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Principles &

Practices
Management

Amity Directorate
of Distance &
Online Education

Although management is implicit in all organized group effort over which


human civilization is built up, its systematic study and analysis is only of
recent origin. Till almost the end of 19th century, management was being
practiced as an art of getting things done through people. Very little
conceptual and theoretical body of knowledge was developed.

CONTENTS
UNIT 1. INTRODUCTION TO MANAGEMENT
1.1

Introduction

1.2

Unit Objectives

1.3

Definitions of Management

1.4

Management Functions

1.5

Levels of Management

1.6

Evolution of Management Thought

1.7

Classical Approach

1.8

Behavioral Approach

1.9

Quantitative approach

1.10

Modern Organisation Theory

1.11

Summary

1.12

Questions and Exercises

1.13

Further readings

UNIT 2. PLANNING PROCESS


2.0

Introduction

2.1

Unit Objectives

2.2

Planning: An Overview

2.3

Importance of Planning

2.4

Principles of Effective Planning

2.5

Forecasting

2.6

Summary

2.7

Questions and Exercises

2.8

Further Reading

UNIT 3 : ORGANISING
3.0

Introduction

3.1

Unit Objectives

3.2

Meaning, concept and Process of Organising

3.3

Importance of Organising

3.4

Span of Control

3.5

Delegation of Authority

3.6

Centralisation and Decentralisation

3.7

Concepts of Line and Staff Authority

3.8

Summary

3.9

Questions and Exercises

3.10

Further readings

1-14

15-26

27-40

UNIT 4 : STAFFING / HUMAN RESOURCE MANAGEMENT

41-52

Structure
4.0

Introduction

4.1

Unit Objectives

4.2

Job Analysis

4.3

Manpower Planning

4.4

Recruitment

4.5

Selection

4.6

Training and Development

4.7

Performance Appraisal

4.8

Summary

4.9

Questions and Exercises

4.10

Further readings

UNIT 5 : DIRECTING

53-79

Structure
5.0

Introduction

5.1

Unit Objectives

5.2

Motivation

5.3

Co-ordination,

5.4

Communication

5.5

Decision Making,

5.6

Management by Objectives (MBO)

5.7

Summary

5.8

Questions and exercises

5.9

Further readings

UNIT 6 - MANAGEMENT CONTROL


Structure
6.0

Introduction

6.1

Unit Objectives

6.2

Meaning of Control

6.3

Process of Control

6.4

Requirements of an effective control system

6.5

Some Techniques of Control

6.6

Behavioral Aspects of Management control

6.7

Summary

6.8

Questions and Exercises

6.9

Further readings

80-90

UNIT 1. INTRODUCTION TO MANAGEMENT


STRUCTURE
1.1

Unit Objectives

1.2

Introduction

1.3

Definitions of Management

1.4

Management Functions

1.5

Levels of Management

1.6

Evolution of Management Thought

1.7

Classical Approach

1.8

Behavioral Approach

1.9

Quantitative approach

1.10

Modern Organisation Theory

1.11

Summary

1.12

Questions and Exercises

1.13

Further readings

1.1 UNIT OBJECTIVES:


In this module the basic concepts of management and the evolution of the Management
Thought in detail are discussed.
Definitions of Management
Management Functions
Levels of Management
Evolution of Management Thought
Classical Approach
Behavioral Approach
Quantitative approach
Modern Organisation Theory

1.2 INTRODUCTION:
Although management is implicit in all organized group effort over which human civilization
is built up, its systematic study and analysis is only of recent origin. Till almost the end of
19th century, management was being practiced as an art of getting things done through
people. Very little conceptual and theoretical body of knowledge was developed. Only during
the 20th century, a concerted attempt to look closely at the practice of management has
been made to identify certain patterns and relationships and to understand the dynamics of
individual and group behavior in organizational settings. A broad theory of organization and
management is in the process of evolution around certain basic concepts, principles and
propositions. Management has emerged as a distinct discipline in the social sciences with
a tremendous potential for a dynamic process of development.

Principles & Practices of Management

Notes :

A heterogeneous group of management practitioners, administrators and management


thinkers have contributed to the accumulation of knowledge on management. Also,
economists, psychologists, sociologists, engineers, mathematicians, political scientists
and others have taken a profound interest in the analysis and research on management.
The rationale for an increasing interest in development of a scientific body of management
knowledge could be traced to the following factors:
a) Increasing commercialization and monetization of the economies of nations.
b) Increasing interaction and inter-dependence of individuals and groups.
c)

Increasing complexity of production and distribution of products and services, due


to an explosive revolution in technology of production, information, education,
incomes and aspirations of people.

d)

Increasing number and size of organizations as also competition among them and
the need to utilize and conserve resources in a most efficient and economic manner
and to plan the strategy of coping with the fast changing environment.

e)

Recognition of the imperative need to manage the human resources which is a


highly complex job.

The evolution of management theory over the nine decades of the 20th century is of
interest to us to get an insight into the different streams of ideas and the interplay of forces
that have contributed to the development of knowledge on management. Familiarity with
historical and theoretical perspectives of management thought is helpful to us to gain a
proper and balanced perspective on the theory and practice of management.

1.3 DEFINITIONS OF MANAGEMENT:


The term "management" can be interpreted in a variety of ways. To gain a better
insight into the nature of management, let us look at some of the definitions of management:
Harold Koontz and Heinz Weihrich define management as "the process of designing
and maintaining an environment in which individuals, working together in groups, efficiently
accomplish selected aims."
Louis E. Boone and David L. Kurtz define management as "the use of people and other
resources to accomplish objectives."
Dalton E. McFarland defines management as "a process, by which managers create,
direct, maintain and operate purposive organizations through systematic, coordinated,
cooperative human effort."

1.4 FUNCTIONS OF MANAGERS:


The functions of a manager provide a useful framework for organizing management
knowledge under the various heads of planning, organizing, staffing, leading and controlling.
Managerial functions are effective tools for managers to achieve the organization's planned
objectives. They include the general administrative duties that need to be carried out in
virtually all organizations. The management process and shows the various functions that
managers are involved in. It is evident from the figure that managers are involved in more
than one activity at the same time.
Planning: Planning can be defined as the process, by which, managers decide the mission
and objectives of the firm and take necessary steps to achieve the desired objectives. At the
same time, managers need to determine the future trends in business and incorporate change
and innovation into the organization from time to time. There are various types of plans and they

Principles & Practices of Management

may range from planning to define the overall purposes and objectives of an organization to
planning for a specific action. Planning helps a firm decide its future course of action.
Organizing: Organizing is the process of assigning tasks and allocating resources to
individuals to enable them to accomplish organizational goals. Organizing is a continuous
process of determining (1) which tasks are to be performed, (2) how tasks can best be
combined into specific jobs, (3) how jobs can be grouped into various units, and (4) the
authority and reporting relationships within the corporate hierarchy. The organizational
structure of a firm is a key element in determining its success or failure. It plans are not
organized properly even the best of plans can fail. On the other hand, the pitfalls associated
with a poor plan can be eliminated by excellent organization.
Staffing: Today, staffing is better known as "human resource management" and involves
manning or filling the various positions in the organizational hierarchy. Activities like
determining manpower requirements, assessing the number of people presently available
in the organization, recruiting and selecting candidates, training and placing them in the
organization come under the purview of staffing. This function also deals with compensation,
performance appraisal, promotion and career planning.
Leading: Leading is defined as "the management function of influencing, motivating,
and directing people towards the achievement of organizational goals." It is the management
function that involves influencing and inspiring team members to perform well and accomplish
corporate objectives. Leading involves (1) communicating with others, (2) leadership styles
and approaches, and (3) motivating people to put forth the effort required to achieve
organizational goals. In simple words, it is the act of making things happens through others.
Controlling: The final step in the management process is to monitor the progress of an
organization towards its goals. Controlling can be defined as the continuous measurement
and analysis of actual operations against the established industry standards developed
during the planning process and corrections of deviations, if any.
The basis control process involves (1) comparing performance with standards, (2) determining
where negative deviations occur, and (3) developing remedial measures to correct deviations.

1.5 LEVELS OF MANAGEMENT


In many small business enterprises, the owner is the only member of the management
team. But, as the size of an organization increases, a more sophisticated organizational
structure is required. It is a normal practice to categorize management into three basic
levels: (1) top-level management, (2) middle-level management, and (3) supervisory or firstlevel management. The duties and responsibilities at these three levels of management
vary from organization to organization, depending upon the size, technology, culture, etc.
prevailing in the organization.

1.6 EVOLUTION OF MANAGEMENT THOUGHT


Let us now take a look at the evolutionary phases of the development of management
theory which Harold Koontz once terms as 'management theory jungle'.

1.7 CLASSICAL APPROCH


Classical management through can be divided into three separate schools: scientific
management, administrative theory and bureaucratic management. Classical theorists
formulated principles for setting up and managing organizations. These views are labeled
"classical" because they form the foundation for the field of management thought. The
major contributors to the three schools of management though - scientific management,

Notes :

Principles & Practices of Management

Notes :

administrative theory and bureaucratic management - are Frederick W. Taylor, Henry Fayol
and Max Weber respectively.

Scientific Management
Scientific management became increasingly popular in the early 1900s. In the early
19th century, scientific management was defined as "that kind of management which
conducts a business or affairs by standards established, by facts or truths gained through
systematic observation, experiment, or reasoning". In other words, it is a classical
management approach that emphasizes the scientific study of work methods to improve
the efficiency of the workers. Some of the earliest advocates of scientific management
were Frederick W. Taylor (1856-1915), Frank Gilbreth (1868-1924), Lillian Gilbreth (18791972), and Henry Gantt (1861-1919).

Frederick Winslow Taylor


Frederick Winslow Taylor took up Henry Towne's challenge to develop principles of
scientific management. Taylor, considered "father of scientific management", wrote The
Principles of Scientific Management in 1911. An engineer and inventor, Taylor first began to
experiment with new managerial concepts in 1878 while employed at the Midvale Steel Co.
At Midvale, his rise from laborer to chief engineer within 6 years gave him the opportunity to
tackle a grave issue faced by the organization - the soldiering problem. 'Soldiering' refers
to the practice of employees deliberately working at a pace slower than their capabilities.
According to Taylor, workers indulge in soldiering for three main reasons:
i.

Workers feared that if they increased their productivity, other workers would lose
their jobs.

ii.

Faulty wage systems employed by the organization encouraged them to work at a


slow pace.

iii. Outdated methods of working handed down from generation to generation led to a
great deal of wasted efforts.
Taylor felt that the soldiering problem could be eliminated by developing a science of
management. The scientific management approach involved using scientific methods to
determine how a task should be done instead of depending on the previous experiences of
the concerned worker.
In essence, scientific management as propounded by Taylor emphasizes:
i.

Need for developing a scientific way or performing each job.

ii.

Training and preparing workers to perform that particular job.

iii. Establishing harmonious relations between management and workers so that the
job is performed in the desired way.
The two major managerial practices that emerged from Taylor's approach to management
are the piece-rate incentive system and the time-and-motion study.

PIECE-RATE INCENTIVE SYSTEM:


Taylor felt that the wage system was one of the major reasons for soldiering. To resolve
this problem, he advocated the use of a piece-rate incentive system. The aim of this system
was to reward the worker who produced the maximum output. Under this system, a worker
who met the established standards of performance would earn the basic wage rate set by
management. If the worker's output exceeded the set target, his wages would increase

Principles & Practices of Management

proportionately. The piece-rate system, according to Taylor, would motivate workers to


produce more and thus help the organization perform better.

Time-and-motion study
Taylor tried to determine the best way to perform each and every job. To do so, he
introduced a method called 'time-and-motion' study. In a "time-and-motion" study, jobs are
broken down into various small tasks or motions and unnecessary motions are removed to
find out the best way of doing a job. Then each part of the job is studied to find out the
expected amount of goods that can be produced each day. The objective of a time-andmotion analysis is to ascertain a simpler, easier and better way of performing a work or job.

Henry Laurence Gantt


Henry L. Gantt (1861-1919) was a close associate of Taylor at Midvale and Bethlehem
Steel. Gantt later became an independent consultant and made several contributions to the
field of management. He is probably best remembered for his work on the task-and-bonus
system and the Gantt chart. Under Gantt's incentive plan, if the worker completed the work
fast, i.e. in the less than the standard time, he received a bonus. He also introduced an
incentive plan for foremen, who would be paid a bonus for every worker who reached the
daily standard. If all the workers under a foreman reached the daily standard, he would
receive an extra bonus. Gantt felt that this system would motivate foremen to train workers
to perform their tasks efficiently.
The Gantt Chart is still used today by many organizations. It is a simple chart that
compares actual and planned performances. The Gantt chart was the first simple visual
device to maintain production control. The chart indicates the progress of production in
terms of time rather than quantity. Along the horizontal axis of the chart, time, work scheduled
and work completed are shown. The vertical axis identifies the individuals and machines
assigned to these work schedules. The Gantt Chart compares a firm's scheduled output
and expected completion dates to what was actually produced during the year. Gantt's
charting procedures were precursors of today's program evaluation and review techniques.

Limitations of scientific management


Scientific management has provided many valuable insights in the development of
management thought. In spite of the numerous contributions it made, there are a few
limitations of scientific management. They are:
a)

The principles of scientific management revolve round problems at the operational level
and do not focus on the management of an organization from a manager's point of view.
These principles focus on the solutions of problems from an engineering point of view.

b)

The proponents of scientific management were of the opinion that people were "rational"
and were motivated primarily by the desire for material gain. Taylor and his followers overlooked
the social needs of workers and overemphasized their economic and physical needs.

c) Scientific management theorists also ignored the human desire for job satisfaction.
Since workers are more likely to go on strike over factors like working conditions and
job content (the job itself) rather than salary, principles of scientific management, which
were based on the "rational worker" model, became increasingly ineffective.

Administrative Theory
While the proponents of scientific developed principles that could help workers perform
their tasks more efficiently, another classical theory - the administrative management theory
- focused on principles that could be used by managers to coordinate the internal activities
of organizations. The most prominent of the administrative theorists was Henri Fayol.

Notes :

Principles & Practices of Management

Notes :

Henri Fayol
French industrialist Henri Fayol (1841-1925), a prominent European management
theorist, developed a general theory of management. Fayol believed that "with scientific
forecasting and proper methods of management, satisfactory results were inevitable," Fayol
was unknown to American managers and scholars until his most important work, General
and Industrial Management, was translated into English in 1949. Many of the managerial
concepts that we take for granted today were first articulated by Fayol.
According to Fayol, the business operations of an organization could be divided into
six activities.
Technical

Producing and manufacturing products

Commercial

Buying, selling and exchange

Financial

Search for and optimal use of capital

Security

Protecting employees and property.

Accounting

Recording and taking stock of costs, profits, a and lliabilities,


maintaining balance sheets, and compiling statistics.

Managerial

Planning, organizing, commanding, Coordinating and


controlling.

Fayol focused on the last activity, managerial activity. Within this, he identified five
major functions: planning, organizing, commanding, coordinating and controlling. Fayol's
five management functions are clearly similar to the modern management functions planning, organizing, staffing, leading and controlling. Fayol's concept of management
forms are cornerstone of contemporary management theory.

Fayol outlined fourteen principles of management


1.

Division of work: Work specialization results in improving efficiency of operations. The


concept of division of work can be applied to both managerial and technical functions.

2.

Authority and responsibility: Authority is defined as "the right to give orders and the
power to extract obedience". Authority can be formal or personal. Formal authority is
derived from one's official position and personal authority is derived from factors like
intelligence and experience. Authority and responsibility go hand-in-hand. When a
manager exercises authority, he should be held responsible for getting the work done
in the desired manner.

3.

Discipline: Discipline is vital for running an organization smoothly. It involves obedience


to authority, adherence to rules, respect for superiors and dedication to one's job.

4.

Unity of command: Each employee should receive orders or instructions from one
superior only.

5.

Unity of direction: Activities should be organized in such a way that they all come
under one plan and are supervised by only one person.

6.

Subordination of the individual interest to the general interest: Individual interests


should not take precedence over the goals of the organization.

7.

Remuneration: The compensation paid to employees should be fair and based on


factors like business conditions, cost of living, productivity of employees and the ability
of the firm to pay.

8.

Centralization: Depending on the situation, an organization should adopt a centralized


or decentralized approach to make optimum use of its personnel.

9.

Scalar chain: This refers to the chain of authority that extends from the top to the
bottom of an organization. The scalar chain defines the communication path in an
organization.

Principles & Practices of Management

10. Order: This refers to both material and social order in organizations. Material order
indicates that everything is kept in the right place to facilitate the smooth coordination
of work activities. Similarly, social order implies that the right person is placed in the
right job (this is achieved by having a proper selection procedure in the organization).
11. Equity: All employees should be treated fairly. A manager should treat all employees in
the same manner without prejudice.
12. Stability of tenure of personnel: A high labor turnover should be prevented and managers
should motivate their employees to do a better job.
13. Initiative: Employees should be encouraged to give suggestions and develop new and
better work practices.
14. Espirit de corps: This means "a sense of union." Management must inculcate a team
spirit in its employees.

Bureaucratic Management
Bureaucratic management, one of the schools of classical management, emphasizes
the need for organizations to function on a rational basis. Weber (1864-1920), a contemporary
of Fayol, was one of the major contributors to this school of thought. He observed that
nepotism (hiring of relatives regardless or their competence) was prevalent in a most
organizations. Weber felt that nepotism was grossly unjust and hindered the progress of
individuals. He therefore identified the characteristics of an ideal bureaucracy to show how
large organizations should be run. The term "bureaucracy" (derived from the German buro
meaning office) referred to organizations that operated on a rational basis. According to
Weber, "a bureaucracy is a highly structured, formalized, and impersonal organization." In
other words, it is a formal organization structure with a set of rules and regulations.
The term "bureaucracy" is sometimes used to denote red tapism and too many rules. However,
the bureaucratic characteristics of organizations outlined by Weber have certain advantages.
They help remove ambiguities and inefficiencies that characterize many organizations. In addition,
they undermine the culture or patronage that he saw in many organizations.

Limitation of bureaucratic management and administrative theory


Scholars who emphasized the human approach to management criticized classical
theorists on several grounds. They felt that the management principles propounded by the
classical theorists were not universally applicable to today's complex organizations.
Moreover, some of Fayol's principles, like that of specialization, were frequently in conflict
with the principle of unity of command.
Weber's concept of bureaucracy is not as popular today as it was when it was first
proposed. The principle characteristics of bureaucracy - strict division of labor, adherence
to formal rules and regulations, and impersonal application of rules and controls - destroy
individual creativity and the flexibility to respond to complex changes in the global environment.
Classical theorists ignored important aspects of organizational behavior. They did not
deal with the problems of leadership, motivation, power or informal relations. They stressed
productivity above other aspects of management. They also failed to consider the impact of
the external and internal environment upon employee behavior in organizations.

1.8 BEHAVIORAL APPROACH


The behavioral school of management emphasized what the classical theorists ignored
- the human element. While classical theorists viewed the organization from a production
point of view, the behavioral theorists viewed it from the individual's point of view. The

Notes :

Principles & Practices of Management

Notes :

behavioral approach to management emphasized individual attitudes and behaviors and


group processes, and recognized the significance of behavioral processes in the workplace.

Mary Parker Follet: Focusing on Group Influences


Mary Parker Follet (1868-1933) made important contributions to the field of human resource
management. Though Follet worked during the scientific management era, she understood
the significance of the human element in organizations. She gave much more importance to
the functioning of groups in the workplace than did classical theorists. Follet argued that
organizational participants were influenced by the groups within which they worked.
Follet recognized the critical role managers play in bringing about the kind of constructive
change that enables organizations to function. She suggested that organizations function
on the principle of "power with" rather than "power over." Power, according to Follet, was
the ability to influence and bring about a change. She argued that power should not be
based on hierarchy; instead, it should be based on cooperation and should involve both
superiors and subordinates. In other words, she advocated 'power sharing.'
Follet also advocated the concept of integration, which involves finding a solution
acceptable to all group members. She believed that managers should be responsible for
keeping a group together and ensuring that organizational objectives are achieved through
group interaction. Her humanistic ideas have influenced the way we look at motivation,
leadership, teamwork, power and authority.

Elton Mayo: Focusing on Human Relations


Elton Mayo (1880-1949), the "Father of the Human Relations Approach," lead the team
which conducted a study at Western Electric's Hawthorne Plant between 19247 and 1933
to evaluate the attitudes and psychological reactions of workers in on-the-job situations.
The researchers and scholars associated with the Hawthorne experiments were Elton
Mayo, Fritz Roethlisberger, T.N. Whitehead and William Dickson. The National Research
Council sponsored this research in cooperation with the Western Electric Company. The
study was started in 1924 by Western Electric's industrial engineers to examine the impact
of illumination levels on worker productivity. Eventually the study was extended through
the early 1930s. The experiments were conducted in four phases:
a. Illumination experiments
b. Relay assembly test room experiments
c. Interview phase
d. Bank wiring observation room experiments

Illumination experiments
These experiments, initiated by Western Electric's industrial engineers, took place between
1924 and 1927. These experiments involved manipulating the illumination for one group of
workers (called the experimental or test group) and comparing their subsequent productivity
with the productivity of another group (the control group) for whom the illumination was not
changed. The results of the experiments were ambiguous. For the test group, performance
improved as the intensity of the light increased. The result was expected. However, the
performance of the test group rose steadily even when the illumination for the group was made
so did that the workers could hardly see. To compound the mystery, the control group's productivity
also tended to rise as the test group's lighting conditions were altered, even though the control
group experienced no changes in illumination. Since there was a rise in performance in both
groups, the researchers concluded that group productivity was not directly related to illumination
intensity. Something besides lighting was influencing their performance.

Principles & Practices of Management

At this point of the Hawthorne Experiments, researchers from Harvard University, under
the guidance of Elton Mayo, were invited to participate in conducting the next phase of
experiments.

Relay assembly test room experiments


A second set of experiments took place between 1927 and 1933. In this phase,
researchers were concerned about working conditions such as number of work hours,
frequency and duration of rest periods. The researchers selected six women for the
experiments. These women worked in the relay assembly test room, assembling a small
device called an electrical relay. The participants were informed beforehand about the
experiments. In the course of the experiments, a number of variables were altered in the
room: wages were increased; rest periods of varying lengths were introduced; the duration
of work was shortened. The workers were also granted certain privileges such as leaving
their workstation without obtaining permission. These workers received special attention
from the researchers and company officials.
Generally, productivity increased over the period of the study, regardless of how the
factors under consideration were manipulated. The Harvard University group ultimately
concluded that better treatment of employees made them more productive. These experiments
recognized the importance of social relations among participants. Since there was no formal
supervisor (only the observer was present), the participants on proposed changes. The
researchers concluded that employees would work better if management was concerned
about their welfare and supervisors paid special attention to them. One of the findings of the
study was the identification of the concept which came to be described as the 'Hawthorne
effect.' The Hawthorne effect is defined as the possibility that individuals picked up to
participate in a study may show higher productivity only because of the added attention
they receive from the researchers rather than any other factor being tested in the study.

Interview phase
During the course of the experiments, about 21,000 people were interviewed over a
three-year period - between 1928 and 1930 - to explore the reasons for human behavior at
work All the employees in the Hawthorne plant were interviewed. The generalizations drawn
from these interviews are given below:
1.

A complaint is not necessarily an objective recital of facts; it can also be a symptom of


personal disturbance, the cause of which may be deep-seated.

2.

Objects, persons and events carry social meaning. Their relation to employee satisfaction
or dissatisfaction is purely based on the employee's personal situation and how he
perceived them.

3.

The personal situation of the worker is a configuration of relationships. This configuration


consists of a personal reference and a social reference. While personal reference pertains
to a person's sentiments, desires, and interests, social reference pertains to the person's
past and present interpersonal relations.

4.

The position or status of the worker in the company is a reference from which the
worker assigns meaning and value to the events, objects, and features of his
environment, such as hours of work, wages etc.

5.

The social organization of the company represents a system of values from which the
worker derives satisfaction or dissatisfaction according to his perception of his social
status and the expected social rewards.

6.

The social demands of the worker are influenced by social experiences in groups both
inside and outside the workplace.

Notes :

Principles & Practices of Management

10

Notes :

Bank wiring observation room experiments


These experiments were undertaken by researchers to test some of the ideas they had
gathered during the interviews. The experiments were conducted during 1931-1932 The fourteen
participants in the experiment were asked to assemble telephone wiring to produce terminal
banks. This time no changes were made in the physical working conditions. In the Bank
Wiring Observation Room experiments, workers were paid on the basis of an incentive pay
plan, under which their pay increased as their output increased. Researchers observed that
output stayed at a fairly constant level, which was contrary to their expectations. Their analysis
showed that the group encouraged neither too much nor too little work. It seemed they had
their own idea of what "a fair day's work" was and enforced it themselves. The test room
participants did not behave the way the 'economic man model' (this model states that
employees are predominantly motivated by money) predicted. Group acceptance appeared
to be more important to the worker than money. Thus, these experiments provided some
insights into informal social relations within groups.

Contributions of Hawthorne experiments


The Hawthorne experiments, which laid the foundation for the Human Relations
Movement, made significant contributions to the evolution of management theory.

Criticism of Hawthorne studies


The Hawthorne studies have received considerable criticism. They have been criticized
on the following grounds:
1.

The procedures, analysis of findings, and the conclusions reached were found
to be questionable. Critics felt that the conclusions were supported by little
evidence.

2.

The relationship made between the satisfaction or happiness of workers and their
productivity was too simplistic.

3.

These studies failed to focus attention on the attitudes of employees at the


workplace.

Abraham Maslow : Focusing on Human Needs


In 1943, Abraham H. Maslow (1908-1970), a Brandeis University psychologist,
theorized that people were motivated by a hierarchy of needs. His theory rested on
three assumptions. First, all of us have needs which are never completely fulfilled.
Second, through our actions we try to fulfill our unsatisfied needs. Third, human needs
occur in the following hierarchical manner: (i) physiological needs; (ii) safety or security
needs; (iii) belongingness or social needs' (iv) esteem or status needs; (v) selfactualization, or self-fulfillment needs. According to Maslow, once needs at a specific
level have been satisfied, they no longer act as motivators of behavior. Then the individual
strive to fulfill needs at the next level. Managers who accepted Maslow's hierarchy of
needs attempted to change their management practices so that employees' needs
could be satisfied.

Douglas McGregor: Challenging Traditional Assumptions about


Employees
Douglas McGregor (1906-1964) developed two assumptions about human behavior,
which he labeled "Theory X" and "Theory Y." According to McGregor, these two theories
reflect the two extreme sets of belief that different managers have about their workers.
Theory X presents an essentially negative view of people. Theory X managers assume that

Principles & Practices of Management

workers are lazy, have little ambition, dislike work, want to avoid responsibility and need to
be closely directed to make them work effectively. Theory Y is more positive and presumes
that workers can be creative and innovative, are willing to take responsibility, can exercise
self-control and can enjoy their work. They generally have higher-level needs which have
not been satisfied by the job. Like Maslow's theory, McGregor's Theory X and Theory Y
influenced many practicing managers. These theories helped managers develop new ways
of managing the workers.

Chris Argyris: Matching Human and Organizational Development


Chris Argyris, a Yale University profession, made significant contributions to the
behavioral school of management thought. The major contributions of this behavioral scientist
are the maturity-immaturity theory, the integration of individual and organizational goals,
and Model I and Model II organization analysis.
Argyris points out the inherent conflict between the healthy individual and the rigid
structure of the formal organization. He believes that people progress from a stage of
immaturity and dependence to a state of maturity and independence. Many organizations
tend to keep their employees in a dependent state, thereby blocking further progress. This
tendency may keep an individual from realizing his or her true potential. Further, Argyris
argues that several of the basic concepts and principles of modern management - such as
specialization - hinder the development of a "healthy" personality. He feels that such
incongruence between the organization and individual development results in the failure and
frustration of employees. Such incongruence, Argyris argues, canbe corrected by techniques
such as job enlargement and job loading, which increase the work-related responsibilities
of the individual and allow him to participate in the decision-making process.

Model I and Model II organizations:


Argyris classifies organizations as Model I and Model II organizations on the basis of
the employees' set of values. The employees in Model I organization are manipulative and
pitted against each other. They are not willing to take risks. Workers in Model II organization
are open to learning and less manipulative. Their access to information gives them freedom
to make informed choices, which in turn increases their willingness to take risks. Hence,
according to Argyris, managers should strive to create a Model II environment.

1.9 QUANTITATIVE APPROACH


The quantitative management perspective emerged during World War II. During the
war, the army (in the US and UK) brought together managers, government officials and
scientists to help it deploy its resources more efficiently and effectively. These experts
used some of the mathematical approaches to management devised earlier by Taylor and
Gantt to solve the logistical problems encountered by the army during the war. After the
war, many organizations started applying the same techniques to solve business problems.
The quantitative approach to management includes the application of statistics, optimization
models, information models and computer simulations. More specifically, this approach
focuses on achieving organizational effectiveness through the application of mathematical
and statistical concepts. The three main branches of the quantitative approach are : (i)
management science (ii) operations management and (iii) management information systems.

Management Science
The management science approach stresses the use of mathematical models and
statistical methods for decision-making. It visualizes management as a logical entity, the

11

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12

Notes :

action of which can be expressed in terms of mathematical symbols, relationships and


measurement data. Another name commonly used for management science is operations
research. Recent advances in computers have made it possible to use complex mathematical
and statistical models in the management of organizations. Management science techniques
are widely used in the following areas:

Capital budgeting and cash flow management

Production scheduling

Development of product strategies

Planning for human resource development programs

Maintenance of optimal inventory levels

Aircraft scheduling

Various mathematical tools like the waiting line theory or queuing theory, linear
programming, the program evaluation review technique (PERT), the critical path method
(CPM), the decision theory, the simulation theory, the probability theory, sampling, time
series analysis etc. have increased the effectiveness of management decision making. To
apply a quantitative approach to decision-making, individuals with mathematical statistical,
engineering, economics and business background skills are required. Since one person
cannot have all these skills the quantitative method requires a team approach to decisionmaking. This approach has been criticized for its overemphasis of mathematical tools.
Many managerial activities cannot be quantified because they involve human beings who
are governed by many irrational elements.

Operations Management
Operations management is an applied form of management science. It deals with the
effective management of the production process and the timely delivery of an organization's
products and services. Operations management is concerned with [i] inventory management,
(ii) work scheduling (iii) production planning, (iv) facilities location and design, and (v) quality
assurance. The tools used by operations manages are forecasting, inventory analysis,
materials requirement planning systems, networking models, statistical quality control
methods, and project planning and control techniques.

Management Information Systems


Management information systems focus on designing and implementing computerbased information systems for business organizations. In simple terms, the MIS converts
raw data into information and provides the needed information to each manager at the right
time, in the needed form

1.10 MODERN ORGANISATION THEORY


Besides the classical, behavioral and quantitative approaches to management, there
are certain modern approaches to management. Two of these approaches are the systems
theory and the contingency theory, which have significantly shaped modern management
thought. These two approaches to management are discussed in this section.

Systems Theory
Those who advocate a systems view contend that an organization cannot exist in
isolation and that management cannot function effectively without considering external

Principles & Practices of Management

13

environmental factors. The systems approach gives managers a new way of looking at an
organization as a whole and as a part of the larger, external environment. According to this
theory, an organizational system has four major components: inputs, transformation
processes, output and feedback. Inputs -money, materials, men machines and informational
sources - are required to produce goods and services. Transformation processes or
throughputs - managerial and technical abilities - are used to concert inputs into outputs.
Outputs are the products, services, profits and other results produced by the organization.
Feedback refers to information about the outcomes and the position of the organization
relative to the environment it operates in.
The two basic types of systems are closed and open systems. A system that interacts
with the environment is regarded as an open system and a system that does not interact
with its environment is considered a closed system. Frederick Taylor, for instance regarded
people and organization as closed systems. In reality, all organizations are open system
as they are dependent on interactions with their environment. Whether it is a new product
decision or a decision related to the employees of the organization, the organization must
consider the role and influence of environment factors.

Contingency Theory
This is also known as the situational theory. This approach has been widely used in
recent years to integrate management theory with the increasing complexity of organizations.
According to this theory, there is no one best way to manage all situations. In other words,
there is no one best way to mange. The response "it depends" holds good for several
management situations.
The contingency approach was developed by managers, consultants, and researchers
who tried to apply the concepts of the major schools of management thought to real life
situations. Managers who follow this approach make business decisions or adopt a particular
management style only after carefully considering all situational factors. According to the
contingency approach, "The task of managers is to identify which technique will, in a particular
situation, under particular circumstances, and at a particular time, best contribute to the
attainment of management goals".
Check your progress
Tick mark the most appropriate answer
1. Which perspective opposes the concept of finding the one best way to managing
organizations?
a)

Universal

b) Behavioral

c) Scientific
d)

Contingency.

2. Who is called the father of Human Relations Approach?


a)

Elton Mayo

c) F. W. Taylor

b)

Max Weber

d)

Henri Fayol.

3. Hawthorne experiment was started by:a)

Kurt Lewin

c)

Elton Mayo

b)

Adam

d)

Hezberg.

4. The father of Administrative Management is a)

F.W. Taylor

c) Henri Fayol

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14

Notes :

b)

Max Weber

d) L. Urwick.

5. Which of the following is management skill?


a) Human Relations skill

d)

Negotiating skill

b) Technical skill

e)

All of the above.

c) Conceptual skill

1.11 SUMMARY
The Industrial Revolution provided the impetus for developing various management
theories and principles. Preclassical theorists like Robert Owen, Charles Babbage, Andrew
Ure, Charles Dupin and Henry R. Towne made some initial contributions that eventually led
to the identification of management as an important field of inquiry. This led to the emergence
of approaches to management: classical behavioral, quantitative and modern
The classical management approach had three major branches: scientific management,
administrative theory, and bureaucratic management. Scientific management emphasized
the scientific study of work methods to improve worker efficiency. Bureaucratic management
dealt with the characteristics of an ideal organization, which operates on a rational basis.
Administrative theory explored principles that could be used by managers to coordinate
the internal activities of organizations.
The behavioral approach emerged primarily as an outcome of the Hawthorne studies.
Mary Parker Follet, Elton Mayo and his associates, Abraham Maslow, Douglas McGregor
and Chris Argyris were the major contributors to this school. They emphasized the importance
of the human element which was ignored by classical theorists in the management of
organizations. They formulated theories that centered on the behavior of employees in
organisations. These theories could easily be applied to the management of organizations.
The quantitative approach to management focuses on the use of mathematical tools to
support managerial decision-making. The systems theory looks at organizations as a set
of interrelate parts. The systems theor4y looks at organizations as set of interrelated parts.
According to the contingency theory, managerial action depends on the particular parameters
of a given situation. One important emerging approach to management thought is Theory Z.
This approach combines the positive aspects of American and Japanese management
styles. All these views on management have contributed significantly to the development of
management thought.

Questions and Exercises


Q.1 Explain the Meaning of Management.
Q.2 Discuss various functions and Roles of a Manager.
Q.3 Discuss Systems Theory and Contingency theory of Management.

1.12 FURTHER READINGS:


1

Koontz,Harold and Heinz Weihrich , Essentials of Management. Fifth edition.


Singapore: McGraw Hill, 1990.

Robbins, Stephen and David Deenzo, Fundamentals of Management, Prentice Hall


2001

3 Terry,GeorgeR., Principles of Management(Homewood III,Richard D. Irwin,1961).

Principles & Practices of Management

UNIT 2: PLANNING PROCESS


Structure
2.0

Unit Objectives

2.1

Introduction

2.2

Planning: An Overview

2.3

Importance of Planning

2.4

Principles of Effective Planning

2.5

Forecasting

2.6

Summary

2.7

Questions and Exercises

2.8

Further Reading

2.0 UNIT OBJECTIVES


In this chapter the concept of planning has been discussed. Apart from the importance
and principles of effective planning forecasting has been also discussed. It explains:

Overview of Planning

Importance and Benefits of Planning

The principles of effective planning

Concept and Techniques of Forecasting

2.1 INTRODUCTION
Planning is the first of the four primary management functions and sets of a direction for
the organization. Planning is undertaken after the mission of the organization is defined and
its goals and objectives are established. It involves a set of decisions required to initiate a
set of activities that are undertaken to achieve the goals and objectives of the organization,
consistent with its mission. The successful implementation of policies, procedures and
rules, as prescribed during the planning process, ensures the success of the organization.
Planning is required at all levels of management relative to what managers at these levels
do. Strategic planning, undertaken by top management focuses on where the organization
will be in the distant future, tactical planning emphasizes on how it will be done. Operational
plans are short range plans and specify the operational aspects of the activities. Of course,
all such plans should have contingency plans to modify the existing plans and change
them, if necessary.

2.2 PLANNING : AN OVERVIEW


Planning is a critical managerial activity. It is the process determining how the organization
can get where it wants to go. It is a primary function of management because all the other
functions depend upon how the organization plans to achieve its objectives.
Planning is a decision-making activity requiring the process of ascertaining objectives
and deciding on activities to attain these objectives. In planning, managers assess the
future, determine the goals of the organization and develop the overall strategies to achieve

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Notes :

these goals. The extent and complexity of planning would depend upon the complexity and
multiplicity of objectives. Consider, for example, the planning undertaken by the Atlanta
Committee for the Olympic Games (ACOG) held in Atlanta, Georgia in 1996. While the
planning process started more than five years before the due date of the games, consider
the challenging task faced by ACOG in 1993, as reported by Business Week.
Staging the Asian Games in New Delhi in 1982 required extensive planning for years
before the games, in building the stadium, new roadways, flyovers and the residential Asiad
Village for participating athletes from all over the world. Without proper and detailed planning,
success for such colossal events cannot be assured. Similarly organizing Commonwealth
Games in Delhi in 2010 require extensive planning and forecasting. Earlier in Delhi construction
of one flyover used to cause snarling traffic jams, however it is the result of proper planning by
Metro that traffic is smooth despite so much of construction in Delhi.
Planning is particularly important because of scarce resources and an uncertain
environment, with a fierce competition for these resources. The basic purpose of planning
is to reduce the risk of uncertainties and to initiate a coordinated effort within the organization
for the purpose of organizational success. It also involves the process of preparing for
change and the dynamics of the environment.
As such the planning function has three characteristics. First, planning is anticipatory
in nature. This means that a decision has to be made now as to what to do and how, before
it is actually done. Second, planning is a system of decisions. It involves a process of
making decisions, which will define as to what is to be achieved in the future and the
formation of action plans for achievement of goals. Third, planning is focused on desired
future results. It is a means of ensuring that the important organizational objectives are
accomplished as and when desired.

2.3 IMPORTANCE OF PLANNING


While planning does not guarantee success in organizational objectives, there is evidence
that companies that engaged in formal planning consistently performed better than those
with none or limited formal planning and improved their own performance over a period of
time. It is very rare for an organization to succeed solely by luck or circumstances. Some
of the reasons as to why planning is considered a vital managerial function are given below:
1.

Planning is essential in modern business: The growing complexity of the modern


business with rapid technological changes, dynamic changes in consumer preferences
and growing tough competition necessitates orderly operations, not only in the current
environment but also in the future environment. Since planning takes a future outlook it
takes into account the possible future developments.

2.

Planning affects performance: A number of empirical studies provide evidence of


organizational success being a function of formal planning, the success being measured
by such factors as returns on investment, sales volume, and growth in earnings per
share and so on. An investigation of thirty-six firms in various industrial products like
machinery, steel, oil, chemicals and drugs revealed that companies that engaged in
formal planning consistently performed better than those with no formal planning.

3.

Planning puts focus on objectives: The effectiveness of formal planning is primarily


based upon clarity and specificity of objectives. Objectives provide a direction and all
planning decisions are directed towards achievement of these objectives. Plans
continuously reinforce the importance of these objectives by focusing on them. This
ensures maximum utility of managerial time and efforts.

4.

Planning anticipates problems and uncertainties: A significant aspect of any


formal planning process is collection of relevant information for the purpose of forecasting

Principles & Practices of Management

the future as accurately as possible. This would minimize the chances of haphazard
decisions. Since the future needs of the organization are anticipated in advance, the
proper acquisition and allocation of resources can be planned, thus minimizing wastage
and ensuring optimal utility of these resources.
5.

Planning is necessary to facilitate control: Controlling involves the continual analysis


and measurement of actual operations against the established standards. These
standards are set in the light of objectives to be achieved. Periodic reviews of operations
can determine whether the plans are being implemented correctly. Well-developed plans
can aid the process of control in two ways:
A. First, the planning process establishes a system of advance warning of possible
deviations from the expected performance. The deviations in production, sales,
profits and so on may come to light during periodic investigations and hence remedial
action can be taken before any harm is done.
B. Second, contribution of planning to the control process is that it provides quantitative
data which could make it easier to compare the actual performance in quantitative
terms, not only with the expectations of the organization but also with the industry
statistics or market forecasts.

6.

Planning helps in the process of decision making: Since planning specifies the
actions and steps to be taken in order to accomplish organizational objectives, it serves
as a basis for decision making about future activities. It also helps managers to make
routine decisions about current activities since the objectives, plans, policies; schedules
and so on are clearly laid down.
Advantages and Potential Disadvantages of Planning are as follows.

Advantages
1.

Planning gives manages some purpose and direction. Since planning is future oriented,
it forces managers to look beyond the present. Also, it creates a unity of purpose,
since the objectives are formally expressed and the methods and procedures to obtain
these objectives clearly defined.

2.

Proper planning helps in the process of motivation. If plans are properly communicated to
all levels of the organization, then every one can feel involved in carrying them out. When
people get involved, their sense of belonging increases and thus they are highly motivated.

3.

Planning provides a framework for decision making. Knowing the organizational objectives
and the methods to achieve these objectives eliminates ambiguity in the decision making
process. Furthermore, planning provides for feedback, periodic evaluation of programs
and indication for any deviation so that corrective action can be taken, hence making
the decision making process a little easier. Also, systematic planning requires an
understanding and evaluation of many variables which influence events, hence it is
highly unlikely that an important variable will be overlooked which could adversely affect
either the decision process or the operation.

4.

Proper planning results in effective utilization of organizational resources. Since planning


involves the identification of such resources for optimal utility, there is no waste or minimum
waste of these resources. This will also reduce unproductive work, idle time of workers,
downtime for machines, and this would logically result in minimizing cost of operations.

5.

Since accurate forecast of future events is an integral part of effective planning, it reduces
the elements of risks and uncertainty. Also, since planning is done in advance of actions,
it prevents hasty judgments and haphazard decisions and results in disciplined thinking.

6.

It improves the competitive strength of the company in two ways. First, since the
operations are planned in advance: the company is able to take its time in shopping

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Principles & Practices of Management

18

around for the best and competitive rates of raw materials, equipment and part and
human resources. Second, proper planning gives the company an advantageous edge
if it decides to make changes in its line of products or expansion in its plant capacity
or changes in methodology.

Notes :
7.

Formal planning forces managers to examine all areas of the organization from all
angles and efficiently coordinate the activities of all these areas. Without this process,
these managers may ignore or overlook some critical aspect due to time pressures or
other factors, thus affecting the outcome in a negative way.

Disadvantages
1.

Planning is expensive and time consuming. A good deal of time, energy and capital is
involved in setting up the planning machinery for the purpose of gathering and analyzing
data and testing of various alternatives in order to select the one which is most
appropriate. Accordingly, the cost of planning and the benefits derived from it must be
adequately balanced. Sometimes, proper planning takes up so much time that some
useful opportunities can be lost if they require immediate action and such immediate
action cannot be taken without proper planning.

2.

Planning itself can be a hindrance to innovation. In a planned set-up, every operation is


pre-planned. This means simply proceeding according to plans and following the rules
mechanically. This does not leave any provision for a manager's innovation and creativity.
(This problem can be overcome to some degree, however, by making the plans more
flexible in order to accommodate any changes generated by new ideas).

3.

Planning can sometimes be very frustrating because it requires an extremely detailed, careful
and analytical thought process. Accordingly, it is more of an intellectual exercise. It requires
a high level of imagination and analytical ability in addition to total commitment. The talents
required and the maintenance of high quality planning together, are difficult to achieve.

2.4 PRINCIPLES OF EFFECTIVE PLANNING


A system is a set of principles of effective planning as stated by Gary Dessler. These
are as follows:
1.

Keep aims crystallized: The aims and objectives must be clear, unambiguous solid,
reasonable and attainable. Badly defined objectives do not lend to accurate and effective
planning.

2.

Develop accurate forecasts: Accurate events and trends in the future are the most
important inputs of the planning process. Accordingly, the managers making the forecasts
must be highly skilled and must use quantitative methods wherever applicable in addition
to intuitional judgments to improve the accuracy of the forecasts.

3.

Involve subordinates in the planning process: This will ensure the acceptance of
the plans by those who are going to implement them. Studies have indicated that
people, who put the plans into operation, do so much better when they participate in
the formulation of the plans than when such plans are simply assigned to them.

4.

The plan must be a sound one: In order for a plan to be effective, it must be based
on sound assumptions and correct information. Mitroff and Emshoff suggest a devil's
advocate approach, in which someone deliberately criticizes the plan in order to eliminate
any inconsistencies in the plan and thus refine it further.

5. Don't be over-optimistic: Objectivity is an essential ingredient of effective planning.


Over-optimism is based on feelings, emotions and intuition. Don't see what you want
to see, but see what there is.
6. Decide in advance the criteria for abandoning a project: There is no need to

Principles & Practices of Management

continue to stick to the plan if it is not working out as expected. However, the criteria for
abandoning a particular project should be established in the beginning. For example, if
a particular advertisement commercial does not increase sales by ten per cent in six
months, then such a commercial should be replaced.
7.

Keep your plan flexible: Keep the progress of your plan under constant review so
that it can be revised and modified as the situation demands. Future trends should also
be assessed by continuously monitoring economic, social, political, technological and
competitive trends. Any changes in these variables may require changes in the original
plans.

8.

Review long-range plans on a short-range basis: Long-range plans are risky due
to dynamic environment. Accordingly, long-range strategic plans should be split-up into
manageable periods and the basic assumptions underlying the strategic plan as well
as its progress should be measured and reviewed at such set intervals as planned so
that any reasons for under-performance or over-performance can be identified and new
decisions made relative to the plan.

9.

Fit the plan to the environment: Assess the current as well as future environment. If the
environment is comparatively stable, a plan can be more rigid. However, if the environment
is volatile, the plan must remain highly flexible to accommodate necessary changes.

Types of Plans
Organisation plans are usually divided into two types, namely standing plans and
single-use plans. Standing plans are those, which remain roughly the same for long
periods of time and are used in organizational situations that occur repeatedly. The most
common kinds of standing plans are policies, procedures and rules. Single-use plans
focus on relatively unique situations within the organization and may be required to be
used only once. These plans can be subdivided into programme and budgets. These
plans are explained below:

Standing Plans
Policies: A policy is a statement and a pre-determined guideline that provides direction
for decision making and action taking. Policies are usually general enough to give the
manager sufficient freedom to take judgments, while at the same time they are specific
enough to establish constraining boundaries. For example, regarding employment, a
company policy may be to employ personnel on merit alone without regard to race, sex or
age and within the bounds of this policy, a manager can make decisions. Policies must be
based upon a thorough analysis of objectives and should be consistent with the company's
mission and philosophy. Policies, being formal statements, serve as ready guides for
answering numerous questions and making many day-to-day routine decisions, especially
about recurring problems, thus freeing management's time for more important and unique
decisions. This helps improve the efficiency of operations. If the policies are clearly understood
and adhered to by all, then there will be fewer problems and fewer complaints to start with.
There may be separate policies for separate functions but they must be all coordinated,
thus serving the consistency of purpose.
Appropriate policy guideline enables manages to anticipate and take action for a
given set of situational variables. There are organizational policies formulated for all
types of situations and functions. There may be sales policies, production policies,
personnel policies and so on. For example, personnel policies would specify decisions
regarding selection, training, remuneration, labour relations, and promotion of personnel
and so on.

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Notes :

According to Newman, Summer and Warren, a policy may 1. Be specific or broad in nature
2. Deal with one or many aspects of a problems or a situation
3. Place wider or narrow limits within which action is to be taken
4. Specify the steps to be taken when a decision is to be made
Policies are useful indicators of the conduct and the philosophy of the company and
about what the company stands for. These policies being formal statements can easily be
communicated to the organizational members as well as the outside public.
Procedures: While policies cover a broad area of action, procedures prescribe the
exact manner in which an activity is to be completed. They are a series of steps established
to accomplish a specific project. They generally indicate how a policy is to be implemented
and carried out. They are more precise guidelines permitting little or no individual discretion.
Procedures can be defined as a series of related tasks that make up the chronological
sequence and the established way of performing the work to be accomplished. For example,
some companies have a policy of reimbursing employees for procedure, such as filling a
form, attaching a copy of courses taken and grades received, taking it to the personnel
office for processing and then wait for the reimbursement check.
Rules: Whereas procedures specify a chronological sequence of steps to be performed,
rules are very specific and narrow guides to action. These are plans that describe exactly
how one particular situation is to be handled. For example, a company may prescribe a
number of safety rules, such as No Smoking on company premises. No eating in the
classroom is a rule in all schools and colleges.
A rule is meant to be strictly followed and is generally enforced by invoking penalties.
For example, if it is a rule to report on duty at 9 am then any person who consistently
breaks this rule can be fired. A recent New York State law requires that all car drivers not
wearing safety belts while driving a car are subject to a fine.

Single-Use Plans
Programmes: A programme is a single-use plan designed to carry out a special project,
solving a problem or achieving a group of related goals. This project or problem is not
intended to be in existence over the entire life of the organization like the standing plans.
The programme exists to achieve some purpose identified by the organization and this
achievement is expected to benefit the organization. For example, an organization may
have instituted a management development programme to build special managerial skills
such as handling international competition or meeting the management challenges of the
next century.
Similarly, a college may have a programme to build a new laboratory or add new class
rooms. A business may have a programme to automate its systems. All these programmes
are one-time programme, no matter how long it takes to complete a given programme or a
project. Once the programmes goals are achieved, that programme is discontinued.
Budgets: A budget is another single-use programme, which is a financial plan that
covers a specified period of time. This plan identifies as to how funds will be raised and how
these funds will be utilized for procuring resources such as labour, raw materials, information
systems and other business functions such as marketing, research and development and
so on. Every organization prepares a budget for its various activities. These budgets are
usually for a one-year period at a time. When a specific budget period ends, the value of

Principles & Practices of Management

that budget as a planning device is finished, even though it may form the basis for the
budget for the following period. In that respect, it is a single-use plan.

2.5 FORECASTING
Forecasting plays a pivotal role in the operations of modern management. It is an
important and necessary aid to planning and planning is the backbone of effective operations.
Many organizations have failed because of lack of forecasting or faulty forecasting on which
the planning was based. For example, Curtiss-Wright, one of the major aero plane
manufacturers, the equal of Douglas and Boeing combined in 1945 - decided to put its
money into an improved piston engine instead of jets. The management of Curtiss-Wright
did not accurately forecast the market for jets and hence failed. The importance of forecasting
is emphasized by Lonis A. Alphen: "A systematic attempt to probe the future by inference
from known facts helps integrate all management planning so that unified overall plans can
be developed into which divisional and departmental plans can be meshed. It enables a
company to commit its resources with greatest assurance to profit over the long term. By
helping to identify future demand patterns, it facilitates development of new products".
Forecasting implies the act of making a detailed analysis of the future and planning is
impossible without either predicting the future as accurately as possible or making intelligent
assumptions about it. Forecasting may be a form of intentional and considered judgment
based on feelings, opinions and experiences, and these judgments, at best will be educated
guesses. It could also be based upon a rational study and analysis of pertinent data and
this process is known as "scientific forecasting". It would depend upon an analysis of past
events and current conditions with a view to drawing inferences and conclusions about
future events. Some of the areas in which accurate forecast about future events and trends
are necessary for organizational success and growth are:
Economic development: The economic conditions of the country as well as global
economy would have significant effect on the operations of an organization. The necessary
elements of such forecasts include predictions relating to GNP and GDP, currency strength,
industrial expansion, job market, inflation rate, interests rate, balance of payments and so
on. Healthy economic trends assist in the growth of the company. On the other hand, for
example, the economic depression of 1929-1930 put many companies out of business.
The knowledge about economic trends would assist the management in making plans for
their organization as an effective response to such trends.
Technological forecasts: These forecasts predict the new technological developments
that may change the operations of an organization. For example, the advent of the transistor
put the vacuum tube totally out of business. The age of the electronic calculators totally
wiped out the market for slide rules. An aggressive organization keeps up to date with new
technological development and readily adopts new methods to improve performance.
Competition forecasts: it is equally necessary to predict the strategies your competitors
would be employing to acquire gains in the market share, perhaps at the cost of your
market share. The competitor may be planning to employ a different market strategy for the
product or to bring out a substitute for the product, which could be cheaper and easily
acceptable by consumers.
Social forecasts: These forecasts involve predicting changes in the consumer tastes,
demands and attitudes. Consumers have already established a trend for convenience,
comfort and for products and that are easy to use and manage. Matters of taste and
preference may change over a period of time. For example, in the 1970s, the trend was to
buy small economic cars. In the 1990s, the trend returned to luxury and comfort. While
these trends partly do depend upon the general economic trends they also depend on the

21

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22

Notes :

consumer tastes. For example, trends in women's fashions and clothing change almost
every year. The Nehru jacket, highly popular is the 1960s, is unheard of today. Accordingly,
in the area of consumer goods, social trends are important aspects of forecasting.
Forecasting as a strategy is widely used today, and some of these forecasts, specially
the short-term ones, are fairly reliable. Some forecasts, using scientific methods or
instrumentations can be fairly accurately made. For example, short-range weather
forecasting, forecasting the paths of meteorites and comets or solar and lunar eclipses are
quite accurate. However, accuracy becomes less dependable as we extend forecasting
farther into the future.
Forecasting human behaviour or situational trends is much more difficult to assess
and may result in faulty estimates. How people will respond to certain actions taken by the
organization is difficult to predict. Perhaps, one of the classical examples of failure in
correctly forecasting people's attitudes as well as economic trends was the total failure of
Ford Motor Company's "Edsel" car, which was built in the early 1950s, after a thorough
investigation of all the factors that determine future events. The Bulova Watch Company
suffered huge losses when it failed to accurately forecast the full impact of digital watches.
On the other hand, IBM's correct forecast of the impact of its third generation computer
system 360 in the 1960s was a major benchmark in the continuing success story of IBM.
The uncertainty of future events overshadows the fact that even the most skilled forecasters
using the most sophisticated tools and example would be the faulty predictions about the
population of America for the 1970s and 1980s, made in the 1950s. The actual population
was much less than anticipated. Some of the assumptions on which these predictions
were based did not include variables that became apparent later on in time. These variables
were legal abortions, social attitudes towards birth control, late marriages and a decline in
social pressures to have children.

Techniques of Forecasting
The future can never be known with certainty, but there are some techniques that have
proved to be effective in reducing the degree of uncertainty. There are basically two broad
categories of forecasting techniques. These are:
Qualitative Techniques: These techniques are primarily based upon judgment and
intuition about the environment and are used especially when sufficient quantitative information
and data is not available so that complex quantitative techniques cannot be used. Under
certain situations, qualitative judgments about the future are more reliable than quantitative
conclusions because the quantitative methods are based on the analysis of the past data
and its trends, which may or may not remain the same. Secondly, quantitative techniques
follow a certain pattern and do not provide for accommodating any unexpected occurrences.

Approach to qualitative forecasting


Jury of executive opinion: This is the method by which the relevant opinions of
experts are taken, combined and averaged. For example, the managers of various divisions
could be asked about the profitability of introduci8ng a new product and a judgment made
on the basis of their opinions. These opinions could be taken on an individual basis or there
could be brainstorming group sessions in which all members participate in generating new
ideas that can later be evaluate for their feasibility and profitability. This method is fast, less
expensive and does not depend upon any elaborate statistical data or methodology and
brings in specialized view points. Its main disadvantage is that it is based upon subjective
opinions that may be overly optimistic if the business conditions are good and may be
overly pessimistic when economic conditions are not favourable.

Principles & Practices of Management

Opinions of sales persons: This approach involves the opinions of the sales force and
these opinions are primarily taken into consideration for forecasting future sales. The sales
people, being closer to the consumers, can estimate future sales in their own territories
more accurately. Based on these and the opinions of the sales manages, a reasonable
trend of the future sales can be calculated. These forecasts are good for short-range planning,
since sales people are not sufficiently sophisticated to predict long-term trends. This method,
also known as the "grass roots" approach lends itself to easy breakdowns of product,
territory, and customer and so on, which makes forecasting more elaborate and
comprehensive.
Consumer expectations: This method involves a survey of the customers as to their
future needs. This method is especially useful where the industry serves a limited market.
Based on the future needs of the customers, a general overall forecast for the demand can
be made. The major problem with this method is that the future "needs" do not necessarily
mean future "commitments" to buy, since needs may change depending upon the
circumstances. However, the method is fairly reliable where the target market is small
such as buyers of industrial products and where the customers are knowledgeable and
cooperative.
The Delphi method: The Delphi method originally developed by Rand Corporation
in 1969 to forecast military events has become a useful tool for other areas also. It is
basically a more formal version of "jury of executive opinion" method. A panel of experts
is given a situation and asked to make initial predictions about it. On the basis of a
prescribed questionnaire, these experts develop written opinions. These responses are
analyzed and summarized by a central coordinator and submitted back to the panel for
further consideration, evaluation and refinement. All these responses are anonymous
so that no member influenced by other's opinions. This process is repeated until a
consensus is obtained. This method is very useful where either the past patterns are
not available or where the past data is not indicative of future events and the issues are
general in nature such as future energy needs, possible after-effects of a nuclear war
and so on.
Quantitative Techniques: These techniques involve mathematical and statistical
analyses of data banks, which is primarily the information related to past activities.
These techniques are fairly sophisticated and required experts in the field to use them.
"Time Series Analysis" is a popular statistical forecasting technique. It extrapolates
the past trends into future. "Economic Models" for forecasting are more complex in
nature and involve inter-relationships of many variables tied together in a mathematical
model. Complex computer models simulate future events based on probabilities and
multiple assumptions. "Statistical Surveys" use statistical analysis of opinion polls
and attitude surveys to predict such variables as future consumer tastes, employee
preferences, and political choices and so on. The major disadvantage of using quantitative
techniques is that the conclusions derived from quantitative models are only as good
as the assumptions and judgments made about the variables that are put into the
model. Faulty assumptions will yield inaccurate results. No matter what model or method
is used, forecasting basically rests on human judgment. Accordingly, forecasts should
serve as guidelines and not as indicators of certainty. Henry Albers has summarized
his assessment of forecasting:
A successful forecast is something of a miracle and often occurs for the wrong reasons.
However, it should not lead to the assumption that nothing has been accomplished. There
are some good "rule of thumb" forecasts. A part of the problem is that too much is expected
from forecasting. People want more precise answers than are possible in an environment
characterized by uncertainty."

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Notes :

Forecasting Human Resource


Human resource planning involves objective and systematic assessment of the present
staffing needs of an organization, identifying the available personnel to satisfy the current
needs, forecasting the future demand and supply of employees, formulating staffing strategies
with a view to both short-range as well as long-range strategic plans and continuously
monitoring, evaluating and updating these needs and resources of supply.
In today's complex organizational structure, operating in highly involved and complex
economic, political, socio-cultural and technical environment, the most suitable employees
are becoming more and more crucial and indispensable assets for effective performance.
Human resource planning is important in providing the following direct benefits to the
organizations:
1

It improves the utilization of human resources by helping the management forecast the
recruitment needs in terms of both numbers as well as the types of skills required, and
develops ways to avoid or correct problems before they become serious and disrupt
operations.

It helps focus the recruitment efforts on the most likely sources of supply. This will cut
down the total costs of hiring and training personnel and reduce costs associated with
hiring mistakes.

It makes provisions for replacement or back-up staff from either inside or outside the
organization whenever the need arises either on a temporary or permanent basis. These
available sources of supply are important to identify specially in the case of any
emergencies that might occur.

It helps achieve an integration of personnel plans with other operating as well as strategic
plans by making available the personnel management information base to other
organizational activities.

Forecasting Demand and Supply


The factors to be considered for forecasting demand and supply are as follows:
Forecasting Demand
1.

Anticipated growth of the organization: This growth rate can be calculated from
the past trends on the assumption that all variables affecting this growth will remain
constant.

2.

Budget constraints and allocations: The budget allocation specifically for the
purpose of new employees will determine the number of new workers that can be
hired, thus putting a ceiling on the maximum number.

3.

Anticipated turnover in personnel due to retirement, death, transfers,


termination of service, promotions, etc.: Some of these can be anticipated or
calculated to some extent accurately in advance by taking information about
individuals, specially the loss due to retirement, and promotion can be calculated
quite accurately by preparing a retirement and promotion or transfer profile. This
makes the projection of future demand easier and more accurate.

4.

Introduction of new technology: With continuous technological developments,


innovation and automation, the personnel needs are constantly changing. At many
places, computers are either replacing workers or reducing their numbers. The
type of new technology introduced would determine the number as well as
qualifications of the people that may be hired and transferred.

Principles & Practices of Management

5.

Minority hiring goals: The goals established by the organsation about hiring
minorities or the handicapped, as a part of the affirmative action policies, may
affect the demand for the total number of employees, specially when it is difficult
to match the skilled, semi-skilled or unskilled minority workers to the specific
job requirements.

Forecasting Supply
1.

Promotions of employees from within the organization: Promotions are a good and
a reliable source of supply of experienced and skilled personnel, who do not need
to be extensively trained and who are also familiar with the organizational goals,
policies, and philosophy

2.

Availability of required talent in the external labour market: This may be assessed
by unemployment figures, a survey of private and public employment agencies
and other sources.

3.

Competition for talent within the industry: If the competition is very tough then it
will be more difficult to tap the supply and the cost of additional workers will become
very high. Conversely, if the need for a particular talent is not very high in the
competitive industry, then the supply will remain flexible.

4.

Population movement trends: The demographical changes will also affect the sources
of supply. For example, if there is a tendency for people to move from rural areas to
urban areas, then the supply in the rural areas will dry up. Similarly, most new
immigrants from outside have a tendency to settle in cities, thus increase the
supply in the urban areas.

5.

Enrolment trends in vocational schools and colleges and universities: If there is a


marked increase in the number of students in training programmes as well as
colleges, this will improve the supply of skilled personnel and personnel with
specialized educational backgrounds. On the other hand, due to high costs of
education, there may be a decline in college enrolment, signifying a trend in scarcity
of educated people.

Check your progress


Tick mark the most appropriate answer
1. Corporate planning is nothing but a)

Planning the future of the organization

b)

Planning for expansion of the organization

c)

Planning for Human Resources Utilization

d) Budgeting for an extended period.


2. A plan can not be said to exist unless:
a) It has been reduced to writing
b) It has been signed by the chairman
c) It has been conveyed to all managers
d)

Commitment of resources, direction, or reputation has been made.

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26

Notes :

3. Planning is considered vital management function because:a)

Planning is essential in modern business

b)

Planning puts focus on objectives

c) Planning anticipates problems and uncertainties


d)

All of the above.

4. Planning is termed asa)

A process of navigational change

b)

An intellectual process

c) A process to s through contingencies


d)

All of the above.

5. Policy & procedure differ in a)

Level of which these are implemented

b) Objectives and implementations


c) Policies are broad guidelines, procedure define its implementation
d)

All of the above.

2.6 SUMMARY
Planning is a decision-making activity requiring the process of ascertaining objectives
and deciding on activities to attain these objectives. In planning, managers assess the
future, determine the goals of the organization and develop the overall strategies to achieve
these goals. The importance of formal planning has already been discussed. A vigorous
and detailed planning programme helps managers to be future oriented. It gives the managers
some purpose and direction.
Planning is a critical managerial activity. It is the process of determining how the
organization can get where it wants to go. It is primary function of management because all
other functions depend upon how the organization plans to achieve its objectives.
Forecasting implies the act of making a detailed analysis of the future and planning is
impossible without either predicting the future as accurately as possible or making intelligent
assumptions about it. There are basically two broad categories of forecasting techniques
qualitative and quantitative techniques.

2.7 QUESTIONS AND EXERCISES:


Q.1 Discuss various steps in Planning Process.
Q.2 What is the distinction between planning and control?
Q.3 Why is planning so important for the success of an organization? Explain.
Q.4 What are the requirements of effective Plan?

2.8 FURTHER READINGS:


1 Tripathi P. C., and Reddy P.N., Principles of Management, Tata McGraw Hill, 2008
2 KoontzHolt, David, Management: Principles and Practices,Prentice Hall,1995

Principles & Practices of Management

UNIT - 3 : ORGANISING
Structure
3.0

Unit Objectives

3.1

Introduction

3.2

Meaning, concept and Process of Organising

3.3

Importance of Organising

3.4

Span of Control

3.5

Delegation of Authority

3.6

Centralisation and Decentralisation

3.7

Concepts of Line and Staff Authority

3.8

Summary

3.9

Questions and Exercises

3.10 Further readings

3.0 UNIT OBJECTIVES


The key objective of this module is a deeper understanding of meaning of Organising,
the concept of span of control and delegation of Authority. It explains:

Meaning , concept and Process of Organising

Importance of Organising

Span of Control

Delegation of Authority

Centralisation and Decentralisation

Concepts of Line and staff Authority

3.1 INTRODUCTION
The organizing function of management follows the planning function and strives to
capture the plans and convert them into tasks, to be divided in jobs. The work flow of the
organization designed around a network of authority-responsibility relations. Thus, the purpose
of organising is to evolve a structural framework within which managers and other perform
their functions and play their roles.

3.2 MEANING, CONCEPT AND PROCESS OF ORGANISING


The term 'organising' refers to the process of making orderly determination and
arrangement of the tasks, functions, relations and roles necessary for achievement of certain
goals. It involves identification of the activities to be done, grouping these activities into
work units, assignment of tasks among job positions, defining their activity roles and
establishing authority-responsibility relationships among them.
The process of organising seeks to provide answers to such questions as : What

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Principles & Practices of Management

activities are to be performed to achieve organisational goals? How are they to be divided
and sub-divided into tasks and jobs? Where are they to be positioned? How are they to be

Principles & Practices of Management

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29

combined and grouped into work units? How is authority divided and dispersed into
managerial positions? How are the various managerial positions tied together with the work
units? How are tasks assigned to people and their roles defined?
The organising process consists of two sub-processes. They are differentiation and
integration.
Differentiation is defined as the process of dividing and sub-dividing a unit of activity or
authority and segmenting it into identifiable sub units. The need for differentiation arises
because the total activity or authority of an organisation cannot be handled by on man.
(Unless it is a very small organisation). It has to be divided and sub-divided to reduce its
complexity and to make it more manageable by assigning the divided pieces of work or
authority to different individuals.
Integration is the process of tying the differentiated or sub-systems together. For
bringing about unity of effort and for ensuring harmony in the functioning of the organisation.
The need for integration arises because all the differentiated units have to be pulled together,
as otherwise they will remain isolated and fragmented. The larger and more complex an
organisation is, the more is the imperative of differentiation. The more the degree or
differentiation, the greater is the need for integration.
More specifically, the following steps are involved in the organising process.
(a) Identification of the activities required to achieve organisational goals.
(b) Division of the activities into compact tasks and their further sub-division into individual
job units, by using the concepts of division of labour and specialization.
(c) Grouping of the jobs into homogeneous work units, sections, departments and divisions.
This is the function of departmentalization. Various bases can be used for grouping
purposes; functional, territorial, products, process, customer and so forth.
(d) Establishment of relationship among the job and departments and positioning them
into a horizontal structure.
(e) Analysis of the decisions required to be made for managing the activity sub-groups.
(f)

Creation of a hierarchy of managerial positions around the activity sub-groups. Tasks


are clearly assigned for each managerial position, the required quantum of authority is
vested therein, and accountability is imposed for proper job performance.

(g) Establishment of the required integration system, linking the various managerial positions
and activity groups.

3.3 IMPORTANCE OF ORGANISING


Organising, as stated earlier, is the process of creation of the structure of formalized
activities, roles and relations expected to be activated and animated by the members of an
organisation for achievement of organisational goals. Organising is important for performing
several other functions of management and is outlined as follows:
(a) It facilitates orderly positioning of organisational work in terms of a network of individual
jobs, sections and other work units.
(b) It enables one to know who is to do what, where one stand in the structure and what is
his 'space' and status.
(c) The devolution of authority among various managerial positions is essential for decision
making and control. Managers will know the extent of their authority, and accountability
for making decisions, for instructing and directing people, for controlling and coordinating
the functioning of their work units.

Principles & Practices of Management

30

(d) The communication structure is a formal organisation is an integral element of the


authority and activity structure. This means that organisational structure facilitates
information flow within the organisation and establishes the patterns of interactions
among the various managerial positions and work units.
(e) Organisational structure provides a framework to enable managers to cope with
organisational change without undermining its stability and continuity. Organisational
change may relate to adoption of new technology, growth, diversification, acquisition of
outside enterprises, and reduction of scale of operations, divestment and so on. Structural
support for such and other strategic changes is indispensable.
(f)

The creation of staff units to take over some of the work load of line managers is meant
to give the latter some respite, so as to enable them to concentrate on their day-to-day
management functions.

(g) Several processes which are part of the organising function for example, division of
tasks, creation of compact and homogeneous work units, determination of appropriate
spans of management, unity of command, parity of authority and responsibility etc. are
meant to protect the members of the organisation from the perils of over-work, confusion,
inter-position clashes, harassment and so on.

3.4 SPAN OF CONTROL


A manager at any level in an organisation is required to direct, supervise and coordinate
the tasks of a few individuals who are placed as his subordinates and who form his work
unit. He has direct authority-responsibility relationship with them.The concept span of
management (also known as span of control or span of supervision) refers to the number of
subordinates a manager can directly manage in a work setting.
It denotes the degree of direct authority and responsibility of a manager for supervision
and direction of efforts and activities of his immediate subordinates. If a manager has only
a small number of subordinates, say two or three, it means that his span of management is
narrow. His span gets widened with an increase in the number of subordinates directly
reporting to him.
'Span of management' is a classical concept in the literature on organizational structure.
An understanding of the concept helps in finding out the reasons for creation of a number of
managerial levels, division of managerial labour and formation of compact work groups in
charge of each manager in an organisation.
Early management writers took a rigid view of the appropriate span of management
applicable to organisations. They generally regarded it as a universally applicable limit for
all organisations and all levels.
Modern theorists do not subscribe to the classical view and argue that even though
there is a limit to the number of subordinates a manager can effectively supervise, the exact
number is to be determined by reference to a wide range of variables. There is no one best
span to management valid to all situations. A contingency and systems approach is more
realistic in determining the desirable span of management.
Factors determining span of management: Several organisational, managerial and taskrelated factors have to be considered in the determination of appropriate span of management.
(a) Quality of allocation of work: A well-defined and clear-mind allocation of work by a
manager to his subordinates helps him to manage his work unit efficiently and thereby
enhances this ability to manager a larger number of subordinates helps him to manager
his work unit efficiently and there by enhances his ability to manager larger number of
subordinates. I subordinates know what is expected of them, what are their tasks, and
how much authority and discretion they have, the incidence of their confusion and
anxiety as also their dependence on the manager tend to be lower.

Notes :

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31

(b) Organisational planning: A well-designed system of organisational policies, procedures,


plans, rules, measurable standards and methods lubricates organisational functioning
thereby smoothening superior subordinate relationships and increasing the possible
width of span of management.
(c) Communication system: It is an important factor influencing the span of management.
The extent of direct, regular and noise-free communication between a manager and his
subordinates, as also appropriate interactions between them, determine the span of
management.
(d) Staff Assistance: The managerial work load of managers can be substantially lightened
by entrusting some tasks to specialist staff groups. Managers relatively freed thereby
can easily afford to widen their span of management.
(e) Motivation, ability and skills of manager and subordinates: A mature and skillful manager
with requisite leadership and administrative abilities, styles, perspectives and skills
has a better supervisory span. Similarly, well motivated, well-trained, knowledgeable,
competent and team-spirited subordinates need little supervision. These factors tend
to have favourable effect on the span.
(f)

Nature of tasks: In a work unit characterized by simple, standardized, stable and


routine tasks, the extent of supervision required tends to be low. This facilitates
enlargement of the work unit under manager and hence a larger span. If the tasks are
complex, variable and highly inter-related, that call for close and careful coordination
by the manager and hence his effective span gets narrow.

The behavior of above factors differs from organisation to organisation and from level to
level. Hence the appropriate span of management is also variable.

3.5 DELEGATION OF AUTHORITY


Delegation of authority is a process by which a manager assigns some of the tasks
within his work jurisdiction to his subordinate managers on a selective basis, allows them
to exercise authority on his behalf to accomplish the tasks and makes them accountable
for performance.
Delegation of authority is at the core of the process of organising and entails the
establishment of superior-subordinate relations among the members of the organisation. The
manger to which authority is delegated by his superior is empowered to decide and do certain
specified things; he can act on behalf of his superior as his representative in certain respects.
In a sense, delegation of authority is a process by which the organisation's formal right
to command as vested in the top management is partially passed down the chain of
command in a graded manner by creation of a hierarchy of managerial positions. All
managerial positions in the hierarchy are vertically tied together through authorityresponsibility relations and these relations are created by the process of delegation of
authority. Each managerial position in the organisation is a cluster of rights, roles,
responsibilities, relationships and obligations which demands the person occupying that
position to function in certain ways.
Steps in delegation: As a process, delegation of authority is effected through certain
integrated steps. At every managerial level, the manager who delegates authority to his
immediate subordinates has to take the following steps:
(a) He has to size up the total work load in his unit - the results expected, the functions,
tasks or activities to be under taken in clear and operational terms.
(b) He has to be dividing the tasks into two sets: those which he alone should handle
normally and those which he can assign to his subordinates.

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Principles & Practices of Management

(c) He has to be assigning the tasks to his individual subordinates. As far as possible, the
task content assigned to subordinates has to be kept compact and homogeneous.
(d) He has to delegate a part of his authority to his subordinates to enable them to perform
the assigned tasks. He has to ensure that his subordinates are given enough authority
content to enable them to function effectively.
(e) He has to impose a personal obligation or accountability on each of his subordinates for
effective performance of the assigned tasks and for proper exercise of delegated authority.
Need for delegation of authority and its importance: management is the art of getting
things done through people occupying various managerial and other positions in the
organisation. Delegation of authority which includes assignment of tasks and imposition of
accountability are implicit in this function. Delegation is based on the elementary principle
of division of labour among managerial positions.
In most cases, the set of tasks and the amount of authority vested in each managerial
position are such that the person occupying the position cannot shoulder them alone. He
has to share them with his subordinates by an explicit and formal process of delegation.
Otherwise, he is most likely to be over-burdened with the work. Delegation of authority is a
mechanism by which is manager segregates his activities into those that he himself should
do and those that he can pass on to his subordinates.
Delegation of authority in a planned manner permits managers at every level to concentrate
on those key activities which really need their attention - such important aspects of decision
making, planning, organising, direction and control. Certain other functions which
subordinates can carry out equally well deserve to be transferred to them. Delegation is an
important step which managers have to take to multiply their own effectiveness.
Delegation is a means of management development. A well-planed delegation results in
creation of multiple centers of managerial authority and competence for purposes of timely
decision making and action. It activates interaction among managers and their subordinates,
thereby promoting better understanding, motivation and involvement among them.
It is obvious that a manager cannot delegate his entire authority; if he does so, he
cannot justify his continuance in the organisation. He has to retain those tasks, which by
virtue of his organisational position, he alone should do. These include setting goals,
planning, and allocation of tasks, motivating subordinates to perform, ensuring control over
their performance and bringing about overall coordinated action of his unit. Also in an
emergency, he should be willing to assume total authority and responsibility.
Reasons for non-delegation of authority: In many organisations, managers do not properly
practice the art of delegation of authority. The entire do not delegate or delegate only
marginally. Several assumptions can be thought of as to why managers do not delegate
their authority. They are listed as follows:
(a) Some managers find problems in segregating their tasks into those which can be
delegated and those which they have to do themselves. They tend to feel that they
have to do everything because every thing is important and cannot be delegated. In
reality, they are fond of doing things themselves.
(b) Managers fear that their subordinates (i) are not able exercise authority and assume
responsibility (ii) lack willingness to cooperate with their boss (iii) cannot be trusted
and (iv) will dominate them and eventually will replace them.
(c) Some manages are over-confident of their own competence to handle all things effectively;
they feel that subordinates will mess up things.
(d) Managers are not able to guide, train and motivate their subordinates to perform the delegated

Notes :

Principles & Practices of Management

33

tasks effectively. They lack leadership, administrative and communications skills.

Notes :

(e) Managers are very fond of authority and the associated status. They fear that delegation
of authority means loss of authority with its adverse consequences. They believe that
management is exercise of authority and not its delegation.
(f)

Managers are afraid that since their responsibility and accountability to their superiors
cannot be delegated, there is no point in delegating authority. They feel that if they do
things themselves, they can have more control.

(g) There are no proper organisational arrangements, which facilitate delegation, like an effective
communication and control system, a clear set of policies and procedures, management
training and development programmes, equitable reward system and so on.
Signs of ineffective delegation of authority: Some of the major signs of defective delegation
of authority are indicated as follows:(a) When managers do not really have the delegated authority but they believe that they
have it. This will lead them to make decisions on matters beyond their authority.
(b) When managers do have the delegated authority but believe that they do not have it.
This will lead to a situation in which they are always hesitant to decide and act.
(c) When too much authority or too little is delegated to managers in relation to the tasks
assigned, with the result that they will fail either to get the tasks performed or to
exercise their authority to the optimum extent.
(d) When authority is delegated to people without considering their ability and experience
to understand the implications of its exercise.
(e) When the superior manager persistently interferes with the functioning of his subordinate
manager to whom has delegated the authority.
(f) When the higher level manager does not design the mechanism to ensure that his
subordinates exercise their authority properly, carry out the assigned tasks and meet
with their obligations or accountability.
(g) When such authority is delegated in an ad-hoc matter to meet with situations and
crises as they of necessity to do so.
(h) When authority, once delegated to a subordinate cannot be withdrawn by the superior
manager, in case of necessity to do so.
(i) When the superior manager takes a very serious view of even incidental errors of judgment
in the exercise of authority by the subordinate.
Guidelines for effective delegation of authority: In order to improve managerial functioning,
some more guidelines on delegation of authority are suggested as under:1.

There should be a match between the aptitude and abilities of the subordinates
and the tasks entrusted to them. The principle of fitting jobs to individuals should
be followed as far as possible.

2.

The delegating manager has to know the nature of tasks and functions which he
himself should handle and which he cannot delegate. These relate to important
planning and control functions and certain decision-problems which are to be handled
at his own level.

3.

There should be a clear definition and assignment of tasks to the subordinate


managers. Preferably, they should be in a written form to avoid vagueness and
misunderstanding. The subordinate should know what is expected of him in terms
of results.

Principles & Practices of Management

34
4.

Each subordinate should know as to how his tasks are related to the tasks of his
other colleagues in the section. This will bring out cases of overlapping tasks
which can either be justified or rationalized to make them non-overlapping.

5.

The content of authority delegated to the subordinate manager should be clearly


defined so that he knows where he stands and what his jurisdiction is while making
decisions and taking action initiatives.

6.

In the case of those subordinates who are new to the job, the superior manager
should delegate authority and responsibility in a gradual manner. In the initial
stages, the degree of authority and responsibility delegated should be low while
supervision and guidance should be high. As the subordinate gains experience
and confidence, the extent of guidance and close supervision should be reduced
while the content of delegation should be increased.

7.

Once tasks are assigned and authority is delegated, the manger should allow the
subordinates to function with a measure of freedom. In other words, the superior
manager should avoid the temptation of constantly interfering with or closely
supervising the work of his subordinates. This does not however, mean that the
manager should not provide advice and support to his subordinates. But this should
be of a facilitating type, to help the subordinate in developing and sharpening his
managerial competence and skills.

8.

The manager should have the necessary skill to provide inputs to his subordinates
to develop their talents and performance competence. He should establish a
supportive relationship with his subordinates, be a friend, guide and philosopher to
them, set an example to them by his own behavior and motivates them to take
initiatives and bold responsibilities.

9.

The manager should also maintain open lines of communication with his
subordinates. The latter should feel free to get in touch with the former as and
when necessary, to get clarifications or information pertaining to their problems.
The manager also should be prompt in passing on any important information to his
subordinates. He may also create conditions in which his subordinates can
exchange views and ideas among themselves and with him at regular intervals on
matters of common interest.

10. Delegation does not mean abdication of authority by the manager in favour of his
subordinates. The manager has an absolute responsibility for making the process of
delegation a working and effective way of getting things done though his subordinates.
For this purpose, he should establish adequate norms of performance for his
subordinates and evaluate their performance in terms of these norms.

3.6 CENTRALISATION AND DECENTRALISATION


The concepts centralisation and decentralisation are used with reference to the patterns
of location and distribution of management authority within an organisation. Authority is
one of the most activating forces in the organisation. The patterns of its location and
distribution and the creation of a management structure have important effect on the function
of the organisation. We may therefore try to understand these concepts and their implications
for organisations.

Centralisation
Centralisation of authority means retention or concentration of management authority
in a relatively few key managerial positions at the nerve centre of the organisational structure

Notes :

Principles & Practices of Management

Notes :

35

viz. at the top level. It covers the kind and content of authority retained at the top management
level.An organisational structure is said to be highly centralized if all or most of the
management authority is concentrated at the top and if managers below the top level are
vested with little or no authority.
In a highly or excessively centralized organisational structure, the top management
assumes total and exclusive responsibility for running the organisation and for achieving its
goals. It takes upon itself the entire range of tasks of planning, organising, direction and
control. Top management seeks to get things done by a rather continuous process of
making almost all decisions and taking action initiatives. It undertakes close supervision
and control over every aspect of organisational functioning. Very little managerial authority
is delegated to the middle and lower level managerial personnel. Managers at these levels
are required to execute the decisions made at the top level in the manner prescribed and to
carry out all the orders.
Advantages: Conceptually and theoretically, certain advantages are attributed to
centralisation of authority in the above sense in organisations. These are briefly listed as follows:1.

Centralisation permits unified, single minded determination of things and direction


of people in the organisation since all decisions emerge form one point. Since all
decisions and moves originate from one point, it is simpler to achieve a high degree
of consistency and uniformity in organisational functioning.

2.

The authority structure created by centralisation is simple and neat. Everyone in


the organisation and other who have some work with it know the source of decisions
and action initiatives. There is little scope for confusion and chaos so far as the
locus of authority is concerned. There is only one power centre; the rest are all
activity centers.

3.

Since much authority is concentrated at the top, it tends to make the top
management strong and powerful. This adds to the stature and personality of the
organisation. A strong top management is especially needed to overcome crisis
situations, and to provide effective leadership in moving the organisation towards
its goals.

4.

In a highly centralized setting, the over-all organisational perspectives and interests


are almost non-existent. The dangers associated with dilution of goals, duplication
of efforts and resources and distortion or results are low.

5.

Top management is generally supposed to possess maturity and wisdom not


generally found at lower managerial levels. The leadership provided by a mature
top management in a highly centralized organisation tends to be of high quality.
This is beneficial to the organisation. The fate of the organisation does not depend
on the quality. This is beneficial to the organisation. The fate of the organisation
does not depend on the quality of management at lower levels.

Limitations: The limitations of excessive centralisation of authority seem to be


overwhelming, especially for a growing organisation operating in a complex environment.
These limitations are listed as follows:1.

Excessive centralisation of authority means a top-heavy and top-sided authority


structure. A heavy top weighs down the organisation since the middle and lower
levels are without power and authority and hence are weak. The overall organisational
structure also becomes weak, because there are sharp disparities in the distribution
of authority, influence and status.

2. Concentration of managerial power at the top may lead to its abuse. The adage
'power corrupts and absolute power corrupts absolutely', implies in this context.
An alternative possibility is that top management fails to exercise its authority

Principles & Practices of Management

36

properly for purposes of decision making, overall direction and control of the
organisation. This situation arises when top management mistakenly equates its
authority with wisdom and does not bother to seek reliable and timely information
from the right sources at middle and lower levels.
3.

There is no real management structure at the middle and lower levels, which can
share some managerial workload of top management. The latter will not be above
to cope with the heavy workload of total direction and management. As an
organisation grows, its top management's capability to handle the work load
becomes weak. It tends to concentrate on eash-to-solve, day-to-day problems
and crises in a routine manner neglecting the major issues and problems.

4.

Over-centralisation of authority fosters a rigid, bureaucratic and autocratic


atmosphere in the organisation. It discourages initiative, enthusiasm and dynamism
on the part of organisational personnel. They tend to experience poor motivation
and morale. Lack of authority corrodes their of sense of confidence and commitment.
The organisation thereby fails to make the best use of its human assets.

5.

The communication system in a centralized structure tends to be rather weak. It is


characterized by delays, discontinuities and distortions in transmission of information
for decision making, action and control. Top management tends to remain ignorant
of organisational needs and pressures for timely and effective decisions and action.

6.

A highly centralized organisational structure is an impediment to organisational


growth or may not have the confidence to manage growth.

Absolute or excessive centralisation of authority for all matters of decision making and
action is generally found in small owner-managed enterprises. The owner-manager cannot
think of any need for devolution of authority by creation of levels of management. This is
because of the small size of the enterprise. Over-centralisation of authority is also not
uncommon in some medium and large sized enterprises in India and abroad. In India, there
is evidence that in many fairly big sized enterprises, all major and many minor decisions
are made at the top level only in name; they are not allowed to do a thing on their own.

Decentralisation
Decentralisation means partial dispersal and devolution of management authority from
the central or top management to lower operational management levels in a formal and
purposeful manner. In a decentralized structure, authority is partly segregated and pushed
down though all managerial levels including the supervisory level. Managers at all levels are
vested on an enduring basis with appropriate degree of authority commensurate with the
tasks and responsibilities assigned to them.
While there could be absolute or almost absolute centralisation of authority, there could
not be absolute or total decentralisation of authority. In a decentralized setting, top
management retains the needed amount of authority to permit itself to function as the
central source of strategic direction and control. It retains overall jurisdiction over the
organisation. Such authority could not be delegated to lower levels. This means that a
decentralized organisational structure contains some amount of centralisation also. Without
such centralisation, decentralisation has no meaning; it will fail. Like any other human
innovation, decentralisation has both merits and demerits. The merits constitute strong
compelling reason for organisations to go for decentralisation of authority and activities.
Several merits are listed as follows:-

Merits
1.

Decentralisation is a means of increasing the effectiveness of large, multi-product,


multi-plant organisations to combine the economies of large scale operations with

Notes :

Principles & Practices of Management

37
the simplicity of small unit management. It is a way of integrating total corporate
unity of purpose with the diversity of sub system environment. It binds together
the diverse sub systems of large and fast growing organisations.

Notes :
2.

It is an efficient structural strategy to manage organisational growth and diversification


as also to cope with the complexity, diversity, uncertainty and volatility of the
external environment. It provides the much needed flexibility for the large and growing
organisation to harness problems of diverse operations, technologies, and their
environment.

3.

Decentralisation represents creation of multiple managerial centres of initiative


and capability to cope with diverse and unique situations in the organisation. It
thereby increases the organisation's capability to survive, to grow and to gain
control over the complex environment.

4.

Decentralisation reduces the strain on the organsation's communication system,


because as far as possible, decisions are made at the points of information
generation and the points of action.

5.

Decentralisation frees top corporate management from routine operating


responsibilities and enables it to devote its full energy for strategic planning, major
policy formulation, overall coordination and control.

6.

It facilitates the development and utilization of executive talent and skills at the
middle and lower managerial levels because managers at these levels are called
upon to assume authority and responsibility for making decisions and taking action
initiatives. The operating units in a decentralised organisation serve as training
grounds for managers with general or top managerial potential, who can eventually
move to the top corporate level.

7. The quality of operating decisions in a decentralised setting tends to be high.


Decisions will be more appropriate and timely because they are made nearest to
the points of the problem, information and action. Decisions will also be pragmatic
and acceptable because they are made by people who are to implement them.
8.

In a way, decentralisation represents debureaucratisation and democratization of


organisations. It results in less stratified organisational structure to the extent that
management authority is diffused among the multiple layers of management. There is a
relative balance in the power structure and power relations among the managerial levels.

It should be obvious from the above that decentralisation shares quite a few advantages
of delegation of authority. In fact, delegation and decentralisation are closely related. The
relations and distinction between these concepts will be discussed shortly.

Limitations
At the same time, one has to understand the limitations, associated with
decentralisation, which are outlined as follows:1.

Loss of control: Decentralisation, if carried too far without proper planning, tends to
create powerful 'States within States' which behave in their own ways. There is a
danger that the top corporate management loses its hold over the functioning of
semi-autonomous units. The latter may drift away from the central corporate system.
They may mistake their autonomy for independence to do whatever they want; this
amount to abuse of autonomy granted to them. They may seek to pursue their
narrow goals as if they are ends in themselves. They may not observe the policy
guidelines while making operational decisions. They may go beyond the autonomy

Principles & Practices of Management

38

and make decisions on matter which really fall within the jurisdiction of top management.
2.

Imbalance: It is often difficult to work out proper balance between centralisation


and decentralisation. The operating units always look for more autonomy without
accepting commensurate accountability for results. Top corporate management
may apparently grant autonomy but take it away in actual practice through a string
of controls, administered in the name of coordination. The operating units are likely
to feel suffocated under such controls. They may lead to conflicts between top
management and the management of operating units.A conflict is also likely to
arise among the decentralised units themselves incidental to their interaction through
inter-unit transactions. They may destructively compete with each other in the
product and through factor markets. They may vie with the each other for a higher
share of corporate facilities and resources.

3.

Communication problems: There may be serious problems of communication


gaps between corporate management and operating units in understanding corporate
goals and policy guidelines and in designing performance reports.

4.

Craze for authority: If the managers in charge of semi-autonomous operating


units are fairly senior and competent, they may not be content with simple operational
authority. They may look for something more to make somewhat major decisions
concerning their units. This may not be granted by top management; consequently
managers of operating units may feel somewhat frustrated.

5.

Paucity of general management talent: It is not easy to get really suitable


managers to operate and handle the decentralised units. Managers of fairly large
decentralised units should have 'general management' qualities, perspectives and
skills in order to successfully pilot their units. The availability of such managers is
not abundant. This problem tends to restrain some organisations from going in for
decentralisation.

6.

Workable Balance: In a truly or genuinely decentralised organisational structure,


there is workable balance and mutual dependence between centralisation and
decentralisation. Certain major functions and activities are to be located at the
head-quarters or top corporate management level while other functions and activities
need to be dispersed to semi-autonomous operating units.

It is matter of judgment and organisational relevance as to which areas are to be


centralized and which are to be decentralised. However, judgment can be based on
a few criteria.

Perhaps the foremost criterion is the cost of the decision. The costlier the decision
in terms of monetary and other implications, the greater will be the desirability of
making it at relatively higher managerial levels.

Another criterion is that decisions and action initiatives which have inter departmental
or inter-divisional implications should be made at a higher level where authority
extends over more than one department.

Decisions which commit the organisation over a long period of time should also be
made at a relatively higher level.

Problem areas where familiarity is required for solving them should be decentralised
to the point where such familiarity is present. Matters calling for spot decisions
need also be decentralised.

As an organisation grows, the processes of centralisation and decentralisation have to

Notes :

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Notes :

39

be properly combined, balanced and integrated because they are mutually dependent
processes. For a large and growing organisation, centralisation of managerial authority for
strategic decisions and action initiatives goes hand in hand with decentralisation of
managerial authority for making operational and administrative decisions at lower levels. A
strong and dynamic central management is imperative for designing and keeping the various
subsystems together and for activating them in concerted manner. At the same time, the
decentralised units have also to be given sufficient autonomy for decision making on
operational matters. They have to be allowed to become effective contributors not only in
achievement of their goals but also of over-all corporate goals.
Centralisation of authority is a means to promote corporate unity and identity, overall
consistency and uniformity of decisions and moves, achievement of certain economies in
staff services and facilities and so on. Decentralisation of authority is effected in recognition
of the diversity of environments of various operating units and the need for relating decisions
to the nature of problems, information, situational knowledge and points of action.
Centralisation and decentralisation are mutually dependent since they ensure fusion of
corporate unity and diversity, freedom and control, creativity and conformity, economies of
large sized organisation and the informal simplicity of small sized organisation.

Relation and distinction between delegation and decentralisation


The relation and distinction between the concepts and processes of delegation and
decentralisation are clarified as follows:
1.

Scope: Delegation is a tactical activity of managers to reduce and share their


work load with their immediate subordinates and to concentrate on important areas
of planning, control and co-ordination. Decentralisation is a strategic decision and
operation initiated by top management to cope with organisational and environmental
complexity and change. It is an organisation's structural response to strategic
challenges and changes.

2.

Life Span: Delegation is task specific and thus has shorter life span. The delegation
ceases as soon as task is complete. Decentralisation is brought about when its
need is felt through an organisation wide effort keeping a balance between central
management and decentralized unit. Once an organisation is decentralised it will
remain so until its need is felt again.

3.

Choice: Delegation is a normal managerial means of getting things done through


subordinates. It infact creates superior-subordinate or authority-responsibility
relations between a manager and his immediate work unit members.
Decentralisation is an organisation-wide feature whereby top management pushes
down operational authority to lower level activity units. The relationship is between
top or central management and the decentralised decision-making or activity units.
For an organisation and its management, delegation of authority in general is not
a matter of choice. It is not a question of whether to delegate or not to delegate.
Managers, if they are not to get trapped with routine and operational work load
have to delegate for their own survival. Decentralisation, on the other hand, is not
necessarily indispensable or inevitable in all cases. It can be considered as one of
the options in many cases.Many organisation do function well without
decentralisation.

4.

Freedom of action: Decentralisation is accomplished through the process of


delegation. For effecting delegation of authority, the requirement of decentralisation
is not necessary. This means that delegation of authority could take place without
decentralisation whereas there can be no decentralisation without delegation.

Principles & Practices of Management

40
5.

Degree of autonomy: Delegation of authority does not always imply granting of


autonomy to subordinates. Delegation, in a sense is a continuous process. The
interaction between the manager and subordinate is rather intense. But in a
decentralised setting, the lower level decision making units and their managers are
granted a semi-autonomous status. Interference of top management in operational
matters handled by the decentralised units tends to be minimal.

3.7 CONCEPTS OF LINE AND STAFF AUTHORITY


Like many other organisational concepts, the concepts of line and staff have their origin
in military organisations. Having found them useful, business and other organisations also
began to adopt and introduce them into their structures.
We may first understand these concepts in the military context and then discuss their
meaning, distinction and implications of adoption by contemporary business and other
organisations. In military parlance, the term 'line' is perhaps a short expression of the
military line or chain of command. Line officers are those who are positioned along the
military chain of command and who are in actual charge of defence and combat operations.
They plan, organize, direct and control military operations. Staff officers are those who
provide advisory, supportive and other related services to the line officers and units. Staff
services include engineering, signals, medical services, food and other supplies and so on.
Line and Staff in Organisations - Their Meaning and Distinction: the meanings of and
distinction between the notions of line and staff, as concepts and as practices, in business
and other organisations, has two dimensions.

One dimension is on the basis of nature of activities, and

The second dimension is on the basis of authority relationships.

Nature of activities: An organisation undertakes certain activities in order to achieve


its objectives. Traditionally, all primary, basic and core activities which are directly relevant
and related to the achievement of organisational objectives are designated as line activities;
they are grouped as line departments/units. All secondary, subsidiary and supportive activities
which smoothen and facilitate the undertaking of line activities are designated as staff
activities; they are grouped as staff departments or units. Staff activities are meant to aid
and assist the effective execution of line activities. They indirectly contribute to the
achievement of organizational objectives.
Check your progress
Tick mark the most appropriate answer
1. Decreasing the role of subordinates in decision-making is known as
a)

Decentralization

c)

Centralization

b)

Stabilization

d)

Organization

2. is a blueprint of the formal organization indicating the lines of authority


within the organization.
a) Management chart

c)

Formal chart

b)

d)

Organization chart.

Authority chart

3. Which of the following determines the character of an organization?


a) Technology

c)

Managerial Characteristics

b)

d)

All of the above.

Strategy

Notes :

Principles & Practices of Management

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41

4. The ability to see the organization as a whole and being aware how changes in any one
part of the organization affect all the other parts is known as:
a)

Leading skill

c) Conceptual skill

b)

Human skill

d) Organising skill

5. Spain of management is determined bya) One to one relationship

c)

Cross relationship

b) Group relationships

d)

Personal relationship

3.8 SUMMARY
In this chapter we have covered a large number of concepts, processes and dimensions
of organizing. The organizing function involves the determination of activities that are required to
be done to achieve the organizational objectives. It also involves assigning these activities to
persons qualified for the specific activities. In general, organizing is the function of gathering
resources, establishing orderly uses of these resources and structuring tasks to fulfill
organizational plans. It is an important function of managers and is related to the other
functions in several ways.

3.9 QUESTIONS AND EXERCISES:


Q.1 Discuss the importance and Process of Organising
Q.2 Authority is at the base of all formal organisations. Explain.
Q.3 Discuss the concept of Centralisation and Decentralisation
Q.4 What are the various factors determining an effective span.
Q.5'Delegation is the essence of Management' Discuss.

3.10 FURTHER READINGS:-Tripathi P. C., and Reddy P.N., Principles of Management, Tata McGraw Hill,2008
Robbins,Stephen P ,Management Prentice Hall,1991
Brech,E.F.L.,Principles and Practice of Management(London: Pitman,1972)
Miner,John B., The Practice of Management(Columbus: Charles E.Merrill Publishing
Co. 1985)

Principles & Practices of Management

42
UNIT - 4: STAFFING / HUMAN RESOURCE MANAGEMENT
Structure
4.0

Unit Objectives

4.1

Introduction

4.2

Job Analysis

4.3

Manpower Planning

4.4

Recruitment

4.5

Selection

4.6

Training and Development

4.7

Performance Appraisal

4.8

Summary

4.9

Questions and Exercises

4.10 Further readings

4.0 UNIT OBJECTIVES


The most important resources of an organisation are its human resources. Thus among
the most critical tasks of a manager is the staffing function therefore the prime objective is
to give an overview of the concepts like manpower planning, recruitment and selection,
training and development etc. The module explains:

Job Analysis

Manpower Planning

Recruitment

Selection

Training and Development

Performance Appraisal

4.1 INTRODUCTION
Human Resource Management (HRM) may be defined as the organised function of
planning for human resource needs, recruitment, selection, development, compensation
and evaluation of performance to fill those needs. The HRM process is an ongoing function
that aims to keep the organization supplied with the right people in the right positions, when
they are needed. The HRM process includes five basic activities: (1) human resource planning,
(2) staffing, (3) training and development, (4) performance appraisal, and (5) compensation.

4.2 JOB ANALYSIS


In order to recruit and hire persons suited for specific vacancies, it is essential to know
what the job itself requires. Job analysis is the process of determining the tasks that make
up a job and the skills and abilities that the employee must have to fulfill the duties and
responsibilities of the job. It may be formally defined as a systematic, detailed study of

jobs,
consisting of
identifying and
examining
what
is
required of the
person
assigned to the
job, and the
elements and
characteristics
of the job.A job
analysis
involves three
steps.

Principles & Practices of Management

43

Principles & Practices of Management

44

Notes :

1. analyzing the environment (nature of competition, customers, etc.) in which


employees work;
2. determining duties and responsibilities to be discharged;
3. Observing and recording the various tasks of the job as they are actually performed.
Job analysis is often done through interviews, direct observation, or by using a
questionnaire that is completed by the person currently holding the job and his immediate
supervisor. Job analysis forms the basis for both job description and job specifications.
Two widely used systematic job analysis approaches are the functional job analysis
(FJA) and the position analysis questionnaire (PAQ). Functional job analysis focuses on
four dimensions of an individual's job:
1. The data, people and jobs pertaining to the individual's job
2. Methods and techniques that the individual uses on the job
3. Tools and equipment used by the worker.
4. Products and services produced by the worker.
A look at the above dimensions shows that the first three dimensions relate to the
inputs and the job activities, while the fourth dimension relates to the output and job
performance.
FJA is the most widely used systematic job analysis method. It provides a description
of jobs that can be used as a basis for classifying jobs according to any of the four
dimensions. It focuses on the task and technological factors at work. It can also be the
basis for specifying standards of performance. For instance, managers can prescribe what
methods and machines an individual must use, and how he must use them.
The position analysis questionnaire (PAQ) too focuses on the task and technological
factors, but in addition to these, it also takes into account the human factor, PAQ analysis
attempts to identify the following six aspects of a job:
1. The sources of information those are critical to job performance.
2. Information processing and decision-making critical to job performance.
3. The amount of physical activity and skill required for the job.
4. Interpersonal relationships required to perform the job.
5. Other characteristics of the job, such as work schedules and work responsibilities.
There is considerable overlap between FJA and PAQ. Each attempts to identify work
activities and outcomes. But the PAQ, in addition takes into consideration the individual's
psychological responses to the job and its environment. It enables managers to set standards
and obtain information about the employee, the performance of work and the results of
work. Performing an accurate job analysis is quite a complex task. But if effectively done,
it leads to effective job description and job specification.

Designing job description


The second step in the recruitment process is designing the job description. The job
description is a written statement describing the objectives of a job, the work to be performed,
the skills needed, the responsibilities involved, the relationship of the job to other jobs, and
working conditions on the job.
A job description conveys the essence of the job along with a list of tasks and

Principles & Practices of Management

responsibilities that the job involves. It can be utilized for a number of important HRM
functions - selection of new employees, their orientation and training, and the appraisal
process. A clearly written job description gives a sense of direction to the new recruit. When
responsibilities listed in the job description are well qualified, they help in evaluating the
employee's performance.

Developing a job specification


A job description should be accompanied with a job specification. A job specification is
a written document that describes the minimum acceptable qualifications required of a
person who fills a particular job. It also lists out the skills, education and previous experience
needed to perform the job. In job description, the emphasis is on the job, whereas in job
specification, the emphasis is on the person doing the job. In job specification, the duties
and responsibilities stated in the job description are converted into a set of human qualities
that a recruit should have in order to perform the job satisfactorily.

4.3 MANPOWER PLANNING


Human resource planning is the process of determining future human resource needs
relative to an organisation's strategic plan and devising the steps necessary to meet those
needs. It involves estimating the size and composition of the future work force and helping
the organization acquire the right number and the right kind of people when they are needed.
HR planning can be logically divided into three parts: (1) Forecasting manpower demand,
(2) Forecasting manpower supply and (3) Human resource actions.

Forecasting manpower demand


This involves assessing how many people will be required in the organization in the
foreseeable future and what abilities they are required to possess in order to enable the
organization to remain in operation. Several factors need to be considered while forecasting
the demand for human resources. As illustrated in Figure 12.2, these factors can be both
long-range as well as short-range. The expected growth of the organization, budgetary
constraints, and the introduction of new technology are some of the important factors that
need to be considered while forecasting manpower demand.

Forecasting manpower supply


Like any other resource, human resources are subject to subtle erosion. Employees leave
the organization for a wide variety of reasons, and they need to the replaced. The management
has to explore both internal and external sources of supply for each replacement needs.
Internal labor supply A prime source of manpower supply in an organization is its pool
of current employees who can either be transferred within the organization or promoted, to
help the organization meet its demand for human resources. There are three means of
assessing the internal labor supply. These are (i) skills inventories, (ii) replacement planning,
and (iii) succession planning.
A skills inventory is a computerized database, which contains basic information pertaining
to each employee. This information can be used to assess the likely availability of individuals
for meeting current and future human resource needs. A skills inventory typically contains
information regarding the knowledge of each employee, his skills, experience, interests,
performance and other relevant personal characteristics.
The process through which an organization identifies potential candidates to fill specific
managerial positions is called replacement planning. To make the process of identifying the
potential candidates easy, an organization has a manager inventory chart (or a replacement

45

Notes :

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46

Notes :

chart) that shows the major managerial positions, current incumbents, potential
replacements for each position, and the age of each person on the chart. . Using a manager
inventory chart, the GM can identify where he stands with respect to the staffing position
eg. finance manager as the GM's potential successor perhaps the finance manager has
the immediate scope to be promoted and also has a subordinate as a potential successor.
Further, there is one other potential candidate within this department who can be promoted
within a year. A look at other departments shows that the production manager is acceptable
but cannot be promoted. There is one individual in this department one level lower in the
hierarchy who is suitable for promotion, while other employees in this department fall between
the extremes of non-promotability and good. Thus, the staffing pattern in this department
can be considered unsatisfactory. The personnel manager has the potential for promotion,
but needs to improve his performance further before he is finally promoted. The subordinates
in this department have potential for promotion within a year. Therefore, personnel department
will not face the problem of succession even if the personnel manager is promoted to higher
position. In the marketing department, though the marketing manager is suitable for
promotion, his subordinates do not have the potential to be promoted in the near future.

Advantages and limitations of the manager inventory chart


The advantages of a manager inventory chart are:
1.

The chart provides a clear idea about the present and future staffing situation of an
organization.

2.

The chart gives a clear indication of the future internal supply of managers by
indicating who is promotable within a year.

3.

When manages who have the potential for future promotion are identified, they can
be easily given a suitable position in the organization. This will stop the managers
from moving out of the organization and reduce their propensity to seek employment
outside the company.

4.

The manager inventory chart helps to identify the employees who are not performing
up to expectations and can help in training or replacing them, whichever is necessary.

5. With the help of the chart, managers can be transferred from one department to
another. This not only helps in enhancing the managers' experience, but also
helps to strengthen weak departments.

The disadvantages of the manager inventory chart are


1.

The chart does not show the position to which the manager may be promoted. If a
vacancy occurs in another unit of the organization, the person with the potential to
be promoted may not necessarily fit the position, since it may require him to have
knowledge or skills in specialized areas. A manager from the sales department,
who is promotable, can hardly fill the post of a Vice-President (Purchases).

2.

A fair assessment of the capabilities of an individual can be made based on his


skills, performance and other information. However, the data shown on the chart is
not sufficient to make a fair assessment of an individual.

3. Updating the chart is time-consuming and requires a lot of effort.


4.

Top-level managers may be reluctant to make their charts available to other top
level managers due to the fear of losing competent subordinates to other
organizational units.

Principles & Practices of Management

Succession planning: The third method of internal labor supply is a means of identifying
individuals with high potential. In contrast to replacement planning, which focuses on
identifying specific candidates who could fill designated managerial positions, succession
planning ensures that individuals receive appropriate training and job assignments, and
thus assists in their long-term growth and development. Succession planning, thus, provides
the organization with a well-qualified pool of individuals from which top-level and middle-level
managers can be selected in the future.
External labor supply Organisational expansion and/or employee attrition makes it
necessary for the organization to sometimes turn to the external labor supply.

Human resource actions


After estimating the demand and supply of human resources, managers must take
steps to balance the two. The matching of projected human resource needs with projected
availability of human resources provides the basis for undertaking various actions to ensure
that supply will equal demand at the time specified. The data that has been collected for
the availability and requirement of the personnel can be categorized into four situations
(demand low- supply low, demand low-supply high, demand high- supply high, & demand
high- supply low). Each of these situations requires a different action to be taken for estimating
the demand and supply of human resources.
Human resource activities like selection, promotion and placement come into focus
when there is high demand and supply of manpower in the organization. Consequently,
efforts are made to match the available manpower with organisation's needs. When the
supply of human resources is low and the demand is high, a different emphasis is required.
The company can be in for internal promotions, and should place special emphasis on
training and development to enlarge and improve the internal pool of manpower. However,
this takes time and planning. Recruitment is another option. When there is a high demand
for manpower within the enterprise, it is likely that there is high demand for such manpower
in the external environment as well. Therefore, it is essential that the compensation offered
be competitive. This is very important for retaining individuals already employed by the
enterprise, and also for recruiting new manpower.
For a firm with a high supply of human resources and a low demand, there are several
alternatives available to strike a balance between demand and supply. The firm can prepare
plans for growth and expansion, as this would increase the demand for human resources,
thereby using the manpower available. Other alternatives are to resort to replacement or
outplacement services, layoffs, demotions or early retirements.
An organization which has a low supply of manpower and a low demand should pay
special attention to organizational planning, as this situation indicates a degree of saturation
in the organization. It should undertake training and development of its manpower if there
are prospects of growth and of likely changes in demand for manpower in the future.

4.4 RECRUITMENT
Recruitment is the process of identifying and attempting to attract candidates who are
capable of filling job vacancies appropriately. In other words, the primary objective of
recruitment is to attract those applicants who are best qualified to fill the vacancies. A wellplanned and well-operated recruiting system generates the required number of qualified
applicants. Selection made from the available well-qualified applicants ensures that the
people hired have the potential to meet organisation's needs. Thus, effective selection
depends on effective recruitment.

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Sources of recruitment
The sources of recruitment can be both internal and external.

Internal recruitment
Internal recruitment involves identifying the potential candidates within the organization
who can fill the vacant positions. Apart from identifying the candidates, they have to be
encouraged to accept the vacant organizational positions. Most multinational firms, such
as IBM, General Motors, and Procter & Gamble, have a policy of recruiting or promoting
from within the organization, except in exceptional circumstances. This method of filling
vacant positions by promotions from within the organization helps to build employee morale
and prevent high-quality employees from leaving organization. In order to fill high-level
positions, a skills inventory may be used to identify internal candidates, or managers may
be asked to recommend individuals who should be considered for these positions. The
main disadvantage of recruiting from internal sources is its "ripple effect." That is, when an
employee is promoted to a different job, it becomes essential to find someone else to take
his or her place in the organization.

External recruitment
External recruitment involves attracting people from outside the organization to apply
for vacant positions in the organization. There are a variety of sources from which external
job candidates can be obtained. These include advertising, educational institutions,
employment agencies, voluntary applicants and referrals by current employees.
Advertising Advertising in newspapers and journals is the most popular method of
recruitment from external sources. Advertising in local newspapers is a good source of
recruiting people for lower level positions. Though advertisements reach a large audience,
they are likely to attract many unsuitable candidates. This increases the burden of the
initial screeners. In order to avoid this problem, it is essential that the advertisements
describe the job qualifications appropriately. The following are some of the elements that
should be included in an advertisement in order to make it effective - name of the company,
the product (the post for which the advertisement is given), and the place where the vacancies
are to be filled, hiring qualifications, compensation plan and benefits, and the way to contact
the employer.
Educational institutions Educational institutions are an excellent source of potential
employees for entry-level positions in organizations. However, some large firms look to
educational institutions for high-level positions as well. Business colleges, vocational schools
and universities are good sources of external recruits. Although most graduates lack work
experience, they have the conceptual and technical knowledge that firms seek. Almost all
colleges have a placement cell; a company representative usually works with the placement
cell to set up an interview schedule and to have company brochures distributed.
Employment agencies Employment agencies are a good source for recruitment. But
if the employment agency chosen is not a good one, the entire process of recruitment can
be adversely affected. Hence, the recruiting firm should be careful to select a reliable
employment agency, and should develop a good working relationship with it. Both the job
description and job qualifications for the position to be filled must be conveyed clearly to
the agency. The candidates are initially screened by the agency before they are sent to the
recruiting firm. Therefore, the recruiter needs to spend time only with those candidates who
are well qualified for the job. Private employment agencies usually offer positions and
applicants of a higher caliber. They charge a fee for the services rendered, from the employer
and/or the employee. Management consultants are specialized private employment

Principles & Practices of Management

agencies. They conduct executive search to identify potential recruits, especially for middle
and top-level placements.
Voluntary applicants "Walk-ins," whether they reach the employee by letter, telephone
or in person, are also a source of prospective applicants. Some firms view walk-in applicants
as aggressive and self-reliant individuals. Others reject all unsolicited applications because
they believe that the proportion of qualified applicants from this source is low. Unsolicited
applications often have a short life, so if the firm wishes to respond and has a vacancy, it
should do so quickly. Alternatively voluntary applications can be kept in the database for
later use by the organization, whenever vacancies arise.
Referrals by current employees Existing employees can be asked to furnish the
names and details of people who they think are suitable for a particular vacancy in the
organization. The employees may suggest the names of friends who work for another firm,
or for relatives. This type of external recruitment can prove to be effective as the employees
can provide information on the applicant's ability to perform on the job and how well he or
she can get along with others.
One major issue related to external recruitment is the tendency of the recruiters to give
candidates a very positive view of the organization in order to attract new employees.
Unfortunately, this strategy sometimes backfires. An individual who accepts a position with
unrealistic expectations may become dissatisfied and leave soon. An alternative approach
is to present the job candidate with a balanced view of both the positive and negative
aspects of the organization. Presenting a realistic job preview may reduce the number of
candidates interested in the job, but will most likely have a positive effect on job satisfaction
and performance.

4.5 SELECTION
Once an adequate number of applicants has been sourced, the process of selection
begins. Selection is the second step in the staffing process. The selection process involves
choosing the candidates who best meet the qualifications and have the greatest aptitude
for the job. The objective of effective selection is to match individual characteristics (ability,
experience, and so on) with the requirements of the job. The aim of selection should be to
choose candidates who can meet the organisation's goals.

The Selection Process


The selection process involves mutual decision-making on the part of both the organisatin
and the job applicant. The organization decides whether or not to make a job offer and how
attractive the offer should be. The applicant for the job decides whether the organization
and the job offer will fit his or her needs and goals. However, when the job market is
extremely tight, the selection process will be more one-sided. Several candidates will
apply for each position, and the organization will, on the basis of a series of screening
devices, select the candidate it finds to be the most suitable The process is also one-sided
in the opposite way when the candidate is a highly qualified executive or a professional who
is being courted by several organizations.
There are vast arrays of selection methods available for an organization. Each method
enables the management to obtain information regarding a job applicant that can help the
organization determine whether the applicant's skills, knowledge, and abilities are appropriate
for the job position in question. The selection process consists of various steps as follows.
The size of the company, the number of candidates needed, and the importance of the
position to be filled are the major factors that determine the steps in the selection process.

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A typical selection process follows a standard pattern and consists of the following steps:

Notes :

Preliminary screening

Application blank

Selection test

Comprehensive interview

Reference check

Physical examination

Making the selection

Preliminary screening: The preliminary screening interview is used to make a quick


evaluation of the applicant's suitability for the particular job. Elimination of some of the
candidates can be done in the preliminary screening interview on the basis of job description.
This screening weeds out unqualified applicants and is often the first personal contact an
applicant has with the company. It enables the management to discuss the job in adequate
detail, and analyze whether the applicant is suitable for the job. The interview centers upon
an analysis of the general background, education and experience of the candidate. The
initial screening is best left to a staff member or subordinate so that valuable executive time
is not wasted. The interview usually lasts for a very short duration, ranging from twenty to
thirty minutes, and is conducted by a member of the human resources department. When
the initial screener believes that the applicants meet the minimum requirements, he asks
the applicant to fill out an application form. Preliminary screening is important for large
organizations which receive a large number of applicants whenever their representatives
visit college campuses or put an advertisement in the newspapers. The screening process,
as filtering mechanism, takes some pressure off other selection devices.
Application blank: Candidate who pass the preliminary screening are usually required
to complete a formal application form specially designed to obtain the required information
about the candidate. Applicant blanks are an efficient method of gathering information
about the applicant's previous work history, educational background. Generally, the data
provided in the application blank is used informally to decide whether a candidate merits
further evaluation. Interviewers use application blanks can also include reasons for applying,
expected salary, reasons for leaving the previous job, positions last held, and time spent
with last employer.
Selection tests: Tests of ability, skill, aptitude, or knowledge that is relevant to the
particular job, are usually the best predictors of job success, although tests of general
intelligence or personality are occasionally useful as well. A selection test also measures
certain psychological factors such as ability to reason, capacity for learning, temperament,
and specific aptitudes and physical abilities. There are different kinds of tests used in the
selection process.
Intelligence tests: An intelligence test explores alertness, comprehension and
reasoning abilities of the applicants. Through these tests, managers can predict the future
job performance of the applicant. Questions in intelligence tests are job-oriented, and abstract.
Personality tests: Personality tests are a means of measuring characteristics (such
as pattern of thoughts, feelings and behaviour) that are distinctively combined in a particular
individual and influence the individual's interactions in various situations. They also measure
an applicant's self-confidence, and emotional stability. The use of personality tests for
selection purposes is subject to considerable debate because of the difficulty of accurately
measuring personality characteristics and the problems associated with matching them
appropriately to job requirements.

Principles & Practices of Management

Knowledge tests: Knowledge tests evaluate the applicant's knowledge about the
company, its competitors and customers, its products, the target market and the like.
Performance or work sample tests: Such tests are a means of measuring practical
ability on a specific job. In performance or work sample tests, the applicant completes
some job activity under structured conditions. For instance, a person who had applied for
the post of a service representative may be asked to handle a simulated situation involving
a complaining customer. Although they can be costly if special facilities and equipment are
needed, performance tests, when devised to closely reflect important aspects of the job,
tend to be valid predictors of future performance.
Comprehensive interview: A comprehensive or an in-depth selection interview is
designed to find out more about the applicant as an individual and, in general, obtain
information of interest to the interviewers so that the suitability of the candidate for the job
and the organization can be determined.
In this stage of the selection process, the interviewer matches the information obtained
about the candidate through various sources, such as the application blank, screening and
testing. Clarification and elaboration of brief responses given in the application blank are
also sought in the interview process. Unlike the screening interview which is usually conducted
by a member of the human resources department, the in-depth interview is usually conducted
by the manager to whom the candidate would report if hired.
The three widely used types of interviews include structured interview, semi-structured
interview, and unstructured interview. In a structured interview, the interviewer asks the
candidate a predetermined set of questions in the specified sequence with virtually no
deviations. This type of interview is very useful if the interviewer has to interview a large
number of candidates or when the interviewer is relatively untrained.
Unstructured interviews are informal and unorganized. There are no pre-planned questions.
The candidate is allowed to talk freely on general questions and the purpose of the interview
is to find about the kind of person the candidate is.
In comparison to an unstructured interview, a structured interview yields more valid data.
However, there are certain disadvantages of structured interviews. They are almost mechanical
in their approach and may convey disinterest to the candidate. Also, they do not allow the
interviewer to probe interesting or unusual issues that may arise during the interview.
To overcome these disadvantages and still acquire reasonably valid data for making a
selection decision, interviewers can use a semi-structured interview, which is a combination
of structured and unstructured interviews. Here the interviewer uses a set of pre-planned
questions and also allots time for interaction and discussion.
Reference checks: Applicants are required to furnish names of persons who can be
contacted by the recruiting firm if it wishes to know about the character and suitability of the
applicant. References assure the recruiting firm that the information given by the applicant
is reliable. Reference checks can be obtained by mail, by telephone, and in person. Such
checks are conducted to verify information on application blanks and sometimes, to collect
additional data that will facilitate the selection decision. References from individuals who
are familiar with the candidate's academic achievements and from the applicant's former
employees are more helpful than other types of references.
Physical examination: The physical examination is the last step before taking a final
decision on whether to select an applicant or not. Physical examinations are designed to
ensure that the candidate can perform effectively in the position for which he or she is

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applying, to protect other employees against contagious diseases, to establish a health


record for the applicant, and to protect the organization against unjust compensation claims.
Making the selection: The applicants who qualify in the selection test, interview,
reference check and physical examination are now considered to be eligible to receive an
offer of employment. Once the selection process generates the list of selected candidates,
it is the applicant's prerogative to decide whether to accept the offer or not. Individuals are
encouraged to work in an organization when the goals set are realistic and where they can
prove their ability and talent to achieve those goals. Added to this, if the job suits the
personality of the individual, then the individual can show effective results as he/she has a
greater suitability for the job. Rejected candidates should be intimated. Such communication
is essential for attracting candidates in the future.

4.6 TRAINING AND DEVELOPMENT


Although organization often recruits fully qualified individuals who require little or no
training, training is usually undertaken for new recruits as well as for existing manpower,
which require improved skills in order to advance in the organization. Employees at all
levels - management, technical and operative - will require some training at some point of
time in their careers. Although the objectives, methods, and course or program contents
often differ, the basic principles of teaching/learning are the same. Training is formally
defined as a planned effort to improve the performance of the employee in his area of work.
In other words, training denotes efforts to increase employee skills in their jobs. For instance,
employees might be instructed in new decision-making techniques or the capabilities of
data processing systems.

4.7 PERFORMANCE APPRAISAL


Performance appraisal compares an individual's job performance against standards or
objectives developed for the individual's position. The process of performance appraisal
involves defining the expectations for employee performance, measuring, evaluating and
recording employee performance against these expectations, and providing the employee
with feedback regarding his performance. The major purpose of performance appraisal is to
influence employee performance and development in a positive way. When the performance
is high, the individual is likely to be rewarded (by a hike in pay or a promotion). If performance
is low, some corrective action (such as additional training and development) might be
arranged to make the performance meet the desired standards.
Thus, effective performance appraisal as a control technique requires standards
information and corrective action. Standards in performance evaluation are prior specifications
of acceptable levels of job performance. Information must be available in order to measure
the actual job performance against the standard job performance. Corrective action must
be taken by managers to restore any imbalance between actual and standard job
performance.
Check your progress
Tick mark the most appropriate answer
1. Which of the following is not a typical Rater error?
a) Average behavior

c) Central Tendency

b) First impression

d) Halo effect.

2. Which of the following is an written document describing the minimum acceptable

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51

qualification required for a person who fills a particular job?


a)

Job Description

c)

Job Evaluation

b)

Job Specification

d)

Job Design.

3. Which of the following is an item frequently included in a job description?


a) Major duties performed

c)

Performance standards to be achieved

b) Percentage of time devoted

d)

All of the above.

to each duty
4. What does recruitment involve?
a)

Encouraging qualified people to make application for employment with a firm

b)

Selecting qualified people for employment

c) Attracting and selecting employees for the firm


d)

Determining sources of employees.

5. Making the candidate uncomfortable by asking blunt and often discourteous questions
typify what type of interview?
a)

Non-directive

c) Board

b)

Stress

d)

Group

4.8 SUMMARY
The HRM process includes five basic activities (1) human resource planning, (2) staffing
(3) training and development (4) performance appraisal and (5) compensation.
HR planning is designed to ensure that the personnel needs of the organization will
be constantly and appropriately met, HR planning involves three steps: (1) forecasting
manpower demand, (2) forecasting manpower supply, and (3) human resource actions.
Staffing is an integral part of the HRM process. It is a set of activities aimed at attracting
and selecting workers for the purpose of achievement of the organization's goals. The
two basic steps involved in staffing are recruitment and selection. The recruitment
process begins with finding and attempting to attract candidates who are suitable for
filling job vacancies. The recruitment process involves five steps: (1) performing job
analysis, (2) designing job description, (3) identifying job specification, (4) attracting a
pool of recruits, and (5) selecting the best recruits. Recruitment can be conducted
internally as well as from external sources. Internal recruitment is the process of finding
potential internal candidates (present employees) and encouraging them to apply for
and/or be willing to accept organization positions that are vacant. External recruitment
involves attracting people for obtaining external job candidates. These include
advertisements, educational institutions, employment agencies, voluntary applicant,
and referrals by present employees. Once the candidates are attracted to job positions,
the management needs to find qualified people to fill the available jobs through the
selection process. The selection process consists of seven steps: (1) preliminary
screening, (2) application blank (3) selection tests, (4) comprehensive interviews, (5)
reference checks, (6) physical examination, and (7) making the selection. To integrate
the newly hired employees into the organization, managers must adopt a systematic
socialization process.

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4.9 QUESTIONS AND EXERCISES


Q.1 what are the benefits of Manpower Planning?
Q.2 Discuss various Internal and External Source of Recruitment.
Q.3 Discuss the various steps in Selection Process.
Q.4 Discuss the uses to which Job Analysis data can be put.

4.10 FURTHER READINGS:


1

Koontz,Harold and Heinz Weihrich,Essentials of Management, fifth edition,


Singapore: Mc Graw Hill,1990.

Monappa.A. and Saiyadain,M..S. Personnel Management, New Delhi:Tata McGraw


Hill,1979

Anastasi, A. Psychological Testing,London,McMillan,1968

Principles & Practices of Management

UNIT - 5: DIRECTING
Structure
5.0

Unit Objectives

5.1

Introduction

5.2

Motivation

5.3

Co-ordination,

5.4

Communication

5.5

Decision Making,

5.6

Management by Objectives (MBO)

5.7

Summary

5.8

Questions and exercises

5.9

Further readings

5.0 UNIT OBJECTIVES


This module will discuss in detail the following topics:
Motivation
Co-ordination
Communication
Decision Making
Management by Objectives

5.1 INTRODUCTION
After plans have been made and the organisation has been established and staffed, the
next step is to move towards its defined objectives. This function can be called by various
names: "leading", "directing", "motivating", actuating", and so on. But whatever the name
used to identify it, in carrying out this function the manager explains to his people what they
have to do and helps them do it to the best of their ability. Directing thus involves three subfunctions - communication, leadership and motivation. Communication is the process of
passing information and understanding from one person to another. Leadership is the process
by which a manager guides and influences the work of subordinates. Motivation means
arousing desire in the minds of workers to give their best to the enterprise. It is the act of
stimulating or inspiring workers. If the workers of an enterprise are properly motivated they
will pull their weight effectively, given their loyalty to the enterprise, and carry out their task
effectively. Two broad categories of motivation are: financial and non-financial. Financial
motivation takes the form of salary, bonus, profit-sharing etc. While non-financial motivation
takes the form of job security, opportunity of advancement, recognition, praise etc.

5.2 MOTIVATION
Meaning of Motivation
One of the key variables which enable us to understand the conscious work behaviour

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of individuals in organizations and the differences among them is 'motivation'. The term
motivation is a broad-based concept used to explain the inner psychological forces and
processes in an individual which arouse in him the desire to act or not to act in particular
ways. It is the state of an individual's willingness, desire or inclination to put in effort in a
particular direction to meet his goals. It partially explains conscious goal-directed action
behaviour of an individual. Since it is an inner, psychological process, it cannot be directly
observed but can only be inferred from behaviour. An individual's motivation is one of the
elements which make him to put in his energy and efforts, to apply his knowledge and
skills and to perform things in particular ways. He feels stimulated to do so as to satisfy
his motives with respect to his needs, and goals in an environment that offers him certain
opportunities, and threats. His motivation is also partly influenced by his perceptions,
learning, abilities and personality traits and qualities. Thus, motivation is a complex
behavioural phenomenon and can be understood in a systems perspective.

Motivation and Other Related Concepts.


In this Section, we may briefly explain how motivation is related or differs from ability,
morale and job satisfaction.
Motivation and ability: In a very simple sense, motivation may be regarded as the will
to work while ability which was discussed a little earlier may be referred to as the skill to
work. Ability is also a composite of several variables, physical strength, individuals' attitude,
knowledge and experiences. Effort and performance of individuals are product of the will
and skill (motivation x ability). Motivation is an inner psychological urge and drive. Ability is
a function of physical energy, intellectual knowledge and understanding, combined with
application skills. Motivation is a matter of attitude and is influenced by perceptions values,
needs, goals, beliefs and expectations. Ability is partly a matter of aptitude and can be
acquired by training, learning and practice. Motivation leads to effort while ability partly
leads to performance. More specifically, if an individual is well-motivated, he is induced to
put in the needed efforts whereas if an individual is able, he performs well. Motivation can
be induced by a network of positive and negative incentives, both monetary and non-monetary.
Ability can be induced or improved by proper supporting facilities and atmosphere, training
opportunities for self-expression and learning, co-operation from the group and the supervisor
and so on.
Motivation and ability reinforce each other. An individual needs motivation to acquire,
recognize and improve his abilities and to put them into use. Similarly, he needs ability to
back his motivation. Other things being equal, ability injects a sense to confidence and
adequacy in the individual and energizes him towards efforts. A person may be somewhat
deficient in his ability, but if he is highly motivated, he can get over the problem to some
extent. Conversely, a person may be very able, but he is poorly motivated, his efforts and
performance tend to be indifferent.
Sometimes, a high degree of ability by itself can motivate a person to perform well even
if often motivational factors are not present to the desired extent. Also, a highly motivated
individual with little ability may be able to get over his deficiency and drive himself to
perform well. His excellent motivational state helps him to acquire ability and skill and
thereby to put in the needed amount of effort.

Motivation and Morale


The concept 'morale' is defined as an overall state of a group's emotional health,
arousal and enthusiasm. It is a network of social-emotional associations and attitudes,
which members of a group develop towards each other, towards its goals, roles and tasks.

Principles & Practices of Management

The state of morale in a group or in an organization is a function of the total job situation and
the internal organizational climate, as perceived by the members.
The above definition suggests that morale is a phenomenon embedded in a group of
people. However, another version of the definition of morale suggest that it could also be an
individual phenomenon. One author has defined morale as the extent to which an individual's
needs are fulfilled, and the extent to which the individual perceives that satisfaction is
stemming from his total job situation. In this sense, morale refers to an individual's state of
psychological health, level of satisfaction and self-confidence which he gets out of his job
situation-the way he perceives his job, performs his tasks, fulfills his needs and interacts
with his superiors, colleagues and subordinates.
It appears to be more logical to view morale as more a group situation than an individual
may often derive their morale from the group of which they are members. It is the totality of
a group's state of mind; the morale of a group is more than the sum total of morale of its
individual members.
Distinction between motivation and morale: Motivation and morale are conceptually
and otherwise different. They could be distinguished along the following lines:(a) Motivation is an individual's state of disposition and decision to do or not to do things,
to behave or not to behave in a particular way, in response to stimuli, whether internal
or external. But morale, as explained above, is more a group situation.
(b) Motivation is only one of the factors that explains the 'why' of individual behaviour and
performance. An individual's overall behaviour and performance is a function not only of
motivation but also several other factors. Morale represents the totality of impact of
several interacting forces in the atmosphere or a group.
(c) A well motivated individual tends to experience a high degree of morale also. As against
this, an individual or group characterized by a high state of morale may or may not have
a high degree of motivation to perform. The causation between morale and motivation
is not strong.
(d) It is possible to build up motivation in an individual or group by a combination of rewards
and penalties. But morale can be built up only by positive and favourable means, i.e.
carrots and not in combination with sticks.
(e) Organisations in general, devote more direct attention towards motivational aspects of
people's behaviour than to aspects of morale. The field of motivation is more extensively
explored than morale by theorists and several theories of motivation were discussed
earlier. This is perhaps because motivation is more sharply related to effort and performance
than morale. The latter is almost taken for granted, if motivation is taken care of.

Motivation and job satisfaction


Having defined morale, and distinguished it from motivation, we may turn our attention
to understand the concept of job satisfaction. It refers to a pleasurable or positive emotional
attitude of an individual towards his job arising out of the outcomes he gets from his job and
job climate. It is the psychological contentment which an individual experiences and drives
from the various factors associated with his job. It may also be described as the extent to
which an individual's needs and expectations on the job are actually fulfilled in terms of
rewards and outcomes, extrinsic and intrinsic, monetary and non-monetary. From a content
angle, job satisfaction is also the extent to which an individual perceives that his efforts,
skills, experience and expertise are rewarded in the form of job outcomes-such as salary,
fringe benefits, recognition, achievement, career advancement and so on.
The relationship between motivation and job satisfaction is interesting. They are inner
psychological states. They cannot be observed but can be inferred from an individual's

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behaviour. The factors instrumental for motivation and job satisfaction are somewhat
common, although there could be several mutually exclusive factors. Motivation is aroused
by an individual's expectations how his needs are likely to be met by the outcomes he gets
through his performance in his job. Job satisfaction is a measure of the individual's
assessment on how his expectations and needs are actually met on the job.
Further there is a circular relationship between motivation and job satisfaction. Job
satisfaction tends to arouse motivation for good performance in future. This means that
satisfaction causes performance. It is also true to some extent that motivation which leads
to performance also causes satisfaction. This means that performance leads to satisfaction.

Theories of Motivaion
Human motivation in general, and the motivation of individuals working in organizations
in particular, has long been an important topic of research and theory building by behavioural
scientists. Several theories of motivation have been advanced to serve as bases for
description, explanation and prediction of work behaviour of people in organizations. These
are briefly discussed as follows:Needs hierarchy Theory: Abraham Maslow, an eminent U.S. Psychologist, was
one of the earliest theorists who provided a systematic conceptual model of human needs
and the associated behaviour. In a classic paper published in 1943, he advanced his 'Need
Hierarchy Theory' of human motivation to explain how needs influence human behaviour.
Maslow categorized human needs into five broad types and structured them into a five-tier
hierarchy. At the base of the hierarchy are the physiological needs which include basic
needs like food' shelter, clothing, rest and recreation. The progression along the hierarchy
is from physiological needs to safety needs (freedom from pain and threat, assurance of a
protected and cosy atmosphere, economic and social security etc.), social affiliation needs
(which refer to needs for love, affection, friendship, and belongingness), ego or esteem
needs (such as needs for self-respect, respect and appreciation from others, status and
prestige in society) and self-actualisation needs (need for realisation of one's full potential
of development, maturity and autonomy). The last category of needs is placed at the apex
of the hierarchy and hence are the highest level needs.

Maslow's Hierarchy of Human Needs


Self Actualisation
Needs
Esteem Needs
Social Needs

(Challenging Job)

(Job Title)

(Friends at
Work)
Safety Needs
Physiological
Needs

Pension

Salary
The progression of needs and their fulfillment along the hierarchy, is sequential and
step-by-step and on the basis of their dominance. Maslow argued that human beings
generally strive to satisfy their basic needs or lower order needs first before looking for

Principles & Practices of Management

gratification of non-basic or higher order needs. He also made the following propositions as
part of his theory:
i)

Deprivation of a need dominates one's behaviour.

ii) Lower order needs in the hierarchy claim prior attention over higher order needs.
iii) Relative satisfaction of needs at a particular level in the hierarchy activates the
urge for fulfillment of the next higher level needs.
iv) A satisfied need ceases to be a motivator; only unfulfilled needs motivate human
behaviour.
Maslow's Theory is attacked by theorist from several angles. It is pointed out that the
theory cannot be tested and validated in practice and lacks empirical support. It is a simplistic
theory which fails to capture the complexity of human needs and behaviour. The structuring
of human needs in the form of a hierarchy gives them a non-existent order, sequence and
progression. Humans are unlikely to behave in such a neat, step-by-step manner while
perceiving and gratifying their needs. Humans are motivated not only by their needs but
also by many other things which include their expectations, experiences and exigencies of
circumstances. It is doubtful whether deprivation of a needs dominates behaviour and whether
a satisfied need ceases to be a motivator.

Achievement Motivation Theory


David McClelland of Harvard University, in association with John Atkinson and others, evolved
the Achievement Motivation Theory the elements of which are needs for achievement, power and
affiliation. We may briefly explain the motivation aroused by these three needs as follows:
Need for achievement: It is a need to excel in terms of internally set standards of
performance or in relation to external competitive situations. Achievement oriented individuals
seek satisfaction in doing things better and in assuming important personal responsibility
for problem solving. They undertake attainable goals of moderate difficulty. They are highly
devoted to their task assignment and have the necessary drive to push through road-blocks.
They desire frequent and clear feedback on their performance so as to gain confidence and
get over deficiencies, if any. They depend on their own capability and not on luck. They are
not much money-minded; they look upon money as a symbol of their achievement. They
look for freedom and control over their task environment.
Need for power: It is a desire to gain control and dominance over other people and
events, to influence and condition their attitudes and behaviour and to have one's own way,
in spite of severe odds. It includes manipulative ability to get hold of certain resources
which are sources of power such as key information, knowledge, and access to centres of
power, wealth and so on. It is an all-consuming drive among some individuals to seek
positions of leadership, whether in politics, law enforcement, business, education, or arts.
Power is sought in some case for the sheer pleasure of possessing it and for fulfilling other
needs in some other cases. An individual who has a high need for cruelty may use his
power to harass, humiliate and hit other people, who happen to get in touch with him.
Power motivation manifests itself in different ways-both good and bad.
Need for affiliation: This need, which was described earlier in connection with Maslow's
need hierarchy theory, was studied further by McClelland. Persons with a high need for
social affiliation are likely to be sensitive to the feelings and views of other, are keen on
warm inter-personal relations, look for social support and friendships. They derive satisfaction
from liking others and being liked by them

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The utility of McClelland's achievement motivation theory is that is provides an insight


into managerial behaviour in particular and human behaviour in general. It also provides guidance
on training individual to induce into them needs for achievement, affiliation and power.

Two Factor Theory of Motivation


This theory, also known as 'motivation-hygiene' theory, was proposed by Frederick
Herzberg, a US behavioural scientist, in 1959, based on some empirical research on job
attitudes of 200 accountants and engineers. Herzberg made the proposition that two separate
sets of factors are relevant in any motivational setting: The first set of factors, called satisfiers
or motivators include: the job itself, its importance and the opportunities it provides for
advancement, achievement, recognition and sense of responsibility. They are job content
factors and are intrinsic to the job. They are real motivators for higher performance because
they are capable of giving satisfaction to the job holder.
The second set of factors, called hygiene factors or maintenance factors or dissatisfiers
include: working conditions, job security, salary, and quality of supervision, fairness of
organizational policies and administration and warmth in interpersonal relations. They are
the job context factors, and are extrinsic to the job. Any perceived deficiency in these
factors can create dissatisfaction, demotivation and poor performance among the job holders.
Their presence or perceived adequacy tend to remove or reduce dissatisfaction. But by
themselves, these factors do not promote job satisfaction, motivation and good performance.
They are called hygiene factors because they play a role in creating a healthy congenial
climate in the work setting. They are necessary for motivation and satisfaction but not
sufficient by themselves, to inspire or motivate a person for higher performance.
It is clear from the above that if factors which cause job dissatisfaction are fulfilled does
not mean that there will be presence of job satisfaction. An organization may have excellent
working conditions, decent remuneration system, democratic supervision, cordial
interpersonal relations and so on but still may have a low motivational climate if satisfying
factors such as a meaningful and interesting job, opportunities for advancement, achievement
and recognition, are absent or deficient.
Herzberg argued that organisations should be able to introduce job enlargement and
job enrichment which involve incorporation of motivators into the range of jobs designed in
the organizations. Herzberg made out a case for job redesign along the above lines to
make jobs interesting, meaningful and challenging as the only way to ensure job satisfaction
and good job performance.
Though Herzberg's two factor theory of motivation has gained wide-spread popularity
among business and other organizations and though the theory has been empirically
validated, it attracted considerable criticism in management literature. It is pointed out that
the original research base was very narrow and was not representative enough to make
valid generalizations. It is also difficult and unrealistic to neatly segregate job context
factors from job content factors. In many cases, job context factors have elements of
positive satisfaction of job holders. It is also possible that for some people job context
factors or motivators make no sense because their job-related aspirations are limited.
Further, there need not be any direct cause and effect relationship between satisfaction
and performance. Many job holders may be happy and satisfied in their job but they may
not always be high performers.

Essentials of a Sound Motivational System


A careful comparison and integration of the above theories of motivation suggest the
essentials of a sound motivational system. These essentials are described below:-

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1.
2.

It should adopt a positive, purposeful and progressive view of man-that he is capable


of being moulded to offer constructive co-operation to task requirements.
It should recognize individual differences in perceptions, values, needs and abilities,
as also their dynamic nature.

3. It should relate the goals of the organization with the individual goals of participants.
4.

It should give due weightage to group dynamics. Motivation is not a mere individual
phenomenon but is very much influenced by inter-personal situations. Similarly,
other environmental influences are also to be taken to consideration in a sound
motivational system.

5.

It should incorporate aspects of training and development of people, sound leadership


and supervision, wholesome working conditions, redesign of jobs to make them
more meaningful and participation of people in processes of decision-making and
implementation.

6.

There should be an appropriate combination of monetary and non-monetary


incentives; also the structure of motivating factors should be equitably designed at
different levels of the organisation.

7.

The system should rule out manipulatory devices to motivate people by such
superficial gimmicks of socialization, paternalism and patronizing attitudes and so
on towards people.

8. There should be adequate and efficient mechanism for feedback on performance.


People should be informed periodically on how they perform and how they can
further improve their performance.
9.

Efforts should be made to monitor the attitudes and behaviour of people-both as


individuals and as members of groups.

10. The linkages between abilities and efforts, and performance efforts and rewards
need to be clarified in unmistakable terms.
11. There should be contingent provisions for penalty for persistently unacceptable
performance and behaviour on the part of some people.

5.3 COORDINATION
Meaning and Definition of Coordination
Coordination is a synchronization of group efforts to achieve a common objective.
According to E.F.L. Brech, "Coordination is balancing and keeping together the team by
ensuring suitable allocation of tasks to the various members and seeing that the 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 organizational goals through proper linking.
Coordination is the centre point of managerial tasks. For example, planning is ineffective
if departmental plans are not properly integrated and coordinated and it is required in each
managerial function.

Characterstics of Coordination
Following are the characteristics of coordination:

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Coordination is not a distinct function. It represents the core of management.

The purpose of coordination is to achieve the common objective.

Coordination is a continuous and an on-going process.

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


action.

Need for Coordination


Existence of disintegrating forces emphasizes the need for greater coordination among
various divisions of an enterprise. The disintegrating forces may act as barriers to effective
coordination. The factors that emphasize on the need for coordination are:
1

Increasing specialization: Coordination becomes essential when the principle of


specialization has been practiced in a work area. The activities of the unit may be
divided on the basis of product, function, region or some other form. Every employee
is mostly concerned about his/her unit's performance. It results in conflicting interests
within the same organisation. A good coordination paves the way for effective
integration of efforts of all people for the accomplishment of a common goal.
Empire building motive: Each employee is motivated by his performance in the
unit. As a result, this kind of attitude may fulfill his personal and professional ego
but isolate him from others. Organisational goals cannot be accomplished with
this kind of tendency. Coordination is essential to ease out this situation.
Personal conflicts between employees: Personal rivalries, jealousies and politics
among the employees in the work situation are bound to create problems to the
management. For example, conflicts between any two divisions or departments of
the organisation create problems in the smooth functioning of an organization.
Coordination helps in harmonizing group efforts within the organisation.
Subordination of individual to that of organizational interest: Individual
interests are important for developing loyalty, integrity, hard work, initiation and
motivation. Organisational interests are much more important than individual
interests. For achieving organizational interest, subordination of individual needs
is a must as organizational goals are prior to individual goals. The purpose of
coordination is to attain the organizational interest.

The importance of coordination need not be over emphasized. The primary task of
management is to coordinate all the activities effectively. It is a creative force through which
employees are encouraged to continue to group goals voluntarily, willingly and
enthusiastically. Coordination allows personal and social satisfaction among employees.

Type of Coordination
Depending upon the nature, coverage and flow, coordination may be divided into

Internal and external coordination

Vertical and horizontal coordination

Procedural and substantive coordination

Internal and External Coordination:

Coordination between units of the same organisation is termed as internal coordination.


It summaries the activities of different units so as to make the coordination in the organisation

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more effective. Organisations are not free from the influence of external environment. External
environment includes technology, competition, market forces, customers and Government
policies. External co-ordination tries to coordinate all these forces to 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, from 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.

Procedural and Substantive Coordination


Procedural coordination implies the generalized description of the behaviour and
relationship of the member of the organisation. On the other hand, substantive coordination
is concerned with the content of organizational activities.

5.4 COMMUNICATION
Communication is critical to the success of any organization and all the more so to
a business organisation. It links not only the various components of the organisation
but also its internal world with the external world. It has a very significant impact on the
ultimate effectiveness of the whole organisation. Communication is derived from the
Latin word communis which means "to share", that is sharing of ideas, concepts, feelings
and emotions. It is through communication that the information, ideas, attitudes or
emotions get to be conveyed from one person to another, from one person to a group or
vice versa, from one group to another, via the media or online. Communication is also
described as the "glue that holds an organization together" - the very essence of an
organisation. Communication is a means by which behaviour is modified, change is
effected, information is made productive and goals are achieved." Dalton Mcfarland
defines communication as "The process of meaningful interaction among human beings."
More specifically it is the process by which meanings are perceived and understandings
are reached among human beings.

Dimenson of Organizational Communication


Every organisation has a built-in hierarchical system that can be compared to a pyramid.
It can, therefore, be understood that communication normally flows from top downwards.
But is is not always so. Communication in an organisation is multidimensional or
multidirectional. Given below are the directions in which communications are sent:
(a) Downward
(b) Upward
(c) Horizontal or Lateral
(d) Diagonal or Crosswise
(a) Downward Communication: As has been stated above, communication in the
first place, flows downwards. That is why; traditionally this direction has been highlighted or
emphasized. It is based on the assumption that the people working at higher levels have the
authority to communicate to the people working at lower levels. This direction of
communication strengthens the authoritarian structure of the organisation. This is also
called Down Stream Communication.

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Limitations of Downward Communication

Notes :

1.

Distortion/Dilution Quite often the communication originating at the highest level


gets distorted or diluted on the way to the lower levels. Sometimes the messages
may get lost. It has to be ensured that the receiver fully understands the purport/
instructions/directions coming from above. This requires an efficient feedback
system.

2.

Delay: Another drawback of downward communication is that often it becomes


time-consuming. The more the levels the greater the chances of delay. That is why
sometime mangers choose to send their messages directly to the person concerned.

3.

Filtering: Sometimes managers may withhold some valuable information from


the employees. In such a situation the employees become frustrated, confused
and powerless. This may spoil the employer-employee relationship.

4.

Co-ordination: One of the major drawbacks of downward communication is that


it lacks coordination between superior & subordinate due to ego problem. As a
result communication process becomes complicated.

5.

Resistance: People at lower level have high degree of fear towards such
communication as all companies' rules and policies are conveyed through this
type of communication.

(b) Upward Communication: The function of upward communication is to send information,


suggestions, complaints and grievances of the lower level workers to the managers
above. It is therefore, more participative in nature. It was not encouraged in the past,
but modern managers encourage upward communication. This is a direct result of
increasing democratization. This is also called Up Stream Communication.
Limitations of upward communication
1.

Psychological: Certain problems, primarily of psychological nature, may come


up in upward communication.

2.

Hierarchical: Many managers do not like to be 'told' by their juniors. They may not
be patient enough to listen to them or may even suppress the message sent to them
from below. In such a situation the employees may feel let down. In order to tide
over such problems an Ombudsperson plays an important role. The concept of
Ombudsman or Ombudsperson was first used in Sweden to go into the complaints
of lower level employees against government officials or agencies. Now a number of
companies in many countries have established positions for persons to investigate
employee's complaints and grievances. An Ombudsperson, therefore, effectively
mediates between the employers and the employees and smoothens upward
communication.

(c) Lateral or Horizontal Communication: Horizontal Communication is one of the best


method or coordination between equals. Katz and Kahn regard this communication as
critical for effective system functioning. This type of communication can be seen
taking place between persons operating at the same level or working under the same
executive. Functional managers operating at the same level, in different departments,
through their communication, present a good example or lateral communication. The
main use of this dimension of communication is to maintain coordination and review
activities assigned to various subordinates. Occasions for lateral communication arise
during committee meetings or conferences in which all members of the group mostly
peers or equals, interact. The best example of lateral communication can be seen in
the interaction between production and marketing departments.

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(d) Diagonal or Crosswise Communication: Diagonal or crosswise communication


takes place when people working at the same level interact with those working at a
higher or lower level of organizational hierarchy and across the boundaries of their
reporting relationships.
Advantages of Diagonal Communication
(1) Co-ordination: This crosswise communication serves the important purpose of
coordination through informal meetings, formal conferences, lunch hour meetings,
general notices etc.
(2) Practicable: This is important for operational efficiency and emergency situations.
As we know not all communication takes place strictly on the lines of organizational
hierarchy, i.e. downwards or upwards.
(3) Morale Boosting: By providing opportunities to lower level workers to interact
with managers in informal meetings it helps to boost their morale and further
commitment to the organisation. More and more organisation are now encouraging
crosswise communication and building up bonhomie.

Limitations
(1) Fear of Infringement: The superior may feel it an infringement that his subordinate
has been given undue importance and that he has been by passed.
(2) Resistance to compliance: The superior may not implement the suggestion as
he has not been consulted.
(3) Anarchy: The lack of accepted procedures may lead internal anarchy and external
animosity.

Forms of Communication
Broadly speaking, there can be three forms of communication: oral, written and non-verbal.

Oral Communication
In oral or verbal communication, information is given directly, either face to face or
through a telephone or intercom system. Generally, in meetings, lectures, interviews,
conferences, etc. the communication is oral. Some of the merits of oral communication
are: (a) It is a time and money saving device. (b) As there is element of personal touch, it is
comparatively more effective. (c) Doubts can be clarified on the spot and the communication
can be understood easily. (d) Important points may be emphasized through body language.
(e) The effects of communication can be easily measured. (f) Provides for greater flexibility.
Oral communication, however, suffers from certain limitations. These are: (a) it is not
useful where the parties are very far from each other, even beyond telephone range. (b) It is
not suitable for lengthy communications. (c) There is no permanent record of communication.
(d) Sometimes, oral communication is not taken seriously by the recipients. (e) If the
communication is poor in vocal expression, oral communications are likely to be
misunderstood and misinterpreted.

Written Communication
Written communication, which is always in black and white can take the form of a
report, statement, circular, note, manual, handbook, letter, memo, etc., some of the merits
of written communication are as follows: (a) It is suitable for lengthy communications. (b) If
the parties are far from each other, even beyond telephonic range, written communication is

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the only way out. (c) It can be kept as a permanent record and at times be referred to as
evidence. (d) There are fewer chances of missing out a point. (e) Written communication
serves as a solid base for taking action against a subordinate who disobeys it.
Some of the disadvantages of written communication are as follows:(a) There is a
greater chance of the communication being misunderstood. (b) It is very time consuming.
(c) There is no scope for face to face discussion. (d) It is difficult to maintain secrecy about
the matter communicated. (e) It suffers from a lack of flexibility. (f) Poorly written messages
followed by numerous clarifications both written and oral, may lead to a lot of confusion.

Non-verbal Communication
All of us constantly send clues about our feelings-not by what we say, but by what we
do. This is called non-verbal communication. Much non-verbal communication is expressed
through the body - the facial expression, posture, gestures, etc.

The Communication Process


Whether formal or informal, the basic communication process is still the same. It
involves six steps; ideation, encoding, transmission, receiving, decoding and acting.
Communication starts in the mind of the sender (ideation). The sender has an idea
that he wants to communicate to the receiver. The sender then develops a message to
convey the idea (encoding). Language skills are important at this point. Some people
seem to know just how to phrase things to get their ideas across, while others have a great
deal of difficulty in expressing themselves. Once developed, the message is transmitted
(transmission). It may be spoken or written. Or, it may be communicated non-verbally by a
smile, a nod or shrug of the shoulder. Once transmitted, the message is received and the
receiver attaches meaning to it (decoding). There are problems in attaching meaning to the
message. Words often mean different things to different people, and the same words may
have many different meanings. Further, we interpret (or decode) a message on the basis of
past experience, making certain assumption about its meaning. The final step in the
communication process is action. The receiver acts or responds in some way. This is
feedback. Without feedback, the sender cannot be certain if the message was received
and the proper meaning attached to it. With feedback, any distortion in meaning can be
corrected by another communication.

Barriers to Communication
There is no such thing as perfect communication. There are continuous forces at
work-called barriers which tend to distort communication and promote disorganization.
We may summaries these barriers as under:
1. Badly expressed message: People may talk too fast. They may lack coherence.
They may organize their ideas poorly or may omit certain essential details. They
may structure their sentences awkwardly or may make errors in their selection of
words. All of these may distort a message.
2.

Faulty organization: In a large-scale enterprise where the chain of command is


too long or the span of control too big, communication will be poor. This is because
successive transmissions of the same message are decreasingly accurate.
According to Koontz and O'Donnel, in oral communication, something in the order
of 30 per cent of the information is lost in each transmission.

3.

Distrust of Communicator: Some executive are noted for their habits of


countermanding or modifying their original communications. Such executive

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invariably lose the trust and confidence of their subordinates. Subordinates do not
take their communications seriously.
4.

Restricting Communication: In downward communication. a superior may withhold


a part of the information form his subordinates under the belief that they do not
need it. Similarly, in upward communication, the subordinate may omit unfavorable
parts of the information which he thinks will not be liked by his superiors. This is
called filtering. Most people do not want to be the bearer of bad news or reveal their
mistakes to their boss.

5.

Poor retention: Studies show that employees retain only 50 per cent of
communication information.

6.

Different backgrounds: One reason for distortion of meaning is that different


individuals often interpret the same communication differently; each individual uses
his own frame of reference. This frame of reference is based on particular experience
and knowledge. Thus, when people with different knowledge and experiences try
to communicate, they often have trouble getting their meanings across. In-group
language often, occupational or social groups develop their own terminology or ingroup language. This special language though provides a means for precise and
quick communication within the group, creates severe communication breakdown
when outsiders or other groups are involved.

7.

Inattention: Another common barrier is that many receivers simply do not pay
attention to the message. One reason people do not pay attention is selective
listening. Selective listening results from a common tendency to block out information
that conflicts with what we believe. When we listen to a speech or read a newspaper,
we generally pay attention only to those things that confirm out beliefs. Sometimes
people do not pay attention to communication because they are victims of
communication overload or because the information is unsolicited. The source of
communication, and the way in which it is presented also determine for its recipient
how much attention he gives it. Major barriers to horizontal communication are
inter-departmental rivalries, incorrect grouping of activities, inter-personal conflicts
and indifference toward organizational goals.

8.

Physical barriers: These are environmental factors which prevent or reduce the
sending or receiving of communication. They include physical distance, distracting
noises, and similar interferences.

9.

Poor understanding: In downward communication a superior may not have full


understanding of the information to be able to interpret it to the workers. Just a
photograph can be no clearer than the negative from which it is printed the superior
cannot transmit more clearly than he understands

5.5 DECISION - MAKING


Introduction
In our everyday life, we make several decisions - major and minor - to make our life
possible, tolerable and comfortable. Some decisions are conscious and deliberate while
others are subconscious and habitual. We make decisions, solve problems, tackle situations
and resolve crises. We take initiatives and react to events in the form of decisions and
action. In some situations and in certain stages of our life, we allow others to decide for us
and we even plead with others to make decisions on our behalf. Normally, we would try to
make decisions ourselves so as to have more control on our existence. Let us take the
recent example of the Lok Sabha Speaker taking a decision not to resign from the post .
Should he go by the Party orders or he should uphold the constitution. Thus we see that
decision making is of paramount importance in our day today life.

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Meaning and nature of decision making


In the context of organisation and management, we may define decision-making as a
managerial process and function of choosing a particular course of action out of several
alternative courses for the purpose of achieving the given goals. It involves committing the
organisation to specific courses of action and entails commitment of resources in specified
ways. In a sense, decision-making is an important step towards reducing the gap between
the existing situation and the desired situation, through solving problems and crises and
making use of opportunities.
Decision-making embraces much of managerial activity in organisations; decisions
may be major or minor, strategic or operational. It is through making decisions and getting
them implemented that managers strive to achieve organisational goals. The one most
important task of management is to make decisions as may be called for. In all organisations,
several problems or situations arise continuously or otherwise. In the context of business
enterprises, the situations which call for managerial decision-making are numerous. They
include formulation or organisational goals (selection of lines of business, range of products,
future direction of growth diversification, profitability, desired market share and so on), and
the ways and means of achieving them (strategies and policies). Decisions are to be made
on policies in several areas - marketing, production, finance, personnel, accounting and so
on. Managers have to further decide on organisational design, change in design as demanded
by circumstances, internal communication, incentive and control systems, balance between
the present and the future, social obligations, and the like.
Most of the managerial decisions are directed towards making the organisation survive,
succeed, grow and prosper. These decisions are means to ensure good performance of
the organisation. Sometimes managers have to make painful decisions for example,
reduction of staff through retrenchment, reduction of scale of operations, removal of an
employee or officer, withdrawal of products from the market, closing down certain units and
even winding up the organisation. Some decisions are inevitable and inescapable while for
others some freedom and elbow room to make choices exists. Also, several decisions
have to be made within a limited time and managers are hard pressed to make the choice
without perhaps considering all the needed aspects. They may not even be able to wait for
collection and analyses of information. These are crisis decisions.
Decision making, in respect of a large number of major or critical decisions is a stressful
exercise. Managers tend to experience tremendous strain and pressure in the activity of
such decision making. Some problems prove to be hard nuts to crack. Their origin and
dimensions could be unscrutable and even mysterious. Gaining a grip over them could be
elusive and frustrating. So is the case with the range of alternatives. It is not always easy
to envisage the likely outcomes of selected moves and decisions. An initially good decision
may turn out to be a total fiasco eventually, which would mean a big loss of face and
resources. Some managers may even lose their jobs for making bad decisions.

Classification of decisions
Managers make a variety of decisions in their day-to-day working life without really bothering
much about what types of decisions these are. For a better understanding about the nature
of decisions, it would be desirable to conceptualise them into a few categories as under:
Programmed and non-programmed decisions: One categorisation adopted by
Herbert Simon is programmed decisions. Programmed decisions refer to decisions made
on problems and situations by reference to a pre-determined set of precedents, procedures,
techniques and rules. These are well-structured in advance and are time-tested for their
validity. As a problem or issue for decision-making emerges, the relevant pre-decided rule

Principles & Practices of Management

or procedure is applied to arrive at the decision. For example, in many organisations, there
is a set procedure for receipt of materials, payment of bills, employment of clerical personnel,
release of budgeted funds, and so on.
Programmed decisions are made with respect to familiar, routine, recurring problems
which are amenable for structured solution by application of known and well-defined operating
procedures and processes. Not much judgment and discretion is needed in finding solutions
to such problems. It is a matter of identifying the problem and applying the rule. Decision
making is thus simplified.
Organisations evolve a repertory of procedures, rules, processes and techniques for
handling routine and recurring situations and problem, on which managers have previous
experience and familiarity. One characteristic of programmed decisions is that they tend
to be consistent over situations and time. Also managers do not have to lose much sleep
in brooding over them. However, programmed decisions do not always mean solutions to
simple problems. Decision-making could be programmed even to complex problems such as resource allocation problems for example - by means of sophisticated mathematical/
statistical techniques.
Non-programmed decisions are those which are made on situations and problems
which are novel and non-repetitive and about which not much knowledge and information
are available. They are non-programmed in the sense that they are made not by reference
to any pre-determined guidelines, standard operating procedures, precedents and rules by
application of managerial intelligence, experience, judgment and vision to tackling problems
and situations which arise infrequently and about which not much is known. There is no
simple or single best way of making decisions on unstructured problems, which change
their character & form time to time, which are surrounded by uncertainty and enigma and
which defy quick understanding. Solutions and decisions on them tend to be unique or
unusual - For example, problems such as a sudden major change in Government policy
badly affecting a particular industry, the departure of a top level key executive, drastic
decline in demand for a particular high profile product, competitive rivalry from a previously
little known manufacturer etc. do not have ready-made solutions.
It is true that several decisions are neither completely programmed nor completely
non-programmed but share the features of both.
Strategic and tactical decision: These notions could also be applied to decisions for
dividing them into strategic and tactical decisions. Strategic decisions are made at the top
level of organisation to handle problems critical to the survival and success of the organisation.
They have a vital impact on the direction and functioning of the organisation -as for example,
decisions on plant location, introduction of new products, making major new fund-raising
and investment operations, adoption of new technology, acquisition of outside enterprises
and so on. Much analysis and judgement go into making strategic decisions.
In a way, strategic decisions are comparable to non-programmed decisions and they
share some of their characteristics. Strategic decisions are made under conditions of partial
knowledge or ignorance.
On the other hand, tactical decisions (which are also called operations decisions) are
made to implement strategic decisions. A single strategic decision calls for a series of
tactical decisions which are of a relatively structured nature. Tactical decisions are relatively
short, step-like spot solutions to break-down strategic decisions into implement able
packages. The other features of tactical decisions are : they are more specific and functional;
they are made in a relatively closed setting; information for tactical decisions is more
easily available and digestible; they are less surrounded by uncertainty and complexity;

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decision variables can be forecast and quantified without much difficulty and their impact is
relatively localised and short-range. Tactical decisions are made with a strategic focus.
The distinction between strategic and operational decisions could be high-lighted by
means of an example. Decisions on mobilisation of military resources and efforts and on
overall deployment of troops to win a war are strategic decisions. Decisions on winning a
battle are tactical decisions.
As in the case of programmed and non-programmed decisions, the dividing line between
strategic and tactical decisions is thin. For example, product pricing is a tactical decision
in relation to the strategic decision of design and introduction of a new product in the
market. But product pricing appears to be a strategic decision to down-line tactical decisions
on dealer discounts.
Individual and group decisions: Many decisions, even critical ones, in organisations
are made by individual managers, who assume full responsibility for the consequences of
such decisions. In fact, individual managers are vested with enough authority to make a
large number of decisions' they are paid for the job. The individual managers at their
respective levels-right from the chief executive down to first line supervisor - are called upon
to decide many things. They may get information, factual analytical reports, pros and cons
of alternatives and suggested courses of action from their subordinates or from specially
established committees. But the responsibility and authority or the onus of making the
final decision rests with the concerned manager himself. He cannot delegate or abdicate
this authority.
Group decisions are those which are made by more than one manager joining together
for the purpose. In an organisation, two or more mangers at the same or different levels put
their heads together, jointly deliberate on the problem, information and alternatives and
hammer out a decision for which they assume collective responsibility. Decisions which
have inter-departmental effects - for example, a product related decision affecting
manufacturing, purchasing and marketing departments, are sometimes made by forming a
committee composed of responsible executives of the three departments.
Group decision-making is not new in organisations. The Board of Directors is a decisionmaking unit. As a group, the board members make several vital corporate decisions. It is a
plural executive body. At lower levels, there may be important committees such as management
committee, planning committee, and operations committee, comprising of senior managers
entrusted with key decision-making and coordinating functions. Thus, in organisations, individual
managers as a group make decisions. Apart from the above mentioned formal groups, managers
at any level may informally involve their subordinates or colleagues in decision-making
processes on matters of common concern. For example, the marketing manager may call
his area sales managers of a region and pose an important marketing problem to them for
collective deliberation and decision-making. He enlists their co-operation and contribution in
finding a solution for the problem. This is an exercise in managerial participative decisionmaking. There may also be cases where a first line supervisor invites his group of rank and file
subordinates for a small meeting and converts the group into a decision making unit on a
matter affecting the members' interests. He himself keenly participates in the decisionmaking deliberations but he leaves the final decision to the collective judgment of his group of
subordinates. Sometimes, group involvement in decision-making processes may be confined
to a few stages like problem identification, collection of information, development of alternative
courses of action and their evaluation. The final act of choosing from the alternatives may be
reserved by the manager concerned. To this extent, group decision-making is different from
group participation in decision making.
Several virtues are claimed on behalf of group decision-making as against individual

Principles & Practices of Management

decision-making. The decision-making function and process get enriched by the pooling of
diverse expertise, knowledge, authority and perspectives represented by the group. Elaborate
group deliberation and consideration of alternative courses from several angles tend to
ensure that decisions of high quality are made. To the extent that authority for making
decisions in entrusted to the group, it gets diffused among the members. It is more desirable
to vest a high degree of decision-making authority in a group than in an individual. The latter
may not be able to use it properly and fully. In the case of some problems of an interdepartmental nature the groups of managers representing the concerned departments are
more competent to make appropriate collective decisions, than an individual manager as
such. Also, in cases where a manger involves his group of subordinates in decision making,
the decisions so reached tend to enjoy a high degree of acceptance and pragmatism. Their
implementation becomes easy.
The disadvantages of group decision-making are delays in decision-making, lack of
rationality and responsibility among group members, dilution of the quality of decisions by
compromise and conformity among members of the group and so on.

Steps in the process of decision making


Theoretically, decision making is viewed as a rational, systematic process. There are
several stages in the decision-making process, which are explained as follows:
(a) Perception or identification of decision problem: The decision making process
begins with the uncovering of or discovering a problem situation which is basically either an
unsatisfactory or a promising situation calling for a conscious intervention. In the course of
his job, a manager confronts several such situations in the internal and external environment
of the organisation. Problem situations may relate to any area of management: planning,
organising, direction and control - in a broad sense. The manager has to discover or locate
unsatisfactory or promising problem situations in his environment through his perceptual
and inquisitive skills. Problems may be major or minor, strategic or operational, novel or
routine. Whatever is their nature, such situations deserve to be perceived and discovered.
(b) Diagnosis and definition of the decision problem: Once a problem surfaces
and perceived or discovered, the next task of the manger is to analyse what exactly is the
problem. He has to define it in clear terms so as to identify its scope and ramifications. It
is a clinical process of critically looking into the problem and piercing through it to find out
the origin and its degree of gravity or importance. In this step, the manager should go past
the peripheral symptoms and reach the core of the problem so as to know its nature.
Several managerial problems are entangled with one another' an attempt has to be made to
disentangle them to the extent possible so that the specific problem gets isolated for
purposes of being tackled by the manager. Also, in the case of a very complex problem, it
may be expedient to break it down into sub-problems. It is often asserted that problem
definition is half the job in decision making' once the manager gains a clear conception of
the problem, the ways and means of arriving at the decision tend to become smooth.
(c) Specific of objectives: In this step, the manager has to set the objectives which
he would like to achieve by solving the problem. He has to be clear in his mind what the
decisions is about and what the decisions is for. Objectives may be qualitative and
quantitative; they may also be multiple, flexible, attainable and realistic. Objectives are the
end points towards which the manager directs his decision making. They serve as yardsticks
for measuring and evaluating the outcomes of alternative courses of action, for implementing
the decision and for sizing up its effectiveness.
(d) Collection of relevant information: Information is an important resource input
for decision making. It provides the knowledge base for unraveling the complexity and

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uncertainty associated with the problem and the alternative courses of action. The manager
has to design or rely on the information system so that he gets the relevant and required
information bearing on the decision environment. Information may be quantitative or
qualitative, internal or external, historical or projected. Considerations of availability,
adequacy, reliability, timeliness and cost are important in this connection. Collection of
information is especially critical for the subsequent step of generating and evaluating
alternative course of action.
(e) Search for alternative courses of action: In this stage, the manager tries to
discover and develop alternative courses of action, which are in the nature of potential and
possible solutions or strategies to the decision problem. Some alternative courses may be
quickly developed by the manager by reference to his experience or expertise. New
alternatives or options have to be generated through creative thinking and other processes.
The availability of alternative courses of action provides an opportunity for the manager to
make a choice. In a large organisation staff experts may be of some help in generating
alternative courses. The search for alternative courses is an exciting venture and tends to
be productive.
(f) Evaluation of alternative courses of action: Alternatives have value to be
extent that their outcomes are likely to meet the goals of the manager. Hence, evaluation
of alternatives by reference to some objective criteria is essential. The expected outcomes
or values of alternative courses have to be estimated through forecasting and other devices.
The computation of quantitative value of alternatives may sometimes be so complex that
managers may resort to computerization or similar data processing mechanism. In
evaluating the alternative courses, both qualitative and quantitative factors have to be
taken into account.
(g) Making the final choice: The choosing process involves the narrowing down of
the range of alternative courses by a progressive elimination process by reference to the
predetermined objective criteria. A large number of alternatives normally get eliminated in
the initial screening process. Those which survive the screening are further subjected to
critical evaluation. The manager has to apply his judgmental skills in making the final
choice, which is governed by several factors, such as its congruence with the objectives
and values of the manger, the feasibility and acceptability of the decision, relative simplicity
of the likely outcomes and so on. The final choice is also a matter of trade-off between
risks and returns, costs and benefits, both quantitative and qualitative. The tendency in this
step is to optimise the manger's 'utility' function in the context of his responsibility as a
manager. While making the final choice, the manger tends to be guided by the organisational
policies, strategies, previous decisions, committed resources, inter-personal and human
factors, and so on.
(h) Implementation of the decision: It is the manger's responsibility to operationalise
the decision and make it implement able. He has to make the necessary structural,
administrative and logistic arrangements for translating the decision into effective action
initiatives and outcomes. Authority and responsibility for implementing the decision have
to be specifically assigned, necessary financial and other resources have to be allocated
and committed, the individuals who have to implement the decision or likely to be affected
by it have to be taken into confidence and adequate controls have to be established to
ensure that what is decided upon is implemented in a faithful but flexible manner.

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Problem / Promising Situation

Collection of Relevant
Information

Search for Alternative Courses


of Action

Evaluation of Alternatives and


Making final choice

Implement Decision

5.6 MANAGEMENT BY OBJECTIVES (MBO)


Introduction
Managing an organization effectively requires the formulation of clear objectives.
Objectives serve as guidelines or roadmaps for managerial effort and action. Well thought
out objectives steer an organization to success. An objective is a goal or an end that an
organization or an individual aims at or strives to attain. A supervisor or a team sets the
objectives and decides the processes by which these objectives can be achieved. Objectives
provide a direction for the organization and specify the quantity and quality of work to be
accomplished within a given period of time. Objectives determine what individuals, groups
and organizations are expected to accomplish. They provide a fundamental basis for decisionmaking and a criterion against which outcomes are measured. Thus, objectives are the
foundation of good planning.
In this chapter, we will first discuss the nature and characteristics of objectives and
later the various aspects of 'Management By Objectives' (MBO).

Nature of objectives
Objectives state the end results to be achieved by the organization. They form the
basis of all good planning processes. The overall objectives of an organization need to be
supported by its sub-objectives. Objectives form a network as well as a hierarchy.

Hierarchy of Objectives
Objectives form a hierarchy, ranging from the overall aim of the organization to specific
individual objectives. At the top of the hierarchy is the socio-economic purpose, which
requires an organization to contribute to the welfare of society by providing goods and
services at a reasonable cost. At the second level is the underlying purpose of the business
or mission. Mission or purpose states what the firm plans to achieve. As there is only a fine
distinction between the two terms, many management writers use these terms
interchangeably. The third level of hierarchy contains more specific objectives for those
areas in which the success of the enterprise depends on its performance. These areas are

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called key result areas. There is no consensus among management scholars about what
should be the key result areas of a business. Peter F. Drucker suggests the following the
key result areas in business: productivity, physical and financial resources, profitability,
market standing, innovation, managerial performance and development, worker performance
and attitude, profitability and social responsibility. Of late, two other key areas are gaining
strategic importance. These are service and quality issues.
The Process of Formulating Objectives and the Organizational Hierarchy
Managers at different levels in the organization are concerned with formulating different
kinds of objectives. The purpose, the mission, the overall objectives of the firm, and the
objectives in the key result areas are evolved by the board of directors and top managers.
Middle-level managers are involved in formulating divisional and departmental objectives.
The lower-level managers are concerned with deciding objectives for their departments and
units as well as for their subordinates. Individual objectives such as performance and
development goals are placed at the bottom of the hierarchy. This does not mean that
these objectives are meant only for managers at the lower-levels or that they are less
important. Managers at the top levels also should set objectives for improving their own
performance and development. In fact, their objectives should be much more challenging
than those of their subordinates.
The organization can use either the top-down approach or the bottom-up approach for
setting objectives. There is often conflict among management theorists as to which is the
better method. In the top-down approach, top-level managers determine the objectives for
subordinates themselves attempt to formulate objectives and present them to their superior
for approval. The supporters of the top-down approach argue that the organization needs
clarity in direction by way of corporate objectives set by the CEO and the board of directors.
On the other hand, proponents of the bottom-up approach argue that top management
should ascertain information from lower levels in the form of objectives. It has been observed
that either approach alone is insufficient. There is no hard and fast rule as to where and
when one should use a particular approach. Both approaches are equally important and
can be used according to the situation and can be modified depending on factors such as
the size of the organization, the organization culture and the urgency of the plan.

A Network of Objectives
Objectives and planning programs are co-existential and correlational. They support
one another to form a network of expected outcomes and results. If the objectives are not
linked with each other and if they do not support one another, it is impossible that individuals
may carry out their plans, keeping in mind only their individual or departmental goals. This
may be harmful for the organization.
Goals and plans are very rarely linear, instead they form an interlocking network. Each
program within such a network can be again subdivided into another interlocking network.
For instance, a new product design program may comprise of a network of programs such
as development of preliminary schematic design, and other elements. Each of these can in
turn be subdivided into a series of interlocked programs.

Multiplicity of Objectives
Organization usually has numerous aims and objectives. Similarly, there are likely to
be numerous goals at every level in the hierarchy of objectives. It is usually assumed that
a manager can effectively pursue only a few objectives. Pursuing too many objectives may
result in dilution of the drive needed to accomplish them. It may also result in unnecessarily
highlighting minor objectives.

Principles & Practices of Management

There is no definite number of objectives for an organization. If there are too many
objectives none of them may receive adequate attention, thereby making planning ineffective.
Nevertheless, the number for objectives also depends on how much the managers will do
themselves and how much they will delegate to their subordinates.

Steps in the MBO Process


Developing overall organization goals
In the first step of the MBO process, managers must determine the mission and the
strategic goals of the enterprise. The goals set by top-level managers are based on an
analysis of what can and should be accomplished by the organization within a specific
period of time. Organizational goal-setting requires managers to take into account the
company's strengths and weaknesses in the light of available opportunities and potential
threats. Goals must be set for all the key result areas and should be flexible. While setting
goals, the managers should also establish the method by which the goals are to be achieved.
The functions of these managers can be centralized by appointing a project manager who
can monitor and control the activities of the various departments. If this cannot be done or is not
desirable, each manager's contribution to the organizational goal should be clearly spelt out.
Establish specific goals for various departments, subunits and individuals
At this stage, goals are set for various organizational levels so that each goal contributes
to the achievement of the overall goals set for the organization. Upper-level managers develop
specific objectives for their departments in collaboration with their subordinates, i.e. the
managers at the next lower level. Every manager in an organization is both a superior as
well as a subordinate except for the top level and the lowest level managers. This process
is repeated for all the hierarchical levels in the organization.
After determining the pertinent general objectives, strategies, and planning premises,
the superiors work with subordinates in setting their objectives. The superior must determine
(i) which objectives are reasonably attainable, (ii) which goals would stretch the ability of
the subordinates, (iii) which objective would be in accordance with upper-level objectives,
(iv) which goals are consistent with the goals of other managers in the other functional
areas, and (v) which objectives are consistent with the long-term objectives and interests of
the department and the organization. The superior must approve the subordinate's objectives
only after considering these factors.

Formulating action plans


Once the goals of various departments, subunits and individuals have been set, action
plans must be developed. Action plans state what is to be done and how, when, where and
by whom in order to achieve a goals. These plans should focus on the method or activities
necessary for achieving particular goals.
Action plans identify problem areas and increase the feasibility of achieving goals.
They point out areas in which resources and assistance will be required, thus making the
achievement of objectives more efficient. Action plans are usually developed by subordinates
in conjunction with their superiors. The superiors must ensure that the different action plans
complement one another and do not work at cross-purposes.

Implementing and maintaining self-control


Once the objectives have been set and action plans determined, the subordinates
should be given considerable freedom to carry out their activities and implement their

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plans. MBO is expected to help subordinates gain a clear idea of what they should
achieve. The MBO process not only gives subordinates as sense of direction, it also
allows them to evaluate their own progress. As a result, supervisors need not get involved
in the day-to-day activities of subordinates. However, they need to be kept informed
about the progress and about any unforeseen difficulties. If the subordinates encounter
any problems while implementing plans, their supervisor should provide them adequate
training and organizational support.

Periodic review
As plans are implemented, the monitoring of performance becomes important. Periodic
reviews have to be done to ensure that plans are being implemented properly and that
objectives are being achieved. Such reviews allow managers to measure results, identify
and remove obstacles, solve problems, and make changes to the action plans that are not
achieving the expected results. They also help the managers determine whether the plans
and goals are appropriate for the organization or need to be changed. Changes can be
made to the existing goals or new ones can be added. Reviews are usually done on a
quarterly basis, but they can be done more frequently if the business environment is
undergoing rapid change. Periodic reviews give the managers an excellent opportunity to
provide timely feedback to their subordinates.

Performance Appraisal
At the end of an MBO cycle, typically one year after the original goals were set, the
final performance is matched with the previously agree-upon objectives. The managers
evaluate each subordinate's performance over the preceding year. The performance appraisal
focuses on the extent to which goals have been achieved, extent of shortfall in the
achievement of goals, reasons for the shortfall and preventive action that it necessary to
avoid such difficulties in the future. The appraisal session also recognizes the areas in
which subordinates have performed effectively. It also includes identification of areas in
which individuals could improve by acquiring some specialized skills. The goals and plans
for the nest MBO cycle can also be discussed at this stage.
Though performance appraisal is the last step of the MBO process, the feedback
provided during this stage is used as input for developing new objectives.

Benefits of MBO
MBO can be practiced in various organizational activities like performance appraisal,
organization development, long-range planning, integration of individual and organizational
objectives, and so on. When used as an approach to management, MBO yields a wide
range of benefits. These benefits are discussed below.
Better Managing: MBO helps managers allocate organizational resources and plan
activities effectively. As a part of the MBO process, managers have to chart out a method
for accomplishing results and decide what resources and assistance they will require for
achieving objectives. Thus managers are forced to focus on the results when planning
activities. Moreover, MBO not only aids planning it also facilitates evaluation and control.
Thus, MBO facilitates better management.
Clarity in Organizational Action: MBO identifies the key result areas where
organizational efforts are needed. A clear definition of the objectives in the key result
areas helps relate the organization with its environment. Organizational objectives are
always influenced by the external environment in which the organization functions. Thus,

Principles & Practices of Management

if there is any change in the external environment, it must be taken into account at the
objective-setting stage itself to help the organization develop effective short-term as well
as long-term plans.
Encouragement of Personal Commitment: The biggest advantage of MBO is that it
encourages personal commitment to goals by employees. The MBO program gives
employees the responsibility of setting their own objectives, gives them the opportunity of
having their ideas included in the planning program, provides them a clear picture of their
area of discretion or authority, and facilitates assistance from superiors for accomplishing
their goals. Thus an MBO program makes a subordinate feel more involved and strengthens
his commitment to the organizational goals. It increases the enthusiasm of subordinates
by putting them in charge of achieving goals.
Personnel Satisfaction: MBO brings about personnel satisfaction by allowing
employees to participate in setting their objectives and by appraising their performance in a
rational manner. Individuals derive a great deal of professional satisfaction from setting and
achieving goals. And as MBO ensures rational performance appraisal, employees are assured
that they will be judged impartially and that their appraisal will not be affected by managerial
prejudices, biases and other personal factors. This, in turn, leads to better performance
among employees.
Basis for Organizational Change: Every organization has to be flexible and adaptable
to change in order to keep up with changes in the external and internal environments.
However, bringing about organizational change is not an easy task and requires a great deal
of effort on the part of managers. The MBO process stimulates organizational change,
provides the framework and guidelines for planned change, and helps managers overcome
resistance to change (by employees). Thus, the MBO process helps top management
initiate, plan, direct and control the direction and speed of change.
Development of Effective Controls: Since MBO forces management to clearly state
objectives, it leads to the development of effective controls. Management control involves
the measurement of results and taking corrective action to check deviations from plans. A
clear set of verifiable goals helps managers determine what should be measured and what
action should be taken to correct deviations.

Other advantages of MBO


i.

It helps managers coordinate goals and plans

ii.

It helps managers clarify priorities and expectations

iii.

It coordinates the efforts of various departments of an organization

iv.

It allows greater consistency in decision-making

v.

It helps an enterprise focus on areas where effective management is crucial


for the organization

vi.

It improves communication between superiors and their subordinates and


increases understanding between them

Limitation of MBO
MBO is not without its problems and weaknesses. Some of the problems are inherent
in the MBO process itself while others are due to shortcomings in the implementation of
MBO concepts. Some of the limitations of MBO are discussed below:
Failure to teach MBO philosophy: MBO is an innovative philosophy for managing

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organizations. Not only should managers understand and appreciate this approach, they
should also make their subordinates understand how the process will benefit them and
what part it will play in appraising their performance. The MBO philosophy is built on the
concepts of self-direction and self-control. These concepts are aimed at making managers
become more professional in their approach. Failure to understand and make others
understand the philosophy of MBO leads to the failure of the MBO process itself.
Failure to give guidelines to goal setters: Like any other kind of planning, MBO
requires that adequate guidelines be provided to those who are expected to set goals. In
other words, managers must understand what the corporate goals are and how their own
activities will contribute toward achieving these goals. If the corporate goals are vague,
unreal or inconsistent, it may not be possible for managers to tune their activities to match
the goals. Managers should also be aware of the planning premises and the major policies
of the company. They should have a good understanding of how organizational policies
affect their areas of operation. This will help them to effectively plan their activities to ensure
that their departmental goals match that of the organization.
Difficulty in goal-setting: MBO requires verifiable goals against which performance
can be measured. However, it may be quite difficult to set such goals. Also, excessive
emphasis on economic results puts undue pressure on individuals and may even lead to
unethical behaviors. In order to reduce the chance of the use of unethical means for achieving
goals, top management must set reasonable objectives and clearly state behavioral
expectations. It should also give a high priority to ethical behaviors and ensure that unethical
behaviors are punished.
Emphasis on short-term goals: In order to achieve quick results, managers generally
emphasize short-term goals. As a result, there is always the danger of emphasizing shortterms goals at the expense of long-term goals. Therefore, top-level manages should ensure
that short-term goals contribute to the achievement of the long-term goals of the organization.
Inflexibility: When there are revisions in organizational objectives, premises and
policies, managers must make corresponding changes in their own objectives. If they do
not, their goals become obsolete. However, managers are often unwilling to change their
goals. Striving for goals that have become obsolete nullifies the efficacy of revising
organizational objectives, and modifying its policies.
Other Dangers: The implementation of MBO gives rise to some problems. For instance,
in their desire to make goals verifiable, manages may make excessive use of quantitative
goals, or may set quantitative goals in areas where they are not applicable. In the process,
they may downgrade important goals that are difficult to state in terms of end results.
Often, in spite of having the participation and assistance from superiors, managers may fail
to use objectives to bring about constructive change in the organization. There is also the
fear of managers getting excessively involved in the MBO process and forgetting that
managing involves more than goal-setting. Difficulties may also arise in applying goaloriented planning in a dynamic and complex environment. Some other weaknesses of
MBO are listed below:
1. It takes too much time and effort and involves too much paperwork
2. It necessitates training of managers
3. It tends to falter without strong, continual commitment from top management
4. Its emphasis on measurable objectives can be used as a threat by overzealous
managers
5. It can lead to considerable frustration if one manager's efforts to achieve goals are

Principles & Practices of Management

dependent on the achievement of goals of others within the organization. Group


goal-setting and flexibility are required to solve this type of problem.

Making MBO Effective


MBO is certainly not a simple process that can be quickly and easily implemented. Its
implementation requires a change in the very culture and environment of organizations.
Many organizations failed to apply this process successfully as they were hesitant to
accept change. Others could not create the proper environment required for the adoption of
MBO. Some of the prerequisites for implementing the MBO program and making it effective
are discussed below.
Top Management Support: The degree to which an MBO program in an organization
is likely to succeed depends on the extent of top management support it receives. In order
to keep the MBO program alive and fully functional, the top management must provide
continual support to the subordinates. Top-level commitment for the MBO program is also
essential for its acceptance by employees. Middle-level managers and managers at the
supervisor level may revert back to the traditional and authorization methods of managing if
they find it difficult to set and review objectives. Top managers must be aware of these
tendencies. They should therefore provide continuous support to make the MBO program
an important part of the organization's operating procedures.
Training for MBO: Systematic training is required to help employees understand the
concepts and philosophy underlying MBO. Managers should receive adequate training
regarding the implementation of MBO process and the benefits that MBO brings to them
and the organization. If the manages are not properly trained, they may resist the MBO
program, thus making it unsuccessful.
Formulating Clear Objectives: The success of an MBO program depends on the
nature of the objectives set. Managers and subordinates should decide on objectives that
give a real indication of performance. The objectives must be realistic and easy to understand.
At times, manages may have to be trained in setting useful and measurable goals and
communicating the same to their subordinates effectively.
Effective Feedback: In addition to setting realistic goals, manages must carry out
regular performance reviews and provide feedback to subordinates. The success of an MBO
program essentially depends on the participants knowing where they stand in relation to
their objectives.
Managers should provide feedback through written reports and counseling sessions.
Individuals should receive periodic reports on their overall performance and they should be
called for periodic counseling and appraisal interviews, during which the superior help
subordinates, evaluate their progress and identify problems. During these counseling and
interview sessions, the superior can also offer planning suggestions to subordinates to
improve their performance.
Encouraging Participation: To be successful, MBO programs should ensure
commitment and participation in the MBO process at all levels of the organization.
Participation by subordinates in goal-setting may require some reallocation of power. Manages
must encourage subordinates to take a more active role in defining and achieving their own
objectives. This may make some managers feel uncomfortable as they may perceive it as
a loss of power, but an MBO program can be effective only if the managers relinquish some
control.
Though the above prerequisites can help make an MBO program effective, the key to

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the success of MBO programs lies in the beliefs, assumptions and attitudes of subordinates
and managers. MBO techniques work well when manages hold Theory Y assumption and
the actions and attitudes of subordinates are consistent with these assumptions. In other
words, Theory Y managers and subordinates are an ideal combination for MBO.
If managers follow the assumptions made by Theory X, and subordinates fit these
assumptions, successful implementation of MBO is highly unlikely. Although managers
may use these techniques, inwardly they may believe that this approach will not work. In
addition, the subordinates may also feel uncomfortable trying to put a new management
approach. The manager's belief that this concept will not work would therefore be supported
by the subordinates' discomfort with the new procedures.
Unlike the earlier two combinations, the outcome of the MBO process may also depend
on who changes -the manager or the subordinate. The manager's positive view of his
subordinates and MBO procedures may change subordinates who believe in Theory X and
develop them to the point where they fit Theory Y assumptions. In such a case, an MBO
program would have a good chance of succeeding. If the situation turns out to be as
described, success can result if the manager applies MBO techniques carefully and
earnestly, even though he or she doubts its efficacy. Managers may reevaluate some basic
assumptions based on the positive reactions of subordinates.
Check your progress
Tick mark the most appropriate answer
1. Which of the following factor emphasize the need of Coordination:a) Increasing specialization

c) Personal conflict between employees

b)

d) All of the above.

Empire Building motive

2. Which is an Esteem Needs?


a)

Basic pay

c)

Prestigious office location

b)

Safety Regulations

d)

Training.

3. The limitations associated with Decentralization are:a)

Loss of control

c)

Communication problem

b)

Imbalance

d)

All of the above.

4. Which of the following is not a motivational technique?


a) Participation

c) Job enrichment

b) Quality of work life

d)

Job description.

5. Which of the following refers to the flow of information among people on the same or
similar organizational levels?
a)

Diagonal

c) Horizontal

b)

Upward

d) Downward.

5.7 SUMMARY
One of the basic functions of Management is direction. Direction means the use of
leadership and motivation to guide the performance of subordinates towards the achievement
of the organization's goals. Important requirements for effective direction are: Harmony of
objectives, unity of command, direct supervision, efficient communication and follow up.

Principles & Practices of Management

Objectives are the important ends towards which organizational and individual activities
are directed. Clear and verifiable objectives facilitate the effective and efficient management
of organizations. Management by objectives (MBO) is an effective planning tool that helps
supervisors set objectives. MBO has come a long way since it was first suggested by Peter
Drucker as a way of promoting managerial self-control. It has been used to appraise
performance, to motivate individuals, and recently, for strategic planning.
MBO aims at achieving organizational objectives and enhancing employee commitment
and participation. MBO is a cyclical process. It involves developing overall organizational
goals, clarifying organizational roles, establishing specific goals for various departments
and individuals, formulating action plans for various departments and individuals, implementing
and maintaining self-control, carrying out periodic reviews, and conducting performance
appraisal of employees.
MBO offers benefits. It leads to better management of resources, clarity in organizational
action and more satisfied personnel. It encourages personal commitment, provides a basis
for organizational change and leads to the development of effective controls. However, MBO
has its drawbacks. It takes up too much time and money and can be inflexible. Moreover,
failure to teach the MBO philosophy and lack of proper guidance to goal-setters may lead to
its unsuccessful implementation. In order to overcome these limitations and make MBO
effective, the support of the top-level managers is essential. They must formulate clear
objectives, encourage participation at all levels, and provide training to people who would be
implementing the MBO program.
5.8 Questions and exercisesQ.1
Q.2
Q.3

Explain the concept motivation, morale and Job Satisfaction.


Discuss two factor theory of motivation.
Discuss various types of coordination.

Q.4

Outline the barriers to communication.

Q.5

Explain the steps in Decision making.

Q.6

List out the steps in the MBO Process.

5.9 Further readings:


1. Robins, Stephen P., Organisational Behavior, tenth edition,Pearson
Education,Singapore,2005
2. Likert, Rensis, Motivation: The core of Mangement(N.Y:AMA,1953)
3. Fulmer, Robert M., the New Mangement, Mcmillan, 1983

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UNIT 6: MANAGEMENT CONTROL

Notes :
Structure
6.0

Unit Objectives

6.1

Introduction

6.2

Meaning of Control

6.3

Process of Control

6.4

Requirements of an effective control system

6.5

Some Techniques of Control

6.6

Behavioral Aspects of Management control

6.7

Summary

6.8

Questions and Exercises

6.9

Further readings

6.0 OBJECTIVE
This module explains the controlling function, its meaning, processes, dimensions and
techniques. The topics covered are:
Meaning of Control
The process of control
Requirements of an effective control system
Some Techniques of Control
Behavioral Aspects of Management control

6.1 INTRODUCTION
Control is one of the most important functions of management, second perhaps; only
to the function of decision-making. Control has very broad application both in the personal
as well as industrial work, which ensures that events turn out the way they are intended to.
Control is a powerful force if applied properly. For example, energies like nuclear power,
controlled air and controlled water run machines and industries. Control is asset of
mechanisms used to evaluate organizational performance against the set standards. When
deviations occur, appropriate steps are taken to correct these deviations to ensure that the
organization stays on course. This unit discusses the concepts, characteristics, and
techniques involved in managerial control.

6.2 MEANING OF CONTROL


We have stated earlier that control is one of the functions of management. Conceptually
control is the last function of management and the process of management takes a full
circle with the control function. But it is equally true that management is a continuous
process. Control is a function intended to ensure and make possible the performance of
planned activities and to achieve the pre-determined goals and results. To control means to
focus attention on moving ahead and on shaping the pace and pattern of future events, to

Principles & Practices of Management

make things happen, to secure results, to remove obstacles and to gain command over the
forces of uncertainty and complexity. To control also means to regulate and check i.e. to
structure and condition the behaviour of events and people, to place restraints and curbs on
undesirable tendencies, to make people conform to certain norms and standards, to measure
progress to keep the system on track and to ensure that what is planned is translated into
results, to keep a watch on proper use of resources, on safeguarding of assets and so on.
The control function involves monitoring the activity and measuring results against preestablished standards, analyzing and correcting deviations as necessary and maintaining/
adapting the system.
The accent of management is on organizational performance and effectiveness and to
develop the ability of the organization to produce planned results over prolonged periods of
time. The task of control is intended to enable the organization to continuously learn from
its experience and to improve its capability to cope with the demands of organizational
growth and development.

6.3 PROCESS OF CONTROL


Control, apart from being a function of the management, is itself a process within the
broader management process. Within any control system, the following elements are
identifiable:
a)

Objectives and characteristics of the system which could be operationalized into


measurable and controllable standards.

b)

A mechanism of monitoring and measuring the characteristics of the system.

c)

A mechanism (i) for comparing the actual results with reference to the standards
(ii) for detecting deviations from standards and (iii) for learning new insights on
standards themselves.

d)

A mechanism for feeding back corrective and adaptive information and instruction to the
system, for effecting the desired changes to set right the system to keep it on course.

When linked logically and sequentially together, the control process, often called the
control cycle, is portrayed below:
Determine goals Plan
Programmes
Determine workloads
Determine Required resources
Acquire Authority
Perform work
Evaluation of performance
Taking corrective action.
The elements of the control cycle are briefly explained as follows:
(i) Determination of objectives or goals: Objectives are the desired end results of
an activity for a specific time span. In the context of control, objectives are to be
determined with respect to quantity of output, quality, cost and time.

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(ii) Formulation of plans or programmes of action: These are the means of


achievement of objectives and represent operationalization of objectives into specific
practical programmes of action.
(iii) Determination of work loads: Once programmes of action are finalized, the
quantum of work with respect to different activity units is to be estimated. Matters
such as how much work is involved and how it is to be distributed and scheduled
over time need to be determined.
(iv) Estimation of required resources: Resources - physical, financial and human - are
required to execute programmes of action in accordance with specified work loads.
These are to be judiciously estimated. For example, the required skills, knowledge
and experience of manpower are to be estimated for different categories of work.
(v) Delegation of authority: In formal organization, authority is the basis for getting
things done, for mobilizing, allocating and for making decisions. This being so,
the required authority for acquisition of resources has to be delegated to managers
at different levels in different activity units.
(vi) Work performance: The next logical stage is action, i.e. performance of the
assigned work in different activity units by resources, processes and techniques.
It is needless to stress that work performance should conform to the objectives,
plans and programmes.
(vii) Evaluation of performance: This involves comparison of performance with plans,
comparison of programmes achieved with programmes planned and comparison
of goal achieved with goal planned. A comparative analysis between plans,
programmes and objectives achieved with those planned or determined is done.
(viii)
Correction of deviations: Correction of deviations from standards should
take place before deviations damage the system, the causes of deviations need to
be investigated and identified.
It may reveal that deviations have occurred because standards are improperly set. In
such a case, standards need to be revised. In some situations correction of deviations
may not be feasible immediately but could be done at a later date. Deviations may also be
traced to the aberrations in human behaviour, either in willingness or in ability. In such an
eventuality, motivation and training devices are to be set in motion to set right human
behaviour. Deviations may also have their sources in resource deficiencies, process defects,
structural shortcomings, environmental forces and even imperfect measurement techniques
and instruments. It is necessary to identity and isolates the exact cause or causes of
deviations and initiate appropriate corrective action accordingly.
Deviations or variances have to be decomposed into various segments for purposes of
pinpointing the important problems and the responsibility for remedial action. In many
cases, one has to go behind the manifest causes of variances to find out the root problems;
then only enduring action is possible. Mere tinkering with external symptoms will not do;
it will only deepen the malady eventually.

6.4 REQUIREMENTS OF AN EFFECTIVE CONTROL SYSTEM


Any control system should meet certain requirements in order to be effective, which
are indicated below:
(1) There should be a match between the type of function and the system of control
at all levels of the organization.

Principles & Practices of Management

(2) The control system should be sensitive enough to point out deviations from plans
immediately so that corrective action can be initiated with little loss of time and
before any damage is caused.
(3) The control system should be flexible and forward looking just like the planning
system, to enable the organization and its sub-systems to adapt and adjust their
goals and the means of reaching them in turn with the change in the environment
i.e., to maintain a sort of dynamic equilibrium.
(4) The control system should focus on strategic and key activity areas or points
which are critical to overall performance.
(5) The control system should enable managers to utilize their time and talent most
effectively by concentrating on major or exceptional deviations from plans.
(6) The control system should be formal and objective as far as possible, in fairness
to those whose performance is monitored, regulated and evaluated. To some
extent, quantification of performance standards meets this requirement.
(7)

The control system should be consistent with the organizational structure. It


should be built into the horizontal activity relationships and vertical authority
relationships. In a sense, the organizational structure is a control system,
designed to achieve certain pre-determined goals effectively.

(8) Controls are nothing more than means to certain ends. They are not ends in
themselves. They should constantly focus on goals to be achieved, on values to
be preserved and on interests to be promoted.
(9) The control system should be economical to operate; economy need not however
be exercised at the cost of effectiveness. Sometimes, a simple inexpensive
control system may match with expensive, highly sophisticated one in terms of
effectiveness.
(10) The control system should give due allowance to factors or variables which cannot
be controlled but which affect the performance of people.
(11) The control system should be designed to measure and evaluate the diverse
dimensions of performance of individuals and activity areas, giving appropriate
weightage to all the relevant variables having a bearing on performance: qualitative
variables or factors deserve to be taken into consideration, while evaluating
performance.
(12) The means adopted to achieve goals should also be kept under watch by the
control system, because both means and ends are important.
(13) Finally, the control system should be understandable to those whose performance
is sought to be regulated. The requirements of control should be communicated
in a simple and straightforward manner to those who are to abide by the system.

6.5 SOME TECHNIQUES OF CONTROL


Now, we will touch upon some of the tools and mechanisms devised by managers and
others, over the years to control specific aspects of activity and performance of an enterprise
or work units.
1. Direct supervision and observation: Much of the control in an organization or
work unit is attempted through direct supervision and observation by managers and
supervisors. Through personal, on the spot overseeing and observation, managers examine

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whether the members of the work unit perform as per the plans, schedules and work norms
and whether they abide by the policies, procedures and rules. The regular presence of the
manager on the work spot and his keen involvement with the progress of the work has an
important controlling influence over the performance and behaviour of subordinates. Even
the chief executive of an enterprise should frequently visit the various work units and
departments of the enterprise to see how things are going on, though he will not be in a
position to supervise and observe every piece of work all the time and in all the places.
Personal supervision and observation is likely to inject a measure of work discipline among
the subordinates apart from providing an opportunity to the supervisor to understand the
dynamics and problems in the work spot, and to remove the hurdles to the smooth work
flow, to the extent he can.
2. Budgetary Control: The concept of budgets was discussed as one of the
techniques of planning. Here we shall look at budgets as means of control. Budgets are
useful as tools of control to the extent that they, permit, monitoring, measurement, evaluation,
regulation and correction of enterprise activity along desire pre-determined directions.
The essential elements of budgetary control are outlined as follows:
(i)

Translation of enterprise goals into sub goals of the various operating units which
are further operationalized as standards of performance, and targets of achievement
(sales, market share, production, profit etc.) over a short period of time say, six
months or one year.

(ii) Determination of the volume of resources required to achieve the operational goalsfunds, material, labour, equipment, time and so forth.
(iii) Accord of general sanction of the acquisition and allocation of budgetary resources
to various activity units over the budgetary period.
(iv) Devolution of necessary authority and fixing up of accountability for the planned
performance standards and targets, among the various executive positions.
(v) Establishment of appropriate system for monitoring, measuring and evaluating the
pace and quality of operations on continuous basis. This includes initiation of
required measures to ensure that actual performance is in conformity with budgeted
performance. Deviations and variances are analysed and remedial measures are
taken to set them right.
Several benefits are claimed on behalf of budgetary control. We shall briefly state
some of the major benefits as follows:
(i)

Budgetary control establishes a clear relation and balance between the inputs of
assets, materials, labour, funds and time and the outputs of production, performance
and profits.

(ii) By enforcing budgetary discipline and order it reduces the extent of variability and
perversity in enterprise functioning.
(iii) It saves managerial time to large extent. Managers at operational levels need not
obtain sanction every time for acquisition of resources. Budgetary control provides
a concrete frame of reference to managers in their day-to-day decision activity,
thereby obviating the occasion for reflection and deliberation. It facilitates
management by exception. Only exceptional variances or deviations are reported
to the higher managerial level.
(iv) Budgetary control ensures more freedom of action to managers who value
predictability or operations and precision in performance results.

Principles & Practices of Management

(v) Since it is an integrated control device, it strengthens the bonds of inter-dependence


among various enterprise sub-systems. It promotes cohesiveness in the functioning
of the enterprise.
(vi) Budgetary control is a source of positive influence on motivation and behaviour of
enterprise personnel.
3. Financial Statements: The annual financial statements of enterprises- Trading
and Profit and Loss Account and Balance Sheet are powerful tools of control. They epitomize
the financial dimension of enterprise operations at periodic intervals of time. The Profit and
Loss Account summarizes the relations between revenues and expenses of the enterprise
operations during a specified period while the Balance Sheet is a position statement of the
financial status of the enterprise at the end of the specified period.
Managers could analyse the financial statements of the previous period - historical
statements to know the dynamics of revenue generation and incidence of expenditure as
also the trends of changes in the liabilities, assets and net worth of the enterprise. Projected
financial statements for the next year may also be prepared on the basis of forecasts and
plans of the enterprise and these could also be used to monitor and regulate financial events
and transactions which take place in the enterprise.
Further the data in financial statements permit management to undertake the exercise
of ratio analysis. Ratio analysis could be a handy tool to understand key aspects of enterprises'
health, profitability, liquidity, solvency and so on - at a particular point of time or over a period
of time. Ratio analysis can also be used for inter firm comparison to assess the position of
the enterprise in relation to other comparable enterprises in the industry.
4. Break-even analysis: Also called Cost-Volume Profit analysis, break-even Analysis
is a tool of control to size up the behaviour of costs, revenues and profits at various levels of
activity. It enables management to understand the amount of profit that can be expected at
various volumes of operations, the appropriate volume of operations needed to obtain a
target level of profit, and the impact of changes in product prices and costs on the volume of
operations and profitability. Break-even analysis is adopted as a tool of profit planning. It is
thus a technique of both planning and control
5.
Management Information System (MIS): Management Information System
(MIS) is defined as an assemblage of facilities and personnel for collecting, processing,
storing, retrieving and transmitting information that is required by one or more managers in
the performance of their functions. Managers at top, middle and supervisory levels need
information on a continuous or periodic basis on several aspects of internal and external
conditions for purposes of understanding and identifying problems and issues and
alternatives for decision making. They would also like to be posted with information on the
status of particular activities as a basis for controlling them. The role of MIS is to
systematically generate relevant data and process such data into information which is
directly meant to be useful to managers on specific aspects or issues for decision making,
planning administration and control.
MIS incorporates historical, current and projected information-quantitative or nonquantitative. It provides information in summery or detailed form as need by manages. It
provides information for all types of decision issues-strategic, administrative and operational.
It enables manages to improve the quality and timeliness of their decisions in particular and
to systematize even their day-to-day functioning in general. It adds to the alertness,
awareness and intelligence of managers by supplying information in the form of progress
and review reports on on-going activity. Another role of MIS is to provide only that much
information as called for by managers specifically for purposes of decision making. This

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means that the question of information overload does not arise and that only optimum
information is provided. The information is also update on a continuous basis so as to
make it more relevant. MIS avoids furnishing of overlapping information as it will create
confusion in the minds of managers. There is thus the desired degree of focus and selectivity
in the information content.
MIS in many large organizations is designed with a systems perspective, by taking
into consideration the network of processes, resource flows, and information needs of the
organization. Often, managers at many levels are involved and consulted in the design and
implementation of MIS. These steps are needed to make the role of MIS rooted in the
realities and requirements of the organization and to make it responsive to the changing
information needs of managers.
The role of MIS stems from the fact that it is an arrangement meant for pulling together
all the diverse bits of data available in the organization conveniently accessible to managers
at various levels and units of activity. In a well-designed MIS, data are comprehensively
processed, analysed and interpreted so as to make them directly useful to managers.
MIS may be manual, mechanized or computerized. But there is relative advantage in
computerized MIS especially in large organization. The role of MIS gets enlarged both in
scope and quality in a computerized setting, to the extent that the modern, electronic
computer has capacity to process huge volumes of data accurately, makes complex
calculations and combinations at a very high speed and retrieves information instantaneously.
With its enormous memory a computer can safely store large volume of data. The advent
of electronic data processing facilities has considerably revolutionized the role of MIS as a
management support system. It has smoothened the possibility of designing a totally
integrated MIS characterized by a central data base and inter-linkage of information flows
among all the major sub-systems of the organization.
6. Management Audit: The term 'Management Audit' is defined as systematic
evaluation of the functioning, performance and effectiveness of management of an
organization. It is a thorough-going, critical and constructive review of the quality of
management and is generally conducted at the instance of top management. The audit
work is generally done by an independent team of experts from relevant areas. They
naturally adopt some of the tried and tested principles of auditing. The aim is to make an
objective assessment of the manner in which the affairs of the organization are managed.
The audit is conducted on a periodic basis. The audit team collects evidence from historical
records about the various aspects of the functioning of the organization. It may also generate
data through questionnaires circulated among the members of the management team, the
other members of the organization and representative cross-section of the client groups.
The audit team forms its opinions and conclusions on the basis of analysis of the evidence
and information, so collected and generated, against a set of relevant criteria of performance
and effectiveness, if possible. The opinions and conclusions so arrived at could take the
form of recommendations for future guidance of management and could form the basis for
reform of the process and practices of management of the organization in question.
(a) Formulation of organizational objectives, strategies, policies and programmes of
action and the manner in which they pursued, as also the extent of success
achieved.
(b) Design and operation of organizational structures of roles, activities and relationships.
(c) The manner and efficiency with which resources and assets are mobilized,
developed, allocated, utilized and safeguarded, including the human resources.
(d) Design and functioning of various systems and operations within the organization.

Principles & Practices of Management

(e) The manner in which the management team anticipates and sizes up external
environmental elements and designs appropriate adaptive strategies to cope with
them.
(f)

The internal organizational climate - to what extent it is conducive for co-operation,


harmony, creativity, productivity and satisfaction.

(g) The quality of managerial decisions: their soundness, timeliness and effectiveness.
The management audit function goes beyond statutory audit and internal audit of the
organization, because of its distinct content and character. As is to be expected, professional
accountants and auditors have shown considerable interest in popularsing the efficacy of
management audit and have taken several initiatives in this regard especially in USA.
7. Control by Return on Investment Technique: The ownership group of business
organizations, whether public or private, seeks a return on their investment as a reward for
risk taking. The excess of revenue over the costs of doing business generally accrues to
the ownership group in the form of profit, whether it is distributed to them or retained in the
business. The rate of return on investment (ROI) is an overall measure of the financial
performance of a business enterprise or individual divisions thereof. The calculation of ROI
is done as under:
ROI

Sales minus Total Investment

Net Income

Sales minus cost of sales

Net income is the residue of revenue through sales after deducting the cost of sales.
Net income before and after corporate taxes can be used for purposes of comparison. Total
investment includes working capital and fixed assets used in business.
Management can increase in ROI by stepping up sales volume proportionately more than
total investment. Another way to increase ROI is by reducing the total investment without
disturbing the sales volume or by reducing the former proportionately more than the latter. A
third way is by increasing the sales volume proportionately more than the cost of sales or by
reducing the cost of sales proportionately more than the decrease in sales volume.
The ROI criterion is a good yardstick for comparing the bases of financial performance
of the enterprise and its divisions over a period of time. It is also very useful for interorganisational and inter-divisional analysis of financial performance at any point of time. It
indicates the basic streams which contribute to the financial performance of the enterprise
and suggests areas where remedial action is called for to improve ROI. It is powerful and
popular managerial technique of control.
The ROI approach was originally adopted by the DuPont Company, USA in 1919 and
subsequently many enterprises have accepted the soundness of the approach. The
advantage of the approach is that it focuses on efficient enterprise performances as measured
by profit not in isolation but firmly related to the resources employed and to the efforts
made. It indicates an integrated or systems approach for improved enterprise performance
in a financial sense. The several elements that form part of the process of achieving and
improving efficient enterprise performance need to be properly and systematically integrated.
8. Self-Control: Behavioral scientists assert that control is most effective when it is
self-directed. The implication is that most 'organization men' feel more at home under
conditions of self-control. Sense of responsibility for results is said to be at a more desirable
level when persons are assigned the task of exercising self-control. Some people are
somewhat uncomfortable when subjected to externally imposed control. They perceive that
their zone of freedom is being unduly restricted by outside control. But once these people

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are given opportunity for more self-control, they will respond with good results. Self-control
includes a measure of freedom to set one's own standards of performance, pace of work
and evaluation and feedback of results and correction of negative deviations. It should,
however, be understood that people who volunteer for self-control are binding themselves to
a deeper commitment than those who do not. While freedom is more under conditions of
self-control, responsibility for results is much more.
Some personality types however are either incapable or unwilling to accept the concept
of self control. Perhaps they are not articulate enough to exercise control over themselves.
Perhaps they regard that commitment of self-control is bother-some and involves more
responsibility. They seek safely in being subjected to close control by their superiors,
whoever they are. In a sense, they too want to have a measure of freedom from responsibility
implicit in self-control.
Thus, it is clear that the willingness or otherwise to assume self-control has do with the
need for freedom. Those who enthusiastically assume self-control do so because it gives them
freedom for working out and fulfilling their commitment and responsibility for results. Those
who willingly submit to external control do so because it gives them freedom from working out
and fulfilling their commitment and responsibility for results. Both the sets of personality types
are thereby seeking to optimize their satisfactions which freedom provides them.
It is to be admitted that some self-control is implicit even in situations of totally external
control systems. For example, there cannot be minute to minute regulation of a subordinate's
pace of work by his supervisor. When the former is assigned a task, some responsibility
is imposed upon him to work according to the dictates of the latter. Similarly, a person
cannot be left entirely to the virtues of his self control. A measure of externally inducted
influence, whether it is formally termed as control or not, is always present. Thus, it is
more appropriate to view self control and imposed control in relative terms and degrees
than as absolutes.

6.6 BEHAVIOURAL ASPECTS OF MANAGEMENT CONTROL


Managers must recognize several behavioral implications in the process of control
and its implementation. Although an effective control system should aid in employee
motivation, it can also have negative effects can be seen in situations where managers
exert excessive control over employees and this in turn would negatively affect their morale.
Accordingly, the control systems should be made as fair and as meaningful as possible
and must be clearly communicated to all employees. It will be easier for the employees to
accept control if they had participated in the formulation of the control system and process
of implementation. In addition, timely feedback and objective and realistic appraisal will
get positive worker response. The control system and performance evaluation must be
consistent with organizational goals, policies and culture. A performance appraisal based
only upon departmental variables, such as output or percentage of waste may induce
workers to give less importance to such organizational goals as safety, equipment
maintenance and so on. Hence, cohesion of all aspects is necessary for an effective
control system.
Some of the behavioral Implications of control are as follows:
1. Control affects individual freedom. Hence, it is common for individuals to resist
certain controls if such controls put constraints on their freedom.
2. Control carries certain status and power implications. For example, a quality control
inspector may carry more power than a line supervisor and this may be resented.
3. When controls are based upon subjective and personal judgments as against

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quantified performance, standards and appraisals, these may create interpersonal


or intergroup conflicts within the organization.
4.

Excessive number of controls may limit flexibility and creativity. This may lead to
low levels of employee satisfaction and personal development.

5.

Controls may influence the generation of invalid and inaccurate information. For
example, if the top management habitually reduces budget requests when reviewing
them (a control activity), then the lower management, when proposing a new budget
or a new project, may overstate the cost of resources needed. Similarly, managers
may set objectives lower than what are attainable so that a higher output will look
better at performance appraisal time.

6. Controls can be resented by employees if they have no control over the situation.
For example, if a professor's is appraised over the number of publication of books
and research articles, but he is not afforded the freedom of time to do so because
of heavy teaching load and excessive committee work, then it can result in
frustration, which may be detrimental to the entire control system. Similarly, a
manager will become highly frustrated if his performance evaluation is based upon
profits achieved by his department but he does not have the authority and control to
make operational changes such as hiring and firing of workers.
7.

The control systems must be synchronized to create a balance among all affecting
and interconnected variables. The standards should compliment each other and not
contradict each other. For example, a control system which emphasizes increased
sales as well as reduction in advertising expenditure at the same time may seem
contradictory to the marketing manager and thus may be frustrating for him.

Check your progress


Tick mark the most appropriate answer
1. Which of the following is not a technique of budgetary control?
a)

Direct supervision & observation

c) Management audit

b)

Budgetary control

d)

Decision-making.

2. Which of the following is not Ouchi's Classification of control techniques?


a)

Market control techniques

c) Clan Control techniques

b)

Bureaucratic Control techniques

d)

Coercive Control techniques.

3. Control function of manager involves:a)

Comparison of the actual with the budget

b) Fixing responsibility for failure


c) Balancing decision making process
d)

Motivating employee for performance.

4. Which is not a basic step in control process?


a)

Establishing standards

c) Initiating corrective measures

b)

Comparing results against standards

d) Reprimanding & Coercion.

5. Control system are aimed ata)

To increase productivity

c)

To facilitate communication

Notes :

Principles & Practices of Management

90
b)

Help meet dead lines

d)

All of the above.

Notes :
6.7 SUMMARY
Control is necessary to make sure that actual results of an activity do not deviate from
the expected results of the same activity. The function of control is to accomplish
organizational goals by implementing previously determined strategies and policies so that
whatever needs to be done is done properly. In other words, control maintains equilibrium
between means and ends or between efforts and output. The process of control involves
establishing standards for outcomes of activities, assuring performance of workers in relation
to such activities by employing such measuring devices as previously determined to be
suitable and relevant to measuring such performance, comparing such measured
performance with performance standards previously set, noting any deviations positive or
negative and taking corrective actions for any negative deviations. Positive deviations should
also be investigated to determine as to why underestimations were made so that new
revised estimates can be established.
There are several types of control techniques implemented for effective management of
the organization. The techniques range from traditional to modern ways of managerial
control. These techniques have their own advantages and disadvantages but ultimately
provide some guidance to effective controlling.
Control can have some behavioral implications. Wherever managers exert excessive
control, it can be considered as misuse of power by the employees and thus in turn would
negatively impact their morale. Accordingly, it will be advisable to get the workers involved
in establishing standards and in determining performance-evaluation methods. This would
improve affiliation of the workers to the company.

6.8 QUESTIONS AND EXERCISES


Q.1 Explain the meaning of the controlling function and discuss the elements of control
Q.2

Discuss the various requirements of an effective control system

Q.3

Explain the basic steps in the Control Process.

Q.4

Elucidate the relationship between planning and control.

6.9 FURTHER READINGS


Tripathi P. C., and Reddy P.N., Principles of Management, Tata McGraw Hill,2008
Robbins,Stephen P., Management, Prentice Hall,1991.
Newman,William H., Constructive Control(Englewood Cliffs, N J :Prentice Hall 1975).

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