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MASTER OF BUSINESS ADMINISTRATION

(INDUSTRY INTEGRATED)

RAMAIAH INSTITUTE OF MANAGEMENT SCIENCES

TWO YEAR FULL TIME INDUSTRY INTEGRATED


M.B.A PROGRAMME

SELF LEARNING MATERIAL

PRINCIPLES OF MANAGEMENT

Detailed Curriculum

Annamalai University Courses


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Unit- I Management and Organization


Chpater -1. Introduction
1. Introduction
Modern societies are often described as societies of organizations. When
we think of any modern society, institutions like business enterprises,
hospitals, religious and social organizations naturally come to our mind.
All these organizations affect our lives in many ways. Despite the
differences in their functioning and approaches, they all strive to the
differences in their functioning and approaches, they all strive to achieve
certain objectives. It must also be noted that organizations cannot
achieve the objectives effortlessly. Several activities have to be performed
in a cohesive way. As such, it is the function of the management to
facilitate the performance of activities in a systematic fashion such that
the accomplishment of the objectives becomes possible
2. Objectives
After studying this lesson, you should be able to:

Understand the nature of management:

Familiarize with the basic managerial functions:

Describe the levels in management : and

Acquire an in depth knowledge of the skills required of a manager


3. Content
WHAT IS MANAGEMENT?
Management means many things to many people. Economists regard it as a factor
of production. Sociologists see it as a class or group of persons while practitioners of
management treat it as a process. In simple terms, management is what a manager
does. It has been called by Mary Parker Follet: the art of getting things done through
people. This definition throws light on the fact that managers achieve organisational
goals by arranging others to perform rather than performing the tasks themselves.
Management, in fact, is much more that no one single definition has been
universally accepted. Nor can any one definition capture all the facets of management,
given its dynamic nature.

That is why, it is often said that there are as many

definitions of management as there are authors in the field. However, the definition
given by James A.F. Stoner encompasses all the import6ant facets of management.
According to him.
Management is the process of planning organizing, leading and controlling the
efforts of organisation members and of using all other organisational resources to
achieve stated organisational goals. This definition suggests:

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Management is a process because all managers irrespective of their level in the


organisation, engage in certain interrelated activities in order to achieve the
desired goals;

Managers use all the resources of the organisation, both physical as well as
human;

Management aims at achieving the organizations goals.

To achieve the objectives, every organisation uses certain inputs like materials,
machinery, money and the services of men.

These inputs like are drawn form the

environment in which the organisation exists. Whether an organisation is engaged in


business or non-business, the various inputs are judiciously used to produce the
outlays. This process which involves the conversion of inputs into outputs is common
to all organizations and is shown in exhibit 1.

EXHIBIT 1
INPUT OUTPUT MODEL

INPUTS

TRANSFORMATION PROCESS

OUTPUTS

EXTERNAL ENVIRONMENT

The output of the firm may be a physical product or service. Since a business
organisation is an economic entity, the justification for its existence lies in producing
goods and services that satisfy the needs of the people. Here arises the question of
effectiveness in transforming the inputs matter of concern for any society, given the
scarcity of resources. Effective management plays a crucial role in this context.
NATURE OF MANAGEMENT
Inspite of the growing importance of management as an academic discipline
immensely contributing to the quality of human life, the concept is still clouded by
certain misconceptions. No doubt, management as an academic body of knowledge has
come a long way in the last few years. It has grown in stature and gained acceptance
all over the world. Yet, it is a paradox that the term management continues to be the
most misunderstood and misused. Scare
Management as a Science
It is therefore relevant to examine the exact nature of management whether it is a
science or an art. Before arriving at a conclusion, let us understand the nature of
science as well as art. Any branch of knowledge to be considered as science, (like the

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ones we have physics, chemistry, engineering, etc.) should fulfill the following
conditions.

the existence of a systematic body of knowledge encompassing a wide array of


principles;

the principles have to be evolved on the basis of constant enquiry and


examination;

the principles must explain a phenomenon by establishing cause-effect


relationship;

the principles must explain a phenomenon by establish in cause-effect


relationship;

The Principles have to be amenable for verification.

management has emerged with its own principles. The application of these principles
helps any practicing manager to achieve the desired goals. However, while using the
principles, one should not lose sight of the variables in the situation, since situations
differ from one another.

Thus the importance of personal judgement cannot be

undermined in the application of principles.

Further, management is a dynamic

subject in that it has drawn heavily from economics. Psychology, sociology, engineering
and mathematics, to mention a few. It is multi-disciplinary in nature. But a word of
caution. Though management, considering its subject matter and the practical utility
may be considered as Science for reasons discussed below, it cannot be viewed as an
exact science. In is a science, but an inexact science because:

Management by definition involves getting the things done through people.


Compared to the other inputs, people, who constitute the human resource of
any organisation, are unique in respect of their aspirations, attitudes,
perceptions and the like. Dissimilarities in the behaviour patterns are so
obvious that standard results may not be obtained in otherwise similar
conditions.

Secondly, the behaviour of the human beings cannot be accurately predicted.


Hence ready made and standard solutions cannot be prescribed.

Thirdly, management is more concerned with future which is complex and


unpredictable. As the saying goes, many a slip between the cup and lip.
Many variables in the environment may affect the plans and render them
ineffective.

Lastly, since a business organisation exists in an environment, it has a twoway interaction with the environment.
The organisation influences the
environment by its several decisions and in turn, is influenced by the various
elements of the environment. Important among these are technological,
economic, socio-cultural and political factors. The whole thing is so complex
that however effective the plans are one is prone to be taken unaware of
unexpected changes in the environment.

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Unlike the pure or exact sciences where the results are accurate, in the Case of
Management, the various factors discussed above may force even the excellent plans
and strategies go haywire.

Too many complexities and uncertainties render

management an inexact science.


Management as an Art
Art refers to the know-how to accomplish a desired result. The focus is on the
ways of doing things.

As the saying goes practice makes a man perfect, constant

practice of the theoretical concepts (knowledge base) contributes for the formation of
skills. The skills can be acquired only through practice. In a way the attributes of
science and art are the two sides of a coin. Medicine, engineering, accountancy and
the like require skills on the practitioners and can only be acquired through practice.
Management is no exception.

As a university gold medalist in surgery may not

necessarily turn out to be a good surgeon, graduate from the best of the institutes may
not be very effective in practice. In both the cases the application of the knowledge
acquired through formal education, requires ingenuity, correct understanding of the
variables in the situation, pragmatism and creativity in finding solutions to problems.
Effective practice of any art requires a thorough understanding of the science
understanding it.
complementary.

Thus science and art are not mutually exclusive, but are
Effectives

who

attempt

to

manage

without

the

conceptual

understanding of the management principles and techniques have to depend on luck


and intuition.

With organized knowledge and the necessary skills to use such

knowledge, they have a better chance to succeed. Therefore, it may be concluded that
management is both a science and an art.
Management as a profession
Another important dimension of the nature of management is whether it is a
profession. McFarland gives the following characteristics of a profession:

Existence of an organized and systematic body of knowledge.

formalized methods of acquiring knowledge and skills;

existence of an apex level body with professionalization as its goal;

existence of an ethical code to regulate the behaviour of the members of the


profession;

charging of fees based on service; and wore

A concern for the social responsibilities.

Management as a profession does not strictly conform to the above criterion.


Unlike medicine or law, management has to go a long way to have a universally
acceptable norm of behaviour. There is no uniform code of conduct that governs the
behaviour of managers. The apex level body, All India Management Association (AIMA)
provides only guidelines and does not have any controlling power over the erring
members. Vast differences are also found among managers in respect of their concern

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for the ethics and values of the system in which they function. Many a time, in their
obsession with profit, the societal interests are neglected. However, as in the case of
other professions, if is implied that managers are expected to set an example in doing
good to the society.

After all, given the enormous resources they have at their

command, the expectation that managers should address themselves to the problems
of society is not unnatural.
Compared to other professions like engineering, medicine, accountancy, etc., the
entry to management positions is not restricted to individuals with a special degree. To
quote Peter Drucker, no greater damage could be done to an economy or to any society
than to attempt to professionalize management by licensing managers, for instance, or
by licensing managers, for instance, or by limiting access to management to people with
a special academic degree.
The question whether management is a profession often breathes life into the
widely debated issue whether managers are born or made.

It is true that many

founding fathers of the industry in India and elsewhere too, did not study management
in the formal way.

The native wisdom coupled with their vision and ingenuity in

organizing the enterprises helped them earn name and fame. Huge industrial empires
were built with sheer business acumen. Business history of any nation is fully replete
with many rags-to-riches stories. The success achieved by the pioneers in these cases
amply demonstrates that success in business requires much more than the academic
degree.
The achievements of the pioneers of the industrial development need not, however,
shadow the importance of management as a profession. In arguing for and against, we
must not ignore the context of the business. There has been a sea change in the
environment of the business. Modern business has become more complex due to the
uncertainties arising mainly from:

rapid technological changes

increased sophistication in technology

Expansion in the size of organizations and consequently the markets.

All these variables which have a significant bearing on the functioning of a


business point to the need for formal training and acquisition of skills in
management by pursuing management education.
Professionalization of Management in India
In the last few years, management as a profession has gained a firm footing in
India. The awareness about the contributions of professional managers has been
increasing. Consequently, there has been a manifold increase in the number of
institutes offering MBA and related diploma courses. There has also been a
phenomenal increase in the number of students seeking admission into the
management programmes.

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The following factors seem to be mainly responsible for the growing demand for
professional managers:

The liberalization policies pursued by the government opened up new vistas for
the Indian organizations;

As a consequence, competition has increased in all the sectors of Indian


economy:

Private industrial houses which were indifferent before, have fully realized the
need for professional managers. While the promoters in many cases reserve the
policy formulation for themselves, the day-to-day managerial activities are
entrusted to the professional managers.

Public sector undertakings are also. Of late, forced to perform. As a result,


qualified managers are sought after by PSUs than ever before.

Apart from the manufacturing concerns, public utilities like transport,


telecommunications, and a host of service organizations are recruiting
professional managers in a big way.

FUNCTIONS OF MANAGEMENT
Management is widely regarded as a process. A manager no matter what his level
is in the organisation performs a series of functions. Surprisingly, there is no
consensus among the management thinkers on the classification of management
functions. The number of functions as well as the terminology used to describe them is
not alike. Henry Fayol identifies five functions, viz., planning, organizing, commanding,
coordinating and controlling. For instance, Newman and Summer recognize only four
functions, namely organizing, planning, leading and controlling. Luther Gulics popular
catch word POSDCORB suggests seven functions, namely, planning; organizing,
staffing, directing, coordinating, reporting and budgeting, Koontz and ODonnell
classify the functions into planning, organizing, staffing, directing and controlling. For
the purpose of our study, we shall examine the following four functions of management
planning, organizing, leading and controlling.
Planning
Planning in simple is outlining a future curse of action. It is unique in that it
precedes all the other managerial functions. It attempts to

capture the future. It

involves deciding the objectives and formulating the policies and procedures to achieve
them. Effective planning provides answers to questions like-what to do? How to do?
Who is to do> and when to do?
Planning is a function performed by managers at all levels. However, plan made by
top managers have a wider scope with a focus on the organisation as a whole and
normally cover a longer period. On the other hand. Plans developed by middle and
lower level managers relate to the divisions or departments and usually cover a short
period. Systematic planning helps in facing the uncertainties of future with less
embarrassment. It helps in making things happen in the expected way.

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Organizing
Organizations achieve objectives by using physical and human resources. When
people work in groups, every one in the group should know what he is expected to
achieve and what reporting relationship he has with others. The managers task in
organizing aims at creating a structure that facilitates the achievement of goals.
Organizing involves:
determination of activities required to achieve goals; - grouping of these
activities into department:
assignment of such groups of activities to a manager;
delegation of authority to carry them out: and
Provision for coordination horizontally and vertically in the organisation.
It must be remembered that the structure varies with the task. A large
organisation with huge markets needs a different structure compared to a small
organisation. Similarly, structure of an organisation operating in a stable environment
may be different from the one operating in a dynamic environment. The way one goes
about in organizing the affairs of the organisation, is thus influenced by the size and
nature of the activities involved, the type of environment, and the overall business
strategy.
Leading
Once plans are finalized and the structure of the organisation is determined, the
next step is to help the people achieve the objectives. This involves directing or leading
the activities of the people. The manager directs the achieve of his subordinates by
explaining what they have to do and by helping them perform it to the best of their
ability. In leading the people, the manager performs the following three distinct tasks;
listening
Communication

the process of passing information from


one person to another:

Leadership

the process by which a manager guides


and

influences

the

work

of

his

subordinates; and
Motivation

the act of stimulating the people so that


they give their best to the organisation

Leading is a function predominantly interpersonal in nature. In the organisational


context many problems arise because of the failure of managers to understand the
people, their aspirations, attitudes, behaviour as individuals and in groups.

If the

manager fails in leading the people towards better performance, any amount of
planning and organizing, however effective they are, may not help the organisation.
Controlling

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While plans of the organisation spell out the objectives to be achieved, control as a
managerial function facilitates to know whether the actual performance is in
conformity with the planned one.

So that, in the event of deviations, appropriated

corrective measures can be taken.

In the absence of adequate control mechanism.

Unexpected changes in the environment may push the organisation off the track.
Thus, controlling implies measuring and correcting the activities to assure that events
conform to plans. It involves four main elements:

Establishing standards of performance;

Measuring the actual performance and comparing it against the standard


performance:

Detecting deviations, if any in order to make corrections before it is too late;


and

Taking appropriate corrective measures.

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MANAGEMENT LEVELS
Though the term manager is used to mean anyone who gets the things done
through other people, we find the managers in any organisation with varying authority
and responsibilities. In any company the total management job requires many skills
and talents. Obviously, therefore, the job of manager is divided and subdivided. Such
an arrangement implies different levels of management. As a matter of custom and
convenience, we normally visualize a companys management as a pyramid as shown in
Exhibit. 2.
EXHIBIT - 2
LEVELS OF MANAGEMENT

TOP LEVEL MANAGEMENT

MIDDLE LEVEL MANAGEMENT


FRONT-LINE / SUPERVISORY MANAGEMENT

The three levels of management that are commonly found in any organisation are
lower or front-line, middle and top managers.
Front-Line Managers
This is the entry level job in the management. Managers at this level direct the
operating employees (workers).

They are close to the action, for their job involves

supervising the activities of operatives.

Front-Line managers are called foreman,

supervisor, and inspector and so on in any organisation.


Middle Level Managers
Middle management level includes, in many organizations, more than one level.
Managers who work at all the levels between the lower and top levels constitute the
middle management. Departmental heads. Regional managers, Zonal managers and
so on fall in this category. They report to top managers. Their principal responsibilities
are to direct the activities of lower level managers who implement the organisations
policies.
Top level Managers
This level consists of a small group of executives. Board of Directors, Chairman,
Managing Director and the top functional heads and divisional managers comprise this
level. Top managers are responsible for the overall management of the organisation.
They decide the enterprise objectives, policies and strategies to be pursued to achieve

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those objectives.

They provide direction to the organisation by guiding the

organisations interactions with its environment.


MANAGERIAL SKILLS
Management job is different from other jobs. It requires elements of stewardship
and commitment to the purpose.

It involves the obligation to make prudent use of

human and material resources. It requires resourcefulness and capacity for judgement
to handle complex situations.

Further, the nature of the job becomes increasingly

complex at each higher level because of the increase in the scope of authority and
responsibility.

Therefore, each higher level requires increased knowledge, broader

perspective and greater skills.


For purpose of analysis, skills required of any manager are classified under three
different heads technical, human (Employee relations skill) and conceptual skill as
shown in exhibit 3. The exhibit helps in understanding the levels of management
responsibility, the principal skill requirements, and the extent to which each kind of
skill is required at each level.
EXHIBIT - 3
MANAGEMENT LEVELS AND SKILLS

TOP MANAGEMENT

MIDDLE MANAGEMENT

LOW MANAGEMENT

TECHNICAL SKILL

HUMAN SKILL

CONCEPTUAL
& DESIGN
SKILL

Technical skill
Technical skill is the ability to use the procedures, techniques, and knowledge of a
specialised field. It is primarily concerned with the ways of doing the things. It implies
proficiency in a specific field of activity. Technical skill is most important for the lower
level managers because by nature their job involves supervision of the workers.
Effective supervision and coordination of the work of the subordinates, therefore,
depends on the technical skill possessed by the lower level manager. Any supervisor
without a sound knowledge of the job cannot make an effective supervisor.
supervisors are not respected by the subordinates at the shop floor.

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Such

The relative

importance of the technical skill as compared to the other skills diminishes as one
move up to higher levels of management.
Human skill
Human skill is the ability of the manager to work effectively as a group member
and to build cooperative effort in the team he leads.

It is the ability to work with,

understand and motivate people. This skill is primarily concerned with persons, as
contrasted with things. When a man is highly skilled in employee relations, he is
aware of his own attitudes, assumptions, and beliefs and recognizes their limitations as
well as their usefulness.

He accepts as an important fact of life the existence of

viewpoints and feelings different from his own. He understands why people behave as
they do and is able to make his own behavior understandable to them. He can foresee
their reactions to possible courses of action and, is able to take their attitudes into
account. His skill in working with others is natural and continuous. He does not apply
it in random or in inconsistent fashion. It is a natural ingredient of his every action.
Conceptual skill angel
This skill is also called design and problem solving skill. It involves the ability

to see the organisation as a whole;

to understand how its various parts and functions mesh together; and

To foresee how changes in any one of these may affect all the others.

Conceptual skill extends to visualising the relation of the organisation to industry, to


the community and to the political, economic and social forces of the nation as a whole
and even to forces which operate beyond the national boundaries. It is the creative
force within the organisation. A high degree of conceptual skill helps in analysing the
environment and in identifying the opportunities and threats.

Managements of

companies like ITC, Larsen & Toubro, Asian Paints, Bajaj Auto in the private sector and
National Dairy Development Board in the public sector, to mention a few, have amply
demonstrated this skill in gaining a competitive edge over their competitors.
All the three types of skills discussed so far are not mutually exclusive. In other
words, management job always requires all the three skills but in different proportions
depending upon the level of management. There is a gradual shift in the emphasis
from the bottom to the top of the pyramid. Technical skill and human skill are always
in the top of the pyramid.

Technical skill and human skill are always in greater

demand at the base of the pyramid, for it is there the productive processes and
operations are carried out. It is there where you and most of the people. It is there
where the action takes place. The need for conceptual skill is greatest at the peak of
the pyramid.

Obviously, the top managers are not often involved in the direct

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application of specific methods, procedures and techniques than those at the lower
echelons of management.
Although, each of these skills is needed in some degree at every level of
management, there are successful executives who have no great amount of technical
skills. But they are able to compensate the lack of that skill through superior creative
ability and skill in selecting, planting and effectively motivating subordinates who are
strong in technical skill.
As you have understood by now, at every level, management job is different from
all other jobs in respect of the skills required. At the entry level into the management
job, that is, at the supervisory level, besides technical skills, you have to realise the
need to acquire human skill and the problem solving skills (conceptual). To climb up
the organisational ladder, you must not only be good at the skills required for the
present job, but also learn and acquaint yourself the skills required at the next level.
As a result, in the event of promotion to the next higher level, you would feel at home
and discharge the responsibilities with ease.
Organizations engaged in business or non-business use the inputs to produce the
output (may be products or service). The conversion of inputs into outputs depends on
the effectiveness of management. Management as a discipline has both the elements of
science and art. The theory with principles and techniques constitute the science and
art. The theory with principles and techniques constitute the science component, while
skills and talent required for the use of the principles constitute the art. Management
has, of late, emerged as highly respected profession. The process of management is
understood under the four basic functions, viz., planning, organizing, leading and
controlling. To execute the managerial job successfully, every manager requires three
types of skills technical, human and conceptual skills. The proportion in which these
skills are required varies from one level to the other. Technical skills are important at
the lower while human skills and conceptual skills are required in that order at higher
levels of management.

4. Revision points
o

The nature of management:

The basic managerial functions

o The levels in management


5. Intext questions
Discuss the important functions of management.
Is management a Science (or) art?

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Comment on the nature of management.

6. Summary
Organizations engaged in business or non-business use the inputs to produce
the output (may be products or service). The conversion of inputs into outputs
depends on the effectiveness of management. Management as a discipline has
both the elements of science and art. The theory with principles and techniques
constitute the science and art.

The theory with principles and techniques

constitute the science component, while skills and talent required for the use of
the principles constitute the art. Management has, of late, emerged as highly
respected profession. The process of management is understood under the four
basic functions, viz., planning, organizing, leading and controlling. To execute
the managerial job successfully, every manager requires three types of skills
technical, human and conceptual skills. The proportion in which these skills
are required varies from one level to the other. Technical skills are important at
the lower while human skills and conceptual skills are required in that order at
higher levels of management.

7. Terminal exercises
1.

What do you mean by a profession? Examine the recent trends towards


professionalization of management in India.

2.

Present a detailed account of the levels of management that are commonly


found in any large scale organization. What are the important skills at
each level?
8. Supplementary materials

Drucker, Peter F., 1981. Management Tasks, Responsibilities and Practices,


Allied publishers: New Delhi
Hodgets, Richard M., 1986.

Management Theory: Process and Practice,

Academic Press, London.


9. Assignments
Role play on importance of planning
10. Suggested readings:
Drucker, Peter F., 1981. Management Tasks, Responsibilities and
Practices,

Allied publishers: New Delhi

Hodgets, Richard M., 1986. Management Theory: Process and Practice,


Academic Press, London.

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11. Learning activities:


Role play on conceptual skills
12. Key words
Management: getting things done through and with the people.

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Chapter 2 : Planning
1. Introduction:
Most of us plan many things in our day to day lives. We plan to go on a holiday
trip, plan our careers, and plan our investment and so on.

Organizations are no

exception and lot of planning is done by managers at all levels. Thus individuals and
organizations both need to plan.

Planning is the basic process by which we use to

select our goals and determine the means to achieve them. Lot of information has to be
gathered and processed before a plan is formulated. In other words, a plan is like a
jigsaw puzzle. All the pieces have to be put together properly, so that they make sense.
Planning is necessarily forward looking. It is looking into the further. It bridges
the gap between where we are and where we want to go.

Let us look at what the

following observations suggest about planning.

Planning is outlining a further course of action in order to achieve on


objective.

Planning is looking ahead

Planning is getting ready to do something tomorrow

Plan is a trap laid down to capture the future

2. Objectives
After studying this lesson, you should be able to:

Understand the nature and purpose of planning;

Acquaint with the important principles of planning; and

Describe the basic steps in planning;


3. Content
PURPOSE OF PLANNING
Needless to say that in the absence of planning, events is left to change. As a
manager, in such a case, you are depending on luck.

You may, as a result, in all

probability, end up in chaos. Organisations often fail not because of lack of resources,
but because of poor planning. The following factors further highlight the importance of
planning.
To achieve objectives
While developing a plan, you have to ask yourself a few questions:

Why am I making this plan?

What am I trying to accomplish?

What resources do I need to execute the plan?

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These questions, obviously, force you to be clear about the objectives, the time
frame required to achieve them and the resources required. It forces you to visualize
the further in an organized manner.
The saying that when a man doesnt know what harbour he is making for, no
wind is the right wind is quite appropriate in the case of planning.

Systematic

planning, thus, starts with a clear statement of objectives. All the important inputs
necessary to achieve the objectives are carefully thought of including the uncertainties
of the future.
To make the things happen
Effective manager is rather pro-active. He takes the initiative to make the things
happen in the desired way. In any modern business, the interests of many people are
at stake. The shareholders, employees, creditors, consumers and the government are
the major interest groups in any organisation. Further, the interests and expectations
of all these groups are varied and at times are in conflict. If the management fails to
achieve, the interest of these groups are affected and the whole exercise results in
heart-burns. As a result, you will be forced to indulge in fire-fighting activity.
Therefore, your job, as a manager, is to fore see the future and predict the
consequences of actions. In other words, you have to look down the road into future
and prepare yourself to meet the uncertainties and the eventualities a head. A well
thought out plan solves many of the problems associated with the uncertain future.
To cope with change
Both human beings and organizations are products of environment. The ability to
deal with the environment enabled many an organisation to survive, despite other
weaknesses. Alert managements continually tune in to the environmental forces. On
the other hand, managements which fail to adapt would eventually fall on the way side.
Therefore, in the managerial job, you have to constantly analyse the impending changes
in the environment and assess their impact on your business.
For instance, business environment in 1990s totally different from that of 1970s
and 1980s.

The liberalization policies pursued by the government have, of late,

brought in too many changes.

Markets are shifting due to increased competition,

pressure on the resources is increasing, expectations of the employees as well as the


consumers are changing, and product life-cycles are becoming shorter due to rapid
technological changes.

All these changes exert a tremendous pressure on the

management.
Certain changes will throw open new opportunities while certain others affect the
very survival.

If you are not prepared, you will definitely be in trouble.

Since

environmental scanning is an important element in planning, plans are normally


formulated on the basis of a thorough analysis of the environment.

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Necessary

flexibility is built in the plans to meet the unexpected changes. Effective planning thus
shows the preparedness of the organisation to manage the change.

It helps the

organisation to keep itself afloat even in the worst circumstances.


To control the events
Planning and control are often described as the Siamese twins of management.
When you plan the events, you expect them to happen in a particular way. Therefore, it
goes without saying that you need some mechanisms to know whether the events are
happening in the way expected. Planning is important in that it provides the necessary
yardsticks to measure the performance.

It ensures the events to conform to plans.

Thus, if you do not plan (no clear objectives), you do not know whether you are
reaching the goal or not.

You do not know what to control.

Control assumes

significance in a dynamic environment as of today, where several forces push you away
from the desired path. Appropriate control devices help you to check the course from
time to time so that you will be able to keep yourself onto the track.
PRINCIPLES OF PLANNING
Effectiveness in planning depends on the understanding of the following
principles.

They are relevant to planning the activities of any organisation whether

business or non-business. A thorough understanding of the principles underlying the


planning, therefore, would enable you to guard yourself against the possible mistakes
that are often committed by many managers.
Take time to plan
Any plan is a decision regarding a future course of action.
sequence of events to be performed.

It specifies the

It involves the commitment of organisational

resources in a particular way. Therefore, if the plan is not conceived well, the resources
would be put to wrong use. It becomes a wasteful exercise resulting in frustration.
Hence utmost care has to be exercised in formulating the plans.
questions have to be asked.

Several probing

Planning in haste with incorrect information, unsound

assumptions and inadequate analysis of the environment has to be avoided by all


means. Otherwise, you may save some time in quickly developing a plan, but in the
event of things going wrong, you are hard pressed for time and resources to correct
yourself.
Planning can be top down and bottom up
Normally in any organisation overall enterprise plans are developed by the top
management. These plans are wider in scope and provide the direction to the whole
organisation. They spell out what the organisation wants to achieve. The overall plan
thus formulated by the top management is split into departmental plans. Accordingly,
plans for production, marketing, finance, personnel and so on, stem from the basic

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plan of the organisation.

The other operational plans at various levels down the

organisation flow from the departmental plans.

This approach is called top-down

approach to planning.
On the other hand, proponents of bottom up approach argue that top
management needs information from lower level - that is, about the realities at the
ground level in terms of strengths and weaknesses. In this approach, the initiative for
planning comes from the lower levels in the organisation. This approach makes use of
the rich experience of the subordinates who are close to the action. It also helps to
motivate the people and elicit commitment from them.

The choice of the method

depends on the size of the organisation, the organisational culture, the preferred
leadership style of the executive and the urgency of the plan.
Involve and communicate with all those concerned
Operations in modern business organizations

are

highly

interrelated.

Organisational plans affect many departments in the enterprise. For instance, a plan
to improve the quality of the products (Quality control plan) may require the
cooperation of the people in the production, finance, marketing departments and so on.
It is, therefore, desirable to involve the concerned people in these departments. Such
participation helps in instilling a sense of commitment among the people. They also in
turn gain a sense of pride for having been a party in deciding the plan.
involvement makes possible the process of sharing information.

Such an

If plans are not

communicated to all those affected by them, there may be unnecessary gaps in the
execution.
Plans must be flexible and dynamic
You would be very happy as a manager if there are no unexpected changes in the
environment. Day in and day out, you are confronted with too many problems. Most of
such problems are caused by unexpected events in the environment. A plan is rigid if
there is less scope for a change in its course. In a static environment, of course, there
may not be a problem with a rigid plan. But in a dynamic environment, to meet the
unexpected changes, adequate flexibility has to be built into a plan. Otherwise, the
plan itself becomes a limiting factor.
Evaluate and revise
Evaluation of the plan at regular intervals is necessary to make sure that it is
contributing to the objectives. Like a navigator, who in the high seas checks the course
to make sure that he is sailing in the right direction, the manager has to, from time to
time look back and evaluate the plan.

Such an exercise enables to initiate the

corrective measure at the right time before it is too late. This depends on the accuracy
of the information systems in the organisation through which information reaches the
management.

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STEPS IN PLANNING
The process of planning may be understood as having the following steps:
Establish goals
Planning begins with decisions about what the organisation wants to achieve over
a period of time.

The goals of an organisation and its various subunits have to be

decided and spelt out in clear terms.

It is always desirable to express the goals in

quantitative terms for all the key areas of the business like production, profit,
productivity, market share, employee relations, social responsibilities, etc. For instance,
instead of saying that the objective of business is to achieve a fair rate of return on the
investment, it may be given a quantitative expression, say, 10 or 15 percent return on
the investment. Specific goals enable the organizations to use the resources effectively.
Since goal setting is the essential first step in planning, managers who fail to set
meaningful goals will be unable to make effective plans. If Bajaj Auto is able to retain
its prominence in the two wheeler industry (Scooter segment), it is because all the
employees of the organisation know clearly that the primary objective is retaining the
leadership in the industry.
An awareness of the opportunities and their evaluation in the light of the
organisational strengths and weaknesses is essential to set the goals in a realistic way.
The mission of the organisation, the corporate values, experience, and policies of other
enterprises, observation and data secured from research and experiences provide
adequate guidance to the managers in goal setting.
Establish planning premises
Since plans operate in the future, it is imperative to make certain assumptions
about the future.

This act is called premising.

Planning assumptions or premises

provide the basic framework in which plans operate. Appropriate assumptions have to
be made on various aspects of the environment both internal and external to the
organisation.
i. Internal premises
Important internal premises include sales forecasts, policies of the organisation,
skills, attitudes and beliefs of the people, the resources of the organisation.
ii. External premises
Important external premises relate to all those factors in the environment outside
the organisation.

They include technological changes, general economic conditions,

government policies and attitude towards business, demographic trends, socio-cultural


changes in the society, political stability, production costs and their behaviour, degree
of competition in the market, availability of various resources and so on.
It is evident that some of these premises are tangible while others are intangible.
For example, resources, availability, etc. are tangible factors which can be stated in
quantitative terms. On the other hand factors like political stability, attitudes of the

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people, certain of the sociological factors are intangible in that they cannot be
measured quantitatively.
Effective

premising

the

market

of

appropriate

assumptions

helps

the

organisation to identify the favourable and unfavourable elements in the environment.


Though accurate premising is difficult, anticipating future situations, problems and
opportunities to the extent possible is an essential part of planning.
Decide the planning period
How far in the future should a plan be made is another pertinent questions in the
process of planning. Businesses vary in their planning periods. In some cases plans
are made for a short period, varying from a few months to a year, while in some other
cases, they are made to cover a longer period, to cover a period of more than a year.
The period may extend upto 5-20 years and even beyond. Companies normally plan for
a period that can be reasonably anticipated. The lead time involved in the development
and commercialization of the product and time required to recover the capital
investment (pay-back period) influence the choice of the length of the plan.
Develop alternatives and select the course of action
The next logical step in planning involves the development of various alternative
courses of action, evaluating these alternatives and choosing the most suitable
alternatives. Objectives may be achieved by different courses of action (alternatives).
For example, technical know-how may be developed by in-house research, collaboration
with a foreign company or by trying up with a research laboratory. Technical feasibility,
economic viability and the impact on the society are the general thumb rules to select
the course of action. The alternative courses are evaluated in the light of the premises
and the overall goals of the organisation.
Derivative plans
The plan thus decided after a thorough analysis of various alternatives suggests
the proposed course of action.

To make it operational, it has to be split into

departmental plans. Plans for the various operational units within the departments
also have to be formulated. The plans thus developed for the various levels down the
organisation are called derivative plans.

For instance, production and marketing of

10,000 units of a product and thus achieving a return of 10 percent on the investment
may be the enterprises plan relevant for the whole organisation. Its effective execution
is possible only when specific plans are finalized for the various departments like
production, marketing, finance, personnel and so on with clear-cut objectives to be
pursued by these departments.
Review periodically
Success of the plan is measured by the results and the ease with which it is
implemented.

Therefore, provision for adequate follow-up to determine compliance

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should be included in the planning work. To make sure that the plan is contributing
for the results, its review at regular intervals is essential. Such a review helps in taking
corrective action. If necessary, when the plan is in force.
It is an irony that at times even the best of the plans may flounder inspite of
careful analysis and mental commitment. So as to avoid the pitfalls in planning make
sure of the following:

Set realization and achievable goals;

Communicate the assumptions on which plans are formulated to all the people
and departments concerned;

encourage and make people participate in the planning programme so as to


ensure the right commitment;

ensure proper coordination between the short-term and along-term plans.


They should not be viewed as mutually exclusive;

encourage creativity in planning.

Creativity helps in identifying the best

alternatives; and

pay attention to the resources position of the organisation so as to ensure the


availability as and when required.

4. Revision points
Purpose of Planning

To achieve objectives

To make the things happen

To cope with change

To control the events

Principles of planning

Take time to plan

Planning can be top down and bottom up

Involve and communicate to all those concerned

Plans must be flexible and dynamic

Evaluate and revise

Steps in planning

Establish goals

Establish planning premises

Decide the planning period

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Develop a course of action

Develop derivative plans

Review periodically

5. Intext questions
What are the characteristics of planning?
Describe the important steps in the formal planning process.
What are the features of good plan?
What are the benefits and limitations of planning?

6. Summary
Planning is the most fundamental responsibility of a manager. Planning is
deciding a future of action. It helps in setting the objectives, to make the
events happen, coping with the change and to control the events. Effective
planning is a process and involves a few logical steps. The process includes
goal setting, promising, identification of the alternative courses of action and
selection of a course of action after a vigorous analysis of the pros and cons.
However, successful implementation and achievement of results depend on
the degree of participation and commitment of the people of various levels in
the planning exercise, in the absence of which plans would remain as
wishful statements.

7. Terminal exercises

What are the characteristics of planning?

Describe the important steps in the formal planning process.


o

What are the features of good plan?

What are the benefits and limitations of planning?

8. Supplementary material
Dale, Ernest. 1973.

Management: Theory and Practice, McGraw-Hill,

Newyork.
Drucker, Peter F. 1974.

Management:

Tasks, Responsibilities, Practices,

Harper & Row, Newyork.


Koontz, Harold and Cyril ODonnell.

1976 Management: A system and

Contingency Analysis of Managerial Functions: McGraw-Hill Newyork.


9. Assignment s
Case
10. Suggested readings

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Dale, Ernest. 1973.

Management: Theory and Practice, McGraw-Hill,

Newyork.
Drucker, Peter F. 1974.

Management:

Tasks, Responsibilities, Practices,

Harper & Row, Newyork.


Koontz, Harold and Cyril ODonnell.

1976 Management: A system and

Contingency Analysis of Managerial Functions: McGraw-Hill Newyork.

11. Learning activities


Role play on planning
12. Key words
Planning; future course of action.

Chapter 3. Types of Plans


1. Introduction:
Planning is so pervasive in every organization that it touches very part or
segment of the organization. One common ingredient of all planning is
time the period in future that a plan covers. Based on the length of
time involved, plants are usually classified as strategic and operational
plans. Strategic plans are designed to meet the board objectives of the
organization to implement to mission that provides justification for the
organizations existence.

Operational plans provide details as to how

strategic plans will be accomplished.

We will first discuss strategic

planning the then proceed to operational planning.


2. Objectives
After studying this lesson, you should be able to:
Distinguish between strategic planning and operational planning.
Comprehend how strategic planning is useful for the organizations long-term
survival; and
The different types of plans that are formulated in organizations.
3. Content
STRATEGIC PLANNING

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The terms Corporate planning, long-range planning and strategic planning are
used synonymously by many authors.

Strategic planning has its origin in military

organizations where such planning envisaged a variety of contingencies that may arise
when large forces move into operation.

When viewed in this backdrop, strategic

planning in a business organisation envisages a comprehensive study of the various


external and internal parameters that affect a company in charting a course of action
to achieve the goals.
George Steiner has defined strategic planning as the process of determining the
major objectives of an organisation and the policies and strategies that will govern the
acquisition, use and disposition of resources to achieve those objectives.

Strategic

plans reflect the socio-economic purpose of the organisation and the values and
philosophy of the top management.

In simple, they relate the organisation to the

environment in which it operates by providing answers to the basic questions like:

Where are we now?

Where do we want to go? and

Why do we want to go?

They help the management in:

Coping effectively with future contingencies.

Providing an early opportunity to correct mistakes.

making decisions about the right things at the right time; and

Understanding what actions to take in order to shape the future as


desired.

Strategic planning has been in vogue in the west since long.

In India,

Multinational Corporation made a beginning in this direction. Other Indian companies


(private and public sector) have also realized the importance of strategic planning,
thanks to the changed realities in the last few years. As a result every company has
now begun to speak in terms of corporate mission, strategic planning and
organisational vision.

These have almost all become buzz words of the Indian

Corporate sectors in 1990s. Strategic planning serves the following two functions:
Anticipates future opportunities and threats
Business environment is changing so fast these days that a deliberate corporate
effort is called for to keep a tab on the broad spectrum over which changes occur. The
changes that occur may be precursors of future threats and opportunities.

The

investment in a large business enterprise today runs into hundreds of crores of rupees.
During this period many things may change. Take for instance, the case of the Tata
power company. They proposed a 500 MW power station in 1972. The proposal kept
shuttling between officialdom for 5 years before it was approved in 1977, but not before
the change of government.

The project went through so many hurdles and was

eventually commissioned in 1983, a full 11 years since it was mooted. In the meantime

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cost had escalated to nearly 3 times the original estimate. This case demonstrates the
need for close monitoring of the potential threats in the environment.
Just as threats can be reasonably anticipated so too can the opportunities. For
instance, when the crude oil prices where hiked in 1973, by the OPEC countries it
created havoc on petro-based industries. Automobile companies as a result were forced
to change to small fuel efficient cars. In this case, the threat was converted into an
excellent opportunity. Small car thus has become the fashion of the day. Similarly ITC
in India, continuously hounded by excise levels and taxes on their main product,
cigarettes had to think of diversification into hotels, paper, agro products and acquaculture - which ultimately turned out to be a God sent opportunity.
Provide Clarity of Purpose and Direction
With the overall increase in the size of companies, the internal departments
(production, marketing, finance, personnel etc.) have also become quite large.

With

growing specialization in each of these areas, these departments are prone to become
watertight compartment giving rise to inter-departmental rifts.
It is not unusual, for instance, for marketing department to ask the production
department to shorten their production runs to cater to demands of various models
which is normally resisted by the latter. Similarly, the design department may often
specify certain change in the product which may raise the cost of production.

The

finance department may try to block any measure that increases the cost of
production.
In such a situation, corporate objectives spelt out clearly help in smoothening out
some of the interdepartmental conflicts.

Thus, strategic planning provides unity of

purpose and direction, the much emphasized management principle.


The process of strategic planning in any organizations is similar to the general
planning process which has been discussed in Lesson 3.

However the emphasis on

strategic planning is more on long-term objectives, goals, purpose or mission, rather


than the day-to-day issues of management. The objective is to keep firm afloat in the
long-run in the light of the several unforeseen contingencies that lie ahead in future.
The following are the important steps in the process of strategic planning.

deciding the corporate mission and broad objectives;

gathering and analysis information;

conducting a resource audit (analysis of strength, weaknesses in the light


of the opportunities and threats);

identifying strategic alternatives; and

making the choice (selection of the right strategy)

The managers success lies in understanding the trends in the environment. The
trends contain signals and give clues about the potential opportunities and impending
threats. Many organizations have paid a heavy price for their failure to draw the right

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meanings from the signals.

Therefore what is required is the ability to read the

writing on the wall.


Take the case of the public sector giant, HMT which prided itself, for a long time
on its dominance in the Indian wrist watch market. The company was in an upbeat
mood and failed to understand the shift in the consumer preference towards the more
trendy, sleek quartz watches. In the meantime TITAN had entered the market with a
wide array of products and began to give HMT a run for its money. TITAN with its
innovative marketing strategies has, no doubt, changed the face of the Indian watch
market so much that HMT is infact struggling hard to face TITAN. This is only one of
the several examples of failures in strategic planning in the contemporary business
world.
Technological, economic, sociological and political changes in the environment are
so extensive and affect so many activities of an enterprise that is essential to keep their
effects in mind. Failure to read the changes and complacent attitude on the part of
management costs the firm dearly. There are numerous examples, where yesterdays
leaders have become todays non-entities solely because of their failure to adapt to the
changing realities.
OPERATIONAL PLANNING
While strategic planning is the prerogative of the top management which is the
highest policy making body in any organisation, operational planning is done at the
lower levels.

Strategic planning is mostly concerned with the Why of the things

whereas operational planning is concerned with the How of the things that is the
knitty gritty of achieving the things.
The focus in strategic planning is on long-term while it is short-term in operational
planning. Further, planning is less detailed in the former because it is not involved
with the day-to-day operations whereas it is more detailed in the latter.

Tactical

planning is the other name used to describe operational planning.


Strategic planning provides guidance and boundaries for operational management.
Effective management, therefore, must have a strategy and must operate on the day-today level to achieve it. At times both may overlap. However, they should not be viewed
as mutually exclusive because operational planning identifies the major activities to
achieve the objectives of strategic planning. For example, if the strategic plan is to face
competition with new and innovative products, major tasks to achieve this goal would
be clarified by operational planning.

The possible tasks at the operational level

include:

Strengthening the research and development department;

Motivating the people to work on new products; and

Creating a climate in the organisation where people are willing to take


risks.

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In the implementation of strategic plans, it is common that certain departments


have far more to do than others.

In the above example, in order to bring out new

products the operational aspects of the R & D departments work culture, and the
incentives systems to motivate the people need attention.
TYPES OF PLANS
Planning by definition involves deciding a future course of action. Different types
of plans are developed by an organisation, namely mission, strategies and policies,
Procedures, rules, programmes and budgets.

All these refer to a future course of

action. However, some variances in respect of the scope and operation are found in the
implementation.

Some are single-use plans while some others are standing plans.

They are discussed below:


Mission or purpose: The terms mission or purpose are often used interchangeably.
An organisations mission statement includes its philosophy and basic purpose for
which it exists. It establishes the values, beliefs, and guidelines that the organisation
holds in high esteem.

Mission statement suggests how an organisation is going to

conduct its business. It defines the basic intentions of the firm. A clear definition of
mission or purpose is necessary to formulate meaningful objectives.
Answers to two important questions are provided by the mission statement: what
is our business? And what should it be? These questions force the management to
define their customers and their needs.
The essence of corporate mission or purpose can be understood from the IBMs
philosophy, as enunciated by Thomas Watson, its founder way back in 1960s.

Respect for the individual;

We want to give the best customer service of any company in the world;
and

We believe that an organisation should pursue all tasks with the idea
that they can be accomplished in a superior fashion.

It is interesting to note that almost 30 years after Watson stated these three basis
beliefs, IMBs present chairman stated: We have changed our technology, changed our
organisation, changed our marketing and manufacturing techniques many times, and
we expect to go on changing. But through all this change, those three basic beliefs
remain. We steer our course by those stars.
Policies: Koontz and O Donnel define policy as a general statement or
understanding which guides the thinking and action in decision-making. Policy is a
one time decision.

When decisions are to be made, managers consult the policy

relevant to the decisions.

Policy stipulates how an activity has to be performed.

provides the basic framework within which managers operates.

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It

Policies exist at all

levels in the organisation. Some may be major company policies affecting the whole
organisation while others may be minor or derivative policies affecting the functioning
of departments or sections within the departments.
Policies may be very clear and explicit. Good policies are flexible, easy to interpret
and consistent with overall objectives of the organisation. Policies are laid down by the
management for all the important functional areas. As such, we hear about production
policies, financial policies, marketing policies and personnel policies, to mention a few.
For instance, in the personnel area, specific policies may be formulated for recruitment,
training, compensation, etc. Accordingly, whenever the need for recruitment arises, the
personnel manager consults the existing recruitment policy of the company and
initiates the steps necessary to fill the vacancies. Thus it is evident that the personnel
manager operates within the broad policy of the company in recruiting the people.
Thus policy is a one time standing decision that helps the manager in making day-today decisions in their operational areas.
Procedures: Another term that is frequently heard in any organisation in
procedures. The term sounds of some bureaucratic element where issues are finalized
only after they undergo a long drawn scrutiny.

But procedures, if simple and clear

would ensure order in the performance of operations. Though procedures exist at all
levels in an organisation, they are more detailed at the lower levels.

In common

parlance, they are called Standard Operating Procedures (SOPs).


Procedures for placing orders for material and equipment, for sanctioning different
types of employee leave, for handling grievances at the shop floor level, etc., to mention
a few, suggest how each of these has to be handled. Policies and procedures are closely
interrelated.

For instance, a company may follow time-bound promotion policy to

promote people from within. But the operational part of the policy is specified by the
procedure the formalities to be fulfilled to effect the promotion are dictated by the
procedure.
Rules: A rule is also a plan, but the simplest type of plan. Rules are plans in that
they suggest the required actions. A rule requires that a definite action has to be taken
in a particular way with respect to a situation. Some definiteness is associated with
rules. For examples, no smoking is a rule. No deviation is normally allowed from the
rule. The essence of a rule is that it reflects a managerial decision that certain actions
be taken or not be taken.
Rules should not be confused with policies and procedures. Policies contain some
operational way or discretion while rules allow no discretion in their application.
Similarly, procedures though different from rules may contain rules.

For example,

there may be a procedure to enable customer grievances in respect of post-sale service.

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The procedure may contain a rule that free service is available only for a period of two
years after the sale.

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Programmes: Terry and Franklin define programme as a comprehensive plan that


includes future use of different resources in an integrated pattern and establishes a
sequence of required actions and time schedules for each in order to achieve stated
objectives.

Thus, a programme includes objectives, policies, procedures, methods,

standards and budgets.

For instance, launching Prithvi satellite is

a programme

Jawahar Rojgar Yojana is a programme. The essential ingredients of any programme


are time phasing and budgeting. It implies that specific dates are prescribed for the
completion of various phases of a programme.

Adequate budgetary provisions are

made for financing the programme. Programmes may be major or minor. For instance,
a company may embark upon modernization programme of the plant and machinery
and other manufacturing systems in a big way. By all means such an effort is a major
programme. Similarly a large organisation may start computerizing all its activities.
On the other hand, modernization of small equipment in some section of the factory
and computerization of a particular operation in a certain department may be
considered as minor programmes.
Budgets: Budgets are plans in that they contain statements of expected results in
numerical terms.

A budget is a quantitative expression of a plan.

It specifies the

future course of action as laid down by a plan. In fact, budgeting is a planning device.
It is the fundamental planning instrument in many companies. Organisational budgets
vary in scope. Master budget which contains the consolidated plan of action of the
whole enterprise is in a way the translated version of the overall business plan of the
enterprise.

Similarly, production budget represents the plan of the production

department. Again, capital expenditure budget, raw material budget, labour budget,
etc. are a few minor budgets in the production department.
One of the advantages of budgets is they facilitate the comparison of actual results
with the planned ones by providing yardsticks for measuring performance. Zero-based
budgeting, a recent innovation in budgeting practices makes planning more complete.
It emphasizes the need to examine every commitment afresh in terms of decision
packages.

4. Revision points
Strategic Planning

Anticipates future opportunities and threats

Provides clarity of purpose and direction.

Operational Planning
Types of Plans

Missions or purpose

Policies

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Rules

Programmes

Budgets

5. Intext questions:
How does this problem relate to modern management planning?
Develop a set of tactical plans for the Fairdeal Company.
What solutions do you offer to overcome the present implies?
6. Summary
Any plan is a future course of action. It facilitates the achievement of
goals.

Different types of plans are formulated in any organisation.

Though all the plans, by whatever name they are called, involve a future
course of action, they differ in respect of the length of time, relative
importance and the level at which they are more relevant. Strategic plans
provide the direction to the organisation and concerned with the
achievement of organisational mission where as operational plans are
concerned with the day-to-day managerial activities. The various types of
plans namely, policies, procedures, rules, pogrammes and budgets plans
are also discussed.
7. Terminal exercises
How does this problem relate to modern management planning?
Develop a set of tactical plans for the Fairdeal Company.
What solutions do you offer to overcome the present implies?

8. Supplementary material
Briefly describe the following types of management plans :

a. Policies

b. Procedures

c. Programmes and

d.

Budget
Discuss elaborately various types of plans.
Distinguish between strategic planning and operational planning.

9. Assignment s
Present the business strategy of any organisation that you are familiar
with. Could you offer a better strategy?
The importance of strategic planning is now fully realized by the Indian
Corporate sector than before. Discuss.

10. Suggested readings:

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Chopra, BSKS.
Research

1988 Business policy for Indian Industries Times


Foundations, Pune.

Gleuck, William F. 1980 Business policy and strategic Management Mc.


Graw-

Hill New York.

Koontz, Harold and others, 1984 Management McGraw-Hill, Tokyo.


McCathay, Danil J, and others 1987 Business policy and strategy :
concepts

and readings, Richard D. Irwin Inc. Ithinosis.

11. Learning activities:


The importance of strategic planning is now fully realized by the Indian
Corporate sector than before. Discuss.
12. Key words:

Budgets: Budgets are plans in that they contain statements of


expected results in numerical terms.

Chapter 4 : organizational Theory


1. Introduction :
Organisations are made up of people. When people work together in
groups to achieve the goals, everyone in the group must know what
he is expected to do, with what resources and what reporting
relationship he has with others. Otherwise, activities of the people
will tend to be directed in different ways resulting in the wastage of
scarce resources.

The managerial function of organizing aims at

designing a structure where everyone knows who is to do what and


who is responsible for what results. It helps in removing confusion
and uncertainty by providing for adequate coordination between
groups of people working in various departments or divisions.
Koontz and ODonnell define organizing as the grouping of activities
necessary to attain objectives, the assignment of each grouping
manager with authority necessary to supervise it, and the provision
for

coordination

horizontally

and

vertically

in

the

enterprise

structure. Thus organizing is the process of creating a structure for


the organisation that will enable its people to work together effectively
towards its objectives. However, the structure of the organisation has
undergone considerable changes over the years in response to
changes in the environment.

Let us examine, in brief, the various

approaches or theories of organizations.

2. Objectives

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After studying this lesson, you should be able to:

Appraise the different approaches to the study of organizations;

Distinguish between formal and informal organisation; and

Acquire a correct perspective of organizing as a managerial function.

3. Content
Organisational Theories
There are three approaches to understand the organisational theory: Classical,
Neoclassical and Modern. The assumptions about human beings and other variables
that affect the organisational functioning vary from one approach to the other.
As discussed in lesson 2, the early management thinkers viewed the organisation
as a machine and human beings as different parts of that machine. Organisation was
viewed as a closed system. The influence of the external environment was ignored. The
emphasis was more on increasing the output, and human element in the process
received scant attention.

Further, early writers concern was mostly to find the one

best way to design the organisation which would suit all the situations.
Division of labour, scalar principle and span of control are the important
principles on which enterprise activities were organized. Members of the organisation
were guided by a sense of duty to the organisation and by a set of rules and
regulations.

Mason Haire has identified the chief characteristics of classical

organisation theory as follows:

Human beings were assumed to be relatively homogeneous and un modifiable;

Organization was perceived as a closed system with little interaction with the
external environment;

The emphasis was on detection of errors and their correction after they have
happened;

Authority was centralized and the integration of the system was achieved
through exercise of authority and implementation of rules and regulations;

Stability was the central theme in designing the structure.

Classical organisation theory, is thus, based on the contributions of scientific


management by Taylor and others, administrative management by Fayol and
bureaucratic system by Max Weber.
Appraisal of Classical Theory
March and Simon, Katz and Khan, Victor Thompson and a host of other writers
have found the classical organisation theory inadequate in dealing with the
complexities of modern organizations. The salient features of the classical theory may
be summarised as follows:
I. Mechanistic Structure

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Organisations have been treated as closed systems with no environment and hence
no interaction with outside world. Classical thinkers assumed two things-there is no
impact of the environment on the organisation and human beings are inert elements
who can be manipulated. Once the structure is created, it was assumed that it would
run smoothly with the rules and regulations.
ii. Organisation as a Static Concept
Classicists held the view that an organisation is a static concept.

Once the

structure is created, it will work for ever. The need for change or structural adjustment
was not given due consideration. The emphasis was more on stability in operations.
iii. Excessive reliance on Principles
Principles like division of work, scalar chain, structural arrangement, order, and
span of control were taken as articles of faith. Too much reliance was placed on these
classical management principles. Coordination by hierarchy, unity of command, line
and staff relationships, discipline, unity of command-all resulted in the creation of
command and control structure.
Classical organisation theory has been criticized by many authors on the following
grounds:

It neglects the human aspects of organisation members, assuming that they


are motivated only by economic considerations. As educational levels,
expectations and aspirations of people have been changing fast, this criticism
has become more severe.

It does not sult the rapidly changing environments of today. Structures


designed to function effectively in static environments with an emphasis on
stability hardly suit the changing requirements of modern business.

It assumes that higher-level managers are respected by subordinates because


of their knowledge and skills. These days young people at lower levels seem to
be fully equipped with latest skills. At times they are found to be even
outsmarting their superiors. As a result some emotional conflicts between
superiors and subordinates have become quite common.

As organisational procedures become more formalized and tasks more


specialised, people tend to loose sight of the bigger picture. They develop a
narrow perspective where they are obsessed with their own functional areas.

It should not, however, be construed, from the foregoing analysis, that the
classical theory of organisation is completely irrelevant. The contributions of the early
thinkers which ensured proper systems and order in the organisational functioning can
not be undermined. Classical organisation theory has strengths as well as weaknesses.
For example, classical structure provides much task support. At the same time it is
weak in psychological support. What is needed is an organisational system that
provides both task and psychological support.

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Neoclassical Organisation Theory

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The classical thinkers with their obsession with economic effectiveness neglected
employee satisfaction. They failed to recognize the significance of the impact of human
element.

Neoclassical

theory,

on

the

otherhand,

which

revolves

around

the

contributions of behavioural and social scientists, aims at complementing for some of


the deficiencies in classical theory. The initial impetus was provided by Elton Mayos
Hawthorne studies. Neoclassical theorists did not totally reject the classical model, but
only Argyris and Rensis Likert, whose contributions to the development of management
thought have already been discussed in detail in lesson 2. The main propositions of
neoclassical theory are as follows:

In every organisation, in addition to the technical system, there exists a social


system:

Along with the formal organisation structure, there also exists an informal
organisation;

Human beings have diverse motivational patterns and try to fulfill different
types of needs;

Quite often there exists a conflict between individual and organisational


objectives. Hence the need for integration between the two; and

Cooperation among people is not automatic but has to be achieved through


appropriate behavioural interventions.

Appraisal of Neoclassical Theory


Neoclassical theory of organizations marked a significant departure from the
classical theory in that it raised several new concepts like informal organisation, group
norms, non-economic motivators, irrational behaviour, etc.
Consequent to the findings of Hawthorne studies and the writings of behavioural
scientists, concepts like flat structure, decentralization and informal organisation have
found increased usage in the design of the organisation structure. In the place of the
traditional tall structures which are beauracratic in their functioning, flat structures
are emphasized. As against delays in decision-making, hierarchical controls and
communication bottlenecks in the tall structures, flat structures with wide span of
control are found suitable to motivate human beings.
Another postulate of the neoclassical theory is decentralization-closely related to
flat structure. Decentralized structure offers autonomy and freedom to people in
decision-making. It assures operational freedom. The existence of informal organisation
in the formal organisation is by far a significant breakthrough of the neoclassical
theory. While formal organisation is a deliberate creation of the management, informal
organisation is the spontaneous outcome of the people to satisfy their social and
psychological needs. Various aspects relating to informal organisation are discussed in
the subsequent section of this lesson.
Criticisms of the Neoclassical Theory

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The neoclassical theory to organisational design compensates for some limitations


in the traditional classical model. But it too has been criticized on the following
grounds:

The neoclassicists share the classical assumptions that there is one best way
to design an organization. They overlook environmental, technological, and
other variables that might affect an organizations design;

The neoclassicists oversimplify human motivation. Not everyone is motivated by


the non-monetary aspects of work, nor can all work be made intrinsically
challenging and rewarding; and

The coordination of decentralized, fragmented groups to achieve organizational


goals may be more difficult than the neoclassicists suggest, particularly when
the objectives of lower-level employees are not consistent with the goals of
upper-level managers.

Modern Approaches to Organisational Design


As discussed in the preceeding sections, hierarchical organisational structures are
centralized. Information flows slowly. So also the decisions. Modern approaches to
organisational design take into account the business environment, technology and
people. As such, while designing the structure, an understanding of the environment in
essential.
i. Environment
Business environment may be classified into stable, dynamic and turbulent.
Stable environment is one with no unexpected or sudden change. Change in
technology, market demand, and socio-economic and political conditions occur
infrequently and modifications can be planned in advance. But these days stable
business environments are hard to find.
As

against

stable

environment

where

changes

are

infrequent,

dynamic

environment is characterized by frequent changes. These changes, to a certain extent,


can be predicted. Trends are likely to be apparent and organizations can easily try to
adjust. However, the rate of change in the environment may be high in some industries
while it is low in some other industries. It is also quite possible that the once stable
environment may become a dynamic one. For example, the environment of many
businesses in India till a few years ago was quite stable. But as the economy is opened
up, unprecedented changes are taking place in the Indian economy.
Turbulent environment, on the other hand, is characterized by unexpected
changes and surprises. As Peter Drucker has described the present age as the age of
discontinuity, managements are taken by surprises. Spectacular breakthroughs in
technology, sudden change in the market preferences, political uncertainties, etc., make
the environment very turbulent.
In the light of the changes in the environment whether they are predictable or
unpredictable, the organisational structure has to be designed in such a way that it

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matches with the environment. Burns and Stalker on the basis of their extensive
research classified organisational systems into mechanistic and organic structures. In
a stable environment mechanistic structures would do well because the emphasis in
such systems is on achieving excellence in the routine tasks, whereas organic systems
are preferable in a dynamic or turbulent environment. Some combinations of the two
systems may also be used.
ii. Technology and Structure
Apart from the environment, technology also influences the structure. By
technology we mean the task related know-how used by the organisation. Management
researcher Woodward had studied about 100 British manufacturing firms and
established relationship between technology and structure. He classified technology
into: Unit production, batch or mass production and process production.
Unit production refers to the production of individual items tailored to customers
specifications. The technology used is not very complex and output is produced largely
by individual crafts people.
Mass production refers to the manufacture of large quantities of products, mostly
on an assembly line. Process production refers to the production of materials that are
sold by weight or volume such as chemicals, sugar, cement etc. The following are the
findings of the Woodwards study on the relationship between technology and
organisation structure.

The more complex the technology, the greater is the number of managers and
management levels. In other words, complex technologies require greater
degree of supervision and coordination:

The span of management increases from unit to mass production and then
decreases from mass to process production. Lower level employees in both unit
and process production firms tend to do highly skilled work. As a result,
narrow span becomes inevitable. In mass-production, on the other hand,
assembly line workers perform mostly routine tasks. Large number of such
workers can be supervised by one manager; and

The greater the technology complexity of the firms, the larger is the clerical and
administrative staff.

The foregoing analysis shows that all these variations in technology, with influence
the organisation structure which in turn will affect the performance. Successful firms
are those that design the structure in accordance with the technological requirements
of the firm.
iii. Aspirations of the People

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Along with the environment and technology, the attitudes and aspirations of the
people need due consideration in the design of the structure. Unlike in the past, where
classical theorists assumptions about human beings held good, there has been a sea
change in the attitudes and aspirations of the people in the recent years. Peter Drucker
has rightly described the present day workers as knowledge workers. They want more
challenging jobs and participation in the decision-making process. They are selfmotivated and direct their activities themselves.

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In view of such raising aspirations and expectations, organisational structures


have to be designed in such a way that their aspirations are taken care of.

The

structure has to provide an environment where individuals have freedom and


autonomy. That is why, these days there is lot of talk about flexible systems and loose
controls in the organizations. The objective behind all these structural changes is to
identify and encourage creative people. In a competitive environment as of today, in the
final analysis, it is the quality of human resource which makes a difference when all
the other things are equal. In the place of rigid and beauracratic systems which stifle
the innovative abilities of people, the emphasis at present is towards flexible systems.
As such the structure should facilitate to satisfy the ego needs of the people.
formal and informal organisations
Much of what is discussed and understood about organizations in general relate to
the formal organisation. In many organisation structure. Authority-responsibility
relationships among people are clearly visible. Information flows from one level to
another or from one individual to another in a formal way. All the relationships find a
place in the organisation chart. The roles of the people are clearly defined and they are
expected to perform the roles of the people are clearly defined and they are expected to
perform the roles as stipulated to achieve the goals. Thus formal organisation is a
deliberately created entity to achieve certain specific objectives.
Informal organisation on the other hand, refers to the network of personal and
social relations not established by formal authority but arising spontaneously as people
associate with one another. The emphasis within informal organisation is on people and
their relationships, whereas formal organisation emphasizes official positions in terms
of authority and responsibility. Thus, informal organisation refers to unofficial
relationships that inevitably occur between individuals or groups within the formal
organisation.
As such in any organisation, both formal and informal organizations exist. Both
are not mutually exclusive. But are complementary. The actual organisation structure
is the result of both formal and informal relationships. The existence of informal
organisation within the formal organisation can easily be seen in any formal system, be
it a business enterprise, educational institution or a voluntary organisation.
The need for Informal Organisation

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The inadequacy of the formal organisation to meet certain social and psychological
needs is the basic reason behind the emergence of informal organisation. Because the
formal organisation does not provide for all the social interactions, members try to find
out alternative ways of association. As the Hawthorne experiments revealed,
membership in informal groups give people psychological benefits in every respect as
important as the salary paid to them by the employer. The following are some of the
major reasons for the emergence of informal organisation.
i. The desire to socialize with others
Keith Davis observes that along with liens technical imperative, there is also a
social imperative to work together. Man is a social being. He wants to belong, to
associate with others rather to work in isolated loneliness. Out of this basic drive of
man, the informal organisation arises. It is, therefore, quite natural when people work
together in groups, they tend to socialize with fellow employees to satisfy their own
social and ego needs. These needs are not normally satisfied by the formal
organisation. Informal organisation, on the other hand, provides them opportunity to
interact with people of their liking based on so many personality factors. We can easily
observe in any formal organisation, like minded people coming together and forming
into groups.
ii. Disillusionment with the routine
Excessive specialisation these days in a way contributes for the employee
aloofness. People become bored with the routineness in tasks and feel psychological
fatigue. They dont get the pride or satisfaction, for what they perform constitutes only a
small portion in the total task. People try to overcome this boredom through
interactions with others. Such informal interactions which encompass a whole gamut
of issues both related to job and personal life help, in releasing the tension created on
the job. Informal organisation thus helps in filling up the psychological vacuum created
by dull, boring and monotonous jobs.
iii. Hierarchical command and control
Commands and controls characterize formal organisation.

Wherever there is

hierarchy, it goes without saying that things happen in a formal way. Reporting
relationships are clear, information flows along the formal lines of authority and
responsibility of the people. There exists a superior-subordinate relationship where
superiors tend to exercise control which may not be liked by subordinates. While the
subordinate cannot defy the superior, to compensate for the inner conflict, he tries to
find out an association where he does not face any such control. Thus informal
organisation provides him the necessary forum where he gets the psychological relief
and solace by sharing his agony with others.
iv. Protection of interests

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In addition to the above factors, informal organisation strives to protect the


interests of its members by working as regulatory device. At times individual grievances
are also redressed in organizations by informal groups. The opinions and view points of
the people are channelized through the informal bodies. Many limitations which
otherwise would be faced by a member as an individual are overcome, because the
informal organisation takes care of the interests of the members.
v. Need for assistance
Formal organisation provides for subordinates consultation with the superior for
advice when confronted with work related problems. But many people hesitate for fear
of criticism. Further more, every organisation has a large number of rules governing
procedures. Therefore, people often prefer to resolve their needs for assistance through
peers. We often find in organizations employees consulting their colleagues on so many
work-related problems rather than their superiors.
vi. People like to know what is going on around them, especially if it affects them.
It may take some time for people to get information through formal channels.
Sometimes, superiors may deliberately withhold certain information from subordinates.
Therefore, an important reason for joining informal organisation is to get information
through informal channels. It satisfies individuals need for psychological security and
affiliation as well as provide them with much faster access to job-related information.
The informal communication, often called grapevine also carries social gossip.
Problems and Benefits with Informal Organisations
Though the existence of Informal organisation is a natural outcome in any
organisation, many managers perceive them as bad. Some managers even carry an
erroneous notion that informal organisation is a reflection of ineffective management.
They therefore try either to suppress them or to ignore their impact. In the process,
they fail to take advantage of the informal organisation by overreacting to the negative
aspects disregarding the positive aspects.
i. Problems with informal organizations
It is true in some cases; informal organizations may function in ways that are
counter productive. They may stand in the way of organisations achieving the
objectives. For instance, one of the consequences of informal organisation is the spread
of rumours that are false and lead to negative attitudes towards management. The
informal groups may set norms for productivity. The work-to-rule and slow-down
techniques often adopted by workers in many instances are the result of the dictates of
the informal organisation. Individuals often tend to conform themselves to the group
standards or pressures which may cause performance to be below the standards set by
management.

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Another evil effect of the informal organisation is the tendency to resist change.
Such an attitude often impedes the much needed innovation and adoption of changes
as demanded by the exigencies of the environment. However, such counterproductive
behaviour is often a reaction to the groups perception of how management is treating
them. Group members perceive that they are being treated unfairly and respond as any
individual would in such a situation.
ii. Benefits of Informal Organisation
Since group membership is contingent on working for the organisation, loyalty to
the group may translate into loyalty to the organisation. For instance, many people
refuse higher paying jobs with other companies because they are reluctant to give up
the solid ties developed at the present company. It is possible for groups objectives to
be compatible with those of the organisation. At times the performance norms of
informal organisation may be higher than those of the formal organisation. For
example, the intense team spirit characteristic of some organizations which results in a
strong drive to succeed is often an outgrowth of informal relationships. Similarly, the
grapevine

may

help

the

formal

organisation

by

supplementing

the

formal

communication network.
By failing to work effectively with them, or engaging in actions to deliberately
suppress informal organizations, manages often become unable to harness these
potential benefits. In any event, whether a particular informed organisation is harmful
or beneficial, one thing is certain that it exists and musty be dealt with.
Therefore, as a manager, you must learn to cope effectively with informal
organisation.
Managing the Normal Organisation
Management writers have fully realized the importance of handling informal
organizations to help the formal organisation attain its objectives. Scott and Davis offer
the following suggestions:

Recognize that the informal organisation exists, and nothing can destroy it
completely without also destroying

the formal

organisation.

Therefore,

management should accept it, work with it, and not threaten its existence;

Listen to the opinions of informal leaders and group members.

Consider possible negative effects on the informal organization before taking


any action.

Decrease resistance to change by allowing the group to participate in decision


making; and

Control the grapevine by promptly releasing accurate information.

4. Revision points

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Organisational Theories

Classical Organisation Theory

Neoclassical Organisational Theory

Modern Approaches to Organisational Theory

Formal and informal Organisations

The need for informal Organisation

Problems and Benefits with informal Organisation

Managing the Informal Organization

5. Intext questions
Discuss some of the problems and benefits of informal, Organisations.
Why should the environmental force to taken into account while
creating on organisation structure.

Examine a few important

importances that affect the structure.

6. Summary
Different approaches have been developed over the years to explain
the process of organizations. The classical theory which emphasized
technical and other operational aspects of the job; the neo-classical
theory where the emphasis human element in the organizations with
due recognition to the existence of a social system along with the
technical system; and the modern approach where organisation
structure has to designed in tune with the environmental demands
have been discussed in this lesson. Besides, the distinction between
the formal and informal organizations and how informal organizations
come into being in the formal systems the reasons there of, the
problems and benefits have also been presented in detail.

7. Terminal exercises

Discuss

some

of

the

problems

and

benefits

of

informal,

Organisations.
Why should the environmental force to taken into account while
creating on organisation structure.

Examine a few important

importances that affect the structure.

8. Supplementary material
Burns, Tom and Stalker, G.M, 1961. The management of Innovation,
Tavistock,

London.

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Woodward, Joan, 1965, Industrial organisation, Oxford University


Press,

London.

9. Assignments
What are the basic tenets of the classical organisation theory? Is
this theory relevant to the design of the present day organisation
structure? If it is so, give the details elaborately.

10. Suggested readings


Davis, Keith, 1993. Human Behaviour at Work, Tata McGraw-Hill,
New Delhi.
Drucker, Peter. F. 1969.The age of Discontinuity, Harpet & Row, New
York.
Stoner, James A.F... And Freeman, E.R. 1989. Management, Prenticehall of

India, New Delhi.

11. Learning activities


Have you ever been in a solution where informal groups norms put
you in role conflict with formal Rrganization standards?

If so,

present such situations in details.

Chapter 5: Departmentation
1. Introduction
The managerial function organizing involves the creation of a structure most
appropriate for the organizations objectives and other internal and external
factors. The best structure is the one that enables the organization to interact
effectively with its environment, to efficiently channel the efforts of its people,
to make efficient use of its resources and thereby to meet the needs of its
customers and attain its objectives.

2. Objectives
After studying this lesson, you should be able to:

Understand the process of departmentation:

familiarize yourself with various methods of departmentation; and

Acquire the necessary skills to design the appropriate structure which


serves the need of the company.

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3. Content

steps in designing organisation structure


Ernest Dale describes organizing as a multistep process, According to him, it
involves:

Detailing all the work that must be done to attain the objectives:

Dividing the total work load into activities that can logically and comfortably be
performed by one person or by a group of persons;

Grouping the related tasks in a logical manner (this activity is known as


departmentation);

Setting up a mechanism to coordinate the work of members into a unified


whole by establishing authority responsibility relationships, and

Monitoring the effectiveness of the organisation and making adjustments to


maintain or increase effectiveness.

It is important to remember that the resulting structure is not a static form, like
the structure of a building. Since structure is based on plans, a major revision of plans
may necessitate a corresponding modification of structure. As such, organizing and
reorganizing are ongoing processes. Successful organizations continuously assess the
appropriateness of their structure and change it in accordance with the dictates of the
environment. It is anybodys knowledge that these days every issue of leading business
magazines widely reports news relating to reorganization underway in some large
company or the other.
departmentation
Although organizations have much in common with one another, they also differ in
many ways. Some organizations are large, some are small and some operate in only one
product area like Tata Iron and Steel Company (TISCO0. Others like Larsen and Toubro
(L&T) and ITC operate in many diversified areas. Some operate in a small geographic
area, whereas others like Coca-cola, Procter and Gamble, and IBM, for instance, do
business in many countries of the world. To cope with these differences in objectives,
strategies and situations, managers use various systems of departmentation.
Departmentation is the process of dividing the organisation into manageable
subunits. The subunits are often referred to as departments, divisions, or sections. By
whatever name the units are called, the process is known as departmentation.
functional departmentation

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This is perhaps the most logical and basic form of departmentation. Functional
departmentation is the process of dividing the organisation into units on the basis of
the firms major activities. It involves grouping employees according to broad tasks they
perform. Normally separate departments are created for all the key activities of the
business. For example, in a manufacturing company, the activities essential to the
existence of the company are production, marketing, and finance. However, in nonmanufacturing concerns these functions differ. IN a transport company, the key areas
may be operations, sales and finance. Thus, public utility concerns like electricity,
transport, banking, insurance and hospitals have their own distinct key functional
areas. In all these cases, under functional departmentation, major or primary
departments are created along the key functional areas of the respective businesses.
If the organisation or given department is large, or in other words, as the
organisation grows, major departments can be subdivided. These sub-divisions are
called derivative departments. The essential idea is to make increased use of
specialisation. A typical functional organisation with major functions and derivative
functions are shown in the following Exhibit-1.
exhibit - 1
functional departmentation
CHAIRMAN / MANAGING DIRECTOR

MANAGER
MARKETING

ADVERTISING

The

SELLING

following

MANAGER
FINANCE

MANAGER
PRODUCTION

are

PUR-CHASING ACCOUN- TING


MANUFA-CTURING

the

advantages

and

disadvantages

departmentation.
Advantages
It is the most logical and simple form of departmentation;

It makes efficient use of specialised resources and skills;

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TAXES

of

functional

It makes supervision easier, since each manager has to be an expert in only his
functional area of operation;

It fosters development of expertise in specialised areas.

Disadvantages
Functional departmentation is often found to be inadequate to meet the
growing needs of the business, particularly as the organisation expands or
diversifies its activities;

Further, decision-making becomes slow as the functional managers have to get


the approval of the headquarters;

It is also difficult to determine accountability in a functional structure, If a


product fails, the question as to who is responsible cannot be easily answered;
and

Functional managers tend to develop narrow perspective and loose sight of the
bigger picture. Members of each department feel isolated from those in other
departments. For example, manufacturing department may be obsessed with
cost reduction and meeting the delivery dates neglecting the quality control. As
a result, marketing department may be flooded with complaints.

product/market departmentation
As the organisation grows, either by broadening its product line, or by expanding
geographically, some of the disadvantages of functional structure begin to be move
apparent. In such a case, management will create semi-autonomous divisions for each
product or market. Three patterns are adopted generally by organizations depending on
the specific requirements to overcome the limitations of functional structure. They are
product, territorial and customer departmentation.
i. Product Departmentation
One of the most common ways in which businesses grow is by increasing the
number of products they make and sell. If the organisation is successful, several
product lines may attain such high sales that they require a separate division. Large
organizations like Shaw Wallace. Kirloskar, Voltas, ITC, Hindustan Lever, have coped
with the expansion of their product lines by creating separate departments or divisions
for the various products they make. Under product departmentation, a single manager
often referred to as the brand or product manager is a delegated authority over all
activities required to produce and market that product. As against functions in the
functional departmentation, basis products or services become the primary or major
departments in the product departmentation, as shown in

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exhibit - 2.

LAN TABLE

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Advantages
Product departmentation places attention and effort on the basic products, the
success of which is critical to the survival of the organisation;

Since all revenues and costs are assigned to a particular product, cost centres
can be established, high profit areas can be encouraged and unprofitable
product lines can be dropped. Thus, responsibility for cost reduction and
profits can be established at the division level;

Proper coordination of all functional areas can be achieved as all the functional
managers work as a team under close supervision of the product manager.
Since the department or division is multifunctional, it often operates like a
complete company.

Enables quick response to changes in environment as compared with


functionally organized firm;

Provides managers a training ground in general management which is useful in


overcoming narrowness of interest, and

Expansion and diversification of activities is made easy by creating new


departments for the new products that are added to the existing ones.

Disadvantages
Requires more persons with general management abilities as more and more
departments are created for the various products;

The product departments may try to become too autonomous, thereby


presenting top management with a control problem;

It is also common to find product departments engaged in the duplication of


efforts. Each product unit has its own functional departments. These may not
be sufficiently large to make maximum use of facilities. Thus product
departmentation becomes an expensive organisational form.

ii. Customer Departmentation


Some organizations sell a wide variety of goods or services that appeal to different
groups of customers, each of which has distinguished needs. In such a case,
departments are created around customer groups, Customers are the key to the way

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activities are grouped. For instance, commercial banks organize their activities around
customer groups to cater to their specific needs. As such, we find separate departments
or divisions for agricultural, industrial and merchant banking operation. Similarly, we
find Blue Star Company organizing its air-conditioning business around domestic and
industrial

air

conditioning

units;

Exhibit-3

illustrates

typical

customer

departmentation in a large bank.

exhibit - 3
CHAIRMAN

RETAIL CONSUMER SALES

GOVERNMENT
SALES

INDUSTRIAL
SALES

PRODUCTION

PRODUCTION

PRODUCTION

MARKETING

MARKETING

MARKETING

FINANCE

FINANCE

FINANCE

PERSONNEL

PERSONNEL

PERSONNEL

Advantages
Customer departmentation facilitates concentration on customer needs. This is
almost all in line with the customer orientation professed by many
organizations these days;

Customer makes the feels that they have an understanding supplier. For
example, the manufacturer may sell to wholesalers and industrial buyers.
Wholesaler requires a product of dependable quality with assured supplies.

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The industrial buyer wants a product of high quality plus a service that
includes installation and repair of the product and the specific training of
employees.

Helps the organisation to get the correct feel of the market dynamics in terms
of preferences of the customers, competitors strategies, etc.

Disadvantages
Difficult to coordinate operations between competing customers demands

Requires considerable expertise on the part of managers in understanding


customers problems and specific needs:

There is a possibility of under utilization of facilities and employees specialised


in terms of customer groups. Small organizations particularly can not afford
the expenditure involved because some amount of duplication of the facilities is
inevitable.

iii. Territorial Departmentation


When an organization operate in different geographical areas, each with distinct
needs, it is desirable to create the departments along geographical lines, as illustrated
inExhibit-4. The process of creating departments along the geographical lines is termed
territorial departmentation. This type of organisation makes it easier for the
organisation to cope with variations in laws, local customs and customer needs, and
Public utilities like transport companies, insurance companies, etc. adopt territorial
departmentation. Similarly, a large scale organisation operating both in domestic and
international markets may have separate departments for both the markets. A Gain,
different department or divisions may be created for different regions of the world.
Many

multinational

companies

organize

their

global

activities

with

headquarters in different regions of the world.


EXHIBIT - 4
CHAINMAN

MANAGER
PRODUCTION

MANAGER
MARKETING

MANAGER
FINANCE

MANAGER
PERSONNEL

MANAGER
MANAGER
MANAGER
WESTERN REGION NORTHERN REGION SOURTHERN REGION

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regional

Advantages
Territorial departmentation makes possible concentration on markets and
marketing channels in different geographical areas;

Develops opportunities for more efficient marketing activities because of better


face- to-face communication with local interests. and

Makes possible effective utilization of locally available resources besides being


able to cater to the region specific variations in terms of preferences and
sentiments of the people.

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Disadvantages
In this type of departmentation, there are problems in training people to think
in terms of markets rather than products;

Requires more persons with general management abilities; and

Increase problem of top management control because of the distance between


the corporate headquarters and the regional offices.

The three patterns of departmentation discussed above product, customer and


territorial departmentation broadly characterize the divisional structure. All the three
patterns have advantages and disadvantages.

The variations in the patterns are in

response to the specific factors in the environment.

The choice of any of these

structures, therefore, would be based on which of the factors management judges to be


more important and critical in the light of the strategies and objectives.
Project organisation
The use of the project organisation has increased in the last few years.

It is

currently being employed in numerous undertakings engaged in the execution of


construction activities, turnkey projects and research and development projects. The
project organisation can take various forms, but the important characteristic that
distinguishes it from other forms is; once the project is completed, the organisation is
disbanded or phased out. By definition, project management involves, the gathering of
the best available talent to accomplish a specific and complex undertaking within time,
cost and quality parameters, followed by the disbanding of the team upon completion of
the undertaking. The group members then go on to another project, return to their
permanent home department in the organisation, are given jobs elsewhere in the
organisation, or in some cases, are phased entirely out of the firm.
The matrix structure
The matrix structure is a hybrid organisational form, containing characteristics of
both project and functional structures. In consumer goods industries, it could contain
the characteristics of both product and functional departments. This structure allows
operational responsibilities to be divided into two parts.

One part contains all the

responsibilities associated with the management of an independent business and is


given to an individual who is called business manager or product manager. The other
part contains all the responsibilities related to the management of resources needed to
get the job the done. The person responsible for these is the usual functional manager
or resource manager in charge of the functions like production, marketing, finance,
personnel and so on.
The matrix is built around a cooperative relationship between the project/product
manager and the functional / resource manager.

Thus, project staff members in a

matrix structure have a dual responsibility. First, they are responsible to the head of
their functional department, the person who has assigned them to the project. The
functional department head is their line superior and will continue to be so. But the

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project manager exercises what is called project authority over the project staff.
Exhibit 5 presents these dual responsibilities in a matrix form of organisation.
EXHIBIT - 5

Vice
Vice
President Research and Development

Project

President
Engineering

Project Manager A Columbia Project


Research
and Development Engineering Group
Group

Project Manager B Challenger Project


Research
and Development Engineering Group
Group

Project Manager C Discovery Project


Research
and Development Engineering Group
Group

Vice President
Production/
Operations
Management

Production/
Operations
Group

Production/
Operations
Group

Production/
Operations
Group

Vice President Human Resource Management

Vice
President
Purchasing

Human Resource Management Group


Purchasing Group

Human Resource Management Group


Purchasing Group

Human Resource Management Group


Purchasing Group

Functional Authority
Project Authority
When the concepts of functional and project authority are brought together, the
result is an organisation structure that is both vertical and horizontal. The vertical
pattern is brought about by the typical line authority flowing down from superior to
subordinate. The horizontal authority flow is caused by the fact that both the scalar
principle and unity of command principle are violated.

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Companies like Larsen & Toubro (L&T), Western India group, U.P. Construction
Corporation.

Afcons-Pauling etc., adopt this structure for the execution of various

projects. For instance. L&Ts construction of Jawaharlal Football stadium in Madras


and Afcons-Paulings laying the East Coast road are big projects themselves.

The

execution of such projects is entrusted to a team drawn from the functional


departments of the headquarters. The overall responsibility for the project lies with the
Project manager.

The people that work in the project are responsible to the project

manager as well as their functional head from whom they are drawn. Similarly, in the
multi-product consumer goods industries, as in the case of projects, responsibility for
different products may be placed on product managers as could be seen in the exhibit.
The matrix may be temporary or permanent. In construction and turnkey activities,
project is disbanded after the execution, where as it may take a permanent form in the
case of a consumer goods company.
Advantages of Matrix Organisation
David I. Cleland and William R. King identify the advantages as follows:

Utilization of manpower can be flexible because a reservoir of specialists is


maintained in functional departments. These specialists can be deployed to
the various projects for optimum use of their services;

Responsibility for the overall execution, management and project is with the
project manager who acts like a chief executive;

Specialized knowledge is available to all projects or products on an equal basis.


Knowledge and experience can be transferred from one project to another;

Project people have a functional home when they are no longer needed on a
given project;

A better balance between time, cost and performance can be obtained through
the built-in checks and balances and the continuous negotiations carried on
between the project and the functional organisation.

Disadvantages
Many of the drawbacks mentioned below of the matrix structure can not be
avoided. Managers have to learn to deal effectively with them.

The major disadvantage relates to power struggles. Since use of the matrix
means use of dual command, managers often end up in conflicts;

Matrix entails wide use of group decision making because group cooperation is
required for success.

The inevitability of group cooperation at times delays

decision making;

If the organisation has too many projects, the result may be severe layering of
matrixes.

Uncontrolled growth of matrix structures often results in power

struggles between managers;

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Matrix structure may be expensive. The dual chain of command may cause
management costs to double.

When there is an economic crunch and the organisation has to cut back, matrix
structures are the first to go. Despite the drawbacks, these of matrix structure have
spread too many industries. In addition to construction and engineering, consumer
goods, banking, insurance and computer companies are now using it. Variations of
matrix are also used by hospitals and other professional organisation.
contingency organisation design
The contingency approach to organisational design suggests using whatever
approach is most effective. Accordingly, so many flexible structures are adopted these
days to meet the specific needs of the organizations.

The idea is that the internal

functioning of organizations must be consistent with the demands of the organisations


task, technology, external environment, and the needs of its members if the
organisation is to be effective. This approach basically implies the development of a
contingency theory of organisation. The approach is based on the exigencies of the
situation.
William F. Gleuck offers the following guidelines for contingency design:

When low cost and efficiency are the keys to successful goal achievement,
organizations should use functional departmentation.

When the environment is complex, matrix structure is effective;

If the organisation is large and operates in a stable environment, it can afford


to formalize the structure.

The greater the intensity of competition, the greater will be the degree of
decentralization.

The greater the volatility of the environment, the more decentralized and
flexible the organisation has to be; and

Companies that implement the organisational style appropriate to their


strategy will be more effective than those that use an in appropriate style.

4. Revision points
Introduction
Steps in Designing Organisation Structure
Departmentation
Product/Market Departmentation

Product Departmentation

Customer Departmentation

Territorial Departmentation

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Product Organisation
The Matrix Structure
Continentals Organisation Design

5. Intext questions
What are the five types of power?

Identify and describe each with

suitable examples.
Explain the process of delegation of authority in an organization.
Discuss the factors that in an organization. Discuss the factors that
encourage it and those that discourage it.
6. Summary
The managerial function organizing is the process of identifying the important
activities to be performed to achieve the objective, grouping of related activities,
assigning such groups of activities of people and providing for coordination by
establishing authority-responsibility relationships among people. Creation of
departments within the organization the process known as departmentation,
resulting in the design of a structure is an important task in organizing.
Different patterns of departmentation are used by organizations depending on
their specific requirements. Important among them are functional, product,
customer, and territorial departmentation.

Matrix organization which is a

hybrid form of both functional and project / product departmentation is also


being increasingly used by organizations operating in highly competitive
markets. The question that what kind of structure is best has no single right
answer. It depends on the situation. Some firms needs stable systems while
some other needs flexible systems.

The nature of the task, technology,

environment and the needs of the organizational members are some of the
factors that influence the design of the structure.
7. Terminal exercises
Considering the changes that are taking place in the Indian economic
environment in the post liberalization era, do you believe there will be a trend
towards centralization or decentralization over the next few years? Give
reasons.
8. Supplementary material
Chester A. Barnard, 1938.
University

The functions of the executive, Harward

Press, Cambridge.

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Claude S. George, Jr. 1968.


Prentice-

The History of Management Thought,

hall, England Cliffs, J.N.

Harold Koontz and Cyril ODonnell, 1976, Management: A Systems and


Contingency Analysis of Managerial Functions, McGraw-Hill,
New York.
9. Assignments
How are delegation and decentralization related?

Discuss the important

factors that influence the degree of decentralization in an organization.


10. Suggested readings
Harey Sherman, 1966. It All Depends: A Pragmatic Approach to organisation,
quoted in A.F. Stoner and Freeman, Management, 1989, prentice-hall
India, New Delhi.
Arthur G. Bedian, 1993. Management, The Dryden press New York.
Richard M. Hodgets, 1986.

Management: Theory, process and practice,

Academic press, New York.


11. Learning activities
Considering the changes that are taking place in the Indian economic
environment in the post liberalization era, do you believe there will be a trend
towards centralization or decentralization over the next few years? Give
reasons.
12. Key words:

Chapter 6: Line and staff relations

1. Introduction:
Effective functioning of the formal organisation depends on the authorityresponsibility relationships among people working in groups to achieve the
objectives.

Different types of relationships are possible throughout the

organisation structure. We will, in this lesson, understand the line and staff
authority relationships.
Perhaps no other area of management has created as much confusion as the
line and staff authority.

Though the concepts have been present in

management literature for many years, they still remain to be clouded with

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conflict and confusion.

The viewpoints of different authors widely differ in

regard to the line and staff relationships. Let us, therefore, first understand
what the line and staff authority mean.

2. Objectives
After studying this lesson, you should be able to:

Understand the concepts of line and staff authority;

Describe the major reasons for the conflicts between line and staff managers;

Suggest ways and means to achieve proper harmony between the two; and

3. Content
LINE AND STAFF CONCETPS
There are two approaches, to understand line and staff concepts. One approach
lays emphasis on the basic functions of the business.

Accordingly, functions of an

enterprise are classified into line and staff functions.

To quote Louis Allen:

Line

functions are those which have direct responsibility for accomplishing the objectives of
the enterprise and staff refers to those elements of the organisation that help the line
to work most effectively in accomplishing the primary objectives of the enterprise.
Thus, organisational objectives are the basic determinant of line and staff
functions and with the change in the objectives, line and staff functions may change. A
line function in one organisation may be staff function in another.

For example,

personnel unction in an employment agency is line but it is a staff function in a


manufacturing organisation. In a manufacturing organisation whose basic objective is
to produce and sell goods, production and marketing are line functions and others
such as finance, personnel, legal, etc.

are staff functions.

Further, within a

department, there may be line and staff function, for example, in marketing
department, selling may be line function whereas market research is a staff function.
The other approach lays emphasis on the authority and views that line and staff
are two kinds of authority. According to this approach, line authority is defined as a
direct authority which a superior exercise over his subordinates to carry out orders and
instruction.

The exercise of this authority is always downwards, that is, from a

superior to a subordinate. Staff authority involves giving advice to line managers to


carry on the operation. The flow of this authority may be in any direction depending
on the need of such an advice. Koontz and others have defined line and staff authority
as follows.
Line authority becomes apparent from the scalar principle as being that
relationship in which superior exercises direct supervision over a subordinate an
authority relationship in direct line or steps.

The nature of staff relationship is

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advisory. The function of people in a pure staff capacity is to investigate, research, and
give advice to line managers to whom they report.
It is common that in actual practice, some variations may exist. The variations
are more pronounced in the case of staff authority.

As presented in exhibit-1,

variations in the Staff authority may be seen in a continuum.


EXHIBIT - 1
Line
authority
(Command)

Staff
authority
(Advice)

Functional
authority

Concurring
authority

Compulsory
Staff consultation

The distinction between line and staff is important because staff must be provided
if the growing organisation is to accomplish its goals. Line and staff relationships are
established to guide people in the way they work together. But, for practical purposes
it should never be looked upon as an inflexible barrier. The differentiation between line
and staff is necessary for the following reasons:
LINE AUTHORITY
Line authority exists between superior and his subordinate.

In the organizing

process, authority is delegated to the individuals to perform the activities.

The

individuals, in turn, assign some of the activities to persons working below them in the
hierarchy and delegate them authority.

This process goes on, creating superior

subordinate relationships in the organisation.

The direct relationship between a

superior and his subordinate is created through the enforcement on line relationship.
Such a relationship works as follows:
As a Chain of Command: A command relationship exists between each superior
and subordinate. Line authority is the heart of this relationship because it entitles a
superior to direct the work of his subordinate.
As a Channel of Communication: Line authority can be treated as a channel of
communication between members of the organisation. Communication up and down in
the organisation flows through the line relationship. Barnard has emphasized the role
of line relationship as a channel of communication by suggesting that line
communication should be established and every member of the organisation should be
tied into the system of communication by having someone to report to and others to
report him. Such a line can be maintained easily through the chain of command.
As a Carrier of Responsibility: The line relationship carries ultimate responsibility
for the work assigned. Though the process of assigning activities goes on till the level
where actual work is performed by operatives, each individual in the line is accountable
for the proper performance of the activities assigned to him.

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STAFF AUTHORITY
The relationship between a staff manager and the line manager with whom he
works depends in part on the staff duties.

A man who only gathers facts or only

checks on performance will have relationship with line manager that are different from
those of a man who has concurring authority. Such variations between line and staff
relationships as discussed earlier, run along a continuum with only advice at one
extreme point and functional authority at other extreme point. In between, two more
situations represent compulsory staff consultation and concurring authority. (See
exhibit-1) The different shades of staff authority are discussed below:
Advisory Staff Authority
This is the type of staff relationship popularly associated with the term staff
authority. An advisory staff manager provides advice, assistance, and information and
it depends on the line manager whether these are put into action or not. Thus, a staff
man relies largely on persuasion to get his ideas put into effect.

In the absence of

power of command, he must build confidence in his opinions.

Therefore a staff

manager has to depend on his persuasive skills.


Compulsory Staff Consultation
Some organizations prescribe the practice of compulsory staff consultation. Under
this arrangement, a staff man must be consulted before action is taken. However, line
manager is free to take action of his choice after consulting staff.

Compulsory

consultation supplements more general requirements for successful staff work, the
requirements that a staff would have access to any information that relates to his field
of interest.
Concurring Authority
At times, a staff man may be granted authority so that no action can be taken
until he agrees to it. For example, quality control inspector must pass on raw material
or semi finished products before they move to the next stage of production, or
agreement with employees over the matter of wages should be entered only after the
personnel manager has agreed to it. The idea of concurring authority is that the staff
viewpoint is incorporated into operating decisions. It is a better arrangement because
of which line manager can not take needless action. These considerations suggest that
concurring authority is granted only when the viewpoint represented by a staff man is
particularly important when possible delay in action will not be serious. For example,
it may be prescribed that a finance manager can not withhold capital expenditure
simply because of his disapproval of capital expenditure plan, but he can withhold it
because funds are not available of funds can not be arranged.

In government

organizations, normally wide-ranging concurring authority is granted to staff men.


LINE AND STAFF CONFLICT
Line and staff relationship implies that both support each other harmoniously to
achieve organisational objectives.

However, there are frequent instances of conflict

between line and staff in the organizations, resulting in friction and loss of time. The
various factors leading to line-staff conflict can be grouped into three categories:

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apprehensions of line managers, apprehensions of staff, and nature of line-staff


relationship. Let us examine how these apprehensions generate conflict.
Apprehensions of Line Managers
Line Managers, who are responsible for the final results leading to the
achievement of organisational objectives, feel that staff people work against them in the
following ways.
i. Lack of Responsibility: Line managers often allege that staff people do not carry
any responsibility in the organisation, but enjoy authority.

Lack of responsibility

makes them complacent and they do not care far the ultimate objectives of the
organisation. On top of all this, line managers contend that they will be criticized if
things go wrong; while the staff will get the rewards if things go well. This disparity
between authority and responsibility and also between contributions and rewards is a
source of jealousy between line and staff.

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ii. Encroachment of Line Authority: Line managers perceive that staff people
encroach upon their authority by advising on matters which fall within their
jurisdiction.

Whenever there is any such encroachment the result is resentment,

hostility, and open or hidden reluctance to accept advice and recommendation.


iii. Dilution of Authority: There is also a feeling that staff people dilute line
authority. Line managers fear that their responsibility will be reduced because of the
addition of staff thereby making their job less challenging. Such a feeling of insecurity
makes the managers suspicious of staff managers.
iv. Theoretical Bias: Often the advice and recommendation of staff people suffer
from theoretical bias because of two reasons.

First, they tend to think within the

context of their own speciality, and thus lack practical implication. Second, as staff
people are away from the actual operational scene, they are not able to fully appreciate
the actual dimensions of the problems and their recommendations may not be
practicable.
APPREHENSIONS OF STAFF MANAGERS
Similar to the contention of line managers, staff people have their own arguments
and try to find fault with the line managers. The focus of the staff arguments centres
normally around the following:
i. Lack of Proper Use of Staff: Staff people feel that the line managers do not make
proper use of their services and decisions are made without inputs from staff. They are
informed after the action has been taken. By virtue of his position, a line manager can
accept, amend, or reject the advice of staff irrespective of its quality and practicability.
Further, when something goes wrong in the area of his operation, staff person from
concerned field in made the scapegoat.
ii. Resistance to New ideas: Line managers often resist new ideas because new
ideas mean that there is something wrong with their present way of working. Thus new
ideas are treated as fault-finding device in their operation. As against this, staff people
are more innovative in the areas of their speciality. Because line people are reluctant to
new ideas, many of the efforts of staff people go waste.
iii. Lack of proper Authority: Staff people feel that they contribute to the
realization of organisational objectives without really enjoying any authority.
managers clearly hold most of the cards and enjoy enormous authority.

Line

It is not

necessary to consult staff before arriving at a decision. Even when staff is consulted, it
is not necessary that staff advice is put into practice. As a result staff specialists feel
that if they have the best solution to a problem, they should have authority over line
managers to force the solution.
Nature of Line-Staff Relationship
In addition to the factors discussed so far, following inherent characteristics of line
and staff relationship also contribute to conflicts and tensions.

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i. Divergent Backgrounds: Line and staff-people, often have different backgrounds


and individual characteristics. Staff people in contrast to line, are generally younger,
better educated, more poised in social interaction, more articulate and individualistic.
As a result, they often look down on the less educated line people who must have
worked their way up through the organisation. These differences create an atmosphere
of mistrust and hatred between them. Thus, both of them work in an environment of
hostility.
ii. Lack of Demarcation Between Line and Staff: Though in theory, line and staff
authority is clear, often in practice, demarcation between line and staff is rarely clear.
Many jobs in line and staff defy description and relationship between them is not
clarified.

In such cases, there is a possibility for overlap and gap in authority and

responsibility which can affect personal relationships.


iii. Lack of proper Understanding of Authority: Assuming that line and staff
authority is made clear in the organisation, in practice, people may fail to understand
the exact nature. This misunderstanding may lead to encroachment of authority either
by line or by staff people.
ACHIEVING HARMONY BETWEEN LINE AND STAFF
The following guidelines, if understood thoroughly may solve many problems.
1.

Line people have the ultimate responsibility for the successful operation of
the organisation. Therefore, they should have authority for making operating decisions.

2.

Staff people contribute to achieve organisational objectives by making


recommendations and providing advice in their respective fields.

In some situation,

they may be granted functional authority through which they can ensure that their
recommendations are put in operation.
3.

Since in most cases, solicitation of advice and acceptance of that is usually


at the option of the line people, it becomes imperative for the staff to offer advice and
service.

4.

Barring few exceptional situations where time factors is of utmost


importance for decision making, line should be impressed upon the need for
compulsory consultation 5. Staff people should sell their ideas to line people. They
should rely more on the authority of knowledge and competence rather than authority
of position.
How to make better use of staff
Staff people are needed in the organisation because line people may not able to
solve the problems which require special knowledge and expertise. The effectiveness of
line people depends to a large extent on how they make use of staff. For making proper
use of staff, following points are important.
1.

There should be encouragement and education to line people as to how to


make maximum use of staff effectively. Line people can not make use of
staff unless they know what a specialist can do for them. At the same

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time, staff people also have a responsibility to let line people know now
they can contribute for the better performance of line activities.
2.

In order to make proper use of staff, they should not be kept busy in
unimportant work because it does not serve any meaningful purpose.
Instead, they should be assigned critical work in the area of their
speciality.

3.

Staff people should be involved at the basic stage of planning of an activity


rather than when the problem becomes critical. When they are involved at
the level of planning, many of the problems may not arise.

4.

If the people have taken some actions directly affecting staff activities
without consulting staff people.
about

such

actions.

The

They should be informed immediately


information

will

help

in

removing

misunderstanding, if any, crated in the minds of staff people.

5.

Revision points

Line and Staff Concepts

Line Authority

Staff Authority

Line and Staff Conflict

Achieving harmony between Line and Staff

6.

Intext questions

Line - staff conflict for many reasons.

State reasons and examine the

following adages: Staff should be on tap, not top, and Staff should sell,
not tell.

What are the important sources of conflict between line and staff
managers? How do you resolve the conflicts? State some real situations?

7.

Summary
Line positions may be defined as those directly responsible for achieving
the organizations goals. Staff positions provide expert advice and service
to the line. Staff authority ranges from being limited to advising on
request, to compulsory consultation, to concurrent authority, to functional
authority. Because of the differences in the nature of authority between
the two, it is not uncommon to hear about the conflicts between the line
and staff managers. Each look at the other with suspicion. As a result, in
fighting and always trying for one gunmanship are quite natural in
organizations. The concepts of the line and staff authority, reasons for the

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conflicts and the ways and means of achieving harmony have been
discussed in this lesson.
8.

Terminal exercises

Describe the difference between the advisory authority, concurrent


authority and functional authority.

9.

Assignments

What are the important sources of conflict between line and staff
managers? How do you resolve the conflicts? State some real situations?

10.

Suggested readings

Arthur G. Berdan, 1993. Management, the Dryden press, New York.

Harold Koontz, Cyril ODonnell and Heinz Welhrich. 1984 Management,


McGraw

Hill, Tokyo.

George R. Terry and Stephen G. Franklin, 1988, Principles of Management,


AITBS, Delhi.

11.

Learning activities

What are the important sources of conflict between line and staff
managers? How do you resolve the conflicts? State some real situations?

12.

Key words

Chapter- 7 : committee organization


1. Introduction
The available evidence on the practices in the corporate sector shows that the
use of committees sin all types of organizations is on the increase. As the
emphasis on the group decision-making and participation increases, so also
the use of committees in the companys affairs

2. Objectives
After studying this lesson, you should be able to

Familiarize with various aspects related to the committee form of organization.

3. Content

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The available evidence on the practices in the corporate sector shows that the
use of committees sin all types of organizations is on the increase. As the
emphasis on the group decision-making and participation increases, so also
the use of committees in the companys affairs. If adequate care is exercised in
respect of the following factors, the benefits far outweigh the disadvantages.
i. Authority and scope must be specified:

The terms of reference to the

committee and the authority of it have to be clearly defined. That is, whether
the committee has the authority to make decisions, or its job is just to make
recommendations. If the scope and authority of the committee are not clearly
defined, quite often, members may end up in deliberating issues that are not
referred to the committee at all.
ii. Size of the committee: Though there is no exact number regarding the size of
the committee, the complexity of interrelationships naturally increases with
the size of the group. If the group is too large, it may be difficult for the
members to communicate effectively, on the other hand, if it is too small, the
purpose behind the use of committee may be lost. As a general rule, a
committee should be large enough to promote deliberations and to provide an
opportunity for the consolidation of wisdom and expertise of many members;
Research indicates that the ideal committee size is five, when all the five
members possess adequate skills and knowledge to goal with the subject
assigned to the committee.
However, if the committee is to have all interested groups participate in its
deliberations, the number may be large. If all the interested groups are not
represented, the committees work may be criticized. In such a situation where
the need for representation of the interested parties, makes the committee too
large, one option could be to constitute sub-committees by breaking down the
problems to be studied.
iii. Selection of Members: For the committee to be successful, the members on
the committee must be good at understanding the problems and analysing
them. They must also be good at performing well in a group. Every member
must have the right temperament, verbal and analytical ability and capacity for
working with others. Selection of members requires judgement about the
personal characteristics of members, their functional background and level in
the organisation. The basic objective is decisions. Committees are likely to
function better if members are friendly, known to each other and respect each
other. Committees which include members drawn from different levels are
unlikely to function effectively because there from the lower levels may not very

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actively participate in discussions because of the variances in this formal


positions in the organizations. For example, workers representatives, and the
boards of management of many organizations and the teachers representatives
on the various administrative bodies of universities are found to be not very
effective purely because of this factor.
iv. Nature of the subject matter: Careful selection of the subject matter to be
entrusted to the committee is equally important. Certain subjects can be
handled effectively by a committee while others can be handled better by
individuals. For instance, research and development which depend on the
individual creativity cannot be entrusted to a committee. On the other hand,
for the establishment of major objectives and formulation of policies and review
and coordination of work, committee may be preferred.
v. Effectiveness of Chair person: The chairperson in fact, is the leader of the
committee. Therefore, the effectiveness of the committee depends on the
chairpersons skills and motivation. His basic functions include planning for
the meetings, preparing the agenda, supplying some preliminary information
to the members and conducting the meetings effectively. The chairman must
not act in a prejudicial way and yield to the pressure of a few members. He has
to monitor and coordinate the proceedings such that effective decisions are
taken by the committee. He has to see that the minutes of the meetings are
recorded properly, circulated to all the members. Modifications suggested and
action taken on recommendations should also be communicated.
4. Revision points
Committees
5.

Intext question s
What are committees?

6.

Summary
In the second half of the lesson committee form of organisation and the
major issues related to committee such as types of committees, reasons for
the use of committees, disadvantages of committees and the measures for
making committees more effective, have been dealt with.

7.

Terminal excercises
Inspite of the serious drawbacks in the functioning of committees, they
cannot be dispensed with? Why? give reasons...

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8.

Supplementary materials
Clark, P.A. 1952. Organisational Design: Theory and Practice, American

management Association, New York.


Drucker, Peter, F. 1974. Management Tasks, Responsibilities, practices,

Harper
9.

& Row, New York.

Assignments
What measures do you suggest to make a committee function more

effectively?
10.

Suggested readings

AITBS, Delhi.

Cawsey, T.F. 1980 Why Line Managers Dont Listen to Their Personnel
Departments, Personnel, Jan-Feb.
11. Learning activities

Inspite of the serious drawbacks in the functioning of committees, they


cannot be dispensed with? Why? give reasons...

Unit II
Chapter 1. Staffing and directing function Leadership

1. Introduction

INTRODUCTION
While planning, organizing and staffing can be considered as preparatory
managerial functions, controlling is intended for checking the things in a way as we
desire. The connecting link between these functions is directing. It is the live link that
establishes meaningful interaction among superiors and subordinates through proper
directions and guidelines.

It is Directing which initiates organized action with the

purpose of fulfilling the Corporate objectives.

It thus creates appropriate work

environment that facilitates efficient discharge of duties by the human beings. Thus it

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has become one of the important functions of Management to achieve organizational


goals through proper instructions and guidelines.
In order to clearly understand the direction function of Management, the following
definitions are helpful:
Urwick and Brech have defined this concept as guidance, inspiration, the
leadership of the work force that constitute the real core of the responsibilities of
Management.
Theo Haimann defines that directing consists of processes and techniques useful
in issuing instructions and making certain that operations are carried out as originally
planned.
One of the latest definition is given by Knootz and ODonnell. They defined that
Direction means the interpersonal aspect of managing by which subordinates are led
to understand, contribute effectively and efficiently to the attainment of enterprises
objectives.
A review of the above definitions reveal that the direction function consists of
issuing instructions, exercising supervision, providing leadership and securing
motivation from the workers. Some of the important features of Direction function, to
sum up, have been listed below:
1.

It indicates scalar chain. It means that the top management directs the
middle management which in turn influences the operations people.

2.

It encourages the Supervisors to act as a guide, interpreter, teacher and


co-coordinator.

3.

The direction function is not a static function but it is a living function. In


other words, it deals with guiding, training and motivating the subordinate
in a desired manner.

4.

The most important characteristic of direction function is that it deals with


the human factor.

5.

Direction function mainly deals with use and development of human


factors.

Failing to understand the role of the human factor in the realization or


organizational goals, leads to inefficiency and closure of the organisation.

Hence,

Direction function makes the executives to think in terms of 9a) issuing instructions (b)
proper supervision (c) motivation (d) leadership and (e) communication.

It is a well

known fact that without paying proper attention to the above points, no manager can
succeed in obtaining the goals.
2. Objectives

LEARNING OBJECTIVES
To discuss the meaning and nature of direction function.

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The define the concept of leadership so as to enable the student to understand


the functions of leadership

To discuss the various theories of leadership

3. Content
PRINCIPLES OF DIRECTION
1. There must be harmony among several objectives of the corporation.
2. Conflicting attitudes must be reconciled.
3. Inefficient workers should be removed.
4. Appropriate policies and guidelines should be framed from time to time in
order to secure efficient operations through the co-ordination of all the efforts.
TECHNIQUES OF DIRECTION
Usually three kinds of techniques are used for carrying out the direction function,
such as;
a. delegation of authority
b. communication and
c. leadership
Leadership is one of the most important functions of the Direction function. It
encourages efficient use of all resources in an optimum manner for the benefit of the
organization. The following pages centre on the significance of the various facets of the
Direction function.
LEADERSHIP
Management and Leadership are often confused as the same. No doubt, leading is
an essential function of management. But, that does not mean that management is
just leading. It involves many things like planning, organizing, staffing and controlling
people. All these managerial functions become stale if managers do not know how to
lead people. Particularly in modern organisation, somebody should show the way to
others for attaining the goals. This characteristics feature is termed as leadership. It is
neither mere direction nor motivation. It is a live wire between plan and action. Ability
to lead effectively is one of the keys for successful management.

The leader must

basically and clearly understand the attitudes, the values the flow of authority and the
purpose of organisation.

It means that the essence of leadership is followership.

Without followers there can not be a leader.


The concept of leadership has been defined by many authors in different ways.
Koontz and ODonnell have defined this concept as the art of influencing people so
that they will strive willingly and enthusiastically towards the achievement of groups
goals. It emphasizes the fact that the leaders help the groups in understanding the
objectives of the organization.

Thus leadership is an endless process of influencing

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people so that they will strive willingly and enthusiastically towards the achievement of
group goals.
FUNCTIONS OF LEADERSHIP
1.
Every leader, as a superior, has to delegate a part of his authority to the
subordinates.
2.

Once authority is delegated, the leader must try to motivate the people to
better levels of performance.

3.

The leader must try to create good climate for achieving maximum
operational efficiency.

4.

Promoting and protecting new novel areas.

5.

A leader must always try to develop his own people from within.

Hence leadership is not bossing. The functions of a leader includes, apart from
ordering, teaching, inspiring, guiding, interacting, initiating and solving problems. It
is an endless personal process. This personal ability to lead effectively is one of the
keys to become a successful manager.

In other words, people have to follow the

manager in order to make him a leader.


followership.

Hence, the essence of leadership is

Motivation and leadership are closely related with each other as the

leader tries to understand the reasons for why people act as they do.
INGREDIENTS OF LEADERSHIP
(i)

Power

A leader must know the nature and source


power besides its effective use in a responsible
way.

(ii)

Understanding people

A leader must have the ability to comprehend


the

needs,

subordinates

feelings,
and

beliefs,

different

values

of

motivational

forces.
(iii)

Inspiring followers

It is a rare ability. A leader must always try to


induce and inspire his subordinates. He may
have all personal qualities like charm and
appeal that may encourage the people to do
what the leader wants.

(iv)

Style of leadership

The manner in which the leader adopts his


capabilities to suit the situation conducive to
goal realization

Leadership is an important aspect of managing. This ability varies from individual


to individual that all depends upon the leaders explicit and implicit pattern of
behaviour of influencing his subordinates. Considerable amount of research has been
done on this aspect.

It is difficult to summarize whole quantum of theory in this

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chapter. However a brief attempt is made to identify some major theories which form
the base for different leadership styles.
TRAIT THEORY
This theory derives this belief from the philosophy of ancient Greeks and Romans
that leaders are born and not made.

But the acknowledged leaders like Napoleon,

Hitler, Lincoln, Caesar, Kennedy, Mahatma Gandhi, and Martin Luther King have no
uniform intellectual, social, physical and psychological characteristics.

To prove the

concept of trait theory as valid, one has to identify specific characteristics that all
leaders possess.

To sum up, Stogdil has identified some of the important traits as

follows:
a. Physical traits (appearance, energy, height etc.)
b. Intelligence traits (understanding, comprehending, decision making etc.)
c. Personality traits (adjustability, aggressiveness, enthusiasm, will power,
self confidence etc.)
d. Task related traits (initiative, perseverance, achievement, etc.)
e. Social traits (co-operation, Interpersonal relationship, group cohesion
etc.)
In addition to the above traits some more characteristics like ambition, honesty,
creativity and charisma have been identified as key traits. It is true that all leaders
need not possess all the traits. And sometimes even non-leaders may possess either
most or all of them.

The trait approach to leadership has been blessed with the

following limitations.
1. It neglects the needs of the followers.
2. It fails to recognize the relative importance of various trait under changing
conditions.
3. It does not separate the cause and the effect (whether leader invariably
possess self-confidence or success makes the leaders to build confidence).
Different authors have propounded different theories explaining the leadership
behaviour and styles. The following section details the various styles of leadership.
STYLES OF LEADERSHIP
For the purpose of easy understanding, leadership styles may be conveniently
studied as follows:
a. Styles based on the use of authority
b. Styles based on behaviour
c. Other miscellaneous styles
Each of these styles is explained below:
(A) Styles based on the use of authority
Depending upon how a leader uses his authority one can identify three basic
styles. (i) autocratic, (ii) democratic / participative, and (iii) free-rein type.

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(i)

Autocratic leader believes in power.

He passes orders unilaterally and

expects ready compliance. He believes that he is able to control people


through rewards and punishment.
(ii)

Democratic leader believes in sharing ideas and opinions.

He consults

subordinates in the process of decision making. He encourages two-way


communication and participation of subordinates in all types of decisions.
(iii)

Free-rein leadership is no leadership at all. The leader uses no or little


power. He gives complete freedom to subordinates. People are encouraged
to set their goals and means of achieving them.

They are given high

degree of independence in manning their operations.


Real time situations vary from company to company and from manager to
manager.

There is no single uniform style of managing people in organizations.

manager may be autocratic at one instance (enforcing the rule regarding safety devices)
and democratic at the other (consulting the followers regarding change of time at work
schedule).
(B) Styles based on behaviour
Circumstances change constantly creating new situations and challenges.

The

behaviour of the leader is mould by the changing patterns of group attitudes and
experiences. Different dimensions of a leaders behaviour have been thoroughly probed
through Ohio studies.

According to these studies a leaders behaviour is influenced by

two aspects initiating structure and consideration.


(i) Initiating structure and consideration
Initiating structure refers to the extent to which a leader defines and organizes his
own role as well as the roles of his subordinates. It spells out the task behaviour of a
leader. On the other hand, consideration refers to the degree by which the leaders
behaviour is characterized by mutual trust, respect for subordinates and regard for
their feeling.

It indicates relationship behaviour.

As initiating structure and

consideration are two distinct features, existence of one does not mean the absence of
the other. Actual behaviour of a leader in a given situation may consist of combination
of these two aspects. The following diagram (IV. 1. a) gives the gist of the findings of the
Ohio state studies on leadership:
The above four quadrants have been representing various combination of task and
relationship behaviour that a leader can exhibit at a particular point of time. Actual
behaviour varies among these four alternative combinations depending upon the
situation.
(ii) Managerial Grid
Robert R. Black and James S. Mouton have developed five different styles of
leadership through this concept of Managerial Grid. This concept has been exclusively
used for training the managers through enabling them by identifying the various skills
of leadership styles. This concept has been mainly based upon two important factors

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(a) concern for production (Task orientation) and (b) concern for people (Relationship
orientation). The essence of this theory is presented in the following diagram No. (IV. 1.
b).
In the above diagram, concern for production is shown on the horizontal axis and
concern for people is identified on the vertical axis. The scale recorded varies from 1-9.
It indicates that the concern for production/people becomes more important to the
leader as his ranking advances from 1-9 gradually. The five styles of leadership are
briefly explained in the following lines.
(a) Impoverished (1-1):
As the rating indicates, this styles involves little concern for both people and
production.

Leaders under this style have minimum involvement in their jobs and

mostly act as messengers, passing information from supervisor to subordinates.


(b) Country-club (1-9):
A sort of informal environment is created wherein everyone can coordinate the
effort and accomplish the objectives in a relaxed and friendly atmosphere which is
putting emphasis more on the needs of the people, bothering little about production.
DIAGRAM: IV 1 A
OHIO STUDIES: LEADERSHIP

LOW
CONSIDERATION (RELATIONSHIP BEHAVIOUR

HIGH CONSIDERATION AND


HIGH CONSIDERATIO
LOW
AND
STRUCTURE
HIGH
STRUCTURE

LOW CONSIDERATION AND


LOW CONSIDERATIO
LOW
AND
STRUCTURE
HIGH
STRUCTURE

LOW

INITIATING STRUCTURE (TASK


BEHAVIOUR)

DIAGRAM: IV I B

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HIGH

MANAGERIAL GRID

CONCERN FOR PEOPLE (HIGH)

1-9
COUNTRY CLUB

9
8
7
6
5
4
3
2
1

9-9
TEAM

55
MIDDLE ROAD

IMPOVERISHED
1-1
1

TASK
9-1
5

CONCERN FOR PRODUCTION (HIGH)

(c) Task
It is another extreme style of leadership commonly referred to as Autocratic style.
Here leaders are concerned only with developing efficient operations by arranging a
tight structure and conditions of work. They have title or no concern for people.
(d) Team
It is also an extreme style of leadership. Here, the leaders display a rare quality or
ability inter-woven with the production needs of the enterprise with the needs of the
individuals.

In other words, these leaders believe that the highest concern for

production as well as people alone can accomplish the organizational objectives.


(e) Middle of the Road (5-5)
In reality, a leader may fall under any one of the above four styles. Sometimes, he
may have a typical style which can be placed somewhere on the grid. Some leaders
may have maximum concern for productions as well as for people.

They set the

objectives at moderate levels considering the feelings of the people. Adequate level of
production and satisfaction can be reaped through this style.
The Managerial Grid is a useful tool for identifying different leadership styles. The
answer to the question what kind of leader he is depends upon the personality,
characteristics, enterprising ability, environment and other situations.
(iii) Tri-dimensional leadership style
While the managerial grid and Ohio State studies have based upon two factors
Task oriented and relationship oriented for explaining the styles of leadership, Prof.
W.J. Reddin has suggested effectiveness as the third factor in deciding the style of

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leadership. The term effectiveness refers to how the leaders personality


interrelated with the situation to which is he subjected to operate his activities. In this
Tri-dimensional leadership style theory, how effective or ineffective are the leaders in a
given situation can be understood very easily. When ones style is appropriate to a
given situation, he is termed as effective and vice-versa.
The basic styles are integrated with the concept of effectiveness and / or
summarized below:
a. High task and low relationship behaviour is termed as dedicated
style.
b. High task and high relationship is viewed as integrated style.
c. Low task and high relationship behaviour is considered as related
style; and
d. Low task and low relationship behaviour is known as separated
style.
Depending upon the effectiveness or ineffectiveness of the leader in a given
situation, 3-D style identifies the following real time challenging situations.
Basic

Effective styles

Ineffective styles

a.

Dedicated

Benevolent Autocrat

Autocrat

b.

Integrated

Executive

Compromiser

c.

Related

Developer

Missionary

d.

Separated

Bureaucrat

Deserter

(C) Other styles


None can succeed in explaining the best style of leadership because it depends
upon various factors.

No leader can be rigid or free all the time.

different behaviour in different situations.

He has to adopt

Since all the existing theories have been

proved to be inadequate, the situation is set for the development of contingency


theories.
Some of the important contingency theories have been explained in the following
paragraphs.
1. Fielders Contingency Model
Fred E. Fielder and his associates of the University of Illinois have suggested a
contingency approach to leadership.

According to this approach, people become

leaders not only by virtue of their personality attributes put also by virtue of various
situational factors including leaders ability to interact with group members.

This

theory holds that three major situational factors determine the success or otherwise of
a given leader. They are:
a) Position power

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This indicates the degree of power of a position which permits a leader to secure
group members compliance with his direction. In other words, a leader with clear
position in power can obtain goods followership more easily.
b) Task-structure
Here, the leaders success depends upon how clearly he spells and sells assigned
task through his people so that subordinates are made more responsible and
accountable for their performance.
c) Leader-members relationship
This is the most important dimension.

While the power of position and task

structure are largely under the control of an organization, developing effective


relationships depends upon the liking and willingness on the part of subordinates to a
given leader.
To sum up, a particular situation appears to be most favourable to the leader
when he is liked by his followers, when he gives clear-cut direction about the job, and
when he is blessed with appropriate position.
On the other hand, the situation becomes unfavourable to the leader when he is
disliked, faces vague and unstructured jobs and has little power. Fielders research has
proved that task oriented leaders would be more effective under unfavourable or
favourable situations.

In contrast, relationships oriented leaders tend to exhibit

better performance under situations that are moderately suitable to leaders.


(2) Path-Goal theory of leadership
This theory is based upon the findings of various motivational as well as
leadership theories already proposed by various authors. Robert House, who suggested
the path Goal Theory, believes that the main function of a leader is to (a) clarify and
set goals; (b) help subordinates find the best way for achieving the set-goals; and (c)
remove obstacles, if any.
This theory is not suggesting any particular style. On the other hand, it is only
suggesting the applicability of a relevant leadership style under different situations.
The success of a leader depends upon how well he can set the goals for his
subordinates and help them in attaining the same with minimum difficulty.

Well

established Path-Goal relationship leads to high rate of success through greater


satisfaction among subordinates.

When jobs are unclear and difficult to achieve,

subordinates are frustrated. They look forward for directions from the leader. The key
to this approach is that the leader can influence the paths via behaviour in goals.
(3) Leadership Continuum
Real time leadership styles vary between the two extreme varieties Authoritarian
and Democratic. Evolving different styles suitable to different situations has been well
explained by Robert Tannenbaum and Warren H. Schmidt through Leadership
Continuum Model.

This model suggests a range of styles that can be adopted to

different situations. According to this theory, leadership effectiveness is the function of


the leader, the follower and the situational variables. As per this theory, the following
are the most important elements that may influence a leaders style.

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a)

Forces operating in the leaders personality such as confidence, judgement,


value systems, feeling of security, preference to a particular style etc.,

b)

Forces operating in subordinates including their knowledge, experience,


tolerance, willingness to accept responsibility etc.

c)

Forces of a given situation: The work situation is made up of a number of


forces like team spirit, pressure of time, behaviour of workers during
emergency situations. They exert lot of pressures on leaders.

d)

Forces of the organisational environment:


Elements like planning;
organizing, directing and controlling have a definite influence on the
organisational environment.
They also influence the subordinates
motives, expectations, rewards and relationships.

e)

Influence of the social environment via Labour Unions, Government


Regulations. Consumer Courts and other outside parties may significantly
affect the leaders behaviour.

Functions of Leadership style


Whatever might be the style, every leader has to perform some functions. Since
leadership is the process of influencing people, it has to perform multi-dimensional
functions in obtaining the willing contributions of the subordinates.

Some of the

significant functions of leadership are briefly explained below:


(1) Planning and organizing the organisational activities in a desired manner.
(2) Influencing the subordinates to accomplish the goals through reward and
punishment.
(3) Motivating and directing the subordinates to better levels of performance
through proper guidance from time to time.
(4) Understanding the subordinates expectations and aspirations and obtaining
their willing cooperation in the realization of organisational goals.
(5) Remove ambiguities and issue clarifications in order to make them more
responsible on the job.
(6) Creating a favourable organisational climate so as to retain and develop human
resource.
(7) Understanding the macro economic influence over the organisation and steer
the Company on the path of success.

4. REVISION POINTS
5. INTEXT QUESTIONS
IMPORTANT QUESTIONS
1.
What is Direction? Explain the scope and role of the direction function in
modern organisation?
6. Summary

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Summary: There is no one best way of leading the people. Various theories
propounded by eminent authors have only suggested the varieties of ways that
are available for leaders in different situations.

One has to grasp the

knowledge to understand the total theory on the subject. Every leader has to
adopt his own style depending upon the situation. How the leader influences
the people is not important.

What is important is how a leader helps

subordinates in accomplishing organisational as well as personal goals.


7. Terminal exercises
Comment on the five main leadership positions depicted in managerial grid.
Which one would you advocate?
8. Supplementary material
REFERENCE BOOKS
1) Essentials of Management
2) Management Structures

- Harold Koontz.
- Arthus Elkins

functions & practices


- James A.F. Stoner Charles Wankel.
3) Management
9. Assignments
Define the concept of leadership. Mention some of the important qualities of a
good leader.
10. Suggested reading s
) Essentials of Management

- Harold Koontz.

2) Management Structures

- Arthus Elkins

functions & practices

- James A.F. Stoner Charles Wankel.


3) Management
11. 11. Learning activities

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12.

12. Key words.


1. Introduction

Chapter 2. Motivation

Organisations are successful when all the members contribute their performance
in an optimum manner in a desired way. This performance of a group directly depends
upon the ability and willingness of its members together with the technology used. The
term ability refers to the individuals capability of handling the job at a certain time in
a given way. While willingness depends upon the level of motivation, technology is
influenced by the level of research. Thus, symbolically,
Performance = Ability x Motivation x Technology
Modern Organisations are recruiting hundreds of people. Some of them may be
good doers and some of them may be bad/poor performers. The Management cannot
take the chance of removing poor performers. The only alternative left before it is to
encourage and stimulate the poor doers in such a way that they are persuaded to
contribute to the organisational objectives. Hence, the problem before the Management
is how to motivate people.
The concept Motivation though looks simple, connotes different meanings in
different situations. For the purpose of our study, it always indicates work motivation.

Several theories have been propounded by eminent personalities explaining the


reasons and process of motivation. Understanding these theories acts as a
foundation for understanding the work behaviour of the people. Some of the
significant theories have been explained in the following paragraphs.

2. Objectives
To define the concept Motivation and enable the student to understand the
process of motivation;
To identify the primary and secondary motives;
To discuss the theories of motivation propounded by Mc Gregor & Maslow,
Vroom, Aalderfer and Mc Celland;
To explain the importance of financial and no-financial incentives.
3. Content
The word motivation has been derived from the Latin word movere. It means
to move with. The task of the Manager is to guide the peoples action in a
desired way. Motivation is a general term. It includes drives, desires, needs,
wants, wishes and similar forces.

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The motive is an inner desire. It activates the individual towards a particular


goal. Desires, needs and wishes are inborn impulses which stimulates the action
of the individual. Motivation is the art of understanding these motives and
energizing and directing the behaviour towards a particular goal.
According to Scot, motivation means a process of stimulating people to action
and to accomplish desired goals. Koontz and O Donnel define the concept of
motivation as the act of inducing the subordinates to act in a desired manner.
In the words of Encyclopedia of Management, the term motivation refers to the
degree of readiness of an employee to pursue some organisational goals. Thus,
motivation is the act of stimulating the subordinates to a desired course of
action.
A review of the above definitions throws necessary light on the understanding of
this concept. All workers have got one or the other type of energies. Motivation
is the art of energizing the human skills in a desired way. The energisation
process is a complex one since it involves understanding the needs and drives of
the people. Hence, it is termed as a psychological process. Not only that, it is a
continuous activity. Even while the organisation is going good, the Manager has
to practice motivation to keep the going still better since motivation varies from
individual to individual. Different techniques may be used by the manager to
motivate the people from time to time.
4. DIAGRAM NO. IV. 2.A
PROCESS OF MOTIATION
NEEDS

WANTS

TENSION

ACTION

SATISFACTION

Motivation is a process that starts with a physiological or psychological


deficiency which is called a need. Needs are created whenever there is an
imbalance. They activate the human behaviour in a desired way for the
fulfillment of the needs. They are action-oriented. They provide necessary
encouragements to reach a particular goal. That is why they are at the heart of
the motivational process.
Diagram (IV.2.A) exhibits the need want satisfaction chain that plays a
prominent role in the motivational process. Feeling of an unsatisfied need gives
rise to wants. Fulfillment of human wants necessitates action which in turn,
creates tensions. Actions of the individual, if properly directed, result in
satisfaction. The point to remember is that a fulfilled need ceases to act as a
motivator. If one need is satisfied, a higher order need may emerge in the mind
of the individual which further necessitates a higher order level of effort for

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fulfilling the same. Some people may get confused with the relationship between
motivation and satisfaction. Motivation refers to the drive and effort to satisfy a
given want. Satisfaction refers to the contentment and feeling experienced by the
individual when his want is satisfied. While motivation implies the drive force
for an outcome, satisfaction refers to the outcome itself. Motivation is important
to Management due to many reasons.
(a) Higher Performance
A good motivational system brings out the latent and potent abilities of the
employees for the accomplishment of organisational goals. It encourages them to
contribute enthusiastically for better performance. Poorly motivated people may
hinder the goals.
(b) Low absenteeism Turnover
Motivated employees are highly committed and loyal to the organisation. They
come punctually and stay longer hours because they are satisfied individuals. It
reduces labour unrest, absenteeism and turnover.
(c) Facilitates change
Motivated employees are receptive and co-operative. Hence, motivation helps in
eliminating the negative attitude of employees in overcoming the resistance.
(d) Team Spirit
A high level of motivation results in harmonious relations between Management and
Workers. It encourages high level of morale and discipline.
(e) Image of the Enterprise
A Company that provides satisfaction through motivation can project better
image in the eyes of the public. It enables the Company either in retaining or
attracting talented work force. It fulfils the creative desires of the people. That is
why Rensis Likert has commented that motivation is the core of Management.
TYPES OF MOTIVES
A motivate is a personal and internal feeling. It is concerned with the intrinsic
forces operating within an individual which impel him to act or not to act in a
given way. Motives are different types. They are grouped into three categories for
the purpose of understanding in an easy way.
i) Primary motives
They are also termed as biological, physiological and unlearned motives. Primary
motives always take precedence over the secondary motives. Primary motives
include hunger, thirst, sleep, avoidance of pain etc., Since all people are human
and their biological system is common, the make up of the primary needs is
essentially the same among all the individuals. That is why they are called as
biological and unlearned motives.
ii) As the society has been transforming, human needs have become complex.
Primary motives are playing less prominent role and learned behaviour is

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playing a crucial role in motivating the people. A motive must be learned in


order to be placed in the list of secondary classification. Some of the important
secondary motives are power, achievement, affiliation etc., power motive implies
the need to manipulate others or dominate others. In modern organizations, a
persons life style is more characterized by the need for competence which can be
well met by the innate drive for power. It explains the desire to perform in an
excellent manner under competitive situations. The feeling of belongingness is
accepted as an important parameter in determining the positive human
behaviour. Similarly, status and security may also stimulate positive or negative
human behaviour in work situations.
THEORY X AND THEORY Y
Douglas McGregor proposed two different theories namely Theory X and Theory
Y in 1960.

Basically, these two theories explain about the human nature.

While

theory X deals with the negative aspect, theory Y dealing with positive aspect of the
human behaviour. Theory
X involves traditional approach and based upon the following four assumptions
held by the managers about the workers.
a) Workers dislike work and are lazy.
b) Since workers dislike work, they must be controlled with punishment to
achieve the goals.
c) They dont want to take up responsibilities for themselves and seek
formal direction from the boss whenever possible.
d) Workers place security of their job above all other factors associated
with work and display little ambition.
As against these negative views about the human behaviour and its nature.
McGregor listed out four different assumptions under theory Y They are:
a)

Workers can view the work as natural as rest or play; b) Workers can
exercise self-direction and self-control, given the proper environment;

b)

An average worker can accept responsibility and learn to grow;

c)

Workers are creative, imaginative and resourceful;

Frankly speaking, the above two theories have nothing to do with motivation.
They explain about the nature of human behaviour under two sets of different
assumptions.
The assumption under theory X that workers must be coerced and regulated for
accomplishing objectives is akin to the characteristic policy which has become obsolete
method in managing people. However, these theories enable us to understand how the
manager should mould his behaviour under two sets of situations for getting things
done.

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NEED HIERARCHY THEORY:


The most well known theory of motivation is Abraham Maslows hierarchy of
needs. He proposed that in every human being there exists a hierarchy of five needs.
They are:

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i)

Physiological or basic needs (e.g. food, water, clothing, shelter etc.):

ii)

Safety and Security needs (e.g. security of job, protection from harm etc.):

iii)

Love needs (e.g., affection, friendship, belongingness, etc.):

iv)

Esteem needs (e.g. self respect, status, recognition, achievement etc,):

v)

Self actualization needs (e.g. growth, fulfillment of ambition, bringing out


the real potential etc,).

The above needs can be depicted in the following Diagram No. (IV.2.B):
DIAGRAM NO. (IV. 2. B)
HIERARCHY OF NEEDS

SELF AUTUALISATION
NEEDS

ESTEEM NEEDS
LOVE NEEDS
SAFETY NEEDS
BASIC NEEDS

According to Maslow, if lower need is satisfied, the person moves up the ladder to
the next higher order need. It means that if basic needs are satisfied, workers can be
motivated by fulfilling the next higher order needs fulfilling unsatisfied needs rather
than by satisfied need. Maslow separated the five needs into low (basic and safety
needs) and higher (love, status and satisfied externally, higher order needs are satisfied
internally. This theory has received wide recognition among the practicing managers
because of its logical link. This does not mean that this theory is free from criticism.
The first criticism is that this theory has not specifically mentioned about work related
needs.
Secondly, the strength of each need varies from individual to individual. Hence,
strict ordering of human needs in the above hierarchy could not be proved empirically.

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Thirdly it is criticized that it only deals with the content of motivation rather than the
process of motivation.
Two-Factor Theory
Frederik Herzberg and has associates conducted a research study and have
identified two sets of factors. According to this study, motivation depends upon
satisfaction. The two sets of factors affect satisfaction or dissatisfaction of workers. The
first set of factors are termed as maintenance factors. They are salary, job security,
working conditions, quality of supervision, interpersonal a relationships, companys
policy and administration. These factors are related to job environment. Presence of
these factors is necessary to avoid dissatisfaction among workers. These factors ought
to be maintained as a matter of compulsion in every work situation.
The second set of factors are related to the content of the job. They include growth,
advancement,

recognition,

achievement,

accepting

increased

responsibility

etc.

According to Herzberg, these factors are motivational factors which stimulate the
worker to better levels of families. Hence, these factors are termed as satisfiers. To sum
up, while the first set of factors have to be maintained as a matter of compulsion in
order to remove dissatisfaction the second set of factors alone are responsible for
motivating people.
This theory is also not free from criticism. Firstly, there is too much botheration
about satisfaction, dissatisfaction and the point of no satisfaction. There is no
guarantee that satisfaction leads to productivity in all cases. Secondly, the concept of
satisfaction is influenced by a good number of the job and on the job factors. Thirdly,
the impact of situational variables have been ignored in this theory. Fourthly, like Need
hierarchy theory, it is also concerned with the content of motivation and not with the
process of motivation.
Vrooms Expectancy theory: Victor Vroom proposed this theory as an alternative to
the content models explained in the earlier paragraphs. It is the most widely known
theory of motivation for the purpose of understanding the process of motivation.
According to this theory, a persons desire to work at any time can be conditioned by
two factors.
a) existence of one or more personal goals on the part of the employee; and
b) his expectation as to the relative worth of his performance for the attainment
of such goals. When the worker believes that his performance will lead to the
fulfillment of personal goals, he tends to become a high producing worker and
vice-versa.
It has been stated by Vroom as given below;
Force (Motivation) = Valence x Expectancy

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Here the term Valence stands for the strength of an individuals preference for an
outcome and expectancy to the probability that a particular action will lead to a desired
outcome. This theory establishes four important links in the process of motivation.
Efforts Performance Rewards/Awards Goals.
This theory has three important implications to managers. Firstly, it is necessary
to provide appropriate rewards to satisfy the individual needs. Secondly, managers are
required to establish a close link between efforts and performance between
performance and rewards and finally between rewards and personal goals. Thirdly, this
theory recognizes the fact that there is no universally acceptable method for motivating
people because of the influence of contingency factors from time to time.
Achievement Theory
David Mc Clelland has identified three basic motivating needs such as need for
power, need for affiliation, and need for achievement. Though all these three needs are
important to management in understanding the process of motivation, to Mc Clelland
need for achievement is of paramount importance. It is concerned with predicting the
behaviour of workers who have either high or low needs for achievement.
Need for power has a great concern for exercising control and influence. People
with this need tend to be forceful, outspoken and demanding in obtaining the work.
People with need for affiliation are likely to be concerned with maintaining pleasant
relationships People with a high need for achievement have a strong desire for success.
They love challenges.
Achievement motivated people are blessed with some special characteristics. They
are not gamblers and they dislike succeeding by chance. They like job situations. They
like moderately challenging goals. They can influence their efforts through continuous
feedback of their performance. They tend to become task-oriented people since they are
vitally concerned with their personal achievements.
The findings of this theory proved that achievement motivated people mainly come
from middle-class families. This study further reveals that the need for achievement
would be stimulated through class-room instructions and training programmes. This
theory urges people to act on the basis of internally driven stimulus to improve their
performance. This theory has received wide recognition.
E R G THEORY
It is an improved model over Maslows and Herzbergs theory on motivation.
Clayton Aalderfer identified three groups of basic needs Existence, Relatedness and
Growth. The existence needs are concerned with physical well being and survival (food,
clothing, shelter, good working environment etc) The relatedness needs emphasise the
importance of interpersonal and group relationships. The growth needs are concerned
does not see the needs as a hierarchy as stated by Maslow. It does not contend that a
lower-level need has to be fulfilled before satisfying a higher level need. Under this
theory, a persons background may dictate that the relatedness needs will take

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precedence over unfulfilled existence needs. It further assumes that the more the
growth needs are satisfied, the more they will increase their intensity. In other words,
this theory suggests that one class of needs might remain strong irrespective of the fact
whether the other class of needs has been satisfied or not.
Having discussed some of the important theories of motivation, a brief attempt is
made to discuss the Management techniques that can be tried to increase motivation in
work situations. Management generally uses financial and non-financial techniques to
motivate employees.
Financial Motivators
The commonly accepted belief is that Motivation is directly or indirectly connected
with money. It is true that money acts as a vehicle through which most of the higher
order needs can be fulfilled. This is the reason why most of the organizations use
money incentive as a means of offering satisfaction among staff. Productivity linked
wages, bonus, profit-sharing, leave with pay, medical reimbursement, leave travel
concession are included under this type of motivation. Experience proved that money is
a most reliable motivator. Money as a reward for accomplishment is now accepted as a
base for designing compensation methods.
Besides money, there are some other motivators which deal either with personal
development or with the environment of the employees. Dale Yoder has identified that
workers who set their own goals are capable of dynamic. Understanding all these
theories is important for effective management of human resource. It is the primary
responsibility of every manager to create favourable climate either by offering financial
or non-financial incentives for motivating the work force in a desired way.
5. Revision points
o motivation
o theories of motivation
6. Summary
Motivation is the motive strength to meet (or) satisfy felt needs. Motives are
reasons for behaviour. They direct us towards goals. Economic approach tries to
offer need satisfaction on the job. Managerial approach attempt to secure
coincidence of peoples with the needs of the organisation.
7. Terminal exercises
The desire to satisfy needs is the basic motivation for human behaviour. Need
satisfaction stimulates productive behaviour and psychological growth. The
failure to satisfy need results in frustration, and it is negatively affects our
ability to perform a job well. Comment on the statement and give detailed
explanation.
8. supplementary material
1) Principles of Personnel Management

Edwin Flippo.

2) Human Behaviour at work

Keth Davis

9. Assignments s

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1)

How could one theory of motivation be applied to solving a practical


problem in motivation in an organisation? What problems in applying the
theory would you expect to encounter?

10. Suggested readings


4) Personnel Management

C.B. Memoria

5) Management

Koontz

&

Weihrich.

11.
12.

Learning activities
What do you mean by motivation? Explain the simple process of
motivation.

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Chapter- 3. Communication
LEARING OBJECTIVES
After reading this lesson, you should be able to:

Understand the meaning & role of communication function in an


organization:
Describe the basic communication process;
Identify different communication networks;
Explain the reasons for barriers in communication; and
Offer suggestions
organisation.

to

maintain

effective

communication

in

an

INTRODUCTION
The word communication has been derived from the Latin word Communis
which implies common. Therefore, the term Communication refers to the
process of transferring information from sender to receiver with the sole purpose
of creating common understanding among the parties concerned. It is only the
means by which one person can influence another. That is why it deals primarily
with people. It is a basic need of the modern Management. The desire for
communication is as strong as the desire for food. It touches every facet of the
managerial activity. Some people view it as a life line of the modern
organization. It includes telling, advising, directing, ordering and commanding.

It presupposes shared environment. One needs not over emphasis its


pervasiveness, imagine the world without words. It is just like a jungle. The
present rate of economic development in any nation is possible only because of
interaction among people. Hence, we can not visualize the world without
communication.
Meaning and Definition
Peter little has defined this concept as a process by which information is passed
between individuals and organizations by means of previously agreed symbols.
Newman viewed it as an exchange of facts, ideas, opinions or emotions by two
or more persons. Communication does not simply mean only transmission of
information but also includes perpetration and understanding of the message. It
is an exchange of thoughts and information to create mutual understanding and
confidence.

To conclude, Louis. A Allen opines that Communication is the sum total of all
the things that one person does when he wants to create understanding in the
mind of another. That is why Chester I. Barnard said, the first executive
function of any leader is to develop and maintain a good system of
communication. Because good communication serves as a linking process by
which all parts of an organizational system are tied up closely.

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DIAGRAM IV III A
PROCESS OF COMMUNICATION

FEEDBACK

SENDER

MESSAGE

RECEIVER

BARRIERS

U
N
D
E
R
S
T
A
N
D
I
N
G

Process of Communication (Diagram IV. 3. A)


The above diagram depicts the process of communication. It involves the

Sender, the Message, the Receiver, and the purpose of communication. Every
communication begins with the sender. The information to be transmitted by the
sender is known as the Message. It may be oral or written. What kind of mode
of message is the best depends upon the situation. The message should reach
the receiver in a proper way and that too in proper time. The receiver should
also think in equal wave length for the purpose of understanding the real
meaning of the message. Communication is not complete unless it creates
understanding among the parties concerned. People with closed minds, weak
channels (or, channels with loopholes) and technical barriers will create problems
in communication. Effective steps must be taken from time to time to remove
the bottlenecks that come in the way of creating understanding among people.
For which purpose, proper feed back is a must. It refers to the response given by
the receiver for the purpose of facilitating further communication and greater
clarity in understanding. Good feedback enables the sender to know whether or
not the message has been properly received and interpreted.
Types of communication
Depending upon the channel, communication may be broadly studied under two

types - - formal communication and informal communication. The diagram (IV. 3.


B) below represents the flow of information and the types of such flows:

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DIAGRAM (IV. 3. B)
TYPES AND FLOW OF COMMUNICATION

HORIZONTAL

GRAPEVINE

UPWARD

(A) FORMAL COMMUNICATION


It refers to the flow of information in the official lines of hierarchy. It strictly
adheres to the chain of command. It is a deliberate effort to inform all the issues
to appropriate officers. It is mainly connected with work-related matters. By
virtue of this, it is more authentic, systematic and dynamic. But at the same
time, it is inflexible and slow in effectiveness. Formal communication flows in
three different directions; i) Downward; (ii) Upward; and (iii) Horizontal. The
decision relating to these three types of communication is presented in the
following paragraphs.
i. Downward Communication
It refers to the flow of information from superiors to the subordinates. Here,
information flows from top to the bottom. It is most commonly found in formal
settings. It is mainly used for directing and controlling people in getting things
done. Downward communication includes instructions, policy statements, orders
etc.
ii. Upward Communication
It involves transmission of information from subordinates to superiors. It serves
as a feedback. It enables the management in knowing how far the commands of
the superiors have been carried out. It encourages open door policy of
exchanging ideas between superiors and subordinates. Since the flow of
information from bottom to top is non-directive, it is usually found in participative
and democratic organizations. It gives a chance to the subordinates to release
emotions by raising their complaints or grievances. But upward communication
gives better results only when the officer is open minded and receptive.
iii. Horizontal Communication
It refers to the flow of the information among people working at the same level of
authority. That is why it is termed as lateral communication. Since message
flows among the same cadre people, status barriers dont exist. This kind of

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arrangement encourages greater coordination among different departments. It


may take in one or more of the following forms:
-

meetings,

conferences,

letters,

office memos etc.,

Sometimes, even horizontal communication is hampered because of specialist


approaches adopted by different officers over a single issue. Modern
organizations have been using all these types of communication in one way or
the other. No one is substitute to the other. Each one is having its own relative
merits and demerits. The management has to use the appropriate type in a
judicious manner for obtaining good results.
(B) INFORMAL COMMUNICATION
The term informal communication refers to the flow of messages, opinions, and
expectations among people through informal contacts. It grows out of social
contacts between people who work together. It is not bound by any rule or
regulation. It is purely unofficial and unplanned communication. Information
circulates like a grapevine ignoring the lines of authority. The managers can
obtain lot of useful information about the real opinions of the subordinates
through this method. Things that can not be done through formal
communication can be accomplished through grapevine. Since it is flexible, it
can take in any direction without bothering ego or status by the people. It
motivates the people and helps in building team work. But, grapevine
communication is handicapped by the circulation of rumors and half-truths.
Another disadvantages associated with it is lack of complete information and
authenticity. Despite these weaknesses, the role of grapevine communication
can not be ignored. It is an integral part of any organization. Both formal and
informal types of communication must be tried in a balancing way.
FORMS / METHODS OF COMMUNICATION
There are many methods at mans command regarding communications. The
world is bombarded by information. The offices of the modern organisation are
highly revolutionized through the use of intercom, telephone, telex, teleprinter
and fax machines. Information is made available on figure tips. In this world of
technological advancement, man remains to be a talking machine. The
management has to select one or more of the available methods for effective
communication purpose. The following diagram (IV. 3. C) illustrates different
methods of communication.

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DIAGRAM (IV. 3. C)
METHODS OF COMMUNICATION
METHODS OF COMMUNICATION

USING LANGUAGE

WITHOUT USING
LANGUAGE

VERBAL

ORAL

NON - VERBAL

WRITTEN
VISUAL

AUDIO VISUALBODY LANGUAGE

Basically, there are two forms of communication verbal and non-verbal. Verbal
communication may take the form of oral or written communication. In oral
communication, parties exchange their ideas through spoken words. That is why
it is also referred to as face-to-face communication. It takes less time and the
feedback is quick. It gives ample scope for adjustment and correction of the
original message. But, its effectiveness is nullified due to lack of documentary
evidence regarding such conversation.
A written communication is always put in the form of written words. All official
letters, circulars, memos, statements and reports are the best examples of
written communication. It provides a permanent record for future reference. It is
suitable for lengthy messages. It offers more authentic information. Despite
these advantages, it is time consuming, and less flexible. Quite often, it is
proved to be expensive and tedious.
Non-verbal communication does not use words. It is a language beyond verbal
communication. Transmitting the message through charts, graphs, maps, sign
boards etc., is now increasingly tried by the organizations. By seeing these
visual aids, information can be easily grasped or understood. One need not
explain now the bar diagram gives clear clues regarding the performance of an
organisation. Meaning can be quickly received through the visual-aids. Nonverbal communication includes body language. It helps in understanding the
warmth of feelings and emotions. It may take the form of gestures, facial
expressions, feeling of touch etc. The following gestures exhibit the real feelings
as stated opposite to them.

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Gesture
ALL
CHANNELS
CIRCLE

Feeling

Y
1.WHEEL
Shrugging
of shoulders

CHAIN
Fear,
anxiety

2. Raising legs

Enthusiasm

3. Shake-hand

Friendliness

4. Patting

Warmth and affection

5. Shaking-head

Rejection of an idea

6. Raising eye-brows

Surprise

DIAGRAM: IV: III: D


COMMON COMMUNICATION NETWORK

Each of these methods of communication has to play an important role at one


time or the other. In fact, all these forms of communication are in use in making
communication more effective. While choosing a particular method, the
knowledge of the sender, the importance of the message and the situation must
be duly considered.
NET WORK MODELS
Communication networks are usually compared with the nervous system of the
human beings because they also perform the same functions. Both carry signals
from one position to the other. Communication networks are not usually that
much effective, as a nervous system in their functioning because of inbuilt

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impediments. Communication becomes effective when it is fully understood,


believes and accepted by the receiver. Every communication network must
satisfy the above acid test.
The term network implies the link through which information is flowing from one
end to the other in an organisation. Every organisation can develop its own
pattern of flow of information. A network indicates the path over which
communication is transmitted from one person to other. In other words, it
indicates the route through which information flow for decision-making. The
most commonly used network has been illustrated in the diagram (IV. 3. D):
The above diagram exhibits different from of networks like chain, wheel, circle
and Y. The diagram depicts five level hierarchies. The chain network
represents a give-level structure where communication takes place from either
top to the bottom or from bottom to the top. Under this form, there is no scope
for horizontal communication. Here, communication flows directly down the
authority line. For example, the clerk prepares the bills, the supervisors certify
the same and report the same to the Accountant, who in turn reports the same
to Accounts Officer and he reports the matter to the Manager. This indicates
chain network.
A wheel network indicates two levels of authority only. It indicates a typical
example wherein supervisor establishes direct link with four subordinates. It is
clear that there is no interaction among subordinates. It is best suitable to
situations where quick action is needed. In contrast to this, a circle network
allows all members to interact with adjoining members. It is best suitable to
three level positions viz. officer, supervisor and subordinate. This network is
widely used since it produces higher level of satisfaction among subordinates.
The Y network integrates the advantages of wheel network at the top and
chain network at the bottom. In this diagram, we can see two subordinates (D
and E) reporting to the supervisor (C) who in turn reports to two officers (A and
B). As against this, all-channel network allows the subordinate to communicate
freely with the other four. There are no restrictions. All members have equal
number of channels and an opportunity to share equal amount of information. A
typical example for this is Committee where all members are treated on par
with each other in sharing views.
Each one of the above networks has its own merits and demerits. There is no
single network that can yield desired results in all situations. The effectiveness
of a given network depends upon the speed, accuracy, need, cost and time
factors. Best results can be obtained by using all these forms of networks, at
one time or the other, depending upon the situation.
Barriers to Effective Communication
Effective Communication is essential for the success of any organisation. One of
the most common problems faced by the modern manager is communication
break-downs. Several obstacles will come in the way of creating perfect
understanding. Successful executives should develop the skills of
communicating effectively. It needs minimization of misunderstanding and

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creation of understanding among the parties concerned. Since modern


executives spend 90 percent of their time on telling, listening, reading and
writing; a part of their communication may be misunderstood or misinterpreted
or distorted. Executive needs to understand the reasons for poor communication
so as to become effective in communication. Barriers of communication can
exist in the sender, in the message, in the receiver, in the feedback or in the
organisational structure. Some of the important communication barriers are
briefly discussed in the following paragraphs.
(A) LANGUAGE & SEMANTIC BARRIERS
1. Absence of Common Language
A single word may give different meanings to different people. The meanings of
the words are not in the words but with the people. In companies, workers
usually come from drivers backgrounds. Language problem bound to exist
between a Hindi speaking worker and an English speaking boss. For effective
communication, they need to develop a common language. The term Fatmouthing is used by the black people (US) to represent the meaning of talking
too much. In contrast, the literal meaning is different.
(ii) Semantic Barriers
In addition to language barriers, semantic barriers also present a problem in
making communication effective. Words like light and cheap give sometimes
positive and sometimes negative meanings. It is because of the fact that the
intended meaning is wrongly interpreted by the receiver. To illustrate this, read
the following sentence.

Shoes are required to eat here. This sentence is written at the entrance of a
Cafeteria of a University. A student wrongly interpreting the message has written
with a piece of chalk like this: Socks may be eaten outside the Cafeteria.
The above example illustrates how the intended meaning is misinterpreted
through semantic barrier.
(iii) Poor Vocabulary
Poor vocabulary on the part of the manager does not allow him either to write or
speak effectively. Similarly, poor vocabulary does not allow the receiver to
understand the message clearly and completely.
(B) ORGANISATINOAL BARRIERS
(i) Hierarchical Barriers
Modern organizations are characterized by the existence of people belonging to
various levels of hierarchy. For e.g.: Workers, Supervisors, and Shop Floor
Managers etc. It is quite common that equal status people talk to each other
without inhibitions. A lower level employee may find it difficult to communicate
freely about his problems with his superior. Similarly, subordinates are afraid of
unpleasant and critical comments from their superiors. A gap in understanding
always exists because of the differences in their respective positions held in the
same organisation.
(ii) Too much specialization at work spot

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Technological advancement leads to highly specialized jobs at work place. Every


worker is doing his specialized task without bothering about the nature of other
persons work. The phase of the work is so tight that it hardly allows the worker
to come out of his compartment and communicate freely with fellow workers.
This kind of work situation separates people and thus creates problems in
communication.
(iii) Wrong choice of medium
The success of any communication directly depends upon the medium through
which it is sent. A particular type of medium may be best suitable to a given
situation. To illustration this point, consider the following examples.

Situation

Right Medium

Wrong

Medium
1. Smuggler
2. Traffic Policemen
3. Business Executive

Flashing torch
Hand gestures
Telephone

Oral instruction
Oral instruction
Oral instruction

On confidential work

Choosing a wrong medium may create problems in communication. Selecting


the most appropriate medium is the primary step in effective communication.
(C) PHYSICAL
(i) Noise
Poor telephone connections, loud noise and unexpected interruptions may create
difficulty either in listening or in understanding the real content of the message.
If the message is written, sometimes, either bad hand writing or smudged type
script may hamper the effective flow of communication.
(ii) Time
Timing of communication is also important in creating proper understanding. If
an employees does not communicate with his boss for undue long time means it
creates misunderstanding. A guest who arrives at mid-night will not be able to
be a good communicator. Similarly, the phone call at mid-night might irritate the
receiver and dampens his communication.
(iii) Distance
Distance can be a strong barrier of communication. Long chain of command or
existence of several layers of supervisor may impede the real message of
communication. Long communication networks and distance between superior
and subordinate may create difficulties in communication. The functioning of
mechanical devices like telephones and telex might be affected by the distance
in transmitting the messages. Communication problems are bound to be there in
between wife and husband if they stay away long time.
(iv) Age

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Factors like age, maturity educational background will certainly influence


communication process. Generation gap creates gap in style of speech,
standards of values and judgment. There is some positive relationship between
chronological age and maturity of thought and understanding.

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(v) Sex
Usually, men are considered to be more aggressive, self-confident, assertive and
acquisitive than women. By virtue of this fact, they turned to be good
communications. In contrast to this, women are brought up under the
philosophy that the quality of assertiveness is unfeminine. Women with feminine
ideas and closed brought up try to avoid eye-to-eye contact with superiors and
speak inaudible. Hence, they turned to be poor communications.
(D) PSYCHOLOGICAL BARRIERS
More than fifty percent of the communication problems are attributable to
psychological barriers. Psychological aspects like attitudes, perception, interest,
belief, prejudices etc., may come in the way of proper understanding of a
message between the sender and the receiver.
(i) Attitudes and Values
Our thinking is influenced by our attitudes and values. They tend to be different
from one person to the other. Hence, they create barriers. A message which
runs contrary to the beliefs is not easily acceptable. Emotional attitudes are so
strong that they distort understanding among the people.
(ii) Perceptions
Communication barrier arises as a result of different perception of the same
message / object by two people. There is nothing wrong if two friends express
different opinions about a given movie. Similarly, a fifty paisa coin appears to be
a big money to a poor man and a small one to a rich man. That all depends upon
how one perceives the idea. Differences in judgments inhibit communication.
(iii) Lack of Interest
Interest creates understanding. Effective Communication requires proper
interest among the parties concerned. It enables them to pay adequate
attention to the message. Lack of interest leads to mistrust which hampers
effective communication. There may be many talkers but few listeners. Lack of
interest leads to poor listening. Hence, effective communication demands
interest among the parties concerned.
(iv) Poor Retention
One of the weaknesses of the human being is his inability to retain total quantum
of information received. Poor retention acts as a barrier in effective
communication. At each level from top to the bottom if some information in
retained, then, communication becomes ineffective.
(v) Filtering
Filtering refers to the process of manipulation of information by the sender so
that it will reach the receiver either in a favourable or unfavourable way. A
superior may withhold information thinking that subordinates do not need it.
Filtering of information increases with the levels of hierarchy. If a supervisor
comments that your work can be improved, the subordinate may filter the
meaning and receives the message that your work is no good.

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(iv) Fear
The feeling of fear undermines communication. People with fear, whether real or
imagine disort information. Fear is a psychological inhibition that prevents them
from exchange of ideas freely and kills the initiation. Fears are of different types.

a.

Fear of misinterpretation: A worker who would like to enquire about


his possibility of getting promotion may not do so because the Boss
might think that the worker is not happy with the existing job.

b.

Fear of exposing to criticism: Information is held back deliberately by


the worker when he knows very little. Individuals retain information
due to fear of being criticized when they cannot offer explanation.

c.

Fear of reprisal: Employees are usually refrained by frank talk or


criticism that is unpleasant to their superiors since they may take
action against workers.

Having discussed some of the important barriers to effective communications, an


attempt is made to discuss the ways and means available to us for removing the
same. Either misunderstanding or no understanding it mars the real meaning of
the massage. To make the communication effective, the following suggestions
have been offered.
1. Clarity in message
The sender must be very clear as to the real content of the message. It should
be expressed in simple language so that the receiver can understand it easily
and quickly. Technical vocabulary must be avoided.
2. Completeness of message
Incomplete message delays action spoils relations and increases costs. The
message should contain all important details. In other words, it must be
complete timely and adequate.
3. Understand the needs of the receiver
The sender of the message must be aware of the needs, feelings, perceptions
and level of understanding of the receiver. The message should be designed
from the receivers point of view.
4. Use appropriate channels
Channels of communication are different types. Each type best fits into a given
situation. A judicious combination of formal and informal, oral and written media
will help to improve the effectiveness of communication.
5. Consistency
The message should be consistent with the policies and programmes of the
organisation. No two messages should be mutually conflicting, for it leads to
confusion.
6. Feedback
Communication is essentially a two way process. Feedback indicates the return
flow of communication. The sender should know whether the receiver

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understood the message or not. Continuous feedback improves future


communication.
7. Mutual trust and Confidence
Communication is an interpersonal process. Encouraging mutual trust and
confidence among the employees is a must for making people more personal
and intimate. This type of organisational climate is good for effective
communication.
8. Repetition
It calls for repeating an idea or message over and over through different
methods. It will ensure proper understanding and action. This removes doubts,
suspicion and confusion. Repetition, thus, leads to greater clarity and
effectiveness.
ESSENTIALS OF EFFECTIVE COMMUNICATION
Effective communication plays a prominent role either in expanding or
diversifying the activities of an organisation. It is a key to success. If the
manager has to survive in these days of stiff competition, he has to develop
sound communication skills. The essentials of effective communication are
briefed up and given below:

i.

Positive and pleasant approach by the parties concerned.

ii.

Good tone with accurate modulation helps in creating proper


understanding.

iii.

Clarity of purpose and objective behind communication should be


known to the parties.

iv.

Adequate knowledge of the problem helps in developing proper


understanding about the message.

v.

Greater emphasis to you attitude greatly facilitates the flow of


information without interruption.

vi.

Follow appropriate courtesy while communicating with different levels


of people.

SUMMARY
Organisation does not exist in vacuum. They are in the midst of people.
Problems are more with, people than the world of things. Communication which
is a dynamic and interpersonal process is bound to have some problems. These
problems should be removed in order to minimize bottlenecks and maximize the
effectiveness of communication process.
INTEXT QUESTIONS
1. What are the reasons for Mr. Ramanas disappointment?

2. In your opinion, what is the real problem?


What are your suggestions for improving communication is the Company?
Terminal exercise

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1)

Explain briefly about the various networks of communication in your


organisation and state the conditions under which they will be most
effective.

Supplementary material and


Suggested readings
) Personnel Administration

Charles A. Brown

2) Human Behaviour at work

Keth Davis

3) Management

Koontz & Welhrich

4) Personnel Management

C.B. Memoria

5) Dynamics of Personnel

Monappa

Administration

Learning activities
1)

Communication is as essential as anything because nothing can be


achieved without it. Elucidate the statement underlining the
importance of communication in management process.

Unit- III Decision making and control


Chapter 1 : Decision making
LEARNING OBJECTIVES
To understand the meaning of decision making process;

To appreciate the various alternatives through which one can make


better decisions;

To understand the implications involved in decision-making process


under certainty, uncertainty and risk conditions;

To evaluate the various approaches to decision-making process; and

To evaluate different models and techniques that help in decision-making


process.
INTRODUCTION
Decision-making is an integral part of most of the top managers duties. Not
even a single day passes without taking decisions particularly in modern
organizations. Hence, management and decision-making are considered as
inseparable. In fact, whatever a manager does, he can do it only by taking some

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decisions. All matters relating to planning, organisation, staffing, directing and


controlling are engrossed in decision-making process. That is why it is aptly
pointed out that management is essentially a decision-making process. The
survival and future success of any enterprise is directly related to the ability to
take timely and appropriate decisions by the executives. Thus, decision-making
is said to be the heart of management.
Lot of planning exercise is to be initiated by the manager before taking any
viable decision. Questions like what to do, when to do and how to do are to be
examined clearly before allocating resources on different managerial activities.
Unfortunately, these resources are scarce. So, the manager has to carefully plan
and decide what to do or what not to do. Wrong decisions quite often are proved
to be either costly or futile exercise. To prevent such losses, decision-making
process remains to be the core area in all planned activities of the modern
corporations.
MEANING
Koontz and Weihrich have defined this concept as the selection from among
alternatives of a course of action. According to this definition, picking one
course of action among alternatives available is termed as decision-making. In
the words of George Terry, decision-making is the selection of a particular
course of action, based on some criteria, from two or more possible alternatives.
We may define this concept as the process of choosing between various
alternatives for achieving a specified goal. Every decision must take into
consideration needs and future uncertainties. The famous decision theorist,
Herbert Simon has identified three major steps in the decision-making process.
The first step involves the recognition and understanding of the real problem. Ina
the second phase, various alternatives may be developed. The third step
involves careful assessment of alternatives available for taking a better decision.
Characteristics
1) Decision-making is a continuous process.

2) The question of decision-making comes into picture only when there are
alternatives,
3) A decision-making process must always be rational and purposeful.
4) Decision-making is an intellectual process supported by good reasoning
and sound judgement.
5) Decision-making is an intellectual process supported by good reasoning
and sound judgement.
6) Decision-making is always related to future only.
Types of Decisions
Managerial decisions may be broadly classified under two categories-the first
category includes the typical, routine and unimportant decisions and the second
category covers most important, vital and strategic decisions. Apart from this
classification, decisions are taken at different levels for meeting different
problems. The following paragraphs present a birds eye view of different type of
decisions taken by the executives from time to time.

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(i) Organisational Vs Personal Decisions


Chester.I. Bernad has explained about this classification of decisions. Decisions
taken by the manager in his official capacity are termed as organisational
decisions. These decisions have a direct bearing on the functioning of the firm.
Also, the authority for taking such decisions can be delegated to the
subordinates. For an instance, decisions relating to reward systems or transfer of
workers can be cited as examples under this category. In contrast to this,
sometimes, decisions may be taken by the manager in his individual capacity.
Such decisions are termed as personal decisions. They may partly affect the
personal life and partly affect the organisation. For instance, decision to quite the
organisation comes under this category.
(ii) Routine Vs Strategic Decision
Routine decisions involve little risk and uncertainty. Hence, they do not call for
extraordinary judgement and thinking. They are mostly related to day-do-day
conduct of the business. Most of the routine decisions are taken repetitively. That
is why they are normally taken at lower levels of management. On the other
hand, strategic decisions are taken by the top level management. Either they are
concerned with policy matters or with long-term commitments of the
organisation. They require through understanding, analyses and best judgement
pertaining to location of the plant, type of technology and channel of distribution
are the best examples of this type.
(iii) Policy Vs Operating Decisions

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Policies act as guidelines for future action. Hence, decisions pertaining to policies
are usually taken by the top management. They are considered to be very
important since they affect the total organisation. While operating decisions are
administrative in character, they help in translating policies into action. For
instance, decision relating to a new incentive scheme may be termed as a policy
decision. Decisions relating to the methodology of implementation of such
incentive scheme are termed as operating decisions.
(iv) Programmed Vs Non-programmed Decisions
Programmed decisions usually deal with routine and repetitive problems. For
dealing such problems, systematic policies, procedures and rules are established.
Programmed decisions can be taken with little case as everything goes according
to some set of rules. As against this, non-programmed decisions cover mainly
unexpected events and challenges. Each of such problems is a special one. In
other words, each problem is unique in nature. For dealing with such special
problems, executives usually refer them to the top management. For tackling
such situations, the manager needs expertise, intuition and creative thinking.
(v) Individual Vs Group Decisions
Decisions taken by the individual in his personal capacity are known as individual
decisions. Organisations which are small in size can accommodate this type of
decision-making process. When organizations grow in size and stature, complex
problems do come into picture. Group decisions are considered to be the best
under such situations. Group decisions represent the thinking of more than one
executive. The commonly held belief is that two brains can certainly think in a
better way than one.

Having discussed some of the important types of decisions in the earlier


paragraphs, a brief attempt is made to identify some common elements in the
decision making process. These elements form as important steps for carrying
out decision-making process systematically. The various steps involved in the
decision-making process are explained below with the help of the following
figure. (V.I.A)
DIAGRAM V.I.A
DECISION MAKING PROCESS

DEFINING PROBLEM ANALYSING PROBLEM DEVELOPING ALTERNATIVES

EVALUATION OF ALTERNATIVES

FEED
BACK

FOLLOW-UP ACTION IMPLEMENTING DECISION SELECTION OF ACTION

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Step (1) Defining the problem


The first step is to determine what the real problem is. A problem is half-solved

when it is correctly diagnosed.


Money and effort are going be wasted if problem is not determined correctly.
That is why, accurate diagnosis of the real problem is necessary to find out right
solution. One should look at the real causes and for the remedial measures by
touching the inner details of the problem. Touching only the outer surface of the
problem and arriving at decisions may lead to fallacious conclusions.
Step (2) Analysing the problem
Once the problem is clearly defined, then, it must be analyzed in the light of data

pertaining to various factors that surmount the decision. Every situation may
have some advantages and limitations. Necessary emphasis should be laid on
locating the limitations and obstacles in achieving a desired result. Necessary
care should be exercised in avoiding personalized bias in judging certain factors.
Analysis of crucial factors provides a sound basis for making effective decisions.
Step (3) Developing alternatives
The analyse of the problem becomes complete once it throws light on several

alternative solutions. In fact, the success the decision-making process much


depends upon the ability of an executive in developing alternative solutions to a
given problem. This requires lot of imagination, experience and judgment.
Exploring the positive or negative impact of such alternatives forms as a solid
base for sound decisions.
Step (4) Evaluating Alternatives
Once the alternatives are developed, the next step is to evaluate them in terms

of their cause, time, impact, objectives etc. Many a time, either marginal cost or
cost-benefit analysis is used to bring out the tangible benefits of each of such
alternatives. Each alternative solution may have its own merits and de-merits.
They should be compared with other alternatives for the purpose of appraising
the real impact. Peter F Drucker has identified risk, economy, time and
limitations as important criteria for evaluating the consequences of different
alternatives.
Step (5) Selecting the best possible solution
Selection usually involves choice making. It is the last step in decision-making

process. The manager has to select such an alternative course of action which
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can make the maximum contribution to the goal. It is not always possible to
select the best alternative for a given problem. That is why the manager has to
rely upon such course of action which can yield good results under a given set of
circumstances and limitations.
Step (6) Implementing the decision
Once the best alternative is selected, it must be implemented. This step mainly

deals with the execution of the decision taken. It involves development of step
by step plans, selling the idea to subordinates and seeking co-operation from the
needy people. At this stage, the decision is converted into action. The decision
must be implemented in the right time and that too in a proper way.
Step (7) Evaluation of Decisions
The final step in decision-making process is evaluation. The actual results of the

decision should be compared with the expected results in order to locate the
reasons for deviations. This review is a continuous process and it generates
information for necessary feedback for further improving the decision-making
process in future.
Rationality in decision-making
The term rationality refers to objective and intelligent action. A decision is said

to be rational if appropriate means are chosen to accomplish desired objectives.


It implies that decision-maker tries to maximize the values in a given situation by
choosing the most suitable course of action. A good decision depends on the
makers being consciously aware of the factors that set the stage for the
decision. Obtaining complete rationality is not always possible. That is the
reason why people prefer to take satisfactory decisions instead of ideal or
optimum decisions. Managers are not always confronted by the problem of
rationality in decision-making. In practice, they confine themselves to few
important alternatives which have limited risks combined with favourable
consequences.
Limits of Rational Decision-making
Managers are not always rational in their decision-making. They cannot always

abide by the demands of rationality in decision-making process. There are some


limitations which are briefly explained in the following lines.
a.

Since decisions are related to future. Managers cannot foresee all the
consequences accurately. Moreover, lack of complete knowledge about
the problem also makes it impossible to choose a good decision.

b.

Because of time and cost constraints, all complex variables that have a
bearing on decision cannot be examined fully. Hence, the decisionmaker is forced to strike a balance between complete rationality and
hard realities on the ground. The impact of all the variables cannot be
ascertained because some of them may be intangible.

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c.

The consequences of various alternatives cannot be anticipated


accurately. Hence, decisions taken under uncertainty cannot guarantee
the success of decision-making process.

d.

Human factors like value systems, perceptions, social factors, institution


etc., are the main limits on rational decision-making. Managers, being
human beings, are greatly influenced by their personal beliefs, attitudes
and biases. Because of this, the capability of a decision-making process
varies from individual to individual and from situation to situation.

Every manager is vitally concerned with the above limitations in his approach to
rational decision-making. He has to collect all the relevant information and try to
overcome the above limits on rationality and choose the most rational decision
for solving any given problem.
Barriers to effective Decision-making
Apart from the above limitations, decision-making process remains to be

ineffective because of the existence of various barriers in organisation structure.


These barriers impede the process of identification of problems, its analysis and
the development of the solutions. Elbing has identified some of the important
barriers that can block managerial effectiveness in choosing the most suitable
decision. Some of them are listed below.
i.

The tendency of a human-being to evaluate a given problem with preconceived notions, acts as a stumbling block in understanding the real
situation.

ii.

Though it is dangerous, managers feel safer if they do not change what


is familiar.
Eventually, the ineffective decision of a familiar way
becomes accepted rather than considering new and innovative means.

iii.

Many managers fall to demarcate the symptoms from the main problem.

iv.

Many managers have a tendency to respond to the problem


instantaneously without proper information and thinking. If they gather
more information, they become more aware of their options.

v.

Similarly, the tendency to equate a new challenge with that of old


experience is common with many managers.
This often causes
managers to look for what is familiar rather than what is unique in new
problem.

The above problems are mainly responsible for either indecision or for halfdecisions in the modern organizations. Knowledge of the above problems will
surely help the managers in arriving at pragmatic decisions. The following
suggestions can be offered to overcome the above barriers so as to make the
managers more effective in decision-making process.
1. Avoid premature evaluation.
2. Initiate impartial probing by avoiding personal biases on the outcome.
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3. Develop a sound system that can supply adequate information for


making decisions.
4. Encourage group leaders to respond to a given situation and compare
the pros and cons of the solutions offered by the two groups for making
an effective decision.
5. Encourage innovative thinking among the sub-ordinates so as to identify
the crux of the problem without waste of time and money.
6. When decisions
encourage group
subordinate first
possible in a free

of critical and pivotal in nature are to be taken,


thinking. For this, the problem is to be presented to the
and they are asked to develop as many solutions as
environment.

TECHNIQUES OF DECISION-MAKING
1. Brainstorming
Brainstorming is the oldest and widely followed technique for encouraging

creative thinking. It was originally developed by A.F. Osborn. It involves the use
of a group. This is an approach to improve problem discovery and solving by
encouraging subordinates to give their ideas and solutions in a free environment.
It starts on the premise that when people interact in free environment, they will
generate creative ideas. Continuous interaction through free discussions may
result in spontaneous and creative thinking. The larger the numbers of solutions,
the fairer are the chances in locating an acceptable solution. Established
research proves that one hour brainstorming systems is likely to generate 50-150
ideas. It is interesting to note that while most of them are proved to be
impracticable, at least, some of the merit serious consideration. This group
process is not without limitations. It consumes lot of time and therefore, is an
expensive exercise. Secondly, it emphasizes only quantity of solution which
more often than not proved to be superficial. By overcoming the above
limitations, a modern manager can use this as an effective tool.
2. Synectics
When compared to Brainstorming, Synectics is a new concept developed by

William J.J. Gordon. The term Synectics is derived from a Greek word which
refers to Fitting together of diverse elements. It starts on the premise that this
concept encourages novel thinking for the development of alternatives through
putting together different ideas which are distinct from each other. A given
problem is presented to a group of people with different backgrounds are varied
experiences.
It is the responsibility of the group leader to present the problem and lead the
discussion in order to stimulate creative solutions. This approach ensures on the
spot evaluation of members suggestions. The leader who is a technical expert is
always assisting the group in evaluating the feasibility of their ideas. Experience
shows that Synectics has been less widely used than Brainstorming. When the

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problem is real tough and challenging, this approach is used for effective
decision-making. Like Brainstorming it also suffers from the same range of
limitations.
3. Operations Research
Thee origin and development of operations research is attributed to military

operations and applications in IInd World War. The war put tremendous pressure
on the use of available scarce resources for various strategic and tactical
operations. The success of operations research in developing options of effective
and efficient nature was instrumental in making this approach rather dependable
in decision-making process. Now-a-days, greater emphasis has been laid on the
use of mathematical models to reflect different options and constraints in a
situation and their effect on a selected goal. This quantitative approach to
decision-making is usually referred as Operations Research. Of late, it has
become an invaluable tool in the kit of a decision-maker. Operations Research
employs optimizing models like Linear Programming, Project Management,
Inventory Control, Decision Theory and Waiting Line Theory.
Operations Research is the systematic method of studying the basic structure,
function and relationships of an organisation as an open system. It always
adopts a systems approach to management in getting things done. It is
constantly interested in developing optimal solution with limited resources in a
given situation. It covers six steps in its approach to problem solving. They are:
(a) identification of a problem; (b) construction of a mathematical model to
investigate the problem; (b) construction of a mathematical model to investigate
the problem; (c) developing a good solution; (d) testing of the model in the light
the data available; (e) Identifying and setting up of control points; (f)
implementation of the option as a solution to a critical problem (putting a
solution to work). In essence, Operations Research attempts to develop the best
solution that will contribute to organizational goals.
Limitations of Operation Research
(i) Operations Research technique is not a panacea to all the problems of
modern management. In other words, it is not the end. (ii) Since Operations
Research does not take intangible aspects into consideration, subjective
judgment becomes difficult under this model. (iii) As the operations Research
technique directly depends upon the use of mathematical and statistical tools, it
is increasingly becoming complex and costly exercise. (iv) Since decision making
is a human process, it cannot be predicted properly. At the same time, the
impact of such factors cannot be measurable.
4. Delphi Technique
It is a technique normally used for forecasting future events. It is a group

decision making technique. Under this method, independent opinions are sought
from the members repeatedly so as to develop a best solution to a given

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problem. The success of Delphi technique depends upon a simple technique of


understanding the problem from the other man perspective. This ensures
success. Though it is a useful technique, since it involves time and cost, it can
not be tried in all situations.
SUMMARY
Decision-making is a process of selection of a course of action from among
alternatives to achieve specific objectives or to solve a certain problem. Decision
is the product of decision-making process.
The types of Decisions are very much used in the organisation for recording its
importance. With the help of various alternatives one can find and select the
best possible solution at appropriate time.

ASSIGNMENT QUESTIONS
1. Discuss the various decision situations that can be dealt with by
managers while performing decision-making function. What are the
different approaches which can be applied in each condition?
2. A lot of decision making in modern industrial organisation is quantitative.
Bring out the implications of this statement.
Enumerate major
quantitative methods that are used in decision making.
INTEXT QUESTIONS
1. Define decision making. Describe the different types of decisions.

2. Describe the plan end (or) step approach in decision making process.
3. How operations research is helpful in decision-making? Identify the
limitations of operations research?
4. What are the techniques can be tried by the management in making
effective decisions?
SUGGESTED READINGS AND REFERENCE BOOKS
1. Essentials of Management
Harold Koontz & others

2. The process of Management -

William Newman and others

3. Management

A.G. Bedian.

CHAPTER 2 CO-ORDINATION
LEARNING OBJECTIVES
To define the concept of coordination;

To identify the need and significance of coordination;

To understand different types of interdependency concepts;

To review the principle of coordination;

To explain the various approaches to effective coordination;

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To identify the problems in coordination.

INTRODUCTION
Harmonious relationships between the various divisions and departments of an
organisation are a must for its smooth functioning. The activities of the various
divisions have to be blended and unified so as to give them a commonness of
the purpose. Hitherto, the concept coordination was viewed as one of the
functions of management. Now, it is regarded as the essence of the
management process. It helps in achieving harmony among individual efforts
towards the accomplishment of groups goals. Group goals can not be achieved
automatically. Individual efforts must be integrated and synchronized in order to
attain common objectives. It is a dynamic concept. It implies an orderly
arrangement of group efforts to ensure unity of action. According to Henry Fayol,
to co-ordinate is to harmonize all the activities of a concern so as to facilitate its
functioning on the path of success. Probably in smaller organizations, there is no
need for coordinations where all activities are performed by one person. With
the increasing growth the complexity of modern organizations, the need for
coordination becomes inevitable. Lack of proper coordination results in
inefficient operations, delays, frustrated feelings and waste to time.
MEANING
According to E.F.L. Brech, Coordination is balancing and keeping together the
team by ensuring suitable allocation of task to the various members and seeing
that tasks are performed with due harmony among the members themselves.

According to Mc Farland, Coordination is the process whereby an executive


develops an orderly pattern of group efforts and secures unity of action in the
pursuit of common purpose. This definition views coordination as the task of
integrating the individual needs with that of the organisational goals through
proper linking.
Characteristics
The above observations reveal the following features of coordination.

i.

Coordination is not a distinct function.


essence of management.

ii.

The outcome of the coordination is to attain the common


purpose.

iii.

Coordination is essential in all work situations where people


work together.

iv.

Coordination is a continuous and an on going process.

v.

Coordination does not arise spontaneously or by force. It is the


result of concerted action.

vi.

Coordination is required in group efforts but not in individual


efforts.

Need for Coordination

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But, represents the

Existence of disintegrating forces emphasizes the need for greater coordination


among various divisions of an enterprise. These disintegrating forces may act as
barriers to effective coordination. They are summarised below:
(i) Increasing Specialisation
Coordination becomes essential when the principle of specialization has been
practiced in work situation. The activities of the unit may be divided on the basis
of product, function, region or some other form. The greater the number of
units, the larger the number of specializations. Every executive is mostly worried
about his units performance. It results in conflicting interests within the same
organizations. A good coordination paves the way for effective integration of
efforts of all people for the accomplishment of a common goal.
(ii) Empire building motive
As stated above, each executive is deeply motivated by the performance of his
own unit in question. This kind of attitude may well fulfill his personal ego but
isolates him from others. Organisational goals can not be accomplished with this
kind of tendency. Coordination is essential to ease out this situation.
(iii) Personal conflicts between employees
Employees are human beings. Personal rivalries, jealousies and politics in the
work situation are bound to create problems to the management. For example,
conflicts between line and staff and differences between production and sales
personnel create problems in the smooth functioning of an organisation.
Coordination helps in harmonizing group efforts.
(iv) Subordination of individual interest to that of organisational interest
Individual interests are important for developing loyalty, integrity, hard work,
initiative and motivation. Organisational interests are much more important than
individual interests. For achieving this, subordination of individual needs to that
of organisational goals is a must. The purpose of coordination is to attain this
desired end.

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The importance of coordination need not be over emphasized. The primary task
of management is to coordinate effectively all the activities. It is the end result
of managerial process. It is a creative force through which members of the
organisation are encouraged to contribute to group goals voluntarily, willingly
and enthusiastically. It emphasizes systems approach to management. The
various functions of management can not be viewed in isolation, but has to be
viewed in totality. Coordination allows personal satisfaction on one hand and
social satisfaction on the other hand. It, thus, promotes efficiency and tones up
the general level of employee morale.
Types of Coordination
Depending upon the nature and coverage, coordination may be studied under
different types. On the basis of its coverage, coordination may be divided into
two types, such as, internal and external. Another type of classification is
possible on the basis of its flow under two headings, mainly, vertical and
horizontal coordination.
Internal and External Coordination
Coordination between units of the same organisation is termed as internal
coordination. It summarizes the activities of different units so as to make the
organisation more effective. Organisations are not free from the influence of
external environment. Hence, establishing a close link between organisation and
external environment is a must either to survive or surpass the growing
competition. External environment includes technology, competition, market
forces, customers, government policy etc., External co-ordination tries to
coordinate all these forces upto the advantage of an organisation.
Vertical and Horizontal Coordination
Coordination between different levels of hierarchy down the line is termed as
vertical coordination. It ensures that all levels of people, form top to the
bottom, work in harmony. It is greatly facilitated by a technique like delegation
of authority to the lower levels of hierarchy. Coordination between people of the
same cadre and between different departments at the same level is termed as
Horizontal Coordination.

Another classification depending upon its content views co-ordination from a


different angle.
Procedural and Substantive Coordination
Procedural coordination implies the specifications of different units in the same
organisation. On the other hand, substantive coordination is concerned with the
content of organisational activities.
Principles of Coordination
Mary Parker Follet has laid down the following four principles for effective
coordination. These principles help every manager in discharging his functions.
(i) Early Start
Thinking function of the management precedes the doing function. The task of
coordination becomes relatively easy if it starts at the planning stage. Free

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exchange of ideas helps in clearing doubts and removes misunderstanding.


Hence, plans must be prepared in consultation with all people. Plans become
successful if coordination is practiced at initial stage. Securing coordination
becomes impossible at later stages like execution of work.

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(ii) Direct Personal Contact


It stresses the importance of direct contact in removing conflicts and
misunderstanding. Effective coordination is best achieved through direct
personal contact. Direct communication is the most effective way to convey real
feelings to facilitate greater coordination.
(iii) Continuity
Coordination is an unending process. It cannot be left to chance. The
management has to continuously strive hard to maintain perfect balance among
different units / people. Continuous coordination helps the manager in adjusting
and re-adjusting the range of activities so as to minimize wastage,
misunderstanding and apathy.
(iv) Integration
The fourth principle of coordination calls for integration of efforts for achieving a
common purpose. For this purpose, coordination demands reciprocal
relationship among all the concerned.
Interdependence and Coordination
Coordination influences all functional activities of management. In a similar way,
all other activities influence coordination. This is termed as Interdependence.
Such interdependence is imperative for the success of any organisation. Such
interdependence of work units has been categorically classified under three
heads by James D Thompson. They are:

a. Pooled interdependence
b. Sequential interdependence and
c. Reciprocal interdependence
(i) Pooled Interdependence
When departments/ unit/ divisions are not directly dependent on each other, but
indirectly responsible for over all performance of the enterprise, it is termed as
Pooled interdependence. It represents a situation where failure of one unit /
division leads to the failure of the entire enterprise. Each unit / department
makes its own contribution and supports the main systems in its own way.
(ii) Sequential interdependence
It refers to a situation where the output of one department becomes the input of
the other. This type of interdependence usually exists in process industry.
(iii) Reciprocal Interdependence
It refers to two way interdependence. Here, the output of one becomes input of
the other and vice a versa.
Approaches for Achieving Effective Coordination
Different organizations adopt different mechanisms for achieving effective
coordination. There is no single method of coordinating the managerial activities
that can be universally acceptable. J.D. Thomson has identified three important
categories of approaches for achieving effective coordination. All of them are
integrative mechanisms. Each one of them is explained below.

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1.

Integration through standardization: It involves the development of


standard
rules
and
procedure
through
which
the
job
holders/departments have to direct their activities in order to ensure
consistency in operations.

2.

Plans and Schedules: Separate plans and schedules may be prepared


for each departments or units. At corporate level, all plans are
merged and integrated so as to obtain optimum results. Coordination
becomes easy since departmental plans are flexible than standards.

3.

Mutual adjustments: Activities of company are coordinated through


mutual adjustments among the sister units/departments on
contingency basis. Here cooperator is assured between the needy
units for the purpose of getting the things done.

In traditional organizations coordination is sought to be achieved through


standardization and planning. The usual methods followed by the traditional and
bureaucratic organizations for achieving effective coordination are listed below.
1.

Developing elaborate system of rules and procedure for sorting out


recurring problems.

2.

Non-routine problems are to be referred to higher ups.

3.

Where decisions relating to new policy matters have to be taken up,


they may be referred to special committees.

Traditional organizations could able to reap advantages through following the


above mechanisms for obtaining higher degree of coordination among sister
units. This traditional approach is best suitable to normal and predictable
conditions. But this kind of approach is inadequate to meet the requirements of
a modern organisation under a dynamic environment. More sophisticated
methods have been developed by the researchers for the purpose of improving
coordination. John Child suggested the following forms of coordination for
improved functioning of the organisation.
1.

For understanding business problems and offering solutions, direct


contact between managers and employees facilitates greater
coordination.

2.

While too much rapport is required between employees and


departments, better coordination may be obtained through the
appointment of liaison officers.

3.

While there are inter departmental conflicts which cannot be solved


immediately, coordination may be attained through special task
forces which would deal special situations.

4.

Special committees may be appointed to deal with the recurring


problems of inter departmental conflicts.

5.

An organization which is too big with several divisions may find it


difficult to coordinate the total range of activities in a systematic
manner. To ease out this problem, a coordinating department may

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be created within the organisation on par with other departments to


perform this special function.
6.

If things are too complicated, matrices type of organisation may be


developed for establishing effective coordination.
Under this
method, functions to some of the personnel may be integrated with
the functions of other departments.
This kind of arrangement
encourages
effective
understanding
between
various
divisions/departments. This facilitates higher degree of coordination
among the member units of organisation.

Van de Venn and others proposed three approaches as basis for coordination.
They are summarized below:
a. Impersonal mode
This model envisages designing of rules, procedure and programmes suitable for
smooth functioning of the organisation.
b. Personal mode
Here, human beings are encouraged to find out how things are going on and to
discriminate what to do and what not to do through effective feed back. Personal
involvement surely contributes to effective coordination.
c. Group mode
When operations are large, a single individual cannot coordinate properly. This
model suggests establishment of committees, task forces, meeting etc. The
logic behind this approach is that two brains can think better than one brain.

As stated earlier, no single approach to coordination is proved to be useful to all


organizations. The suitability of a particular approach to coordination depends
upon factors like size of the organisation, complexity of its work, nature of work
force, certainty and uncertainty conditions delegation of authority etc. The
process of coordination becomes useful and meaningful only with the delegation
of appropriate authority.
In order to minimize the problems of over riding departmental interest for the
cause of the organisational objective effective coordination is needed. For
example, a finance manager may issue a direction that no overtime allowance is
paid to workers. At the same time, production manager is worried about
realizing production target. He may issue another direction that production
workers are entitled to overtime allowance. This might have been done in his
anxiety to realize production target. This situation results in misunderstanding
and conflicts. The solution for this type of problem lies with effective
coordination among member departments.
Coordination process is essential to make unified whole out of diversified
functions on smooth lines. It pervades all the managerial activities from
planning to controls. Big organizations are now creating separate departments
for coordination among departments. New rules and procedures may be
developed to minimize problems like red-tapism, overriding goals, blind loyalty
and friction.

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Co-ordination Vs Co-operation
The term co-operation refers to collective efforts of people who associate
themselves voluntarily to achieve some predetermined objective. It indicates
about the willingness of individual to help each other. It is the result of voluntary
attitudes of people in organisation. However it cannot be a substitute for
coordination. While co-operation facilitates coordination, coordination is all
inclusive including cooperation. Coordination involves deliberate effort on the
part of management to bring together the activities of various individuals /
divisions/ units in order to provide unit of action. Coordination does not arise
automatically. It requires conscious efforts, whereas cooperation is the results of
voluntary efforts put by the people. Thus this scope of coordination is wider than
cooperation.
SUMMARY
The term coordination refers to orderly arrangement of group efforts for the
purpose of accomplishment of objectives. It is the basic responsibility of every
manager. It is a continuous process. Unlike previously it is not viewed as a
distinct activity but considered as the quint essence of management. The
problem of coordination comes into picture when management is dealing with
group efforts but not with individual efforts. The term coordination should not be
confused with cooperation. The significance of coordination results in efficiency,
morale and optimum use of resources. On the basis of scope and coverage,
coordination may be divided into different types. Namely internal Vs external,
vertical Vs. horizontal, procedural Vs. substantive. Different techniques are
available for achieving higher degree of coordination. Similarly different
management deals the problem of coordination through different approaches.
Whatever the approach, it has to clarify the role of manager regarding this
authority and responsibility for the purpose of attaining optimum use of
resources to the common cause of the organization
ASSIGNMENT QUESTIONS
1.
Explain the role of coordination and communication
management of differences and conflicts in an organisation.

in

the

2.

How can coordination be used as an instrument of effective


management action? Discuss the various techniques through which
coordination can be achieved in your organisation.
INTEXT QUESTIONS
1.
Coordination is the very essence of management Do you agree?
Give reasons.
2.

Describe the importance of coordination. Discuss the techniques of


achieving effective coordination.

3.

Write short notes on the following.


a. Types of coordination
b. Principles of coordination

c. Approaches to coordination
SUGGESTED READINGS AND REFERENCE BOOKS
1. Essentials of Management
Harold Koontz & others
2. Management

James AE Stoner and Charles

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Wankle

Chapter- concept of control


LEARNING OBJECTIVES
To understand the meaning, steps and the process of control;

To examine the pre-requisites and characteristics of control process;

To illustrate the importance of control system;

To analyse the methods of control;

To describe the role of integrated control system

INTRODUCTION
Controlling is an important element of management process. It is mainly
concerned with measurement and correction of performance in order to attain
pre-determined goals. Planning and controlling are closely inter-connected with
each other. Plans can not be carried out automatically. The managers have to
regulate the activities, review the progress and steer the operations to conform
to plan. Hence, control is concerned with the attainment of organisational
objectives through regulating individual performance. It is not an exaggeration
to state that the success or failure of any organisation depends upon the control
process. It touches every facet of the managerial activity.

Control process in the organisation can be compared with that of a thermostat


which regulates the room temperature. Controlling is the function of every
manager. It is mainly concerned with the execution of plans in a desired way so
as to obtain better results. In the words of Henry Fayol: Control consists in
verifying whether everything occurs in conformity with the plans adopted, the
instructions received and principles established. Its object is to point out
weaknesses in order to rectify them and prevent recurrence. In a way, it is
acting as a facilitating function.
Definition
According to EFL Brech, Control is checking performance against predetermined standards contained in the plans with a view to ensure adequate
progress and satisfactory performance. As per this definition, control guides
actions towards some pre-determined goals.

In the words of George R. Terry, Controlling is determining what is being


accomplished, that is evaluating the performance takes place according to
plans. This definition emphasized the fact that the managerial activity of
controlling compels the events to conform to plans through appropriate
corrective measures.

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To understand the real meaning of control, the definition given by T. Haimann is


useful. To him, Control is the process of checking to determine whether or not
plans are being adhered to, whether or not proper progress is being made
towards the objectives and goals and acting, if necessary, to correct any
deviations. This definition summarizes the purpose of control. As per this
definition, control involves measurement of performance against standards set
for the purpose of initiating corrective action. The above definitions give rise to
the following characteristics for control concept.
(i) Last Function of Management
Control follows other managerial functions like planning, staffing, organisation
and direction. Hence, it is considered as the last function.
(ii) All Pervasive
Control ensures consistency in action in a desired way. Control affects other
managerial functions and, in turn, affected by them. Hence, it is termed as all
pervasive.
(iii) Continuous Process
There is a wrong notion that control is needed when something is going wrong.
It is a dynamic process of measuring, checking and regulating the managerial
activities in an un-interrupted manner. As the process of management is
incomplete without controlling, controlling is considered as an unending process.
(iv) Forward Looking
Past activities can neither be improved nor controlled. Control does not only deal
with the post-mortem of what has happened but also regulates the activities for
improved performance in the near future. Thus, control is looking at future
through the eyes of the past.
(v) Objectivity
Control is not an end in itself. It is only a means for accomplishing predetermined objectives. Control without objective lacks sense and proves to be
unworthy of its existence.
(vi) Delegation
Control becomes meaningless without proper authority. When authority is
delegated, control compels the delegator to discharge his duties in a proper way.
(vii) Feedback
It refers to efficient system of reporting back for effective control. Continuous
monitoring and review of operations are essential for effective control in any
organisation.
(viii) Information
Information is key to success. Control depends upon the information regarding
the actual performance. Accurate and timely availability of feedback is the basis
for the success of control.
Planning Vs Control

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There is a close relationship between planning and control. These two are
supplement to each other. While planning is looking ahead, control makes use of
standards for improving future on the basis of the past experience.
BASIC CONTROL PROCESS
The basic control process involves three steps: (i) Establishing standards;
Measuring performance and (iii) Compare the results with standards and
correcting deviations. The details of these three steps are given below.

(ii)

(i) Establishing of standards


The term standard refers to norm or some criteria of performance. Standards
are either qualitative or quantitative goals to be attained. To illustrate some of
the standards, we may consider the following verifiable goals, performance,
productivity, profitability, etc., are the best examples of quantitative standards.
Innovations, social responsibility and morale are the examples of qualitative
standard. The management may establish standards on the basis of past
experience. These standards are helpful to management either for measuring
the performance or judging the success or failure of the organisation.
(ii) Measurement of Performance
It is essentially a comparison process wherein the actual are measured against
standards for the purpose of detecting the deviations but measurement is not
always practicable. Yet, a forward looking manager has to work it out to prevent
reoccurrence of mistake committed by the management. The purpose of the
measurement of performance is to alert the management about the probable
departures from the established path for taking appropriate actions.
(iii) Correction of Deviation
Control does not end with the measurement of performance and its comparison
with standards. Appropriate corrective action is to be taken on the basis of
feedback obtained. Taking corrective action seems to be more appropriate while
the work is in progress. When the actual differ from that of standards, reasons
for such variances are analyzed to identify the root causes.
DIAGRAM V: III A
CONTROL PROCESS

STANDARDS

ACTUALS

OPERATIONS

CORRECTIVE ACTION

FEEDBACK

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Once basic control process is shown in figure V.3.A. It illustrates that the desired
performance in the form of standards are laid down from plans. Actual
performance is the result of management operations like Organizing, Staffing &
Directing. Measurement and comparison of actual is performance gives rise to
identification of deviations. Corrective action is initiated on the basis of analysis
of causes for the occurrence of deviations. All appropriate measures must be
launched to correct deviations which form the basis of future desired
performance.
That is why effective control system should try to overcome the weaknesses of
traditional feedback system of getting communication to be modified as feed
forward system. The main difference between these two systems lies with the
flow of information, while information is the end product of feedback; it is the
input of the control system in feed forward tie. It is an innovative way of
monitoring real time information to adopt the functioning of the organisation to
suit the dynamic conditions.
Feedback Control
The term Feedback refers to the process of adjusting future actions on the basis

of information about past performance. It is vital to the management because it


guides corrective actions. A good control system always depends upon effective
feedback of information. But, feedback always consumes time. Management
control cannot be instantaneous because of this time lag. The traditional view is
that planning is a forward looking exercise, controlling is a backward looking
exercise. But, a good control system should be futuristic. That is why Harold
Koontz observed that: since past can not be changed, effective control should be
aimed at preventing present and future deviations from plans. The present age
of computerization comes handy in obtaining feedback on a real time basis. It
means that it inculcates act now philosophy in control process.
Importance of Control
The importance of control in an organisation need not be over emphasized. Many

benefits accrue out of effective control system. To highlight the importance of


control, the benefits of control are summarised in the following paragraphs.
1. Facilitates Decision Making
The purpose of control is to take corrective actions; Corrective measures involve
right decisions so as to bring the actual performance to that of a desired level.
Majority of the executive decisions are centering around control points. Hence,
control facilitates decision making process in any organisation.
2. Checks on Delegated Authority
No single manager can obtain the total things in the organisation. He has to

delegate authority for the purpose of getting things done through his
subordinates. Control enables the manager to check whether or not the
delegated authority is being properly used by the subordinates.
3. Basis for Future Action

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Through the evaluation of final results control helps in spotting mistakes and
weaknesses in the process of implementation of plans. Control supplies useful
information for future planning and organizing. A good control system enables
the manager to correct the shortcomings in order to pave a smooth route for
future activities. Such a system of control guides and directs action towards the
organisational objectives.

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4. Improves Employees Morale


Effective control system enables the management to identify changes that are
effecting the organisation so that subordinates can take advance action to copeup with threats and opportunities created by such change. It allows timely
feedback of information to the subordinates for taking appropriate measures to
protect their positions. This ensures a sense of security and comfort among
employees which in turn, contributes to higher degree of motivation and morale.
5. Promotes Efficiency in Operations
Control enables the manager to take note of the activities, to detect deviations
and to make adjustments in operations. It ensures him that the enterprise moves
in a way as planned. It tells the manager whether the objectives are being
achieved or not. If not, it helps the manager to revise the plans for achieving
goals. Thus control contributes to organisational efficiency.

6. Basic tells the managers what to do and what not to do for the purpose of
establishing harmony among various divisions. Control provides unity of direction
and tries to establish equilibrium between means and ends. Thus control
promotes co-ordination between different units of the organisation.
7. Exerts Psychological Pressures
Control influences the behaviour of the employees in a positive way. Workers
become cautions in their duties because their performance is subject to
evaluation and control. A good control system brings necessary pressure on the
employees to become good doers. Not only that control pressure on the
employees to become good doers. Not only has that control made the people to
act promptly for minimizing the wastages and losses.

Establishing a control system itself is not a panacea for all the ills of organisation.
A control system may have the following limitations.
1. Absence of Proper Standards
The success of an organisation depends upon both tangible and intangible
factors. While tangible factors are easily controllable, intangible aspects like
quality of supervision, inter-personal relationships, public relations, brand loyalty
etc., cannot be quantified for establishing standards.
2. Limitations of Corrective Actions
Operating condition of a business are highly dynamic and volatile. It is not
possible to take corrective actions all the time. No business enterprise would
have incurred losses had the corrective action been proved to be corrective or
productive. It means that there are several limitations in taking corrective
actions.
3. Human Reactions
Controls invite opposition from the subordinates because they interfere in their
freedom. Controls will not work unless people accept them. People oppose
controls when they are biased, unreliable and subjective.
4. Cost of Control

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Establishing a good control system is not so easy. It needs elaborate effort, time
and money. In modern organizations where man-machine systems go hand in
hand, establishing a control system is a complicated process. This may result in
excessive cost than the benefits of control.
Pre-requisites of Control
An effective and adequate system of controlling must fulfill the following
requisites.

a.

Plan: There is a close inter-relationship between planning and


controlling. They are not substitutes but supplement to each other.
Plans without control are worthless and controls without plans are
meaningless. Controls must be always based on plans.

b.

Proper Organisation Structure: Any control process yields good results


only when the responsibility for detecting the deviations and
initiating corrective actions is clearly defined and identified along the
lines of hierarchy throughout the organisation. Controls, to be
effective must be supported by a good organisational structure.

c.

Suitability: A sound control system must suit the needs of the


enterprise. Control points designed for a manager are inappropriate
for a supervisor. Controls must be tailored to the needs of an
organisation.

d.

Promptness: A good control system should detect and report the


mistakes before the matter becomes serious. It should allow prompt
action by the management at correct time.

e.

Forward Looking: Controls should be forward looking character. They


should be directed towards future. Since past is dead, things can be
improved through control system in future. Control becomes useless
if it fails to predict future.

f.

Flexibility: Control should be static. They should remain workable


under dynamic business conditions. Since controlling is a continuous
activity, it should be flexible enough to be adopted to changing
condition of an organisation.

g.

Objectivity: As far as possible, control should serve a specific


purpose. They should develop impartial standards for the purpose of
minimizing friction.

h.

Economical: The benefits from control should be greater than cost.


Controls are feasible and desirable when their expected benefits
exceed costs.
Expensive and inappropriate control should be
avoided.

i.

Simple: A good control system should be easy to understand and


simple to administer. Too elaborate and complicated control system,
quite often, fails to deliver the goods.

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j.

Acceptable: Controls will not work unless people accept the same.
They should be acceptable to those to whom they are applicable.
Since control is for people, it must be acceptable to the people.

Integrated Control System


Control touches each and every activity of the organisation. Whether the
activities are strategic or routine, the control should strive to obtain
effectiveness. Control covers all levels of managers from top to bottom. They
affect other managerial functions in a great way. But some controls may be
disliked by subordinates on the plea that they are unreasonable and
unacceptable. This type of dislike among employees about control process
should be removed by creating a favourable environment. Lest, the
effectiveness of control is destroyed through the resistance of employees. To
overcome the above difficulties and to obtain cooperation and participation of
employees in the matters of control, the management has to develop an
integrated system of control. Any control that is intimately interconnected
intertwined with other managerial functions is termed as an integrated Control
System. It is of vital importance to modern management in view of their
operation in complex environment. The details of such an integrated system are
summarized below:
a. Control and Planning
Since control refers to the use of activity for compelling events to conform to
plans, it is evident that these two functions are inter-related. Planning, involves
setting the activities and controlling keeps them on the right track. Planning is
meaningless without control and control is blind without proper plans. The
planning function contributes to the smooth discharge of control by way of
providing control standards through programmes and budgets. Control function
contributes to the adoption of new and revised plans.
b. Control and Organizing
The term organizing refers to a formal grouping of activities for the purpose of
achieving organisational objectives. It ensures that objectives are achieved
through optimum utilization of resources in an orderly manner and that too in the
shortest possible time. Resources like money, material, machinery and skilled
man power are limited. These resources must be effectively used and controlled.
It may no longer be possible for one man to control all the operations. That is
why it is necessary to delegate some responsibility and authority to the
subordinates. Control becomes easy when authority is delegated. Control
receives negative response and becomes ineffective when authority is
centralized. Not only has that effectiveness of control directly depended upon
the method of grouping of activities and level of delegation of authority.
c. Control and Directing
It is the heart of administration. Since it tells the people what to do, how to do,
where to do and when to do. Activities like leadership and communication play
an important role in influencing the behaviour of subordinates in securing desired
performance. This aspect is closely related with control function. While
leadership guides action, control compels these actions to a here plans.

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Communication ensures free flow of timely and relevant information. Control


uses this information as a feedback for taking corrective action. Information is
backbone for regulating the activities in any organisation.
SUMMARY
In order to make the control process as an effective tool in the hands of
management. It should be integrated with other managerial functions. All
important and critical aspects should be brought under the purview of control
process for obtaining better results. Control should not be isolated from the
main stream of managerial functions. Control function becomes effective when it
is integrated wit other managerial functions. Control is not a perfect substitute
for sound managerial practices and cannot ensure business success on its own
merit. For obtaining results, the management has to develop an integrated
approach.
ASSIGNMENT QUESTIONS AND
LEARNING ACTIVITIES

1. Control is a fundamental management function that ensures work


accomplishment according to plans. Analyse this statement and outline
the various steps in control process.
2. If you want to control everything, you may end up by controlling
nothing. Explain this statement by defining the areas of control.
INTEXT QUESTIONS
1. What is control? Discuss the basic steps in the control process.

2. Planning is looking ahead and control is looking back Comment.


3. Discuss the nature and characteristics of control process.
4. Explain the need for integrated control system in modern business
organizations.
REFERENCE BOOKS
1. Bedian, A.G.

Management, Mc, Graw-Hill

2. Fayol, Henry

Genera; & Industrial Management, Pitman.

Unit- IV :

Management creativity
1.

Introduction

For some time now, innovation has been the fashionable thing to talk about. It is
very much easier to talk about than to act upon. Almost all major corporations

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claim to be innovative. Almost all of them claim that without innovation the
company would die. Almost all of them do very little about innovation.
As a term, 'innovation' is preferred to creativity. Innovation implies action and
things that work. Creativity implies fanciful and wacky ideas. Yet innovation is the
easier part. Without ideas there is nothing to innovate. You can borrow ideas
from elsewhere - and that can be valuable - but somewhere, some time the idea
has to start.

2.

Objectives

To know creativity and civilization the creative personality, the creative problem
solving process- the creative manager- techniques of creativity- effective terms.
Forms of management creativity- traits of highly creative people- climate for
organizational creativity, creativity, intelligence and innovation characteristics
of creative organizations- group techniques to improve creativity- brain storming,
management games, role plays, and case study
3.

Content

Most managements use the strategy of 'maintenance and problem-solving'. In


more direct terms, this merely means survival. In practical terms, this means to
management 'keep going and avoid criticism'. So why should any senior
management be interested in creativity?

THINKING AHEAD
A man jumps off the top of a skyscraper. As he passes the fourth floor window, he
is heard to mutter 'So far, so good'.

The argument that without innovation a corporation will eventually die (or be
killed) is not very powerful. While many senior executives accept the validity of
this 'in the longer term', they know that they will have moved on or retired by

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then. Quietly keeping the organisation going, day to day, is more important than
the long term.

The use of creativity for cost-cutting, downsizing, mergers and acquisitions is


more immediately attractive. Such matters are about 'today', not the long term.
There is this ship at sea. The engine keeps breaking down. The rudder is faulty.
The lights keep going out. The crew are demoralised. The decks are dirty, etc.
Then along comes this new captain. The morale rises because he treats his crew
properly. The rudder is fixed. The lights stay on. The engine is repaired.
Everything is now fine aboard this ship. But the ship is still heading in the wrong
direction!
Far too often all management's time, attention and skill are spent on
'housekeeping'. In contrast, the fundamentals and strategy get little attention.
USES OF CREATIVITY
Creativity is of great use in housekeeping. Simplification requires a lot of
creativity. Re-engineering requires creativity. Effective downsizing requires
creativity.
Creativity is not just for problem-solving. Very often the most powerful effects of
creativity are seen when we challenge existing ways of doing things which are
very satisfactory.
In 1971 I suggested to Shell Oil that they should consider drilling oil wells which
proceeded sideways when the right depth was reached. Today most oil-wells are
drilled exactly like that. Such wells yield between three and six times as much
oil. There had been nothing wrong with traditional oil wells. But it was a matter of
challenging something that was not a problem.
I am not claiming that the change in drilling wells was a direct result of my
suggestion - I have no way of proving that. It is a historical fact, however, that I
made the suggestion in 1971.
MOTIVATION
If the above motivations are weak, then how do we motivate senior management
to get seriously involved in creativity?

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'If an organisation is competent and is not using creativity, then it is always


underusing its assets.' That is a simple statement that is true.
Competence means 'a fitness to do things'. Competence is the baseline. If you
are not competent, then you are not able to do things. If you are competent,
then you should be doing things. And some of the things you should be doing are
new.
Otherwise, it is like having a powerful car and then only using it for pottering
around and shopping.
Shareholders should insist that management be innovative - otherwise their
shareholding is being under-used. At the shareholders' annual meeting there
should be a separate booklet (separate from the annual report) which details the
innovations. The pages will be blank if there are no innovations. This simple
device would put considerable pressure on senior management to perform.
Maintenance and problem-solving would no longer be enough.
RISK OR EXPECTATION
In my experience, creativity in an organisation is either a risk or an expectation.
If it is not an expectation, it is a risk. Being creative means time, work, political
hassle and risk. Why should anyone want to be creative? Successes are great,
but not every idea is a success. You are judged only on your last mistake. Prior
successes tend to be ignored.
If creativity is set as an expectation, then people tend to play the creative game.
If at every meeting there is time set aside specifically to consider new ideas,
then people will put forward new ideas. If an executive is expected to do more
than just keep within the budget, then that executive will set out to do more.
People are very good at playing the game that they are supposed to be playing.
REWARDS
Should creativity be rewarded directly? This would not be at senior level, but at
other levels. The idea is that rewards provide incentives. The rewards could be
made as direct payments or as a percentage of savings or revenue produced.
The advantages of a reward system are obvious. There is endorsement of the
value of creativity. There is 'hero' status for the originator of an idea. There are

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tangible rewards which others can see and also try to obtain. The name of a
person, or team, is attached to the idea.
The disadvantages are not so obvious. The reward implies that creativity is not
part of the normal job, but something 'extra' which has to be rewarded.
Creativity ceases to be an expectation and becomes an extra task. Many will not
wish to undertake this extra task.
Then, the rewards are usually given to big and successful ideas. Many people do
not see themselves as having these 'big ideas', so they do not bother. What is
the use of having a 'small idea'? Those who win the rewards tend to cluster into
an elite 'creative group'. Others quickly assume that it is the business of this
special group to be creative, and there is no need for anyone else to try.
There also arises competitiveness amongst ideas: 'my idea is greater than
yours'. Some people do not want to compete and stay away from creativity.
DANGER IN REWARDS
Clearly there is value in rewards, but there is also danger. An in-between position
might be to give the reward of recognition and hero status, but no financial
reward. Creativity is promulgated as being 'part of the job'. There should also be
an effort to reward small ideas as well as big ideas. Any person doing a job well
should be recognised and praised. In the same way, active creativity should be
recognised and praised.
Sometimes there is also a need to reward 'creative effort'. If people bother to put
forward suggestions, they should be recognised for this effort - even if the ideas
are not very valuable. If everyone gets into the habit of making a creative effort,
then, from time to time, there will be valuable ideas.
Creativity in practice is not just the production of wonderful ideas - it is the
motivation and effort to produce new ideas. Some of these may prove to be
wonderful.
QUALITY OF IDEAS
As people get better and better at creativity, through practice, the quality of
ideas will improve. But if you only acknowledge wonderful ideas, then people will
not make the effort, will not get the practice and will not produce wonderful
ideas.

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Creativity is a mix of motivation, time, effort and skill. Included under the skill
element are the formal and systematic techniques of lateral thinking.
The advantage of the formal techniques of lateral thinking is that they allow
everyone to get going. It is no longer a matter of sitting and waiting for
inspiration. There is something to be done. A person using the techniques quickly
sees results. These results give that person confidence and the motivation to try
to be creative. Exhortation is quite useless by itself and wears off after about a
week. The techniques continue because people become more and more skilled at
using them.
I believe it is at least as important to motivate people who do not see themselves
as creative to become creative, as it is just to choose already creative people.
4.
Revision points
the creative personality, the creative problem solving process- the
creative manager- techniques of creativity- effective terms.
Forms of management creativity- traits of highly creative people- climate
for organizational creativity, creativity, intelligence and innovation
characteristics of creative organizations- group techniques to improve

creativity- brain storming


5.
Intext questions
What is creativity?
What is innovation?
What is intelligence?
What is problem solving

6.
Summary
Businesses, whether for-profit and nonprofit, are facing change like never
before. Numerous driving forces to this change included a rapidly
expanding marketplace (globalization), and increasing competition,
diversity among consumers, and availability to new forms of technology.
Creativity and innovation are often key to the success of a business,
particularly when strategizing during strategic planning, and when
designing new products and services.

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Unit V- The new era of management


1.

Introduction

The aim of this work is to establish the need for the Controller to carry out
functions similar to those of Management, ,focusing on the area of information,
exercising link a role between the different levels of responsibility in the decisionmaking process. We test our theoretical proposals 011. the basis of an empirical
study of companies operating in the automobile manufacturing sector, using the
case methodology by way of interviews with members of management who
exercise functions similar to those of the Controller. Likewise, we find sufficient
confirmation of the importance of the Controller as coordinator of the new
information technologies and, similarly, that the person who exercises these
functions must have academic training in economics, business studies and
accounting and have sufficient practical experience in that particular firm.
Furthermore, it is corroborated that one of the basic tasks always carried out by
these individuals is that of budgetary co-ordination.
2.

Objectives

To understand about the latest changes from management perspective


3.

Content

Managing company ethics ethical challenges- Indian Ethos and Gandhian


Thoughts- relevance of trusteeship- ethics and social responsibility- factors
effecting ethical choice- the ethic of sustainability- and the natural environment
evaluating corporate social performance the environment and corporate
culture- shaping corporate culture for innovative response managing a global
environment roles and responsibilities of managers

Unit- VI: Giant steps and current issues in Management


Current Issues in Management
Many companies are starting to monitor and manage key indicators.
Substantial evidences prove that addressing such issues can directly cut cost and
save money. As such, these can evaluate the application of management theory
and how company are putting those in practices specifically those that can have
impact on the companys reputation.

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1) Corporate Social Responsibility (CSR)


The corporate social responsibility concerns the social environment and a
changed social contract. Many argued that organizations must consider the
societal impact of their decisions and actions. Furthermore, the organizations
must act to protect and improve the welfare of the general public. The
organizations must aim not only on organizational effectiveness but on existence
to address the needs of society (, 2003, ).
According to (1985), the social contract follows the obligation between
the

organization

and

the

individuals,

groups

and

other

organizations,

government and the society as a whole. These are set of written and unwritten
rules and assumptions in a corporate manner. Such obligations discuss behaviour
patterns among various elements of society.
The obligation to individual includes equitable wages, salaries and
remuneration packages and suitable working conditions
In return of these obligations, the duties and responsibilities must be carried-out
by the employees. The obligations to groups and other organizations require the
company to compete within acceptable means. In effect, the competition must
be carried-out with respect to mutual rights and obligations of trading partners
and other businesses and companies. The most notable feature of governmental
obligations of organizations is the existence of mutually beneficial exchange
evident through tax payments and implementation of health and safety
standards.

Societal

obligations

deals

with

law-abiding

activities

of

the

organization like the consumer group (, 1985, ).


The underlying issues, however, are the changing values of government,
business, education, religion, work force and society. Over the past 50 years, the
government tended to get more powerful, more oppressive and more righteous.
Many social ills are needed to be rectified and be improved upon. Businesses do
have responsibility to society and likewise the society has some responsibilities
to the corporate world. These obligations include: setting clear and consistent
rules, keeping economically- and technically-feasible rules, making proactive
rules and striving at goal-setting rules (as cited in ., 1989, ).

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If the government will honestly implement and adhered to by the


government and industries, there might be a possibility of a much effective
relationship. As to all of this are considerable talk and lip service, the
cooperation between business and government will be a big challenge.
The continuous foreign and domestic takeovers, imbalance between
export and import, the high value of dollar and inflation changes the pace of the
business sector and it affects the consumer behaviour and the society. However,
it can be minimize through involvement of the worker-business to hep increase
productivity.
The knowledge in history, geography classics and government are poorly
integrated in the educational systems. Aside from this, other areas such as
morals, social concepts and values and how business works reached the bottom
level in recent years. Some universities and educational institutions are
somewhat neglecting their purpose of educating the minds of the people.
Through judicial rulings, the work ethic and ethical-moral standards are
not prospering under religious principles. The government are not realizing the
impact of this on business and societal processes.
Labor will be more demanding upon management in the future without a
large influx and unless industry is able to expand rapidly, said . (1989, ). He
relates that the rapid growth of the 20-44-year-od age groups and the small
growth of the population in the 1-9-year-old bracket will create serious
managerial problems 10 to 20 years.
The stakeholders demand on businesses to grant their desires more than
what they really need and deserve perceives the societys need and demands
from the business sector. Immediate changes over a relatively short period will
do no good to the company and eventually to the society (., 1989).
2) Business Ethics
Some major corporation faced scandals and unethical acts which lead to
public distrust in one time or another. The word ethics means character or
customs. As such, the organizations codes and by-laws must convey moral
integrity and values in serving the public to avoid misgivings and scepticism.

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However, other organizations are concern with the greater specificity, usefulness
and consistency of ethics (, 2003, ).
Ethical behaviour deals with the morally-acceptable and commonly-held
values which are consistent to personal perception of values. In an organization,
many would question the rightfulness of different acts such as: Is it ethical to do
personal business on company time? Is it unethical to ask someone to do a
certain job that might not be good for their career progress? (, 2003).
Thus, we can define business ethics as perception of right or wrong in the
behaviour and practices of the business. It is divided into two as normative
business ethics and descriptive business ethics. A growing misconception is the
difference of the two.
In business context and practices, the normative business ethics deal
with establishing ethical from unethical. It concerns with what ought to be and
what ought not to be. Descriptive business ethics, in contrast, is the
comparison and contrasts of different moral codes, systems, beliefs, practices
and values. It is learning about real occurrences in business organizations,
managers, and specific industries regarding behaviour, actions, decisions,
policies and practices (, 2003).
The distinction between the two perspectives must be clarified once and
for all. So that the prevalence of a particular practice of a certain organization
that is perceived to be true and acceptable by other organizations wont be
justified rather be corrected. Aside from this, questionable deeds of organizations
will

be

addressed

on

individual,

organizational,

industry,

societal

and

international levels (, 2003, ).


Another management challenge is the teachability of business ethics
and the learnability of the employees in accordance with their personal
perception and values regarding business ethics. According to , business
institutions cannot taught students something as fundamental as moral
principles and ethical values as a kind of professional add-ons (2006). What is
the sense of putting ethical components on standard curriculum? What is the
theoretical extent in comparison to business reality of such teachings would be?

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The impact of such observation points toward the relative interconnection


between business schools, business theories and business realities. The ability to
impart morality and inculcate virtue to future mangers is their job. In reality,
business ethics is viewed by many, including and ten , as sentimental common
sense or a set of excuses for being unpleasant, at best window dressing and at
worst a calculated lie (as cited in , 2006).
In s point of view, business ethics can be taught and learned, but the
choice on what they ought to do (2007) lies in the hands of the company and
employees. There is an urgent need of a workplace revival and education and
training in ethics and professionalism is the key.
The CEO and the senior management must consider the ethical dilemmas
in the workplace. A well-written and well-communicated acceptable code can
help but it is impossible to regulate non-existence of unethical behaviour. The
bottom line is there is no legal requirement to behave ethically (, 2007). The
challenge herein is the approach to disseminate the information about codes and
to avoid concentration in a certain management level. It must be from top to
bottom. If not, the result would be clogging on continuous professional
development, an open workplace culture and a clear and explicit code (, 2007).
3) Corporate Governance
The concepts of firm and the interests it govern contribute to the
understanding of the issues faced by the corporate governance. Since the term
governance implies the exercise of authority, corporate governance, then, is the
study of the allocation and exercise of such authority (, 2004).
The challenge, by and large, is the extent of authority-intervention on
managerial matters and how it can affect the prevalent activities of firms and
organizations. Another issue to deal with is the dispersed structure of
organizational ownership (, 2004).
The separation of the equity holder and the management creates
problems, according to Blair, such as: 1) the management efficiency means
having enough courage to take risks, make strategic decisions and take
advantage of investment opportunities and the management cannot submit
every decision to shareholders affirmation; 2) the control-rights of shareholders

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with large total of shares has a power that must be restrained; 3) the
commitment of time and resources of investors in monitoring the affairs of the
organization; and 4) the reliability and accuracy of information-needs by the
investors/shareholders (as cited in , 2004, ).
The power and position of both parties must be guarded to avoid abuse
and taking unfair advantages over one another. The primary goal of the
organization as a whole is somewhat overlooked the more as the location of
authority is becoming more blurry.
The three elements that contribute to the efficiency and inefficiency of
the corporate governance is the existence of strong public sector governance
including a network of corporate law and securities legislation, strong internal
governance practices and independent auditors who are neutral and objectivedriven (, 2002).
The corporate governance deals with the role of financial performance,
chief executive, top management, shareholders and board of directors. Herewith,
the management threat is the responsiveness taken by each. A more balanced
and responsive corporate governance system will eventually be the challenge.
Since in a competitive environment, the authorities must intervene according to
their position and power if the management failed to respond to economic
changes and challenges ( and , 1998, ).
Another aspect to explore regarding corporate governance is the
implications of globalization. The scale and scope of international business
activities have significant effects on the international scene. Usually, corporate
governance is practiced within individual companies and its focus is normally
internal (, 2002). The readiness of such companies to engage in international
economy might alter the prevalent cultures and practices of the company. points
out that the critical aspect is the increasing potential damage once the company
involved itself in the international economy (2002).
4) Quality of Work Life and Quality Circles
The quality of work life (QWL) is essential for continuous attraction of
future

employees

and

retention

of

current

employees.

The

QWL

is

comprehensive company-wide program which aims at the improvement of

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employee

satisfaction,

strengthening

of

workplace

learning

and

helping

employees to have a better change- and transition-management ( and , 2006, ).


Regardless of position or status in a company, many employees are
experiencing dissatisfaction towards work. This conforms to the complexity of
problems as it is very difficult to isolate and identify all aspects that contribute to
affect the QWL. The issues confronting the management are employer behaviour
and the lives of employees before, after and during work.
QWL is a very dynamic and multidimensional concept. It is oftenly viewed
as a movement, a set of organizational interventions and a type of work life by
the employees. It includes concerns of job security, job sustainability, reward
systems, training and career advancements opportunities and participation in
decision-making ( and , 2006, ).
and (1993) define QWL as the workplace strategies, operations and
environment. It promotes and maintains employee satisfaction, improve work
conditions and organizational effectiveness. The consequence to be faced by the
management is the incorporation of QWL in policies, procedures, leadership style
and operations. Broadly speaking, the identification of elements of QWL may be
organization- and context-specific. The duty of the management. therefore, is to
determine such elements which affect the efficiency and quality of work life of
the employees.
The creation of quality circles in shop-floor level involves the attempt to
engage employees on collective quality improvement. The small groups are
consistently given advice and take decisions on immediate work procedures. , ,
and argue that the effectiveness of such process is poorly carried-out. When, the
employees realized that they really have little real influence on the organization,
the employee will start to feel indifferent. Since the organizations are purely
hierarchical and the principles are centralized, the process appears as an
instrument for manipulating the employee opinion (1998, ).
If this is the case, the management must struggle at inculcating the
sense of involvement among employees in decision-making. Another area of
concern is the motivation scheme and its significant benefits directly to the
employees of the organization.

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Some organizations thrive at grouping of employees who meet regularly


to tackle improvements within the workforce of a certain organization (, , and ,
1998, ). The idea is the how effective a small group in voicing their concern
regarding the work and their environment. Another thing to consider is the
reflection of opinion of the group compared to the whole work force. Such issues
regarding the quality work of life and quality circles may appear to be very broad
but still they are waiting for recognition and immediate solutions.
5) Workforce Treatment and Workforce Discrimination
The work treatment and the work discrimination per se have three
dimensions: the formal vs. informal, potential vs. encountered and the perceived
vs. real. These dimensions transcends across all status, race, gender, and etc.
describes work discrimination as unfair and negative treatment of
workers or job applicants based on personal attributes that are irrelevant to job
performance (2001). The nature of work is very multifaceted as it can be
experienced in pre- during and post-levels of work.
The framework of formal discrimination is based on institutional policies
and decisions regarding hiring, firing promotion, salary deductions and job
assignments. In contrast, the informal discrimination deals with interpersonal
dynamics and work atmosphere such as verbal and non-verbal harassments, lack
of respect, hostility and prejudice ( and , 1984).
The

second

dimension

involves

the

potential

and

encountered

discriminations. The former deals with actual discrimination in sexual orientation


disclosures, for example. The latter refers to encountered discriminatory
practices. However, the distinction between the two is subjectivity and
objectivity viewed from neutral terms (, 2001).
The third dimension is derived from the concept occupational opportunity
structures of (1980): the ideal, real and perceived discriminations. In ideal, there
is no discrimination. The comparison between perceived and real discriminations
varies from perception of individuals. The neutral situation may be interpreted
and misinterpreted as a discriminatory practice where in fact, the situation is just
a result of misconception/misperception.

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6) Transparency
Generally,

transparency

is

critical

in

corporate

accounting

and

statements. The companies must practice publicizing in order to gain and regain
the confidence of shareholders and consumers in all aspects of business. The
benefit of the people around and within the company is the avoidance of
misleading informations and false announcements (, 2001).
The management, as policymakers, must clearly provide the people
truthfulness regarding their operations and activities. In effect, the credibility of
the corporate governance will be respected by the employees and the
consumers.
The continuum of economic growth includes a transparent corporate
governance structure. The interaction, without this, can lead to financial
deficiency. In this regard, the financial transparency and the corporate
governance system are the key factors to encourage investors and to create a
sustainable business (, 2007).
According to (2005), transparency scares business. The switch to a more
open accounting can be daunting said , vice-president of Delta Private Equity
Partners.

The

management

struggles

at

the

significant

cost

in

paying

consultations regarding elimination of shady schemes. The profits will be cut and
may erode business competitiveness. Not all entrepreneurs, in addition, are
interested in legalizing their financials.

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