Industrial Management & Engineering Economy

Chapter-1 Dr.Dadapeer B

CHAPTER I: BASIC MANAGEMENT CONCEPTS & INDUSTRIAL

ORGANIZATION
1.1. Definition, nature, scope and evolution of Management
I. Management definition
Frenchman Henri Fayol (1841 -1925) considers management to consist of six functions: forecasting,
planning, organizing, commanding, coordinating, controlling.
Mary Parker Follett (1868–1933), who wrote on the topic in the early twentieth century, defined
management as "the art of getting things done through people". She described management as
philosophy.
Management is the utilization of scientifically derived principles to examine and improve collective
efforts of production.
Management in all business and organizational activities are the acts of getting people together to
accomplish desired goals and objectives efficiently and effectively.
Because organizations can be viewed as systems, management can also be defined as human action,
including design, to facilitate the production of useful outcomes from a system
General definition
Even though there exists no precise and single definition of management (decision oriented definition,
people oriented definition, function oriented definition and production or efficiency oriented definition)
in general we define the management as follow; “Management is the process involving planning,
organizing, staffing, directing and controlling human efforts to achieve stated objectives in an
organization.”
II. Nature of Management
Management as Disciplinary: Management as Disciplinary Management is basically multidisciplinary.
This implies that, although management has been developed as a separate discipline, it draws knowledge
and concepts from various disciplines. It draws freely ideas and concepts from psychology, sociology,
anthropology, economics, ecology etc. Management integrates the ideas and concepts taken from these
disciplines and presents newer concepts which can be put into practice for managing the organization. In
fact the integration of knowledge of various disciplines is the major contribution of management and
this integrated discipline is known as management.
Dynamic Nature of Principles: Dynamic Nature of Principles Principle is a fundamental truth which
establishes causes and effect relationships of function. Management has framed certain principles on the
basis of integration and supported by practical evidences. These principles are flexible in nature and
with the changed in the environment in which an organization exists. Because of the continuous
development in the field, many older principles are being changed by new Principles. In fact, there is
nothing permanent in the landslide of management.

Relative, not absolute Principle: Relative, not absolute Principle Management principles are relative,
not absolute and they should be applied according to the need of the organization. Each organization
may be different from others. The difference may exist because of time, place, socio-culture factors .
However individuals working within the same organization may also differ. Thus a particular
management should be applied in the light of prevailing conditions.
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Management Science or Art? There is a controversy whether management is science or art.

Management is both science and Art. Management as Science: Management as an art. Management:
science and art both:

III. Scope of Management

1) Production Management: (a) designing the product (b) location and layout of plant and building (c)
planning and control of factory operations (d) operation of purchase and storage of materials (e) repairs
and maintenance (f) inventory cost and quality control (g) research and development etc.

2) Marketing Management: Marketing involves following activities (a) Marketing research to determine
the needs and expectation of consumers (b) Planning and developing suitable products (c) Setting
appropriate prices (d) Selecting the right channel of distribution, and (e) Promotional activities like
advertising and salesmanship to communicate with the customers

3) Financial Management: 1. selecting the appropriate source of funds 2.raising the required funds at the
right time 3.administration of earnings 4.Estimating the volume of funds

4) Personnel Management: (a) Manpower planning (b) Recruitments, (c) Selection, (d) Training (e)
Appraisal, (f) Promotions and transfers, (g) Compensation, (h) Employee welfare services, and (i)
Personnel records and research, etc.

IV. Evolution of Management thought

I. F.W. Taylor and Scientific Management

Scientific Management: The systematic study of the relationships between people and tasks for the purpose of
redesigning the work process to increase efficiency.

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Four Principles of Scientific Management

1) Study the way workers perform their tasks, gather all the informal job knowledge that workers possess and
experiment with ways of improving how tasks are performed
• Time-and-motion study

2) Codify the new methods of performing tasks into written rules and standard operating procedures
3) Carefully select workers who possess skills and abilities that match the needs of the task, and train them to
perform the task according to the established rules and procedures
4) Establish a fair or acceptable level of performance for a task, and then develop a pay system that provides a
reward for performance above the acceptable level

Problems with Scientific Management

• Managers frequently implemented only the increased output side of Taylor’s plan.
– Workers did not share in the increased output.
• Specialized jobs became very boring, dull.
– Workers ended up distrusting the Scientific Management method.
• Workers could purposely “under-perform.”
– Management responded with increased use of machines and conveyors belts.

The Gilbreths

1. Break up and analyze every individual action necessary to perform a particular task into each of its
component actions
2. Find better ways to perform each component action

3. Reorganize each of the component actions so that the action as a whole could be performed more
efficiently-at less cost in time and effort

II. Administrative Management Theory

Administrative Management is the study of how to create an organizational structure that leads to high
efficiency and effectiveness.

Max Weber
Developed the principles of bureaucracy as a formal system of organization and administration designed
to ensure efficiency and effectiveness.

Weber’s Principles of Bureaucracy

1) A manager’s formal authority derives from the position he holds in the organization.
2) People should occupy positions because of their performance, not because of their social standing or
personal contacts.

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3) The extent of each position’s formal authority and task responsibilities and it’s relationship to other
positions should be clearly specified.
4) Authority can be exercised effectively when positions are arranged hierarchically, so employees know
whom to report to and who reports to them.
5) Managers must create a well-defined system of rules, standard operating procedures, and norms so they
can effectively control behavior .

Rules, SOPs and Norms

Rules – formal written instructions that specify actions to be taken under different circumstances to
achieve specific goals
Standard Operating Procedures (SOPs) – specific sets of written instructions about how to perform a
certain aspect of a task
Norms – unwritten, informal codes of conduct that prescribe how people should act in particular
situations

Fayol’s Principles of Management

Division of Labor: allows for job specialization.

o jobs can have too much specialization leading to poor quality and worker dissatisfaction.
Authority and Responsibility
o both formal and informal authority resulting from special expertise.
Unity of Command
o Employees should have only one boss.
Line of Authority
o A clear chain of command from top to bottom of the firm.
Centralization
o The degree to which authority rests at the top of the organization.
Unity of Direction
Equity - The provision of justice and the fair and impartial treatment of all employees.
Order - The arrangement of employees where they will be of the most value to the organization and to
provide career opportunities.
Initiative - The fostering of creativity and innovation by encouraging employees to act on their own.
Discipline
o Obedient, applied, respectful employees are necessary for the organization to function.
Remuneration of Personnel
o An equitable uniform payment system that motivates contributes to organizational success.
Stability of Tenure of Personnel
o Long-term employment is important for the development of skills that improve the
organization’s performance.
Subordination of Individual Interest to the Common Interest
o The interest of the organization takes precedence over that of the individual employee.

Esprit de corps
o Comradeship, shared enthusiasm foster devotion to the common cause (organization).
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III. Behavioral Management Theory

Behavioral Management is the study of how managers should personally behave to motivate employees
and encourage them to perform at high levels and be committed to the achievement of organizational
goals.
Mary Parker Follett
Concerned that Taylor ignored the human side of the organization
Suggested workers help in analyzing their jobs
If workers have relevant knowledge of the task, then they should control the task

The Hawthorne Studies

Studies of how characteristics of the work setting affected worker fatigue and performance at the
Hawthorne Works of the Western Electric Company from 1924-1932.
– Worker productivity was measured at various levels of light illumination.
Researchers found that regardless of whether the light levels were raised or lowered, worker
productivity increased
Human Relations Implications
– Hawthorne effect — workers’ attitudes toward their managers affect the level of workers’
performance

• Human relations movement – advocates that supervisors be behaviorally trained to manage subordinates
in ways that elicit their cooperation and increase their productivity

Implications
• Behavior of managers and workers in the work setting is as important in explaining the level of
performance as the technical aspects of the task

• Demonstrated the importance of understanding how the feelings, thoughts, and behavior of work-group
members and managers affect performance

IV. Management Science Theory

A sing Contemporary approach to management that focuses on the use of rigorous quantitative
techniques to help managers make maximum use of
organizational resources to produce goods and services.

– Quantitative management — utilizes linear and nonlinear programming, modeling, simulation,

queuing theory and chaos theory.
– Operations management —techniques used to analyze any aspect of the organization’s
production system.

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– Total Quality Management (TQM) —focuses on analyzing input, conversion, and output
activities to increase product quality.
– Management Information Systems (MIS) — provides information vital for effective decision
making.

V. Organizational Environment Theory

Organizational Environment –The set of forces and conditions that operate beyond an organization’s
boundaries but affect a manager’s ability to acquire and utilize resources

Contingency Theory

“There is no one best way to organize”

The idea that the organizational structures and control systems manager choose depend on—are
contingent on—characteristics of the external environment in which the organization operates

Type of Structure

Mechanistic Structure
– Authority is centralized at the top.
– Emphasis is on strict discipline and order
– Employees are closely monitored and managed.
– Can be very efficient in a stable environment.

Organic Structure
– Authority is decentralized throughout the organization.
– Departments are encouraged to take a cross-departmental or functional perspective
– Works best when environment is unstable and rapidly changing

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2.2. Basic Management Functions

I. Planning
II. Organizing
III. Staffing
IV. Communicating
V. Directing
VI. Controlling

I. Planning
Planning is the function that decides what needs to be done in order to achieve organization’s goals and
objectives.
It involves the predetermining of the course of action to be taken in relation to the known event.
It focuses on broader perspective of business and also the tactical methods to get the desired result.
It includes anticipation of the possibilities of future problems that might appear.

Planning process
(I). Setting primary and intermediate goals
Principal goals are set by top management
Intermediate goal which help to clarify the primary goals are set by middle mgmt.
(II). Search for opportunities
Data collection activity where by the environment opportunities of business is examined
It includes forecasting events and identifying changes in demand, competition, technology, finance
etc.
(III). Formulation of plans
Translation or covert ion of the opportunity discovered in to strategies and policies directed towards
the primary and intermediate goals.
The formulation of plans is carried out by plan/program developers or assistants to the manager.
(IV). Target setting
Translation of the broader plan in to specified detail quantities and times for workers.
(V). Follow up of plans
Continuous checking of the operating plan to make sure that deviations are minimum if existed to
correct them up.

Types of plans
I. Based on period
a. Short term plans
b. Medium term plans
c. Long term plans
II. Based on importance
a. Operational plans
b. Tactical plans
c. Strategic plans

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II. Organizing
The structure and process by which a group allocates its tasks among its members, identifies r/n ships
and integrates its activities towards common objectives.
It includes forming the structure, arranging dpts. Assigning tasks to workers and coordinating their
effort.
A manager has to view the organization as a social arrangement b/c the organization is composed of
people rather than physical objects

Principle of organization
i. Unity of command
ii. Exception principle
iii. Span of control
iv. Scalar principle
v. Departmentalization
vi. Decentralization

III. Staffing

Includes the process of placing the right person in the right organizational position
It is the process of matching the workers and the jobs
The personnel dpt. Is responsible to administer the staffing function that generally includes recruitment,
placement, training and development to meet the needs of the organization.
After hiring staffing function shifts to administration human asset to the development of compensation
system
Man power planning, forecasting future needs of orgn. Conflict resolution are some of the
responsibilities of staffing function

IV. Communicating

Communication/coordination serves as a linkage by which the other functions are tied together.
Communication is a means by which the tasks of an organization are dispatched among workers and
inter and intra departmental coordination’s are favored to accomplish the tasks.
There are three types of communication flows in orgns.
– Down ward communication
– Horizontal type
– Informal

V. Directing/Leading

Different terms for directing; leading, executing, supervising, ordering and guiding.
The idea of directing is to put in to effect the decisions and plans that have been worked out.
Directing includes,
– Issuing of orders that are clear, complete and within the capabilities of workers
– Programming a continual tracking activity in w/c subordinates are given instructions
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– Motivating the workers to discharge their duty up to the expectation of the mgr.
– Maintaining discipline and rewarding those who perform properly

Leadership styles

1. Dictatorial leader
Maintains highly critical and negative attitude in his rln with subordinates.
Advocates the accomplishment of tasks through fear of penalties.
2. Benevolent-autocratic Leader

Assumes a paternalistic role w/c forces the workers to relay on him for satisfaction.
This type of leader must exceptionally be strong and wise individual so that his personality
generates respect allegiance.

3. Democratic Leader
Suggests better methods and tries to improve the workers attitude.
Depends not only in his capabilities but encourage consultation with subordinates in planning,
decision making and organizing
With this type of leader ship satisfaction is gained through a feeling of group accomplishment.
4. Laissez-fair
Leader assumes the role of just another member of the group and depends completely on
subordinates to establish their own goals and make their own decision.
VI. Controlling
It is the process that measures current activity and guides it towards some predetermined goals.
Controlling is effected by checking the status of activities against desired result, measuring
deviations and taking corrective actions.

The basic principle of control

i. Strategic point control
ii. Feed back
iii. Flexible control
iv. Organizational stability
v. Self-control
vi. Direct control
vii. Human factor

2.3. Managerial decision making

Decision (defined):- an act involving mental process at a conscious level in choosing a course of action
from available alternatives for the purpose of attaining a desired result.
Managers are responsible for making decisions rather than performing the actions themselves.
Decision making is the one that is truly distinctive characters tics of managers.
Decision, decision maker and decision making process are the profiles of decision.

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Scope of decision
Individual decision making
Group decision making
Organizational decision making
Meta organizational decision making

Decision categories
i. Routine, recurring, certainty with regard to the out come
ii. Non-routine, non-recurring, uncertainty with regard to the outcome.
Decision making strategies

i. Computational
ii. Judgmental
iii. Compromise
iv. Inspirational

Concept of decision making

strategies
Knowledge regarding the Preference for the out come
out come
Strong preference Weak preference

High level of knowledge Computational decision Compromise decision making

making strategy strategy
Low level of knowledge Judgmental decision making Inspirational decision making
strategy strategy

Top management makes category ii decision

Operating mgmt. makes category I decision
Middle mgmt. supervise the making of category I decision and support the making of category ii
decision

Characteristics of managerial decisions

Long range organizational objectives.

Decision involves organizational change.
Decision requires commitment of resources
Choice is a means to an end not an end to itself.

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Setting managerial objectives

Objectives constitute the foundation for rational decision making.

Objectives are the ends for the means of management decision making.
Attainment of the objective is the ultimate measure of decision success.

Searching for alternatives

Create as many alternatives as possible in the constraint of time and money.
Make a conscious effort neither to be bogged down in details too soon nor to be limited to single
variations of the existing condition
Do not be satisfied or reject ideas at early stage.

1.3. Operation Management

It is that activity where by resource lowing with in a defined system are combined and transformed in a
controlled manner to add value in accordance with organizational objectives.
The definition of operation management contains the key concepts of Resource, Systems, Transformation and
Value adding activities:
Resources: are human, materials and capital inputs. Human beings (both physical and intellectual) are
the key assets. Material input includes plant, equipment inventories and supplies such as energy. Capital
inputs in the form of equity, debt, taxes and contributions are store of values which regulate the flow of
other resources.
Systems: are arrangements of components designed to achieve objectives according to plans. Our social
and economic environment contains many levels of systems and sub systems which are in turn
components of larger systems. A system approach emphasizes the integrative nature of activities and
stresses the relationship and cooperation that should exist within the total system. For example a factory
is a system but it is also part of the industrial system which in turn is part of the overall economic
system.
Transformation and value adding activities: combine and transform the resources using some form of
technology (mechanical, chemical, medical, electronic etc.). This transformation creates new goods and
services that have a higher value to consumers than the acquisition and processing costs of the inputs
have to the organization

1.4. Functions of an Industrial Enterprise

The main functions of an industrial enterprise may be grouped in to the following four groups:
I. Manufacturing functions
This group includes the function directly related to the manufacturing or movement of the product:
1) Receiving: has the responsibility for accepting raw material from the carrier, presenting for inspection
and getting it to the plant.
2) Warehousing: ha the responsibility for storing raw material until needed for production, and storing
finished goods until ready to be shipped to the customers.
3) Transportation: has the responsibility for moving all types of materials with in the plant area from the
supplier.

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4) Production: has the responsibility for transforming the raw material in to an acceptable and economical
finished product.
5) Shipping: has the responsibility for packing and delivering the finished goods to customers.
II. Engineering functions
This group includes those functions concerned with the engineering aspects of a manufacturing operation:
1) Product design: has the responsibility for development of new and salable products and preparation of
product description, product drawings and product specifications.
2) Process design: has the responsibility for the development of efficient process for the manufacture of
the products developed by the product design unit.
3) Plant engineering: has the responsibility for the design and installation of new facilities and ensuring
that proper working conditions are maintained.
4) Cost estimation: has the responsibility for determining cost involved on product manufacture. This
includes design and development cost of the product prior to manufacture.
III.Control functions
This group includes those functions concerned with the controlling of production, cost and quality:
1) Production control: has the responsibility for establishing forecasts, production plans, inventory levels
and product distribution.
2) Quality control: has the responsibility for establishing and maintaining the necessary control of quality
for raw materials, intermediate products and finished goods. It is also responsible for the inspection of
raw materials and finished products for conformity to quality specifications.
3) Cost control: has the responsibility for determining and reporting the design cost, the manufacturing
cost and comparing these costs with the amounts allocated in the budgets.
IV. Supporting functions
This group includes those functions which support the activities of the above mentioned functions. The
following are the supporting functions.
1) Purchasing: has the responsibility of buying the necessary materials of the proper quality and quantity
at the most favorable price and securing deliveries on time according to schedules established.
2) Sales: has the responsibility for selling the company’s product and for liaison after material has been
delivered.
3) Maintenance: has the responsibility for the execution of preventive maintenance, repair of old
equipment, installation of new equipment and provision of facilities.
4) Personnel: has the responsibility for hiring, administering and training workers and for the termination
of employments.

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