Management Theory and Practice

1. Management definitions, scope and importance - types of managers; managerial roles and functions; Science or
Art? Internal and External environment - Administration vs. Management, Managing people and organizations in
the context of New Era- Managing for competitive advantage - the Challenges of Management - Corporate Social
responsibility- Managerial Ethics.
2. Perspectives on Management: Evolution of Management- Various approaches to management- Global
perspectives of management- Role of communication in management.
3. Planning: Nature and principles of planning, Steps in planning, types of planning, Levels of planning The
Planning Process-MBO. Decision making-role-significance decision making process-decision tree analysis. Coordination-principles.
4. Organizing: Nature of organizing-principles organization levels and span of management- Organizational
design and structure departmentation, line and staff concept, staffing delegation, centralization and
decentralization of authority responsive organization.
5. Leading: Dimensions of Leadership Leading Vs Managing approaches to leadership leadership behavior and
styles leadership skills leadership in cross-cultural environment evaluation of leader women and corporate
leadership Motivation theories group dynamics - team, inter-group behavior, conflict and negation skills and
conflicts management.
6. Controlling: Nature and importance process feedback system Requirement for effective control control
techniques. Modern techniques of control
7. Total Quality Management: Definition and importance evolution of TQM different dimensions quality
management philosophies and practices.
8. Case Study: Compulsory. Relevant cases have to be discussed in each unit.
References
1.

Koonz, Weihrich and Aryasri: Principles of Management, Tata McGraw Hill,

2004.

2.
3.
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5.
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9.
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11.
12.
13.

Daft: The New Era of Management, Cengage Learning , New Delhi, 2009.
Rao, VSP: Management Text and cases, Excel books, New Delhi
Stoner, Free man and Gilbert: Management, Pearson Education, New Delhi, 2002
Prem Vrat, K.K.Ahuja, P K Jain: Case Studies in Management, Vikas Publishing House Limited, 2002.
Mrityanjay Kumar Srivastava: Transformational Leadership, Macmillan India Limited, 2003
Ramaswamy,T: Principles of Management, Himalaya Publishing House, Mumbai, 2008.
Meeenakshi Gupta: Principles of Management, PHI Private Limited, New Delhi, 2009.
J S Chandan: Management Theory and Practice, Vikas Publishing House Limited, 2009
Robert KReitner, Mamata Mohapatra: Management Biztantra, dreamtech Press, New Delhi, 2008
Anil Bhat, Arya Kumar: Management, Oxford University, New Delhi, 2008.
Schermerhorn Jr.: Management , Wiley-India, New Delhi, 2008.
Gupta R S, Sharma B D Bhalla N S: Principles and Practice of Management, Kalyani Publications,
Hyderabad, 2008.

Management definitions, scope and importance:

Definition of Management:
Management is an art of getting things done through and with the people in formally organized groups. It is an art
of creating an environment in which people can perform and individuals and can co-operate towards attainment of
group goals.
Harold Koontz.

Management is an art of knowing what to do, when to do and see that it is done in the best and cheapest way.
-

F.W. Taylor

Characteristics of management
Management is a distinct activity having the following salient features or characteristics:
1. Economic Resource. Management is one of the factors of production together with land, labor and capital. As
industrialization increases, the need for managers also increases. Efficient management is the most critical input in
the success of any organized group activity as it is the force, which assembles and integrates other factors of
production, namely, labor, capital and materials. Inputs of labor, capital and materials do not by themselves ensure
production; they require the catalyst of management to produce goods and services required by the society. Thus,
management is an essential ingredient of an organization.
2. Goal Oriented. Management is a purposeful activity. It coordinates the efforts of workers to achieve the goals of
the organization. The success of management is measured by the extent to which the organizational goals are
achieved. It is imperative that the organizational goals must be well-defined and properly understood by the
-managers at various levels.
3. Distinct Process. Management is a distinct process consisting of such functions as planning, organizing, staffing,
directing and controlling. These functions are so interwoven that it is not possible to lay down exactly the sequence
of various functions or their relative significance. In essence, the process of management involves decision-making
and putting of decisions into practice.
4. Integrative Force. The essence of management is integration of human and other resources to achieve the desired
objectives. All these resources are made available to those who manage. Managers apply knowledge, experience and
management principles for getting the results from the workers by the use of non-human resources. Managers also
seek to harmonize the individuals goals with the organizational goals.
5. System of Authority: Management as a team of managers represents a system of authority a hierarchy of
command and control. Managers at different levels process varying degrees of authority, generally, as we move
down in the managerial hierarchy, the degree of authority gets gradually reduced. Authority enables the managers to
perform their functions effectively.

6. Dynamic function: Management is a dynamic function of business organization, its functions change from time
to time depending upon the circumstance of the business, i.e., and changes in economic, social, political,
technological and human conditions. Management adjusts itself to the changing atmosphere making suitable
forecasts and changes in the policies.
7. Social process: Management is a social process as it primarily deals with emotional /dynamic and sensitive
human beings. The major achievement is to win their confidence and cooperation. Thus, making it difficult to
precisely define the principles of management. Management principles are constantly influenced by social traditions,
customs and regulations.
8. Management makes things happen: Managerial ability is distinctly different from technical ability.
Management is the art of getting things done through people. It implies that under given set of constraints or
problem boundaries how positive results can emerge, by taking well-defined actions.
9. Management is a multi-faceted discipline: Management has to deal wit heterogeneous resources. Their
performance depends upon the proper knowledge and skill of various disciplines. Management has grown as a body
of discipline taking the help of so many social sciences like-Anthropology Sociology, Psychology' etc. Due to this,
management is also known as a "Behavioral Science."
10. Intangible force: Managerial ability is an intangible force; it is a social skill, which cannot be seen with the eyes
but it, is evidenced by the quality and level of an organization.
11. Management is a science and an art: Management is a science because it has an organised body of
knowledge, which is based on facts and certain universal truths. It is an art because certain skills, essential for good
management, are unique to individuals. So many times managers act on instinct. It is also about interactions, which
cannot be laid down in black and white.
Scope and Importance of Management:
According to Peter Drucker, "Management is what the modern world is all about."
This statement means that all the development that has taken place in the world is due to efficient management.
The points below bring out the significance or importance of management.
1. Encourages Initiative
Management encourages initiative. Initiative means to do the right thing at the right time without being told or
influenced by the superior. The employees should be encouraged to make their own plans and also to implement
these plans. Initiative gives satisfaction to employees and success to organizations.
2. Encourages Innovation
Management also encourages innovation in the organisation. Innovation brings new ideas, new technology, new
methods, new products, new services, etc. This makes the organisation more competitive and efficient.
3. Facilitates growth and expansion

Management makes optimum utilisation of available resources. It reduces wastage and increase efficiency. It
encourages team work and motivates employees. It also reduces absenteeism and labour turnover. All this results in
growth, expansion and diversification of the organisation.
4. Improves life of workers
Management shares some of its profits with the workers. It provides the workers with good working environment
and conditions. It also gives the workers many financial and non-financial incentives. All this improves the quality
of life of the workers.
5. Improves corporate image
If the management is good, then the organisation will produce good quality goods and services. This will improve
the goodwill and corporate image of the organisation. A good corporate image brings many added benefits to the
organisation.
6. Motivates employees
Management motivates employees by providing financial and non-financial incentives. These incentives increase the
willingness and efficiency of the employees. This results in boosting productivity and profitability of the
organisation.
7. Optimum use of resources
Management brings together the available resources. It makes optimum (best) use of these resources. This brings
best results to the organisation.
8. Reduces wastage
Management reduces the wastage of human, material and financial resources. Wastage is reduced by proper
production planning and control. If wastage is reduced then productivity will increase.
9. Increases efficiency
Efficiency is the relationship between returns and cost. Management uses many techniques to increase returns and to
reduce costs. Higher efficiency brings many benefits to the organisation.
10. Improves relations
Management improves relations between individuals, groups, departments and between levels of management.
Better relations lead to better team work. Better team work brings success to the organisation.
11. Reduces absenteeism and labour turnover
Absenteeism means the employee is absent without permission.
Labour Turnover means the employee leaves the organisation.
Labour absenteeism and turnover increases the cost and causes many problems in the smooth functioning of the
organisation. Management uses different techniques to reduce absenteeism and labour turnover in the organisation.
12. Encourages Team Work
Management encourages employees to work as a team. It develops a team spirit in the organisation. This unity bring
success to the organization
TYPES OF MANAGERS:

When growing your business, your management structure becomes more important as your company grows.
When youre starting out, and while your company is small, you may be able to fulfill all roles in the management
hierarchy. If you have a scalable, successful business however, growth is inevitable, and you will need to have
managers at different levels to ensure work is completed in the most effective and efficient manner possible. This
said, it is important to understand the 3 major types of managers in growing and/or larger companies.

Organizations employ three levels of managers: first-line managers, middle managers, and top managers. They are
arranged in a hierarchy of authority, and each has different, but related, responsibilities. These three types of
managers are grouped into departments (or functions). A department is a group of people who work together and
possess similar skills or use the same skill sets to perform their jobs.
1. First-line managers are responsible for the daily supervision of nonmanagerial employees.
2. Middle managers supervise first-line managers. They also work with first line managers to identify new ways of
reaching organizational goals. Very often, the suggestions that they make to top management can dramatically
increase organizational performance.
3. Top managers are responsible for the performance of all departments and therefore have a cross-departmental
responsibility. Because top management is ultimately responsible for the success or failure of the organization,
persons inside and outside of the organization closely scrutinize their performance. It is the CEOs responsibility to
build a top management team that performs well. The term COO (chief operating officer) is often used to refer to the
top manager who is being groomed to take over when the current CEO leaves the company or retires.
Recall that management is the planning, organizing, leading, and controlling of human and other resources to
achieve organizational goals effectively and efficiently. The relative importance of each phaseplanning,
organizing, leading and controllingvaries according to managerial level. Top managers devote most of their time to
planning and organizing. CEOs and COOs, for example, need to carefully think about and plan a companys strategy
because there is a lot of risk if mistakes are made. Lower level managers devote more time to leading and
controlling.
Planning, organizing, leading, and controlling are all very important management functions needed to grow a
successful business. Part of all management consulting services is to ensure an organizations management fulfills

all of these functions to be effective. As I mentioned earlier though, as a company grows, single managers may find
themselves spread out too thinly and will not be able to perform as well as they used to. Thus, its important to take
note that different types of managers can focus on the different management functions required to produce great
results.
MANAGER ROLES AND FUNCTIONS:
ROLES OF MANAGER:
A managers role is very crucial in an organization. The success of organization depends upon managers ability in
utilizing the resources for achieving the pre determined goals. Henry Mintzberg suggested three areas where a
manger has to work.

Interpersonal Role
Informational Role
Decisional Role

Interpersonal role:
A manger is concerned with his interacting with people both inside the organization and outsiders. There are three
types of interpersonal roles.

Figure Head: In figure head role manager performs activities which are ceremonial and symbolic
nature. These include greeting the visitors attending the social functions involving employees, handing
out merit certificates and other awards to outstanding employees.
Leader: Managers leader role involves leading his subordinates and motivating them for willing
contributions. Manager is responsible for activities of his subordinates. He has to set example of hard
work and dedication so that subordinate follow his directions with respect.
Liaison Role: In liaison role manager serves as a connecting link between his and outsiders or between
his unit and other organizational units.

Informational Role:

Informational role: involves receiving collecting of information and distributing them as required. It
is of three types
Monitor: In monitoring role manager collects the information which can affect the organizational
activities by reading magazines and periodicals, reports from the departments, talking with others to
learn changes in the publics taste.
Disseminator: In disseminator role manger distribute the information to his subordinates and superiors
by sending circulars, holding meetings and making phone calls.
Spokesperson: In spokesperson role the manager represents his organization or unit with interacting
with outsiders. These may customer, financer, govt. suppliers or other agencies in society. It can be
done by attending press conferences, meetings and by issuing notices.

Decisional Role:
It is very important role. Manager has to take decisions daily. In decisional role he performs four roles.

Entrepreneur: As an entrepreneur the manger assumes certain risks which can affect the organization.
He has to take decisions like expansion or diversification, initiation of new projects, development of
older procedures etc.

As a Conflict Handler: As a conflict handler he has to take care of certain disturbance in organization
such as resolving employee disputes and strikes etc.
Resource Allocator: As a resource allocator managers fulfill the demand of various units in terms of
human physical and financial. He tries to utilize these resources in such way that no department suffers
for their inadequacy.
Negotiator: As negotiator manager has to take decisions regarding prices with suppliers and
customers. He also deals with trade unions and negotiates with them regarding working conditions and
wage fixation.

FUNCTIONS OF MANAGEMENT:
Management has been described as a social process involving responsibility for economical and effective planning
& regulation of operation of an enterprise in the fulfillment of given purposes. It is a dynamic process consisting of
various elements and activities. These activities are different from operative functions like marketing, finance,
purchase etc. Rather these activities are common to each and every manger irrespective of his level or status.
Different experts have classified functions of management. According to George & Jerry, There are four
fundamental functions of management i.e. planning, organizing, actuating and controlling. According to Henry
Fayol, To manage is to forecast and plan, to organize, to command, & to control. Whereas Luther Gullick has
given a keyword POSDCORB where P stands for Planning, O for Organizing, S for Staffing, D for Directing, Co
for Co-ordination, R for reporting & B for Budgeting. But the most widely accepted are functions of management
given by KOONTZ and ODONNEL i.e. Planning, Organizing, Staffing, Directing and Controlling.
For theoretical purposes, it may be convenient to separate the function of management but practically these
functions are overlapping in nature i.e. they are highly inseparable. Each function blends into the other & each
affects the performance of others.

Planning
It is the basic function of management. It deals with chalking out a future course of action & deciding in advance the
most appropriate course of actions for achievement of pre-determined goals. According to KOONTZ, Planning is
deciding in advance - what to do, when to do & how to do. It bridges the gap from where we are & where we want
to be. A plan is a future course of actions. It is an exercise in problem solving & decision making. Planning is
determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways &
means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human &

non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.
Organizing
It is the process of bringing together physical, financial and human resources and developing productive relationship
amongst them for achievement of organizational goals. According to Henry Fayol, To organize a business is to
provide it with everything useful or its functioning i.e. raw material, tools, capital and personnels. To organize a
business involves determining & providing human and non-human resources to the organizational structure.
Organizing as a process involves:

Identification of activities.

Classification of grouping of activities.

Assignment of duties.

Delegation of authority and creation of responsibility.

Coordinating authority and responsibility relationships.

Staffing
It is the function of manning the organization structure and keeping it manned. Staffing has assumed greater
importance in the recent years due to advancement of technology, increase in size of business, complexity of human
behavior etc. The main purpose o staffing is to put right man on right job i.e. square pegs in square holes and round
pegs in round holes. According to Kootz & ODonell, Managerial function of staffing involves manning the
organization structure through proper and effective selection, appraisal & development of personnel to fill the roles
designed un the structure. Staffing involves:

Manpower Planning (estimating man power in terms of searching, choose the person and giving the right
place).

Recruitment, selection & placement.

Training & development.

Remuneration.

Performance appraisal.

Promotions & transfer.

Directing
It is that part of managerial function which actuates the organizational methods to work efficiently for achievement
of organizational purposes. It is considered life-spark of the enterprise which sets it in motion the action of people
because planning, organizing and staffing are the mere preparations for doing the work. Direction is that inertpersonnel aspect of management which deals directly with influencing, guiding, supervising, motivating subordinate for the achievement of organizational goals. Direction has following elements:

Supervision

Motivation

Leadership

Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing
work & workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative,
monetary, non-monetary incentives may be used for this purpose.
Leadership- may be defined as a process by which manager guides and influences the work of subordinates in
desired direction.
Communications- is the process of passing information, experience, opinion etc from one person to another. It is a
bridge of understanding.
Controlling
It implies measurement of accomplishment against the standards and correction of deviation if any to ensure
achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in conformities
with the standards. An efficient system of control helps to predict deviations before they actually occur. According
to Theo Haimann, Controlling is the process of checking whether or not proper progress is being made towards the
objectives and goals and acting if necessary, to correct any deviation. According to Koontz & ODonell
Controlling is the measurement & correction of performance activities of subordinates in order to make sure that
the enterprise objectives and plans desired to obtain them as being accomplished. Therefore controlling has
following steps:

Establishment of standard performance.

Measurement of actual performance.

Comparison of actual performance with the standards and finding out deviation if any.

Corrective action.

PRINCIPLES OF MANAGEMENT:
Management Principles developed by Henri Fayol:
1.

DIVISION OF WORK: Work should be divided among individuals and groups to ensure that effort and
attention are focused on special portions of the task. Fayol presented work specialization as the best way to
use the human resources of the organization.

2.

AUTHORITY: The concepts of Authority and responsibility are closely related. Authority was defined by
Fayol as the right to give orders and the power to exact obedience. Responsibility involves being
accountable, and is therefore naturally associated with authority. Whoever assumes authority also assumes
responsibility.

3.

DISCIPLINE: A successful organization requires the common effort of workers. Penalties should be
applied judiciously to encourage this common effort.

4.

UNITY OF COMMAND: Workers should receive orders from only one manager.

5.

UNITY OF DIRECTION: The entire organization should be moving towards a common objective in a
common direction.

6.

SUBORDINATION OF INDIVIDUAL INTERESTS TO THE GENERAL INTERESTS: The

interests of one person should not take priority over the interests of the organization as a whole.

7.

REMUNERATION: Many variables, such as cost of living, supply of qualified personnel, general business
conditions, and success of the business, should be considered in determining a workers rate of pay.

8.

CENTRALIZATION: Fayol defined centralization as lowering the importance of the subordinate role.
Decentralization is increasing the importance. The degree to which centralization or decentralization should
be adopted depends on the specific organization in which the manager is working.

9.

SCALAR CHAIN: Managers in hierarchies are part of a chain like authority scale. Each manager, from
the first line supervisor to the president, possess certain amounts of authority. The President possesses the
most authority; the first line supervisor the least. Lower level managers should always keep upper level
managers informed of their work activities. The existence of a scalar chain and adherence to it are
necessary if the organization is to be successful.

10. ORDER: For the sake of efficiency and coordination, all materials and people related to a specific kind of
work should be treated as equally as possible.
11. EQUITY: All employees should be treated as equally as possible.
12. STABILITY OF TENURE OF PERSONNEL: Retaining productive employees should always be a high
priority of management. Recruitment and Selection Costs, as well as increased product-reject rates are
usually associated with hiring new workers.
13. INITIATIVE: Management should take steps to encourage worker initiative, which is defined as new or
additional work activity undertaken through self direction.
14. ESPIRIT DE CORPS: Management should encourage harmony and general good feelings among
employees.
MANAGEMENT SCIENCE AND ART
Management: Science or Art?
Science: An organized or systemized body of knowledge pertaining to a specific field of enquiry.
Art: It is the application of knowledge and personal skills to achieve results.
Profession: It is an

Occupation for which specialized knowledge, skills and training are required and

These skills are used for larger interests of the society and

The success of these skills is not measured in monetary terms always.

The question whether management is a science, art or profession is put to debate quite frequently. There are
arguments on both sides. Let's examine these in detail.
Properties of Science
Science is a. systematized body of knowledge based on certain principles, capable of general application. This
knowledge is obtained through the process of observation, experimentation and testing. Science, thus, has four
elements:
Systematic body of knowledge: Science is systematized in the sense that it is based on the cause and effect
relationship between different variables. Such a knowledge helps in explaining past events and predicts the outcome
of specific actions.

Scientific inquiry and observation: Scientific inquiry is unaffected by the personal likes and dislikes of a scientist.
When we say that the rotation of earth causes days and nights, we do not express the opinion of just one person. This
can be scientifically proved at any time.
Experimentation: The principles of science are derived after repeated observations and experiments. The results of
each experiment can be verified and outcomes predicted in a definite way. When results get confirmed after repeated
experimentation, they become principles.
Universal truths. Scientific principles represent basic truths; they are developed after a series of experiments. They
can be applied in all situations and at all times.
Management as a Science
Management is a science because it has all the characteristics of a science, namely: Systematized body of
knowledge: Management is a distinct discipline. It has a number of principles, which can be studied and put to
application. Management offers principles that could be put to good use while solving problems.
Management is a social science: Management is a social science, as it deals with human behavior about which little
is known at present. As we all know, it is not possible to study human behavior under controlled laboratory
conditions. Human behavior is unpredictable and, therefore, defies experimentation. As a result, the principles of
management cannot be accepted as absolute truths. They are still in a developing stage and evolutionary in nature.
Management, at best, can be called as a soft science.
Management is an inexact science: Management is not an exact science like physics, chemistry or biology. It does
not offer absolute principles. It can offer only flexible guidelines that would be of use in solving problems.
Management can never be an exact science because business is highly dynamic and business conditions change
continually.
Manager vs. scientist. A scientist can afford to wait until all the information (about a thing) is available. He can
indulge in a series of experiments till the truth emerges clearly. However, a manager cannot afford to do like that.
He must take decisions based on inadequate information, insufficient knowledge and resources. He must make
decisions today in order to survive in future.
Scientific management. When Taylor used the term 'scientific -management', he was aware of the fact that
experimentation and verification of facts is not possible in managing human resources. He had used the term
'scientific', as an organized body of knowledge as opposed to 'traditional rules and empirical dexterity. Over the
years, the traditional hit-or-miss methods have yielded place to several systematic methods based on principles. No
wonder, management is known as a 'sophisticated behavioral science' these days. Thus, art and science are
complementary and mutually supportive.
Properties of Art
Art is the application of knowledge and personal skills to achieve results. It is a way of living. Art is based on the
knowledge of principles offered by science. A surgeon or a physician without the ledge of medical science becomes
a witch doctor, with the knowledge of science; an artful. Art is basically concerned with application of knowledge,
how to do things creatively and skillfully. It can be improved through constant practice only. Terry has drawn the
distinctions between science and art thus:

Management is basically an art as it involves the use of know how and skills like any other art such as painting,
sculpture, etc. The practical knowledge acquired in the areas of planning, decision making and motivating certainly
help managers to tackle problems in a better way. The arguments in favor of management as an art run as below
Use of knowledge: just as a doctor uses the science of medicine while diagnosing and treating the patients, a
manager uses the knowledge of management theory while performing the managerial functions. He, thus, uses
sound knowledge in place of hit-or-miss methods, with a view to achieve results effectively.
Creative art: Management is creative like any other art. It combines human and non-human resources in a useful
way so as to achieve results. It tries to produce sweet music by combining the chords in an effective manner. It
makes things happen by changing the behavior of human beings.
Personalized: Like any other art, management is a personalized activity. Every manager has own way of managing
things and people, based on his knowledge and experience. There is one way of doing things. As years roll by,
managers learn the art of managing through a proc of trial and error.
Constant practice: Managers learn from mistakes. The application of managerial principle over a period of time
enables them to tackle difficult problems with confidence. In other words they develop their skills through constant
practice. Just as artistic skills can be developing through training, so can managerial skills.
Management is Science as well as Art
Management is thus, an art as well as a science. The art of management is as old as civilization. The science of
management is young and developing. Both are complementary and mutually supporting Managers need to acquire
the knowledge of management principles and practice in order to successful. They need to sharpen this knowledge
through constant practice. The theoretical knowledge in management must be put to good use in a skilful way, while
achieving results. As Drucker has pointed out, every organization has the same resources to work with. It is the
quality of management that spells the difference between success and failure. Managers need to acquire knowledge
systematically and put the same to good use, using intuition, judgment and experience .A successful manager is one
who is able to visualize problems before they turn into emergencies. The ability to meet the problems head-on does
not come by chance. It requires sound knowledge and constant practice. Managers, therefore, have to fruitfully
combine their scientific knowledge with artistic skills in order to emerge as the winners, in a competitive
environment.
INTERNAL AND EXTERNAL ENVIRONMENT:
If there is anything that is stead fast and unchanging, it is change itself. Change is inevitable, and those organizations
who do not keep up with change will become unstable, with long-term survivability in question.
There are things, events, or situations that occur that affect the way a business operates, either in a positive or
negative way. These things, situations, or events that occur that affect a business in either a positive or negative way
are called "driving forces or environmental factors."
There are two kinds of driving forces; Internal driving forces, and external driving forces. Internal driving forces are
those kinds of things, situations, or events that occur inside the business, and are generally under the control of the
company. Examples might be as follows

organization of machinery and equipment,

technological capacity,

organizational culture,

management systems,

financial management

employee morale.

External driving forces are those kinds of things, situation, or events that occur outside of the company and are by
and large beyond the control of the company. Examples of external driving forces might be, the industry itself, the
economy, demographics, competition, political interference, etc.
Whether they are internal or external driving forces, one thing is certain for both. Change will occur! A company
must be cognizant of these changes, flexible, and willing to respond to them in an appropriate way.
External driving forces can bury a business if not appropriately dealt with. The question is, how does a business
know what changes are occurring so that they can deal with them in a positive way. OK, that's the next issue.
In order for a business to succeed and gain the competitive edge, the business must know what changes are indeed
occurring, and what changes might be coming up in the future. I guess you might call this forecasting. Thus, critical
to the business is what we call "informational resources." It is the collection and analyzation of data. Some examples
of critical information might include the following:

Competition (what are they doing?)

Customer behavior (needs, wants, and desires)

Industry out look (local, national, global)

Demographics (the change populations, there density, etc.)

Economy (are we peaking, or moving negatively)

Political movements and/or interference

Social environment

Technological changes

General environmental changes

The above are just some issues organizations must be on top of. Well it's never easy, but businesses that are
successful include all of the above (and more), to develop the appropriate tactics, strategies, and best practices, to
ensure successful out comes.
ADMINISTRATION VS MANAGEMENT:
Management and administration may seem the same, but there are differences between the two. Administration has
to do with the setting up of objectives and crucial policies of every organization. What is understood by
management, however, is the act or function of putting into practice the policies and plans decided upon by the
administration.
Administration is a determinative function, while management is an executive function. It also follows that
administration makes the important decisions of an enterprise in its entirety, whereas management makes the
decisions within the confines of the framework, which is set up by the administration.

Administration is the top level, whereas management is a middle level activity. If one were to decide the status, or
position of administration, one would find that it consists of owners who invest the capital, and receive profits from
an organization. Management consists of a group of managerial persons, who leverage their specialist skills to fulfill
the objectives of an organization.
Administrators are usually found in government, military, religious and educational organizations. Management is
used by business enterprises. The decisions of an administration are shaped by public opinion, government policies,
and social and religious factors, whereas management decisions are shaped by the values, opinions and beliefs of the
mangers.
In administration, the planning and organizing of functions are the key factors, whereas, so far as management is
concerned, it involves motivating and controlling functions. When it comes to the type of abilities required by an
administrator, one needs administrative qualities, rather than technical qualities. In management, technical abilities
and human relation management abilities are crucial.
Administration usually handles the business aspects, such as finance . It may be defined as a system of efficiently
organizing people and resources, so as to make them successfully pursue and achieve common goals and objectives.
Administration is perhaps both an art and a science. This is because administrators are ultimately judged by their
performance. Administration must incorporate both leadership and vision.
Management is really a subset of administration, which has to do with the technical and mundane facets of an
organizations operation. It is different from executive or strategic work. Management deals with the employees.
Administration is above management, and exercises control over the finance and licensing of an organization.
Therefore, we can see that these two terms are distinct from one another, each with their own set of functions. Both
these functions are crucial, in their own ways, to the growth of an organization.
1.

Management is the act or function of putting into practice the policies and plans decided upon by the
administration.

2.

Administration is a determinative function, while management is an executive function.

3.

Administration makes the important decisions of an enterprise in its entirety, whereas management
makes the decisions within the confines of the framework, which is set up by the administration.

4.

Administrators are mainly found in government, military, religious and educational organizations.
Management, on the other hand, is used by business enterprises.

Managing people and organizations in the context of New Era

Your employees are the biggest asset you have. Their performance and attitude can result in the success or failure of
your business. The most difficult part of any manager's job is people management. He or she is required to lead,
motivate, train, inspire, and encourage. On the other hand, he or she is also responsible for hiring, firing,
disciplining, training and evaluating. These functions seem to be at odds, but a successful manager can integrate
both the positive and negative aspects of these tasks to create a positive, productive work force.
People management, also known as human resource management (HRM), encompasses the tasks of recruitment,
management, and providing ongoing support and direction for the employees of an organization. These tasks can
include the following: compensation, hiring, performance management, organization development, safety, wellness,
benefits, employee motivation, communication, administration, and training.

When managing the people within an organization, a manager must focus on both hiring the right people and then
getting the most out of these people. New personnel must provide the organization with the best talent available that
meets the needs of the business. The organization must look ahead to how a new employee can be used to their
fullest. Getting the most out of an employee means a business has consistent policies and practices in place to
provide its people with appropriate training and development. Employees are involved as "partners" in the business.
Probably the most important task a manager will face when dealing with the people under his direction is that of
bringing out the best in them. Unlocking people potential is often seen as the key to any business's success. When an
employee's talents are not channeled correctly, their behavior can seriously compromise the success of an
organization. Some of the roles that an employee who is not being used to his potential can take on are as follows:
procrastinator, martyr, gossip, manipulator, backstabber, narcissist, a deer in the headlights, black hole, stonewalled,
curmudgeon, bully, and predator.
Instead of dealing with employees that develop defense mechanisms to mask their dissatisfaction with their work
situation, let's look as some ways to encourage effective behavior at work. After a problem behavior has been
identified, address the employee immediately. Discuss taking responsibility for the ineffective behavior, how the
behavior manifests itself, and the effect the behavior is having on the organization. Next, give the employee
alternatives to his current behavior. In other words, teach him or her how the principles of achievement:
* cooperation * respect * self-motivation * trust * self-discipline
Now that the employee has alternatives to their current behavior, draw up a performance improvement contract in
which he or she agrees to specific actions to change his or her ineffective behavior. After the contract is signed, a
manager needs to stay involved and committed to the process of change. He or she cannot assume that the problem
will be automatically fixed now that it has been brought to light. The employee will require praise and reinforcement
of any progress that they are able to make. If positive change is to occur, it will be evident soon after the initial
confrontation. If this does not occur, a termination meeting must be scheduled quickly. One employee's toxic
behavior can quickly spread throughout an organization if it is not dealt with quickly and efficiently.
When evaluating an organization's workforce, there are several areas that must be addressed. First, the staff must
have the tools and resources that they need to do their jobs effectively. Employees cannot be blamed for an
organization's inefficiency if they are not provided with the equipment necessary to perform adequately. Next, get to
know each employee as an individual and make sure that they are aware of their specific role within the
organization. Clarify their responsibilities and goals. Also, involve each employee in making decisions which affect
their area of expertise. This will result in the employee feeling that they "have a say" in what goes on in the
organization and he or she will feel a sense of ownership. Finally, make sure that employees have an opportunity to
have fun with their coworkers at appropriate times.

People Empowerment can be a very effective tool within the field of people management. This technique can be
used to involve employees in any improvement program within an organization. Authority, accountability, and
responsibility are delegated to the employees for improving the processes which are under their control without first
having to obtain permission from management before making changes. This can be successful only when employees
are recognized, congratulated, and rewarded for their commitment to problem solving.
Staff need to know where they stand, and how they are performing against your (reasonable) expectations. You can
achieve this through a structured review system, but such systems often become banal formalities with little or no
communication. The best time to give feedback is when the event occurs. Since it can impact greatly, the feedback
should be honest, simple, and always constructive. If in doubt, follow the simple formula of:

highlight something good

point out what needs improving
suggest how to improve

You must always look for something positive to say, if only to offer some recognition of the effort which has been
put into the work. When talking about improvements, be specific: this is what is wrong, this is what I want/need, this
is how you should work towards it. Never say anything as unhelpful or uninformative as "do better" or "shape up" if you cannot be specific and say how, then keep quiet. While your team will soon realize that this IS a formula, they
will still enjoy the benefits of the information (and training). You must not stint in praising good work. If you do not
acknowledge it, it may not be repeated simply because no one knew you approved.
The work itself
The work itself should be interesting and challenging. Interesting because this makes your staff actually engage their
attention; challenging because this maintains the interest and provides a sense of personal achievement when the job
is done. But few managers have only interesting, challenging work to distribute: there is always the boring and
mundane to be done. This is a management problem for you to solve. You must actually consider how interesting
are the tasks you assign and how to deal with the boring ones. Here are two suggestions.
Firstly, make sure that everyone (including yourself) has a share of the interesting and of the dull. This is helped by
the fact that what is dull to some might be new and fascinating to others - so match tasks to people, and possibly
share the worst tasks around. For instance, taking minutes in meetings is dull on a weekly basis but quite
interesting/educational once every six weeks (and also heightens a sense of responsibility). Secondly, if the task is
dull perhaps the method can be changed - by the person given the task. This turns dull into challenging, adds
responsibility, and might even improve the efficiency of the team.
Responsibility
Of all of Herzberg's positive motivators, responsibility is the most lasting. One reason is that gaining responsibility
is itself seen as an advancement which gives rise to a sense of achievement and can also improve the work itself: a
multiple motivation! Assigning responsibility is a difficult judgement since if the person is not confident and
capable enough, you will be held responsible for the resulting failure. Indeed, delegating responsibility deserves
another article in itself (see the article on Delegation).
Advancement
There are two types of advancement: the long-term issues of promotion, salary rises, job prospects; and the shortterm issues (which you control) of increased responsibility, the acquisition of new skills, broader experience. Your
team members will be looking for the former, you have to provide the latter and convince them that these are
necessary (and possibly sufficient) steps for the eventual advancement they seek. As a manager, you must design the
work assignment so that each member of the team feels: "I'm learning, I'm getting on".
- Managing for competitive advantage
Competitive advantage seeks to address some of the criticisms of comparative advantage. Michael Porter proposed
the theory in 1985. Competitive advantage theory suggests that states and businesses should pursue policies that
create high-quality goods to sell at high prices in the market. Porter emphasizes productivity growth as the focus of
national strategies. Competitive advantage rests on the notion that cheap labor is ubiquitous and natural resources
are not necessary for a good economy. The other theory, comparative advantage, can lead countries to specialize in

exporting primary goods and raw materials that trap countries in low-wage economies due to terms of trade.
Competitive advantage attempts to correct for this issue by stressing maximizing scale economies in goods and
services that garner premium prices.
Competitive advantage occurs when an organization acquires or develops an attribute or combination of
attributes that allows it to outperform its competitors. These attributes can include access to natural resources, such
as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New
technologies such as robotics and information technology can provide competitive advantage, whether as a part of
the product itself, as an advantage to the making of the product, or as a competitive aid in the business process (for
example, better identification and understanding of customers).
The term competitive advantage is the ability gained through attributes and resources to perform at a higher level
than others in the same industry or market (Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by
Chacarbaghi and Lynch 1999, p. 45). The study of such advantage has attracted profound research interest due to
contemporary issues regarding superior performance levels of firms in the present competitive market conditions.
"A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously
being implemented by any current or potential player" (Barney 1991 cited by Clulow et al.2003, p. 221).
Successfully implemented strategies will lift a firm to superior performance by facilitating the firm with competitive
advantage to outperform current or potential players (Passemard and Calantone 2000, p. 18).[4] To gain competitive
advantage a business strategy of a firm manipulates the various resources over which it has direct control and these
resources have the ability to generate competitive advantage (Reed and Fillippi 1990 cited by Rijamampianina 2003,
p. 362). Superior performance outcomes and superiority in production resources reflects competitive advantage (Day
and Wesley 1988 cited by Lau 2002, p. 125).
Above writings signify competitive advantage as the ability to stay ahead of present or potential
competition, thus superior performance reached through competitive advantage will ensure market leadership. Also
it provides the understanding that resources held by a firm and the business strategy will have a profound impact on
generating competitive advantage. Powell (2001, p. 132)[7]views business strategy as the tool that manipulates the
resources and create competitive advantage, hence, viable business strategy may not be adequate unless it possess
control over unique resources that has the ability to create such a unique advantage. Summarizing the view points,
competitive advantage is a key determinant of superior performance and it will ensure survival and prominent
placing in the market. Superior performance being the ultimate desired goal of a firm, competitive advantage
becomes the foundation highlighting the significant importance to develop same.
Competitive Strategies/advantages:
Cost Leadership Strategy:
The goal of Cost Leadership Strategy is to offer products or services at the lowest cost in the industry. The challenge
of this strategy is to earn a suitable profit for the company, rather than operating at a loss and draining profitability
from all market players. Companies such as Walmart succeed with this strategy by featuring low prices on key items
on which customers are price-aware, while selling other merchandise at less aggressive discounts. Products are to be

created at the lowest cost in the industry. An example is to use space in stores for sales and not for storing excess
product.
Differentiation Strategy:
The goal of Differentiation Strategy is to provide a variety of products, services, or features to consumers that
competitors are not yet offering or are unable to offer. This gives a direct advantage to the company which is able to
provide a unique product or service that none of its competitors is able to offer. An example is Dell which launched
mass-customizations on computers to fit consumers' need. This allows the company to make its first product to be
the star of it's sales.
Innovation Strategy:
The goal of Innovation Strategy is to leapfrog other market players via the introduction of completely new or
notably better products or services. This strategy is typical of technology start-up companies which often intend to
"disrupt" the existing marketplace, obsoleting the current market entries with a breakthrough product offering. It is
harder for more established companies to pursue this strategy because their product offering has achieved market
acceptance. Apple has been a notable example of using this strategy with its introduction of iPod personal music
players, and iPad tablets. Many companies invest heavily in their research and development department to achieve
such statuses with their innovations.
Operational Effectiveness Strategy:
The goal of Operational Effectiveness as a strategy is to perform internal business activities better than competitors,
making the company easier or more pleasurable to do business with than other market choices. It improves the
characteristics of the company while lowering the time it takes to get the products on the market with a great start.
State Farm Insurance pursues this strategy by promoting their agents as "good neighbors" who actively help
customers.
Corporate Social responsibility- Managerial Ethics.
Social Responsibilities of Management
The term social responsibilities can be defined as the obligation of management towards the society and others
concerned.
Reason for Social Responsibilities: Business enterprises are creatures of society and should respond to the demands
of society. If the management does not react to changes in social demands, the society will either force them to do so
through laws or will not permit the enterprise to survive. Therefore the long term interests of business are best
served when management assume social responsibilities. The image of business organization liked with the quality
of its products and customer service and the extent to which it fulfills the expectations of owners, employees,
consumers, government and the community at large. For long term success it matters a great deal if the firm has a
favorable image in the public mind. Every business enterprise is a organ of society and its activities have impact on
the social scene. Therefore, it is important for management to consider whether their policies and actions are likely
to promote the public good, advances the basic values of society, and constitute to its stability, strength and
harmony.

Increasing concern for the social responsibility of management, it is now recognized that besides taking care of the
financial interest of owners, managers of business firms must also take into account the interest of various other
groups such as employees, consumers, the government and the community as a whole. These interested groups are
directly or indirectly affected by the pursuit of business activities and they are the stake-holders of the business
enterprise.
Responsibility towards owners: The primary responsibilities of management is to assure a fair and reasonable rate
of return on capital and fair return on investment can be determined on the basis of difference in the risks of business
in different fields of activity. With the growth of business the shareholders can also expect appreciation in the value
of their capital.
Responsibility towards employees: Management responsibility towards employees relate to the fair wages and
salaries, satisfactory work environment, labour management relations and employee welfare. Fair wages should be
fixed in the light of labor productivity, the prevailing wage rates in the same or neighboring areas and relative
importance of jobs. Managers salaries and allowances are expected to be linked with their responsibility, initiative
and skill. But the spread between minimum wages and highest salaries should be reasonable. Employees are
expected to build up and maintain harmonious relationships between superior and subordinates. Another aspect of
responsibility towards employees is the provision of welfare amenities like safety and security of working
conditions, medical facilities, and housing, canteen, leave and retirement benefits.
Responsibility towards consumers: In a competitive market, serving consumers is supposed to be a prime concern
of management. But in reality perfect competition does not prevail in all product markets. In the event of shortage of
supply there is no automatic correction. Besides consumers are often victims of unfair trade practices and unethical
conduct of business. Consumer interests are thus protected to some extent with laws and pressure of organized
consumer groups. Management should anticipate these developments, satisfy consumer needs and protect consumer
interests. Goods must be of appropriate standard and quality and be available in adequate quantities at reasonable
prices. Management should avoid resorting to hoarding or creating artificial scarcity as well as false and misleading
advertisements.
Responsibility towards the Governments: As a part of their social responsibility, management must conduct
business affair in lawful manner, honestly pay all the taxes and dues, and should not corrupt public officials for
selfish ends. Business activities must also confirm to the economic and social policies of the government.
Responsibility towards the community and society: The socially responsible role of management in relation to the
community are expected to be revealed by its policies with respect to the employment of handicapped persons, and
weaker sections of the community, environmental protection, pollution control, setting up industries in backward
areas, and providing relief to the victims of natural calamities etc.
Managerial Ethics:
Management ethics is the ethical treatment of employees, stockholders, owners, and the public by a company. A
company, while needing to make a profit, should have good ethics. Employees should be treated well, whether they
are employed here or overseas. By being respectful of the environment in the community a company shows good
ethics, and good, honest records also show respect to stockholders and owners.

Ethics and ethical behavior are the essential parts of healthy management. From a management perspective,
behaving ethically is an integral part of long - term career success. Wide access to information and more business
opportunities than in the past makes ethics a need in modern business world.
Reasons to behave ethically:
From the point of view of the internal customer, ethical behavior improves the atmosphere at work and helps
motivate the employees, sets a good example to the employees, and evokes a sense of pride for the company and
improves its image in the eyes of the employees. From the point of view of external customer, ethical behavior
improves the public image of the company and adds to the overall development of ethical behavior in the society.
The four levels of organizational ethics:

Social disregard: the company shows carelessness for the consequences of its actions.
Social obligation: the company does not wish to extend its activity any further than just meeting its legal
responsibilities.
Social responsiveness: the company adjusts its policies according to the social conditions, demands and
pressures.
Social responsibility: the company decides to concentrate on its long-term goals for the benefit of society in
general.

Ethical decision-making:
When making a decision in management the following criteria of ethical decision-making should be considered:

Legality - will the decision somehow affect the legal status?

Fairness - how will the decision affect those involved in it?
Effectiveness - will the decision achieve the aim for which it is being taken?

Any decision that is not legal, not fair and not effective should not be taken. It is only a YES response to all three
questions that allows decision makers to take the next step. A NO response to any of the three questions ends the
matter. This is supported by the GO/NO-GO Decision Model (Ayande A.B Prosper, 2011). Further criteria to
consider are:

Self-respect - does the decision-maker feel good about the decision and its consequences?
Long-term effects - how do the predicted long-term effects relate to the above parameters?

UNIT 2

Perspectives on Management: Evolution of Management- Various approaches to management- Global

perspectives of management- Role of communication in management.
EVOLUTION OF MANAGEMENT THOUGHTS
More than 200 years ago Adam Smith described the advantages of division and specialization. However, the study
of management as a science began recently, especially after the Industrial Revolution. There has been a deluge of
research during the last few decades of management. It has attracted the attention of psychologists, sociologists,
anthropologists mathematicians, political scientists, economists and so on. Unfortunately, the approaches by these
scholars have created chaos and resulted in a 'confused and destructive warfare'.
Harold Koontz described the present state of management theory as a 'jungle. According to Koontz, Donnell and
Weihrich there are eleven approaches for studying management. Way back Stogdill has identified not less than
eighteen approaches for studying management. Hutchinson has identified five approaches. Thus, different writers
have provided different categorization schemes for studying management. In order to facilitate easy understanding,
we can identify four broad approaches namely, the classical theory, neo-classical theory, behavioral and modern
theory.
We can classify the schools of management thought as follows:
(i) Classical School: It is the oldest school of management thought. The classical theorists concentrated on
organization structure for the achievement of organizational goals and also developed certain principles of
management. Many of the classical concepts and principles hold good even to-day. The classical thought can be
studied under three streams, namely, (a) Scientific Management, (b) Administrative Management or Management
Process, and (c) Bureaucracy
(ii) Neo-Classical School. The neo-classical writers tried to remove the deficiencies of the classical school and
suggested improvements for good human relations in the organization. Their propositions are based on 'human
relations studies' conducted at the Hawthorne Plant of General Electrical, U.S.A. That is why, they are also known
as 'human relationists.'
(iii) Behavioral Sciences School. This approach emerged as a result of the contributions of psychologists,
sociologists and anthropologists to the field of management. The, behavioral science perspective believes that it is
difficult to understand the sociology of a group separate from the psychology of the individuals comprising it and
the anthropology of the culture within which it exists. Thus, the behavioral sciences are transactional; they are
concerned with all relevant aspects of human behavior including the interactions among all important factors.
(iv) Modern School. The modem management thinkers define organization as a system and also consider the impact
of environment on the effectiveness of the organization. As a result, two approaches have gained prominence after
1960s, which are as follows: (a) Systems approach, and (b) Contingency approach.
SCIENTIFIC MANAGEMENT APPROACH
The impetus for the scientific management approach came from the first industrial revolution. Because it brought
about such an extraordinary mechanization of industry, this revolution necessitated the development of new

management principles and practices. The main contributors to scientific management include Frederick Taylor,
Henry L. Gantt, Frank Gilbreth, LillianGilbreth and Harrington Emerson and others.
Fredrick W. Taylor
Taylor was the first person who insisted on the introduction of methods in management and it was he who, along
with his associates, made the first systematic study of management. He launched a new management approach in
1910 which is known as 'Scientific Management.' That is why Taylor is regarded as the father of scientific
management.
Taylor was born in 1856 in Philadelphia, U.S.A. He started his career as an apprentice in, a small machine making
shop in 1870 and rose to the position of Chief Engineer of Midvale Steel Works in 1884 at the age of 28.
Meaning of Scientific Management
According to Taylor, "Scientific Management is the substitution of exact scientific investigations and knowledge for
the old individual judgment or opinion in all matters relating to the work done in the shop". It implies the application
of science to the management of a business concern. It aims at replacement of traditional techniques by scientific
techniques.
Principles of Scientific Management
Taylor's contribution has two dimensions: (i) mechanical and (ii) philosophical'. On the mechanical side, Taylor
introduced time and motion studies. Standardization of tools, methods and working conditions, differential piece rate
for the payment of wages, etc. On the philosophical side, he tried to develop the science of management based on
scientific investigation and experiment. Before studying the techniques or elements of scientific management, a
proper understanding of Taylor's philosophy is a must. The scientific management is based on the following five
principles:
1.

Science, not rule of thumb.

2.

Harmony in group action, rather than discord.

3.

Maximum output in the place of restricted output.

4.

Scientific selection, training and placement of the workers.

5.

Development of all workers to the fullest extent possible for their own and organizations highest
prosperity.

The above principles are discussed below:

1. Replacement of old rules of thumb method. Scientific investigation should be used for taking managerial
decisions instead of basing decisions on opinion, intuition or rule of thumb. Under scientific management, decisions
are made on the basis of facts as developed by the application of scientific method to the problem concerned. This is
in contrast with the approach followed under traditional management according to which decisions are based on
opinions, prejudices, or rule of thumb.
2. Scientific selection and training of workers. The procedure for selection of workers should be designed
scientifically. The errors committed at the time of selection may prove to be very costly later on. If we do not have
right worker on the right job, the efficiency of the organization will be reduced. Therefore, every organization

should- follow a scientific system of selection. The selected workers are to be trained to avoid wrong methods of
work. Management is responsible for their scientific education and training.
3. Co-operation between labor and management. There should be cooperation between the management and the
workers. This requires change of mental attitudes of the workers and the management towards each other. Taylor
called it mental revolution. When this mental revolution takes place, workers and management turn their attention
towards increasing profits. They do not quarrel about the distribution of profits.
4. Maximum output. The management and the workers should try to achieve maximum output, in place of
restricted output. This will be beneficial to both the parties. Maximum output will also be in the interest of the
society.
5. Equal division of responsibility. There must be equal division of responsibility between the managers and the
workers. The management should assume responsibility for the work for which it is better suited. For instance,
management should decide the method of work, working conditions, time for completion of work, etc. instead of
leaving these to the discretion of workers. The management should be responsible for planning and organizing the
work, Whereas workers should be responsible for the execution of work as per instruction of the management.
Techniques of Scientific Management
To put the philosophy of scientific management into practice, Taylor and his associates have suggested the
following techniques:
1. Scientific Task Setting. It is essential to set the standard task which an average worker should do during a
working day. Taylor called it a fair day's work. He emphasized the need for fixing a fair day's work because it will
prevent the workers from doing work much below their capacity.
2. Work Study. Work-study implies an organized, objective, systematic, analytical and critical assessment of the
efficiency of various operations in an enterprise. It is a generic term used for those techniques which are used in the
analysis of human work in its entire context and which lead systematically to the investigation of all factors, which
affect the efficiency, and economy of operations. Work-study includes the following techniques:
(i) Method study: This study is conducted to know the best method of doing a particular job. It helps in reducing
the distance traveled by materials, and brings improvements in handling, transporting, inspection and storage of raw
materials and goods.
(ii) Motion study: It is the study of the movement of an operator or a machine. Its purpose is to eliminate useless
motions and find out the best method of doing a particular job. By undertaking motion study, an attempt is made to
know whether some elements of a job can be eliminated, combined or their sequence changed to achieve the
necessary rhythm.
(iii) Time study or work measurement: Time study is the technique of observing and recording the time required
to do each element of an industrial operation. Through time study, the precise time required for each element of a
man's work is determined. It helps in fixing the standard time required to do a particular job.
(iv) Fatigue study: Fatigue, physical or mental, has an adverse effect on worker's health and his efficiency. Fatigue
study helps in reducing fatigue among the workers. Fatigue is generally caused. by long working hours without rest

pauses, repetitive operations, excessive specialization, and poor working conditions. The purpose of fatigue study is
to maintain the operational efficiency of the workers.
3. Planning the Task: Taylor emphasized the need for planning work. He advocated that planning function should
be separated. Workers should not be asked to choose their own methods and decide what they have to do. The
planning department should do the detailed planning. The planning department should prepare detailed instructions for the workers as to the type, quality and quantity of the products to be used.
4. Standardization: Taylor advocated the standardization of tools, and equipments, cost system and several other
items. Efforts should be made to provide standardized working environment and methods of production to the
workers. Standardization would help to reduce spoilage and wastage of materials, improve quality of work, reduce
cost of production and reduce fatigue among the workers.
5. Scientific Selection and Training: The management should design scientific selection procedure so that right
men are selected for the right jobs. The First step in scientific selection is determining the jobs for which workers we
required. After that the most appropriate qualification, training, experience and the level of efficiency for therequisite post are determined. Employees are selected according to pre-determined standards in an impartial way.
Workers' should be specifically trained for the jobs they are appointed so that they can perform their jobs
effectively.
6. Differential Piece-Wage Plan: Taylor suggested this plan to attract highly efficient workers. Under this plan,
there are two-piece work uses, one is lower and another is higher. The standard of efficiency is determined either in
terms of time or output based on time and motion study. If a worker finishes work the within standard time or
produces more than standard output within the standard time, he will be given higher piece rate. On the other hand,
if a worker is below the standard, he shall be given lower piece rate.
7. Specialization: Taylor advocated that specialization must be introduced in a factory. He advocated functional
foremanship' for this purpose. In his scheme, planning was separated from executing. He recommended eight
foremen in all to control the various-aspects of production. He suggested four foremen in the planning department,
namely, route clerk, and instruction card clerk, time and cost clerk and shop disciplinarian. The four foremen
recommended for getting the required performance from the workers include gang boss, speed boss, repair boss and
inspector.
Evaluation of Scientific Management
Taylor's scientific management was associated with many benefits to the industry. According to Gilberts, the main
benefits of scientific' management is "conservation and savings, making an adequate use of every one's energy of
any type that is expended." Scientific management leads to the following benefits:
1.

Replacement of traditional rule of thumb method by scientific techniques for each element of a man at
work.

2.

Proper selection and training of the workers.

3.

Establishment of harmonious relationship between the workers and the management.

4.

Achievement of equal division of responsibilities between the workers and the management.

5.

Standardization of tools, equipment, materials and work methods.

6.

Detailed instructions and constant guidance of the workers.

7.

Incentive wages to the workers for higher production.

8.

Elimination of wastes and rationalization of system of control.

9.

Better utilization of -various resources.

10. Satisfaction of the needs of the customers by providing higher quality products at lower prices.
Criticism of Scientific Management.
The psychologists and the general public criticized not only by the workers and managers but Taylors scientific
management also. The main grounds of criticism are given below:
1. The use of the word 'Scientific' before 'Management' was objected because what is actually meant by scientific
management is nothing but a scientific approach to management.
2. It was argued that the principles of scientific management as advocated by Taylor were confined mostly to
production management. He ignored certain other essential aspects of management like finance, marketing, accounting and personnel. 3. Taylor advocated the concept of functional foremanship to bring about specialization in the organization. But this
is not feasible in practice as it violates the principle of unity of command.
4. Trade unionists regarded the principles of scientific management as the means to exploit labor because the wages
of the workers were not increased in direct proportion to productivity increases.
The other contributors to scientific management like Henri L. Gantt, Frank Gilbreth, Lillian Gilbreth later remedied
many of the above objections and Harrington Emerson later remedied many of the above objections. Taylors theory
is still being applied by the modem business undertakings. In short, it can be said that Taylor was the pioneer in
introducing scientific reasoning to the discipline of management.
Management process school is also called the 'traditional' or 'universality' school, as it believes that management
principles are applicable to all kinds of group activities. Henri Fayol is regarded as the father of this school. Henri
Fayol defined management in terms of certain functions and then laid down fourteen principles of management
which according to him have universal applicability:
Henri Fayol-Theory of management
Fayol was born in 1841 and was appointed engineer of a French mining company in 1860. In 1880, he became the
managing director of the same company. When he took charge, the company was on the verge of bankruptcy; when
he retired in 1918, its financial position was very strong. Fayol attributed his success to his system of management
which he emphasized could be both taught and learnt. Unlike Taylor, Fayol studied management from the board of
directors down. Taylor's approach to management dealt with specifics of job analysis, employees' motion and time
standards while Fayol viewed management as a teachable theory dealing with planning, organizing, commanding,
coordinating and controlling.
Fayol's long practical experience is amply reflected in his written work. He tried to develop a theory of management.
He discussed the principles of general management and argued that managerial ability can be acquired as any other
technical ability. He not only recommended formal teaching in management but also practiced it by founding the
center for Administrative Studies in Paris. Thus, he was a pioneer in the field of management education. In brief,

Fayol's views on management command acceptability even today because they are much in tune with the
requirements of the management in the present-day world. He has been rightly called the father of general
management.
Fayols Theory of Management
Fayol began by classifying all operations in business organizations under the following six categories:
(i) Technical (production);
(ii) Commercial (purchases and sales);
(iii) Financial (funding and controlling capital);
(iv) Security (protection);
(v) Accounting (balance sheet, costing records); and
(vi) Administrative or managerial (planning, organizing, commanding, coordinating and controlling).
Fayol pointed out that managerial activity deserved more attention. In his view, management is the process
composed of five elements or functions: planning, organizing, commanding, coordination and control. Fayol
observed:
(i) To plan means to study the future and arrange the plan of operations;
(ii) To organize means to build up the material and human organization of the business;
(iii) To command means to make the staff do their work;
(iv) To coordinate means to unite all activities; and
(v) To control means to see that everything is done in accordance with the standards that have been laid down and
the

Principles of Management
'Principles of Management' implies a list of current management practices. -Though F.W. Taylor developed
principles of management, credit goes to Henri Fayol, a French management theorist for advocating and publishing
certain principles (or laws) for the soundness and good working of the management. Henri Fayol warned that the
principles of management should be, (i) Flexible and not absolute-must be usable regardless of changing conditions,
(ii) Used with intelligence and with a sense of proportion, etc. Henri Fayol listed 14 principles that grew out of his
experience; they are briefed as under.
1. Division of Work (or Labor)
- Division of work means dividing the work on the principle that different workers (and different places) are best
fitted for different jobs (or things) depending upon influences arising from geography, natural conditions, personal
aptitude and skills.
- Division of work leads to specialization.
- Concept of division of labor can be applied to all kinds of work, managerial as well as technical.
Advantages of Division of Labor: Since the same worker does the same work repeatedly, (i) he gains proficiency
and skill on the jobs, (ii) rate of production increases, (iii) product quality improves, (iv) he is in a position to
suggest changes in product, processing or methods of doing that work.

Disadvantages of Division of Labor: (i) Division of labor gives rise to loss of craftsmanship; workers become
machine-minders and no more, (ii) With the passage of time, the same job becomes dull and monotonous,
(iii) Workers cannot remain all-round and one cannot work in place of another if he is absent.
2. Authority and Responsibility
- Authority and Responsibility should go together, hand-in-hand and must be related.
- An executive can do justice with his responsibility only when he has the proper authority.
- Responsibility without Authority or vice versa is meaningless.
3. Discipline
- Discipline is absolutely necessary for efficient functioning of all enterprises.
- Discipline may He described as-respect for agreements that are directed at achieving obedience, application, and
the outward marks of respect.
4. Unity of Command
- Unity of command means, employees should receive orders and instructions from one boss (or supervisor) only. In
other words a worker should not be under the control of more than one supervisor.
- Unity of command avoids confusion, mistakes and delays in getting the work done.
5. Unity-of Direction
- It is a broader concept than the unity of command.
- Unlike unity of command which concerns itself with the personnel, unity of direction deals with the functioning of
the body corporate.
- Unity of direction implies that there should be one plan and one head for each group of activities having the same
objective.
In other words, there should be one common plan for an enterprise as a whole.
6. Subordination of Individual to General Interest
- The interests of an individual person should be permitted to supersede or prevail upon ' the general interests of the
enterprise.
- This is necessary to maintain unity and to avoid friction among the employees.
7. Remuneration
Remuneration is the Price Paid to the employees for the services rendered by them for the enterprise. Remuneration
should (i) be fair, and (ii) bring maximum satisfaction to both employees and the employer.
8. Centralization of Authority
-Centralization of authority means that the authority is in the hands of center, i.e., the authority is not dispersed
among different sections.
-In a business organization, authority should be centralized only to that degree or extent which is essential for the
best overall performance.
-Degree of centralization is decided by keeping in view the nature, size and complexity of the (business) enterprise.
9. Scalar Chain

-Managers may be regarded as a chain of superiors. There should be an unbroken line of authority and command
through all levels from the highest (i.e., general manager) to the lowest ranks (employee).
-The chain of superiors should be short-circuited, when following it strictly will be detrimental to performance.
10. Order
-This promotes the idea that everything (e.g., materials) and everyone (human being) has his place in the
organization.
-Materials and human beings should be arranged such that right material (things)/person is in the right place.
11. Equity of Treatment
-Manager should have equality of treatment for all his subordinates.
-Manager should deal with his subordinates with kindness and justice.
-This will make employees more loyal and devoted towards the management/enterprise.
12.Stability
-Stable and secure work force is an asset to the enterprise, because unnecessary labor turnover is costly.
-An average employee who stays with the concern is much better than outstanding employees who merely come and
go.
-Instability is the result of bad management.
13.Initiative
-Initiative is one of the keenest satisfactions for an intelligent employee to experience.
- Managers should sacrifice their personal vanity in order to permit their subordinates to exercise their own
initiative.
- A manger should encourage his subordinates to take initiative.
14. Esprit de Corps
- This principle of management emphasizes the need for teamwork (harmony, and proper understanding) among the
employees and shows the importance of communications in obtaining such team-work.
FOLLOWERS OF TAYLOR
Among the immediate disciples of Taylor were such outstanding pioneers as Henry L. Gantt and Frank and Lillian
Gilbreth, to mention only a few.
Henry L. Gantts Contribution of Management
Gantt-like Taylor, a mechanical engineer-joined Taylor at the Midvale Steel Company in 1887. He stayed with
Taylor in his various assignments until 1901, when he formed his own consulting engineering firm. Although he
strongly espoused Taylor's ideas and did much consulting work on the scientific selection of workers and the
development of incentive bonus systems, he was far more cautious than Taylor in selling and implementing his
scientific management methods. Like Taylor, he emphasized the need for developing a mutuality of interests
between management and labor, a "harmonious cooperation!' In doing this, he stressed the importance of teaching,
of developing an understanding of systems on the both labor and management, and of appreciating that "in all
problems of management the human element is the most important one."

Gantt is perhaps best known for his development of graphic methods of describing plans and making possible better
managerial control. He emphasized the importance of time, as well as cost, in planning and controlling work. This
led eventually to the famous Gantt chart, which, as we shall see in Chapter 21, is in wide use today and was the
forerunner of such modern techniques as the Program Evaluation and Review Technique (PERT). Some social
historians regard the Gantt chart as the most important social invention of the twentieth century.
Frank and Lillian Gilbreth
The ideas of Taylor were also strongly supported and developed by the famous husband-and-wife team of Frank and
Lillian Gilbreth. Frank Gilbreth gave up going to the university to become a bricklayer at the age of 17 in 1885; he
rose to the position of chief superintendent of a building contracting firm 10 years later and became a building
contractor on his own shortly thereafter. During this period, and quite independently of Taylor's work, he became
interested in wasted motions in work; by reducing the number of bricklaying motions from 18 to 5, he made possible
the doubling of a bricklayer's productivity with no greater expenditure of effort. His contracting-firm work soon
gave way largely to consulting on the improvement of human productivity. After meeting Taylor in 1907, he
combined his ideas with Taylor's to put scientific management into effect.
In undertaking his work, Frank Gilbreth was greatly aided and supported by his wife, Lillian. She was one of the
earliest industrial psychologists and was widely acclaimed as the "first lady of management" throughout her long
life, which ended in 1972 when she was 93.
Lillian Gilbreths interest in the human aspects of work and her husbands interest in efficiency-the search for the
one best way of doing a given task lead to a rare combination of talents. It is therefore not surprising that Frank
Gilberth long emphasized that in applying scientific-management principles, we must look that at workers first and
understand their personalities and needs. It is interesting, too that the Gilbreths came to the conclusion that it is not
the monotony of work that causes so much worker dissatisfaction but, rather, management's lack of interest in
workers.
Bureaucracy-Definition
A Structure with highly routine operating tasks achieved through specialization, much formalized rules and
regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control and
decision-making that follows the chain of command.
Elements of Bureaucracy are:
1.

Hierarchy

2.

Division of work

3.

Rules, regulations and procedures

4.

Records

5.

Impersonal Relationships

6.

Administrative class

Advantages of Bureaucracy-it is having the following qualities of distinction likeSpecialization

Rationality

Predictability

Democracy

Disadvantages of Bureaucracy-are as follows;

Rigidity

Impersonality

Displacement of objectives

Compartmentalization of activities

Empire building

Red tape

NEO-CLASSICAL APPROACH
Theories resulted in work behavior and the researches tried to investigate the reasons for human behavior at work.
They discovered that the real cause of human behavior is somewhat more than- the physiological variable. These
findings generated a new phenomenon about the organizational functioning and focused attention, on human beings
in the organizations. These exercises were given new names such as behavioral theory of an organization, human
view of an organization' or 'human relations approach in an organization.'
The neoclassical approach was developed as a reaction to the classical approach, which attracted so many
behaviorists to make further researches into the human behavior at work. Mayo and his associates at Hawthorne
Plant of the Eastern Electric Company, Chicago started this movement in the late twenties, gained momentum and
continued to dominate till the sixties. Douglas M. McGregor has given an impressive account of thinking of human
relations in his book entitled 'The Human Side of Enterprise.'
The classical theory was the product of the time and the following reasons were responsible for its development:
(i) The management thinking was showing signs of change because of the improved standards of living and
education level. The technological changes were forcing the management to expand the size of the organization and
complexities were increasing. This also led to the fact that the management be somewhat more sympathetic and
considerate towards their workers.
(ii) The trade union movement got momentum and made the workers conscious of their rights. It was no longer
possible for the management to treat the human beings at work as 'givens'.
These were two main reasons, which were responsible for the change of management behavior from autocratic to
the custodial approach, which was based on offer of fringe benefits apart from wages to meet their security needs.
Though neoclassical approach was developed as a reaction to the classical principles, it did not abandon the classical
approach altogether, rather it pointed to the limitations of the classical approach and attempted to fill in the
deficiencies through highlighting certain points which were not given due place in the classical approach. In this
regard, there were two schools of thought-one school of thought with writers as Simon, Smith burg, and Thompson,
pointed out the limitations of the classical approach to structural aspect only and the analysts called this group as
'neoclassicists'. This school of thought suggested modifications to the classical principles but did not abandon the
basic principles. The other school of thought who consisted of large number of writers focused on the human aspect
neglected by the classicists. This group was called as human relationists or behaviorists. Both these schools were

reactions -to the classical theory but failed to suggest or develop any new theory except providing some points of
criticism on varying counts. Both of them could be referred as neoclassicists.
Neoclassicists endeavored to identify the weaknesses of classicists through empirical research and most of the
criticisms of classical theory have emerged through researches. Hawthorne studies were the beginning of the series.
The other contributors are Roethlisberger, Dickson, Whitehead, Lippitt and White, Coach and French Jr., etc.
HUMAN RELATIONS APPROACH
The classical writers including Weber, Taylor and Fayol neglected the human relations aspect. The human
relationists, (also known as neo-classicists) focused on the human aspect of industry. They modified the classical
theory by emphasizing the fact that organization is a social system and the human factor is the most important
element within it.' They conducted some experiments (known as Hawthorne Experiments) and investigated informal
groupings, informal relationships, patterns of communication, patterns of informal leadership, etc. Elton Mayo is
generally recognized as the father of the Human Relations School. Other prominent contributors to this school
include Roethlisberger, Dickson, Dewey, Lewin, etc.
Hawthorne Studies
In 1927, a group of researchers led by George Elton Mayo and Fritz J. Roethlisberger-at the Harvard Business
School were invited to join in. the studies at the Hawthorne Works of Western Electric Company, Chicago. The
experiment lasted up to 1932. Earlier, from 1924 to 1927, the National Research Council made a study in
collaboration with the Western Electric Company to determine the effect of illumination and other conditions upon
workers and their productivity.
Illumination Experiment. This experiment was conducted to establish relationship between output and
illumination. The output tended to increase every time as the intensity of light was improved. But the output again
showed an upward trend when the illumination was brought down gradually from the normal level. Thus, it was
found that there is no consistent relationship between output of workers and illumination in the factory. There were
some other factors, which influenced the productivity of workers when the intensity of light was increased or
decreased.
Relay Assembly Room Experiment. In this experiment, a small homogeneous work-group of girls was constituted.
Several new elements were introduced in the work atmosphere of this group. These included shorter working hours,
rest pauses, improved physical conditions, friendly and informal supervision, free social interaction among group
members, etc. Productivity and morale increased considerably during the period of the experiment. Morale and
productivity were maintained even if improvements in working conditions were withdrawn. The researchers
concluded that socio-psychological factors such as feeling of being important, recognition, attention, participation,
cohesive work-group, and non-directive supervision held the key for higher productivity.
Bank Wiring Observation Room Experiment. This experiment was conducted to study a group of workers under
conditions, which were as close as possible to normal. This group comprised of 14 workers. After the experiment,
the production records of this group were compared with their earlier production records. There were no significant
changes in the two because of 'the maintenance of 'normal conditions'. However, the researchers observed existence
of informal cliques in the group and informal production norms.

The findings of Bank Wiring Experiment included the following observations:

1. Each individual was restricting output.
2. The group had its own "unofficial" standards of performance.
3. Individual output remained fairly constant over a period of time.
4. Departmental records were distorted due to differences between actual and reported output or between
standard and reported working time.
Mass Interview Programme. The researchers interviewed a large number of workers with regard to their opinions
on work, working conditions and supervision, Initially, managers and researchers used a direct approach whereby
interviewers asked questions considered important. Later, this approach was replaced by an indirect technique where
the interviewer simply listened to what the employees had to say. The findings confirmed the importance of social
factors at work in the total work environment.
Contributions of Human Relations Approach or Hawthorne Studies
The human relationists proposed the following points as a result of their findings of the Hawthorne experiments:
1. The organization in general is a social system composed of numerous interacting parts. The social system defines
individual roles and establishes norms that may differ from those of the formal organization. The workers follow a
social norm determined by their co-workers, which defines the proper amount of work, rather than try to achieve the
targets management thinks they can achieve, even though this would have helped them to earn as much as they
physically can.
2. The social environment on the job affects the workers and is also affected by them. Management is not the only
variable.
3. The informal organization does also exist within the framework of formal organization and it affects and is affects
by the formal organization.
4. At the workplace, the workers often do not act or react as individuals but as members of groups. A person who
resists pressure to change his behavior as an individual often changes it quite readily if the group of which he is a
member changes its behavior. The group plays an important role in determining the attitudes and performance of
individual workers.
5. There is an emergence of informal leadership as against formal leadership and the informal leader sets and
enforces group norms. He helps the workers to function as a social group and the formal leader is rendered
ineffective unless he conforms to the norms- of the group of which he is supposed to be in charge.
6. Both-way communication is necessary because it carries necessary information downward for the proper
functioning of the organization and transmits upward the feelings and sentiments of people who work in the
organization.
7. Money is only one of the motivators, but not the sole motivator of human behavior. Man is diversely motivated
and socio-psychological factors act as important motivators.
8. Man's approach is not always rational. He may behave irrationally as far as rewards from the job are concerned.

Appraisal of Neoclassical Theory Contribution

The neoclassical theory provides various modifications and improvements over the earlier theory and offers a more
humanistic view towards people at work- Neoclassicists have also introduced behavioral science in the study of
organizational functioning which has helped managers quite a lot. This approach emphasized the micro-analysis of
the human behavior. The theory has brought into light certain important factors which were altogether ignored by
the classicists such as informal group, group norms, informal leader, non-economic rewards, etc. Thus, the approach
gives evidence of accepting the classical doctrine though superimposing its modifications, resulting from individual
behavior and the influence of the informal group.
Criticism of Human Relations Approach
The human relations approach has been criticized on the following grounds:
(i) Lack of Scientific Validity. The human relationists drew conclusions from Hawthorne studies. These conclusions
are based on clinical insight rather than on scientific evidence. The groups chosen for study were not representative
in character. The findings based upon temporary groups do not apply to groups that have continuing relationship
with one another. Moreover, the experiments focused on operative employees only.
(ii) Limited Focus on Work. The, human relations approach lacks adequate focus on work. It puts all the emphasis
on interpersonal relations and -on the informal group. It tends to overemphasize the psychological aspects at the cost
of the structural and technical aspects.
(Iii) Over-emphasis on Group. The human relations approach over-emphasizes the group and group
decision-making. But in practice, groups may create problems and collective decision-making may not be possible.
(iv) Over-stretching of Human Relations. It is assumed that all organizational problems are amenable to solutions
through human relations. This assumption does not hold good in practice.
(v) Conflict between Organizational and Individual Coals. It views conflict between the goals of the organization
and those of individuals as destructive. The positive aspects of conflicts such as overcoming weaknesses and
generation of innovative ideas are ignored.
BEHAVIOURAL SCIENCES APPROACH
Under behavioral science approach, the knowledge drawn from behavioral sciences, namely, psychology, sociology
and anthropology, is applied to explain and predict human behavior. It focuses on human behavior in organizations
and seeks to promote verifiable propositions for scientific understanding of human behavior in organizations. It lays
emphasis on the study of motivation, leadership, communication, group dynamics, participative management, etc.
The essential characteristics of behavioral science approach are as under:
(1) Data must be objectively collected and analyzed.
(2) Findings must be presented so that the distinction between cause and effect, as opposed to chance occurrences, is
clear.
(3) Facts must be systematically related to one another within a systematic framework. Data collection alone does
not constitute a science.
(4) The findings of a study must always be open to further examination and question.
The proponents of behavioral science approach made the following propositions:

(i) An organization is a socio-technical system.

(ii) Individuals differ with regard to attitudes, perceptions and value systems. As a result, they behave differently to
different stimuli under different conditions.
(iii) People working in the organization have their needs and goals, which may differ, from the organizational goals.
Attempts should be made to achieve fusion between organizational goals and human needs.
(iv) A wide range of factors influence inter-personal and group behavior of people in organizations.
SOCIAL SYSTEM APPROACH
It was Chester I. Barnard who developed the concept of social system. He viewed organization as a social system
that is composed of people who work in, cooperation. An organization comes into existence when (a) there are a
number of persons in communication with each other, and (b) they are willing to cooperate for a common purpose.
Barnard also recognized informal organization representing social interactions, which generally do not have a
consciously coordinated joint purpose. The executives should encourage informal organizations to serve as a means
of communication and group cohesiveness.
Chester I. Barnard Contribution to Management
Barnard's treatment of management 'differed considerably from that of Taylor and Fayol. Taylor concentrated on
improving the task efficiency of the individual. Fayol, on the other hand, moving to the totality concept of
management directed his analysis to the operational side, i.e., principles and functions of management. But Barnard
started with the individual, moved to cooperative organized endeavor and ended with executive functions. His
publication 'The Functions of the Executive' (1938) is a highly significant work. He wrote this book with two
objectives: to set forth a theory of cooperation and organization, and to present a description of the executive
process.
The broad features of the Social System approach are as follows:
(i) Organization is treated as a social system. That is why, this approach resembles the human relations approach.
'(ii) Relationships exist among the external and internal environment of the organization.
(iii) Cooperation among group members is necessary for the achievement of organizational goals.
(iv) For effective management, efforts should be made for establishing harmony between the goals of the
organization and those of the various groups therein.
Barnard identified the following functions of an executive: (a) the maintenance of organizational communication,
(b) securing essential services from individuals in the organization, and (c) formulating and defining the purpose. By
performing these functions, the executives can achieve good human relations in the organization.
Barnard also developed a new concept of authority-known as acceptance authority. He suggested that a person will
accept the communication as authoritative only when-four conditions are satisfied: (a) he can understand the
communication, (b) he believes that it is consistent with organizational purpose, (c) he believes it to be compatible
with his own personal interests, and (d) he is mentally and physically able to comply with it.
Barnard is often remembered for his views on social responsibility of management. The philosophy of social
responsibility of management emphasizes that management should consider itself as a provider of fair wages and

security, and a creator of an atmosphere conducive to the growth and development of the worker as an employee and
as a citizen.
SYSTEMS APPROACH TO AN ORGANISATION
We may look at the organization from two different angles:
1. We may consider the overall picture of the organization as a unit; or
2. We may consider the relationship between its various internal components.
When we consider the overall picture of the organization, we consider all the elements-internal and external-and
their effects on each offer simultaneously. This approach may be called the 'goalistic view' because it tries to reach
the goal of an organization by unifying the efforts of all the elements. For example, when we consider finance,
workers and their attitude, technological developments, etc. we are following goalistic view. It serves as a
mean-ends analysis, which in turn facilitates division of work and helps in judging the extent of success of
comparing actual and targeted performance. But it does not answer many problems such as interdependence of
elements, organizations environment, interface, etc. It gives a systematic view when we consider the second
approach, i.e., we examine the relationship between each element of the organization and their interdependence. If
we examine employer-employee, customer and organization, debtors-organization relationships, we follow
systematic view.
The systems approach focused attention on the following aspects:
(i) It integrates all elements for the proper and smooth functioning of the organization.
(ii) The organization overall goals can be achieved successfully because it considers all the aspects of the problems
deeply and maintains a harmonious relationship between various elements so that they work untidily to achieve
goals.
(iii) The approach helps in acquisition and maintenance of various resources, i.e., man, material, money, and
machinery, etc. for pertaining the smooth functioning of the organization.
(iv) It allows adaptation to internal - requirements and environmental changes in order to survive and grow.
Definition and Characteristics of System
1. Definition of System: Kast and Rosenzweig define the system as an organized unitary whole composed of two or
more interdependent parts, components or sub-systems and defined by identifiable boundaries form its
environmental suprasystem. More simply, a system may be referred as units composed of several interdependent
parts. System may be denoted as a grouping of parts and not simply an agglomeration of individual parts. Though
each part performs its own functions yet they work towards a common goal. The behavior of the entity is a joint
function of the behaviors of the individual parts and their interactions. An organization is composed of a number of
sub-systems of sub-systems such as internal organization, technological, psychological, structural, and managerial
and environment etc. that are constantly changing and evolving. A change in one may affect the other.
2. Characteristics of System: From the analysis of foregoing definition and discussion following characteristics of
a system emerge:
1. Interdependence of parts: A system has several parts. Each part is dynamic and affects all other parts. They are
interrelated and interdependent. Interdependence of different parts is must in an organization as a system, because of

division of labor, specialization, sharing of limited resources, scheduling of activities, etc. The work of the
organization is divided into various departments, sub-departments and so on, assigning each unit an independent
specialized task, which on integration culminates into the accomplishment of overall organizational goals. These
parts are interconnected in such a way that a change in one part may affect the other part and in this way, the whole
organization.
2. A system is composed of several sub-systems: A system is composed of several sub-systems. For example, in a
manufacturing organization, total manufacturing is one system, within which may exist a complete production
system, which again may contain an inventory control system. Conversely, a system or sub-system may form part or
container of other system. For example, an individual who may be a part of one system may also be a part or
container for another physiological system.
3. Every system has its own norms: Every system may be distinguished from other systems in terms of objectives,
processes, roles, structures, and norms of conduct. So, every system is unique if anything happens in the
organization, we regard it as an outcome of a particular system and we locate the fault in the system.
4. Systems influence and are influenced by other systems: As systems are open, they influence other systems in the
environment depending upon its strengths and capacities in relation to other systems. Obviously, the influence of
environment, in most cases is greater than the system's over impact on the environment.
Concept of Sub-system in an Organization
In the previous section, we have suggested that a system is an integrated whole of various sub-systems. An
organization as a system can better be understood by identifying the various sub-systems within it. The levels of
systems within a sub-system are called sub-systems and certain objectives, processes, role, structures and norms of
conduct identify levels of systems within. A system is composed of various lower order sub-systems and is also a
part of a super-system.
The various sub-systems of the system constitute the mutually dependent parts of the large system, called
organization. These sub-systems interact, and through interaction create new patterns of behavior that are separate
from, but related to, the patterns specified by original system. The interdependence of different parts as
characterized by Thompson, may be pooled, sequential, or reciprocal. When dependence is not direct, it is pooled
interdependence. For example, an organization, having sales divisions in different cities making their own buying
and selling, but drawing upon its common funds is an example of pooled interdependence. When one sub-system is
directly dependent upon another, it is sequential interdependence. Such type of interdependence may be seen in
production job or assembly line when output of one sub-system is the input for the other department or sub-system.
Reciprocal interdependence refers to the situation where outputs of each unit become inputs for another such as in
production and maintenance divisions. Thus, system behavior emerged as one, and since different variables are
mutually interdependent, the true influence of alerting one aspect of the system cannot be determined by changing it
alone.
Classification of Sub-systems
There are various ways of classifying sub-systems and one may support any of them. Each of the organization unit
may be treated as a sub-system. In other words, each functional unit of an organization may be regarded as different

sub-systems such as production sub-system, personnel or finance or sales sub-systems, etc. Seiler has classified four
components in an organization, i.e., human inputs, technological inputs, organizational inputs and social structure
and norms. From these inputs, he has derived, the concept of socio-technical system, Kast and Rosenzweig have
identified five subsystems, i.e., goal and values sub-system, technical sub-system, psychological subsystem
structural sub-system, and managerial sub-system. Katz and Kahn have, identified five sub-systems. These are:
technical sub-system concerned with the work that gets done; supportive sub-system concerning with the
procurement, disposal and institutional relations; maintenance sub-system for uniting people into their functional
roles; adaptive sub-system concerned with organizational change; and managerial subsystem for direction,
adjudication and control of the many sub-systems and activities of the whole structure. Carzo and Yunouzas give
three kinds of sub-systems in an organization as a system, i.e., technical, social and power sub-systems. We shall
here discuss these three sub-systems.
1. Technical Sub-system: The technical sub-system may be referred to as the formal organization. It refers to the
knowledge required for the performance of tasks including the techniques used in the transformation of inputs into
outputs. Being a formal organization, it decides ' to make use of a particular technology; there is a given layout;
policies, rules and regulations are framed; different hierarchical levels are developed, authority is given and
responsibilities are fixed; and necessary technical engineering and efficiency consideration are laid down. The
behavior in the organization cannot be explained fully by technical sub-system, also because there is a fundamental
conflict between the individual-a part of the system and the system itself resulting from the expectancies of the
organization and that of the people-regarding the work he has to perform. It requires certain modifications in the
behavior of the man through the social and power sub-systems (explained later).
The objective of the technical sub-system is to make necessary imports from the environment, transform them into
products or services and expert them back to the environment. For this purpose, it involves decisions,
communications, action and balance processes. Through the decision process, three main problems of what to
produce, for whom to produce and how to produce are resolved. Decisions are based on information gathered from
various sources. Such informations are communicated through the communication process to action centers to
implement them. Through balance process, an administrative balance is obtained so that all parts may be
co-coordinated and no one part can dominate all other parts in the organization. These processes take place on the
basis of roles assigned to people according to the requirements of the job. In order to handle the job properly one is
given authority from the superiors and is assigned a status matching with the importance of the job and the
individual's ability to do the job. Norms of conduct are defined in the well-designed policies, norms, rules,
procedures and description of the job. Thus, the arrangement of job in relation to each other, process and authority
relations, etc. provide a structure to the technical sub-system.
2.Social Sub-system: As we have explained earlier, there exists a conflict between an individual and the system
itself because people differ very widely in abilities, capacities, attitudes and beliefs, likes and dislikes, etc. People
find the formal set-up quite inadequate to satisfy all their needs especially social ones. Gradually they are seen
interacting with each other and at times by cutting across the hierarchical and departmental lines, etc., on non-formal
matters, and display their positive and negative sentiments towards each other.

Another group of elements in social sub-system consists of status, role, norms and values. Status is a position
determined as being important in the interpersonal relationship of the group. Thus, it is a social rank, prestige,
sentiments and feelings of a person in comparison with a social system. Some members come to be more highly
respected than others while some others born to be followers. Role is a pattern of action, expected of a person in his
position involving others. Thus, it describes specific form of behavior and develops originally from the
task-requirements. Different members have to play different roles assigned to them by the group- Norm is that the
general expectation demands character for all role incumbents of a system or subsystem. The members of the group
follow unwritten norms. Anybody not adhering to norms are reprimanded or punished. Value is the more
generalized ideological justification and aspiration. Value guides the behavior of the members.
3. Power Sub-system: Power behavior of the people in an organization plays a very important role. As the
organization starts functioning, people realize the importance of their job in relation to others in the organization; the
benefits of their experience to the organization; the benefits of their experience to the organization; the crucial
location of their jobs and their personality characteristics; the fact of their access to the superior authority holder. In
this way, they have acquired power to some degree or the others based on the source of their power that influences
the decision-making and regulate others behavior.
Individual's abilities to regulate the behavior of others vary. Some persons are more powerful and some others have
powerful influence areas than others have. Consequently, a power differentiation based on the amount of power
enjoyed (which is again a function of success achieved and attempts made to influence the behavior of others)
develops in a power structure. It gives birth to politicking and people play opportunistic roles- Power minded people
have no norms. Generally, the individuals interests and the opportunity of serving those interests decide norms and,
therefore, sheer expediency is the norm. The power holder enjoys the status in accordance with his abilities to
influence the behavior of others in order to carry out his wishes. This part of the system is known as power subsystem
Appraisal of Social System School
Chester I. Barnard is regarded as the founding father of social system school. He studied the inter-relationships
within the organization. His definition of formal organization is regarded to be a major contribution in the field of
management. The main focus of the official system is to study different aspects of social systems. For the adherents
of this school, organization is essentially a socio-cultural system composed of groups of people who work in
cooperation. For achieving the goals of the organization, a cooperative system of management can be developed
only by understanding the social behavior of groups and individuals. In other words, the socio-cultural environment
and different types of pressures affect an organization as a social system.
The concept of informal organization is also a contribution of the social system school. The analysis of social and
group behavior in the context of social system has added to the knowledge of management. The supporters of this
school advocate that efforts should be directed towards establishing harmony between the goals of the organization
and the goals of the groups and individual members.

The other major contributions by Leading Management Thinkers

MARRY FOLLETT (1868 - 1933)
M.P.Follet is a social philosopher. Important contributions of Follett to management thought thus:

Constructive conflict

Law of the situation

Group ethic important

Leadership

Authority and responsibility

Coordination principles

RENSIS LIKERT (1903 - 1972)

Rensis Likert, Director of the Institute of Social Research, University of Michigan, According to Likert, the
traditional job-centered supervision is mainly responsible for low productivity and poor morale of employees He,
therefore, advocated the employee-centered approach where maximum participation would be given to operatives
while setting goals and making decisions. Likert is best known for his classifications of management styles into four
categories:
System 1 (exploitative autocratic): Leaders have no confidence or trust in subordinates, Subordinates are deprived
of participation in decision-making.
System 2 (benevolent autocratic): Management has condescending confidence in subordinates just as a master has
towards a servant.
System 3 (participative): Leaders have substantial but not total confidence in subordinates Participation is
meaningful and employees are permitted to participate in decisions their lives.
System 4 (democratic): Participation is meaningful, as leaders have complete confidence trust in subordinates.
According to Likert, system 4 is an ideal management style and is associated with high prod low costs and good
labor relations. In an attempt to integrate individual and organizational Likert developed the concept of 'linking pin'.
In this approach, each work group is integrated the rest of the organization by means of persons who are members of
more than one group. M with such overlapping membership are known as 'linking pin. Accordingly, every
employee-linking pin for the units above and below him. He is the leader for the lower level unit
PETER F. DRUCKER
Peter F. Drucker had revolutionalised management thinking in early 50's with his path breaking books,
presentations. He came into prominence with the publication of "The New Society". Drucker is often hailed as a
genius who had pioneered several modern management concepts in the fields of innovation, creativity, Problem
solving, organization design, MBO etc. His major contributions include:

Nature of Management

Management is a dynamic, life-giving element in an organization.

Management is a distinct, 'discipline and a social function.

Managers should be creative and innovative in order to produce results. He opined that management is
a great profession full of challenges.

Mangers job

Managers are known by their performance. They must set meaningful goals for the entire organization.

Business is inextricably interwoven with society. It has certain social obligations. Managers impact society through
their actions. It is their duty to meet social expectations regarding quality, service, etc
Drucker wanted business community to stand on heir own. Profit verse is not the only goal always. He knew that 'a
healthy business cannot exist in a sick society'. -Managers should realize that businesses survive and flourish only
through the blessing, while meeting social expectations and enterprise objectives managers need to strike fine
balance. He stressed the importance of setting goals, defining problems correctly motivating people.
He wanted businesses to deliver want-satisfying goods and services. The purpose enterprise of an enterprise is to
create a customer.
He wanted managers to set meaningful objectives in eight key areas of business. Market Standing, innovation,
productivity, physical and financial resources, profitability, manager performance and, development, worker
performance and social responsibility.
The Highlight of the Druckers elements
1.MBO: Drucker stressed the importance of joint goal-setting through a novel concept called Management By
Objectives (MBO). He emphasized the importance of participative goals that are tangible, verifiable and measurable.
He wanted managers to focus on what be accomplished (goals) rather than how it was to be accomplished
(methods).
2. Decentralization: Drucker vehemently criticized the functional focus of managers, confirming their work to their
own narrow specialized fields of study (such as marketing manager, finance manager, production manager, etc.). He
wanted managers to create autonomous, self-con independent product divisions within a large undertaking, giving
adequate and proportions emphasis to various products. -In place of task specialization, he advocated for
decentralization. The federal structure, he felt, would make managers accountable for and allow them to grow
steadily.
3.Structure: Drucker wanted managers to reduce the number of layers within the organization; the organization
structure should be dynamic in nature. To realize this, he suggested concrete steps: activity analysis, decision
analysis and relations analysis.
Activity analysis: What is to be done, how it should be put together, how much emphasis to be put on each activity.
4.Decision analysis: The degree of futurity in the decision, the impact of a decision on o activities, the various
qualitative elements that enter the decision-making process, whether the decision is a recurring phenomenon or a
rare one, etc.
5.Relations analysis: Helps in providing a concrete shape to the structure and manning structure properly.
6.Decision-making: According to Drucker, the life of a manager is a perpetual choice-making activity. Management
is nothing but decision-making only. He wanted managers to problems correctly before trying to find solutions. He
wanted managers to took into the foil questions carefully:
What is the problem?
Which problem to solve?

What is the real, cause of the problem? (According to Drucker, critical factor analysis helps in identifying, the
causes properly
MANAGERIAL FUNCTIONS
Many authorities and scholars on management have discussed the functions of management. But there is no
unanimity among them about the nomenclatures of the functions of management.
Ralph Davis classified managerial functions into three categories, viz., organizing and control. He was of the view
that command and coordination facilitate control and, therefore, should be considered as parts of it. However some
authors argue that co-ordination is not a separate function the essence of management.
Joseph Massie prescribed a list of seven functions of management, namely, making, organizing, staffing, planning,
controlling, and communicating and directing. G.R. Terry described managerial functions under four heads, which
are: planning, organizing, actuating and controlling. Koontz and ODonnell have adopted the following
classification: planning, organizing, directing and controlling. They have further said, "In practice it is not always
possible to place all managerial activities neatly into these categories since the functions tend to coalesce.""
Luther Gulick coined the word 'PODSCORB' to describe the functions of management. This word is made up of the
initials of the following functions, (i) planning, (ii) organizing, (iii) directing, (iv) staffing, (v) co-coordinating, (vi)
reporting, and (vii) budgeting. Thus, we can say that there is no universally accepted classification of managerial
functions. But at the same is significant to note that though there is disagreement over the grouping and
classification of management functions, there is general agreement that certain functions exist.
Henri Fayol who gave for the first times a clear functional definition of management. According to him, "To
manage is to forecast and plan, to organize, to command, to coordinate and to control." Thus, Fayol has given
following five functions of management: Forecasting and planning Organizing Commanding Coordination Control.
The basic reason for so many classifications of functions of management different authors discussed them by
studying different organizations. If we accept one of these classifications, it should be kept in mind that functions
are not independent and they frequently overlap each other. According to C.S. George, the management process is
not a series of separate functions, which can be performed independently; it is a composite process made up of these
ingredients. He further said that no one function could be performed without involving the others.
For the purpose of analysis of management process, we can divide the management functions into
(1) Planning, (2) organizing, (3) staffing, (4) directing and (5) controlling.
Planning
Planning is a mental process requiring the use of intellectual faculties, foresight and sound judgment. It is the
determination of a course of action to achieve the desired result. "It is the selecting and relating of facts and the
making and using of assumptions regarding the future in the visualization and formation of proposed activities
believed necessary to achieve desired results." It involves deciding in advance what to do, when to do it, where to do
it, how to do it and who is to do it and how the results are to be evaluated. Thus, planning is the systematic thinking
about the ways and means for the accomplishment of pre-determined objectives. Goals or objectives have to be
clarified first before taking any other decision. Goals provide the basis for looking into the future and for evaluating
the performance with the predetermined standards.

Planning bridges the gap between where we are to where we want to go. It is a prerequisite to doing anything.
Systematic planning is necessary for any business activity; otherwise it will be done in a haphazard manner. Proper
planning is a must to ensure effective utilization of human and non-human resources to achieve the desired goals. It
has to be done at all levels of management. The process of planning involves the following steps:
(i) Determination of goals or objectives of the enterprise, (ii) forecasting, (iii) search of alternative courses of action,
(iv) evaluation of various alternatives and formulation of a plan. (v) Formulation of policies and procedures, (vi)
preparation of schedules, programmes and budgets.
Organizing
Organizing is an important managerial activity by which management brings together the manpower and material
resources for the achievement of pre-determined objectives. Organization is the process of establishing relationships
among the members of the enterprise. The relationships are created in terms of authority and responsibility. Each
member in the organization is assigned a specific responsibility or duty to perform and is granted the corresponding
authority to perform his duty.
In the words of Louis A. Allen, "Organization involves identification and grouping the activities to be performed
and dividing them among the individuals and creating authority and responsibility relationships among them for the
accomplishment of organizational objectives". Thus, organizing involves the determination of activities to be
performed, grouping them and assigning them to various individuals and creating a structure of authority and
responsibility among the individuals to achieve the organizational goals. Organization involves the following steps:
(1) Identification of activities required for the achievement of objectives and Implementation of plans.
(2) Grouping of activities so as to create well-defined jobs
(3) Assignment of jobs to employees
(4) Delegation of authority to subordinates
(5) Establishment of authority-responsibility relationships throughout the organization
Staffing
The staffing function of management pertains to recruitment, selection, training, development and appraisal of
personnel. There is a controversy whether staffing is a function of every manager in the organization as there is
personnel department in every organization. Since every manager is concerned with management of human
resources, he must perform the ion. In fact, every manager is associated with the employment, training and appraisal
of human resources.
Directing
The term directing or 'direction' is generally used in every walk of life. It has got a wide interpretation these days.
It is no more restricted to commanding as viewed by Henri Fayol. In the words of Marshall, "Directing
determining the course, giving orders and instructions and providing dynamic leadership."" It relates to those
activities, which deal directly with influencing, guiding, supervising and motivating subordinates in their jobs. This
function does not cease with mere issuance of directives. According A. Terry, "Directing means moving to action
and supplying stimulative power to group of persons". Thus, directing involves issuing instructions (or
communication) to the subordinates, guiding, motivating and supervising

These sub-functions of directing are discussed below:

(a) Communication. Communication is the process of passing information and understanding from one person to
another. This process is necessary making the subordinates understand what the management expects from in. A
manager has always to tell the subordinates what to do, how to do it and when to do it. He has to create an
understanding in their minds in regard to these things. Communication is a two way process. A manager to be
successful must develop an effective system of communication so that he may issue instructions, receive the
reactions of the subordinates and guide and motivate them.
(b) Leadership. A manager must perform the function of leadership if he is to guide the people effectively for the
achievement of organizational objectives. Leadership may be defined as the process by which a manager guides and
influences the behavior of his subordinates. A manager must possess the leadership qualities if he has to get others
to follow him and accept his directions. He should also build up confidence and zeal to work among the
subordinates.
(c) Motivation. A manager can get the desired results from the people working in the Organization by providing
them with proper Stimulation or motivation. Motivation means inspiring the subordinates with zeal to do work for
the accomplishment of organizational objectives. Motivation is the process of indoctrinating personnel with unity of
purpose and the need to maintain continuous harmonious relationship.
A successful manager makes appropriate use of motivation to actuate the subordinates to work harmoniously
towards the achievement of organizational goals. Effective motivation is necessary for getting voluntary
co-operation of the subordinates. Different types of rewards motivate different people. The manager should study
the behavior of individuals working under him to provide them proper inducements. To some financial incentives
are important while others are motivated by non-pecuniary incentives like job security, job enlargement, freedom to
work and recognition by -peers and management.
Controlling
The function of controlling deals with the measurement and correction of the performance of persons against the
pre-determined standards. E.F.L. Brech defined control as the process of checking actual performance against to
ensuring satisfactory performance, Fayol viewed control as verifying whether everything occurs in conformity with
the plan adopted, the instructions issued and principles established. Controlling leads to taking corrective action if
the results do not conform to plans.
The process of control involves the following steps:
(i) Establishment of Standards. The management must establish Standards with which the actual performance of the
subordinates will be compared. The standards of performance should be laid down in unambiguous terms and should
be understood by everyone in the establishment.
(ii) Measurement of Performance. After the performance is over, the actual performance has to be measured in terms
of quantity, quality, cost and
(iii) Appraisal of performance. The establishment of standards has no meaning unless they are used in actual
practice. The management must compare the actual performance with the pre-established standards. The deviations
from the standards should be recorded and brought to knowledge of the management.

(iv) Taking Corrective Action. When the deviations from the standards From the Standards are reported to the
management, it must take corrective action so that such do not occur again. While taking corrective steps,
management should consider the improvement of plans and standards.
ROLE OF COMMUNICATION IN MANAGEMENT:
A skilled business manager must be able to manage he/she must also be able to delegate, spearhead new ideas
and assess business successes and failures. However, to be able to do any of this successfully, a business manager
must be able to communicate. According to the Psychologically Healthy Workplace Program, "Communication
plays a key role in the success of any workplace program or policy." Business managers who know how to
communicate successfully may improve the chance of success of the program/area that they're managing.
Effective Communication is significant for managers in the organizations so as to perform the basic functions of
management, i.e., Planning, Organizing, Leading and Controlling. Communication helps managers to perform their
jobs and responsibilities. Communication serves as a foundation for planning. All the essential information must be
communicated to the managers who in-turn must communicate the plans so as to implement them. Organizing also
requires effective communication with others about their job task. Similarly leaders as managers must communicate
effectively with their subordinates so as to achieve the team goals. Controlling is not possible without written and
oral communication.
Managers devote a great part of their time in communication. They generally devote approximately 6 hours per day
in communicating. They spend great time on face to face or telephonic communication with their superiors,
subordinates, colleagues, customers or suppliers. Managers also use Written Communication in form of letters,
reports or memos wherever oral communication is not feasible.
Thus, we can say that effective communication is a building block of successful organizations. In other words,
communication acts as organizational blood.
The importance of communication in an organization can be summarized as follows:

Communication promotes motivation by informing and clarifying the employees about the task to be
done, the manner they are performing the task, and how to improve their performance if it is not up to
the mark.

Communication is a source of information to the organizational members for decision-making process

as it helps identifying and assessing alternative course of actions.

Communication also plays a crucial role in altering individuals attitudes, i.e., a well informed
individual will have better attitude than a less-informed individual. Organizational magazines, journals,
meetings and various other forms of oral and written communication help in moulding employees
attitudes.

Communication also helps in socializing. In todays life the only presence of another individual fosters
communication. It is also said that one cannot survive without communication.

As discussed earlier, communication also assists in controlling process. It helps controlling

organizational members behaviour in various ways. There are various levels of hierarchy and certain
principles and guidelines that employees must follow in an organization. They must comply with

organizational policies, perform their job role efficiently and communicate any work problem and
grievance to their superiors. Thus, communication helps in controlling function of management.
An effective and efficient communication system requires managerial proficiency in delivering and receiving
messages. A manager must discover various barriers to communication, analyze the reasons for their occurrence and
take preventive steps to avoid those barriers. Thus, the primary responsibility of a manager is to develop and
maintain an effective communication system in the organization.

UNIT 3
Planning: Nature and principles of planning, Steps in planning, types of planning, Levels of planning The Planning
Process-MBO. Decision making-role-significance decision making process-decision tree analysis. Co-ordinationprinciples.

PLANNING:
Planning means looking ahead and chalking out future courses of action to be followed. It is a
preparatory step. It is a systematic activity which determines when, how and who is going to perform a
specific job. Planning is a detailed programme regarding future courses of action. It is rightly said Well
plan is half done. Therefore planning takes into consideration available & prospective human and
physical resources of the organization so as to get effective co-ordination, contribution & perfect
adjustment. It is the basic management function which includes formulation of one or more detailed plans
to achieve optimum balance of needs or demands with the available resources.
According to Urwick, Planning is a mental predisposition to do things in orderly way, to think before
acting and to act in the light of facts rather than guesses. Planning is deciding best alternative among
others to perform different managerial functions in order to achieve predetermined goals.
According to Koontz & ODonell, Planning is deciding in advance what to do, how to do and who is to
do it. Planning bridges the gap between where we are to, where we want to go. It makes possible things to
occur which would not otherwise occur.
Steps in Planning Function
Planning function of management involves following steps:Establishment of objectives

Planning requires a systematic approach.

Planning starts with the setting of goals and objectives to be achieved.

Objectives provide a rationale for undertaking various activities as well as indicate direction
of efforts.

Moreover objectives focus the attention of managers on the end results to be achieved.

As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives
should be stated in a clear, precise and unambiguous language. Otherwise the activities
undertaken are bound to be ineffective.

As far as possible, objectives should be stated in quantitative terms. For example, Number of
men working, wages given, units produced, etc. But such an objective cannot be stated in
quantitative terms like performance of quality control manager, effectiveness of personnel
manager.

Such goals should be specified in qualitative terms.

Hence objectives should be practical, acceptable, workable and achievable.

Establishment of Planning Premises

Planning premises are the assumptions about the lively shape of events in future.

They serve as a basis of planning.

Establishment of planning premises is concerned with determining where one tends to deviate
from the actual plans and causes of such deviations.

It is to find out what obstacles are there in the way of business during the course of
operations.

Establishment of planning premises is concerned to take such steps that avoids these
obstacles to a great extent.

Planning premises may be internal or external. Internal includes capital investment policy,
management labour relations, philosophy of management, etc. Whereas external includes
socio- economic, political and economical changes.

Internal premises are controllable whereas external are non- controllable.

Choice of alternative course of action

When forecast are available and premises are established, a number of alternative course of
actions have to be considered.

For this purpose, each and every alternative will be evaluated by weighing its p0072os and
cons in the light of resources available and requirements of the organization.

The merits, demerits as well as the consequences of each alternative must be examined before
the choice is being made.

After objective and scientific evaluation, the best alternative is chosen.

The planners should take help of various quantitative techniques to judge the stability of an
alternative.

Formulation of derivative plans

Derivative plans are the sub plans or secondary plans which help in the achievement of main
plan.

Secondary plans will flow from the basic plan. These are meant to support and expediate the
achievement of basic plans.

These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc.
For example, if profit maximization is the main aim of the enterprise, derivative plans will
include sales maximization, production maximization, and cost minimization.

Derivative plans indicate time schedule and sequence of accomplishing various tasks.

Securing Co-operation

After the plans have been determined, it is necessary rather advisable to take subordinates or
those who have to implement these plans into confidence.

The purposes behind taking them into confidence are :-

Subordinates may feel motivated since they are involved in decision making process.

The organization may be able to get valuable suggestions and improvement in formulation as
well as implementation of plans.

Also the employees will be more interested in the execution of these plans.

Follow up/Appraisal of plans

After choosing a particular course of action, it is put into action.

After the selected plan is implemented, it is important to appraise its effectiveness.

This is done on the basis of feedback or information received from departments or persons
concerned.

This enables the management to correct deviations or modify the plan.

This step establishes a link between planning and controlling function.

The follow up must go side by side the implementation of plans so that in the light of
observations made, future plans can be made more realistic.

The Concept Of Management By Objectives (MBO)

The concept of MBO is closely connected with the concept of planning. The process of planning implies
the existence of objectives and is used as a tool/technique for achieving the objectives. Modern
managements are rightly described as 'Management by Objectives' (MBO). This MBO concept was
popularized by Peter Drucker. It suggests that objectives should not be imposed on subordinates but
should be decided collectively by a concerned with the management. This gives popular support to them
and the achievement of such objectives becomes easy and quick.
Management by Objectives (MBO) is the most widely accepted philosophy of management today. It is a
demanding and rewarding style of management. It concentrates attention on the accomplishment of
objectives through participation of all concerned persons, i.e., through team spirit. MBO is based on the
assumption that people perform better when they know what is expected of them and can relate their
personal goals to organizational objectives. Superior subordinate participation, joint goal setting and
support and encouragement from superior to subordinates are the basic features of MBO. It is a resultoriented philosophy and offers many advantages such as employee motivation, high morale, effective and
purposeful leadership and clear objectives before all concerned per-sons.
MBO is a participative and democratic style of management. Here, ample a scope is given to subordinates
and is given higher status and positive/participative role. In short, MBO is both a philosophy and

approach to management. MBO concept is different from MBC (Management by Control) and is also
superior in many respects. According to the classical theory of management, top management is
concerned with objectives setting, directing and coordinating the efforts of middle level managers and
lower level staff. However, achievement of organizational objectives is possible not by giving orders and
instructions but by securing cooperation and participation of all persons. For this, they should be
associated with the management process. This is possible in the case of MBO and hence MBO is different
from MBC and also superior to MBC.
MBO is an approach (to planning) that helps to overcome these barriers. MBO involves the establishment
of goals by managers and their subordinates acting together, specifying responsibilities and assigning
authority for achieving the goals and finally constant monitoring of performance. The genesis of MBO is
attributed to Peter Drucker who has explained it in his book 'The Practice of Management'.
Definitions Of Management By Objectives MBO :According to George Odiome, MBO is "a process whereby superior and subordinate managers of an
Organisation jointly define its common goals, define each individual's major areas of responsibility in
terms Of results expected of him and use these measures as guides for operating the unit and assessing the
contribution of each of its members."
According to John Humble, MBO is "a dynamic system which seeks to integrate the company's needs to
clarify and achieve its profits and growth goals with the manager's need to contribute and develop
himself. It is a demanding and rewarding style of managing a business."
Features Of Management By Objectives MBO :Superior-subordinate participation: MBO requires the superior and the subordinate to recognize that the
development of objectives is a joint project/activity. They must be jointly agree and write out their duties
and areas of responsibility in their respective jobs.
Joint goal-setting: MBO emphasizes joint goal-setting that are tangible, verifiable and measurable. The
subordinate in consultation with his superior sets his own short-term goals. However, it is examined both
by the superior and the subordinate that goals are realistic and attainable. In brief, the goals are to be
decided jointly through the participation of all.
Joint decision on methodology: MBO focuses special attention on what must be accomplished (goals)
rather than how it is to be accomplished (methods). The superior and the subordinate mutually devise
methodology to be followed in the attainment of objectives. They also mutually set standards and
establish norms for evaluating performance.
Makes way to attain maximum result: MBO is a systematic and rational technique that allows
management to attain maximum results from available resources by focussing on attainable goals. It

permits lot of freedom to subordinate to make creative decisions on his own. This motivates subordinates
and ensures good performance from them.
Support from superior: When the subordinate makes efforts to achieve his goals, superior's helping hand
is always available. The superior acts as a coach and provides his valuable advice and guidance to the
subordinate. This is how MBO facilitates effective communication between superior and subordinates for
achieving the objectives/targets set.
Steps In Management By Objectives Planning :Goal setting: The first phase in the MBO process is to define the organizational objectives. These are
determined by the top management and usually in consultation with other managers. Once these goals are
established, they should be made known to all the members. In setting objectives, it is necessary to
identify "Key-Result Areas' (KRA).
Manager-Subordinate involvement: After the organizational goals are defined, the subordinates work with
the managers to determine their individual goals. In this way, everyone gets involved in the goal setting.
Matching goals and resources: Management must ensure that the subordinates are provided with
necessary tools and materials to achieve these goals. Allocation of resources should also be done in
consultation with the subordinates.
Implementation of plan: After objectives are established and resources are allocated, the subordinates can
implement the plan. If any guidance or clarification is required, they can contact their superiors.
Review and appraisal of performance: This step involves periodic review of progress between manager
and the subordinates. Such reviews would determine if the progress is satisfactory or the subordinate is
facing some problems. Performance appraisal at these reviews should be conducted, based on fair and
measurable standards.
Advantages of Management By Objectives MBO :Develops result-oriented philosophy: MBO is a result-oriented philosophy. It does not favor management
by crisis. Managers are expected to develop specific individual and group goals, develop appropriate
action plans, properly allocate resources and establish control standards. It provides opportunities and
motivation to staff to develop and make positive contribution in achieving the goals of an Organisation.
Formulation of dearer goals: Goal-setting is typically an annual feature. MBO produces goals that identify
desired/expected results. Goals are made verifiable and measurable which encourage high level of
performance. They highlight problem areas and are limited in number. The meeting is of minds between
the superior and the subordinates. Participation encourages commitment. This facilitates rapid progress of
an Organisation. In brief, formulation of realistic objectives is me benefit of M[BO.
Facilitates objective appraisal: NIBO provides a basis for evaluating a person's performance since goals
are jointly set by superior and subordinates. The individual is given adequate freedom to appraise his own

activities. Individuals are trained to exercise discipline and self control. Management by self-control
replaces management by domination in the MBO process. Appraisal becomes more objective and
impartial.
Raises employee morale: Participative decision-making and two-way communication encourage the
subordinate to communicate freely and honestly. Participation, clearer goals and improved
communication will go a long way in improving morale of employees.
Facilitates effective planning: MBO programmes sharpen the planning process in an Organisation. It
compels managers to think of planning by results. Developing action plans, providing resources for goal
attainment and discussing and removing obstacles demand careful planning. In brief, MBO provides
better management and better results.
Acts as motivational force: MBO gives an individual or group, opportunity to use imagination and
creativity to accomplish the mission. Managers devote time for planning results. Both appraiser and
appraise are committed to the same objective. Since MBO aims at providing clear targets and their order
of priority, employees are motivated.
Facilitates effective control: Continuous monitoring is an essential feature of MBO. This is useful for
achieving better results. Actual performance can be measured against the standards laid down for
measurement of performance and deviations are corrected in time. A clear set of verifiable goals provides
an outstanding guarantee for exercising better control.
Facilitates personal leadership: MBO helps individual manager to develop personal leadership and skills
useful for efficient management of activities of a business unit. Such a manager enjoys better chances to
climb promotional ladder than a non-MBO type.
Limitations of Management By Objectives MBO :Time-consuming: MBO is time-consuming process. Objectives, at all levels of the Organisation, are set
carefully after considering pros and cons which consumes lot of time. The superiors are required to hold
frequent meetings in order to acquaint subordinates with the new system. The formal, periodic progress
and final review sessions also consume time.
Reward-punishment approach: MBO is pressure-oriented programme. It is based on reward-punishment
psychology. It tries to indiscriminately force improvement on all employees. At times, it may penalize the
people whose performance remains below the goal. This puts mental pressure on staff. Reward is
provided only for superior performance.
Increases paper-work: MBO programmes introduce ocean of paper-work such as training manuals,
newsletters, instruction booklets, questionnaires, performance data and report into the Organisation.
Managers need information feedback, in order to know what is exactly going on in the Organisation. The

employees are expected to fill in a number of forms thus increasing paper-work. In the words of Howell,
"MBO effectiveness is inversely related to the number of MBO forms.
Creates organizational problems: MBO is far from a panacea for all organizational problems. Often MBO
creates more problems than it can solve. An incident of tug-of-war is not uncommon. The subordinates try
to set the lowest possible targets and superior the highest. When objectives cannot be restricted in
number, it leads to obscure priorities and creates a sense of fear among subordinates. Added to this, the
programme is used as a 'whip' to control employee performance.
Develops conflicting objectives: Sometimes, an individual's goal may come in conflict with those of
another e.g., marketing manager's goal for high sales turnover may find no support from the production
manager's goal for production with least cost. Under such circumstances, individuals follow paths that are
best in their own interest but which are detrimental to the company.
Problem of co-ordination: Considerable difficulties may be encountered while coordinating objectives of
the Organisation with those of the individual and the department. Managers may face problems of
measuring objectives when the objectives are not clear and realistic.
Lacks durability: The first few go-around of MBO are motivating. Later it tends to become old hat. The
marginal benefits often decrease with each cycle. Moreover, the programme is deceptively simple. New
opportunities are lost because individuals adhere too rigidly to established goals.
Problems related to goal-setting: MBO can function successfully provided measurable objectives are
jointly set and it is agreed upon by all. Problems arise when: (a) verifiable goals are difficult to set (b)
goals are inflexible and rigid (c) goals tend to take precedence over the people who use it (d) greater
emphasis on quantifiable and easily measurable results instead of important results and (e) over-emphasis
on short-term goals at the cost of long-term goals.
Lack of appreciation: Lack of appreciation of MBO is observed at different levels of the Organisation.
This may be due to the failure of the top management to communicate the philosophy of MBO to entire
staff and all departments. Similarly, managers may not delegate adequately to their subordinates or
managers may not motivate their subordinates properly. This creates new difficulties in the execution of
MBO programme.
Essential Conditions for Successful Execution / Implementation of MBO Or...
How To Make MBO Effective?
Support from all: In order that MBO succeeds, it should get support and co-operation from the
management. MBO must be tailored to the executive's style of managing. No MBO programme can
succeed unless it is fully accepted by the managers. The subordinates should also clearly understand that
MBO is the policy of the Organisation and they have to offer cooperation to make it successful. It should
be a programme of all and not a programme imposed on them.

Acceptance of MBO programme by managers: In order to make MBO programme successful, it is

fundamentally important that the managers themselves must mentally accept it as a good or promising
programme. Such acceptances will bring about deep involvement of managers. If manages are forced to
accept NIBO programme, their involvement will remain superfluous at every stage. The employees will
be at the receiving-end. They would mostly accept the lines of action initiated by the managers.
Training of managers: Before the introduction of MBO programme, the managers should be given
adequate training in MBO philosophy. They must be in a position to integrate the technique with the basic
philosophy of the company. It is but important to arrange practice sessions where performance objectives
are evaluated and deviations are checked. The managers and subordinates are taught to set realistic goals,
because they are going to be held responsible for the results.
Organizational commitment: MBO should not be used as a decorative piece. It should be based on active
support, involvement and commitment of managers. MBO presents a challenging task to managers. They
must shift their capabilities from planning for work to planning for accomplishment of specific goals.
Koontz rightly observes, "An effective programme of managing by objective must be woven into an
entire pattern and style of managing. It cannot work as a separate technique standing alone."
Allocation of adequate time and resources: A well-conceived MBO programme requires three to five
years of operation before it provides fruitful results. Managers and subordinates should be so oriented that
they do not look forward to MBO for instant solutions. Proper time and resources should be allocated and
persons are properly trained in the philosophy of MBO.
Provision of uninterrupted information feedback: Superiors and subordinates should have regular
information available to them as to how well subordinate's goal performance is progressing. Over and
above, regular performance appraisal sessions, counseling and encouragement to subordinates should be
given. Superiors who compliment and encourage subordinates with pay rise and promotions provide
enough motivation for peak performance.
DECISION MAKING
DEFINITION:
The Oxford Dictionary defines the term decision-making as "the action of carrying out or carrying into
effect".
According to Trewatha & Newport, "Decision-making involves the selection of a course of action from
among two or more possible alternatives in order to arrive at a solution for a given problem".

1. Better Utilisation of Resources

Decision making helps to utilise the available resources for achieving the objectives of the organisation.
The available resources are the 6 Ms, i.e. Men, Money, Materials, Machines, Methods and Markets. The
manager has to make correct decisions for all the 6 Ms. This will result in better utilisation of these
resources.
2. Facing Problems and Challanges
Decision making helps the organisation to face and tackle new problems and challenges. Quick and
correct decisions help to solve problems and to accept new challenges.
3. Business Growth
Quick and correct decision making results in better utilisation of the resources. It helps the organisation to
face new problems and challenges. It also helps to achieve its objectives. All this results in quick business
growth. However, wrong, slow or no decisions can result in losses and industrial sickness.
4. Achieving Objectives
Rational decisions help the organisation to achieve all its objectives quickly. This is because rational
decisions are made after analysing and evaluating all the alternatives.
5. Increases Efficiency
Rational decisions help to increase efficiency. Efficiency is the relation between returns and cost. If the
returns are high and the cost is low, then there is efficiency and vice versa. Rational decisions result in
higher returns at low cost.
6. Facilitate Innovation
Rational decisions facilitate innovation. This is because it helps to develop new ideas, new products, new
process, etc. This results in innovation. Innovation gives a competitive advantage to the organisation.
7. Motivates Employees

Rational decision results in motivation for the employees. This is because the employees are motivated to
implement rational decisions. When the rational decisions are implemented the organisation makes high
profits. Therefore, it can give financial and non-financial benefits to the employees.
DECISION MAKING PROCESS: (STEPS IN DECISION MAKING)
Steps Involved In Decision Making Process
Decision-making involves a number of steps which need to be taken in a logical manner. This is treated as
a rational or scientific 'decision-making process' which is lengthy and time consuming. Such lengthy
process needs to be followed in order to take rational/scientific/result oriented decisions. Decision-making
process prescribes some rules and guidelines as to how a decision should be taken / made. This involves
many steps logically arranged. It was Peter Drucker who first strongly advocated the scientific method of
decision-making in his world famous book 'The Practice of Management' published in 1955. Drucker
recommended the scientific method of decision-making which, according to him, involves the following
six steps:
1. Defining / Identifying the managerial problem,
2. Analyzing the problem,
3. Developing alternative solutions,
4. Selecting the best solution out of the available alternatives,
5. Converting the decision into action, and
6. Ensuring feedback for follow-up.
The figure given below suggests the steps in the decision-making process:-

1. Identifying the Problem: Identification of the real problem before a business enterprise is the
first step in the process of decision-making. It is rightly said that a problem well-defined is a
problem half-solved. Information relevant to the problem should be gathered so that critical
analysis of the problem is possible. This is how the problem can be diagnosed. Clear distinction

should be made between the problem and the symptoms which may cloud the real issue. In brief,
the manager should search the 'critical factor' at work. It is the point at which the choice applies.
Similarly, while diagnosing the real problem the manager should consider causes and find out
whether they are controllable or uncontrollable.
2. Analyzing the Problem: After defining the problem, the next step in the decision-making
process is to analyze the problem in depth. This is necessary to classify the problem in order to
know who must take the decision and who must be informed about the decision taken. Here, the
following four factors should be kept in mind:

Futurity of the decision,

The scope of its impact,

Number of qualitative considerations involved, and

Uniqueness of the decision.

Collecting Relevant Data: After defining the problem and analyzing its nature, the next step is to
obtain the relevant information/ data about it. There is information flood in the business world
due to new developments in the field of information technology. All available information should
be utilised fully for analysis of the problem. This brings clarity to all aspects of the problem.
3. Developing Alternative Solutions: After the problem has been defined, diagnosed on the basis
of relevant information, the manager has to determine available alternative courses of action that
could be used to solve the problem at hand. Only realistic alternatives should be considered. It is
equally important to take into account time and cost constraints and psychological barriers that
will restrict that number of alternatives. If necessary, group participation techniques may be used
while developing alternative solutions as depending on one solution is undesirable.
4. Selecting the Best Solution: After preparing alternative solutions, the next step in the decisionmaking process is to select an alternative that seems to be most rational for solving the problem.
The alternative thus selected must be communicated to those who are likely to be affected by it.
Acceptance of the decision by group members is always desirable and useful for its effective
implementation.
5. Converting Decision into Action: After the selection of the best decision, the next step is to
convert the selected decision into an effective action. Without such action, the decision will
remain merely a declaration of good intentions. Here, the manager has to convert 'his decision
into 'their decision' through his leadership. For this, the subordinates should be taken in
confidence and they should be convinced about the correctness of the decision. Thereafter, the
manager has to take follow-up steps for the execution of decision taken.

6. Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the manager
has to make built-in arrangements to ensure feedback for continuously testing actual
developments against the expectations. It is like checking the effectiveness of follow-up
measures. Feedback is possible in the form of organised information, reports and personal
observations. Feed back is necessary to decide whether the decision already taken should be
continued or be modified in the light of changed conditions.
Every step in the decision-making process is important and needs proper consideration by managers. This
facilitates accurate decision-making. Even quantitative techniques such as CPM, PERT/OR, linear
programming, etc. are useful for accurate decision-making. Decision-making is important as it facilitates
entire management process. Management activities are just not possible without decision-making as it is
an integral aspect of management process itself. However, the quality of decision-making should be
always superior as faulty/irrational decisions are always dangerous.
Various advantages of decision-making (already explained) are easily 'available when the entire decisionmaking process is followed properly. Decisions are frequently needed in the management process.
However, such decisions should be appropriate, timely and rational. Faulty and hasty decisions are wrong
and even dangerous. This clearly suggests that various advantages of decision-making are available only
when scientific decisions are taken by following the procedure of decision-making in an appropriate
manner.
For accurate/rational decision-making attention should be given to the following points:
Identification of a wide range of alternative courses of action i.e., decisions. This provides wide choice for
the selection of suitable decision for follow-up actions.
A careful consideration of the costs and risks of both positive and negative consequences that could
follow from each alternation.
Efforts should be made to search for new information relevant to further evaluation of the alternatives.
This is necessary as the quality of decision depends on the quality of information used in the decisionmaking process.
Re-examination of the positive and negative effects of all known alternatives before making a final
selection.
Arrangements should be made for implementing the chosen course of action including contingency plans
in the event that various known risks were actually to occur.
Efforts should be made to introduce creativity and rationality in the final decision taken.
Decision-making is usually defined as the act of making up your mind about something. However, the
process of decision-making is not as easy as it sounds. There are certain important decisions that you have
to make which can change the course of your life. Even at a workplace, one is confronted with problems

or dilemmas, where the solutions should cater to the need of others around you. Such decisions have to be
made in a careful way, especially if it is going to affect you monetarily, or if it is going to bring major
changes in your life. Thus, it is important to take decisions in a systematic way, so that the decision you
make has high chances of being successful. The article here discusses the 6 stages in decision-making,
that can help in clarifying certain things in your mind before you take the final decision. These steps will
also help enhance your decision-making skills for different types of decision-making.
How to Make a Decision in Six Steps
1. Defining the Problem: The first step towards a decision-making procedure is to define the
problem. Obviously, there would be no need to make a decision without having a problem. So,
the first thing one has to do is to state the underlying problem that has to be solved. You have to
clearly state the outcome that you desire after you have made the decision. This is a good way to
start, because stating your goals would help you in clarifying your thoughts.
2. Develop Alternatives: The situation of making a decision arises because there are many
alternatives available for it. Hence, the next step after defining the main problem would be to
state out the alternatives available for that particular situation. Here, you do not have to restrict
yourself to think about the very obvious options, rather you can use your creative skills and come
out with alternatives that may look a little irrelevant. This is important because sometimes
solutions can come out from these out-of-the-box ideas. You would also have to do adequate
research to come up with the necessary facts that would aid in solving the problem.
3. Evaluate the Alternatives: This can be said to be one of the most important stages of the
decision-making procedure. This is the stage where you have to analyze each alternative you have
come up with. You have to find out the advantages and disadvantages of each option. This can be
done as per the research you have done on that particular alternative. At this stage, you can also
filter out the options that you think are impossible or do not serve your purpose. Rating each
option with a numerical digit would also help in the filtration process.
4. Make the Decision: This is the stage where the hard work you have put in analyzing would lead
to a proper decision. The evaluation process would help you with clearly looking at the available
options and you have to pick whichever you think is the most applicable. You can also club some
of the alternatives to come out with a better solution instead of just picking out any one of them.
5. Implement the Solution: The next obvious step after choosing an option would be implementing
the solution. Just making the decision would not give the result one wants. Rather, you have to
carry out on the decision you have made. This is a very crucial step because all the people
involved in implementation of a solution should know about their implications. This is very
essential for the decision to give successful results.

6. Monitor your Solution: Just making a decision and implementing it, is not the end of the
decision-making procedure. It is crucial to monitor your decision regularly once they are
implemented. At this stage, you have to keep a close eye on the progress made by implementing
the solutions. You may need to measure the results of implementations against your expected
standards. Monitoring of solutions since early stage may also help you to alter your decisions, if
you notice deviation of results from your expectations.
CO-ORDINATION PRINCIPLES:
Types,Techniques and Principles of Coordination
In the words of Haimann, Co-ordination is the orderly synchronisation of efforts of the subordinates to
provide the proper amount, timing and quality of execution so that their unified efforts lead to the stated
objective, namely the common purpose of the enterprise.
Types of co-ordination:
The co-ordination may be divided on different bases, namely;
1. Scope on the basis of scope or coverage, co-ordination can be.

Internal refers to co-ordination between the different units of an organisation within and is
achieved by integrating the goals and activities of different departments of the enterprise.

External refers to co-ordination between an organisation and its external environment

comprising government, community, customers, investors, suppliers, competitors, research
institutions, etc. It requires proper match between policies and activities of the enterprise and the
outside world.

2. Flow on the basis of flow, co-ordination can classified into:

Vertical implies co-ordination between different levels of the organisation and has to ensure
that all the levels in the organisation act in harmony and in accordance with the goals and policies
of the organisation. Vertical co-ordination is assured by top management through delegation of
authority.

Horizontal or lateral refers to co-ordination between different departments and other units at the
same level of the management hierarchy.

For instance, co-ordination between production

department and marketing department is horizontal or lateral co-ordination.

Co-ordination may also be:
3. Procedural and substantive which according to Herbert A. Simon, procedural co-ordination implies
the specification of the organisation in itself, i.e. the generalised description of the behaviour and
relationship of the members of the organisation.

On the other hand, substantive co-ordination is

concerned with the content of the organisations activities. For instance, in an automobile plant an

organisation chart is an aspect of procedural co-ordination, while blueprints for the engine block of the
car being manufactured are an aspect of substantive co-ordination.
Techniques of co-ordination:
The main techniques of effective co-ordination are as follows.
Sound planning unity of purpose is the first essential condition of co-ordination. Therefore, the goals
of the organisation and the goals of its units must be clearly defined. Planning is the ideal stage for coordination. Clear-cut objectives, harmonised policies and unified procedures and rules ensure uniformity
of action.
Simplified organisation a simple and sound organisation is an important means of co-ordination. The
lines of authority and responsibility from top to the bottom of the organisation structure should be clearly
defined.

Clear-cut authority relationships help to reduce conflicts and to hold people responsible.

Related activities should be grouped together in one department or unit. Too much specialisation should
be avoided as it tends to make every unit an end in itself.
Effective communication open and regular communication is the key to co-ordination. Effective
interchange of opinions and information helps in resolving differences and in creating mutual
understanding. Personal and face-to-face contacts are the most effective means of communication and
co-ordination. Committees help to promote unity of purpose and uniformity of action among different
departments.
Effective leadership and supervision effective leadership ensures co-ordination both at the planning
and execution stage. A good leader can guide the activities of his subordinates in the right direction and
can inspire them to pull together for the accomplishment of common objectives. Sound leadership can
persuade subordinates to have identity of interest and to adopt a common outlook. Personal supervision is
an important method of resolving differences of opinion.
Chain of command authority is the supreme co-ordinating power in an organisation. Exercise of
authority through the chain of command or hierarchy is the traditional means of co-ordination. Coordination between interdependent units can be secured by putting them under one boss.
Indoctrination and incentives indoctrinating organisational members with the goals and mission of the
organisation can transform a neutral body into a committed body. Similarly incentives may be used to
create mutuality of interest and to reduce conflicts. For instance, profit-sharing is helpful in promoting
team-spirit and co-operation between employers and workers.
Liaison departments where frequent contacts between different organisational units are necessary,
liaison officers may be employed. For instance, a liaison department may ensure that the production
department is meeting the delivery dates and specifications promised by the sales department. Special coordinators may be appointed in certain cases. For instance, a project co-ordinator is appointed to co-

ordinate the activities of various functionaries in a project which is to be completed within a specified
period of time.
General staff in large organisations, a centralised pool of staff experts is used for co-ordination. A
common staff group serves as the clearing house of information and specialised advice to all department
of the enterprise. Such general staff is very helpful in achieving inter-departmental or horizontal coordination. Task forces and projects teams are also useful in co-ordination.
Voluntary co-ordination when every organisational unit appreciates the workings of related units and
modifies its own functioning to suit them, there is self-co-ordination. Self-co-ordination or voluntary coordination is possible in a climate of dedication and mutual co-operation.

It results from mutual

consultation and team-spirit among the members of the organisation. However, it cannot be a substitute
for the co-coordinative efforts of managers.
Principles of co-ordination (requisites for effective co-ordination)
Mary Parker Follett has laid out four principles for effective co-ordination;
Direct personal contact according to this principle co-ordination is best achieved through direct
personal contact with people concerned. Direct face-to-face communication is the most effective way to
convey ideas and information and to remove misunderstanding.
Early beginning co-ordination can be achieved more easily in early stages of planning and policymaking. Therefore, plans should be based on mutual consultation or participation. Integration of efforts
becomes more difficult once the unco-ordinated plans are put into operation. Early co-ordination also
improves the quality of plans.
Reciprocity this principle states that all factors in a given situation are interdependent and interrelated.
For instance, in a group every person influences all others and is in turn influenced by others. When
people appreciate the reciprocity of relations, they avoid unilateral action and co-ordination becomes
easier.
Continuity co-ordination is an on-going or never-ending process rather than a once-for-all activity. It
cannot be left to chance, but management has to strive constantly. Sound co-ordination is not firefighting, i.e., resolving conflicts as they arise.

UNIT 4
Organizing: Nature of organizing-principles organization levels and span of management- Organizational design
and structure departmentation, line and staff concept, staffing delegation, centralization and decentralization of
authority responsive organization.
LEARNING OBJECTIVES
After reading this unit you should able to understand

The purpose of the organization

The meaning of organizing and organization.

The organization structure and their levels.

The Departmentalization and span of control.

The nature of authority and power.

The nature of relationship between the line and staff...

The scope of centralization and decentralization.

The importance of obtaining balance in the degree of delegation of authority.

3.1 INTRODUCTION
It is often said that good people can make any organization pattern work. Some even assert that vagueness in
organization is a good thing in that it forces teamwork, since people know that they must cooperate to get anything
done. However, there can be no doubt that good people and those who want to cooperate will work together most
effectively if they know the parts they are to play in any team operation and the way their roles relate to one another.
This is as true in business or government as it is in football or in a symphony orchestra. Designing and maintaining
these systems of roles is basically the managerial function of organizing
It is in this sense that we think of organizing as
(1) the identification and classification of required activities,
(2) the grouping of activities necessary to attain objectives,
(3) the assignment of each grouping to a manager with the authority (delegation) necessary to supervise it,
and
(4) the provision for coordination horizontally (on the same or a similar organizational level) and vertically
(for example: corporate headquarters, division, and department) in the organization structure.
An organization structure should be designed to clarify who is to do what tasks and who is responsible for what
results, to remove obstacles to performance caused by confusion and uncertainty of assignment, and to furnish
decision making and communications networks reflecting and supporting enterprise objectives.
"Organization" is a word many people use loosely. Some would say it includes all the behavior of all participants.
Others would equate it with the total system of social and cultural relationships. Still others refer to an enterprise,
such as United States Steel Corporation or the Department of Defense, as an "organization." But for most practicing
managers, the term organization implies a formalized intentional structure of roles or positions. In this book, the
term is generally used in reference to a formalized structure of roles, although it is sometimes used to denote an
enterprise.

3.2 DEFINITION OF ORGANIZATION

The term 'organization' connotes different things to different people. Many writers have attempted to state the
nature, characteristics and principles of organization in their own way. For instance, to the sociologist organization
means a study of the interactions of the people, classes, or the hierarchy of an enterprise; to the psychologist
organization means ant attempt to explain, predict and influence behavior of individuals in an enterprise; to a top
executive it may mean the weaving together of functional components in the best possible combination so that an
enterprise can achieve its goals. The word 'organization' is also used widely to connote a group of people and the
structure of relationships. In order to clearly understand the nature and characteristics of organization, we shall study
it under the following heads,
The term organization is used in many ways. It means different things different people. Currently the following
uses of the term are popular

A group of people united by a common purpose.

An entity, an ongoing, business unit engaged in utilizing resources to create a result.

A structure of relationships between various positions in an enterprise.

A process by which employees, facilities and tasks are related, to each other, with a view to achieve
specific goals.

Group of Persons Organization is very often viewed as a group of persons contributing their efforts towards certain
goals. The evolution of organization dates back to the early stages of human civilization when two or more persons
began to cooperate and combine together for fulfilling their basic needs of food, clothing, shelter and protection of
life. Organization begins when people combine their efforts for some common purpose. It is a universal truth that an
individual is unable to fulfill his needs and desires alone because he lacks strength, ability and resources. So he
seeks the cooperation of other people who have similarity of goals.
Organizations are not a new invention. People have always formed organizations to pool their efforts for the
accomplishment of their common objectives. The Pharaohs used organizations to build pyramids. The Emperors of
China used organizations more than a, thousand years ago to construct irrigation systems. And the first Popes
created a universal church to serve a world religion. Modern society, however, has more organizations; these fulfilling a greater variety of societal and personal needs, involving a greater proportion of its citizens, and affecting, a
large segment of their lives.
Barnard defined organization as an identifiable group of people contributing their efforts towards tile attainment of
goals. "An organization comes into existence when there are a number of persons in communication and relationship
to each other and are willing to contribute towards a common endeavor". People form groups or organizations and
pool their efforts by defining and dividing various activities, responsibility and authority. As such an organization
has the following characteristics:
1.

Communication

2.

Cooperative efforts

3.

Common objectives

4.

Rules and regulations

Structure of Relationships
Some people view organization in a very, narrow sense by defining it as a framework of duties and responsibilities
through which an undertaking functions. Organization is no more than the framework within which the
responsibilities of management of an enterprise by laying down the structure of relationships. If organization is
merely recognized as a structure, it will be viewed as a static thing used to explain formal relationships. But an
organization is a dynamic entity consisting of individuals, means, objectives and relationships among the
individuals. An organization is certainly more than a chart. It is the mechanism through which management directs,
coordinates and controls the activities of the enterprise.
Function of Management
Organization is one of the basic functions of management. It involves the determination and provision of whatever
capital, materials, equipment and personnel may be required for the achievement of certain predetermined goals. By
performing this function, management brings together human and non-human resources to form a manageable unit
(which is also identified as an organization). Thus, organization is a process of integrating and coordinating the
efforts of manpower and material resources for the accomplishment of certain objectives. Just as planning is applied
to every other managerial function, the process of organization: is also used in every aspect of management. For
instance, organization of the planning department is essential for the formulation of plans and policies. Similarly,
organization of other managerial functions is also necessary.
Organization as a Process
Organization is the process of establishing relationships among the members of the enterprise. The relationships are
created in terms of authority and responsibility. Each member in the organization is assigned a specific responsibility or duty to perform and is granted the corresponding authority to perform his duty. According to Louis A.
Allen, "organization involves identification and grouping the activities to be performed and dividing them among
the individuals and creating authority and responsibility relationships among them for the accomplishment of
organizational objectives".
3.3 STEPS IN ORGANIZING
Organizing involves the following interrelated steps
(i) Determination of Objectives. Organization is always related to certain objectives. Therefore, it is essential for
the management to identify the objectives before starting any activity. It will help the management in the choice of
men and materials with the help of which it can achieve its objectives. Objectives also serve as the guidelines for the
management and the workers. They bring about unity of direction in the organization.
(ii) Identification and Grouping of Activities. If the members of the group are to pool their efforts effectively,
there must be proper division of the major activities. Each job should be properly classified and grouped. This will
enable the people to know what is expected of them as members of the group and will help in avoiding duplication
of efforts. For instance, the total activities of an industrial organization may be divided into major functions like
production, purchasing, marketing, financing, etc. and each such function is further subdivided into various jobs.
The jobs, then, can be classified and grouped to ensure the effective implementation of the other steps.

(iii) Assignment of Duties. After classifying and grouping the activities into various jobs, they should be allotted to
the individuals so that there are round ' pegs in round holes. Each individual should be given a specific job to do
according to his ability and made responsible for that. He should also be given the adequate authority to do the job,
assigned to him.
(iv) Developing Authority, Responsibility and Relationships. Since so many individuals work in the same
organization, it is the responsibility of management: to lay down structure of relationships in the organization.
Everybody should clearly know to whom he is accountable. This will help in the smooth working of the enterprise
by facilitating delegation of responsibility and authority.
3.4 IMPORTANCE OF SOUND ORGANIZATION
Organization is the backbone of management. Without efficient organization, no management can perform its
functions smoothly. Sound organization contributes greatly to the continuity and success of the enterprise. Once A.
Carnegie, an American industrialist, said, "Take away our factories, take away our trade, our avenues of
transportation, and our money. Leave nothing but our organization, and in four years we shall have re-established
ourselves". That shows the significance of managerial skills and organization. However, good organization structure
does not by itself produce good performance - just as good constitution does not guarantee great presidents, or good
laws a moral society. But a poor organization structure makes good performance impossible, no matter how good
the individuals may be. The right organizational structure is the necessary foundation; without it the best
performance in all other areas of management will be ineffectual and frustrated.
Sound organization brings about the following advantages
1. Facilitates attainment of the objectives of the enterprise.
2. Facilitates optimum use of resources and new technological developments.
3. Facilitates growth and diversification.
4. Stimulates creativity and innovation.
5. Facilitates effective communication.
6. Encourages better relations between the labor and the management.
7. Increases employee satisfaction and decreases employee turnover.
Sound organization is an essential prerequisite of efficient management. It helps an organization in the following
ways:
1. Enlarges abilities: It helps individuals to enlarge their capabilities. Division of work enables an individual to
specialize in the job, in which he is proficient, leading to better utilization of resources and talents.
2. Facilitates administration: It facilitates administration by avoiding waste motions, overlapping work and
duplication of effort. Departmentation enables proper planning of work. Confusion and misunderstanding, over who
is to perform what work, is avoided by specifying the role of managers clearly. Proportionate and balanced emphasis
is put on various activities.
3. Facilitates growth and diversification: Sound organization helps in keeping activities under constant vigil and
control. The organization can undertake more activities without dislocation. Talents and resources are put to good
use. Opportunities are seized quickly and exploited fully, when ultimately pave way for growth and diversification.

4. Permits optimum use of resources: Human, technical and material resources are put to good use. Right persons
are given right jobs. There is proper allocation of work. People know that they are supposed to do, well in advance.
Necessary functions are determined and assigned, so that personnel and physical facilities are utilized effectively.
5. Stimulates creativity. It offers stimulating opportunities to people at all levels, to use their skills on jobs best
suited to their nature. Delegation helps people at lower levels to do more challenging work. The higher ups, in turn,
can concentrate on strategic issues-putting their creative abilities to good use.
6. Facilitates coordination: Organization is an important way of achieving coordination among different
departments of an enterprise. Clear authority relationships and proper assignment of work facilitates the task of
achieving coordination at all levels. Poor organization leads to improper arrangement of duties and responsibilities.
As a result, unimportant and trivial issues are given top priority. Activities that should be integrated or centralized
are spread out and put to improper supervision. Incompetent individuals are overused while talented people are
under-utilized. Delays, duplications and waste motions occur with frustrating regularity. Expenses mount up. These
would create utter confusion, chaos and conflict. Poor organization may mean improper arrangement of facilities
and failure to achieve goals.
3.5. PRINCIPLES OF ORGANIZATION
As a tool of management, organization is expected to facilitate the achievement of certain objectives, In order to
facilitate the achievement of objectives, management thinkers have laid down certain statements from time to time,
from certain generally accepted understandings, which may be called the principles of organization. The principles
are guidelines for planning an efficient organization structure. Therefore, a thorough understanding of the principles
of organization is essential for good organization. The important principles of organization are discussed below:
1. Consideration of Objectives. An enterprise strives to accomplish certain objectives. Organization serves as a
tool to attain these objectives. The objectives must be stated in clear terms as they play an important role in
determining the type of structure, which should be developed. The principle of consideration of objectives states that
only after the objectives have been stated, an organization structure should be developed to achieve them.
2. Division of Work and Specialization. The entire work in the organization should be divided into various parts so
that every individual is confined to the performance of single job, as far as possible, according to his ability and
aptitudes. This is also called the principle of specialization. More a person continues on a particular job, the better
will be his performance.
3. Definition of Jobs. Every position in the organization should be clearly defined in relation to other positions in
the organization. The duties and responsibilities assigned to every position and its relationship with other positions
should be clearly defined so that there may not be any overlapping of functions.
4. Separation of Line and Staff Functions. Whenever possible, line functions should be separated from staff
activities. Line functions are those, which accomplish the main objectives of the company. In many manufacturing
companies, the manufacturing and marketing departments are considered to be accomplishing the main objectives of
the business and so are called the line functions and other functions like personnel, plant maintenance, financing and
legal are considered as staff functions.

5. Chain of Command. There must be clear lines of authority running from the top to the bottom of the
organization. Authority is the right to decide, direct and coordinate. The organization structure should facilitate
delegation of authority. Clarity is achieved through delegation by steps or levels from the top position to the
operating level. From the chief executive, a line of authority may proceed to departmental managers, to supervisors
or foremen and finally to workers. This chain of command is also known as scalar principle of organization.
6. Parity of Authority and Responsibility. Responsibility should always be coupled with corresponding authority.
Each subordinate must have sufficient authority to discharge the responsibility entrusted to him. This principle
suggests that if a plant manager in a multi-plant organization is held accountable for all activities in his plant, he
should not be subject to orders from company headquarters specifying the quantity of raw materials he should buy
or from whom he should purchase raw materials. If a supervisor is responsible for the quality of work of his
department, he should not be asked to accept as a member of his workforce an employee who has been hired without
consulting him.
7. Unity of Command. No one in the organization should report to more than one supervisor. Everyone in the
organization should know whom he reports and who reports to him. Stated simply, everyone should have only one
boss. Receiving directions from several supervisors may result in confusion, chaos, conflicts and lack of action. So
each member of the organization should receive directions from and report to one superior only. This will avoid
conflict of command and help in fixing responsibilities.
8. Exceptional Matters. This principle requires that organization structure should be so designed that managers are
required to go through the exceptional matters only. The subordinates should take all the routine decisions, whereas
problems involving unusual matters and policy decisions should be referred to higher levels.
9. Span of Supervision. The span of supervision means the number of persons a manager or a supervisor can direct.
If too less number of employees is reporting to a supervisor, his time will not be utilized properly. But, on the other
hand, there is a limit to the number of subordinates that can be efficiently supervised by an executive. Both these
points should be kept in mind while grouping and allocating the activities to various departments. It is difficult to
give a definite number of persons a manager can direct. It will depend upon the nature of the work and a number of
other factors.
10. Balance of Various Factors. There should be proper balance in the formal structure of the organization in
regard to factors having conflicting claims, e.g., between centralization and decentralization, span of supervision and
lines of communication and authority allocated to departments and personnel at various levels.
11. Communication. A good communication network is essential to achieve the objectives of an organization. No
doubt the line of authority provides readymade channels of communication downward and upward, still some blocks
in communication occur in many organizations. The confidence of superior in his subordinates and two-way
communication are the factors that unite an organization into an effectively operating system.
12. Flexibility. The organization structure should be flexible so that it can be easily and economically adapted to the
changes in the nature of business as well as technical innovations. Flexibility of organization structure ensures the
ability to change with the environment before something serious may occur. So the organization structure should be
such that it permits expansion and contraction without disrupting the basic activities.

13. Continuity. Change is the law of nature. Many changes take place outside the organization. These changes must
be reflected in the organization. For this, the form of organization structure must be able to serve the enterprise and
to attain its objectives for a long period of time.
3.5 TYPES OF ORGANIZATION
3.5.1. According to Talcott Parson Scheme, organizations can be classified primarily into four categories based on
functions:
(a) Economic Organizations:
Economic organizations are primarily concerned with producing something of value to the society. They are wedded
to a philosophy of generating surplus/ profit. Industrial, commercial and, trading concerns are included in this
category.
(b) Political, organizations:
Political organizations survive on the basis of service to society. They help in achieving the basic values cherished
by the society. They, collect resources from the society. Employ them judiciously, and help in maintaining peace
and stability in the society. All governmental agencies are included in this category.
(c) Integrative organizations:
Integrative organization tried with social, control and maintenance. Police departments and other protective
organizations (courts etc.) are included in this category.
(d) Pattern maintenance organizations:
Pattern maintenance organizations, like, educational institutions, research institutions, religious organizations, clubs
etc. are primarily concerned with, long-term interests bf society, culture, knowledge values, etc.,
3.5.2. According to Blau and Scott have suggested a cui bono (two, benefits) criterion for classifying organizations.
According to this, scheme, an organization survives on the basis of the services tendered to the society. Its success
depends, on how best it is able to serve the interests of its members, owners or managers, clients and the socities.
1. Mutual benefits associations:
Mutual benefit association like trade unions, political parties professional, bodies etc., crop up to serve the interests
of member, It is not always possible for these associations, to achieve, the seemingly easy objective because of two
problems membership, apathy and oligarchical control. Membership in mutual benefit associations may be exciting
initially but after a time it becomes a monotonous feature. Members lose interest and develop apathy toward the
associations activities. Consequently, control passes into hands of a selected few; oligarchial control replaces the
internal democratic character of the association.
2. Business organizations:
Owners are the primary, beneficiaries in, business organization. They are mainly concerned with maintaining,
operational efficiency-achieving maximum gain at minimum cost. It is true that other groups like employees,''
customers, society etc. receive benefits simultaneously from business organizations but in the final analysis, the
survival of such institutions depends on how effectively the owners are rewarded for the risks undertaken.

3. Service organizations:
In service organizations like hospitals, educational institutions, social welfare agencies etc. primary beneficiaries. In
order to tender effective service to the clients, the professionals looking after these organizations must emphasize
two things service, is more important than observing procedures and the nature of service is to be decided
3.5.3. According to Samuel Deeps Classification Scheme
1. For, profit organizations:
These organizations provide goods and services at a profit. Companies, partnership firms, sole, proprietorship - firm
are organised, along these lines and they generate profit for survival and continuance, in the market.
2. Government organizations:
These organizations satisfy the public need, for, order and, provide a means for people to exercise some measure of
control over their environment.
3. Protective organizations:
They shield citizens from danger, Police, and military services etc.
4. Service organizations:
They act in the interest of, the general public without always receiving payments in full for services rendered
5. Political organizations:
They seek to influence legislation by electing a member of their group to public office (political parties, groups and
associations).
6. Religious organizations:
They provide for the spiritual needs of members and try to enlist nonbelievers into their fold (churches, sects, orders
etc.).
7. Social organizations:
They satisfy the needs of persons to make friendships and to have contact, with, others-who have contact with others
who have compatible interests (clubs, teams, fraternities).
3.5.4. Types of Organization Based on Authority, Responsibility and Accountability
Formal Organization and Informal Organization
Formal organization, which refers to the structure of well-defined jobs, each bearing a definite measure of authority,
responsibility and accountability, is not capable of accomplishing organizational objectives all alone. It needs the
help of informal organization for this purpose. In other words, informal organization, which does not appear on the
organization chart, supplements the formal organization in achieving organizational goals effectively and efficiently.
The working of informal groups and leaders is not as simple as it may appear to be. Therefore, it is obligatory for
every manager to study thoroughly the working pattern of informal relationships in the organization and to use them
for achieving organizational objectives. In this chapter, an attempt has been made to study the behavior of informal
groups, which develop automatically along with the formal organization.
3.5.4.1. FORMAL ORGANIZATION
Chester 1. Barnard defined formal organization as "a system of consciously coordinated activities or forces of two
or more persons", A formal organization is deliberately designed to achieve some particular objectives. It refers to

the structure of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability.
The structure is consciously designed to enable the organizational members to work together for accomplishing
common objectives. The individual must adjust to the formal organization. It tells him to do certain things in a
specified manner, to obey orders from designated individuals and to cooperate with others. Co-ordination also
proceeds according to a prescribed pattern in the formal organization structure.
The formal organization is built around four key pillars; namely, (i) division of labor, (ii) scalar and functional
processes, (iii) structure, and (iv) span of control. These may also be called the principles of formal organization.
Division of labor and specialization, is, the basic principle of formal organization. The whole work is divided into a
number of small operations and a different person performs each operation so that there is maximum specialization.
The scalar and functional processes imply the growth of the organization both vertically and horizontally. The,
structure of the organization refers to the overall arrangement in the organization which, ensures proper balance
between different parts of the organization and secures the execution of all operations and the achievement of
organizational objectives. The span of control refers to the number of subordinates directly reporting and
accountable to one superior.
CHARACTERISTICS OF FORMAL ORGANIZATION
The basic characteristics of formal organization are as follows
(i) Organization structure is laid down by the top management to achieve organizational goals.
(ii) Organization structure is based on division of labor and specialization to achieve efficiency in
operations.
(iii) Organization structure concentrates on the jobs to be performed and not the individuals who are to
perform jobs.
(iv) The organization does not take into consideration the sentiments of organizational members.
(v) The authority and responsibility relationships created by the organization structure are to be honored by
everyone. The position in the organization hierarchy determines the relative status of the incumbent.
3.5.4.2. INFORMAL ORGANIZATION
Informal organization refers to the relationship between people in the organization based on personal attitudes,
emotions, prejudices, likes, dislikes, etc. These relations are not developed according to procedures and regulations
laid down in the formal organization structure; generally, large formal groups give rise to small informal or social
groups. These groups may be based on same taste, language, culture or some other factor. These groups are not
preplanned, but they develop automatically within the organization according to its environment.
Generally, large formal groups give rise to small informal or social groups. These- groups may be based on common
taste, language, culture or some other factor. These groups are not pre-planned. They develop automatically within
the organization according to the environment in the organization. The salient features of informal organization are
as follows:
(i) Informal relations are unplanned. They arise spontaneously.
(ii) Formation of informal organizations is a natural process.
(iii) Informal organization reflects human relationships.

(iv) Informal organizations are based on common taste, problem, language, religion, culture, etc.
(v) The membership of informal organizations is voluntary. At the same time, a person may be a member
of a number of informal groups. Thus, there can be overlapping in these groups.
Significance of Informal Organization
The importance of informal organization arises from the functions performed by informal groups. The important
functions of informal Organization are as under:
(i) It serves as a very useful channel of communication in the organization. The informal communication is
very fast.
(ii) It blends with the formal Organization to make it more effective. It gives support to the formal
Organization.
(iii) The informal leader lightens the burden of the formal manager and tries to fill in the gaps in the
manager's abilities.
(iv) Informal Organization gives psychological satisfaction to the members. They get a platform to express
their feelings.
(v) The presence of informal Organization encourages the manager to plan and act carefully. Thus,
informal organizations support and supplement the formal Organization. There are certain
disadvantages also of informal organizations. They put resistance to change and conform to old
practices. The communication in informal Organization is very fast; sometimes, it creates rumors,
which may prove dangerous to the enterprise.
Management's Attitude towards Informal Organization
Modern authors on Organization behavior view Organization as consisting of both, types of relationships, i.e.,
formal and informal. It is true that while laying down an organizational plan, management can only develop formal
structure of relationships, but Organization is not only a formal chart or structure of relationships. Formal
Organization, no doubt it is an important part of the Organization. But informal Organization is also not less
important. If handled properly, it will help in performing the activities of the organization very efficiently and
effectively. In short, informal relations are complementary to formal relations and procedures laid down in the,
organization structure. Both formal and informal organizations are necessary for any group action just as two blades
are essential to make a pair of scissors workable.
The management should not look down upon the informal organization as it arises spontaneously along with the
formal organization and fills in some, of the vital gaps in the formal organization. It may be noted that formal
organization is unable to meet all the needs (e.g., affiliation, affection; esteem, etc.) of its members. Management
can fulfill these needs of the workers by encouraging healthy interaction among informal groups and their members.
Also, informal organization provides a buffer to absorb the shock, of tensions and frustrations among the members
as a result of formal organizational pinpricks.
Informal organization may act to fill in gaps in a manager's abilities. For instance, if a manager is weak in planning,
one of his subordinates may informally help him in such a situation. Management may also make use of informal
group leaders by taking them into confidence to mediate as bridges of understanding between the management and

the employees. Shartle has rightly said, "Informal structure is one index of the dynamics of getting work done and it
appears that, for efficiency, it will necessarily deviate from the formal structure." Therefore, management should
adopt a positive attitude towards informal organization. It should use it along with formal structure to make a
workable system for achieving the organizational objectives.
3.5.4.3. COMPARATIVE STUDY OF FORMAL AND INFORMAL ORGANIZATION
The formal and informal organizations differ from each other in the following respects
(i) Origin. The reasons and circumstances of origin of both formal and informal organizations are totally different.
Formal organizations are created by conscious managerial decisions. But informal organizations arise naturally
within the formal organization because of the tendency of the individuals to associate and interact. Management has
no hand either in emergence or in abolition of informal groups.
(ii) Purpose. Formal organizations are created for realizing certain well-defined objectives. But informal groups are
created by organizational members for their social and psychological satisfaction,' There may be a conflict between
the goals of the formal organization and those of the informal groups.
(iii) Activities. Activities in case of formal organization are differentiated and integrated around the objectives of the
enterprise and are formalized into work units or departments on a horizontal basis. Individuals are fitted into jobs
and positions and work groups as a result of managerial decisions. In case of informal organization, there are no
specific activities. They arise from time to time as a result of interactions and sentiments of the individuals. Informal
groups may be based on common taste, language, culture or some other factor.
The following table summarizes the differences between formal and information organizations:
Formal Organization vs. Informal Organization
Point

Formal organization

Informal organization

Origin and goals Deliberately created; reflects organizational Arises spontaneously; reflects individual and
goals

group goals.

Basic purpose is to achieve organization Basic purpose is to improve human relations.

goals.
Structure

It has a definite structure and is reflected in Structure less, organization chart built around
an organization chart built around group People.
Positions.

Integrating

Formal organization is held together by Held together by feelings of friendship, mutual

Mechanisms

rules, regulations, and procedures,

help and trust, and so on; it has unwritten rules

and is bound by group norms rather than
Organizational goals.

Communication

Formal organization depends on formal, The informal organization designs its own
official channels of communication to sell communication popularly known as grapevine,
the

ideas

of

management

to

organization;

the for both organizational and social communication

process; communication is a two-way traffic.

Communication is a one-way traffic

size

Tends to be large in size, generally Tends to be small and manageable.

unwieldy and unmanageable.

Durability

Tends to be permanent and stable.

Characterized by instability

Orientation

It is more or less, an impersonal and A highly flexible structure designed to satisfy

arbitrary structure, to which individuals social and psychological needs of individuals.
must adjust.

(iv) Structure. Formal organization is hierarchical, pyramid shaped and bureaucratic in structure with well-defined
positions, rigid delineation of roles and. superior-subordinate relationships on impersonal basis, enforcement of
organizational order through a set of policies, procedures, and rules, conscious emphasis on status, differential based
on authority, narrow and downward oriented communication system, etc. On the other hand, informal organization
is uncharitable; it looks like a complicated and common social network of interpersonal relationships. Informal
organization is loosely structured, with only unwritten norms of behavior enforced by consent. Communication is
informal and multi-directional. There are no rigid status differentials.
(v) Membership. In a formal organization, every individual belongs to one work group only and works under one
superior. But in case of informal organization, one person can be a member of more than one group, according to his
choice. He may be - a leader in one group and follower in another. There is no rigidity about group membership.
(vi) Orientation. In case of formal organization, values, goals and tasks are dominantly economic and technical and
they concern productivity, profitability, efficiency, survival and growth. But in case of informal organization,
values, goals ' and tasks are dominantly psycho-social, setting around individual and group satisfaction, affiliation,
cohesiveness and friendship.
(vii) Norms of Behavior. In a formal organization, individuals are required to behave in the prescribed manner in
their work situations. They are expected to behave in a rational manner. Deviations from the standard norms are
dealt with according to the processes of organizational law and order. There is also a system of rewards and
punishments. But in case of informal organization, individual behavior and group behavior influence each other.
Behavior is more natural and social. Interactions cut across formally established positions and relationships and
there is free exchange of feelings and ideas. An informal organization develops its own norms of behavior and a
system of rewards and punishments to ensure adherence of group norms.

3.6.

Group Dynamics

Informal organization does not last so long informal organization reflects human aspect. It is based on the attitudes,
likes and dislikes tastes, language, etc. of people. It is loosely structured. It is highly flexible in nature. The group
members choose informal leaders.
Social needs are among the, most powerful and compelling on-the-job motivating forces. In order to fulfill their
social needs, workers form small groups on the job itself. It was shown by Hawthorne experiments that people
behave as members of group and their membership of group helps shape their work-behavior and attitudes towards
the organization. Management can use groups successfully for the accomplishment of organizational objectives.
According to Likert, an organization will function best when its personnel function not as individuals but as
members of highly effective work-groups with high performance goals.
The social process by which people interact face-to-face in small groups -is called group dynamics. Group
dynamics is concerned with the interaction of individuals in a face-to-face relationship. It focuses on teamwork
wherein small groups are constantly in contact with each other and share their ideas to accomplish the given tasks.
The group develops its goals clearly and furnishes suggestions to its members for the accomplishment of goals.
Every group chooses its leader (who may be called informal leader as he is not recognized in the formal
organizational structure) who may effectively coordinate the group efforts towards the accomplishment of its
objectives.
3.7. ORGANIZATION STRUCTURE
An organization structure shows the authority and responsibility relationships between the various positions in the
organization by showing who reports to whom. It is a set of planned relationships between groups of related
functions and between physical factors and personnel required for the achievement of organizational goals.
Organization involves establishing an appropriate structure for the goal seeking activities. The structure of an
organization is generally shown on an organization chart or a job- task pyramid. It shows the authority and responsibility relationships between various positions in the organization. It is significant to note that the organization
structure is directly related to the attainment of the organization objectives. For instance, if an undertaking is in
production line, the, dominant element in its organization chart, would be manufacturing and assembling. A good
organization structure should not be static but dynamic. It should be subject to change from time to time in the light
o f the changes in the business environment. While designing the organization structure, due attention should be
given to the principles of sound organization.
3.7.1. SIGNIFICANCE OF ORGANIZATION STRUCTURE
Organization structure contributes in the following ways to the efficient functioning of organizations:
1. Clear-cut Authority Relationships. Organization structure allocates authority and responsibility. It specifies
who is to direct whom and who is accountable for what results. The structure helps an organization member to know
what his role is and how it relates to other roles.

2. Pattern of Communication. Organization structure provides the patterns of communication and co-ordination.
By grouping activities and people, structure facilitates communication between people centered on their job
activities. People who have joint problems to solve often need to share information.
3. Location of Decision Centers. Organization structure determines the location of decision-making in the
organization. A departmental store, for instance, may follow a structure that leaves pricing, sales promotion and
other matters largely up to individual departments to ensure that varied departmental conditions are considered. In
contrast, an oil refinery may concentrate on production, scheduling and maintenance decisions at top levels to ensure
that interdependencies along the flow of work are considered.
4. Proper Balancing. Organization structure creates the proper balance and emphasis of activities. Those more
critical to the enterprise's success might be placed higher in the organization. Research in a pharmaceutical
company, for instance, might be singled out for reporting to the general manager or the managing director of the
company. Activities of comparable importance might be given roughly equal levels in the structure to give them
equal emphasis.
5. Stimulating Creativity. Sound organization structure stimulates creative thinking and initiative among
organizational members by providing well defined patterns of authority. Everybody knows the area where he
specializes and where his efforts will be appreciated.
6. Encouraging Growth. An organization structure provides the framework within which an enterprise functions. If
it is flexible, it will help in meeting challenges and creating opportunities for growth. A sound organization structure
facilitates growth of enterprise by increasing its capacity to handle increased level of activity.
7. Making Use of Technological Improvements. A sound organization structure, which is adaptable to changes,
can make the best possible use of latest technology. It will modify the existing pattern of authority-responsibility
relationships in the wake of technological improvements.
In short, existence of a good organization structure is essential for better management. Properly designed
organization can help improve teamwork and productivity by providing a framework within which the; people can
work together most effectively. While building the organization structure, it is essential to relate the people to
design. The organization structure, which has technical excellence, may be quite useless for practical purposes
because it is not suited to the needs of the people. Thus, an organization structure should be developed according to
the needs of the people in the organization.
3.7.2. DEVELOPING THE ORGANIZATION STRUCTURE
There are two types of structural variables, namely, basic structure and operating mechanism. Designing of basic
structure involves such central issues as how the work of the organization will be divided and assigned among
positions, groups, departments, divisions, etc. and how the coordination necessary to achieve organizational
objectives will be brought about. But operating mechanism, on the other hand, includes such factors as information
system, control procedures, rules and regulations, system of reward and punishment, etc.
The development of organization structure deals with two facets which are the functions to be performed, and the
form of structure. The first facet requires the determination-of activities, the organization needs and division of these

activities keeping in mind degree of specialization it can afford. The second facet that is form of structure, requires a
detailed study and application of many organizational principles and practices.
Organization structure establishes formal relationships among various positions in the enterprise. The formal
relations may be classified into the following categories
(i) Relations between the senior and the subordinates and vice versa;
(ii) Relations between the specialist positions and the line positions;
(iii) Staff relations; and
(iv) Lateral relations.
The formal relations in an organization arise from the patterns of responsibilities that are created by the
management. They are static in nature, but afford the-framework for dynamic action. As soon as the management
action starts, the formal relations are absorbed or overplayed by the personal attitudes and behavior patterns of the
individuals in the organization. The latter are generally described as 'informal relations'. Such relations must also be
kept in mind while developing the organization structure. If the formal relations are rigid and lay down long
procedures, the individuals will develop certain 'short-cuts to perform their responsibilities in a better way..
3.7.3. NEED FOR DIFFERENTIATION AND INTEGRATION OF ACTIVITIES
Differentiation and integration of activities and authority, relationships are very important considerations in
organization designing. Differentiation may be defined as the differences in cognitive and emotional orientations
among managers in different functional departments and the differences in formal structure among these
departments. Integration, on the other hand, refers to the quality of the state of collaboration that is required to
Achieve unity of effort. System approach suggests that since various departments are integral part of the whole
system, they should not be considered in isolation of others. But since each department is interacting with the
environment in a different way, various departments are likely to develop some degree of differentiation depending
upon the nature of environment. Therefore, designing of structure of one department may be different from that of
the other. But the overall objective of organizational designing should be integration of activities and authority roles
and relationships existing in different departments.
3.7.4. DETERMINING THE KIND OF STRUCTURE
Organization structure is an indispensable means towards business objectives. Wrong structure will seriously deter
the enterprise from achieving its objectives. Thus, it is essential that a great deal of care should be taken while
determining the organization structure. Peter Drucker has pointed out three specific ways to find out what kind of
structure is needed to attain the objectives of a specific business, which are discussed below:
1. Activities Analysis. It is the first stage in building an organization structure, which involves finding out what
activities are needed to attain the objectives of the enterprise. Each business undertaking has a set of functions to
perform such as manufacturing, purchasing, marketing, personnel, accounting, etc. These functions can be identified
after proper analysis. It may be pointed out that in every organization; one or two functional areas of business
dominate. For instance, printing is an important function of a printing firm and designing is an important activity of
the readymade garments manufacturer. After the activities have been identified and classified into functional, areas,
they should be listed in the order of importance. It is advisable to divide and sub-divide the whole work into smaller

homogeneous units so that the same may be assigned to different individuals. For instance, the Chief Executive may
divide the whole activities into various functional departments and delegate authority to the departmental managers.
Deputy managers, deputy managers by assistant managers and so on, may assist the departmental managers. It
should be remembered that the job constitutes the basic building block in designing an organization structure.
2. Decision Analysis. What decisions are needed to obtain the performance necessary to attain objectives? What
kind of decisions' are they? On what level of the organization should they be made? What activities are involved in
or affected by them? Which managers must therefore participate in the decisions? Though it is difficult to predict the
content (kind) of decision problems, which will arise in future, yet the subject-matter has a high degree of
predictability. Analysis of the foreseeable decisions shows the structure of top management the enterprise needs and
the nature of authority and responsibility different levels of operating management should have. Peter Drucker has
emphasized four basic character tics, viz., (i) the decision is the degree of futurity in the decision: (ii) the impact that
decision has on other functions; (iii) the character of the decision as determined by a number of qualitative factors,
such as basic principles of conduct, ethical values, social and political beliefs, etc.; and (iv) whether the decisions
are periodically recurrent or-rare as recurrent decisions may require general guidelines whereas a tare decision is to
be treated as a distinctive event.
3. Relations Analysis. With whom will a manager-in-charge of an activity have to work? Such other questions of
relations, e.g., line and staff relations, relations between subordinates and superior will also help in deciding the
structure of the organization. As said earlier, downward, upward and side-ways relations must be analyzed to
determine the organization structure.
3.8. AUTHORITY AND RESPONSIBILITY
Authority is defined as the right to give orders and the power to get obedience. In the context of an organization,
authority might be termed as 'institutionalized power'. A person in an of organization authority by virtue of the
requirements of the role held by him. Authority resides in a person and arises out of the demands of position in
organizations. Responsibility is the obligation of a subordinate to perform the duty as required by the superior. There
should be parity between authority responsibilities. This means that the subordinate must have been delegated
enough authority undertake all the duties which have been assigned to him and for which he has accepted
responsibility Authority without responsibility is liable to be abused; responsibility without authority is frustrating.
Thus, inequity between delegated authority and responsibility produces undesirable results.
3.9.1. Challenges to the Traditional View of Organizations: The classical writers recommendations for
organizing and managing do not work in all situation Prescriptions for machine like efficiency that works in military
organizations and simple operations often fails to produce results in complex organizations. Fayols principles do not
guarantee success. Experience proves that organizing is more than just the strict compliance of rules that Taylor had
stressed. Weber's efficient organizational formula fails to offer any benefits in actual practice Bureaucracy, in fact,
highlights the epitome of inefficiency. Additional challenges emerge from two other sources:
(a) Bottom-up authority: Traditionalists favored flow of authority from top to bottom in an uninterrupted
fashion. Owners preferred to exercise their authority over those who are cut off by distance, through this
route, much to the resentment of those working at lower levels.

(b) I Chester L Barnard, instead, described organizations as cooperative systems. He felt that a leaders
authority is eventually determined by the willingness of subordinates to follow commands. Barnard's
acceptance theory opened the door for a whole set of new ideas such upward communication and the
informal communication that is based on friendship than work rules.
3.9.2. Open systems theory (the modern approach): The traditional concept of the organizing process is
task-oriented and emphasizes the work to be performed by individuals, who are part of organization. The
organization is viewed as a closed system, enclosed and sealed off from outside world. The organization has all the
energy it needs and there is no need to look into the environmental changes. The environment, it is assumed, would
be stable, predictable and would not pose problems.
Table- Comparison of Traditional and Modern Approaches
Classical organizations

Modem organizations

Closed system.

* Open system.

Stable environment.

* Dynamic Environment.

Division of labor and specialization.

* Job enlargement and job enrichment.

Centralization.

* Decentralization.

Use of authority to achieve coordination.

* Free from of organization structures.

Authority.

* Consensus.

Rigid rules, precise role requirements.

* Flexibility and adaptability.

Command to exact obedience.

* Participation to achieve ends.

Communication: one-way street.

* Communication: open and multidirectional.

Maintenance needs.

* Motivational needs.

Tight control; emphasis on positions to achieve * Emphasis

goals.

on

goals:

management

by

objectives.

Autocratic approach.

Negative environment: robs employees of * Positive work environment: supportive of

freedom and

Motivation to work.

* Democratic approach.

the feelings,
* Beliefs and values of people.

Sources: Adapted from H.G. Hicks and C.R. Gullet, Organizations: Theory and Behavior, Tokyo, McGraw-Hill,
1975.
The essential objective of management should be to provide a sound organization structure that promises efficient
goal accomplishment. To this end, managers must try to find out ways for increasing internal efficiency; the task
should be made as simple as possible by ignoring factors that increase uncertainty. People in an organization are
viewed as inert instruments in the production process, as parts of a complex organizational machine.
Recognizing the inadequacies in the traditional approach, Thompson suggested the open-systems view, in order to
develop an accurate picture of organizational life. The open-systems view accepts the environment as an integral
part of organizational reality. Organizations are complex, goal-seeking social units. In addition to the penultimate

task of accomplishing goals, they must adapt to and shape the external environment. The open-systems view
conceives of the organizational system as a set of interrelated elements that acquires inputs, transforms them and
delivers outputs to the external environment. Thus, an organization is a social system composed of a number of
sub-systems, all of which are independent and interrelated. It is open and dynamic having inputs, outputs, operations
and feedback.
3.10. CONTINGENCY THEORY AND ORGANIZATION STRUCTURE
The contingency theory puts the stress of organizing on a number of variables. The theory supports the idea that
there is no best way to organize, there is no one pattern of organization style that is universally appropriate. The
design is conditional. The organization structure may be contingent upon many factors; it is a product of many
forces: internal as well as external. These factors, it should be remembered, do not determine structure; rather they
establish the parameters within which management choices are made.
Strategy and Structure
Strategy is a contingency variable. It refers to the long-term decisions adopted by managers to achieve
organizational goals. Top managers generally formulate strategy after a careful analysis of opportunities in the
environment and after evaluating strengths and weakness of the organization. Managers decide at the start, what
industry the organization will enter, how it will compete, where it will be located, the kind of organization it will be,
who will be the top managers, and who will directly influence the organization structure.
Alfred. Chandler has clearly shown the close relationship between the strategy, which a business adopts, and the
structure of its organization. After carrying out intensive case studies of four of the largest American companies
(Sears Roebuck, General Motors, Standard Oil and Du Pont), he concluded that changes in corporate strategy would
precede and cause changes in the organization structure. He found that all the companies studied, had shifted their
designs from a simple centralized pattern, to a more elaborate divisionalised pattern following changes in
population, national income, technological innovations, expanding product lines etc. The strategy chosen by the
manager is the primary explanatory variable for organizational structure, in all the cases. The influence of strategy
on structure may be expressed thus:

Strategy determines organizational tasks.

Strategy influences the choice of technology and people, appropriate for accomplishment of such
organizational tasks and in turn, these influence the appropriate structure.

Strategy determines the specific environment, within which the organization will operate.

Size and Structure

How important is size in determining structure, remains a controversial question. Opinions vary from 'size is the
most important condition affecting the structure of organization' to size is irrelevant'. Peter Blau and Richard
Schoenherr concluded that size is the most important condition affecting the structure of organizations. Size
determines structure. Size provides a greater opportunity to utilize the economies of specialization. As an
organization grows in size, there is a tendency to assign more and more persons to specialized, services. The
numbers of subunits increases, more levels are created in the hierarchy, impersonal rules, procedures and control

increase formalization and the organization will become more and more structured. The Aston Group also found (46
organizations studied) that increased size promotes greater specialization and formalization.
The effects of size do not seem to be all-pervasive. In the words of Jackson and Morgan, 'Taken as a whole, size
may be the most important contextual variable in predicting some dimensions of structure, but it is difficult to
conclude that it dictates all of an organizations structure.' Hall and his associates studied seventy-five highly diverse
organizations and concluded that all aspects of structure cannot be predicted from size. It is not easy to assimilate
the bundle of information and establish a clear-cut relationship between the size and structure of an organization.
Research evidence, however, indicates that size has a significant influence on vertical differentiation.
Technology and Structure
Technology is an important variable in the design of organization structure. To achieve satisfactory performance,
managers must create an organization design with the proper mix of technology, structure and human behavior.
Technology, in simple terms, is the organizations transformation process. It is the combination of skills, equipment
and relevant technical knowledge needed to bring about desired transformation in materials, information and people.
Technology looks at how the inputs are transformed into outputs. Broadly speaking, it is the application of
knowledge to actual performance.
3.11. COMPONENTS OF ORGANIZATION STRUCTURE
Within the framework of the formal organization, there are three basic organizational relationships, namely, (i)
responsibility (ii) authority, and (iii) accountability. These relationships are designated as formal because they are
predetermined by the management as a way of relating and combining the diverse functions of the enterprise. This
section aims at providing an insight into these relationships.
3.11.1. RESPONSIBILITY
"By responsibility we mean the work or duties assigned to a person by virtue of his position in the organization. It
refers to the mental and physical activities, which must be performed to carry out a task or duty. That means every
person who performs any kind of mental or physical effort as an assigned task has responsibility."' In order to enable
the subordinate to perform his responsibility well, the superior must clearly tell the former as to what is expected of
him. In other words, the delegant must determine clearly the task or duty that is assigned to the delegate. The duty
must be expressed either in terms of functions or of objectives. If a subordinate is asked to control the operations of
a machine, the duty is in terms of function. But if he is asked to produce a particular number of pieces of a product,
the duty is in terms of target or objective. Determination bf duties in terms of objectives will enable the subordinate
to know by what standards his performance will be evaluated.
3.11.2. AUTHORITY
Authority is a derivative of responsibility. It is the right to order or command and is delegated from the superior to
the subordinate to discharge his responsibilities. Right to procure or use raw materials, to spend money or ask for the
allotment of money, to hire or fire people, etc. has to be delegated to the individuals to whom the work has been
assigned. For instance, if the chief executive of a plant assigns the production manager with the production of
particular types of goods and services, he should also grant him the authority to use raw materials, money and
machinery, hire workers and so on to fulfill the production schedules prescribed as his duty.

A superior delegating the authority should also determine what types of authority are to be delegated. Authority
should not be confused with unlimited authority. The amount of authority delegated should be commensurate with
the responsibilities or duties assigned. In other words, there must be a balance between responsibility and authority.
However, in practice, the powers or rights necessary to perform a given responsibility may vary from one situation
to another.
3.11.3. ACCOUNTABILITY
Accountability is the obligation to carry out responsibility and exercise authority in terms of performance standards
established by the superior. Creation of accountability is the process of justifying the granting of authority to a
subordinate for the accomplishment of a particular task. In order to make this process effective, the standards of
performance should be determined before assigning a task and should be accepted by the subordinate. An important
principle of management governing this basic relationship is that of single accountability. An individual should be,
answerable to only one immediate superior and no more.
POWER
The term 'power' may be defined as the ability to exert influence. If a person has power, it means that he is able td
change the behavior or attitudes of other individuals. "In-one's role as a supervisor, a manager's power may be seen
as the ability to cause subordinates to do what the manager wishes him to do. A manager's power may be measured
in terms of the ability to
(1) Give rewards,
(2) Promise rewards,
(3) Threaten to withdraw current rewards,
(4) Withdraw current rewards,
(5) Threaten punishment, and
(6) Punish.
The term 'authority', on the other hand, denotes the right of a manager to decide and command. For example, a
manager has a right to assign tasks to subordinates and expect and require satisfactory performance from them. But
the manager may not have the means (or power) available to enforce this right. Thus, whether a manager can enforce
his rights is a question of power. Similarly, there may be a situation where a person has a power to do something,
but lacks authority to do it. Such situations may cause conflicts in organizations. Therefore, for organizational
stability, power and right to do things should be equated. "When power and authority for a given person or position
are roughly equated, we have a condition we may call legitimate power"'
DISTINCTION BETWEEN AUTHORITY AND POWER
The terms 'authority' and 'power' are generally used inter-changeably in practice, but there is a clear-cut distinction
between the two. Whereas authority is the right to command; power is the ability to exercise influence. Authority
usually resides in the position in the organization, but the person exercises power. Authority includes the rights to
command, which have been institutionalized. Thus, authority is always positional and legitimate and is conferred on
the position. But power is not institutional, rather it is personal. It is acquired by people in various ways and
exercised upon others. It is acquired through political means or by having certain personal attributes.

Authority increases as one goes up the organizational hierarchy. But ii need not necessarily be accompanied by more
power. In actual practice, the power centers may be located at the lower levels in the organization. Thus, one cannot
get any idea of power centers in an organization by merely looking al its organization chart.
The formal structure of an organization merely shows its authority relationships. It is in practice modified by power
politics in the organization, some individuals may have more power and less authority or more authority and less
power. It is the operating mechanism of the organization, which is relevant for studying organizational behavior.
Authority is a downward flowing concept whereas power flows in all directions. Authority can be delegated to the
lower levels in the organization. The lower we go down the hierarchy, the lesser is the authority. But it is not so in
case of power which has been defined as the ability or capacity to influence the behavior of others. If a worker
succeeds to influence the behavior of a departmental manager, it is implied that the worker has exercised power over
the departmental manager. Similarly, the departmental manager may be able to influence the behavior of his
superior, peers and subordinates. Thus power flows in all directions.
SOURCES OF POWER
John French and Bertram Raven have identified five sources or bases of power which may occur at all levels of the
organization. These are discussed below
(i) Reward Power. It is based on the influencer having the ability to reward the influencee for carrying out orders.
(ii) Coercive Power. It is based on the influencer's ability to punish the influence for not carrying out orders or for
not meeting requirements.
(iii) Legitimate Power. It corresponds to the term 'authority'. It exists when an influencee acknowledges that the
influencer is lawfully entitled to exert influence. It is also implied that the influencee has an obligation to accept this
power.
(iv) Expert Power. It is based on the perception or belief that the influencer has some expertise or special
knowledge that the influecee does not have. For example, a doctor has expert power on his patients.
(v) Referent Power. It is based on the influencee's desire to identify with or imitate the influencer. For example, a
manager will have referent power over the subordinates if they are motivated to emulate his work habits.
. These are potential sources of power only. Possession of some or all of them does not guarantee the ability to
influence particular individuals in specific ways. The role of the influencee in accepting or rejecting the attempted
influence is very important. It may also be noted that, normally, each of the five power bases is potentially inherent
in a manager's position.
SOURCES OF AUTHORITY
Management scholars are divided on whether authority originates at the top and flows down in traditional fashion or
whether it originates at the bottom as a kind of consent of the subordinates. We can classify the views of various
management writers under the three headings, namely, formal authority theory, acceptance theory and competence
theory.
These viewpoints are discussed below:
(i)- Formal Authority Theory: According to this theory, authority' is viewed as originating at the top of an
organization hierarchy and flowing downward through the process of delegation. The ultimate authority in

a company lies with the shareholders who are its owners. The shareholders entrust the management of the
company to the Board of Directors and delegate to it most of their authority. The Board of Directors
delegates authority to the Chief Executive and the Chief Executive in turn to the departmental heads and so
on. Every manager in-the organization has some authority because of his organizational position. That is
why, the authority is known as formal authority. Subordinates accept the authority of a superior because of
his formal position in the organization. A manager in the organization has only that much of authority
which is delegated to him by his superior.
The shareholders of a company have authority over the company because of the institution of private
property in the society. Various social factors, laws, political and ethical considerations, and economic
factors put certain limits on their authority and the organization has to function within these limits. In fact,
the basic sources of authority can rest in the social institutions themselves. In a society, where private
property does not exist as in the case of socialist economies, the origin of authority can be traced to the
elements of basic group behavior.
The concept of authority as being a right transmitted from the public through social institutions to business
managers is the central theme of the formal authority theory
(ii) Acceptance Theory. According to this theory, the authority is the power, which is accepted by others.
Formal authority has no significance unless the subordinates accept it. The degree of effective authority
assessed by a manager is measured by the willingness of the subordinates who accept it. "An individual
will accept an exercise of authority if the advantages accruing to him from accepting plus the disadvantages
accruing to him from not exceed the advantages accruing to him from not accepting plus the disadvantages
accruing to him from accepting; and conversely, he will not accept an exercise of authority if the latter
factors exceed the former." Thus, the acceptability of an order will depend upon relative consequences,
both positive and negative. Many orders may be fully, acceptable, many fully unacceptable, and others only
partially acceptable. Barnard maintains that a subordinate will accept a order if he understands it well, if he
believes it is consistent with the organization anal objectives and compatible with his own interest.'
The acceptance theory of authority has certain limitations. According to it, a manager has authority if he
gets obedience from the subordinates. But a manager is not able to know whether his subordinates will
obey his order unless the order is carried out or disobeyed by them.
(iii) Competence Theory. According to this theory, an individual derives authority because of his personal
competence. Urwick identified formal authority as being conferred by organization, technical authority as
being implicit in a special knowledge or skill, personal authority as being conferred by seniority or
popularity. Thus, a person may get his order or advice accepted not because he is having any formal
authority, but because of his personal qualities. These qualities may be technical competence and social
prestige in the organization. For example, a person is expert in a particular field and other people go to him
for guidance and follow his advice as if that were an order.
LIMITS OF AUTHORITY

The authority of an organization is not absolute. It is subject to various economic, social, political and other factors.
Similarly, the authority of a manager is restricted by various factors, such as:
(i)

Physical limitations. Physical laws, climate, geographical factors, etc. restrict managerial
authority to a great extent. Thus, an order to make silver from aluminum would be meaningless.

(ii)

Economic constraints. The authority of an executive is restricted by economic constraints. The

chief executive would not like to ask his sales personnel to sell products at a high price in a highly
competitive market or to ask the purchase department to procure raw materials for use in the next
twelve months when capital and storage space are not available for this purpose.

(iii)

Social constraints. The use of managerial authority is also subject to many social limitations.
Thus, the task assigned to employees must conform to the group's fundamental social beliefs,
habits and codes of ethics.

(iv)

Legal constraints. . Various acts of the Central and Slate Governments also impose restrictions
on the exercise of authority by a manager. For instance, a manager can't ask the workers not to
form or join a union.

(v)

Biological limitations. A manager cannot command a subordinate to do something, which he is,

not capable of doing. For example, a manager cannot ask a subordinate to climb the side-wall of a
building.

(vi)

Internal constraints. A manager's authority is limited by the objectives and policies laid down by
the top management of the organization. He can't go against the internal policies and rules of the
organization.

3.12. DELEGATION OF AUTHORITY

Delegation is the essence of good organization. It is an important process to manage the affairs of an enterprise
satisfactorily. Delegation of authority means conferring authority to another to accomplish a particular assignment.
That means a manager can get things done through others by sharing authority with them. Delegation stands for
calling others to render help in accomplishing a job.
3.12.1. DEFINITION
Delegation means devolution or authority on subordinates to make them perform the assigned duties or tasks. It is
that part of the process of organization by which managers make it possible for others to share the work of accomplishing organizational objectives. Delegation consists of granting authority or the right to decision-making in
certain defined areas and charging the subordinate with responsibility for carrying through the assigned task.
Delegation refers to the assignment of work to others and confer them the requisite authority to accomplish the job
assigned. It enables the managers to distribute their load of work to others and concentrate on more important
functions, which they can perform better because of their position in the organization. Allen has rightly said,
Delegation is the dynamics of management; it is the process a manager follows in dividing the work assigned to him
so that he performs that part which only he, because of his unique organizational placement, can perform effectively
and so that he can get others to help him with what remains. Thus, delegation is the ability of a manager to share his
burden with others, how can he best share his burden? First, he must entrust to others the performance of a part of

the work he would otherwise have to do himself, secondly, he must provide a means of checking up on the work that
is done for him to ensure that it is done as he wishes.
So far we have talked about downward delegation, i.e., delegation from superior to subordinate. Delegation may also
be upward or sideways. A federating government may delegate its power to make laws to the federal government.
This is called upward delegation. Sideways delegation is generally found in religious organizations or trusts which
may delegate authority other religious organizations or trusts.
3.12.2. SIGNIFICANCE OF DELEGATION
Delegation of authority is the key to organization. An executive confers authority on the subordinates to accomplish
specific tasks which be may not be able to do alone. That means a manager can get things done through others by
sharing authority with them. A manager has to resort to delegation because, in a big enterprise, it is not possible for
one person to exercise all the authority for taking decisions. Moreover, there is a limit to the number of persons
which a manager can effectively supervise and~ for whom he can take decisions. Once this limit is exceeded,
authority must be delegated to the subordinates who will make decisions within the area of their assigned duties.
Delegation of authority is widely recognized as one of the best methods of getting better results through the
subordinates. It is a must for better management. Once a man's job grows beyond his personal capacity, his success
lies in his ability to multiply himself through other people. How well he delegates determines how well he can
manage. Andrew Carnagie, a leading industrialist of America remarked, "When a man realizes he can call others in
to help him to do the job better than he can do it alone, he has taken a big step in his life."
Delegation lightens the burden of the executive by relieving him of the botheration of taking routine decisions which
others can also take efficiently. This will help him in concentrating on vital aspects of management. Delegation will
enable quick decisions relating to various matters because the authority of decision-making has been shared with
others. Granting of authority to subordinates motivates them to perform their duties well. If they are not given
adequate authority, they will be reluctant to accept the assignments as they will be required to approach the boss
every time whenever a need arises to take a decision.
Delegation helps in maintaining healthy relationship between the executive and his subordinates by clearly defining
the authority and responsibility of the subordinates. According to Douglas C. Basil, "Delegation can be one of
management's best techniques for satisfying needs and for motivating subordinates to better performance. In term's
of technical aspect of business, delegation, through task assignment, can achieve faster decisions and eliminate,
cumbersome information system. In terms of behavioral aspects, delegation can satisfy man's demands for
responsibility, recognition and the opportunity to exercise authority."
Delegation of authority is an art of higher order. Every manager should be proficient in this art. Louis A. Allen has
rightly remarked, How well one delegate determines how well one manages." Delegation of authority facilitates the
job of managing by offering the following advantages:
(i) Delegation lightens the burden of key executives in tackling routine matters and enables them to concentrate on
vital aspects of management.
(ii) Delegation enables taking of quick decisions at all levels within the policy framework provided by the top1evel
management.

(iii) Delegation of authority is an important tool to motivate the subordinates to contribute their best for the
achievement of enterprise objectives.
(iv) Delegation helps in maintaining healthy relationship between the managers and their subordinates by clearly
laying down their authority and responsibility.
(v) Delegation helps in developing managerial personnel for the future.
(vi) Delegation improves work performance because responsibility is given to the subordinates on the basis of
specialization.
3.12.3. What can be delegated?
Authority is delegated when a superior grants some organization discretion to a subordinate. Superiors can neither
delegate authority they do not have and nor they can delegate all their authority without, in effect, passing on their
position to their subordinates. The authority of a top executive can be divided into three broad categories:
(i) Authority, which must be delegated such as authority to take routine decisions for the accomplishment of tasks
(ii) Authority which can be delegated such as implementation of policies; and
(iii) Authority, which cannot be delegated at all such as authority to take policy decisions.
A manager must delegate the authority to do the routine work, which does not involve any policy decision. A part of
work in every management position consists of activities, which are subsidiary to primary task of the position itself.
The power to perform subsidiary activities must be delegated to others so that, they may do the subsidiary activities
well. For instance, the sales manager of a concern is responsible for selling its products. In order to sell the products,
the sales manager has to perform many functions like market research, employment of sales-force, training of
sales-force, development of means of sale promotion and so on. The sales manager cannot perform all these
functions in a better way himself. So he can entrust certain operations to his subordinates and give them authority to
perform them.
There are certain other activities, which a manager can entrust to his subordinates, provided the manager has the
necessary skill to delegate and the subordinates have been educated to accept these assignments. These activities
relate to execution of policies. The manager can keep the control mechanism in his hands and let others execute the
policy decisions. However, he cannot delegate the authority to take policy decisions, develop plans and establish
appropriate organization for the execution of plans. These are managerial functions of higher order on which the
manager must concentrate, himself. Similarly, control function is also to be performed by the manager himself. A
manager who delegates his authority to others must keep the authority to control their activities with himself. He
should evaluate the functioning of various individuals himself and take necessary action wherever necessary.
3.12.4. ELEMENTS OF DELEGATION OF AUTHORITY
The process of delegation involves three essential elements or aspects:
(i) Entrustment of responsibility (duties or work) to another for performance;
(ii) Granting of authority to make use of resources, take necessary decisions and so on for carrying out the
responsibility; and
(iii) Creation of an obligation or accountability on the part of the person accepting the delegation to perform in terms
of the standards established.

If an executive wants others to help him, he must first divide his work and determine what portion of work can be
assigned to others. If he requires the subordinate to do the work as he would have done it himself, he must entrust
him with sufficient authority which otherwise would have been exercised by him to do that work. That means if the
subordinate needs to spend money, engage people, and use materials or equipment, the superior must permit him to
do so merely assignment of work or duty and granting of authority are not sufficient, the manager must have some
means of checking up to make sure that the work is done in the way he wants. He must create an obligation on the
part of person accepting the responsibility to perform the work assigned to him in terms of certain standards of
performance.
Different authors have used different terms to explain the process of delegation. We have used the terms
responsibility, authority and accountability. These terms have also been used by Louis A. Allen who says that the
terms must be clearly distinguished for proper understanding of the process of delegation. It is important to point out
that these three elements are inseparable parts of the process of delegation. A brief explanation of the components of
delegation is given below:
(i) Entrustment of Responsibility or Duty
Responsibility means the work or duties assigned to a person by virtue of his position in the organization. In order to
enable the subordinate perform his responsibility well, the superior must clearly tell the former as to what is
expected of him. In other words, the superior must determine clearly the task or duty to be assigned to the
subordinate. The duty must be expressed either in terms of functions or in terms of objectives. If a subordinate is
asked to control the operations of a machine, the duty is in terms of function. But if he is asked to produce a number
of pieces of a product, the duty is in terms of target or objectives. Determination of duties in terms of objectives will
enable the subordinate to know by what standards his performance will be evaluated.
(ii) Granting of Authority
Authority is the right or power granted to an individual to make possible the performance of work assigned. Power
to produce or use raw materials, spend money, or ask for allotment of money, to hire and fire people, etc. has to be
delegated to individuals to whom the work is assigned. For instance, if the General Manager of a plant assigns to the
Production Manager the production of particular goods and services, he will also grant him the authority to use
materials, money, and machinery, hire workers and so on to fulfill the production schedule prescribed as his duty.
(iii) Creation of' Obligation or Accountability
According to Louis A. Allen," Accountability is the obligation to carry out responsibility and exercise authority in
terms of performance standards established." It means holding an individual answerable for final results. The
subordinate is held- accountable to the superior. Accountability originates because the manager has a right to require
an accounting for the authority delegated and task assigned to a subordinate. The process of delegation of authority
is incomplete unless accountability is created.
The term 'accountability' should not be confused with 'responsibility'. Responsibility denotes the work to be done, it
can be assigned to the subordinates. A subordinate will perform his responsibility well if he is given sufficient
authority along with it when the subordinate accepts the authority; he commits himself to account for the use of
authority. Thus, accountability is the obligation for the performance of work assigned and authority delegated.

Authority can be delegated but accountability (responsibility to account for results) cannot be delegated. When a
senior executive assigns some duties to a junior executive, he has to delegate corresponding authority also. The
junior executive may, in turn, take the help of a foreman working under him in performing the work assigned. But
the junior executive will continue to be accountable for performance to the senior executive. For example, if the
worker does not do the job properly, it is the junior executive who is responsible to the senior 6xecutive. Thus,
accountability can't be delegated, it always moves upward. In simple words, an executive cannot escape the
responsibility (or answerability) for the performance of tasks assigned to him by delegating authority to his
subordinates. However, he can take action against the subordinate for his carelessness or negligence in doing the
job.

Accountability moves upward because a person who is delegated the authority is always accountable to the

person who delegated him the authority. However, as is obvious from the mechanism of the delegation process,
responsibility and authority move downward.
What is the Extent of Accountability? The extent of accountability depends upon the extent of delegation of
authority and responsibility. A person cannot be held answerable for the acts not assigned to him by his superior. For
instance, if the production manager is given responsibility and authority to produce a specified quantity and quality
of certain product and the personnel department is given responsibility and authority for the development of
workforce, the production manager cannot be held accountable for the development of workforce, "Accountability
is, by the act which creates it, of the same quality and weight as the accompanying responsibility and authority'.
3.12.5. PRINCIPLES OF DELEGATION
The following principles are guides to successful delegation. Unless carefully recognized in practice, delegation may
be ineffective, organization may fail and the managerial process may be seriously impeded:
1. Assignment of Duties in terms of Results. Delegation by results expected implies that goals or objectives have
being set and plans made and are understood and accepted by the subordinates and ' that jobs have been designed to
fit in with them. The subordinates must understand clearly what activities they must undertake and what results they
must show. This will enable them to know by what standards their performance will be judged and will direct their
efforts for the achievement of those results.
2. Functional Definitions. According to Koontz and O'Donnell, the more a position or a department has clear
definitions of results expected, activities to be undertaken, organization authority delegated, and authority and informational relationship with other positions understood, the more adequately the individuals responsible can
contribute toward accomplishing enterprise objective." To do otherwise is to risk confusion as to what is expected of
whom. This principle although simple in concept, is often difficult to apply. To define a job and delegate authority
to do it requires, in most cases, patience, intelligence and clarity of objectives and plans. It is obviously difficult to
define a job if the superior does not know what results are desired.
3. Parity of Authority and Responsibility. Authority and responsibility should bear logical relation to each other.
So much authority should be granted which is sufficient to fulfill the responsibility. This parity is not mathematical,
but rather coextensive, because both relate to the same assignment. Authority can never be delegated equal to
responsibility as both are different things. Responsibility is the work assigned to a position and is related to
objectives, whereas authority is related to the rights given to perform the work assigned. There is no common

denominator for measuring equality between these. However, authority should be delegated commensurate with
responsibility. For instance, if a manager tries to hold subordinates accountable for duties for which they do not have
the requisite, authority, it will be unfair. It is also not proper if the subordinates are given -sufficient authority, but
are not held accountable for its proper use.
4. Clarification of Limits of Authority. Limits of authority must be clarified to the subordinates so that they may
not assume excessive authority than desired. Clear limits of authority will allow subordinates to exercise initiative,
develop themselves through freedom of action and to know their area of operation. This will also avoid misuse of
authority.
5. Absoluteness of Accountability. Accountability, being an obligation owed, cannot be delegated. No superior can
escape accountability for the activities of his subordinates, as it is the superior who has delegated authority and
assigned duties. The superior cannot pass on his obligation to account for to his superior to the subordinates along
with hit authority. Likewise, the accountability of the subordinates to their superior for the performance of assigned
tasks is absolute.
6. Unity of Command. This principle states that accountability is unitary. Each person should be accountable only
to one superior for delegated authority, as he cannot serve two masters well. If a person report, to two superiors for
the same duty, confusion and friction will result. He will find himself frequently receiving conflicting instructions.
When this is the case, his only hope is either to get his two bosses or to run the risk of displeasing either or both.
Therefore, as far as possible, dual subordination should be avoided.
3.12.6. TYPES OF DELEGATION
Delegation of authority may be specific or general, written or unwritten, precise or vague. In general delegation, the
superior tells his subordinate to do whatever the latter feels necessary. This is a case of unclear delegation under
which the subordinate does not fully under staff the nature of duties and limits of authority. Actually, the usefulness,
of delegation will be lost in such cases. There will be overlapping of activities and misunderstanding among the
people. On the other hand, if delegation is specific i.e., precise and clear, there will be no need for the subordinates
to wonder how far their authority goes and to experiment by hit or miss. It will also help the boss to hold the
subordinates accountable. Therefore, it is advisable that delegations of authority should be precise and clear and it
would be better if they were in writing.
Some people suggest that especially in the upper levels of management if the authority delegations are specific and
written, they will bring rigidity in the organization. Sometimes, particularly for new jobs at the top, delegation
cannot be very specific, at least at the outset. But this situation can N remedied with the passage of time. If the
delegations are not specific, then may be organizational frictions, unnecessary meetings and negotiations and
overlapping of activities. Therefore, delegations should be specific as far as possible. The fear that specific
delegations will result in inflexibility can be best met by developing a tradition of flexibility in the organization.
Shared and Splintered Authority
Authority is shared when it is delegated to two or more persons together. These persons are responsible for making
decisions without following the chain of command. For instance, the chief executive of a company may delegate his
authority to production manager, marketing manager, and finance manager for diversification of company's

products. In such a case, three persons who will take the decisions jointly for diversification of companys products
share the authority.
Splintered authority exists wherever a problem cannot be solved without pooling the authority delegations of two or
more persons. For instance, it the in charge of Plant A thinks that costs can be reduced through minor modifications
in procedures in Plant B, he cannot bring about this change. He will have to contact the in charge of Plant B for
taking any decision; the change will take place if they pool their authority. Individually, their authority is said to be
"splintered". It should also be noted that their boss could also take the same decision. Such practice should not be
encouraged, as the superior will be over-burdened. The managers in charge of both the plants that have splintered
authority can meet and pools their authority delegated to them and can quickly take the decision jointly.
3.12.7. WEAKNESS OF DELEGATION IN PRACTICE
Though delegation appears to be a simple process, many diffi6ulties come in the way of effective delegation. Either
one or more of the followings may cause these difficulties:
(a) Superior;
(b) Subordinate; and (c) Organization.
3.12.7. 1. Difficulties on the Part of Superior
Managerial failure in delegation arises because of the absence of one or more of the following factors:
(i) Receptiveness. The manager must be willing to give other people's ideas a chance. But when a manager feels
that he can do the job better himself, he will be reluctant to delegate authority "I can do it better myself fallacy
obstructs delegation of authority.
(ii) Ability to direct. Lack of ability of a manager to-correctly plan and issue suitable directions in guiding the
subordinates, though he is willing to delegate, creates hurdles in effective delegation.
(iii) Willingness to let go. The manager who wishes to delegate effectively must be willing to release the right to
make decisions to the subordinates. The desire of dominance over the work of subordinates at each step hampers the
process of delegation. Moreover, a manager may be afraid that if he lets the subordinate make decisions, he may
outshine him.
(iv) Willingness to trust subordinates and let them make mistakes. Delegation implies a trustful attitude between
the superior and the sub-ordinate. Lack of confidence in the capacity, ability and dependability of the subordinates
obstructs the superior to delegate authority. The superior may distrust the subordinates because of inability of the,
subordinates or because he does not wish to let go, does not delegate wisely or does not know how to set up controls
to assure proper use of authority. Since a. manager lacks confidence in the subordinate he will not delegate authority
to give them any chance to make mistakes and learn how to take correct decisions.
(v) Establishment of controls. While delegating authority, the superior must find means of assuring himself that the
authority is being used to accomplish the given assignments. Where the manager does not so up adequate controls or
has no means of knowing the proper use a authority, he may hesitate to delegate the authority.
3.12.7. 2. Difficulties on the Part of Subordinate

Delegation of authority may fail because the subordinates want to avoid shouldering responsibilities even though
there is no fault on the part of the superior. The subordinates may be reluctant to accept authority because of
following reasons:
(i) Lack of self-confidence.
(ii) Desire to play safe by depending on the boss for all decisions.
(iii) Fear of committing mistakes and being criticized by the boss.
(iv) Lack of incentives. Overburdening with duties.
(v)Inadequacy of authority, information and working facilities for performing the duties.
3.12.7. 3. Difficulties on the Part of Organization
The faults contributing to the weakness of delegation in practice may a lie with the organization. They may include
the following:
(i) Defective organization structure and non-clarity of authority responsibility relationships. (ii) Inadequate planning.
(iii) Splintered authority. (iv) Infringement of the principle of unity of command. (v) Lack of effective control
mechanism.
3.12.8. GUIDELINES FOR EFFECTIVE DELEGATION
We have discussed above the causes of weakness of delegation in practice. If these causes are remedied, delegation
will become effective. Thus, in order to achieve better delegation, consideration should be given to the following
guidelines.
1. Assignments should be clearly defined in terms of goals or results expected the subordinate should be given the
adequate authority to do the work assigned. The limits of authority should also be well-defined.
2. Selection of persons should be done in the light of the jobs to be done. Appointments should not be made
arbitrarily as it will lead to 'square pigeons in round holes' and vice versa. Only proper selection is not sufficient for
better delegation. The persons selected must also be given necessary training to accept assignments and authority.
The superior must
(a) Coach the subordinate;
(b) Review his performance on the basis of predetermined standards; and
(c) Counsel him for improvement.
3. Motivation -of subordinates through incentives of various kinds for their excellent performance is also essential
for better delegation. An important incentive for some subordinates is to allow them to function with a measure of
freedom.
4. Lines of communication must be kept open from superior to subordinate and vice versa for delegation to be
meaningful. The-subordinate should feel free to get in touch with the superior as and when necessary to seek
clarification and guidance from the latter. The boss should also pass on all relevant information to the subordinate
promptly.
5. Proper controls should be established to provide means of information regarding use of authority. The delegate
must set up standards to measure the performance of the subordinates in the light of authority granted to the latter.

Broad based controls and frequent reviewing in respect of, the use of authority by the subordinates to perform the
duties assigned make delegation of authority fruitful.
6. Strict adherence to the principles of delegation like parity of authority and responsibility, unity of command and
absoluteness of accountability is most essential for achieving better delegation.
3.13. CENTRALIZATION OF AUTHORITY
Centralization of authority means concentration of decision-making power at the top hierarchy of management.
Centralization is the systematic and consistent reservation of authority at central points within the organization. "
Under centralization, all important decisions are taken by the top executives and operative decisions and actions at
lower levels in the organization are subject to the close supervision of the top executives. Thus, centralization
denotes that most of the decisions are taken not at a point where work is being done but at a point higher in the
organization. As Fayol put it, Everything that goes to increase the importance of the subordinate's role is
decentralization everything which goes to reduce it is centralization."
3.13. 1.What Factors Dictate Centralization?
Centralization represents certain attitude and approach, which the management follows. The major implication of
centralization is the reservation of decision-making power in regard to planning, organizing, directing, and control at
the top level. The other implications will depend on the philosophy of management for instance, in a company
where the top management is very particular about the use of authority; it will make all the operations and decisions
at lower levels subject to its approval.
The top management of a company may prefer to reserve maximum authority with itself for the following reasons
(i)To Facilitate Personal Leadership. Personal leadership is an important factor for the success of small enterprises.
Personal leadership is also important during the early stages of big enterprises. In both the cases, the operation is
relatively on a small scale and the top manager can concentrate entire authority with himself. This will result in
quick decisions and enterprising and imaginative action, which are essential for the success of the business.
(ii) To Promote Uniformity of Action. Where a company wishes all operative units to do the same things in the same
way and at the same time there must be centralization of appropriate decision making. Only the top management
having central authority to make decisions can bring uniform of action by the operating units.
(iii) To Provide for Integration. A certain degree of centralization an authority is necessary to unite and integrate the
total operations of the enterprise. This is the coordination function of management. If the management has to
perform this function better, it must reserve some authority with it set Centralized control is needed to keep all the
parts of the enterprise moving harmoniously towards a common objective.
(iv) To Handle Emergencies. Centralization of decision making ii essential when the business conditions are
uncertain and there are chance that emergency conditions may develop to endanger the very existence of a company.
Centralization will help in taking rational decisions from both should as well as long-term perspectives to meet such
uncertainties.
3.13. 2. Decentralization of Authority
Decentralization means dispersal of decision-making power to the low levels of the organization. McFarland has
defined it as a situation in which ultimate authority to command and ultimate responsibility for results is localized as

far down in the organization as efficient management of the organization permit. According to Allen,
"Decentralization refers to the systematic effort to delegate to the lowest levels all authority except that which can
only be exercised at central points." Thus, decentralization means reservation of some authority (power to plan,
organize, direct and control) at the top level and delegation of authority to make decisions at points as near as
possible to where actions take place.
3.13. 3. What factors bring about decentralization?
The important factors that cause decentralization of authority are as follows:
Decentralization is facilitated when need is realized to take quick and appropriate decision on the spot at a level at
which it is really required with a view to cash on the opportunity present.
When the top management wants to reduce communication decentralization is preferred.
(iii) The nature of company's products or markets may require decentralization of decision making to provide special
emphasis on a product line or a market. Technological changes may also create conditions favorable to
decentralization.
(iv) Growth and diversification of activities of the company may make decentralization necessary to introduce
flexibility in operation, facilitate good direction and to relieve the top executives of the burden of extra work.
(v) Physical dispersion of activities of the company may require decentralization of authority for better results.
3.13. 4. Degree of Decentralization
Some degree of decentralization is usually found in every big enterprise. Allen has given three criteria" to judge the
degree of decentralization. They are:
(i) What kind of authority is delegated?
(ii) How far down in the organization is it delegated?
(iii) How consistently is it delegated?
These three criteria may be applied to know the degree of decentralization in different areas like appointment of
employees, promotion of employees, acquisition of capital equipment, approval of travel expenses, procurement of
raw materials, etc.
Ernest Dale" has given four tests to know the degree of decentralization in an organization. The degree of
decentralization of authority is greater when:
(i)The number of decisions made lower down the management hierarchy is greater.
(ii) The more important decisions are made lower down the management hierarchy. For example, the greater the
sum of capital expenditure that can be approved by the plant manager without consulting any one else, the greater
the degree of decentralization in this field.
(iii) More functions are affected by decisions made at lower levels. Thus, companies, which permit only operational
decisions to be made at different plants, are less decentralized than those, which also permit financial and other
decisions at the plant level.
(iv) There is less checking on the decisions taken at the lower levels. Decentralization is greater when no check at all
must be made; less when superiors have to be informed of the decision after it has been made; still less if superiors

have to be consulted before decision is made. The fewer the people to be consulted, and the lower they are on
managerial hierarchy, the greater the degree of decentralization.
3.13. 5. Decentralization is Extension of Delegation
Decentralization is not the same thing as delegation. It is something more than delegation. Delegation means
entrustment of responsibility and authority from one individual to another. But decentralization means scattering of
authority throughout the organization. It is the diffusion of authority within the entire enterprise. Delegation can take
place from one person to another and be a complete process. But decentralization is completed only when the fullest
possible delegation is made to all or most of the people. Under delegation, control rests entirely with the delegate,
but under decentralization, the top management may exercise minimum control and delegate the authority of
controlling to the departmental managers. It should be noted that complete decentralization may not be possible or
desirable but it certainly involves more than one level in the organization.
3.13. 6. Distinction between Delegation and Decentralization
Decentralization is the result of delegation. It is a management philosophy whereby the centers of decision-making
are dispersed at various levels in the organization. The points of distinction between delegation and decentralization
are given below
1. Delegation is a process of devolution of authority whereas decentralization is the end-result, which is achieved
when delegation of authority is exercised at more than one level.
2. Delegation takes place between a superior and a subordinate and is a complete process. It may consist of certain
tasks alone. But decentralization involves spreading out the total decision-making power throughout the
organization.
3. In delegation, control rests entirely with the superior but in decentralization, the top management may exercise
control only in a general manner and delegate the authority for control to the departmental managers.
4. Delegation is a must for management. Subordinates must be given sufficient authority to perform their
assignments otherwise they will come to the superior time and again even for minor decisions. However,
decentralization is optional in the sense that the top management may or may not decide to disperse authority.
3.13. 7. The advantages of decentralization are discussed hereunder:
(i) Reduction in the Burden of Chief Executive. 'When there is centralization of authority in an enterprise, the chief
executive alone has to bear the entire burden of decision-making. This diminishes the time at his disposal to
concentrate on important managerial functions. Decentralization of authority reduces his burden as he delegates a
major part of his authority to his subordinates and this will enable him to devote more time on important functions.
(ii) Quick Decisions. Decentralization avoids red-tapism in making decisions as it places responsibility for
decision-making as near as possible with the place where actions take place. Those closest to the work situation can
make reasonably quick and accurate decisions; because they are well Aware of the realities of the situation.
Decentralization also minimizes the delay in transmitting information from and to the workplace.
(iii) Diversification of Activities. With the addition of new product lines, an organization may grow complex and
pose a challenge to the top executives. The challenge can be met effectively by decentralizing the authority under
the overall coordinating purview of the top management.

(iv) Development of Managerial Personnel. When authority is decentralized, the subordinates get the opportunity of
taking initiative to develop their talents and to enable them to develop qualities for managerial positions. They learn
how to decide and depend on their own judgment and how to manage. This will lay down -the foundation for the
growth of prospective managerial personnel.
(v) Effective Control and Supervision. The greater the degree of decentralization, the more effective becomes the
span of control. It leads to effective supervision as managers at the lower levels have complete authority to make
changes in work assignment, to change production schedules, to recommend promotions and to take disciplinary
actions.
(vi) Effective Coordination. Under decentralization, coordinated efforts are required only at the levels of segments
created by decentralization. This makes coordination more effective
(vii) Improvement of Motivation and Morale. Decentralization of authority fulfils the human needs of power,
independence and status. It gives the local executives an opportunity to take initiative and to try new ideas. This
improves their motivation and heightens their morale. This will also foster team spirit and group cohesiveness
among the subordinates.
(viii) Miscellaneous Economies, In addition to the above advantages, decentralization also achieves several internal
and external economies. Internal economies include speedier communication, better utilization of lower level and
middle level executives, greater incentive to work and greater opportunities for training. These make possible for the
management to reduce the cost of production and meet competition effectively.
3.13. 8. Limitations of Decentralization
There are certain disadvantages and limitations of decentralization which are discussed below:
1. Decentralization increases the administrative expenses because it requires the employment of trained personnel to
accept authority. The services of such highly paid personnel may not be fully utilized particularly in small
organizations.
1 2. Decentralization requires the product lines of the concern to be broad enough to allow creation of autonomous
units, which is not possible in small concerns.
3. Decentralization of authority may create problems in bringing coordination among the various units.
4. Decentralization may not be possible because of external factors. If a company is subject to uncertainties, it will
not be able to meet these under decentralization.
5. Decentralization may bring about inconsistencies in the company. For instance, uniform procedures may not be
followed for the same type of work in various divisions.
From the above discussion, we can say that decentralization requires a balance of necessary centralization of
important managerial functions and creation of certain facilities. Firstly, managers capable of undertaking the
operations of the autonomous business units must be developed. Secondly, provision must be made for coordination
and communication between various units. Finally, effective decentralization requires adequate controls. Unless the
top managers have a well -established system for measuring the operating results, it is very difficult to achieve the
benefits of effective decentralization.
3.13. 9. Centralization vs. Decentralization

When a firm establishes divisions or departments, when the departmental managers are given considerable freedom
or autonomy in decision-making and when there are reasonably effective ways of evaluating the performance of
each division, the firm is considered to be decentralized. To the extent that an organization does not delegate a
large-part of responsibility and authority in decision-making, the organization is considered to be centralized.
Centralization and decentralization are the opposite ends of the organization continuum. On the one hand,
centralization produces uniformity of policy and action, utilizes, the skills of centralized and specialized staff, and
enables closer control over operating units. And on the other hand, decentralization tends to effect faster decisionmaking and action on the spot without consulting higher levels. Decentralization has the effect of motivating the
subordinates since they get a greater share in management decision-making.
3.13. 10. Balance between Centralization and Decentralization
Centralizations and decentralization are the opposite ends of an organization continuum. In practice, there is neither
complete centralization nor complete decentralization. Both are relative concepts because every organization structure contains both features in different degrees. Absolute centralization is not found in practice because it would
mean taking of all decisions by the top management, which may lead to considerable cost and delay. Absolute
decentralization is also not feasible because in that case entire authority will be delegated to the lower levels and the
top management will be left with no authority at all. Even in a highly decentralized structure, some authority is
reserved at the center. Unless the top management (central authority) does the work of overall planning,
organization, direction and control and takes the policy decisions necessary to coordinate the affairs of different
units or divisions, the company will disintegrate.
Many organizations find difficulties in deciding the appropriate mix of centralization and decentralization, which
would be most appropriate for achieving the organization objectives. Let us take the case of an organization with a
highly centralized organization structure. In this ease, the top management is concerned in detail with the ongoing
operations. This requires a mass of detailed information. A time may come when the volume of information grows
to exceed the capacity of the top management to handle and use it. This may compel the top management to think of
reducing the degree of centralization and increasing the degree of decentralization. It may be pointed out that when
there is a high degree of centralization, the operating managers become frustrated, as they can't take quick decisions.
Moreover, an operative decision made at the top may not be fully effective.
If the degree of decentralization practiced is quite high, the activities of various divisions may tend to become
uncoordinated and conflicting. This may impel the organization structure towards recentralisation. But the management would certainly be interested in finding the ways to overcome the problem of oscillating between two
organization structures. The important factors which should be considered to determine the relative degree of
centralization and decentralization required are discussed below:
(i) Size and Complexity of Organization. The larger the size of the organization, the more authority and
responsibility should be delegated to the subordinates. If the operations of the organization are not complex, there is
higher need of decentralization. On the other hand, if the firm is relatively small and carries on simple operations,
centralization of authority should be advocated.

(ii) Competence of Personnel. If the personnel capable of making intelligent decisions at the lower levels are
available, it is advisable for the firm to move towards decentralization. If the management personnel are followers
and lack initiative, the firm should follow a highly centralized structure.
(iii) Effectiveness of Communication System. The existence of an adequate and effective communication system
will favor centralization of authority because it would be easier to control the operational units. The advent of
computeris6d management information system has increased the capacity of managers to take effective decisions. If
the communication system is ineffective, decentralization should be advocated.
(iv) Dispersion of Organization Units or Plants. If the firm is having a number of plants, which are located at
different places, decentralization is more beneficial. However, the finance function should be centrally controlled in
order to ensure effective control over the assets and capital expenditure of the organization.
(v) Degree of Standardization. The greater the degree of standardization in the organization, the greater is the
degree of centralization. Control becomes easier if uniformity of operations can be introduced. Only the centralized
structure can bring uniformity of actions at the operative levels.
(vi) Complexities of Situation. The situational factors also influence the degree of centralization required for the
organization. For instance, when the business conditions are highly uncertain and there is every chance that some
conditions may develop to endanger the very existence of the organization, centralization should be advocated to
deal with such situations in the future. Centralization will help in taking rational decisions from both short as well as
long-term perspectives to meet such challenges.
3.14. SPAN OF MANAGEMENT OR SPAN OF CONTROL
The term 'span of management' is also known as 'span of control,' 'span of supervision' and 'span of authority'. It
represents a numerical limit of subordinates to be supervised and controlled by a manager. It is an important
principle of sound organization. This principle is based on the theory of relationships propounded by V.A.Graicunas,
a French management consultant. Graicunas analyzed superior-subordinate relationship and developed a
mathematical formula based on the geometric increase in complexities of managing as the number of subordinates
increases.
3.14. 1. SPAN OF CONTROL
According to the principle of the span of control, (also called span of management/supervision) then is a limit to the
number of subordinates, which a manager can effectively supervise. It states that m single executive should have
more people looking towards him for guidance and leadership than he can reasonably be expected to serve. Because
of personal limitations arising from lack of complete and sufficient knowledge, limited time, limited finance, and a
manager has to delegate work, to as many subordinators working in various departments as he can effectively
manage. Thus, the principle of span of management presupposes departmentation and delegation of authority.
The ideal ratio was considered to be 15 to 25 subordinates for first level supervision and 5 to 8 subordinates in
executive spans.
3.14. 2. IMPACT OF SPAN OF SUPERVISION
The number of persons an executive supervises has an important influence on the nature of organization structure. If
the span is large, it means that fewer levels are needed in the organization. The structure would tend to be flat and

wide. Presumably the possibility of communication blockages would be minimized because more people report
directly to the top executive. If the span is small, the structure would be narrow and deep. There would be more
levels in the organization. More people will have to communicate to the top manager through intervening layers of
executives. The possibility of communication blockages and distortions would increase.
3.14. 3. WIDE SPAN OF SUPERVISION
When the span of supervision is wider, the number of executives needed to supervise the workers will be less. This
will make the organization structure wide. Such a structure would be less expensive because of less overhead costs
of supervision. Since the number of levels is less, there will be better communication between the worker and the
management and better coordination. However, the quality of performance is likely to deteriorate because one
executive cannot effectively supervise a large number of subordinates. Supervision will not be able to devote
sufficient time in directing each and every subordinate.
For instance, if there are 256 persons in an organization and all are reporting to one executive, there will be one level
of management. If it is thought that only four subordinates should directly report to the chief executive, then the
number of management levels will increase to two as four executives directly report to the top executive and each
executive controls 64 persons as shown in Fig.1

Chief Executive=1

II Level Executives=4

Workers=256
64W

64W

64W

Fig 1- Flat Structure (Span of control=64)

Chief Executive-1

II Level Executives=4

III Level Executives=16

64W

Tall Structure (Span of control=4workers)

Fig 2-Tall Structure (Span of control=4workers)
This structure is flat as the span of control is very large at the lowest level and there are only two layers of
management. If it is thought that an executive can manage only 4 subordinates effectively, the number of managerial
levels will increase to four as shown in Fig. 2. This will make the organization structure look like a tall pyramid.
3.14. 4. NARROW SPAN OF SUPERVISION
The narrow span of supervision will lead to a tall structure and to an increase in the executive payroll as compared to
the flat structure another drawback is that the additional layers of supervisor will complicate communication from
the chief executive down to operative employees and back up the line. There will also be a problem of effective
coordination of the activities of different persons in the organization because of more levels of executives. However,
the narrow span of supervision has the benefit of better personal contacts between the supervisors and the
subordinates. It facilitates tight control and Close supervision. Tall organization structure gives sufficient to an
executive for developing relations with the subordinates.
In recent years, there has been a controversy around the significance of the concept of span of control. The
transformation in the style of decision-making has had an inevitable bearing on question relating to the number of
people an executive can supervise. Moreover, the use of delegation and decentralization is highly advocated these
days. It is realized that narrow span of control is an effective means of forcing the executives to delegate. It is also
argued that if an executive has enough number of subordinates to supervise, there is a point beyond which intimate
control becomes very difficult. But how this point, should be determined is the main question.
3.14. 5. FACTORS DETERMINING SPAN OF SUPERVISION
The span of control varies from individual to individual, time to time and place to place. The factors, which
determine the span of control, are discussed below:
1. Ability of the Managers. Individuals differ in various qualities like leadership, decision-making and
communication. The span may be wider if the manager possesses these skills in greater degree as compared to
others.
2., Time available for Supervision. The span should be narrow at the higher levels because top managers have less
time available for supervision. They have to devote the major portion of their time to planning, organizing, directing,
and controlling. Each top manager will delegate the task of supervision to his subordinates who have to devote
comparatively less time on the important functions of management.
3. Nature of Work. When the spans are narrowed, the levels in the organization increase. This involves delegation
of authority and responsibility. If the work is of a routine and repetitive nature, it can easily be delegated to the
subordinates.

4. Capacity of Subordinates. If the subordinates are skilled, efficient and knowledgeable, they will require less
supervision. In such a case, the superior may go in for a wider span.
5. Degree of Decentralization. Under decentralization, the power to make decisions is delegated to the lower levels.
The span of management will be narrow in such cases so as to exercise more and more control.
6. Effectiveness of Communication. An effective system of communication in the organization favors large
number of levels because there will be no difficulty in transmission of information in spite of a large number of
intervening layers.
7. Control Mechanism. The span of control also depends upon the control mechanism being followed. Control may
be followed either through personal supervision or through reporting. The former favors narrow span and the latter
favors a wide span.
To sum up, it can be said that an executive should be expected to supervise a reasonable number of subordinates.
What is reasonable depends on a variety of factors like individual differences in executives, number and capacity of
subordinates, the nature of work, availability of time, ease of communication, internal checks and controls and
degree of delegation in the organization. If the span of control is narrow, there will be more organizational levels,
which in turn may impede communication. If the number of levels is reduced and the span of control is widened, the
supervisory load may become too heavy. Sound management requires a proper balance between supervisory load
and organization levels.
3.15. ORGANIZATION CHARTS
A major reason why conflicts occur in organizations is that people do not understand their assignments and those of
their co-workers. No matter how well conceived an organization structure might be, people must understand it to
make it work. Understanding is aided to a great- extent by the proper use of organization charts. Every organization
structure can be charted, even a poor one, for a chart merely indicates how departments are tied together along the
principal lines of authority. Organizational charts range from simple drawings, which merely outline the structure of
major units to very complex drawings, which attempt to include all minor units as well and which purport to show
minor variations to level of authority, cross- relation ships among departments, and sometimes other features.
3.15. 1. DEFINITION
An organization chart is a diagrammatical form, which shows important aspects of an organization including the
major functions and their respective relationships. In other words, it is a graphic portrayal of positions in the
enterprise and of the formal lines of communication among them. It provides a bird's eye-view of the relationships
between different departments or divisions of an enterprise as well as the relationships between the executives and
subordinates at various levels. It enables each executive and employee to understand -his position in the organization
and to know to whom he is accountable. Thus, it is obvious that an organization chart has the following
characteristics:
1. It is a diagrammatical presentation.
2. It shows principal lines of authority in the organization.
3. It shows the interplay of various functions and relationships.
4. It indicates the channels of communication.

The organization chart should not be confused with the organization structure. An organization chart is merely a
type of record showing the formal organizational relationships which management intends should prevail. It is,
therefore, primarily a technique of presentation. It presents diagrammatically the lines of authority and responsibility
among different individuals and positions. It may be either personnel or functional. Personnel organization chart
depicts the relationship between positions held by different persons. Functional organization chart depicts the
functions or activities of each unit and sub-unit in the organization.
Master and Supplementary Charts
Master chart shows the whole structure of the enterprise portraying all positions and relationships. It provides a clear
picture of the entire organization structure. Supplementary charts are used to show separately department wise
structure portraying the positions and relationships within each department. Such charts are popular in big
organizations where it is difficult to show the necessary details through the master chart.
Advantages of organization Chart
Following are the advantages of an organization chart
(i) It is a tool of administration to tell the employees how their positions fit into the total organization and how they
relate to others.
(ii) It shows at a glance the lines of authority and responsibility. It is a reliable blueprint of how the positions are
arranged. From it, the individuals can sense the limits of their authority, and can see who their associates are, to
whom they report and from whom they get instructions.
(iii) It serves as a valuable guide to the new personnel in understanding the organization and for their training.
(iv) It provides a frame-work of personnel classification and evaluation systems.
(v) It plays a significant part in organization improvement by pointing out inconsistencies and deficiencies in certain
relationships, when management sees how its organization structure actually looks, it may discover some unintended
relationships.
Limitations of Organization Chart
While the organization chart is an important tool of management, its mere existence does not ensure effective
organization because of the following limitations:
(i) Organization chart shows only the formal relationships and fails to show the informal relations within the
organization. In modern enterprises, informal relationships exert important influence on various decisions.
(ii) It shows the lines of authority, but is not able to answer the questions like how much authority can be exercised
by a particular executive, how far he is responsible for his -functions and to what extent he is accountable.
(iii) It shows a static state of affairs and does not represent flexibility, which usually exists in the structure of a
dynamic organization.
(iv) It introduces rigidity in the relationships. Updating is not possible without disturbing the entire set-up.
(v) Faulty organization chart may cause confusion and misunderstanding among the organizational members.
Moreover, it gives rise to a feeling of superiority and inferiority, which causes conflicts in the organization.
(vi) It does not show the relationships, which exist actually in the organization, but shows only the 'supposed to'
relationships.

Despite these limitations, an organization chart is a must for all enterprises. It can serve as a useful tool of
management. It is a reliable blueprint of how positions are related to each other. It shows the employees how their
positions fit into the organization and how they relate to others. It is a must to create a proper understanding about
the organization structure.

3.16. TYPES OF ORGANIZATION CHARTS

There are three types of organization charts, viz., (a) Vertical that is from top down; (b) Horizontal that is from left
to right; and (c) Circular or concentric. These are briefly discussed below:
(a) Vertical Chart, Most organizations use this type of chart, which presents the different levels of
organization in the form of a pyramid with senior executive at the top of the chart and successive levels of
management depicted vertically below that. Thus, lines of command proceed from top to bottom in vertical
lines as shown in Fig.
Shareholders

Board of Directors

Managing Director

Production mgr.

Superintendent-I

Material mgr.

Finance mgr.

Marketing mgr. Personal mgr.

superintendent-II

Foreman-I Foreman-II

Foreman-III

Workers
Fig-Vertical chart
(b) Horizontal Chart. Horizontal charts, which read from left to right, are occasionally used. The pyramid lies
horizontally instead of standing in the vertical position. The line of command proceeds horizontally, i.e.,
from left to right showing top level at the left and each successive level extending to the right as shown in
Fig.

Board of

Production mgr.

Supt. plant-I

Foreman-I

Materials mgr.

Supt. plant-II

Foreman-II

Directors
Finance mgr.

Foreman-III

Fig-Horizontal Chart

However, this chart does not decrease the importance of levels. But it is feared that some people may make
erroneous inferences about differences in status and importance of various echelons.
(c) Circular Chart. In this chart, top positions are located in the center of the concentric circle. Positions of
successive echelons extend in all directions outward from the center. Positions of equal status lie at the same
distance from the center on the same concentric circle. This chart shows the flow of formal authority from the chief
executive in many directions. The main weakness of this chart is that it is often confusing.
3.17. LINE AND STAFF ORGANIZATION
The question of how to establish the right organization structure confronts every manager. A small organization may
have a simple structure that is easily understood. It may even be informal and can be subjected to sudden and
frequent changes. By contrast, large and complex organizations usually have a highly rigid, formalized structure.
Determining the most appropriate organization structure is a difficult job. Three-organization structures, line,
functional, line and staff-arc commonly employed. Each structural pattern has distinct advantages and
disadvantages.
Line Organization
The line, or military organization, is the simplest and the oldest form of organization. Line structures are more
common in small-scale units. Authority flows in a direct line from superiors to subordinates. Each employee knows
who his superior is and who has authority to issue orders. The one-man one boss principle is strictly applied.
Managers have full authority in their own areas of operation and are responsible for final results. Similarly, each
subordinate is directly responsible for the performance of assigned duties. If the subordinates fail to carry out
reasonable orders or directives, the superior has the right to take disciplinary action. Thus, authority flows
downward and responsibility flows upward, throughout the organization. The essential characteristics of line
organization is-the flow of authority that is straight and vertical. In line organization, every superior enjoys line
authority. This is often referred to as direct authority because it is directly associated with the attainment of the
primary objectives of the organization. In other words, line authority implies the right to give orders and to have
decisions implemented. For example, in a military organization, the General has line authority over the Colonel,
who has line authority over the Major, and so on down the hierarchy. Figure provides an illustration of a line
organization
Chief Executive

Sales

Foreman A

Production

Finance

Foreman B

Foreman C

Workers

Workers

Workers

Figure - Line Organization

Advantages and Disadvantages of Line Organization
Advantages
The advantages of line organization include the following:
(i) Simplicity: A line organization is simple to establish and easy to explain to employees. It is easy to understand
and follow.
(ii)Fixed responsibility- Responsibility is fixed. Each employee knows who his superior is and who has authority to
issue orders. Each employee knows to whom he is responsible and who is or are, in turn, responsible to him. This
facilitates the fixing of accountability for non-performance.
(iii) Quick decisions: In a line organization, one executive controls all the activities affecting one department. He is
in complete charge of all operations in the department. Direct lines of authority eliminate a considerable amount of
bureaucratic buck-passing, thus the line organization enables a manager to take quick decisions.
(iv) Develops managers: The line manager is responsible for results. He is charged with getting things done
properly. Non-performance may mean demotion and loss of prestige. To survive and succeed, he has to accomplish
tasks, thus utilizing his potential fully. It can be concluded then that a line organization encourages and forces
managers to grow.
(v) Flexibility: Each executive has full freedom to make decisions in his area of command. This enables him to
adjust policies and procedures to the changing needs.
(vi) Economical: A line organization is economical for a small business, as no specialists are needed, and a limited
number of executives are employed. Quick decisions, better coordination and prompt actions contribute greatly to
organizational success.
Disadvantages
The line organization is not free from limitations. As organizations begin to grow in size, the line organization
becomes unwieldy and unsuitable. The disadvantages may be catalogued thus:
(i) Lack of specialization: With growth and diversification, organizational problems multiply in number. Factors like
changing economic conditions, technological innovations, and ever-growing competition turn administration into a
funnel where the executives may find it external difficult to process bundles of data and take appropriate decisions.
(ii) Scarce talent: Capable line executives who can look after such diverse activities like planning activities, office
operations, research activities, personnel policies, etc., are rarely available. With growth, the manager's duties, too,
continue to expand. Working under time and cost constraints, managers may overlook or ignore important activities
and are forced to grapple with trivial issues.
(iii) Arbitrary actions: Line organization is based on the one-man management principles. The evils are well known.
Work may be divided arbitrarily and assigned to incompetent individuals. Nepotism and favoritism may prevail in
the selection, recruitment, and training of operatives.

Line and Staff Organization

The line and staff organization combines the good features of both the line organization and functional organization.
The staff specialists provide advice and support to the line managers in getting the work done. Staff specialists
concentrate on a narrow portion of the firm's activities. However, their authority is purely advisory, not functional.
Thus, when the staff organization is superimposed on the line organization, the result is a line- staff organization.
The line organization is paramount and the staff organization is created to service it. The role of staff is considered a
'service' to managers. Two features characterize it: it provides service to the line and it is devoid of the right to
command. The staff man advises, but his sole authority lies in the authority of ideas. On the other hand, two
important features-the rights to decide and right to direct characterize line authority. Line elements have a 'direct
responsibility for the accomplishment of the objective of an enterprise'. They have the ultimate authority to
command, act, decide, approve or disapprove of all the organizational activities. Both line and staff department
managers exercise line authority over their immediate subordinates. In fact, all managers exercise line authority over
their subordinates.
Advantages of Line and Staff Organization
Important advantages of line and staff organization may be listed thus:
Table - Differences between Line organization, Line and Staff organization and Functional Organization
Line organization
Suitability

Line and Staff Organization

Functional Organization

This is suitable for small Line and Staff organization is Suitable for large enterprises.
enterprises, where the work suitable for medium and large
is
simple

enterprises.
and

routine

in

nature.
Simplicity and It is simple to understand. This is also very complex.
Economy

The

Experts

organization

does

and

of

inevitably.

experts as staff assistants.

The

employment
is saved.

expensive because of division of

high wages. This increases the activities.

employment of specialists cost

expenditure

specialists Functional organization is also

not demand

require the

Extra

and

The relationships are complex.

in

administration

Unity of

The principle of unity of The principle of unity of

Principle of unity of command is not

command

command

followed because employees get

Lack of

is

followed command is not followed

because the

because advice is sought from instructions from more than one

authority flows vertically.

specialists.

superior.

Managers are responsible There is specialization and

Specialization for all

the

There is complete specialization and

division of labor. Experts and more importance is attached to

activities

of

their specialists are appointed to specialists working at various levels.

departments.

give

Hence, specialization in one advice to line executives.

area
is not possible.
Discipline

There is strict discipline. It There

is
because

is

loose

discipline There is loose discipline because

because
of

authority relationships are not dearly

well-defined authority and responsibilities defined.

chain of

of

command.

position holders are not dearly

defined.

Division of

The workload of a manager The workload of managers is Workload of managers is uneven.

work

increases because he has to relatively less.

This is because some managers have

perform a wide variety of

only line or staff authority while

functions.

others have functional -authority.

(i)Planned Specialization- As business grows, the pure line organization may overburden the line managers with
complex problems, and the need for staff assistance would be felt acutely. The primary advantage of line and staff
organization is that it uses the expertise of specialists, i.e., it brings expert knowledge to bear upon managerial and
operational problems. Line executive can, then, plan effectively and be responsible for proper execution while the
staff specializes to assist as and when needed.
(ii) Scientific actions: The actions of a line manager can become more scientific by means of' concentrated and
skilful examination of business problems. Expert advice definitely helps line executives in arriving at a sound
decision.
(iii) Definiteness: In a line-staff organization, authority and responsibility are fixed. The unity of command principle
is honored as each individual reports to only one superior, while specialized help is available as and when needed. In
addition, accountability is definite. Only line executives are accountable for the results of their divisions or
departments. Undivided responsibility compels line executives to enforce discipline strictly. Control and
coordination are effective.

(iv)Training ground for developing people: As everyone is expected to concentrate on one area, one's training needs
can be expressed easily. Line managers can improve their problem-solving abilities by observing staff specialists'
work on complex problems. Similarly, working with line people, staff specialists can try to overcome their 'parts
mentality' and begin to view problems more rationally and objectively.
Line and Staff Authority
Classical writers (Taylor, Fayol, Weber) based their explanations of line authority on simplistic assumptions. It is
said that line authority is the ultimate authority to command, act, decide, approve or disapprove all the activities of
the organization. Line connotes the work, functions of organization components that are accountable for fulfilling
the economic objectives of the organization. Two things characterize line authority: the right to decide and the right
to direct. According to McFarland the line manager directs others, delegates, trains subordinates, exerts control, uses
sanctions, has veto powers, makes operating decisions, and bears final responsibility for results. One serious
limitation with such a classification scheme is that they do not distinguish between important and unimportant
activities. It is quite possible to classify finance or personnel as a staff function, but it is a serious mistake to assume
that either is insignificant. Statements that line is associated with the final objectives or organization, or line
elements are income-producing components of the organization create an erroneous impressions that staff functions
are of secondary importance and unimportant.
Efforts to classify such functions, like product research and development, production processes as staff and line,
proved useless in the past. The customer pays for a product whose qualities am determined by design as well as
manufacturing. Designating one function as highly important contributes to the overall objectives of the organization
and relegating the other, as an unimportant level appears to be a superficial exercise.
who is Staff?
Staff authority is advisory, which means that the staff is a supporting unit that recommends action or alternative
actions to the line manager. Catch phrases like: "staff; have the authority of ideas, lines have the authority of
command; staffs think, lines do; staffs advise, lines work have gained wide currency over the years. However, staff
authority is not confined to mere advisory roles of recommending activities only. According to McFarland a staff
manager helps, serves, investigates, plans, solves special problems, supports line efforts, and provides ideas and
special expertise. The above functions are supporting functions; functions that help in some way the
accomplishment of the primary objectives of the line departments. One distinguishing feature of staff functions is
regarding the right to command, and direct others. Staff positions are devoid of the right to command, staff work is
essentially an intellectual process consisting of such activities like planning, thinking, studying, informing,
recommending, persuading and suggesting, and so on. Even the above seemingly sensible explanations fail to
answer certain questions associated with classification of organizational function in a university, teachers are line.
But what about people who are wedded to research activities? In a hospital, do nurses have line or staff authority?
Experts are not always in agreement on these issues. Such borderline functions defy clear-cut classification. Many
functions are obviously line or obviously staff (Brech).

Peculiarities of Line and Staff Relationship

The principles enunciated by the traditional theorist have been under attack for years either because they arc too
general or too specific for organizational application, in this section, we will examine peculiarities of line-staff
relationship.
One Center of Authority (Etzioni): It is one of the basic features of classical organization structures to have one
and only one center of authority. This is often vested in the role of the head (line manager) of the organization. He is
the ultimate authority in the internal structure and is finally responsible for organizational activity. As such, it is
believed that line people are more committed or loyal to the organizational goals. Staff experts are more oriented
towards their professional reference and membership groups. They are thought to make a more narrow, occupational
view of the firm's problems.
Peculiar Subordinate Relationship (Dubin): It is the leader who has the power to make decisions that guides the
actions of all including staff officers. But at -the same time there enters into this very decision-making process the
contribution of the staff specialist in their area of competence." The president of a company, for example, may issue
orders regarding the production schedule which becomes binding on the operating departments but before the
schedule is validated by the president and issued as a directive, the staff specialists in marketing, production,
purchasing, etc., may have influenced the contents in the schedule. The concept of extending the personality of the
line executive by advice, counsel appears to be the keystone of the staff idea. (INffiner and Shertmod)
Staff Obedient to an Impersonal Body of Rules: In all bureaucratic organizations, authority is delegated to lower
levels. The leader has the maximum authority by virtue of his position in the organization. The leader may change,
retire or die but the office of the leader retains the authority that goes with it. "Staff obedience to the leader and to
the organization is in terms of impersonal body of rules that establish the governmental framework of the
organization." (Dubin)
False Assumptions (Carzo): The line and staff structure seems to suffer from some false assumptions: (a) Staff
specialists are able and willing to operate without formal authority. They would be reasonably content to function
without a measure of formal authority. (b) Their advice, suggestions and recommendations- will be readily accepted
and applied by the line officials. (c) A clear delineation of line responsibilities is possible and is essential to
minimize jurisdictional conflict.
Nature of Staff Service: It is believed that staff structure seems to suffer from some false assumptions: (a) Staff
specialists are able and willing to operate without formal authority. They would be reasonably content to function
without a measure of formal authority (b) Their advice, suggestions and recommendations will be readily accepted
and applied by the line officials. (a) A clear delineation of line responsibilities is possible and is essential to
minimize jurisdictional conflict.
3.18. Committee
Committees exist both in business and non-business organizations. It is difficult to give a precise definition of the
term Committee because there are many different kinds of committees and the concept of committee varies
widely from one organization to another. In many organizations, committees constitute an important part-of the
organization structure. Committees are usually relatively formal bodies with a definite structure. They have their

own organization. To them are entrusted definite responsibility and authority. A committee may review budgets,
formulate plans for new products or make policy decisions. Or the committee may only have a power to make
recommendations and suggestions to a designated official.
According to Louis A. Allen, "A committee is a body of persons appointed or elected to meet on an organised basis
fqr the consideration of matters brought before it." A committee is a group of persons performing a group task with
the object of solving certain problems. The area of operation of a committee is determined by its constitution. A
committee may formulate plans, make policy decisions or review the performance of certain units. In some cases, it
may only have the power to make, recommendations to a designated official. Whatever may be the scope of their
activities, committees have come to be recognized as an important instrument in the modem business as well as
non-business organizations. They help in taking collective decisions, coordinating the affairs of different
departments and meeting communication requirements in the organization.
Generally, committees are constituted to achieve one or more of the following objectives
(i) to have consultation with various persons to secure their view-points on different aspects of business.
(ii) to give participation to various groups of people.
(iii) to secure cooperation of different departments.
(iv) to coordinate the functioning of different departments and individuals by bringing about unity of direction.
Types of Committee
According to the nature of their constitution and functions, committees can be classified as follows:
(i) Line and Staff Committees. If a committee is vested with the authority and responsibility to decide and whose
decision is implemented invariably, it is known as a line committee. For example, board of directors of a company is
a line committee of the representatives of its members, which is authorized to take and implement, policy decisions.
On the other hand, if a committee is appointed merely to counsel and advise, it is known as a staff committee. For
instance, a committee composed of the heads of various departments may meet at periodical intervals to counsel the
chief executive.
(ii) Formal and Informal Committees. When a committee is constituted as a part of the organization structure and
has clear-cut jurisdiction. It is a formal committee. But an informal committee is formed to advise on certain
complicated matters on which the management does not want to set up formal committee, which is a costly device,
Informal committees do not form part of the organization structure.
(iii) Standing and Ad hoc Committees. Formal committees, which are of permanent character, are known as
standing committees. Ad hoc committees are temporary bodies, which may be formal or informal. An ad hoc
committee is appointed to deal with some special problem and stops functioning after its job are over.
(iv) Executive Committee. It is a committee, which has power to administer the affairs of the business.
(v) Coordinating Committee. Such a committee is generally constituted to coordinate the functioning of different
departments. It consists of the representatives of different departments who meet periodically to discuss their
common problems.
In addition, a business enterprise may have other committees like (a) Finance Committee, (b) Planning Committee,
(c) Production. Committee, (d) Workers' Welfare Committee, and so on.

Why is Committees Used?

A committee almost invariably is used to carry out responsibilities, which cannot be undertaken by a single person.
Committees have certain inherent advantages because people in groups react differently from people as individual.
The advantages or merits are discussed below
1. Pooled Knowledge and Experience. A committee is an effective method of bringing the collective knowledge
and experience of a number of persons to solve many intricate problems that are beyond the reach of a single person.
In a committee, such members may be taken who are experts in their fields. This will help in concentrating
knowledge and judgment of experts for the solution of the intricate problems.
2. Enforces Participation. A committee tends to enforce participation by different people in the organization. A
major source of resistance to new policies and plans by those who are asked to carry them out is lack of participation
on their part at the planning stage. The management can give representation to the employees in various committees.
This will motivate the employees for better performance as they feel that they have a say in the affairs of the
organization.
3. Facilitates Coordination. When it is necessary to integrate varying points of view, which cannot conveniently be
coordinated by individuals, the committee may be used to bring about coordination. A committee consists of
representatives of different departments or persons who represent different points of view, who will sit around a
table and discuss their common problems. The direct contact among various individuals will bring about proper
understanding and coordination in the activities of various departments and individuals.
4 Overcoming Resistances. The committee is an important means of cooling off agitation and temper on the part of
affected people. Establishment of committee is recognized as a strategy for overcoming resistance, opposition or
pressure from the affected parties. For purposes of strategy, committees have a wider-application in Government,
educational, and other non-business institutions.
5 Checks against Misuse of Powers. It acts as a check and safeguard against the abuse and misuse of powers. The
Governments of all nations to circumscribe the executive authority and to hold it in balance establish numerous
boards and commissions. Company. Plural executives in the form of committees are more common in non-business
organizations than in business organizations.
Limitations of Committees.
Some people consider committee as an organised means of passing the buck. A committee is created when some top
people-can't make up their minds and they want a committee to do it for them. Though use of committees brings
about certain advantages, they have certain inherent drawbacks also which are discussed below:
1 Evasion of Decision-making Responsibilities. If a manager has an opportunity to carry a problem to a
committee, he may take it as a means of avoiding decision-making or to escape the consequences of an unpopular
decision. Thus, managers, who want to avoid the laborious and difficult process of logical thinking that leads to 'a
sound decision and to escape responsibility, take resort to committee device.
2. Slow Decision-making. Committees take more time in procedural matters before any decision is taken. In some
cases, slowness seriously handicaps the administration of the organization. The delay in decision-making often reduces the usefulness of the decisions. The delay is caused by many factors like giving sufficient membership and

lack of preparation, before meeting. That is why committees are sometimes used by managements to cool off
agitation by their employees, which may create difficulties in the long-run.
3. Costly Device. Committees are an expensive device both in terms of cost and time. Committee meetings take too
much time, which absorbs the sum, total of the salary of its members for that time. Sometimes, committee members
deliberately tend to pass time in order to show that they have taken pains in reaching the decision.
4. Lack of Definite Decision. When the committee findings represent a compromise of different viewpoints, they
may be found to be weak and indecisive. They may cloud the real issues and get extraneous matters involved in
decision -making. In case of committee decisions, it is very difficult to fix responsibility on a particular person. So
the committee member's are apt to be irresponsible and indifferent.
5. Incompetent Membership. When a committee is formed, it is implied that the individual members of the
committee will exert pressure on the ideas, suggestions, comments and judgments of other members, but this may
happen in practice. The chairman or any strong member of the committee may force the committee to come to a
foregone conclusion on the basis of his own thinking and the incompetent members may keep silent. Thus, the
decision may be overshadow by the force of strong personality.
6. Source of Misunderstanding. The committee meeting may prove to be a source of misunderstanding instead of
providing a forum for teamwork and settlement of problems. The chairman of the meeting may not be effective in
bringing about reconciliation of ideas of different individuals. Moreover, committee actions are characterized by
voting and dissenting practices, which may leave behind a legacy of bitterness, discontent and frustration.
Making Better Use of Committees
Notwithstanding the dangers of committees mentioned above, committees are used by most organizations because
their advantages far outweigh their disadvantages.
1. Management can make committees a useful agency of administration rather than a doubtful and much bedeviled
administrative gimmick. For the successful operation of the committees, the management should keep in mind the
following points
2. Members of the committee should be carefully selected. This is an important factor for the success of the
committee. The members must be able of understanding the real issues entrusted to the committee and taking part in
the discussion. As far as practicable, members of the committee should be of similar organizational rank if they are
expected to discuss and contribute on an equal basis. The choice of committee members requires a nice judgment as
to personality differences, ability in expression as well as their status.
3. The committee should be of proper size. The group should not be too large. If it is too large, many of its members
will not have adequate opportunity to express their viewpoints. It may become chaotic if there are many vocal
members. But if the group is too small, it is difficult to secure a well-rounded viewpoint. The size of committee
should depend on the purpose of forming it and the need to give representation to different viewpoints.
4. The committee should have a capable chairman. The chairman of the committee has to conduct the proceedings of
the committee meeting. He should understand his proper role. His job is to encourage others to express themselves,
to settle differences and to add a touch of humor when the going is tough. He is an arbiter, a peacemaker and an

expediter. He should not be an advocate of one point of view. His job is to get members of the groupthink and not to
think for them.
5. There should be adequate preparation for the committee meeting. The major cause of not reaching any decision
by the committee is lack of preparation by the committee members and the office. The office should keep all the
details ready for use by the committee. The chairman should be provided with adequate clerical and staff assistance
so that he can furnish all available factual data for each member before the meeting takes place. The agenda of the
meeting and the concerned data, reports and notes should be circulated among the members of the committee well in
time so that they get raw material for discussion in the meeting.
6. There should be adequate follow up. In order to encourage the proper functioning of committees, it is
necessary that management should take adequate follow up measures to implement the intent of the committee.
Minutes of the committee meeting should be prepared and distributed to each member and also to the top
management so that it may evaluate the work done by the committee.
3.Interveiw two line managers about their views on delegation. Do they think that their superior delegates sufficient
authority to them? Also inquire how they feel about delegating authority to their subordinates.
4.Visit a company in your area that is considered a model of effective management. Get any information on this
company that gives you some insight into the operation. What makes this organization excellent? Would you like to
work for this enterprise? Why, or why not?

UNIT 5
Leading: Dimensions of Leadership Leading Vs Managing approaches to leadership leadership behavior and
styles leadership skills leadership in cross-cultural environment evaluation of leader women and corporate
leadership Motivation theories group dynamics - team, inter-group behavior, conflict and negation skills and
conflicts management.
LEADING
Leading: A manager needs to do more than just plan, organize, and staff the team to achieve a goal. Leading
involves motivating, communicating, guiding, and encouraging. It requires the manager to coach, assist, and
problem solve with employees.
Leading involves the social and informal sources of influence that you use to inspire action taken by others. If
managers are effective leaders, their subordinates will be enthusiastic about exerting effort to attain organizational
objectives. The behavioral sciences have made many contributions to understanding this function of management.
Personality research and studies of job attitudes provide important information as to how managers can most
effectively lead subordinates. For example, this research tells us that to become effective at leading, managers must
first understand their subordinates personalities, values, attitudes, and emotions. Studies of motivation and
motivation theory provide important information about the ways in which workers can be energized to put forth
productive effort. Studies of communication provide direction as to how managers can effectively and persuasively
communicate. Studies of leadership and leadership style provide information regarding questions, such as, What
makes a manager a good leader? and In what situations are certain leadership styles most appropriate and
effective?
Leadership Vs. Management
"Leaders manage and managers lead, but the two activities are not synonymous. Management functions can
potentially provide leadership; leadership activities can contribute to managing. Nevertheless, some managers do not
lead, and some leaders do not manage".

Situational Approaches to Leadership

The theme in early approaches to understanding leadership was the desire to identify traits or behaviors that
effective leaders had in common. A common set of characteristics proved to be elusive, however. Researchers were
continually frustrated by the lack of consistent support for their findings and conclusions. As a result, research began
to focus on what style of leadership was most effective in a particular situation. Contingency or situational theories
examine the fit between the leader and the situation and provide guidelines for managers to achieve this effective fit.
The theorists in this section believe that managers choose leadership styles based on leadership situations. Managers
adjust their decision-making, orientation, and motivational approaches based upon a unique combination of factors
in their situations: characteristics of employees, types of work, organizational structures, personal preferences, and
upper-level management's influences.
The following sections describe the three most well-known situational theories.
Fiedler's contingency theory
Fred E. Fiedler's contingency theory centers on the belief that there is no best way for managers to lead. Different
situations create different leadership style requirements for managers. The style that works in one environment may
not work in another.
Fiedler looked at three elements that dictate a leader's situational control. These elements are:
Task structure. Is the job highly structured, fairly unstructured, or somewhere in between? The spelling out in
detail (favorable) of what is required of subordinates affects task structure.
Leader/member relations. This element applies to the amount of loyalty, dependability, and support that a leader
receives from his or her employees. In a favorable relationship, a manager has a highly formed task structure and is
able to reward and/or punish employees without any problems. In an unfavorable relationship, the task structure is
usually poorly formed, and the leader possesses limited authority.
Positioning power. Positioning power measures the amount of power or authority a manager perceives the
organization has given him or her for the purpose of directing, rewarding, and punishing subordinates. Positioning
powers of managers depends on the taking away (favorable) or increasing (unfavorable) of the decision-making
power of employees.
Fiedler then rated managers as to whether they were relationship oriented or task oriented. Task-oriented managers
tended to do better in situations with good leader/member relationships, structured tasks, and either weak or strong
position power. They also did well when the tasks were unstructured but position power was strong, as well as when
the leader/member relations were moderate to poor and the tasks were unstructured. Relationship-oriented managers,
on the other hand, do better in all other situations.
The task-motivated style leader experiences pride and satisfaction in task accomplishment for his or her
organization, while the relationship-motivated style leader seeks to build interpersonal relations and extend extra
help for team development in his or her organization.
Judging whether a leadership style is good or bad can be difficult. Each manager has his or her own preferences for
leadership. Task-motivated leaders are at their best when their teams perform successfullysuch as achieving new

sales records or outperforming major competitors. Relationship-oriented leaders are at their best when greater
customer satisfaction is gained and positive company images are established.
Hersey-Blanchard's situational model
The Hersey-Blanchard Model of Situational Leadership, shown in Figure 1 , is based on the amount of direction
(task behavior) and amount of socioemotional support (relationship behavior) a leader must provide given the
situation and the level of maturity of the followers.

Task behavior is the extent to which the leader engages in spelling out the duties and responsibilities to an individual
or group. This behavior includes telling people what to do, how to do it, when to do it, and where to do it. In task
behavior, the leader engages in one-way communication. Relationship behavior, on the other hand, is the extent to
which the leader engages in two-way or multiway communications. This behavior includes listening to, facilitating,
and supporting employees. And maturity is the willingness and ability of a person to take responsibility for directing
his own behavior. Employees tend to have varying degrees of maturity, depending on the specific tasks, functions,
or objectives that they attempt to accomplish.
To determine the appropriate leadership style to use in a given situation, a leader must first determine the maturity
levels of his or her followers in relationship to the specific task. As employee maturity levels increase, a leader
should begin to reduce task behavior and increase relationship behavior until his or her followers reach moderate
maturity levels. As the employees move into above-average maturity levels, the leader should decrease not only task
behavior but also relationship behavior.
Once maturity levels are identified, a manager can determine the appropriate leadership style: telling, selling,
participating, or delegating.
Telling. This style reflects high task/low relationship behavior (S1). The leader provides clear instructions and
specific direction. Telling style is best matched with a low follower readiness level.
Selling. This style reflects high task/high relationship behavior (S2). The leader encourages two-way
communication and helps build confidence and motivation on the part of the employee, although the leader still has
responsibility and controls decision making. Selling style is best matched with a moderate follower readiness level.
Participating. This style reflects high relationship/low task behavior (S3). With this style, the leader and followers
share decision making and no longer need or expect the relationship to be directive. Participating style is best
matched with a moderate follower readiness level.

Delegating. This style reflects low relationship/low task behavior (S4). Delegating style is appropriate for leaders
whose followers are ready to accomplish a particular task and are both competent and motivated to take full
responsibility. This style is best matched with a high follower readiness level.
House's path-goal theory
The path-goal theory, developed by Robert House, is based on the expectancy theory of motivation. A manager's job
is to coach or guide workers to choose the best paths for reaching their goals. Based on the goal-setting theory,
leaders engage in different types of leadership behaviors depending on the nature and demands of a particular
situation.
A leader's behavior is acceptable to subordinates when viewed as a source of satisfaction. He or she is motivational
when need satisfaction is contingent on performance; this leader facilitates, coaches, and rewards effective
performance. Path-goal theory identifies several leadership styles:
Achievement-oriented. The leader sets challenging goals for followers, expects them to perform at their highest
levels, and shows confidence in their abilities to meet these expectations. This style is appropriate when followers
lack job challenges.
Directive. The leader lets followers know what is expected of them and tells them how to perform their tasks. This
style is appropriate when followers hold ambiguous jobs.
Participative. The leader consults with followers and asks them for suggestions before making a decision. This
style is appropriate when followers are using improper procedures or are making poor decisions.
Supportive. The leader is friendly and approachable. He or she shows concern for the followers' psychological wellbeing. This style is appropriate when followers lack confidence.
Path-goal theory assumes that leaders are flexible and that they can change their styles as situations require. This
theory proposes two contingency variables that moderate the leader behavior-outcome relationship:
Environment characteristics are outside the control of followers, task structure, authority system, and work group.
Environmental factors determine the type of leader behavior required if follower outcomes are to be maximized.
Follower characteristics are the focus of control, experience, and perceived ability. Personal characteristics of
subordinates determine how the environment and leader behavior are interpreted.
Effective leaders clarify the path to help their followers achieve their goals, and make their journeys easier by
reducing roadblocks and pitfalls. Research demonstrates that employee performance and satisfaction are positively
influenced when leaders compensate for shortcomings in either their employees or the work settings.
Leadership Styles
Leadership style is the manner and approach of providing direction, implementing plans, and motivating people.
Kurt Lewin (1939) led a group of researchers to identify different styles of leadership. This early study has been
very influential and established three major leadership styles. The three major styles of leadership are (U.S. Army
Handbook, 1973):
1.

Authoritarian or autocratic

2.

Participative or democratic

3.

Delegative or Free Reign

Although good leaders use all three styles, with one of them normally dominant, bad leaders tend to stick with one
style.
Authoritarian (autocratic)
This style is used when leaders tell their employees what they want done and how they want it accomplished,
without getting the advice of their followers. Some of the appropriate conditions to use it is when you have all the
information to solve the problem, you are short on time, and your employees are well motivated.
Some people tend to think of this style as a vehicle for yelling, using demeaning language, and leading by threats
and abusing their power. This is not the authoritarian style, rather it is an abusive, unprofessional style called
bossing people around. It has no place in a leader's repertoire.
The authoritarian style should normally only be used on rare occasions. If you have the time and want to gain more
commitment and motivation from your employees, then you should use the participative style.
Participative (democratic)
Let's work together to solve this. . .
This style involves the leader including one or more employees in the decision making process (determining what to
do and how to do it). However, the leader maintains the final decision making authority. Using this style is not a
sign of weakness, rather it is a sign of strength that your employees will respect.
This is normally used when you have part of the information, and your employees have other parts. Note that a
leader is not expected to know everything this is why you employ knowledgeable and skillful employees. Using
this style is of mutual benefit it allows them to become part of the team and allows you to make better decisions.
Delegative (free reign)
You two take care of the problem while I go. . .
In this style, the leader allows the employees to make the decisions. However, the leader is still responsible for the
decisions that are made. This is used when employees are able to analyze the situation and determine what needs to
be done and how to do it. You cannot do everything! You must set priorities and delegate certain tasks.
This is not a style to use so that you can blame others when things go wrong, rather this is a style to be used when
you fully trust and confidence in the people below you. Do not be afraid to use it, however, use it wisely!
NOTE: This is also known as laissez faire (or laisser faire), which is the noninterference in the affairs of others.
[French : laissez, second person pl. imperative of laisser, to let, allow + faire, to do.
A good leader uses all three styles, depending on what forces are involved between the followers, the leader, and the
situation. Some examples include:
Using an authoritarian style on a new employee who is just learning the job. The leader is competent and a good
coach. The employee is motivated to learn a new skill. The situation is a new environment for the employee.
Using a participative style with a team of workers who know their job. The leader knows the problem, but does not
have all the information. The employees know their jobs and want to become part of the team.
Using a delegative style with a worker who knows more about the job than you. You cannot do everything and the
employee needs to take ownership of her job! In addition, this allows you to be at other places, doing other things.

Using all three: Telling your employees that a procedure is not working correctly and a new one must be established
(authoritarian). Asking for their ideas and input on creating a new procedure (participative). Delegating tasks in
order to implement the new procedure (delegative).
Forces that influence the style to be used included:

How much time is available.

Are relationships based on respect and trust or on disrespect?

Who has the information you, your employees, or both?

How well your employees are trained and how well you know the task.

Internal conflicts.

Stress levels.

Type of task. Is it structured, unstructured, complicated, or simple?

Laws or established procedures such as OSHA or training plans.

All leaders do not possess same attitude or same perspective. As discussed earlier, few leaders adopt the carrot
approach and a few adopt the stick approach. Thus, all of the leaders do not get the things done in the same manner.
Their style varies. The leadership style varies with the kind of people the leader interacts and deals with. A
perfect/standard leadership style is one which assists a leader in getting the best out of the people who follow him.
Some of the important leadership styles are as follows:
Autocratic leadership style: In this style of leadership, a leader has complete command and hold over their
employees/team. The team cannot put forward their views even if they are best for the teams or organizational
interests. They cannot criticize or question the leaders way of getting things done. The leader himself gets the
things done. The advantage of this style is that it leads to speedy decision-making and greater productivity under
leaders supervision. Drawbacks of this leadership style are that it leads to greater employee absenteeism and
turnover. This leadership style works only when the leader is the best in performing or when the job is monotonous,
unskilled and routine in nature or where the project is short-term and risky.
The Laissez Faire Leadership Style: Here, the leader totally trusts their employees/team to perform the job
themselves. He just concentrates on the intellectual/rational aspect of his work and does not focus on the

management aspect of his work. The team/employees are welcomed to share their views and provide suggestions
which are best for organizational interests. This leadership style works only when the employees are skilled, loyal,
experienced and intellectual.
Democrative/Participative leadership style: The leaders invite and encourage the team members to play an
important role in decision-making process, though the ultimate decision-making power rests with the leader. The
leader guides the employees on what to perform and how to perform, while the employees communicate to the
leader their experience and the suggestions if any. The advantages of this leadership style are that it leads to
satisfied, motivated and more skilled employees. It leads to an optimistic work environment and also encourages
creativity. This leadership style has the only drawback that it is time-consuming.
Bureaucratic leadership: Here the leaders strictly adhere to the organizational rules and policies. Also, they make
sure that the employees/team also strictly follows the rules and procedures. Promotions take place on the basis of
employees ability to adhere to organizational rules. This leadership style gradually develops over time. This
leadership style is more suitable when safe work conditions and quality are required. But this leadership style
discourages creativity and does not make employees self-contented.
Leadership Evaluation
Vision Clearly and simply communicates the Strategic Plan and their own division vision. Inspires and energizes
others to commit to the Strategic Plan. Leads by example.
Ownership Reinforces the Strategic Plan in all operational activities. Communicates organizations challenges in
a positive manner. Uses expertise to effectively influence the behavior/decisions of College leadership. Accept
responsibility for failures and successes.
Constituent Focused Listens to their constituency and assigns the highest priority to their satisfaction, including
internal constituencies. Demonstrated broad campus knowledge/perspective with other departments and leaders.
Breaks down barriers and develops influential relationships across campus. Makes decisions, which reflect the
campus, President and Board of Trustee perspectives.
Accountability/Integrity Adheres to highest standards of ethics. Follows and promotes campus policies and
procedures (does the right thing). Actions consistent with words (walk the talk). Absolutely trusted by others.
Delivers on commitments to constituents, leaders and employees. Demonstrates courage/selfconfidence to stand for
beliefs, ideas, and staff.
Inspires Excellence Continuously seeks new ways to improve the work environment both practices and processes.
Strives to improve her/his own areas of relative weakness and assumes responsibilities for own mistakes. Sets
challenging standards and expectations for excellent performance. Recognizes and rewards achievement. Fully
utilizes team members of all cultures, races and genders.
Positively Stimulates Change Creates real and positive change. Sees change as an opportunity. Questions the
status quo. Implements new and better ways of doing things. Promotes alternative points
of view as being essential to positive change.
Teamwork Functions effectively both as a leader and as a team member. Respects the talent and contributions of
all team members. Creates an environment where everyone feels able to participate. Links goals of own

organization, team members with Strategic Plan. Respects diversity of opinion in constituency, peers, and
subordinates. Enthusiastically supports the team, even during bad times. Assumes responsibility for the teams
mistakes. Settles problems without alienating others.
Self-Confidence Acknowledges strengths and limitations, seeks candid feedback from peers. Maintains an even
disposition when things are not going well. Treats all others with respect, fairness and dignity. Shares problems and
concerns openly and honestly. Shares information across traditional boundaries and is open to new ideas.
Communications Explains Strategic Plan and other College initiatives and messages to members of organization.
Communicates in an open, candid, clear, complete, consistent, interactive manner initiates response/discussion.
Listens effectively, demonstrates genuine interest in others.
Development Skills Structures jobs/assignments for employee development and growth. Shares knowledge,
information and expertise with team members. Positively sets challenging goals that stretch current performance
levels and drives new skill development. Gives frequent, candid coaching/feedback
on performance and career development. Documents results. Treats everyone with dignity, trust and respect.
Motivation Motivates others around them to perform and behave at their highest level. Inspires through words and
actions.
Empowerment Delegates important tasks, not just what she/he does not want to do. Gives authority
commensurate with responsibility, and resources necessary to get the job done. Promotes visibility of staff/team
members and peers, gives credit where due. Fully utilizes diversity of team members to achieve departmental and
campus success.
Group dynamics
Group dynamics refers to a system of behaviors and psychological processes occurring within a social group
(intragroup dynamics), or between social groups (intergroup dynamics). The study of group dynamics can be useful
in understanding decision-making behavior, tracking the spread of diseases in society, creating effective therapy
techniques, and following the emergence and popularity of new ideas and technologies. Group dynamics are at the
core of understanding racism, sexism, and other forms of social prejudice and discrimination. These applications of
the field are studied in psychology, sociology, anthropology, political science, epidemiology, education, social work,
business, and communication studies.
Definition of Group

Group is defined as minimum two or more than two individuals who come together to complete
particular task(s) usually towards achievement of goal(s).

These individuals normally related to each other by some organizational or social relationships.

The group may be of two types:

- informal group and
- formal groups

The behavior of individuals in a group may get modified to certain extent as compared their behavior
when they are independent of the group. This is due to the interactions between the members of the
group and their influence on each other.

Definition of Group Dynamics

Group dynamics is the study of groups.

It is an important subject of organizational behavior (OB), particularly for the organizational groups.

It studies groups

- Formation
- Structure
- Interaction and behavior
- Process.

Study of the group processes forms the most important core subject of the studies while looking at the
group functioning.

Due to this reason, many a time, people understand group dynamics and group process as one and the
same.

Formation of Groups
Why Are Groups Formed?

Individuals sharing common sentiments, purpose and activities start interacting and form a group.

When individuals perceive that they can expect beneficial exchanges explicitly or implicitly by
forming the group, they do so and become part of the group.

When individuals believe that they can get an identity, belongingness, self-esteem or prestige by
affiliating to a particular or significant or prominent group, they do so.

How Groups Get Formed and Develop?

Bruce Tuckman gave a five stage framework for formation and development of groups in 1960s. These five stages
are given below:
1. Forming:

Due to any one of the reasons enunciated earlier, group gets formed.

Normally, the group gets formed with an incomplete idea of its goals or purposes. So, at the beginning
of formation, there is some confusion and uncertainty.

Leadership of the group and the roles and tasks to be undertaken by the group do not emerge clearly.
Thus, forming is an induction process through which members get to know each other and share
expectations from the group.

Members gradually learn the purpose of the group and the guidelines to be followed.

Forming stage should not be rushed because trust and openness have yet to develop. These feelings
strengthen in later stages of development.

2. Storming:

In this stage, the group is likely to experience the highest level of disagreement and conflict as
members may voice concerns and criticism.

Members often question and challenge group goals.

They also struggle for power or leadership.

If members can ultimately achieve understanding and cohesiveness through collaboration and
resolution, the group may continue as a group. Otherwise, the group may disband. However, if it still
continues, it may remain ineffective and may not make progress to the subsequent stages.

3. Norming:

In this stage, the members start recognizing their individual differences and also their shared
expectations.

Members may begin to develop a feeling of group identity and group harmony.

Cooperative efforts may begin.

Roles and responsibilities among members may get decided.

They may also decide on how to evaluate progress of the group.

4. Performing:

At performing stage, group might have achieved maturity and there will be greater degree of harmony
among its members.

There is more mutual acceptance among the members now.

Conflict can be managed and resolved more amicably through collaborative processes.

Decisions making takes place more on rational basis aimed at achieving goals rather than highlighting
the emotional issues.

5. Adjourning:

All groups do not experience this stage at all. Many groups remain permanent.

Some groups that complete their tasks and goals may decide on disbanding the group.

This stage is characterized by the feelings of sadness normally associated with closure of any group
and separation of the members.

Types of Leadership Required in First Four Stages of Group Formation/Development

1. Tell:

It is the type of leadership required in the first stage called forming

Facilitate members; introduction with each other each other and tell the individual contribution to the
task expected from them.

Provide a sense of purpose and clarify limits, deadlines and constraints.

Assess the skills and try to identify group roles

Begin to anticipate likely blocks and barriers to progress

It is the type of leadership required in the second stage called storming

Its a delicate role

Continue to provide direction

Encourage building of trust and openness

Manage conflicts positively to arrive at look for a common platform

Be prepared to mediate and determine solutions even if they might not be popular with everyone

2. Sell:

3. Consult:

It is the type of leadership required in the third stage called norming

Less directive and more supportive

Maintain openness and trust

Challenge the group if it starts to become complacent

Celebrate individual and group successes

Encourage regular reviews to ensure group's progress

4. Participate:

It is the type of leadership required in the fourth stage called performing

Lead from behind

Ensure that the group has required resources and support

Represent the group to the wider organization

Encourage regular evaluation to avoid complacency

Develop the skills

Group Process
Given below are the major factors or elements of group process:

Extent of task focus (giving information, seeking information, summarizing, getting on etc) and extent
of social focus (encouraging, harmonizing, drawing in, mirroring, pleasing, entertaining etc)

Characteristics of communication, coordination, cooperation, support and collaboration

Patterns of self-oriented behavior (silence, hurt feeling, withdrawal, tension, anxiety etc)

Mix of influencing, convincing, dictating, bribing, cajoling, flattery etc

Roles

Relationships

Patterns of dominance and submission

Conflict management and conflict resolution

Level of group effectiveness

Team building and synergy

Types of Groups

Informal groups

Formal

Informal Groups
These groups may get formed within an organization or outside an organization. They do not necessarily follow the
rules and guidelines of theorganization. They informally follow the guidelines of the informal group. These groups
are called interest groups, friendship groups, reference groups etc. Given below are a few examples of informal
groups:

Employees meet near water cooler and gossip

Five secretaries from marketing department meet once a month for lunch to discuss mutual concerns and to
seek relief from tedious aspects of their job

Four computer programmers form a jogging club that meets three days per week to run five miles after
office hours

All employees of a section meet and discuss how to improve and beautify office layouts

Seven workers of a production shop floor meet once a week to solve their technical problems

Formal Groups
These groups are formally created in an organization and follow the rules and guidelines prescribed by the
organization. These are:
1. Command groups
They are explained by a formal organization structure and depicted on the organizational chart. A companys
organization network starting with thechairman of board of directors through its various levels of managers right
down to the workers is a typical command group example.
2. Task groups or task forces
People working together to achieve a common task form a task group or a task force. Members are grouped together
either from the same department or cross-functionally to complete some specified goals on a timeline. These task
forces are appointed for a specified periods and disbanded after the goals are achieved.
3. Functional groups
Functional group is created to carry out specific functions in an organization. These are normally on-going
departments of an organization and are permanent till re-structuring of organization is undertaken.
Methods of Arriving at Decisions in Group

Lack of response
(Plop)

Authority rule
(Mine is right or might is right)

Minority rule
(Silence means consent)

Majority rule
(Collection - win - lose competition)

Consensus
(Near total agreement)

Unanimity
(Total agreement)

INTERNAL GROUP BEHAVIOUR

Group behaviour (or group behavior) in sociology refers to the situations where people interact in large or small
groups. The field of group dynamics deals with small groups that may reach consensus and act in a coordinated way.
Groups of a large number of people in a given area may act simultaneously to achieve a goal that differs from what

individuals would do acting alone (herd behaviour). A large group (a crowd or mob) is likely to show examples of
group behaviour when people gathered in a given place and time act in a similar wayfor example, joining a protest
or march, participating in a fight or acting patriotically.
Special forms of large group behaviour are:
crowd "hysteria"
spectators - when a group of people gathered together on purpose to participate in an event like theatre play, cinema
movie, football match, a concert, etc.
public - exception to the rule that the group must occupy the same physical place. People watching same channel on
television may react in the same way, as they are occupying the same type of place - in front of television - although
they may physically be doing this all over the world.
Group behaviour differs from mass actions which refers to people behaving similarly on a more global scale (for
example, shoppers in different shops), while group behaviour refers usually to people in one place. If the group
behaviour is coordinated, then it is called group action.
Swarm intelligence is a special case of group behaviour, referring to the interaction between a group of agents in
order to fulfil a given task. This type of group dynamics has received much attention by the soft computing
community in the form of the particle swarm optimization family of algorithms.
Why do people join groups
People join groups for a multitude of reasons. A major reason is that group membership often results in some form
of need satisfaction on the part of the individual. Membership into a group can fulfil numerous needs, some which
group members may not realize they are benefiting from:
Companionship groups provide members to simply be in the company of other people.
Survival and security From a historic or evolutionary perspective our ancestors would partake in group
experiences for hunting and defence.
Affiliation and status membership into various groups can provide individuals with certain socials status' or
security.
Power and control with group membership comes the opportunity for leadership roles; individuals who feel they
need to exert their power and opinions over others can have such experiences within group settings.
Achievement groups have the capability to achieve more than individuals acting alone.
Organizations typically form groups in order to accomplish work related tasks; however, as a member of a work
group you may unintentionally reap the numerous benefits independent of the original group construct.
Defining characteristics of groups
Currently there is not a universal definition of what constitutes a group. Groups can have varying numbers of
members, communication styles, and structures. Research has identified a few common requirements contributing to
the recognition of individuals working in a collaborative environment to be considered a "group":
Interdependence: In order for an individual of the collective to accomplish their part in the assigned task they
depend, to some degree, on the outputs of other members of the collective.

Social interaction: In order to accomplish the goal some form of verbal or nonverbal communication is required to
take place amongst the members of the collective.
Perception of a group: All members of the collective must agree they are, in fact, part of a group.
Commonality of purpose: All the members of the collective come together to serve or attain a common goal.
Some researchers suggest additional characteristics need to be identified in order for a collective of individuals to be
categorized as a group such as: working the same shifts, shared physical work locations, and reporting to the same
manager. However the commonalities of the multiple definitions reviewed suggest that the definition of a group is
based on the interdependence of people who come together to accomplish a common goal.
Types of groups
Group types are routinely distinguished by the work that the groups do:
Production groups consist of front line employees who produce some tangible output. Autonomous production
groups are self-directed or self-managing while semi-autonomous production groups typically have a dedicated
supervisor who oversees all operations.
Service groups consist of employees that work with customers on a repeated basis, such as airline teams,
maintenance groups, sales groups, call centres, etc.
Management groups consist of an executive or senior manager along with managers that report directly to him/her.
Management groups are often able to organize themselves towards goals such as policy making, budgeting, staffing,
and planning.
Project groups are generally cross-function groups of individuals brought together for the duration of a specific,
time-limited project. Project groups are usually disbanded once the project is complete.
Action and performing groups are groups that typically consist of expert specialists who conduct complex, timelimited performance events. Examples include musical bands, military crews, surgery teams, rescue units or
professional music groups.
Advisory groups consist of employees that work outside of, but parallel with, production processes. Examples
include quality circles, selection committees, or other advisory groups pulled together to make recommendations to
an organization.
Stages of group development
Group development focuses on the somewhat unique way groups are formed and the manner in which they may
change over time. There are a variety of development theories and some suggest that groups develop through a
series of phases culminating in effective performance.[9] The most common of these models is Tuckman's (1965)
Stage Model. It breaks group development into the following five stages:[1]
Forming: As the group convenes, conflict is usually low to non-existent as everyone tries to determine their
individual role and the personalities of fellow team members. This stage is often marked by agreeable neutrality
while the group takes form and begins to navigate the unknown.
Storming: Storming occurs after the group overcomes the sense of uncertainty and begins to actively explore roles
and boundaries. Chaos, pronounced efforts to influence others, and instances of conflict and/or enthusiasm are
common.

Norming: Norming in groups indicate that norms and role ownership are emerging. Generally this means that
conflict and chaos is decreasing or has ended.
Performing: Originally noted as the final stage, performing occurs when the team completes their primary task(s).
Adjourning: Tuckman (1977) refined the model to include a fifth stage to address how the group begins to
disengage and move on to new tasks potentially beyond the team.
While Tuckman's (1965) model is useful in describing developmental processes, there are instances when groups do
not strictly adhere to the exact sequence. Additionally, the storming stage may decrease but not fully dissipate and
continue across other stages.
Intergroup dynamics and behaviour
Intergroup behaviour, or the way groups interact with other groups, is best examined in terms of the frequency and
interaction type the groups engage in. Thomas (1976) elaborated on this concept by noting the nature of intergroup
interactions depends largely on the degree to which groups must interact in order to achieve their goals, and the
degree of compatibility between the goals of different groups.

Accommodation interaction is based on groups having similar goals and taking part in minimal to
moderate mutual concession and cooperation to achieve them.

Avoidance interaction is found between groups where there are different or conflicting goals and even
minimal collaboration is not warranted. Both of these interactions are viewed as having no to low
impact on successfully achieving each group's goals.

Collaboration interaction is necessary when the goals of two groups are largely compatible and
partnership is required for successful goal accomplishment.

Competition interaction usually occurs when two groups must interact to meet specific goals that are
vastly incompatible.

Compromise interaction occurs when two groups have a moderate need to interact to meet specific
goals which are moderately compatible. In this type of interaction, the two groups may work together
on a semi-regular basis to ensure they are on track to meet the relevant aspects of their overlapping
goals.

Deindividuation is a phenomenon that occurs when individuals of a group become less aware of their
values.

Diffusion of responsibility is the tendency for group members to feel diminished responsibility for
their actions when surrounded by others who are behaving in a similar manner.

Intergroup behaviour is influenced by factors beyond interaction types. Examples of these include
Interdependence, Organizational Culture, Past History, and Organizational Social Networks.

Interdependence is the degree to which group depend on each other and is determined by the type of
group tasks (i.e., simple versus complex), organization structure, and the organizational authority
system). Interdependence may occur in one of three common forms:

Pooled interdependence: The combined efforts of largely separate groups positively contribute to the
organization.

Sequential interdependence: The effort or output of one group is used as the input for another group.

Reciprocal interdependence: A series of mutual exchanges between groups, requiring a high degree of
continuous interactions.

Organizational culture, its shared norms, values, and power structure, will often dictate the frequency
and degree to which intergroup interactions and collaborations occur.

Past history with intergroup relationships also impact interdependence behaviour. The influence of this
factor is directly connected to the past interaction experience between groups. Whether the interaction
was positive or negative, new group members may be influenced in the direction of the group's
previous experience.

Social networks in organizations are another vital factor when considering intergroup behaviour.
Cordial individual group member interaction is believed to greatly impact the quality of intergroup
relationships.

Intergroup conflict
Intergroup conflict may be caused by competition for resources, goal incompatibility, time incompatibility, and
contentious influence tactics. There are activities that organizations can participate in to reduce or prevent
competition between groups.

Resources: Resources (e.g., budgets, personnel, physical space) are generally limited within
organizations so that competition for resources between groups is often unavoidable.

Goal Incompatibility: Goal incompatibility occurs when the goals of two or more groups are in direct
opposition such that one group will achieve its goal while the other group(s) will be unable to meet the
goal. Goal incompatibility may be distinguished between real goal incompatibility and perceived goal
incompatibility.

Time Incompatibility: Work groups perform different tasks, have different goals, and interact with
different customers such that groups will have different time frames or deadlines in which they
operate.

Contentious Influence Tactics: Contentious influence tactics (e.g., threats, demands, and other negative
behaviours) may be used to attempt to influence others from another group creating cycles of
retaliation and influencing the opinions of those within their own group (e.g., creating bad reputations).

Consequences of intergroup conflict

Effects related to conflict between groups may be either negative or positive.

Group members' perceptions of one another change in a negative manner where a distinction is made
between "in-group" and "out-group".

Members of groups in conflict develop an "us versus them" mentality and view members of the other
group as fundamentally different from themselves but similar to each other.

Group members become more cohesive to compete against a "common enemy".

Quality of intergroup interactions (e.g., communication) may decline among groups in conflict, which
in turn may decrease the quality of work.

Negative perceptions of the other group may be transferred to incoming group members.

Conflict may create discrepancies between the goals of the group and the goals of the organization.

Improving the quality of intergroup relations

Superordinate goals are goals that are approved by all groups and that may require the groups to interact in a
cooperative manner to achieve the goals (e.g., produce a product, prepare a report, and complete a service to
customers). Superordinate goals may also be used to create a "common enemy" that increases the cohesion among
group members to defeat the enemy.
Negotiation may facilitate communication of issues causing conflict between groups so that groups can form a
resolution that is suitable to members within both groups. "Principled negotiation" refers to one style of negotiation
so that members attempt to problem-solve until a resolution between groups is reached rather than focusing on
which their individual positions. (Fischer and Ury, 1981)
Member exchanges allow group members to exchange roles with those of the other group members. These
exchanges are intended to provide a new perspective.
Intergroup Team Development may be used to improve relations for members within the same group or between
groups. One intervention developed by Blake, Shephard, and Mouton (1964) has members of both groups generate
one list about how the group perceives the other group and one list that describes how they think the other group will
describe them; the lists are then shared with both groups to reduce misperceptions.
Reducing the need for intergroup interaction may be necessary for work groups that cannot work well together. A
"coordinating group" may be used as an intermediary between groups so that each group would communicate
through the "coordinating group". Organizations may create slack resources by adding additional inventory so that
groups do not have to interact as frequently. Organizations may also reduce task interdependence between those
groups that function under different time frames and deadlines (i.e., physically separate the groups).
The resource allocation process should be fair so that all groups have access to the process and political
considerations between groups are minimized. Organizations should first reexamine the process to determine that
groups have the resources needed to be effective.

UNIT 6
Controlling: Nature and importance process feedback system Requirement for effective control control
techniques. Modern techniques of control..
5.1. Nature and Scope of Controlling
Controlling is directly related to planning. The controlling process ensures that plans are being implemented
properly. In the functions of management cycle - planning, organizing, directing, and controlling - planning moves
forward into all the other functions, and controlling reaches back. Controlling is the final link in the functional chain
of management activities and brings the functions of management cycle full circle. Control is the process through
which standards for performance of people and processes are set, communicated, and applied. Effective control
systems use mechanisms to monitor activities and take corrective action, if necessary. The supervisor observes what
happens and compares that with what was supposed to happen. He or she must correct below-standard conditions
and bring results up to expectations. Effective control systems allow supervisors to know how well implementation
is going. Control facilitates delegating activities to employees. Since supervisors are ultimately held accountable for
their employees' performance, timely feedback on employee activity is necessary.

Control is an important function of management. In an undertaking, control consists of verifying whether

everything occurs in conformity with the plan adopted, the instructions issued and the principles established. It has
for object to point out weaknesses and errors in order to rectify them and prevent recurrence. It operates on
everything -things, people and action".
There has arisen a great deal of misunderstanding about the term control because of confusing it with other terms
like management, objectives, plans, policy statements, etc. It is important that the managers should have a clear
understanding of this concept because a manager who does not understand control cannot be expected to exercise it
in the most efficient and effective manner. "The manager who believes managing and controlling is the same things
has wasted one word and needs a second to be invented. And one who believes he has provided for control when he
has established objectives, plans, policies, organization charts and so forth, has made himself vulnerable to really
serious consequences. A clear understanding of control is, therefore, indispensable for an effective manager."
The modem concept of control envisages a system that not only provides a historical record of what has happened to
the -business as a whole but also pinpoints the reasons why it has happened and provides data that enable the chief
executive or the departmental head to take corrective steps if he finds he is on the wrong track?
Definition of Control
Control is a basic managerial function, which implies measurement and correction of performance of subordinates to
ensure that the pre-determined objectives are accomplished. E.F.L. Breach has defined control as follows: Control
is the process of checking actual performance against the agreed, standards or plans with a view to ensuring
adequate progress and satisfactory performance." In other words, controlling consists of those activities, which are
necessary to ensure that performance takes place in accordance with the targets laid down by the management. It
also involves taking corrective actions in case the performance is not satisfactory. According to Koontz and
Weihrich, "The managerial function of controlling is the measurement and correction of the performance in order to

make sure that enterprise objectives and the plan devised to attain them are accomplished.' Thus, managerial
function of control implies measurement of actual performance, comparing it with the standards set by plans and
correction of deviations to assure attainment of objectives according to plans.
Characteristics of Control
The process of control has the following characteristics:
1. Pervasive Function. Control is a function of every manager who is performing other managerial functions like
planning, organizing, staffing and directing. It is, in fact, a follow-up action to other functions of management.
Managers at all levels have to perform this function to contribute to the achievement of organizational objectives.
2. Review of Past Events. Control leads to appraisal of past activities. Thus, it is looking back, the deviations in the
past are revealed by the control process. This is also known as feedback information. It will help in knowing the
reasons for poor performance. Corrective actions can be initiated accordingly.
3. Forward Looking. Control is linked with future, as past cannot be controlled. A manager can take corrective
action only in regard to future operations. Control is usually preventive, as presence of control system tends to
minimize wastages, losses and deviations from standards.
4. Action-Oriented. Control implies taking corrective measures. Action is the essence of control. The-purpose of
control is achieved only when corrective action is taken on the basis of feedback information. It is only action,
which adjusts performance to predetermined standards whenever deviations occur. A good system of control
facilitates timely action so that there is minimum waste of time and energy.
5. Continuous Process. Just like other functions of management, control is also a continuous activity. It involves
constant analysis of validity of standards, policies, procedures, etc. It also suggests corrective actions in various
processes. It does not stop anywhere. A manager has to perform this function continuously along with other
functions.
6. Dynamic Process. Control is a dynamic process. It is flexible and not rigid. Control involves continuous review
of standards of performance and results in corrective action, which may lead to change in the performance of other
functions of management. Since management is managing a business entity, which keeps on changing, managerial
control is also dynamic. Management will be failing in its duty if its approach is not dynamic.
7. Control does not curtail the rights of individuals. To some people, control is opposite of freedom. It is not so.
It is a preventive action so that losses may be avoided in future. It is, in fact, an act of guidance. Control in an
enterprise is based on facts and figures and not on the whims of managers. Its purpose is to achieve and maintain
acceptable productivity from all the resources of an enterprise.
Relationship between controlling and planning
Planning and controlling are closely related to each other as shown in Fig. After a plan becomes operational, control
is necessary to measure progress, to uncover deviations from the targets and to take corrective steps. It is also not
possible to think of an effective system of control without the existence of good plans. Billy E. Geotz has explained
the relationship between planning and controlling in the following words, "Managerial planning seeks consistent,
integrated and articulated programmes, while management control seeks to compel- events conform to plans".

PLANNING

PERFORMANCE

CONTROL

Fig. Relationship between Planning and Control.

Control is always based on planning. It is also true that in a running enterprise planning depends upon controlling.
Every manager uses certain standards for measuring and appraising performance, which are laid down by planning.
The control process, in turn, may reveal the deficiency of plans and may lead to the revision of planning. It may also
lead to setting of new goals, improving staffing and making changes in the techniques of supervision, motivation
and leadership.
Planning without control is meaningless and control without planning is blind. Planning is an empty exercise
without controlling. A good plan will not bring any concrete result if the management is lacking in controlling. Planning identifies, the goals and determines the ways of achieving them. It is' control which ensures attainment of goals
by evaluating performance and taking corrective action. Control presupposes the existence of Standards with which
the actual performance is to be compared. If the standards of performance are not set in advance, the manager will
have no idea of 'what is control'. Thus, planning must be done before the actual operation and control should follow
plans during and after the actual operation. The experience gained in controlling will help improve the process of
planning.
Relation between Control and Coordination
Control and coordination is twins of management. Control is an important element in the process of management,
whereas coordination ' is the essence of management itself. Control is a function of management like planning,
organizing, staffing and directing. But coordination is an all-inclusive function. Each of the managerial functions
including control is an exercise in coordination. Thus, control is a facilitative function that promotes coordination in
the organization. If control does not aim at achieving coordination, it will not be performed effectively and the basic
purpose of control will be lost.
Control and coordination are closely related in many ways. Firstly, authority is the basis of both the processes.
Secondly, the managers at all levels perform both. Thirdly, both are aimed at achieving organizational, goals.
Fourthly, both are necessary for achieving stability, continuity and growth of the organization and consistency,
precision and discipline in the organization. Lastly, both control and coordination are rational concepts in the sense
that they seek to relate organizational means with organizational ends or goals. They strive to maintain organizations
as rational systems, relatively free from conflict, confusion and chaos.
5.1.1. Significance of Controlling
Controlling is an important function of management. Without control, a manager cannot complete his job. All other
managerial functions are only preparatory steps for getting the work done, and controlling is concerned with making
sure that there is proper execution of these functions. Control is necessary whenever a manager assigns duties and

delegates authority to his subordinates. He must exercise control over the actions of his subordinates so that the
delegated authority is used properly.
The road signals at a road crossing appropriately illustrate the significance of control. Just as road signals are
essential to ensure accident free and smooth traffic, management controls are necessary in any organization for its
smooth functioning. By controlling, the manager ensures- that resources are obtained and used economically and
efficiently for the achievement of organizational objectives. A good control system provides timely information to
the manager, which is very much useful for taking various decisions. 6ntrol simplifies supervision by pointing out
the significant deviations from the standards of performance. It keeps the subordinates under check and brings
discipline among them.
An effective system of control will help in achieving the following benefits:
1. Coordination. The size of modem business organizations is quite large. A large amount of capital and large
number of people are employed in them. This complicates the problem of control as there are many units producing
and distributing different products. In order to coordinate their activities, an efficient system of control is necessary.
2. Corrective Action. An efficient system of control provides the basis for future action. Taking corrective action
may lead to modification of planning, organizing and directing. Control will also check the mistakes being repeated
in future.
3. Decision-making. Control is basic to decision-making. The process of control is complete when corrective
actions are taken. This involves making a right decision as to what type of follow up action is to be taken. This will
lead to accomplishment of organization objectives. According to W.T. lerome, Control is needed both to simplify the
making of subsequent decisions and to ensure the realization of the objectives implicit in the original long-range
policy decisions."'
4. Better Planning. Control is the only means to ensure that the plans are being implemented in real sense. It points
out the shortcomings of planning by comparing the actual performance with the planned standard and suggests steps
to improve planning.
5. Decentralization of Authority. The modern trend of business enterprises towards decentralization calls for a
systematic attempt-for controlling. Under decentralization, the authority of decision-making is dispersed throughout
the organization. Management must keep control in its hands to know whether the authority is being used properly.
Without adequate controls, decentralization cannot succeed.
6. Effective Supervision. Control facilitates effective supervision by pointing out significant deviations. It keeps the
subordinates under check and kings discipline among them. While control cannot cure habitual dishonesty in all
cases, Management is irresponsible if it does not make a reasonable effort to provide order and discipline among its
employees through effective control processes." A good system of control detects the weak points very quickly. This
enables the expansion of span of control at all levels in the organization.
Limitations of Control
A control system may be faced with the following limitations:
1. An enterprise cannot control the external factors such as government policies, technological changes, fashion
changes, social changes, etc.

2. Control is an expensive process because sufficient attention has to be to observe the performance of the
subordinates. This requires expenditure of a lot of time and effort.
3. Control system loses its effectiveness when standards of performance cannot be defined in quantitative terms. For
instance, it is very difficult to measure human behavior and employee morale.
4. The effectiveness of controls mainly depends on their acceptance by the subordinates. They may resist controls if
they feel that these will reduce or curtail their freedom. Control also loses its significance when it is not possible to
fix the accountability of the subordinates.
In order to achieve effective controlling in an enterprise, the following steps may be taken:
1. Every manager should be conscious of the need of control while performing any managerial task.
2. Standards of performance must be laid down for their use in appraising the results of various operations.
3. Standards of performance should be laid down in consultation with the subordinates. They must be put in writing
wherever possible. It should also be ensured that the concerned persons in the organization properly understand
them.
4. Standards of performance should not*be too high. They must be capable of being achieved by the average
workers.
Elements of Control
The essential elements of any control system are: (1) Establishment of standards; (2) Measurement of performance
(3) Comparing performance with the standards; and (4) Taking corrective action
These steps are discussed below.
1. Establishment of Standards
The first step in control process is the setting up of standards of measurement. Standards represent criteria for
performance. A standard acts as a reference, line or a basis of appraisal of actual performance. Standards should he
set precisely and preferable in quantitative terms. It should be noted that setting standard is also closely -linked with
and is an integral part of the planning process. Standards are used as the criteria or benchmarks by which
performance is measured in the control process. Different standards of performance are set up for various operations
at the planning stage. As a matter of fact, planning is the basis of control.
Establishment of standards in terms of quantity, quality and time is necessary for effective control because it is
essential to determine how the performance is going to be appraised. The second step in the control process i.e.,
measurement of performance, has no sense unless it can be compared with some predetermined standards. Standards
should be accurate, precise, acceptable and workable. Standards should be flexible, i.e., capable of being changed
when the circumstances require so. Standard is bound to fail if it is based on records of past performance, which
show either too high or too low achievement.
2. Measurement of Performance
After establishing the standards, the second step is to measure actual performance of various individuals, groups or
units. Management should not depend upon the guess that standards are being met. It should measure the
performance and compare it with the standards. The quantitative measurement should be done in cases where
standards have been set in numerical terms. This will make evaluation easy and simple. In all other cases, the

performance should be measured in terms of qualitative factors as in case of performance of industrial relations
manager. His performance can be measured in terms of attitude of workers, frequency of strikes and morale of
workers. Again, attitude and morale of workers are not capable of being measured quantitatively. They have to be
measured qualitatively.
3. Comparing Performance with Standards
Appraisal of performance or comparing of actual performance with predetermined standards is an important step in
control process. Comparison is easy where standards have been set quantitatively as in production and marketing. In
other cases, where results are intangible and cannot be measured quantitatively, direct personal observation,
inspection and reports are a few methods, which can be used for evaluation. The evaluation will reveal some
deviations from the set standards. The evaluator should point out the defects or deficiencies in performance and
investigate the causes responsible for these.
All deviations need not be brought to the notice of top management deviations should be brought to the notice of top
management when they are too high. A range of deviations should be established beyond which the attention of top
management is warranted. Only such cases should be reported up which pinpoint exceptional situations. This is what
is known as 'management by exception.' According to Dale, the control reports should meet three criteria." Firstly,
control reports must produce figures that are truly comparable from one period to another and from one section of
the business to another. Secondly, they must be coordinated so that they not only portray the results in different
sections of the business, but also make plain the reasons why the business is or is not doing so well as could be
expected. Finally, they must be presented in such form that the manager can get the bird's eye view.
4. Taking Corrective Action
The final step in the control process is taking corrective action so that deviations may not occur again and the
objectives of the organization are achieved. This will involve taking certain decisions by the- management like replanning or redrawing of goals or standards, reassignment or clarification of duties. It may also necessitate
reforming the process of selection and training of workers. Thus, control function may require change in all other
managerial functions. If the standards are found to be defective, they will be set up again in the light of observations.
Joseph Massie has pointed out that a manager may commit two types of mistakes at this stage: (1) taking action
when no action is needed, and (2) failing to take action when some corrective action is needed. A good control
system should provide some basis for helping the manager estimate the risks of making either of these types of
errors. Of course, the final test of a control system is whether correct action is taken at the correct time.
Principles or Requirements of a Good Control System
For having an effective -control system, certain prerequisites are enumerated below:
1. Emphasis on Objectives. Before planning a control system, it is essential to know clearly the objectives of the
organization. The control system must be directed towards the potential or actual deviations from plans early enough
to permit effective corrective action.
2. Efficiency of Control Techniques. Control techniques and approaches are efficient when they detect deviations
from plans and make possible corrective action with the minimum of unsought consequences.

3. Responsibility for Control. The main responsibility for the exercise of control should rest in the manager
charged with the implementation of plans.
4. Direct Control. Any control system should be designed to maintain direct contact between the controllers and
controlled. Even when there are a number of control systems provided by staff specialists, the foreman at the first
level is still important because he has direct knowledge of performance.
5. Suitability. Controls should be tailored to fit the needs of the organization. The flow of information concerning
current performance should correspond with the organizational structure employed. If a superior is to be able to
control overall operations, he must find a pattern that will provide control for individual parts. Budgets, quotas and
other techniques may be useful in controlling separate departments.
6.Flexibility. A good control system must keep pace with the continuously changing pattern of a dynamic business
world." It must be responsive to changing conditions. It should be adaptable to new developments including the
failure of the control system itself. Plans may call for an automatic system to be backed up by a human system that
would operate in an emergency likewise; an automatic system may back up a human system.
7. Self-Control. Units may be planned to control themselves. If a department can have its own goals and control
system, much of the detailed controls can be handled within the department. These sub-systems of self-control can
then be tied together by the overall control system.
8. Controls by Exception. This is known as 'management exception'. According to this principle, only significant
deviations from standards, whether positive or negative, require management's attention, as they constitute exceptions. An attempt to go through all deviations tends to increase unnecessary work and decrease attention on
important problems. In practice, it is not possible for a manager to check each and every item being produced
because of limited time available with him. An attempt to control everything may prove to be a, futile exercise.
Therefore, the control system should be designed in such a manner that only significant deviations from the standard
performance are reported to the higher-level managers. This will ensure effective action by the manager.
9. Strategic Point Control. It is not sufficient merely to look at exceptions. Some deviations from standards have
rather little impact and others have a great deal. Small deviations in certain areas may have greater significance than
larger in other areas. For example, deviation of 5 per cent in budgeted labor cost may be more troublesome to a
manager than a deviation of 20 per cent in budgeted postal charges. Therefore, the principle of exception must be
accompanied by the principle of strategic point control, which states that effective control can be achieved if critical,
key or strategic points can be identified, and close attention directed to adjustment at those points. It is not enough
just to look for exceptions; a manager must look for exceptions at critical points.
10. Corrective Action. Merely pointing of deviations is not sufficient in a good control system. It must lead to
corrective action to be taken to check deviations from standards through appropriate planning, organizing and directing.
11. Forward-looking Control. The control system should be directed towards future. It should report all the
deviations from the standards quickly in order to safeguard the future. If the control reports are not directed at future,
they are of no use as they will not be able to suggest the types of measures to be taken to rectify the past deviations.

12. Human Factor. A good system of control should rind the persons accountable for results, whenever large
deviations take place. They must be guided and directed, if necessary. Thus, human factor must be given proper
attention while controlling. The, use of controls should not be resisted by the employees. A technically
well-designed control system may fail because the human beings may react unfavorably to the system.
13.Eco-nomical. The systems of control must be worth their costs. They must justify the expenses involved. A
control system is justifiable if the savings anticipated from it exceed the expected costs in its working. Small-scale
production units cannot afford elaborate and expensive control systems.
14. Objective Standards. As far as possible, standards should be objective. If they are subjective, a managers or a
subordinate's personality may influence judgments of performance. Effective control requires objective, accurate
and suitable standards. Objective standards may be quantitative or qualitative. However, in either case, the standard
should be determinable and verifiable.
From the analysis of the requirements of a good control system, it is quite obvious that planning is the basis of
control, action its essence, delegation its -key, and information its guide. As far as planning is concerned, control has
an important relation with planning. Planning refers to visualization of the firm's future position over a specified
period of time and the determination of the required course of action to enable the firm to reach that position. Often,
it is regarded the first stage of the management process over which the subsequent stages are developed. Planning
lays down the objectives of various activities and determines the standards of performance to evaluate the
performance of various individuals and departments. This serves as the basis of the control process, which is
concerned, with ensuring that events conform to the standards laid down in advance.
Without planning, there is nothing to control. Basic plans, derivative sub plans and standards provide the
bench-marks to monitor, measure, evaluate and regulate actual performance as it takes place. To quote Robert
Anthony, "Management control is a process carried on within the guidelines established by planning. The process is
intended to make possible the achievement: of planned objectives effectively and efficiently.
Action is the essence of control. There is no use of developing control on mechanism if no action is to be taken
afterwards. The comparison of actual performance against the standards reveals the deviations, which serve as a
guide for future action. This may lead to improvement of planning, organizing, staffing and directing. It may be
pointed out that top managers cannot perform the control function minutely themselves. They have to delegate a
portion of their authority of controlling. The task of regulation of operational action plans can be delegated to the
middle level managers and first line managers. They may be asked to report only exceptional matters to the top
management. Thus, delegation is a key to effective controlling.
The effectiveness of planning and controlling is influenced to a great extent by the accuracy of the information on
which these are based. Information is a guide to controlling, Therefore, it is necessary that sufficient information of
right type is available to the management for taking corrective steps time. The control mechanism should provide for
timely information to the management. If a control mechanism does not transmit the important information to the
management, it is not going to last long. Therefore, there must a provision for feedback in any good system of
controlling.

Control By Exception
Management by exception is an important principle of organizational
1. This principle holds that only significant deviations (exceptions) from standards of performance should be
brought to the managements attention. If actual performance is according to planned performance (i.e., standards already laid down), it need not be brought to the attention, of the concerned managers, as no follow-up action is
necessary. But if there is a major deviation the standard, it should be reported to the manager.
For example, a manager establishes a quality control standard, which says five defects per 100 units produced are
permissible. Under the management by exception principle, only significant deviations from this standard six of
more defects per 100 units in this case should be brought to the notice of the manager.
The exception principle has been devised to conserve managerial time, effort and talent and apply these in more
important areas. It is a technique of separating important information from the unimportant information. Only such
information, which is critical for management control, is sent to the management. This facilitates the installing of an
effective control system.
Management by exception recognizes an old saying that an attempt to everything may end up in controlling nothing.
An executive who wants to have an eye on each and every minor problem will prove to be ineffective. He will not
be able to devote much time on the critical problems. The principle of control by exception suggests that manager's
attention should be drawn, only when there are significant deviations in performance in the critical areas of business.
It will ensure better control in the organization. It will also facilitate delegation of authority.
5.2. Control Process
The control process is a continuous flow between measuring, comparing and action. There are four steps in the
control process: establishing performance standards, measuring actual performance, comparing measured
performance against established standards, and taking corrective action.
An example of the control process is a thermostat.
Standard: The room thermostat is set at 68 degrees.
Measurement: The temperature is measured.
Corrective Action: If the room is too cold, the heat comes on. If the room is too hot, the heat goes off.
Step 1. Establish Performance Standards. Standards are created when objectives are set during the planning
process. A standard is any guideline established as the basis for measurement. It is a precise, explicit statement of
expected results from a product, service, machine, individual, or organizational unit. It is usually expressed
numerically and is set for quality, quantity, and time. Tolerance is permissible deviation from the standard. What is
expected? How much deviation can be tolerated?
Step 2. Measure Actual Performance. Supervisors collect data to measure actual performance to determine
variation from standard. Written data might include time cards, production tallies, inspection reports, and sales
tickets. Personal observation, statistical reports, oral reports and written reports can be used to measure performance.
Management by walking around, or observation of employees working, provides unfiltered information, extensive
coverage, and the ability to read between the lines. While providing insight, this method might be misinterpreted by
employees as mistrust. Oral reports allow for fast and extensive feedback.

Computers give supervisors direct access to real time, unaltered data, and information. On line systems enable
supervisors to identify problems as they occur. Database programs allow supervisors to query, spend less time
gathering facts, and be less dependent on other people. Supervisors have access to information at their fingertips.
Employees can supply progress reports through the use of networks and electronic mail. Statistical reports are easy
to visualize and effective at demonstrating relationships. Written reports provide comprehensive feedback that can
be easily filed and referenced. Computers are important tools for measuring performance. In fact, many operating
processes depend on automatic or computer-driven control systems. Impersonal measurements can count, time, and
record employee performance.
Step 3. Compare Measured Performance Against Established Standards. Comparing results with standards
determines variation. Some variation can be expected in all activities and the range of variation - the acceptable
variance - has to be established. Management by exception lets operations continue as long as they fall within the
prescribed control limits. Deviations or differences that exceed this range would alert the supervisor to a problem.
Step 4. Take Corrective Action. The supervisor must find the cause of deviation from standard. Then, he or she
takes action to remove or minimize the cause. If the source of variation in work performance is from a deficit in
activity, then a supervisor can take immediate corrective action and get performance back on track. Also, the
supervisors can opt to take basic corrective action, which would determine how and why performance has deviated
and correct the source of the deviation. Immediate corrective action is more efficient; however basic corrective
action is the more effective.
Kinds of Controls
Three kinds of control systems are used by the modern organizations, namely, (i) historical or feedback control, (ii)
concurrent control, and (iii) predictive or feed forward control. The details of these controls are discussed below.
Feedback Control
Feedback or Post-action control measures results from a completed action. The causes of deviations from the
standards are determined and corrective steps are taken so that such deviations do not occur again.
In all physical and biological systems, some message is transmitted in the form of mechanical transfer of energy, a
chemical reaction, or any other means, which is known as 'cybernetics'. In social systems also, some information is
sent back to exercise control. Any good managerial system controls itself by information feedback, which discloses
errors in accomplishing goals and initiates corrective action. Feedback is the process of adjusting -future action
based upon information about past performance. Though feedback is 'after the fact', it is still vital to the control
process. Sometimes, input variables are immeasurable (e.g. the values an employee brings to the job) or are not
detected at the feed forward control point. Feedback is necessary in any continuous activity as it enables to take
corrective action, which is essential for the accomplishment of goals of the system; a simple feedback system is
shown in Figure.
The concept of feedback is important to the development of an effective control system in any organization.
Managerial control is somewhat akin to the thermostat system of a refrigerator. Thermostat is a control device of
closed loop type that makes control instantaneous. In a refrigerator thermostat records the actual temperature inside
the refrigerator, compares -it with the required temperature and instantaneously initiates corrective action to bring

the actual ' temperature to what is required, Similarly in an organization, management needs continuous flow of
information about actual performance so that deviations are promptly corrected. Information, which the management
receives, is nothing but feedback. Feedback information may be received formally or informally. Formal feedback
involves all written information about actual performance, reports, financial statements, etc. But informal feedback,
on the other hand, is through personal observations, personal contacts and informal discussions.

Feed Forward Controls

Concurrent controls

Flow of
Information

Coeercive
Action

Inputs

Processing

Output

Feed back control

Fig. Types of Controls
Managerial control can't be so instantaneous or self-correcting as thermostat system or way other mechanical or
electronic system. There always exists a time-lag between recording deviations and taking corrective actions even
when sophisticated system of information collection is used. The collected information needs to be analyzed
properly before suggesting any corrective action.
Concurrent controls
It is also known as 'real time' or 'steering' control. It provides for taking corrective action or making adjustments
while programme is still in operation and before any major damage is done. For instance, the navigator of a ship
adjusts its movements continuously or the driver of a car adjusts its steering continuously depending upon the
direction of destination, obstacles and other factors. In a factory, control chart is an example of concurrent control.
Safety check is another illustration in this regard. Concurrent control occurs while an activity is still taking place.
Feed forward Control
Feed forward control involves evaluation of inputs and taking corrective measures before a particular sequence of
operations is completed. It is based on the timely and accurate information about changes in the environment. If
right information is not available in time, feed forward control is likely to be imperfect. Feed forward follows the
simple principle that an organization is am stronger than its weakest link. For instance, if a machine is not functioning properly, the operator will look for certain critical components to see whether they are working well or not. The
same logic applies to feed forward control; it is essential to determine and monitor the critical inputs into any
operating system. Preventive maintenance programme is an important example of feed forward control. It is
employed to prevent a breakdown in machinery. Another example of feed forward control is formulation of policies

to prevent critical problems from occurring. For instance, a policy on absenteeism may be communicated to new
employees to help prevent potential problems created by absenteeism.
Feed forward control may be used with great advantages if the following guidelines are followed:
1. Thorough planning and analysis must be done.
2. Careful discrimination must be applied in selecting input variables.
3.Data on input variables must be regularly collected and assessed.
4. The feed forward control system must be kept dynamic.
5. Corrective action must be taken as suggested by feed forward control.
Areas of Control
It is very difficult to prescribe a precise list of areas where control should be exercised. However, it may be safely
suggested that any activity that affects the survival and growth of the organization should be taken as the critical
area of control and dealt with effectively. According to Peter F. Drucker, there are elite key result areas where
objectives should be set and controls should be exercised. These are: (i) marketing; (ii) innovation, (iii) productivity,
(iv) human organization, (v) financial resources, (vi) physical resources, (vii) profitability, and (viii) social
responsibilities.
Holden and others have identified the following thirteen areas where control should be exercised: (i) policies, (ii)
organization, (iii) personnel, (iv) wages and salaries, (v) costs, (vi) methods and manpower, (vii) capital expenditure,
(viii) service department efforts, (ix) line of products, (x) research and development, (xi) foreign operations, (xii)
external relations, and (xiii) overall control.
Effective control requires that areas of control must be clearly identified first of all. Every organization should list
the key areas on which its survival and growth depend and devise suitable techniques of control in each area. This
will help in effective delegation of authority and fixing up of responsibility.
Time controls relate to deadlines and time constraints. Material controls relate to inventory and material-yield
controls. Equipment controls are built into the machinery, imposed on the operator to protect the equipment or the
process. Cost controls help ensure cost standards are met. Employee performance controls focus on actions and
behaviors of individuals and groups of employees. Examples include absences, tardiness, accidents, quality and
quantity of work. Budgets control cost or expense related standards. They identify quantity of materials used and
units to be produced.
Financial controls facilitate achieving the organization's profit motive. One method of financial controls is budgets.
Budgets allocate resources to important activities and provide supervisors with quantitative standards against which
to compare resource consumption. They become control tools by pointing out deviations between the standard and
actual consumption.
Operations control methods assess how efficiently and effectively an organization's transformation processes
create goods and services. Methods of transformation controls include Total Quality Management (TQM)
statistical process control and the inventory management control. Statistical process control is the use of statistical
methods and procedures to determine whether production operations are being performed correctly, to detect any
deviations, and to find and eliminate their causes. A control chart displays the results of measurements over time and

provides a visual means of determining whether a specific process is staying within predefined limits. As long as the
process variables fall within the acceptable range, the system is in control. Measurements outside the limits are
unacceptable or out of control. Improvements in quality eliminate common causes of variation by adjusting the
system or redesigning the system.
Inventory is a large cost for many organizations. The appropriate amount to order and how often to order impact the
firm's bottom line. The economic order quantity model (EOQ) is a mathematical model for deriving the optimal
purchase quantity. The EOQ model seeks to minimize total carrying and ordering costs by balancing purchase costs,
ordering costs, carrying costs and stock out costs. In order to compute the economic order quantity, the supervisor
needs the following information: forecasted demand during a period, cost of placing the order, that value of the
purchase price, and the carrying cost for maintaining the total inventory.
The just-in-time (JIT) system is the delivery of finished goods just in time to be sold, subassemblies just in time to
be assembled into finished goods, parts just in time to go into subassemblies, and purchased materials just in time to
be transformed into parts. Communication, coordination, and cooperation are required from supervisors and
employees to deliver the smallest possible quantities at the latest possible date at all stages of the transformation
process in order to minimize inventory costs.
Control of Human Element
Recognition of human element is a significant factor while designing any control system. The management must try
to know the reactions of subordinates for various types of controls imposed on them. Subordinates often resist
controls, which are likely to restrict their freedom and obstruct the achievement of their personal goals.
The control of human behavior has always been unpopular. Any undisguised effort to control usually arouses
emotional reactions. We hesitate to admit, even to ourselves, that we are engaged in control, and we may refuse a
control, even when this would be helpful, for fear of criticism. Control creates problems not only for the
subordinates but for the superiors also. Subordinates resist controls because they restrict their freedom and some
managers may not like to impose controls on their subordinates due to fear of criticism. It is also important to note
that many people frequently try to reap the rewards of good performance and shift tactfully the blame for poor
results to others.
Whatever may be the behavioral implications of controls, controls are very important as they create predictability in
the behavior of employees. From the organizations point of view, controls are almost indispensable to ensure that
the employees work as per rules, procedures, standards and norms of the organization. Thus, controls are necessary
to regulate the behavior of organizational members and to increase organizational effectiveness.
Exercise of control may have some serious behavioral implications for the management. Generally, management
uses both planned and unplanned controls to regulate the behavior of employees. The employees against both types
of controls generally offer some sort of resistance. But there might be serious repercussions of unplanned controls
because they are unplanned and the subordinates are not mentally prepared to accept them. Behaviorists consider
this as an evidence of ineffective management. But it is difficult to rule out-the use of unplanned controls in modern
organizations for meeting competition, reducing costs, or increasing productivity. Whatever may be the situation,
management should try to foresee the behavioral implications of control beforehand if it is to exercise control

effectively. But it is not always possible to recognize behavioral dysfunctions of controls because of the following
reasons:
(i) Sometimes, human behavior is unpredictable. It is difficult to analyze unexpected and unconventional responses
from the employees.
(ii) Many a time, there is a time lag between exercise of control and surfacing of negative reactions of the people.
Relating of slow reactions with a particular type of managerial behavior may be a difficult task.
(iii) Information system in an organization might not be able to sense or isolate factors, which cause resistance to
controls on the part of the workers.
(iv) Controls may slowly lead to deterioration of organizational relationships and performance, and these
occurrences may not come to the knowledge of the management.
Impact of Controls
Behavioral opposition to control may be caused by disagreement with standards, reporting procedures, cost
allocation-and pertaining to the control, systems and in some cases the need for control," The reaction of different
employees to standards, performance appraisal and corrective actions will, differ depending upon the situation and
the organizational position of the members. The findings of Tannenbaum" concerning the impact of controls upon
individuals are as follows:
Control has both rational and symbolic implications. It tells what an individual must or must not do. It also implies
something about the person's importance and freedom in the organization.
(ii) Most persons prefer to exercise control to themselves and their surroundings. They usually experience greater
satisfaction when they are able to exercise self-control.
(iii) When one can exercise some control, one is more likely to identify with and support the organizations
objectives.
(iv) Persons who are unable to exercise control tend to be less satisfied with their work and to be apathetic and
alienated. Such persons lack the personal involvement of those who exercise control.
(v) Those who exercise control may more willingly accept controls upon themselves. Due to greater involvement
and loyalty, such persons might more readily submit to control.
Reasons for Human Resistance to Controls
The above discussion reveals that controls imply and involve a continuous check on the performance and behavior
of individuals. Some individuals adjust with controls, whereas others resist controls in one-way or the other. People
dislike and resist controls because of the following reasons
(i) The controls may be perceived as curbs to freedom of individuals and as instruments of oppression.
(ii) The controls may suppress the creative and innovative urges and abilities of the people.
(iii) The standards of performance may be imposed from the top and the subordinates have no say in their
determination. The standards of performance may be rigid and unrealistic.

The performance appraised may

concentrate on witch hunting and fault-finding rather than guiding the people for better action.
(v) There may be no place for self-control even for intelligent and responsible people. Controls may be based on the
assumption that people are basically lazy, they shirk work and they need to be supervised closely and strictly.

(vi) The controls may be administered in a discriminatory, arbitrary and whimsical manner.
Measures to overcome Resistance to Controls

The organizations should take up the following measures to overcome resistance to controls:

The controls should be -realistic and flexible.

They should make allowance for general human behavior.

The controls should give adequate emphasis to self-direction and self-control of people.

They should allow the people to make use of their creativity.

They should not operate to suppress the genuine aspirations of people for self-expression and for
development.

The people whose behavior and performance are to be controlled must have a say in the determination of
standards and administration of controls.

The management should have faith in the ability and capacity of the subordinates and should follow
selective control only. 'Control by exception' should be the rule where subordinates are responsible and can
be depended upon.

The reward system in the organization should be integrated with the various kinds of controls. The
subordinates should be offered rewards for acceptable performance and behavior so that they may get
positive reinforcement.

There should be consistent operation of various kinds of controls. They should not give undue power to the
superiors to discriminate between individuals.

There should be two-way communication in the organization.

The employees should be free to send their reactions and suggestions to the top management.

The managers at various levels should be persuasive; they should tell their subordinates that controls are
directed to achieve the goals of the organization and not to curb the freedom of individuals.

Process and Techniques of Control

Modern business enterprises use a large number of techniques of managerial control. These may be grouped into
two categories as follows:
1. Traditional or conventional techniques such as budgetary control,, statistical data and reports, marginal costing,
break-even analysis, standard costing, etc.
2. Modern or contemporary techniques such as Management Audit, PERT, CPM and Management Information
System.
It may be noted that some, of the control techniques are partial in nature in the sense that the standards on which
they are based relate to the specific areas. For instance, BEP, PERT and CPM are the techniques of production
control. On the other hand, there are techniques such as Budget Summaries, Profit and Loss Statements. Ratio
Analysis, Management Audit, etc. which are used for the control of overall performance of the Organization. The
rationale of measurement of overall performance is explained below:
(i) Every enterprise has its overall objectives, which stand above the sectional objectives.
(ii) Overall control of activities signifies the need for coordination between different divisions of the enterprise.

(iii) Competence of top management can be measured by the techniques of overall control.
A brief description of the commonly used management control devices is given below
1,Written Reports. Each manager prepares reports on the performance of his subordinates and submits them to his
higher authority. In this way, departmental managers submit reports to the general manager. Ultimately, the Board
of Directors has to submit an Annual Report to the members of the company, the virtual owners and the highest
authority.
2.Budgets. The budget, which is a component of planning, is also used as a tool of control. The budget
predetermines the extent of expenditure, which cannot be normally exceeded. A budget means projected results,
which are expected to be achieved. Budgetary control is accepted to be one of the most common tools of control.
Several kinds of budgets are used for controlling expenditure, which have been discussed later in the chapter.
3.Key Ratios. Control of overall performance can be exercised through some 'key ratios' of which Return on
Investment (ROI) is very -common. There are some expected returns on certain categories of investments. Those
percentages must be achieved. Ratios between current assets and current liabilities, between, turnover and
investment etc. are the other kinds of key ratios.
4Accounting Techniques. Various kinds of audit like cost audit, management audit are now-a-days being used for
better control. Management accounting, which is not merely based on double-entry book-keeping but also concerned
with resource-utilization as a whole, is a powerful tool of control.
5. Internal Audit. Internal audit, also called the operation audit, has become one of the important tools of
management control. Internal auditing evolved as a branch of accounting and its scope was limited to the
verification of accounting transaction. But-now the scope of internal auditing has been enlarged and is considered to
be associated closely but objectively with every activity of the enterprise, which contributes to its profitability.
According to Koontz and O'Donnell, "Operation auditing in its broadest sense is the regular and independent
appraisal, by a staff of internal auditors~ of the accounting, financial, and other operations of the business. Although
limited to the auditing of accounts, in its most useful, aspect, operational auditing involves appraisal of operations
generally, weighing actual results in the light of planned results." Thus, internal auditing control is not only
concerned- with the effectiveness of the accounts department, but it also concerns itself with all the departments
such as purchasing, marketing, production and personnel. The functions of internal auditing control vary
considerably from organization to organization depending upon its size and nature. However, the internal auditor
must be independent of all those departments, which come under his purview.
5.3. Budgetary Control
Budgetary control is the oldest technique of control, which is still being used by business enterprises. According to
Walter W. Bigg, "The term budgetary control is applied to a system of management and accounting control by which
all operations and output are forecast as far ahead as possible and the actual results, when known, art compared with
the budget estimates.
Budgetary control involves the use of budgets to plan, coordinate and control day-to-day operations of business in
accordance with the- overall objectives of business.

Before we discuss the nature, objectives, merits and limitations of budgetary control, it is appropriate to discuss the
nature, purposes, significance and types of budgets are not only tools of control, but also of planning. This has been
made quite clear in the chapter on planning.
Definition of Budget
A budget is an estimate of future needs, arranged according to an orderly basis covering some or all the activities of
an enterprise for a definite period of time. The Institute of Cost and Management Accountants of England has
defined budget as "financial and/or a quantitative statement prepared prior to a definite period of time of the policy
to be pursued during that period for the purpose of obtaining a given objective' .A budget is an important device
managerial control. It provides a standard by which actual operations can be evaluated to know variations from the
planned expenditures. A budget has the following characteristics
(a) It is prepared in advance and is based on a future plan of actions.
(b) It relates to a future period and is based on objectives to be attained.
(c) It is a statement expressed in monetary and/or physical units prepared for the implementation of policy framed
by the top management.
Definition of Budgetary Control
Budgetary control may be defined as the establishment of budgets relating to the responsibilities of executives to the
requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by
individual action the objective of that policy or to provide a basis for its revision. Thus, budgetary control involves
the following three steps
(i)

Preparation of budgets

(ii)

Continuous comparison of actual results with the planned ones and

(iii)

Revision of plans -or budgets, in the light of changed circumstances.

Budgetary control is a useful technique of management control, which brings efficiency and economy in the
working of a business enterprise. It facilitates control by establishing budgets in respect of each function and
assigning responsibilities for achieving budgetary objectives. It imposes control by assigning responsibilities for
control of actual performance and, thus, prevents backpassing when the budget figures are not met. It coordinates
the working of various divisions of a business and makes delegation and decentralization of authority possible.
Objectives or Budgetary Control
The objectives of budgetary control are described as under:
(i) Determination of Goals. Budgets are sub-plans for a specific period. They serve as goals for certain individuals.
They are specific action programmes, which are amenable to implementation through the various activity centers of
the enterprise.
(ii) Rationalization of Activities. Budgetary control is intended to impart precision, discipline, direction and
predictability to the day-to-day activities of the enterprises.
(iii) Coordination. Budgets aim at coordination and integration of enterprise functions and operations performed by
various departments. They highlight the inter-dependent nature of enterprise functions and operations as also the

need for consistency in operations. Budgetary control involves the preparation of a master budget, which helps in
bringing effective coordination different departments of the business.
(iv) Participation. Budgetary control provides participation to the subordinates .The subordinates can make their
suggestions and comments on the budgets estimates. Thus, budget making provides an opportunity for cooperation
and commitment of common goals.
(v) Efficiency in Operations. A budget lays down sufficient and satisfactory norms of performance over various
activities. It ensures efficient utilization of various resources of the enterprise. The activity units are also anxious to
keep the overhead budgets.
(vi) Control of Activities. Budgetary control is an important instrument of managerial control in any enterprise. It
helps in comparing the performance of various individuals and departments with the predetermined standards laid
down in various budgets. It reports the significant variations from the budgets to the top management. Since separate
budgets are prepared for each department, this helps in keeping down the cost of operations of different departments.
It becomes easier to determine the weak points and the sources of waste of time, money and resources.
Budget - A Tool of Planning or Control?
Some people doubt whether budgets are a means of control. -This is because budgets perform more than one
function. First, they represent the objectives, plans and programmes of the enterprise and express them in financial
and/or quantitative terms. Second, they help in reporting ft progress of actual performance against the predetermined
objectives plans and programmes, and finally, like job descriptions, they define the assignments, which have flowed
down from the chief executive.
A budget is a kind of business plan for a particular period of time. Formulation of budget forces an enterprise to
make in advance a numerical calculation of cash flow, expenses and revenues, capital outlays and machine hour
utilization. It represents the planned expenditure on certain items and expected revenues from various sources.
Preparation of budget requires the same process as is required to make any other type of plan. It is made well in
advance and is based on scientific forecasts. Without sufficient budgeting, it may not be possible to control the
expenditures. As a plan, it shows clearly the targets to be achieved in financial and/or physical terms.
A budget is a tool of control. Since it is a statement of expected result it also serves as an effective instrument of
control. It provides the standards, which the performance of different departments will be judged. Comparison of
actual results with the budgeted figures will help in detecting sources of deviations and taking corrective steps,
which is the essence control process. This will bring efficiency in the organization. Economy will be achieved
because of minimizing of wastages of various kinds. Budget also helps in fixing the responsibility of persons for
unauthorized and uncalled for expenditures.
Budgeting is also a tool of coordination. In preparation of various budgets, knowledge, skills and experience of
many executives are combined and business plans are reduce ad to proper co-ordination of the efforts of various
departments of the enterprise.
Benefits of Budgeting
The following benefits may be achieved from an effective system of budgetary control

(i) Budgets provide management an overall view of the activities of' enterprise. They serve as a valuable aid to
management through planning coordination and control. They provide standards against which actual performance
is measured. This helps in taking corrective actions in time.
(ii)Budgets are based on the well-defined plans. In preparation of various budgets, knowledge, skills and experience
of many managers are combined and the plans of the enterprise are reduced into concrete numerical term& Budgets
enable the various departmental heads to know what is expected of them. They know the amount that they are
entitled to spend and the income they are expected to earn. Thus, budgeting introduces an element of definiteness in
planning.
(iii)Budgeting helps in eliminating unproductive activities and minimizing waste, because preparation of budgets
involves a very careful analysis of various phases of business. All those who have to bear the responsibility of
executing the plans participate in the formulation of plans. They are fully aware of the aims and objectives to be
followed. Differences of opinion can be more easily reconciled through budgeting.
(iv) Budgeting coordinates effectively the activities of different departments and develops a sound communication
system through meetings and discussions on budgeting and efficient system of reporting.
(v) Budgetary control assists the top management in measuring the efficiency of departments and individuals and
taking corrective actions. Thus budgeting is an important technique of control.
(vi)Budgetary control facilitates 'control by exception', it helps in focus, sing the time and effort of the managersupon areas which are most important for the survival of the organization.
Dangers in Budgeting or Limitations of Budgetary Control
Budgets are widely used as a tool of planning and control. There are certain dangers of budgeting, which are as
follows:
(i) In some companies, budgetary control programmes are so detailed that they become cumbersome, meaningless
and unduly expensive. There is a danger in over budgeting as it may bring rigidity in the enterprise, which may
deprive the managers of the needed freedom in managing their departments. For instance, if the sales budget lays
down the expenditure on office stationery and supplies, the sales manager may not be able to carry out his sales
promotion programme fully because he will be held responsible for overspending on office supplies.
(ii)Budgets are usually based on historical trends, which may not repeat. They may also be influenced by what top
management would like to happen. Naturally, top management is interested in larger profits, lower costs and greater
market share and may make budgets to achieve these aims, which may not be possible in actual practice.
(iii) Another danger lies in allowing budgetary goals to supersede enterprise goals. In their effort to keep within
budget limits, the managers may forget that budgets are only means to enterprise goals. Top management may also
be reluctant to excuse deviations from the budget estimates even though the causes of deviations may be justified.
This sort of over-control will obstruct the achievement of enterprise goals.
(iv) Sometimes, budgets may be used to hide inefficiencies. A department may be inefficient even though its
expenses are within the budget limits. Moreover, budgets are based on the past year's figures and a certain expenditure incurred in the past may become an evidence to cut down the budget proposals sent by various departments.
This naturally leads to inflation of figures by various departments. Unless budget making is secured by constant

evaluation of standards and conversion factors by which planning is translated into numerical terms, budgeting may
become an umbrella for hiding inefficiencies of management.
(v) There may be psychological problems with the people supposed to work within the budget framework. While, on
the one hand, people, like to know what they are working for and how they will be judged, on -the other, many of
them are resentful of budget restrictions. The resentment is caused by the fear of inflexibility, which may be brought
about by the budgets. When a budget is made in great detail', it will restrict the freedom of the persons concerned to
spend money. They may be more worried for being within budget limits rather than achieving organizational
objectives.
Precautions in the Use of Budgets
The following precautions should be taken while preparing and using budgets for the purpose of managerial
planning and control
1. Estimates are not too high to be attained.
2.Budgets are not prepared and installed hurriedly.
3. Administration and supervision of the operations are not ineffective
4. Organizational structure is not defective.
5. Accounting and cost systems are not inadequate.
6. Statistics of past operations are not inadequate and unreliable.
7. Results are not expected in too short a period.
Requirements of Effective Budgetary Control
The requirements of a good system of budgetary control are discussed below
(i) Quick Reporting. A good system of budgetary control requires thee establishment of such procedures, which
will provide reports on the performance- of various operations. The reports should reach the persons concerned with
the implementation of budgets without any delay so that quick actions may be taken whenever necessary.
(ii) Sound Organization Structure. There should be a sound organization structure with precisely defined
authorities, responsibilities and lines of communication so that everybody in the organization understands his role in
thee process of budgetary control.
(iii) Frequent Comparison. There should be frequent comparison between budget estimates and operating results.
Alford and Beatty are of the opinion that careful analysis of both operating results and budget estimates is the
essence of budgetary control.
(iv) Definite Plan. There should be comprehensive planning in the enterprise. All the operations should be planned
in clear terms. The administration of the budgets should also be properly planned. It must be predetermined who is
to lie held responsible for the implementation of budgets.
(v) Participation. The purpose of budgetary control is to achieve coordination of various functions of the business.
Therefore, it is essential that participation upon the lowest level in the enterprise be ensured to make the people
committed to the budgets. Everybody should understand his role in achieving the budgeted targets.
(vi) Flexibility. Budgets should not be rigid, but flexible enough to allow alteration-or remodeling in the light of any
change in circumstances. Budgets are a means to an end. They must be flexible to achieve the desired objectives. A

good system of budgetary control allows sufficient flexibility to the persons concerned with the implementation of
the budgets.
(vii) Support of Top Management. The top management should support a good system of budgetary control. Top
management should take the preparation of budgets and their implementation seriously in order to achieve the
objectives of the enterprise.
Types of Budgets
A business enterprise can use various types of budgets for various purposes. A brief discussion of the budgets used
in business is given below
1. Sales Budget. It includes a forecast of total sales during a period expressed in, money and/or quantities. The
forecast relates to the total volume of sales and also its break-up product-wise and area-wise. The responsibility for
making sales budget lies with the sales manager, Preparation of sales budget is the key factor in any business
enterprise. All other budgets are based on the sales budget. Sales budget sets the tone for production, finance and
personnel budgets.
The following factors are relevant for preparing the sales budget;
(i) Past Wes figures and trend;
(ii) Salesmen's estimates;
(iii) General economic conditions;
(iv) Orders on hand;
(v) Seasonal fluctuations;
(vi) Competition; and
(vii) Government's control and policy.
2. Productions or Output Budget. It includes a forecast of the output for a period analyzed according to (a)
products ;(b) manufacturing departments; and (c) periods of production. It is generally based on the sales budget as
it is the responsibility of the production department to schedule its production according to sales forecast. The
production manager prepares it by taking into account the following major factors
(i) The sales budget.
(ii) Plant capacity.
(iii) Inventory policy.
(iv) Availability of raw materials, labor, power, etc.
3. Materials Budget. Materials may be of two types. Direct and indirect. The materials budget generally deals with
the direct materials for budgeted output. It is based on the production budget. Materials requirement for a unit of
production is determined and is multiplied by budgeted output to arrive at total quantity of direct materials required.
Materials budget helps in scheduling the purchase of materials to produce a given volume of output during a
particular period to meet the requirements of customers during the period.
4.Labour Budget. It reveals the estimates of direct labor requirements essential for carrying out the budgeted
output. Labor of different grades required for a job or a product or a process is determined in terms of man-hours
and is multiplied by wage rate per hour to determine the total expenses on direct labor for budgeted production.

5. Factory Overhead Budget. It includes the estimated costs of indirect materials; indirect labor and indirect
factory expenses required during the budget period for the achievement of budgeted production targets. The budget
is prepared on departmental basis for effective control over costs. The factory or manufacturing overheads may be
classified into three categories: (i) fixed, (h) variable, and (iii) semi-variable expenses. This classification facilitates
the preparation of overhead budgets for each department.
6. Personnel Budget. It sets out manpower requirements of all departments for the budget period. It expresses labor
requirements in terms of labor hours, cost and grade of workers. It helps the personnel manager in providing
required labor to the departments either by transfers or by new appointments.
7.Administrative Overhead Budget. It includes the estimates of administrative expenses like expenses of all
offices and salaries of managerial personnel. Such expenses form a significant part of the total cost of production.
Preparation of this budget will help in keeping the administrative costs under control.
8. Selling and Distribution Expenses Budget. This budget includes the estimates of all items of expenditure and
promotion, maintenance and distribution of finished products. The costs are divided into fixed, variable and
semi-variable categories and estimated on the basis of past experience. The various items of expenditure include
sales office rent, salaries, depreciation and miscellaneous expenses, advertising, commission, bad debts, traveling
expenses, etc.
9. Cash Budget. The cash budget usually consists of two parts giving detailed estimates of (a) cash receipts, and (b)
cash disbursements for the budget period, It is prepared: (i) to ensure that cash is available in time for meeting the
financial commitments; and (ii) to use cash available in the best possible manner, It is prepared by the controller of
finance considering the following points
(a) Cash receipts expected from cash sales, credit sales having regard to credit collection policy, interest, etc.,
dividend and rent receivable,
(b) Estimated payments for purchases and expenses as set out in different budgets.
10.Master Budget. The Institute of Cost and Management Accountants, England has defined master budget as the
summary budget incorporating its component functional budgets, which is finally approved, adopted and employed.
Thus, a master budget is prepared to incorporate all functional budgets. It projects a comprehensive picture of the
proposed activities and anticipated results during the budget period. The top management of the enterprise must
approve it.
Fixed and Flexible Budgets
Fixed budget is a budget, which is designed to remain, unchanged irrespective of the level of activity actually
attained. The main purpose of fixed budgeting is coordinating sectional activities to attain the enterprise objectives.
It is prepared for a given level of production and does not take into account the changes in circumstances. It
becomes a rigid and unrealistic measuring rod in case the level of production actually accomplished does not
conform to the one assumed for the purpose of fixed budgeting.
A flexible budget is prepared in a manner that it gives the budgeted cost for different levels of activity. Thus, it
facilitates comparison of actual performance with budgeted performance at different volumes of activity. Such a
budget is prepared after considering the fixed and variable elements of cost and the changes that may be expected

for each item at various levels of activity. Flexible budgeting is of great help where it is not possible to predict
accurately the sales forecast and where the level of production depends upon the availability of a factor, which is in
limited supply.
Zero-Base Budgeting
The concept of zero-base budgeting is based on the premise that the future is not a mere projection of the past. The
likely behavior of future events is to be forecast systematically as the environments are changing fast. Organizations
have to adapt to such changes with as much care as possible. Goals, activities, efforts and resources need to be
recast, not in a casual incremental manner, but in a logical, reasoned and optimal manner.
Zero-base budgeting represents a radical departure from traditional budgeting to the extent that it advocates
comprehensive analysis and review of budget proposals, every time such proposals are made. In traditional budgeting, the normal practice is to take the current year's budget as the base for consideration and finalization of budget
proposals for the next year. More often, budget for the next year is just a projection of the current year's budget with
marginal changes made here and there. In zero-base budgeting, the current year's budget is not taken as the base.
Rather all budget proposals (which may be called possible decision packages) whether for existing programmes or
new programmes, are considered from the 'ground up', almost from scratch, as if all proposals were absolutely new.
The advocates of zero-base budgeting assert that it permits management a great degree of freedom and flexibility in
allocating resources for organizational activities, from year to year. There is nothing sacred in organization goals,
activities, resource allocations and programmes. They are all to be exposed to searching examination at periodic
intervals to test their legitimacy, validity and effectiveness. Such tests take the form of thorough, rational, and
judicious analysis and appraisal of previous budget commitments and fresh budget proposals in the light of actual
performance and changed circumstances.
Performance Budgeting
Administrative Reforms Commission suggested the use of Performance Budgeting by the Government. A
performance budget is an input-output budget. It considers, both costs and results. It shows expenses as under the
traditional budgeting. In other words, it highlights the end-results to be achieved rather than money to be s pent. It
helps in knowing whether the organization is getting adequate results for the money spent.
The steps involved in performance budgeting include the following
(i) Identification of goals, results or end output of the performing department or enterprise.
(ij) Preparation of schedule of performance leading to the goals.
(iii) Linking of all expenses to performance heads.
(iv) Developing of standards of performance for the purpose of control.
The possible benefits of performance budgeting are as follows
(i) It correlates the' physical and financial aspects of every programme or activity.
(ii) It improves budget formulation, review and decision making at all levels of department or, undertaking.
(iii) It facilitates better appreciation and review of performance.
(iv) It makes possible effective performance it-.
(v) It measures progress towards long-term objectives.

(vi) It brings annual budgets and development plans of the Government closely together.
Performance budgeting suffers from the following -limitations
(i) It is difficult to set performance goals and measure actual- performance where the output is intangible as in case
of education, research, training, health, etc.
(it) Performance budgeting is likely to fail if planning in the organization is ineffective.
(iii) Subordinates often do not like the idea of performance budgeting. They resist its implementation.
Organization of Budgetary Control
The procedure of introducing budgetary control system in a business enterprise involves the following steps:
1. Responsibility for Budgeting. The responsibility for budgeting is entrusted to a Budget Committee under the
inchargeship of Budget Officer. The Budget Committee consists of heads of various departments in addition to the
budget Officer. The Budget Officer acts as the convener of the Budget Committee. The Budget Committee
formulates a general programme of budgeting; discusses departmental budgets and brings co-ordination among
them. The Officer is an expert in accounting and finance and plays an important sale in preparing and
implementation of budget He advises the chief executive and departmental heads on budgetary matters. He acts as a
coordinating link between various departmental heads. He ensures proper communication of budgets at all levels. He
supervises execution of budgets, analyses variances performance and suggests suitable actions to the concerned
persons. He revises budgets in accordance with the recommendations of the Budget Committee.
2.Extent of Budgeting. The people working in the enterprise should introduce budgetary control in phases that there
is least resistance to it. X should be gradually introduced in other parts of the enterprise after it functions well in one
part. Rigidities in budgetary control should be avoided. The budgets should provide for some degree of flexibility to
executives implementing them. The extent of budgetary control differs from one firm to another.
3. Period of Budgeting. Budget is prepared for a certain period of time. The length of the budget period depends
upon: (i) nature of the business; (ii) the degree of control required; (iii) production period; and (iv) timings of
availability of finance. For instance, companies with huge capital expenditure require long-term budgeting, whereas
seasonal firms require short period budgeting. When the business conditions are changing fast, the preparation of
budgets for a longer period will prove to be meaningless. Budgeted estimates may not hold good due to these
changes. Therefore, the length of the budget period should be restricted to such a span of time for which an accurate
forecast can be made.
4.Key or Limiting Factor. It is that factor which influences the functional budgets. It is also known as 'Principal
Budget' or 'Governing' factor. It is the factor the extent of whose influence must first be assessed in order to ensure
that the functional budgets are reasonably capable of fulfillment. Key factor may be raw materials, labor, plant
capacity, sales or government restrictions for instance, shortage of power supply leads to under- utilization of plant
capacity. So industrial undertakings prepare first plant utilization budget ping in view the availability of power, and
then other budgets like sale and production.
5.Preparation of Budgets. Most of the budgets are based on sales forecasts, which are made by the sales manager.
If there is any other key factor, the budget estimate of such factor may be prepared

first. Budget Committee discusses these estimates and gives its approval tentatively. After dial, all the departments
make their budgets on these estimates and submit them to the budget committee.
Budget Committee. Cash budget is prepared on the basis of sales and other budgets. The Budget Committee
discusses these budgets and makes modifications wherever necessary and then incorporates all budgets into a
Master Budget, which is sent to the top management for approval.
Statistical Data and Reports
Statistical data are being widely used for the purpose of managerial control. Statistical data may be presented in the
form of statistical tables. Graphical charts or special reports. The quality of presentation of essential data will
determine their efficiency for the purpose of managerial control.
A report is a form of systematic presentation of information and statistical data relating to some aspect of business.
It may arise out of available factual data, thorough enquiry, investigation or experiment. The information provided
by the report may be used for the purpose of managerial control. It will help in knowing whether the policies of the
management are being followed and if not, what steps should be taken to implement them. The task of making
reports is generally entrusted to certain specialist who will collect the desired information and present the same in
the form of a report.
Marginal Costing
Marginal costing is a very useful technique, which guides management in pricing, decisions-making and assessment
of profitability. According to Institute of Cost and Management Accountants, London, marginal costing is the
ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by differentiating
between fixed and variable costs. Fixed costs remain unchanged up to a certain level of production, but variable
costs change with the changes in the volume of production. Marginal cost is the amount of money at any given
volume of output by which aggregate cost is changed, if the volume of output is increased or decreased by one unit.
Suppose, a factory produces 1,000 units of product X per month. The variable cost per unit is Rs. 25 and the fixed
expenses per month are Rs. 10,000. The cost statement of 1,000 units of 'X' will be as follows:
]

Rs.
Variable cost (1,00OX25)

25,000

Fixed cost

10,000

Total cost

35,000

If one unit increases the production, the cost statement will be as

Variable cost (1,001 x 25)

25,025

Fixed cost

10,000

Total cost

35,025

Marginal cost is total cost of producing 1,001 units minus total cost of producing 1,000 units. It comes to Rs. 25
(i.e., Rs. 35,025 - 35,000), which is the variable cost of one unit. So long as the fixed cost does not change,
production can be increased and marginal cost for every extra unit of production will be the variable cost. Until the
production at the full capacity is achieved, the fixed costs are irrelevant for managerial decisions and control. All the
decisions are based on the variable costs of producing additional units. k is relevant here to define contribution.
Contribution is the balance left by defecting total variable costs from the sales revenue. It is called contribution
because it enables to meet fixed costs and contributes to the profit.
Profit-Volume Ratio. It is the ratio of contribution to sales. It is also called 'contribution ratio' or 'marginal ratio'. It
can be expressed in percentage by the following formula:

P/V Ratio= Contribution x 100

Sales
The P/V ratio is used for appraising profitability of alternative products, operations and decisions. A higher ratio
reflects greater profitability and lower ratio indicates lower profitability. Management tries to achieve higher P/V
ratio by reducing variable cost or by increasing the sale price. In most of the cases, it is not possible to increase the
sale price, so management concentrates on decreasing the variable costs.
Usefulness of Marginal Costing
Marginal Costing is an important tool in the hands of management for exercising cost control. Since marginal
costing is based on variable costs, the responsibility for controlling variable costs can be assigned to various
departments. The reports by various cost centers include only those costs, which can be controlled by them. The
control of fixed costs is the responsibility of the higher-level managers.
Marginal costing facilitates 'management by exception' by focusing attention of the management on results, which
are moving out of control significantly. It also helps the management in evaluating the performance of individuals
responsible for variable costs. The impact of fixed costs is conveyed to management in a more meaningful way
under marginal costing. This helps management to ensure better utilization of items, which involve fixed
expenditure such as plant and machinery, furniture, installations, etc. Finally, marginal costing helps the
management in understanding the relationship between profit and major factors affecting profit so that it may
exercise control over these factors to achieve higher profits.
Cost Volume Profit Analysis
Cost volume-profit analysis is an attempt to determine the effect of a change in volume, cost, price or product mix
on profits. It assists management in ascertaining which product is most profitable, what effect a reduction in sales
price will have on final profit, what effect a change in volume or product mix will have on production costs and
profits, what effect will be on cos% profits and sales volume if there is a change in the plant capacity and so forth.
The important feature of this-analysis is that it calls for separation of variable costs from fixed costs with a view to
understand the anatomy and structure of profit of an enterprise.
One of the most important determinants of cost is the volume of operations. -The relationship between cost and
volume is seldom simple as neither cost nor volume is homogeneous. Moreover, they depend on different factors.

Cost is an aggregate of labor and material costs, supervision, maintenance and other costs including on selling and
administration. Volume is made up of many products each with its own specifications and cost characteristics.
Aggregate costs seldom, if ever, vary in direct proportion to changes in composite volume. That is true even if
volume consists of a single product, which can be physically measured. The reason for lack of proportionality
between cost and volume is the existence of 'Fixed, Costs'.
The starting point in the cost-volume profit analysis is the classification of all costs into fixed and variable costs.
Fixed cost is that which remains constant irrespective of volume of output produced. On the other hand, a variable
cost is one that changes in total as a result of change in the volume of activity. The second step in cost volume-profit
analysis is to determine the ratio of variable costs to volume of sales. It is important to point out that profit is the
function of the inter-play of costs, prices and volume of production. 'Me important technique of cost- volume-profit
analysis is the Break-Even Analysis.
Break-Even Analysis
Break-even analysis determines the probable profit or loss at different levels of activity. It establishes relationship
among cost of production, volume of production, profit and sales and, that is why, it is also known as cost
volume-profit analysis. This technique is employed by the management for exercising broad control over the
functioning of the enterprise. Management is interested in determining the volume of sale at which costs are fully
covered 1 and beyond which profits emerge. This analysis of cost behavior in relation to changing volume of sale
and its impact on profit is known as break-even analysis. The volume of sale at which there is no profit, no loss is
known as 'Break-even point'.
Break-Even Point
The break-even point is defined as that volume of sale at which revenue exactly equals total cost. It is that point
where. Operations pass from being profitable to a loss or vice-versa as shown in Fig. The vertical scale in the figure
represents cost and revenue and the horizontal scale reflects the sales.
Cost and Revenue

Total Revenue

Total Cost

Variable Cost

Fixed Cost
Sales Volume

Break-even analysis helps the management in knowing the relationship between cost, volume of production and
profits or losses. By dividing the total costs into fixed and variable, the management can determine the point up to
which it must carry on production to cover fixed cost. It can exercise Cost control at various levels of sale. This will
also enable the management to accept orders during depression or off-season at lower prices which we more than the
variable costs. The excess of price over the variable costs will lead to reduction of losses, which will result if no

production is carried on. Fixed costs remain unchanged whether there is production or not. However, the fixed costs
do not remain constant for all levels of production. They are fixed only up to a certain level of production. After that
they will jump. This limitation of break-even analysis should be kept in mind. Moreover, variable costs do not
always vary proportionately. There may be certain economies in large-scale production. The profit shown by the
breakeven analysis may not be achieved as the prices in the market fluctuate frequently and the share of every firm
in the market is also limited because of competition and other forces beyond the control of the firm.
Management Audit
By audit we mean a review or examination of completed transactions to see whether they represent a true state of
affairs of the business or not. While conducting an audit, the auditor examines the degree of conformance of
business transactions with the accepted business practices and the legal provisions. The main objective of financial
audit is to know the correct profit or loss of the business during a particular year and to determine the accuracy of
the balance sheet as at the end of that year. Thus, audit serves as a control mechanism over the completed
transactions of the enterprise. It detects the errors and frauds committed in the books of accounts of the enterprise.
Financial audit or examination of books of accounts has been in operation for a long time. But management audit is
relatively of the recent origin. Now it has come to be recognized that audit of performance of management of a big
enterprise is not less important than the audit of its financial transactions. But it is to be noted that there is no
equivalent of chartered accountants holding Certificate of Practice from the Institute of Chartered Accountants of
India for conducting management audit. However, a few management consultancy firms have come into existence,
which offer to conduct management audit of organizations. But there is no central agency to regulate their code of
conduct and practices and procedures of management audit as in the case of financial and cost audits.
Management audit may be defined as a comprehensive and constructive review of the performance of management
team of any organization. It is an important aid for evaluation of management techniques and performance. It
undertakes a systematic search of the effectiveness and efficiency of the management. It investigates formally and in
depth the performance of management as contrasted with day-to-day informal impressions. Management performs
many functions like planning, organizing, staffing, directing and controlling. The chief objective of management
audit is to see whether these functions are being performed efficiently or not. Management audit locates deficiencies
in the performance of various functions and suggests possible improvements. It assists the management in managing
the operations of the enterprise under its control in the most efficient manner.
The scope of management audit is very wide. Economic outlook, adequacy of organization structure, flexibility of
planning, reliability of systems of control, efficiency of communication and motivation, effective utilization of
manpower and equipment, etc., all come under the purview of management audit. The scope of management audit
should be clearly laid down before such audit is initiated.
There is no legal obligation to undergo management audit, but enlightened managements understand its usefulness
and voluntarily undergo management audit. Management audit measures the degree of efficiency of management
and points out the deficiencies in managing. As an enterprise grows, the need for such an audit increases.
Continuous feedback information is necessary for improved performance in the future. Management audit may be
either comprehensive or May be restricted to some functional areas only. If the management feels that a particular

department, say, marketing, production or Personnel, is not working well, it may get its activities audited to identify
its problems-and deficiencies.
Advantages of Management Audit.
The benefits, which the management may derive from the management audit, are given below;
(a) It would locate present and potential danger spots.
(b) It would highlight possible opportunities.
(c) It would evaluate the performance of control mechanisms.
(d) It would reduce costs by suggesting how to reduce unnecessary wastes and losses.
(e) It would check the overall plans and policies of the business.
It would determine whether or not the enterprise is operating as efficiently as it should.
(g) It would detect the cases where organizational policies and procedures are not being complied with.
(h) It would evaluate the progress made by the enterprise by the introduction of new techniques and ideas.
Conduct of Management Audit
There are no standard techniques of management audit as in case of financial and cost audits. The auditor
conducting management audit has to devise a suitable audit programme consisting of various steps in each and every
case to achieve the objectives of such audit. The auditor must ensure that the terms of reference to him are quite
clear. He should clearly know the scope of such audit before starting the audit. After the auditor has examined the
various phases of management, it is imperative for him to compile, his observations, findings and recommendations
in the form of a report. The style of audit report will depend upon the auditor, as there is no set pattern of such
report.
The audit report should be based on the observations and findings of the auditor. It should be precise and to the
point. The findings should be supported by factual information. In short, a management auditor should ensure that
his report contains the following essential elements
(i) Table of contents to guide the readers as to what is contained in the report.
(ii) Preface giving a brief statement of scope and objectives of audit.
(iii) Findings of the investigation carried out by the auditor. Audit of different functions may be discussed in
separate sections.
(iv) Summary and Suggestions. This part should include the summary of observations of the auditor and his
recommendations for improvement
(v) Appendix to include supporting data that may be too voluminous to appear in the body of the report.
Networks Techniques
Network analysis is being widely recognized as a management tool in both commerce and Industry. Under network
analysis, a project is broken down to small activities or operations, which arranged in a logical sequence. After this
the order in which- various operations should be performed is decided. A network diagram may be drawn to present
the relationship between all the operations involved. The diagram will reveal the gaps in the flow plan. The network
thus drawn shows the interdependence of various activities of a project and also points out the activities, which have
to be completed before the others are initiated.

The object of network analysis is to help in planning, organizing and controlling the operations to enable the
management in accomplishing the project economically and efficiently. Various research scholars have developed a
number of network techniques. But PERT and CPM have gained wide popularity. Both PERT (Programme
Evaluation and Review Technique) and CPM (Critical Path Method) recognize the interrelated nature of elements
within large work projects. Any project whether it is construction of a building or manufacture of a hydrogen bomb,
is a complex network of inter-related activities. In network techniques, an activity is defined, as an operation required accomplishing a particular goal. An activity requires a specific span of time for completion. An event is a
point of time when an activity is begun or completed. In a project, some activities are sequential while others are
concurrent to each other. The former are those, which are to be arranged in a particular order. In other words, they
are interrelated.
Programme Evaluation and Review Technique (PERT)
PERT is an important technique in the field of project management. This technique was first used in 1957 in U.S.A,
as a tool of planning and controlling the 'Polaris Missiles Program' by Booz. Allen and Hamilton in association with
the U.S. Naval Department. It involves basic network technique, which includes planning, monitoring and
controlling of projects. In addition to its use in schedule planning and control, the network concept in PERT
provides the framework for treating a wide range of project management problems. Recognizing this fact, the Navy
Special Project Office of U.S.A. extended the PERT to include the elements of cost and technical performance.
PERT/cost is an integrated management system designed to provide, managers with the information they need in
planning and controlling schedules and costs in development projects. Thus, PERT/cost system is directed towards
the dynamic management of projects. It specifies techniques and procedures to assist project managers in:
(i) Planning schedules and costs.
(ii) Determining time and cost status.
(iii) Forecasting manpower skill requirements.
(N) Predicting schedule slippages and cost overruns.
(v) Developing alternate time-cost plans.
(vi) Allocating resources among tasks.
PERT uses 'probability' and 'linear programming' for planning and controlling the activities. Probability helps in
estimating the timings of various activities in the project, and linear programming is used to maximize the
achievement of the project objective. With the help of these tools, PERT can foretell the probability of achieving the
project targets leading to main objective of the project.
Applications of PERT. PERT was developed as a research and development planning tool to estimate timings of
various activities with enough certainty. It is being used by many big organizations for conducting the initial review
of new projects. It helps in planning the time and resources in case of projects. It can be employed with great
advantage in those cases (e.g., nonrepetitive project, research and development and defense projects) where a project
cannot be easily defined in terms of time and resources required.
PERT is employed in construction of ships, buildings and highways, in the planning and launching of new products,
in the publication of books, in the installation and debugging of computer systems. Frequently, PERT systems are

used in conjunction with computers. A computer programme is employed-that permits calculations to be made
without reference to a flow chart or diagram.
Critical Path Method (CPM)
CPM is the most versatile planning and control technique used i business. It. was first employed in U.S.A. in 1958
by the E.I. du Pont de Nemours Company. Unlike PERT, it is applied in those projects where activity timings are
relatively well-known. It is used for planning and controlling the most logical sequence of activities for
accomplishing a project.
Under CPM, the project is analyzed into different operations or activities and their relationships are determined and
shown on the network diagram. The network or flow plan is then used for optimizing the use of resources and time.
CPM marks critical activities in a project and concentrates on them. It is based on the assumption that the expected
time is actually the time taken to complete the project. CPM is suitable for construction projects and plant
maintenance.
CPM requires greater planning than required otherwise. Thus, it increases the planning cost, but concentrating on
critical paths only and avoiding expenses on the strict supervision and control of the whole project justify this
increase in cost. Besides ascertaining time schedule, CPM provides a standard method of communicating project
plans, schedules and costs.
The application of CPM leads to the following advantages:
(i) It provides an analytical approach to the achievement of project objectives, which are defined clearly
(ii) It identifies most critical elements and pays more attention on these activities.
(iii) It helps in ascertaining the time schedules.
(iv) It makes use of better and detailed planning.
(v) It assists in avoiding waste of time, energy and money on unimportant activities.
(vi) It provides a standard method for communicating project plans, schedules and costs.
Steps in PERT/CPM
The application of network techniques in project management involves the following steps:
(i) Identification of Components. The first step in the application of PERT/CPM is identification of all key
activities and phases or events necessary for the completion of project. The term 'activity' may be defined as an
operation or a j ob to be carried out which consumes time and resources. An arrow in the network diagram denotes
it. An event may be defined as the beginning or completion of an activity. A circle in the network diagram denotes
it.
(ii) Sequencing of Activities and Events. A network diagram is prepared to show the sequence of activities and
events. It has a beginning point and a termination point for the project, each event is given a serial number for the
sake of convenience. It may be noted that some activities have to be undertaken sequentially while others are to be
carried out concurrently. The project network clearly reveals the sequence of activities. It also depicts a number of
paths of activities and events from beginning to completion.
(iii) Time Analysis. After the network diagram is drawn, time estimates are prepared for how long it will take to
complete each activity. The total time of all these activities will be the time required for the completion of the

project. Three estimates of time span for the completion of each activity are made, viz., (i) optimistic or shortest
time, (it) pessimistic or longest time, and (iii) normal (most likely) time. These estimates are combined into a single
workable time value known as expected time. The three estimates of time are used in PERT because the originator
of PERT thought that the estimated time for an activity is better described by a probability distribution than by a
single estimate.
(iv) Determination of Critical Path. Under this stage, it is required to identify the sequence of those activities
whose completion is critical for the timely completion of the project. The line in the network connecting the critical
activities from start to finish of the project is the critical path. Once the critical path is known, the manager will be in
a position to allocate resources more fruitfully, to spot trouble early and to apply controls where it is more essential.
(v) Modification in Initial Plan. The project analysis should not stop after the critical path has been identified. The
potential exists for substantially improving upon the initial plan. There is sometimes the possibility of resequencing
of some activities-that lie along the critical path. When this is possible, it will reduce the time along the critical path,
resulting in a shorter expected project completion time.
(vi) Controlling the Project. In order to control the project, the emphasis has to be given on the activities along the
critical path. If there are delays in these activities, the completion of entire projects will be delayed. Thus, the
consequences will be serious. However, slippages of activities that are not on the critical path are less serious. The
project manager has to be in constant touch with the persons engaged on the critical activities. If there have been any
difficulties or obstacles, these are to be removed.
Control of Overall Performance
The important techniques of control of overall performance of 'a business enterprise are discussed below:
1. Budget Summaries. A budget summary is a resume of all individual budgets of the organization. It reflects
overall business plans and identifies limitations and deficiencies. It helps the top management in visualizing how the
organization is functioning in the direction of its objectives. Budget summaries must be accompanied by the reports
of actual performance of various departments. This will help in comparing the actual performance with the budget
targets and taking corrective actions in case of wide deviations.
2.Profit and Loss Control. This is the most widely used means of control of overall performance of an enterprise.
The Profit and Loss-statement shows all the revenue, expenses and income for a given period. For better results, the
management may supplement profit and loss control with budgetary control. This technique can become more
effective if it is used with the profit and loss statements of the previous years. By highlighting increases or decreases
of various expenditures and incomes from year to year, these statements help the management in controlling certain
expenditures and emphasizing generation of revenues.
3. Return on Investment. Rate of return on investment (ROI) is regarded a useful technique of control to evaluate
the relative as well as absolute success of a business enterprise. It determines the ratio of earnings of the enterprise
to its investment. That is why; it is also called return on capital employed. The essence of this approach is that profit
is not taken as an absolute figure, but is considered in relation to invested capital. This helps in comparing the rate of
return of two companies whose profit figures and capital invested are different. Rate of return on investment is
calculated by the following formula.

ROI = E

I
Where E stands for net earnings and I stand for investment (i.e., capital and free reserves).
The advantages of ROI are as follows
(i) It focuses attention on profits and relates them to the most important stake in the company, i.e., capital invested.
It indicates how effectively resources are employed.
(ii) Rate of return on investment is useful to compare the performance of a company over the years. It helps in
comparing performance of different divisions, products and also different companies,
(iii) It helps in locating areas where capital is being fruitfully utilized and in planning future operations accordingly.
The limitations of this technique are as follows
(i) It may be troublesome to compile information on sales, costs, assets and investments of the products produced
and sold.
(ii) Excessive emphasis on ROI may lead to neglect of other important variables like technological advance and
morale of employees.
(iii) Because of inflation, there is appreciation in the value of various assets. Therefore, to relate profits to the book
value of the assets is misleading.
(iv) Rate of return on- investment may tend to encourage conservation and discourage risk-taking in the long-run.
ROI does riot consider qualitative factors, which are important in long-run decision-making.
4. Ratio Analysis. Ratio analysis is the process of analyzing the relationship between two sets of figures relating to
two important aspects of the company (e.g., current assets and current liabilities). A ratio may be financial, or
non-financial. Financial ratios are calculated from the financial accounts of the firm such as current ratio.
Non-financial ratios are calculated from the operating results of the firm such as ratio of volume of production to
man-hours worked. Some of the important ratios used in modern organizations are given below:
1. Liquidity Ratios Measure ability to meet maturing obligations.

(a) Current Ratio =

Current Assets

Current Liabilities

(b) Acid Test or Quick Ratio =

Cash & Receivables

Current Liabilities

(c) Solvency Ratio =

Total Tangible Assets

Total Outstanding Liabilities

II. Leverage Ratios - Measure the contribution to finance by owners visa-vis creditors.

(a) Debt-Equity Ratio =

Long-term Debt

Net worth
III. Profitability Ratios - Measure the relationship between profit or earnings and capital employed or sales.

(a) Return on Capital Employed = Net Earnings

Capital + Free Reserve

(b) Return on Sales =

Net Earnings

Sales
IV. Activity Ratios - Measure the effectiveness of employment of resources.
(a) Inventory Turnover =

Sales

Average Annual Inventory

(b) Equity Capital Turnover =

Sales

Net Worth

(c) Average Collection Period=

Receivables

Average Sales per Day

5.Responsibility Accounting. Responsibility Accounting means a system of accounting whereby the performance
of various people is judged by assessing how far they have been able to achieve the pre-determined targets set up for
the sections, divisions, or departments for which they are responsible. A 'ResponsibilityCentre' is simply an
organizational unit headed by a responsible person. The responsibility centers may be sub-divided into three
categories
1. Costs or Expense-center. Dividing the whole organization into a number of centers for which a standard amount
of expense to be incurred is pre-determined may form it. The performance of each is appraised by comparing the
actual expenditure with the budgeted costs.

2. Profit-center. The entire organization may be divided into a number of divisions. The performance of each is
judged in terms of both the income that is earned and the costs that are incurred. It is an important tool of control in
large firms where each divisional manager is given a profit objective and the performance is measured accordingly.
Transfer price is the notional price at which the output of one department in a firm is transferred to another. This
facilitates the- preparation of separate departmental profit and loss accounts.
3. Investment-center. The head of every unit is responsible not only for profits but also for the assets he uses. The
investment made in each center is separately ascertained and the amount of profits or the ROI (i.e., return on
investment) is used as the basis for judging the performance of the center. Every divisional manager is given 'ROI
Objective' and is given full freedom to take decisions for its achievement.
The choice between the various types of responsibility centers may be made by the following criteria
I. The factors towards which the top management wishes to direct the divisional manager's attention.
II. The factors, which can be controlled by the divisional manager.
III. The education, experience and special qualities of the particular divisional manager.
Summary
There are several techniques employed by managers in order to achieve the highest level of quality and productivity
possible.
Break-even analysis tries to examine the impact on profit of the changes in price, volume, mix and costs with a
certain amount of accuracy. It helps management in profit-planning. Budgeting is the process of stating, in
quantitative terms, planned organizational activities for a given period of time. Budgets are useful because they
provide a means of translating diverse activities and outcomes into a common measure, such as rupees. Zero-based
budgeting (ZBB) is a budget approach in which responsibility' centers start with zero in preparing their budget
requests and must justify the contributions of each of their activities to organizational goals, rather than focus on
increments to the previous year's budgets. While ZBB forces managers to justify their activities in terms of future
goals rather than past practices, the process can be costly and time-consuming to administer, since every ongoing
activity must be evaluated. Human Resource Accounting (HRA) is a process of identifying and measuring data
about human resources and communicating this information to interested parties. HRA provides valuable feedback
to managers regarding the effectiveness of policies and practices. It helps management in taking appropriate
decisions regarding the use of human resources in an organization. Both monetary measures and non-monetary
measures are used to value human resources6 depending on necessity.
Standard costing is a sophisticated technique of costing under which the standards are determined in advance, and
actual costs are compared with the standards so that corrective action may be taken for any unfavorable variances.
Management audit is a systematic and in-depth review of the effectiveness and efficiency of management. The
primary focus is on appraisal of general performance of management functions as well as specific organizational
areas.
Network models are used in planning and controlling large, complex projects. The PERT involves the display of a
complex project as network of events and activities with three time estimates used to calculate the expected time for
each activity. The objective of PERT is to reduce the entire project completion time by a certain amount at the least

cost. The CPM also involves the display of' a complex project a network but with one time estimate used for each
step in the project.
A management information system (MIS) is an organized approach for obtaining relevant and timely information on
which to base management decisions. MIS enhances management's ability to plan, measure and control performance
by initiating appropriate actions at a right time. Total Quality management is an organization wide commitment to
infusing quality into every activity through continuous improvement. The TQM philosophy focuses on teamwork,
increasing customer satisfaction and lowering costs.

UNIT 7
Total Quality Management: Definition and importance evolution of TQM different dimensions quality
management philosophies and practices.

To understand the meaning of Total quality management, let us first know what does Quality mean?
Quality refers to a parameter which decides the superiority or inferiority of a product or service. Quality can be
defined as an attribute which differentiates a product or service from its competitors. Quality plays an essential role
in every business. Business marketers need to emphasize on quality of their brands over quantity to survive the cut
throat competition.
Why would a customer come to you if your competitor is also offering the same product? The difference has to be
there in quality. Your brand needs to be superior for it to stand apart from the rest.
Total Quality Management
Total Quality management is defined as a continuous effort by the management as well as employees of a particular
organization to ensure long term customer loyalty and customer satisfaction. Remember, one happy and satisfied
customer brings ten new customers along with him whereas one disappointed individual will spread bad word of
mouth and spoil several of your existing as well as potential customers.
You need to give something extra to your customers to expect loyalty in return. Quality can be measured in terms of
durability, reliability, usage and so on. Total quality management is a structured effort by employees to continuously
improve the quality of their products and services through proper feedbacks and research. Ensuring superior quality
of a product or service is not the responsibility of a single member. Every individual who receives his /her paycheck
from the organization has to contribute equally to design foolproof processes and systems which would eventually
ensure superior quality of products and services. Total Quality management is indeed a joint effort of management,
staff members, workforce, suppliers in order to meet and exceed customer satisfaction level. You cant just blame
one person for not adhering to quality measures. The responsibility lies on the shoulder of everyone who is even
remotely associated with the organization.
W. Edwards Deming, Joseph M. Juran, and Armand V. Feigenbaum jointly developed the concept of total quality
management. Total Quality management originated in the manufacturing sector, but can be applied to almost all
organizations.
Total quality management ensures that every single employee is working towards the improvement of work culture,
processes, services, systems and so on to ensure long term success.
Total Quality management can be divided into four categories:

Plan

Do

Check

Act

Also referred to as PDCA cycle.

Planning Phase

Planning is the most crucial phase of total quality management. In this phase employees have to come up with their
problems and queries which need to be addressed. They need to come up with the various challenges they face in
their day to day operations and also analyze the problems root cause. Employees are required to do necessary
research and collect relevant data which would help them find solutions to all the problems.
Doing Phase
In the doing phase, employees develop a solution for the problems defined in planning phase. Strategies are devised
and implemented to overcome the challenges faced by employees. The effectiveness of solutions and strategies is
also measured in this stage.
Checking Phase
Checking phase is the stage where people actually do a comparison analysis of before and after data to confirm the
effectiveness of the processes and measure the results.
Acting Phase
In this phase employees document their results and prepare themselves to address other problems.
Total quality management can be summarized as a management system for a customer-focused organization that
involves all employees in continual improvement. It uses strategy, data, effective communications and involvment
of all level employeess to integrate the quality discipline into the culture and activities of the organization.
Customer-focused. The customer ultimately determines the level of quality. No matter what an
organization does to foster quality improvementtraining employees, integrating quality into the design
process, upgrading computers or software, or buying new measuring toolsthe customer determines
whether the efforts were worthwhile.
Total employee involvement. All employees participate in working toward common goals. Total
employee commitment can only be obtained after fear has been driven from the workplace, when
empowerment has occurred, and management has provided the proper environment. High-performance
work systems integrate continuous improvement efforts with normal business operations. Self-managed
work teams are one form of empowerment.
Process-centered. A fundamental part of TQM is a focus on process thinking. A process is a series of
steps that take inputs from suppliers (internal or external) and transforms them into outputs that are
delivered to customers (again, either internal or external). The steps required to carry out the process are
defined, and performance measures are continuously monitored in order to detect unexpected variation.
Integrated system. Although an organization may consist of many different functional specialties often
organized into vertically structured departments, it is the horizontal processes interconnecting these
functions that are the focus of TQM. Micro-processes add up to larger processes, and all processes
aggregate into the business processes required for defining and implementing strategy. Everyone must
understand the vision, mission, and guiding principles as well as the quality policies, objectives, and critical
processes of the organization. Business performance must be monitored and communicated continuously.
An integrated business system may be modeled after the Baldrige National Quality Program criteria and/or
incorporate the ISO 9000 standards. Every organization has a unique work culture, and it is virtually
impossible to achieve excellence in its products and services unless a good quality culture has been

fostered. Thus, an integrated system connects business improvement elements in an attempt to continually
improve and exceed the expectations of customers, employees, and other stakeholders.
Strategic and systematic approach. A critical part of the management of quality is the strategic and
systematic approach to achieving an organizations vision, mission, and goals. This process, called strategic
planning or strategic management, includes the formulation of a strategic plan that integrates quality as a
core component.
Continual improvement. A major thrust of TQM is continual process improvement. Continual
improvement drives an organization to be both analytical and creative in finding ways to become more
competitive and more effective at meeting stakeholder expectations.
Fact-based decision making. In order to know how well an organization is performing, data on
performance measures are necessary. TQM requires that an organization continually collect and analyze
data in order to improve decision making accuracy, achieve consensus, and allow prediction based on past
history.
Communications. During times of organizational change, as well as part of day-to-day operation,
effective communications plays a large part in maintaining morale and in motivating employees at all
levels. Communications involve strategies, method, and timeliness.
These elements are considered so essential to TQM that many organizations define them, in some format, as a set of
core values and principles on which the organization is to operate.
Check out Implementing Total Quality Management to learn how each of these essential Primary Elements come
together to form the foundation of a successful TQM implementation.