1.

10 Collapse of Traditional Organizational Theory

1950s-1970s: Produced a great outpouring of theory and research in organization and

management, also known as The Theory Movement
Research was dominated by logical positivists (someone who maintains that any
statement that cannot be verified empirically is meaningless)
1974: T. Barr Greenfield articulated serious concern about then-existing organizational
theory that had been developing among both practitioners and growing number of
scholars.
Greenfield said: they are [organizations] invented social realities that actually exist only
in the minds of people rather than as tangible, independent realities.

1.11 Concept of Middle-Range Theories

Karl Weick says Social System Theory is one important way to describe crucial aspects of
organization

The Ideas of James D. Thompson

1967: Thompson described many new insights into the nature of organizations that laid
the basis for a new impetus in organizational theorizing in the 1970s
He said that the fundamental problem is uncertainty & consequently
Uncertainty: inability to foresee problems, changes, and unpredictable emerging events
Technical Core: in which the actual work activities are performed
Boundary Spanning Units: their critical function is to deal with the uncertainties in that
environment

Third major concept he developed: COUPLING (the interdependencies of people in the

organization)

Reciprocal Coupling: workers pass their work back and forth

Sequential Coupling: workers perform tasks one after the other
Pooled Coupling: members share the resources in common but otherwise work
independentl

The Concept of Organized Anarchies

Traditional structuralist approaches of classical theory emphasize the logic and order of
human social systems
1960s: Neoscientific approaches apply same concepts but in newer and more
sophisticated ways
 Explicit definition of organizational goals (and sub goals)
The systematic selection of the least costly plan from among alternative possibilities to
achieve the goals
Development of programs, sub programs, program elements, and sub elements to carry
out the plan
1980s: most promising ideas appeared on focus

The Garbage Can Model of Organizational Choice

Cohen, March, & Olsen

Organizations in which the goals are hazy, the technology ill-defined, and the
members participation are relatively fluid are not likely to solve problems in an
orderly, rational manner
Cohen and his colleagues have described a much more complex and unstructured
process, shifting combinations of problems, potential solutions, people and
opportunities to make choices that intermesh in complicated ways. They admit it
may not be the optimum way for organizations to solve problems but rather it may
well describe the way in which many organizations do in fact make decisions.

Organization Culture as a Bearer of Authority

Norms that inform people what is acceptable and what are not, the dominant values
that the organization cherishes above others, the basic assumptions and beliefs, and the
philosophy that guides the organization in dealing with its employees and clients
Conclusion: there is no best way to organize, but this does not mean that any way of
organizing is better than the other
Effective management of organizational behavior in organization must be based upon
critical analysis of the organizational realities.

Mary Parker Follett (October 1929) is well known in the field of management theory for her
humanistic and socially just viewpoint on management structures and conflict resolution within
organizations. Follett built on classical management principles to lay the foundation for much of
the modern management theory ideas in use today. Mary Parker Follett is also highly regarded
as one of the forerunners of feminist organizational theory, which advocated defining
organizational and management concepts through women's ways of knowing and navigating
the social world.

Management theory

Follett's work drew from and contributed to management theory, or modern management
theory. This refers to the contemporary science of examining the function of organizational
structures and hierarchies of authority. This includes not just the study of productivity, but also
how power is constructed and how disputes are resolved.

THE HUMAN RELATIONS MOVEMENT (1935-1950)

The human relations movement was founded by sociologist George Elton Mayo in the 1930s
following a series of experiments known as the Hawthorne studies, which focused on exploring
the link between employee satisfaction/wellbeing and workplace productivity.

Essentially the Hawthorne studies concluded that when employers take an interest in workers
and make decisions based on their natural needs and psychological makeup, productivity
increases. They also found that people work best when organised into groups, when they can
have effective two-way communication with their leaders, and when leaders communicate and
share information freely as part of an overall cohesive decision-making process.

The human relations movement is seen as the precursor of the modern human resources
function. Before the human relations movement, workers were typically seen as replaceable
cogs in organisational systems that put the ultimate value on higher output.

Figure 1-1 Simple sociogram of five-person group

Robert Bales, he developed a systematic technique for analyzing the patterns of interaction
between the members of a group. This interaction analysis technique consisted of recording
key facts about discussions that occured between individuals: how many took place between
specific individuals, between two individuals, among groups, and who initiated them.

THE ORGANIZATIONAL BEHAVIOR MOVEMENT, 1950-1975

Behavioral management theory relies on the notion that managers will better understand the
human aspect to workers and treat employees as important assets to achieve goals.
Management taking a special interest in workers makes them feel like part of a special group.

As time went on, thinking shifted, and management started looking at employee satisfaction
and working conditions as a way to increase productivity. Theorists like Elton Mayo and others
studied employee productivity under different conditions to determine a connection.

Mayo's Hawthorne experiment provides a good example of this. In the Hawthorne experiment,
a group of telephone line workers were separated and observed working in a private room.
During their workday, the group members were given special privileges, like freedom to leave
their workstations, changes in pay rates, and even company-sponsored lunch. What they
discovered was the control group produced more than the other employees. The rationale for
this increased production was that the group felt that management was interested in their well-
being.

Behavior is defined as the way a person conducts themselves towards others. When workers
are treated as humans rather than machines, they respond to their particular work situation in
a positive way - by increasing individual productivity.

HUMAN RELATIONS AND ORGANIZATIONAL BEHAVIOR

Human Relations, interactions between people in all kinds of situations in which they seek,
through mutual action to achieve some purpose. It can be applied to two people seeking to
develop a happy and productive life together, a social club, business firm, schools, government
and even whole socities.

The interaction could be formal (for example, a government, a firm) or it may be informal
(school, group of prison inmates, neighborhood).

Organizational Behavior is much a narrower and precise term that falls under the term
human relations. Organizational Bahavior is a discipline that seeks to describe, understand, and
predict human behavior in the environment or formal organizations. The great contribution of
Organizational Behavior is that

a. Organizations create internal contextual settings, or environments that have great

influence on the behavior of people on them, and

b. When the internal environment of an organization is influence by the larger context in

which the organization itself exists, such as political, economic, and technological systems that
support the organization.

Organizational behavior is closely linked with management and organization because its central
focus is that of effective performance of formal organizations. Both Management and
Administration are responsible for establishing the internal arrangements of the organization,
so as to achieve maximum effectiveness.

EMERGING DEVELOPMENTS IN ORGANIZATIONAL THOUGHT 1975-PRESENT

Administration is defined as working with through other people, individually and in groups, to
achieve organizational goals.

This is no arcane academic question. When working in administration, whether as a department

head, a chied, a manager or any position in between, you answer it goes to the heart of how
you go about the work. Personnel know, from working with customers and general public, that
people are complex, idiosyncratic, full of contradictions, and that their behavior often seems
baffling and difficult to grasp.

CRISIS OF CONFIDENCE IN PROFESSIONAL KNOWLEDGE

Donal Schon describes that in the varied topography of professional practice, there is a high,
hard ground overlooking a swamp. On the high ground, manageable problems avhieve
solutions through the application of research-based theory and technique. In the swampy
lowland, confusing and messy problems defy technical solution. The irony of this situation is
that the problems found in the high ground tend to be relatively unimportant to society at
large, while those found in the swamp are of greatest human concern.

MANAGEMENT CONCEPTS AND BASIC STRUCTURES

INTRODUCTION

Globalization is increasingly becoming a cooperative endeavor among all other walks of people
world-wide. Whether in government, business the church, civil societies, civic organizations and
other forms of enterprises, the effectiveness with which people work together toward the
attainment of enterprise goals is largely determined the ability of those who hold managerial
positions.

Indeed it is a characteristic of every effective group effort desingned to attain group goals at
the least cost of time, money, material, or discomfort, that it adopts the basic processes and
principles of management.

THE NATURE AND CONCEPT OF MANAGEMENT

Management is a very important function which is concerned with how enterprise

works.

Management according to Haimann

Management as a field study or a subject refers to the principles and practices of

management. It includes all the principles and practices as a body of knowledge and its
application in Its entirety.

Management as a team or class of people refers to the group of managerial personnel

of an enterprise functioning in their supervisory capacity.

Management as a process refers to the different processes or steps of management

right from planning to organizing, staffing, supervising and controlling.
 Management is variedly referred as: the manner of treating, directing, carrying on, or
using for a purpose; conduct, administration, cautious handling or treatment; or the
body of directors or managers of any undertaking, concern, or interest collectively F. J.
Meine

Management is the art of getting things done with people and through informally
organized groups. Koontz

Management is the fundamental integrating and operating mechanism underlying

organized effort. Dalton E. McFarland

Management is a distinct processperformed to determine and accomplish stated

objectives by the use of human beings and other resources. George R. Terry

Management is the creation and maintenance of an enterprise where individuals,

working together in groups can perform efficiently and effectively towards the
attainment of group goals. Harold Koontz & Cyrill ODonnell

Management consists of all organizational activities that involve goal information and
accomplishment, performance, appraisal, and the development of an operating
philosophy that ensures the organizationss survival within the social system W. Jack
Duncan

Management may be defined as the art of applying the economic principles that
underline the control of men and materials in the enterprise under consideration.
Kimball and Kimball

Management may be defines as a social process entailing responsibility for the effective
planning and regulation of the operations of an enterprise, such responsibility involves
(1) the installation and maintenance of proper procedures to ensure adherence
installation and maintenance of proper procedures to ensure adherence to plans, and
(2) the guidance, integration and supervision of the personnel compromising the
enterprise and carrying out its operations. Brech

Managements is a technique by means of which the purpose and objectives of a

particular human group are determined, classified, and effectuated. E. Petersen & E.
Grosvenor

Management is a body of systematized knowledge, based on general principles which

are verifiable in terms of business practice. Louis A. Allen
 No universally acceptable definitinon of management; exactly what the term means ins
not always clear and not always agreed. Brech

Management is a process by which responsible persons (managers or executives) in an

organization get things done through the efforts of other person in group activities.
widely accepted meaning

Management is guiding human and physical resources into dynamic organization units
which attain their objectives to the satisfaction of those served and with a high degree
of morale and sense of attainment on the p art of those rendering services. American
Management Association

SALIENT FEATURES OF MANAGEMENT

ORGANIZATIONAL ACTIVITY

OBJECTIVE AND GOAL FORMULATION

OBJECTIVE AND GOAL ATTAINMENT AND EVALUATION

ORGANIZATIONAL SURVIVAL

IMPLEMENTATION

CHARACTERISTICS OF MANAGEMENT

UNIVERSAL PROCESS

INTEGRATIVE PROCESS

DYNAMIC FUNCTION

SOCIAL PROCESS

MANAGEMENT MAKES THINGS HAPPEN

MANAGEMENT IS A MULTI-FACETED DISCIPLINE

INTANGIBLE FORCE

- M. U. Qureshi

Management as a SCIENCE and an ART

Management: Personnel, financial, production, sales or marketing, purchasing, administrative

services, advertising, research and engineering, management information system and control.
For those who expects to assume the role of managers or executive must possess sufficient
knowledge in: economics, sociology, psychology, political science and government,
anthropology, natural science, statistics, marketing, finance, accounting, taxation. Personnel,
production, sales, purchasing, public relation and business law

FUNCTIONS OF MANAGEMENT

PLANNING- Checking the work accomplished against plans or standards, and making adjustments when
new developments or unforeseen events necessitates

- Establishment of goals, policies, and procedures for a social, economic unit.

ORGANIZING- Involves the establishments of an organizational structure, determination of the

activities required to achieve the goals

STAFFING- Selecting applicants for different position

DIRECTING- Guiding and leading subordinates

CONTROLLING

Levels of Management

LOWER LEVELS- Includes: Supervisors, foreman, accounts officer, sales officers

MIDDLE LEVELS- Includes: Production Manager, Sales Managers, Office manager, Chief Accountant,
Chief Cashier, Branch Manager, Chief Personnel

HIGHER LEVELS- Includes: Board of Directors, Chief Executive Office/President, Vice President,
Managing/Executive Director, General Manager

Management and Administration

1. Distinction:

According to Oliver Sheldon:

Administration is the function in industry concerned with the determination of the

corporate policy, the coordination in finance, production, and distribution, while
Management is the function concerned with the execution of policy within the limits set
up by administration.

According to Florence and Tead:

 Administration involves the overall setting of major objectives, determination of
policies, identifying of general purposes, laying down broad programs, major objectives, etc.,
while management is the active direction of human efforts with a view to getting things done.

2. Incorporated items:

According to Kimball and Kimball:

Management is a generic term with wide functions including administration, which is a

narrow function.

According to Brech:

Management is a social process entailing responsibility for the effective and economical
planning and regulation of the operation of an enterprise in fulfillment of a given purpose or
task;

Administration is that part of management which is concerned with the installation and
carrying out of the procedures by which the program is laid down and communicated and the
progress of activities is regulated and checked against plans.

3. No distinction:

According to Henri Fayol and Newman Williams:

The terms Management and Administration do not make any difference.

Classification of Management

Administrative Management: Primarily concerned with laying down policies and determining goals.

Operative Management: Is concerned with the implementation of the policies for the achievement
of goals.

according to Spriegel and Lansbugh:

At the higher levels, the managerial authority is concerned with more administrative
management and less with operations.

according to Peter Drucker:

Management is the crucial factor in economic and social development.

14 Principles of Management from Henri Fayol

1. Division of Works

2. Authority and Responsibility

3. Discipline

4. Unity of Command

5. Unity of Direction

6. Subordination of Individual Interest

7. Remuneration

8. The Degree of Centralization

9. Scalar Chain

10. Order

11. Equity

12. Stability of Tenure of Personnel

13. Initiative

14. Esprit de Corps

Other Principles Of Management

1. The Principle of Policy making

Policies can be classified as:

(1) General policies;

(2) Major Policies;
(3) Departmental policies
2. The Principle of Improvement and Adjustment
3. The Principle of Balance
4. The Principle of Relationship of Task and Accomplishment
5. The Principle of Individual Effectiveness
6. The Principle of Simplicity
7. The Principle of Specialization
8. The Principle of Standardization
9. The Principle of Financial Incentives
 10. The Principle of Human Relations

11. The Principle of Planning

12. The Principle of Control

13. The Principle of Cooperation

14. The Principle of Leadership

There are six (6) Characteristics of good leaders according to John Gardner:
1. Leaders think long term; they look beyond immediate problems;
2. Leaders look beyond the agency or unit they are leading and grasp its relationship to
larger realities of the organization, as well as the external environment.
3. Leaders reach and influence people beyond their own jurisdiction.
4. Leaders emphasize vision, values, and motivation; they intuitively grasp the non-rational
and unconscious elements in the leader-constituent interaction.
5. Leaders have political skills to cope with conflicting requirements of multiple
constituencies
6. Leaders never accept the status quo; they always think in terms of renewal..

15. The Principle of Delegation of Authority and Responsibility

16. The Principles of Equality of Authority and Responsibility
17. The Principle of Utilization and Executive Ability

5 ELEMENTS OF MANAGEMENT from HENRI FAYOL

1. Forecasting and Planning

2. Organizing
3. Commanding
4. Coordinating
5. Controlling

BASIC CONCEPTS OF ORGANIZATION

ORGANIZATION determines the relationship among people, work, and resources. Whether
groups of people exist in a common effort, organization, must be employed to get productive
results. Organization is used in two different things: As a process and as a structure of
relationship.
ORGANIZATION AS A PROCESS
Organization is a continuous and productive process and a managerial activity necessary
to plan the organization/ companys resources, plant, equipment, materials, money and people
to achieve objectives and goals. It is also to harmonize the employees activities in an orderly
and efficient manner to achieve objectives and goals.
The definition of organization is advance by Allen, Koontz and ODonell, and T. Haiman.
An organization is a process of identifying and grouping the work to be performed,
defining and delegating responsibility and authority and establishing relationship for a purpose
of enabling people to work most effectively together in accomplishing objectives-Allen
Organization involves the grouping of activities to appropriate departments and the
provision for authority delegation and coordination.-Koontz and ODonell
Organization is a process of defining and grouping the activities of the enterprise an d
establishing the authority relationship among them.-T. Haimann
As a whole they stated that An organization is a process of identifying and grouping of
work to be performed to establish relationship for the purpose of accomplishing together their
objectives.

ORGANIZATION AS A STRUCTURE OF RELATIONSHIP

Organization is a form of every human association for the attainment of a common
purpose. -Mooney and Relly
Organization is a system of cooperative activities of two or more persons.
-Chester Barnard

Therefore, Organization is the mechanism developed to unite people's efforts (in order)
to know the objective/goal.

STEPS IN ORGANIZING BUSINESS ORGANIZATION

1. Outlining the objectives.
The main objective of business organization is to gain profit. Other objectives should be
established by the management from time to time to help and support the main objective.
Objectives should be clear, precise and complete because the stability of the business
organization depends on it.
There are important items to know in defining the objectives:
Evaluate the necessity of the organization and the possibility of its success.
Decide if they are congruent with other objectives.
 Estimate the needed money, materials, machines, methods, time, and the
most important is personnel.
Classify the objectives into functional parts to be distributed to a particular
department of implementation.
2. Identification and enumeration of the activities.
Related activities and tasks to be performed shall be group together and to be
distributed to the different functional departments, such as finance, marketing, production,
transportation and etc.
3. Assigning the duties and responsibilities.
Different functional management should now assign personnel who are responsible to
perform the different duties.
4. Delegating the authority.
Delegated authority should be properly explained and well defined. This is to avoid
abuse of authority.
5. Establishing authority relationship.
This involves determination as to who will act under whom, who will be the subordinate
and superior, what will be his span of control and what will be his status in the organization.

It is clear that nature of an organization is two-fold, as according to M. U. Qureshi:It is a

process of coordination of employees activities in an orderly manner. And also, it is a
framework of relationships.

THE IMPORTANCE OF EFFECTIVE ORGANIZATION

Organization is the foundation of managerial success. It determines the relationship of
people, work and resources in the firm to get productive results. A good organization
contributes greatly to the firm growth and development than a one-man enterprise that had a
good individual strength, skill and ability.
A sound form of organization is the answer to every business problem; that a poor
organization could run a good product in a ground and that a good organization with a poor
product could run a good product to the market.-Kenneth C. Towe
Take away all our money, our great works, our mines and cock ovens but leave us our
organization and in a few years, I shall have re-establish myself.-Andrew Carnegie

Importance of the Organization in Any Institution According to M.U. Quersh

1. It facilitates administration and management.
 A sound organization helps the management to increase their efficiency, avoid delay,
duplication of work, and motivates personnel to perform well their jobs and responsibilities.
2. It helps in the growth and development of a firm.
If there is organization it can contribute to the growth and development of the firm.
3. It ensures optimum use of human resources.
A sound organization bring harmony to the firm, places the right jobs and motivates
employees to contributes their best effort to attain objectives and goals of the organization.
4. Stimulates creativity and innovation.
A sound organization is a good source of creative thinking and innovation of new ideas.
It also develops sense of responsibility in them and provides recognition of their competence
and expertise.
5. It allows use of modern technology.
A good organization allows the use modern technology and provides the use of new
automatic techniques of production, control devices and data processing
6. It facilitates coordination in the firm.
In a good organization, the different department performs their task in an efficient
manner and all position are welded together to perform a task or to finish a goal.
7. It promotes executive development.
Managers are continuously trained, develop and tested of big responsibilities so he can
handle challenges of his position.
8. It ensures cooperation among personnel.
A good organization brings good harmony, relationship and cooperation among
personnel. It also gives recognition to the contribution of each individual.

PRINCIPLES OF ORGANIZATION
1. Objective - must have a clearly defined objective.
2. Coordination - coordinating people's efforts.
3. Efficiency - must be properly planned to ensure lowest cost of production.
4. Unity of Direction - there should be one superior and one plan of action.
5. Unity of Command - every person should receive orders from one superior only.
6. Specialization- the job of every person should be confined to a single function.
7. Scalar - line of authority should be clear.
8. Short Chain of Command - enables better communication at various levels.
9. Authority and Responsibility - personnel with authority should be willing to accept
responsibility for whatever the results may be.
 10. Delegation - to avoid delays in the performance of duties and responsibilities.
11. Balance - to ensure balance and equilibrium in order to avoid big problems in carrying
out the objectives of the organization.
12. Change - organization should be flexible and capable of coping with change.

These principles will serve as guidelines in the organization, for them to know what they
have to do in order for the organization to reach their goal and to perform better.

2 TYPES OF ORGANIZATION
1. Formal Organization
Formal organization is established through the coordination of efforts of various
individuals. Every member is responsible for the performance of a specified task assigned to
him on the basis of authority, responsibility and relationship in an organization.

2. Informal Organization
Informal organization refers to the relationship between people in an organization
based on personal attitudes, emotion, prejudices, like and dislike, friendship and affiliation. It
also refers to the involving or existing relations between people in an organization and these
relations are casual and didnt develop according to rules and regulations.
The power of organization is earned by the group members, rather than delegated. It is
also subjective nature, so it is not subject to the control of management and its likely come
from peers rather than superior.

Benefits of Informal Organization

The benefits of informal organization is to promotes sense of belongingness among
members, helps members with their emotional problems, members of the group shall help one
others jobs, member can create necessary environment for innovation and creativity,
information can be transmitted quickly among informal group members, it also provide its
member a set of standards to correct behavior and serves as check and balance on the
unlimited use of authority by a manager.

Limitations of Informal Organization

1. Resists charges.
2. Members put their own group objectives ahead of the formal organizations objectives.
3. Members are carriers of rumors.
 4. Members are more loyal to the informal organization than the formal organization.
5. It cannot exist without the formal organization.

The informal organization also has limitations, to make sure that they will not dominate
the formal organization and that they'll remain as secondary to the formal organization.

DEPARTMENTATION
According to Allen, Departmentation is dividing the large and monolithic functional
organization into smaller, flexible administrative units
In other words, Departmentation is a part of organization process. It involves the
grouping of the common activities on the basis of a function of the organization under a single
persons control.

Effective Factors in Departmentation

1. Managerial abilities and skills.
2. Availability of ample time for supervisory work.
3. The nature of activities, whether or not routinary or repetitive nature of work.
4. Skill and abilities of subordinates.
5. Effectiveness of communication system.
6. Effectiveness of control mechanism and devices.
7. Availability of assistance to the manager.
8. Extent of supervisory coordination needed by the organization.

Steps in Departmentation
1. Identification of duties and responsibilities.
2. Analysis of the details of every task.
3. Description of the functions.
4. Assignment of the groups of functions to separate specialist from the line department
and providing them with qualified personnel.
5. Delineation of scope of authority and responsibility of department/division heads.

Different Methods of Departmentation

1. According to functions (personnel, accounting, production, marketing,
transportation, etc.)
Advantages of Departmentation According to Functions
The principle of specialization is being carried out.
 Prestige and power of major functions in the organization being maintained.
Synergism is being developed.
The organizational structure is easily understood.
It provides better control from the top down below the organizational hierarchy.
Disadvantages of Departmentation According to Functions
Centralized decision making may be institutionalized.
Responsibility for profit is in the hands of top management.
This is not appropriate where product lines have to be given emphasis.
Managerial development is slow.

2. According to products (appliances, foods and beverages, electronics devices, etc.)

Advantages of Departmentation According to Products
Greater concentration of effort on individual product line.
Greater knowledge about the product, better customer service relationship
The responsibility for profits is at department level.
Better coordination and integration of functional activities
Allows the development of products and services diversification.
Better knowledge and information about the market for specific products.
Disadvantages of Departmentation According to Products
Customer shall deals with different salesmen for different products in a given firm.
Reduction of operational and management costs due to proximity of the place.
Better strategies can be employed that shall be tailored-fit to the needs of the territory.
Better coordination at the local, regional, national and international levels.

3. Acording to territory (local, regional, national and international)

Advantages of Departmentation According to Territory
Can be employed for better competition and customer relationship.
Reduction of operational and management costs.
Better strategies.
Better coordination.
Disadvantages of Departmentation According to Territory
Increase of overhead expenses.
Problems of effective coordination and control.
Not suitable for other functional departments.
Problems about communication and control.
 4. According to customers (wholesalers, retailers)
Advantages of Departmentation According to Customers
Customer service is highly specialized.
Easily identifies the best channel of distribution for every type of customer to avoid
unnecessary expenses.
Disadvantages of Departmentation According to Customers
Unavailability of highly specialized salesmen in terms of special customer groups.
Difficulty of coordination and integration.
Bias development of customer groups.

5. According to processes.
Departmentation According to Process or Equipment
In manufacturing organization, where the product passes through different stage of
production, each stage is designated as a process and departments created on the basis of
process.

6. Combination of any methods, or mixing departmentation.

Mixing Departmentation
It balances in terms of levels and is characterized by consistency and identical bases. Its
purpose is to group activities in a manner which will best contribute to achieve the objectives of
the company. The functional department manager may departmentalize two or more methods
on the same organizational level.
Chapter 5

The Organizational Environment

INTRODUCTION

Organizational environments are composed of forces or institutions surrounding

an organization that affect performance, operations, and resources. It includes all of the
elements that exist outside of the organization's boundaries and have the potential to affect a
portion or all of the organization.

CHARACTERISTICS OF ORGANIZATIONAL ENVIRONMENT

Dynamic

Complex Factors

Internal and External

 Geographical Boundary

Mutual Dependence of Factors

Affects Organization

Exchange of Resources

Satisfaction of Needs

Challenges

OBJECTIVES IN THE STUDY OF ORGANIZATIONAL ENVIRONMENT

The success or failure of an organization largely depends on its ability to understand and
anticipate its own environment accurately.

Specifically, the need to study organizational environment arises due to the following
objectives:

1. To understand the complexities of environment.

2. To gather data about the changes that are taking place in the environment.

3. To know and understand environmental fluctuations.

4. To know and evaluate the amount of risks associated with the organization.

5. To understand the mutual affect of the environmental factors.

6. To formulate policies, rules and regulations.

7. To evaluate the plans under executions.

8. To prepare strategic/organizational planning.

9. To prepare action plans.

10. To gather data about opportunities and threats for the organization.

11. To evaluate strengths and weaknesses of the organization.

12. To make the organization environmental friendly.

13. To prepare for organizational change.

14. To have better coordination and understanding within and outside of the organization.
15. To ensure leadership/managerial effectiveness.

TYPES OF ORGANIZATIONAL ENVIRONMENT

INTERNAL ENVIRONMENT

The internal environment means that environment composed of the forces and conditions
within the organization. Internal environment is a product of internal forces and conditions. It
influences the behavior and actions of the individual in the organization.

Hereunder, are the components of internal environment of an organization:

1. Vision, mission and goals of the organization.

2. Philosophy and core values of the organization.

3. Policies, rules and regulations of the organization.

4. History, culture and tradition of the organization.

5. Organizational structure and composition of management of the organization.

6. Authority and relationships in the organization.

7. To evaluate the plans under executions.

8. Physical assets and production facilities of the organization.

9. Research and development and technical strengths of the organization.

10. Financial stability of the organization.

11. Product/s and/or services quality produced by the organization.

12. Market standing and brand equity of the organization.

In other words, internal environment is largely controllable. Thus, managing the internal
organizational environment is not a serious problem. However, it is very challenging for the
managers to harmonize all the components of internal environment.

EXTERNAL ENVIRONMENT

The external environment consists of the forces and conditions outside the organization. As
such, it influences the actions and behavior of the entire organization.

The external environment of an organization can be classified into several forces:

Micro, Direct-action or task Environment:

The micro environment consists of the activators within the immediate environment of the
organization. This external environment directly the performance of the organization. It is also
known as the direct-action environment.

There are ten components of micro, direct-action or task environment:

1. Shareholders

2. Consumers

3. Labor/trade unions

4. Suppliers

5. Markets intermediaries

6. Banking institutions

7. Creditors

8. Government Agencies

9. Non-government organizations

10. Competitors

11. Macro, indirect-action or General Public Environment:

12. The term macro means the environment composed of all those major forces and
conditions that affect the organizations activities and behavior. Such an environment
provides opportunities and poses threats to the organization. The components of macro
environment are: economic; social; cultural; religious; political; legal; technological;
educational; international; etc.etc

13. Macro environment is sometimes classified into economic and non-economic

environment. Economic factors of macro environment constitute economic
environment whereas the other factors of macro environment constitute non-economic
environment.

The main components of macro environment are the following:

1. Economic Environment:
 This refers to the economic factors and forces that have economic effects on
organization. Such environment effects the direction and working of organizations.

The following forces of economic environment are as follows:

Economic system, whether capitalistic, socialistic, communistic or mixed economic

system.

Stage of the economy, whether developed, underdeveloped or undeveloped.

Present state of economic or trade cycle, price level and rate of inflation.

Economic structure: the structure and sources of national income, income distribution
pattern, rate and growth of GNP, per capital income, export-import and balance of
payment position, stock of foreign exchange, etc.

Economic planning such as Five Year plans, annual budgets, etc.

Economic policies including, industrial policy, licensing policy, banking policy, fiscal
policy, agricultural policy, taxation policy, labor policy, civil service policy, etc. etc. These
policies have far reaching effects on organizational environment.

Economic laws, including the companies law, business law, competition law, banking
law, law relating to securities and stock exchanges.

Other factors including the following:

- Disposable income with consumers.

- Conditions of resource market: money market, human resource market, raw

material market, services and supply markets and so on.

These factors form economic environment of an organization and these factors

influence the performance of all organizations. These factors decide the supply of
inputs, their costs, quality availability and reliability of supplies and performance of
organizations.

2. Market or Competitive Environment: Market environment directly affects the

success and failure of business organizations.

The following components of market environment are:

Customer or client factors such as needs preferences, attitudes, values, bargaining

power, buying motives and psychology and so on.
 Product factors such as demand and image products, features, design, utility, cycle, rice
differentiation, etc. etc.

Distribution factors such as channels of distribution or middlemen, level and quality of

customer service, transportation system and its costs, delivery system etc. etc.

Promotional factors such as promotional measures and promotional mix, advising and
promotion media and methods and so on.

Competition related factors such as different forms of competition and competitors,

nature and competition, and relative strategic position of major competitors.

3. Technological Environment
- is the most dynamic of all the environment factors. It refers to the forces that help
transformation of organizational resources into goods and services. It is concerned
research and development, innovations and product, process technology and dynamics
of product

The components of technological environment are the following:

Technological development, change and frequency of change of technology

Research and development in product and production processes

Cost of technology acquisition and collaboration in technology

Development of new synthetic materials

Speed of transfer of technology between the nations and the absorption

Search and use of new sources of energy such as: automatic power, solar power
and others

Development of machines operated through computers and robots

4. Political Environment
- has a great role on the growth and development of business organization. It
establishes an environment which may be pro-business or anti-business

The following components of political environment are:

Political ideology of the government democratic, autocratic, socialistic,

communist and militaristic

State of political development

 Structure of the government

Foreign policy and relations

Government policies with regards to social and economic organization

Political Stability

The degree of politicalization of business and economic issues

5. Legal or Regulatory Environment

- The below-mentioned form the legal or regulatory environment of an organization.

The following components of the Legal environment are:

Constitutional mandates

Business laws

Corporate and economic laws

Industrial and labor laws

Pollution control laws

Environment Protection laws

Judicial system and judiciary

Taxation system and laws

Economic policies such as: industrial policy, licensing policy, foreign investment
policy etc.

6. Socio-Cultural Environment
- is the environment of society as a whole

The following factors of Socio-Cultural environment are:

Demographic characteristics such as: population, its density and distribution,

Composition of population such as: sexes, ages, classes, races, level of
educational attainment, religion, ethnic groups, etc.

Degree and rate of urbanization, rate of rural-urban mobility, and income

distribution
 Social and religious organizations and their impact on society

Social traditions, customs and beliefs

Family structure and changes in it and family values

Standard literacy and education

Changing lifestyle and patterns and materialism in society

7. Historical Environment

Consists of events, thoughts, work practices that have taken place in the past. Past
events, thoughts, practices always influence the present and future of the organization

8. Natural or Physical Environment

Is created by geographical, ecological, and physical factors. Weather, climatic

conditions, topographical factors, geographical location and natural resources.

9. Global Environment

It greatly affects the organizations engaged in business operations. Global environment

is the result of the relationship between and among countries and their trade policies
and agreements.

CHAPTER 6
THE NATURE AND FORMS OF COMMERCIAL
ORGANIZATIONS
Introduction
Commercial organizations may be classified into three (3) general classifications:
1. Private Individuals ownership
2. Public or government ownership
3. Mixed ownership

Private commercial organizations or business enterprises may take the following

forms of ownership:

1. Individual or sole proprietorship- a business owned by one person. This form of

ownership is small, requires but little amount of capital and is readily established
under the control of one person. The owner of the business has total and
unlimited personal liability of the debts incurred by a business. Should it prosper
the, all the profits accrue to the owner. The individual or sole proprietorship
refers to an individual who owns, manages, assumes all risk and derives all the
products or profits from a business.

An individual or
sole proprietorship is not a separate legal entity like a partnership or a
corporation. No legal formalities are necessary to create a sole proprietorship, oth
er
than appropriate licensing to conduct business and registration of a business nam
e
if it differs from that of the sole proprietor. Because a sole proprietorship is not a
separate legal entity, it is not itself a taxable entity.

For working capital, a sole proprietorship is generally limited to the individual

funds of the sole proprietor, along with any loans from outsiders willing top
provide extra capital. During her lifetime, a sole proprietor can sell or give away
any asset because the business is not legally separate from the sole proprietor.
At the death of the sole proprietor, the business is usually dissolved. The
proprietor's estate, however, can sell the assets or continue the business.

Advantages of Individual or Sole Proprietorship

Easiest to establish.
Easiest to terminate.
Small amount of capital is required in starting the business
Presence of personal element in managing the business.
Freedom and immediate action and control in operating the business.
Ownership of all profits
Tax savings
Minimum legal requirements
High credit standing.
Business Secrecy

Disadvantages of Individual or Sole Proprietorship

Limited amount of capital.
Lack of continuity.
Limited judgment or wisdom.
 Unlimited liability.
Difficulty of management.
Limitation in business size.
Limited opportunities of employees for promotion.
Difficulties in managing the day-to-day business operations.

Organizing or Creating Individual or Sole Proprietorship

No special legal procedures, permits or licences are required. The business can be
as large or small as the owner desires. There can be any number of employees,
additional management may be hired and property may be even co-owned with
others.

Income Taxes
The owner of a business organized as a sole proprietorship pays income taxes on
any business profit at the tax rates in effect for individual or joint returns. Check
with your locality to learn about sales tax collections. You may be required to
collect sales taxes on the goods and services you sell and to turn over your
collections to the state, as well as to report on collections on sales tax returns.

2. Partnership- is a form of business organization where in two or more people

function for a common goal of making profit. It is governed by set of rules called
the Uniform Partnership Act. that states th distribution of equality between
partners in everything including management decision unless there is a written
agreement specifying different arrangements between partners.

A partnership in the commercial and legal language of most countries has

following major features:
1. It has to be formed by 2 or more persons.
2. The owners are all personally liable for any legal actions and depts the
company may face.
3. It has to be created by agreement, proof of existance and estoppel.

Characteristics of partnership
Three basic characteristics of a partnership are:
a. Profit and Loss: The sharing of the business profit and loss
b. Property of Assets: Shared control property
c. Management: Shared management of the business.
General legal agrement of patners:
1. Each person involved participates in management decisions.
2. Assets are owned jointly.
3. Sharing of Profits and Loss.
4. The parties (or business) operate under a firm name.
5. The parties have joint bank account for doing business transactions.
6. The parties keep a single set of business records.

A business will no longer be a partnership if any party does not form part of the
business agreement. And besides all the general legal agreement there are other
things to be considered by any potential partner:
a. Legally, each partner has an equal voice in management control, and majority
of the partners must control the business unless otherwise stated in the legal
agreement.
b. Each partner has an equal right to possession and control of the partnership
assets/property for carrying out business of the partnership.

c. Unless otherwise stated, profit and losses are divided according to the specific
agreement (i.e. any withdrawals and wages that a partner receives must be
treated as advances on his/her share of profit)
d. Although the partnership business does not pay taxes, it must file income
information and must therefore have its own records for income tax purposes.
The partners then pay individual taxes on their share of the partnership income.

Types of Partnership
There are two (2) typical classifications of partnerships:
Ordinary or General Partnership
Limited Partnership
Differences between General and Limited Partnerships:
-Limited partners cannot participate in the management of the partnership
business.
-Financial liability to partnership debts and obligations is limited to actual
investment of partners in the partnership.
-The liability of general partners can extend even to their personal assets.
Limited partnership is similar to a general partnership, except that in addition to
one or more general partners (GPs), there are one or more limited partners (LPs)
The GPs are , in all major respects, in the same legal position as partners in a
conventional firm.
Like shareholders in a corporation, the LPs have limited liability. The GPs pay the
LPs the equivalent of a dividend on their investment, the nature and extent of
which is usually defined in the partnership agreement.
Limited partnerships are distinct from limited liability partnerships, in which all
partners have limited liability.

Creating a partnership
Partnership can be created by oral or written agreement. But partnerships are
created by oral agreement tends to have more problems than written partnership
agreements. The most important problems needed to be spell out before a
partnership can start are:
1.how are all the business cost shared; and,
2.how are all business revenues shared.

The written agreement should cover at least the following points:

1.Management.
Persons responsible for which management decisions and how will they be
made.
2. Property Ownership and Contribution.

List of the property each partner will contribute to the partnership and describe
how it will be owned.
Property may be owned by the partnership, or the partners may retain ownership
of their individual property and rent it to the partnership. When the partnership
itself own property, any partner may sell or ispose any asset without the consent
and permission of the other partners. This aspect of a partnership suggests that
retaining individual ownership may be desirable in some cases particularly if it
does not affect the use of the asset by the partnership.

3. Share of Profits and Losses- The method for calculating profits and losses and
the share going to each partner should be carefully described, particularly if there
is an unequal division. Profits are generally divided in portion to the value of the
assets, labor, and management contributed to the business.
4. Records- Records are important for the division of profits and for maintaining
an inventory of assets and their ownership. Who will keep what records should be
part of the agreement.
5. Taxation- The agreement should contain a detailed account of the tax basis of
property owned and controlled by the partnership and copies of the partnership
information tax returns.
6. Termination- The agreement should contain the date the partnership will be
terminated if one is known or can be determined. A partnership can be
terminated in a number of ways. The partnership agreement may specify a
termination date. If no duration is fixed by the agreement any partner may
terminate the partnership at will. If not, a partnership will terminate upon the
incapacitation or death of a partner, bankruptcy, or by mutual agreement that
allow the deceased partner's share to pass to the estate and hence to the legal
heirs.
7. Dissolution- The termination of the partnership on either a voluntary or
involuntary basis requires a division of partnership assets. The method for making
this division should be described to prevent disagreements and an unfair division.
Partnerships cannot succeed unless partners have trust and faith in each other's
ability to make sound business decisions.

Terminating a partnership
A partnership can be terminated by the following:
1. Agreement - Between the partners or by operation of law. Usually termination
under agreement comes to an end when the duration term or business is finished.
2. At will - If no duration is fixed by the agreement, any partner may terminate
the partnership at will .
3. Operation of Law - Dissolution by operation of law occurs in the event of death,
bankruptcy, or incapacity of any partner.

Advantages of Partnership
A partnership has several advantages over the individual or sole proprietorship as
follows:
1. It could be as easily establish as the sole proprietorship.
2. It has definite legal status.
3. There are more persons to manage the business and to solve its problems.
4. There is larger amount of capital.
5. Retention of valuable employees is ensured.
6. The combined abilities, skills, and resources of partners are great source of
strength.
Disadvantages of Partnership
1. Unlimited liability of the partners
2. Managerial difficulties
3. Inevitable disagreement among patterns may endanger the business firm
4. Limitation in size
5. Frozen investment
6. Lack of continuity
7. Easy dissolution
Advantages of Limited Partnership
1. There is a single direction of management; hence, there is unity and immediate
decision and action.
2. The limited liability of limited partners, shall serve as good enticement of
investors resulting in larger amount of capital to expand business operations.

3. Corporation- There are more and more group of individuals who are
establishing corporation as a preferable form of conducting business. Maybe the
main reason for this trend lies in the great advantages which the corporate firm
possesses over all the other
business ownerships.

Definition of a Corporation
"A corporation is an Artificial Being created by operation of law, having the rights
of succession and the powers, attributes, and properties expressly, authorized by
law or incident to as existence."

Attributes:

It is an Artificial Being
It Is created by law
It has the right to succession

It has the powers, attributes, and properties expressly authorized by law of

incident to a existence. Different classification of Corporation classified by law

1. Public or Private
 Public corporations are those organized for the government of a portion of
the state. It's objective is the general good or welfare
Private corporation are those formed for some private purpose, benefits,
aim or objective, or profit.
2. Private corporations may be divided into stock corporations and non-stock
corporations
Stock corporations are those whose capital stock are divided into share and
a shareholder or stockholder is issued a certificate of stock which entitle
him to certain portion of the projects or dividends.
Non-stock corporations are those that do not issue shares of stock to
members, such as religious, civic, or charitable organizations

Other kinds of corporations may be grouped into:

1. Quasi corporations. Those are business firms that are not absolutely
corporations but are considered as a corporation.
2. Quasi-public corporation. Is one that engaged in rendering basic services of
such public importance as to entitle it to certain privileges like the use of public
property
3. Gevornment-owned or controlled corporations. Those established by
government or corporations of which the government or corporations of which
the government is the majority stockholder.
4. Dejure and de factory corporations. The term de facto corporation is used to
designate associations exercising corporate powers under color of a more or less
legal organization. A Dejure corporation is one created in strict or substantial
conformity with the statutory requirements for incorporation; and whose right to
ewist as a corporation cannot be successfully attacked even in a direct proceeding
for that purpose by the state.
5. Domestic and foreign corporations: a domestic corporation is one incorporated
under Philippine laws; a foreign corporation is one established under any laws
other than those in the Philippine territory.
6. Corporation aggregate and corporation sole: a corporation aggregate is one
composed of more than one member. A corporation sole consists of one member
and his successor.
7. Eleemosynary and civil corporation: an eleemosynary. Corporation is one
established for charitable purposes. A civil corporation is that not ecclesiastical
and eleemosynary whether public or private.
8. Ecclesiastical and lay corporation: an ecclesiastical corporation is a religious
organization. A lay corporation is established for a purpose other than religion.

4. Cooperatives - comes from the french word Cooperari The word Co means
With and Operari means Work, It delineates the concept of Working
together. The social concept shows a process of working together and thinking
together to achieve and enjoy the best of life.

It signifies the voluntary assent of people to form themselves into a group for the
promotion of their common needs by mutual action, democratic control and
sharing economic benefits on the basis of patronage by members. It is a business
enterprise, like any other business, which has as its primary aim, the promotion of
the economic welfare of its members.

Republic Act No. 6938 An act to Ordain A Cooperative Code of the Philippines.
Cooperative as a duly registered association of persons, with a common bond of
interest, who have voluntarily joined together to achieve a lawful common social
or economic end, making equitable contributions to the capital required and
accepting a fair share of the risks and benefits of the undertaking in accordance
with universally accepted cooperatives principles.

Principles of Cooperatives
Open and Voluntary Membership. Membership in a cooperative shall be
voluntary and available to all individuals regardless of their social, political,
racial or religious background or beliefs.
Democratic Control. Cooperatives are democratic organizations. Their
affairs shall be administered by persons elected or appointed in a manner
agreed upon by the members. Members of primary cooperatives shall have
equal voting rights on a one-member-one-vote principle: Provided
however, that in the case of secondary and tertiary cooperatives, the
provisions of Article 37 of this Code shall apply(voting system)
Each member of a primary cooperative shall have only one (1) vote. A
secondary tertiary cooperative shall have voting rights as delegate of
 members-cooperatives, but such cooperatives shall have only five (5) votes.
The votes cast by the members thereof.
No voting agreement or other divide to evade the one-member-one-vote
provisions, except as proceeded under subsection (1) hereof, shall be valid

Types and Categories of Cooperatives

1. Types of Cooperatives.
Credit Cooperative is one which promotes thrift among its members and
creates funds in order to grant loans for productive and provident
purposes.
Consumers Cooperative is one whose primary purpose is to procure and
distribute commodities to members and non-members
Producers Cooperative is one that undertakes joint production whether
agricultural or industrial.
Marketing Cooperative is one which engages in the supple of production
inputs to members and markets their products.
Service Cooperative is one which engages in medical and dental care,
hospitalizations, and transportation, insurance, housing, labor, electric light
and power, communication, and other services.
Multi-Purpose Cooperative is one which combines two (2) or more of the
business activities of these different types of cooperatives.

2. Categories of Cooperatives.
Cooperatives shall be categorized according to membership and territorial
consideration as follows:
(1) In terms of membership, cooperatives shall be categorized into:
A. Primary: The members of which are natural persons
B. Secondary: The members of which are primaries
C. Tertiary: The members of which are secondaries upward to one or more
apex organizations.

Those cooperatives the members of which are cooperatives shall be known

as federations or unions as the case may be.
(2) In terms of territory, cooperatives shall be categorized according to
areas of operations which may or may not coincide with the political
subdivisions of the country.
Basic Concepts of Communication (7)
The number one problem of management today is communication. Alvin Dodd

The Definition of Communication

Communication is information that flows and transfers meaning and understanding from an
information source, which is the sender, to an information receiver. -Robert Albanese

Communication is the process of passing information and understanding from one person to
another person. -Keith Davis

Communication is the process of meaningful interaction among human beings. It is the

process by which meanings are received and understandings are reached among human beings.

-McFarland

Communication is the exchanging of facts, ideas, opinions or emotions by two or more

persons.

-Newman and Summer

Communication involves the transfer and understanding of meanings. -Robbins and Coulter

Communication is the interaction between persons which includes the exchange of

information, ideas, emotions, and understanding between persons. Qureshi

Characteristics of Communication
Inter-active process

Two-way process between sender and receiver. Includes exchange of ideas to promote
understanding and goodwill.

Social process

Dynamic social process

Involves at least two persons, the receiver and the sender

Should be properly planned to reach the target audience

Should be performed by managers and employees

Aims to extract desired response or data from the receiver

 Message expressed through words, data, symbols, body language, pictures, figures and
sounds.

May be oral, written or gestural

May be directed downward, upward, horizontally or on the same level

The end result of communication is to attain harmony, understanding and cooperation in the
organization

Objectives and Goals of Communication

According to John G. Clover:

1. To keep employees well-informed.

2. To provide employees with proper orders and instructions in relation with their duties and
responsibilities.

3. To gather information from employees who may help management in decision making
processes.

4. To make every employee interested in his/her job and enjoy working in the company in
general.

5. To express managements interest and satisfaction in its personnel.

6. To reduce fast turn-over of personnel

7. To motivate employees with the will to work and with the benefits obtained from their
employment with the company.

8. To instill every employee with personal pride and joy being a part of the company.

Importance of Communication

According to M.U. Qureshi:

1. Facilitate efficient functioning of the enterprise

2. Ensures proper planning

3. Facilitate sound decision-making

4. Heart of the process of organizing

5. Ensures effective staffing

6. Essential for leading people

7. Enhances motivation and morale

8. Facilitates good coordination

9. Effective control requires sound communication system

10. Promotes democratic management of the organization

11. Ensures sound human and industrial relations

12. Promotes goodwill, understanding and the good image of the organization

13. Avoids illusion and ignorance

14. Facilitates organizational change

THE COMMUNICATION PROCESS

-The communication process is the method by which a sender reaches a receiver.

Six Steps:
Develop an idea- The first step is to develop an idea or thought that the sender wishes to
convey. Unless there is a worthwhile message to transmit, all other steps will become useless.

Encode- The idea is to put into suitable words, charts or other symbols for transmission.

Transmit- Transmission by method chosen is the next step. The channels of communication
should likewise be determined together with proper timing in sending the message.

Receive- At this point the message is transferred to the receiver who tunes it up to receive it.
Without an effective reception, the message fizzles out into nothingness.

Decode- The message is then decoded so that it can be understood. The senders intention is
for the receiver to understand in full the messaged conveyed.

Use- The final step in the process is for the receiver to use the communication, either by
ignoring it, performing the task called for, storing the information or doing otherwise, as
directed.
The Rule of Five- There are two steps (2) additional steps desired by senders, which are,
however, not needed to complete a communication. These are acceptance and feedback to the
sender regarding the message.

The enter set of Five (1) receiver steps: (1) receive, (2) understand, (3) accept, (4) use, and (5)
feedback. These are the Rule of Five of communication.

FOUR (4) TYPES OF COMMUNICATION NETWORKS

1. Chain Network. Communication is a vertical line from top to bottom and bottom to top
of the organizational hierarchy.
2. Circular Network. Communication moves in a circular way. Every individual can
communicate with the person on his immediate right or left but not with any other
person in the organization or group.
3. Wheel or Star network. This refers to a network which the members of an organization
usually do not communicate directly with each other. They usually communicate with
other members through one superior or manager like the hub of the wheel.
4. Free-flow or Decentralized or All Channel Network. This type of communication
network is one in which lines are not structured. Every member of the organization can
communicate freely and frankly with all other members.

THE CATEGORIES OF COMMUNICATION

1. On the basis of organizational structure;
2. On the basis of direction; and,
3. On the basis of mode of expression.

Communication On the Basis of Organizational Structure

1. Formal Communication; and,

2. Informal Communication or grapevine

The Formal Communication

Formal communication means the communication which travels through the formally
established channels. It establishes the single path of communication channels which link the
various positions. Formal communication may be upward, downward and horizontal or on the
same level of organization hierarchy.

The Advantages of Formal Communication

1. It ensures orderly flow or communication

 2. It helps in maintaining the lines of authority in the organization
3. It helps in maintaining direct contact with subordinates.
4. It helps in the fixation of responsibility and accountability
5. It helps in maintaining discipline.

The Disadvantages of Formal Communication

1. It is time-consuming
2. It obstructs free and accurate circulation of information in an organization
3. It lacks personal contacts and leadership
4. It creates a bottleneck in the flow of information because all information is channeled
through a single executive
5. There is the possibility of distorting facts when the message passes through various
levels
6. The filtering of facts is possible in upward communication, since a person working in a
subordinate capacity is likely to report to his superior.

The Informal Communication (Grapevine)

Informal communication takes place on the basis of informal relations between the members of
a group. It is basis on the basis of personal communication in nature and not a formal
communication. Informal communication is sometimes referred to as grapevine. It transmits
information about what people are doing. It often leads to rumors in the organization.

Keith Davis Identified four (4) networks in transmitting information through the grapevine:

1. Single Strand. One and one person communication

2. Gossip Chain. Every member of the informal group talks with everyone and it is usually
about personal matters.
3. Probability Chain. Communication of information is done randomly.
4. Chester Chain. Grapevine communication generally operates like a chester chain.

The Advantages of Informal Communication

1. It is faster in speed than formal communication

2. It is more flexible
3. It is dynamic and reacts quickly according to the change of time
4. It is a powerful tool of communication
5. It helps improve decision-making

The Disadvantages of Informal Communication

 1. It carries inadequate information
2. It promotes gossips and spreads rumors
3. It is hard to identify the source of information
4. It may create misunderstanding and confusion
5. Information may mislead personnel

Communication On the Basis of Direction

1. Downward Communication;
2. Upward Communication;
3. Horizontal Communication; and
4. Diagonal Communication

Downward Communication is one that flows from top to bottom or from superior to
subordinates down the lines of the organizational structure. According to Katz and Kahn, the
following are the objectives of the downward communication.

1. To give specific task directive about jobs;

2. To give information about organizational procedures and practices;
3. To provide information about rational of the job;
4. To tell the subordinates about their performance; and
5. To provide ideological type information to facilitate goals

The Advantages of Downward Communication

1. It helps in explaining company vision, mission, objectives and goals, policies, rules,
procedure, projects and tasks to the subordinates.
2. It helps to coordinate and integrate levels of management in the organizational
structure.
3. It helps managers to use their authority and power effectively and efficiently.
4. It helps management to introduce organizational change.
5. It eradicates misunderstanding and doubt between management and workers.

The Disadvantages of Downward Communication

1. Information might be filtered because it passes through several levels of management in

the organizational hierarchy.
2. Inaccurate information might prevail because of the senders carelessness, poor
communication skills, decoding and distortions.
3. Sometimes it is time-consuming because it passes through several levels of
management.
 4. Some executives at various levels tend to filter information for their personal interests.

Steps to Improve Downward Communication:

1. The message must be specific, clear and vivid

2. It should be time-bound
3. It should be in line with duties, responsibilities, capabilities, authorities and
accountabilities of the receiver
4. It should be in accordance with the organizational vision, mission, objectives and goals
5. It should be within the organizational policies, rules and regulations

Upward Communication is one that flows from bottom to top management or from
subordinates to superiors along with the chain of command in the organizational hierarchy.

The Advantages of Upward Communication

1. It provides feedbacks from the workplace or field

2. It enables managers to know the progress of the project done by the subordinates
3. The subordinates can express their problems, grievances and appeals to management
4. The subordinates can be innovative and creative
5. It increases receptiveness of communication

The Disadvantages of Upward Communication

1. Subordinates may not provide the complete details of the information

2. Subordinates may forward favorable information regarding their interest
3. Superiors usually do not allow subordinates to forward information directly to them
4. Distorted communication may be forwarded by some subordinates

The Horizontal or Lateral Communication refers to the communication between personnel of

the same level or position. The objective of horizontal communication is to promote good
coordination and integration among the different departments or offices.

The Advantages of Horizontal Communication

1. Better coordination and integration among offices or departments

2. Personnel on the same level shall be encouraged to share or exchange vital information
3. There shall be joint efforts in the solving of problems
4. It develops favorable working environment
5. Inter-department conflicts can be solved easily

The Disadvantages of Horizontal Communication

 1. Sometimes it is hard to get the willingness of other personnel to share information
2. Differences of visions, experiences and approaches may distort the information
3. Usually, personnel may tends to suppress information which is disadvantageous to the
organization

The Diagonal Communication refers to the communication between people who are neither in
the same department nor on the same level of organizational hierarchy.

Kinds of Communication Based on the Mode of Expression

1. Written Communication
2. Oral or Verbal Communication
3. Gestural or Non-Verbal Communication

Written Communication is expressed through written words. It may be expressed through

groups, charts, diagrams or pictures with or without words. It may be in the form of letters,
circulars, notes, memoranda, reports, pamphlets, brochures, handbooks, manuals and others.

The Advantages of Written Communication

1. All concerned have the same information

2. It is a permanent record of information
3. It is an effective means of communicating lengthy messages
4. There is no alteration in the messages
5. It is an effective means of exchanging information at distant places

The Disadvantages of Written Communication

1. It is more expensive
2. It is more time-consuming
3. There is no secrecy
4. Correction cannot be done easily once the communication is already released
5. There is no personal touch

Two Shades (Oral or Verbal) Communication is expressed through words-of-mouth or spoken

words. It may be in the form of face-to-face conversation or through any electronic mode such
as telephone, cellular phone, intercom and other means. According to Haimann, The human
voice can impart the message with meaning and shading which even long pages of written
words simply cannot convey

The Advantages of Oral Communication

1. It is more economical than written communication

 2. It is faster and reaches the target audience more easily
3. It promotes personal touch and leads to better understanding and goodwill
4. In case of errors, immediate corrections can be made
5. In case of doubts, immediate clarifications can be requested

The Disadvantages of Oral Communication

1. It is less reliable than written communications

2. It is sometimes distorted
3. There are no records for future references
4. There is no sample time to think before conveying the message or information
5. It presents regional language problems

The Gestural (Non-Verbal) Communication is a mode of communication through postures or

gestures of the different parts of the body, such as movement of the lips, wink of an eye, the
wave of hands, movement of heads, facial expressions, tone of voice, and any other movement
of body or body parts which may be used to transmit the message. Non-verbal mode is
considered as one of the effective modes of communication.

THE COMMANDMENTS OF GOOD COMMUNITY BY THE AMERICAN

MANAGEMENT ASSOCIATION
1. Seek to clarity your ideas before communicating.

2. Examine the purpose of each communication.

3. Consider the total physical setting, whenever you communicate.

4. Consult with others, where appropriate, in planning the communication.

5. Be mindful while you communicate of the overtones as well as the basic content of your
message.

6. Take the opportunity, where it arises, to convey something of help or value to the receiver.

7. Follow-up your communication.

8. Communicate for tomorrow as well as today

9. Be sure that your actions support your communications.

10. Seek not only to be understood but understand.

BARRIERS TO EFFECTIVE COMMUNICATION
Poor Expressed Message.

Complex Organization Structure.

Status Barriers.

Filtering Information.

Semantic Barriers

Language Barriers

Different Backgrounds

Emotional Attitude

Undisclosed Assumption

Inadequate Attention or Half-Listening

Barriers Due to Lack of Mutual Trust

Resistance to Change

Mechanical Barriers

STRATEGIES TO EFFECTIVE COMMUNICATION

Clarity and Completeness

Proper Language

Proper Channel or Medium

Sound Organization Structure

Training and Development of Employees

Effective Listening

Consultation and Participation

Motivation, Mutual Trust and Confidence

Integrity Factor
 Use of Formal Communication

Effective Feedback Mechanism

Proper Gesture and Tone

EFFECTIVE LISTENING
-Effective listening enables the receiver take exactly the idea that a sender wishes to
convey

Suggestions for Effective Listening

Stop talking

Put the talker at ease

Show the talker that you want to listen

Remove distractions

Empathize with talkers

Be patient

Hold your temper

Go easy on argument and criticism

Ask questions

Stop talking

CHAPTER VIII: MOTIVATION

In management, they must therefore strive to provide it;s workers with a working
climate that motivate its workers. This is actually a process of give and take.
Within the management, dont expect a worker to give his best shot when the
management dont give importance to what satisfies them. Its the managements
taks to activate a mans motive in a positive way to achieve performance.

What is MOTIVATION?
-Came from the word MOTIVE. (meaning to satisfy a need, expression of personal
needs and internal in the nature)

-The need or reason that makes a man do more work.

-The strength of drive towards action.

Other meanings of Motivation:

To McFraland motivation is, Concept of motivation is mainly psychological. It

relates the forces operation within the individual personnel that impel him to act or
not to act in certain ways.

To Dale S. Beach motivation is, The willingness to expand energy to a goal or a

reward.

To William G. Scott motivation is, Process of stimulating people to act

accomplish desired goals.

To Kreitner motivation is, A psychological process that gives behavior, purpose

and direction.

To Mondy motivation is, The willingness to put forth effort in the pursuit of
organizational goals.

To Terry and Franklin motivation is defined as, A need or desire within an

individual that drives him toward goal-oriented action.

A process that starts with physiological deficeincy or need that activates behavior
or a desire that is aimed at a goal or incentive.

The act of stimulating someone or oneself to get a desire course of action

Two types of needs:

-Basic psychological needs or primary needs. These are things needed for
survival like food, water, sex, sleep and air to breathe.
-Social and psychological needs or secondary needs. A need that differs among
people. Its likewise a need of change according to time, circumstances and
sometimes being affected by someone else training, culture and environment.

*Secondary needs posses the following characteristics:

They are strongly influenced by experience.

They vary in type and in degree of intensity among people.

They easily change among individuals.

Needs exist in groups rather in isolation.

They are often hidden from ones conscious recognition.

They are non static feeling unlike tanguble physical needs.

They greatly influence behavior.

MASLOWS NEED APPROACH

Abraham Maslow, attempted to do research about human motivation. Maslow

posted a hierarchy of human needs based on two groupings: Deficiency needs and
growth needs.

Maslow first published this conceptualization over 50 years ago. It has become the
most popular and often cited theories of human motivation. In spite his lack of
evidence to support the hierarchy , it enjoyed a wide accpetance.

8 LEVELS OF NEEDS ACCORDING TO PRIORITY

Psychological: hunger, thirsts, bodily comforts, etc.

Safety/security: out of danger.

Belongingness and Love: affiliate with others, be accepted.

Esteem: to achieve, be competent, gain approval and recognition.

Cognitive: to know, to understand, to explore.

Aesthetic: symmetry, order and beauty.

 Self actualization: to find self fulfillment and realize ones potential.

Self-transcendence: to connect to something beyond the ego or to help

others find self fulfillment and realize potential.

How do you know youre in this stage of the hierarchy:

People seeking to meet belongingness are in for enlightening information.

Belonging needs must be met in his place of work as well as outside of it.
People on the esteem level are in for empowering information. Like looking for
info on how their ego can be developed. A level of the hierarchy where a man will
gain self-respect and respect for others.
People from the aesthetic, cognitive and self-actualization seek on edifying
information. It enables people to choose occupations they like and get satisfaction
from.
People on the safety need level are affected by the environment. To men needs,
they are satisfied through economic activities.
Physiological needs generally have limitations. If gone beyond limits, it might be
harmful or detrimental.

The difference between achieving the Higher-order needs and Lower-order

needs:

Higher Order Needs:

- prominent in advanced societies.
-these are social and self needs.
-these are satisfied through symbolic behavior, that is, one attaches meaning to his
experiences and derives satisfaction from his feelings about them.

Needs and Priorities at Work

 Managers and professionals values self-realization, thats why service and
manual workers value job security most highly.

Blue collar- workers; working-class person historically defined by hourly

rates of pay and manual labor. They value most highly job security, good
working, conditions and high wages, all under the lower-order needs.

Government employees, eg. Supervisors. They most likely emphasize

security and belongingness.

White-collar workers; a person who performs professional, managerial, or

administrative work. Performs in an office, cubicle, or other administrative
setting. These people are no more concerned with self- actualization needs.

Employees Wants

WANTS

- Derived from needs.

- Motivating factors conditioned

by the environment.

- Indicators of actions to take in

developing incentives.

NEEDS

- Causes of action

Graphic Rating Scale

The graphic rating scale employs a chart or graph containing a list of traits to be taken into account in
rating employees.
The profile of the employee's performance appears, when a connecting line is drawn between the marks in
the completed rating form.

Cheklist Method
This rating method provides a number of traits or factors with their corresponding definitions written in
the left-hand side of the form. Opposite each trait or factor, a horizontal line is drawn representing a scale
divided into 4 or 5 parts indicating varying degrees of performance.
The rater checks the statement which most nearly describe the performance of employee being rated.
Advantages of Checklist Method
-The criteria are specific
-The "halo effect" in rating is avoided, that is, an employee is not rated on the basis of the general
impression of the rater
-By not indicating the weighted points on the rating form, influencing the rater is avoided
-The statement checked in the form can be the basis for counseling between the superior and the
employee
-Comparison of performance ratings between groups of employees is made possible.
Disadvantages of Checklist Method
-The same word or description may not mean the same to all the raters;
-The likelihood of committing the error of central tendency.

Rating Scale Method

There are two types:
Continuous type - opposite each factor is a straight line, one end of which represents the maximum degree
and at the other end, the minimum degree
Discontinuous type - alternatively reversing the poor-excellent degree progression

Weighting
Some firms assign weight or numeral values to each trait. Ratings such as excellent, good, average, below
average and poor are generally given by the rater.

Management by Objectives (MBO)

Introduced by Peter Drucker
It is a process whereby:
- the managers of an enterprise jointly identify their common problems
- define each individual's major area of responsibility
- and use theses measures as guide in operating the unit to the attainment of said goals

Developing an Appraisal Program

Appraisal program enables the employee to learn more about the duties and responsibility related to
his/her job; what constitutes satisfactory performance and how well he lives up to the standards of
efficiency.

Determining the Rating Accurancy

Ratings are valid if they accurately measure the employee's work performance
Ratings are considered realible if they are consistent

Common Errors in Ratings

Variance in the interpretation of factors
- It can be minimized or eliminated by providing the supervisors with a uniform training in applying
the appraisal system
Halo effect
- This takes place when the rater bases his appraisal on general impression rather than on the
employee's actual performance

Rewarding Performance
Three principal approaches:
1. Merit - employees may be rewarded for their loyalty, length of service or for their meritorious
performance. Merit wage increases stand a good chance of strengthening motivation
2. Seniority - it rewards an employee only for his individual difference as opposed to mutual interest.
Seniority wages hardly encourage greater productivity
3. Combination of merit and seniority

Using Economic Incentive System

Management can be said to "incentive" an employee rather than to motivate him to tie in with the
organizational objectives
David McClelland, a researcher on achievement motivation, believes that primarily people with low
achievement needs require money incentives to cause them to work harder. Persons with high
achievement motivation are driven to work by their need for achievement, even if their pay is merely
satisfactory.

Profit and Production Sharing

Profit-sharing is defined as the sharing with employees of the profits remaining after all regular cost have
been paid, including competitive wages and income taxes
Way of sharing the benefits of capitalism with employees
Intended to develop mutual interest among employees, management and stockholders.
Disadvantages of profit-sharing as viewed by employees
1. Profit-sharing is not directly related to the employee's effort on his own job
2. Rewards are received too long after work performance
3. There is always the possibility of having small profit or none at all.

Production-sharing Plans
Production-sharing plan is not based on profit, but rather, it allocates to labor cost as a percentage of the
total product cost pr the total peso sales.
In production-sharing plan, active cooperation between workers and managers is established.

Use of Wage Incentives

Studies have shown that about 25 percent of workers in manufacturing establishments are under incentive
plans.
Incentive plans generally increase productivity while decreasing unit labor cost.

Rate-setting
Rate-setting in incentive plans pertains to the determination of standard output for each job, which
becomes the operator's basis for a fair day's work.

Supervisor's Role
The supervisor is greatly responsible for keeping an established incentive plan working smoothly. The
supervisor has to be familiar with wage-incentive concepts and the details of his own plan.

Loose Rates
Takes place when employees are able to reach standard output with less than nornal effort.
Rate-cutting is considered to take place only when rate is adjusted to require more than the normal effort
on the part of employees to earn their regular pay.

Intergroup Work Relations

Day workers are paid according to the service they render rather than on their amount of production or
output.
Incentive workers earn more for their increased output whereas day workers do not increase their income.

Restriction of Output
Restriction of output, by which workers limit their production is a difficulty experienced with wage
incentives because it thwarts the purpose of incentive

Some Features of Wage Incentives

The wage incentives apparently apply to the worker's skills and effort, but not to his intelligence or
creative ability.

Complete Pay Program

Job evaluation has to do with rating the job in relation to another according to levels of responsibility.
Performance appraisal program and wage incentives have to do with rating an individual in terms of his
individual performance and for which he is given a reward.
Profit-sharing rates the organization, in terms of its general economic performance, rewards employees as
partners in the process of profit-making.

THE DEFINITIONS OF DECISION MAKING

According to Robert Harris: 1. Decision-making is the study of the identifying and choosing
alternatives based on the values and preferences of the decision maker.
2. Decision-making is the process of suffeciently reducing uncertainty and doubt about
alternatives to allow a reasonable choice to be made feom among them.
TYPES OF BUSINESS DECISIONS
According to Richard Bowett:
1.ProgrammedDecision
These are standard decisions which always follow the same routine. As such, they can be
written down into a series of fixed steps which anyone can follow.

2.Non-ProgrammedDecisions
These are non-standard and non-routine. Each decision is not quite the same as any previous
decision.

3.Strategicdecisions
These affect the long-term direction of the business firm. Strategic decisions are the highest
level. The decisions can be made by the Owners and Board of Directors.
4.Tacticaldecisions
These are medium-term decisions about how implement strategy. The decisions can be made
by the manager.
5.OperationalDecisions
These are the short-term decisions about how to implement tactics. The decisions are
mostly made by the employees.
KINDS OF DECISIONS
According to Robert Harris:
1.DecisionsWhether
This is the yes/no, either/or decisions that must be made before we proceed with the
selection of an alternative.
2.DecisionsWhich
These decisions involve a choice of one or more alternatives among a set of
possibilities, the choice being based on how well each alternative measures up to a set
of predefined criteria.
3.ContingentDecisions
These are decisions that have been made but put on hold until some conditions are
met.
THE DO'S AND DON'TS OF DECISION-MAKING
DO:
1. Be honest in identifying problems, setting goals and priorities, evaluating information,
etc.
2. Accept the responsibility for making decisions, in your life and in the job.
3. Use time wisely when you make decisions. Take as much time as possible without
creating more problems.
4. Have Confidence in your ablity to make good decisions and learn from mistakes.
DON'T:
1. Have unrealistic expectations for yourself; you are bound to make wrong decisions
sooner or later.
2. Make "snap" decisions unless absolutely necessary. Follow the process to a good
decision.
3. Take unnecessary action when the best course of action is to do nothing.
4. Fool yourself by choosing solutions that are easy and comfortable- but fails to
address the problem.

"Making a decision is easy- but making the RIGHT one requires skill and knowledge.
INTRODUCTION
Decision making is a vital part of business organization and management.
A good decision made in business operation is to expertise in analysing and
interpreting necessary data.
 Asking for help, accepting one was wrong and changing ones mind also helps in
decision making.
Managers can be developed and trained to make better decisions as long as they have
support from peers and superiors in case they commit wrong decision
Decision making and risk taking by organizational hierarchy:
Top management levels- grand strategic decisions about investments and the
direction of future growth of the whole company
Middle and Lower management levels- tactical decisions about how their own
department/section/unit may contribute most effectively to the overall objectives
and goals of the firm
Ordinary personnel- simple decision about the conduct of their own tasks,
responses to customers and improveents to business conduct ad
practices.(careful recruitment, selection and hiring, good training, programs, and
enlightened management.
Concepts of decision making
INFO- only the needed information must be obtained.
ALTERNATIVES- searching for pre-existing alternative will result in less effective
decision making
CRITERIA- advantages and disadvantages
GOALS- What is it that you want to accomplish? Which should i choose? What should i
do? What are my goals? These are the question that should be clarified in goal setting
VALUE- how desirable a particular outcome is, the value of alternative, whether in
pesos, satisfaction, or other benefits
PREFERENCE- reflect the philosophy and integrity of the decision maker
DECISION QUALITY- An evaluation of whether or not a decision is good or bad
A. The decision must meet the stated objective most thoroughly and completely
B. The decision must meet the stated objectives efficiently, with concern over cost,
energy and
C. The decision must take into account valuable by products or indirect advantages
ACCEPTANCE- select lesser quality decision that has greater acceptance. Only the
decisions that are implemented thoroughly will work the way they are intended to
QUALITY OF DECISION-MAKING
Good decision-making comes from the following:
1. Continuous training and development of managers in decision-making skills.
2. Complete good information about the problems and alternatives.
3. Management skills in analyzing information and handling its shortcomings.
4. Experience and natural ability in decision-making.
 5. Risks and attitudes to risk.
6. Human factors (emotional responses)
CONSTRAINTS ON DECISION-MAKING
Constraint means something that limits or restricts someone.
2 kinds of constraint in decision-making
1. Internal Constraints
These includes:
(1.) Availability of funds and resources- Some decisions are being rejected due to
limited funds and resources or the cost of the project is too much for the firm to
shoulder.
(2.) Existing Business Policy- These are policies that cannot just be revised; these need
further study and evaluation.
(3.) Peoples Abilities and Feelings- A decision cannot be taken if it assumes higher
skills than employees actually have, or if the decision is so unpopular that no one will
work properly on it.
2. External Constraint
These includes:
(1.) Constitutional mandate, laws, rules, and regulations.
(2.) Competitors
(3.) Lack of technology
(4.) Economic climate/ condition
(5.) Legislations
(6.) Lack of supplies (material and manpower)
THE DECISION-MAKING PROCESS
Organizations operate by people making decisions. A manager plans, organizes,
staffs, leads, and controls her team by executing decisions. The effectiveness and
quality of those decisions determine how successful a manager will be.
Managers are constantly called upon to make decisions in order to solve
problems. Decision making and problem solving are ongoing processes of evaluating
situations or problems, considering alternatives, making choices, and following them up
with the necessary actions. Sometimes the decisionmaking process is extremely short,
and mental reflection is essentially instantaneous. In other situations, the process can
drag on for weeks or even months. The entire decisionmaking process is dependent
upon the right information being available to the right people at the right times.
The following are the steps in making and implementing decisions as they apply
to business operations:
1. Recognize the problem- The decision-making process begins when a manager
identifies the real problem.
 2. Analyze the problem- Once the problem is identified, study it carefully to find
exactly what is causing it. (Brainstorming)
3. Consider your goals- Consider the goal you want to attain.