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Business Management
6.1 PRINCIPAL AND FUNCTIONS OF MANAGEMENT
Student “Manage” their Studies, Parents “Manage” a family and Business Tycoons “Manage” their
Business. We are involved in management i.e. of our own self, social and economic activities and
society at large.
The word “Management” derives its origin from a Greek Word ‘nomos’ which means management.
Management can be divided as ‘Manage-men-t’ (i.e. manage-men- tactfully). It means managing men
tactfully to get things done. In other management involves the art getting things done through people.
Definitions
Koontz and O’Donnell state that management means “Getting things done through and with
people.”
According to Henry Fayol “To manage is to forecast and to plan, to organize to command, to
coordinate and to command”
According to F.W. Taylor “Management is the art of Knowing exactly. What you want your men
to do and then they do it in the best and cheapest way.
According Mary Parker Follett defines “Management is the art of getting things done through
people”
According to George R Terry “Management is a distinct process consisting of planning,
organizing, actuating and controlling, utilizing in each both science and art and followed in order to
accomplish pre- determined objectives”
According to Stephen Robbins “Management is the universal Process of efficiently getting
activities completed with through other people.
After analyzing the above definitions we may conclude that management is the social process
of Planning, Organizing, Staffing, directing and controlling the work and resources for the achievement
of organizational goals in a dynamic environment.
Management brings together all Six Ms I.e. Men Women, Money, Machine, Materials, Methods
and Markets. They use these resources for achieving the objective of the organization.
Features of Management
1. Management is Group Activities : It is concerned with the efforts of a group. It works
in Cooperative group. Management Plans, organize, Co-ordinate, directs and controls the
group efforts.
2. Management is Social Process : Management involves the interrelationship of people at
work. The activities of people that is co-ordinated and regulated by management. So it is
called Social process.
3. Management is Purposeful Activities : Management is concerned with the achievement
of creation objectives through the effective utilization of material and human resources.
4. Management involves Decision Making : Making decisions is a real identity of a manger.
He is planner and thinker. Manager decides the course of action, strategies, Policies and
performances. So Management is always a decision – making process.
5. Management is Art : It is concerned with the application of Knowledge and personal skills
to achieve desired results.
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6. Management is Science : Management is developed through scientific methods of

observation and testing.
7. Management is Universal Process : Management is needed in all types of organized
activities, in all type of organizations, Commerce, Industries, Politics, Religion etc.
8. Management is an Interdisciplinary Approach : Management draws and uses the
principles and knowledge of various social sciences such as Psychology, sociology,
anthropology, Political Science and code of conduct for managers.
9. Management is Creative : Management creates new jobs, new wealth and new skills.
10. Management is Integrating Process : Management co-ordinate of all activities and
resources. It integrates men, Machines, Money and materials.
Importance of Management
1. Optimum Utilization of Resources : Management brings all the available resources together.
All these available resources are important for achieving the objective of the organization which are:
 Men,
 Money,
 Machines,
 Methods,
 Optimum (best)
 Utilization (use)
2. Expansion and Diversification : Management helps the organization to achieve its objectives
efficiently, systematically, easily and quickly. It helps the organization to face the cut-throat competition
to grow, expand and diversify.
3. Reduction of Employers Absenteeism and Turnover : Management motivates people. It
provides different incentives to the employees. This includes positive, negative, monetary and non-
financial incentives. These incentives increase the willingness and efficiency of the employees. This
increases the productivity and profitability of the organization. Management also develops team spirit and
increases the efficiency within the organization. It in addition reduces labor turnover and absenteeism.
4. Utilizes the Benefits of Science and Technology : Man has made rapid progress within the
field of Science and Technology. Management utilizes the benefits of this progress. It provides industries
with the latest machines. It provides the consumers with the newest products.
5. Encourages Initiative and Innovation : Management spurs initiative. This means it initiative
the employees to make their own plans and to execute these plans. It inspires the employees to give
their suggestions. Initiative gives satisfaction to the laborers and success to the organization. Management
in addition encourages innovation. It brings innovative ideas, modern methods, latest techniques to the
organization.
6. Minimizes Wastages : Management minimizes the wastages of human, waste materials and
monetary resources. Work is done through arrangement, proper manufacturing and Control. Managers
motivate subordinate to reduce wastages. Reduction in wastage’s brings a higher return to firm.
7. Team Work : Management always builds a team spirit in the organization. The combine effort
of work and unity lead to the prosperity within the organization. Team work plays an important part in the
success of organization.
8. Motivation : Management motivates employees by sharing their profits by the mean of bonus.
They also give a good amount of incentives to the employees. This motivation zeal the employee to work
harder, which results in higher efficiency in production.
9. Reduction in labour Turnover : Management helps to reduce labor turnover in the organization.
Employee turnover takes place when some employees leave the organization, and others join in their

place. Frequent labor turnover increases selection and training cost. Management creates a sense of
responsibility among the employees who brings down labor turnover.
10. Higher Efficiency : Management always wants that his employees should produce higher
efficiency. Productivity is the relationship between returns and costs. Higher returns at minimum investment
then the organization is said to be more proficient.
11. Improves The Quality of Life of The Workers : Management provides bonus and incentive
to the employees for their work. It gives a healthy work environment to the workers. It also provides
medical and insurance faculties to worker and their families. It provides a financial stability which helps
in boosting life of the workers.
12. Cordial Industrial Relations : Management ensures industrial peace. It gives more importance
to the ‘Human Element’ in business. It applies positive motivation. All this improves the relations between
the employees and the employers.
13. Corporate Image : Efficient and effective management maintains a good image and goodwill
of organization. This is because of quality of products and services offered by the organization and also
due to the social responsibility of organization towards society.
14. Promotes National Development : Management is regarded as a key to the economic
development of nation. It puts resources to the optimum use. It leads to capital formation and tech
advancement. It generates handsome revenue for government. It increases national income and standard
of living of people. Thus, it leads to development across all sectors, and significant growth throughout
the nation.
15. It Helps Society : In management, profit is not only the objective of business. Today, the
managers are combining profit objective with social purposes. They are providing society with a regular
supply of good quality goods and services at reasonable prices. They are also providing employment
opportunities to people. They in addition pay high taxes to the government. These taxes are used for
improving nations. Nowadays, managers are using part of their profits to build hospitals, schools, colleges,
etc. for civilization. So it is helping humanity in many ways.
Principle of Management
Henri Fayol
Henri Fayol (1841-1925) is called Father of modern scientific Management. These first concepts,
also called principles of management are the underlying factors for successful management. Henri Fayol
explored this comprehensively and, as a result, he synthesized the 14 principles of management.
Henri Fayol principles of management and research were published in the book ‘General and
Industrial Management’ (1916).
Fayol divided all activities of industrial enterprises into following six groups :
 Technical activities concerning production
 Commercial activities of buying and selling.
 Financial activities intended to seek optimum use of capital.
 Accounting activities pertaining to final accounts, costs and statistics.
 Securities activities relating to protection of property
 Managerial Activities
Fayol Suggested the Following 14 Principles of Management.
 Division of Work : This principle of management is based on the theory that if workers
are given a specialized task to do, they will become skillful and more efficient in it than
if they had a broader range of tasks. Therefore, a process where everyone has a specialized
role will be an efficient one.

 Authority : This principle looks at the concept of managerial authority. It looks at how
authority is necessary in order to ensure that managerial commands are carried out. If
managers did not have authority then they would lack the ability to get work carried out.
Managers should use their authority responsibly and ethically.
 Discipline : This principle relates to the fact that discipline is needed within an organization
for it to run effectively. Organizational rules, philosophies, and structures need to be met.
In order to have disciplined workers, managers must build a culture of mutual respect and
motivation.
 Unity of Command : There should be a clear chain of command in place within an
organization. An employee should know exactly whose instructions to follow.
 Unity of Direction : Work should be organized in a way that means employees are
working in harmony toward a shared objective or goal using a shared method or procedure.
 Subordination : individual interests to the collective interests – The interests of the
organization as a whole should take precedence over the interests of any individual
employee or group of employees. This encourages a team spirit and collective mentality
of all for one and one for all.
 Remuneration : In order to motivate and be fair to employees, they should be paid a
reasonable rate for the work they carry out. An organization that underpays will struggle
to attract quality workers who are motivated.
 Centralization : This principle relates to whether decisions should be made centrally, as
in from the top down, or in a more democratic way, from the bottom up. Different decision
making processes are appropriate for different types of decisions.
 Scalar Chain : This relates to the principle of a clear chain of communication existing
between employees and superiors. The chain should be respected, unless speedy
communication is vital, in which case the chain may be bypassed if all parties consent.
A Gang Plank is a temporary arrangement between two different points to facilitate quick and
easy communication as explained below :
A
B E
C F
D G
Gang Plank
In the figure given, if D has to communicate with G he will first send the communication upwards
with the help of C, B to A and then downwards with the help of E and F to G which will take quite some
time and by that time, it may not be worth therefore a gang plank has been developed between the two.
Gang Plank clarifies that management principles are not rigid rather they are very flexible. They can be
molded and modified as per the requirements of situations.
 Order : This relates to the proper use of resources and their effective deployment in a
structured fashion.
 Equity : Managers should behave ethically towards those they manage. Almost every
organization in the modern world will have a written set of policies and procedures which
will outline exactly what is expected from staff at all levels.
 Stability of Tenure of Personnel : It is seen as desirable within an organization to have

a low staff turnover rate. This is due to the benefits that come with having experienced
staff and the time and expense needed to train new ones. There should be a clear and
efficient method of filling any staff vacancies that arise.
 Initiative : Employees that have an input as to how to best do their job are likely to feel
more motivated and respected. Many organizations place a great deal of emphasis on
listening to the concerns of staff.
 Espirit de Corps : This Principle emphasizes the need of the team work and important
of effective communication in obtaining it.
Frederick Taylor
Frederick Taylor is popularly known as the “Father of Scientific Management” began his career
as an apprentice in a small Machine shop and rose to the level of an engineer. The major Principle and
elements of his scientific management may be summarized as follows :
1. Separation of planning and doing, equal division of work and responsibility between labour
and management.
2. Replacement of old rule thumb method if management by scientific method i.e. scientific
determination of each element of Man’s job.
3. Scientific selection and training of workers.
4. Absolute cooperation between labour and management in work performance.
5. Determining time standard for each job through stopwatch study of all the essential
elements of the job.
6. Introduction of the system of functional foremanship at supervisory level.
7. Differential piece rates of wages payment- workers attaining or exceeding the standard
drawing their pay at the higher rate and those falling short of it compensated by lower
wages rate.
The scientific management movements early in the 20th century was hailed second Industrial
Revolution. While scientific Management principles improved productivity and had a substantial impact
on industry they also increased the monotony work. The core job dimensions of skill variety, task, identity,
autonomy and feedback all were missing from the picture of scientific management.
While many cases the new way of working are accepted by the workers, in some case there
were not. Teamwork is another area where pure Taylorism is in opposition to current practice. Essentially,
Taylorism breaks tasks down into tiny steps, and focuses on how each person can do his or her specific
series of steps best. Modern methodologies prefer to examine work systems more holistically in order
to evaluate efficiency and maximize productivity. The extreme specialization that Taylorism promotes is
contrary to modern ideals of how to provide a motivating and satisfying workplace.
Where Taylorism separates manual from mental work, modern productivity enhancement practices
seek to incorporate worker’s ideas, experience and knowledge into best practice. Scientific management
in its pure form focuses too much on the mechanics, and fails to value the people side of work, whereby
motivation and workplace satisfaction are key elements in an efficient and productive organization.
Other Contribution to Scientific Management
 Carl Barth
 Henry Gantt
 Frank Gilbreth and Lillian Gilbreth
 Harrington Emerson
 Morris Cooke
 Bertrand Thompson
Contribution of the Behaviorists, Sociologists and Psychologists

The contribution of behavioral scientists to management principle and practice has been
recognized all over the world since the Hawthorne experiments (1928-32) conducted by Elton Mayo and
his associated. According to the Behaviorists the management should be concerned with human behavior
in organization.
Sociologists principle define by Bakke, Dubin, Katz, Gouldner and Etzioni.
Psychologists principle define A.H. Maslow, Mc gregor, Leavitt, Chirs Argyris, Herzberg and
McClelland.
Major Classification of Management Approaches
Scientific Management Frederick W. Taylor, Frank and Lillan
Classical Gilberth and Henry Gantt.
Approach Bureaucratic Management Max. Weber
Administration Management Henri Fayol
Group Influence Mary Parker Follet
Hawthorne Studies Elton Mayo
Behavioral
Maslow’ Need Theory Abraham Maslow
Approach
Theory X and Theory y Douglas Mc Gregor
Model I and Model II value Chris Argyris
The System Theory
Modern Contingency Theory
Approach Emerging Approach : Theory Z and
Quantity Management
Management Science
Quantitative
Operations Management
Approach
Management Information System
Management Thought
Name Period Contribution
Robert Owen 1771-1858 Proposed legislative to Improve working contribution of Labour
Andrew Ure 1778-1857 Advocate of study of Management
Charles Dupin 1784-1873
Henery R. Towne 1844-1924 Emphasized the need to consider management as a separate fields of
study and the importance of business skills for a running business.
Charles Babbage 1792-1871 Advocate of Division of labour, divided of profit,
Mary Parker Follet 1868-1933 Emphasized group influence and advocated the concept of ‘power
sharing and Integration.
Elton Mayo 1880-1949 Laid the foundation for the Human relation movement, recognized the
influence of group and work place culture on job performance.
Abraham Maslow 1908-1970 Advocated that humans are essentially motivated by hierarchy of needs.
Chris Argyris Classified organization based on the employee’s set of values
Douglas Mc Gregor 1906-1964 Differentiated employees and managers into theory x and theory y
Function of Management
Luther Gulik coined the word POSDCORB using the initial letters of management function :
 P- Planning,
 O- organizing
 S- Staffing
 D- Directing
 Coo – Coordinating
 R- Reporting
Newmann and summer classified managing process as the functions of :

 Organizing
 Planning
 Leading
 Controlling
Management refers to the activities, and often the group of people, involved in the four general
functions :
1. Planning
2. Organizing
3. Staffing
4. Directing
5. Controlling
1. Planning : Planning refers to what is to be done, how it is to be done and when it is to be
done. Planning involves choosing tasks that must be performed to attain organizational goals, outlining
how the tasks must be performed, and indicating when they should be performed.
Four steps in Planning are as follows :
 Objective
 Method
 Timing
 Strategy
Planning is supposed to be done at each and every level of an organization by each and every
employee. It is basically forecasting the future course of action. It bridges gap between present and
future, planning our vision and mission.
Planning Includes :
 Designing procedures
 Policies
 Rules
 Programed
 Budgets
Planning can be short run or long run, but it is mostly for both, simultaneously. Short term plans
are made to benefit long terms plans.
Planning is always an going process. There will be times when external factors will affect the
company both positively and negatively. This in turn may alter the original planning process in reaching
certain goals. This is known as strategic planning. Depending on the exact scope of an organization, the
strategic planning process can look ahead as far as ten years or more. The findings are usually collected
in a strategic planning document.
2. Organizing : Organizing is accumulating physical, human and monetary resources. This
assembling would depend on the objective set by an organization.
Organizing can be thought of as assigning the tasks developed in the planning stages, to various
individuals or groups within the organization. Organizing is to create a mechanism to put plans into
action.
The function of organizing contains following characteristics :
 Structuring the functions
 Structuring duties
 Establishing authority - subordinate relationships

Steps of Organization Function :

1. Determination of activities of the enterprise in the line of its objectives
2. Dividing the activities into appropriate groups
3. Assignment of these activities to individuals
4. Delegation of authority
5. Fixing responsibilities
6. Co-ordination of these activities and authority relation
In short, Organization is all about division of work amongst individuals and co-ordination of their
efforts to achieve the objective set by the organization.
Immediately after planning, the manager needs to organize the team according to plan. This
involves organizing all of the company’s resources to implement a course of action and determining the
organizational structure of the group. And in order to do this correctly, management will need to evaluate
the different divisions of departments and the staff to figure out the best way to accomplish the tasks
needed to reach their goals.
This function is also known to be the backbone of management. Without organization, a company
will have no structure and their day-to-day operation of business will most likely collapse. If management
is disorganized, it can trickle down to the employees because they will lose confidence in their leaders.
3. Staffing : For achieving an objective, the company needs to appoint individuals for various
positions in order to complete that objective.
The purpose of staffing is to control all recruitment and personnel needs of the organization. After
management decides what needs they have, they may decide to hire more employees in a certain
department. It is also responsible for training and development, promotions, transfers, and firing. A lot
of times management and the human recourse department will work together because their roles are
similar in this case.
The importance of this function has grown lately, mostly because of the increasing size of
businesses and the advancement of technology. A good example of this is the IT department. The size
of the IT department in a company ten years ago is nothing compared to what it is now because of the
dependence we have on computers and servers. Without the staffing function, a business will certainly
fail because there will not be an experienced, sufficient amount of employees within each department.
4. Leading / Directing : The manager in this function, is supposed to direct or lead appointed
individuals and explain them how is their appointed jobs to be done.
Supervision, motivation, leadership, and communication are all involved in the directing function.
Management needs to be able to oversee and influence the behavior of the staff and achieve the
company’s goals, whether that means assisting or motivating them. When morale is high within a
company, it usually has a significant impact on job performance and efficiency. Incentive programs and
rewards are a great way for a business to keep its employees happy and motivated.
However, the most important aspect of directing is having good communication. This means
building positive interpersonal relationships, effective problem solving and evaluating one another. Most
directing takes place in meetings and other meeting sessions with the department leaders to ensure that
everyone is on the same page. Poor communication will lead to poor execution in an organization.
The essential steps in this function are as follows :
 Issuing orders and instructions
 Guiding and counseling
 Supervision
5. Controlling : In this function the manager is supposed to explain the job essentials to the
individuals and guide them in achieving their goals.

Controlling Involves :
 Measurement of accomplishment against standards
 Analyzing reasons and devotions
 Responsibility Fixation
 Taking corrective measures
The last function of management deals with monitoring the company’s progress and ensuring
that all of the other functions are operating efficiently. Since this is the last stage, there are bound to be
some irregularities and complexity within the organization. This in turn can lead to certain situations and
problems arising that are disrupting the company’s goals. Given is the stage where all the final data is
gathered, it is the management’s job to take corrective action, even where there is the slightest deviance
between actual and predictable results.
Controlling is the following roles played by the manager :
1. Gather information that measures performance
2. Compare present performance to pre-established performance norms.
3. Determine the next action plan and modifications for meeting the desired performance
parameters.
Q. Match the following (June 2012) P-II
List-I List-II
(a) The Practice of Management (i) Henry Fayol
(b) Philosophy of Management (ii) F.W. Taylor
(c) Scientific Management (iii) Oliver Sheldon
(d) General and Industrial (iv) Peter F Drucker
Administration
Codes :
(a) (b) (c) (d)
(A) (i) (ii) (iii) (iv)
(B) (iv) (iii) (ii) (i)
(C) (iv) (iii) (i) (ii)
(D) (iii) (iv) (ii) (i)
Ans. (B)
Q. Which of the following is not a principle of management according to Henri Fayol ?

(June 2013) P-II
(A) Subordination of individual interest over the organizational interest
(B) Esprit de corps.
(C) Unity of Managers
(D) Unity of Direction
Ans. (C)
Q. According to the Boston Consulting Group, a business which has a high growth rate but a weak
market share is referred to as a (Dec. 2013) P-II
(A) Cash Cow (B) Dog
(C) Question Mark (D) Star
Ans. (C)
Q. When a person transacts with a company on matters which is beyond the power of the company,
the person will be governed by the Doctrine of (Dec. 2014) P-II
(A) Management by Exception (B) Constructive Notice
(C) Indoor Management (D) Self Management
Ans. (B)
Q. Assertion (A) : Management is mainly associated with economic affairs.

Reasoning (R) : Big business houses are the result of effective financial management.
Codes : (June 2015) P-II
(A) (A) is correct and (R) is the right explanation of (A).
(B) Both (A) and (R) are correct but (R) is not the right explanation of (A).
(C) (A) is incorrect but (R) is correct in isolation.
(D) Both (A) and (R) are incorrect.
Ans. (C)
Q. Match the items of List-I with List-II : (June 2015) P-II

List-I List-II
(a) Management of Tomorrow (i) Chris Argyris
(b) Motivation and Personality (ii) Fredrick Hergberg
(c) The Motivation of Work (iii) L.F. Urwick
(d) Personality and Organisation (iv) A.H. Maslow
Codes :
(a) (b) (c) (d)
(A) (i) (iv) (ii) (iii)
(B) (iii) (iv) (i) (ii)
(C) (iv) (iii) (ii) (i)
(D) (iii) (iv) (ii) (i)
Ans. (D)
Q. A mission statement should be (July 2016) P-II

(a) Self-explanatory (b) Elaborate
(c) Distinctive (d) Feasible
Codes :
(1) (a) only (2) (a) and (b)
(3) (a), (b) and (c) (4) (a), (c) and (d)
Ans. (4)
Q. Which of the following statements relating to Henry Fayol are correct ? (Jan. 2017) P-II
Statement (I) : Authority and responsibility are related and former arises from latter.
Statement (II) : Espirit de Corps is an extension of the principle of unity of command.
Statement (III) : Unity of command means only one command at a time.
Statement (IV) : There are fourteen basic principles identified by Henry Fayol.
Codes :
(1) Statements (I), (II) and (IV) (2) Statements (II) and (III)
(3) Statements (I) and (IV) (4) Statements (II) and (IV)
Ans. (4)
Q. Who has given ‘fourteen Principles of Management’ ? (June 2012) P-III

(A) Barnard (B) Henry Fayol
(C) F.W. Taylor (D) Flemming
Ans. (B)
Q. Who is considered Father of Scientific Management ? (Dec 2012) P-III

(A) Peter Drucker (B) F.W. Taylor
(C) Victor Vroom (D) Henry Fayol
Ans. (B)
Q. Assertion (A) : Management is a continuous process.

Reason (R) : Managers first plan, then organize and finally perform the function of controlling.
Codes : (Dec. 2012) P-III
(A) Both (A) and (R) are correct and (R) is correct explanation of (A).
(B) Both (A) and (R) are correct, but (R) is not a correct explanation of (A).
(C) (A) is correct, but (R) is incorrect.
(D) (A) is incorrect, but (R) is correct.
Ans. (A)
Q. The managerial function of organizing involves (June 2013) P-III

(A) Reviewing and adjusting plan in the light of changing conditions.
(B) Establishing programme for the accomplishment of objectives.
(C) Creating structure of functions and duties to be performed.
(D) Getting things done through others.
Ans. (B)
Q. According to the Boston Consulting group, a business, which has a strong market share in a low
growth industry is referred to as a (Dec. 2013) P-III
(A) Dog (B) Cash Cow
(C) Star (D) Question mark
Ans. (B)
Q. Match the following : (June 2014) P-III

List-I List-II
(a) Fayol (i) Economy and Society
(b) Taylor (ii) General and Industrial Administration
(c) Weber (iii) Principles of Organization
(d) Mooney and Reilly (iv) Shop Management
Codes :
(a) (b) (c) (d)
(A) (iii) (iv) (i) (ii)
(B) (ii) (iv) (i) (iii)
(C) (i) (iii) (ii) (iv)
(D) (iv) (iii) (ii) (i)
Ans. (B)

Q. F.W. Taylor called “The Military type of Foreman” to (Dec. 2014) P-III
(A) Unity of Command (B) Span of Control
(C) Delegated Legislature (D) Department
Ans. (A)
Q. Statement (I) : Management is the art of knowing what you want to do and then seeing that it
is done in the best and the cheapest way.
Statement (II) : Management is the process of planning and regulating the activities of an
enterprise. (June 2015) P-III
Codes :
(1) Statement (I) is correct, but (II) is incorrect
(2) Statement (II) is correct, but (I) is incorrect
(3) Both the statements (I) and (II) are incorrect
(4) Both the statements (I) and (II) are correct
Ans. (D)
Q. Assertion (A) : No business runs itself, even on momentum _______ every business needs
repeated stimulus.
Reasoning (R) : The management is the dynamic, life giving element in every business, without
its leadership, the resources of production remain as resources and never become production.
Codes : (June 2015) P-III
(A) Assertion (A) and Reasoning (R), both are correct, and (R) is the correct explanation of
(A).
(B) Assertion (A) and Reasoning (R), both are correct, but (R) is not the correct explanation
of (A).
(C) Assertion (A) is correct, but Reasoning (R) is incorrect.
(D) Reasoning (R) is correct, but Assertion (A) is incorrect.
Ans. (A)
Q. Match the items of List-I with List-II : (June 2015) P-III

List-I List-II
(a) Credit Mobilier (i) Charles Babbage
(b) Charleton Twist Company (ii) Henry Fayol
(c) Difference Engine (iii) Claud Henri Saint Simon
(d) Commentry Fourchambault (iv) Robert Owen
Codes :
(a) (b) (c) (d)
(A) (iii) (iv) (i) (ii)
(B) (iii) (i) (iv) (ii)
(C) (i) (iii) (iv) (ii)
(D) (ii) (i) (iv) (iii)
Ans. (A)

6.2 ORGANISATIONAL STRUCTURE
Organization in a formal sense refers to a collectivity of persons engaged in pursing specified

objective. Organization as comprising human relationship in group activity. It is referred to as the social
system encompassing all formal relations. Organization management refers to the art of getting people
together on a common platform to make them work towards a common predefined goal.
The typically hierarchical arrangement of lines of authority, communications, right and duties of
an organization, organizational structure determine how the roles, power and responsibilities are assigned,
controlled and coordinated and how information flows between the different levels of management. A
structure depends on the organization’s objectives and strategy.
According to Kast and Rosenzwing “Organization structure is the pattern of relationship among
the component parts of the organization”
According to Theo Haimann, an authority in management “Organizing in the process of
defining and grouping the activities of the enterprise and establishing the authority relationships among
them”
According to keith Davis, “Organization may be defined as a group of individuals, large of small,
that is cooperating under the direction of executive leadership in accomplishment of certain common
object.”
In performing the organizing function the manager defines, departmentalizes and assigns activities
so that it can be most effectively executed. Organization is concerned with the building, developing and
maintaining of a structure of working relationship in order to accomplish the objectives of the enterprise.
Organization means the determination and assignment of duties to people, and also the establishment.
Characteristics
 Organization is a group of Individuals
 In organization people meet and work for joint objectives.
 There is a chain command through out of the organization.
 Organization is a network of vertical, horizontal and diagonal relationship.
 In organization Division of work is based into specialized jobs.
Principle of Organization
1. Chain of Command : One of the most basic elements of an organizational structure, chain
of command is exactly what it sounds like: an unbroken line of authority that extends from the top of the
organization (e.g. a CEO) all the way down to the bottom. Chain of command clarifies who reports to
whom within the organization.
2. Span of Control : Span of control refers to the number of subordinates who report directly
to an executive or supervisor. Narrow span of control builds a tall organization that has many reporting
levels. Wide span of control builds a flat organization with fewer reporting levels.
3. Centralization : Who makes the decisions in an organization? If decision-making power is
concentrated at a single point, the organizational structure is centralized. If decision-making power is
spread out, the structure is decentralized.
4. Specialization : Also known as division of labor, specialization is the degree to which activities
or tasks in an organization are broken down and divided into individual jobs. High specialization can be
beneficial for an organization, as it allows employees to become “masters” in specific areas, increasing
their productivity as a result. However, low specialization allows for more flexibility, as employees can
more easily tackle a broader array of tasks (as opposed to being specialized for a single task).
5. Formalization : Similar to specialization, formalization deals with how jobs are structured
within an organization. The key differentiator here is that formalization also takes into account the degree
to which an employee’s tasks and activities are governed by rules, procedures, and other mechanisms.
A formal organizational structure seeks to separate the individual from the role or position, as the
role or position stays the same regardless of who’s holding it.
An informal organization, on the other hand, places more value on the individual. It allows for the
evolution of a role or position based on an individual’s preferences, skill set, etc., and places less
importance on what team or department that individual is part of.
6. Departmentalization : Departmentalization refers to the process of grouping jobs together in
order to coordinate common activities and tasks. If an organization has rigid departmentalization, each
department or team is highly autonomous, and there is little (or no) interaction between different teams.
In contrast, loose departmentalization entails that teams have more freedom to interact and collaborate.
7. Delegation : Delegation is the assignment of new or additional responsibilities to a subordinate
at a lower level. Delegation is perhaps the most fundamental feature of management, because it entails
getting work done through others. When delegating work, the following things must also be given to the
subordinates:
 Responsibility means that a person who is assigned a task that he or she is supposed
to carry out must perform that task.
 Authority means that the person has the power and the right to make decisions, give
orders, draw upon resources, and do whatever else is necessary to satisfy the
responsibility.
 Accountability means that the subordinate’s manager has the right to expect the
subordinate to perform the job, and the right to take corrective action in the event the
subordinate fails to do so.
Process of Organization
1. Establishing Objectives : This is first step which is actually part of planning. Objective
determine the various activities which need to be performed and the type of structure which needs to
be built to achieve goal.
2. Identification of Tasks : All the relevant activities and tasks are identified. Number of activities
depends upon the objectives of the organization. It should be done effectively such that no important
activity is omitted or repeated.
3. Grouping Jobs : Once all the activities are identified the next step is grouping of the related
jobs. This leads to set up of the departments and divisions in the organization like production department,
finance department, marketing department, and personnel department.
4. Collecting Human and Material Resources : Assessing Personnel requirement and
determining the physical resources is very necessary to build the structure of an organization. Necessary
input such as Men, Machine, Materials, equipment must be collected and arranged for.
5. Assigning Work : When activities are divided among departments the next step would be to
appoint suitable persons for the various tasks. Experts in their fields are appointed as appointed as
heads of their departments and for lower positions peoples are appointed.
6. Designing a Hierarchy of Relationship : This step involves the creation of superior –
subordinate relationship. In a hierarchy the ranking of managerial positions is done by grant of different
degrees of rights and power to different position.
7. Delegation of Authority : When some work is assigned to someone then he must be given
some authority to do that work effectively. Assigning work and delegation goes parallel to each other.
Assigning work without proper authority is meaningless.
8. Coordination : As all activities in organization are distinct but they are interdependent so there
must be coordination among the departments. In absence of coordination ultimate goal of the organization
will not be achieved. Success of the organization is fully dependent on better coordination between the
different divisions and managers.
9. Monitoring the Effectiveness : A monitoring system to assess the effectiveness of the
organization and to make adjustment must be established.
Types of Organizational Structure

There are two types of the organizational structure :
(A) Formal organization Structure
(B) Informal organization structure
(A) Formal Organization
The formal organizational structure of jobs and positions with define functions and relationship.
This type of organization is built by the management to realize the objective of an enterprise. The
fundamental organization structure may be classified as follow :
 Line organization
 Functional Organizational
 Line and staff organization
 Project management Organization
 Matrix organization
1. Line Organizational : It is oldest and simplest pattern of organization. Line organization
assumes that direct authority is exercised by a superior over his subordinates. The flow of this authority
is always downwards. This organization is based on scalar basis. Line organization is also known as
vertical organization or departmental organization.
It is the “doing” organization, in that the work of all organizational units is directly involved in
producing and marketing the organization’s goods and services. There are direct vertical links between
the different levels of the scalar chain. Since there is a clear authority structure, this form of organization
promotes greater decision making and is simple in form to understand.
Sales Manager
Salesperson A Salesperson B Salesperson C
Advantage of Line Organization

 It is Simple work.
 It is economical and effective.
 It permits rapid decision and effective co-ordination.
 It promotes unity of command and conforms to the scalar principle of organization.
 It is less expensive due to non- involvement of staff personnel.
 It is stable.
Disadvantage
 Line organization is rigid and inflexible.
 It is based upon autocratic system of management.
 It is likely to encourage nepotism (Favoritism shown on the basis of family relationship,
as in business and politics)
 Such enterprises suffer from lack of expert staff advice.
 It is cramps progress and prevent effective working of the units.
2. Line and Staff Organization
The line and staff systems is balance between line and functional. Under this organization line
is supplemented by staff. When staff specialists are added to a line organization to "advise; "serve;" or
"support" the line in some manner, we have a line and staff organization.

These specialists contribute to the effectiveness and efficiency of the organization. Their authority
is generally limited to making recommendation to the line organization. Sometimes this creates conflict.
However, such conflict can be reduced by having staff specialists obtain some line experience, which
will tend to make them better understand the problems facing the line managers they support. Such
functions as human resources management and research and development are typical staff functions.
Line and Staff Organization
Sales Manager
Market
Forecastor
Region A Region A Region A

Training
Sales Sales Sales
Director
Manager Manager Manager
Salespeople Salespeople Salespeople
Advantage
 The stability and discipline of the line organization are preserved, only the specialist is
added.
 It brings expert knowledge to bear upon management.
 It provides for better placement and utilization of personnel and leads to more concerted
skill development.
Disadvantage
 Line managers may depend too much on staff experts and thus lose much of their
judgement and initiative.
 The staff experts remain ineffective because they do not get the authority to implement
their recommendation.
 It is not simple
3. Functional Organization
Under this system the whole task of management and direction and subordinates is divided
according to the type of work involved. It is related and similar work is done in one department under
executive. The concept of Functional organization was suggested by F.W. Taylor who recommended the
appointment of specialists at important positions. For example, the functional head and Marketing Director
directs the subordinates throughout the organization in his particular area. This means that subordinates
receive orders from several specialists, managers working above them.
 The entire organizational activities are divided into specific functions such as operations,
finance, marketing and personal relations.
 Complex form of administrative organization compared to the other two.
 Three authorities exist- Line, staff and function.
 Each functional area is put under the charge of functional specialists and he has got the
authority to give all decisions regarding the function whenever the function is performed
throughout the enterprise.
 Principle of unity of command does not apply to such organization as it is present in line
organization.

Advantage
 Better division of labour takes place which results in specialization of function and it's
consequent benefit.
 Management control is simplified as the mental functions are separated from manual
functions. Checks and balances keep the authority within certain limits. Specialists may
be asked to judge the performance of various sections.
 Greater efficiency is achieved because of every function performing a limited number of
functions.
 Specialization compiled with standardization facilitates maximum production and economical
costs.
 Expert knowledge of functional manager facilitates better control and supervision.
Disadvantage
 It is high degree of specialization, functional organization is difficult to establish
 The functional system is quite complicated to put into operation, especially when it is
carried out at low levels. Therefore, co-ordination becomes difficult.
 Disciplinary control becomes weak as a worker is commanded not by one person but a
large number of people. Thus, there is no unity of command.
 There may be conflicts among the supervisory staff of equal ranks. They may not agree
on certain issues.
Functional Organization Structure
Production Manager
Factory Manager
Foreman I Foreman II Foreman III
Workers
4. Project Management Organization

Project organization is not a separate type of organization like the line, line and staff or functional
organization. Project organization may involve development and introduction of new product, complete
redesigning of an existing product line, installing a new plant etc.
A project organization is a structure that facilitates the coordination and implementation of project
activities. Its main reason is to create an environment that fosters interactions among the team members
with a minimum amount of disruptions, overlaps and conflict. One of the important decisions of project
management is the form of organizational structure that will be used for the project.
One of the main objectives of the structure is to reduce uncertainty and confusion that typically
occurs at the project initiation phase. The structure defines the relationships among members of the
project management and the relationships with the external environment. The structure defines the
authority by means of a graphical illustration called an organization chart.

Organizational Structure of The Project
Executive
Name Project Board
Name 1
Name 2
...
Project Manager
Name Name n
Sub-project Project Team

Manager
Sub-project Manager
Name 1 Name 1
Name 2 Name 2
... ...
Name n Name n
5. Matrix Organization
Matrix organization combines functional department with project organization or product. In a
matrix organization, the team members report into two bosses: the functional manager and the project
manager.
The organization needs both technological expertise within functions and horizontal coordination
across functions. For instance, a defense contractor may need deep functional skills as well as the ability
to coordinate across these functions for each contract or project. A multinational firm may need to
coordinate across the demands of functions, products, and geographic locations.
In a matrix structure, individuals work across teams and projects as well as within their own
department or function.
For example, a project or task team established to develop a new product might include engineers
and design specialists as well as those with marketing, financial, personnel and production skills.
These teams can be temporary or permanent depending on the tasks they are asked to complete.
Each team member can find himself/herself with two managers - their normal functional manager as well
as the team leader of the project.
Advantage
 Highly skilled and capable resources can be shared between the functional units and
projects, allowing more open communication lines which help in sharing the valuable
knowledge within the organization.
 The matrix structure is more dynamic than the functional structure because it allows
employees to communicate more readily across the boundaries, creating a good,
cooperative, work environment which helps to integrate the organization.
 Employees can broaden their skills and knowledge areas by participating in different kinds
of projects. The matrix structure provides a good environment for professionals to learn
and grow their careers.
 In functional departments, employees are very skilled, and project teams can get these
highly-skilled employees whenever their services are needed.
 Since there is a sense of job security, employees tend to be loyal to the organization and
perform well, and therefore, the efficiency of a matrix organization is higher.
Disadvantage
 Employees may have to report to two managers, which adds confusion and may cause
conflict. This usually happens in a balanced matrix organization where both bosses have
equal authority and power.
 A conflict may arise between the project manager and the functional manager regarding
the authority and power.
 If the priorities are not defined clearly, employees may be confused about their role and
responsibility, especially when they are assigned a task which is different from, or even
counter to, what they were doing.
 If any resource is scarce, there might be competition to use it, which may cause hostility
within the workplace and could affect the operation.
 It is generally perceived that matrix organizations have more managers than required,
which increases overhead costs.
 In a matrix organization, the workload tends to be high. Employees have to do their regular
work along with the additional project-related work, which can exhaust them. It is also
possible that the employee may ignore either his functional responsibilities or project
management responsibilities if overtaxed.
 A matrix structure is expensive to maintain. Organizations have to pay extra to keep
resources because not all resources will be occupied at all times. Some resources are
needed only for a short duration.
Matrix Structure
President/ CEO
Marketing Engineering Research Manufacturing Materials
Product Engineering Research Manufacturing Materials

Manager Employee 1 Employee 1 Employee 1 Employee 1
Product
Engineering Research Manufacturing Materials
Manager
Employee 2 Employee 2 Employee 2 Employee 2
Laboratory

Process

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

According to Keith Davis "Informal organization as the network of personal and social relationship
which is not established or required by formal organization" Thus informal organization comprises the
whole set of customs social norms and ideas by which people are influenced.
Informal organizational structure includes personal relations, relations and interactions of people
in the organization that are created naturally, informally and unofficially. They take place in an informal
way outside the framework of formal organizational structure, respectively; the informal organizational
structure crosses it horizontally, vertically and diagonally.
Types of Informal Organization Structure
Horizontal Groups : Persons whose positions are on the same level of the organization belong
to horizontal groups. Such informal groups may consist of all the member (managers and non-managers)
in the same department or different members across departmental lines (by virtue of the case of
accessibility).
Vertical Groups : Vertical groups are often the result of outside interest or various employment
relationships within the same department. Such groups include people on different levels of the formal
organization's hierarchy. Usually these people voluntarily come together within the same work areas. For
example, in a production department a vertical group might include a supervisor and one (or more) of
his subordinates.
Mixed Groups : A mixed group may be formed by two or more people who belong to different
levels of the formal organization and in different work areas. For instance, the vice-president (finance)
may develop a close relationship with the director of computer services for getting preferential treatment
(i.e., greater and timely access to computer facilities).
Features of Informal Organization
 It develops spontaneously and is not established by formal manager.
 It is all pervasive and exists in every enterprise.
 Informal authority is earned and not delegated.
 Informal organization largely flows upward or horizontally.
 Informal organizational structure does not follow any fixed path of flow of authority or
communication.
 Informal organizational structure gets created automatically without any intended efforts of
managers.
 Informal organizational structure is formed by the employees to get psychological satisfaction.
Advantage of Informal Organization Structure
 To encourage cooperation
 Make more effective the total system
 Give satisfaction and stability to work group
 Helps get work done
 Provides a useful channel of communication
 Provides emotions among staff
 Create good environment in working place
Disadvantage of Informal Organization Structure
 According to a survey 70% of information spread through informal organizational structure
are rumors which may mislead the employees.
 If informal organization opposes the policies and changes of management, then it becomes
very difficult to implement them in organization.
 Social control of Informal groups exerts strong pressure for community.

 It is based on the mutual relationships rather than on division of work as anybody can talk
to any person in any department with regard to any topic. Hence, specialization is not
possible.
Organizational Theories
Organizational theory is a study of structure, functioning and performance of organization and of
the behavior of groups and individuals working in them. These theories may influence how an organization
allocates resources. Organizational theory describes how an organization interacts with its environment.
Early theories were overly bureaucratic and have given way to organizational theories that apply to a
multitude of dynamic situations.
Types of Organizational Theory
1. Classical Organization Theory
 Scientific Management Approach
 Weber's Bureaucratic Approach
 Administrative Approach
2. Neo Classical Theory
3. Modern Organization Theory
 System Approach
 Socio-Technical Approach
 Contingency-Situational Approach
1. Classical Organization Theory
(a) Weber's Bureaucratic Approach : Max Weber's (1978) essay on bureaucracy represents
the beginning of the modern theory organizations. By bureaucracy, Weber meant organizations with the
following principles :
1. A clear definition of distinct and separate areas of competence, laid down in laws and
regulations
2. A clearly defined hierarchy of office: Every position or office is accountable to and supervised
by an higher office
3. All decisions are made on the basis of written documents and according to written rules
4. The relations within the organization and all decisions are purposely impersonal and
devoid of personal interests
5. The officials have received extensive education in their areas of competence
6. They are employed on the basis of their expertise, their appointment is full-time and
excludes other occupations
7. They have set salaries paid in money
Weber's central argument was that bureaucracy is best suited for stable, routine task environments.
For example, if the task can be divided into a process of separate and relatively distinct steps, If the
volume and the nature of the task are stable and predictable, and if the performance of office holders
can be easily monitored and translated into reporting requirements, then bureaucracy is a suitable
organizational form.
(b) Scientific Management Approach : The scientific management approach is based on the
concept of planning of work to achieve efficiency, standardization, specialization and simplification. The
approach to increased productivity is through mutual trust between management and workers. Taylor
(1947) proposed four principles of scientific management :
1. Develop a science for each element of an individual’s work to replace the old rule of thumb
method.
2. Scientifically select and then train, teach, and develop the worker.

3. Heartily cooperate with the workers so as to ensure that all work is done in accordance
with the principles of the science that has been developed.
4. Divide work and responsibility almost equality between management and workers.
Management does all work for which it better suited than the workers.
Frank Gilbreth (1868-1924) and Lilian Gilbreth (1878-1972) were also significant contributors to
the scientific method. As a point of interest, the Gilbreths focused on handicapped as well as normal
workers. Like other contributors to the scientific method, they subscribed to the idea of finding and using
the best way to perform a job. The primary investigative tools in the Gilbreths research were motion
study, which consist of reducing each job to the most basic movements possible. Motion analysis is
used today primarily to establish job performance standards.
Henry L. Gantt (1861-1919) too, was interested in increasing worker efficiency. Gantt attributed
unsatisfactory or ineffective tasks and piece rates (incentive pay for each product piece an individual
produces) primarily to the fact that these tasks rate were set according to what had been done by
workers in the past or on somebody's opinion of what workers could do.
(c) Administrative Approach : Administrative management focuses on organizational efficiency.
This approach is also called comprehensive analysis of management. Among the well-known contributors
to the comprehensive view are Henri Fayol, Chester Barnard, Alvin Brown, Henry Dennision, Luther
Gulick and Lyndall Urwick, J Mooney and A C Reily, and Oliver Sheldon (Heames, et al, 2010).
The most notable contributor, however, was Henri Fayol (1841-1925). His book General and
Industrial management presents a management philosophy that still guides many modern managers.
Because of his writings on elements and general principles of management, Henri Fayol is usually
regarded as the pioneer of administrative theory (Certo S C and Certo S T, 2006).
The elements of management have outlined - planning, organizing, commanding, coordinating
and controlling are still considered worthwhile divisions under which to study, analyze and affect the
management process. The general principles of management suggested by Fayol are still considered
useful in contemporary management practices. Here are the principles in order developed by Fayol
division of work, authority, discipline, unity of command, unity of direction, subordination of individual
interest to general interests, remuneration, centralization, scalar chain, order, equity, stability of tenure of
personnel, initiative, and esprit de corps.
2. Neo Classical Approach
The Neoclassical approach began with the Hawthorne studies in the 1920s. It grew out of the
limitations of the classical theory. Under classical approach, attention was focused on jobs and machines.
After some time workers resisted this approach as it did not provide the social and psychological
satisfaction. Therefore, attention shifted towards the human side of management.
George Elton Mayo (1890- 1949) is considered to be the founder to the neoclassical theory. He
was the leader of the team which conducted the famous Hawthorne Experiments at the Western Electric
Company (USA) during 1927-1932.
There are mainly three elements of neoclassical theory of management. They are Hawthorne
Experiment, Human Relation Movement, and Organizational Behavior.
(a) Hawthorne Experiments : The Hawthorne studies were a series of experiments conducted
at the Western Electric Company (USA) between 1927 and 1932 that provided new insights into individual
and group behavior (Griffin R W, 2006). The research, originally sponsored by General Electric, was
conducted by Elton Mayo and his associates. The studies focused on behavior in the workplace. In one
experiment involving this group of workers, for example, researchers monitored how productivity changed
as a result of changes in working conditions. The Hawthorne studies and subsequent experiments lead
scientists to the conclusion that the human element is very important in the workplace. The Hawthorne
experiments may classified into four stages: Illumination experiments, Relay assembly test room
experiments, Mass interviewing programme and Bank wiring observation room study.

(b) Human Relation Movement : Taking a clue from the Hawthorne Experiments several theorists
conducted research in the field of interpersonal and social relations among the members of the organization.
These relations are known as human relations. A series of studies by Abraham H. Maslow, Douglas Mc
Gregor, Frederick Herzberg, Keth Davis, Rensis Likert and others lead to what is human relation movement
(Singh, 1983). Human relation movement argued that workers respond primarily to the social context of
the workplace, including social conditioning, group norms and interpersonal dynamics.
(c) Organizational Behavior : Several psychologists and sociologists began the study of group
dynamics, Chris Argyris, Homans Kurt Lewin, R.L. Katz, kahn and others developed the field of
organizational behavior. It involves the study of attitudes, behavior and performance of individuals and
groups in organizational settings. This approach came to be known as behavioral approach. It is extended
and improved version of human relations movement. It is multidimensional and interdisciplinary the
application of knowledge drawn from behavioral sciences (Psychology, sociology, anthropology, etc) to
the management problems (Cole G A, 1984). Therefore, it is also called behavioral science approach.
Span of Control
Literally, the word 'span' means distance between the tip of a person's thumb and the little finger
when stretched out, while the world 'control' means power or authority to direct, order or restrain.
In Public Administration, span of control refers to the number of subordinates whom an officer can
effectively control. It also means the number of subordinates an officer can direct. It may be also said,
that the span of control means, simply, he number of subordinates or the units of work that an
administrator can personally direct.
The span of control refers to number of employees that directly report to a single manager. Span
of control determines the structure of an organization, a narrow span of control results in hierarchal
organization while broad span of control leads to flat structure.
Span of Control means the number of subordinates that can be managed efficiently and effectively
by a superior in an organization. It suggests how the relations are designed between a superior and a
subordinate in an organization.
Span of control is of two types :
 Wider Span (Short or Flat Structure)
 Narrow Span (Tall)
When a large of person report to each manager the span is wide and it creates a short or Flat
structure but when span of management is narrow where few person report to each manager the result
is tall (Narrow span) structure.
Wide
Flat Structure
Span
Span of
Management
Narrow
Span Tall Structure
Wide Span
Wide span of control means a single manager or supervisor oversees a large number of
subordinates. Wide span or flat structure, on the other hand, calls for supervision of too many people
by a single manager. Supervision becomes less effective because the manager does not have the
sufficient time and energy to attend to each of his subordinates. The large number of contacts may also
distract him to the extent of neglecting important questions of policy.

However, the wide span has certain advantages too. The communication chain is shorter, and
it is free from hierarchical control. Subordinates feel more autonomy and develop independent spirit. The
flat structure also reduces cost, as it requires less number of executives.
Wide Span of Supervision
 Number of executives is less
 Less expensive
 Better communications
 Better coordination
 Quality of performance deteriorate
 Less effective supervision
 Less time to devote in directing each and every subordinate
Narrow Span
The span is narrow, which means less number of subordinates under one superior, requires
more managers to be employed in the organization. Thus, it would be very expensive in terms of the
salaries to be paid to each senior.
Narrow spans lead to many levels in the organization and thus required a larger number of
managers. This, in turn, leads to larger expenses in the form of executive remuneration. Expenses are
further increased on account of additional clerical and office staff needed as a result of there being large
number of managers.
Narrow Span of Supervision
 Better personal contacts
 Tight control
 Close supervision
 Sufficient time for developing relations with the subordinates
Tall Organisation Structure
Flat Organisation Structure
Span of Control Management

In 1933 V. A. Graicunas a pairs based consultant formulated the span of control based on
number of direct and indirect relationship that a superior has to manage. Graicunas identified has three
relationship.
 Direct Single relationship
 Number of direct relationship between manager and subordinate It represent the
span of control.
 Direct Group Relationship

 Number of Peer- to peer relationships it represent issues due to interpersonal
conflicts. This is the relationship of superior with subordinates in the presence of
other subordinates. All possible combinations of superior and subordinate
relationship-exist in group relationships. It represents contact of the superior with
one or more subordinates while others (one or more) assist the relationships.
 Cross Relationships
 While the subordinates work under the same superior, they also interact amongst
themselves. These are the relationships amongst subordinates. Based on the
formula n (n – 1), with 3 subordinates, 6 such relationships will be formed.
Kind of Relationship Formula No. of No. of

Subordinates Relationship
1. Direct Relationship 2 2
n
(One-to-One Relationship) 3 3
2. Cross Relationship 2 2
n(n – 1)
3 6
3. Group Relationship  2n  2 2
n   1
 2  3 9
Total Number of Relationship  2n  2 6
n   n  1
 2  3 18
Graicunas Formula
 2n 
r  n   (n  1) 
 2 
Here, r = number of relationship
n = number of subordinates
Factors Determining Span of Control
 Character of the enterprise's environment in the sense of existence of marked dependence,
especially in the environs where there is influence of the community, society, on the
enterprise's activities
 Size and complexity of the enterprise's business, the bigger they are, the wider the span
of management will be, as a consequence of a need for breaking up into a larger number
of organizational units
 Development of planning in business makes a bigger span of management possible;
 Competence of subordinates, the higher it is, the wider the span of management it will
lead to
 Quality of informing and communicating with subordinates creates conditions for increase
of the span of management
 Amount of monitoring of the subordinates' work: increase of control diminishes the span
of management.
 Trained and experienced subordinates need less direction and hence large number of
them can work under one executive
 All doing specialized and same work at one table or very close to each other require a
wide span Eg.: routine clerical jobs
 For maintenances and R&D department and other departments which require many policy
decision and coordination with the work of others narrow span of control is ideal
(C) Modern Organization Theory

(a) System Approach
(b) Socio-Technical Approach
(c) Contingency-Situational Approach
(a) System Approach : It is developed by Karl Ludwig von Bertalanffy, Austrian biologist (1901-
1972), W. Ross Ashby, English psychiatrist (1903-1972), Kenneth Boulding, English/American economist
(1910-1993), Anatol Rapaport, Russian/American mathematical psychologist (1911-2007)
With the emergence in the 1960s of the open systems perspective, human relations concerns
related to employee satisfaction and development broadened to include a focus on organizational growth
and survival. According to the open systems perspective, every organization is a system unified structure
of interrelated subsystems and it is open subject to the influence of the surrounding environment.
Together, these two ideas form the central tenet of the open systems approach, which states that
organizations whose subsystems can cope with the surrounding environment can continue to do business,
whereas organizations whose subsystems cannot cope will not survive.
Characteristics
It is composed of parts which must be related (directly or indirectly), else there are really two or
more distinct systems :
 It is encapsulated (has a boundary)
 It can be nested inside another system and overlap with other systems
 It is bounded in time and space - exchanges information and/or material with its environment
 It consists of processes that transform inputs into outputs
 It is dynamic, it evolves - it is self-regulating, i.e. it is self-correcting through feedback
 It is often composed of entities seeking equilibrium but can exhibit oscillating, chaotic or
exponential behavior
 It can exhibit both multi-finality and equi-finality.
(b) Socio-Technical Approach : It is not just job enlargement and enrichment which is important,
but also transforming technology into a meaningful tool in the hands of the users. The socio-technical
systems approach is based on the premise that every organization consists of the people, the technical
system and the environment (Pasmore, 1988). People (the social system) use tools, techniques and
knowledge (the technical system) to produce goods or services valued by consumers or users (who are
part of the organization's external environment). Therefore, an equilibrium among the social system, the
technical system and the environment is necessary to make the organization more effective.
(c) Contingency Theory : According to contingency theory managerial action depends on the
particular parameters of the situation. Rather than applying a universal technique to each situation. It
suggests that different situation will require different approaches. In a management context contingency
has become synonymous with situational management.
The situational approach (Selznick, 1949; Burns and Stalker, 1961; Woodward, 1965; Lawrence
and Lorsch, 1967) is based on the belief that there cannot be universal guidelines which are suitable for
all situations. Organizational systems are inter-related with the environment. The contingency approach
(Hellriegel and Slocum, 1973) suggests that different environments require different organizational
relationships for optimum effectiveness, taking into consideration various social, legal, political, technical
and economic factors.
Contingency theory is an approach to the study of organizational behavior in which explanations
are given as to how contingent factors such as technology, culture and the external environment influence
the design and function of organizations. The assumption underlying contingency theory is that no single
type of organizational structure is equally applicable to all organizations. Rather, organizational effectiveness

is dependent on a fit or match between the type of technology, environmental volatility, the size of the
organization, the features of the organizational structure and its information system.
Henry Mintzberg : "The Structuring of Organizations" (1979) - Synthesized large parts of the
organizational research up to ca. 1975 - Proposed five basic organizational configurations (forms), each
based on one main coordinating mechanism and one key part of the organization :
 The Simple Structure (Entrepreneurial Form) - based on Direct supervision, Strategic
Apex key
 The Machine Bureaucracy - based on Standardization of work, Tech no structure key
 Professional Bureaucracy - based on Standardization of skills, Operating core key
 The Adhocracy (Innovative Organization) - based on Mutual adjustment, Support staff
(R and D) key
 The Divisionalized Form (Diversified Organization) - based on Standardization of
output,
Middle Line Key : Has later suggested two new configurations :
 The Missionary Organization - based on Standardization of norms, Ideology key
 The Political Organization - no prime coordinating mechanism, no key part
Organizational Cultural
Organizational culture includes an organization's expectations, experiences, philosophy, and values
that hold it together, and is expressed in its self-image, inner workings, interactions with the outside
world, and future expectations. It is based on shared attitudes, beliefs, customs, and written and unwritten
rules that have been developed over time and are considered valid. Also called corporate culture, it's
shown in
1. the ways the organization conducts its business, treats its employees, customers, and
the wider community,
2. the extent to which freedom is allowed in decision making, developing new ideas, and
personal expression,
3. how power and information flow through its hierarchy, and
4. how committed employees are towards collective objectives.
It affects the organization's productivity and performance, and provides guidelines on customer
care and service, product quality and safety, attendance and punctuality, and concern for the environment.
In business terms, other phrases are often used interchangeably, including "corporate culture,"
"workplace culture," and "business culture."
According to Edgar Schein, "Organizational culture can be defined as a pattern of basic
assumptions-invented, discovered or developed by a given group as it learns to cope with its problems
of external adaptation and internal integration-that has worked well enough to be considered valuable and,
therefore, to be taught to new members as the correct way to perceive, think and feel in relation to those
problems."
Organizational culture can be defined as the philosophies, ideologies, values, assumptions, beliefs,
expectations, attitudes and norms that knit an organization together and are shared by its employees.
According to definitions of organizational culture stress on the sharing of norms and values that guide
the organizational members' behavior. These norms and values are clear guidelines as to how employees
are to behave within the organization and their expected code of conduct outside the organization.
Characteristics
 Innovation and risk taking. The degree to which employees are encouraged to be
innovative and take risks.

 Attention to detail. The degree to which employees are expected to exhibit precision,
analysis, and attention to detail.
 Outcome orientation. The degree to which management focuses on results or outcomes
rather than on technique and process.
 People orientation. The degree to which management decisions take into consideration
the effect of outcomes on people within the organization.
 Team orientation. The degree to which work activities are organized around teams
rather than individuals.
 Aggressiveness. The degree to which people are aggressive and competitive rather than
easygoing.
 Stability. The degree to which organizational activities emphasize maintaining the status
quo in contrast to growth.
Approaches of Organizational Cultural
1. Edgar Schein
Believed that culture is the most difficult organizational attribute to change and that it can outlast
products, services, founders and leaders. Schein's model looks at culture from the standpoint of the
observer and describes organizational culture at three levels :
 Artefacts : organizational attributes that can be seen, felt and heard by the uninitiated
observer, including the facilities, offices, décor, furnishings, dress, and how people visibly
interact with others and with organizational outsiders
 Espoused Values : the professed culture of an organization's members. Company slogans,
mission statements and other operational creeds are useful examples
 Basic Underlying Assumptions : which are unseen and not consciously identified in
everyday interactions between organizational members. Even people with the experience
to understand this deepest level of organizational culture can become accustomed to its
attributes, reinforcing the invisibility of its existence.
2. Geert Hofstede
It is well-known for his work exploring the national and regional cultural influences which affect
the behavior of organizations (see Related Models and Thinkers). He also collaborated with Bob Waisfisz
to develop an Organizational Culture Model, based on empirical research and featuring six dimensions.
These are :
 Means Oriented v/s Goal Oriented : The extent to which goals (the 'what') or the
means (the 'how) of conducting work tasks are prioritized. This may affect attitudes to
taking risks or contributing discretionary effort
 Internally Driven v/s Externally Driven : Externally driven cultures will be more pragmatic,
focusing primarily on meeting the customer's requirements, while internally driven cultures
may exhibit stronger values
 Easygoing v/s Strict : Stricter cultures run on a high level of discipline and control, while
easygoing cultures tend towards more improvisation
 Local v/s Professional : The extent to which people identify with their immediate colleagues
and conform to the norms of this environment, or associate themselves with a wider
group of people and practices based on their role
 Open System v/s Closed System : The extent to which newcomers are accepted and
the differences they bring are welcomed
 Employee-Oriented v/s Work-Oriented : The extent to which the employee's well-being
is prioritized at the expense of the task, or vice versa.

3. Charles Handy
It links organizational structure to organizational culture. Handy describes :
 Power Culture : power is concentrated among a few with control and communications
emanating from the center. Power cultures have few rules and little bureaucracy; decision
making can be swift
 Role Culture : authority is clearly delegated within a highly defined structure. Such
organizations typically form hierarchical bureaucracies where power derives from a person's
position and little opportunity exists for expert power
 Task Culture : teams are formed to solve particular problems with power deriving from
expertise
 Person Culture : here, all individuals believe themselves superior to the organization. As
the concept of an organization suggests that a group of like-minded individuals pursues
common organizational goals, survival can become difficult for this type of organization.
However, looser networks or contractual relationships may thrive with this culture.
4. Gerry Johnson and Kevan
Scholes developed the Cultural Web in 1992. It is a representation of the taken for-granted
assumptions of an organization which helps management to focus on the key factors of culture and their
impact on strategic issues. This can identify blockages to and facilitators of change in order to improve
performance and The Cultural Web contains six inter-related elements:
 Stories : the past and present events and people talked about inside and outside the
company
 Rituals and Routines : the daily behavior and actions of people that signal acceptable
behavior
 Symbols : the visual representations of the company including logos, office decor and
formal or informal dress codes
 Organizational Structure : includes structures defined by the organization chart, and the
unwritten lines of power and influence that indicate whose contributions are most valued
 Control Systems : the ways that the organization is controlled including financial systems,
quality systems, and rewards
 Power Structures : Power in the company may lie, for example, with one or two executives,
with a group of executives or a department, or it may be more evenly distributed in a 'flat'
organizational structure. These people have the greatest amount of influence on decisions,
operations, and strategic Direction, competitive advantage.
Cultural Typology
Goffee and Jones have identified four distinct cultural types. They argue that these four culture
types are based on two dimensions which they call sociability and solidarity. Sociability refers to high
concerns for people i.e. it is people oriented and focuses on processes rather than on outcomes. The
second dimension i.e. solidarity is however task oriented.
These two dimensions create four distinct cultural types :
1. Networked Culture : Networked culture is high on sociability and low on solidarity. Which
means that the organisation treats, its members in a quite friendly manner and there is open sharing of
information. However, this culture type may lead to poor performance as the focus is on the people rather
than on tasks.
2. Mercenary Culture : It is low on sociability and high on solidarity. The organizations with
mercenary culture are task oriented and believe in competition. The people are highly focused and goal
oriented but, this type of culture may at times lead to frustration and stress among poor performers.

3. Fragmented Culture : Fragmented culture is low on both sociability and solidarity. There is
little or no identification with the organization. It is the individual members' commitment, productivity and
quality of work which is of utmost importance. This type of culture however suffers from lack of collegiality.
4. Communal Culture : It is high on both sociability and solidarity. The organizations with communal
culture value both people and tasks. Work accomplishment is from committed people, and there is a
relationship of trust and respect.
The following diagram explains the four cultural typology :
High Networked Communial

Sociability
Low Fragmented Mercenary

High
Solidarity
Q. While establishing relation between Maslow's and Herzberg's theories, which Needs of Hierarchy
Theory will fall under the Hygiene Factors ? (June 2012) P-II
(A) Self actualisation, esteem and social needs
(B) Esteem, social and safety needs
(C) Social, safety and physiological needs
(D) Only social needs
Ans. (C)
Q. The general pattern of behaviour, shared belief and values that members have in common is
known as (June 2013) P-II
(A) Organisation climate (B) Organisation culture
(C) Organisation effectiveness (D) Organisation matrix
Ans. (B)
Q. If a network of interpersonal relationship that arise when people associate with each other is an
informal organization, then find out which of the following is not an informal organization ?
(June 2013) P-III
(A) The "machine shop" group
(B) Customers' group
(C) The "sixth floor" group
(D) The "Friday evening bowling" Gang
Ans. (B)
Q. Assertion (A) : Job design relates to the manner in which tasks are put together to form
complete job.
Reason (R) : The matrix organization is a project organization plus a functional organization.
Codes : (Dec. 2014) P-III
(A) Both (A) and (R) are true. (B) (A) is true, but (R) is false.
(C) (A) is false, but (R) is true. (D) Both (A) and (R) are false.
Ans. (A)
Q. Which of the following is not true about Matrix Organisation ? (June 2014) P-II
(A) It is relatively permanent.
(B) Its project managers authority is distributed reasonably.
(C) There is slow information processing.
(D) Its project heads have to share resources with functional heads.
Ans. (C)
Q. Given below are two statements, one labelled as Assertion (A), and the other labelled as Reason
(R). (June 2014) P-II
Assertion (A) : Classical organisations believed in the use of authority to achieve coordination.
Reason (R) : Classical thinkers consider organisation is an open system.
Codes :
(A) (A) is correct, but (R) is incorrect. (B) Both (A) and (R) are correct.
(C) (A) is incorrect, but (R) is correct. (D) Both (A) and (R) are incorrect.
Ans. (A)
Q. Who has modified Maslow's Hierarchical levels of needs and developed ERG model ?
(June 2014) P-II
(A) Frederick Herzberg (B) David C. McClelland
(C) Douglas McGregor (D) Clayton Alderfer
Ans. (D)
Q. The structure of an organisation in which there is separation of ownership and management is

called (Dec. 2014) P-II
(A) Sole proprietorship (B) Partnership
(C) Company (D) Cooperative society
Ans. (C)
Q. Which of the following statements are true about informal organization ?

(1) It arises spontaneously.
(2) It reflects individual and group goals.
(3) It tends to be permanent and stable.
(4) It tends to be small and manageable.
(5) Its basic purpose is to improve human relations.
(6) Its basic purpose is to achieve organization's goals.
Codes : (June 2014) P-III
(A) (1), (2), (3) and (5) (B) (1), (2), (4) and (6)
(C) (1), (2), (4) and (5) (D) (2), (3), (5) and (6)
Ans. (C)
Q. One of the objectives of organizational change is (Dec. 2014) P-III

(A) Increased motivation
(B) Greater innovation
(C) Solving inter-group problems
(D) Changes in an organization's level of adaptation to its environment
Ans. (D)

Q. The classical organisation theory organisation as a/an : (Dec. 2015) P-II

(1) Open system (2) Closed system
(3) Technical system (4) Macro system
Ans. (2)
Q. Matrix organisation structure is essentially a violation of the principle of : (Dec. 2015) P-III
(1) Unity of Command (2) Scalar Chain
(3) Unity of Direction (4) Division of Labour
Ans. (1)
Q. Which of the following statements are not correct ? Indicate the correct code.
Statement (I) : Organizational culture means the general pattern of behavior, belief and values
that organization members have in individuality.
Statement (II) : As per contingency theory of Leadership, people become leader only because
of the demand of group members.
Statement (III) : The group judgment can only be obtained through the formal committees.
Statement (IV) : Ombudsperson in communication function is a person assigned to investigate
employee concerns and providing valuable upward communication link.
Codes : (Jan. 2017) P-III
(1) Statements (I), (II) and (IV) (2) Statements (I), (III) and (IV)
(3) Statements (I), (II) and (III) (4) Statements (II), (III) and (IV)
Ans. (3)
Q. Assertion (A) : The organization is a closed system that operates within and interacts with the
external environment.
Reasoning (R) : The system approach to management includes the outputs from the external
environment on the basis of interactions between management and employees.
Codes : (Jan. 2017) P-III
(1) (A) and (R) are correct and (R) is the correct reasoning of (A).
(2) (A) and (R) are correct, but (R) is not the correct explanation of (A).
(3) (A) is incorrect while (R) is a correct statement.
(4) Both (A) and (R) are incorrect.
Ans. (4)
Q. In integrating specialist functions of product management with the line function of sales as major
challenge to top management can be achieved by which type of marketing organization ?
(Jan. 2017) P-III
(1) Functional organization (2) Territorial organization
(3) Matrix organization (4) None of the above
Ans. (3)

6.3 RESPONSIBILITY AND AUTHORITY
Delegation of Authority
The Delegation of Authority is an organizational process wherein, the manager divides his work
among the subordinates and gives them the responsibility to accomplish the respective tasks. Along with
the responsibility, he also shares the authority, i.e. the power to take decisions with the subordinates,
such that responsibilities can be completed efficiently.
In other words, a delegation of authority involves the sharing of authority downwards to the
subordinates and checking their efficiency by making them accountable for their doings. In an organization,
the manager has several responsibilities and work to do. So, in order to reduce his burden, certain
responsibility and authority are delegated to the lower level, i.e. to the subordinates, to get the work done
on the manager's behalf.
Delegation of Authority
Top
Level
Middle Level
Low Level
Operating Level/Workers
Features of Delegation of Authority

1. Delegation means giving power to the subordinate to act independently but within the
limits prescribed by the superior. Also, he must comply with the provisions of the
organizational policy, rules, and regulations.
2. Delegation does not mean that manager give up his authority, but certainly he shares
some authority with the subordinate essential to complete the responsibility entrusted to
him.
3. Authority once delegated can be further expanded, or withdrawn by the superior depending
on the situation.
4. The manager cannot delegate the authority which he himself does not possess. Also, he
can -not delegate his full authority to a subordinate.
5. The delegation of authority may be oral or written, and may be specific or general.
6. The delegation is an art and must comply with all the fundamental rules of an organization.
Process of Delegation
(i) The allocation of Duties : The allocation in terms of results which want to achievement.
In the first stage the Administer identifies the work and assigns this activity to an
employee or group of employee.
(ii) The granting of Authority : In this stage the administered transfers authority to employee
with right to command. The authority given to the delegate must be clear specified as
there are several restrictions and limitations on authority a manager has at his disposal.
(iii) The Assignment of Responsibility : It is the creation of the delegate's obligation to
perform the assigned tasks and used the delegated authority properly. Responsibility is
divided in to two parts at the time of delegation - operating responsibility and ultimate
responsibility. Subordinate assume only the operating responsibility for the task perform
by them and manager retain ultimate responsibility for getting the job done. If the subordinate
fails to perform the job (operating responsibility) the superior is held responsible for this
failure (ultimate responsibility).
(iv) The Creation of Authority : The subordinate must accept the credit as well as blame
for their actions. A subordinate obligation to carry out what is assigned accountability is
the obligation to his superior to carry out the assignment in a satisfactory manner but
superior are always held responsible and accountable not only for their own actions but
also for those subordinates to whom they have delegated authority.
Principles of Delegation of Authority
Following are the guidelines that can be followed by the managers to practice an efficient
delegation :
1. Principle of Functional Definition : An organization is comprised of different functional
departments, each contributing to the organizational goals and, in turn, have their specific
objectives. Thus, clearly defined objectives of each department, the expected results, the
specific activities to be performed and intradepartmental relationships help the manager
to determine the requirements of that specific position.
2. Principle of Result Expected : Before actually delegating the authority to the subordinate,
the manager must know the purpose of such delegation and the results expected from
it. The goals, targets and the standard of performance must be clearly defined to direct
the actions of the subordinate towards the accomplishment of a given task in a required
manner. This principle helps in determining the authority to be delegated which is sufficient
for completing the responsibility.
3. Principle of Parity of Authority and Responsibility : This principle states that the
responsibility and the authority co-exists. This means, if the subordinate is assigned
certain responsibility, he must be given some level of authority i.e. power to perform his
responsibility. Thus, both the responsibility and the authority shall be clearly defined to the
subordinate, so that he knows what he is required to do within the powers delegated to
him.
4. Principle of Unity of Command : According to this principle, every subordinate should
have a single supervisor from whom he gets the authority and to whom he is solely
accountable. This means the subordinate should get the instructions from a single superior
and perform those responsibilities as assigned by him. In case, if the subordinate is
required to report to more than one boss, then there may be a conflict and delay in the
managerial operations.
5. Principle of Absoluteness of Responsibility : This principle asserts that responsibility
cannot be delegated. This means even after delegating the authority to the subordinate to
perform certain tasks on the manager's behalf; the manager will be solely responsible for
the doings of the subordinate. In other words, whatever actions being taken by the
subordinate, the manager will be accountable to his senior. Thus, the responsibility is
absolute and remains with the superior.
6. The Scalar Principle : There are clear lines of authority in the organization, i.e. who is
under whom. This helps the subordinate to know, who delegates the authority to him and
to whom he shall be accountable. Also to whom he shall contact in case things are
beyond his control. Thus, this principle asserts, that there should be a proper hierarchy
in the organization.
7. Principle of Exception : According to this principle, the subordinate shall be given complete
freedom to perform his responsibilities under the purview of his authority. The manager
should not interfere in between his work and must allow him to do even if he commits
mistakes. But in some exceptional cases, the managers can interfere and even withdraw
the authority delegated to the subordinate.

Centralization and Decentralization

Centralization
An organization is centralized when decision-making authority is retained by higher management
levels whereas it is decentralized when such authority is delegated.
Centralization means concentration of authority at the top level of the administrative system. In
a centralized system of administration, the lower levels (called field offices) cannot act on their own
initiative. They have to refer most of their problems to the higher level (called headquarters) for decision
making. They act as only implementing agencies. In a centralized system of administration, on the other
hand, the field offices can act on their own initiative in specified matters. They are given authority to take
decisions without reference to the headquarters. Thus, the essence of decentralization is the vesting of
decision-making power in the field offices.
Merits of Centralization
These are briefly discussed as follows :
 It provides for maximum control over the entire organization.
 It ensures that all the work is performed in the same manner and in accordance with the
same general policies and principles.
 It makes administrative abuses more difficult in matters like employment and handling of
personnel, purchase and use of supplies and so on.
 It ensures economy in administration by avoiding duplication of work.
 It facilitates the introduction of dynamism in the organization through the active role of
personnel leadership.
 It is suitable for dealing with emergencies and unanticipated matters.
 It enables the maximum utilization of the human and material resources in the organization
and thus develops a corporate personality.
Demerit of Centralization
 It leads to delay in securing action as the field officials have to refer the matter to the
higher authorities.
 It makes the head-office overburdened due to "apoplexy at the top and anemia at the
extremities."
 It leads to autocratic control over subordinates and thus results in lack of flexibility in
administration.
 It makes administration irresponsive as the head office acts without the knowledge of local
conditions and requirements
 It does not facilitate people's participation in administrative process.
 It does not allow the development of second line of executives.
 It is not conducive for the expansion and diversification of the organization.
Decentralization
Decentralization would imply the delegation of all decision making functions to the lower level of
the hierarchy and this would obviate the need for higher managerial positions.
In other words Decentralization implies consistent and systematic efforts to delegate to the
lowest levels all authority except that which can only be exercised at central point.
Decentralization is not the same as delegation. In fact, decentralization is all extension of delegation.
Decentralization pattern is wider is scope and the authorities are diffused to the lowest most level of
management. Delegation of authority is a complete process and takes place from one person to another.
Decentralization is wider in scope and the subordinate's responsibility increase in this case. On the other
hand, in delegation the managers remain answerable even for the acts of subordinates to their superiors.

Characteristics of Decentralized
 Decentralization is the dispersal of decision Making power in an organizational both vertically
and horizontally.
 It reflects a philosophy of organization and management
 Vertical decentralization concerns the dispersal of power down the chain of command.
 Horizontal Decentralization relates to line and staff relationship
 It improves the morale by establishing intimate relationship between the executives and
supervisors and other employees because of the better participation and communication.
 Decentralization of authority is different from dispersal of activities (dispersal of activities
in different geographies is a strategic decision; decentralization is concerned with distribution
of authority, not the activities).
Approaches to Decentralization
James W. Fesler classified the different approaches to the concept of decentralization in the
following four categories:
(a) Doctrinal Approach : It conceives decentralization as an end in itself and not as a means
to the realization of some goal. It views decentralization in terms of idealization, that is, a theory which
holds that things exist only as ideas in the mind.
(b) Political Approach : It says that the creation of decentralized units with a set of operational
autonomy is governed by political factor.
For example, the creation of Panchayat Raj as a rural local self-governing body in our country
is politically determined.
(c) Administrative Approach : It says that the establishment of autonomous decentralized units
in the fields is determined by the factor of administrative efficiency, that is, better decision-making and
faster problem-solving. For example, the creation of regions, divisions, districts, sub-divisions, talukas
and circles between the state headquarters and the field.
(d) Dual-role Approach : It conceives decentralization as a method of resolving conflicts in field
administration between tradition and change. The usage of status-quo oriented colonial field administration
to bring about speedy socio-economic change is leading to area-function dichotomy in district administration
in our country.
Type of Decentralization
Broadly, decentralization is of the two types - political and administrative. The decentralization is
further subdivided into territorial (vertical) decentralization and functional (horizontal) decentralization. A
brief discussion of the typologies of decentralization is as follows :
 Political or geographical decentralization
 If activities are spread over wide geographical areas, top executives cannot make decisions
with respect to all the functional areas and, therefore, there is tendency to decentralize.
 Territorial Decentralization (Vertical)
 It stands for the establishments of area administrative units (field offices) by the higher
authority (headquarters).
 Functional Decentralization (Horizontal)
 It implies the vesting of decision-making authority in the specialized units by the central
agency. For example, the creation of technical or professional bodies in India like the
University Grants Commission, Flood Control Board, Central Social Welfare Board, and
so forth.

Importance of Decentralization
 Develops Initiative Among Subordinates : Decentralization helps to promote self-reliance
and confidence amongst the subordinates. This is because when lower managerial levels
are given freedom to take their own decisions they learn to depend on their own judgment.
 Quick Decision Making : In a decentralized organization since decisions are taken at
levels which are nearest to the points of action and there is no requirement for approval
from many levels, the process is much faster.
 Develops Managerial Talent for The Future : Decentralization gives them a chance
to prove their abilities and creates a reservoir of qualified manpower who can be considered
to fill up more challenging positions through promotions. It also helps to identify those who
may not be successful in assuming greater responsibility.
 Better Control : Decentralization makes it possible to evaluate performance at each level
and the departments can be individually held accountable for their results.
Q. Delegation of authority makes the size of the organization : (Dec. 2014 P-II)
(A) Smaller organization
(B) Larger organization
(C) Very big organization
(D) It does not affect the size of the organization
Ans. (C)
Q. Which type of differentiation is used to gain competitive advantage through the way a firm
designs its distribution coverage, expertise and performance ? (July 2016 P-II)
(1) Channel differentiation (2) Services differentiation
(3) People differentiation (4) Product differentiation
Ans. (1)
Q. Which of the following is exercised during the operation of programme ? (July 2016 P-III)
(1) Feed forward control (2) Feedback control
(3) Static control (4) Concurrent control
Ans. (2)

Commerce (MSP)
Commerce
Model Solved Paper
Time : 120 min. Maximum Marks : 200
Note : This paper contains hundred (100) objective type questions, each question carries two
(2) marks. Attempt all the questions.
1. _______ is a scheme under which any person can move to the court of law in the interest of the
society. It involves efforts to provide legal remedy to unrepresented groups and interests.
(A) Public Interest Litigation (PIL) (B) Awareness Programme
(C) Both (A) and (B) (D) None
2. Match the following :

Group (A) Group (B)
(1) Income elasticity of demand (a) A measure of how much the Quantity
demanded of a goods Responds to change
in consumer income.
(2) Price elasticity of demand (b) A measure of the responsiveness of quantity
demanded or quantity supplied to one of its
determinants.
(3) Elasticity (c) A measure of how much the quantity
demanded of a goods responds to a change
in the price of that goods.
(4) Total Revenue (d) The amount paid by buyers and received by
sellers of a goods.
Codes :
1 2 3 4
(A) (a) (c) (b) (d)
(B) (d) (a) (c) (b)
(C) (c) (b) (d) (a)
(D) (b) (a) (d) (c)
3. _______ is the rate at which RBI lends funds to banks for short periods, generally against Govt.
Securities. This is done by RBI buying government bonds from banks with an agreement to sell
them back at a fixed rate.
(A) Statutory Liquidity Ratio (B) Cash Reserve Ratio
(C) Repurchase Rate (D) none
4. Which of the following statements about economic policies is not correct

(A) Trade policy is often not integrated with industrial policy.
(B) Industrial policy defines the scope and role of different sectors.
(C) Foreign exchange rate policy is based an liberalization.
(D) Fiscal policy affects the development of various regions and sector
Commerce (MSP)
5. Which one of the following is not the driver of globalization ?

(A) Higher trade barriers and more population stability
(B) Foreign direct investment
(C) Foreign institutional investment
(D) Technological-advances.
6. Cross elasticity defined as :
1  Price
(A) Percentage change in Quantity
Price  1
(B) Change in Quantity Demanded
Percentage change in Quantity

(C)
1  Price
Percentage change in Quantity demand of one goods caused by a 1 percent

(D) Change in the Price of some other goods
7. ________ expenditure is concerned with all current expenditure of the government on administration.
(A) Revenue Expenditure. (B) Capital Expenditure
(C) Total Expenditure (D) None of the above
8. According to which section of company Act an auditor should submit his report?
(A) 219 (B) 221
(C) 223 (D) 227(2)
9. Generally an auditor is :
(A) Staff of company (B) Agent of company
(C) Agent of shareholders (D) None of these
10. “An Auditor is not a valuer” this statement is of

(A) De Paul (B) Joseph Lancaster
(C) JR Batliboi (D) Spicer and Pegler
11. Which one of the following is correct ?

(A) Auditing is backbone of vouching
(B) Vouching is backbone of auditing
(C) Vouching is backbone of accounting
(D) All of the above

Commerce (MSP)
12. The following statements apply to equity/preference shareholders. Which one of them applies
only to preference shareholders.
(A) Shareholders risk the loss of investment
(B) Shareholders bear the risk of no dividends in the event of losses.
(C) Shareholders usually have the right to vote
(D) Dividends are usually given at a set amount in every financial year.
13. Authorised capital of a company is mentioned in

(A) Memorandum of Association (B) Articles of Association
(C) Prospectus (D) Statement in lieu of prospectus
14. Minimum subscription amount of 90% is related to which share capital.

(A) Authorised capital (B) Issued capital
(C) Paid up capital (D) Reserve capital
15. Which statement is/are for term of cartels

(A) A cartel is an association of Independent firms within the same industry
(B) The cartel follow common policies relating to prices, output, sales and profit maximization
and distribution of products
(C) Cartels may be voluntary or compulsory and open or secret depending upon the policy of
the government with regard together formation
16. _____________ strategy is adopted when most of the players do not indulge in separate pricing
but follow the prevailing market price.
(A) Going Rate Pricing (B) Entry Deterring Pricing
(C) Penetration Pricing (D) All of the above
17. In _____________ market a commodity is purchased in greater quantity after price hikes and less
quantity at lower prices.
(A) Perfect (B) Speculation
(C) Imperfect (D) None of these
18. Choose the correct answer about long run equilibrium in the monopolistic market
(1) Firms get super normal profit (2) There is no entry and exit of the firm
(3) Firm earns only normal profit
(A) (1) and (2) are true (B) (1) and (3) are true
(C) Only (3) is true (D) (2) and (3) are true
19. The objective of discriminatory monopoly is to maximize its.

(A) Only profit (B) Only sale
(C) Both sale and profit (D) None

Commerce (MSP)

List-I List-II
(i) Law of demand is fully applicable (1) Giffen goods
(ii) Law of demand is not applicable (2) Veblon goods
at all
(iii) Law of demand is partly applicable (3) Normal goods
Codes :
(i) (ii) (iii)
(A) (2) (3) (1)
(B) (1) (2) (3)
(C) (3) (1) (2)
(D) (2) (1) (3)
21. Which of the following statements on testing of a hypothesis is always true ? [Gujarat 2014]
(A) When the null hypothesis is rejected at 5% level of significance, it is always rejected at
1% level also
(B) When the null hypothesis is rejected at 1% level of significance, it is also rejected at 5%
level also.
(C) When the null hypothesis is not rejected at 1%, it is rejected at 5% level of significance
(D) No definite assertion can be made.
22. Stratified random sampling is used when

(A) Data given are homogenous
(B) Data given are qualitative in nature
(C) Data given are heterogenous
(D) No other sampling methods applicable
23. Which one is not true for the assumption of t–test.

(A) Sample size is small
(B) Sample is drawn from a normal population
(C) Sample observation are independent
(D) Population variance is known.
24. Who propounded the theory of regression in statistics ?

(A) Sir Francis Galton (B) Bowlay
(C) Karl Pearson (D) Walis and Roborts
25. If bxy = 0.5 rxy = 0.8 y variance of y = 16, less then x = ?

(A) 2.5 (B) 2.75
(C) 3.75 (D) 4.6
26. The correlation coefficient “r” is the _________ of the two regression coefficients byx
and bxy
(A) Arithmetic mean (B) Geometric mean
(C) Harmonic mean (D) None of these
Commerce (MSP)
27. The limits of the population correlation can be estimated by one of the following :
(A) r  PE (B) r  3PE
(C) r  SE (D) r  3SE
28. ______________ is the market in which participants are able to buy, sell exchange and speculate
on currencies.
(A) Money Market (B) Capital Market
(C) Foreign Exchange Market (D) None of these
29. Foreign Exchange risk also known as

(A) FX Risk (B) Exchange rate risk
(C) Currency risk (D) All of the above
30. Which statement is/are true

Statement-I : Foreign exchange risk describes the risk that an investment’s value may change
due to changes in the value of two different currencies.
Statement-II : Exchange rate risk is an essential aspect of international business as negative
exchange rate fluctuations between the currency in the country where a company or individual
is based and the currencies of the countries in which they operate can have significant impact
on profit margins, especially for small and medium companies with limited liquidity.
(A) Statement-I and II both are correct (B) Statement-I and II both are wrong
(C) Statement-I correct and II wrong (D) Statement-I wrong and II correct
31. Gold standard introduced in

(A) 1867 (B) 1876
(C) 1897 (D) 1976

List-I List-II
(Measurement of Cost of Capital) (Features)
a. Cost of debt 1. The shareholders have to incur some
brokerage cost for investing the dividends
received.
b. Cost of preference share capital 2. The amount of interest payment should be
matched with the net cash proceeds of the
debt.
c. Cost of equity share capital 3. The rate of dividend payable on these share
is fixed well in advance at the time of their
issue.
d. Cost of retained earning 4. Cost of such shares is an imputed cost.

Commerce (MSP)
Codes :
a b c d
(A) 4 3 1 2
(B) 3 1 4 2
(C) 2 3 4 1
(D) 4 3 2 1
33. PQR ltd has taken a term loan of Rs. 20 Lakhs at an interest rate of 14% P.a. If the tax rate
applicable is 30%, the cost of term loan is :
(A) 8.9% (B) 9.8%
(C) 14.0% (D) 4.2%
34. According to net income approach the average cost of capital of firm :
(A) Declines as debt-equity ratio increases
(B) Increase as debt-equity ratio increases
(C) Remains constant irrespective of change indebt-equity ratio
(D) Keeps on fluctuating with increase in debt equity ratio
35. The four types of social responsibility include:

(A) legal, philanthropic, economic, and ethical
(B) ethical, moral, social, and economic
(C) philanthropic, justice, economic, and ethical
(D) legal, moral, ethical, and economic
36. In a ______________ organization, decision making is delegated as far down the chain of command
as possible.
(A) Decentralized (B) Creative
(C) Flexible (D) Centralized
37. Disqualification of directors may result from breaches under the

(A) Sale of Goods Act 1979
(B) Financial Services Act 1986
(C) Companies Act 2013 and Insolvency Act 1986
(D) Health and Safety at Work Act 1974
38. According to Cadbury (2002), corporate governance is an issue of power and:

(A) Rights (B) Accountability
(C) Profit (D) Appropriability
39. Rules, duties and responsibilities or workers are given in writing in

(A) Formal Organization (B) Informal Organization
(C) Business Organization (D) Strategic Organization

Commerce (MSP)
40. Motivation based on force of fear is called __________.

(A) Negative Motivation (B) Positive Motivation
(C) Extrinsic Motivation (D) Intrinsic Motivation
41. If a network of interpersonal relationship that arise when people associate with each other is an
informal organization, then find out which of the following is not an informal organization ?
(A) The "machine shop" group (B) Customers' group
(C) The "sixth floor" group (D) The "Friday evening bowling" Gang
42. ________ in this method the trainee is placed on a regular Job and taught the skills necessary
to perform it the trainee learns under the guidance and supervision of the superior or an instructor.
(A) OJT (B) Vestibule
(C) Apprenticeship (D) Internship
43. In which technique, the evaluator assigns relative ranks to all the employees in the same work
unit doing the same Job. Employee are ranked from the best to the poorest on the basis of overall
performance.
(A) Essay Method (B) Straight Ranking Method
(C) Paired Comparisons Method (D) Forced Distribution Method
44. Which statement is not true ?

(A) Job evaluation is a logical and objective technique of ranking Jobs and thereby removing
wage in equities.
(B) Job evaluation help in fitting new Jobs at their appropriate places in the existing wage
structure
(C) Job evaluation simplifies wage administration by making wage rates more uniforms.
(D) None of these.
45. Highest level of participation where decisions are jointly taken on the matters relation to production,
welfare etc. is called ______ ?
(A) Associative (B) Consultive
(C) Decisive (D) Administrative
46. Statement : 1 WPM means mental and emotional involvement rather than more physical presence.
It is more than consent or approval to managerial actions.
Statement : 2 Workers participation is not different from collective bargaining.
(A) Statement 1 and 2 both are correct
(B) Statement 1 and 2 both are wrong
(C) Statement 1 is correct and 2 is wrong
(D) Statement 1 is wrong and 2 is correct
47 Dexterity tests are used to judge the _______ .

(A) Training of the candidate
(B) Proficiency of the candidate
(C) Physical movements of the candidate
(D) None of the above

Commerce (MSP)
48 The ultimate purpose is to related human resources to future enterprise needs, so as to maximise
the future return on investment in human resources. It is referred as :
(A) Demand and Supply (B) Forecasting
(C) Human Resource Planning (D) Human Resource Development
49. Which Read the following statement carefully :

Statement-I : Formal financial institution do not mobilize rural saving or small scale deposits.
Statement-II : Formal sectors of institutions are selective regarding their clients so as to avoid
clients who make only small deposits.
(A) Statement-I and II both are correct (B) Statement-I and II both are wrong
(C) Statement-I correct and II wrong (D) Statement-I wrong and II correct
50. Which statements are true?

(a) The inform sector mobilises rural saving and small saving from low income urban
households.
(b) Informal groups operate on the days which are convenient for their members.
(c) The procedures of the informal schemes are usually simple and straight forward as they
emanate from local cultures and customs they are easily understood by the population.
(A) (a) & (b) (B) (a) & (c)
(C) (b) & (c) (D) (a), (b) & (c)
51. ATM was first introduced in India by HongKong and Singapore Banking Corporation (HSBC) in the
year.
(A) 1984 (B) 1989
(C) 1982 (D) 1987
52. After independence the Imperial Bank of India was nationalized and known as
(A) Reserve Bank of India (B) State Bank of India
(C) Punjab National Bank (D) Central Bank of India
53. Which of the following is not classified as a commercial Bank ?

(A) Regional Rural Bank (B) Private Sector Bank
(C) Foreign Bank (D) Co-operative Bank
54. Credit risk to the bank is high from which of these card ?
(A) ATM cards (B) Debit cards
(C) Credit cards (D) All of these
55. Which of the following is NOT a source of funds of a commercial bank ?

(A) Capital (B) Borrowings from RBI
(C) Call money (D) Cash reserves with RBI

Commerce (MSP)
56. Which agency provides credit ratings, conducts risk assessment and provides analytical solutions
to individuals, corporates and MSMEs ?
(A) CARE (B) ONICRA
(C) ICRA (D) CRISIL
57. Interest subsidy scheme for women entrepreneurs has started by ……?
(A) RBI (B) SIDBI
(C) IDBI (D) IFCI
58. In _______ market spot trades are made with spot prices. Unlike the futures market, orders
made in the spot market are settled instantly.
(A) spot market (B) physical market
(C) cash market (D) all of the above
59. What are the primary function of insurance :

(A) To Provide certainty against the probable risks
(B) To Provide security Jacket
(C) Research and development
(D) (A) & (B) Both

List-I List-II
(a) Ordinary insurance (i) An insurance in which the insured persons
without medical checkup through the master
insurance policy
(b) Industrial and intermediate (ii) Large amount of insurance is done on the
insurance basis of decided premium according to the
fixed minimum amount and its multiples
(c) Group insurance (iii) Such life insurance policies issued in public
interest commonly in foreign countries which
are for small amount and premium amount is
insignificant to recover that the representatives
of insurance institution need not to go to the
assured’s houses themselves.
Codes :
(a) (b) (c)
(A) (iii) (ii) (i)
(B) (ii) (iii) (i)
(C) (ii) (i) (iii)
(D) (i) (iii) (ii)
61. All of the following is not tree regarding ULIP’s Except.

(A) Unit holders can choose between different kind of funds
(B) Life insurance provide Guarantee for all unit value
(C) Units may be purchased by payment of single premium can via regular premium payments
(D) ULIP Policy structure is transparent with regards to insurance expenses components

Commerce (MSP)
62. Which of the following is/are the various types of insurance?

(1) Life insurance (2) Health insurance
(3) Liability insurance
(A) Only (1) (B) Only (1) and (2)
(C) Only (2) and (3) (D) All of these
63. What was the theme of the 48th ASEAN (Association of Southeast Asian Nations) Foreign Ministers’
meet that was held in Kuala Lumpur, Malaysia between 4-6 Aug’15?
(A) Our People, Our Community, Our Vision
(B) Our Community, Our Vision
(C) Our People, Our Vision
(D) Our People, Our Community, Our Tradition
64. What is the name of the SAARC satellite to be launched on May 5, 2017?
(A) South Asia Satellite (B) South Asian Association Satellite
(C) South East Asia satellite (D) SAARC satellite
65. Which of the following is not the main purpose for formation of SAARC
(A) To Combat Terrorism
(B) To Promote the Welfare of the people of South Asia
(C) To form mutual defence against foreign aggression
(D) To accelerate economic growth and natural development
66. Which of the following is not the part of World Bank group ?
(A) IBRD (B) IFC
(C) IDA (D) ADB
67. Who is the Governor for India in ADB ?

(A) Prime Minister (B) RBI Governor
(C) President of India (D) Finance Minister
68. Match the following

List-I : (Concepts) List-II : (Meanings)
a. Foreign direct investment 1. It encompasses various types of creations of
mind like inventions.
b. Intellectual property 2. Right conferred on the owner of a literary or
artistic work.
c. Copyrights 3. Corporations that operate in more than one
country.
d. Multinational corporations 4. It refers to the act of investing capital in a
business enterprise that operates overseas
and in a foreign country.

Commerce (MSP)
Codes :
a b c d
(A) 4 3 2 1
(B) 4 1 2 3
(C) 2 1 4 3
(D) 3 2 1 4
69. Objective of World Bank does not Include

(A) Encourage long- term balanced growth of international trade
(B) Assistance in the reconstruction of member countries
(C) Supplement private investment by its own loans and finance
(D) Short term assistance to member countries
70. Which of the following is not an exchange function of Marketing

(A) Product Planning and Development
(B) Buying Function
(C) After Sales Service
(D) Selling Function
71. Assertion (A) : Marketing is anything you create or share that tells your story.
Reasoning (R) : Marketing is a way to connect what products and services you have to offer with
customers who want and need such product and services.
Codes :
(A) (A) is correct but (R) is not correct.
(B) (A) and (R) both are correct and (R) is the correct explanation of (A).
(C) (A) and (R) both are correct but (R) is not the correct explanation of (A).
(D) (A) and (R) both are incorrect
72. Which is not a part of 4Cs in marketing?

(A) Communication (B) Consumer
(C) Cost (D) Community
73. Assertion (A) : Marketing mix is mix of markets for optimum sales.
Reason (R) : Marketing mix can-notes four P's-product, price, promotion and physical distribution
of goods.
(A) Both (A) and (R) are true (B) Both (A) and (R) are false
(C) (A) is true, but (R) is false (D) (A) is false, but (R) is true
74. Marketing strategy in which a firm sells different segments and offers different product is classified
as
(A) individual marketing (B) differentiated marketing
(C) mass marketing (D) niche marketing

Commerce (MSP)
75. Marketing channel that involves no intermediaries to make their products available to final buyers
is classified as
(A) direct channel (B) indirect channel
(C) flexible channel (D) static channel
76. Companies that practice online marketing into their traditional operations are classified as
(A) premium companies (B) direct companies
(C) click only companies (D) click and mortar companies
77. A car is imported after 1- 4- 2005 by R Ltd. from London to be used by its employee. R Ltd. shall
be allowed depreciation on such car at:
(A) 15% (B) 40%
(C) Nil (D) 10%
78. Where the entire block of the depreciable asset is transferred after 36 months, there will be :
(A) Short-term capital gain (B) Long-term capital gain
(C) Short-term capital gain or loss (D) Long-term capital gain or loss
79. The rulings of the AAR are binding on the :

(A) The Commissioner and all income tax authorities subordinate to him
(B) Any person undertaking similar transaction, as the transaction, where ruling of AAR was
pronounced
(C) All income-tax authorities and appellate authorities
80. A new business was set up on 15-11-2016 and it commended its business from 1-12- 2016. The
first previous year in this case shall be _________.
(A) 15-11-2016 to 31-03-2017 (B) 1-12-2016 to 31-03-2017
(C) 2016 – 2017 (D) None of these
81. Basic condition will be for a person who leaves India for employment _______________.
(A) At least 182 days in India
(B) At least 60 days in previous year and 365 days in preceding 4 years
(C) At least 730 days in preceding 7 years
82. The tax incidence for company or firm in which income received outside India from a source
controlled from India for resident is :
(A) Taxable (B) Non-taxable
(C) Partly taxable (D) None of the above
83. Out of the following, which of the capital receipt is not taxable :
(A) Capital gains of Rs. 10,00,000
(B) Amount of Rs. 5,00,000 won by way of lottery, games, puzzles
(C) Amount of Rs. 2,00,000 received by way of gift from relatives
(D) Amount of Rs. 1,00,000 received by way of gift from a friend on marriage anniversary
Commerce (MSP)
84. What is the rate of MAT/AMT applicable in case of non-Corporate Assessee being a unit located
in International Financial Services Centre. (From F.Y 18-19)
(A) Mat is applicable @ 18.5% since it is a non company.
(B) AMT is applicable @ 18.5 % since it is a non company.
(C) Income Tax @ 30 % is applicable & No MAT/AMT applies.
(D) AMT is applicable @ 9 % since it is a non company.
85. The provisions regarding TDS on Salaries are contained in _______________.

(A) Section 190 (B) Section 191
(C) Section 192 (D) Section 193
86. As per Section 207, _______________ not having any income from business or profession is not
liable to pay advance tax.
(A) A resident individual who is of the age of below 60 years
(B) A resident HUF
(C) A nonresident individual
(D) A resident senior citizen
87. You invested in FDs but no TDS was deducted. Should you:
(A) Ignore reporting the income because bank didn't deduct TDS.
(B) Add the amount to your annual income and pay tax on it.
(C) Mention income in tax return but claim exemption for bank interest
(D) None of the above
88. If you work abroad how might your employer ensure you are not disadvantaged by extra taxation?
(A) Tax equalisation. (B) Tax avoidance.
(C) Tax mitigation. (D) Tax evasion.
89. In respect of which area tax planning cannot be attempted at the time of setting up new business
entity.
(A) Form of organization (B) Locational aspects
(C) Nature of Business (D) Corporate Restructuring
90. Which of the following is the special accounting year of companies exporting rice?
(A) 1st January to 31st December
(B) 1st July to 30th June
(C) 1st October to 30th September
(D) 1st September to 31st August
91. When a minor has been supplied with necessary in credit

(A) Minor is personally liable (B) Minor is not liable
(C) Minor’s estate/property is liable (D) None of these

Commerce (MSP)
92. Which of the following is a correct?

(A) An agreement is Restraint of lawful trade.
(B) An agreement in writing duly signed to pay time barred debt.
(C) An agreement to do a lawful act by unlawful ways
(D) None of these
93. P, Q and R jointly promise to pay Rs. 3000 to X. X files a suit to recover to amount against P.
(A) X can sue P or the Recovery of Rs. 1000 only
(B) X must sue all the three
(C) X can recover the amount from any one.
(D) X must make all the three parties to the suit
94. Which is the Exception of Nemo dat quod non habet

(A) Estoppel (B) Sale By Mercantile agent
(C) Sale By one of joint owners (D) All of the above
95. Sale by a person in possession under contract of voidable contract

(A) does not give better title (B) gives a better title
(C) gives a defective title (D) None of these
96. For which purpose securities premium account can be utilised?

(A) In writing off the preliminary Expenses
(B) Buy Back of shares
(C) Issue of Bonus shares
(D) Any of the Above
97. The first AGM is to be conducted within _______ from the date of the first financial year of the
company.
(A) 12 Months (B) 9 Months
(C) 18 Months (D) None of these
98. Competition Act Based on

(A) Pre liberalization Scenario (B) Post liberalization Scenario
(C) Pre privatisation Scenario (D) All of these
99. Punishment for violation of privacy

(A) Imprisonment upto 3 year or fine upto 2 lac or with both
(B) Imprisonment upto 5 year or fine upto 3 lac or with both
(C) Imprisonment upto 5 year or fine upto 2 lac
(D) None
100. Punishment for publishing obscene material

(A) Imprisonment upto 3 year or fine upto 5 lac
(B) Imprisonment upto 3 year and fine upto 5 lac
(C) Imprisonment upto 5 year and fine upto 2
(D) None
Commerce (MSP)
ANSWER KEY
1 2 3 4 5 6 7 8 9 10
A A C A A D A D C B
11 12 13 14 15 16 17 18 19 20
B D A B D A B D C C
21 22 23 24 25 26 27 28 29 30
B C D A A B D C D A
31 32 33 34 35 36 37 38 39 40
B C B A A D C B A A
41 42 43 44 45 46 47 48 49 50
B A B D C C C C A D
51 52 53 54 55 56 57 58 59 60
D B B C D B D D D B
61 62 63 64 65 66 67 68 69 70
B D A A C D D A D C
71 72 73 74 75 76 77 78 79 80
C D D B A D C A A A
81 82 83 84 85 86 87 88 89 90
A A C D C D B A D A
91 92 93 94 95 96 97 98 99 100
C B C D B D B B A B

Commerce (MSP)
SOLUTIONS
1. (A) Public Interest Litigation (PIL)

2. (A) (a) (c) (b) (d)
3. (C) Repurchase Rate
4. (A) Trade policy is often not integrated with industrial policy.
5. (A) Higher trade barriers and more population stability
Percentage change in Quantity demand of one goods caused by a 1 percent

6. (D) Change in the Price of some other goods
7. (A) A revenue expenditure is a cost that is charged to expense as soon as the cost is
incurred. By doing so, a business is using the matching principle to link the expense
incurred to revenues generated in the same reporting period.
8. (D) 227(2)
9. (C) Agent of shareholders
10. (B) Joseph Lancaster
11. (B) Vouching is backbone of auditing
12. (D) Dividends are usually given at a set amount in every financial year.
13. (A) Memorandum of Association
14. (B) issued capital
15. (D) All of the above
16. (A) Going Rate Pricing
17. (B) In speculation market a commodity is purchased in greater quantity after price hikes and
less quantity at lower prices.
18. (D) Correct Statements
(1) There is no entry and exist of the firms.
(2) Firms earns only normal profit.
19. (C) Both sale and profit
20. (C) (i) Law of demand is fully applicable (1) Normal goods
(ii) Law of demand is not applicable (2) Giffen goods
at all
(iii) Law of demand is partly applicable (3) Veblon goods
21. (B) When the null hypothesis is rejected at 1% level of significance, it is also rejected at 5%
level also.
22. (C) Data given are heterogenous
23. (D) Application of The Distribution
1. To test the significance of the mean of random sample population variance being
unknown
2. To test the significance of the difference between two sample means (independent
samples)
3. To test the significance of the difference between two sample means (Dependent
Sample)
4. To test the significance of an observed correlation coefficient.
24. (A) Sir Francis Galton
Commerce (MSP)
x
25. (A) bxy = rxy 
y
x   y  16
0.5 = .8 
y 4
x
0.5 = .8
4
x = 2.5
26. (B) Geometric mean
27. (D) The r ± 3SE formula is used to determine the limits of coefficient of correlation for the
sample selected from the populations.
28. (C) Foreign Exchange Market
29 (D) All of the above
30. (A) Statement-I and II both are correct.
31. (B) Gold standard introduced in 1876.
32. (C) a. Cost of debt 1. The amount of interest payment should
be matched with the net cash
proceeds of the debt.
b. Cost of preference 2. The rate of dividend payable on these
share capital share is fixed well in advance at the
time of their issue.
c. Cost of equity share capital 3. Cost of such shares is an imputed
cost.
d. Cost of retained earning 4. The shareholders have to incur some
brokerage cost for investing the
dividends received.
33. (B) Kd = 14%
Kd After tax = Kd before tax × (1 – t)
= 0.14 × (1 – .30)
= 0.14 × .70
= .098 or 9.8%
34. (A) Declines as debt-equity ratio increases.
35. (A)  Legal
 Philanthropic
 Economic
 Ethical
36. (D) Centralized organization, decision making is delegated as far down the chain of command
as possible.
37. (C) Companies Act 2013 and Insolvency Act 1986
38. (B) According to Cadbury Report boards have to be free to take companies forward but
in doing so they must operate within framework of effective accountability and this essence
of any system of good corporate governess. This mean accountability is not be regarded
as either on the periphery of corporate governess.
Corporate governess is an issue of power and Accountability which is related to other
matters theses are delegation, responsibility, disclosure, autonomy, authority , power and
legitimacy.

Commerce (MSP)
39. (A) Rules, duties and responsibilities or workers are given in writing in Formal Organization
40. (A) Negative Motivation
41. (B) Machine Shop group , Customer Group and Sixth floor group are informal organization
which are arise informational and friendly way. Customer group is not informal group
because Customers are the most important people in any business or store. They are the
resource on which the success of the business depends on. Customers satisfaction is
at the heart of every store.
We need to divide into your customers in different groups according to their needs or their
hobbies. This makes the customers feel that they are really respected from you. Besides
that, this is an advantage because it helps increase customer's satisfaction from the user
experience.
42. (A) On the Job Training (OJT)
43. (B) Straight Ranking Method
44. (D) All statements are true.
45. (C) Decisive
46. (C) Workers participation is different form collective bargaining collective bargaining is based
on power play, pressure tactics and negotiations whereas participation is based on mutual
trust, information sharing and mutual problem solving.
47 (C) Physical movements of the candidate
48 (C) Human Resource Planning
49. (A) Both are correct
50. (D) (a), (b) and (c)
51. (D) HSBC in India has been active in the development of the Indian banking industry - even
giving India its first ATM in 1987.
52. (B)  The State Bank Of India was formerly known as "Imperial Bank Of India" during the
British rule.
 It was established on 1st July, 1955 under the recommendations of "Gorwala
committee".
 It was nationalized on 2nd June, 1956 with majority of its share taken by the
Government of India.
 The SBI acts as an agent where the Reserve Bank Of India has no branch offices.
 It has 5 associate banks, State Bank of Bikaner & Jaipur, Hyderabad, Mysore,
Patiala and Travancore.
53. (B) Private Sector Bank
54. (C) Credit cards
55. (D) Cash reserves with RBI
56. (B) ONICRA Credit Rating Agency is the private rating agency established by Sonu Mirch and
ani under ONIDA Finance. It is headquartered in Gurugram, Haryana. The agency provides
credit ratings, conducts risk assessment and provides analytical solutions to individuals,
corporates and MSMEs.
57. (D) IFCI has started new promotional schemes such as :
(a) Interest subsidy scheme for women entrepreneurs.
(b) Consultancy fee subsidy schemes for providing marketing assistance to small
scale units.
(c) Encouraging the modernization of tiny, small and ancillary units.
(d) Control of pollution in the small scale and medium scale industries.
Commerce (MSP)
58. (D) The spot is a market for financial instruments such as commodities and securities which
are traded immediately or on the spot. In spot markets, spot trades are made with spot
prices. Unlike the futures market, orders made in the spot market are settled instantly.
The spot market is also referred to as the "physical market" or the "cash market" because
of the instant and immediate pace and movement of orders made as orders are made
at current Market Prices. Market prices are unlike forward Prices which cover prices at
a later date.
59. (D) Research and development is secondary function of insurance.
60. (B) (ii) (iii) (i)
61. (B) Life insurance provide Guarantee for all unit value
Unit linked insurance plan is a life insurance product, which provides risk cover for the
policy holder along with investment options to invest in any number of qualified investment
such as stocks, bonds or mutual funds.
62. (D) All of these
63. (A) Our People, Our Community, Our Vision
Besides, the ASEAN foreign ministers meet was participated by India's Minister of State
for External Affairs of India Gen (Retd) VK Singh.
64. (A) South Asia Satellite
65. (C) To form mutual defence against foreign aggression
66. (D) Asian Development Bank is not Part of World Bank Group.
Part of World Bank Group :
The International Bank for Reconstruction and Development (IBRD)
The International Development Association (IDA)
The International Finance Corporation (IFC)
The Multilateral Investment Guarantee Agency (MIGA)
The International Centre for Settlement of Investment Disputes (ICSID)
67. (D) Finance Minister
68. (A) a. Foreign direct investment 1. It refers to the act of investing capital
business enterprises that operates in
a foreign country.
b. Intellectual property 2. Corporations that operates in more
country
c. Copyrights 3. Right conferred on the owner of a
artistic work.
d. Multinational corporations 4. It encompasses various types of
creations of mi Mind like inventions.
69. (D) Objectives
 To provide long-run capital to member countries for economic reconstruction and
development.
 To induce long-run capital investment for assuring Balance of Payments (BOP)
equilibrium and balanced development of international trade.
 To provide guarantee for loans granted to small and large units and other projects
of member countries.
 To ensure the implementation of development projects so as to bring about a
smooth transference from a war-time to peace economy.

Commerce (MSP)
 To promote capital investment in member countries by the following ways;

(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD
provides loans for productive activities on considerate conditions.
70. (C) After Sales Service
71. (C) (A) and (R) both are correct but (R) is not the correct explanation of (A).
72. (D) Community
73. (D) (A) is false, but (R) is true
74. (B) differentiated marketing
75. (A) direct channel
76. (D) click and mortar companies
77. (C) Nil
78. (A) Short-term capital gain
79. (A) The Commissioner and all income tax authorities subordinate to him.
80. (A) 15-11-2016 to 31-03-2017
81. (A) At least 182 days in India
82. (A) Taxable
83. (C) Amount of Rs. 2,00,000 received by way of gift from relatives
84. (D) MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a
company, being a unit of an International Financial Services Centre and deriving its income
solely in convertible foreign exchange.
85. (C) Section 192
86. (D) A resident senior citizen
87. (B) Income from fixed deposits is fully taxable and has to be mentioned as income from other
sources. The taxpayer has to pay tax at the marginal rate applicable to him. The exemption
under Sec 80TTA is for interest earned on savings bank balance, not for interest from fixed
deposits.
88. (A) Tax equalisation.
89. (D) Corporate Restructuring
90. (A) 1st January to 31st December
91. (C) Minor’s estate/property is liable
Generally minor is not personally liable for any contract but if any person supply essential
commodities and minor have estate enough, then he may receive the amount of essentials
from his estate.
92. (B) Option available other than (B) are unlawful and prohibited as per law and for recovery of
time barred debt is lawful. If is in writing and signed by debtor.
93. (C) As per law X may file suit against P, Q, R jointly or any one of them.
94. (D) Section 27 of sale of goods Act 1930 also deals with exception of “sale owners valid” this
contains all the three points
(A) Estoppel
(B) Sale by mercantile Agent
(C) Sale by joint owners, are valid
95. (B) When the seller or goods has obtained possession under a contract voidable under
section 19 or section 19A of act, the buyers acquires a good title to the goods provided
he buys them in good faith and without notice of defective contract.

Commerce (MSP)
96. (D) Securities premium account only use for following purpose only (Sec 52)
 for issue Bonus share
 Writing off the preliminary expenses
 Premium on redemption of pref share or debentures
 Buy back
97. (B) There is annually organise meeting by every company is annual general meeting. The first
AGM is to be conducted within 9 months from the date of the first financial year of the
company.
98. (B) The competition Act, 2002 relate with post liberlisation period, as liberlisation policy
introduced in 24 July 1991, and the act is passed in 2002. So it relates after post liberlisation
period.
99. (A) Section 66 E whoever intentionally or knowingly captures, publishes or transmit the image
of a private area of any person without consent shall be punishable with imprisonment
which may extend to 3 years or fine not exceeding two lac Rs. or Both.
100. (B) Section 67 of IT Act attract this penalty, for publishing or transmitting obscene material in
electronic form.

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Eduncle.com For Counselling

6.1 PRINCIPAL AND FUNCTIONS OF MANAGEMENT

6. Management is Science : Management is developed through scientific methods of

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 Stability of Tenure of Personnel : It is seen as desirable within an organization to have

Contribution of the Behaviorists, Sociologists and Psychologists

Newmann and summer classified managing process as the functions of :

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Steps of Organization Function :

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Q. Which of the following is not a principle of management according to Henri Fayol ?

Q. Assertion (A) : Management is mainly associated with economic affairs.

Q. Match the items of List-I with List-II : (June 2015) P-II

Q. A mission statement should be (July 2016) P-II

Q. Who has given ‘fourteen Principles of Management’ ? (June 2012) P-III

Q. Who is considered Father of Scientific Management ? (Dec 2012) P-III

Q. Assertion (A) : Management is a continuous process.

Q. The managerial function of organizing involves (June 2013) P-III

Q. Match the following : (June 2014) P-III

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Q. Match the items of List-I with List-II : (June 2015) P-III

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6.2 ORGANISATIONAL STRUCTURE

Organization in a formal sense refers to a collectivity of persons engaged in pursing specified

Types of Organizational Structure

Salesperson A Salesperson B Salesperson C

Advantage of Line Organization

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Region A Region A Region A

Salespeople Salespeople Salespeople

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Foreman I Foreman II Foreman III

4. Project Management Organization

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Organizational Structure of The Project

Sub-project Project Team

Marketing Engineering Research Manufacturing Materials

Product Engineering Research Manufacturing Materials

Product Engineering Research Manufacturing Materials

Product Engineering Research Manufacturing Materials

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Tall Organisation Structure

Flat Organisation Structure

Span of Control Management

 Direct Group Relationship

Kind of Relationship Formula No. of No. of

(C) Modern Organization Theory

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High Networked Communial

Low Fragmented Mercenary