a part of the business.
❖ Employee benefits such as owner's medical insurance premiums are not
directly deductible from business income (partially deductible as an
adjustment to income).

6. PARTNERSHIP- owned by a group of person together towards a goal.

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 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.

COMPARISON CHART:
BASIS FOR
SOLE PROPRIETORSHIP PARTNERSHIP
COMPARISON
A type of business A business form in which two
organization, in which only one or more persons agree to
Meaning person is the owner as well as carry on business and share
operator of the business, is profits S losses mutually is
known as Sole Proprietorship. known as Partnership.
Governing Act No specific statute Indian Partnership Act, 1932

23
 Known as sole trader or sole Individually known as
Owner proprietor. partners and collectively
known as firm.
Incorporation Not required Voluntary

Minimum Only one Two

members

Maximum Only one 100 partners

members
Borne by the proprietor only. Shared by the partners.
Liability

Decision Quick Delay

making
Uncertain Depends on the desire and
Duration capacity of the partners.

Proprietor is solely responsible Shared in agreed ratio

Profit S Loss for the profits S losses.

Business secrets are not open Business secrets are open to

Secrecy to any person except the each and every partner.
proprietor.

Scope for raising capital is Scope for raising capital is

Finance
limited. comparatively high.

NIZATION CULTURE AND ENVIRONMENT:

 This affects the functions of manager.

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.
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 identifies and

24
valued in the firm’s financial statements. Such intangible recourses include
reputational assets (brands, image, etc.) and technological assets (proprietary
technology and know-how). 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.
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 task environment and general
environment.

a) TASK ENVIRONMENTAL FACTORS:

 These are external factors close to the company that have a direct impact
on the organizations process. These factors include:
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 on affect on
the marketing mix strategy of 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.
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.

25
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 organisations product or
service can in some cases make or break an organisation.. Consumer
programmes with a wider and more direct audience can also have a very
powerful and positive impact, hforcing organisations to change their tactics.

b) GENERAL ENVIRONMENTAL FACTORS:

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
• 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: • RSD activity • automation • technology
incentives • rate of technological change

1.13.TRENDS AND CHALLENGES OF MANAGEMENT IN GLOBAL SCENARIO :

Current trends in management:
1. Globalization
2. Technology
3. Sustainability and corporate social responsibility
4. Study of psychology
5. Business ecosystem

Issues in management:
1. Globalization

26
 2. Quality and productivity
3. Ethics and social responsibility
4. Technological development
5. Innovation and changes
6. Work force diversity
7. Multicultural effects

UNIT II PLANNING
Nature and purpose of planning – planning process – types of planning –
objectives – setting objectives – policies – Planning premises – Strategic
Management – Planning Tools and Techniques – Decision making steps and
process.

2.0 PLANNING:
❖ Planning is the first managerial function to be performed.
❖ It is concerned with deciding in advance what is to be done in future, when,
where and by whom it is to be done.  It is a process of thinking before
doing.

2.1. DEFINITION:
According to Koontz O'Donnel - "Planning is an intellectual process, the
conscious determination of courses of action, the basing of decisions on purpose,
acts and considered estimates".
2.1.1. ADVANTAGES:
1. Reduces uncertainty
2. Ensures economical operations
3. Facilitates control
4. Improves motivation
5. Gives competitive edge
6. Avoids duplication of efforts

2.1.2. DISADVANTAGES:

27
 1. Limitations of forecasts
2. Rigidity in administration
3. Time consuming process
4. Costly affair
5. Influence of external factors
6. Psychological factors

2.2. NATURE AND PURPOSE OF PLANNING:

2.2.1. Nature of Planning:
1. PLANNING IS GOAL-ORIENTED: Every plan must contribute in some positive
way towards the accomplishment of group objectives. Planning has no meaning
without being related to goals.
2. PRIMACY OF PLANNING: Planning is the first of the managerial functions. It
precedes all other management functions.
3. PERVASIVENESS OF PLANNING: Planning is found at all levels of
management. Top management looks after strategic planning. Middle management is
in charge of administrative planning. Lower management has to concentrate on
operational planning.
4. EFFICIENCY, ECONOMY AND ACCURACY: Efficiency of plan is measured by its
contribution to the objectives as economically as possible. Planning also focuses on
accurate forecasts.
5. CO-ORDINATION: Planning co-ordinates the what, who, how, where and why
of planning. Without co-ordination of all activities, we cannot have united efforts.
6. LIMITING FACTORS: A planner must recognize the limiting factors (money,
manpower etc) and formulate plans in the light of these critical factors.
7. FLEXIBILITY: The process of planning should be adaptable to changing
environmental conditions.
8. PLANNING IS AN INTELLECTUAL PROCESS: The quality of planning will vary
according to the quality of the mind of the manager.
2.2.2. Purpose Of Planning:
As a managerial function planning is important due to the following reasons:-
1. 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.

28
2. TO OFFSET UNCERTAINTY AND CHANGE: Future is always full of
uncertainties and changes. Planning foresees the future and makes the necessary
provisions for it.
3. 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.
4. 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.
5. 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.
6. 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 stated objectives and take further actions in
this direction.
2.2.3. FEATURES OF PLANNING:

❖ It is primary function of management.

❖ It is an intellectual process.
❖ Focuses on determining the objectives.
❖ Involves choice and decision making.
❖ It is a continuous process.

2.3. TYPES OF PLANNING:

Focus Time period

Strategic Long range (<5 yrs)
Operational Medium range (2-5 yrs)
Tactic Short range (>2 yrs)
Continge
nc y

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STRATEGIC PLANNING is carried out by top-level management. Long-term plans
are drawn in this process, spanning a number of years. Additionally, an
organization's mission statement is included in the strategic plan.
TACTICAL PLANNING covers specific areas of an organization. Short-term plans
are made for up to a year in some cases. Middle-level management in an
organization executes tactical planning. Tactical plans build up towards a
strategic plan.
Specific procedures and processes make up OPERATIONAL PLANNING. It
involves outlining routine activities carried out often in an organization. Plans
made could either be single-use or continuing plans. Low-level management
executes tactical planning.
CONTINGENCY PLANNING involves identifying alternative courses of action that
can be implemented if and when the original plan proves inadequate because of
changing environments.

2.3.1. STEPS INVOLVED IN STRATEGIC PLANNING PROCESS

1. GETTING PREPARED:
 Decide on the team who will be involved in the planning process , gather all
needed information ensuring all information is up to date and as accurate
as possible which is very important to ensure sound decisions results from
this whole process. Identify any specific issues that need to be addressed.

2. CLARIFY THE MISSION AND VISION STATEMENTS:

 Identify, clarify and reach consensus on the company's mission and vision
statements, corporate values and culture, the main goal of why the
company exists and create an image of what success looks like for your
company.

30
3. IDENTIFY YOUR CURRENT AND FUTURE MARKET POSITION. (PERFORM A
SWOT ANALYSIS):
❖ Gather up-to-date information on internal strengths and weaknesses and
external opportunities and threats so you can develop an understanding of all
critical issues. Use the SWOT tool to organize your information

“Winners recognize their limitations but focus on their strengths;

Losers recognize their strengths but focus on their limitations”
❖ A weakness can be converted into strength by recognizing it and by making an
effort in that Direction.
❖ Opportunities and threats also need to be recognized.

Importance of SWOT analysis

❖ It analyses whether the business is healthy or sick.
❖ An organization comes to know about the internal and external factors that
affect its success or failure.
❖ It helps in the formation of a strategy so as to make preparations for the
possible threats from the competitors.
❖ It helps to evaluate a business environment in a detailed manner so as to take
strategic decisions for the future course of action.

4. AGREE ON PRIORITIES:
 As in any planning process, all priorities need to be set and agreed as well
as broad strategies for handling critical issues and what outcomes are to be
sought. It is important that you and your planning team agree on all major
and key priorities.

5. PUT THE PLAN TOGETHER:

 In this step you should start putting all the bits and pieces of your plan together
to facilitate implementation and constant review.

6. DISTRIBUTE TASKS AND ASSIGN ACTIONS:

 Now that your plan has been placed together in one document, its time to
start assigning specific tasks to each specific team, department or
individual.

7. ROLL-OUT THE PLAN:

 Now your plan needs to be communicated and circulated to everyone in your
organization to ensure alignment.
8. HOLD EVERYONE ACCOUNTABLE:

31
 ❖ The plan will not be effective without processes and metrics that ensures
everyone is doing their part.
❖ The plan needs to be constantly monitored and performance needs to be
measured through either monthly or quarterly strategy staff meetings.
❖ To hold people accountable and making sure that the plan activities are actually
happening and corrective actions and adjustments can be taken to rectify,
tweak and effectively manage performance in light of the strategic plan.

2.4. OBJECTIVES:
❖ Objectives may be defined as the goals which an organisation tries to achieve.
❖ Objectives are described as the end- points of planning.
❖ According to Koontz and O'Donnell, "an objective is a term commonly used to
indicate the end point of a management programme."  Planning has no
meaning if it is not related to certain objectives.
2.4.1. Features of Objectives:
❖ The objectives must be predetermined.
❖ A clearly defined objective provides the clear direction for managerial
effort.
❖ Objectives must be realistic.
❖ Objectives must be measurable.
❖ Objectives must have social sanction.
❖ All objectives are interconnected and mutually supportive.
❖ Objectives may be short-range, medium-range and long-range.
❖ Objectives may be constructed into a hierarchy.
2.4.2. Advantages of Objectives:
❖ Clear definition of objectives encourages unified planning.
❖ Objectives provide motivation to people in the organization.
❖ When the work is goal-oriented, unproductive tasks can be avoided.
❖ Objectives provide standards which aid in the control of human efforts in an
organization.
❖ Objectives serve to identify the organization and to link it to the groups
upon which its existence depends.
❖ Objectives act as a sound basis for developing administrative controls.
❖ Objectives contribute to the management process: they influence the
purpose of the organization, policies, personnel, leadership as well as
managerial control.
2.4.3. Process of Setting Objectives:
The typical MBO process consists of:

32
 1. Establishing a clear and precisely defined statement of objectives for the
employee.
2. Developing an action plan indicating how these objectives are to be achieved.
3. Reviewing the performance of the employees.
4. Appraising performance based on objective achievement.

1) Setting objectives: For Management by Objectives (MBO) to be effective,

individual managers must understand the specific objectives of their job and how
those objectives fit in with the overall company.

❖ Objectives set by the board of directors.

❖ The managers of the various units or sub-units, or sections of an organization
should know not only the objectives of their unit but should also actively
participate in setting these objectives and make responsibility for them.
❖ Management by Objective (MBO) systems, objectives are written down for
each level of the organization, and individuals are given specific aims and
targets.
❖ Managers need to identify and set objectives both for themselves, their units,
and their organizations.

2) Developing action plans: Actions plans specify the actions needed to

address each of the top organizational issues and to reach each of the associated
goals, who will complete each action and according to what timeline. An overall,
toplevel action plan that depicts how each strategic goal will be reached is
developed by the top level management. The format of the action plan depends
on the objective of the organization.

3) Reviewing Progress: Performance is measured in terms of results. Job

performance is the net effect of an employee's effort as modified by abilities, role
perceptions and results produced. Effort refers to the amount of energy an
employee uses in performing a job. Abilities are personal characteristics used in
performing a job and usually do not fluctuate widely over short periods of time.
Role perception refers to the direction, in which employees believe they should

33
channel their efforts on their jobs, and they are defined by the activities and
behaviors they believe are necessary.

4) Performance appraisal: Performance appraisals communicate to

employees how they are performing their jobs, and they establish a plan for
improvement.

❖ Performance appraisals are extremely important to both employee and

employer, as they are often used to provide predictive information related to
possible promotion.
❖ Appraisals can also provide input for determining both individual and
organizational training and development needs.
❖ Performance appraisals encourage performance improvement. Feedback on
behavior, attitude, skill or knowledge clarifies for employees the job
expectations their managers hold for them.
❖ In order to be effective, performance appraisals must be supported by
documentation and management commitment.

Advantages Setting Objectives:

❖ Motivation – Involving employees in the whole process of goal setting and

increasing employee empowerment. This increases employee job satisfaction
and commitment.
❖ Better communication and Coordination – Frequent reviews and interactions
between superiors and subordinates helps to maintain harmonious
relationships within the organization and also to solve many problems.
❖ Clarity of goals
❖ Subordinates have a higher commitment to objectives they set themselves
than those imposed on them by another person.
❖ Managers can ensure that objectives of the subordinates are linked to the
organization's objectives.

Limitations:

There are several limitations to the assumptive base underlying the impact of
managing by objectives, including:

❖ It over-emphasizes the setting of goals over the working of a plan as a driver

of outcomes.
❖ It underemphasizes the importance of the environment or context in which
the goals are set. That context includes everything from the availability and
quality of resources, to relative buy-in by leadership and stake-holders.

34
 ❖ Companies evaluated their employees by comparing them with the "ideal"
employee. Trait appraisal only looks at what employees should be, not at
what they should do. When this approach is not properly set, agreed and
managed by organizations, self-centered employees might be prone to distort
results, falsely representing achievement of targets that were set in a short-
term, narrow fashion. In this case, managing by objectives would be
counterproductive.

2.5. MANAGEMENT BY OBJECTIVES (MBO):

Accordingly to Odiorne “MBO is a process whereby the superior and
subordinate managers of an organisation jointly identify common goals, define
each individual’s major areas of responsibilities in terms of the results expected
of him, and use these measures as guides for operating the unit and assessing the
contribution of each of its members”.

MBO provides specific objectives for each succeeding level (i.e., divisional,
departmental, individual in the organisation). In other words MBO is a process by
which objectives cascade down through the organisation as depicted in Fig.
2.5.1. Advantages of MBO:

❖ The need to clarify objectives is stressed and suggestion for improvement is

obtained from all levels of management.
❖ All managers have a clear idea of the important areas of their work and of the
standards required.

35
 ❖ The performance of staff can be assumed and their needs for improvement
highlighted.
❖ Greater participation may improve morale and communication.
❖ It makes individuals more aware of organisational goal.

2.5.2. 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 may lead to ill-feeling.
2.5.3. BENEFITS OF MANAGEMENT BY OBJECTIVES:
1. IMPROVES MANAGEMENT: Objectives cannot be established without
planning, and results-oriented planning is the only kind that makes sense.
MBO forces managers to think about planning for results, rather than
merely planning work or activities. In order to make objectives realistic,
Management by Objectives also requires that managers think of the way
they will accomplish results and the resources and assistance they will
require.
2. ENCOURAGES PERSONAL COMMITMENT: MBO encourages employees to
commit themselves to their goals because they have before them clearly
defined objectives. Moreover, the fact that they often participate in goal-
setting, improves their commitment to work. As a matter of fact, people
become enthusiastic when they control their own fate.
3. CLARIFIES ORGANIZATION: MBO forces management to clarify
organizational roles and structures. So far as possible, organizational
positions are built around the key results expected of the people occupying
them. Moreover, the companies that embark on MBO programs can easily
discover deficiencies in their organization and take necessary steps to
rectify.
4. DEVICE FOR ORGANIZATIONAL CONTROL AND SYSTEMATIC
EVALUATION: It serves as a device for organizational control integration.
MBO helps in making a more systematic evaluation of performance.
5. DEVELOPS EFFECTIVE CONTROL: There is no better incentive for self-
control and no better way to know the standards for control than having a
set of clean goals. When each and every employee knows what to achieve,
control becomes very easy and automatic.

36
 6. IMPROVING PRODUCTIVITY: Management by Objectives helps in
improving productivity as the management team concentrates on the
important task of reducing costs.
7. MOTIVATING THE SUBORDINATES: It stimulates the subordinates’
motivation.
8. PERSONAL SATISFACTION: It provides greater opportunity to managers
for personal satisfaction on account of participation in objective setting
and rational performance appraisal.
9. LOCATING WEAK AND PROBLEM AREAS: It helps in locating weak and
problem areas because of improved communication and organization
structure.
2.5.4. WEAKNESSES OF MANAGEMENT BY OBJECTIVES:
With all its advantages, a system of MBO may also have a number of
weaknesses, arising out of the inability in applying the MBO concepts
judiciously. The weaknesses are;

1. Failure to teach the philosophy of MBO which is built on concepts of

selfcontrol and self-direction that are aimed at making managers as
professionals.
2. Failure to give proper guidelines to goal setters by making them well aware of
the corporate goals in advance.
3. Difficulty in setting verifiable goals which help in the process of control.
4. Emphasis on short-run goals often jeopardizes the achievement of the long-
term objectives.
5. The danger of inflexibility also causes a serious problem since managers may
strive for goals that have been made obsolete by revised corporate objectives,
changed premises, or modified policies.
2.6. 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.

The essentials of policy formation may be listed as below.

❖ A policy should be definite, positive and clear. It should be understood by

everyone in the organization.
❖ A policy should be translatable into the practices.
❖ A policy should be flexible and at the same time have a high degree of
permanency.
❖ A policy should be formulated to cover all reasonable anticipatable conditions.

37
 ❖ A policy should be founded upon facts and sound judgment.
❖ A policy should conform to economic principles, statutes and regulations.
❖ A policy should be a general statement of the established rule.

Importance of Policies:

❖ Policies are useful for the following reasons:

❖ They provide guides to thinking and action and provide support to the
subordinates.
❖ They delimit the area within which a decision is to be made.
❖ They save time and effort by pre-deciding problems and
❖ They permit delegation of authority to mangers at the lower levels.

2.7. STRATEGIC MANAGEMENT:

❖ The term 'Strategy' has been adapted from war and is being increasingly
used in business to reflect broad overall objectives and policies of an
enterprise. Literally speaking, the term 'Strategy' stands for the war-art of
the military general, compelling the enemy to fight as per out chosen terms
and conditions.
❖ According to Koontz and O' Donnell, "Strategies must often denote a general
programme of action and deployment of emphasis and resources to attain
comprehensive objectives".
❖ Strategies are plans made in the light of the plans of the competitors
because a modern business institution operates in a competitive
environment.
❖ They are a useful framework for guiding enterprise thinking and action.
❖ A perfect strategy can be built only on perfect knowledge of the plans of
others in the industry.
❖ This may be done by the management of a firm putting itself in the place of
a rival firm and trying to estimate their plans.

2.7.1. Characteristics of Strategy:

❖ It is the right combination of different factors.

❖ It relates the business organization to the environment.
❖ It is an action to meet a particular challenge, to solve particular problems or to
attain desired objectives.
❖ Strategy is a means to an end and not an end in itself.
❖ It is formulated at the top management level.
❖ It involves assumption of certain calculated risks.

2.7.2. Types of Strategies:

38
According to Michel Porter, the strategies can be classified into three types. They are

1. Cost leadership strategy

2. Differentiation strategy
3. Focus strategy

1. Cost Leadership Strategy:

 This generic strategy calls for being the low cost producer in an industry
for a given level of quality. The firm sells its products either at average
industry prices to earn a profit higher than that of rivals, or below the
average industry prices to gain market share. In the event of a price war,
the firm can maintain some profitability while the competition suffers
losses. Even without a price war, as the industry matures and prices
decline, the firms that can produce more cheaply will remain profitable for
a longer period of time. The cost leadership strategy usually targets a
broad market. Some of the ways that firms acquire cost advantages are by
improving process efficiencies, gaining unique access to a large source of
lower cost materials, making optimal outsourcing and vertical integration
decisions, or avoiding some costs altogether. If competing firms are unable
to lower their costs by a similar amount, the firm may be able to sustain a
competitive advantage based on cost leadership.

2. Differentiation Strategy:

 A differentiation strategy calls for the development of a product or service

that offers unique attributes that are valued by customers and that
customers perceive to be better than or different from the products of the
competition. The value added by the uniqueness of the product may allow
the firm to charge a premium price for it. The firm hopes that the higher
price will more than cover the extra costs incurred in offering the unique
product. Because of the product's unique attributes, if suppliers increase
their prices the firm may be able to pass along the costs to its customers
who cannot find substitute products easily.

3. Focus Strategy:

 The focus strategy concentrates on a narrow segment and within that

segment attempts to achieve either a cost advantage or differentiation. The
premise is that the needs of the group can be better serviced by focusing
entirely on it. A firm using a focus strategy often enjoys a high degree of
customer loyalty, and this entrenched loyalty discourages other firms from
competing directly. Because of their narrow market focus, firms pursuing a

39
 focus strategy have lower volumes and therefore less bargaining power
with their suppliers.

2.8. PLANNING TOOLS AND TECHNIQUES:

ENVIRONMENT ASSESSMENT TECHNIQUES

1. Environmental Scanning
2. Forecasting
3. Benchmarking
TECHNIQUES FOR ALLOCATING RESOURCES
4. Budgeting
5. Scheduling
6. Breakeven Analysis
7. Linear Programming
CONTEMPORARY PLANNING
8. Project Management
9. Scenario Planning

1. ENVIRONMENTAL SCANNING:
Careful monitoring of an organization's internal and external environments for
detecting opportunities S threats that influence its current and future plans.

➢ COMPETITOR INTELLIGENCE
Gathering information about competitors — who they are, what they are doing.

➢ GLOBAL SCANNING
Screening a broad scope of information on global forces that might affect the
organization.

2. FORECASTING
A prediction, projection, or estimate of some future activity, event, or occurrence.

TYPES OF FORECASTS:

1. Economic Forecasts: Predict a variety of economic indicators, like money

supply, inflation rates, interest rates, etc.
2. Technological Forecasts: Predict rates of technological progress and
innovation.
3. Demand Forecasts: Predict the future demand for a company’s products or
services.

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TYPES OF FORECASTING METHODS:
1. Qualitative Methods: These types of forecasting methods are based on
judgments, opinions, intuition, emotions, or personal experiences and
are subjective in nature. They do not rely on any rigorous mathematical
computations.

2. Quantitative Methods: These types of forecasting methods are based

on mathematical (quantitative) models, and are objective in nature.
They rely heavily on mathematical computations.

FORECASTING TECHNIQUES:

a) QUANTITATIVE FORECASTING
Applying a set of mathematical rules to a series of hard data to predict outcomes (e.g.,
units to be produced).

b) QUALITATIVE FORECASTING
Using experts’ judgments and opinions.

41
3. BENCHMARKING: (ROLE MODEL)

Measurement of the quality of a firm's policies, products, programs,

strategies, etc., and their comparison with standard measurements, or
similar measurements of the best-in-class firms.

SIX STEPS TO BETTER BENCHMARKING:

1. Identify (what is to be benchmarked).

2. Data collection.
3. Data analysis.
4. Reporting.
5. Learning from best practices.
6. Planning and implementing improvement actions.

TECHNIQUES FOR ALLOCATING RESOURCES:

42
  THE ASSETS OF THE ORGANIZATION
➢ Financial: debt, equity, and retained earnings
➢ Physical: buildings, equipment, and raw materials
➢ Human: experiences, skills, knowledge, and competencies
➢ Intangible: brand names, patents, reputation, trademarks, copyrights, and
databases.
4. BUDGETS:
Numerical plans for allocating resources (e.g., revenues, expenses, and capital
expenditures).

TYPES OF BUDGETS:

5. SCHEDULES:

Plans that allocate resources by detailing;

- What activities have to be done?
- The order in which they are to be completed.
- Who is to do each?
- When they are to be completed. It includes,

❖ GANTT CHARTS
❖ LOAD CHARTS
❖ PERT NETWORK ANALYSIS

➢ GANTT CHART: A chart that depicts progress in relation to time, often

used in planning and tracking a project.

43
 ➢ LOAD CHART: A modified Gantt chart that lists entire departments or
specific resources on the vertical axis. Allows managers to plan and control
capacity utilization.

➢ PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT):

A model for project management designed to analyze and represent the task involve
in completing a project.

44
STEPS IN DEVELOPING A PERT NETWORK:
1. Identify every significant activity that must be achieved for a project to be
completed.
2. Determine the order in which these events must be completed.
3. Diagram the flow of activities from start to finish, identifying each activity
and its relationship to all other activities.
4. Compute a time estimate for completing each activity.
5. Using the network diagram that contains time estimates for each activity,
determine a schedule for the start and finish dates of each activity and for
the entire project.

6. BREAK EVEN:
The break even is the point at which the cost or expenses is equal to revenues.

7. LINEAR PROGRAMMING:
A mathematical method for determining a way to achieve a best outcome using
proportional relationships between two variables.

8. CONTEMPORARY PLANNING TECHNIQUES;

1. Project management: Project management is the discipline of planning,
organizing, securing and managing resources to bring about successful
completion of project.

2. Scenario planning: A consistent view of what the future is likely to be.

45
 ❖ SCENARIO PLANNING: An attempt not tries to predict the future but to
reduce uncertainty by playing out potential situations under different
specified conditions.
❖ CONTINGENCY PLANNING: Developing scenarios that allow managers
determine in advance what their actions should be should a considered
event actually occur.

2.9. DECISION MAKING:

❖ The word decision has been derived from the Latin word "decidere" which
means “cutting off".
❖ Thus, decision involves cutting off of alternatives between those that are
desirable and those that are not desirable.
❖ In the words of George R. Terry, "Decision-making is the selection based on
some criteria from two or more possible alternatives".

2.9.1. Characteristics 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 judgemental and
emotional.
❖ 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.
❖ Choosing from among the alternative courses of operation implies uncertainty
about the final result of each possible course of operation.
❖ Decision making is rational. It is taken only after a thorough analysis and
reasoning and weighing the consequences of the various alternatives.

2.9.2. Types of Decisions:

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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. They are,
generally, taken at the lower level of management.

Non-Programmed Decisions: Non-programmed decisions are decisions taken

to meet non-repetitive problems. Non-programmed decisions are relevant for
solving unique/ 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. Since these decisions are of high importance and have long-term
consequences, they are made by top level management.

Strategic and Tactical Decisions: Organizational decisions may also be classified as

strategic or tactical.

2.9.3. DECISION MAKING PROCESS:

1. 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 needs to
be made.
2. Problem Identification: A problem is a felt need, a question which needs
a solution. In the words of Joseph L Massie "A good decision is dependent
upon the recognition of the right problem". The objective of problem
identification is that if the problem is precisely and specifically identifies, it

47
 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.

3. Search for Alternatives: A problem can be solved in several ways;

however, all the ways cannot be equally satisfying. 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

4. 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.

5. 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.
6. 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.
7. Results: When the decision is put into action, it brings certain results.
These results must correspond with objectives, the starting point of
decision process, if good decision has been made and implemented
properly. Thus, results provide indication whether decision making andits
implementation is proper.

2.9.4. RATIONAL DECISION MAKING MODEL:

The Rational Decision Making Model is a model which emerges from
Organizational Behavior. The process is one that is logical and follows the orderly
path from problem identification through solution. It provides a structured and
sequenced approach to decision making. Using such an approach can help to
ensure discipline and consistency is built into your decision making process.

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 1. Defining the problem: This is the initial step of the rational decision
making process. First the problem is identied and then defined to get a
clear view of the situation.

2. 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.

3. Weight the criteria: The decision-maker weights the previously identified

criteria in order to give them correct priority in the decision.

4. 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, only to list them.

5. Rate each alternative on each criterion: The decision maker must

critically analyze and evaluate each one. The strengths and weakness of
each alternative become evident as they compared with the criteria and
weights established in second and third steps.

6. Compute the optimal decision: Evaluating each alternative against the

weighted criteria and selecting the alternative with the highest total score.

2.9.5. DECISION MAKING UNDER VARIOUS CONDITIONS:

The conditions for making decisions can be divided into three types.
a) Certainty, b) Uncertainty and c) Risk

a) Certainty: In a situation involving certainty, people are reasonably sure

about what will happen when they make a decision. The information is available
and is considered to be reliable, and the cause and effect relationships are known.

b) Uncertainty: In a situation of uncertainty, on the other hand, people have

only a meager database, they do not know whether or not the data are reliable,
and they are very unsure about whether or not the situation may change.
Moreover, they cannot evaluate the interactions of the different variables. For
example, a corporation that decides to expand its Operation to an unfamiliar
country may know little about the country, culture, laws, economic environment,
and politics. The political situation may be volatile that even experts cannot
predict a possible change in government.

49
c) Risk: In a situation with risks, factual information may exist, but it may be
incomplete. to improve decision making One may estimate the objective
probability of an outcome by using, for example, mathematical models On the
other hand, subjective probability, based on judgment and experience may be
used All intelligent decision makers dealing with uncertainty like to know the
degree and nature of the risk they are taking in choosing a course of action. One
of the deficiencies in using the traditional approaches of operations research for
problem solving is that many of the data used in model are merely estimates and
others are based on probabilities. The ordinary practice is to have staff specialists
conic up with best estimates.

Define “Mission”: Mission may be defined as “a statement which defines the role that
an organization plays in the society”
Define “objectives”: The term “objective” or “goals” are often used
interchangeably. Objective are the end results towards which the activities of
attain its objectives.
What is mean by strategy: Strategy of an organization is the programmers of action
and deployment of resources to attain its objectives.
Define “policies”: Policies are general statement or understanding which provide
guidance in decision making to various managers.

What is procedure: Procedure is a chronological order of action required to

implement a policy and to achieve an objectives.

What is programme: Programme is a broad term which includes goals , polices ,

procedure , rules , task assignment , step to be taken, resources to be employed
to carryout a given course of action.

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 UNIT- III ORGANIZING
Nature and purpose of organizing - Organization structure - Formal and
informal groups organization - Line and Staff authority - Departmentation - Span
of control - Centralization and Decentralization - Delegation of authority -
Staffing - Selection and Recruitment - Orientation - Career Development - Career
stages – Training - Performance Appraisal.

3.0. ORGANIZING:

 Organization refers the process of determining, arranging, grouping and

assigning the activities to be performed for the attainment of objectives.

3.1.DEFINITION OF ORGANIZING:

 According to Koontz and O'Donnell, "Organization involves the grouping

of activities necessary to accomplish goals and plans, the assignment of
these activities to appropriate departments and the provision of authority,
delegation and co-ordination."

3. 2.NATURE OR CHARACTERISTICS OF ORGANIZING:

❖ Common objectives: Every organization exists to achieve some common

objectives. All efforts of the organization are directed towards this goal.
❖ Specialization or Division of Labour: The total work of an organization is
divided into functions and sub-functions in order to get the benefits of
specialization.

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 ❖ Authority of structure or chain of command: The chain of superior and
subordinate relationships is known as chain of command.
❖ Group of persons:
✓ An organization is basically a group of persons.
✓ Activity groupings and authority provisions must take into account of the
limitations S customs of people as they constitute the dynamic element of
an organization.
❖ Co-ordination: There is a mechanism for coordinating different activities and
parts of an organization so that it functions as an integrated whole.
❖ Communication: Communication channels are necessary for mutual
understanding and cooperation among members of an organization.
❖ Environment: It must be desired to work efficiently in a changing
environment.
❖ Rules and Regulations: For effective functioning of an organization, it should
have some rules and regulations either written or implied form, such as in
customary behaviour.

3.3. PURPOSE OF ORGANIZATION / ORGANIZATIONAL ACTIVITIES:

(It is the backbone of management)

❖ Facilitate administration:
✓ Administration aims at earning the highest profit by utilizing the
available resources properly.
✓ A properly designed organization facilitates both management and
operation of the enterprises.
✓ It provides the proper division of labour, consistent delegation of
authority, and clear authority relationships.
✓ Organisation is the mechanism through which managers direct,
coordinate and control the business.
❖ Increases the efficiency of management: A good organization will utilize
the resources effectively in such a way so as to avoid delay, duplication and
confusion in performance.
❖ Facilitates growth and diversification:
✓ The growth of organization means an increase in the scale of operation.
✓ Diversification means the start of production of a new type of products.
✓ The enormous size and diversification of activities of an enterprise is the
direct outcome of the organizing ability of the management.
❖ Facilitates co-ordination and communication: Better coordination
between various departments is achieved by grouping activities.

52
 ❖ Permits optimum use of Technological innovations:
Sound organization structure is flexible and provides adequate scope for
innovative changes in the enterprise.
❖ Simulates creativity and initiative: A sound organization stimulates
creative thinking Freedom given to personal work, increase the spirit of
constructive and creative approach in management.

3.4. ORGANIZING PROCESS:

The various steps involved in this process are:

1. Determination of Objectives.
2. Grouping of activities.
3. Assignment of duties.
4. Delegation of authority.
5. Establishment of structural relationship.
6. Co-ordination of activities.

1. Determination of Objectives:

❖ Organization is always related to certain objectives.

❖ Therefore, it is essential for the management to identify the objectives before
starting any activity.
❖ Organization structure is built on the basis of the objectives of the enterprise.

2. Grouping of activities:

❖ If the members of the group are to pool their efforts effectively, there must
be proper division of the major activities.
❖ The first step in organizing group effort is the division of the total job into
essential activities.
❖ Each job should be properly classified and grouped.
❖ For example, the work of an industrial concern may be divided into the
following major functions – production, financing, personnel, sales,
purchase, etc.

3. Assignment of duties:

❖ Here, specific job assignments are made to different subordinates for ensuring
a certainty of work performance.
❖ Each individual should be given a specific job to do according to his ability and
made responsible for that.

4. Delegation of Authority:

53
 ❖ Since so many individuals work in the same organization, it is the
responsibility of management to lay down structure of relationship in the
organization.
❖ Authority without responsibility is a dangerous thing and similarly
responsibility without authority is an empty vessel.
❖ Everybody should clearly know to whom he is accountable; corresponding
to the responsibility authority is delegated to the subordinates for enabling
them to show work performance.

5. Establishment of structural relationship:

 The relationship between various positions and channels of

communications should be clearly defined when a group of persons work
together for a common goals.

6. Co-ordination of activities:

 In order to get the optimum performance, co-ordination is necessary to see

whether all activities are going on to accomplish the objectives of the
organization or not.

3.5. FORMAL AND INFORMAL ORGANIZATION:

❖ The formal organization refers to the structure of jobs and positions with
clearly defined functions and relationships as prescribed by the top
management.
❖ This type of organization is built by the management to realize objectives of
an enterprise and is bound by rules, systems and procedures.
❖ Everybody is assigned a certain responsibility for the performance of the
given task and given the required amount of authority for carrying it out.
❖ Informal organization, it arises naturally on the basis of common
language, common hobby,common liking Sdisliking,social
contacts,friendship,etc.
❖ Informal organization, which does not appear on the organization chart,
supplements the formal organization in achieving organizational goals
effectively and efficiently.
❖ The working of informal groups and leaders is not as simple as it may
appear to be. (WhatsApp group)

3.5.1. FORMAL ORGANIZATION:

54
 ❖ The formal organization refers to the structure of jobs and positions with
clearly defined functions and relationships as prescribed by the top
management.
❖ This type of organization is built by the management to realize objectives of
an enterprise and is bound by rules, systems and procedures.
❖ Everybody is assigned a certain responsibility for the performance of the
given task and given the required amount of authority for carrying it out.
❖ Chester I Bernard defines formal organization as -"a system of consciously
coordinated activities or forces of two or more persons. It refers to the
structure of well-defined jobs, each bearing a definite measure of
authority, responsibility and accountability." Characteristic Features of
formal organization:
1. It is flexible and properly planned.
2. It is based on the principle of division of labour and efficiency in operations.
3. Organizations charts are usually drawn.
4. Unity of command is normally maintained.
5. The responsibilities and accountability at all levels of organizations should be
clearly defined.
6. It concentrates more on the performance of jobs but not on the individuals.

Advantages of formal organization

1. The formal organization structure concentrates on the jobs to be performed. It,

therefore, makes everybody responsible for a given task.
2. A formal organization is bound by rules, regulations and procedures. It thus
ensures law and order in the organization.
3. The organization structure enables the people of the organization to work
together for accomplishing the common objectives of the enterprise.
4. It motivates the employees.

Disadvantages of formal organization

1. The formal organization does not take into consideration the sentiments of
organizational members.
2. The formal organization does not consider the goals of the individuals. It is
designed to achieve the goals of the organization only.
3. The formal organization is bound by rigid rules, regulations and procedures.
This makes the achievement of goals difficult.
3.5.2. INFORMAL ORGANIZATION:

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 ❖ Informal organization refers to the relationship between people in the
organization based on personal attitudes, emotions, prejudices, likes,
dislikes etc.
❖ An informal organization is an organization which is not established
by any formal authority, but arises from the personal and social
relations of the people.
❖ These groups may be based on same taste, language, culture or some other
factor.
❖ These groups are not pre-planned, but they develop automatically within
the organization according to its environment. Characteristics features
of informal organization

1. The membership of informal organizations is voluntary. It arises

spontaneously and not by deliberate or conscious efforts.
2. Formation of informal organizations is a natural process. It is not based on
rules, regulations and procedures.
3. 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.
4. Informal organization is not established by any formal authority. It is
unplanned and arises spontaneously.
5. Informal organizations reflect human relationships. It arises from the personal
and social relations amongst the people working in the organization.
6. The inter-relations amongst the people in an informal organization cannot be
shown in an organization chart.
7. In the case of informal organization, the people cut across formal channels of
communications and communicate amongst themselves.
8. Membership of informal groups can be overlapping as a person may be
member of a number of informal groups.

Advantages of Informal organization:

1. It blends with the formal organization to make it more effective.

2. Many things which cannot be achieved through formal organization can be
achieved through informal organization.
3. The presence of informal organization in an enterprise makes the managers
plan and act more carefully.
4. Informal organization acts as a means by which the workers achieve a sense of
security and belonging. It provides social satisfaction to group members.
5. An informal organization has a powerful influence on productivity and job
satisfaction.

56
 6. The informal leader lightens the burden of the formal manager and tries to fill
in the gaps in the manager's ability.
7. Informal organization helps the group members to attain specific personal
objectives.
8. Informal organization is the best means of employee communication. It is very
fast.
9. Informal organization gives psychological satisfaction to the members. It acts as
a safety valve for the emotional problems and frustrations of the workers of the
organization because they get a platform to express their feelings.
10. It serves as an agency for social control of human behavior.

Disadvantages of Informal organization:

1. It spreads rumour among the workers regarding the functioning of the

organizations unnecessarily.
2. It indirectly reduces the effort of management to promote the greater
productivity.
3. It may function as counter-productive. They me be a barricade of achieving the
objectives of the organizations.

3.5.3. DIFFERENCES BETWEEN FORMAL AND INFORMAL ORGANIZATION:

57
3.6. ORGANIZATIONAL CHARTS:

❖ An organizational chart is a diagram that shows the structure of an

organization clearly.
❖ It shows the organizational relationships and relative ranks of its parts and
positions or jobs.
❖ In the word of J Batty, "An organisation chart is a diagrammatic representation
of the framework or structure of an organisation."

58
The following are the contents of the organization chart:

1. Authority and responsibilities of various executives.

2. Relationship between line and staff authority.
3. Name of components of organizations.
4. Positions of various office personnel.
5. Channel of communication.
6. Ways of promotions and salary particulars.

3.6.1. Types of organizational chart:

1. Top-down chart or vertical chart:

❖ The lines of communication flow from top to the bottom in vertical lines.
❖ In this chart, the highest position is placed in the top the next highest
follows the next highest one and so on.

2. Horizontal chart or left to right chart:

59
  The chart in which the lines of command are flowing horizontally
instead of vertical.

3. Circular chart or concentric chart:

❖ In this chart, the position of the top executive is in the centre of the
chart.
❖ The subordinates of these top executives are shown in all directions
outward from the centre.

Advantages of organizational chart:

60
 ❖ It shows clearly the various positions in the organization and their
relationship.
❖ It provides good clues to the lines of promotion.
❖ The strength and weakness of an organization are evaluated.

3.7. ORGANIZATIONAL STRUCTURE:

❖ An organizational structure defines how activities such as task allocation,

coordination and supervision are directed toward the achievement of
organizational objectives.
❖ It is the typically hierarchical arrangement of lines of authority,
communications, rights and duties of an organization.
❖ Organizational structure determines how the roles, power and
responsibilities are assigned, controlled, and coordinated, and how
information flows between the different levels of management.
❖ A structure depends on the organization's objectives and strategy.
❖ It may be classified into the following two categories;

Based on the power flow within the organization

i. Bureaucratic Organization
ii. Organic structure

Based on the formation of departments or groups, organizations may be classified into

the following types;

i. Functional structure
ii. Divisional structure
iii. Matrix structure

BUREAUCRATIC ORGANIZATION

❖ A bureaucratic organization is a form of management that has a pyramidal

command structure.
❖ The bureaucratic organization is very organized with a high degree of formality
in the way it operates.
❖ Organizational charts generally exist for every department, and decisions are
made through an organized process.
❖ A strict command and control structure is present at all times.
❖ Bureaucracies are meant to be orderly, fair and highly efficient.

ORGANIC ORGANIZATION

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 ❖ An organic organization is a type of informal organization originally described
by British theorists Tom Burns and George Stalker.
❖ According to Burns and Stalker, an organic organization is one that is very
flexible and is able to adapt well to changes.
❖ Its structure is identified as having little job specialization, few layers of
management, decentralized decision-making and not much direct supervision.

Based on the formation of departments or groups, Functional

Structure:

❖ Functional structure is set up so that each portion of the organization is

grouped according to its purpose.
❖ In this type of organization, for example, there may be a marketing department,
a sales department and a production department.
❖ The functional structure works very well for small businesses in which each
department can rely on the talent and knowledge of its workers and support
itself.
❖ However, one of the drawbacks to a functional structure is that the coordination
and communication between departments can be restricted by the
organizational boundaries of having the various departments working
separately.

Divisional Structure:
❖ In Divisional structure, the organization is divided into several fairly
autonomous divisions. These each division are divided according to their
organizational outputs.
❖ Each division is headed by a manager who is responsible for all functions
within his division.
❖ Each division has its own production, marketing, RSD, finance

62
 departments.

Matrix Structure:
❖ The third main type of organizational structure, called the matrix structure, is a
hybrid of divisional and functional structure.
❖ Typically used in large multinational companies, the matrix structure allows for
the benefits of functional and divisional structures to exist in one organization.
❖ This can create power struggles because most areas of the company will have a
dual management--a functional manager and a product or divisional manager
working at the same level and covering some of the same managerial territory.

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3.7.1. Comparison between functional and divisional organization
structure:
BASIS FOR FUNCTIONAL STRUCTURE DIVISIONAL STRUCTURE
COMPARISON

Meaning Functional Structure is one An organizational structure

in which the reporting wherein the organizational
relationships of the functions are classified into
organization are bifurcated divisions as per product or
according to their functional service lines, market, is called
area. Divisional Structure.
Basis Functional areas Specialized divisions

Responsibility Difficult to fix responsibility Easy to fix responsibility for

on a particular department. performance.

Autonomy of Managers do not have Managers have autonomy of

decisions autonomy of decisions. decisions.

Cost Economical, as the functions Expensive as it involves

are not repeated. repeatation of resources.

Appropriate for Small and simple Large and dynamic

organizations. organizations.

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3.8. LINE AND STAFF AUTHORITY Line

Authority:

❖ Managers with line authority are those people in the organization who are
directly responsible for achieving organizational goals.
❖ Line authority is represented by the standard chain of command starting with
the board of directors and extending down activities of the organization that
are carried out.
❖ Line authority is based primarily on authentic power.

Staff Authority:

❖ Staff authority belongs to those individuals or groups in an organization who

provide services and advice to line mangers.

E.X:
 Production and sales are line function and Accounting is staff
function in manufacturing organization
3.8.1. COMPARISON BETWEEN LINE AND STAFF AUTHORITY:
S.NO LINE AUTHORITY STAFF AUTHORITY
It has the right to decide or It has the right to advice, assistance
1.
command and information
It contributes directly to attain the It assists line in effective attainment
2.
organizational goal. of objectives.
It creates superior-subordinate
3. Extension of line and supports line.
relationship.

65
 4. It flows from top to bottom. It flows in any direction.

5. It makes the operating decision. It provides ideas for decision.

6. Authority is relatively unlimited. Authority is relatively restricted.

3.9. DEPARTMENTATION:

❖ DEPARTMENTATION 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.

Key Factors in Departmentation

❖ It should facilitate control.

❖ It should ensure proper coordination.
❖ It should take into consideration the benefits of specialization.
❖ It should not result in excess cost.
❖ It should give due consideration to Human Aspects.

Departmentation takes place in various patterns like departmentation by

functions, products, customers, geographic location, process, and its
combinations.

3.9.1. BASES OF DEPARTMENTATION

1. Departmentation by Functional Basis –

❖ Grouping of activities in accordance with the function of an

enterprise.
❖ Each major function of the enterprise is grouped into a
department.

Merits:

✓ It is a logical and time proven method.

66
 ✓ It follows the principles of specialization.
✓ Authority and responsibility can be clearly defined and fixed.
✓ Since the top managers are responsible for the end results control shall become
effective.

Demerits:

✓ This type of departmentation shall develop a loyalty towards the functions and
not towards the enterprise as whole.
✓ Co-ordination of different function shall become difficult.
✓ Only the departmental heads are held responsible for defective work.

2. Departmentation by Territorial basis –

❖ A company may have separate departments to serve the
southern region, northern region etc.
❖ It has the advantage of the intimate knowledge of local
conditions.

Merits:

✓ It motivates each regional head to achieve high performance.

✓ Provides each regional head an opportunity to adapt to his local situation
and customer need with speed and accuracy.
✓ It affords valuable top-management training and experience to middle
level executives enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market, etc.
✓ Enables the Organisation to compare regional performances and invest
more resources in profitable regions and withdraw resources from
unprofitable ones.

Demerits:

✓ May give rise to duplication of various activities. Many routine and service
functions performed by all the regional units can be performed centrally by
the head office very economically.
✓ Various regional units may become so engrossed in short run competition
among them that they may forget the overall interest of the total
organization.

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 3. Departmentation by Process basis –

❖ It is done on the basis of several discrete stages in the process or

technologies involved in the manufacture of a product.
❖ A cotton textile mill has separate departments for ginning, spinning,
weaving, dyeing and printing and packing and sales.

Merits:

✓ Facilitates the use of heavy and costly equipment in an efficient manner.

✓ It follows the principle of specialization – each dept is engaged in doing a
special type of work. This increases efficiency.
✓ It is suitable for Organisation which is engaged in the manufacture of those
products which involve a number of processes.

Demerits:

✓ Difficult to compare the performance of different process based departments.

4. Departmentation by Product basis –

❖ It is suited for a large organization manufacturing a variety of

products.
❖ For each major product a semi-autonomous department is created
and is put under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
❖ Product department is the logical pattern to follow when each
product requires raw materials, manufacturing, technology and
marketing methods and that are markedly different from those used
by other products in the Organisation..

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Merits:

✓ Relieves top management of operating task responsibility. It can therefore

better concentrate on such centralized activities like finance, RS D and control.
✓ Enables the top management to compare the performance of different products
and invest more resources in profitable products and withdraw resources from
unprofitable ones.
✓ Those who work within a department derive greater satisfaction from
identification with a recognizable goal.

Demerits:

✓ Results in duplication of staff and facilities

✓ Employment of large number of managerial personnel is required.
✓ Equipment in each product department may not be fully used.

5. Departmentation by Customer basis –

 An enterprise may be divided into a number of departments on the basis
of the customers that it services.

Merits:
✓ It ensures full attention to major customer groups and helps the company to
earn goodwill.
Demerits:
✓ It may result in under utilization of resources and facilities in some department.
✓ There may be duplication of facility.

3.10. SPAN OF CONTROL:

❖ Span of Control means the number of subordinates that can be managed

efficiently and effectively by a superior in an organization.
❖ It suggests how the relations are designed between a superior and a
subordinate in an organization.

3.10.1. FACTORS AFFECTING SPAN OF CONTROL:

a) Capacity of Superior: Different ability and capacity of leadership,

communication affect management of subordinates.

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b) Capacity of Subordinates: Efficient and trained subordinates affect the degree
of span of management.

c) Nature of Work: Different types of work require different patterns of

management.

d) Degree of Centralization or Decentralization: Degree of centralization or

decentralization affects the span of management by affecting the degree of
involvement of the superior in decision making.

e) Degree of Planning: Plans which can provide rules, procedures in doing the
work higher would be the degree of span of management.

f) Communication Techniques: Pattern of communication, its means, and media

affect the time requirement in managing subordinates and consequently span of
management.

g) Use of Staff Assistance: Use of Staff assistance in reducing the work load of
managers enables them to manage more number of subordinates.

h) Supervision of others: If subordinate receives supervision form several other

personnel besides his direct supervisor. In such a case, the work load of direct
superior is reduced and he can supervise more number of persons.

 Span of control is of two types:

1. Narrow span of control
2. Wide span of control

1. Narrow span of control: Narrow Span of control means a single manager

or supervisor oversees few subordinates. This gives rise to a tall
organizational structure.

Advantages:
❖ Close supervision
❖ Close control of subordinates
❖ Fast communication Disadvantages:

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 ❖ Too much control
❖ Many levels of management
❖ High costs
❖ Excessive distance between lowest level and highest level.

2. Wide span of control: Wide span of control means a single manager or

supervisor oversees a large number of subordinates. This gives rise to a flat
organizational structure.

Advantages:
❖ More Delegation of Authority
❖ Development of Managers
❖ Clear policies Disadvantages:
❖ Overloaded supervisors.
❖ Danger of superior’s loss of control.
❖ Requirement of highly trained managerial personnel.
❖ Block in decision making.

3.11. DELEGATION OF AUTHORITY

❖ 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 means division of authority and powers
downwards to the subordinate.
❖ Delegation is about entrusting someone else to do parts of your job.
Delegation of authority can be defined as subdivision and sub allocation of
powers to the subordinates in order to achieve effective results.

3.11.1. Elements of Delegation:

1. Authority –
❖ Authority is the right to give commands, orders and get the things done.
❖ The top level management has greatest authority.

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 ❖ Authority always flows from top to bottom.
❖ Authority should be accompanied with an equal amount of responsibility.

2. Responsibility –

❖ A person who is given the responsibility should ensure that he accomplishes

the tasks assigned to him.

3. Accountability –

❖ It means giving explanations for any variance in the actual performance from
the expectations set.

3.11.2. DELEGATION PROCESS

The steps involved in delegation are given below

1. Allocation of duties –

❖ The delegator first tries to define the task and duties to the subordinate.
❖ He also has to define the result expected from the subordinates.
❖ Clarity of duty as well as result expected has to be the first step in delegation.

2. Granting of authority –

❖ Subdivision of authority takes place when a superior divides and shares his
authority with the subordinate.
❖ It is for this reason; every subordinate should be given enough independence
to carry the task given to him by his superiors.
❖ The managers at all levels delegate authority and power which is attached to
their job positions.
❖ The subdivision of powers is very important to get effective results.

3. Assigning of Responsibility and Accountability –

❖ The delegation process does not end once powers are granted to the
subordinates.
❖ They at the same time have to be obligatory towards the duties assigned to
them.
❖ Responsibility is said to be the factor or obligation of an individual to carry out
his duties in best of his ability as per the directions of superior.
❖ Therefore, it is that which gives effectiveness to authority. At the same time,
responsibility is absolute and cannot be shifted.

4. Creation of accountability –

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 ❖ Accountability, on the others hand, is the obligation of the individual to carry
out his duties as per the standards of performance.
❖ Therefore, it is said that authority is delegated, responsibility is created and
accountability is imposed.
❖ Accountability arises out of responsibility and responsibility arises out of
authority.
❖ Therefore, it becomes important that with every authority position an equal
and opposite responsibility should be attached.

3.12. CENTRALIZATION AND DECENTRALIZATION CENTRALIZATION:

CENTRALIZATION:

❖ It is the process of transferring and assigning decision-making authority to

higher levels of an organizational hierarchy.
❖ The span of control of top managers is relatively broad, and there are
relatively many tiers in the organization.

Characteristics

❖ Philosophy / emphasis on: top-down control, leadership, vision, strategy.

❖ Decision-making: strong, authoritarian, visionary, charismatic.
❖ Organizational change: shaped by top, vision of leader.
❖ Execution: decisive, fast, coordinated. Able to respond quickly to major
issues and changes.
❖ Uniformity. Low risk of dissent or conflicts between parts of the
organization.

Advantages of Centralization

❖ Provide Power and prestige for manager

❖ Promote uniformity of policies, practices and decisions
❖ Minimal extensive controlling procedures and practices
❖ Minimize duplication of function Disadvantages of Centralization

❖ Neglected functions for mid. Level, and less motivated beside personnel.
❖ Nursing supervisor functions as a link officer between nursing director and
first-line management.

DECENTRALIZATION:

❖ It is the process of transferring and assigning decision-making authority to

lower levels of an organizational hierarchy.

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 ❖ The span of control of top managers is relatively small, and there are
relatively few tears in the organization, because there is more autonomy in
the lower ranks. Characteristics

❖ Philosophy / emphasis on: bottom-up, political, cultural and learning

dynamics.
❖ Decision-making: democratic, participative, detailed.
❖ Organizational change: emerging from interactions, organizational
dynamics.
❖ Execution: evolutionary, emergent. Flexible to adapt to minor issues and
changes.
❖ Participation, accountability. Low risk of not-invented-here
behaviour.

Three Forms of decentralization:

1. De-concentration. The weakest form of decentralization. Decision making

authority is redistributed to lower or regional levels of the same central
organization.
2. Delegation. A more extensive form of decentralization. Through
delegation the responsibility for decision-making are transferred to
semiautonomous organizations not wholly controlled by the central
organization, but ultimately accountable to it.
3. Devolution. A third type of decentralization is devolution. The authority
for decision making is transferred completely to
autonomous organizational units.
Advantages of Decentralization

❖ Raise morale and promote interpersonal relationships  Relieve from

the daily administration
❖ Bring decision-making close to action
❖ Develop Second-line managers
❖ Promote employee’s enthusiasm and coordination
❖ Facilitate actions by lower-level managers

Disadvantages of Decentralization

❖ Top-level administration may feel it would decrease their status.

❖ Managers may not permit full and maximum utilization of highly
qualified personnel.
❖ Increased costs. It requires more managers and large staff.
❖ It may lead to overlapping and duplication of effort.

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 STAFFING

3.13. HUMAN RESOURCE MANAGEMENT:

❖ Human Resource Management includes conducting job analyses, planning

personnel needs, recruiting the right people for the job, orienting and training,
managing wages and salaries, providing benefits and incentives, evaluating
performance, resolving disputes, and communicating with all employees at all
levels.

❖ Examples of core qualities of HR management are extensive knowledge of the

industry, leadership, and effective negotiation skills.

3.14. STAFFING OR HUMAN RESOURCES MANAGEMENT:

❖ Staffing involves filling the positions needed in the organization structure by

appointing competent and qualified persons for the job.
❖ The staffing process encompasses man power planning, recruitment, selection,
and training.

3.15. DEFINITION OF STAFFING:

Staffing is the part of the management process which is concerned with

the procurement utilization, maintenance and development of large satisfied
work force on the organization.

3.16. NEED OF STAFFING:

❖ Massive increase in the number of employees.

❖ Technological innovations that require more skilled experienced staff. 
Changing employee roles and-values.
❖ Increasing the percentage of woman employees.
❖ Widening the functions of the management.

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Effective attainment of organization goals.
❖ Effective utilization of skills and potential of the work force, Provision of job
satisfaction to employees.

3.17. FACTORS AFFECTING STAFFING:

 EXTERNAL FACTORS:

1. Political factors: Political stability, political parties and their political

gimmicks, formation of new political parties, trade unions etc.
2. Economic factors: national income, per capita income, distribution of income
S wealth etc.
3. Social factors: Social environment consists of social roles, social values, caste
structure, occupational structure, social forward and backward sections,
religions, culture etc.
4. Legal factors: There are various legal provisions which affect the staffing
policy of organization. The Act 1986, provide the restrictions of free
recruitment of child labor.
5. Customers: If the services of the organization are poor they may develop
negative attitude towards the organization.
6. Women in Management:

 Internal factors:

1. Size of the organization: A small organization cannot have the same

staffing practices which large organizations may have.
2. Organizational Image: The Image of an organization in human resource
market depends on its staffing practices, like facilities for training and
development, compensation and incentives, and work culture. If all these factors
are positive, an organization may be in a better position to attract the candidates
and customers.
3. Technological factors: The procurement of skilled employees and their
increase in numbers to match the changing job requirements has become a
complicated task.
4. Changes in Employee Roles: Nowadays the management improves the
staffing process by
❖ Providing various fringe benefits to improve morale.
❖ Introducing negotiating machinery to redress grievance. 
Encouraging employee participation in decision making.

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5. Education: Well educated employees always challenge and question the
management decision and want a voice in the company's affairs affecting their
interest.

3.18. STAFFING PROCESS:

a) Manpower planning:
❖ Manpower Planning which is also called as Human Resource Planning
consists of putting right number of people, right kind of people at the right
place, right time, doing the right things for which they are suited for the
achievement of goals of the organization.
❖ The primary function of man power planning is to analyze and evaluate the
human resources available in the organization, and to determine how to
obtain the kinds of personnel needed to staff positions ranging from
assembly line workers to chief executives.
b) Recruitment:
❖ Recruitment is the process of finding and attempting to attract job
candidates who are capable of effectively filling job vacancies.
❖ Job descriptions and job specifications are important in the recruiting
process because they specify the nature of the job and the qualifications
required of job candidates.

c) Selection:
❖ Selecting a suitable candidate can be the biggest challenge for any
organization.
❖ The success of an organization largely depends on its staff.
❖ Selection of the right candidate builds the foundation of any organization's
success and helps in reducing turnovers.

d) Training and Development:

❖ Training and Development is a planned effort to facilitate employee
learning of job related behaviors in order to improve employee
performance.
❖ Experts sometimes distinguish between the terms “training” and
“development”; “training” denotes efforts to increase employee skills on
present jobs, while “development” refers to efforts oriented toward
improvements relevant to future jobs.

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 

In practice, though, the distinction is often blurred (mainly because

upgrading skills in present jobs usually improves performance in future
jobs).

3.19. RECRUITMENT PROCESS:

Recruitment is the process of finding and attempting to attract job

candidates who are capable of effectively filling job vacancies. The recruitment
process consists of the following steps
1. Identification of vacancy
2. Preparation of job description and job specification
3. Selection of sources
4. Advertising the vacancy 5. Managing the response

a) Identification of vacancy:
❖ The recruitment process begins with the human resource department
receiving requisitions for recruitment from any department of the
company.
❖ These contain:
✓ Posts to be filled
✓ Number of persons
✓ Duties to be performed
✓ Qualifications required

b) Preparation of job description and job specification:

❖ A job description is a list of the general tasks, or functions, and
responsibilities of a position.
❖ It may often include to whom the position reports, specifications such as
the qualifications or skills needed by the person in the job, or a salary
range.
❖ A job specification describes the knowledge, skills, education, experience,
and abilities you believe are essential to performing a particular job.
c) Selection of sources:
❖ Every organization has the option of choosing the candidates for its
recruitment processes from two kinds of sources: internal and external
sources.
❖ The sources within the organization itself (like transfer of employees from
one department to other, promotions) to fill a position are known as the
internal sources of recruitment.

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 

Recruitment candidates from all the other sources (like outsourcing

agencies etc.) are known as the external sources of the recruitment.

d) Advertising the vacancy: After choosing the appropriate sources, the

vacancy is communicated to the candidates by means of a suitable media
such as television, radio, newspaper, internet, direct mail etc. e)
Managing the response:
❖ After receiving an adequate number of responses from job seekers, the
sieving process of the resumes begins.
❖ This is a very essential step of the recruitment selection process, because
selecting the correct resumes that match the job profile, is very important.
❖ Naturally, it has to be done rather competently by a person who
understands all the responsibilities associated with the designation in its
entirety.
❖ Candidates with the given skill set are then chosen and further called for
interview.
❖ Also, the applications of candidates that do not match the present nature of
the position but may be considered for future requirements are filed
separately and preserved.
❖ The recruitment process is immediately followed by the selection process.

3.20. JOB ANALYSIS:

❖ Job Analysis is the process of describing and recording aspects of jobs and
specifying the skills and other requirements necessary to perform the job.
❖ The outputs of job analysis are
a) Job description b) Job specification

3.20.1. Job Description (JD):

❖ A job description (JD) is a written statement of what the job holder
does how it is done, under what conditions it is done and why it is done.
❖ It describes what the job is all about, throwing light on job content,
environment and conditions of employment.
❖ It is descriptive in nature and defines the purpose and scope of a job.
❖ The main purpose of writing a job description is to differentiate the job
from other jobs and state its outer limits.
Contents A job description usually covers the following information:
Job title: Tells about the job title, code number and the department where
it is done.

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 

❖ Job summary: A brief write-up about what the job is all about.
❖ Job activities: A description of the tasks done, facilities used, extent of
supervisory help, etc.
❖ Working conditions: The physical environment of job in terms of heat,
light, noise and other hazards.
❖ Social environment: Size of work group and interpersonal interactions
required to do the job.

3.20.2. Job Specification:

❖ Job specification summarizes the human characteristics needed
for satisfactory job completion.
❖ It tries to describe the key qualifications someone needs to
perform the job successfully.
❖ It spells out the important attributes of a person in terms of
education, experience, skills, knowledge and abilities (SKAs) to
perform a particular job.
❖ The job specification is a logical outgrowth of a job description.
❖ For each job description, it is desirable to have a job
specification.
❖ This helps the organization to find what kinds of persons are
needed to take up specific jobs.

Contents A job specification usually covers the following information::

❖ Education
❖ Experience
❖ Skill, Knowledge, Abilities
❖ Work Orientation Factors
❖ Age

3.21. SELECTION PROCESS:

❖ Selecting a suitable candidate can be the biggest challenge for any

organisation.
❖ The success of an organization largely depends on its staff.
❖ Selection of the right candidate builds the foundation of any organization's
success and helps in reducing turnovers.
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 Though there is no fool proof selection procedure that will ensure low
turnover and high profits,

The following steps generally make up the selection process-

a) Initial Screening:

❖ Initial Screening eliminates unqualified applicants and helps save time.

❖ Applications received from various sources are studied and irrelevant ones
are discarded.

b) Preliminary Interview:

❖ It is used to eliminate those candidates who do not meet the minimum

eligibility criteria laid down by the organization.
❖ The skills, academic and family background, competencies and interests of
the candidate are examined during preliminary interview.
❖ Preliminary interviews are less formalized and planned than the final
interviews.

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 
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❖ The candidates are given a brief up about the company and the job profile;
and it is also examined how much the candidate knows about the company.
Preliminary interviews are also called screening interviews.

c) Filling Application Form:

A candidate who passes the preliminary interview and is found to be

eligible for the job is asked to fill in a formal application form.
Such a form is designed in a way that it records the personal as well
professional details of the candidates such as age, qualifications, reason for
leaving previous job, experience, etc.

d) Personal Interview:

❖ It helps them in obtaining more information about the prospective

employee.
❖ It also helps them in interacting with the candidate and judging his
communication abilities, his ease of handling pressure etc.

e) References check:

❖ References can be classified into - former employer, former customers,

business references, reputable persons.
❖ Such references are contacted to get a feedback on the person in question
including his behaviour, skills, conduct etc.

f) Background Verification:

 A background check is a review of a person's commercial, criminal and

(occasionally) financial records.

g) Final Interview:

❖ Final interview is a process in which a potential employee is evaluated by

an employer for prospective employment in their organization.
❖ During this process, the employer hopes to determine whether or not the
applicant is suitable for the job.
❖ Different types of tests are conducted to evaluate the capabilities of an
applicant, his behaviour, special qualities etc.

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 h) Physical Examination:

 If all goes well, then at this stage, a physical examination is conducted to

make sure that the candidate has sound health and does not suffer from
any serious ailment.

i) Job Offer:

 A candidate who clears all the steps is finally considered right for a
particular job and is presented with the job offer.
An applicant can be dropped at any given stage if considered unfit for the
job.

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3.22. CARRER DEVELOPMENT

❖ Career development not only improves job performance but also brings
about the growth of the personality.
❖ Individuals not only mature regarding their potential capacities but also
become better individuals.

3.22.1. PURPOSE OF DEVELOPMENT:

Management development attempts to improve managerial performance
by imparting
• Knowledge
Changing attitudes
•
• Increasing skills
The major objective of development is managerial effectiveness through a
planned and a deliberate process of learning. This provides for a planned growth
of managers to meet the future organizational needs.

3.22.2. DEVELOPMENT PROCESS:

The development process consists of the following steps

1. Setting Development Objectives: It develops a framework from which

executive need can be determined.

2. Ascertaining Development Needs: It aims at organizational planning S

forecast the present and future growth.

3. Determining Development Needs: This consists of

❖ Appraisal of present management talent

❖ Management Manpower Inventory

The above two processes will determine the skill deficiencies that are relative to
the future needs of the organization.

4. Conducting Development Programs:

❖ It is carried out on the basis of needs of different individuals, differences in

their attitudes and behavior, also their physical, intellectual and emotional
qualities.
❖ Thus a comprehensive and well-conceived program is prepared depending
on the organizational needs and the time S cost involved.

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5. Program Evaluation: It is an attempt to assess the value of training in order to
achieve organizational objectives.

3.23. TRAINING:

❖ Training is a process of learning a sequence of programmed behaviour.

❖ It improves the employee's performance on the current job and prepares
them for an intended job.

3.23.1. PURPOSE OF TRAINING:

1) To improve Productivity: Training leads to increased operational

productivity and increased company profit.
2) To improve Quality: Better trained workers are less likely to make
operational mistakes.
3) To improve Organizational Climate: Training leads to improved
production and product quality which enhances financial incentives. This in turn
increases the overall morale of the organization.
4) To increase Health and Safety: Proper training prevents industrial
accidents.
5) Personal Growth: Training gives employees a wider awareness, an
enlarged skill base and that leads to enhanced personal growth.

3.23.2. STEPS IN TRAINING PROCESS:

1) Identifying Training needs: A training program is designed to assist in

providing solutions for specific operational problems or to improve performance
of a trainee.
➢ Organizational determination and Analysis: Allocation of resources
that relate to organizational goal.
➢ Operational Analysis: Determination of a specific employee behaviour
required for a particular task.
➢ Man Analysis: Knowledge, attitude and skill one must possess for
attainment of organizational objectives.

2) Getting ready for the job: The trainer has to be prepared for the job. And
also who needs to be trained - the newcomer or the existing employee or the
supervisory staff.
Preparation of the learner:
• Putting the learner at ease
• Stating the importance and ingredients of the job • Creating interest
• Placing the learner as close to his normal working position

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• Familiarizing him with the equipment, materials and trade terms

3) Presentation of Operation and Knowledge: The trainer should clearly tell,

show, illustrate and question in order to convey the new knowledge and
operations. The trainee should be encouraged to ask questions in order to
indicate that he really knows and understands the job.

4) Performance Try out: The trainee is asked to go through the job several
times. This gradually builds up his skill, speed and confidence.

5) Follow-up: This evaluates the effectiveness of the entire training effort

3.23.3. TRAINING METHODS
Training methods can be broadly classified as
a) on-the-job training and
b) off-the-job training
a) On-the-job training: On the job training occurs when workers pick up skills
whilst working alongside experienced workers at their place of work. The
various types of on-the-job training are
1. Job rotation
2. Apprenticeship and coaching
3. Experiences
4. Temporary promotions
b) Off-the-job training:
❖ This occurs when workers are taken away from their place of work to be
trained.
❖ This may take place at training agency or local college, although many
larger firms also have their own training centres.
❖ Training can take the form of lectures or self-study and can be used to
develop more general skills and knowledge that can be used in a variety of
situations.
The various types of off-the-job training are
(i) Instructor presentation: The trainer orally presents new information to
the trainees, usually through lecture. Instructor presentation may include
classroom lecture, seminar, workshop, and the like.
(ii) Group discussion: The trainer leads the group of trainees in discussing a
topic.

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(iii) Demonstration: The trainer shows the correct steps for completing a task,
or shows an example of a correctly completed task.
(iv) Assigned reading: The trainer gives the trainees reading assignments that
provide new information.
(v) Exercise: The trainer assigns problems to be solved either on paper or in
real situations related to the topic of the training activity.
(vi) Case study: The trainer gives the trainees information about a situation and
directs them to come to a decision or solve a problem concerning the
situation.
(vii) Role play: Trainees act out a real-life situation in an instructional setting.
(viii) Field visit and study tour: Trainees are given the opportunity to observe
and interact with the problem being solved or skill being learned.

3.24. CAREER STAGES:

❖ A person’s working life can be divided into many stages.
❖ Four distinct career stages have been identified: trial,
establishment/advancement, mid-career, and late career.
❖ Each stage represents different career needs and interests of the
individual.

a) Trial stage: (15-25 years)

❖ The trial stage begins with an individual's exploration of career-related
matters and ends usually at about age 25 with a commitment on the part
of the individual to a particular occupation.
❖ Until the decision is made to settle down, the individual may try a number
of jobs and a number of organizations.
❖ Unfortunately for many organizations, this trial and exploration stage
results in high level of turnover among new employees.
❖ Employees in this stage need opportunities for self-exploration and a
variety of job activities or assignments.

b) Establishment Stage: (22-44 years)

❖ The establishment/advancement stage tends to occur between ages 25
and 44.
❖ In this stage, the individual has made his or her career choice and is
concerned with achievement, performance, and advancement.

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 ❖ This stage is marked by high employee productivity and career growth, as
the individual is motivated to succeed in the organization and in his or her
chosen occupation.
❖ Opportunities for job challenge and use of special competencies are
desired in this stage.
❖ The employee strives for creativity and innovation through new job
assignments.
❖ Employees also need a certain degree of autonomy in this stage so that
they can experience feelings of individual achievement and personal
success.

c) Mid-Career Crisis Sub Stage: (35-44 years)

 The period occurring between the mid-thirties and mid-forties during
which people often make a major reassessment of their progress relative
to their original career ambitions and goals.

d) Maintenance stage: (45-64 years)

❖ The mid-career stage, which occurs roughly between the ages 45 and 64,
has also been referred to as the maintenance stage.
❖ This stage is typified by a continuation of established patterns of work
behavior.
❖ The person is no longer trying to establish a place for himself or herself in
the organization, but seeks to maintain his or her position.
❖ This stage is viewed as a mid-career plateau in which little new ground is
broken.
❖ The individual in this stage may need some technical updating in his or her
field.
❖ The employee should be encouraged to develop new job skills in order to
avoid early stagnation and decline.

e) Late-career stage: (65 years onwards)

 In this stage the career lessens in importance and the employee plans for
retirement and seeks to develop a sense of identity outside the work
environment.

3.25. PERFORMANCE APPRAISAL:

❖ Performance appraisal is the process of obtaining, analyzing and recording

information about the relative worth of an employee.

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 ❖ The focus of the performance appraisal is measuring and improving the
actual performance of the employee and also the future potential of the
employee. Its aim is to measure what an employee does.

3.25.1. OBJECTIVES OF PERFORMANCE APPRAISAL:

1. To review the performance of the employees over a given period of time.
2. To judge the gap between the actual and the desired performance.
3. To help the management in exercising organizational control.
4. Helps to strengthen the relationship and communication between superior
– subordinates and management – employees.
5. To diagnose the strengths and weaknesses of the individuals so as to
identify the training and development needs of the future.
6. To provide feedback to the employees regarding their past performance.
7. Provide information to assist in the other personal decisions in the
organization.
8. Provide clarity of the expectations and responsibilities of the functions to
be performed by the employees.
9. To judge the effectiveness of the other human resource functions of the
organization such as recruitment, selection, training and development.
10. To reduce the grievances of the employees.

3.25.2. PROCESS OF PERFORMANCE APPRAISAL:

a) Establishing performance standards:

❖ The first step in the process of performance appraisal is the setting up of
the standards which will be used to as the base to compare the actual
performance of the employees.
❖ This step requires setting the criteria to judge the performance of the
employees as successful or unsuccessful and the degrees of their
contribution to the organizational goals and objectives.
❖ The standards set should be clear, easily understandable and in
measurable terms.
In case the performance of the employee cannot be measured, great care should
be taken to describe the standards.

b) Communicating the standards:

❖ After establishing the standards, it is the responsibility of the management
to communicate the standards to all the employees of the organization.
❖ The employees should be informed and the standards should be clearly
explained to them. This will help them to understand their roles and to
know what exactly is expected from them.

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 ❖ The standards should also be communicated to the appraisers or the
evaluators and if required, the standards can also be modified at this stage
itself according to the relevant feedback from the employees or the
evaluators.

c) Measuring the actual performance:

❖ The most difficult part of the Performance appraisal process is measuring
the actual performance of the employees that is the work done by the
employees during the specified period of time.
❖ It is a continuous process which involves monitoring the performance
throughout the year.
❖ This stage requires the careful selection of the appropriate techniques of
measurement, taking care that personal bias does not affect the outcome
of the process and providing assistance rather than interfering in an
employees work.

d) Comparing the actual with the desired performance:

❖ The actual performance is compared with the desired or the standard
performance. The comparison tells the deviations in the performance of
the employees from the standards set.
❖ The result can show the actual performance being more than the desired
performance or, the actual performance being less than the desired
performance depicting a negative deviation in the organizational
performance.
❖ It includes recalling, evaluating and analysis of data related to the
employees’ performance.

e) Discussing results:
❖ The result of the appraisal is communicated and discussed with the
employees on one-to-one basis.
❖ The focus of this discussion is on communication and listening.
❖ The results, the problems and the possible solutions are discussed with the
aim of problem solving and reaching consensus.
❖ The feedback should be given with a positive attitude as this can have an
effect on the employees’ future performance.
❖ The purpose of the meeting should be to solve the problems faced and
motivate the employees to perform better.

f) Decision making:
❖ The last step of the process is to take decisions which can be taken either
to improve the performance of the employees, take the required corrective

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 actions, or the related HR decisions like rewards, promotions, demotions,
transfers etc

UNIT IV DIRECTING
Foundations of individual and group behaviour – motivation – motivation
theories – motivational techniques – job satisfaction – job enrichment –
leadership – types and theories of leadership – communication – process of
communication – barrier in communication – effective communication –
communication and IT.

DIRECTING:

❖ Directing is defined as the process of instructing, guiding and inspiring the

performance of the workers to achieve predetermined goals.
❖ Directing is said to be the heart of management process.
❖ Planning, organizing, staffing has got no importance if direction function
does not take place.
❖ Directing including the following elements.
i. Leadership
ii. Motivation
iii. Communication

Characteristics:
❖ Elements of Management.
❖ Dual objectives.
❖ Continuing Function.
❖ Pervasive Function.
❖ Creative Function.
❖ Linking function.
❖ Management of Human Factor.

Scope of Directing:
❖ Initiates action.
❖ Ensures coordination.
❖ Improves efficiency.
❖ Facilitates change.
❖ Assists stability and growth.

Techniques of Directing:

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 ✓ Delegation
✓ Supervision
✓ Orders and instructions
✓ Motivation
✓ Leadership
✓ Communication

FOUNDATIONS OF INDIVIDUAL AND GROUP BEHAVIOUR:

❖ Organizational behaviour is concerned with people’s thought, feelings,

emotions and action in setting up a work.
❖ Understanding an individual behaviour is in itself a challenge, but
understanding group behaviour in an organizational environment is a
massive managerial task.

Individual Behaviour:

❖ People, through their individuality and uniqueness, bring unconsciously

something (either positive or negative) to others. It can be values,
emotions, but also skills, abilities, creativity, etc.
❖ When hiring a new employee, companies expect that this individual will
add a value to the company through its characteristics.
❖ Therefore, the study of individual behaviour is essential within an
organisation as these characteristics influence how a person will behave at
work and interact with others.

Several factors impact how an individual behave:

– Genetic and diversity factors: which combined “primary

dimensions” which are unchangeable (e.g.: age/gender/physical
attributes) and secondary dimensions which may change throughout
the life (e.g.: educational background, religion, belief, health)

– Abilities and skills: including mental abilities (e.g.: emotional

intelligence, tacit knowledge) and physical abilities (e.g.: motor skills,
body coordination)

– Perception: is “the basic cognitive process that transforms

sensory stimuli into meaningful information.” In others words, it is the
way something is seen and feel by an individual.

– Attitude: can be defined as a mental state of readiness: “a

state of being prepared for something” .It is closely link with the
personality and the perception of the individual.

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 – Personality: defined as the way a person feels, behaves and
thinks, results from the heredity, the cultural forces, the social class and
the relationship of an individual.
Group Behaviour:

A group consists of a number of individuals working together for a common goal.

❖ Individuals form groups.

❖ They live in groups.
❖ They work and move in groups.
❖ They influence work and work behaviour.
❖ They cannot be ignored.
❖ They exert significant influence on the organisation.
❖ They are inseparable from organisation.
❖ They form foundation of human resources.

Need for a group:

❖ Individuals communicate with each other, discuss their work

performances and take suggestions from each other to make it better.
❖ An individual cannot perform each and every task .group efforts are
required for its completion.
❖ Group efforts affect an individual, his attitude and behaviour.
❖ Group has the ability to satisfy the needs of its members.
❖ A group can judge in a better way as compared to an individual.
❖ While accomplishing tasks, all members of a group together use their
creative and innovation ideas than a single individual.  Groups make the
environment at workplace livelier.

TYPES OF GROUP:

Groups can be classified in many different ways on various bases.

Following are the basic groups:

1. Formal Groups:
❖ Formal groups are created as part of organisation structure to accomplish
organisational tasks.
❖ A work group in a plant is the example of formal group.
❖ They are bound by hierarchical authority in the organisation.
❖ They have to follow rules, regulation and policy of the organisation. These
groups are required by the system.

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 ❖ The organisation provides a system of rules and regulation for attaining
organisational objectives.

According to A.L. Stencombe, “a formal group is said to be any social arrangement

in which the activities of some persons are planned by others to achieve a
common purpose”.

(a) Command Group:

❖ Command group consists of subordinates who are directly responsible to a
supervisor.
❖ Command groups are structured by the organisation.
❖ The subordinates working in enforcement department of a town planning
authority are reporting to and directly responsible to the enforcement
officer.
❖ There is a specific department established for the purpose and is busy
throughout with its activities.
(b) Task Group:
❖ Task group is formed to complete a project.
❖ This type of group is also known as task force.
❖ The job of the group is to complete the task within allotted time period.
❖ If one task is completed they are allotted new task to work with Project
teams, quality circles, audit teams are the examples of task group.

2. Informal Groups:

❖ Informal groups exist within the formal organisations and arise because of
individuals’ social needs and desire to develop and maintain relations with
people.
❖ Working at a plant or office leads to formation of informal groups. They
work together and this leads to their interaction.
❖ Through interaction groups are formed. These groups are spontaneous
and emotional.
❖ These are the groups formed by the employees themselves at the
workplace while working together.

Informal groups are of following types:

(a) Interest Group:

A group of employees are coming together for attaining a common
purpose. Employees coming together for payment of bonus increase in salary,

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medical benefits and other facilities are the examples of interest group. The
people with common interest come together.

(b) Membership Group:

A group of persons are belonging to the same profession knowing each
other e.g. teachers of the same faculty in the university.

(c) Friendship Group:

A group is outside from the plant or office, having similar views, tastes,
opinions, belonging to same age group. They form clubs and associations based
on the friendship.

(d) Reference Group:

It is a primary group where people shape their ideas, beliefs, values etc.
They want support from the group. Family is an important reference group. A
team of players playing a game is a reference group.

CREATIVITYAND INNOVATION:
✓ Creativity is related to ‘imagination’, but innovation is related to
‘implementation’.
✓ There cannot be innovation without creativity. There can be creativity
without innovation but it has no value

Creativity:
 It is defined as the ability to produce new and useful ideas.

Steps involved in creativity:

a) Preparation:

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 ❖ This is the first stage at which the base for creativity and innovation
is defined; the mind is prepared for subsequent use in creative
thinking.
❖ During preparation the individual is encouraged to appreciate the
fact that every opportunity provides situations that can educate and
experiences from which to learn.
❖ This can be done through reading about various topics and/or
subjects and engaging in discussions with others.

b) Investigation:

❖ This stage of enhancing entrepreneurial creativity and innovation involves

the business owner taking time to study the problem at hand and what its
various components are.

c) Transformation:

❖ The information thus accumulated and acquired should then be subjected

to convergent and divergent thinking which will serve to highlight the
inherent similarities and differences.
❖ Convergent thinking will help identify aspects that are similar and
connected while divergent thinking will highlight the differences.
❖ This twin manner of thinking is of particular importance in realizing
creativity and innovation for the following reasons:
✓ One will be able to scan the details and see what the bigger picture
is the situation/problem's components can be reordered and in
doing so new patterns can be identified.
✓ It will help visualize a number of approaches that can be used to
simultaneously tackle the problem and the opportunity.
✓ One's decision-making abilities will be bettered such that the urge to
make snap decisions will be resisted.

d) Incubation: At this stage in the quest for creativity and innovation it is

imperative that the subconscious reflect on the accumulated information,
i.e. through incubation, and this can be improved or augmented when the
entrepreneur:

❖ Engages in an activity completely unrelated to the

problem/opportunity under scrutiny.
❖ Takes time to daydream i.e. letting the mind roam beyond any
restrictions self-imposed or otherwise.
❖ Relax and play
❖ Study the problem/opportunity in a wholly different environment

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e) Illumination: This happens during the incubation stage and will often be
spontaneous. The realizations from the past stages combine at this
instance to form a breakthrough.
f) Verification:

❖ This is where the entrepreneur attempts to ascertain whether the

creativity of thought and the action of innovation are truly effective as
anticipated.
❖ It may involve activities like simulation, piloting, prototype building, test
marketing, and various experiments.
❖ While the tendency to ignore this stage and plunge headlong with the
breakthrough may be tempting, the transformation stage should ensure
that the new idea is put to the test.

MOTIVATION:

❖ It is the process of stimulating people to actions to accomplish the goals.

❖ Management is the art of getting work done by the sub ordinates in order
to attain the common goals of organization.
❖ Getting work done is a difficult task. For this purpose, the management
should inspire and motivate the people for the accomplishment of goals.
❖ "Motivation" is a Latin word, meaning "to move".
❖ Motivation may be defined as those forces that cause people to behave in
certain ways.
According to koontz O’Donnell, “Motivation is a general terms applying to the
entire class of drives, desires, needs wishes and similar forces that induce
an individual or a group of people to work” Nature and Characteristics of
Motivation:
❖ Psychologists generally agree that all behaviour is motivated, and that
people have reasons for doing the things they do or for behaving in the
manner that they do.
❖ Motivating is the work a manager performs to inspire, encourage and
impel people to take required action.

The characteristics of motivation are given below:-

i. Motivation is an Internal Feeling:

❖ Motivation is a psychological phenomenon which generates in the mind of
an individual the feeling that he lacks certain things and needs those
things.

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 ❖ Motivation is a force within an individual that drives him to behave in a
certain way.

ii. Motivation is related to Needs:

❖ Needs are deficiencies which are created whenever there is a physiological
or psychological imbalance.
❖ In order to motivate a person, we have to understand his needs that call for
satisfaction. iii. Motivation Produces Goal-Directed Behaviour:
❖ Goals are anything which will alleviate a need and reduce a drive. An
individual's behaviour is directed towards a goal.
iv. Motivation can be either Positive or Negative:
❖ Positive or incentive motivation is generally based on reward.
❖ According to Flippo - "positive motivation is a process of attempting to
influence others to do your will through the possibility of gain or reward".
❖ Negative or fear motivation is based on force and fear.
❖ Fear causes persons to act in a certain way because they are afraid of the
consequences if they don't.

Importance of Motivation:

A manager's primary task is to motivate others to perform the tasks of the

organization.
1. Puts human resources into action.
2. Improves level of efficiency of employees.
3. Leads to achievement of organizational goals.
4. Builds friendly relationship.
5. Leads to stability of work force.

The various benefits of motivation are:-

Motivation is one of the important elements in the directing process.

1. By motivating the workers, a manager directs or guides the workers'

actions in the desired direction for accomplishing the goals of the
organization.
2. Workers will tend to be as efficient as possible by improving upon their
skills and knowledge so that they are able to contribute to the progress of
the organization thereby increasing productivity.
3. For performing any tasks, two things are necessary.

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 They are: (a) ability to work and (b) willingness to work. Without
willingness to work, ability to work is of no use. The willingness to work
can be created only by motivation.
4. Organizational effectiveness becomes, to some degree, a question of
management's ability to motivate its employees, to direct at least a
reasonable effort towards the goals of the organization.
5. Motivation contributes to good industrial relations in the organization.
6. Motivation is the best remedy for resistance to changes. When changes are
introduced in an organization, generally, there will be resistance from the
workers. But if the workers of an organization are motivated, they will
accept.
7. Motivation facilitates the maximum utilization of all factors of production,
human, physical and financial resources and thereby contributes to higher
production.
8. Motivation promotes a sense of belonging among the workers. The
workers feel that the enterprise belongs to them and the interest of the
enterprise is their interests.
9. Many organizations are now beginning to pay increasing attention to
developing their employees as future resources upon which they can draw
as they grow and develop.

Motivation Process:

1. Analysis of situation.
2. Preparing, selecting and applying a set of opportunity motivating tools.
3. Follow-up.
Types Of motivation:

1. Positive motivation: it involves a proper recognition of employee’s efforts

and appreciation of employee contribution towards the goal achievement.
2. Negative motivation: it is based on force, fear and threats.
3. Extrinsic motivation: it is induced by external factors which are primarily
financial in nature. This motivation includes higher pay, holidays, vacation,
rest periods, retirement benefits, health and medical insurance, incentives,
rewards, etc.
4. Intrinsic motivation: it is available at the time of performance of work. It
provides the satisfaction during the performance of work. Some intrinsic
motivations are praise, recognition, esteem, power, etc.

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MOTIVATION THEORIES:

Some of the motivation theories are discussed below

a) McGREGOR’STHEORY X AND THEORY Y:

McGregor states that people inside the organization can be managed in

two ways. The first is basically negative, which falls under the category X and the
other is basically positive, which falls under the category Y. After viewing the way
in which the manager dealt with employees, McGregor concluded that a
manager’s view of the nature of human beings is based on a certain grouping of
assumptions and that he or she tends to mould his or her behaviour towards
subordinates according to these assumptions.

Under the assumptions of theory X: (negative)

❖ Employees inherently do not like work and whenever possible, will
attempt to avoid it.
❖ Because employees dislike work, they have to be forced, coerced or
threatened with punishment to achieve goals.
❖ Employees avoid responsibilities and do not work fill formal directions
are issued.
❖ Most workers place a greater importance on security over all other
factors and display little ambition.

In contrast under the assumptions of theory Y: (positive) 

Physical and mental effort at work is as natural as rest or play.
❖ People do exercise self-control and self-direction and if they are
committed to those goals.
❖ Average human beings are willing to take responsibility and exercise
imagination, ingenuity and creativity in solving the problems of the
organization.
❖ That the way the things are organized, the average human being’s
brainpower is only partly used.

On analysis of the assumptions it can be detected that theory X assumes that

lower-order needs dominate individuals and theory Y assumes that higher-order
needs dominate individuals. An organization that is run on Theory X lines tends
to be authoritarian in nature, the word “authoritarian” suggests such ideas as the
“power to enforce obedience” and the “right to command.” In contrast Theory Y
organizations can be described as “participative”, where the aims of the
organization and of the individuals in it are integrated; individuals can achieve

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their own goals best by directing their efforts towards the success of the
organization.
b) ABRAHAM MASLOW’S “NEED HIERARCHY THEORY”:

One of the most widely mentioned theories of motivation is the hierarchy

of needs theory put forth by psychologist Abraham Maslow. Maslow saw human
needs in the form of a hierarchy, ascending from the lowest to the highest, and he
concluded that when one set of needs is satisfied, this kind of need ceases to be a
motivator.

As per his theory these needs are:

(i) Physiological needs: These are important needs for sustaining the human
life. Food, water, warmth, shelter, sleep, medicine and education are the basic
physiological needs which fall in the primary list of need satisfaction. Maslow
was of an opinion that until these needs were satisfied to a degree to maintain
life, no other motivating factors can work.

(ii) Security or Safety needs: These are the needs to be free of physical danger
and of the fear of losing a job, property, food or shelter. It also includes protection
against any emotional harm. (Job security)

(iii) Social needs: Since people are social beings, they need to belong and be
accepted by others. People try to satisfy their need for affection, acceptance and
friendship. (Canteen, Cafeteria-Relaxation)

(iv) Esteem needs: According to Maslow, once people begin to satisfy their
need to belong, they tend to want to be held in esteem both by themselves and by
others. This kind of need produces such satisfaction as power, prestige status and
self-confidence. It includes both internal esteem factors like self-respect,
autonomy and achievements and external esteem factors such as states,
recognition and attention.(Respect)

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(v) Need for self-actualization: Maslow regards this as the highest need in his
hierarchy. It is the drive to become what one is capable of becoming; it includes
growth, achieving one’s potential and self-fulfilment. It is to maximize one’s
potential and to accomplish something.(Growth)

C) FREDERICK HERZBERG’S MOTIVATION-HYGIENE THEORY:

Frederick has tried to modify Maslow’s need Hierarchy theory. His theory
is also known as two-factor theory or Hygiene theory.
Hygiene Factor Or Dissatisfied Motivational Factor Or Satisfied
Factor Factor

Factors which May cause Factors which motivate and may

dissatisfaction in the working make workers more effective.
environment but cannot motivate
by them.
E.X: Security, status, relationship E.X: Growth prospectus job
with subordinates, personal life, advancement, responsibility,
salary, work conditions, challenges, recognition and
relationship with supervisor and achievements.
company policy and administration

He stated that there are certain satisfiers and dissatisfies for employees at
work. Intrinsic factors are related to job satisfaction, while extrinsic factors are
associated with dissatisfaction. He devised his theory on the question: “What do
people want from their jobs?” He asked people to describe in detail, such
situations when they felt exceptionally good or exceptionally bad. From the
responses that he received, he concluded that opposite of satisfaction is not
dissatisfaction. Removing dissatisfying characteristics from a job does not
necessarily make the job satisfying. He states that presence of certain factors in
the organization is natural and the presence of the same does not lead to
motivation. However, their non-presence leads to de-motivation. In similar
manner there are certain factors, the absence of which causes no dissatisfaction,
but their presence has motivational impact.

d) VICTOR VROOM’S EXPECTANCY THEORY:

The most widely accepted explanations of motivation have been

propounded by Victor Vroom. His theory is commonly known as expectancy
theory. The theory argues that the strength of a tendency to act in a specific way
depends on the strength of an expectation that the act will be followed by a given
outcome and on the attractiveness of that outcome to the individual to make this

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simple, expectancy theory says that an employee can be motivated to perform
better when there is a belief that the better performance will lead to good
performance appraisal and that this shall result into realization of personal goal
in form of some reward.

Therefore an employee is: Motivation = Valence X Expectancy.

The theory focuses on three things:

❖ Efforts and performance relationship

❖ Performance and reward relationship
❖ Rewards and personal goal relationship

e) CLAYTON ALDERFER’S ERG THEORY:

It is the extension of Maslow’s Needs Hierarchy, wherein the Maslow’s five

needs are categorized into three categories, Viz. Existence Needs, Relatedness
Needs, and Growth Needs.

Alderfer has tried to rebuild the hierarchy of needs of Maslow into another model
named ERG i.e. Existence – Relatedness – Growth. According to him there are 3
groups of core needs as mentioned above. The existence group is concerned
mainly with providing basic material existence. The second group is the
individuals need to maintain interpersonal relationship with other members in
the group. The final group is the intrinsic desire to grow and develop personally.

The major conclusions of this theory are:

❖ In an individual, more than one need may be operative at the same time.
❖ If a higher need goes unsatisfied than the desire to satisfy a lower need
intensifies. It also contains the frustration-regression dimension.
f) McCLELLAND’S THEORY OF NEEDS:

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 David McClelland has developed a theory on three types of motivating
needs:

i. Need for Power

ii. Need for Affiliation
iii. Need for Achievement

Basically people for high need for power are inclined towards influence and
control. They like to be at the centre and are good orators. They are demanding in
nature, forceful in manners and ambitious in life. They can be motivated to
perform if they are given key positions or power positions. In the second
category are the people who are social in nature. They try to affiliate themselves
with individuals and groups. They are driven by love and faith. They like to build
a friendly environment around themselves. Social recognition and affiliation with
others provides them motivation. People in the third area are driven by the
challenge of success and the fear of failure. Their need for achievement is
moderate and they set for themselves moderately difficult tasks. They are
analytical in nature and take calculated risks. Such people are motivated to
perform when they see at least some chances of success. McClelland observed
that with the advancement in hierarchy the need for power and achievement
increased rather than Affiliation. He also observed that people who were at the
top, later ceased to be motivated by this drives.

g) STACEY ADAMS’ EQUITY THEORY:

As per the equity theory of J. Stacey Adams, people are motivated by their
beliefs about the reward structure as being fair or unfair, relative to the inputs.
People have a tendency to use subjective judgment to balance the outcomes and
inputs in the relationship for comparisons between different individuals.
Accordingly:

If people feel that they are not equally rewarded they either reduce the quantity
or quality of work or migrate to some other organization. However, if people
perceive that they are rewarded higher, they may be motivated to work harder.

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h) SKINNER’S REINFORCEMENT THEORY:

B.F. Skinner, who propounded the reinforcement theory, holds that by

designing the environment properly, individuals can be motivated. Instead of
considering internal factors like impressions, feelings, attitudes and other
cognitive behavior, individuals are directed by what happens in the environment
external to them. Skinner states that work environment should be made suitable
to the individuals and that punishment actually leads to frustration and
demotivation. Hence, the only way to motivate is to keep on making positive
changes in the external environment of the organization.

Special Motivational Techniques:

1. Money
2. Participation
3. Job security
4. Power of authority
5. Incentives
6. Quality of working life

JOB SATISFACTION :

❖ Employee satisfaction (Job satisfaction) is the terminology used to

describe whether employees are happy and contented and fulfilling
their desires and needs at work.
❖ Many measures purport that employee satisfaction is a factor in
employee motivation, employee goal achievement, and positive
employee morale in the workplace.
❖ Employee satisfaction, while generally a positive in your organization,
can also be a downer if mediocre employees stay because they are
satisfied with your work environment.

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 ❖ Employee satisfaction is often measured by anonymous employee
satisfaction surveys administered periodically that gauge employee
satisfaction in areas such as:
❖ Management,
❖ Understanding of mission and vision,
❖ Empowerment,
❖ Teamwork,
❖ Communication, and
❖ Co-worker interaction.

JOB DESIGN:

❖ It is the process of Work arrangement (or rearrangement) aimed at

reducing or overcoming job dissatisfaction and employee alienation
arising from repetitive and mechanistic tasks.
❖ Through job design, organizations try to raise productivity levels by
offering non-monetary rewards such as greater satisfaction from a
sense of personal achievement in meeting the increased challenge and
responsibility of one's work.

Approaches to job design include:

Job Enlargement: Job enlargement changes the jobs to include more and/or
different tasks. Job enlargement should add interest to the work but may or may
not give employees more responsibility.

Job Rotation: Job rotation moves employees from one task to another. It
distributes the group tasks among a number of employees.

Job Enrichment: Job enrichment allows employees to

assume more responsibility, accountability, and independence when
learning new tasks or to allow for greater participation and new opportunities

LEADERSHIP:

Definition:
Leadership is defined as influence, the art or process of influencing people so
that they will strive willingly and enthusiastically toward the achievement of
group goals.
❖ Leaders act to help a group attain objectives through the maximum
application of its capabilities.
❖ Leaders must instil values

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 ❖ Whether it is concern for quality, honesty and calculated risk taking or for
employees and customers.

Importance of Leadership:
1. Motivating employees.
2. Leader develops team work.
3. Better utilization of man power.
4. Creating confidence to followers.
5. Directing group activities.
6. Building morale.
7. Maintaining discipline.

Leadership Qualities:
1. Honesty.
2. Confidence.
3. Patience.
4. Focus.
5. Dedication.
6. Consistency.
7. Motivate others.
8. Effective communication.
9. Individuality.
10.Personal dignity.

Leadership Styles:

The leadership style we will discuss here are:

a) Autocratic style
b) Democratic Style
c) Laissez Faire Style

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a) Autocratic style:
Manager retains as much power and decision-making authority as
possible. The manager does not consult employees, nor are they allowed to give
any input. Employees are expected to obey orders without receiving any
explanations. The motivation environment is produced by creating a structured
set of rewards and punishments.

Autocratic leadership is a classical leadership style with the following

Characteristics:
❖ Manager seeks to make as many decisions as possible
❖ Manager seeks to have the most authority and control in decision making
❖ Manager seeks to retain responsibility rather than utilize complete
delegation
❖ Consultation with other colleagues in minimal and decision making
becomes a solitary process
❖ Managers are less concerned with investing their own leadership
development, and prefer to simply work on the task at hand.

Advantages:
❖ Reduced stress due to increased control
❖ A more productive group ‘while the leader is watching’
❖ Improved logistics of operations Faster decision making Disadvantages:
❖ Short-termistic approach to management.
❖ Manager perceived as having poor leadership
❖ Skills Increased workload for the manager
❖ People dislike being ordered around
❖ Teams become dependent upon their leader

b) Democratic Style:
Democratic Leadership is the leadership style that promotes the sharing of
responsibility, the exercise of delegation and continual consultation.

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The style has the following characteristics:
❖ Manager seeks consultation on all major issues and decisions.
❖ Manager effectively delegate tasks to subordinates and give them full
control and responsibility for those tasks.
❖ Manager welcomes feedback on the results of initiatives and the work
environment.
❖ Manager encourages others to become leaders and be involved in
leadership development.
Advantages
❖ Positive work environment
❖ Successful initiatives
❖ Creative thinking
❖ Reduction of friction and office politics
❖ Reduced employee turnover
Disadvantages
❖ Takes long time to take decisions
❖ Danger of pseudo participation
❖ Like the other styles, the democratic style is not always appropriate.
❖ It is most successful when used with highly skilled or experienced
employees or when implementing operational changes or resolving
individual or group problems.

c) Laissez-Faire Style:
This French phrase means “leave it be” and is used to describe a leader
who leaves his/her colleagues to get on with their work. The style is largely a
"hands off" view that tends to minimize the amount of direction and face time
required.
Advantages
❖ No work for the leader
❖ Frustration may force others into leadership roles
❖ Allows the visionary worker the opportunity to do what they want, free
from interference
❖ Empowers the group

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Disadvantages
❖ It makes employees feel insecure at the unavailability of a manager.
❖ The manager cannot provide regular feedback to let employees know how
well they are doing.
❖ Managers are unable to thank employees for their good work.
❖ The manager doesn’t understand his or her responsibilities and is hoping
the employees can cover for him or her.

LEADERSHIP THEORIES:
The various leadership theories are

a) Great Man Theory:

Assumptions:
❖ Leaders are born and not made.
❖ Great leaders will arise when there is a great need.
Description:
Early research on leadership was based on the study of people who were already
great leaders. These people were often from the aristocracy, as few from lower
classes had the opportunity to lead. This contributed to the notion that
leadership had something to do with breeding. The idea of the Great Man also
strayed into the mythic domain, with notions that in times of need, a Great Man
would arise, almost by magic. This was easy to verify, by pointing to people such
as Eisenhower and Churchill, let alone those further back along the timeline, even
to Jesus, Moses, Mohammed and the Buddah.
Discussion:
Gender issues were not on the table when the 'Great Man' theory was proposed.
Most leaders were male and the thought of a Great Woman was generally in areas
other than leadership. Most researchers were also male, and concerns about
andocentric bias were a long way from being realized.

b) Trait Theory:
Assumptions:
❖ People are born with inherited traits.
❖ Some traits are particularly suited to leadership.
❖ People who make good leaders have the right (or sufficient)
combination of traits.
Description:
Early research on leadership was based on the psychological focus of the day,
which was of people having inherited characteristics or traits. Attention was thus
put on discovering these traits, often by studying successful leaders, but with the

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underlying assumption that if other people could also be found with these traits,
then they, too, could also become great leaders.
McCall and Lombardo (1983) researched both success and failure identified four
primary traits by which leaders could succeed or 'derail': Emotional stability and
composure: Calm, confident and predictable, particularly when under stress.
Admitting error: Owning up to mistakes, rather than putting energy into covering
up. Good interpersonal skills: able to communicate and persuade others without
resort to negative or coercive tactics. Intellectual breadth: Able to understand a
wide range of areas, rather than having a narrow (and narrow-minded) area of
expertise.

c) Behavioral Theory:
Assumptions:
❖ Leaders can be made, rather than are born.
❖ Successful leadership is based in definable, learnable behavior.

Description:
Behavioral theories of leadership do not seek inborn traits or capabilities. Rather,
they look at what leaders actually do. If success can be defined in terms of
describable actions, then it should be relatively easy for other people to act in the
same way. This is easier to teach and learn then to adopt the more ephemeral
'traits' or 'capabilities'.

d) Participative Leadership:
Assumptions:
❖ Involvement in decision-making improves the understanding of the issues
involved by those who must carry out the decisions.
❖ People are more committed to actions where they have involved in the
relevant decision-making.
❖ People are less competitive and more collaborative when they are working
on joint goals.
❖ When people make decisions together, the social commitment to one
another is greater and thus increases their commitment to the decision.
❖ Several people deciding together make better decisions than one person
alone.

Description:
A Participative Leader, rather than taking autocratic decisions, seeks to involve
other people in the process, possibly including subordinates, peers, superiors
and other stakeholders. Often, however, as it is within the managers' whim to
give or deny control to his or her subordinates, most participative activity is

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within the immediate team. The question of how much influence others are given
thus may vary on the manager's preferences and beliefs, and a whole spectrum of
participation is possible.

e) Situational Leadership:
Assumptions:
❖ The best action of the leader depends on a range of situational factors.

Description:
❖ When a decision is needed, an effective leader does not just fall into a
single preferred style.
❖ In practice, as they say, things are not that simple. Factors that affect
situational decisions include motivation and capability of followers.
❖ This, in turn, is affected by factors within the particular situation.
❖ The relationship between followers and the leader may be another factor
that affects leader behavior as much as it does follower behavior.
❖ The leaders' perception of the follower and the situation will affect what
they do rather than the truth of the situation.
❖ The leader's perception of themselves and other factors such as stress and
mood will also modify the leaders' behavior.

f) Contingency Theory:
Assumptions:
 The leader's ability to lead is contingent upon various situational
factors, including the leader's preferred style, the capabilities and
behaviors of followers and also various other situational factors.

Description:
Contingency theories are a class of behavioral theory that contend that there is
no one best way of leading and that a leadership style that is effective in some
situations may not be successful in others. An effect of this is that leaders who
are very effective at one place and time may become unsuccessful either when
transplanted to another situation or when the factors around them change.
Contingency theory is similar to situational theory in that there is an assumption
of no simple one right way. The main difference is that situational theory tends to
focus more on the behaviors that the leader should adopt, given situational
factors (often about follower behavior), whereas contingency theory takes a
broader view that includes contingent factors about leader capability and other
variables within the situation.

g) Transactional Leadership:

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Assumptions:
❖ People are motivated by reward and punishment.
❖ Social systems work best with a clear chain of command.
❖ When people have agreed to do a job, a part of the deal is that they
cede all authority to their manager.
❖ The prime purpose of a subordinate is to do what their manager tells
them to do.

Description:
The transactional leader works through creating clear structures whereby it is
clear what is required of their subordinates, and the rewards that they get for
following orders. Punishments are not always mentioned, but they are also
wellunderstood and formal systems of discipline are usually in place.
The early stage of Transactional Leadership is in negotiating the contract
whereby the subordinate is given a salary and other benefits, and the company
(and by implication the subordinate's manager) gets authority over the
subordinate.
When the Transactional Leader allocates work to a subordinate, they are
considered to be fully responsible for it, whether or not they have the resources
or capability to carry it out. When things go wrong, then the subordinate is
considered to be personally at fault, and is punished for their failure (just as they
are rewarded for succeeding).

h) Transformational Leadership:
Assumptions:
❖ People will follow a person who inspires them.
❖ A person with vision and passion can achieve great things.
❖ The way to get things done is by injecting enthusiasm and energy.
Description:
Working for a Transformational Leader can be a wonderful and uplifting
experience. They put passion and energy into everything. They care about you
and want you to succeed. Transformational Leaders are often charismatic, but are
not as narcissistic as pure Charismatic Leaders, who succeed through a belief in
themselves rather than a belief in others. One of the traps of Transformational
Leadership is that passion and confidence can easily be mistaken for truth and
reality. Transformational Leaders, by definition, seek to transform. When the
organization does not need transforming and people are happy as they are, then
such a leader will be frustrated. Like wartime leaders, however, given the right
situation they come into their own and can be personally responsible for saving
entire companies

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COMMUNICATION:
Definition:
❖ Communication is the process of passing information from one person to
another person.
❖ Communication is derived from the Latin word Communis which implies
common. Communication is the interchange of thoughts and information.
❖ Communication is the exchange of messages between people for the
purpose of achieving common meanings.
❖ Unless common meanings are shared, managers find it extremely difficult
to influence others.
❖ Whenever group of people interact, communication takes place.

Importance of communication:

❖ For ensuring good coordination, communication is must.

❖ Most of the problems for human occur due to lack or insufficient
communication.
❖ Communication is the process of initiating, transmitting, and receiving
information.

Purpose of Communication:

1. Improves Managerial Performance

2. Facilitates Leadership
3. Increases job Satisfaction
4. Reduces time and efforts
5. Enhances coordination
6. Help public relations

Elements of Communication:

1. Sender
2. Message – The Subject matter of Communication
3. Encoding – act of translating he msg into words, pictures, symbols
4. Channel – Media used
5. Receiver –
6. Decoding – interprets the msg to draw meaning from it. He converts
symbols, signs or pictures into meaning
7. Feedback –

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THE COMMUNICATION PROCESS:
❖ Communication is important in building and sustaining human
relationships at work.
❖ Communication can be thought of as a process or flow.
❖ Before communication can take place, a purpose, expressed as a message
to be conveyed is needed. It passes between the sender and the receiver.
❖ The result is transference of meaning from one person to another. The
figure below depicts the communication process.  This model is made
up of seven parts:

(1) Sender:

The person who intends to convey the message with the intention of passing
information and ideas to others is known as sender or communicator.

(2) Ideas:

This is the subject matter of the communication. This may be an opinion, attitude,
feelings, views, orders, or suggestions.

(3) Encoding:

Since the subject matter of communication is theoretical and intangible, its

further passing requires use of certain symbols such as words, actions or pictures
etc. Conversion of subject matter into these symbols is the process of encoding.

(4) Communication Channel:

The person who is interested in communicating has to choose the channel for
sending the required information, ideas etc. This information is transmitted to
the receiver through certain channels which may be either formal or informal.

(5) Receiver:

Receiver is the person who receives the message or for whom the message is
meant for. It is the receiver who tries to understand the message in the best
possible manner in achieving the desired objectives.
(6) Decoding:

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The person who receives the message or symbol from the communicator tries to
convert the same in such a way so that he may extract its meaning to his
complete understanding.

(7) Feedback:

Feedback is the process of ensuring that the receiver has received the message
and understood in the same sense as sender meant it.

Guidelines for effective Communication:

1. Senders of message must clarify in their minds what they want to

communicate. Purpose of the message and making a plan to achieve the
intended end must be clarified.
2. Encoding and decoding be done with symbols that are familiar to the
sender and the receiver of the message.
3. For the planning of the communication, other people should be
consulted and encouraged to participate.
4. It is important to consider the needs of the receivers of the information.
Whenever appropriate, one should communicate something that is of
value to them, in the short run as well as in the more distant future.
5. In communication, tone of voice, the choice of language and the
congruency between what is said and how it is said influence the
reactions of the receiver of the message.
6. Communication is complete only when the message is understood by
the receiver. And one never knows whether communication is
understood unless the sender gets a feedback.
7. The function of communication is more than transmitting the
information. It also deals with emotions that are very important in
interpersonal relationships between superiors, subordinates and
colleagues in an organization.
8. Effective communicating is the responsibility not only of the sender but
also of the receiver of the information.

BARRIERS TO EFFECTIVE COMMUNICATION:

Barriers to communication are factors that block or significantly distort
successful communication. Effective managerial communication skills helps
overcome some, but not all, barriers to communication in organizations. The
more prominent barriers to effective communication which every manager
should be aware of are given below:
1. Physical Barriers: The barriers are environment factors that reduce the
sending and receiving of communication. It includes physical distance

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 distracting noises and other interferences. Difficulty in passing of message
mainly increases with increase in physical distance.
2. Perceptual Barriers: The most common problem faced these days is that of
the difference in opinion between two people. The varied perceptions of every
individual give rise to a need for effective communication.
3. Emotional Barriers: Another main barrier is the fear and mistrust that form
the roots of our emotional barrier which stop us from communicating
effectively with our co-workers.
4. Language Barriers: Language that describes what we would want to express
and communicate to others, May at times, serve as a barrier to them. In today’s
global scenario, the greatest compliment we can pay to another person is by
speaking and effectively communicating to them in their local language. We
need to understand that the native language of employees can be different
from anyone else’s.
5. Cultural Barriers: The world is made up of diverse cultures. A cultural barrier
arises when two individuals in an organization belong to different religions,
states or countries.

CHANNELS OF COMMUNICATION:

1. Formal Communication – follows the route formally laid down in the

organization structure
a. Downward Communication – flow of communication from superior to
subordinate
b. Upward Communication - flow of communication from subordinate to
superior
c. Horizontal Communication – transmission of information among the
positions at the same level of the Organization.

2. Informal Communication or Grapevine – Communication among people

through informal contacts or relations.

Channels of communication: (In detail)

a) Formal Communication: Formal communication follows the route formally

laid down in the organization structure. There are three directions in which
communications flow: downward, upward and laterally (horizontal).
i) Downward Communication: Downward communication
involves a message travelling to one or more receivers at the lower level
in the hierarchy.

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The message frequently involves directions or performance feedback. The
downward flow of communication generally corresponds to the formal
organizational communications system, which is usually synonymous with the
chain of command or line of authority. This system has received a great deal of
attention from both managers and behavioral scientists since it is crucial to
organizational functioning.

ii) Upward Communication: In upward communication, the

message is directed toward a higher level in the hierarchy. It is often
takes the form of progress reports or information about successes and
failures of the individuals or work groups reporting to the receiver of
the message. Sometimes employees also send suggestions or complaints
upward through the organization's hierarchy. The upward flow of
communication involves two distinct manager-subordinate activities in
addition to feedback:
❖ The participation by employees in formal organizational decisions.
❖ Employee appeal is a result against formal organization decisions. The
employee appeal is a result of the industrial democracy concept that
provides for two-way communication in areas of disagreement.

iii) Horizontal Communication: when takes place among members of the

same work group, among members of work groups at the same level, among
managers at the same level or among any horizontally equivalent personnel, we
describe it as lateral communications. In lateral communication, the sender and
receiver(s) are at the same level in the hierarchy. Formal communications that
travel laterally involve employees engaged in carrying out the same or related
tasks.
The messages might concern advice, problem solving, or coordination of
activities.

b) Informal Communication or Grapevine:

❖ Informal communication, generally associated with interpersonal
communication, was primarily seen as a potential hindrance to effective
organizational performance.
❖ This is no longer the case.
❖ Informal communication has become more important to ensuring the
effective conduct of work in modern organizations.
❖ Probably the most common term used for the informal communication in
the workplace is “grapevine” and this communication that is sent through
the organizational grapevine is often considered gossip or rumour.

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 ❖ While grapevine communication can spread information quickly and can
easily cross established organizational boundaries.
❖ The use of the organizational grapevine as an informal communication
channel often results when employees feel threatened, vulnerable, or when
the organization is experiencing change and when communication from
management is restricted and not forthcoming.

MEDIA OR METHODS OF COMMUNICATION:

1. Oral Communication
2. Written Communication

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 3. Gestural Communication

1. Oral Communication:
Oral Communication involves exchange of messages through spoken
words. It may take place.
i. By face- to face contacts
ii. Through mechanical devices like telephone.

Merits:
Oral or Verbal communication offers the following advantages:
1. Economical
2. Personal touch
3. Speed
4. Flexibility
5. Quick response

Demerits:
Oral Communication suffers from the following weaknesses
1. Lack of record
2. Time Consuming
3. Lengthy message
4. Physical distance
5. Misunderstanding

2. Written Communication:
Written Communication is transmitted through written words in the form
of letter, circular, memos, bulletins, instruction cards, manuals, handbooks,
reports, returns, Merits:
1. Effectiveness
2. Lengthy messages
3. Economical
4. Repetition
5. Permanent record
6. Better response Demerits:
1. Time Consuming
2. Expensive
3. Inflexibility
4. Little secrecy
5. Lack of personal touch
6. Misunderstanding
3. Gestural Communication:

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 A gesture is a form of non-verbal communication or non-vocal
communication in which visible bodily actions communicate particular
messages, either in place of, or in conjunction with, speech. Gestures
include movement of the hands, face, or other parts of the body.

COMMUNICATION NETWORKS:

❖ The pattern of contacts among the members of the organisation and flow
of information among them is communication network.

❖ Network helps managers to establish contacts in different patterns

through communication flows.
❖ The network depends upon the magnitude of the organisation, nature of
communication channels in the organisation and the number of persons
involved in the process.
❖ There can be many patterns of communication network.
1. Vertical network
2. Circle Network
3. Chain Network
4. Wheel Network
5. All Channel Network

The most frequently followed networks are the following:

1. Vertical Network:

The vertical network is usually between the superior and subordinate and vice
versa. It is two-way communication. The immediate feedback is possible in this
type of communication network. It is formal network. Vertical Network

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2. Circuit Network:

Under this network two persons communicate with each other. Say Mr. ‘A’ sends
message to Mr. ‘B’. After receiving message Mr. ‘B’ communicates the feedback
message to Mr. ‘A’. So communication takes the form of a circuit. Therefore it is
known as circuit network. It is similar to vertical network but in circuit network
‘A’ and ‘B’ are not necessarily superior and subordinates.

3. Chain Network:

This network of communication follows the organisational hierarchy and chain of

command. All subordinates receive commands or instructions from their
superior. B, C, D and E, F, G are the subordinates to A in the organisational
hierarchy and receive commands from ‘A’ which follows the way shown in the
diagram.

4. Wheel Network:

Here all subordinates receive commands from one superior. This is highly
centralized type of communication network where each subordinate receives
commands or instructions from a single authority or superior ‘A’ and wants the
immediate feedback.

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5. Star Network:

Under star communication network all members of the group communicate with
each other and exchange information. This network is a must for group
communication or where teamwork is involved. This network channel of
communication is open to all members of the group. The members communicate
with each other without hesitation.

The effectiveness of the above networks of communication channels depend

upon their users i.e. the managers at all levels, their subordinates and other
members of the organisation and above all the seriousness with which all these
human resources make use of the facilities provided to them by the organisation
to accomplish its objectives.

Making Communication Effective:

1. Sound Organization Structure.
2. Clear messages.
3. Two-way Communication.
4. Multiple Channels.
5. Good Listening.
6. Effective Control.
7. Modern Instrument.
8. Human Relations attitude.

Essentials Of Good Communication System:

1. Clarity of messages.
2. Completeness of message.
3. Consistency of message.
4. Proper timing.
5. Credibility.
6. Empathy.
7. Follow-up.
8. Economy.

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COMMUNICATION AND I.T:

Various electronics devices slowly improve communication. This electronic

equipment includes mainframe computers, mini computers, personal computer,
tablets, laptops, mobile phones, electronic mail, etc.

Tele communication is an emerging technique. Most of the company has

implemented this technique. E.X:

1. Large bank supplies hardware and software to its customers.

2. E-Mail services making easy delivery of documents.
3. Computerised airline reservation system facilitates making travel
arrangement.

Teleconferencing is an audio in combination with still video.

This method is very useful in showing charts or illustrations during
discussion. Another recent system is video conferencing which uses high
speed internet services to deliver seamless delivery of audio and video for
both end of communication.

Smart phone is yet another recent development which made

communication extremely easy by utilizing social media such as MMS, Skype,
Facebook, Whatsapp, etc.

Advantages:

❖ It saves travel expenses and time

❖ There is needed to make travel plans long in advances.

Disadvantages:

❖ The equipment is subject to breakdown.

❖ It is a poor substitute for meeting with other persons face-to-face.

The use of computer for information handling:

Electronic data processing system handles large amount of data. The stored data
can be retrieved whenever it is required without any distortion. Computer
graphics can inform visually, displaying important company information.
Computer printouts and coloured map are quickly displayed when compared to
other media.

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 UNIT V CONTROLLING
System and process of controlling – budgetary and non-budgetary control
techniques – use of computers and IT in Management control – Productivity
problems and management – control and performance – direct and preventive
control – reporting.

5.1. INTRODUCTION:

❖ Controlling consists of verifying whether everything occurs in conformities

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.

Definition:

❖ Control is checking the current performance against predetermined

standards contained in the plans with a view to ensure an adequate
progress and satisfactory performance.
❖ By Koontz and O’Donnell “The managerial function of controlling is the
measurement and correction of the performance of activities of
subordinates in order to make sure that enterprise objectives and the
plans devised to attain them are being accomplished.

5.2. NATURE S PURPOSE OF CONTROL:

1. Control is an essential function of management.

2. Control is an ongoing process.
3. Control is forward – working because pas cannot be controlled.
4. Control involves measurement.
5. The essence of control is action.
6. Control is an integrated system.

5.3. IMPORTANCE OF CONTROL:

1. Policy verification.
2. Adjustment in operations.
3. Coordination
4. Employee morale
5. Efficiency and Effectiveness.

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 6. Psychological pressure

5.4. VARIOUS MANAGERIAL CONTROLS:

It provides managers with the type and amount of information they need to
measure and monitor the performances.

1. Financial controls.
2. Budget controls.
3. Marketing controls.
4. Human resources controls.
5. Computers and information controls.

CONTROL PROCESS:
5.5.
The basic control process involves mainly these steps as shown in Figure.

1. Establishment of Standards.
2. Measurement of Performance.
3. Comparing performance with standards.
4. Correction of Deviations.

1. The Establishment of Standards:

❖ Because plans are the yardsticks against which controls must be
revised, it follows logically that the first step in the control process
would be to accomplish plans.
❖ Plans can be considered as the criterion or the standards against
which we compare the actual performance in order to figure out the
deviations.
2. Measurement of Performance:
❖ The measurement of performance against standards should be on a
forward looking basis so that deviations may be detected in advance
by appropriate actions.
❖ The degree of difficulty in measuring various types of organizational
performance, of course, is determined primarily by the activity
being measured.
❖ For example, it is far more difficult to measure the performance of
highway maintenance worker than to measure the performance of a
student enrolled in a college level management course.

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 3. Comparing Measured Performance to Stated Standards:
❖ When managers have taken a measure of organizational
performance, their next step in controlling is to compare this
measure against some standard.
❖ A standard is the level of activity established to serve as a model for
evaluating organizational performance.
❖ The performance evaluated can be for the organization as a whole
or for some individuals working within the organization.
❖ In essence, standards are the yardsticks that determine whether
organizational performance is adequate or inadequate.
4. Taking Corrective Actions:
❖ After actual performance has been measured compared with
established performance standards, the next step in the controlling
process is to take corrective action, if necessary.
❖ Corrective action is managerial activity aimed at bringing
organizational performance up to the level of performance
standards.
❖ In other words, corrective action focuses on correcting
organizational mistakes that hinder organizational performance.
❖ Before taking any corrective action, however, managers should make
sure that the standards they are using were properly established
and that their measurements of organizational performance are
valid and reliable.

5.6. CRITICAL CONTROL POINTS AND STANDARDS:

The points selected for control process is called critical points.

5.6.1. Types of critical point standards:

1) Physical standards. 2) Cost standards.
3) Capital standards. 4) Revenue standards.
5) Program standards. 6) Intangible standards.
7) Goal as standards. 8) Strategic control.
5.7. REQUIREMENTS OF EFFECTIVE CONTROL:

1. Suitability
2. Flexibility
3. Economical
4. Simple
5. Forward looking
6. Motivation
7. Less time

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5.8. TYPES OF CONTROL SYSTEMS

The control systems can be classified into three types namely feed forward,
concurrent and feedback control systems.

1. Feed forward controls: They are preventive controls that try to

anticipate problems and take corrective action before they occur.
Example – a team leader checks the quality, completeness and
reliability of their tools prior to going to the site.
2. Concurrent controls: They (sometimes called screening controls)
occur while an activity is taking place. Example – the team leader
checks the quality or performance of his members while performing.
3. Feedback controls: They measure activities that have already been
completed. Thus corrections can take place after performance is over.
Example – feedback from facilities engineers regarding the completed
job.
4. Strategic control.
5. Tactical control.
6. Operational control.

5.9. BUDGETARY AND NON-BUDGETARY CONTROL TECHNIQUES:

BUDGET: it is an estimate of the future needs to be calculated.

5.9.1. CLASSIFICATIONS OF BUDGET:

1. Functional classification:
a. Sales Budget. b. Production Budget.
c. Cost of production budget. d. Material requirement budget.
e. Direct labour budget. f. Capital expenditure budget.
g. Administrative overheads/cost budget. h. Research and Development
Budget. i. Time, space, material and product budgets. j. Cash budgets.

k. Profit budget.
2. Time Classification: a. Long term budgets. b. Short term budgets.
c. Current budgets.
3. Classification based on activity: a. Fixed Budget. b. Flexible budget.
c. Alternative budgets. d. Supplementary budget.
5.9.2. BUDGETARY CONTROL:
It is the process of determining various budgets for the business unit for
future.
Definition: Budgetary Control is defined as "the establishment of budgets,
relating the responsibilities of executives to the requirements of a policy, and the

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continuous comparison of actual with budgeted results either to secure by
individual action the objective of that policy or to provide a base for its revision.

5.9.3. SALIENT FEATURES:

Objectives: Determining the objectives to be achieved, over the budget period,

and the policy that might be adopted for the achievement of these ends.

Activities: Determining the variety of activities that should be undertaken for

achievement of the objectives.

Plans: Drawing up a plan or a scheme of operation in respect of each class of

activity, in physical a well as monetary terms for the full budget period and its
parts.

Performance Evaluation: Laying out a system of comparison of actual

performance by each person section or department with the relevant budget
and determination of causes for the discrepancies, if any. Control

Action: Ensuring that when the plans are not achieved, corrective actions are
taken; and when corrective actions are not possible, ensuring that the plans
are revised and objective achieved.

 BUDGETARY CONTROL TECHNIQUES:

Revenue and Expense Budgets: The revenue from sales of products or services
furnishes the principal income to pay operating expenses and yield profits.
Expense budgets may deal with individual items of expense, such as travel, data
processing, entertainment, advertising, telephone, and insurance.

Time, Space, Material, and Product Budgets: Many budgets are better
expressed in quantities rather than in monetary terms. e.g. direct-labor-hours,
machine-hours, units of materials, square feet allocated, and units produced. The
Rupee cost would not accurately measure the resources used or the results
intended.

Capital Expenditure Budgets: Capital expenditure budgets outline specifically

capital expenditures for plant, machinery, equipment, inventories, and other
items. These budgets require care because they give definite form to plans for
spending the funds of an enterprise.
Cash Budgets: The cash budget is simply a forecast of cash receipts and
disbursements against which actual cash "experience" is measured. The
availability of cash to meet obligations as they fall due is the first requirement of
existence, and handsome business profits do little good when tied up in
inventory, machinery, or other noncash assets.

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 Variable Budget: The variable budget is based on an analysis of expense items
to determine how individual costs should vary with volume of output. Some costs
do not vary with volume, particularly in so short a period as 1 month, 6months,
or a year. Among these are depreciation, property taxes and insurance,
maintenance of plant and equipment, and costs of keeping a minimum staff of
supervisory and other key personnel.

Zero Based Budget: The idea behind this technique is to divide enterprise
programs into "packages"composed of goals, activities, and needed resources
and then to calculate costs for each package from the ground up. By starting the
budget of each package from base zero, budgeters calculate costs afresh for each
budget period; thus they avoid the common tendency in budgeting of looking
only at changes from a previous period.

 NON-BUDGETARY CONTROL TECHNIQUES:

There are, of course, many traditional control devices not connected with
budgets, although some may be related to, and used with, budgetary controls.
Among the most important of these are statistical data, special reports and
analysis, analysis of break- even points, the operational audit, and the personal
observation.

Statistical data: Statistical analyses of innumerable aspects of a business

operation and the clear presentation of statistical data, whether of a historical or
forecast nature are, of course, important to control. Some managers can readily
interpret tabular statistical data, but most managers prefer presentation of the
data on charts.

Break- even point analysis: An interesting control device is the break even
chart. This chart depicts the relationship of sales and expenses in such a way as
to show at what volume revenues exactly cover expenses.

Operational audit: Another effective tool of managerial control is the internal

audit or, as it is now coming to be called, the operational audit. Operational

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auditing, in its broadest sense, is the regular and independent appraisal, by a staff
of internal auditors, of the accounting, financial, and other operations of a
business.

Personal observation: In any preoccupation with the devices of managerial

control, one should never overlook the importance of control through personal
observation.

PERT: The Program (or Project) Evaluation and Review Technique, commonly
abbreviated PERT, is a is a method to analyze the involved tasks in completing a
given project, especially the time needed to complete each task, and identifying
the minimum time needed to complete the total project.

GANTT CHART: A Gantt chart is a type of bar chart that illustrates a project
schedule. Gantt charts illustrate the start and finish dates of the terminal
elements and summary elements of a project. Terminal elements and summary
elements comprise the work breakdown structure of the project. Some Gantt
charts also show the dependency (i.e., precedence network) relationships
between activities.

The critical path method (CPM) is a step-by-step project management

technique for process planning that defines critical and non-critical tasks
with the goal of preventing time-frame problems and process bottlenecks.
The CPM is ideally suited to projects consisting of numerous activities that
interact in a complex manner.

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Program (Project) Management and Review Technique (PERT) and Critical
Path Method (CPM) are two popular statistical tools used by the business
entities for the management of the project. These two methods are used in the
successful completion of a project and hence used in conjunction with each other.
Nevertheless, the truth is that CPM is different from PERT in a way that the
former cost based while the latter is time-based. In the same manner, there are
many differences between PERT and CPM, which we are going to discuss in this
article.

COMPARISON CHART:

BASIS FOR PERT CPM

COMPARISON
Meaning PERT is a project CPM is a statistical technique of
management technique, used project management
to manage uncertain activities that manages well defined
of a project. activities of a project.
What is it? A technique of planning and A method to control cost and
control of time. time.
Focus on Event Activity
Model Probabilistic Model Deterministic Model
Estimates Three time estimates One time estimate
Appropriate for High precision time estimate Reasonable time estimate

Management of Unpredictable Activities Predictable activities

Nature of jobs Non-repetitive nature Repetitive nature
Critical and Non- No differentiation Differentiated
critical activities
Suitable for Research and Development Non-research projects like civil
Project construction, ship building etc.
Crashing concept Not Applicable Applicable

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5.10. INFORMATION TECHNOLOGY IN CONTROLLING:

Use of computers in handling the information:

1. Sales Forecast and Control.

2. Payroll.
3. Business management.
4. Accounting.
5. Personnel management information.
6. Cost Accounting.
7. Manufacturing information control.
8. Banking and Credit.

5.11. MANAGEMENT INFORMATION SYSTEM (MIS):

❖ It is used for decision making in the various functional areas of business.

❖ MIS is a new technique which has brought with increased accuracy and
speed to the management.
Definition: MIS can be defined as "A system of obtaining, abstracting, storing and
analysing data to produce effective information for use in planning, controlling
and decision making process". The man machine combination helps to solve
complex business and industrial problems and that too quickly.

5.11.1. Need of MIS:

1. Internal factors: (i) Resources. (ii) Planning and control information. (iii)
Operational information. (iv) Production function. (v) Marketing function.
2. External Information factors: (i) Political and Government. (ii) Economic
condition. (iii) Technology.
5.11.2. MIS Resources:
1. Computer hardware. 2. Software. 3. Data. 4. People.

5.11.3. Implementation of MIS:

1. Input data. 2. Information stored and retrieval.
3. Analysis. 4. Output.
5. Decision making. 6. Action.

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5.11.4. Important Devices for MIS:

1. Speech Recognition devices. 2. Network.

5.11.5. Importance of MIS or Role of MIS:

5.11.6. Management and MIS:

1. Operational control.
2. Middle management.
3. Top level-strategic planning.

5.12. PRODUCTIVITY:

❖ Productivity refers to the ratio between the output from production

processes to its input.
❖ Productivity may be conceived of as a measure of the technical or
engineering efficiency of production. As such quantitative measures of
input, and sometimes output, are emphasized.
Definition: Productivity is a measure of how much input required producing
a given output i.e. the ratio between output and input is called productivity.

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5.12.1. FACTORS AFFECTING PRODUCTIVITY:
1. Technology. 2. Human resources.
3. Government policy. 4. Machinery and Equipment.
5. Skill of the workers. 6. Capital.
7. Research and Development. 8. Trade unions.
9. Materials. 10. Plant, equipment.
11. Land and Buildings. 12. The size of the plant

5.12.2. Role of Productivity:

a) For management:
1. To get high profit; 2. To improve the resources; 3. To increase the
sales.
b) For workers:
1. Job satisfaction and Job security; 2. Promotion; 3. Higher salary; 4.
Better working conditions.
c) For customers:
1. To get quality product; 2. Reduced prices; 3. Easily available

5.13. DEMING 14 PRINCIPLE FOR IMPROVING PRODUCTIVITY:

1. Create constancy of purpose for improving products and services.

2. Adopt the new philosophy.
3. Cease dependence on inspection to achieve quality.
4. End the practice of awarding business on price alone; instead, minimize
total cost by working with a single supplier.
5. Improve constantly and forever every process for planning, production and
service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, exhortations and targets for the workforce.
11.Eliminate numerical quotas for the workforce and numerical goals for
management.
12. Remove barriers that rob people of pride of workmanship, and eliminate
the annual rating or merit system.
13. Institute a vigorous program of education and self-improvement for
everyone.
14. Put everybody in the company to work accomplishing the transformation.

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5.14. PRODUCTION AND OPERATIONS MANAGEMENT OPERATION
MANAGEMENT SYSTEM:

Production:
❖ It is defined as the step-by-step conversion of raw materials into finished
products through a mechanical or chemical process to create the product.

Input: - Technology, Management and Labour, Man, Machine, Money,

Building.
Process: - Required Process Of Planning, Operating And Controlling The
System.
Output: - Product, Service. Product Development:

5.14.1. PRODUCT DEVELOPMENT:

❖ Product development is the work contributed towards improvement in the

present knowledge by the way of improved ideas, system, techniques etc.

5.14.2. PRODUCT DEVELOPMENT PROCEDURE:

1. Creation of new ideas;

2. Screening of ideas;
3. Product analysis;
4. To utilize the existing resources;
5. Product design;
6. Test marketing; 7. Commercialization.

5.15. PRODUCT ANALYSIS:

It is very important for every business enterprises .the following factors
influences the product analysis.

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Product layout: The arrangement of machines and equipment’s according to the
product manufacture is called as product layout. In this layout the raw materials
arrive at one end and leave the other end as finished product.

Operation Research: Operation research is a product of World War II.

Definition: "Operation research is an experimental and applied science
developed for observing understanding the purposeful man-machine systems
and operations research workers are actively engaged in applying this knowledge
to practical problems in business government and society". Operation Research
society of America

Necessity of Operation Research:

(i) Uncertainty. (ii) Responsibility and authority.
(iii) OR Models. (iv) Complex Organizations.
(v) Optimization of resources.
(vi) Minimizing time. Example: PERT, Transportation method, Queuing
theory
(vii) Maximizing profit. Example: PERT method, Queuing, Decision-tree
etc. (viii) Minimizing cost. Linear Programming, EOQ concept.

Role of Operations Research in Business and Management:

(i) Production Management. (ii) Finance Management.
(iii) Purchasing and procurement. (iv) Distribution.
(v) Marketing. (vi) Financial.

5.16. INVENTORY CONTROL (or) PURCHASING CONTROL:

❖ Inventory is the quantity of goods and other stocks held for a specific time
period in an unproductive state, awaiting use or sales.

5.16.1. INVENTORY COSTS:

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 ❖ Only those costs that vary as the inventory decisions of 'when' and 'how'
change should be considered. Operation mangers should identify these
costs and then minimize their total cost.

5.16.2. Effective Inventory Control System:

❖ It should provide a proper check against losses.

❖ Inventories should be classified clearly. Each item should be given a
separate code for quick identification.
❖ Separate storerooms must be equipped with all facilities.
❖ Experienced and qualified persons should be appointed in the purchase
and other related departments.

5.17. ECONOMIC ORDER QUANTITY:

❖ It is a basic fixed order quantity model such that the total inventory cost
(Inventory carrying cost + ordering cost) is low. This quantity is known as
Economic Order quantity.

Determination of Economic Order Quantity (EOQ):

EOQ= root of (2DS/C)

D - Demand per year; S - Ordering cost; C - Annual carrying cost of one unit.

5.18. JUST IN TIME INVENTORY (JIT) SYSTEM:

❖ In this method, the suppliers deliver the materials to the production spot
just in time to be assembled.
❖ This method reduces the cost of inventory.

5.18.1. Essential requirements for the success:

1. Required trained and skilled workers.

2. To reduce batch size.

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 3. Smooth relationship with suppliers.
4. Suppliers should be located near the' company.
5. Effective maintenance of machineries.
Other techniques for improving production:
Based on operation research, some other techniques are:
Time-Even Networks: PERT, CPM techniques are used in planning and
control activities.

5.18.2. Steps in Production Planning and Control:

1. Routing: Routing is defined as the selection of path which each part of

the product will follow while being transferred from raw material to
finished products. It determines the path and sequence of operation.
2. Scheduling: It involves the deciding of when the work will begin and
duration of time and how much will be finished.
3. Dispatching; Dispatching is transferring from planning into action.
4. Inspection: It is used by the dispatchers to report about the number of
pieces inspected, number of pieces rejected and the reasons for rejection.
5. Follow-up or Expediting: The manufacturing activity of a factory is said
to be in control when the actual performance is as per the planned
performance. Follow up regulates the progress of materials and the
components through the production process.

5.19. COST CONTROL:

 Managers use a financial control method in the organization which helps

managers to control an organization’s financial resources.

5.20. FINANCIAL STATEMENT:

 Financial statements generally refer to four basic statements of income

statements, balance sheet, statement of retained earnings and sources, and
fund statements. The Financial Statements reflect the Financial Position
and Operating strength or weakness of the organization.

Users of financial statements:

1)Shareholders; 2) Creditors; 3) Employees; 4) Trade unions; 5)
Managers; 6) Economists; 7) Members of parliament; 8) SEBI; 9)
Government Departments; 10) Tax Authorities; 11) Financial Institutions;
12) Commercial Bank.

Importance of Financial Statements:

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 1. Management. 2. Shareholders. 3. Creditors.
4. Labor. 5. Public. 6. Government.

Limitations of financial statements:

1) The data given in these statements are only approximate.
2) Current price changes are not considered for valuing the assets of the
business.
3) Non-Monetary factors are ignored while preparing the
financial statements.
4) Information is incomplete.
5) Qualitative information is ignored.

5.21. INCOME STATEMENT:

 The income statement is also known as profit and loss account. It performs
a report recording, such as change in income, expenses, profit and losses
as a result of business operation during the year. It summarizes the
revenues and expenses of the period.

Importance:
1) The income statement guides the management to judge business progress
period.
2) The income statement analyses business successes.
3) It reports the results of business activities and indicates the reasons for the
business profitability or lack.

5.22. BALANCE SHEET:

❖ A balance sheet is the statement which sets out the financial conditions of
Business Company.
❖ In balance sheet, left hand side contains capital and liabilities and right
hand side contains assets.
❖ It lists a particular date, usually at the close of the accounting period, the
assets and liabilities and capital of the enterprise.
❖ A balance sheet is also described as a statement showing the sources and
application of capital. It is a statement not an account.

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 Balance sheet as on 31st Dec. 2010

Key Words of Cost Control:

1. Assets: It is the cost which represents the expected future economic
benefits to the business.
2. Fixed assets: These assets used in the business are permanent.
Example: Building, Machineries.
3. Current assets: They are assets which are reasonably expected to be
realized in cash. Example: Bank in cash, D.D., Bills receivable.
4. Liabilities: Represent obligations which require the settlement in
the future.
5. Fixed liabilities: The liabilities that are payable only on the
termination of business. Example: Paid up capital.
6. Current liabilities: The liabilities that are payable within a year or
due date. Bills payable, short-term bank overdraft.

5.23. CASH FLOW STATEMENT:

 A cash flow statement shows the impact of transactions on cash position of

the firm and includes all transactions on cash position of the company.

5.24. DIRECT AND PREVENTIVE CONTROL:

5.24.1. DIRECT CONTROL:

 In this organization, some employee's performance is poor. Finding out the

employees and then correcting their performance and achieve the
organization goals is called direct control.

(i) Factor influencing direct control:

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 ❖ Uncertainty.
❖ Lack of knowledge and Experience.
❖ Lack of communication.

(ii) Effective steps for direct control:

❖ Performance can be measured.
❖ Effectively utilizes time.
❖ Errors can be discovered in time.
❖ Participation.
❖ Coordination.

5.24.2. PREVENTIVE CONTROL:

 An efficient manager applies the skills in managerial philosophy to

eliminate undesirable activities which are the reasons for poor
management. This is called preventive control.

Effective steps for preventive control:

1) Qualified Managers.
2) Management principles to measure performance. 3)
Evaluation.

5.25. REPORTING:

Budget summaries and reports:

❖ Every enterprise has its own objectives. Submission of budget and reports
play an important role.
❖ Budget and reports are the resume of the particular company. It includes
company sales volume, profit, credit, cost, purchase and return on
investment.

Purpose of budget and reports: The manager should compare a planned budget
with actual budget. Minor deviations can be ignored. The manager is responsible
to take corrective action or report it to the top management. When the major
deviation is taken place, budgets reflect the company's objectives or goals. Every
budget is influenced by uncertainty. Every enterprise meets some unexpected
events in the course of action that time budget changes is uncontrollable. The
deviation between planned budget and actual budget can be controlled by an
efficient manager. The budget summaries and reports are the major tools for top
managements to find out where the deviation has occurred.

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5.26. RETURN ON INVESTMENT (ROI):

❖ The return on Investment is the broadest measure of overall performance

of a business.
❖ The prime objective of a business is to obtain satisfactory return on capital
invested ROI is calculated on the basis of 3 factors.

(a) Investment Turnover = sales / investment

(b) Percentage profit on sales =(profit / sales) x 100

(c) Return on capital Employed = (profit / investment) x 100

Advantages of ROI:
❖ It is used in inter departmental comparison.
❖ ROI is used for comparing other companies.
❖ ROI gives ideas for analysis and decisions to bring about effective
changes in financial policies.

Limitations of ROI:
❖ In ROI measurements, some factors, such as inventory valuation,
depreciation cannot be considered.
❖ In a high rate of ROI, the managers may not be interested in the
business activities due to the fear of decrease in ROI.

5.27. PURCHASE CONTROL:

 Purchasing is one of the basic functions of organizations.

Objectives of Purchasing Department: Better purchasers can save a firm's

financial resources. By scientific, purchasing cost would be reduced and in turn it
will also reduce the inventory asset base.

Types of special purchase systems:

(i) Forward Buying. (ii) Tender Buying. (iii) Blanket Order. (iv)
Zero Stock. (v) Rate contract.

Standard Purchasing Procedure:

1. Processing the requisition. 2. Location and choice of suppliers.
3. Placing of orders. 4. Following up the progress in the purchase orders.
5. Maintenance of records.
Methods of Purchasing:
1. Purchasing according to requirement.

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 2. Price forecasting method.
3. Purchasing for some definite future period.
4. Market Purchasing.
5. Speculative Purchasing.
6. Contract Purchasing.
7. Scheduled Purchasing.
8. Public Purchase System.
9. Tender Purchasing System.

5.28. MAINTENANCE CONTROL:

 Maintenance is the process of keeping the machine and equipment in good

working condition so that the efficiency of machine is retained and its life
is increased.

Functions of Plant Maintenance:

1. Inspection. 2. Repair. 3. Overhaul. 4. Lubrication. 5. Salvage.

Types of Maintenance:
(i) BREAKDOWN MAINTENANCE: In the case of
breakdown
maintenance, the equipment is generally attended only when it
breakdown.
(ii) PREVENTIVE MAINTENANCE: It is a systematic maintenance
procedure in which systematic inspection and preventive action of
plant is taken to reduce breakdown of machines and equipment.

Techniques of Planned Maintenance Control: The basic techniques in designing

a planned maintenance system are as follows: 1. Inventory Facilities. 2. Marking
the equipment. 3. The facility register. 4. Marking Schedule. 5. Job Specification. 6.
Maintenance Program. 7. Job Report.

5.29. QUALITY CONTROL:

❖ Walter Shewhart introduced the basic concepts of statistical quality
control, including the control chart.
❖ Quality: Quality is defined as the degree to which a set of inherent
characteristics fulfils requirements.
Q=P/E
where Q = Quality, P = Performance, E = Expectations

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Quality Control: Quality Control is the procedure that is followed to achieve and
maintain the required quality. Quality Control aims at prevention of producing
defective products. For this statistical methods like sampling plans and control
charts are used.

Dimensions of Quality:
1. Performance. 2. Features.
3. Conformance. 4. Reliability.
5. Durability. 6. Service.
7. Response. 8. Reputations.

Steps in Quality Control:

1. Fixing the quality standards.
2. Evaluation of measurement of quality.
3. Comparing the measured quality with the standard quality.
4. Finding out the deviation.
5. Reasons for variation.
6. Taking corrective action.

Statistical Quality Control:

❖ Statistical methods can be used to control the quality.
❖ Statistical quality control means controlling the quality characteristics of a
product or process using statistical method.

Types of control charts:

1. Control charts for variables. 2. Control charts for attributes.

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