Principle of Management

Principles of
Management
Developed By P.M.Bendre
Henri Fayol F. W. Taylor Peter F. Drucker

Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe  2. Dr. B.P. Sabale  3. Prof. Dr. Vijay Khole  4. Prof. Anuradha Deshmukh 
Group Director  Chancellor, D.Y. Patil University, Former Vice-Chancellor  Former Director 
Welingkar Institute of Navi Mumbai  (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
Program Design and Advisory Team
Prof. B.N. Chatterjee Mr. Manish Pitke

Dean – Marketing Faculty – Travel and Tourism
Welingkar Institute of Management, Mumbai Management Consultant
Prof. Kanu Doshi Prof. B.N. Chatterjee

Dean – Finance Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai
Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Dean – Management Development Programs Faculty – Media and Advertising
Welingkar Institute of Management, Mumbai Founder of EVALUENZ
Prof. B.N. Chatterjee Prof. Vineel Bhurke

Dean – Marketing Faculty – Rural Management
Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Director – Intraspect Development Faculty – Healthcare Management
Manager Medical – Air India Ltd.
Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Dean – IT/Business Design Faculty – Hospitality
Welingkar Institute of Management, Mumbai Former Manager-Catering Services – Air India Ltd.
Prof. Sandeep Kelkar Mr. Anuj Pandey

Faculty – IT Publisher
Welingkar Institute of Management, Mumbai Management Books Publishing, Mumbai
Prof. Dr. Swapna Pradhan Course Editor

Faculty – Retail Prof. Dr. P.S. Rao
Welingkar Institute of Management, Mumbai Dean – Quality Systems
Welingkar Institute of Management, Mumbai
Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Dean – Banking Dean – Marketing
Mr. P.M. Bendre Course Coordinators

Faculty – Operations Prof. Dr. Rajesh Aparnath
Former Quality Chief – Bosch Ltd. Head – PGDM (HB)
Welingkar Institute of Management, Mumbai
Mr. Ajay Prabhu Ms. Kirti Sampat

Faculty – International Business Assistant Manager – PGDM (HB)
Corporate Consultant Welingkar Institute of Management, Mumbai
Mr. A.S. Pillai Mr. Kishor Tamhankar

Faculty – Services Excellence Manager (Diploma Division)
Ex Senior V.P. (Sify) Welingkar Institute of Management, Mumbai
COPYRIGHT © by Prin. L.N. Welingkar Institute of Management Development pment & Research.
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1st Edition
tion ( Jan-2014)
i
About this Book
The idea of writing this book was to have a fresh outlook at the subject considering
that:
• There are so many new developments, thoughts and ideas about the subject.
• During last years, there have been so many changes in the business scenario.
Further, the book is meant for PDGM-hybrid learning students who are already the
working professionals in various age groups. These students are from different
backgrounds. They will be pursuing their studies along with their professional careers.
The book must create tremendous interest in their minds. Therefore, the language of
this book has been kept as easy to understand as possible, and attempt has been made
that from chapter to chapter, more and more interest and enthusiasm should get built
into the students’ mind, and they think seriously about the subject.
The purpose of this book is to help the students to implement Principles of
Management in their profession and to positively advance their progress and make
them successful entrepreneurs as well as responsible citizens, family members,
employees, occupiers/directors and what not.
While writing this book, I have referred to lectures of Prof. Venkat Iyer, which give us
superlative guidance because of number of years of his valuable experience. I am
thankful to him from my heart.
I have also taken help of so many existing books as well as the Internet in order to
make the subject complete in all respects and practically useful to the students.
I have used my knowledge and my 33 years industrial experience, which I earned in
organizations like Bosch and Kirloskar as Chief of Production as well as Quality. Prof.
Rajesh Aparnath has offered me a valuable opportunity to write this book and also
given me most valuable guidance, for which I am thankful to him from the bottom of
my heart.
I also thank Ms Amandeep Kaur and the staff of Welingkar Institute of Management
Development and Research.
I wish all the best to the students.
With Best Regards,
P.M.Bendre [email protected]
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C HAPTER 1 - N ATURE OF MAN AGEMENT
Principles of Management
Objectives
At the end of the chapter, you will be able to understand meaning and definitions,
functions and importance of management and you will start giving a serious
thought to becoming a good manager.
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Chapter 1 - Nature of Management
Structure
1.1 My dear students, a warm and hearty welcome to all of you!
1.2 Introduction to Management
1.3 Meanings and Definitions of Management
1.4 Management as a Process, coordination, and function
1.5 Five M’s in the business
1.6 Activities for the students
1.7 Necessity of Management and SMART Goals
1.9 Functions of Management
1.10 Importance of Management
1.11 Conclusion of the chapter
1.12 Summary
1.13 Self-Assessment Questions
1.14 Multiple Choice Questions
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1.1 My dear students, a warm and hearty Welcome to all of you!
According to Peter F. Drucker, the emergence of Management as an essential, a

distinct and leading social institution is a pivotal event in social history. Rarely has
a new basic institution, a new leading group, emerged as fast as Management since
the turn of this century. Rarely in human history has a new institution proved
indispensable so quickly and even less often has a new institution arrived with so
little opposition, so little disturbance and so little controversy.
PETER F. DRUCKER,
American Management
Consultant, Educator, and Author
My young friends, you are welcome to this institution of Management, the career
in which will certainly prove not only fruitful in your personal as well as
professional life, but also will enhance the meaningfulness and joy of living the life.
Management is an art. It is in the sense of possessing managing skill by an
individual. Management is science too. It involves developing certain principles or
laws applicable in a place where a group of activities are coordinated.
All of you would certainly like to master this art as well as science of
Management. Further, leadership qualities are developed in the persons who are
working in the top-level management. According to Ralph C. Davis, Management
is the function of executive leadership everywhere. I am sure, all of you would be
dreaming to become a successful leader.
Management has been developed as a career par excellence. It is focused on certain
specialization. Specialists are appointed in key posts of top management. I am
sure you would like to be one of them.
Therefore, come one, come all, and let us roam around in this wonderful garden
of Management!
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1.2 Introduction to Management
The subject of Principles of Management is the backbone of your course.

Application of these principles into action in your life as well as on your
workplace, every day, correlating these principles with your personal life situations
is called internalization. The best way to learn any subject is to internalize it.
This subject has a tremendous self-development potential. Learn this subject, put
it into your system, convert the concept into experience, convert abstract into
concrete by systematic approach. It will improve your thinking process. You should
ask yourself, “Am I managing my life daily?”, “Have I added values to myself ?”,
“Have I set up any goals for me to achieve?” This thinking process will take you a
long way. You will put your learning into action; utilize your resources in the best
possible way. Those who have consciously applied this learning in their lives have
benefitted tremendously and have made major changes in their lives.
Management involves a set of processes that come into play whenever we want to
achieve something, that is, our preset goal, by thinking process and utilizing the
inputs such as man, machine, materials, money etc. in a coordinated fashion.
Our life is full of activities through which we constantly try to achieve something.
Some people want to get admission to school for their children, some people want
to get into a better job, and some people want to find their life partner. While
doing this, due to lack of systematic approach, they are in a chaotic situation. This
is because principles of management are not the part of their life. Once you start
practicing these principles, your life rocks. We can solve complex problems by
systematic approach. Every input from principles of management helps us to have
a relook at our life.
Before we dream to become a manager, we have to learn to self-manage our
personal life situations. Convert learning into thoughts and action by systematic
approach, internalization, focusing on the goals to begin with.
Every activity becomes meaningful when it has a purpose, direction and GOAL.
For example, if we are managing an event like marriage ceremony, while
performing various activities like booking of hall, sending invitations, receiving
guests and putting them into hotels etc., we must ensure that proper time table,
schedule, allocation of work to various persons are done systematically and in
time. Otherwise, we will be stressed and then will make mistakes because of
leakage of energy.
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The advantages of learning Principles of Management are:

• Our life gets focus and direction
• We know better how to plan and organize our life
• We have clarity of thinking and action
• Our stresses get reduced tremendously
• Our life becomes purposeful and joyous
• We start assuming responsibility and accountability for whatever we do.
• Our behavior towards others and the world improves drastically
• We are not scared of taking decisions
• By applying what we learn into skills and actions we grow in our career
• We know methods of correcting our mistakes
• By knowing, internalizing, becoming a role model we take our people to
achieve our goals.
Let us make a commitment to learn and instantly apply this learning first into our
personal life situations.
1.3 Meanings and Definitions of Management
1.3.1 Meanings:
Management is the art of getting things done by a group of people with the
effective utilization of available resources.
It is the group of activities, which drafts plans, prepares policies, and arranges
men, money, machines and materials required to achieve the objectives.
Management is the activity of man who struggles for better living in the
complex and competitive world.
Management is the process consisting of the functions of planning,
organizing, staffing, directing and controlling the operations to achieve
specified objectives. It rewards those who are engaged in this process to
ensure an excellent performance with continual improvement.
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1.3.2 Various definitions:

There are many definitions of management but most perceptive managers
are convinced that it is an organized effort of people whose purpose is to
achieve the Objectives and Goals of an organization.
According to F.W.Taylor, 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.
F.W.TAYLOR HENRY FAYOL

According to Henry Fayol, to manage is to forecast and to plan, to organize,

to command, to coordinate and to control.
Peter F. Drucker defines Management as the substitution of thought for
brawn and muscle (physical strength), substitution of knowledge for folklore
and superstition, and substitution of cooperation for force. He also defines
Management as an organ; organs can be described and defined only through
their functions.
As per Donald J. Clough, Management is the art and science of decision
making and leadership.
As per James D. Mooney and Alan C.Reiley, Management is the art of
directing and inspiring people.
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In mid 1940s, academic people from various business schools in the United
States gathered together with the sole purpose of deciding whether a
definition of Management could be written that businessmen would accept
and practice and Academicians would teach. Ultimately, they came up with
the following definition. No individual is identified with this definition. The
definition reads:
“Management is guiding human and physical resources into dynamic

organization Units that attain their objectives to the satisfaction of those
served and with the high degree of morale and sense of attainment on the
part of those rendering the services”
After detailed thinking on various definitions, we have adopted the following

definition:
Management is:
Optimum utilization of
Available Resources
To attain certain pre-set GOALS/Objectives
What is the meaning of the word “Optimum utilization”? It means best possible
utilization under given circumstances.
We will explain this definition by taking an example from our kitchen. We want to
make a cup of tea, and we have all the resources such as one jarful of sugar, one
jarful of tea leaves, one glass of milk, gas cylinder full of LPG, gas stove, kettle,
filter etc.
However, we use the raw material only in required proportion, e.g. two spoons of
sugar, one spoon of tea leaves etc. and make a proper mix of all the ingredients.
We do not put more sugar than required, do we?
We will take another example. You are normally getting a pocket money of Rs.
500 for a day, and you are able to spend your day comfortably. One day, you get
only Rs. 200 and you have to manage the whole day. You neither have your tiffin
nor are you fasting today. In this case, your entire consciousness is on this small
amount. You decide the proper course of action and you spend the money very
judiciously. E.g., you travel in a crowded train instead of auto; you eat only a rice
plate instead of Punjabi dishes and so on. To your surprise, at the end of the day,
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there is an amount of Rs. 40 left in your pocket. You have managed your day by
better thinking process, putting it into actions and achieved your goal of reaching
home without any cash crunch.
However, if you have Rs. 200 and you have spent Rs. 350 by borrowing from your
friend, it is mismanagement.
We learn best when resources are minimum and scarce. We have saved money
when our earnings were meager. Some companies are cash rich but they incur
wasteful expenditure, such as heavy transportation cost, travelling expenses etc.
and ultimately land in a mess.
We must convert our learning/knowledge into skills by utilizing scarce resources to
the optimum, and strive to achieve our preset GOALS.
1.4 Management as a Process, coordination, and function
Management as a “Process”:
McFarland defines management as “A process by which managers create,
direct, maintain and operate purposive organization through systematic,
coordinated, cooperative human efforts”.
An important term in this definition is “Process”. This term emphasizes the

dynamic or ongoing nature of management, an activity over varying span of
time. The dynamic nature implies that change is reality of organizational life.
In managing organizations, managers create changes, adopt organizations to
changes and implement changes successfully in their organizations. Businesses
fail and become bankrupt because managers fail in their attempt to cope with
the change.
Management as “coordination”:
Donally, Gibson and Ivancevich also support the view of management as a
Process but their stress in more on co-ordination. According to them,
“Management is a process by which individual and group effort is
coordinated towards group goals”. In order to achieve goals, coordination is
essential and management involves securing and maintaining this
coordination. This coordination effort is also stressed in the definition of
Koontz and O’Donnell. According to them, “Management is a process of
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designing and maintaining an environment in which, individuals, working

together in groups efficiently and effectively accomplish group goals”.
Management as a “Function”:
There are those who view management as a function rather than a process.
Dunn, Stephens and Kelly contend that “Management is a role which
includes a set of duties, responsibilities, and relationships-involved in work
organizations”. These duties and responsibilities constitute the function a
manager performs. The duties and responsibilities a manager performs are
quite different from those performed by managerial employees.
Management is getting things done through other people:

A simple definition of management that is often quoted and it sounds very
simple. According to this definition, managers do not do things; they get
other people to do things. If managing is an individual ability to get things
done, then it is not a problem. We can plan and perform things according to
our own convenience and interests. When somebody else is involved and we
want to get things done through him, there is a difficulty. All sorts of
problems arise; personalities come into contact and conflict. Interpersonal
problems crop up. We have to understand the behavior of other people and
must have knowledge as to how to motivate them in order to get things done
through them. We have to consider the conveniences and interest of others
also in planning and implementing things. In getting things done through
others, people have to be coaxed, they have to be shown, they have to
inspired, they have to be motivated and this is what management means.
These activities are performed not only by the people at the top but also from
the chairman of the board to the front line supervisors and foremen. They
use the above-mentioned methods to get things done through other people.
Example of a Sandwich Seller:
All businesses start small and simple and eventually they grow big and
become complex. Take an example of a sandwich seller on street. He starts
his business on a street, on a small space, without any approval, creates a stall,
gets raw material, makes sandwiches and sells them. It is a one-man show. He
is sincere, works hard, and goes home late. Since people like his sandwiches,
his demand increases, so the stress increases and he is hassled. He is not able
to manage. His situation becomes complex. His business goes haywire and he
abandons it.
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Business needs some skills, discipline, systematic approach and clarity of

thinking, so that one can achieve his goals/objectives. When the business
grows, along with systematic approach and discipline, we need to maintain
harmony among the people who work for you and we must be effective in our
actions. We must ask ourselves:
What are our objectives?

What is our direction? Where do we want to go?
What is the purpose of our business?
Are we clear about our goals?
The thinking process and internalization must be continuous activity.
1.5 Five M’s in the business
Efficient management is the lifeboat of any developed business. There are five
M’s in the business, which can be called as the resources of the business, viz.
Man, machines, materials and money as tangible ones and Method as
intangible one.
1. Man:
As said earlier, Management is the art of getting things done by a group of people.
Therefore, the availability of qualified, trained, skilled, experienced and
competent people is the most important factor in any management, anywhere.
2. Machines:
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. It is needless to say that availability of
capable machines and equipment is a must to do the things in the best and the
cheapest way.
3. Materials:
Quality, quantity, availability, cost/market price and transportation of raw
materials, semi-finished goods and finished goods need no emphasis. It is a clearly
a very vital factor in success of management.
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4. Money:
Financial capital is money used by entrepreneurs and businesses to buy what they
need to make their products or to provide their services to the sector of the
economy upon which their operation is based.
Availability of funds for running the business is extremely important particularly
for procuring capital goods, raw materials, tools and consumables, and availability
of working capital.
5. Method:
If we have to do things in the best and cheapest way, it is also important how the
things are processed. That is, by which method the things are processed. The
proper method will ensure required quality, quantity and in-time delivery. It will
ensure the accomplishment of management objectives.
Methods form the competitive edge. For example, in our kitchen, two girls
are told to prepare a cup of tea each. Same raw materials such as milk, sugar, tea
powder etc. are given to both of them. Girl A prepares the tea as follows:
Puts a cup of milk in the utensil and boils it. Then puts the water and sugar (1
teaspoon) and tea powder (1 teaspoon) and boils it again.
Girl B prepares the tea as follows:
Puts water and sugar in the utensil. After the mixture starts boiling, she puts the
tea powder in it and lastly puts milk.
The two cups of tea have different tastes in spite of all four factors (M’s) same.
However, the method makes the difference.
If one standardized method is used by any person any time, the taste will always
be the same.
That is why the quality of idli sambar in an Udipi restaurant is always the same.
Mc Donald’s restaurant offers same taste of French Fries all over the world.
Standardization of methods is the reason why they are able to do it. It is also an
answer to all our problems.
Shampoo produced by Company A and B are different in quality in spite of same
raw materials. The Shampoo of Company A is in great demand. So, the company
B does detailed research as to what exactly company A is doing to attract
customers, then implements a better method, in addition, company B adds some
extra benefits to customer to improve the market share of their shampoo.
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If there are four bhelwalas, many times we see that only one of them is in demand
and is not able to control the rush. This is because, in addition to better method of
preparing bhel, he offers added advantages to the customers such as good
housekeeping, clean workplace, better colors, extra quantity etc. Actually, he offers
better value for money to the customers.
1. 6 Activities for the students
Activity A
In your kitchen, you have to prepare rice and curry for your friend who is going to
visit after a couple of hours. You have only Rs. 200 with you. No other stock of
materials. Make a list of all your Resources: Man, Machine, Materials and Money.
Make a process flow chart of the Method you will adopt to prepare rice and curry.
Explain how you will utilize your resources.
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1.7 Necessity of Management and SMART Goals
1.7.1 Management is an essential activity of all organizational levels:

(Low, middle and upper level)
1.7.2 Management applies to:

• Small and large Organizations.
• Profit and nonprofit Organizations.
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• Manufacturing Organizations.
• Service rendering Organizations.
Management is everywhere. It is not restricted to only commercial organizations,
but it is also in schools, colleges, religious bodies, just about anywhere.
Housewives are the best managers. Kitchen is the best management school. They
regularly take account of the stock levels of commodities, the moment the stock
reach to the minimum ordering level, they meticulously get the commodity. Have
you ever experienced a shortage of sugar and so no tea for you and your friends?
Your mom has been a great manager. She feeds you with delicious dishes, tolerates
your behavior, and always makes things happen, in whatever situation she is.
Management is there even in Bhendi Bazar. When there were events like twin
tower in USA, flood in Mumbai, terror in Taj Mahal hotel, the concerned people
such as commandos etc. overcame the problem only because they used their
management skills.
Management is art as well as science. What is invisible is understood by
observations, examples etc. through theoretical principles/approaches.
In the movie “Three Idiots”, Chatur knows all fundamentals, and Rancho knows
applications. Management is the combination of Chatur as well as Rancho.
We study management processes scientifically and apply them to convert
complexity to manageable thoughts and actions. We learn Management as science
and put it into action as art.
An art is caught and not taught. You must learn, absorb, and see management in
action, by thought process, practice in a methodical manner. You catch this art.
Management prevents an endeavor from failure and teaches you to quickly correct
your mistakes.
Anybody can do business provided he has discipline of thought, actions, words,
intention and moral character. Then his approach will be systematic and he will
be successful.
If someone asks you, “why have you enrolled on this course?” Then you would
answer, “I want to become a Manager.” But do you know what it takes to become
a good manager? If you are a person who is capable of undertaking the tasks and
functions of managing at any level, in any kind of enterprise, you have leadership
qualities, and you have qualities of an administrator, you will become a good
manager.
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To become a good manager, in addition to housekeeping and cleanliness and

orderliness, your mind also must be clean and clear.
We find people fully tensed, confused, and so they take wrong decisions. They
cannot become good managers.
A good manager is expected to have ability of four skills as given below:
• Technical skills: Technical skills that reflect both an understanding of and a
proficiency in a specialized field. For example, a manager may have technical skills
in accounting, finance, engineering, manufacturing, or computer science.
• Human Skills: Human skills are skills associated with manager’s ability to work
well with others, both as a member of a group and as a leader who gets things
done through other.
• Concept Skills: Conceptual skills related to the ability to visualize the
organization as a whole, discern interrelationships among organizational parts,
and understand how the Organization fits into the wider context of the industry,
community, and world.
Conceptual skills, coupled with technical skills, human skills and knowledge base,
are important ingredients in organizational performance.
• Design Skills: It is the ability to solve the problems in ways that will benefit
the enterprise. Managers must be able to solve the problems.
In order to become a good manager, he must have preset GOALS. Remember:
“No goal--no management”. We must have a direction and purpose for our
business. We must have a goal for everything we do. Goal setting is sign of
maturity.
For example, one wants to buy a blackberry or a smart phone. For that, he should
fix a goal, as to when he would buy it and should buy it only when he needs it. If
one wants to go for higher education, his goal should be:“ I want to achieve Ph.D.
within next four years” or “I want to get admission in IIM during next year”.
Any endeavor starts with end purpose-GOAL. When goal is set, steps towards goal
also become clear. One can become successful only if he has preset goals.
However, the goals must be S-M-A-R-T as explained below:
1. Specific: We should be specific in our goal. E.g. I want to become a manager is
not a goal. What you want to accomplish in an organization is a goal.
2. Measurable: The goal must be measurable. E.g., I want to secure 95% marks.
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3. Attainable: The goal must be achievable. Our resources are limited. Therefore,
if you want to buy a flat in Mumbai and you have only 10 Lakhs, it is not possible
to buy a flat there.
4. Realistic: The goal must be realistic. We cannot dream to become a prime
minster when you have not yet become a corporator.
5. Time bound: Your goal should have a time limit such as I want to get admission
to a medical college during next year.
Continuous activity towards predetermined goals, set of disciplines with organized
activities, interdependence between customer and us will result in profits, goodwill,
team effort, proper decision making. Management is all-pervasive.
1.8 Activities for the students:
Activity B
Make a list of GOALS in your life.
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1.9 Functions of Management
This book is dedicated to following Functions of Management, which will be

explained in detail in forthcoming chapters:
1. Planning
2. Organizing
3. Staffing
4. Directing
5. Coordinating
6. Motivating
7. Controlling
1.10 Importance of Management
Every business needs a direction. This direction is given by Management.

The resources will be converted into production, which has good quality,
quantity, in time delivery, which will result in customer satisfaction. This book
is dedicated to the following factors for you to study, in order to become good
managers.
1. Management meets the challenge of change:

Only an efficient management can save the business from the dangers
brought in by the challenges of change.
2. Accomplishment of group goals:

The proper planning of available resources, adjusting possibility of
business unit with existing business environment, quality of decision taken
and control made by business unit are the factors responsible for achieving
the objectives/goals.
3. Effective utilization of resources: As explained above.
4. Effective functioning of business:
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Ability, experience, mutual understanding, coordination, motivation and

supervision are the factors responsible for effective functioning of the
business.
5. Resource development:
The resources viz. men, machines, materials and money have to be
developed by the management.
6. Sound organizational structure:

It clearly defines the authority and responsibility relationship of employees.
Care must be taken to appoint right persons to the right job.
7. Management directs the organization:

Similar to human mind directing and controlling human body,
management directs and controls the organization.
8. It integrates various interests:

Management takes steps to integrate various interests of employees
working in the organization.
9. It stabilizes the fluctuations:

The business always has ups and downs. These fluctuations are stabilized
by the management.
10. It innovates:
New innovative ideas are implemented in the organization.
11. Coordination and team spirit:

Management coordinates the activities of different departments and
establishes team spirit.
12. Tackling and solving problems:

Good management acts as a friend and guide to the employees to solve
the day-to-day problems for effective performance.
13. Management is a tool for personality development:

New methods and techniques are taught to workers. Training facilities
are arranged by the management. Thus, there is personality development
in the employees.
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1.11 Conclusion of the chapter
• We have touched upon the basic understanding of management as a means to

make the organization effective.
• The first step towards management process is setting up SMART goals.
• The methodical and systematic approach ensures lessening of errors/failures
and easy course correction when things go off track.
• Seven functions of management followed diligently leads to disciplined growth.
• The nature of management when followed in daily practice transforms the way
we run organization and our lives.
1.12 Summary
1. The subject of Principles of Management is the backbone of our course.

Application of these principles into action in your life as well as on your
workplace, every day, correlating these principles with your personal life situations
is called internalization. The best way to learn any subject is to internalize it.
2. The first step towards management process is setting up SMART goals.
3. We must convert our learning/knowledge into skills by utilizing scarce resources
to the optimum, and strive to achieve our preset GOALS.
4. The methodical and systematic approach ensures lessening of errors/failures
and easy course correction when things go off track.
5. Seven functions of management followed diligently leads to disciplined growth.
1.13 Self-assessment questions
1. Explain the meaning of internalization.

2. Explain the meaning of optimum utilization of resources.
3. How methods form the competitive edge?
4. Explain: Management is everywhere.
5. Management is a tool for personality development: elaborate.
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1.14 Multiple choice questions
1. According to whom, to manage is to forecast and to plan, to organize, to

command, to coordinate and to control?
a. Henry Fayol
b. Peter F. Drucker
c. F.W.Taylor
d. Ralph Davis
 
2. In SMART goals, S denotes:
a. Simple
b. Special
c. Specific
d. Social  
3. A good manager is expected to have ability of four skills :( Find the wrong one):
a. Technical
b. Human
c. Concept
d. Documentation
4. Peter F. Drucker was:

a. American Management Consultant
b. Educator
c. Author
d. All the above
5. Out of five M’s in the business, following is intangible:

a. Man
b. Machine
c. Method
d. Money
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Reference Material
Click on the links below to view additional reference material for this chapter.
Summary
PPT
MCQ
Video1
Video2
22
C HAPTER 2 - HISTORY OF MANAGEMENT
Objectives
By studying this chapter, you will be able to acquire knowledge about:
• Principles of Management by Henri Fayol
• Scientific Management
• History of Management in a chronological manner with contributions of various
Management gurus
• Important milestones in the history of Management
• Hawthrone experiment
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Chapter 2 - History of Management
Structure
2.1 Introduction
2.2 Scientific Management : F.W.Taylor
2.3 Peter F.Drucker
2.4 Frank B. Gilbreth and Mrs. Lillian Gilbreth
2.5 Max Weber
2.6 Mary Parker Follett
2.7 Henry L. Gantt
2.8 George Elton Mayo
2.9 Hawthorne Experiments
2.11 Summary
2.12 Self assessment questions
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2.1 Introduction
History of management exposes us to how various business processes came into

existence, their evolution and contemporary state. It guides us through various
milestones in the timeline of past, present and future of management processes.
Studying the trend helps us in foreseeing the future course of business processes.
Management has developed since the time immemorial or since the world came
into existence. No endeavor could be started, run and completed without
management. Whenever group efforts were necessary to achieve anything, there
had been a need for management. An individual could not achieve anything single
handedly. We do not work as commandos. We work in groups and are
interdependent on each other in all spheres of life. Co-operation, group efforts,
direction and control were always necessary to achieve objectives or goals.
Therefore, managerial efficiency is an essential requisite to human being.
In India, our Vedas, Rishis, Kautilya and Saint Thiruvalluvar were the pioneering
contributors to the origin of management thought of their time. Several people
made significant contributions to the study and practice of scientific management.
Various aspects were studied from various perspectives and breakthroughs were
made.
Though businesses were conducted for a long period of time, there was hardly any
systematic approach. Brand visibility was missing. The working was not structured.
The industry was mainly need based, dependent on craft of individuals. It was
more an art than a science. It was basically a cottage industry in which machines
were just enablers and management of men and machines was not having much
significance.
Industrial revolutions and industrial age:
A true rise of modern industrialization due to powerful and progressed economic
technical development in the 18th century, called the industrial revolution, was
mainly a change in the method of production due to which every sector of life was
spirited from the original set up. During the span of 100 years from year 1750 to
1850, scientists’ performance was significant. They created new techniques. New
machine age started. Steam power and electricity was brought into force instead
of man power and animal power. Cottage industries were replaced by city
industries. Production began to take place on large scale and also at great speed.
Transportation became quicker. Human life changed almost from all angles.
It was in the late 1920s that the great economic depression occurred in USA
leading to a major national calamity. Collectively, people fought back working
25
hard to turn around the economy from a deficit state to a surplus one. They say,
necessity is the mother of invention. The result was the advent of the second
industrial revolution.
The second industrial revolution resulted in overall burst of revival activities
through discoveries, inventions, innovations etc. Machines as leverages of
production and economic progress came to be a reality. It was the advent of
industrial age. Mass production, mass labor, mechanization, wage standardization
brought about an order in industrial practices.
With abundance, came wastage and lack of discipline of production and
consumption. Observers and researchers studied the importance of systematic
approach of running organizations. The result was the scientific management
movement led by the work of F.W.Taylor, the father of scientific management.
The contributors who came after him made major contributions to teach
organizations to run themselves scientifically.
Development of Management thought:
(The history of Management thought Process):
This most important topic sets the tone for us to understand what happened,
when it happened and under what conditions it happened in case of management
thought. There are number of contributors and each contributor needs to be
given special attention. You should read the detailed history of each contributor at
the rate of at least one per week. Let us start with Henry Fayol.
Henri Fayol (1841-1925):
He was a French industrialist. He had joined as an engineer in a mining

company in 1860 and had become the Chief MD of the company because of
his outstanding abilities. From 1918 onwards he worked hard to popularize
26
his Principles of Management. However, these principles were known to the

world only after 1949 after the publication of his thoughts in English.
He concentrated on top management. In his book “General and Industrial
Management”, he said: Management plays a very important part in all
undertakings, large or small, be it industrial, commercial, political, religious
or any other. As such, in every concern, there is a management function to be
performed. The management functions and organizational functions are
different. The management functions include planning, organizing, staffing,
directing and controlling. Organizational functions include purchase, sales,
production and accounting. There has to be a management function in every
organizational function.
Henri Fayol classified all the business activities into six functions:
• Technical activities relating to production
• Commercial activities relating to purchase of basic raw materials and
other resources, selling of products and exchange
• Financial activities relating to identification and utilization of available
funds
• Security activities relating to the steps taken to protect the property of
enterprise and persons
• Accounting activities relating to the recording and maintaining accounts,
stock taking, and preparation of cost sheets, balance sheets and statistical
data
• Managerial activities relating to planning, organizing, commanding,
coordinating and controlling
Henri Fayol believed that successful functioning of any business depends
upon performance of the above six functions.
Henry Fayol identified qualities of a manager as follows:
• Physical (health, vigor and address)
• Mental (ability to understand and learn, judgment, mental vigor,
adaptability)
• Moral (energy, firmness, willingness to accept responsibility, initiative,
loyalty, tact and dignity)
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• General education (acquaintance with matters not belonging exclusively

to the function performed)
• Special knowledge peculiar to the function, be it technical, commercial,
financial, managerial etc.)
• Experience
Principles of Management set forth by Henri Fayol:
• Division of work: It helps to specialize in an activity which increases
output with perfection.
• Authority and responsibility: Management is getting things done by
others. A superior gives direction to his subordinates to perform the job.
Then the supervisor may exercise his authority. Authority is closely
connected with responsibility. Responsibility is essential to perform a job
correctly. It is shouldered whenever authority is exercised.
• Discipline: It is essential in all levels of management people.
• Unity of command: Each subordinate is responsible to only one superior.
• Unity of direction: The manager is expected to look after all the
activities of a group.
• Subordination of individual interest to group interest: In no way, the
individual interest should dominate the group interest.
• Remuneration of personnel: Employees should be given fair and reliable
remuneration.
• Centralization or decentralization of authority depends upon the
personal character, morality, reliability of resourcefulness of the superior.
• Scalar chain: It is the chain of superiors ranging from the ultimate
authority to the lowest ranks. The communication flows from top to
bottom. If A is the superior and has three subordinates in the order B,C
and D, the communication from A to D should be passed via C and B.
• Order: The principle of right place for everything and for everyone
should be followed by management. The personnel are selected
scientifically and assigned duties according to their qualifications and
ability.
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• Equity: It refers to combination of fairness, kindness and justice. It

requires goodness and experience of managers and loyalty and devotion
from subordinates.
• Stability of tenure of personnel: Security of job is an essential factor.
• Initiative: A manager should have conceiving and executing initiative. It
has psychological effect on the subordinates. Managers should take
decisions after getting suggestions from subordinates.
• Esprit de corps: All the employees of the organization are put together as
a team in order to achieve the objectives of the organization. The
management should not follow the policy of divide and rule.
2.2 Scientific Management: F.W.Taylor
As mentioned above, “Necessity is the mother of invention”. During the second

industrial revolution, there was overall burst of improvement/revival activities
through discoveries, inventions and innovations. Machines as leverages rather than
enablers of production and economic progress came to a reality. In the advent of
this “Industrial age”, mass production, mass labor, mechanization, wage
standardization brought about an order in industrial practices.
As mentioned earlier, with abundance, mismanagement also was there which
resulted into wastage. Lack of discipline of production and consumption made the
matters worse. At that time, observers and researchers studied importance of
systematic approach of running organizations. The result was “Scientific
Management”, led by the work of F.W.Taylor, who is regarded as Father of
Scientific Management.
Importance of learning scientific management
• It is systematic approach of achieving goals through checks and controls.
• It facilitates focused, balanced approach in running businesses.
• The individual thinking and problem solving processes are enhanced.
• It facilitates conversion of chaos into clarity.
• On the personal front, it reduces stress and promotes self-growth.
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F.W.TAYLOR (1856-1916)
Father of Scientific Management
He was born in 1856. Having started his career as an apprentice in

Philadelphia in 1875, then as a laborer, supervisor, he became chief engineer
in 1884. Before that, he had got M.E. degree through evening course in 1883.
He had observed the work performance of managers and workers. According
to him, they followed traditional methods of work and did not have concept
of systematic performance at task. He observed that greater output was
possible through systematization and standardization of methods of doing
work. Techniques of management were identified by Taylor through trial and
error method. He devoted attention to finding the exact nature of work to be
done and the best way of doing it. Many of his ideas brought system, order
and logic to areas such as Production planning, analysis of cost, systems of
payment etc. where rule of thumb had prevailed.
When the management people wanted to increase their production, their
ambitions were fulfilled by the invention of the concept of Scientific
Management by F.W.Taylor.
According to him, Scientific Management consists of a certain philosophy of:
• Scientific selection and training of right workers for the right job
• Providing adequate working conditions such as lighting, ventilation,
drinking water, canteen, sanitation, rest rooms, rest periods.
• Providing a system of monetary incentives to efficient workers
• Assumption of responsibilities by managers and supervisors.
30
He defined scientific management as “Substitution of exact scientific

investigations and knowledge for old judgment or opinion in all matters of
work done”.
He firmly believed that objective of management should be:
• Maximum prosperity for the employer: lower costs and high returns
• Maximum prosperity for each employee: fair as well as higher wages
Principles of scientific management:
• Science-not rule of thumb
o Replacement of old method by doing work scientifically
o Fair work to each worker
o Standardization in work
o Differential piece rate of payment system
• Harmony in group action
o Peace and friendship
o Dissatisfaction to be avoided
• Cooperation between management and workers and vice versa
• Maximum output
o by division of work
o by assumption of responsibility jointly by management and workers
• Improvement of workers
o Scientific selection of workers: finding out physical, educational and
psychological requirements of each job and find suitable persons for
each job
o Workers are provided with job training.
Features of scientific management:
• Separation of planning from executive function:
Before Taylor’s period, both planning and executive function were
performed by one and the same worker. Then this worker did the job
under the supervision of a supervisor. It resulted in disagreement on
31
many issues between workers and supervisors. So, Taylor separated the
planning function from the executive function.
• Scientific task setting: It means allotment of work to each worker on the

basis of capacity of an average worker functioning in normal working
conditions. He should be able to complete the work in a working day.
• Functional foremanship: This is based on specialization of functions
performed at supervision level. E.g. There are eight persons. Out of
these, four persons are concerned with planning, (route clerk, instruction
card clerk, time and cost clerk and disciplinarian), and the remaining
four are concerned with the executive function(speed boss, inspector,
maintenance foreman and gang boss).
• Work study: Systematic critical assessment of efficiency required to do
the job.
o Methods study: Entire process of production is studied. Efforts are
made to reduce the distance passed by materials and bring about
improvement in handling, transportation, inspection, storage of raw
materials and finished goods.
o Motion study: Unnecessary movements are eliminated.
o Time study: Act of measuring the time required to perform a
particular job. The standard time is fixed. All the work is performed
in fixed time.
o Fatigue study: A study relating to the fixing of working hours with
rest periods to enable the workers to recoup the energy lost while
performing the job.
• Rate setting: Fair wages to workers. Differential piece rate wage system
which can act as incentive to lazy workers.
• Standardization is done in respect of tools, instruments, working hours,
volume of work, working conditions, cost of production on the basis of
job analysis.
• Scientific selection and training: The workers should be selected
scientifically. The appointment should be given to each worker according
to the nature of job requirement and his qualifications.
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• Financial incentives: Increase in efficiency should result in increase in

wages.
• Mental revolution: It refers to change in thinking both on the part of
management and workers. The success of scientific management rests
primarily on the fundamental change in the attitude of management and
workers both as to their duty to cooperate in producing largest possible
surplus. Necessity for substituting exact scientific knowledge for opinions,
or old rule of thumb.
• Economy: The available resources are used to the fullest possible
maximum extent to eliminate wastage. Management to get economy in
production and for maximizing profits.
Scientific Management creates focused, balanced and systematic approach of
achieving goals through checks and controls. Independent thinking and
problem solving processes are enhanced. On the personal front, it facilitates
conversion of chaos into clarity, reduction of stress and promotion of self-
growth.
Contributions of F.W.Taylor:
• Applied principles of scientific management for solving the problems of
management
• As per him, it was duty of management to tell the employees what
management expected from them. Further, Management should specify
the way through which the job is to be completed.
• He supported mental revolution on the part of employer as well as
employee.
• Time study and motion study were first conducted by him.
• First person to separate planning function from executive function.
• Functional foreman concept was invented by him.
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2.3 Peter F.Drucker
Peter Ferdinand Drucker, (November 19, 1909 – November 11, 2005) was
an Austrian-born American management consultant, educator, and author, whose
writings contributed to the philosophical and practical foundations of the modern
business corporation. He was also a leader in the development of management
education, and he invented the concept known as management by objectives. He
became Professor of Management in New York University in 1950.
Drucker's books and scholarly and popular articles explored how humans are
organized across the business, government, and nonprofit sectors of society. He is
one of the best-known and most widely influential thinkers and writers on the
subject of management theory and practice. His writings have predicted many of
the major developments of the late twentieth century, including privatization and
decentralization; the rise of Japan to economic world power; the decisive
importance of marketing; and the emergence of the information society with its
necessity of lifelong learning.
In 1959, Drucker coined the term “knowledge worker" and later in his life
considered knowledge worker productivity to be the next frontier of
management. Peter Drucker gave his name to two institutions: the Drucker
Institute and the Peter F. Drucker and Masatoshi Ito Graduate School of
Management, both at Claremont Graduate University. The annual Global Peter
Drucker Forum in his hometown of Vienna, honors his legacy.
34
Contributions of Peter F.Drucker:

Nature of Management:
Peter Drucker was against bureaucratic management and emphasized
management with creative and innovative characteristics. The basic objective of
management is to lead towards innovation. Innovation includes development of
new ideas, combination of old and new ideas, adaption of ideas from other fields
or even to act as a catalyst and encouraging others to carry out innovation. He
treated management as a discipline as well as a profession.
Management functions:
He opined that the management is the organ of its institution. It has no functions
in itself, and no existence in itself. He sees management through its tasks. A
manager has to determine the objectives and activities, and is concerned with the
direction and controlling of the activities, to make contributions for the specific
purpose and mission of the institution whether business, hospital or university.
Organization structure:
An effective organization structure is framed in such a way that it enables smooth
performance. It contains minimum number of managerial levels. It provides a
chance to test the ability of young people who are accepting the responsibility.
Centralized control with a structure of decentralization:
Similar to the Federal structure of government, the top management has more
powers than various departments. But the decisions regarding the departments
have to be taken by both of them. Departments are allowed to take decisions
within the limits set up by the top management.
Management by objectives: (MBO)
Drucker introduced this concept in 1954. Method of planning, setting standards,
performance appraisal and motivation are the components of MBO. It gives
importance to self control rather than control made by others.
Organizational changes:
Drucker visualized rapid changes in society due to rapid technological
development. He realized impact of such changes on human life. He stressed that
human beings should develop an attitude to face the changes by developing
dynamic organizations, by absorbing rapid changes.
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2.4 Frank B. Gilbreth and Mrs. Lillian Gilbreth
Frank Gilbreth was born in Fairfield, Maine in 1868. Having started his career as
an apprentice, he became superintendent after 10 years. He was married to Lillian
Moller who was having thorough knowledge of management. Both of them
worked as a team and devoted their time to find out the best way of doing a job.
Frank Gilbreth gave importance to time study and motion study just like
F.W.Taylor. However, he was more concerned with finding out the best way to do
a job rather than time required to do a job. He stressed minimum motions and
avoidance of unnecessary motions to discover the best way of doing a job. He was
of the view that unnecessary motions waste much of the efforts of the workers.
Gilbreth found out 18 basic elements in all work through analysis of several
methods at work. He identified these elements by using flow process charts. He
called these elements as THERBLIGS. These 18 elements were: Search, select,
grasp, transport empty, transport loaded, hold, release load, position, pre-position,
inspect, assemble, disassemble, use, wait unavoidable, avoidable delay, plan, rest
for overcoming fatigue, find.
Motion study laid a foundation for job simplification, work standards and for
framing incentive wage plans.
New machines are developed in order to find out one best way. Management tools
such as flow process charts, diagrams and merit rating were developed by Gilbreth
36
for employees. He proved that productivity can be tripled by eliminating the

unnecessary motions in brick laying.
FLOW PROCESS CHART
Mrs. Lillian preached the message of her husband after his death. She was a
psychologist and had a thorough knowledge of human relations. She got doctorate
degree for her work “The psychology of Management”. She was awarded the
degree of “The first ambassador of management” in 1960.
She and her husband recognized the human factor which is very essential in
management. Her contribution in fatigue studies and employee selection &
training is significant.
37
2.5 Max Weber
He was a German social scientist. He wanted to frame a rigid form of

organization. He framed rigid rules to eliminate managerial inconsistencies which
lead to ineffectiveness. He emphasized strict adherence of rules and regulations in
an organization. This form of organization is called as bureaucracy, an oldest
form of organization. It is based on principles of logic, order and legitimate
authority. He said that bureaucracy is the best form of organization and is suitable
for any nature of business because it creates scope for proper channelization of
human energy and mechanical energy.
In bureaucracy, though there are many advantages such as specialization,
consistent employee behavior, democracy etc., there are disadvantages too, such as
red tapism, rigidity, displacement of goal.
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2.6 Mary Parker Follett
She was born in 1868 in Boston, USA. She got degree from Cambridge
College. She is considered to be a pioneer of management thought in the
field of human relations. She gave importance to the professional nature of
management. She believed that psychology plays a very important role in
human activity. She used psychology to solve the problems of managing a
business. She considered the human character at various levels of
management, viz. workers, supervisors, and managers.
She expressed her views on different aspects of management:
• Conflict: A conflict may be removed through three ways: domination,
compromise and integration. She rejected domination and compromise
ways of removing conflict. Under integration, the wishes of both parties
are integrated. So both parties would be satisfied without sacrificing their
desires.
• Authority: It is root of all evils. A smooth employer and employee
relationship based on cooperation is the foundation of good industrial
organization.
• Group: A group is something more than a mere aggregation of
individuals. The members act towards each other, and there is overall
impact of group on individual members.
• Participation: It rests on understanding and cooperation.
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• Integration: The integration of interest is necessary not only within the

organization, but also outside it between workers, investors and
consumers.
• Leadership: Leaders are not only born but also could be made through
proper training in human behavior. She did not believe in dominating
leadership.
o The leader guides the group and gets guided by the group
o The leader is always a part of the group
o Power of leadership is power of integrating
o He stimulates what is best in man
o He unifies and concentrates
o One who does great deeds does not influence me the most, on the
other hand, one who makes me feel that I can do great deeds,
influences me the most.
• Coordination: Principles of coordination as given by Follet are:
o Coordination by direct contact by the responsible people
o Coordination in the early stages of planning and policy making
o Coordination as a reciprocal relation of all factors in a situation
o Coordination as a continuous process
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2.7 Henry L. Gantt
He was born in Calbert country Merrilane in USA in 1861. He obtained

Mechanical Engineering degree in 1884. Having joined as an engineer, he later
became associate of F.W.Taylor and was also one of the pioneers of scientific
management. He experimented the principles of scientific management by
purchasing and managing a big farm.
He understood the importance of trade union and introduced a new incentive
wage plan, Gantt task and bonus plan. Under this plan, proper reward is given to
those who reach a high level of production.
Output below standard time rate wages
Output at the standard bonus of 20% on time rate
Output more than standard high piece rate on whole output
Gantt was the founder of a new movement known as “the new machine”. It
avoids the exercise of power and advocated harmonious relationship between
employers and employees. Justice and human behavior are the basis of this
movement. He distinguished between man and machine.
Gantt is popularly known by his Gantt chart, referred to the progress of work. So
Gantt called his chart as progress chart. Gantt’s chart shows the fact of actual
performance of work against the time required to complete the job. It is the best
tool for production control. It is also known as daily balance sheet chart.
41
Gantt considered the psychological and social needs of workers. He perceived the
weight of the human element in productivity and approached the concept of
motivation as we understand it today.
2.8 George Elton Mayo
He was the first person to look into the matter of human relations emphasizing
the importance of desires, attitudes, and feeling of the workers. He along with his
colleagues conducted Hawthorne experiments, an important landmark in the
history of the human relations movement.
George Elton Mayo was born in 1880 in Australia. He got his degree from
Adelaide University. He worked as a teacher. Then he studied psychology. He
became a lecturer at the University of Queensland after that. He went to USA in
1922. He joined as a researcher at the WHARTON Business School in the
University of Pennsylvania. Later he was selected in the graduate school of
Business at Harward University. He was a professor of industrial research there.
He was regarded as the founder and father of modern sociological and
psychological industrial research.
42
2.9 Hawthorne Experiments
Hawthorne experiments were conducted at the Hawthorne plant of the

Western Electric Company in Chicago from 1924-1932, by Elton Mayo and
his colleagues and were published in six volumes viz.:
• The human problems of industrial civilization
• The social problems of industrial civilization
• The industrial worker
• Leadership in a free society
• Management and worker
• Management and morale
Objective of the experiments:
To find out the behavior and attitudes of employees under better working
conditions.
Problem:
In spite of benefits of pension, medical allowance and recreational facilities,
the productivity of the employees was not up to the expectations. They did
not have job satisfaction.
Action:
The management requested National Academy of Sciences to investigate the
reasons for dissatisfaction of employees and decrease in productivity.
Elton Mayo and his colleagues conducted researches in four phases:
• Illumination experiments
• Relay assembly test room experiment
• Mass interviewing program
• Bank wiring observation room experiments
Illumination experiments:
• Two groups were formed, experimental group and control group.
• In the case of experimental group, variations in lighting were made
periodically and results were observed and recorded.
43
• In the case of control group, there was no change in lighting.

• It was observed that the output of both the groups increased steadily.
• Conclusion: There is no relationship between lighting and productivity.
Not the improved working conditions but the informal social relation
developed among the group members was the reason for increased
productivity.
Relay assembly test room experiments:
• A group of six girls was formed.
• They were placed in a separate test room.
• An observer supervised the girls.
• The girls were told to work in a normal way and allowed to comment
freely about changes in the working conditions.
• The changes were made with durations ranging from 4 to 12 weeks.
• Group bonus incentive scheme was the first change made.
• The productivity increased to some extent.
• The change in the duration of rests was the second change. Earlier the
rest period in the morning as well as in the evening was 5 minutes each.
It was increased to 10 minutes each.
• The productivity increased.
• Free snacks and coffee/soup were provided in the rest time. (The third
change)
• The productivity increased.
• Free snacks and coffee/soup were withdrawn but the number of rest
periods were increased to four each with 5 minutes duration.( The fourth
change)
• The productivity decreased slightly. Not because of above change of
snacks/coffee but because of frequent rest intervals.
• The girls complained that frequent rest intervals affect smooth flow of
work.
44
• So, the number of rest intervals was reduced to two of 10 minutes

duration each, and coffee/soup was provided in the morning and snacks
in the evening.
• Productivity increased by 30%.
• At this stage, the researcher decided to withdraw all the benefits and
facilities. (The fifth change)
• Interestingly, productivity increased further.
• As and when the change was introduced, it was found that the
absenteeism decreased, morale increased, and less supervision was
needed. Since the girls were allowed to work freely, they developed a
sense of responsibility and self discipline. A close and friendly
relationship prevailed between the supervisor and the group girls.
These five changes were introduced over a period of two years. But the
method of payment was not changed. Morale and productivity was
maintained even though the changes in working conditions were
withdrawn.
• Conclusion: Productivity increases because of socio economic factors
such as feeling of being important, recognition, attention, complete
communication, participation, small size of informal and cohesive work
group and no-directive supervision.
Mass Interviewing Program:
The interview program was conducted to determine attitudes of employees
towards:
• Company
• Supervision
• Insurance plans
• Promotion and wages
Nearly 20000 employees including supervisors were interviewed, many of
them twice. Initially the interviews were structured, only direct questions
being asked by the researchers. So, they were not able to find the grass root of
the problem.
Hence the method of interview was changed into non directive or
unstructured one. The interviewer was asked to listen, instead of talking,
45
arguing or advising. The employees were asked to discuss freely those issues
which were relevant to the topics of their choice. Some of the major findings:
• Supervisors knew what the workers expected of them.
• Male workers were more economically oriented.
• A complaint of a worker is a symptom of personal disturbance in the
workplace.
• Many problems were due to emotional attitudes of workers rather than
objective difficulties in the situations.
• Satisfaction or dissatisfaction of an employee comes from his social status
and expected social rewards.
• The personal situation of the worker arises out of mode of his
sentiments, desires and interests.
• The individual behavior gets influenced by group behavior.
• Conclusion: The workers were activated by logic of sentiment but the
Management is concerned with logic of cost and efficiency.
Bank Wiring observation room experiments:
A group consisting of 14 male workers was formed. Out of these, 9 were
wiremen, 3 were solders and 2 were inspectors.
Hourly rate of wages was fixed on the basis of average output of each worker.
A group bonus scheme was announced. Group bonus was to be determined
on the basis of average group output. It was assumed that workers would
produce more and more in order to get maximum group bonus. Besides, the
workers would help each other to produce more. The company had not
improved the working conditions for this experiment.
Under this experiment, workers decided their target by themselves. The
company target was more than the target fixed by workers. However, workers
failed to achieve the target.
• Workers felt that if they produce more, a few workers among them
would lose their job.
• Workers felt that if they reached the standard level of production, the
management would raise the standard level of production further.
46
• The workers were friendly on the job as well as off the job. So the fast
workers protected the slow workers by slowing down their production.
They did it so that the slow workers would not lose the job.
• Workers were confident that the management would accept lower
production. Management seemed to accept lower production rate and
nobody was punished for lower production.
• Conclusion:
o An informal relationship is responsible for deciding human
behavior.
o The counseling was helpful in resolving management employee
conflicts.
o The existence of informal organization.
o The group had fixed standard output of their own only because of
social pressure.
o The output could not increase despite group incentive scheme as a
result of existence of social pressure.
Findings of Hawthorne Experiments:
• Social factors are responsible for deciding the level of output.
• Workers create groups different from official groups to overcome the
shortcomings of formal relationships. These groups determine the
norms of members’ behavior. If someone deviates from the group, he
will not be accepted by the group. Group behavior can influence the
individual behavior.
• Production level is determined by social norms, not by physiological
capacities. There is no direct relationship between production level and
working conditions.
• Workers are not motivated merely by money.
• The conflict arises since the objectives of management differ from
objectives of the workers “Informal” group.
• Leadership is important for directing group behavior. A superior is
accepted as a leader if his style is in accordance with human relations
approach, and his identification with group objectives.
47
• The workers prefer to maintain amicable relations with their co-workers

rather than earning more money. Efficient workers were not ready to
increase group output to get more group bonus. They feared that
increased output would lead to loss of employment for the inefficient
workers. So they fixed low level of production.
• The informal groups have their own norms and beliefs. A leader of the
group has an influence on the attitudes, behavior and performance of
individual workers.
• The friendliness and genuineness of the supervisor helps to maintain
productivity.
• Communication is an important part of organization. Workers can
explain their views and feelings relating to a particular action.
Participation of workers is possible in decision making process. Their
problems can be identified easily and solved. These things are possible
only through proper communication.
• Complaints and criticism by workers are symptoms of deeper
satisfaction.
Activity A
Go to the nearby manufacturing company and find out if the scientific
management is followed there in recruiting workers.
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48
Activity B
Conduct time and motion study in your kitchen by using stop watch while your
mother is cooking food. Find out the unnecessary movements because of which
she is getting burdened and fatigued.
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49
2.11 Summary
SUMMARY OF CONTRIBUTIONS FROM THE CONTRIBUTORS TO

HISTORY OF MANAGEMENT
Contributors Contribution Breakthrough
-Fourteen Principles of Management

-Classification of business activities
Fourteen
HENRY -Elements of management
Principles of
FAYOL -Management functions and organizational
Management
functions
-Qualities of a manager
-Principles of Scientific Management and Application

of these principles to solve the problems of
management
-Functional foremanship
-Work study, time and motion study
-Standards
-Planning and control Scientific
F.W.TAYLOR
-Separated planning function from executive Management
function
-Duty of management to tell expectation of
management from them and the way through which
job is to be completed
-Mental revolution on the Part of employer and
employees
-Nature and functions of Management
-organizational structure Management
PETER
-centralized control with structure of decentralization by Objectives
F.DRUCKER
-MBO MBO
-organizational changes
-Time and motion study
-Methods 18 basic
FRANK -18 basic motion elements(Therbligs) motion
GILBRETH -Construction contracting elements
-flow process charts, diagrams and merit Rating (Therbligs)
-Consulting
50
-The psychology of Management

-Fatigue studies
The
LILLIAN -Recognized human factor in management
psychology of
GILBRETH -Employee selection and training
Management
-Preached the message of her husband after
his death
-Framed bureaucracy as the ideal form of
MAX WEBER
organization
Pioneer of
management
MARY -Four principles of coordination
thought
PARKER -Role of psychology in human activity
Professional
FOLLET -Seven views on different aspects of management
nature of
management
-Gantt chart
-Gantt task and bonus plan
HENRY
-“The new machine” concept Gantt chart
GANTT
-Humanistic approach to labor
-Training
GEORGE
Hawthorne
ELTON -Conducted Hawthorne experiments
experiments
MAYO
1. Explain the Hawthorne Illumination experiments.

2. Explain the Scalar chain.
3. Explain the contribution of Mrs. Lillian Gilbreth.
4. What is the meaning of Unity of command.
5. Define “Scientific management” and explain.
51
1. As per Henry Fayol, ----------refers to combination of fairness, kindness and

Justice.
a. Equity
b. Diversity
c. Help
d. Support
2. Maximum prosperity for the employer:

a. high profits
b. high market share
c. low salaries
d. lower costs and high returns
3. A study relating to the fixing of working hours with rest periods to enable the
Workers to recoup the energy lost while performing the job.
a. Time study
b. Motion study
c. Fatigue study
d. Work study
4. Bureaucracy as a form of management:

a. Gilbreth
b. Drucker
c. Fayol
d. Weber
5. Meaning of Therbligs
a. Standard times
b. Thermometers
c. Thermal power
d. Motions
52
Reference Material
Summary
PPT
MCQ
Video1
Video2
53
C HAPTER 3 - VISION , MISSION AND S TRATEGY
Objectives
After studying this chapter, your ideas about vision and mission, objectives and
goals will be crystal clear and you will know the importance of targets, actions.
54
Chapter 3 - Vision, Mission and Strategy
Structure
3.1 Vision statement
3.2 Mission statements
3.3 Strategy
3.4 Objectives
3.5 Goal setting
3.6 Targets
3.7 Action plans
3.8 Summary
55
3.1 Vision statement
Vision statement is written by looking ahead into the future. It aims at higher
achievable things. It is based on what the organization should strive for and
achieve in another five to ten years. Through various activities, the faculty is
guided to attain the vision. This acts as a powerful tool, a guiding star. When
personalized and truly owned, vision provides the incentive-the drive towards
fulfillment. It creates commitment, motivation and the drive for initiating the
mission, objectives, projects and tasks necessary to realize the vision.
Developing a vision may take a few weeks. Though this looks to be a long
time, it should be understood that it is a portrayal of what life could be five to
ten years from now. Time is allowed for dreaming and brainstorming along
with categorizing random thoughts to ensure a comprehensive and realistic
vision.
In today’s competitive environment, it is just not sufficient if we are a step
ahead of other institutes. It should be by leaps and bounds. To achieve this,
every institute needs to have a vision. They should start looking into the
future, predicting it, planning for it, and making it happen. Only this will
make the difference between dreaming things and making things happen.
Thus, vision is the result of dreams in action.
The gap between dream and action is filled with plan. How well we succeed
will depend upon depends on how well we plan. Planning sets the direction
and speed of the progress. Effective utilization of time and resources is a
needed perquisite. To survive in this global village, productivity is more
important than production. Effectiveness is more important than efficiency. It
is more important how effectively I utilize the fewer opportunities put forth
before me.
Vision is not the state of being but the process of becoming. Vision should be
something which is far fetching and not that which calls for a change every
day. It should be borne in mind that the vision statement is organization
specific.
According to Joel Barker,
• Vision should be initiated by top management
• Acceptable to everyone involved
• Complete: how, when, why and what
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• Understandable to everyone, so that they contribute to the vision

• Positive, attainable and inspiring
• One that makes the people stretch themselves to use their talents, skills
and imagination
• Worth the effort of everyone involved.
Management vision can lead the organization towards success and it can also
demoralize the organization. There are cases where improper vision
statements have ruined the organization. Hence, it is necessary that utmost
importance is given and care is taken while formulating the vision statement.
To formulate a vision statement, one has to study the core values and purpose
of the organization. Only such a vision statement will do the motivating role.
For human being, there are many core values. Some people have money as
the core value. Some have ethics and some have power, status as core values.
Whatever people do are the reflections of their core value. Similarly, the
activities of an organization should reflect its core value. Some of the core
values are:
• Service to people
• Innovative technology
• High ethical standards
• Always on time
• Maximum profit
The purpose means answer to the question:”what for does the organization
run?” This purpose also should reflect in the vision statement.
The vision statement gives direction to the organization. Having a vision
paves way for the success of the organization. Between the dream and the
vision, the organization has to climb a ladder of action plans such as
expertise, creativity, empowerment, involvement and values. A vision in each
of these sub levels will help the organization to reach the goal faster.
The following characteristics must exist in the organization to be successful:
• Flexible to the changing environment
• Quick responsiveness of individuals to the demands made by the
environment
57
• Creative approach to problem solving

• Willingness to experiment and learn new things
• Nurturing the creativity of the individuals
• Pro-activeness of the top management
General guidelines for a vision statement:
• Involve as many employees as possible in the formulation of vision
statement.
• Affinity diagram and brainstorming should be used in the formulation of
the vision statement.
• The vision should project the growth and development.
• It should be short and realistic.
• The value system to be projected in the statement.
• How you intend to achieve the foresighted vision should be highlighted.
Vision statement should be:
• Future oriented
• Creative
• Setting high standards of excellence
• Inspiring enthusiasm and encouraging commitment
58
• Reflecting uniqueness
• Very clear and challenging
It is found that when a vision is clearly stated, focus is there. People, who look
ten years ahead, succeed more rather than those who leave things to fate.
Continuous monitoring and feedback is necessary to find where the
organization is positioned with regard to its vision. It gives an indication of
progress of the organization.
The vision should be popularized among the employees by having it displayed
in all prominent places in the organization; having it printed on personal
items such as ID cards, pay slips etc. Top officials should promote the vision
statement frequently in personal and public talks. They must also own it and
live it.
Examples:
Vision Statement of our Welingkar Institute of Management, WE
School:
To nurture thought leaders and practitioners through inventive education.
Vision Statement of Tata Motors:

To be a world class corporate constantly furthering the interest of all its stakeholders.
Vision Statement of Bosch Ltd.

Enabling Lives and Livelihood through Education and Technology.
Vision Statement of Infosys Technologies Ltd.

"To be a globally respected corporation that provides best-of-breed business
solutions, leveraging technology, delivered by best-in-class people."
Vision Statement of WIPRO Ltd.

To be among the Top 10 Global IT & Business Process Outsourcing Services.
59
Sample Vision Statements of other organizations:

1. To maintain leadership in our field by fulfilling all the intended and implied
requirements of our customers to their utmost satisfaction and continue to exceed
their requirements at all times.
2. It will be a pre-eminent city with active community involvement,
comfortable neighborhoods, thriving businesses and innovative government.
3. It will be state where poverty will be totally eradicated; where every man,
woman and child has access to not just the basic minimum needs but also to all the
opportunities to lead a happy and fulfilling life; a knowledgeable and learning
society built on the values of hard work, honesty, discipline and a collective sense
of purpose.
4. Our company believes in achieving consonance between corporate
objectives and employee aspirations. The aim to improve individual progress,
employee motivation, and productivity levels shall be achieved through sustained
nurture, a strong work culture and organizational excellence.
5. To us quality is not something what we engineer, inspect and input into our
tractors and their components. It is an innate desire to be the best that comes
within each one of us. It defines our lives at work and at home and ripples out into
the world around us.
3.2 Mission statements
The next step is to prepare mission statements. If the vision is “WHAT” of

life, then the mission is “WHY” and “HOW”. It identifies the roles and
activities to which an individual is committed and provides the overall
direction for achieving the vision. Mission focuses on what you want to be
and what you want to do- contributions and achievements. Mission focuses on
the values and principles upon which being and doing are based. A personal
vision needs to be clearly developed so that the mission statement can be
based on it.
General guidelines for mission statements:
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• These statements should clearly indicate the important roles and

methodologies followed for fulfilling the vision.
• Techniques and tools such as affinity diagram, brainstorming, fishbone
diagram, and surveys should be used.
• Mission statements should realize the vision in action. Conduct a mind
map to check whether it is really fulfilled.
• These statements will carry the information which needs to be fulfilled in
the near future.
• Time factor may be brought in to make it more systematic.
Examples:
Mission Statement of our Welingkar Institute of Management,
WE School:
Focus on inventive education by offering practical, innovative and technology driven

programs.
Provide managerial talent with risk managing ability, passion for learning and
creative thinking and, values in rapidly evolving economic and social environment.
Contribute significantly to Indian corporate world by preparing management

graduates with global mindset.
Build intellectual capital through faculty development, research, consultancy and

publication.
Develop alumni network of mutual benefit and keep alumni updated through
continuous learning and meeting.
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Mission Statement of Tata Motors (Commercial Vehicle Business

Unit)
Shareholders: To consistently create shareholder value by generating returns in

excess of Weighted Average Cost of Capital (WACC) during the upturn and at least
equal to Weighted Average Cost of Capital (WACC) during the downturn of the
business cycle.
Customers: To strengthen the Tata brand and create lasting relationships with the
customers by working closely with business partners to provide superior value for
money over the life cycle.
Employees: To create a seamless organization that incubates and promotes

innovation, excellence and the Tata core values.
Vendor and Channel Partners: To foster a long-term relationship to introduce a

broad range of innovative products and services, that would benefit our customers
and other stakeholders.
Community: To proactively participate in reshaping the country’s economic

growth. To take a holistic approach towards environmental protection.
Mission Statement of Bosch Ltd.
How we intend to achieve the mission:
Like a spark that ignites an engine, the foundation aims to empower individuals to
create an impact that will help communities stand on their own feet, through
employability training and techno-solutions.
Technology refers to the application of a systematic method in order to achieve a

desirable outcome.
Mission Statement of Infosys Technologies Ltd.
To achieve our objectives in an environment of fairness, honesty and courtesy

towards our clients, employees, vendors and society at large.
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The values that drive Infosys: C-LIFE
1. Customer Delight: A commitment to surpassing our customer expectations.
2. Leadership by Example: A commitment to set standards in our business and

transactions and be an exemplar for the industry and our own teams.
3. Integrity and Transparency: A commitment to be ethical, sincere and open in our

dealings.
4. Fairness: A commitment to be objective and transaction-oriented, thereby earning

trust and respect.
5. Pursuit of Excellence: A commitment to strive relentlessly, to constantly improve

ourselves, our teams, our services and products so as to become the best.
Mission Statement of WIPRO Ltd.
1. Be a trusted partner to our clients by providing transformation and SI services.
2. Achieve Thought Leadership in emerging technology areas.
3. Be perceived as a leader by relevant stakeholders among global IT service and

BPO providers.
Mission statements are prepared to make the employees understand in clear terms
“HOW” to achieve the vision and “WHY” all this has to be done. It is a ROAD
MAP for achieving the vision. The mission statements act as a guiding force
encouraging the individuals to work towards reaching the vision.
3.3 Strategy
Companies now face increasingly turbulent, complex and threatening

environments. In the past, they could succeed by focusing virtually all
management efforts on running their day to day affairs as efficiently as possible.
Although such focusing is still important, adapting the firms to changing
environmental conditions has become an essential gradient for success.
The strategic management perspective highlights the significance of devoting
more attention to analyzing environments and formulating strategies that relate
63
directly to environmental changes. The ultimate purpose of strategic

management is to help the organization increase its performance through
increased effectiveness, efficiency and flexibility.
A strategy is a way of doing something. It usually includes formulation of an
objective and a set of action plans for accomplishment of the objective.
Strategic management may be understood as the process of formulating,
implementing and evaluating business strategies to achieve organizational
objectives. It is a set of managerial decisions and actions that determines the long
term performance of a corporation. It involves environmental scanning, strategy
formulation, strategy implementation, evaluation and control.
The study of strategic management emphasizes on monitoring and evaluating
environmental opportunities and threats in the light of corporation’s strengths
and weaknesses.
Step No. 1: Analyze opportunities and threats or constraints that exist in external
environment.
Step No. 2: Formulate strategies that will match the organization’s strengths and
weaknesses with opportunities and threats or constraints that exist in external
environment.
Step No. 3: Implement the strategies.
Step No. 4: Evaluate and control activities to ensure that organizations objectives
are achieved.
3.4 Objectives
Once the common vision and mission statements for the organization are made,
then it is for the different departments to contextualize these statements in their
working.
Every department should have well defined objectives. This will be based on why
the department exists and what are its broad expected outcomes. The objective of
the design department of an organization may be as follows:
• To design the product optimally using state of the art technology
• To design the product up to the delight of customers found and checked
using the state of art management tools
64
• To incorporate innovativeness and flexibility in the design

The objectives should reflect vision of the organization and should go well with
the mission of the organization.
E.g. if the organization has the following vision:
“Be Number one innovative company in India”
And the design department of that organization has the following objectives:
“To design products according to the primary vision of the founder”
Then these are mere statements. These vision and objectives will do no good to
the organization.
3.5 Goal Setting
To fulfill the objectives, it is necessary that the objectives are split into specifics.
The criteria may be functionality, action etc. These goals are for teams of people
involved.
As said earlier, the goals must be S-M-A-R-T as explained below:
1. Specific: We should be specific in our goal. E.g. I want to become a manager
is not a goal. What you want to accomplish in an organization is a goal.
2. Measurable: The goal must be measurable. E.g. I want to secure 95% marks.
3. Attainable: The goal must be achievable. Our resources are limited. So, if
you want to buy a flat in Mumbai and you have only 10 Lakhs, it is not possible to
buy a flat there.
4. Realistic: The goal must be realistic. We cannot dream to become a prime
minster when you have not yet become a corporator.
5. Time bound: Your goal should have a time limit such as I want to get
admission to a medical college during next year.
Continuous activity towards predetermined goals, set of disciplines with organized
activities, interdependence between customer and us will result in profits, goodwill,
team effort, proper decision making.
65
3.6 Targets
Goals are meaningful and clear cut subsets of objectives. Goals are for a team of
people involved and may be long term in nature. But these should be made into a
few short term and person specific targets. Targets make individuals more
comfortable with what he has to do, and within what time frame he has to
accomplish the same. As every individual has a target, it should be written with
care and should reflect the vision and his job description, his potentials etc.
3.7 Action Plans
Detailed action plans have to be laid down next. This will assist individuals in
achieving the target. Also whenever there is a deviation to plan, it can be quickly
tracked and restored. Action Plans help in systematic study and presentation of
the process to achieve the targets.
3.8 Summary
66
VISION:
WHAT WILL THE ORGANIZATION BE IN 5-10 YEARS?
MISSION:
HOW TO REACH THE VISION?
OBJECTIVES:
WHY THE DEPT EXISTS AND WHAT ARE ITS BROAD

EXPECTED OUTCOMES?
GOALS:
SPECIFIC, MEASURABLE, ATTAINABLE, REALISTIC AND

TIME BOUND BREAK UP OF EXPECTED OUTCOME OF
THE DEPT
TARGETS:
BREAK UP OF ABOVE TO INDIVIDUAL SPECIFIC SHORT

TERM OUTCOME
ACTION PLANS:
WHAT TO DO, HOW TO DO, AND SEQUENCING OF

ACTIONS OF EVERY INDIVIDUAL
67
Activity A
What is your personal vision for next 5 years? Make a mission statement detailing
how you will achieve it.
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Activity B
What is your personal target this year? What is your action Plan to achieve it?
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68
1. Explain the difference between vision and mission.

2. Explain the difference between objectives and goals.
3. Explain the meaning of SMART goals.
1. Vision is the result of ----------in action.

a. Mission
b. Plan
c. Dreams
d. Ideas
2. The gap between dream and action is filled with---------

a. Ideas
b. Plan
c. Goals
d. Objectives
3. Vision should be initiated by -------------.

e. Top management
f. Middle management
g. Workers
h. Managers
4. Answer to the question:”what for does the organization run?” is:

a. Plan
69
b. Purpose
c. Vision
d. Mission
5. “Be Number one innovative company in India” is a -------------of a company.

a. Mission
b. Vision
c. Purpose
d. Idea
70
Reference Material
Summary
PPT
MCQ
Video1
Video2
71
C HAPTER 4 - SEVEN PROCESSES OF SCIENTIFIC MANAGEMENT
Objectives
After studying this chapter, you will come to know the definitions of all the seven
processes of Scientific Management and you will have clear ideas before you begin
your detailed study about these processes.
72
Chapter 4 - Seven Processes of Scientific Management
Structure
4.1 Planning
4.2 Organizing
4.3 Staffing
4.4 Directing
4.5 Coordinating
4.6 Motivating
4.7 Controlling
4.9 Summary
73
4.1 Planning
Planning is the primary function of management. Nothing can be performed

without planning. Writing a book starts with planning. Planning refers to deciding
in advance what will be done in near future. In the business world, the
organization has to achieve the objectives and goals. In order to achieve these
objectives and goals the organization plans
• What is to be done
• When it is to be done
• How it is to be done
• By whom it is to be done.
Planning is a constructive reviewing of future needs so that present actions can be
adjusted in view of the established goal. It is a deliberate conscious research used
to formulate the design and orderly sequence of actions through which it is
expected to reach objectives. Planning should take place before doing; most
individual or group efforts are made by determining before any operative action
takes place: What shall be done, where, how and who shall do it.
Planning involves determining the objectives and goals that an organization
aspires to achieve within a given time period, developing alternatives, and selecting
the best course of action among the available alternatives to accomplish the set
objectives. Thus planning is a forward looking function which involves future
forecasting. The future forecasting is done on the basis of past analysis related to
present. By anticipating the future destination of an organization, planning
provides direction and guidelines to managers to perform different organizational
activities. In the planning phase, managers determine in advance where to go,
how to go, what is to be done and by whom it is to be done. In addition, they
attempt to forecast the problems that may arise in the future and the ways to deal
with them.
The planning function involves the following activities:
• Visualizing the future position of the organization
• Determining objectives
• Selecting the best future course of action
• Formulating policies, programs, budgets, schedules
74
• Establishing procedures, and standards of performance

• Forecasting future problems, and developing means to cope up with them
• Comparing the past activities of the organization with present activities.
An efficient planning function helps the organization to achieve its organizational
objectives effectively. Being a managerial function, planning should intend to
create maximum utility out of minimum possible resources.
Example of the process:
To give you an example, Production Planning and control function is very crucial
function, which essentially consists of planning production in a manufacturing
organization before actual production activities start and exercising control
activities in order to ensure that planned production is realized in terms of quality,
quantity, delivery schedule and cost of production. This function includes routing,
estimating, loading and scheduling, dispatching, expediting, inspection, evaluating
and cost control.
4.2 Organizing
It can be defined as arranging the work, processes, authority, resources and

employees in right order, so that all the organizational activities can take place in a
defined and orderly manner. Proper arrangement ensures timely attainment of
objectives and minimization of work chaos and miscommunications. Organizing
defines various relationships in an organization, such as authority-responsibility,
and inter-departmental relationships. It is because of those structural arrangement
and relationships, the future plans of an organization are developed and carried
out. Similar to planning, organizing is also an on-going activity that changes with
any change brought about in any function of an organization. The function of
organizing is different for different objectives and goals. For example, organizing
the functions and work processes of an accounting department are different from
that of a marketing department.
Organizing is the distribution of work in group-wise or section-wise for effective
performance. Organization provides all facilities which are necessary to perform
the work. After the business gets developed, the organization takes responsibility to
create some more departments under different managers. Hence the organization
divides the total work and coordinates all the activities by authority relationship.
Besides, organizing defines the position of each person in the organization and
75
determines the paths through which communication should flow. The manager
would determine who should report to whom and how.
According to Henry Fayol, “Organization is of two kinds: Organization of human
factor, and organization of material factor. Organization of human factor covers
the distribution of work to those who are best suitable along with authority and
responsibility. Organization of material factor covers utilization of raw materials,
plant as well as machinery”.
Organizing function may also be defined as a process of integrating, balancing,
unifying, and coordinating the activities of employees and different organizational
departments for accomplishing predetermined objectives. The organizing function
involves:
• Determining and explaining the activities required to achieve planned
objectives
• Grouping the activities among different departments
• Assigning activities to individuals at specific positions
• Delegating the authority to individuals for carrying out activities
• Explaining the roles and responsibilities to individuals
• Laying down horizontal and vertical authority relationships throughout the
organization
To elaborate the subject further, after planning is completed, we have to bring all
the resources together in a certain format, which makes easy for us to take actions.
As detailed earlier, there are four resources viz. men, machines, material and
money which have to be brought together in the proportion as per plan. When we
talk about organization, it is not only the organization of men, but also the
organization of machines, materials and money. Remember, after planning, we
should not jump to actions. Organizing is the function for preparing for action.
Before we start any action, the resources must be properly mapped.
As stated earlier, if we are managing an event like marriage ceremony, while
performing various activities like booking of hall, sending invitations, receiving
guests and putting them into hotels etc., we must ensure that proper time table,
schedule, allocation of work to various persons are done systematically and in
time. Otherwise, we will be stressed and then will make mistakes because of
leakage of energy.
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4.3 Staffing
Staffing is the important function of management that involves employing the

right number of people at the right place with right skills and abilities. It also
involves training and development of the people so that organizational objectives
and goals can be achieved successfully. It comprises the activities of selection and
placement of competent personnel. In addition to selection, training,
development of personnel, it also comprises of promotion of best persons,
retirement of old persons, performance appraisal of all the personnel, and
adequate remuneration of personnel. The success of any enterprise depends upon
the successful performance of staffing function.
The staffing function involves:
• Determining human resource requirements of the organization
• Recruiting individuals with required skills and competence
• Providing placement and orientation to individuals
• Providing training and development programs to individuals
• Evaluating the performance of individuals
• Transferring, promoting, laying off individuals
Recruitment is the process of finding proper candidates and inducing them to
apply for the jobs in the organization. The recruitment should be sound one. If it
is not so, the morale of the staff will be very low and the image of the company
will be tarnished.
Recruitment is done through advertisements, word of mouth publicity and with
the help of placement agencies.
The success of any recruitment depends upon policies and procedures followed by
the company while recruiting the staff members.
Jobs with low salary, uninteresting and difficult jobs are challenging to be filled up
easily.
Recruitment means the discovery of the staff members for the present and future
jobs.
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4.4 Directing
The actual performance of the work starts with the function of directing.
Direction includes guidance, supervision, and motivation of employees. Directing
involves influencing, encouraging, counseling, mentoring, and guiding the
employees to work towards the accomplishment of organizational objectives and
goals. In other words, directing refers to a process in which the managers instruct,
guide, and supervise the performance of employees to achieve predetermined
objectives and goals. It is regarded as the essence of the management process as
the success of all other management functions such as planning, organizing and
staffing depends upon the directing function.
Communication and coordination are the two important elements of the directing
function. Communication refers to verbal or non-verbal interaction between the
managers and subordinates. On the other hand, coordination is defined as an act
of enabling different individuals to work together for a common goal.
The directing function involves the following activities:
• Helping and guiding subordinates to achieve predetermined objectives and
goals.
• Ordering and instructing subordinates regarding the work assigned to them
• Educating subordinates regarding the methods of performing work efficiently
• Supervising the work being performed by subordinates
• Motivating subordinates to give their best.
According to Joseph Massie, “Directing concerns the total manner in which a
manager influences the action of his subordinates. It is the final action of a
manager in getting others to act after all preparations have been completed”.
Directing is a process of top down approach. It is a vertical process in which
orders come from top for the subordinates to follow. Directing is person-centric.
That’s why we often see that one boss is very effective because of his proper
directions and the other one is not so effective because of his wrong way of
handling things.
I can cite examples of Mr. J.R.D.Tata, Ratan Tata, Narayan Murthy, Dhirubhai
Ambani whose crystal clear directions have created history in Indian industry.
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4.5 Coordinating
All the activities are divided group-wise or section-wise under organizing function.
Now, such grouped activities are coordinated towards accomplishment of
organizational objectives and goals. The difficulty of coordination depends upon
the size of the organization. It increases with the increasing size of the
organization. According to Knootz and O’Donell, “The last coordination occurs
when individuals see how their jobs contribute to the dominant goals of the
enterprise. This implies knowledge and understanding of enterprise objectives”.
Coordination is the management of interdependence in work situations. It is the
orderly synchronization or fitting together of the interdependent efforts of
individuals. For example, in a hospital, the activities of doctors, nurses, ward
attendants, and lab technicians must be properly synchronized if the patient is to
receive good care. Similarly, in a modern enterprise, which consists of a number
of departments, such as production, purchase, sales, finance, personnel etc., there
is a need for all of them to properly time their interdependent activities and to
effectively reunite the subdivided work. To coordinate is to keep expenditure
proportional to financial resources; equipment and tools to production needs;
stocks to rate of consumption; sales to production. It is to build the house neither
too big nor too small; adapt the tool to its use; the road to the vehicle; the safety
precaution to the risks.
In a well coordinated enterprise, the following facts are observed:
1. Each department works in harmony with the rest. Stores know what has to be
supplied and at what time; production knows its target; maintenance keeps
equipments and tools in good order.
2. Each department, division, and sub division is precisely informed about the
share it must take in the common task.
3. The working schedule of the various departments is constantly tuned to the
circumstances.
Coordinating is a horizontal function. It creates linkages between different
verticals. Coordination is a choice whereas directing is compulsion of job. Not
many people like to coordinate the activities between various sections. It involves
talking to persons across the line to get certain things done. It creates linkages
between dissimilar functions. It unifies the work of one section with some other
section.
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4.6 Motivating
The objectives and goals are achieved by motivation. Motivation includes

increasing the speed of performance of a work and developing a willingness on
the part of workers. This is done by a resourceful leader.
The workers expect favorable climate conditions to work, fair treatment, monetary
and non-monetary incentive, effective communication and gentleman approach.
According to Earl P. Strong, “Motivating is the process of indoctrinating personnel
with unity of purpose and need to maintain a continuous and harmonious
relationship”.
4.7 Controlling
Controlling is the last step of the management process but plays a crucial role
without which the whole management process is incomplete. It can be defined as a
function through which the actual and desired output is measured. If the actual
output differs from the desired output, the deviations are altogether removed or
minimized.
There are basically two types of control mechanisms, viz. pro-active and reactive.
The pro-active mechanism tries to predict future hurdles and solve them then and
there. The reactive approach tries to rectify the damage done to prevent any
similar loss in future.
The main steps in control function include:
• Establishing performance standards
• Measuring actual performance
• Determining the gap between set standards and achieved performance
• Taking corrective measures
An integral activity in the controlling function is feedback. Without appropriate
and valid feedback, no control measures can be successfully implemented.
Feedback about a particular plan can help in identifying areas of improvement.
The controlling function involves following activities:
• Bringing actual results nearer to the desired results
• Improving the performance level of all activities being performed
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• Regulating the use of all the resources for achieving planned objectives and
goals
• Regulating working behavior of employees for maintaining order and
discipline
• Checking distortions and deviations taking place in occurs in conformity the
system to make it more cost effective
If in the controlling step, there is a huge gap in the actual and desired
performance, the whole management process is revised.
According to Henry Fayol, “Control consists of verifying whether everything
occurs in conformity with the plan adopted, the instructions issued, and the
principles”.
Activity A
Visit a nearby company to find out how they have implemented the seven
functions of management, with emphasis on staffing and directing.
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Activity B
Prepare a write up on how you will control your organization, as a CEO.
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4.9 Summary
Management is an art and science and it is a continuous activity. It is a factor of

production and it is an organized activity. Management aims at maximizing profit
with ethical behavior. It is a profession by itself and involves decision making. It is
needed in all levels and develops leadership qualities in people. Planning,
organizing, staffing, directing, coordinating, motivating and controlling are the
functions of management.
1. Explain: Being a managerial function, planning should intend to create

maximum utility out of minimum possible resources.
2. Explain the importance of communication in the directing function.
3. Explain: “To coordinate is to keep expenditure proportional to financial
Resources”.
1. The planning function involves the following activity:

a. Determining profits
b. Determining objectives
c. Applying for bank loan
d. Recruiting people
2. Organizing is the ---------------of work in group-wise or section-wise for effective

Performance.
a. Starting
b. Distribution
c. Finishing
d. Payment
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3. Coordination is the management of -----------------in work situations.

a. Dependence
b. Distribution
c. Interdependence
d. Labor
4. This is done by a resourceful leader.

a. Motivation
b. Promotion
c. Organizing
d. Reprimanding
5. There are basically two types of control mechanisms:

a. Upper and lower
b. Horizontal and vertical
c. Electrical and mechanical
d. Pro-active and reactive
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Reference Material
Summary
PPT
MCQ
Video
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CHAPTER 5 - PLANNING
Objectives
After studying this chapter, you will get a thorough orientation about planning, the
first, foremost and most important function of management.
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Chapter 5 - Planning
Structure
5.0 Introduction
5.1 Steps
5.1.1 Analysis of external environment
5.1.2 PESTLE Analysis
5.1.3 Analysis of internal environment
5.1.4 SWOT Analysis
5.1.5 Determination of objectives
5.1.6 Determining planning premises and constraints
5.1.7 Examination of alternative courses of action
5.1.8 Weighing alternative courses of action and its selection
5.1.9 Establishing the sequence of activities
5.1.10 Formulation of action program
5.1.11 Determining secondary action plans
5.1.12 Securing participation of employees
5.1.13 Follow up and evaluation
5.2 Alternate Plans and Contingency planning
5.3 BCP
5.4 MBO
5.5 Forecasting
5.7 Summary
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5.0 Introduction
Planning can start only after the goals are set. Planning is nothing but time table
of events and activities for deployment of resources or resources to be put in
action in order to achieve predetermined goals.
Planning is essential in every walk of life. Everyone needs to plan to reach the
goals effectively. The period of planning could be short term, mid-term or long
term. The duration of long term can be only one year in case of banking whereas
in case of a large manufacturing plant such as steel plant short term itself could be
of two years.
We should first do the long term planning, and then do mid-term and then only
the short term planning. People generally tend to start action without any
planning. They make too much haste. Effective planning facilitates timely
achievement of objectives. It reduces tendency for you to fail.
Planning is an intellectual process. It requires humility. Past success may not
guarantee future success. Business environments have become very complex. We
must keep our mind and eyes open. Future is unknown to us. We have to think
differently all the times.
Planning is a process of thinking to choose a course of actions which helps to
achieve pre-determined objectives.
Every department, division and branch need to do their individual planning and
these individual plans are integrated into master plan of the organization.
As per Koontz and O’Donnel, “Planning is deciding in advance what to do, how
to do it, when to do it and who is to do it. It bridges the gap from where we are to
where we want to go.”
As per Henry Fayol, “Planning is deciding the best alternatives among others to
perform different managerial operations in order to achieve the pre-determined
goals.
Characteristics of Planning:
1. Planning is looking into the future.
2. Planning involves pre-determined line of action.
3. Planning discovers the best alternative out of available many alternatives.
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4. Planning requires considerable time for implementation.

5. Planning is a continuous process.
6. Object of planning is to achieve pre-determined objectives in a better way.
7. Planning integrates various activities of organization.
8. Planning is done for a specific period.
9. Planning not only selects the objectives but also develops policies, programs
and procedures to achieve the objectives.
10. Planning required at all levels of management.
11. Planning is inter-dependent process which co-ordinates the various business
activities.
12. Planning directs the members of the organization.
13. Growth and prosperity of any organization depends upon planning.
Objectives of Planning:
1. It reduces uncertainty.
2. Brings cooperation and coordination.
3. Best utilization of resources brings about economy in operation.
4. Anticipates unpredictable contingencies
5. Achieves pre-determined goals
6. The existence of competition enables the enterprise to get a chance for
growth. It is possible to reduce competition through planning.
Nature of planning:
1. Planning is the primary function of all the other functions.
2. Planning contributes to objectives.
3. Planning is an intellectual activity.
4. Planning results in higher efficiency.
5. Planning is a continuous process.
6. Planning is flexible, because it has at least one more alternative if the best
selected alternative is proved wrong.
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7. Managerial actions of different managers are unified in order to achieve

objectives.
8. Planning is done by every person be it a MD or a Foreman. It is common to
all.
9. It is a basis for all managerial functions.
10. Without planning, nothing can be coordinated.
11. Every plan is formulated after considering the limiting factors. The limiting
factors might be money, skilled labor, quality materials, plant and machinery.
Importance of planning:
Defective planning and inadequate planning leads to failure of the organization.
The business unit has to work in uncertain and ever changing conditions. It is very
difficult to continue the business under such conditions. Effective planning can
anticipate the uncertain events and help prepare the workforce to meet the
situation to survive.
1. Planning makes the organization to focus on the objectives for early
achievement.
2. Future is full of uncertainties. These uncertainties may be predicted through
forecasting. Then the planning provides necessary provision to face the
uncertainties. Planning evaluates the alternative course of action for
continuous growth and prosperity of the organization.
3. Best utilization of resources and selection of best alternative brings about
economy in operation, because of the best results at minimum cost..
4. Plans are selected courses along which management desires to coordinate
group action.
5. Tackling increasing complexities of business
6. Planning is prerequisite for effective controlling.
7. It leads to effective utilization of resources.
8. Planning includes the selection of best alternatives, conversion of
uncertainty into certainty, economy in operation, coordination, facing the
complexities, effective control and effective utilization of resources and
hence avoiding business failures.
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Advantages of planning:
1. Better utilization of resources
2. Helps in achieving objectives
3. Economy in operation
4. Minimizes future uncertainties
5. Improves competitive strengths
6. Effective control
7. Motivation
8. Cooperation
9. Promotes growth and improvement
10. Develops rationality among management executives
11. Prevents hasty judgments
12. Reduces red tapism
13. Encourages innovative thought
14. Improves ability to cope up with change
15. Create forward looking attitude in management
16. Development of efficient methods
17. Delegation of authority is facilitated
18. Anticipation of crisis.
Methods of Planning:
• Objective Plans (Basic Plans)
These are necessary for all types of planning operation.
• Standing Plans
These are policies and procedures, repetitive action and are ready guidelines for
recurring problems.
• Master Plans
These cover the complete course of action along with consideration of time and
energy. Mall plans are added together in an orderly way to speed up the course of
action. In terms of scope, plans may be either broad or detailed in character.
These plans could be made function-wise.
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5.1 Steps In Planning Process
The planning process is different from one organization to another. Given below is
a planning process which may be treated as commonly acceptable:
5.1.1 Analysis of external environment:

It is necessary to consider the external environment of an organization. The term
external environment includes socio-economic conditions and political conditions
prevailing in a country.
Socio-economic conditions refer to classification of society on the basis of income,
age, class, living conditions, aspirations, expectations etc. These factors are not
controllable ones. However, every organization has to prepare the plan according
to the changing trends in the external environment.
5.1.2 PESTLE Analysis:

PESTLE stands for - Political, Economic, Socio-cultural, Demographic,
Technological, Legal, and Environmental. The term PESTLE has been used
regularly in the last 10 years and its true history is difficult to establish. The above
mentioned environments change rapidly at different speeds and rates.
• Political/Legal Factors center on the political stability of a country, its legal
system, and its general attitude towards business. Lack of understanding or respect
for a particular nation's political predisposition and legal system can be
disastrous for a firm's performance and may result in expensive litigation and loss
of good reputation.
A new party gets elected and is not friendly with the business, so it affects
planning.
• Economic factors relate to a country's inflation or deflation rates, interest
rates, tariffs, balance of trade issues, growth of national economies, exchange
rates, unemployment rates, labor availability, gross domestic products, savings
rates, individual and corporate taxes, monetary gain, GDP etc. If the country is in
surplus, taxes might be less and vice versa.
• Socio-cultural factors relate to a country's dominant religions, the
population's general desire for leisure-time, attitudes toward consumerism,
environmentalism, and the role of gender in society and business.
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Customers may cancel the orders, suppliers may not supply, there might be a
change in behavior of transporters, distributors, and also share holders.
• Demographic factors pertain to changes in the population size of a country,
geographic distribution of people, ethnic mix, income distribution, average age,
number of people in the family, etc.
• Technological factors pertain to a country’s reception to innovation.
Some national cultures discourage change while others embrace and support
it. A country’s reception to technology can make the country more
competitive, make it more business-friendly, and raise the standard of living of
its people. A country’s position on technology can change rapidly, especially if
there is a change within the governmental structure.
Change in technologies such as computers, ERP systems etc.
• Environmental Factors: There are very strict restrictions on emission and
other factor which create pollution of air, water, land etc.
PESTLE analysis is in effect an audit of an organization’s environmental
influences with the purpose of using this information to guide strategic decision-
making. The assumption is that if the organization is able to audit its current
environment and assess potential changes, it will be better placed than its
competitors to respond to changes.
To help make decisions and to plan for future events, organizations need to
understand the wider ‘meso-economic’ and ‘macro-economic’ environments in
which they operate.
The meso-economic environment is the one in which we operate and have limited
influence or impact.
Meso-economics is the bridge between macro economics and microeconomics.
The circular flow of the economy is influenced by meso-economics.
 
Competitions for online banking customers are intense among top U.S. banks;
because of increased unemployment, credit crisis and the overall poor health of
the U.S. economy. Marc Trudeau states “Americans have less cash, are spending
less and have experienced a significant decline in the value of their assets. There
are shifts in the way consumers manage their finances online.” Less frequent
visits to banking websites, has significant implications for banking marketers trying
to reach new customers.
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Consumer spending is at its all time low with the poor health of the U.S. economy.
However, Wal-Mart and Target are competing for consumers who spend less
money, because both companies are serious about keeping prices low. In
addition, Dollar General, Family Dollar and Radio Shack have reemerged their
low prices to compete with Wal-Mart and Target stores. This strategy stops Wal-
mart and Target from becoming a monopoly. Although low prices are important
to both stores, changes in brand images are the indicator of which store has
quality products for lower prices.
 
Essentially, in the two current events, the consumers are a representation of
microeconomics. The top U.S. banks, Target and Wal-Mart are
representations of macroeconomics. Competition and monopolies represent
the concepts of mesoeconomics that bridge the gap between microeconomics
and macroeconomics. Ultimately, meso-economics influences the circular flow of
the economy, due to the disaggregated entities that affect each other’s behavior.
The macro-environment includes all factors that influence an organization but are
out of its direct control.
An organization on its own cannot affect these factors, nor can these factors
directly affect the profitability of an organization. But by understanding these
environments, it is possible to take the advantage to maximize the opportunities
and minimize the threats to the organization. Conducting a strategic analysis
entails scanning these economic environments to detect and understand the broad,
long term trends.
A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the
environment in which an organization is operating. Specifically a PESTLE
analysis is a useful tool for understanding risks associated with market (the need for
a product or service) growth or decline, and as such the position, potential and
direction for an individual business or organization.
A PESTLE analysis is often used as a generic 'orientation' tool, finding out where
an organization or product is in the context of what is happening outside that will
at some point affect what is happening inside an organization. The six elements
form a framework for reviewing a situation, and can also be used to review a
strategy or position, direction of a company, a marketing proposition, or idea.
Managers can monitor the environments through boundary spanning — a process of
gathering information about developments that could impact the future of the
organization. Managers can access information through a variety of sources:
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customer and supplier feedback; professional, trade, and government publications;

industry associations; and personal contacts.
Managers can also actively work to influence their external environments through
lobbying, voting, and using the media to influence public opinion.
5.1.3 Analysis of internal environment:
It can be also called as Resource Audit. Resource audit means an analysis of the
strength and weaknesses of an organization. Due consideration is given to
availability of resources, profitability, plant capacity, available manpower,
communication effectiveness etc.
Internal elements comprise the organization itself. Internal change arises from
activities and decisions within the organization. Managers can gather information
by conducting a thorough evaluation of the internal operations of the
organization. The purpose of this internal analysis is to identify the organizational
assets, resources, skills, and processes that represent either strengths or weaknesses.
Strengths are aspects of the organization's operations that represent
potential competitive advantages (any aspect of an organization that distinguishes it
from its competitors in a positive way), while weaknesses are areas that are in need
of improvement.
Several key areas of the organization's operations should be examined in an
internal analysis. Key areas to be assessed include the marketing, financial,
research and development, production, and general management capabilities.
These areas are typically evaluated in terms of the extents to which they foster
quality and support the competitive advantage sought by the organization.
The role of a manager is to monitor and shape the internal and external
environments and to anticipate changes and react quickly to them.
5.1.4 SWOT Analysis:

S denotes strengths, W denotes weaknesses, O denotes opportunities and T
denotes threats. The brand image of an organization could be its strength and
inability to reach all the customers could be its weakness. Generally people focus
too much on weaknesses. On the contrary, we must focus more on our strengths
and improve on them. Then weaknesses could become lesser. A right hand
batsman should not focus on his weakness of not being able to bat by left hand.
He should focus on his strength of right hand batting and improve it. We must not
focus on our weaknesses at the cost of our strengths.
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However, there are external factors in picture. There are opportunities and
threats. But these are subjective and imaginary ones. There is a story of a
salesman of footwear who went to Africa in 19th century for selling the shoes. He
found that nobody was wearing shoes and concluded that there was no market for
shoes there. Another salesman went there who concluded that since no one used
shoes, but they had purchasing power, and hence the market was a huge one.
5.1.1 Determination of objectives:

Once the common vision and mission statements for the organization are made,
then it is for the different departments to contextualize these statements in their
working.
Every department should have well defined objectives. This will be based on why
the department exists and what are its broad expected outcomes. The objective of
the design department of an organization may be as follows:
• To design the product optimally using state of the art technology
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• To design the product up to the delight of customers found and checked

using the state of art management tools
• To incorporate innovativeness and flexibility in the design
The objectives should reflect vision of the organization and should go well with
the mission of the organization.
5.1.2 Determining planning premises and constraints:
Planning is nothing but forward looking. Forecasting is fundamental to planning.
Forecasts are statements about the future, specifying the volume of sales to be
achieved and the equipment, materials and other inputs needed to realize the
expected sales. A popular definition of forecasting is that it is estimating the future
demand for products and services, and the resources necessary to produce these
outputs. Starting point in forecasting is sales or demand forecasting. Sales forecasts
trigger all other forecasts.
Forecasting means the assumption of and anticipation of certain events. It implies
a calculation of how certain factors will behave in future. The planning must
consider the likely behavior of these factors.
Generally, forecasting is made in the following ways:
• What would be the marketing force? Market force refers to demand, supply,
buying capacity etc.
• The expectation of sales volume
• What kinds of products are to be sold and at what price?
• What would be their manufacturing costs?
• What would be the tax policy and economic policy of the government?
• The expectation of technology change in production.
• How is the finance raised for expansion and /or modernization of the
business?
5.1.3 Examination of alternative courses of action
An action may be performed in many ways but a particular way is most suitable
for the organization. Hence the management should find alternative ways and
examine them in the light of planning premises.
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5.1.4 Weighing alternative courses of action and its selection

Every alternative has its own strong and weak points. So there is a need for
weighing all the alternatives to determine the best alternative. A course of action
is selected according to the prevailing circumstances.
5.1.5 Establishing the sequence of activities
The determined course of action is adopted for each section or department,
product, quarter, month, week etc. Finally the manager should draft a final plan in
definite terms.
5.1.6 Formulation of action program
The term action program includes fixing time limit for performance, allocation of
work to individuals and work schedule. These are necessary to achieve the
objectives within the specified period.
5.1.7 Determining secondary action plans
Once a basic plan of sales is decided upon, a number of secondary plans could be
prepared. The secondary plans include production schedule, purchase of plant
and machinery, purchase of raw materials, consumables, selection, training and
placement of personnel etc.
5.1.8 Securing participation of employees
The management should involve employees in planning through communication,
consultation and participation.
5.1.9 Follow up and evaluation
There has to be a system of follow up. The management should watch how the
planning is being done. The shortcomings of planning can be identified through
the follow up action and rectified then and there. The continuous evaluation of
planning is also necessary.
5.2 Alternate plans and contingency planning
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Developing a Good 'Plan B'. Have a solid Plan B ready.

Fires, floods, tornadoes – these are things that we often connect with contingency
planning.
But what if your main supplier suddenly goes bankrupt? Or, your entire sales force
gets food poisoning at the annual sales conference? Or, your payroll clerk calls in
sick on payroll day?
These things can all cause confusion and disorder if you haven't prepared for
them properly. Contingency planning is a key part of this preparation.
As you can see, contingency planning is not just about major disasters. On a
smaller scale, it's about preparing for events such as the loss of data, people,
customers, and suppliers, and other disruptive unknowns. That's why it's
important to make contingency planning a normal part of the way your business
works.
Risk Assessment
The need for contingency planning emerges from a thorough analysis of the risks
that your organization faces. It's also useful in thinking about new and ongoing
projects: what happens when 'Plan A' doesn't go as expected? Sometimes Plan A
simply means 'business as usual.' Other times, with more sophisticated risk
management plans, Plan A is your first response to deal with an identified risk –
and when Plan A doesn't work, you use your contingency plan.
Use these principles in your risk assessment process:
• Address all business-critical operations – A good plan identifies all
critical business functions, and it outlines ways to minimize losses.
• Identify risks – For each of these functions, conduct a Risk Analysis to
identify the various risks that your business may face. What has the potential to
significantly disrupt or harm your business?
• The end result of a risk analysis is usually a huge list of potential threats: if you
try to produce a contingency plan for each, you may be overwhelmed. This is why
you must prioritize.
• Prioritizing risks – One of the greatest challenges of contingency planning is
making sure you don't plan too much. You need a careful balance between over-
preparing for something that may never happen, and adequate preparation, so
that you can respond quickly and effectively to a crisis situation when it occurs.
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• Risk Impact/Probability Charts help you find this balance. With these, you
analyze the impact of each risk, and you estimate a likelihood of it occurring. You
can then see which risks require the expense and effort of risk mitigation. Business
processes that are essential to long-term survival – like maintaining cash flow, staff
support, and market share – are typically at the top of the list.
• Note that contingency planning isn't the only action that emerges as a result of
risk analysis – you can manage risk by using existing assets more effectively, or by
investing in new resources or services that help you manage it (such as insurance).
Also, if a risk is particularly unlikely to materialize, you may decide to do nothing
about it, and manage around it if the situation arises.
Contingency Planning Challenges
You should be aware of two common obstacles as you begin your contingency
planning process:
• People are often poorly motivated to develop a strong ‘Plan B’, because they have
so much of an emotional investment in the ‘Plan A’ that they want to deliver.
Stress that Plan B needs to be properly thought-through.
• There’s often a low probability of a crisis occurring, so people often don’t see
contingency planning as an urgent activity. Unfortunately, this can mean that it
gets stuck at the bottom of their To Do Lists as a task that never gets done.
Developing the Plan
Remember these guidelines when it's time to prepare your contingency plan:
• Your main goal is to maintain business operations – Look closely at
what you need to do to deliver a minimum level of service and functionality.
• Define time periods – What must be done during the first hour of the plan
being implemented? The first day? The first week? If you look at the plan in this
way, you're less likely to leave out important details.
• Identify the trigger – What, specifically, will cause you to implement the
contingency plan? Decide which actions you'll take, and when. Determine who is
in charge at each stage and what type of reporting process they must follow.
• Keep the plan simple – You don't know who will read and implement the
plan when it's needed, so use clear, plain language.
• Consider related resource restrictions – Will your organization be able to
function the same way if you have to implement Plan B, or will Plan B necessarily
reduce capabilities?
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• Identify everyone's needs – Have people throughout the company identify

what they must have, at a minimum, to continue operations.
• Define 'success' – What will you need to do to return to 'business as usual'?
• Include contingency plans in standard operating procedures – Make
sure you provide initial training on the plan, and keep everyone up-to-date on
changes.
• Manage your risks – Look for opportunities to reduce risk, wherever possible.
This may help you reduce, or even eliminate, the need for full contingency plans
in certain areas.
• Identify operational inefficiencies – Provide a standard to document your
planning process, and find opportunities for performance improvement.
Maintaining the Plan
After you prepare the contingency plan, you need to do several things to keep it
practical and relevant – don't just create a document and file it away. As your
business changes, you'll need to review and update these plans accordingly.
Here are some key steps in the contingency plan maintenance process:
• Communicate the plan to everyone in the organization.
• Inform people of their roles and responsibilities related to the plan.
• Provide necessary training for people to fulfill these roles and responsibilities.
• Conduct disaster drills where practical.
• Assess the results of training and drills, and make any necessary changes.
• Review the plan on a regular basis, especially if there are relevant technological,
operational, and personnel changes.
• Distribute revised plans throughout the company, and make sure that the old
plan is discarded.
• Keep copies of the plan off-site, and in a place where they can be accessed
quickly when needed.
• Audit the plan periodically:
• Reassess the risks to the business.
• Analyze efforts to control risk by comparing actual performance with the
performance levels described in the contingency plan.
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• Recommend and make changes, if necessary.

Key Points
Contingency planning is ignored in many companies. Day-to-day operations are
demanding, and the probability of a significant business disruption is small, so it's
hard to make time to prepare a good plan.
However, if you're proactive in the short term, you'll help ensure a quicker and
more effective recovery from an operational setback in the long term, and you
may save your organization from failure in the event that risks materialize.
Contingency planning requires an investment of time and resources, but if you fail
to do it – or if you do it poorly – the costs could be significant if a disaster
happens.
5.3 Business Continuity Planning BCP
It identifies an organization's exposure to internal and external threats and

synthesizes hard and soft assets to provide effective prevention and recovery for the
organization, while maintaining competitive advantage and value system integrity.
It is also called business continuity and resiliency planning (BCRP). A business continuity
plan is a roadmap for continuing operations under adverse conditions such as a
storm or a crime. In the US, governmental entities refer to the process as continuity
of operations planning (COOP).
Any event that could impact operations is included, such as supply chain
interruption, loss of or damage to critical infrastructure (major machinery or
computing/network resource). As such, risk management must be incorporated as
part of BCP.
In December 2006, the British Standards Institution (BSI) released an
independent standard for BCP — BS 25999-1. Prior to the introduction of BS
25999, BCP professionals relied on information security standard BS 7799, which
only peripherally addressed BCP to improve an organization's information
security procedures. BS 25999's applicability extends to all organizations. In 2007,
the BSI published BS 25999-2 "Specification for Business Continuity
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Management", which specifies requirements for implementing, operating and

improving a documented business continuity management system (BCMS).
Business continuity management is standardized across the UK by British
Standards (BS) through BS 25999-2:2007 and BS 25999-1:2006. BS 25999-2:2007
business continuity management is the British Standard for business continuity
management across all organizations. This includes industry and its sectors. The
standard provides a best practice framework to minimize disruption during
unexpected events that could bring business to a standstill. The document gives
you a practical plan to deal with most eventualities – from extreme weather
conditions to terrorism, IT system failure and staff sickness. (British Standards
Institution, 2006)
This document was superseded in November 2012 by the British standard BS
ISO22301:2012. (British Standards Institution, 2012)
Analysis:
A Business impact analysis (BIA) differentiates critical (urgent) and non-critical
(non-urgent) organization functions/activities. Critical functions are those whose
disruption is regarded as unacceptable. Perceptions of acceptability are affected by
the cost of recovery solutions. A function may also be considered critical if
dictated by law. For each critical (in scope) function, two values are then assigned:
After defining recovery requirements, each potential threat may require unique
recovery steps. Common threats include:
• Epidemic
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• Earthquake
• Fire
• Flood
• Cyber attack
• Sabotage (insider or external threat)
• Hurricane or other major storm
• Utility outage
• Terrorism/Piracy
• War/civil disorder
• Theft (insider or external threat, vital information or material)
• Random failure of mission-critical systems
Solution design: The solution design phase identifies the most cost-
effective disaster recovery solution that meets two main requirements from the
impact analysis stage.
Implementation: The implementation phase involves policy changes, material
acquisitions, staffing and testing.
Testing: The purpose of testing is to achieve organizational acceptance that the
solution satisfies the recovery requirements. Plans may fail to meet expectations
due to insufficient or inaccurate recovery requirements, solution design flaws or
solution implementation errors.
Maintenance:
Biannual or annual maintenance cycle maintenance of a BCP manual is broken
down into three periodic activities.
• Confirmation of information in the manual, roll out to staff for awareness and
specific training for critical individuals.
• Testing and verification of technical solutions established for recovery
operations.
• Testing and verification of organization recovery procedures.
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Issues found during the testing phase often must be reintroduced to the analysis
phase.
5.4 Management by Objectives MBO
MBO is based on participative management. Objectives set by each individual are

collected to produce achievable group objectives. Objectives might be short term;
long term and they might also be broad objectives/specific objectives.
Objectives should be clearly defined. At top level, organization has broad

objectives. Objectives must conform to customer needs. Objectives need a
rationale backed up with solid facts.
Organization may have several objectives at a time. These could be changed in

due course. They are expressed in numerical terms. The framed objectives should
be realistic and achievable.
Purpose of setting objectives is integration of individual plans and organizational

plans. Since individual objectives are clear, employee motivation and focus are
higher. When objectives are integrated, control becomes easier.
MBO, also known as management by results (MBR), is a process of defining

objectives within an organization so that management and employees agree to the
objectives and understand what they need to do in the organization in order to
achieve them. The term "management by objectives" was first popularized
by Peter Drucker in his 1954 book The Practice of Management.
The essence of MBO is participative goal setting, choosing course of actions and
decision making. An important part of the MBO is the measurement and the
comparison of the employee’s actual performance with the standards set. Ideally,
when employees themselves have been involved with the goal setting and choosing
the course of action to be followed by them, they are more likely to fulfill their
responsibilities.
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Process of MBO
DEFINING ORGANIZATIONAL OBJECTIVES
DEFINING S-M-A-R-T GOALS OF EVERY SECTION
FIXING KEY RESULT AREAS ON PRIORITY BASIS

E.G.PROFITABILITY, MARKET STANDING,
INNOVATION
SETTING SUBORDINATE OBJECTIVES AND

TARGETS
MATCHING RESOURCES WITH OBJECTIVES

AND ALLOCATING AND UTILIZING THE
RESOURCES PROPERLY
PERIODIC REVIEW MEETINGS FOR

ACCOMPLISHMENT OF OBJECTIVES
APPRAISAL OF ACTIVITIES: SUBORDINATES’

PERFORMANCE AGAINST THE SPECIFIED
STANDARDS
RE-APPRAISAL OF OBJECTIVES: REVIEWING

THE OBJECTIVES ACCORDING TO CHANGING
SITUATION
105
According to George S. Odiorne, the system of management by objectives can be

described as a process whereby the superior and subordinate jointly identify its
common goals, define each individual's major areas of responsibility in terms of
the results expected of him, and use these measures as guides for operating the
unit and assessing the contribution of each of its members.
Unique features and advantages of the MBO process
Behind the principle of Management by Objectives (MBO) is for employees to
have a clear understanding of the roles and responsibilities expected of them.
Then they can understand how their activities relate to the achievement of the
organization's goal. Also places importance on fulfilling the personal goals of each
employee.
Some of the important features and advantages of MBO are:
1. Motivation – Involving employees in the whole process of goal setting and
increasing employee empowerment. This increases employee job satisfaction and
commitment.
2. Better communication and coordination – Frequent reviews and
interactions between superiors and subordinates help to maintain harmonious
relationships within the organization and also to solve many problems.
3. Clarity of goals
4. Subordinates tend to have a higher commitment to objectives they
set for themselves than those imposed on them by another person.
5. Managers can ensure that objectives of the subordinates are linked to
the organization's objectives.
6. Everybody will be having a common goal for whole organization. That
means, it is a directive principle of management.
Domains and levels:
Objectives can be set in all domains of activities (production, marketing, services,
sales, R&D, human resources, finance, information systems etc.).
Some objectives are collective, for a whole department or the whole company,
others can be individualized. Managers must determine the mission and the
strategic goals of the enterprise. The goals set by top level managers are based on
an analysis of what can and should be accomplished by the organization within a
specific period of time. The functions of these managers can be centralized by
appointing a projects manager who can monitor and control activities of the
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various departments. If this cannot be done or nor is desirable, each manager’s

contributions to the organizational goal should be clearly spelt out.
5.5 Forecasting
Consequent to planning, when it comes to forecasting, there is a mixed feeling and

cynicism in the minds of many people. Many people feel that forecasting is not
required and is a waste of time. Sometimes it clicks and sometimes not. Actually,
forecasting is a way of skills development for an executive. Many times, the
forecasting is not accurate. However, if an executive does this exercise of
forecasting repeatedly, by focusing and collecting relevant data, the processes of
left brain as well as right brain start functioning at a meeting point. Left brain has
logical function whereas right brain has emotions and intuitions. These are the
things which cannot be explained. Initially, the forecasting is a result of intuition
and comes out of blue. However, if one believes in forecasting as a necessary
management function, he develops the ability to understand what the future could
be. Forecasting is a guide to the journey to the future. Some skills cannot be
defined. One develops the skill of forecasting by constantly practicing it.
As detailed, in point No. 5.1.6 above, forecasting is fundamental to planning.
Forecasts are statements about the future, specifying the volume of sales to be
achieved and the equipment, materials and other inputs needed to realize the
expected sales. A popular definition of forecasting is that it is estimating the future
demand for products and services, and the resources necessary to produce these
outputs. Starting point in forecasting is sales or demand forecasting. Sales forecasts
trigger all other forecasts.
5.5.1 Forecasts are needed for:

-New facility planning: Long range demand forecasts are needed for: 
-designing and building a new factory 
-implementing a new production process
-Production planning: Intermediate range demand forecast are
needed for: 
-The rate of production must vary to meet the fluctuating demand from time to
time
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-Workforce scheduling: Short range demand forecasts are needed for: 

-necessity to vary the workforce levels to meet the varying demand  
-overtime, layoffs, hiring
-Financial planning:
-sales forecasts are driving force in budgeting
-Budgeting is used to: 
-to plan and control financial performance
5.5.2 Long Range Forecasts

Operations managers need long range forecasts to make strategic decisions about
products, processes and facilities. Long range forecasts provide operations
managers with information to make important decisions such as:
-selecting a product design 
-selecting a production processing scheme 
-selecting a plan for long range supply of scarce materials 
-selecting a long range production capacity plan 
-selecting a long range financial plan for acquiring funds for capital investment.
5.5.3 Intermediate Range forecasts

These forecasts are needed for making decisions such as: 
-departmental capacities, workforce, purchased materials inventories
5.5.4 Short Range forecasts

These are needed to make decisions about:
-Production issues spanning for next few weeks 
-How much inventory of a particular product should be carried next month. 
-How much of each product should be scheduled for production next week. 
-How much of each raw material should be ordered for delivery next week. 
-How many workers should be scheduled to work on regular time and on
overtime. 
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-Aggregate Production Planning Forecast

•Medium-term 
•Short-term
-Master Production Scheduling for:
• Capacity constraints
• Lead-time
• Product (WHAT)
• Time (WHEN)
• Quantity (HOW MUCH)
• Materials requirement planning (MRP)
-Inventory status
• Purchasing lot size
• Lead time
• Safety stock
-Bill of Materials
-Planned Order Release
-Purchase Orders
-Work Orders
-Rescheduling Notices
5.5.5 Forecasting Methods

5.5.6 Quantitative methods
• Time series method based on past data  
• For short periods
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Solved examples for calculating forecast by simple moving average method and
weighted moving average method.
A. Simple Moving average of three months method:
Conclusion: The forecast for 7th month will be 127.

B. Weighted Moving average of three months method:
Conclusion: The forecast for 7th month will be 125.
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C. Simple exponential smoothing

Example 1: To find out forecast for the month of August.
Exponential smoothing Constant σ= 0.2
Forecast for July =500 units
Actual sales in July=450 units
Forecast for August=
500+0.2(450-500) =490 units
Example 2: To find out forecast for 10th month, when the actual
demands are known for first 9 months.
9 month moving average=78.33
Exponential smoothing constant=σ=2/ (n+1) =2/10=0.2 ( n=number of months
data)
Hence, Forecast for 10th month will be=
=78.33+0.2(75-78.33) =77.67 units
D. Regression analysis is a forecasting technique that establishes
Relationship between variables-one dependent and other One or
more independent variables
5.5.7 Qualitative or Judgmental Method:
A. Executive committee consensus
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A committee of executives from different departments is entrusted to develop a

forecast. They use inputs from organization and staff analysts
B. Delphi method
A pool of experts from inside and outside the organization Who know one aspect
of the problem each expert makes independent predictions The coordinator gives
them a questionnaire several times and converges the forecast
C. Survey of sales force/ field expectation method
D. Survey of customers method/users’ expectation method
E. Historical analogy
The estimate of future sales is tied with knowledge of a similar product sale.
F. Market surveys
-Questionnaires
-Telephone talks
-Field interviews
Activity A
Consider that your brother or your sister is getting married and you have the
responsibility of making the event successful. Make the planning of the ceremony
by using the steps given.
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Activity B
Consider that your college is celebrating its Golden Jubilee and you are the
General Secretary responsible for making the event successful. Make a list of
objectives.
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5.7 Summary
Planning is essential in every walk of life. Everyone needs to plan to reach the
goals effectively. The period of planning could be short term, mid-term or long
term. The duration of long term can be only one year in case of banking whereas
in case of a large manufacturing plant such as steel plant short term itself could be
of two years.
We should first do the long term planning, and then do mid-term and then only
the short term planning. People generally tend to start action without any
planning. They make too much haste. Effective planning facilitates timely
achievement of objectives. It reduces tendency for you to fail.
1. Explain the importance of forecasting.

2. Explain “L and E” in PESTLE Analysis.
3. Explain “S” in SWOT Analysis.
4. What is the significance of Plan B?
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1. The term external environment includes -------------conditions and political

conditions prevailing in a country.
a. Fire and safety 
b. Critical 
c. Personal 
d. Socio-economic
2. If the country is -----------, taxes might be less and vice versa.
a. In surplus 
b. In loss 
c. Rich 
d. Poor
3. Fires, floods, tornadoes – these are things that we often connect with
-----------------------planning.
a. forward 
b. future 
c. contingency 
d. Poor
4. It is also known as management by results (MBR)
a. Forecasting 
b. Organizing  
c. Staffing 
d. MBO
5. Three months moving total of demand by giving weightages of 3 for latest
month, 2 for earlier one and 1 for earlier than that, is 750. What is the weighted
moving average?
a. 118 
b. 120  
c. 125 
d. 128
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Reference Material
Summary
PPT
MCQ
Video1
Video2
Video3
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C HAPTER 6 - ORGANIZATION
Objectives
At the end of this chapter, you will be able to:
• Know the various aspects of organization, its functions, principles, and
characteristics.
• Understand difference between formal and informal organization
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Chapter 6 - Organization
Structure
6.1 Introduction
6.2 Functions of organization
6.3 Principles of organization
6.4 Nature or characteristics of organization
6.5 Importance and advantages of organization
6.6 Classification of organization
6.7 Process of organization
6.8 Organizational Chart
6.9 Theories of Organization
6.11 Summary
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6.1 Introduction
Here, the meaning of organization is the process and not the company. As you
know, there are seven functions of management. After the S_M_A_R_T goals are
fixed, the first and foremost function is planning, which we have discussed earlier.
After planning is completed, we have to bring all the resources together in a
certain format, which makes easy for us to take actions. As detailed earlier, there
are four resources viz. men, machines, material and money which have to be
brought together in the proportion as per plan. When we talk about organization,
it is not only the organization of men, but also the organization of machines,
materials and money. Remember, after planning, we should not jump to actions.
Organizing is the function for preparing for action. Before we start any action, the
resources must be properly mapped.
The word Organization is derived from the word organism. It means an organized
body with connected interdependent parts sharing common life. The human body
consists of hands, feet, eyes, ears, nose, fingers, mouth etc. These parts are
performing their work independently, and at the same time, one part cannot be a
substitute to another. If there is problem in one limb, the health of the body gets
affected. Similarly, if there is a problem in one section, the work of the whole
company gets affected.
Organization is a mechanism or structure which helps the activities to be
performed effectively. The organization is established for the purpose of achieving
the basic objectives. Whatever might be the business objectives, there is a need for
organizing. Organization comprises structuring the resources in a systematic
manner with a view to achieve the pre-set goals of any Endeavour.
Organization is the detailed arrangement of work and working conditions in order
to perform the assigned activities in an effective manner. The organization consists
of different departments. Each department performs its work independently and
cannot be a substitute for another.
As per Haney:”Organization is a harmonious adjustment of specialized parts for
the accomplishment of some common purpose or purposes.”
As per Allen, “The process of identifying and grouping the work is to be
performed, defining and delegating responsibility and authority and establishing
relationships for the purpose of enabling people to work most effectively together
in accomplishing objectives.”
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6.2 Functions of Organization
6.2.1 Determination of activities:

It includes deciding and division of various activities required to achieve the
objectives of an organization. The entire work is divided into various parts and
again each part is sub-divided into various sub-parts. E.g. the purchase work may
be divided into requisition of items, placing of an order, storage etc.
6.2.2 Grouping of activities:
Identical activities are grouped under one individual or one department. The
activities of sales such as canvassing, advertisements and debt collection are
grouped under sales department.
6.2.3 Allotment of duties to specified persons:
In order to ensure effective performance, the grouped activities are allotted to
specified competent persons, specialized in their fields. Adequate staff members
are appointed under them and are appropriately trained.
6.2.4 Delegation of authority:
Assignment of duties or allotment of duties to specified persons is followed by
delegation of authority. While delegating authority, responsibility is also fixed. E.g.
the production manager may be delegated with the authority to produce the goods
and fixed with the responsibility of producing quality of goods.
6.2.5 Defining relationship:
When a group of persons is working together for a common goal, it becomes
necessary to define the relationship between them in clear terms. Each person has
to know as to who is his superior, from whom he has to receive orders, and to
whom he is answerable. Each superior must know what authority he has and over
which persons.
6.2.6 Co-ordination of various activities:
The delegated authority and responsibility should be coordinated by the chief
managerial staff. There must be a separate and responsible person to see whether
all the activities are going on to accomplish the objectives of the organization or
not.
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6.3 Principles of Organization
6.3.1 Principle of definition:

Defining and fixing the duties, responsibilities and authority of each worker. In
addition, when a group of persons is working together for a common goal, it
becomes necessary to define the relationship between them in clear terms.
6.3.2 Principle of objective:
The activities at all levels of organization structure should be geared to achieve the
main objectives of the organization.
6.3.3 Principle of specialization or division of work
It includes deciding and division of various activities required to achieve the
objectives of an organization. Identical activities are grouped under one individual
or one department. In order to ensure effective performance, the grouped
activities are allotted to specified competent persons, specialized in their fields.
Adequate staff members are appointed under them and are appropriately trained.
6.3.4 Principle of coordination:
Coordination must exist among the workers. The delegated authority and
responsibility should be coordinated by the chief managerial staff. There must be
a separate and responsible person to see whether all the activities are going on to
accomplish the objectives of the organization or not.
6.3.5 Principle of authority:
Assignment of duties or allotment of duties to specified persons is followed by
delegation of authority. While delegating authority, responsibility is also fixed. The
senior members should delegate the authority to their subordinates on the basis of
their ability. The subordinates are motivated through the delegation of authority
and they perform the work efficiently with responsibility.
6.3.6 Principle of responsibility:
Each person is responsible for the work completed by him. Authority is delegated
from the top level to the bottom level but the responsibility can be delegated to
some extent. While delegating the authority, there is no need to delegate the
responsibility. So, the responsibility of the junior staff members should be clearly
defined.
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6.3.7 Principle of explanation:

While allocating duties to persons, the extent of liabilities of the person should be
clearly explained to the concerned person. It will enable the person to accept the
authority and discharge his duties efficiently.
6.3.8 Principle of efficiency:
Each work can be completed efficiently wherever the environment as well as the
organizational structure facilitates the completion of work. The work should be
completed with minimum members, in less time, with minimum resources and
within the right time.
6.3.9 Principle of uniformity:
The organization should distribute the work in such a way that there should be an
equal status and equal authority and powers among the same line officers.
6.3.10 Principle of correspondence:
Authority and responsibility should be in parity with each other. If authority alone
is delegated without responsibility, it could be misused. Secondly, if responsibility
is delegated without authority, it will not work.
6.3.11 Principle of unity of command:
A subordinate should receive the instructions or directions only from one superior.
6.3.12 Principle of balance:
Sequence of work between various units of the organization should be arranged
scientifically.
6.3.13 Principle of equilibrium:
In certain periods, some departments are overloaded and some are under loaded.
The overloaded departments should be further divided into sub sections. This
would facilitate effective control.
6.3.14 Principle of continuity:
There should be reoperation of objectives, readjustment of plants and provision
of opportunities for the development of future management.
6.3.15 Principle of span of control:
It refers to the maximum number of members effectively supervised by a single
individual. In the administration area, under one executive, four or five
subordinates may work. In the factory level, under one supervisor, twenty or
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twenty five workers may work. The span of control enables smooth functioning of
the organization.
6.3.16 Principle of leadership facilitation:
The organizational set up may be arranged in such a way that the persons with
leadership qualities such as honesty, devotion, enthusiasm and inspiration are
appointed in key positions.
6.3.17 Principle of exception:
The junior officers should be disturbed by the seniors only when the work is not
done according to the plans laid down. It automatically reduces the work of
middle level as well as top level officers. The the top level officers will have more
time to frame policies and chalk out the plans of the organization.
6.3.18 Principle of flexibility:
The organizational set up must be flexible to adjust to the changing environment
of the business.
6.3.19 the Scalar principle:
The line of authority flows from the top level to bottom level. It also establishes
the line of communication. Each person has to know as to who is his superior,
from whom he has to receive orders, and to whom he is answerable. Each superior
must know what authority he has and over which persons.
6.3.20 Principle of simplicity and homogeneity:
The organization structure should be simple. It enables the staff members to
maintain equality and homogeneity.
It is necessary to understand a person who is working in the organization. If the
organization structure is complex, junior officers will not understand the level and
the extent of responsibility for a particular activity.
6.3.21 Principle of unity in direction:
The major plan is sub-divided into sub-plans which are taken by groups or
departments. All these groups have to cooperate to attain the main objectives by
implementing major plan.
6.3.22 Principle of joint decisions:
In the business organization, there are number of decisions taken by the officers to
run the business. If a complicated problem arises, more than one member
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examines the problems and takes decisions. Whenever the decision is taken jointly,
it gives a benefit for a long period.
6.4 Nature or characteristics of organization
A palace may be constructed only when a strong foundation is laid. Organization

is the foundation of management. Organization supplies the resources such as
men, machines, material and money and helps to achieve organizational
objectives. Organization provides the means or techniques with strong efforts for
more production and effective completion of work. Organization increases the
certainty and promptness in completion of work by assigning fixed duties to every
person. Whenever the duties are fixed, it automatically develops team spirit
towards the realization of common goals. The connection of various parts of
organization is given by the authority relationship of organization structure. The
relationship may operate upward, downward and sidewise of the organization.
1. Division of labor: It includes deciding and division of various activities

required to achieve the objectives of an organization. The entire work is divided
into various parts and again each part is sub-divided into various sub-parts.
2. Coordination: The delegated authority and responsibility should be
coordinated by the chief managerial staff. There must be a separate and
responsible person to see whether all the activities are going on to accomplish the
objectives of the organization or not.
3. Objectives: The objectives of the organization should be defined clearly.
4. Authority responsibility structure: A subordinate has one superior and a
superior has control over the subordinate specifically. The position of each
executive is defined with regard to the extent of authority and responsibility vested
in him to discharge the duties.
5. Communication: The success of management depends upon the effective
system of communication. The channels of communication may be formal,
informal, downward, upward or horizontal.
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6.5 Importance and advantages of organization
Organization creates the relationship between top level executives and lower level
staff members.
1. Facilitate administration
2. Increases efficiency of management
3. Facilitates growth and diversification
4. Ensures optimum utilization of material resources and human efforts
5. Adaptation of new technology
6. Places proportionate importance to the various activities of the enterprise
7. Encourages creativity and initiative
8. Facilitates coordination
9. Facilitates training and development of managerial personnel
10. Prevents the growth of secret, influence and corruption
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6.6 Classification of organization
Sr. Formal Organization Informal Organization

Classification of activities within the An organization structure which
enterprise, indicates who reports to whom, establishes the relationships on the
1 and explains the vertical journal of basis of likes and dislikes of officers
communication which connects the chief without considering the rules,
executive to the workers. regulations and procedures.
An organization structure clearly defines the
Friendship, mutual understanding
duties, responsibilities, authority and
2 and confidence are some of the
relationship as prescribed by the top
reasons for this type of organization.
management.
Each and every person is assigned duties and
3 given the required amount of authority and It arises voluntarily.
responsibility to carry out this job.
It creates the coordination of activities of
It is a social structure formed to meet
4 every person to achieve the common
personal needs.
objectives.
5 It induces the worker to work most efficiently. No place in organization chart
It develops from habits, conduct,
The interrelationship of staff members can be
6 customs and behavior of social
shown in the organization chart and manuals.
groups
Informal organization is one of the
7 It is properly planned
parts of the total organization
There is no structure and definiteness
8 It is based on delegated authority
to the informal organization
It fills up gaps and deficiency of
9 It is deliberately impersonal.
formal organization
A sense of security arises from classification of It is a useful channel of
10
task. communication.
11 Unity of command is maintained. It acts according to mob psychology
It indirectly reduces the efforts of
12 Provides for division of labor. management to promote greater
productivity
It does not consider the sentiments and values It has the nature of upsetting the
13
of the employees. morality of the workers
Spreads rumors among the
It may reduce the speed of informal
14 workers regarding functioning of
communication.
organization.
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6.7 Process of organization
Determining activities
Grouping activities
Assigning duties
Delegating authority
Coordinating activities
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6.8 Organizational Chart
6.9 Theories of Organization
Organization theory means the study of structure, functioning and performance

of organization and the behavior of individuals and groups in it.
The various theories of organization are:
1. Classical theory
2. Neo-classical theory
3. Modern theory
4. Motivation theory
5. Decision theory
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Classical theory
It was founded by F.W.Taylor, father of scientific management. This theory is
based on the following four principles:
Division of labor:
The production of a commodity is divided into the maximum number of different
divisions. The work of each division is looked after by different persons. Each
person is specialized in a particular work. In other words, the work is assigned to a
person according to his specialization and the interest he has in the work. The
division of labor results in the maximum production or output with minimum
expenses incurred and minimum capital employed.
Scalar and functional processes:
The scalar process deals with the growth of organization vertically. The functional
process deals with the growth of organization horizontally. The scalar principles
refer to the existence of relationship between superior and subordinate. In this
way, the superior gives instructions or orders to subordinates of various levels of
management and gets back the information from the subordinate regarding the
operations carried out at different levels or stages. This information is used for the
purpose of taking decision or remedial action to achieve the main objectives of
the business.
The scalar chain means the succession of domination by the superior on the
subordinate from the top to the bottom of organization. The line of authority is
based on the principle of unity of command which means that each subordinate
does work under one superior only.
Structure:
The organization structure may be defined as the prescribed patterns of work
related behavior of workers which result in the accomplishment of organizational
objectives. Specialization and coordination are the main issues in the design of an
organizational structure.
Span of control:
It means an effective supervision of maximum number of persons by a supervisor.
To summarize, classical theory emphasizes unity of command and principle of
coordination. Most of the manager’s time is wasted in coordination and control of
the subordinates. According to Lyndall Urwick, a superior can supervise a
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maximum of four members at higher levels and between 8-12 members at lower
levels to constitute an ideal span of control.
Characteristics of classical theory
• It is based on division of labor.
• It is based on objectives and tasks of organization.
• It is concerned with formal organization.
• It is based on coordination of efforts.
• Division of labor has to be balanced by unity of command.
• It fixes a responsibility and accountability for work completion.
• It is centralized.
Neo-classical theory
It is developed to fill up gaps and deficiencies in the classical theory and is
concerned with human relations movement. The study of organization is based
on human behavior such as how people behave and why they do so in a particular
situation. The main contribution of this theory highlights the importance of the
committee management and better communication. Further, this theory
emphasizes that the workers should be encouraged and motivated to evince active
participation in the production process. The feelings and sentiments of the
workers should be taken into account and respected before any change is
introduced in the organization. The classical theory was production oriented while
neo-classical theory was people oriented.
Contributions of neo-classical theory:
• Person should be the basis of an organization.
• Organization should be viewed as a total unit.
• Individual goals and organization goals should be integrated.
• Communication should move from bottom to top and from top to bottom.
• People should be allowed to participate in fixing work standards and decision
making.
• The employee should be given more power, responsibility, authority and
control.
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• Members usually belong to formal and informal groups and interact with
others within each group or sub-group.
• The management should recognize the existence of informal organization.
• The members of sub-groups are attached with common objectives.
Modern organization theory
This theory is composed of the ideas of different approaches to management
development. The approach is fully based on empirical research data and has an
integrating nature. The approach reflects the formal and informal structure of the
organization and due weightage is given to the status and roles of personnel in an
organization.
1. The modern theory studies the individuals in aggregates and the movement
of individuals in and out of the system.
2. It studies the interaction of individuals with the environment found in the
system.
3. It studies the interaction among individuals in the system.
Modern theories include the systems approach, the socio-technical approach and
the contingency or situational approach.
Systems approach:
It considers the organization as a system composed of a set of inter-related and
thus mutually dependent sub-systems, linking processes and goals.
Socio-technical approach:
It considers organization as composed of a social system, technical system and its
environment. These interact among themselves and it is necessary to balance them
appropriately for effective functioning of the organization.
Contingency or situational approach:
It recognizes that organizational systems are inter-related with their environment
and that different environments require different organizational relationships for
effective working of the organization.
The following are some of the essentials of modern theory:
1. It views the organizations as a whole.
2. It is based on systems analysis
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3. The findings of this theory are based on empirical approach.

4. It is integrating in nature.
5. It gives importance to inter-disciplinary approach to organizational analysis.
6. It concentrates on both quantitative and behavioral sciences.
7. It is not a unified body of knowledge.
Motivation theory
It is concerned with the study of work motivation of employees of the
organization. The works are performed effectively if proper motivation is given to
the employees. The motivation may be in monetary as well as non-monetary
terms. The inner talents of any person can be identified after giving adequate
motivation to employees.
Decision theory
This theory was given by Herbert A. Simon who was awarded Nobel Prize in the
year 1978 for it. He regarded organization as a structure of decision makers. The
decisions were taken at all levels of the organization and important policy
decisions were taken at higher levels of the organization. Simon suggested that the
organizational structure be designed through an examination of the points at
which decisions must be made and the persons from whom information is
required if decisions should be satisfactory.
Activity A
Consider that you are responsible for organizing the event of your friend’s
marriage reception. Describe how you will organize the four M’s.
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Activity B
Describe the organization at the college where you did your graduation, focusing
on whether it was a formal or informal one.
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6.11 Summary
Organization is a mechanism or structure which helps the activities to be

performed effectively. The organization is established for the purpose of achieving
the basic objectives. Whatever might be the business objectives, there is a need for
organizing. Organization comprises structuring the resources in a systematic
manner with a view to achieve the pre-set goals of any Endeavour.
1. Discuss the importance of organization.

2. Mention the difference between formal and informal organization.
3. Explain the principle of authority.
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6.13 Multiple choice questions:
1. The work should be completed with minimum members, in less time, with
minimum resources and within the right time.
a. Principle of objective
b. Principle of efficiency
c. Principle of definition
d. Principle of authority
2. The line of authority flows from the top level to bottom level. It also establishes
the line of communication.
a. The scalar principle
b. The vector principle
c. Principle of unity of command
d. Principle of correspondence
3. It includes deciding and division of various activities required to achieve the

objectives of an organization. The entire work is divided into various parts and
again each part is sub-divided into various sub-parts.
a. Division of labor
b. Distribution
c. Coordination
d. Communication
4. An organization structure clearly defines the duties, responsibilities, authority

and relationship as prescribed by the top management.
a. Formal organization
b. Informal organization
c. Management system
d. Autocratic system
5. Out of 4 M’s, the production manager is responsible for:

a. Man
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b. Machine
c. Material
d. Money
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Reference Material
Summary
PPT
MCQ
Video
135
C HAPTER 7 - T YPES OF ORGANIZATIONS
Objectives
• Have knowledge about line organization, functional organization, Line &
Staff organization, various aspects related to them, advantages/disadvantages.
• Committee organization, project organization, matrix and free form
organization, various aspects related to them, advantages/disadvantages.
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Chapter 7 - Types of Organizations
Structure
7.1 Introduction
7.2 Line, military or scalar organization
7.3 Functional organization
7.4 Line and staff organization
7.5 Committee Organization
7.6 Project Organization
7.7 Matrix Organization
7.8 Free form Organization
7.9 Case examples
7.11 Summary
7.12 Self-Assessment Questions
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7.1 Introduction
Purpose of studying this chapter is as follows:

When an organization is created, it has got its structure and span of control,
which is nothing but the interrelations between various employees working in the
company. There are seniors, middle managers, and the operation level people at
the bottom. Different types of requirements need different type of structures of
organizations. Depending upon certain factors, we have to design our
organizations accordingly. It gives us snapshot about under what conditions we
need what kind of organization. After learning this chapter, you will be able to
correlate and understand as to which type of business requires which type of
organization.
Organization is designed on the basis of principles of division of labor and span
of management. The success of the organization depends upon the experience
and competence of the officers of the organization. There is a necessity of
chalking out the line of authority among the people who are working in an
organization to achieve the desired results. Further, it involves determination of
duties among the officers and combining the activities of all officers to get the
desired results.
Nature, scale and size of the business are the normal factors which determine the
forms of internal organization. The following common types of organizations find
a place in the structure of internal organization.
1. Line, military or scalar organization

2. Functional organization
3. Line and staff organization
4. Committee organization
5. Project organization
6. Matrix organization
7. Free form organization
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7.2 Line, military or scalar organization
Line organization is the simplest and the oldest type of organization followed in
the company. Under this organization, each department is generally a complete
self-contained unit. A separate person will look after the activities of the
department and he has full control over the department.
There are certain powers which will be given to the line executives to take
decisions whenever a need arises. He communicates his decision and orders to his
subordinates. The subordinates, in turn, communicate the decisions to those who
are immediately working under them.
Such decision making authority flows from top management level to the bottom.
The top management people have greater decision making authority than the
bottom level executives. In this type of organization, an executive is independent
of other executives of the same level, say departmental heads. In other words, the
same level executives do not give or receive orders amongst themselves. But they
receive orders from their immediate boss – General Manager – and give orders to
their subordinates. It is clear that all the departmental heads are responsible to the
general manager, who, in turn, is responsible to the Board of Directors.
Since this type of organization is followed in the Army, it is also called as military
organization. Under this organization, the line of authority flows from top to
bottom vertically. So, it is called line organization.
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Characteristics of Line Organization:

1. Direct vertical relationships
2. Authority flows from top level to bottom level.
3. Departmental heads are given full freedom to control their departments.
4. Each member knows from whom he would get orders and to whom he
should give orders.
5. Operation of this system is very easy.
6. A senior member has direct command over his subordinates.
7. Existence of direct relationship between the superiors and subordinates.
8. Each member knows to whom he is responsible for the accomplishment of
objectives of the organization.
9. The superior takes the decision within the scope of his authority.
Advantages of Line Organization:
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Disadvantages of Line Organization:

1. Lack of specialization:
Each person is responsible for the overall exhibition of activities relating to his
department alone. He is not expected to be an expert in all aspects of managerial
task. He simply gives instructions to his subordinates but does not specialize in
certain phases of operation.
2. Overloading:
Whenever the scale of operations increases, this system overloads the existing
executives. So they are not able to direct and control their subordinates properly.
3. Lack of initiative:
Since maximum authority is invested with the top management, the departments
lose their initiative.
4. Scope for favoritism:
Only one person controls the activities of the department. So, there is scope for
favoritism and nepotism.
5. Dictatorship:
A subordinate has to carry out the instructions and orders given by the superior. If
the subordinate fails in this, he is penalized. This results in autocratic and
aristocratic approach.
6. Limited communication:
In normal time, the communication moves downwards, but very rarely it moves
upwards. The downward communications can be orders, instructions etc. If
upward communication is allowed, the management may know the grievances of
the employees. However, upward communication is not appreciated by
management.
7. Unitary administration:
Activities of each department are looked after by a single executive who takes all
the decisions relating to the department. Hence the successful functioning of the
department depends on his abilities.
8. Subjective approach:
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The degree of availability of authority is more to the superior than to the

subordinates. So the superior takes the decisions without considering the opinions
of the subordinates.
9. Instability:
The success of this type of organization depends mostly on ability of a few strong
persons and if they are not strong enough, the organization fails.
10. Lack of proper coordination:
The coordination among the departments is not easy to achieve. The reason is
that the executive of the department does not consider other departments
important. This results in lack of cooperation and team spirit.
11. Unsuitability for large scale enterprise
This is not suitable for organizations requiring specialization.
12. The business activities may be divided according to the will of the manager
rather than according to any scientific plan.
13. The system has no means of appreciating efficient workers or punishing
inefficient workers.
14. It is very difficult to find efficient persons which are essential for the top
management.
15. The required time and efforts are insufficient for managerial planning,
research & development and controlling activities of the organization.
Suitability:
1. Suitable for small size business units
2. Suitable for routine nature or machine based activities
3. Suitable for service minded business activities
4. Suitable for less number of persons working.
5. Suitable for operations simple in nature.
6. Suitable for a business unit having straight methods of operations.
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7.3 Functional organization
Under functional organization, various specialists are selected for various functions
performed in the organization. These specialists attend to the work common to
different functions various departments. The workers receive instructions from
various specialists. The specialists work at supervision level. Thus the workers are
accountable to not only one specialist but also to the specialist from whom
instructions are received. F.W.Taylor advocated this organization as a point of
scientific management. In this type of organization, directions of work are
decided by functions, and not merely by authority.
The need for functional organization arises out of:

1. A desire to use the specialization in full
2. To avoid workload of line managers with complex problems and decision
making
3. To deal with complexity of modern and large scale organization.
Characteristics of functional organization:
1. The work is divided according to specified functions.
2. Authority is given to a specialist to give orders and instructions in relation to
specific function.
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3. Functional authority has a right and power to give command throughout the
line with reference to his specified area.
4. The decision is taken only after making consultations with the functional
authority relating to his specialized area.
5. The executives and supervisors discharge the responsibilities of functional
authority.
In the above diagram, various specialists are mentioned as follows:
1. Route clerk:
He fixes the route through which each work should travel up to the stage of
completion.
2. Instruction card clerk:
He is expected to draft instructions to workers on the basis of the route fixed
by the route clerk.
3. Time and cost clerk:
He fixes the standard time and cost incurred for each work. He gives
instructions to workers to record the time actually spent by them and actual cost
incurred for completion with reference to the standards.
4. Gang boss:
This worker is expected to see the various machines and materials kept ready
for workers to perform the work.
5. Speed boss:
He advises the workers to complete the work within the standard time
considering the speed of the machines. Further, the speed boss sees whether each
work is completed in time or not.
6. Inspector:
The inspector checks up the quality of each work and certifies it as standard.
Actually, the accuracy of work is checked with reference to the specification.
7. Repair boss:
His work starts only after the actual work is performed by the workers. He is
concerned with upkeep of machines and equipments. It means that his
responsibility is maintenance of machines.
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8. Disciplinarian:
He implements the rules and regulations of the entire organization. He is a
peacemaker of the organization. He also checks whether each work is performed
in a systematic and perfect manner.
The Route clerk, Instruction card clerk and Time & cost clerk work in the
planning department. The gang boss, speed boss, inspector and repair boss belong
to the factory section. The disciplinarian is not a staff of any section but is
responsible for workers’ conduct.
Advantages of functional organization:
Benefit of specialization Relief to line executives

because instructions given by
specialists to workers

Application of expert Cooperation

knowledge

Reducing the workload on Mass production

each person because only one
type of work

Better efficiency and Economy

proficiency because of focused
work

Adequate supervision Flexibility
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Disadvantages of functional organization:
Complex relationship Speed of action gets

hampered

Difficult to maintain Centralization

discipline

Overspecialization Lack of responsibility
Ineffective coordination Increase in overheads
Poor administration

Suitability:
It is very suitable to a business unit which is engaged in manufacturing activities of
special processes.
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7.4 Line and staff organization
In order to reap the advantages of both the line organization and functional
organization, a new type of organization is developed, which is line and staff
organization. In this, the disadvantages of line as well as functional organization
can be avoided to some extent.
The line officers have the authority to take decisions and implement them to
achieve the objectives of the organization. The line officers are assisted by the
staff officers while framing the policies and plans and taking decisions.
In the fast developing technical world, the line officers are not in a position to
acquire the technical knowledge. E.g. for taking decisions in production, technical
knowledge is needed to take correct decisions. This gap will be bridged by staff
officers who are experts in a particular field. The line officers can get expert advice
from the staff officers before taking any final decisions.
Thee authority flows from top level to the lower level of the organization through
the line officers while the staff officers attached to the various departments advise
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the departments. The staff officers do not have any authority to control anybody
in the organization. Further, the staff officers are not in a position to compel the
line officers to follow the advice given by them.
Each department is headed by a line officer who exercises full authority regarding
planning, implementation and control of workers under him with the help of staff
officers. The workers get instructions only from line officers. Hence there is unity
of command and specialization.
Types of staff:
1. Personal staff:
Personal staff means a person who assists another person in the performance of
work effectively. This type of a person is appointed at the top level of
organization. The personal staff members do not supervise the subordinates of
line officers.
2. Specialized staff:
The specialized staff members render service to the line officers at all levels of the
organization.
3. General staff assistant:
They are a group of persons who are rendering service as advisors to top
management in specific matters. The primary feature of the general staff is that
they give advice regarding overall plans and policies of the organization. But they
are not specialized in any area.
Functions of staff officers:
• The staff officers assist the line officers in the planning of business activity.
• The board of directors frame the policies of the business on the basis of
recommendations given by the staff officers.
• The managers can get the advice from the staff officers regarding the selection,
training, placement and remuneration fixation of the personnel.
• The staff officers give advice regarding the method of improving the product,
the technique of reducing the cost of production, increasing the profits of the
concern etc.
• The staff officers prescribe the procedures to be followed by the line officers in
the execution of policies and programs.
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• The staff officers of a department help the manager in the preparation of

budget of the department.
• The staff officers may be called to solve the administrative problems
encountered by the line officers in general.
The line officers have to extend their full cooperation to staff officers and vice
versa. This ensures smooth functioning of the organization. In certain
circumstances, conflicts may arise between them. However, blaming each other
should be avoided.
Arguments of Line Officers against Staff Officers
1. The staff officers have only theoretical academic knowledge but not practical
knowledge.
2. Frequently, the staff officers go beyond their sphere of activity and assume
that they have line officers’ authority.
3. Much of the advice given by the staff officers is impractical.
4. Since the staff officers are not responsible for the results they suggest
unfruitful ideas.
5. The staff officers unnecessarily increase the paperwork of the officers.
6. The staff officers give advice without considering the nature of business as a
whole.
7. The ideas of staff officers take into consideration only the objectives of the
departments to which they are attached instead of the broad objectives of the
business.
8. Staff officers are very much interested in becoming line officers of the
organization rather than imparting advice to them.
9. Staff officers blame the line officers for the failure of the project but are keen
on getting credit for the success of the project.
Arguments of Staff Officers against Line Officers
1. The line officers completely neglect the advice given by the staff officers.
2. The line officers hesitate to accept new ideas.
3. The line officers do not follow the advice of staff officers properly.
4. Some line officers simply reject the advice the without the considering its
validity.
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5. Some line officers are not ready to ask for any advice from the staff officers
6. The line officers do not exploit the full services of the staff officers.
7. The line officers dissuade the management from giving authority to staff
officers to implement new schemes.
Solution to the conflict between line officers and staff officers
1. Both line officers and staff officers should clearly understand the nature of
relationship prevailing between them.
2. A separate staff member should be appointed to bring about co-operation
between the line officers and staff officers.
3. The line officers should be encouraged to use the advice of staff officers.
4. Only qualified persons should be selected and placed as staff officers.
5. The line officers should convince the staff officers if their advice is not
accepted.
6. The responsibility for results could be fixed on both line officers and staff
officers.
7. Some line officers may resist the change, when it is the duty of staff officers to
encourage the line officers to participate in the proposed scheme of change.
8. Only experienced persons alone should be promoted as line executives.
9. The staff officers can give full credit to the line officers for the results
obtained.
10. Remove the fear of both line officers and staff officers whether the new ideas
of advice would be properly put into use of not.
11. If the favourable results are obtained, the line officers may appreciate the
staff officers.
12. A special privilege may be given to the line officers to reject or accept the
advice given by the staff officers.
Advantages of Line and Staff Organization
1. It facilitates the workers to work faster and better.
2. Specialization is attained when the staff officers concentrate on planning
function and the line officers concentrate on execution function.
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3. It enables the organization effectively utilize the staff officer’s experience and
advice.
4. The line officers can take sound decisions with the help of proper advice from
the staff officers.
5. A new technology or a new procedure may be introduced in the organization
without any dislocation.
6. A new variety of responsible jobs can be given to skilled workers.
7. The work of line officers would be reduced to some extent if they were
relieved of the work of taking divisions.
8. It promotes the efficient functioning of the line officers.
9. The Principle of the unity of command is followed in the line and staff
organization. Hence, the line officers can maintain discipline among the workers
and exercise control over the workers.
10. A very good opportunity is made available to the young person to get
training.
Disadvantages of Line and Staff Organization
1. If the powers of authority pertaining to the line officers and staff officers are
not clearly defined, there may arise confusion throughout the organization.
2 . It is very difficult to control the line officers to when they reject the advice of
the staff officers.
3. The line officers may reject the advice without assigning any reasons for their
action.
4. The staff officers may under-estimate the authority of line officers. The
reason is they are superior the line officers.
5. The staff officers are not involved in the actual implementation of the
program. Therefore, it is not obligatory on their part to give advice with care and
caution.
6 . The staff officers are not responsible if favourable results are not obtained.
7. It requires the appointment of staff officers who are specialized in various
areas. It increases the administrative expenses of the organization.
8 . There is no authority to the staff officers to compel the line officers to accept
and implement the advice given by them.
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9. There is a communication gap between line officers and staff officers. It

reduces the degree of co-operation between them.
10. The differences of opinion between line officers and staff officers and staff
officers will defeat the very purpose of specialization.
11. The line officers may misunderstand the advice given by the staff officers and
proper results cannot be obtained. Sometimes, the staff-officers cannot give
unambiguous advice to the line officers.
12. Line officers blame the staff officers for unfavourable results and want to get
rewards for favourable results.
13. Frequently, the line officers want to get advice from the staff officers not only
on important matters, but also on ordinary matters. It reduces the effectiveness of
control of line officers.
7.5 Committee Organization
In the modern business world, a single person alone cannot perform some
administrative tasks when two or more persons are required to perform the same
administrative task collectively. It shapes into a committee of an organization. A
committee is group of persons to whom certain managerial functions are assigned
and from whom some advice or recommendation are expected.
According to Hicks,
“A committee is a group of people who meet by plan to discuss or make a decision
for a particular subject.” The top management fixes the duties, responsibilities and
authority and the committee is accountable to the management.
Terry has defined the committee as “Body of persons elected or appointed to meet
on an organized basis for the discussion and dealing of matters brought before it.”
Webster’s New International Dictionary defines committee as a, “Body of persons
appointed or elected to consider, investigate or take action upon and usually
repose concerning some matter or business, as a court, legislative body or a
number or persons.”
Haimahh has defined a committee as a “group of persons either appointed or
elected who are to meet for the purpose of considering matters assigned to it.”
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Types of Committees
1. Advisory committee (or) problem solving committee
This committee examines the problems which are referred to it.
If a committee is requested to solve a given problem, it should give the best
solution. The reason is that committee members have wide knowledge, offer
different opinions and suggest approaches to solve a problem, before solving a
problem the problem is analyzed by the committee after considering the pros and
cons of the proposed solutions.
2. Fact-finding committee
This type of committee is formed only of the purpose of collecting information
on a particular subject. A detailed report is submitted with recommendations to
the management . This is the most common committee formed in any
organization.
3. Action committee (or) executive committee
This committee consists of line officers. This committee can take the decisions and
it has power to implement the decisions. The committee is permanent in nature.
Board of Directors of a company is the best example for the Action committee.
Functions of a Committee
1. Collect the necessary information from different sources and arrange the
information orderly.
2. The collected information is critically analyzed.
3. Draft a detailed report containing the recommendation for the purpose of
implementation.
4. Formulate the standard of performance for the purpose of evaluation of
actual performance in future.
5. Take a decision if the committee is requested to do so.
6. Framing the policies if the organization.
7. The committee can select personnel or carry out the business operations.
8. Directing and controlling the officers at regular intervals to achieve the goals
said above.
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Advantages of Committee Organization

1. The committee can take valuable decisions. The committee members can
make use of their experience and knowledge while taking decisions.
2. Hasty decisions are avoided by the committee. Normally, the hasty decisions
do not give maximum benefit to the organization. Hasty decisions are not worthy
from a long term of point view.
3. The committee members are encouraged to participate in the decisions
making process. Each committee member can acquire a knowledge of and
understand the feelings of the people in other parts of the company, keeping these
in view, the decision is taken by the committee.
4. The committee decisions will certainly be the best one. There is
proverb .”Two heads are better than one.”
5. By participating in the decision making process, an officer is persuaded to
accept the decision and implement the decision without any delay.
6. Co-ordination between the various departments becomes very easy. The
reason is that the committee consists of members from various departments.
According to Koontz and O’Donnell, “Committee is a useful device of co-
coordinating business planning and the executing of the business polices.”
7. The committee members have authority to implement the decisions. If any
individual takes a decision, the committee may not implement the decision. The
reason is that there is no authority for the committee to implement to decision
taken by an individual.
8. If a young person is motivated to participate in the decision making process
of a committee, he can get a very good training. It is one way of utilizing the
opportunity offered to him.
9. Normally the committee consists of specialists from various fields. Then, new
ideas may be developed by the committee in the area of production, sales,
customer series and the like.
10. Whenever decision is taken in an organization, it should be communicated to
all the employees. The committee members can disseminate the decision taken by
the committee to the employees immediately. It saves a considerable time in
communication.
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11. The decision taken by the committee reveals the feelings, ideas and thoughts
of all the members of the committee. The decision is taken only after obtaining
the approval of all the persons who are participating in the decision-making.
12. Sometimes the decision is arrived at after getting the approval of the majority
of the members participating in the decision making. Therefore, the committee
follows a democratic process in the decision-making.
13. Even if a person is opposed to the decision taken, he may accept the decision
taken by the committee. He will act so, even though he will not be compelled to
accept the decision. It means voluntary acceptance on the part of the concerned
persons.
14. Committee members are requested to express their views, ideas and feeling
freely. It will minimize the clashes of interests among the employees of the
organization. The discussion may be pertaining to wages, salary, bonus, welfare
schemes and the like.
15. The line executives are included in the committee for decision-making. It
prevents the line executives from feeling that they are not consulted while taking
decisions.
16. If any problem is to be solved by the committee, it can be done by following
the principle of division of labor. Each committee member can analyze the
problem from various angles at the same time and arrive at fruitful solution.
17. An individual is empowered to take decision and implement it when he has
full authority and responsibility. In other words, there is a concentration of
authority and responsibility. Concentration of authority and responsibility is
avoided in the committee organization. In this organization, all the members of
the committee have authority and responsibility.
18. Normally, the committee is formed with the interested persons of the
organization.
Disadvantages of Committee Organization
1. Men from various fields are included in the committee. Each member
expresses his own ideas and decisions or solutions. It results in delay in taking a
decision.
2. It increases the administrative expenses of the organization. Expenses are
incurred whenever the committee is convened for solving a problem or taking a
decision.
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3. In case, if there is an absence of mutual co-operation, and the members do

not have confidence in the ability of the other members of the committee, they
fail to work efficiently and the committee is dissolved without any decision being
taken.
4. The secrecy of the committee’s decision cannot be maintained under
committee organization. The reason is that there are a large number of members
in a committee.
5. The responsibility cannot be fixed on any person if the decision does not
produce favorable results to the organization. Each one blames the other for faulty
decision making and unfavorable results.
6. Sometimes, the decisions may be taken on the basis of compromise, when the
decision does not reflect the viewpoints of the members of the committee.
7. It has been observed that irrelevant matters are at times discussed. The
decision should be taken by a committee within a short period of time.
8. In the committee organization, each members is expected to express his own
ideas. It may result in heated arguments among the committee members. It does
not give any benefit to the organization.
9. The members of a committee do not use their initiative because of their
ignorance, or dominance by the committee members. Thus, the representative
character of the decision taken by the committee is not preserved.
10. The committee members who meet frequently, may not be able to devote full
attention to their duties.
11. A committee is formed to reap benefits as in a democracy. But, in majority of
the cases the committee acts as a puppet of the management.
12. The committee members are not able to develop their own ability or talents
individually. Further, it deteriorates the ability of the committee members in
various other fields.
Recommendations for efficient functioning of a committee
1. Clear objectives
A committee can function efficiently if the objectives of the organization are
clearly stated. The scope of the function of a committee should be clearly laid
down.
2. Size of the committee
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The number of members of a committee should not be too large or too small.
Only necessary members should be included in a committee. The members who
are working at executive levels should not be members of more than three
committees. The ideal number of members of a committee is 6 to 8.
3. Selection of meetings
The success of a committee depends upon the members of a committee.
Therefore, the management should be very careful while selecting a member of a
committee. Due weightage should be given to skill, knowledge and experience of
the person while selecting a committee member.
4. Role of committee
The authority and responsibility of a committee should be clearly laid down, so
that the members of a committee will act according to the regulations of the
committee formed.
5. Role of Chairman
Great care should be taken while selecting the chairman at a committee.
Sometimes, the chairman of a committee may be selected by the committee
members or nominated by the management. The chairman should act as a man
to whom every member at the committee could have easy access and he should
encourage the members and extend his cooperation to everyone of the members
of the committee.
6. Preparation for a meeting
The committee meeting should be periodically convened so as to take prompt
decisions and actions to tackle the problems of the management. The flow of
work should be maintained by taking correct decisions. It is desirable to collect
essential information necessary to take a decision.
7. Follow-up
The minutes of the meeting should be intimated to all the members of a
committee. The follow-up procedure is also carried on for the purpose of ensuring
proper implementation of the decisions.
8. Evaluation
The functioning of the committee should be periodically evaluated. If any need
arises, certain members may be included in or excluded from the committee. The
benefits accruing the committee should overbalance the expenses incurred for the
functioning of committee.
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9. Selection of subject matter

An individual can deal with certain kinds of subjects only. Such type of subjects
cannot be placed before the committee for discussions. The committee can handle
only complicated matters.
7.6 Project Organization
Project Organization
The idea of project organization was developed after the Second World War. This
organization is developed to eliminate the defects of functional organization.
Delay in taking in decisions and lack of co-ordination are some of the defects of
functional organization.
Project organization is designed to accomplish a program or project. The project
organization is dispensed with after the accomplishment of a program or project.
The project organization is composed of a core of functional departments in
addition to its specific programs or projects. In other words, project organization
consists of important functional departmental heads.
A project organization is suitable for the accomplishment of a small number of
large projects. According to Middleton, “A project organization can also be the
beginning of an organization cycle. The project may become a long-term or
permanent effort that eventually becomes a program or branch organization. The
latter may, in turn, become separated from the parent organization and be
established as a full-fledged product division functionally organized.”
Features of Project Organization
1.The success of the project organization depends upon the co-ordination of
activates.
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2. There is a grouping of activities for each project. It leads to the introduction of

a new line of authority.
3. The responsibility is fixed for each group with regard to the respective projects
and it results in the meaningful control.
Drawbacks of Project organization
1. The professionals are deputed for the project. But there is no assurance of
continuous work for the professionals in a project organization.
2. Under project organization, there is absence of proper communication and
standards for comparing the performance. It reduces the motivation and control
over the staff in an organization.
3. The decision is taken in the project organization under pressure of the top
management. It results in dangerous consequences.
4. The top management does not extend its full co-operation for the effective
functioning of the project organization. The top management may cause some
hindrance.
7.7 Matrix Organization
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It is a type of organizational management in which people with similar skills are

pooled for work assignments, resulting in more than one manager (sometimes
referred to as solid line and dotted line reports, in reference to traditional
business organization charts).
For example, all engineers may be in one engineering department and report to an
engineering manager, but these same engineers may be assigned to different
projects and report to a different engineering manager or a project manager while
working on that project. Therefore, each engineer may have to work under several
managers to get his or her job done.
There are several departments under Matrix organization. Each department is
assigned with a specified task. The available resources of the organization can be
used by each department along with the co-ordination of other departments in an
organization.
According to Stanley Davis and Paul Lawrence, matrix organization is “Any
organization that employs a multiple command structure but also related support
mechanisms and an associated organization culture and behavior pattern.” The
matrix organization may be followed where a large number of small projects have
to be managed.
Conditions for effective matrix organization

The matrix organization can effectively function if the following conditions are
present:
1. The principle of scalar chain of command is not followed in the matrix
organization. A project manager should give his report to more than one superior.
2. There should be an agreement among the managers regarding the authority
of utilizing the available resources. The term resources includes physical resources,
financial resources and human resources.
3. A conflict may arise among the managers regarding the utilization of
available resources. There should be a common willingness among the authority
holders to face the conflicts with a view to resolving them.
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Merits of matrix organization

The merits or advantages of a matrix organization are discussed below:
1. Achievement of objectives
The matrix organization reaps the benefits of functional organization and line and
staff organization. It ensures the achievement of objectives with technical
specialization.
2. Best utilization of resources
The available resources are used by the managers for the specified project. At the
same time, the resources are utilized by the managers—with full understanding
among them.
3. Appropriate structure
Matrix organization is an appropriate structure of an organization to adopt to the
external changes. For example, in order to survive the competition, matrix
organization is used to meet customer demands according to the expectations
without affecting the marketing of the existing product.
4. Flexibility
Matrix organization is a highly flexible organization. The rules and procedure are
framed on the basis of the experience of the organization.
5. Motivation
If any department is functioning slowly towards the completion of the particular
project, proper motivations provided the concerned department.
6. Personal development
Matrix organization gives an excellent scope for training an development of
efficient persons.
Demerits of matrix organization

The following are the demerits or disadvantage of matrix organization.
1. Complex relationship
The matrix organization does not follow the principle of scalar chain of
command. Here, a single person gives report to more than on superior. It entails
in having less opportunity for having rapport with their respective superiors.
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2. Struggle for power

Many superiors control a subordinate. It means many authority holders use the
power over the subordinate. It results in delay in the completion of the project.
3. Excessive emphasis on group decision-making
The department utilizes the available resources for taking group decisions. There
is no spirit of accommodation and understanding under the matrix organization.
So, there is delay in taking a group decision. It leads to delay in the completion of
the project.
4. Arising conflict resolution
The resolution or the decision is taken under matrix organization with too much
of self-analysis of decision makers. The work of decision makers or the managers
may be slow in the accomplishment of the project.
5. Heterogeneous
A matrix organization is created by deputing the staff temporarily. They are
skilled professionals of various departments. It is difficult to co-ordinate the work
of the skilled staff members when there is a lack of unity of command in an
organization.
7.8 Free form Organization
This type of organization is formed whenever a need arises to form an

organization, for achieving a particular object. It will be dissolved after achieving
the object of the organization. In many ways, the Free Form Organization
resembles the project and matrix organization. It is otherwise called organic or ad
hoc (ratio) organization.
The formation of the Free Form Organization depends upon the external
environment of the business. If the business is highly affected by the external
environment, the Free Form Organization will be established.
Decision is taken under Free Form Organization without following the policies or
guidelines, which are determined in advance. Normally, the decision is taken in
any organization by following the organizational policies, rules and regulation.
These are framed well in advance and followed while taking decisions.
The structure of Free Form Organization is related to individual expertise used in
resolution of the problems at hand. The nature of problems may be changed
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according to the situations prevailing in the business world. When there is change
of structure of Free Form Organization, no task is assigned to it specifically. But
tasks are assigned to superiors and subordinates according to their level of
experience and competence. Therefore, the authority is available to the persons
according to their competence in performing the given task under this
organization.
There is no channel of communication due to the absence of a formal structure in
the Free Form Organization, So, the communication flows in any direction viz.,
upwards, downwards, and horizontally.
7.9 Case examples
Dow Chemicals
Dow Chemical and Du Pont of USA, ICI of great Britain, BASF, Hoechst and
Bayer of Germany are the handful major players who compete head to head. The
environment of severe recession, free flow of chemicals etc ushered in intense
price competition. The company that won the race was Dow Chemical which had
lowest costs.
Dow Chemical managers believed that some credit for the success belonged to the
matrix organization. The organizational matrix had three interacting elements:
• Functions such as R&D, manufacturing, marketing
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• Businesses such as ethylene, plastics and pharmaceuticals

• Geography such as Spain, Germany, Brazil
The manager’s job tiltle was like “Plastics Marketing Manager for Spain”which
had all the three elements. Most managers reported to at least two bosses. The
Plastics Marketing Manager for Spain might report to both the head of worldwide
plastics business and the head of spanish operations.
But the results were less than promising. Multiple reporting channels led to
confusion and conflict. Too many bosses created an unwieldy bureaucracy. The
overlapping responsibilities resulted in battles and lack of accountability.
Instead of abondoning the matrix structure, Dow decided to make it more flexible
to better accommodate different businesses such as pharmaceuticals. After
priorities were identified for each business sector, one of the three elements of the
matrix was given primary authority in decision making.
In 1995 the company decided to divest itself of the pharmaceutical business and
abandon its matrix structure in favor of a more streamlined structure based on
global market divisions. The matrix structure was just too complex and costly to
manage in the intense competitive environment of the time, given the company’s
renewed focus on its commodity chemicals where competitive advantage often
went to the low cost producer. As Dow’s CEO put it in 1999, “We were an
organization that was matrixed and depended on team work but there was no one
in-charge. When things went well, we did not know whom to reward and when
things went poorly, we did not know whom to blame. So we created a global
divisional structure and cut out layers of management. There used to be eleven
layers of management between me and the lowest level employees. Now there are
five.”
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Activity A
Based on a manufacturing industry, study the types of problems a staff officer and
a line officer can have. Make suggestions to them as to how they can resolve the
problematic issues.
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Activity B
If you were CEO of DOW, how would you have handled the issue there?
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7.11 Summary
The success of the organization depends upon the experience and competence of
the officers of the organization. There is also necessity of chalking out the line of
authority among the people who are working in an organization to achieve the
desired results. A few types of organization find a place in the structure of internal
organization.
• Line organization
• Functional organization
• Line and staff organization
• Committee organization
• Project organization
• Matrix organization
• Free form organization
1. Write about the conflicts between line and staff officers and about how they
can solve them.
2. Talk about the types of committee organizations and discuss their merits.
1. The following characteristics are of --------organization.

• Direct vertical relationships
• Authority flows from top level to bottom level.
• Departmental heads are given full freedom to control their departments.
• Each member knows from whom he would get orders and to whom he should
give orders.
• Operation of this system is very easy.
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Options:
a. Line and staff organization
b. Matrix organization
c. Line organization
d. Functional organization
2. The following characteristics are of -----------organization:

• The work is divided according to specified functions.
• Authority is given to a specialist to give orders and instructions in relation to
specific function.
• Functional authority has a right and power to give command throughout the
line with reference to his specified area.
• The decision is taken only after making consultations with the functional
authority relating to his specialized area.
Options:
a. Line and staff organization
b. Matrix organization
c. Line organization
d. Functional organization
3. The following are the functions of ----------------

• Collect the necessary information from different sources and arrange the
information orderly.
• The collected information is critically analysed.
• Draft a detailed report containing the recommendation for the purpose of
implementation.
• Formulate the standard of performance for the purpose of evaluation of
actual performance in future.
Options:
a. Committee
b. Project manager
c. CEO
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d. Staff organization
4. It is otherwise called organic or ad hoc (ratio) organization.

Options:
a. Matrix
b. Project
c. Free form
d. Line and staff
5. This type of committee is formed only of the purpose of collecting

information on a particular subject. A detailed report is submitted with
recommendations to the management. This is the most common committee
formed in any organization.
Options:
a. Advisory committee
b. Fact finding committee
c. Action committee
d. Executive committee
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Reference Material
Summary
PPT
MCQ
Video1
Video2
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C HAPTER 8 - S TAFFIN G
Objectives
At the end of the chapter, you will be able to:
• Have good knowledge about staffing, its functions, process, proper staffing, its
advantages
• Learn about recruitment, internal and external sources
• Know about selection, its importance, stages
• Understand about tests
• Know about interview, kinds, process and principles
• Know about promotion, transfer and job rotation
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Chapter 8 - Staffing
Structure
8.1 Introduction
8.2 Definitions
8.3 Elements of staffing
8.4 Objectives and functions of staffing
8.5 Processes in staffing
8.6 Proper and effective staffing
8.7 Recruitment
8.8 Selection
8.9 Tests
8.10 Interview
8.11 Promotion, transfer, job rotation
8.12 Case example
8.14 Summary
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8.1 Introduction
Staffing involves human resources management and although it is very important,

it is often the most neglected function. If staffing is not taken care, the
organization faces many problems. Careful attention must be given to this
function. This function ensures the right person for the right job. It is not just
fitting someone for some job. We must carefully see the human aspect of this. We
must see how the human being is developed to be most suitable for the
organization.
In any organization, staffing follows the planning and organizing functions. It is a
continuous process similar to planning as well as organizing. It is initiated by the
organization and kept going on to be fully effective. It includes processes such as
manpower planning, recruitment, selection, training and development, promotion
and compensation of the personnel.
Organization is a social entity, continuously supplying goods and services to the
society and the society also needs them continuously. For the success of this
organization, and for achieving the objectives, management is required and
staffing is the important function which takes care of the man as a resource.
Staffing is a broader function then HRM. Staffing is more a strategic function and
HRM makes it sure that they are treated properly.
Out of the four M’s, viz. man, machine, materials and money, man is a living
entity, which thinks, discriminates, has judgment, has knowledge, and develops
wisdom. He adds more and more value, over a period of time, after getting
experience. He appreciates with the use of time. Other M’s are inanimate, they do
not think, do not have wisdom, get used up, get converted into finished goods, and
depreciate. People are those who can make or mar the organization. The fifth M is
methods which are created by man. People make the things happen. Very few
organizations understand that the people have to be developed and maintained in
the company. In the environments which are changing rapidly, if the company is
in a crisis situation, the first knee jerk reaction is felt on human beings. Are we not
considering human beings as resources? When we go to work, we are not sure if
we will stay in the job or will get removed from there. Business cycles keep
happening up and down. But it is improper to kick the people out. If the top
management knows what is wanted, they should take proportional number of
people and not too many. Before taking extreme steps, the people must be given a
last chance to perform.
The belief system or value system of the person entering the organizations should
match the value system of the organization. The human beings are not a cost to
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the company; on the other hand, they are the investment for the future. For
ensuring that the right people are hired, top management must get involved in the
process.
8.2 Definitions
Staffing is: “The process involved in identifying, assessing, placing, evaluating and
directing individuals at work.”
“Staffing function is concerned with the placement, growth and development of
all those members of the organization whose function is to get things done
through the efforts of other individuals.”
8.3 Elements of Staffing
While performing the staffing function, the manager has to see that men are fit for
jobs and jobs are not altered for men. The major elements of staffing are:
1. Effective recruitment and selection
2. Proper classification of personnel and pay fixed to them.
3. Fitment through placement. Right man for the right job.
4. Adequate and appropriate training for development.
5. Satisfactory and fair transfer and promotion
6. Sound relationship between management and workers. Harmonious
human relations.
7. Adequate policy and provision for retirement.
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8.4 Objectives and functions of staffing
1. Manpower planning:
The short term manpower planning may achieve the objectives of the company at
present conditions. The long term manpower planning should be concerned with
the estimation of staff members required in future.
2. Development:
It is concerned with the development of staff members through and adequate
training programs. The training is given to the needy persons. It is also concerned
with the development of the organization itself through the development of
manpower.
3. Fixing the employment standards:
It involves job specification and job description. These enable the management to
select the personnel and train them adequately. Job description is a systematic and
organized written statement of the duties and responsibilities in a specific job. Job
specification is a statement of personal qualities that an individual must possess if
he is to successfully perform the job.
4. Sources:
It is concerned with the method by which the staff members are selected. The
sources may be internal and external ones. Internal source means that a vacancy is
filled up by the company from the available staff members. The external source
means that a vacancy is filled up by the company from outside of the company.
The selected person could be unemployed or working in some other company.
5. Selection and placement:
It includes the process of selection of the staff members. The placement includes
giving a job to a person on the basis of his ability, education, experience etc.
6. Training:
It can be arranged by the company itself. In certain cases, the staff members may
be sent out by the company to get the training. The expenses are borne by the
company. The training may be required not only by the new staff members but
also by the existing staff members.
7. The other functions are coordination, promotion, transfer, maintenance of
employee records, rating of employees, motivation etc.
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8.5 Processes in staffing
Estimation of total number of staff members

required by the company in various grades depending
upon size of the company and policy
Selection of qualified applicants for filling the jobs

by using a standard procedure.
Training and development: For new staff members

as well as existing employees for improving work
efficiency
Performance management: assessment of the work

performed by the staff members in an organization as
per a standard fixed.
8.6 Proper and effective staffing
Proper staffing means providing adequate qualified staff members for the purpose
of effective functioning of organization. Top management is responsible for
effective functioning, hence, the chief executive or the general manager
undertakes this function. Involvement of top management is absolutely necessary.
Identifying appropriate staff members is a difficult and challenging task and it
requires special skills. Due to complexity of the process, it is sometimes outsourced
to expertise in staffing.
Advantages of proper staffing:
1. It helps in recruitment of efficient staff members.
2. It helps the proper placement of staff members according to their ability.
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3. Proper selection, training, and development of staff members will result in

the maximum production in an organization.
4. Increasing the efficiency of the workers will increase the earning capacity
of the workers.
8.7 Recruitment
Recruitment is the process of finding proper candidates and inducing them to

apply for the jobs in the organization. The recruitment should be sound one. If it
is not so, the morale of the staff will be very low and the image of the company
will be tarnished.
Recruitment is done through advertisements, word of mouth publicity and with
the help of placement agencies.
The success of any recruitment depends upon policies and procedures followed by
the company while recruiting the staff members.
Jobs with low salary, uninteresting and difficult jobs are challenging to be filled up
easily.
Recruitment means the discovery of the staff members for the present and future
jobs.
Internal sources:
Whenever there is a job vacancy, it can be filled up by giving a promotion to the
present employee of the company. It is based on the promotion policy followed by
the company. In certain cases, a same cadre staff member is deputed to the job. It
is called a transfer. It is also based on transfer policy of the company.
Advantages:
1. It improves the morale among the staff members
2. Employee is happy because of promotion.
3. It attracts efficient staff members
4. Training expenses are reduced.
5. Promoted employee inspires other staff members to acquire a thorough
knowledge of his job.
6. It derives job satisfaction
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7. Promoted employee uses his past experience in the new job

8. It improves job security for the staff member
9. A new responsibility can be entrusted safely
10. Continuity of the job for the employee and stability of the organization
11. Employees are induced to work hard to get the promotion
12. Expenses such as advertisement, recruitment, test and interview are avoided.
Disadvantages:
1. Lack of fresh and original ideas and initiative from promoted staff members
2. An under-qualified person may be appointed for the higher post.
3. If there is a guarantee of promotion to the internal staff members, they may
not work efficiently.
External sources
8. Advertisement
When a company wants to inform the public that it has a vacancy, it puts up an
advertisement. The details of the job and required qualification and experience of
the candidates are given. The company receives the applications in response to the
advertisement. After that an interview is conducted. In some cases, walk in
interview method is adopted. The date, time and place of the walk in interview
are mentioned in the advertisement. In this way, a person is recruited immediately
through an advertisement.
9. Recommendations:
Recommendation means appointment of a person on getting a recommendation
letter from a person reliable and well known to the company. In some cases, the
employee of the company may bring the candidates to the company for the
purpose of being appointed. In such cases, company may not conduct an
interview for selection.
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10. Gate applicants:

The educated and unemployed young people submit their applications at the gate,
although there may not be any advertisement issued by the company. These
candidates may not have any recommendations either. The candidate personally
approaches the appointing authority of the company. If such candidate is found
fit, he is appointed.
11. Employment exchange:
The job seekers register their names with their qualifications with the employment
exchange. The company can get the list of candidates who have requisite
qualifications to fit in a job. The employment exchange is of two types: The public
one and the private one. The public one is run by the government. The private
one is run by a private party who may get commission from both the job seekers
and the company.
12. Personal consultant:
Private consultant is a separate specified agency doing the function of recruitment
of the personnel on behalf of the company. He receives the applications, verifies
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them, conducts interviews, and selects the candidates. He receives fees from the
company for his service.
13. Educational institutions:
Universities, colleges and institutions are formed to offer specific courses. The
educational institutions make an arrangement for campus interview. The business
concerns come to the campus of the educational institutions to recruit the students
for various posts. The selected students are told to join the post after completing
the course.
14. Waiting list:
The business concern prepares a waiting list of the candidates who have already
been interviewed. Whenever a vacancy arises, it can be filled from candidates out
of the waiting list.
15. Unsolicited applicants:
This means the application received from the candidate through mail. If there is
any vacancy, the candidate may be recruited if found fit for the job.
16. Jobbers and contractors:
The casual vacancy may be filled by the company through the jobbers and
contractors. Normally unskilled candidates are appointed in this way.
17. Field trips:
A company may send a group of experts to the cities where the various kinds of
candidates required by the company are available. In this case, a prior
advertisement about date, time and place of the interview is issued in newspapers.
18. Leasing:
Before recruiting the staff members, the period of service is fixed by the company
and it is conveyed to the staff members.
Advantages:
1. Choice: A company recruits a person out of a large number of applications.
The plus and minus points of each and every candidate is taken into consideration
and the best candidate is selected.
2. New outlook: A new approach of the recruited employee may solve some
existing problem which will give benefit to the company.
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3. Wide experience: The recruited new employee has experience in various

fields. By this, the company gets the benefit.
Disadvantages:
1. The existing staff may have a grudge against newly recruited employee.
2. Lack of cooperation.
3. Recruitment of a person from outside is expensive.
4. There could be a resistance from trade union for the recruitment of new
employee.
5. If the new person fails to adjust himself to the working conditions of the
company, it causes irritation and difference of opinions between the recruited
person and existing staff members. It is then further expensive to replace him.
8.8 Selection
Selection is the process adopted by the organization to select adequate number of

persons who have required educational qualifications, skills, abilities, personality
and experience. A screening test may be conducted through which unsuitable
candidates are rejected.
Selection is a tough task because available candidates are more qualified and
experienced than what is required. So, more care is required in the selection of
proper personnel.
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Selection Process:
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8.9 Tests
1. Temperament test:
To measure the likes, dislikes and habits of an individual. It is helpful to find out if
the individual can put himself in a society or not.
2. Achievement test (Performance test or trade test):
To measure the knowledge for performing the work assigned to an individual.
Sometimes the achievement test is conducted theoretically, i.e. the answers are
received by putting the questions to the individual. E.g. an accounting test may
measure the accounting performance of an accountant in terms of accuracy and
neatness.
3. Interest test (Vocational test):
To discover the individual’s interest in having the work assigned to him. Interest of
an individual may be relating to outdoor activities, accounting, clerical, social
service etc.
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4. Intelligence test:
To measure the mental ability, capacity and general awareness of the individual.
The most common intelligence tests used for management purposes are group
tests, individual tests, self evaluation tests, self administered tests, performance
tests, verbal comprehension, word fluency, memory, inductive reasoning, test of
reasoning, number facility, speed of perception etc. It is conducted age-wise. If the
management selects highly intelligent people, its training process is easy and
training expenses are low.
5. Personality test:
It is conducted to measure courage, initiative, emotion, confidence, reaction,
ability to mix with others, ability to motivate, general behavior of the individual,
cheerfulness, leadership, patience, and domination of character.
6. Situational test:
It is conducted to measure the reactions of the applicants to a particular situation.
Besides, the applicant’s ability to succeed in his job in this situation is also
measured.
7. Judgment test:
It is conducted to measure the ability of an individual in applying the knowledge,
intelligence and experience to solve the problems presented before him.
8. Efficiency test (dexterity test):
It is used to know how quickly and efficiently an individual uses his hands to
accomplish the work assigned to him.
Advantages:
1. Tests help the employer to find whether a candidate is fit for the job.
2. Tests help in checking candidate’s claims in respect of his qualification,
experience etc.
3. Tests avoid the scope for personal preference of a particular candidate.
4. Standards of job performance can be established with the help of the test.
5. Labor turnover can be reduced.
6. Tests reduce cost of selection and placement.
7. Tests highlight the hidden talents.
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8. Tests may be conducted for transfer and promotion.

9. Training expenses can be reduced.
10. Possibility of failure in performing the job is reduced.
Disadvantages:
1. Test is only a supplementary method of selection.
2. Test is not able to measure the combination of characteristics required for
various jobs.
3. If number of applicants is small, it is desirable to conduct an interview rather
than test.
8.10 Interview
Principles of interview:
1. The management should define the specific objectives of an interview.
2. The management has to prepare the procedure for the interview to achieve
the objectives.
3. The interviewers should ask only the questions related to the job to be filled.
4. The interviewer should create a rapport with interviewee before starting the
interview.
5. The interviewees are to express their opinions or views freely without any
hesitation.
6. The tension or nervousness of the interviewees is to be removed by the
interviewer.
7. The interviewer should listen to the answers given by the applicants carefully.
8. The evaluation of performance of the applicant is to be done immediately
after the interview is over.
9. The interviewer should thank the applicants while closing the interview. This
carries much better impression about the interview and the interviewer.
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Process of interview:
Kinds of interview:
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1. Direct interview:
Straight questions are put before the applicant to get answers from them. Face to
face conversation.
2. Indirect interview:
Questions are not raised but the applicant is asked to express his views freely on
any topic as he likes. By this the personality is easily assessed.
3. Patterned interview:
A number of standard questions are framed well in advance which are to be put
before the applicant. The answers are written near the questions. These are used
for verification purpose when answers are given by the applicant during the
interview.
4. Stress interview:
Irritating questions are put before the applicant by the interviewer. If any
applicant gets angry then he is considered as unfit for the job.
e.g.”How many legs an eight legged insect have?” or “Mr. Laxman, what is your
name?”
5. Systematic in-depth interview:
Under this type of interview, the interviewer asks any one question initially. Then
he proceeds step by step to get an integrated view of the skill and personality of
the candidate.
6. Board or panel interview:
A group of persons ask the applicant questions in the area of interest of the
applicant. Immediately after the interview, they evaluate the performance of the
applicant based on his answers.
7. Group Interview:
It may be otherwise called group discussion (GD) or house party technique. A
number of applicants are interviewed simultaneously. A common topic is
presented before the group. One group consists of six to eight members. Each
applicant is allotted a number. They may call other members of the group by
calling the concerned member’s number. They are not allowed to use their names.
The applicants are selected or rejected on the basis of performance in group
discussion.
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8.11 Promotion, transfer and job rotation
Promotion may be defined as the placement of an employee to a better job which

results in extending prestige, salary, powers, duties, responsibilities. It requires
more knowledge and skills to perform the job.
Higher posts and key posts are filled up by the management through promotion
policy. This promotion policy persuades the employees to be loyal to the
management.
The basis for promotion may be competence or seniority. Seniority refers to the
service of more number of years in the same organization. Competence refers to
the accomplishment of a particular job more effectively than the other employees.
Whenever the management fixes competence as the basis for promotion, all the
employees including seniors are ready to increase their knowledge and skills to get
promotion. If the promotion is denied to senior people, they do not devote full
attention to their jobs. Unfit persons may be eligible for promotion if only
seniority is the basis for promotion.
Hence, seniority should be the basis for promotion for a job which does not
require much competence. Competence should be the basis for the job which
requires professional skills.
Whenever a vacancy is to be filled up internally, it is filled up by transfer of the
same cadre person in the organization. In many cases, transfers motivate the
people because they may not be enjoying the work in earlier positions.
It can also be filled up by job rotation. E.g. a production manager working there
for ten years can be transferred to planning department. Due to the change in job,
the employee gets refreshed and motivated because he is able to increase his
competence and to contribute better because of his experience so his ideas are
fresh and innovative. Job rotation also improves multi-skills in the organization.
Promotion Policy:
1. The policy should be widely published and strictly adhered to.
2. Each and every employee should work in all jobs in the organization to get
thorough knowledge and experience.
3. A detailed and accurate job description and job specification should be
prepared for each job. The employees should know the qualifications and
experience required for each job through job description and job specification.
187
4. Promotion is given to any employee through widest publicity.

5. Employees are permitted to acquire qualifications and experience through job
training, vocational courses etc.
6. Performance, behavior, skills, suitability for the job should be the basis for
promotion.
7. Promotion should be recommended by line officers and approved by top
management.
8. If promotion is denied to somebody, he has the right to represent his views and
opinions.
9. The promotion should have employee’s consent.
8.12 Case example
McDonald’s
The executives of McDonald’s find that recruiting is a tough sell. The industry is
taking a beating from an increasingly health conscious society. Equally
troublesome is a further decline in the image of employment in a fast food
restaurant. A job in this company is a low paying, low prestige, dead end, mindless
service job in which the employee’s work is highly regulated.
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McDonald’s has tried to improve its employment image by improving wages and
adding some employee benefits. A few years ago, it created the “I’m loving it”
campaign, which aimed at a positive image of the golden arches for employees as
well as consumers. The campaign had some effect, but the McDonald’s executives
realized that a focused effort was needed to battle the company’s image.
Now the company is fighting back with a “My First” campaign to show the public
and prospective job applicants that working at McDonald’s is a way to start their
careers and develop valuable life skills. It is a TV commercial showing successful
people from around the world whose first job was at fast food restaurant.
McDonald’s also hopes that the new campaign will raise employee pride and
loyalty and the word of mouth campaign of the employees would recruit more of
their friends and acquaintances in the company.
So far, the campaign has got the desired result. The company’s measure of
employee pride has increased by 14%, loyalty scores are up by 6% and 90-day
employee turnover for hourly staff has dropped by 5%.
For many years, it has been an innovator in recruiting retirees and people with
disabilities. The most recent innovation at McDonald’s called the family contract,
allows wives, husbands, grandparents and children over the age of 16 to swap
shifts without notifying management. It is potentially a recruiting tool because
family members can now share the same job and take responsibility for scheduling.
Even with these campaigns and human resource changes, some senior executives
feel that entry-level positions are not a lifestyle job. Most of the workers are
students who are doing a complementary job.
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Activity A
In order to reduce the attrition rate in IT industry, what kind of promotion,
transfer and job rotation policy you will recommend?
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Activity B
Rate all the interview processes on the scale of 1 to 10. Which interview process
gets highest rating and why?
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8.14 Summary
The staffing function includes recruitment, selection, training and development,

transfer, promotion and compensation of personnel. Effective recruitment and
selection, proper placement, satisfactory transfer and promotion are some of the
elements of staffing. Staffing involves human resources management and although
it is very important, it is often the most neglected function. If staffing is not taken
care, the organization faces many problems. The belief system or value system of
the person entering the organizations should match the value system of the
organization. The human beings are not a cost to the company; on the other
hand, they are the investment for the future.
1. Which source of recruitment is most popular in the present scenario?

2. Mention the stages in selection procedure.
3. Discuss the importance of promotion.
1. The period of service is fixed by the company and it is conveyed to the staff
members.
a. Field trips
b. Leasing
c. Waiting list
d. Advertisements
2. A specific format is followed by the organization for selection process.

a. Aptitude test
b. Efficiency test
c. Standards
d. Blank application
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3. Interviewer may say--------------to the applicants while closing the interview.

a. Bye
b. See you
c. Thanks
d. Good evening
4. Placement of the employee for a better job which results in extending prestige,
Salary and powers.
a. Transfer
b. Promotion
c. Increment
d. Recruitment
5. Group interview may be otherwise called as:

a. Stress interview
b. Patterned interview
c. Indirect interview
d. Group discussion
192
Reference Material
Summary
PPT
MCQ
Video1
Video2
193
C H A P T E R 9 - D E PA R T M E N TAT I O N
Objectives
At the end of the chapter, you will be able to have knowledge about
departmentation, related various aspects, need for departmentation, factors,
departmentation by various parameters.
194
Chapter 9 - Departmentation
Structure
9.1 Introduction
9.2 Process of departmentation
9.3 Need and importance of departmentation
9.4 Factors in departmentation
9.5 Basis of grouping diverse activities
9.6 Patterns of departmentation
9.8 Summary
195
9.1 Introduction
Departmentation is a process to understand how an organization is made

manageable. We have seen various functions of management viz. Planning,
Organizing, staffing, directing, coordinating and controlling. Departmentation is a
part of organizing process. Organizing means putting resources together to
achieve organizational goals. Organizing has to be done for all the four M’s viz.
Man, machine, material and money. When the organization grows, it becomes
complex. Departmentation is needed when we want to handle complexity.
Departmentation involves grouping of common activities and resources under a
single person’s control required for pre-determined activity. The activities are
grouped on the basis of functions of the organization. This work is done by the
Chief Executive of the Organization.
We shall discuss an example of photocopying machines in various sections. The
photocopying machine in marketing section is overloaded and the utilization is
125%. The photocopying machine in finance section has the utilization of 100%.
The photocopying machine in HR section has the utilization of 60% and the
photocopying machine in production section is utilized to only 10%. We see that
there is machine idle time in three sections and in one section; there are queues of
people waiting for photocopying. Can the marketing people go to other sections?
It depends on the management policy. Marketing people can also go out to make
photocopies.
Actually it is prudent to have a photocopying department with may be two
machines only with one person who will cater to all the organization for their
photocopying requirements. This is departmentation which turns complexity into
simplicity.
However, it is a must to utilize the resources optimally. If the departmentation is
done, it must facilitate resource optimization. If this is not possible, then
departmentation will not serve its purpose.
Departmentation means the process by which similar activities of the business are
grouped into manageable units for the purpose of facilitating smooth
administration at all levels. It means chunking down from macro into micro
activities. For example, a sandwich seller is able to manage his small business
without departmentation. However, when his business grows and he starts selling
many other varieties of fast food, his business will become complex and then he
must go for departmentation. However, he must make it sure that the resources are
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utilized fully. It should not happen that in one department, people are idling and
there is no sale and the resources are underutilized.
Another example is of a big finance company. It expands and creates many
branches in the same city. However, it is found that half of the branches do not
have any footfall. The resources viz. men, materials and machines are idling. Then
the business will be in a loss. It can be like that proverb:”Operation successful,
patient dead.”
As per Koontz and O’Donnell, departmentation is a process of dividing the large
monolithic functional organization into small and flexible administrative units.
Departmentation refers to classification of activities on operations of an
undertaking into functionalized categories.
Departmentation is very essential in the modern business world. All the business
activities cannot be looked after by a single individual. The classified activities
bring in specialization and managerial convenience. It ensures suitable span of
control. It ensures proper directions to personnel and control on them.
197
9.2 Process of departmentation
198
9.3 Need and importance of departmentation
Departmentation increases the operating efficiency of the

employees because it facilitates the grouping of activities which are
of similar nature.
There is a fixation of responsibilities to various executives of the

organization. It makes the executive to be alert and efficient in his
duties.
The departmental heads are given certain powers and are

allowed to take their own decisions. It increases the prestige and
skill of the departmental heads.
The work of various departments is evaluated by the top

management and the department which is not managed properly is
identified. This makes all the departmental heads efficient and
alert.
There is a possibility of expansion of the organization because of

fixing of the responsibilities to the executives and there is function-
wise departmentation.
Departmentation gives other advantages such as facilitating

budget preparation, effective control of expenditure, attaining
specialization, better cooperation among the managerial personnel.
199
9.4 Factors in departmentation
Departmentation should yield the advantages of specialization.

Specialization may be functional such as sales, finance, production
and personnel.
There should be a proper control under departmentation and

simplification of control process. There should be scope for
automatically checking the activity of one person by another
person, a separate executive.
The whole business activities are grouped department-wise and it

requires coordination. The purchase department should be located
near the production department. This will facilitate easy
coordination.
An unusually important activity of the business should be

recognized. If greater attention is necessary, the activity may be
entrusted to a separate division or a higher level of organization
according to its importance.
The departmentation should take into consideration the local

conditions of the place concerned.
Economy: It should be borne in mind that expenses are

incurred in the creation of separate departments. It means avoiding
unnecessary expenditure and allowing essential expenditure.
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9.5 Basis of grouping diverse activities
1. Maximum use: A given activity will be attached to the major department

which makes most use of it. For example, the usage of warehouse and the
entire traffic management might be placed with the production department.
2. Interest: A superior is told to look after a new activity if he is most willing and
able to serve. For example, a person who is working in the sales department
prefers to work in the accounts department. If such a chance is offered to any
person, he can perform the activities with great interest.
3. Competition: The prevailing competition-the competition between two sales
departments or two production departments-is desirable. Team spirit also may
be developed whenever grouping of activities takes place. Competition
destroys the enterprise as a whole if a single person is appointed to work for
sales departments of both parent and sister concern.
4. Policy matter: A particular activity may be assigned to a department which
evinces more interest in the unit. For example, sanctioning of credit to the
customer and collection of debt from the debtors may be given to finance
department instead of sales department as a matter of policy.
5. Separation: The maximum division of activities involves high cost of
operation to the management. But it is essential when an activity is
complicated due to several functions.
6. Proper attention: If an ordinary activity is assigned to higher officials who do
not consider it as important, they will not derive satisfaction in the
performance of that activity. Proper attention should be given for this aspect.
7. Coordination: If the organization’s activities are grouped into several
departments, there is a need for coordination of various activities. Such a
coordination work is entrusted to the general manager.
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9.6 Patterns of departmentation
1. Departmentation by functions
The most commonly followed basis of departmentation is by functions. The

activities are grouped on the basis of functions which are to be performed. The
following chart is for departmentation by functions:
Advantages
1. It is a scientific and time tested method.

2. It follows the principles of specialization and division of labor.
3. It ensures proper performance control.
4. It preserves the importance of each of the activities of the organization.
5. It avoids interruptions of subsidiary groups in the primary activities.
6. Due weightage and prestige are given to the departmental managers and they
are respected by top management people.
7. It facilitates coordination activity within the department itself and the
organization as a whole.
8. It is economical, simple and easy to understand.
9. It helps the utilization of manpower and other natural resources of the
organization.
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Disadvantages
1. The departmental managers are expert in handling the problems in their

departments alone. They may not be able to understand the problems of other
departments.
2. The departmental heads consider themselves to be autonomous sections and
will not look upon the undertaking as one unit.
3. It increases the workload and responsibility of department managers.
4. It does not offer any scope for overall development of managers.
2. Departmentation by product or service
This type of departmentation is done by large scale business units. A single

business unit may manufacture and sell different types of products. Then each
type of product or service is allocated to a separate department. Functionalized
units for each product are created within the general structure of the organization.
Manufacturing, sales, finance and personnel functions are arranged separately for
each type of product. Each department is responsible for manufacturing a product
and selling it to customers. Grouping all the activities are planned in advance
within each product section. The coordination function is performed by the top
management.
203
Advantages
1. Maximum utilization of personal efficiency of workers in the area of

manufacturing and marketing of product.
2. There is possibility of gaining economy in manufacturing and marketing of
products on account of large scale operation.
3. Better services to the customer.
4. The profitability of each product is known to the management. So it is easy to
fix responsibility on the department heads.
5. Proper attention can be devoted to the manufacture of the product.
6. All the functions pertaining to the manufacture of a particular product are
performed by managers. Then there is possibility of effective coordination and
control.
7. A new line of product can be introduced without any difficulty.
Disadvantages
1. There is danger of duplication of work.

2. It increases the number of personnel which in turn increases the cost of
operation.
3. It requires additional cost for maintaining a sales force for each type of
product.
4. In proportion to increase in the number of employees, the control at the
executive levels becomes difficult.
5. Machines and equipments in each product department may not be utilized
fully.
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3. Departmentation by region or area
This type of departmentation may be suitable for a business unit which is wholly
dispersed. The business activities are grouped area-wise and a single person is
made in-charge of the respective area. The local persons are appointed as
salesmen in each area. It helps the business unit to increase the sales. The reason is
that the local person is familiar with the local language, culture and preferences of
the customers.
Advantages
1. It makes possible an effective span of control.

2. It reduces cost of operation and gains saving in time.
3. The sales can be increased with the help of intimate knowledge about the
tastes and preferences of the customers in local market.
4. Regional managers can win the confidence of customers and remove
competitors from the market.
5. Accounts are prepared area-wise. So, profitability of each area is known to the
management very clearly.
6. It provides opportunities to managers to improve their skills in various fields.
7. It is suitable for large scale business unit.
8. Control process is very easy to manage.
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Disadvantages
1. It increases number of personnel and involves high cost of operation.

2. The control of head office is less effective.
3. It may involve duplication of work.
4. A small business concern cannot manage the high cost of operation.
4. Departmentation by customers
This type of departmentation is preferred when the various needs of customers

are different in nature. For example, a bank or a financial institution may divide its
loan section into number of heads and assign them to various departments such as
loans to NRIs, farmers, businessmen, professionals and so on. Similarly, the sales
department could be divided into industrial goods and consumer goods. The
consumer goods could again be sub-divided into perishable and non-perishable
goods.
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Advantages
1. It fulfills expectations and needs of the customers.

2. It develops specialization among the organizational staff.
3. Each section of the customer is able to get better service from the company
and helps the company to win the goodwill of its customers.
Disadvantages
1. There may be duplication of activities.

2. Coordination is very difficult.
3. There is wastage of available resources and facilities.
4. The production activities cannot be organized under this method.
5. Cost of operation is high.
5. Departmentation by process
This type of departmentation is preferred when the production activities are

carried on in many places. For example, a textile mill has many departments such
as ginning, spinning, weaving, dyeing and printing, packing and sales. Each section
will be looked after by a specialized person.
207
Advantages
1. The expensive machines can be utilized effectively.

2. There is no interruption in the other departments or other production
processes. The requirement and renewals of any process cannot affect the
production of other processes.
3. There may be economy in operation.
4. There is no duplication of activities.
5. The principle of specialization and division of labor is followed.
6. It helps the top management to have effective performance control.
7. It is more suitable to any business unit which manufactures a product passing
through a number of processes.
Disadvantages
1. It involves heavy cost of operation since separate places have to be given for
operation and other facilities.
2. More specialists are essential to each process.
3. It does not give good training to staff members and there is lack of overall
development of the managerial talents.
6. Departmentation by time
The business activities are grouped together on the basis of time of the
performance. If the work is not completed within the normal working hours, extra
time is be given to complete it after the normal working hours. Only interested
persons are told to do the job and one person is responsible to supervise them.
Whatever be the work performed after the normal working hours, a separate
208
department is in-charge of that. This departmentation is known as

Departmentation by time.
7. Departmentation by numbers
Small groups perform similar duties. Each group is supervised by a supervisor. E.g.
in army, soldiers are grouped into squads, battalions, companies, brigades and
regiments on the basis of allotment of men to each unit. The principles of span of
management span of control or span of supervision is used under this type of
departmentation.
8. Departmentation by marketing channels
As business has become increasingly market oriented, this method of

departmentation has grown in importance. It is adopted on the basis of channel
of distribution chosen by the particular business unit on the basis of nature of
goods and marketability of the product.
209
Activity A
Visit a nearby company to find out their pattern / basis of departmentation.
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Activity B
Prepare a write up on departmentation by marketing channels, because it has
grown in importance as business has become increasingly market oriented. Visit a
nearby company to find out how they are doing this.
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9.8 Summary
Departmentation involves grouping of common activities and resources under a

single person’s control required for pre-determined activity. The activities are
grouped on the basis of functions of the organization. This work is done by the
Chief Executive of the Organization.
However, it is a must to utilize the resources optimally. If the departmentation is
done, it must facilitate resource optimization. If this is not possible, then
departmentation will not serve its purpose.
1. Make short notes on:

• Need and importance of departmentation.
• Departmentation by customers and by time.
1. Departmentation is a process to understand how an organization is made--------.

a. Easy
b. Manageable
c. Suitable
d. To achieve goals
2. The purchase department should be located near the production department.

This will facilitate easy -------------.
a. Management
b. Coordination
c. Activity
d. Purchase
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3. It should be borne in mind that expenses are incurred in the creation of

separate departments. It means avoiding unnecessary expenditure and allowing
essential expenditure.
a. Economy
b. Saving
c. Budgetary control
d. Careful planning and organization
4. This type of departmentation is preferred when the production activities are

carried on in many places. Departmentation by:
a. Process
b. Function
c. Customer
d. Numbers
5. In army, soldiers are grouped into squads, battalions, companies, brigades and
regiments. This is the departmentation by:
a. Process
b. Function
c. Time
d. Numbers
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Reference Material
Summary
PPT
MCQ
Video
213
C H A P T E R 10 - D I R E C T I N G : V E R T I C A L P R O C E S S
Objectives
At the end of this chapter, you will be able to have knowledge about direction and
its principles, characteristics of good order.
214
Chapter 10 - Directing: Vertical Process
Structure
10.1 Introduction
10.2 Principles of directing
10.3 Issuing orders or instructions
10.4 Characteristics of a good order
10.5 Techniques of directing
10.6 Importance of directing
10.8 Summary
215
10.1 Introduction
Directing is a process of top down approach. It is a vertical process in which

orders come from top for the subordinates to follow. Directing is person-centric.
That’s why we often see that one boss is very effective because of his proper
directions and the other one is not so effective because of his wrong way of
handling things.
Direction is a management function performed by top level officials of
management. Directing, though top down approach, is actually a two way
approach, i.e. orders come top down, and the feedback goes bottom up.
Direction is necessary to achieve proper implementation of goals. Direction
consists of processes and techniques utilized in issuing instructions and making
certain that operations are carried out as originally planned.
10.2 Principles of directing
1. Harmony of objectives: Individuals have their own objectives. Organization

also has its own objectives. The management should coordinate the individual
objectives with Organization objectives. Direction should be such that
individuals can integrate their objectives with Organization objectives.
2. Maximum individual contribution: Every member’s contribution is necessary
for the organization’s development. Hence the management should adopt a
technique of direction which enables maximum contribution by the members.
3. Unity of direction or command: An employee should receive orders and
instructions only from one superior. If not so, there would be indiscipline and
confusion among the subordinates and disorder will ensue.
4. Efficiency: The subordinates should participate in the decision making process
so that they would have a sense of commitment. This will ensure
implementation of decisions and will increase the efficiency of subordinates.
5. Direct supervision: Managers should have direct relationship with their
subordinates. Face to face communication and personal touch with
subordinates will ensure successful direction.
6. Feedback: Direction does not end with issuing orders and instructions to
subordinates. Suggestions given by subordinates are necessary for the
216
development of management. So development of feedback system furnishes

reliable ideas to the management.
7. Effective communication: The superior must ensure that plans, policies and
responsibilities are fully understood by the subordinates in the right direction.
8. Appropriateness of direction technique: There are three direction techniques
available to the management. They are: authoritarian, consultative and free
rein. But the direction techniques should be selected according to the situation.
9. Effective control: The management should monitor the behavior and
performance of subordinates to exercise effective control over them. Effective
control ensures effective direction.
10. Comprehension: The extent of understanding by subordinates is more
important than what and how orders are communicated to them. This is very
useful in proper direction of subordinates.
11. Follow through: Direction is a continuous process. Mere issuing orders or an
instruction is not an end itself. Direction is necessary. Hence the management
should watch whether the subordinates follow the orders and whether they
face difficulties in carrying out the orders or instructions.
10.3 Issuing orders or instructions
An order is used by the management as a tool for direction. An order can be

issued only by a superior. The supervisor has the right to enforce this order over
his subordinates. In the words of Koontz and O’Donnell, “As a directional
technique, an instruction is understood to be a charge by a superior requiring a
subordinate to act or refrain from acting in a given circumstance.”
10.4 Characteristics of a good order
1. An order should be reasonable and enforceable over subordinates.

2. A clearly defined order should be easily understandable.
3. An order should be such that it facilitates the achievement of objectives of the
organization.
4. An order should be complete in all respects.
217
5. An order should encourage the subordinates to willingly accept it.

6. A written order is preferable to an oral one.
7. Appropriate tone is used by the superior while issuing an order.
8. An order should specify time within which a job should be completed.
9. An order should be intelligible, which means it should be easily understood.
10.5 Techniques of directing
There are three techniques of direction followed by the management. They are
briefly explained as follows:
1. Consultative direction:
The superior has consultation with his subordinates before issuing a direction. The
consultation is made to find out the feasibility, enforceability, and nature of
problem. It does not mean that the superior is not capable of acting
independently. Ultimately the superior has the right to take any decision and give
the directions. The cooperation of employees is necessary for successful
implementation of any direction. Under this direction technique, employees are
motivated and have high morale.
2. Free rein direction:
The subordinate is encouraged to solve the problem independently under this
direction technique. The superior assigns the task in a general manner. The
subordinates are expected to take initiative to solve the problem. Only highly
educated, efficient and sincere subordinates are required apply this direction
technique.
3. Autocratic direction:
The direction is just opposite to free rein direction technique. Here the superior
commands his subordinates and has close supervision. The superior gives clear
and precise orders to his subordinates and acts accordingly. There is no way left to
the subordinates to show their initiatives.
218
10.6 Importance of directing
219
Activity A
Consider that you are a CEO of an IT company. Which technique of direction
will you will adopt?
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Activity B
As a director of a multinational company, you have to arrange a meeting of
customers on coming Monday. Make a list of orders which you will give to your
subordinates.
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10.8 Summary
Direction is a management function performed by top level officials of

management. Directing, though top down approach, is actually a two way
approach, i.e. orders come top down, and the feedback goes bottom up.
Direction is necessary to achieve proper implementation of goals. Direction
consist of processes and techniques utilized in issuing instructions and making
certain that operations are carried out as originally planned.
1. Discuss the importance of direction.

2. Discuss the principle of direction.
1. An employee should receive orders and instructions only from one superior.
a. Efficiency
b. Direct supervision
c. Unity of direction or command
d. Harmony
2. The extent of understanding by subordinates is more important than what and

how orders are communicated to them.
a. Harmony
b. Team work
c. Comprehension
d. Communication
3. A clearly defined order should be easily ------------------.
221
a. Followed
b. Obeyed
c. Done
d. Understandable
4. The subordinate is encouraged to solve the problem independently under this

direction technique.
a. Free rein direction
b. Autocratic direction
c. Consultative direction
d. Democratic direction
5. An order should be --------------, which means it should be easily understood.

a. intelligent
b. intelligible
c. intellectual
d. interesting
222
Reference Material
Summary
PPT
MCQ
Video
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C H A P T E R 11 - C O O R D I N A T I N G : H O R I Z O N T A L P R O C E S S
Objectives
By studying this chapter, you will be clear about need, importance and principles
of coordination.
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Chapter 11 - Coordinating: Horizontal Process
Structure
11.1 Introduction
11.2 Definition
11.3 Features or characteristics of coordination
11.4 Need and importance of coordination
11.5 Principles of coordination
11.6 Techniques of coordination
11.7 Types of coordination
11.8 Problems in coordination
11.9 Steps for effective coordination
11.10 Coordination and cooperation
11.11 Leadership
11.12 Case example
11.14 Summary
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11.1 Introduction
Coordination is a team effort. Coordination means people coming together,

particularly people from dissimilar sections coming together. We have already
discussed about the directing function. Directing and coordinating are
complementary functions. Directing is a vertical function. Directions, instructions,
commands flow top down manner. E.g. HOD of Finance gives directions and
instructions to his subordinates in finance department down the line. It is a top
down process. It is a vertical managerial function.
On the other hand, coordinating is a horizontal function. It creates linkages
between different verticals. Coordination is a choice whereas directing is
compulsion of job. Not many people like to coordinate the activities between
various sections. It involves talking to persons across the line to get certain things
done. It creates linkages between dissimilar functions. It unifies the work of one
section with some other section.
By virtue of our respective function, although we learn coordinating and directing
to some extent, it requires skill to understand each other. This skill is not there
with many managers, and so they do not become good leaders. To become a good
leader, we need to be very good in coordination.
11.2 Definition
Coordination is defined as balancing and keeping the teams together by ensuring

a suitable allocation of working activities to the various members and seeing that
these are performed with due harmony among the members themselves.
It is particularly applicable when two or more teams with dissimilar functions need
to achieve the results jointly.
11.3 Features or characteristics of coordination
1. Managerial responsibility:
Every departmental head is responsible to coordinate the efforts of his
subordinates. It is inherent in the managerial job and responsibility.
2. Provides unity of action:
Unity of action is necessary to achieve common objectives. So, it is the heart of
coordination process.
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3. Necessary to all levels:

Coordination is not brought by force or left to chance. Hence, the top executives
should take deliberate efforts to bring coordination at all levels of organization.
4. Relevant of group efforts:
Group efforts rather than individual efforts are necessary to bring coordination.
An individual cannot work without affecting the functions of others. It emphasizes
group efforts.
5. Continuous and dynamic process:
Coordination starts with planning process and ends with controlling process. In
every organization, a certain kind of coordination exists. Special efforts should be
taken by the management to achieve high degree of coordination.
6. System concept:
An organization is a system of cooperative efforts. Functions of each department
are different in nature and have inter-dependence in the organization system. The
organization runs smoothly with the help of coordination. The coordination is a
system concept.
11.4 Need and importance of coordination
1. Unity in diversity:
There are large numbers of employees and each employee has different ideas,
views, opinions, activities, and background. Thus, there is a diversified activity in a
large organization which will be inefficient in the absence of coordination.
2. Team work or Unity of direction:
The efforts, energies and skills of various persons should be integrated as group
efforts to achieve the objectives of organization. In the absence of coordination,
the group efforts are diversified and fail to achieve the objectives.
3. Functional differentiation:
The organizational functions are divided department-wise or section-wise or
division-wise. Each department performs different jobs. They are necessary to
achieve the general objectives. Coordination ensures definite achievement of
objectives. Each department tries to perform its function in isolation from others.
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It creates a problem. Therefore coordination is necessary to integrate the functions

of the related departments.
4. Specialization:
There is a high degree of specialization in the modern industrial world. Specialists
know thoroughly about their respective fields. They are able to judge the scope,
nature and kind of work they perform. But they do not know the job of others
and the importance of their performances. This tends to cause a dispute among
the specialists. Such disputes could be solved with the help of coordination.
5. Reconciliation of goals:
Each department has its own goals to achieve within the stipulated time. There are
general goals in relation to an organization. The employees who are working in
the organization also have their goals. Employees give more importance to their
own goals than to their departmental or organizational goals. Similarly, the
department members give more importance to their own departmental goals than
to the organizational goals. Coordination reconciles the employees’ goals with
both departmental and organizational goals.
6. Large number of employees:
They have different habits, behavior and approaches in a particular situation.
Sometimes they do not act rationally. Their behavior is sometimes unpredictable
and is not well understood. There is every possibility of problems arising in a
complex organization. All this makes coordination very essential.
7. Congruity of flows:
It means continuous flow of similar information from one direction to other
directions. Information regarding utilization of resources, activities, using of
authority, and output is made to flow in an organization. Coordination ensures
smooth and continuous flow of information.
8. Empire building:
The officers of the top portion of line organization always expect cooperation
from staff officers. However, the line officers are not ready to extend their
cooperation to staff officers. It creates conflicts between them. Therefore,
coordination is necessary to avoid conflicts between the line and staff officers.
9. Differentiation and integration:
The whole activity of every organization is classified into two units. They are
specialized and homogeneous units. Authority is delegated to the various units of
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organization. This is necessary to achieve group efforts. Coordination facilitates

the process.
11.5 Principles of coordination
1. Early start:
The coordination should be started right from the planning function of
management. The management should prepare the plan after consulting the
concerned officials. By this, preparation of plan and its implementation will be
very easy for the management and there will not be any resistance from the
concerned officials.
2. Personal contact:
An agreement may be arrived at on methods, actions and achievement of
objectives through personal contact. Ideas, views, opinions, recommendations,
feelings etc. are conveyed to the receivers effectively through personal contact.
Personal contact avoids controversy and misunderstanding. Thus coordination is
achieved through cooperation and mutual understanding and not by force, order
or coercion.
3. Continuity:
Coordination is must so long as the organization continues to function.
Coordination is a key stone of the organization structure. Coordination starts with
planning and ends with controlling.
4. Reciprocal relationship:
The principle states that all factors in a situation are reciprocally related. Each
factor influences other factors which are influenced by other factors. Thus, the
action of one employee influences the action of other employees and vice versa.
So there is a need for integration of all efforts, actions and interests. Coordination
is the answer.
5. Dynamism:
The external environment of business influences the internal activities of the
business. Besides, the internal activities and decisions are changed according to the
circumstances prevailing. So, coordination is modified according to the external
environment and internal actions and decisions. Thus, coordination should be
dynamic.
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6. Simplified organization:
It facilitates effective coordination. The management can arrange the departments
in such a way that better coordination prevails among the department heads. If
the functions of two departments are similar, these are put under one executive in-
charge. This facilitates to get better coordination. Sometimes two departments
having dissimilar functions are handled by one executive. This will also ensure
better coordination.
7. Self coordination:
According to this principle, the function of one department is affected by other
department and vice versa. So this department modifies its functions in such a way
that it may affect other departments favorably. Coordination is achieved by this
way. There is a need for effective communication to get self coordination.
Effective communication facilitates a department to appraise the functions of
other departments.
8. Clear cut objectives:
The departmental heads should know the objectives of the organization clearly. So
the management should take necessary steps to explain the objectives to the
department heads. This is very useful in achieving the common objectives of the
organization collectively.
9. Clear definition of authority and responsibility:
The management should clearly define the authority and responsibility of each
individual and of each department. This will facilitate effective coordination in an
organization.
10. Effective communication:
It is necessary for proper coordination. The individual and departmental problems
are solved with the help of coordination.
11. Effective leadership:
Effective leadership also helps in proper coordination. Leadership creates
confidence in the minds of the people and increases the morale.
12. Effective supervision:
Top executives should supervise the work of subordinates to ensure successful
performance as planned. Top executives may entrust this work to the supervisors.
When the top executives find any deviations, they may take immediate steps to
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correct them with the help of supervisors. So, there is a need for coordination
between the supervisors and top executives. Thus, supervisors play a vital role in
coordination.
11.6 Techniques of coordination
1. Clearly defined objectives:

Each and every organization should have its own clearly defined objectives so that
the employees of the organization are able to understand them well. Unity of
purpose is a must for achieving proper coordination.
2. Effective chain of command:
In every organization, the line of authority decides who is responsible and to
whom he is responsible. If the line of authority and responsibility are clearly
defined, the superior has proper control over his subordinates. Then the superior
or manager can coordinate the efforts of his subordinates by means of his
authority. If the line of authority is clearly defined the superior can decrease the
conflicts and get coordination.
3. Coordination through group meetings:
The common group of problems of an organization is discussed by the officials in
group meetings. Such group meetings help in achieving coordination. The group
meetings are easily convened. The reason is that there is an obligation on the part
of group members to extend their coordination.
4. Harmonious policies and procedures:
Rules and regulations, procedures and programs are used as guidelines for taking a
decision in a consistent manner. It ensures uniformity in action at every level of
management.
5. Effective communication:
It promotes mutual understanding and cooperation among the various officials.
The communication should be direct and quick. It avoids misunderstanding and
misinterpretation. It also facilitates the performance of activities in time.
6. Sound organization structure:
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It integrates the activities of different units and sub-units in an organization.

Besides, horizontal coordination is achieved with the help of Sound organization
structure.
7. Coordination through a liaison officer:
A person who acts as a link between two persons is called a liaison officer. The
external coordination is obtained through him. Many large organizations depend
on this officer to maintain cordial relations with government and outsiders.
8. Cooperation:
Cooperation is a result of better relations among the employees of the
organization. The sound policies and procedures provide a basis for better
relations. Informal contacts are also encouraged to ensure coordination through
cooperation.
9. Self coordination:
According to this principle, the function of one department is affected by other
department and vice versa. So this department modifies its functions in such a way
that it may affect other departments favorably. Coordination is achieved by this
way. There is a need for effective communication to get self coordination.
Effective communication facilitates a department to appraise the functions of
other departments.
10. Coordination by leadership:
A manager uses his leadership skills to induce the subordinates to coordinate
willingly. A leader can motivate the subordinates and identify the interests of the
individuals. These are used to get coordination. Many conflicts and unpleasant
situations could be avoided with the help of good leadership.
11. Incentives:
These mean monetary benefits. They are increments in the scale of pay, bonus,
profit sharing etc. These schemes promote better coordination through team
spirit.
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11.7 Types of coordination
1. Internal coordination:
It is the establishment of relationship with a view to coordinate the activities of all
the managers, executives, divisions, sub-divisions, branches and other workers. It is
sub-divided into the following two types:
• Vertical coordination: A superior authority coordinates his work with that of his
subordinates and vice versa.
• Horizontal coordination: This refers to establishment of a relationship between
the persons of the same status. E.g. coordination between department heads,
supervisors, co-workers etc.
2. External coordination:
It is the establishment of a relationship between the employees of the organization
and outsiders of the organization. This relationship is established for the benefit of
the organization as a whole. The following are the outsiders with whom an
organization has to establish better relationship:
• Market agencies
• General public
• Competitors
• Customers
• Union government, state government, local self government, and other
government agencies
• Institutions offering auxiliary services
• Financial institutions
• Various industrial organizations
• Technological agencies
• Various commercial organizations
The work of the establishment of a relationship between the employees and the
outsiders is entrusted to a person who is designated as public relations officer.
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11.8 Problems of coordination
3. Natural hindrances:
Calamities such as flood, earthquakes, fire affect the behavior of individuals and
the group as a whole. It results in ineffective coordination.
4. Lack of administrative talent:
It arises due to the selection of inefficient candidates.
5. Lack of techniques of coordination:
Management is not interested to find new techniques for effective coordination.
6. Ideas and objectives:
Each management has its own objectives and it finds ideas to achieve them.
However, the managers confuse these objectives with ideas. It poses the problems
of coordination.
7. Misunderstanding:
There are number of personnel employed in an organization. They should have
mutual understanding with each other. But the problem of coordination creeps in
due to misunderstanding among employees very often.
11.9 Steps for effective coordination
• There should be a proper delegation of authority and responsibility of all levels

of management.
• Entire activities of the organization should be divided department-wise
according to the size of the organization.
• Preparing and adherence to rigid rules and regulations, procedures, policies etc.
• Establishment of an effective communication system.
• Establishment of employees’ grievances cell.
• There should be a proper system for reporting.
• Skilled workers are to be rewarded adequately.
• The management should induce the employees to take active part in meetings,
committees, conferences, seminars etc.
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• The management should encourage the employees to have friendly relationship

with others.
11.10 Coordination and cooperation
Coordination Cooperation
It is one of the functions of It is not a function of
1
management management.
An orderly arrangement of group Willingness to work with others or
2
efforts help others.
High degree of it ensures early success Cooperation is basis for
3
of an organization coordination
Cooperation is a voluntary
4 It is obtained officially
service.
There is a direct link between the There is no such direct
5 achievement of objectives and connection between cooperation
coordination and achievement of objectives.
11.11 Leadership
The success of every industrial enterprise is dependent upon the quality of its
leadership. In a business enterprise, several tasks such as determining the
objectives of the enterprise, designing the methods to achieve them, directing and
coordinating the activities of various departments, can be successfully performed
only if there is able leadership. In the words of George R. Terry, “The will to do is
triggered by leadership and lukewarm desires for achievement are transformed
into burning passion for successful accomplishment by the skillful use of
leadership.” According to Peter Drucker, “Leadership is the lifting of man’s visions
to higher sights, raising of man’s performance to a higher standard, building of
man’s personality beyond its normal limitations.” Alford and Beatty define
leadership as the ability to secure desirable actions from a group of followers
voluntarily without the use of coercion. According to Keith Davis, leadership is
the ability to persuade others to seek defined objectives enthusiastically. It is the
human factor, which binds a group together and motivates it towards goals.
A leader and a Manager:
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• A person emerges as leader. The question whether or not he will emerge as a

leader always depends on a number of situational factors. A manager, on the
other hand, is always put into his position by appointment.
• A leader always has some personal power, i.e. ability to influence. He may or
may not have positional power, i.e. right to command. A manager, on the other
hand, always has some positional power. He may or may not have personal
power. If he also has personal power, then he will be much more effective as a
manager.
• A leader generally seeks those very objectives, which are the objectives of the
subordinates. Thus, there is mutuality of objectives between the leader and the
followers. A manager, on the other hand, seeks those objectives, which his
subordinates do not regard as their own. Thus, there is clash of objectives.
• A leader generally looks at the horizon and not just the bottom line. He is
innovative and believes in doing right things. A manager, on the other hand, is
generally bureaucratic and believes in doing things right, according to the rules, to
cope with complexity.
Characteristics of Leadership:
• We appraise the quality of a person’s leadership in practice by studying his
followers:
๏ How many and what kind of followers does he have?
๏ How strong is their commitment as a result of his leadership?
๏ How long will their commitment last?
We must not forget that leaders within the organization are also followers. The
supervisor works for a branch head, who works for a division manager, who works
for the vice president of a department and so on. Thus, in a formal organization
of several levels, a leader has to be able to wear both the hats -of a leader as well
as a follower- gracefully, to be able to relate himself both upward and downward.
• Leadership involves a community of interest between the leader and his
followers. The objectives of both the leader and his followers are one and the
same.
• Leadership involves an unequal distribution of authority among leaders and
group members. Leaders can direct some of the activities of the group members.
The group members are willing to obey most of the leader’s directions. The
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group members cannot similarly direct the leader’s activities, though they will
obviously affect those activities in a number of ways.
• Leadership implies that leaders can influence their followers or subordinates in
addition to being able to give their followers or subordinates legitimate
directions. In other words, leaders not only tell their subordinates what to do by
way of command but also influence by their behavior and conduct.
The use of command succeeds only in bringing a temporary behavioral change in
the followers. Permanent attitudinal change in followers comes through the use of
influence only.
Functions of a leader:
• Setting and achieving organizational goals: 
As a goal setter, the leader may either establish organizational goals and
objectives himself, or he may participate with his superiors or subordinates in
establishing them. As a planner, the leader makes decisions concerning the ways
and means by which the organizational goals can be achieved. As executive, a
leader is responsible for seeing that the appropriate activities of the organization
are carried out.
• Planning operations of the organization:
๏The leader is an expert in principal activities of the organization. Frequently,
supervisors are promoted from line positions primarily because of the
proficiency they displayed on the lower job. The technical information and skills
they possess are useful in aiding and instructing their subordinates in effective
work procedures.
๏ He can be a single representative of an organization to deal with outside
individuals or groups.
๏ The leader relieves other members of the group of certain responsibilities
and they, in turn, place their trust in his decisions. In an informal group of
workers, one individual may be given the responsibility of conveying complaints
to the superior.
๏ He is controller of internal relationships and coordination within the
organization.
๏ As leaders, supervisors encourage, upgrade and promote deserving workers
and reprimand, punish, transfer and fine poor workers. Even leaders in informal
groups concern themselves with discipline.
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๏ The leader seeks to maintain harmony among the members of the

organization. He arbitrates and mediates to keep the peace among the group.
Symbolic figure for the group
๏ The leader serves as an exemplar, a model for others to emulate.
๏ The leader provides a kind of continuity and stability for the group, standing
for it despite changes in circumstances and membership.
๏ The leader functions as an ideologist.
๏ The leader may function as a father figure, fulfilling an emotional role for the
members of the group.
Approaches to Leadership:
a. Traits Approach:
According to George R.Terry, traits generally found associated with leadership

are:
• Mental and physical energy
• Emotional stability
• Knowledge of human relations
• Empathy
• Objectivity
• Personal motivation
• Communication skills
• Teaching ability
• Social skills
• Technical competence
According to Fayol, traits generally found associated with leadership are:
• Good health
• Physical fitness
According to Ordway Tead, traits generally found associated with leadership are:
• Physical and nervous energy
• Sense of purpose and direction
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• Enthusiasm
• Friendliness and affection
• Integrity
• Technical mastery
• Decisiveness
• Intelligence
• Teaching skills
• Faith
One can group these qualities into three broad categories as follows:
Physical qualities:
• Physical and nervous energy
• Vigor and endurance
Moral qualities:
• Moral courage
• Sense of fair play and justice
• Integrity
Qualities of head and heart:

• Emotional and social maturity
• Knowledge
• Decisiveness
• Empathy or social sensitivity
• Objectivity
• Initiative
b. Behavioral Approach:
Under this approach, researchers have studied leadership behavior from three
points of view:
• Motivation: In positive behavior, the leader’s emphasis is on rewards to motivate
the subordinates. In negative behavior, the leader’s emphasis is on penalties and
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punishments. The leader tries to frighten the subordinates into higher

productivity.
• Authority: leadership style can be autocratic, democratic or free rein.
c. Contingency Approach:
• To identify as to which of the situational factors are most important under a
given set of circumstances.
• To predict which leadership style will be most effective under those
circumstances.
11.12 Case Example
George David
• George David has been CEO of United Technologies Corporation (UTC) for
more than a decade.During that time he has received numerous accolades and
awards for his performance as a CEO. Under his leadership, UTC has seen
earnings grow ar 10% to 14% annually- impressive numbers for any company
but particularly for a manufacturing enterprise.
• According to David, a key to UTC’s succeess has been sustained improvements
in productivity and product quality. Along with a Japanese Engineer Yuzuru Ito,
he developed a program for improving productivity and product quality known
as Achieving Competitive Excellence (ACE).
• David also radically reorganized UTC. He dramatically cut the size of the Head
Office and decentralized decision making to business divisions. He also directed
his accounting staff to develop a new financial reporting system that would give
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him good information about how well each division was doing and make it easier
to hold divisional general managers accountable for the performance of of the
units under them. He then gave them demanding goals for earnings and sales
growth and pushed them to improve processes within their units by
implementing the ACE program.
• David always stressed that management is about more than goal setting and
holding people accountable. Values are also important. David insisted that UTC
employees adhere to the highest ethical standards that the company produce
goods that have minimal environmental impact and that employee safety remain
the top consideration in the workplace.
• UTC’s worldwide employee scholarship program:
• Implemented in 1996, and considered the hallmark of UTC’s commitment to
employee development, the program pays the entire cost of an employee’s
college or graduation school education, allows employees to pursue any subject
at an accredited school, provides paid study time, and allows $10000 worth for
completing degrees.
• One of David’s central task has been to build a management team that functions
smoothly over the long term.
• David was a right mix of toughness and sensitivity. When somebody cannot do
the job he would try to help. But if that person is not going to make it work, that
person would not be on job forever.
• David did a lot of things that employees respected him for. He was an excellent
manager. Even though he was demanding, he also listened. He had a receive
mode as well as a send mode.
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A.G.Lafley
• On the day that A.G.Lafley took over as CEO of Procter and Gamble in 2000,
the stock dropped by $4 because the financial markets were unimpressed with
Lafley’s rise to the CEO spot. Quiet, understated, unassuming, with a shock of
white hair, wire rimmed glasses; he looked more like a thoughtful college
professor than a visionary and dynamic CEO. He was a listener and not a
storyteller. He was likeable but not awe-inspiring. He looked a little dull.
• His predecessor had failed to improve the company’s performance. No new
products had been introduced and existing brands had been losing markets.
• Lafley realized that he had to move fast. One of Lafley’s first acts was to issue a
manifesto of “Ten things I believe in.” At the top of the list was “Lead change”,
followed by “the consumer is boss”. Lafley also signaled that it was time for P&G
to look inside its own organization for new product ideas-something the
company had long resisted.
• As Lafley saw it, P&G did not need a radical makeover; it just needed to focus on
selling more of its basic brands. He chose P&G’s ten bestselling brands, each of
which generated more than $1 billion in sales. He told his managers to focus on
selling more. These brands would get the bulk of P&G’s resources. It was a
message everyone could understand. Selling more of the existing brand TIDE
was easier than inventing the next great brand.
• Lafley further told the managers to add value to existing brands by listening
closely to what consumers wanted. This approach worked. P&G learnt that it
was taking too much time for mothers to toilet train the children. So P&G
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developed a new line of bestselling Pampers brand, which stayed wet for two
minutes to alert toddlers to try tinkling in the toilet. He also told managers to tell
customers what the brand could do for them rather than attributes of the
product. Therefore, the mission changed from making the “driest diapers” to
“helping moms with babies’ development.” Result: Pampers gained market share
against the competitor.
• Then Lafley moved to cut costs. Within months, he eliminated 9600 jobs closing
down several new product development projects that were consuming resources
and pulling new products from the market that had not generated significant
sales. He sold off some products, which he did not see as strategic fits.
• Another goal was to break down the barriers within P&G, getting employees
from different division to exchange ideas also with R&D. He also articulated the
need to reach outside for ideas.
• The results of Lafley’s leadership have been impressive. P&G’s core brands have
been getting impetus. The stock price also doubled.
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Activity A
On assuming charge of a company, which method of coordination will you adopt
to ensure better functioning of the organization?
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Activity B
Prepare a check list for better coordination in your company.
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11.14 Summary
Directing and coordinating are complementary functions. Directing is a vertical

function. Directions, instructions, commands flow top down manner. E.g. HOD of
Finance gives directions and instructions to his subordinates in finance department
down the line. It is a top down process. It is a vertical managerial function.
On the other hand, coordinating is a horizontal function. It creates linkages
between different verticals. Coordination is a choice whereas directing is
compulsion of job. Not many people like to coordinate the activities between
various sections. It involves talking to persons across the line to get certain things
done. It creates linkages between dissimilar functions.
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1. Discuss the importance of direction.

2. Discuss the principle of direction.
1. It is the establishment of relationship with a view to coordinate the activities of

all the managers, executives, divisions, sub-divisions, branches and other
workers.
a. Internal coordination
b. External coordination
c. Self coordination
d. Liaison
2. It is the establishment of a relationship between the employees of the

organization and outsiders of the organization.
a. Internal coordination
b. External coordination
c. Internal cooperation
d. External cooperation
3. Incentives mean:
a. Efficiency
b. Effectiveness
c. Monetary benefits
d. Increments
4. Calamities such as flood, earthquakes, fire are:

a. Problems
b. Natural hindrances
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c. Job of Insurance department

d. Result of bad luck
5. According to this principle, the function of one department is affected by other

department and vice versa. So this department modifies its functions in such a
way that it may affect other departments favorably.
a. Mutual cooperation
b. Horizontal coordination
c. Horizontal administration
d. Self coordination
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Reference Material
Summary
PPT
MCQ
Video1
Video2
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C H A P T E R 12 - C O N T R O L L I N G
Objectives
After studying this chapter, you will get to know about:
• Control, its scope, steps and techniques
• Requirements of effective control
• Know about PERT/CPM
• Advantages and disadvantages of control
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Chapter 12 - Controlling
Structure
12.1 Introduction
12.2 Definitions
12.3 Areas or scope of controlling
12.4 Steps in controlling process
12.5 Requirements of effective control system:
12.6 Techniques of control
12.7 PERT/CPM
12.8 Characteristics of control
12.9 Budgetary control system
12.11 Summary
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12.1 Introduction
The process begins with setting S-M-A-R-T goals, then planning and then other
functions. Controlling is the last function of this series. Controlling means
constraints. It means influencing the activities, which people do not like. It requires
maturity. When the activities start based on a smart goal, they tend to go haywire.
It needs discipline to realize if things are not going as per plan. Success depends
on how well the organization is able to control and bring the things on track.
Planning and controlling are two sides of the same coin. Planning is forward
looking. Controlling is concurrent and backward looking. It needs sensitivity or
awareness to know if the process is on the track or not. For example, we buy a car,
fix the route and start driving. But to be always on track, we have to steer the
vehicle continuously. External influences may drive your plan out of track. We
have to bring it back on track.
Controlling sounds very oppressive but that’s what makes the management process
scientific and fool proof. When things are not as per plan, we have to make course
correction. We plan, organize, interlink resources, staff, direct, coordinate etc. and
if there is no control, things go haywire.
However, we always find that people resist any control. Suppose there is flow of
action and someone says it is not good and stops it, there is resistance from
everywhere. Sometimes, the action is near completion and finished goods are
about to be ready, someone says that it is not good, people get disturbed.
Controlling is a challenging function. It is important at home, in social life, at
workplace, everywhere.
Ideally controlling may not be required if all the other functions of management
are performed properly. However, in reality, internal/external conditions being too
volatile, controlling is necessary.
Planning identifies the activities and controlling regulates them. Effectiveness of
planning depends upon effectiveness of controlling.
Control is applicable almost in all goal oriented activities that aim for success.
Policies of the organization, manpower needs, capital expenditure, production,
wages and salaries are the examples where control is required.
In short, any activity that is goal-centric, control is required.
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12.2 Definitions
1. Control is any process that guides activity towards some predetermined goal.
The essence of the concept is in determining whether the activity is achieving
the desired results.
2. Controlling is that function of the system which provides direction in
performance to the plans.
3. The presence in a business of that force which guides it to a predetermined
objective by means of predetermined policies and decisions.
12.3 Areas or Scope of controlling
The term control covers all the activities of a business concern. The main areas of
control are:
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12.4 Steps in controlling process
1. Establishing standards:
It is necessary to set the standards. Otherwise, useful control will not be possible.
Standards may be qualitative or quantitative. Most of the standards are expressed
in terms of quantity. Number of units produced, number of men, hours
employed, total cost incurred, revenue earned, amount of investments are the
examples of quantitative standards. Some standards are expressed in qualitative
terms such as metal finish of the car body, morale of employees, motivation,
goodwill etc.
The standards should have some characteristics such as: time, cost, efforts, result
oriented, accurate etc.
2. Measuring the performance:
The performance should be compared with the established standards. Necessary
information should be collected about the performance. The effective
management information service provides the necessary information about
performance particulars. If standards are expressed in quantitative terms, then
quantitative information must be collected. If standards are expressed in
qualitative terms, then qualitative information must be collected. Several measures
are used by the management to measure the performance.
3. Comparison of actual performance with the standards:
This will help the management to know the deviations vis-à-vis standards. The
management then would find the extent of deviations and identify the causes for
deviations. Comparison is very easy when the standards are expressed in quantity.
If the results are intangible or qualitative, personal observation is used to find out
the extent of deviation.
When the actual performance is not as per standards, the management has to
decide the type of corrective action.
All the deviations need not be reported to the management. Deviations which are
beyond the reasonable limits should be reported to the top management. This is
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termed as control by exception or management by exception. The causes for the

deviations are analyzed. The management has to take necessary corrective action
if the causes are non-controllable.
4. Taking corrective action:
Management has to find causes of deviations before taking corrective action. The
causes may be due to ineffective and inadequate communication, defective system
of wage payment, defective system of selection of personnel, lack of proper
training, lack of motivation, ineffective supervision etc. The management has to
tale corrective actions on the basis of nature of causes of deviations.
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12.5 Requirements of effective control system
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12.6 Techniques of control
1. Statistical control reports:

These types of reports are prepared in quantitative terms and used in large
organizations. Then the variations from standards can be easily measured. In this
way, control is exercised by the management. A periodical report of sales volume
is an example of statistical control reports.
2. Personal observation:
The manager personally observes the operations in the workplace. The manager
corrects the deviations in operations whenever the need arises. This is the oldest
method of control. Because of this, the employees work cautiously to get better
performance. This technique is disliked by honest and efficient employees.
3. Cost accounting and cost control:
Profit of any business depends upon the cost incurred to run the business. Profit is
maximized by reducing the cost of operation or production. So the business
concern gives much importance to the cost accounting and cost control.
Management uses a number of systems to determine the cost of products and
services. The procedures differ from one industry to another.
4. Breakeven analysis:
It is otherwise called as cost volume profit analysis. It analyses relationship among

cost of production, volume of production, volume of sales and profits.
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Total costs are divided into fixed costs and variable costs. Fixed cost never changes
according to the changes in volume of production. Variable cost varies according
to the volume of production. This analysis helps in determining the volume of
production or sales which is equal to the revenue. The excess of revenue over total
cost is termed as profit. The point at which sales revenue is equal to the total cost
is known as the breakeven point BEP. In other words, breakeven point is the point
at which there is no profit or no loss.
The breakeven point is calculated with the help of following formulae:

BEP = fixed cost/(selling price per unit - variable cost per unit)
The difference between is termed as contribution.
5. Special control reports:
Using this technique, a particular operation is investigated at a specified time for a
particular purpose. This is done according to the requirements of the
management but not on regular basis. The deviations from standards are paid
additional attention and corrective action is taken. Handling complaints of
damage is an example of this control technique.
6. Management audit:
It is an independent process. It aims at pointing out inefficiency in the
performance of management functions such as planning, organizing, staffing,
directing, controlling and suggesting possible improvements. It helps the
management to handle the operations in an effective manner. Management audit
is not a compulsory audit and not enforced by law.
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7. Standard costing:
• Determination of cost standards for various components such as material, labor
and overheads.
• Measurement of actual performance.
• Comparison of actual cost with standard cost to find variations.
• Finding the causes of variations
• Taking measures to avoid variations in future.
8. Return on investments:
Using this technique, the rate of profitability is identified by the management.
Return on investments is calculated by dividing the net profit by the total
investment or capital employed in the business organization.
9. Internal audit:
Internal audit report is prepared at regular intervals, normally every month. It
covers all areas of operations. This report is sent to the top management. The
management takes steps to control the performance on the basis of the report.
Internal audit report emphasizes the degree of deviations from the expectations. It
is very useful to attain the objectives on timely basis.
10. Responsibility accounting:
The performance of various people is judged by assessing how far they have
achieved pre-determined objectives. The objectives are framed section-wise,
department-wise, division-wise and assessed similarly. Costs are allocated
department-wise rather than product-wise. Each department, section or division is
fixed as responsible centers. An individual is responsible for his area of operation
in a particular section, department or division.
11. Managerial statistics:
Using this technique, the manager compares the past results with current results in
order to know the causes for deviations.
12. Performance evaluation and review technique- PERT:
The Program (or Project) Evaluation and Review Technique, commonly
abbreviated PERT, is a statistical tool, used in project management, that is
designed to analyze and represent the tasks involved in completing a given project.
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First developed by the United States Navy in the 1950s, it is commonly used in

conjunction with the critical path method (CPM).
This technique is used to solve the problem which crops up once a while and not
for problems which come up continuously. It is very useful in construction projects,
publication of books etc.
PERT network chart for a seven-month project with five milestones (10 through
50) and six activities (A through F).
13. Critical path method:

The critical path method (CPM) is an algorithm for scheduling a set of project
activities. It is an important tool for effective project management. CPM is
commonly used with all forms of projects, including construction, aerospace and
defense, software development, research projects, product development,
engineering, and plant maintenance, among others. Any project with
interdependent activities can apply this method of mathematical analysis.
Although the original CPM program and approach is no longer used, the term is
generally applied to any approach used to analyze a project network logic
diagram.
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14. Gantt milestone chart:
15. Production control:

It involves planning of production, determination of stock levels of raw materials,
finished goods, selection of processes, selection of tools in production etc.
Production control is the process of planning in advance of operations,
establishing the exact route of each individual item, part of assembly, setting,
starting and finishing dates for each component, assembly and finished product
and releasing the necessary orders as well as initiating the required follow up to
ensure smooth functioning of the enterprise.
16. Management information system:
Relevant information is collected and transferred to all the persons who are
responsible to take decisions. A communication system is developed through which
all levels of persons are informed about the growth of the organization. Whenever
the deviation is found, the corrective and control action is taken by the responsible
person. The management information system emphasizes the need for adequate
information in time for taking the best decisions.
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17. External audit control (statutory audit control):

External audit is a must for all the joint stock companies under the purview of
statutory control. The external auditor certifies that all the books of accounts are
kept as per the requirements of law and supplies all the necessary information for
the purpose of audit and the balance sheet presents the true and fair view. The
external audit is conducted by the qualified auditor. The qualifications of such
type of auditor are fixed by the central government.
18. Zero-base budgeting:
This is a new technique and has become popular within a short period. It is
prepared without considering the previous year’s figures. This technique requires
the recalculation of all organizational activities to ascertain which should be
eliminated, reduced or increased. In other words, the funds are estimated at
current requirements. It means finding out how much amount is necessary to
complete an ongoing project.
19. Standing orders:
These cover rules and regulations, discipline, procedures etc. e.g. no employee
should leave the office before office time without getting prior permission in
writing.
20. Budgetary control:
The preparation of budget is also one of the control techniques followed by
management.
12.7 PERT/CPM
Program evaluation and review technique –PERT- is the name given to a

networking approach to planning, monitoring, controlling and evaluation of
complex projects. It consists of a network diagram which is a two dimensional
schematic of the relationships between tasks in a project. PERT is used for non-
repetitive projects that have been done before and will not be done again in
precisely the same manner. PERT technique has been used for projects such as
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developing missiles, nuclear powered submarines and for the program that landed
the first man on moon. It is a planning tool which enables the project manager to
estimate the time required to complete a proposed project. It also provides a time
schedule for various project activities and for checking of the scheduled time
against the actual time taken for an activity. PERT helps to design a management
control system for activities that are subject to a considerable degree of
uncertainty in performance time. It is based on a statistical treatment of activity
performance time.
PERT also minimizes delays in various parts of the overall job and helps in
expediting the completion of the projects. It is a method of budgeting the
resources to predetermine the job on schedule. Above all, PERT is an outstanding
approach for the timely completion of projects.
With PERT, the projects can be better planned and controlled for cost when
they are broken down into their components. PERT tells how to set up network,
how to calculate completion time and how to monitor and control work.
Critical Path Method-CPM-refers to a quantitative technique which when
applied to network planning is helpful in calculating the minimum time and the
sequence of tasks needed to complete a project. This technique is mostly used for
construction projects such as bridges, building, dam, canals etc. where engineers
and contractors try to complete the job at the earliest to avoid rising costs. In CPM
technique, the precedence, the relationships between activities and their mutual
dependence are suggested leading to the final objective of reducing the cost and
completion time of the project.
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CPM structure analysis:

List of activities Table 1
Duration
i j Task Areas Description of Activity
in Days
1 2 Design Department Design parts for sub assembly A & B 25
2 3 Purchase Department Procure materials for sub assembly A 30
2 4 Purchase Department Procure materials for sub assembly B 10
3 5 Fabrication Shop Fabricate parts for sub assembly A 20
4 6 Fabrication Shop Fabricate parts for sub assembly B 40
5 7 Assembly Line Sub assembly A 40
6 7 Assembly Line Sub assembly B 5
7 8 Assembly Line Final assembly 6
Drafting of the network
1. Which activities must be ended directly before the new one begins?
2. Which activities can only begin directly afterwards?
3. Which activities can take place autonomously and simultaneously?
4. Can this activity be sub-divided into others?
In the structure analysis, no time factors are considered but only sequence and
interrelation of activities.
Figure 1
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The procedure is as follows:

The initial start event is numbered 1 and all the arrows beginning with this event
are crossed. Put the next higher numbers for particular events where only crossed
arrows end. All arrows beginning at the newly numbered events are then crossed.
This procedure is repeated in the same way until all the events are numbered.
CPM Time analysis:

• D=duration of activity
• ESA=earliest possible starting time of the activity
• LSA=latest permitted starting time of the activity
• EEA=earliest possible ending time of the activity
• LEA=latest permitted ending time of the activity Figure 2
• EE=earliest possible time of the event
• LE=Latest possible time of the event
• TF=total float of the activity
• FF=free float of the activity
• IF=independent float of the activity
With reference to table 1, the CPM network is worked out as follows:

Figure 3
If in respect of any activity, the earliest and latest times of occurrence are identical
both at start and the finish of the activity, then the activity lies on the critical path.
So, 1-2-3-5-7-8 is the critical path.
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Advantages of PERT / CPM

1. Ensures planning:
A manager is compelled to prepare a plan under PERT. He is supposed to find out
all the key events and activities. Besides, the manager is supposed to identify the
sequencing of events and activities and their interrelationships. Managers have to
compute the most likely time by considering all possibilities, uncertainties and
pitfalls.
2. Identification of favorable factors:
Computation of most likely time eliminates surprises and wastages. This helps the
management to find the favorable factors which are responsible for successful
completion of the project in advance.
3. Saving of cost and time:
CPM focuses on events which require maximum attention. It leads to saving of
cost as well as time.
4. Taking preventive or corrective action:
PERT/CPM disclose the bottlenecks and potential trouble spots well in advance.
So it is possible to take preventive or corrective actions.
5. Attention on critical activities:
It is possible to speed up critical activities.
6. Everything at right:
It emphasizes right action at right time.
7. Making awareness of responsibilities:
It makes every manager fully aware of his responsibilities.
8. Securing cooperation:
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It helps to get cooperation of all department when PERT/CPM is constantly

reviewed.
9. Facilitates decision making:
Management can analyze the effects of various alternate decisions instead of
conducting expensive operations.
10. Improved communication:
Each critical path and sub-critical paths are graphically represented. Each
employee can understand his role in the proposed project from the graphic
representation. It results in Improved communication.
11. Simultaneous performance of work:
It ensures simultaneous performance different parts of the work. The whole
project is divided into various different parts of work. Each work is performed by
different persons separately.
12. Advance control action:
PERT/CPM discloses how a delay in one activity affects all the succeeding
activities. It helps the management to take a control action well in advance.
13. Timely completion of a project:
The management can get an opportunity to shift its attention to any critical task
so that the entire project is completed in time.
12.8 Characteristics of control
1. Controlling process:
It is a continuous process just like other functions of management. The superior
has continuous watch over the entire operations. Besides, he ensures that all the
efforts are made to achieve the desired objectives and if not, necessary control
action will be taken to correct them.
2. Universal:
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Control is applied at all levels of management and irrespective of the

organization. The manager of the business and non business concern uses control
to regulate the ongoing activities to obtain desired goals.
3. Forward looking:
Past cannot be controlled but future activities can be controlled on the basis of
past experience. The presence of control reduces wastages, losses and deviation
from standards.
4. Dynamic process:
The control technique is changed according to the nature of deviations. Same
technique is not followed throughout the year. The control results in changes in
the performances of other functions of management.
5. Control involves management:
Control recommends the future course of action on the basis of evaluation and
measurement.
6. Influencing factor:
The behavior of the responsible person is influenced by the control process for the
effective performance of the activities. Control avoids the undesirable happenings
and shapes the future plan. Control influences the people to conform to the norms
and standards in performance.
7. An essence of action:
The corrective action should be taken by the management on the basis of
information available. If it does not do so, the purpose of control will not be
achieved. The coorective action will be taken if there is any deviation from the
standards.
12.9 Budgetary control system
Introduction: Budgets
• A plan expressed in monetary terms, prepared and approved prior to the budget
period and which shows income expenditure and the capital employed. It may be
drawn showing incremental effects on former budgeted figures or complied by
zero budgeting.
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• Budgets are therefore not prepared in isolation and then filed away but are
concrete components of what is known as a budgetary control system. Such a
system essentially ensures communication, coordination and control within an
organization. The basic functions of management are allocation of resources,
planning and control.
Budgetary control:
• This is the establishment of a budget relating the responsibilities of executive
management to the requirement of a policy and continuous comparison of actual
and budgeted results.
• Control should ensure that actions are accordance with the objective of the
policy in question. Also provides a basis for its revision.
Elements of budgetary control:
• Setting up budgets i.e. planned targets on revenue, expenses, assets and liabilities
relating to the activities concerned.
• Measuring actual results against the budgets on a continuous basis
• Identifying and analyzing deviations from budgets and modifying both actual
operations and subsequent budgets.
Main aims of budgetary control:
• To establish the degree of progress to the achievement of short term plans
• To allow delegation to occur without losing overall control
• To provide a measure for allowing flexibility in operations
• To establish short term plans and aid the organization’s planning process
Purpose of a budget:
• Co-ordination- Important for the achievement of organization goals.
• Coordinate inputs and outputs in order to ensure balance of efforts and effects.
• Coordinate budget lines within the organization to ensure effective
implementation of plans and monitoring of results.
• Coordinate responses to economic trends and challenges posed by the
environment within which programs and activities are undertaken.
• Communication: The budget is used to communicate plans and to control
information. Once formulated the aspects of the plan having a bearing on a
particular division of the organization are communicated to that division.
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• Motivation: The budget seeks to motivate managers to achieve objectives and

thereby establish control within the organization.
• Performance Evaluation: a budget is used to evaluate the capability of
managers to achieve targets.
• Good performance is associated with achieving better performance targets set on
costs of operations and benefits to the organization.
• Authorization: The budget is used to authorize expenditure or to pursue
certain initiatives once a budget is approved:
• It becomes a permission to spend.
• Acceptance that either a project or activities should commence.
Preparation of a budget:
• Identify objectives
• Gather data about alternatives
• Select alternative courses of action
• Discuss the plans/activities and allocate the budget.
• Establish monitoring mechanisms.
• Respond to problems encountered in the previous budget.
Data for budget process:
Internal information
• Production and operational information
• Financial information
• Research and development information
• Personnel information
• Sources of internal information-expected outputs - performance targets, control
and monitoring and evaluation mechanisms
External information
• Market and competitors
• Economic conditions
• Industrial structure
• Political factors
• Technological change
• Demographic trends and social factors
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• Government statistics, commercial data, banks.

• Media coverage, business trips, conferences.
BUDGET COMMITTEE - FUNCTIONS
• Co-ordinate the preparation of budgets which includes the issue of the budget
manual
• Issue timetables for the preparation of functional budgets
• Allocate responsibilities for the preparation of functional budgets
• Provide information to assist in the preparation of budgets
• Communicate final budgets to the appropriate managers
• Compare actual results with budget and the investigate variances
• Continuously assess the budgeting and planning processes, in order to improve
the planning and control functions.
CONTENTS OF BUDGET MANUAL
• Foreword
• The purpose of budgetary planning and control
• The objectives of various stages of the budgetary process
• The importance of budgets in the long term planning and administration of the
enterprise
• Organizational structures and responsibilities including: an organizational chart
and a list of individual holding budget responsibilities.
• Principal budgets and relationships between them: explanation of key budgets
and outline of main budgets and their accounting relationship
• Administrative details of the budget preparation: membership and terms of
reference of the budget committee, the sequence in which budgets are to be
prepared and a time-table.
• Accounting procedures: name and terms of reference of the budget officer,
sample/specimen forms and instruction for completing them, specimen reports
and account codes.
• Timetable for accounting procedures: production of reports and closing dates.
Advantages of budgetary control:
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1. Tool for planning the activities:

Budgets are prepared department-wise or section-wise. Then the managers will
know their activities and will have plans for future course of actions.
2. Thinking in advance:
A budget is prepared normally for a year in advance. The top management people
can develop forward looking strategies and thinking with the help of budgets.
They think in advance as to how to market the product, how to solve production
problems, financial difficulties etc.
3. Coordination of efforts:
Policies and objectives provide a basis for the preparation of budget. Personnel of
all the departments are well aware of link of the policy with the budget. Hence,
the management can easily coordinate the efforts of various departments.
4. Control of expenditure:
Unnecessary expenditure is avoided because they are clearly fixed in the budget.
5. Solving financial difficulties:
The budget forecasts the probable cash receipts and expenses. Temporary
financial accommodation is arranged with the financial institutions or with banks.
In this way, financial difficulties are solved.
6. Delegation of authority and responsibility:
There is an automatic sanction of work whenever the budget is prepared. There is
no need of getting permission from the top management again. Delegation of
authority and responsibility becomes easier.
7. Better utilization of resources:
The term resources include money and materials. Adequate amount is allocated to
buy the raw materials, make salary payment, purchase fixed assets etc. economic
order quantity principle is followed in buying the raw materials. Proper control is
exercised over the usage of raw materials in the production place.
8. Promotion of efficiency:
Production per hour, per day and per man is fixed with the budgetary control
technique. It encourages the employees to increase their efficiency.
9. Achievement of goals:
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Under budgetary control system, each person can know what he is expected to do.
This offers an opportunity for the management to achieve the goals.
10. Criteria of self examination:
Budgetary control system points out the deviations and causes of such deviations.
These are very well known to the employees. In this way, budgetary control acts as
criteria of self examination.
11. Promotes balanced activities:
A department activity is correlated with another department activity. Results of
one department are the basis of functioning of other department. Balanced
activities of different departments are possible under the budgetary control
system. E.g. activities of the purchase department are based on those of
production department.
12. Improvements:
It discovers the areas of operation where improvements can be suggested.
13. Ensures proper communication:
Management’s policy and objectives of preparing the budget are communicated
to all the managers. The managers are supposed to send the report of actual
performance against the budget. The managers are informed of the type of action
to be taken to correct deviations. Thus, budgetary control ensures proper
communication.
14. Fixation of responsibility:
Responsibility of deviations can be fixed easily. E.g. Sales budget fixes the
responsibility of sales department.
15. Encourages exchange of information:
Functional budgets are prepared by the enterprise. It requires free flow of
information from one department to another department. E.g. Purchase budget
cannot be prepared unless production figures are available.
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Activity A
Make a budget of your own life for the coming year.
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Activity B
Consider that there is marriage of your elder brother and you have the
responsibility for the event to make successful. Make a PERT/CPM of all the
activities.
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12.11 Summary
• Planning identifies the activities and controlling regulates them. Effectiveness of

planning depends upon effectiveness of controlling.
• Control is applicable almost in all goal oriented activities that aim for success.
Policies of the organization, manpower needs, capital expenditure, production,
wages and salaries are the examples where control is required.
• In short, any activity that is goal-centric, control is required.
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1. Discuss the requirements of effective control.

2. What is budget and why is budgetary control necessary?
3. Explain PERT/CPM.
1. Control is applicable almost in all ----------oriented activities that aim for

success.
a. Profit
b. Goal
c. People
d. Distribution
2. Management has to find causes of deviations before taking ---------------.

a. Payment
b. Corrective action
c. Preventive action
d. Decision
3. The performance of various people is judged by assessing how far they have
achieved pre-determined objectives.
a. Cost accounting
b. Responsibility accounting
c. Stock taking
d. Financial accounting
4. It is otherwise called as cost volume profit analysis.

a. Value analysis
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b. Break even analysis

c. Cost analysis
d. Forecasting
5. A name given to a networking approach to planning, monitoring, controlling

and evaluation of complex projects.
a. PERT
b. CPM
c. JIT
d. FMEA
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Reference Material
Summary
PPT
MCQ
Video1
Video2
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C H A P T E R 13 - D E L E G A T I O N , S P A N O F M A N A G E M E N T
Objectives
At the end of the chapter, you will be able to:
1. Have knowledge about authority, delegation, decentralization, responsibility.
2. Span of management and related aspects
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Chapter 13 - Delegation, Span of Management
Structure
13.1 Authority
13.2 Delegation
13.3 Decentralization
13.4 Responsibility
13.5 Span of management
13.6 Case example
13.8 Summary
13.9 Self-assessment Questions
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13.1 Authority
Authority is the power to make decisions, which guide the action of others.
Delegation of authority contributes to the creation of an organization. No single
person is in a position to discharge all the duties in an organization. In order to
finish the work in time, there is a need to delegate authority and follow the
principles of division of labor. Delegation permits a person to extend his influence
beyond the limits of his own personal time, energy and knowledge.
It is the “right of decision and command.”
Definitions:
Henry Fayol, “Authority is the right to give orders and the power to exact
obedience.”
Kootnz and O’Donnell, “Authority is the power to command others to act or not
to act, in a manner deemed by the possessor of the authority to further enterprises
or departmental purposes.”
Terry, “Authority is the power to exact others to take actions considered
appropriate for the achievement of a predetermined objective.”
According to Barnard, “Authority is the character of a communication (order) in a
formal organization by virtue of which it is accepted by a contributor to or
member of the organization as governing the action he contributes; that is, as
governing or determining what he does or is not to do so far as the organization is
concerned.”
Daris defines authority as the “right of decision and command.”
Louis Allen, “The sum of the powers and rights entrusted to make possible the
performance of the work delegated.”
Simon, “The power to make decisions which guide the actions of another. It is a
relationship between the individuals – one superior, the other subordinate. The
superior frames and transmits decisions with expectation that they will be accepted
by the subordinates. The subordinate expects such decisions and his conduct is
determined by them.”
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Dr. Paterson defines, “The right to command and expect and enforce obedience.”
Strong says, “Authority is the right to command.”
Massie defines, “The formal right to exercise control.”
Tannenbaum defines, “The concept authority describes an interpersonal
relationship in which one individual, the subordinate, accepts a decision made by
another individual, the superior, permitting that decision directly to affect his
behavior.”
Characteristics of Authority
The characteristics of authority are briefly explained below.
1. Basis of getting things done-the right to take actions towards completion
Authority gives a right to do things in an organization and affect the behavior of
other workers of the organization. It leads to the performance of certain activities
for the accomplishment of the defined objectives automatically.
2. Legitimacy-positional authority
Authority implies a legal right (within the organization itself) available to superiors.
This type of right arises due to the tradition followed in an organization, custom
or accepted standards of authenticity.
The right of a manager to affect the behavior of his sub-ordinates is given to him
on the basis of an organizational hierarchy.
3. Decision – making-the freedom and right to make choices of action
Decision-making is a pre-requisite of an authority. The manager can command
his subordinates to act or not to act. This type of decision is taken by the manager
regarding the functioning of an office.
4. Implementation-as a consequence of the position held
Implementation influences the personality factors of the manager, who is
empowered to use authority. The subordinates or group of subordinates should
follow the instructions of the manager regarding the implementation of decisions.
The personality factor of one manager may differ from another manager.
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Power → Authority → Responsibility → Accountability

Sources of Authority
There are broadly three theories regarding the sources from which authority
originates. They are :
1. The formal authority theory.
2. The acceptance of authority theory.
3. The competence theory.
Brief explanations of the above three theories are given below :

1. The formal authority theory
According to his theory, the authority flows top to bottom through the structure of
an organization. In other words, the authority flows from the General Manager to
his departmental manager and in turn, from the departmental manager to his
superintendent and the like. This is explained in the following diagram.
Board of Directors
General Manager
Sales Manager
Sales Representatives
Workers
The Formal Authority Theory is otherwise called Traditional Authority Theory

and Top Down Authority Theory.
In the case of a public limited company, the authority is in the hands of
shareholders and they delegate their authority to top management, and in turn, a
part of this authority is delegated to the middle management.
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2. The acceptance of authority theory

Chester Bannard gave this theory. According to his theory, the authority flows
from the superior to the subordinates whenever there is an acceptance on the part
of the subordinates. The subordinates should accept the authority but there is no
compulsion made by the superior. If the sub-ordinates do not accept the
command of their superior, then the superior cannot be said to have any authority
over them.
According to Bannard,
“An individual will accept the exercise of authority, if the advantages accruing to
him from accepting plus the disadvantages accruing to him from not accepting
exceed the advantages accruing to him from not accepting plus the disadvantages
accruing to him for accepting and conversely, he will not accept the exercise of
authority if the latter factors exceed the former”.
The authority of a superior will be effective only when there is willingness on the
part of the subordinate to accept authority and ineffective when there is lack of
readiness to accept the authority on the part of the subordinate. The subordinate
will not analyze every order of the superior to accept it or not. In fact, the
subordinate without a second thought accepts certain orders of the superior. If the
subordinate without any hesitation accepts the order of the superior, it is known as
zone of acceptance.
A number of factors will determine zone of acceptance.
1. The subordinate believes that rewards will be given to him in appreciation of
his efforts and skills.
2. Sincere services of subordinate to the organization will be rewarded.
3. A subordinate thinks that he has to accept the authority in a particular
situation.
4. The non-acceptance of authority will result in dismissal of the subordinate
from organization.
5. It is also accepted on account of special knowledge that a man may possess.
6. There is no other way available than to accept authority.
7. It is the duty of the subordinate or it may be the policy of the organization to
impose the authority.
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8. It is the duty of the subordinate or it may be the policy of the organization to

impose the authority.
9. People have confidence in the person giving orders.
3. Competence theory
This type of authority is invested with the persons by virtue of the office held by
them. The personal power of this type of persons is based on the leadership
qualities of the person concerned. In an organization, only one person gets a
higher position than others in course of time based on leadership qualities
possessed by him.
13.2 Delegation
It is impossible for any person to execute all the work in an organization to achieve
the objectives of the organization. Similarly, in a growing concern also, a single
person cannot be vested with the entire decision making authority. So, the superior
assigns duties or responsibilities to his subordinates and also delegates necessary
authority to them.
Meaning
Delegation is a process, which enables a person to assign a work to others and
delegate them with adequate authority to do it.
Definitions
Louis A. Allen, “Delegation is the dynamic process of management, which a
manager follows, to divide the work assigned to him, so that he performs that part
of work which only he can perform effectively, because of his unique
organizational placement, and that he can get others to help him with what
remains.”
Mc Farland, “Delegation is the primary formal mechanism by which the network
of authority relationship is established.”
E. F.L. Brech, “Delegation means, in brief, the passing to others to share in the
four elements of the management process that is to say, in the command of the
activities of other people and in the responsibility for the decision that will
determine the planning, co-ordination and control of the activities of such other
people.”
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Terry, “Delegation means conferring the authority from the executive or

organizational unit to another in order to accomplish particular assignments.”
Hodge and Johnson, “A process whereby a superior decides his total work
assignment between himself and subordinate managers or operative personal in
order to achieve other operative and management specialization.”
Douglas C. Nasal, “Delegation consists of granting authority or the right to
decision-making in certain defined areas and charging the subordinate with
responsibility for carrying through an assigned task.”
Importance of delegation
Delegation is considered as one of the most important methods of training
subordinates and building morals. The delegation of authority helps the manager
to concentrate on the important work of planning, organizing and controlling.
Delegation is a universal process, wherever human beings work in groups, one or
the other form of delegation is practiced by them. In our democratic country, the
people delegate their authority to the members of the legislatures. The members
of legislators delegate their authority to any of the elected leaders who in turn
delegates some of his authority to the cabinet ministers chosen by him.
An individual can accomplish several simple and complex works. Delegation
enables a person not only to discharge his responsibility but also to discharge it
effectively and economically. To a business unit, which has different branches
situated at different places, there is no alternative except delegation. It is
acknowledged that delegation of authority is one of the surest and the best
methods of getting better results. A very good superior can use the delegation of
authority as a tool for motivating and eliminating cumbersome information
systems.
Elements of delegation
The following are the three elements of delegation:
1. Assignment of duties or responsibilities
This work is being done only at the time, when a superior has no time to
accomplish all the work. The superior automatically assigns the work of
responsibility to his immediate subordinate.
2. Delegation of Authority
If the work is assigned to any subordinate, there will be a need for authority to
accomplish it.
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After the delegation of authority, the subordinate can get powers to accomplish
the tasks in a specified time and in order.
3. Accountability
Accountability means that the subordinate is answerable to his immediate senior.
If there is any mistake or fault committed by the subordinate, the subordinate
should accept responsibility for it. In certain cases, the assignment may be made to
the subordinate, and if the work is not accomplished as per the instructions issued
by the superior, the superior (one who delegates authority) is answerable to the
management but not the subordinate (to whom authority is delegated)
Principles of delegation
1. Delegation to go by results expected
It should be noted that the objectives of the organization are to be accomplished
in time. The superior should clearly know what he expects from the subordinate
before the delegation of authority.
2. Non – delegation of Responsibility
A superior can delegate authority but not responsibility. Assigning duties does not
mean delegation of responsibility. The superior should be in touch with the
subordinates to know whether duties are performed and the authority is exercised
properly. The ultimate responsibility for the performance of duties remains with
the superior.
3. Authority and responsibility should commensurate with each other
A subordinate can discharge his duties effectively and efficiently if there is proper
delegation of authority, otherwise a subordinate cannot succeed in accomplishing
the assigned tasks.
Authority without responsibility will make the subordinate a careless person.
Likewise, responsibility without authority will make the subordinate an inefficient
person. Therefore, there should be a proper balance between authority and
responsibility.
4. Unity of command
The principle of unity of command insists that a subordinate should get
instruction form only one superior. In other words, a subordinate should be
assigned duties and responsibilities by only one superior and he is accountable
only to the concerned superior.
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If a subordinate gets orders, instructions and directions from more than one
superior, it will create uncertainty and confusion in the organization. In such a
situation, the subordinate will find it very difficult to determine whose instructions,
orders or directions he should carry out first.
5. Definition of limitations of authority
A person knows well that an authority alone can delegate the authority properly.
There should be written manuals which help a person to understand the authority
in right direction. This will avoid confusion regarding the delegation of authority
and enable effective functioning of the concerned person.
Types of delegation
A brief explanation of the different types of delegation is given below:
1. General
2. Specific
3. Written
4. Unwritten
5. Formal
6. Informal
7. Downward
8. Accrued
9. Sideward
1. General Delegation
General delegation means granting authority to the subordinate to perform
various managerial functions and exercise control over his subordinates. At the
same time, the same persons are regulated and supervised by the top
management.
2. Specific Delegation
Under specific delegation, the orders, instructions or directions are delegated to a
particular person specifically. For example, the Personnel manager may be
delegated authority for selection of personnel, training of personnel, placement of
personnel and the like.
3. Written Delegation
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This types of delegation is made by written orders, instructions etc. The proper
usage of words is essential to this type of delegation.
4. Unwritten Delegation
Unwritten delegation means the authority is delegated based on custom,
conversation or usage. Here, there is no evidence available for future reference.
5. Formal delegation
The duties and authority are shown in the organizational structure of the
enterprise. For example, the production manager is assigned the responsibility and
accompanying authority to maintain and increase production.
6. Informal delegation
In certain cases, a person has to use the authority without getting it from the top
management. The reason is that he can perform his assigned duties effectively in
time.
7. Downward delegation
Downward delegation states when a superior could delegate duties and authority
to his immediate subordinate. This type of delegation is followed in most of the
organizations.
8. Accrued delegation
Under this type of delegation, a subordinate can delegate his authority to his
immediate superiors. It occurs seldom in an organization.
9. Sideward delegation
A person delegates authority to another person who is also in the same rank as he
is in the organization.
Advantages of delegation
The delegation of authority gives several advantages to the organization. The
important advantages of delegation of authority are given below:
1. Basis of effective functioning
Delegation lays the basis for effective functioning of an organization. It creates the
relationship with others and achieves various objectives of the organization. It
creates the relationship with others and achieves various objectives of the
organization.
2. Saving of time
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Delegation of authority enables the superior to allot more time to important

matters like planning, organizing, staffing, directing, co-coordinating, controlling
and decision-making.
3. Reduction of work
Delegation relieves the superior from attending to the routine matters. Normally,
the routine matters are allocated to subordinates. It helps the superior to carry out
work that is more responsible alone.
4. Opportunity for development
Delegation of authority gives a very good opportunity to the subordinate to grow.
It helps in identifying the best person among the various subordinates for
development.
5. Benefit of specialized service
Delegation helps the superior to get the benefit of specialized knowledge of
various persons at lower levels. For example, production is delegated to the
production manager, sales to the sales manager, legal matters to the lawyer and the
like.
6. Delegation of authority enables effective managerial supervision
7. Efficient running of branches
If the business has any branch, the branch affairs or activities are looked after by a
separate person. He is supposed to be in charge of this branch. When he can get
adequate authority with responsibility he could work for the smooth and effective
functioning of the particular branch.
8. Interest and initiative
Whenever the delegation of authority takes place, the subordinate may do the
work with interest. In certain cases, the subordinate by himself takes initiative do
the work properly.
9. Satisfaction to subordinates
Delegation of authority will satisfy the self-actualization needs of the individuals.
10. Expansion and diversification of business activity
The subordinates are fully trained in decision making in various fields of the
business by using the delegation of authority. This type of talents of subordinates
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can be used by the top management in the expansion and diversification of the
business activities.
Problems of delegation
Every superior is expected to delegate part of his duties and responsibility to his
subordinates. A single person cannot perform all the work. Therefore, delegation
is a very important characteristic of the organization.
The proper delegation of authority is made only at the time of a proper balance
between feelings of the superior and subordinates.
Hesitation on the part of superior
The following are the reasons for the lack of willingness on the part of the
superior to delegate authority:
1. Perfectionism
Many superiors think that he is better than others. This is true to some extent.
The reason is that the superior may have had experience in doing and developed a
degree of skill. If such a practice is followed by a superior, he is not a loyal
employee of the organization. He should open the door to the subordinate to
develop his abilities by delegating authority.
2. Autocratic attitude
Some superiors prefer to retain powers in their hands. These persons do not have
belief in the delegation of authority and they interfere with the limited authority
of their subordinates.
3. Directions
Many superiors lack the ability to direct the subordinates. Subordinates may
misinterpret the instructions, which the superior gives. Then, the superiors cannot
get the expected efficiency from the subordinate.
4. Confidence
Superiors also tend to show lack of confidence in subordinates. In the society, one
cannot he live without reposing in the ability of others. Therefore, each superior is
expected to delegate his powers to his sub-ordinates. If the delegation is not made,
the superior has no chance to gain experience from delegation of authority.
Confidence is developed gradually on the basis of success of the delegation of
authority.
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5. Control
The superior has control over his subordinates. He wants to retain the control over
his subordinates and keep up the importance of his role. Hence, he hesitates to
delegate his authority. Besides, the superior feels that he might be dominated if he
delegates his authority.
6. Avoidance of risk
Risk may arise through the delegation of authority to a subordinate. Whatever
may be the risk, the superior will have to take the responsibility for it. Only few
managers are ready to run the risk.
7. Competition
Subordinates learn much more than the superior by taking advantage of
delegation of authority. This results in the emergence of more talented persons
than the superior. This is not liked by the superior and he avoids competition in
future.
8. Inability of the subordinate
The subordinate does not have ability to accept any new work. The superior, who
knows this fact, hesitates to delegate powers.
9. Inability of the superior
If the superior is an inefficient person, the work method and procedures designed
by him are likely to be faulty. Therefore, the superior wants to keep all the
authority with himself.
Hesitation on the part of subordinates
Sometimes, the subordinates are not willing to accept delegation even though the
superiors are very much interested in delegation. The reasons for not accepting
the authority by the subordinates are given below:
1. Love of spoon-feeding
Though a subordinate is given a chance to take a decision, he may not like to
decide things by himself.
2. Easier to ask
Subordinates often find it easy to ask their superiors for an answer than to find it
out for themselves. Some superiors will accept only one solution to a problem and
allow the subordinates to find out other solutions by themselves. In such a
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situation, a subordinate does the work effectively and approaches his superior for
an answer.
3. Fear of criticism
Sometimes, a subordinate may fear that even for a silly mistake in a decision, his
superior may criticize him. This suppresses the initiatives of the subordinate and
proves detrimental to his self-confidence.
4. Lack of information (or) resource
A subordinate may hesitate to accept new work due to lack of information or
resources to do the work effectively.
5. Lack of self-confidence
Lack of self-confidence in a subordinate is also one of the reasons for not
accepting any authority,
6. Other work
Subordinates may feel that they will not be able to finish any additional work
along with the existing work. Subordinates think that if they accept authority, they
may be forced to accept more work in the future.
7. Inadequate incentives
A subordinate may not come forward to accept any authority if there is no
personal gain in doing so.
8. Fear of failure
Some subordinates feel that they may fail and so they do not want to accept
additional responsibilities.
Effective delegation
The superior has the aim to practice and encourage delegation for the efficient
accomplishment of the organizational objectives. Hence, it is necessary that the
nature and content of each job should be scientifically analyzed to pinpoint the
job that can be entrusted to subordinates.
Normally, minor and routine types of jobs are entrusted to the subordinates. The
superior is not ready to perform even the ordinary routine jobs but at the same
time, there are certain jobs which cannot be entrusted; for example, the
preparation of budget, formulation of policies and framing rules and regulations.
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Steps involved in successful delegation

The following steps will aid more successful delegation of authority:
1. Establishment of definite goals
The purpose of delegation is to enable efficient accomplishment of organizational
objectives. However, delegation will be meaningless if the objectives are not
properly defined. Subordinates may hesitate to accept the authority, if they do not
know exactly what is expected of them.
2. Developing personal discipline for supervision
Superior should have faith in the ability of his subordinates and tolerate the
mistakes committed by them. Then, every subordinate will be ready to accept the
authority for efficient performance.
3. Establishment of definite responsibility
The authority and responsibility of each subordinate should be in clear terms.
This will avoid the duplication of delegation.
4. Motivation
Subordinates are ready to accept the responsibility if proper motivation is
available to them. Motivation may be by means of increased wages and the like.
5. Determining what to delegate
This will necessitate the appraisal of the capacity of the people and needs of the
jobs. Only authority appropriate to be delegated will be considered.
6. Training
Subordinates should be properly trained in handling delegated work. Technical
and non-technical training should be given to the subordinates. The non-technical
training includes the development of the morale, self-confidence and leadership
qualities of the subordinates.
7. Report
After delegation of any authority, the subordinate is expected to submit a report
on them. Only in this way, the superior will be freed from authority jobs to
concentrate on other important functions.
8. Control
The superior is held responsible to the top management even after the delegation
of authority. Therefore, it is necessary to establish a suitable control system to keep
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a careful watch over the performance of subordinates. If the superior finds a

deviation from the predetermined procedures, he should take corrective action in
time.
Pre-requisites for effective delegation of Authority
A supervisor can delegate his authority after acquiring knowledge of the following
pre-requisites of effective delegation:
1. The supervisor must understand the authority and responsibility of their own.
2. The supervisors must decide the portion of his authority that he wants to
delegate to subordinates.
3. The supervisor should have thorough knowledge of the abilities and inabilities
of subordinates.
4. The supervisor must ensure that the subordinates have understood the
delegated work in the right direction.
5. The supervisor should delegate only the routine functions to subordinates.
6. The supervisor must understand the need, importance and value of delegation.
7. The supervisor should delegate the work, which can be performed
independently.
8. The supervisor must dissuade the subordinate from being tempted to take
decision by them.
9. The supervisor must release the decision making powers to his subordinates.
10. There should be adequate communication network within the organization.
11. There should be a clear definition of standard of accountability.
12. Delegation must be done in accordance with the overall plan for the
completion of the work.
13. The delegation of authority should be confined to the organizational structure.
Common faults in delegation
1. Close supervision
The supervisor has to supervise his subordinates even after delegation of authority.
The advantages of delegation of authority will not be available to the
organization if there is no close supervision and if the subordinates are not made
to act independently.
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2. Lack of direction
The supervisor fails to provide adequate direction to his subordinates. It places the
subordinates in a position in which they do not know what is expected of them.
3. Lack of accountability
A supervisor cannot check the efficient use of delegated work. This is a great
handicap to the superior. As a result of this, a sense of irresponsibility infuses the
subordinates.
13.3 Decentralization
Decentralization means that each section has its own workers to perform activities
within the department. There will be no general office to provide these services.
Under decentralization, separate staff are allocated to each department for
performing those activities which cannot be centralized.
Advantages of decentralization
A brief explanation of the advantages of decentralization is presented below:
1. Savings of time
All paper work relating to the basic operations of the business originates from the
departmental officers. Decentralization enables the department staff members to
complete the work early.
2. Greater efficiency and output
The workers of a particular department are well versed in the technology followed
in that department. Hence, there is a possibility of increasing their efficiency. The
greater efficiency leads to increase in output and minimizing the costs.
3. Maintenance of secrecy
If the secrecy of the business is disclosed, it may make the organization realize a
loss. Next, if a separate department is put in charge of the maintenance of secrecy
under decentralization, the loss may be avoided and secrecy maintained.
4. Departmental loyalty
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The staff attached to a particular department for a number of years develops a

sense of loyalty to the department. It results in the increase of output and
improvement of the performance of the individual.
Disadvantages of decentralization
The disadvantages of decentralization are explained below:
1. No proper division of work
The workload of the organization cannot be evenly divided to be given to each
department.
2. Duplication of work
If the same type of work is performed in more than one department i.e.,
duplication of work, separate machines and equipment are used to perform the
duplication of work.
3. No standardization
There is no possibility of adopting a standard procedure to perform the same type
of work in all departments. Besides, it brings about difficulties in selection and
training in each department.
4. Heavy expenditure
A large number of staff members and supervisors are required under this
department. It leads to increase in the cost of operation.
13.4 Responsibility
Responsibility always arises from the superior-subordinate relationship. The

essence of responsibilities is obligation. If a person is entrusted with any work, he
should be held responsible for the work that he completes.
Meaning:
Responsibility is the obligation to do something. In other words, responsibility is
the obligation to perform the tasks, functions or assignments of the organization.
Elements of responsibility:
• It arises from superior-subordinate relationship.
• It results from contractual agreement.
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• It cannot be transferred to anybody.

• It is created by acceptance of authority.
• There is an essence of obligation.
• It may be general or specific.
• It is a continuous process.
13.5 Span of Management
Meaning
Span of management means the number of people managed efficiently by a single
officer in an organization.
It implies that a single executive should not be expected to give guidance to more
people. Only limited number of persons are allocated to the executive for dividing
the work or duties among the workers. In order to avoid overburden to the
officers, it is essential to determine the span of control of the executive officers. In
an average firm, an executive can efficiently control up to five or six sub-ordinates.
The limit of the number of members for span of control may be increased or
decreased according to the levels of management. Normally, the members
exercising span of control are decreased at the top level management and
increased at the bottom level management.
Many management experts suggested a different number of executives for
effective control. According to L. Urwic, the ideal number of subordinates is four
in case of higher level management and eight to twelve in case of bottom level
management.
Factors affecting span of management
The following are some of the factors, which influence the span of management:
1. Character of the supervision work
The span of control may be increased whenever the work performed is
standardized. The reason is that, the supervisor has the opportunity to lay down
permanent policies followed in an organization. It results in the control of more
number of subordinates. If the nature of work is a complicated one, the span of
control has to be restricted.
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2. Leadership qualities
The personnel abilities and capacity of a supervisor can influence the span of
management. If the supervisor has more skill to control the sub-ordinates, the
span of management may be increased and vice-versa.
3. Qualities of the subordinate
If the subordinates have enough talent to perform the work assigned to them,
the manager or the supervisor can control more number of subordinates.
4. Time available to supervisor
Most of the executives or supervisors will spend a lot of time for the operating
work and administrative duties like planning and organizing activities. They may
supervise the subordinates into him remaining available time.
So, they can control lesser number of sub-ordinates than the person who
spends full time for their supervision.
5. Nature of work
Some of the works are repetitive in nature and does not require any extra-
ordinary talent to perform. In such cases, the supervisors or the executive can
control a large number of subordinates.
6. Level of supervision
Whenever the subordinates perform the work manually, the span of control
may be increased. It means that the degree of span of control can be increased
at bottom level management and decreased at the top level management.
7. Delegation of authority
If the authority delegates the powers of decision making, planning and
execution to the sub-ordinates, the span of control may be increased. Whenever
an executive performs the planning and executive work in addition to supervision
work, the particular executive can supervise relatively more number of sub-
ordinates.
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8. Fixation of responsibility
In case the responsibility of the sub-ordinate is clearly defined, he need not
contact the superior for getting guidance and instruction. Then the superior can
supervise large number of sub-ordinates.
9. Using of standards
Standards are used in an organization to detect the errors or faults in the
performance of work. So, there is no need for an executive to spend more time
in watching the performance of the sub-ordinates. Then the executive can
control more number of sub-ordinates.
10. Methods of communication
Method of communication is also one of the factors which determine the span
of control. The method of communication may be divided into two i.e., Oral and
Written. Oral communication requires more time and energy and these can be
avoided in the written communication.
Graicunas’ theory of Span of Management

A management expert named V.A. Graicunas contributed much to the Span
of Management Theory. His theory identified the relationship prevailing between
the superior and the subordinate. The relationships are classified into three
categories. They are given below:
1. Direct single relationships.
2. Direct group relationships.
3. Cross relationships.
The explanations of the above-mentioned three relationships are given
below:
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1. Direct single relationship

Direct Single Relationship is one in which a supervisor has direct
relationship with his subordinates individually. If A supervises B and C who are
subordinates, there are two direct single relationships. It is explained with the
help of the following chart.
2. Direct group relationships

In Direct Group Relationship, a supervisor has direct relationship with his
subordinates jointly. It is explained with the help of the following chart.
Here, A can consult B while C is present in a situation. In another situation,

A can consult C while B is present.
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3. Cross relationship
In Cross Relationship, a subordinate has relationship with another subordinates
mutually. It is explained with the help of the following chart.
Here, the relationship prevailing between B and C is Cross Relationship.

The number of direct and cross relationships increase geometrically as the
number of sub-ordinates under the supervisor increased.
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Formula
V.A. Graicunas prescribed the following formula to ascertain the number of
superiors' and subordinates' relationship.
Number of relationships = n * {(2n/2) +(n-1)}
Where, "n" refers to the number of subordinates.
For example, the number of subordinates, say 5, the number of superiors'
and subordinates' relationships are identified as under:
The number of relationships increases in geometrical progression as shown in the

following table.
Number of Subordinates Number of Relationships
1 1
2 6
3 18
4 44
5 100
6 222
7 490
8 1080
9 2376
10 5210
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The effective supervision depends upon the efficiency of the supervisor and the
number of subordinates to be supervised. It is clear from the above table that the
number of relationships is increased correspondingly with the increasing number
of subordinates. The effectiveness of supervision decreases if the number of
relationships or subordinates increases. Therefore, the management should fix the
number of subordinates to each supervisor according to nature of work. If the
management does so, it can result into effective supervision.
13.6 Case Example
Godha Engineering works

This company specializes in installation of heating and air-conditioning
equipment. It has earned a reputation for quality work over last forty years.
Prabhu Lal has been with the company as sales representative for two years.
During this period, he believes that the company has missed a number of
opportunities to obtain lucrative contracts because of certain conditions under
which he is forced to operate. In case of commercial installations, he does not have
the authority to make any decision or commitments during preliminary contract
negotiations. For discussion of price, completion time and credit terms, he has to
depend upon the technical experts who study the job and make formal
commitments. Lot of time is wasted in this. During this period, some competing
firm already completes negotiations and gets the contract. Prabhu Lal considers
this a continuing problem and feels hampered.
What can be done on a companywide basis to improve the situation?
Do you think Prabhu Lal is justified in his complaint?
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Give an example of a case study of the process of decentralization followed in a

particular industry. How would you find out whether it has been successful?
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13.8 Summary
Authority is the power to make decisions, which guide the action of others.
Delegation of authority contributes to the creation of an organization. No single
person is in a position to discharge all the duties in an organization.
Delegation is a process, which enables a person to assign a work to others and
delegate them with adequate authority to do it.
Decentralization means that each section has its own workers to perform activities
within the department. There will be no general office to provide these services.
Under decentralization, separate staff are allocated to each department for
performing those activities which cannot be centralized.
Responsibility always arises from the superior-subordinate relationship. The
essence of responsibilities is obligation. If a person is entrusted with any work, he
should be held responsible for the work that he completes.
Span of management means the number of people managed efficiently by a single
officer in an organization.
It implies that a single executive should not be expected to give guidance to more
people. Only limited number of persons are allocated to the executive for dividing
the work or duties among the workers. 
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1. Write about delegation and its principles.

2. What is decentralization and what are its advantages and disadvantages?
1. The formal authority theory is otherwise called as:

a. Acceptance of authority theory
b. Competence theory
c. Top down authority theory
d. Modern theory
2. Power to make decisions, which guide the actions of others.

a. Delegation
b. Authority
c. Decentralization
d. Responsibility
3. ---------------------is the obligation of a subordinate to perform the duty as

required by superior.
a. Delegation
b. Authority
c. Decentralization
d. Responsibility
4. A management expert named --------------contributed much to the Span of

Management Theory. His theory identified the relationship prevailing between
the superior and the subordinate.
a. Deming
b. Fayol
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c. Theo Haimann
d. V.A. Graicunas
5. According to L. Urwic, the ideal number of subordinates is ----- in case of

higher-level management and eight to twelve in case of bottom level management.
a. 4
b. 8
c. 12
d. 5
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Reference Material
Summary
PPT
MCQ
Video1
Video2
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C H A P T E R 14 - M O D E R N T R E N D S I N M A N A G E M E N T
Objectives
At the end of this chapter, you will come to know what are the latest happenings
in the field of management.
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Chapter 14 - Modern Trends in Management
Structure
14.1 Introduction
14.2 Just in time
14.3 More about Lean Manufacturing
14.4 Total Quality Management
14.5 Outsourcing
14.7 Summary
14.8 Self-assessment Questions
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14.1 Introduction
The globalization of product and service markets offers a unique challenge to

companies today. Globalization relates to the ability to develop and produce
products and services for the regions of the world different from the home country.
When a firm intends to go global, its objective is to leverage its size and knowledge
to produce additional sales in new markets. For many years, few companies
regarded the manufacturing processes they employ, as a source of competitive
advantage. The goals of the companies were cost reduction and improved
utilization of labor and machinery.
As global competitors began to dominate major industries such as automobiles,
domestic appliances, consumer electronics etc., managers started looking for the
reasons for these companies to be successful. It was observed that these companies
adopted highly efficient operations, which enabled them to produce high quality
innovative products quickly. In addition to high quality, their speed to market was
also high. These new world class companies established new bench-marks in the
areas of quality and productivity. Processes emerged as the key competitive
weapons required for success in global competition. Many Japanese companies
excelled in production function.
Work in manufacturing and operations will become more exciting and challenging
in the years ahead. How well processes are managed will decide whether
economics of the entire nation will improve or decline. To meet these challenges,
manufacturing firms are now adopting new methods and are applying new
technology. In addition to this, companies are trying to gain or retain the market
share by offering customers better value by improving product quality and
achieving higher productivity.
14.2 Just in time approach
The JIT approach has its roots in the KANBAN system of material flow
pioneered by Toyota Motor Company. The Japanese manufacturing firms
especially in electronic and automobile industries became the leaders in world
markets by setting standards for product quality and cost against which firms of
other countries were compared. This success is often attributed to the
development and application of Just in Time -JIT-production systems by the
Japanese firms.
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The first view of JIT is as a form of production scheduling and inventory

management whereby the products are produced to meet actual demand and
materials for each stage of production are received or produced “just in time” for
use in the next stage of production or for delivery to the customer. This definition
of JIT is called Little JIT.
The other view of JIT is as a revolutionary approach to manufacture by Japanese
firms in which the entire way the products are designed, work is organized and
responsibilities are assigned is changed drastically and a constant striving for
improvement and elimination of waste is instilled. This approach to manufacture
is referred to as Big JIT.
The Big JIT encompasses the full range of organizational and operational
improvements practiced by many Japanese firms and is called as Japanese
Production System or lean production system. The essence of Big JIT is: eliminate
waste, speed up changeovers, work closely with suppliers, streamline the flow of
work, use flexible resources, pay attention to quality, expose problems and use
work teams to solve problems.
The term “Lean Production” was first used by Womach, Jones and Roos in their
landmark study of the automobile industry and in their book titled “The machine
that changed the world”. Now-a-days, firms speak of “going lean”, “lean
manufacturing”, “lean retailing” and “lean supply chains”.
The basic ideas behind Big JIT or lean production are:
๏ Work in progress (WIP) inventory is reduced to the barest minimum.
๏ JIT is a pull system: Production at each stage is initiated only when requested.
๏ JIT extends beyond the plant boundaries—supplier partnerships ensure that
deliveries are made on “as needed” basis.
๏ The benefits of JIT extend beyond savings of inventory related costs: quality
problem can be identified earlier, rework and inspection of finished goods are
minimized.
๏ The JIT approach requires a serious commitment from top management and
workers alike.
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Comparison between conventional ional purchasing and JIT purchasing

Conventional purchasing JIT purchasing
Large, infrequent deliveries Small, frequent deliveries
multiple suppliers for each purchased item Few suppliers, single sourcing
Short term purchasing agreements Long term supplier partnership
Minimal exchange of information Frequent exchange of information
between buyer and supplier between buyer and supplier
Prices established by suppliers Prices negotiated
Geographical proximity of suppliers is not Geographical proximity of suppliers is
important important
14.3 More about Lean Manufacturing
During the period from 1970s to 1990s, Japanese organizations spearheaded by

Toyota, Mazda, Nissan, Honda and Mitsubishi developed a new kind of
production technology referred to as Lean Production Systems. These systems
consist of processes that have been designed to minimize their inherent wastes-of
time, materials and money. Lean production systems use minimal amount of
resources to  
produce a high volume of high quality goods with some variety. The name “Lean
Production Systems” has come to be used because these systems use much less of
certain resources than the mass production systems use, i.e., less space, less
inventory and fewer workers to produce a comparable quantity of output. These
systems use a highly skilled workforce and flexible equipments.
In a manufacturing firm, the various kinds of wastes found are:
• Defect
• Transportation
• Inventory
• Over-production
• Waiting time
• Processing time
It is possible to identify these wastes by just walking around the manufacturing
shop floor. The contributors or sources of these wastes can also be identified by
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observing working conditions, shop practices and management directives. Some of

these sources of waste are:
• Large lot production
• Inefficient set-up procedures
• Long production change-over times
• Poor operating performance: long processing times
• Break-down of equipment
• Poor layout of equipments for the required processes
• Insufficient work procedures and lack of performance standards
• Poor shop-floor coordination
• Poor shop-floor control
The sources of wastes are:

★ When production changeovers are costly and time consuming, large production
lots are preferred to keep the change-over costs down. However, large lots
contribute to over-production and excess inventories, which increase inventory
carrying costs.
★ Process and equipment changeovers and set-ups take a long time because better
and faster ways to do the same were not attempted.
★ Machines perform poorly and are unreliable because they are not maintained
well and they are not attended until they breakdown completely all of a sudden.
★ Processes consist of wasteful steps and inefficient procedures because no one
investigates them to identify these wastes, no one prescribes improved
procedures and no one provides standards to which the operations should
conform.
★ Materials on shop floor have to be moved long distances and are made to wait
for long times between operations. This is because equipments are not located
properly in the sequence of processing steps and nobody attempts to re-arrange
the layout.
★ The system of production planning and control is not adequate to meet the
requirements of production process and customer demand.
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★ If we prefer small lot production to large lot production,then we have to reduce

the size of production batches and reduce the time and effort of production
changeovers. To process these many small batches through multiple operations
economically, we may have to rearrange production facilities so that the
subsequent operations are carried out on facilities located close to each other to
reduce material handling costs and production cycle-time. Obviously small lot
production reduces work in progress inventory but that would result in less stock
to buffer against equipment breakdowns and machine induced defects. To
overcome this problem, it is necessary to improve equipment reliability and
performance through efficient maintenance programs.
The fundamental elements of lean production or wasteless production deal

directly with sources of manufacturing waste, including waste from defects and
quality problems. They all relate primarily to issues on the shop floor and many
of them require significant changes to the roles and responsibilities of shop floor
workers, supervisors and machine operators. The various elements of lean
production are:
★ Small lot production
★ Set-up time reduction
★ Maintaining and improving equipments
★ Pull production systems
★ Focused factories
★ Group technology
★ Work cells or cellular manufacturing
Workers in lean production system are expected to be more competent than
workers in traditional systems such as batch and mass production systems. They
must be able to work in teams and play active roles in operating and improving the
system. They have greater responsibilities than those in traditional systems.
TQM is the integration of all functions and processes within an organization in

order to achieve continuous improvement of the quality of goods and services.
The goal is customer satisfaction.
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The TQM policy has two components:

• Defect free product /service supplied on time to customers
• Advancing the state-of-the-art which is a development process to meet the rising
expectations of customers’ requirements.
The foundation on which a successful TQM effort rests includes:

• Customer Focus
• Total employee Participation
• Continual Improvement
• Total Quality Management is a philosophy that involves everyone in an

Organization in a continual effort to improve quality and achieve customer
satisfaction.
• TQM is the integration of all functions and processes within an organization in
• Total Quality Management (TQM) are sweeping “culture change” efforts to
position a company for greater customer satisfaction, profitability and
competitiveness.
• TQM may be defined as managing the entire organization so that it excels on all
dimensions of products and services that are important to the customer.
• Total Quality Is…

• Meeting Our Customer’s Requirements
• Doing Things Right the First Time
• Freedom from Failure (Defects)
• Consistency (Reduction in Variation)
• Continuous Improvement
• Quality in Everything We Do
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• The salient features of TQM approach are:

• Find out what the internal and external customers want.
• Design a product or service that will meet or exceed what the customers
want.
• Design a production process that facilitates doing right, the first time, every
time.
• Keep track of the result and use these results to improve the system
continually.
• Extend these concepts to suppliers.
• TQM stresses on three principles:
• Customer satisfaction
• Employee involvement
• Continuous improvements in quality and processes
• Eight essentials of the TQM focus
• Customer satisfaction
• Leadership
• Quality policy
• Organizational structure
• Employee involvement
• Quality cost
• Supplier selection and development
• Recognition and reward
• Seven important points about TQM:
• Strive for quality in all the things
• The customer is the criterion of quality
• Improve the process or system by which products are produced
• Quality improvement is continuous, never ending activity
• Worker involvement is essential
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• Ground decisions and actions in knowledge

• Encourage team work and cooperation
Total Quality Management is an approach to improving the effectiveness and
flexibility of the business as a whole. It is essentially the way of organizing and
involving the whole organization: every department, every activity, and every
individual at every level.
When we analyze the time management in the working life, we find that a large
part of the time is spent on useless activities such as:
• Speaking on phone/mobile : attending non-value-added calls
• Finding out files/documents
• Policing and investigating others’ mistakes
• Reworking and rectifying
• Saying sorry to customers for delays and poor quality
• Meeting unnecessary people, mainly time wasters
TQM is a method for reducing wasted efforts by involving everyone in the process
of improvement: i.e. improving the effectiveness of work so that the results are
achieved in less time. The methods and techniques used in TQM can be applied
throughout the organization. TQM needs to gain ground and become a way of
life in the organizations.
Benefits of TQM:
3.3.1 To the Customer:
• Greater satisfaction
• Cost effectiveness
• Timely delivery
• No major problems with the products/services
• Continually improved product/service from time to time
• Better customer care/treatment by the producer
• Customer’s business becomes competitive
3.3.2 To the Producer:
• Better profitability
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• Better productivity and quality

• Satisfied customers spread word of mouth resulting in flourishing of business
• Motivated and happy employees
• Problems are solved faster and better
• Good brand image
3.3.3 To the employees:
• Empowerment
• Recognition
• Motivation
• Career enhancement
• Delight the customer
• This focuses on external customers as well as internal customers and
asks:”How to delight them?” This implies a real need to understand the
product and service: agree requirements and fulfill them. Delight mean
being best at what really matters most to the customer, which can change
over time. Being in touch with these changes and always satisfying the
customer are an integral part of TQM.
• Management by facts
• Knowing the current quality standards of the product or service in your
customer’s hands is the first stage of improvement.
• Having the facts necessary to manage the business at all levels, and giving
that information to everyone so that the decisions are based on facts are an
essential aspect of TQM.
• People based Management
• If people understand what to do, how to do it and get a feedback on their
performance, and are rewarded for good performance; they will take
responsibility for quality of their own work.
• The more people feel involved, the greater will be their commitment to
quality and customer satisfaction.
• Role of people is extremely important; systems, standards and technology
will work better if people play their roles effectively and efficiently.
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• Continuous improvement
• TQM is not a program or a project for short time duration, which will finish
when a target is achieved.
• It is a management process that understands that as we improve, our
competitors also continue to improve.
• Customers will continue to expect more from us.
• Hence continual improvement should be the aim of all the team members,
as a foundation of TQM.
3.4.1 For accomplishing the above principles, the following points must be
understood:
• It is necessary to achieve successful internal working relations in order to satisfy
external customers.
• A process is a combination of methods, materials, manpower and machines. All
processes contain inherent variability. Our approach must be to progressively
reduce variation thus improving process capability and become more consistent.
• We must measure everything how we are doing at present. What are
METRICS?
• Measure
• Everything
• That
• Results
• In
• Customer
• Satisfaction
• Internal quality measurement might include:
• Breach of promise
• Customer complaints
• Accidents
• Internal scrap/repair
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• Time lost due to non-availability of raw material, absenteeism, machine

breakdowns
• Cost of quality
• Delayed delivery
• Teamwork can provide a real opportunity for people to work together to
achieve quality improvement. Bringing people together in teams with the
common goal of quality improvement aids communication between
departmental and functional activities. Teamwork slowly breaks down the
communication barriers and acts as a platform for change. Communication is an
important two-way process. It must be strengthened.
• Teamwork enables a group of people to work as a task force, solving cross
functional problems.
• Prevention of defects is necessary to ensure that failures will not occur.
Failure Mode and Effects Analysis is one of the very effective methods for
prevention of defects in design as well as process/system.
3.4.2 When TQM is implemented in an Organization, it invariably
starts with:
• Setting up of TEAMs to solve particular problems.
• Culture change on a desire to satisfy the customer and eliminate existing
problems permanently.
• Education and training for knowledge on how to solve the problems
• Understanding that in TQM, all work is a process.
• Problem solving process, a continuous cycle of opening our mind to a wide
range of possible solutions and then deciding on the most feasible option.
• Problem solving, the basic role of which is quality improvement, to help meet
customer requirements.
The major developments in the field of supply management are:

1. Cross-functional teams
2. Supply chains and supply networks
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3. Supplier partnerships and alliances

4. Strategic sourcing
5. E-procurement
Cross-functional teams:
Cross functional teams are used to meet specific stated objectives such as new
product development or negotiations of all terms and conditions of a purchase
agreement. The responsibilities of the Cross functional teams include:
★ Material requirement review
★ Development of specifications
★ Make or buy analysis
★ Standardization of materials
★ Determination of inventory levels
★ Determination of quality requirements
★ Negotiation of price and terms and conditions of supply
★ Supplier selection
★ Joint problem solving with suppliers
★ Monitoring the suppliers and analyzing their performance
★ Communication in changes in specifications
★ Improvements of cost/productivity
★ Developing sourcing strategy
★ Market analysis
★ Price forecasting
★ Long range purchase planning
★ Determining purchase policies
★ Value analysis
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Supply chains and supply networks:

The supply chain is the upstream portion of the firm’s value chain. It is
responsible for ensuring that the right materials, services and technology are
purchased from the right source, at the right time, in the right quality. The supply
chain is a series of organizations extending all the way back to firms which extract
materials from Mother Earth. All the members of this supply chain perform a
series of value-adding activities and produce the finished goods and services
purchased by the ultimate customer.
The development and management of supply chains and supply networks is one
of the most challenging aspects of supply management. Once a critical service,
commodity or commodity class is identified, a strategic plan must be developed.
The various considerations in developing a supply strategy are:
• Organizations technology road-map
• The supply base of the firm
• A list of world class suppliers of the items
• Plans for selecting and upgrading the suppliers
• Objectives for the relationship
• Plans for managing and nurturing the relationship
A Cross functional team led by a supply management professional will be involved
in the selection of desired suppliers, negotiation of applicable terms and
conditions and ongoing management of relationships with the suppliers. The
supply management professional should be the one who is both technically and
commercially competent.
Supplier partnerships and strategic alliances:
Major categories of supply relationships are:
• Arm’s length relationships
๏ Vendors
๏ Traditional suppliers
๏ Certified suppliers
• Collaborative relationships
๏ Partnership type relationship
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๏ Strategic alliance
Historically, the vast majority of the buyer-seller relationships have been in an
arm’s length mode. In many cases, the buyer and seller had adverse relationships
because both believed in taking advantage of the other to get a good deal.
However, in modern approach, the buyer-seller relationships enlightened self-
interest, and the realization that competition is between value chains, all combine
to motivate buyers and sellers in a collaborative mode.
• Compatibility of interests
• Mutual need
• Willingness to be open for sharing information and benefits resulting from the
relationship
• Trust
Strategic sourcing:
It embraces several concepts of world class supply management and greatly
facilitates the progression to the world class status. Strategic sourcing is defined as
a systematic process that directs supply managers to plan, manage and develop the
supply base in line with firm’s strategic objectives. It is the application of current
best practices to achieve full potential of integrating suppliers into the long-term
business process. Strategic sourcing identifies new materials and technologies and
the activities of the competitors. The four principles that differentiate strategic
sourcing from traditional purchasing are:
• Defining the total value of the relationship between the buyer and the supplier
• Developing solutions based on a deep understanding of the economies of the
supplier and the dynamics of the business.
• Using differentiated purchasing tactics in order to optimize the economic
relationship for both buyer and supplier
• Imbedding the required changes in the organization so that the buyer achieves
not only measurable performance improvement in the short term but also the
ability to improve on a continuous basis.
A four-step improvement process is adopted by cross functional team during the
development of a strategic sourcing project. These steps are:
• Research the industry economics and dynamics of the commodity assigned to
the team
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• Evaluate sourcing strategies and capabilities of the suppliers

• Structure the supply relationship jointly with suppliers and develop action plans
to build the required infrastructure
• Implement the plan and organize for continuous improvement.
E procurement:
The non-value adding activities and paperwork processing of buyers are
eliminated by E procurement. The internal end user of an item or service need
not depend on the purchasing personnel and is now empowered to place orders
through the internet directly on the suppliers who are selected by the sourcing
teams. The supply professionals are relieved of the responsibility of placing the
orders and doing follow up of suppliers. They can now focus on:
• Early involvement in the development of requirements
• Strategic sourcing
• Pricing
• All actions required to ensure timely delivery of materials or timely completion
of services in the specified quality level.
Outsourcing:
Outsourcing can offer greater budget flexibility and control. Outsourcing lets
organizations pay for only the services they need, when they need them. It also
reduces the need to hire and train specialized staff, brings in fresh engineering
expertise, and reduces capital and operating expenses.
One of the biggest changes in the early 21st century came from the growth of
groups of people using online technologies to use outsourcing as a way to build a
viable service delivery business that can be run from virtually anywhere in the
world. The preferential contract rates that can be obtained by temporarily
employing experts in specific areas to deliver elements of a project purely online
means that there is a growing number of small businesses that operate entirely
online using offshore contractors to deliver the work before repackaging it to
deliver to the end user. One common area where this business model thrives is in
providing website creation, analysis and marketing services. All elements can be
done remotely and delivered digitally, and service providers can leverage the scale
and economy of outsourcing to deliver high-value services at reduced end-
customer prices.
Reasons for outsourcing
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Companies outsource to avoid certain types of costs. They outsource the non-core
activities.
Among the reasons companies elect to outsource include the avoidance of
regulations, high taxes, high energy costs, and costs associated with defined
benefits in labor-union contracts and taxes for government-mandated benefits.
Perceived or actual gross margin in the short run incentivizes a company to
outsource. With reduced short-run costs, executive management sees the
opportunity for short-run profits, while the income growth of the consumer base is
strained. This motivates companies to outsource for lower labor costs.
However, the company may or may not incur unexpected costs to train these
overseas workers. Lower regulatory costs are an addition to companies saving
money when outsourcing. Companies may seek internal savings to focus money
and resources towards core business.
A company may outsource its landscaping functions irrelevant to the core
business. Companies and public entities may outsource certain specialized
functions, such as payroll. Companies may find the same level of consumer
satisfaction.
Outsourcing may increase the risk of leakage and reduce confidentiality, as well as
introduce additional privacy and security concerns.
Visit an automobile company in your neighborhood, study the outsourcing

process, and give your opinion about it.
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14.7 Summary
Work in manufacturing and operations will become more exciting and challenging
in the years ahead. How well processes are managed will decide whether
economics of the entire nation will improve or decline. To meet these challenges,
manufacturing firms are now adopting new methods and are applying new
technology. In addition to this, companies are trying to gain or retain the market
share by offering customers better value by improving product quality and
achieving higher productivity.
1. Explain E-procurement.
2. Explain benefits of TQM to the customer.
1. The JIT approach has its roots in the -----------system of material flow
pioneered by Toyota Motor Company.
a. TQM
b. Kanban
c. SPC
d. TQC
2. The ---------encompasses the full range of organizational and operational

improvements practiced by many Japanese firms and is called as Japanese
Production System or lean production system.
a. Big JIT
b. Kanban
c. Small JIT
d. Little JIT
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3. --------is the integration of all functions and processes within an organization in

a. TQM
b. SPC
c. JIT
d. Kanban
4. --------------teams are used to meet specific stated objectives such as new product
development or negotiations of all terms and conditions of a purchase agreement.
a. Quality circles
b. Engineering design
c. Cross-functional
d. Inter-departmental
5. Companies outsource to avoid certain types of costs. They outsource the

--------------activities.
a. Core
b. Non-core
c. Simple
d. Complicated and unsafe
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Reference Material
Summary
PPT
MCQ
Video1
Video2
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C H A P T E R 15 - D E C I S I O N M A K I N G
Objectives
• Have knowledge about decision making, its characteristics, elements, principles
• Types of decisions and personal phase of decision making
• Administrative problems in decision making
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Chapter 15 - Decision Making
Structure
15.1 Introduction
15.2 Characteristics of decision making
15.3 Elements of decision making
15.4 Decision making process
15.5 Principles of decision making
15.6 Characteristics of a good decision
15.7 Administrative points for decision making
15.8 Types of decisions
15.9 Personal phase of decision making
15.10 Case examples
15.12 Summary
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15.1 Introduction
Can there be anyone who has not taken any decision in his life? The answer is
NO. Everyone must have taken some or the other decision sometime or the other.
Be it taking admission in the school, be it making a friendship with someone, be it
buying a bicycle when the person was in his school days. In college days, the
decision could be about going for trekking, taking part in tournaments etc.
Mistakes were possibly made while taking decisions and learning the lessons from
the mistakes, improvements might have been made.
Every one of you takes decisions, but the question is “how?” Have you taken the
decision consciously? What situation have you gone through while making a
decision? Sometimes it is a stressful exercise, isn’t it?
It all starts with setting up of SMART goals. After the goals are set, the very act of
setting goals makes you mature, because an inner climate of responsibility, taking
charge of the situation is created and decision making becomes rather easy.
As a manager you collect facts and figures and act on it. But do you do it logically?
Decision making is one of the most crucial functions in management process.
Decision once taken can make or break the management process. If you take a
wrong decision, you have to face the adverse consequences.
The success of management depends upon the quality of decision. If the manager
fails to take a sound decision, he is likely to face all round ineffectiveness.
Although the decisions are seen rational, in reality they need to strike a balance
between rationality, logic and emotions.
Take the example of acquisition of your apartment. You give your specifications
of the apartment such as the north facing, size of the bedrooms, ventilation etc.
and the broker gives you three choices which are exactly as per your specifications.
Do we actually decide on the basis of these facts?
Decision making is a subjective process. In the business environment, it is
necessary to reduce this subjectivity. A few managers who have the leadership
qualities are able to take decisions objectively, considering facts and figures and
other factors including emotional aspects.
Decision making is not only art but also science. The reason is that there are too
many choices, too many constraints and dictates. People get into turmoil, get
disturbed and freeze. Some people avoid taking decisions themselves and ask
others to take decisions on their behalf.
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In crisis situations, when there are no options, decisions are taken on gunpoint.
However, there are some people take their own decisions logically, which on the
face of it sound unacceptable to the society but in the long run, society accepts
them.
As per Andrew Smilagyi, “Decision making is a process involving information,
choice of alternative actions, implementations and evaluation that is directed to
the achievement of certain stated goals.”
As per George R. Terry, “Decision making is the selection based on some criteria
from two or more possible alternatives.”
15.2 Characteristics of decision making
1. Decision making is a selection process. The best alternative is selected out of

many available ones. If there is only one alternative, there is no decision
making.
2. Decision making is the end process. It is preceded by detailed discussion and
selection of alternatives.
3. Decision making is the application of intellectual abilities to a great extent. An
intelligent man alone can take a good decision.
4. Decision gives happiness to an endeavor who takes various steps to collect all
the information which is likely to affect a decision. In many families, children
are not allowed to take decisions. In fact, if they are allowed to take decisions,
their confidence level improves, and they learn from their mistakes and are not
afraid to decide on important matters. They get a sense of responsibility and it
results into their growth.
5. Decision making is situational. An individual takes decision according to the
prevailing situation. Different decisions may be taken to solve the same
problem.
6. Decision making is a dynamic process. An individual takes a number of
decisions every day.
7. Decision is taken to achieve the objectives of an organization.
8. Decision maker has the freedom to take a decision which involves using of
resources in specified ways.
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9. Decision making involves the evaluation of available alternatives through

critical appraisal methods.
10. A decision may be both negative and positive. A decision may direct others
what to do or what not to do.
15.3 Elements of decision making
1. A problem is fully analyzed and the available alternatives are evaluated before
taking a decision, which requires intelligence, experience and insight into the
problem.
2. A decision is taken according to the environment of the business.
3. If the authority is centralized, all the important decisions are taken by the
chief executive. If the authority is decentralized, only key decisions are taken
by top executive and the routine decisions are taken by the lower level
management people.
4. The psychology of an individual is involved in decision making.
5. A decision discloses preferences, intellectual maturity, experience, educational
standard, social and religious attitudes, optimism or pessimism, designation
and status of the decision maker.
6. Decisions are taken when they are needed.
7. As soon as the decisions are taken, they must be communicated to the
concerned persons. Decisions are communicated without ambiguity.
8. Employees are also involved in decision making process.
9. Political and social environment of business affect the decision making.
10. If the management takes a decision after consulting the employees, the
following advantages may accrue:
• Better relations with employees
• Loyalty to the management
• No hindrance in implementation
• Efficiency is increased
• Issuing directions to employees becomes easy.
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15.4 Decision making process
1. IDENTIFICATION OF A PROBLEM
Problem arises due to difference between what should be and what is. Main reason
is changes in business environment. So the manager should clearly define what the
problem is. Then he should separate the concern. For example, instead of saying
that the quality is bad, he should say that 2% components are rusty. A well defined
problem is equal to half solved. Then the manager should find out the causes of
the problem. It is necessary to continuously watch the situation and find the cause
of the problem. For this, he may have to look into management reports, find
deviations from budget if any, compare the company’s results with competitor’s
results, efficiency of employees, any changes in environment etc. He has to use his
experience, imagination and judgment in order to find out the real nature of the
problem.
2. DIAGNOSING THE PROBLEM
The manager should act as a doctor and diagnose the problem with the help of
available information.
3. COLLECT AND ANALYZE THE
RELEVANT INFORMATION
The manager should collect information at various levels and study the
information with great care.
4. DISCOVERY OF ALTERNATE
COURSE OF ACTION
Creative thinking is necessary to develop or discover many alternate courses of

action. If there are more and more alternatives, the manager will have more
freedom to take a decision.
5. ANALYZING THE ALTERNATIVES
The pros and cons of available alternatives are analyzed and compared with each
other. Some alternatives offer maximum benefits than others. The decision maker
can prepare a list of limits for each alternative.
332
SCREENING OF ALTERNATIVES
The available alternatives are screened in the order of the benefits derived from
them. Each alternative is evaluated in terms of risks involved in implementing
them. Both tangible and intangible factors are considered while evaluating or
screening each alternative.
Tangible factors include profit earned, time taken, money invested, rate of return
on investment, rate of depreciation etc. Intangible factors include public relations,
goodwill of the company, loyalty of employees etc.
Peter F. Drucker has suggested the following criteria to evaluate the available
alternatives:
1. Degree of risks involved in each alternative
2. Economy of efforts, cost and time
3. Is the problem urgent?
4. Limitations of resources – physical, financial and human resources
SELECTION OF THE BEST

ALTERNATIVE BASED ON DECISION
ANALYSIS, EXPERIENCE,
EXPERIMENTATION, RESEARCH &
ANALYSIS
Decision analysis:
The selected alternative should give maximum benefits to the organization and it
should fit with the organizational objectives. There are two types of objectives :
• Must objectives
• Want objectives
The alternative must fulfill the must objectives. Otherwise the alternative is
considered as NO GO.
The weightage is attached to each want objective, as to how much important it is
for the organization. (weightage on the scale of 1-10). The alternative is then
evaluated as to how far it is fulfilling the want objective. (This is called as score on
the scale of 1-10).
333
Then the weigh-score is calculated as follows:

Weight - score = weightage x score = maximum 100 and minimum 1.
The alternative which is “GO” in must objective test and which has maximum
weight-score is selected.
It is also analyzed whether there would be any adverse consequences of the
decision.
Experience:
The manager can select the alternative on the basis of his past experience. But the
situation changes from time to time. So the past decisions should be suitably
amended to suit the present situation.
Experimentation:
Each alternative is put into practice and the results are observed. The alternative
which gives best results will be selected. For example, before the organization
selects a production technique, it goes to trial production. The organization finally
selects the production technique which results in quality production with
minimum loss and expenses. This is an expensive and time consuming approach.
Research and analysis:
In case of critical situation, a lot of calculations are completed with the help of
computers, and the decision is taken.
CONVERSION OF DECISION INTO
ACTION
IMPLEMENTATION
VERIFYING THE DECISION
It is the duty of every manager to see whether the decision is properly

implemented or not. He also must verify that there are no adverse consequences
of the decision. It ensures the achievement of objectives. If the manager feels that
the selected alternative is not the best one, an amendment must be made to
achieve desired goals.
334
15.5 Principles of decision making

1. Marginal theory of decision making:
The very purpose of the organization is aimed at maximizing profits. Decision
making should be based on marginal analysis. The manager adopts the principle
of Law of diminishing returns. If the management appoints additional labor and
uses additional capital, the production may be increased proportionally. But a time
comes when there is no increase in production with appointment of additional
labor and using additional capital. Then appointment of additional labor and
capital will be stopped. This marginal principle is applied while taking decisions
relating to sales, advertisement promotion, training etc.
2. Mathematical theory:
Probability theory: Consider the case where student A attends a particular class
about three quarters of the time. On any given day the professor could claim that
the probability of student A attending the class is 75%. However, the student
knows whether or not he is going to attend class so that he would state that the
probability of his attending class on any particular day is either 0% or 100%.
Clearly the probability of the event happening is dependent on the prior
knowledge of the individual making the statement.
Consider the probability of selecting a diamond card from a deck of 52 playing
cards. Since there are 13 diamonds in the deck, the probability is just 13/52 = ¼.
Queueing theory: Queueing theory is the mathematical study of waiting lines, or
queues. In queueing theory a model is constructed so that queue lengths and
waiting times can be predicted. Queueing theory is generally considered a branch
of operations research because the results are often used when making business
decisions about the resources needed to provide a service.
A manager takes a decision on the basis of such a mathematical theory.
3. Psychological theory:
A manager takes a decision on the basis of his aspiration, technological skill,
personality, social status, and organizational status.
4. Principle of alternatives:
335
As told above, decision making is a selection process. The best alternative is

selected out of many available ones. If there is only one alternative, there is no
decision making.
5. Principle of limiting factors:
The fundamentals of problem are studied. An inference or a conclusion is drawn
on the basis of study. The manager takes a decision with the help of the inference
or the conclusion. The decision may be based on a limiting factor such as time,
cost or resources. The reason is that this decision can be implemented in a
particular situation.
6. Principle of participation:
This principle is based on human behavior and human relationship. Each and
every person wants to be treated as an important person. So the management may
allow the employees to have a say in the process of decision making.
Subordinates should be consulted and the weightage should be given to the
opinion expressed by the subordinates, even though they are not concerned with
the matter. This honors their presence and results in winning their confidence.
The management can ascertain the reaction of the employees to the proposed
decision.
15.6 Characteristics of a good decision

Action orientation:
Various steps are necessary in implementing the decision. For implementation, the
decision should have utility. There is no use of taking a decision if the
management does not find it necessary to implement the decision.
Goal direction:
An organization is functioning to achieve certain goals. Every day the manager
takes a number of decisions. Then the action is directed to achieve the goals. The
value of decision depends upon the quantum of goals achieved.
Efficiency in implementation:
An effective decision alone will have scope for implementation, because it is taken
by considering all possible internal and external factors, and implemented with full
cooperation of employees.
336
15.7 Administrative points for decision making
ACCURACY
DECISION SHOULD BE TAKEN BY ANALYSING THE

SITUATION AND SHOULD BE ACCURATE
ENVIRONMENT
MUTUAL COOPERATION AND PROPER
UNDERSTANDING AMONG EMPLOYEES ARE
NECESSARY FOR CREATING A SATISFACTORY
ENVIRONMENT, WHICH WILL LEAD TO EFFECTIVE
DECISIONS
TIMELY DECISION
TIME PLAYS AN IMPORTANT ROLE IN DECISION
MAKING. OTHERWISE, THE DECISION WILL BE A
WASTE.
COMMUNICATION
THE DECISION MAKER SHOULD COMMUNICATE THE
DECISIONS TO CONCERNED PERSONS IN THE
LANGUAGE KNOWN TO THEM.
PARTICIPATIVE DECISION MAKING

THE EXTENT OF PARTIIPATION OF WORKERS IN
DECISION MAKING DEPENDS UPON THE WILLINGNESS
OF THE MANAGEMENT. IT IS NECESSARY TO ALLOW
WORKERS TO PLAY THEIR ROLE WHILE TAKING A
DECISION
IMPLEMENTATION
THE DECISION MAKER HAS THE RESPONSIBILITY TO
IMPLEMENT THE DECISION. HE SHOULD GET THE
COOPERATION OF HIS SUBORDINATES TO IMPLEMENT
THE DECISION.
337
15.8 Types of decision
Some of the above points are explained as follows:

1. Programmed decisions:
These are routine and structured decisions which are repetitive in nature. The
decision is taken within the purview of the policy of the organization.
e.g. granting overtime work.
2. Non-programmed decisions:
These are otherwise called as policy decisions, strategic decisions or basic
decisions. E.g. whether to export or not.
3. Operative decision:
These are related to day to day operation.
E.g. time of payment of overtime wages.
338
4. Non economic decision:

It refers to the decision which does not incur any expenses.
E.g. setting right the moral behavior of employees.
5. Problem decision:
A decision is taken to solve an expected or unexpected problem. Besides, the
decision does not create any more problems.
6. Certainty decision:
It refers to decision taken on the basis of accurate knowledge of the outcome from
each choice. For example, ascertaining how much profit will be maximized by
introducing a new product or increasing the selling price.
7. Uncertainty decision:
The outcome is not known accurately. Several outcomes are possible. For example,
we suspended a union leader because of his misbehavior. We were not knowing as
to what the consequences will be.
15.9 Personal phase of decision making

Generally, the manager is a decision maker in any organization. Two managers do
not take same decision even though the same data are supplied to them. The
difference in decision making is due to personal characteristics and qualities of
managers.
The decision maker may not make the best decision in all the cases. Further, there
is no method to test his decision if it is the best or not. There is a need of definite
policies and criteria in the organization to test a decision to find out if it is good or
right. Various characteristics of managers are:
1. Intelligence:
This is ability of using common sense in decision making. It may not be
concerned with formal education. Highly educated persons do not take best
decisions in all cases. There is a need of perception of quality in managers to take
the best decisions.
339
2. Education:
Education develops the broad outlook of the decision maker. Higher education
does not always mean good education. Good education helps the decision maker
to take the best decision even in complex situations. One can get a master’s degree
from a recognized educational institution, whereas good education means
acquiring thorough knowledge in a particular area of subject matter. If a person
has inner urge to learn more and more, he will become expert in taking decisions.
3. Experience:
The experience of an individual can improve the decision making ability. Decision
maker can survive only when he has skill for original thinking. Decision maker
should use his personal experience in taking a decision.
4. Courage:
The decision maker should have courage to take and implement a decision. The
very success of decision depends upon the courage of the decision maker.
5. Motivation:
Everybody wants recognition for his action. Likewise, a person who takes a
decision wants to have it recognized by his colleagues. If not, he will not take even
a simple decision. Recognition of decision is a tonic for motivation. Further, the
decision maker does not like criticism and suggestions.
6. Forecasting ability:
The quality of a decision depends upon the forecasting ability of the decision
maker. The decision maker is able to use available opportunities and take better
decisions.
7. Self confidence:
The self confident decision maker will not hesitate to take decisions. If the
decision maker has no self confidence, he will make delay in the decision making
process and the situation will go from bad to worse.
340
15.10 Case examples

Birla Steel Ltd
Harish Bhatt, MBA, is working in Birla Steel, Jaipur for seven years. It was
decided to build a new branch plant in which Harish was selected to be the
manager, with a promise that if the new plant were success, he would be promoted
to a higher post. The location of the plant was to be decided by the committee of
which Harish was the Chairman. In the committee’s first meeting, Harish
explained to the members the ideal requirements for the new plant and gave them
one month to come up with three choice locations.
The committee met after one month and recommended Gurgaon, Chennai and
Indore as the three choices. Harish thanked the members and told them that he
would study the report in depth.
In the evening, he asked his wife about Gurgaon to which she said “NO”. She said
that she preferred Indore, and in case he insisted upon Gurgaon, he had to go
there alone.
The next day, Harish called his committee together and said, “Gentlemen, I am
convinced that Indore will meet the needs of our new plant than Gurgaon or
Chennai.”
What is your view on this decision?
Group Decision making
Hemant Jha, plant manager of a manufacturing company, attended a seminar, of
four weeks duration, devoted to the topic of executive decision-making, conducted
by a reputed university.
Impressed by Prof. Tripathi’s lectures on group discussion and group decision
making, Jha returned to the plant. He decided to practice some of the principles
he had learned.
He called together the 25 employees of his department and told them that the
production standards established several years ago were now too low in view of
the recent installation of automated equipment. He wanted the employees to
decide among themselves, as a group, what the new standards should be.
Jha believed that employees would doubtlessly establish much higher standards
than the existing ones. However, he was amazed when he came to know that
contrary to his belief, the group considered the existing standards as already too
high, and therefore decided to reduce them by 10%. These standards, Jha knew
341
were far too low to provide a fair profit on the owner’s investment. Yet, it was clear
that his refusal to accept the group decision would be disastrous.
What advice would you give to Jha?
How could Jha have avoided his difficulties?
Activity A
Make a list of “must” objectives and “want” objectives of your life and make a
decision analysis chart.
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Activity B
Consider that after your graduation, you have got an admission in IIT, Mumbai
with stipend and also in NID, Ahmedabad with no stipend, for a post graduate
diploma. How will you decide which admission to be cancelled?
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342
15.12 Summary
Decision making is one of the most crucial functions in management process.

Decision once taken can make or break the management process. If you take a
wrong decision, you have to face the adverse consequences.
The success of management depends upon the quality of decision. If the manager
fails to take a sound decision, he is likely to face all round ineffectiveness.
Although the decisions are seen rational, in reality they need to strike a balance
between rationality, logic and emotions.
1. Explain the decision making process.

2. What are the problems in decision making?
3. What are the qualities of a decision maker?
1. Decision gives ------------to an endeavor who takes various steps to collect all the
information which is likely to affect a decision.
a. Tension
b. Bad name
c. Happiness
d. Money
2. Decision making involves the evaluation of available --------alternatives through

critical appraisal methods.
a. Finance
b. People
c. Material
d. Alternatives
343
3. Marginal theory of decision making.

a. Law of the land
b. Laws of motion
c. Law of diminishing returns
d. Theory of relativity
4. A union leader was suspended for his misbehavior.

a. Major decision
b. Problem decision
c. Individual decision
d. Uncertainty decision
5. Various characteristics of managers are: (Find out the wrong one)

a. Intelligence
b. Courage
c. Experience
d. Personality
344
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Principles of

Henri Fayol F. W. Taylor Peter F. Drucker

Program Design and Advisory Team

Prof. B.N. Chatterjee Mr. Manish Pitke

Prof. Kanu Doshi Prof. B.N. Chatterjee

Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Prof. B.N. Chatterjee Prof. Vineel Bhurke

Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Prof. Sandeep Kelkar Mr. Anuj Pandey

Prof. Dr. Swapna Pradhan Course Editor

Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Mr. P.M. Bendre Course Coordinators

Mr. Ajay Prabhu Ms. Kirti Sampat

Mr. A.S. Pillai Mr. Kishor Tamhankar

NOT FOR SALE. FOR PRIVATE

1.1 My dear students, a warm and hearty Welcome to all of you!

According to Peter F. Drucker, the emergence of Management as an essential, a

1.2 Introduction to Management

The subject of Principles of Management is the backbone of your course.

The advantages of learning Principles of Management are:

1.3 Meanings and Deﬁnitions of Management

1.3.2 Various deﬁnitions:

According to F.W.Taylor, Management is the art of knowing what you want

F.W.TAYLOR HENRY FAYOL

According to Henry Fayol, to manage is to forecast and to plan, to organize,

“Management is guiding human and physical resources into dynamic

After detailed thinking on various deﬁnitions, we have adopted the following

1.4 Management as a Process, coordination, and function

An important term in this deﬁnition is “Process”. This term emphasizes the

designing and maintaining an environment in which, individuals, working

Management is getting things done through other people:

Example of a Sandwich Seller:

Business needs some skills, discipline, systematic approach and clarity of

What are our objectives?

The thinking process and internalization must be continuous activity.

1.5 Five M’s in the business

1. 6 Activities for the students

1.7 Necessity of Management and SMART Goals

1.7.1 Management is an essential activity of all organizational levels:

1.7.2 Management applies to:

To become a good manager, in addition to housekeeping and cleanliness and

1.8 Activities for the students:

1.9 Functions of Management

This book is dedicated to following Functions of Management, which will be

1.10 Importance of Management

Every business needs a direction. This direction is given by Management.

1. Management meets the challenge of change:

2. Accomplishment of group goals:

3. Effective utilization of resources: As explained above.

4. Effective functioning of business:

Ability, experience, mutual understanding, coordination, motivation and

6. Sound organizational structure:

7. Management directs the organization:

8. It integrates various interests: