CHAPTER ONE

GENERAL OVERVIEW OF MANAGEMENT

1.1. Introduction
Right from the beginning of the civilization and from the time people began to live in groups, the
practice of management had began. As people started forming groups to achieve their goals, even be
it say for hunting, they quickly realized that managing is necessary to ensure proper coordination of
all the individuals in the group. Today if you look at the society you would realize that the society
stands on group effort and hence the importance of management. Ever since people begun forming
groups to accomplish aims, they could not achieve them as they intended as managing individuals
has been important to ensure the coordination of individual efforts. As society has come to rely
increasingly on group efforts and as many organized groups have become large, the task of
managers has been rising in importance.

Management is an exciting field of study for it deals with seeking, testing, and reaching objectives.
Even in the ancient time, although it was not formalized people planned their work, organized their
activities, assigned workers to those positions, led their workers, and checked whether they have
achieved their planned actions or not and these activities were prevalent and apparent. This is to say
management had existed in the past, exists today, and will continue to exist even with increasing
importance as the world is changing rapidly in every aspect. Had it not been for the utilization of
management principles and practices, the marvelous accomplishments like the obelisk of Axum, the
temple of Lalibela, the pyramids of Egypt, the Great Wall of China, and many others would not
have been possible. It is also possible to see how much management is essential for successful
accomplishment of individual as well as organizational goals just by looking at what takes place in
our vicinity.
1.2. Management Defined
There is no single, comprehensive and universally accepted definition of management. This holds
true due to the following major reasons among others:
 Different scholars view management from different perspectives
 It has many areas of applications. It is applied in profit, not for profit, private, government,
social and business organizations.
 Management as a discipline is recent in origin and hence there are a number of theories being
added to the field
 It is so broad that it is difficult to encompass all its aspects in a single definition
 It has undergone changes because of the developments in behavioral science and quantitative
techniques
 There are different approaches to management, definitions change as the environment
changes. The environment of an organization changes due to changes in the political, social,
economic, ethical and others factors.

Yet, a definition of management is necessary to improve the practice of management. The

following are among the most widely accepted definitions of management:

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  Management is the art of getting things done through and with people in a formally organized
group.
 It is the art of knowing what you want to do in the best and cheapest way
 It is a distinct process consisting of activities of planning, organizing, staffing, leading and
controlling performance to determine and accomplish stated objectives with the use of human
and non human resources.
 It can also be defined as the art of securing maximum results with a minimum of efforts so as
to secure maximum prosperity and happiness for both the employer and employees and give
the public the best possible service.
 For the sake of convenience, we can define management as a distinct process consisting of
managerial functions so as to design and maintain conducive environment in order to achieve
common group goals and organizational objectives by using the scare resources effectively
and efficiently.
1.3. Nature of Management
 From the above definitions we can state the following points that show the nature of
management.
 Management is a continuous process-whenever there is a group effort, the need for the
application of management arises.
 Management is viewed in terms of the managerial functions a manager does, i.e., planning,
organizing, staffing, leading, and controlling.
 Management deals with the coordination of both human and non human resources
 Universal application: it is applied wherever there is an organization with certain objective to
be achieved
 Guidance: it creates conducive environment so as to achieve organizational goals in an open
system wherein there is continuous interaction between the organization and its environment.
 Goal oriented: an organization is established to attain objectives and management is important
for such organization with a pre stated goal to be achieved.
 Divorced/separated from ownership: management does not signify proprietorship/ownership.
 It is a human activity: management activities are discharged by human beings not by machines
such as computers, that is, at best they can only assist rather than replace good management
practice.
 It signifies authority: since the significance of management is to direct, to guide and control, it
has to have authority. Authority is the power to order others to do something and to behave in
some way.
 It is multi disciplinary: it has grown as a body of discipline by taking the help of so many
social sciences like sociology, psychology, anthropology, economics, laws and others.
 Leadership: a manager has to lead a team of workers. He must be capable of inspiring,
motivating, and winning their confidence.

1.4. Why We Study Management?

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There are a number of reasons that justify the study of management. Some of such reasons are
described below.
 We all are affected by good or bad management practices and we should, therefore, learn to
recognize and influence the quality of management that affects our lives.
 It affects the establishment and accomplishment of many social, economic, and political goals
in any country. The study of management is essential for making better economic life
possible, improving social standards, and achieving more efficient and effective government
which is a challenge to modern management caliber.
 It makes human efforts more productive: it brings better equipment, plants, offices, products,
services and human relations to our society. Improvement and progress are its constant watch
words.
 It plays a crucial role in combining isolated efforts and disjointed information into meaningful
relationships. These relationships then work to solve problems and accomplish goals.
 There is no substitute for good management and management is not the exercise of a common
sense, rather it is painstaking practice of determining worthwhile goals and carefully selecting
and utilizing resources effectively and efficiently through the five management functions.
1.5. Functions of Management

Management functions are the activities that managers are supposed to perform as result of the
position held in the organization. Regardless of the type of firm, all managers have certain basic
functions-planning, organizing, staffing, leading and controlling. The scope and nature of these
functions vary from one management level to another and from firm to firm. The order in which
these functions are performed is rarely as orderly as shown below even though all managers need to
be concerned with them. Below, these functions are briefly described. Later, each of them will be
discussed in greater detail in a separate chapter.
1) Planning: is the process of selecting mission and objectives and the course of action to attain
them. It is a decision making process that determines what to do, how to do it, why it is done,
when it is to be done, by whom it is to be done and with what resources. It serves as a bridge
that connects the present with the future as in planning what should be done in the future is
determined today.
2) Organizing: is the process of distributing the work among the group members and establishing
the relationships that are needed to ensure smooth accomplishment of jobs. It involves
identification of activities to be carried out, grouping these activities into working units,
assignment of responsibilities to each unit with corresponding authority.
3) Staffing: is the process of ensuring that employees are recruited, selected, trained, and
developed, and rewarded for successful accomplishment of goals. It is a continuous and vital
function of management which involves filling and keeping filled positions in a given
organizational structure.
4) Leading/Directing: is about inducing or motivating individuals and groups to exert their effort
towards organizational goals. In short, it is concerned with influencing people to work hard.
Leading encompasses three essential elements: motivation, leadership and communication.

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 5) Controlling: is the process of setting standards, measuring actual performance results,
comparing actual versus plan, identifying deviations and finally taking remedial actions if the
deviation between actual and plan is significant. The main objective is to ensure that events
conform to plans and if not, to bring them back to the normal track.
1.6. Management Science or Art?
The question whether management is science or art has been an issue of debate for a long period
of time. Science can be defined as a systematized body of knowledge derived from observation,
study, and experimentation carried out in order to determine the nature and principles of the subject
under investigation. It is universally true and applied throughout the globe. Besides, it exploits
mathematical models.

Since management has a structured body of knowledge with its own distinct concepts, theories, and
principles that are developed with reference to the general truths underlying its practice, it is a
science. As science, management is a systematized body of knowledge representing a core of
principles or fundamental truth that tends to be true in most management situations. These
systematized bodies of knowledge of management help the practicing manager make decisions
rationally and objectively, rather than using rule of thumb, hunch or intuition as some used to do in
the past. Management science is not as comprehensive or accurate as physical sciences such as
physics and mathematics. This is true because management deals with human beings having an ever
changing, unpredictable and more complex behaviors. Hence, the application of management
principles alone may not yield the desired result. Therefore, managers also need artistic skills to
accomplish organizational objectives in the best way. That is, they have to use judgment in addition
to the principles of management.

Art is a system of doing a particular work in a way at a given time, place and condition tactfully,
wisely and creatively. It enables one to make decisions when there is insufficient data and
information or when there is a limit to use secondary sources of information. Art is characterized by
using common sense, personal feelings, beliefs and impulses. It tries to make adjustments based on
the possibilities through trail and error method. Management is one of the most creative arts as it
requires a vast knowledge and innovative skills to deal with new events. They should be able to
make decisions even when there is shortage of information. This leads us to the conclusion that “the
art of management begins from where the science of management stops.”

If science teaches one to know, art teaches one to do. Managers have to know and do things
effectively and efficiently to be successful. So management is indeed a unique scientific and artistic
combination in practice. In this context, science and art are not mutually exclusive, but they are
complementary. Hence, we say management is an eclectic discipline with elements of both science
and art.

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 1.7. Management Levels, Skills and Roles
a) Management Levels
We can classify managers either on the basis of their levels in the organization or by the range
of organizational activities for which they are responsible- so called functional and general
managers. Although all managers may perform the same basic duties and play similar roles, the
nature and scope of their activities differ from level to level. Here level refers to hierarchical
arrangements of managerial positions in an organization. They are steps between subordinates
and management organized to achieve organizational goals. The number of managerial levels in
an organization depends on the size of the organization. The larger the size, the more will be the
number of levels and the smaller the organization in size, the fewer will be its levels. First
Line /Lower Level Managers: are managers who are responsible for the work of operating
employees only and do not supervise other managers. They are the lowest level of management
in the organizational structure. Typical titles in this level include office managers, section chief,
superintendents, foremen, chief clerks, supervisors and the like. First line managers, often called
‘supervisors’, are mainly concerned with:
 Planning of day to day activities
 Assigning operating employees to specific tasks
 Keeping a watch on workers’ performance
 Sending reports and statements to superiors
 Maintaining close and personal contact with workers
 Issuing instructions at the work place, following up, motivating and evaluating workers.
i. Middle Level Managers: these are managers who direct the activities of lower level
managers and sometimes extend to supervision of operating employees. The middle
managers are known in many organizations as the department managers, plant managers, or
directors of operations. Middle level managers include all managers above the supervisory
level but below the level where overall company policy is determined and they have
authority over other managers.
The following are specific functions of middle level managers:
 Acting as intermediary between top and first line managers
 Translating long term plans into medium term plans
 Developing specific targets in their areas of responsibility
 Coordinating inputs, outputs and productivity of operating level managers
 Developing specific schedules to guide action and facilitate control
ii. Top Level Managers: this level is composed of a comparatively small number of executives
and they are responsible to the overall management of the organization. They establish
operating policies and guide the organization’s interactions with its environment. Typical
titles include chief executive officers (CEOs), president, senior vice president, general
manager and the like. The major duties of top level managers are:
 Establishing broad objectives
 Designing major strategies and polices for the achievement of long term objectives
 Providing effective organizational structure that ensures integration
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  Providing overall leadership and direction
 Making overall control of the organization
 Dealing with external parties such as the government, community, businesses by
representing the organization
 Analyzing the changes in the external environment and responding to them.
Note that as one moves from the lower level to the higher level, the number of managers become
smaller and smaller and this is the reason why the level of management have such a pyramidal
shape.
In the above discussion we noted that all managers perform the management functions of
planning, organizing, staffing, leading and controlling. However, the amount of time and effort
devoted to each function varies depending on the manager’s level. For example, front line
managers usually spend less time on long term planning than top level managers, but they spend
much more time and effort in leading their subordinates. At higher level, less time is spent on
leading. The amount of time and effort devoted to controlling are fairly equal at all levels of
management. Moreover, top level and middle level exercise staffing function more frequently
than lower level managers do.
b)Managerial Skills
Regardless of the level of management, managers ought to possess and seek to further develop
many critical skills. Skill is an ability or proficiency in performing particular task. Management
skills are learned and developed. Good management practices can also be learned and applied.
Management success depends both on a fundamental understanding of the principles of management
and on the application of technical, human and conceptual skills. Successful managers are indeed
eclectic in that they must possess and be skilled in the three skills.
1. Technical Skill: is the ability to use specific knowledge, techniques, and resources in
performing works. It is knowledge and proficiency in activities involving methods,
processes, and procedures. Thus, it involves working with tools and specific machines.
Normally technical skills are more important at lower level of management and its
importance decreases as we go up the ladder. This holds true because supervisory managers
must train their subordinates in the proper use of work related tools, machines and
equipment. This usually includes specialized knowledge and the ability to perform with that
specialty
2. Human skill: is the ability to work with people. It is cooperative effort, team work and
creation of an environment in which people feel secured and free to express their opinions. It
is also the ability to resolve conflict. Generally, human skill is the skill to motivate and
create enthusiasm in the minds of followers. Since managers must accomplish much of their
work through the efforts of other people, their ability to work with, motivate, counsel and
understand others is most important. Therefore, this skill is equally essential at all levels of
management.
3. Conceptual skill: is the ability to see the “big picture”, to recognize significant element in a
situation and to understand the relationship among elements. These skills are the abilities
needed to view the organization from a broad perspective and to see the interrelationships
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 among its components. Conceptual skills are important in strategic planning. Therefore, they
are more important to top level executives than to middle managers and supervisors. To
conceptualize it requires imagination, broad knowledge, and the mental capacity to conceive
abstract ideas. The relationship between management levels and skills of managers is
illustrated in the figure below.

Top Level conceptual skill

Middle level
Human Skill
Lower level Technical skill

Figure 1.2 managerial levels vs. skills required

c) Managerial Roles
There are diverse activities that managers are expected to perform at various levels of the
organization. Many people consider managerial functions and managerial roles are synonyms. But
there are basic differences between the two.
Managerial functions are broad areas of activities that represent the ends for which management
is practiced. They are purposes that tell about what managers actually perform. They simply indicate
the objectives of managers when they do their work. There must be the means to successfully
accomplish managerial functions and these means are managerial roles. They are categories of
actual managerial behavior. Managerial roles represent specific tasks that managers undertake to
ultimately accomplish the various functions of management. They are organized set of activities
belonging to an identified job that give more realism and systematize managerial functions. One of
the most frequently cited studies of managerial roles was conducted by Henry Mintizberg. He stated
that managers perform ten different but closely related roles and he categorized them into three
broad groups.
1) Interpersonal Roles: the three interpersonal roles are figurehead, leader and liaison roles. These
roles grow from the manager’s formal authority and focus on interpersonal relationships. These
roles require interaction with others in regular basis.
 Figurehead Role: this role is played by managers who are required to perform duties of
ceremonial and symbolic in nature. It is the most basic and the simplest of all managerial
roles. A president who greets a touring dignitary, a mayor who presents a key of the city to a
local hero, the supervisor who attends the wedding of a machine operator, a sales manager
who takes an important customer to lunch, and a manager who presents certificates to
outperforming employees all are performing ceremonial duties important to the organization’s
image and success. While these duties may not seem important, they are expected of managers
as they signify management’s concern for employees, customers and to the society at large.
 Leadership Role: the leadership role involves responsibility for directing and coordinating
the activities of subordinates in order to accomplish organizational objectives. Some aspects of

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 the leadership role have to do with staffing-hiring, training, disciplining and promoting. Others
aspects involve motivating subordinate to meet the organization’s goals. Still other aspects
relate to creating a vision that a company’s employees identify with.
 Liaison Role: this role refers to dealing with people outside the organization such as clients,
government officials, customers and suppliers. It also refers to dealing with managers in other
departments, staff specialists, and other department’s employees. In the liaison role, the
manager seeks support from people who can affect the organization’s success.
2) Informational Role: effective managers build networks of contacts for sharing information.
Because of these contacts, managers emerge as the nerve center system of their organization.
Many contacts made while performing figurehead and liaison roles give managers access to a
great deal of important information. The following three roles describe the informational aspects
of managerial work:
 Monitor Role: this role involves seeking out, receiving and screening information. Just as a
radar unit scans the environment, managers scan their environment for information that may
affect their organization. Since much of the information received is oral-gossip, hearsay,
formal meetings-managers must evaluate and decide whether to use this information.
 Disseminator Role: here the manager shares information with subordinates and other
pertinent members. Sometimes the manager may pass along special or ‘privileged’
information to certain subordinates who would not originally have access to it and who can be
trusted not to let it go further. In practice, passing information along subordinates is often
difficult and time consuming. Therefore, a manager must decide which and how much
information will be useful.
 Spokesperson Role: in the spokesperson role managers transmit information to others,
especially those outside the organization. The manager is a person who speaks for his or her
work unit/organization or to people outside the work unit. Here the manager represents the
unit to other people.
3) Decisional Role: managers use information to make decisions about when and how to commit
their organization to new objectives and actions. Decisional roles are perhaps the most important
of the three categories of roles. Managers are the core of the organization’s decision making
system as they play the following four decisional roles:
 Entrepreneurial Role: this role involves designing and initiating planned changes in order to
improve the organization’s position. Managers play this role when they initiate new projects,
launch a survey, test a new market, or enter into new business.
 Disturbance Handler Role: this role is played by managers when they deal with problems
and changes beyond their immediate control. Typical problems include labor strikes,
bankruptcy of major suppliers, or breaking of contracts by customers. Sometimes disturbances
may arise because a poor manager ignores the situation until it becomes a crisis. However,
even good managers cannot possibly anticipate all the consequences of their decisions or
control the actions of others.
 Resource Allocator Role: this role is about choosing among competing demands for money,
equipment, personnel, and other’s demand on manager’s time. What portion of the budget
should be earmarked for advertising and what portion for improving an existing product line?

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 Should the firm add a second shift or pay overtime to handle new orders? Whether to
automate certain plants or close others requires performing such a role.
 Negotiator Role: closely linked to the resource allocator role is the negotiator role. In this role
managers meet and discuss their differences with individuals or groups for the purpose of
reaching an agreement. Negotiations are an integral part of a manager’s job. They are
especially tough when a manager must deal with others like unions and political action groups
who do not share the manager’s objectives.
1.8. Management Myths and Realties
People who have not held management jobs and have not studied management often hold
perceptions disconnected from reality- myths- about managers’ needs and functions. The following
six myths and their corresponding realities have been uncovered by the research of several
management experts.
Myth 1: Managers are reflective, methodological planners with time to systematically plan and
work through a day.
Reality: Typical managers take on so much and encounter such constant interruption that little time
remains for reflection. Events range from trivialities to crises; the average time spent on one activity
is nine minutes
Myth 2: Effective managers have no regular duties to perform. They establish other’s
responsibilities in advance and then relax to watch others do the work.
Reality: Although their days may be interrupted by crises, managers have regular duties to perform.
They must attend meetings; see to visitors from community and other parts of the organization, and
continuously process information. To perform all their duties, managers often extend the day into
the night.
Myth 3: The manager’s job is a science; managers work systematically and analytically to
determine programs and procedures.
Reality: The managers’ job is less a science than an art. Rather than systematic procedures and
programs, managers rely heavily on intuition and judgment.
Myth 4: Managers are self-starting, self-directing, and autonomous, or they would not be managers.
Reality: Good managers are self-managing, often to an extraordinary degree. They want, appreciate
and accept autonomy, but they also want input, attention and guidance that only superiors can
provide.
Myth 5: Good managers seek out the information they need.
Reality: Good managers are active information seekers. Yet they often do not have access to the
information that their bosses have. Their efforts are, thus, wasted on unnecessary work that their
superiors could eliminate with better information flow.
Myth 6: Competition among managers is good for… business.
Reality: competition is effective among businesses but not necessarily within a business.
Collaboration and cooperation within the organization are better

Self-Assessment Exercise
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 1. Define management
2. Discuss the importance of studying management
3. What are the major functions of management?
4. Is management science or art?
5. What are the three levels of management?
6. Write the various managerial roles expected from managers at different organizational
level?
CHAPTER TWO
DEVELOPMENT OF MANAGEMENT THOUGHT
2.1 Introduction

Management as a theory is the result of the twentieth century. But management as a practice is as old as the
human civilization. Knowledge about management comes from the field of management itself as well as
many other fields. Most of the early writers were practicing executives who described their own experience
from which they developed broad principles. The purpose of the chapter is to give a brief account of the
evolution of management knowledge.
Theory is a principle or set of principles that explains or accounts for the relationship between two or more
observable facts or events.
As managers, we will have at our disposal many ways of looking at organizations and the activities,
performance, and satisfaction of employees. Each of these ways may be more useful in dealing with some
problems than with others. For example a management theory that emphasizes the importance of a good work
environment may be more useful in dealing with a high employee turnover rate than with production delays.
Because, there is no single, universally accepted management theory, we must be familiar with each of the
major theories that currently coexist.
For the matter of convenience, we generally group the developmental processes of management into
three major stages:
(1) The early management pioneers
(2) The classical management theories,
(3) Behavioral school of management and modern management approaches.
2.2 The early management pioneers
Although the systematic study of management is relatively new, the concept and practice of
management had a long history. It had existed and been practiced since the beginning of mans
cooperative action and may be traced back to the earliest records of history. However, there are
various evidences about the existence of management practices in the antiquity. This section
summarizes some evidences about the existence of management practices in antiquity compiled
from various literatures.

Dear learners, I think you came up with a number of list of possible alternatives from your
previous readings, thoughts and experience. In the next section let us try to view a brief discussion
of the early civilizations and their contribution to the development of today’s management.
Management as a process was used from ancient times. The ancient civilizations like Sumerian,
Egyptian, Babylonian, Chinese, Indian and Roman used the techniques of management like

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planning, organizing and controlling to build large empires and settlements. Management as a field
of study was a late 19th century development, in response to the Industrial Revolution in Europe and
America.
Until the mid of the 18 century management practices in business, government and church remained
stable. However, with the introduction of industrial revolution, there was a series of inventions like:
steam engine and then power engine: which resulted in change in economic system, mass production
and factories required large collection of capital. Because of this situation management would be
expected to progress.
Despite all these, management was not developed as expected because
a) Low esteem to business in society (undermined by the society)
b) The different approaches by economists, political scientists and others towards business
organizations.
c) Treatment of managers as an art and not as a science.
d) The attitudes that successful managers are born not made (it cannot be transferred to others
through training.)
2.3 Pioneer Contributors of Management Thought
In the 20th century there was a change in situations like scarcity of resources, saturations of market
(demand problem), organization of workers (labor union), and technological inventions etc. which
require systematic study of management.
To combat these complex situations, managers of that time started to have scientific approach to
management. The work of early contributors is discussed below.
1. Robert own (1771-1850)
He was a successful textile manager in Scotland from 1800-1828.
• He improved working conditions in the factory (provided bath, meal)
• Provided housing and marketing facilities
• Reduced the length of working day
• Refused to hire children under 10
Due to his emphasis on workers, he is referred at the father of modern personnel management.
2. Charles Babage (1792-1871)
A British professor of mathematics Charles Babage became convinced about the application of
scientific principles to work processes would increase productivity and lower expenses. He was an
early educator of
 Division of labor
 Arithmetic model for management decision
 Specialization in specific task
 The time was with conflict between management & labor and he developed profit sharing
system.
Even though Robert own and Charles Babage has contributed their best for the development of
management, their idea was not propagated well in the world. Hence their contribution in the
development of management is not significantly recognized. The major development of
management started from classical Management Theory.
The historical development of management as a theory can be seen in three stages.
1. Classical management Theory
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 2. Neoclassical Management Theory
3. Modern Management Theory
2.4 Classical Management Theories
Under this classification we include the first theories which were propounded in management. The need for
these theories arose because the industrial revolution was at a peak in Europe and America and the
industrialists and practicing managers, who were basically engineers, felt the need for increasing the
productivity of the workers and maximizing profits. This approach is primarily based up on the economic
rationality of all employees. That is people are motivated to work by economic incentive. The classical
theories concentrated on the physical and mechanical components of an organization. The two most
important persons whose contribution to the early stages in the evolution of management thought are F. W.
Taylor and Henry Fayol and we need to study their theories in detail under this classification.
2.4.1 Scientific Management

Scientific management is a school of thought, which was popular during the early 1900s. It is
based upon the application of scientific methods at the workplace. The contributions of the four
individuals to the scientific management theory are discussed below.
 Frederick W. Taylor (1856-1915)
Scientific management theory was propounded by F. W. Taylor and was made popular in the year
1911 when his famous work “The Principles of Scientific Management” was published. Taylor
concentrated mostly on the physiological aspects of the workers and the tasks they perform on the
shop floor. These tasks are basically repetitive or closely related and do not need complex problem
solving skills, hence, work can be standardized. He considered most intimate cooperation between
labor and management as very essential for peace and development in any organization. Workers
should have a sense of belongingness towards the organizations, and the management should accept
the workers as partners.
In the course of his observations and experiments Taylor had listed out certain principles which will
contribute to a better environment in the organization and will help in increasing the productivity of
the organization, and they are,
a. Develop a scientific method of designing a job to replace the old rule of thumb method (guess
work). This involves gathering, classifying and tabulating data to arrive at one best way of
doing a task (time and motion study).
b. Scientific selection and training of worker’s. Matching the job to the worker & to train worker’s
in their weak areas.
c. Employees should be informed fully of the work they do and every detail should be explained
to them. Only then there will be less resistance to change or innovation and more commitment
to the job.
d. Division of work between the management and worker’s should be scientific and inter
dependent.
e. Functional foreman. This concept consists of two aspects in supervision, separation of the
planning activity from the implementation, i.e., ones who plan should be different from the ones
who implement it and functional foremanship wherein if a worker is dealing with 6 different
activities he will get instructions from 6 different supervisors who will be experts in their own
field.

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 f. Standardization of tools, working hours, working conditions and costs of production is very
essential to ensure a standard output.
g. Financial incentives in the form of more pay for more work should be given to the workers to
ensure more output. He called this as a piece rate system wherein the salary is directly linked to
the productivity of the worker, if the worker produces more he gets more salary and if he
produces less his salary will also reduce.
Taylor also spoke about bringing a mental revolution in which the workers and the management
change their attitudes about each other and about the work. This should lead to better cooperation
and understanding in the organization thus contributing to the welfare of both the management as
well as the worker.
Taylor concentrated more on the operational level of the organization, did not give much importance
to the workers and considered them as mere parts in the bigger machinery, the organization. His
concept of functional foremanship also attracted criticisms because reporting to more than one boss
will lead to confusion and chaos.
 The Gilberts: Frank B. Gilbert (1868-1924) and his wife Lillian M. Gilbert (1878-1972)
Their accomplishments still stand out for their devotion to a single goal: the elimination of waste
and the discovery of the ‘one best way’ of doing work. Frank B. Gilbert started as a bricklayer and
then achieved a considerable success as an independent contractor and later as a management
consultant. While he was a bricklayer, Gilbert studied how bricklayers worked. He found they
performed their task in three ways.
 One set of motions when working deliberately but slowly.
 A second set of motions when working rapidly,
 A third when trying to teach their helpers.
It was this simple observation that led to the establishment of the first precepts of ‘motion study’.
Gilbert had begun his own construction business and he analyzed each job he undertook to eliminate
unnecessary motions. In doing so, he devised a system for classifying hand motions in to 17 basic
divisions called ‘therbligs’. Gilbreth’s ideas gained prominence and acceptance. For his work, he is
named as the ‘Father of Motion study’. Finally, Gilbreth had completely given up the construction
business and began devoting full-time effort to management consulting. He believed that the
greatest waste in the world comes from needless, ill—directed, and ineffective motions; he sought
new methods of discovering the waste and eliminating it. After Frank’s death, his wife Lillian
decided to fulfill his commitments. She determined to continue his work. She pioneered the field of
personnel administration. For her contribution to the field of management, Lillian is known as the
first lady of management.
Henry L. Gantt (1861 — 1919)
Gantt made several contributions of his own to the scientific management school. The following are
the major ones among Gantt's contributions.
1. Task and Bonus plan: this is a pay system where workers received a bonus for completing all
of their daily tasks. Bonus was also awarded to supervisors who were successful in getting all
of their subordinates to meet the output goal.
2. Training of personal - Gantt claimed that workers should be trained to produce more.

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 3. Social responsibility management this is a concept emphasizing that management should not
only be responsible to the owner’s interest but also to the needs of the society in general.
4. Gantt chart: this is a graphic method of depicting plans and control of activities performance.
Along the horizontal axis time, work scheduled and work completed are measured. The
vertical axis identifies the individuals, and machines assigned to these work schedules. The
chart provides effective planning and control technique.
Harrington Emerson
He was one of the famous early scientific manager who believed in the adoption of scientific
management principles as a means of achieving efficiency. Emerson’s major concepts were set forth
in his book “The twelve principles of efficiency”. These principles were:
1. Clearly defined ideals: The organization should formulate objectives and familiarize everyone
in the company with them.
2. Common sense: In employing common sense, the manager should adhere to ideals, survey
problems at a distance so they can be seen in their entirety, and seek good advice
3. Competent counsel. The manager should look qualified counsel whenever and wherever it can
be found.
4. Discipline. There must be strict adherence to rules. Discipline brings about allegiance to the
other eleven principles.
5. Fair deal. This requires three managerial qualities: sympathy, imagination and, most of all,
justice.
6. Reliable, immediate, adequate, and permanent records. Records provide a basis upon which
intelligent decisions can be made.
7. Dispatching. Organizations should formulate effective production scheduling and control
techniques.
8. Standards and schedules. There must be a method and a time schedule for performing tasks.
This can be accomplished through the use of time and motion studies, the establishment of
standards and the proper placement of each worker on the job.
9. Standardized conditions. A standardization of conditions will reduce waste by conserving both
effort and money. This standardization can be applied to both individuals and the work
environment.
10. Standardize operations. Whenever and wherever possible, operations should be standardized in
order to greatly enhance efficiency.
11. Written standard practice instructions. When instructions are written, standardize, and
continually updated, they can result in rapid progress toward the objective.
12. Efficiency reward. Efficiency should be rewarded.

As a result of his work, Emerson became knows as the 'high priest of efficiency'.
Note:
General approaches of scientific management theory

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  Developed standard method for performing each job.
 Selected workers with appropriate abilities for each job.
 Trained workers in standard methods
 Supported workers by planning their work and eliminating interruptions
 Provided wage incentives to workers for increased output.
Contributions
 Demonstrated the importance of compensation for performance,
 initiated the careful study of tasks and jobs,
 demonstrated the importance of personnel selection and training
Criticism
 Did not appreciate the social context of work and higher needs of workers,
 did not acknowledge variance among individuals,
 Tended to regard workers as uninformed and ignored their ideas and suggestions.
Activity
The following individuals (on the right hand side) are contributors of classical management theories.
The names on the left hand side are used to describe these individuals as well as their contribution to
the field of management. Try to match the names on the left hand side with those names on the right
hand side
Descriptive names Individuals
First lady of management 1. Henry Fayol
Priest of efficiency 2. Frank Gilbreth
3. Henry Gantt
4. [Link]
Father of motion study 5. Lillian Gilbreth
6. Max Weber
Father of scientific management 7. Henery fayol
8. Harringon Emerson
2.4.2 The Classical organization theory
It includes – Administrative management and bureaucratic management
[Link] Administrative Management
Henri Fayol (1841-1925), a French mining engineer, promoted the concept of administrative
management. Fayol primary concluded that all activities in business undertakings could be divided
into six essential groups:
1. Technical (production, manufacturing, adaptation)
2. Commercial (buying, selling, and exchange)
3. Financial (finding, acquiring, and using capital optimally)
4. Accounting (coasting, preparation and analysis of financial statement)
5. Security (protection of property and persons)
6. Managerial (planning, organizing, commanding, coordinating, and controlling).
He focused on developing administrative principles that could be applicable to both general and
higher managerial levels. Fayol presented 14 principles of management, which act as a guide for
developing management practices. These principles are explained as follows:
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1. Division of work: According to this principle, work should be divided among individuals and
groups according to their skills and knowledge. This helps in completing the work with greater
efficiency.
2. Authority and responsibility: Authority is a right of an individual to give orders and
instructions. The right of authority arises from the position, intelligence, experience, and skills of a
manager. On the other hand, responsibility is a state of being accountable for the consequences of
the decisions taken by an individual. Managers should be responsible for the actions taken by them.
3. Discipline: Discipline in an organisation refers to the obedience to authority. Employees must
obey and respect the governing policies and rules of the organisation. In order to maintain good
discipline in an organisation, there is a need for good supervision at all levels; clear understanding
between management and workers; and rational use of penalties.
4. Unity of command: According to this principle, employees associated with a particular type of
work should report to one superior only. This helps in avoiding confusions in the role of the
employees.
5. Unity of direction: It means that there should be one direction in which employees must move to
achieve a particular objective. If employees get pulled into different directions, it may be difficult
for them to achieve the objective.
6. Subordination of individual interest to general interest: In this principle, Fayol laid emphasis
on aligning individuals’ personal goals to organizational goals.
7. Remuneration: There should be provision of fair wages for workers. The calculation of wages
should be done by considering various factors, such as business environment, cost of living, capacity
of organization to pay, and productivity of employees.
8. Centralization: According to Fayol, the degree of centralization should be decided to make the
optimum utilization of employees’ skills.
9. Scalar chain: Scalar chain refers to the hierarchy followed in an organisation from top managers
to employees working at lower levels. According to the principle of scalar chain, all communication
should pass through proper channels of hierarchy. However, in case there are any delays in
communication due to hierarchy, there must be provision of cross communication. According to
Fayol, scalar chain is vital to the success of organizations.
10. Order: Order is required for the efficient coordination of all the elements in an organization.
Management must follow the principle of the right place for everything and every man.
11. Equity: The principle of equity means fair treatment of all employees. Management must treat
all employees equally and should be free from biases and prejudices.
12. Stability of tenure of personnel: Management must strive to stabilize the tenure of employees
by providing them job security. Increased turnover always results in inefficient production;
therefore, organizations must attempt to reduce it by improving employee morale and motivation.
13. Initiative: Management must provide freedom to employees so that they can carry out orders
effectively. Employees should be encouraged to take initiatives in their respective fields in order
to perform their jobs efficiently.
14. Esprit de corps: It refers to team spirit. Management must adopt new ways to improve team
spirit among employees. This helps employees to work in harmony.

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[Link] Bureaucratic Management
Weber is a German Sociologist who mainly concerned on the issue of how organizations are
structured. His fundamental emphasis was on outlining the characteristics of what he termed
bureaucratic structures. Weber basically sought bureaucracy as a method of structuring and
improving the performance of social organizations. He believed that any goal-oriented organization
consisting of thousands of individuals require carefully controlled regulation of its activity. Weber
primarily identified the existence of three types of authority:
 Traditional authority, which is based on the loyalty and custom of individual subordinates.
 Charismatic authority, which is originated from .the unique powers of a leader and “the gift of
grace”.
 The rational-legal authority which is stemmed from the formal and clearly defined rules,
procedures, and controls that govern an organization in achieving specific objectives, which
Weber called ideal bureaucracy.

Definition: Bureaucracy is defined as a management approach based on a formal organization

structure with a set of rules and regulations. Managers are given the authority to interpret and
enforce these rules and other controls by virtue of their position. It are the rule of offices by officials
or government by bureaus based on the laid dawn rules and regulations. According to Weber,
bureaucracy exists when officials of the organization are separated from their actual tasks. It does
not refer to specific personality rather it is a standard or a model to he used in organizations.
Characteristics of effective bureaucracy
Dear learners, Weber’s ideal bureaucracy has the following characteristics:
 Clear-cut division of work: which applies more to the job than to the person undertaking the
job? This helps to define clearly authority and assignment of fixed responsibility to individual
workers.
 Managerial hierarchy: The organization follows the principle of hierarchy. That is, each lower
level is under the control and supervision of a higher one. Obedience is not owed to a superior’s
personal commands but to the impersonal authority of an office.
 Formal selection: All employees are selected, hired, and promoted based on demonstrated
competency and technical qualification.
 Career Orientations: Managers should be professional rather than owners of the units they
administer. They work for a fixed salary and pursue status or rank according to their respective
fields.
 A set of formal rules and regulations: All employees are administered through well defined
formal rules and controls. Administrative acts, decisions, and rules are formulated and recorded
in -writing. This provides a system of work procedures, stability, and impersonal operations.
 Impersonality: The allocation of privileges and the exercise of authority are not arbitrary rather
in accordance with the laid-dawn rules and regulations. Rules and controls are uniformly applied
in all cases. This can avoid the involvmn1 I personalities and decisions can be made on rational
and objective criteria.
Advantage of bureaucracy
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  Division of labor that lead to increased efficiency
 Hierarchy of authority: It develops a clear chain of command that extends from the highest to
he lowest level of the enterprise
 Employees can be hired and promoted based on merit system and expertise
 The hiring of professionals based on career orientation leads to continuity of operations.
 Enterprise efficiency will increases as formal rules and controls relating to employee
performance are enforced.
 It protects workers from arbitrary dismissal and avoids the involvement of personalities.
Disadvantage of Bureaucracy
 Rules and controls may take on significance of their own, as a result become ends in them.
Record keeping and paper work become more important in its own than as a means to the
end.
 Extreme devotion to rules and procedures may lead to blind repetition of past decisions
without concern for changed conditions. It results in managers to be paid for doing only what
they are told, nor for thinking. When the situation is not covered by the existing rules and
procedures, managers are inflexible and cannot adapt the changed circumstances.
 Decision making tend to be categorized or choices re previously programmed. This
discourages the search for further alternatives and initiatives. Workers are expected to work
to the prevailing rules and nothing more.
 Impersonal relations can lead to stereotype behavior and lack of responsiveness to individual
incidents or problems.
 While delegation authority to lower levels may increase enterprise e effectiveness, it may
also encourage an emphasis on sub-unit rather than overall enterprise goals, thereby
promoting sub-unit conflict and decreased effectiveness.
 As rules and controls define unacceptable behaviors, it is possible for workers to remain
apathetic, for they know just how little they can do and still remain secured.
2.5 Behavioral Management Theory
Behavioral management theory deals with the application of behavioral sciences and sociology. In
other words, the theory emphasized the human dimension of management. This theory is based on
studies conducted it the then Western Electric Company. The studies spanned eig1t years period and
popularly known as ‘Hawthorne Studies’. These studies were divided in to four major phases and
led by a famous Australian sociologist- Elton Mayo.
Elton Mayo’s Contributions
Mayo’s famous early experiment took place in a Philadeiphi textile mill from 1923 to 1924. The
purpose of the study was to identify the cause of high labor turnover’ in the mule-spinning
department, which was unto 250 percent. The research team, after talking to the workers, identified
the following problems.
o Workers had a low opinion of their work,
o The job proved to be very solitary in nature, and
o The workers appeared to have no communication with each other.

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Mayo decided to introduce two ten - minute rest periods in the morning and two 10 minutes in the
afternoon in the department. The results were surprising. Analysis of the research result showed that
not only the rest periods (physiological factors) which led to high morale and productivity but also
the psychological factors, which were more important in breaking the monotony of the work.
Mayo and his associates obtained additional and far more substantial findings shortly after the
research when conducting the Hawthorne Studies.
 Hawthorne Experiments.
In 1924 a group of professors from Harvard Business School began a project to study the
relationship between physical working conditions and worker productivity. Most notable among the
professors was Elton Mayo, a psychologist. The experiments and interviews were conducted over a
period of eight years, from 1924 to 1932.
The experiments were
• The Illumination Experiment (1924-1927) The illumination experiments were based on the
belief that such factors as fatigue and monotony were functions of improper job design and
environmental conditions (lighting, temperature, and materials flow). In 1924 a study of
these factors was commissioned by the national academy of sciences (NAS) at the
Hawthorne works of the western electric company near Cicero, on Chicago's west side. Two
groups of workers were examined: a control group, whose illumination would not be varied,
and a test group, whose illumination would be varied.
• The Relay Assembly Test Room The results were supervising. Regardless of the level of
light, which in one case equaled moonlight, productivity increased in both control and test
groups unable to explain the results, researchers began looking for other key variable,
including pay, rest periods, and refreshments yet, no matter how they manipulated the
variables, productivity increased. Even after canceling all the privileges that workers had
recently earned, productivity still increased. Reinstating rest pauses and refreshments led to
yet another increase. Researchers were at a loss to explain the results.
During the studies, which lasted until 1927, output increased from 2,400 relays to 3,000 relays per
week per worker. Just as researchers were considering abandoning their efforts, Elton mayo, a
Harvard professor, began to consult on the studies. Mayo believed strongly that "a remarkable
change of mental attitude in the group" explains the Hawthorne situation; workers would perform at
higher levels if managers seemed more concerned about them. The classical theorists assumed that
people always reacted rationally and were motivated principally by money. Environmental factors
were also believed to influence productivity, but virtually no attention has been paid to the
behavioral aspects of managing.
• The Massive Interview Program. In the Hawthorne studies, the special attention given to
the group by the leader of the experiment, who was not viewed as "a boss" and who also,
gave special attention to the workers' sentiments and motives created a special relationship
that led to higher productivity. As a results of these studies, when a secondary factor, such as
the attention paid to the workers produces a result that could not have come from the
phenomenon being studied; their result is known as the Hawthorne effect. The phenomenon
being studied, you remember, is the level of lightning. After the experiments in the relay-

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 assembly test room, lengthy interviews revealed that the supervisor should show concern,
establish open communication with employers, and be willing to listen to employees.
• The Bank wiring Test Room These experiments uncovered the existence of informal
groups. These are groups not officially designated as part of the formal organization. These
informal groups were discovered as researchers sought to explain group norms or ways of
behaving to which most workers adhered.
 Conclusions of the experiments.
a) Social factor in output. Motivation is not achieved only by monetary means, but there are a lot of
non-monetary ways which influence employees to perform better, after all employees are human
beings who are social animals.
b) Group Influence. Groups other than official groups also influence the behavior of employees in
an organization. Therefore management has to deal with groups not individuals.
c) Conflicts. Because of this groupism, conflicts may arise between management and workers and
among the workers themselves. Hence, management must recognize the existence of conflicts
and must devise ways and means to minimize them.
d) Leadership. Leadership does not emerge only from a formally appointed superior as was held by
earner thinkers. Informal leaders may emerge in a formally organized group. Hence,
management should keep this factor in mind when dealing with subordinates or employees.
e) Supervision. The supervisions attitude is very important to achieve efficient and productive
work, friendly nature, attentiveness, genuine concern for workers, etc will help in increasing
motivation among workers leading to productivity.
f) Communication. Communication is a very important tool to explain the rationality of any action
the management takes and can also involve the employees in decision making. This will ensure
that workers are kept satisfied in an organization.
The conclusions of these experiments are the foundations for the human relation theory. The main
focus of this theory is on two areas, an organization should be viewed in social as well as economic
and technical terms; and the social process of group behavior should be understood clearly. It
considers an organization to be a combination of both formal as well as informal form of
organizations.
The main features of the Human relation theory are,
 The organization is a social system.
 The social environment effects people in an organization and also is affected by them.
 In an organization both formal and informal organizations exist and influence each other.
 It recognizes that there will be conflicts between the organizations interest and an
individual's interest and a manager should be prepared to eliminate these conflicts either by
avoidance or by giving good solutions.
 Man is interdependent and his behavior can be predicted.
 Man has needs and is motivated to work to fulfill these needs.
 Man is not always rational.
 Communication is very important in an organization.
 Team work plays an important part in achieving coordination and integration in an
organization.
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  Limitation of this theory
It is not a new theory; it is merely a modification of classical theories.
2.6 Modern Management Theory
Each of the approaches we have discussed so far has shed some light on some aspect of the
management process. Followers of scientific management emphasized scientific decision-making.
Administrative-management studied managerial work patterns in order to learn the secrets of
executive success. Behavioral scientists developed new theories of human behavior.
They considered their respective views are best and universally applicable. One simply criticizes the
other and rejects in its totality. They studied management by taking things independently. They
assumed that the whole is explained in terms of its parts. However, beginning from world war-Il and
sometime in the 1960’s, modern management theorists have tried to integrate the findings of the
scientific-management thoughts, administrative management theories, and human relation
movements to solve wartime problems. This section attempts to integrate these different
perspectives through two approaches: the systems approach and the contingency theory of
management.
2.6.1 The Systems Approach
 A system is an organized unitary whole composed of two or more parts or subsystems
delineated by identifiable boundaries from its environs and established with purpose.
 A system is a set of interdependent parts that relate in the accomplishment of some purpose

The system approach has its roots in many disciplines. It initially developed by a team of
mathematicians, physicists, sociologists’, psychologists, operations researchers, biologists and other.
This diversity of origins makes the systems approach truly integrative and provides it with greater
explanatory power than that of any of its constituent disciplines alone. The approach unified the
goods from all the previous management approaches and studied management by putting things
together. It assumes that the whole is greater than the sum of its parts.
Theoretically, there are two kinds of systems:
(a) Closed system: This is when an organization ignores the various influence of the
environment and becomes self-satisfying, inward looking, and resist change which is in
contrast to modern management theory of change. It is a system that does not depend on
other systems for its inputs and outputs. Example, when a company produces products that
nobody wants or needs.
(b) Open system: This is when a system depends on other systems for its inputs and cannot exist
in isolation. A system has a number of interdependent and interacting parts each with a goal
and at the same time a sub-system of another larger system. In other words, in an effort to
achieve its objectives, an open system affects and being affected by both internal and
external environments A company cannot solve a production problem, for example, without
considering whether other organizations will deliver the necessary materials on time or at a
reasonable price.
A healthy human body is a product of a continuous interaction of all its sub systems (such
digestive, circulatory, respiratory, nervous, etc.) among themselves and with the external
environment (such as air, water, heat, food, etc.). Similarly, an organization is a unitary whole
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 having parts (like production, marketing, finance personnel, etc.) that intact each other and with
the external environment (like suppliers, distributors, dealers, customers, competitors,
government, etc.).
Characteristics of open systems
1. Taking inputs: This is importing energy or factors of production from the environment such as
raw materials, people, money, information, etc. For example, Motors Company, as shown in the
table below, takes steel, labor, plastics, equipment, etc. And the university students, staff, and
grants that will be further processed,
2. Throughputs: This is the processing or transforming of inputs into another form (such as semi-
finished or finished goods).
3. Outputs: These are the results of the transformation process. Every organization to grow and
mature like other living things must export an output to the environment such as products and
information.
4. The cycle /circularity/ of events: This is the repetitive process of taking inputs transformation,
and producing outputs. This cycle must be maintained if an organization is to exist.
5. Negative entropy: Entropy is the natural process of decay, death or disintegration. When inputs
diminish, the system will eventually run dawn. The system of arresting or controlling the natural
disintegration is called negative entropy. It helps to maintain an organization alive and keep its
identity. Example, a replacement of an old cell by a new helps to keep the organism alive and
similarly the conception and introduction of a new product followed by the declining and death
of an old item helps to maintain the organization alive.
6. Synergy (holism or working together): The simultaneous action of different parts of an open
system functioning in a harmonious and integrated manner produces more total effect than the
sum of the separated efforts of individual parts. That is the whole is greater than the sum of its
parts. In other words, the outcome of a team is greater than the sum of its parts.
7. Steady state /dynamic homeostasis/: Organization should adapt to environmental changes.
Homeostasis is a tendency of maintaining equilibrium condition by making constant and
proportional adjustment in response to changes in its environment. An organization should be
stable. Its various parts should be in balance with one another. If an organization is to survive, it
must correct the disruptive forces of the environment. Example, replacing gas energy by hydro-
electric power and solar energy as a result of deterioration of natural resource such as crude oil.
8. Equifinality: The same output can be achieved in multiple ways, with different inputs, and
different transformation methods. There is no single best way of doing a certain job. One can
achieve desired goals in various ways. Thus, search for potential courses of action to achieve
goals. Example, profit can be achieved by reducing cost or maximizing revenue through making
more sales at a reduced price.
In sum, the systems approach views organizations as organic and open systems having
interdependence and interactions between the organization and its environment and among various
sub-systems to exchange information and energy. It recognizes organizations are systems that
procure and transform inputs to outputs (goods and services), which are subsequently discharged
into their external environment.

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The open systems concept gives managers a better and more complete understanding of the
situations, realities, and options they have to deal with. It enables one to see how social,
psychological, economic, political, and technological forces determine the goals of the organization.
It helps to see the problems of the organization in an integrative manner by considering internal and
external forces.
2.6.2 Contingency Approach
The contingency approach has gained popularity since the 1970’s although the-’idea is not new. It
attempts to understand the effectiveness of different managerial techniques under varying conditions
and in specific circumstances. It seeks to match different situations with different methods and
rejects the universality of management syndrome of all the previous management theories. The basic
of contingency approach is that there is no one best way of managing. No plans, no generation
structure, no leadership style, no control system fits every situation. Every organization is unique,
existing in a unique environment, with unique employees and unique goals. Managerial practices
and technique that are appropriate in one situation may not be appropriate in another. This is
because the world is too complex to be managed by a single approach in all situations and the
contingency theorists believe that there are many ways to perform the various managerial functions.
Thus, students of management must learn multiple ways to compete, innovate, create, motivate, and
lead in the future.
The following are the major factors for the contingency view to management to become more
relevant and prominent today than ever before:
 Increased globalization of enterprises and the need for more government- business alliances to
compete internally.
 The need for ethical and socially responsive leadership.
 Changing demographics and skill requirements of the workforce.
 The emergence of new organizational structure that emphasizes speed in reacting to
environmental changes.
 Changing needs, preferences, and desires of employees for job security, participation,
ownership, and personal fulfillment.
Major points about the contingency approach
 There is no one best way to design organizations and manage them.
 Managerial policies and practices must respond to changes and adaptive to the situation at hand
and to the environmental forces.
 Management should sharpen its diagnostic skills so as to anticipate and comprehend
environmental changes.
 Managers should have adequate human relation skills to accommodate changes.
 Managers should be flexible enough as there is nothing rigid in management affairs and
allowances must be made for changing circumstances.
 Management should be selective in using various principles and tools of management.
 Management should use the contingency models in designing the organization structure,
developing information and communication system, adapting effective leadership styles, and
formulating suitable objectives, strategies, policies, and practices.

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Self- Assessment questions
1. There have been different management views over along period of time. Discuss their
areas of emphasis.
2. Discuss the advantages of division of labor as described by Adam Smith.
3. Explain in brief the contributions of the following individuals to the development of
scientific management theories.
 Frediric W. Taylor The Gilbreths
 Henery [Link] Harrington Emerson
4. Why is Henery Fayol known as the father of the principles of management? Discuss
5. Review the characteristics and demerits of ideal bureaucracy.
6. List dawn the merits and demerits of scientific management.
 Merits Demerits
7. Briefly describe the four phase of the Hawthrone studies.
 Phase one Phase two Phase three Phase four
8. How does the systems approach succeed to integrate all the previous management
theories?
9. Why do you think the contingency approach is more critical today than ever before?
Mention some of the reasons for using the situational approach to management
CHAPTER THREE
1. PLANNING
3.1. Introduction
Planning is the most fundamental function of management. An organization can succeed in
effective utilization of its resources when its management decides in advance its objectives, and
methods of achieving them. Without this purpose and coordinated effort the results are chaos,
confusion and wastage of resources. For a manager and a group of employees one important thing to
be decided or identified is the objective to be accomplished and the next step is accomplishing them
by devising a course of action. This raises the question of what work needs to be done, when, how it
will be done, what the necessary work components should be, the contribution of each components,
and the manner of accomplishing them.
Planning represents the expenditure of thought and time now for an investment in the future. It is
true that some goals are accomplished through little planning effort. But in this modern age where
many tasks have become quite complex-more technology is involved, more people want to be
informed and participate in what is going to be done and with the ever increasing diversity of
products and services-planning has become a necessity.

3.2. Planning Defined

Some of the most common definitions of planning are the following:
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  Planning is the process of establishing objectives and choosing the most suitable means for
achieving these objectives prior to taking action.
 Planning is preparing for tomorrow today; it is the activity that allows managers to determine
what they want and how to get it.
 It encompasses defining the organization’s objectives or goals, establishing an overall
strategy, and developing a comprehensive hierarchy of plans to integrate and coordinate. It is
concerned with ends (what is to be done) and means-how it is to be done.
From the above definitions one can infer that when planning, managers have five key
responsibilities as described below.
1. Construct, review, and/or rewrite their organization’s mission
2. Identify and analyze their opportunities
3. Establish the goals they wish to achieve
4. Identify, analyze and select the course or courses of action required to reach their goals
5. Determine resources they will need to achieve their goals.
3.3. Characteristics of Good Plan
Every sound business plan must have the characteristics mentioned below:
 Planning should, first of all, be based on objective thinking. It should be factual, logical and
realistic. It also needs to be directed to achieve organizational goals rather than personal
objectives.
 Since a plan is a forecast of some future action, it must have the quality of future. A plan must
foresee with reasonable accuracy the nature of future events affecting the firm.
 Because no one can foresee the future, plans must be flexible. The more difficult it is to predict
the future, the more flexible the plan must be.
 Stability is related to flexibility. A stable plan will not have to be abandoned because of long term
changes in the company’ situation. It may affected by long range developments but it should not
be changed materially from day to day.
 A business plan must be comprehensive enough to provide adequate guidance but not so detailed
as to be unduly restrictive.
 Although a good plan must be comprehensive, it should also be simple.
 A plan should not be ambiguous. Lack of clarity makes understanding and implementation
difficult.
 Planning is a continuous process rather than behavior at a given point of time
 Planning is undertaken at all levels of the organization
3.4. Importance/Purpose of planning
Without planning, business decisions would become random, ad hoc choices. Some of the
concrete reasons for the paramount importance of planning function are the following:
1) Planning is unique in that it establishes the objectives necessary for all group effort: Planning
sets objectives and how to achieve them; it is necessary in determining a.) What kind of
organization structure is required b.) What kinds of people are required? c.) How to lead
people effectively d.) Determining standards for control.

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 2) Minimizes risk and uncertainty: it provides more rational, fact based procedure for making
decisions. It allows managers and organizations to minimize risk and uncertainty.
3) Helps focus attention on organizational objectives: planning helps managers focus attention
on organizational objectives and direction of action for achieving these objectives. This makes
it easier to apply and coordinate the resources of the organization more efficiently.
4) Facilitates control: in planning, the manager gets goals and develops plan to accomplish these
goals. These goals and plans then become standards or benchmarks against which
performance can be measured. The function of control is to ensure that the activities conform
to the plans. Thus, controls can be exercised only when there are plans.
5) Leads to success: planning does not guarantee success, studies have shown, often things being
equal, that companies which plan outperform not only the non planners but also outperform
their own past result.
3.5. Understanding the Need for Planning
We discussed in the first chapter that a need for management was felt as people started forming
groups to achieve their goals. They were quick to realize that managing is necessary to ensure
proper coordination of all the individuals in the group. If the group effort is to be successful, every
member should know exactly what is expected of him/her. This is the fundamental function of
planning. This is a basic function of the manager. Planning is the most crucial part of the functions
of the manager. The importance of planning cannot be over emphasized. It has been rightly said that
failure to plan is planning to fail. Most of the organizations very often fail due to poor planning. In
spite of the entire resources one may have, without planning one cannot move ahead. Planning is
determining the objectives and formulating the methods to achieve them. However, the concept is
simpler said than done. It is believed that a job well planned is half done.

Moreover, to better appreciate the needs for planning consider the following five essential
points:
i. Increasing time spans between present decisions and future results: the time span separating the
beginning of a project and its competition is increasing in most organizations. Obviously
planning becomes very critical in situations where the results will occur long after the decisions
actually are made.
ii. Increasing organizational complexity: as organizations become large and more complex, the
manager’s job also becomes bigger and more complicated due to the interdependence among the
organization’s various parts. For instance, the more products a company offers and the more
markets it competes in, the greater the volume of planning and decision making. Planning enables
each unit in the organization to define the jobs that need to be done and the way to go about
doing them.
iii. Increased external changes: the faster the pace of change becomes, the greater the necessity for
organized response at all levels in the organization and organizing responses spring from well
thought out plans.
iv. Planning and other management function’s relation: the need to planning is evidenced by the
relationship between planning and other functions. Before a manager can organize, staff, lead and

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 control, he/she must have a plan. Otherwise, these activities have no purpose or direction. Clearly
defined objectives and well developed strategies set the management function into motion.
v. If one is left with no alternatives, there is no scope for planning or choosing. It is essentially an
intellectual process requiring knowledge, experience and intelligence. Planning is needed to
make things happen or to cope up with the changes. In other circumstances, one can simply be a
spectator and watch things in action.
3.6. Types of Plan
We have seen that planning is essential for the success and survival of any organization. One should
also understand that there exist many different types of plans. One can plan effectively only if one
understands the different types of plans and its purposes.
 Objective is the ultimate goal toward which the activities of the organization are directed. In case
of a university, teaching, research and enlightening of students are the objectives. The objective
of the examination department of a university would be to conduct the exam in a fair and reliable
manner and declare the results on time.
 Though the objectives of the departments are different, they are consistent with the purpose. One
department alone is not capable of accomplishing the purpose.
Since organizations may be involved in quite a large number of plans that are widely varying in their
degree of importance to the organization, there has to be a method to classify plans. Accordingly,
plans can be classified on different bases-time/duration, use dimension/repetitiveness, scope/the area
they cover, and on flexibility bases.
i. Classification Based on Duration/Time Dimension
All planning deal with the future and the future is measured in time. Hence, it is convenient and
acceptable to think of different kinds of planning in terms of the time periods for which the
planning is intended. Plans can be classified into three based on time as: long range, intermediate
and short range.
a) Long range plan: has longer time horizon; it is concerned with not with the immediate future,
but the distant future. It is concerned mainly with the future direction of organization. The
time may range from five to fifteen years.
b) Intermediate plan: is a plan ranges between long range and short range plan. What is long
range or what is short range cannot be generally defined. In most of the cases it depends on the
size of the organization and the type of business it is in. For example, for wheat farm it takes
six months to harvest and this can be considered as a short range but for an orange farmer a
harvest takes 6-7 years and it can be taken as short range.
c) Short range plan: are not prepared separately, they are complementary of long range plans.
The period is generally one year or less. Sometimes it can go up to two years.
ii. Classification Based On Repetitiveness/Use Dimension
Based on use dimension, plans can be divided as:
1. Singe use plans: are predetermined courses of actions developed for unique, nonrecurring
situations. It becomes obsolete whenever the time period for which it is prepared expires.
They have clear time usefulness. These types of plan include program and budget.
 Programs: defined as a comprehensive plan that includes future use of different resources
in an integrated pattern and establishes a sequence of required actions and time schedules
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 for each in order to achieve the stated objectives. Thus, a program includes objectives,
policies, procedures, methods, standards and budgets. For example, launching of a satellite
will require programming.
 Budget: is a statement of expected results expressed in numerical terms. It is a quantitative
expression of a plan. It varies in accuracy, detail and purpose. Master budget contains the
consolidated plan of action of the whole enterprise and is in a way the translated version of
the overall business plan of the organization. Production budget is the plan for the
production department. The capital expenditure budget, raw, material budget, labor budget,
etc are budgets for the production department. Some budgets vary according to the
organization’s level of output. These are called variable or flexible budgets.
2. Standing plan: unlike single use plan, a standing plan specifies how to handle continuing or
recurring activities such as hiring, granting credit, maintaining equipment. Once constructed,
they continue to be useful over many years. Examples include policy, rule and procedure and
strategy.
 Policy: is a general statement or understanding which guides or channel thinking in
decision-making. Policy defines an area within which a decision is to be made and ensures
that the decision is consistent with the objectives of an organization.
 Rule: is also a plan that prescribes a course of action and explicitly states what is to be
done under a given set of circumstances. Here, you need to observe the differences
between rules, procedures and policies. The policies are guides to decision-making and
allow the managers to use their discretion. Rules and procedures allow no such discretion.
 Procedure: is a subdivision of policy. It states a series of related steps or tasks to be
performed in a sequence. In common parlance it is called standard operating procedure.
 Strategy: is the process of determining the major objectives of an organization and the
policies. It is a program that governs the acquisition, use and disposition of resources to
achieve those objectives. In other words, strategy is then general program of action and
deployment of resources to attain comprehensive objectives. Thus, an entrepreneur needs
to decide what kind of business he/she is going to do. A strategy may also involve
designing a set of policies for the sales department of an organization. Treatment of
strategy as a type of plan is justified by its practical advantage and the importance it is
likely to have in giving guidance.
A procedure should be stable yet flexible enough to allow emergencies and unique situations to
occur. It is noteworthy to understand that procedures and rules offer the advantage of standardizing
behavior; but they restrict individual creativity and encourage blind obedience. The more of both
exist, the less discretion/ freedom employees have to adjust to changing situations.
iii. Classification Based On flexibility
Plans are also classified on their degree of flexibility to respond to environmental uncertainties.
There are three types of plans related to flexibility:
 Variable plan: states figures in terms of ranges to allow flexibility for the uncertainties of the
environment. It is a type of plan having tolerable limits. For example, “three months plus or
minus one week” to finish a project.

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  Alternative/contingency plan: is similar to variable plan in recognizing environmental
uncertainties but in this case the planners set up two or more entirely separate plans. These
kinds of planning are costly since many alternatives are developed and some may never be
used.
 Supplementary plans: are used to reduce the constraining effects of the original plan by
providing a prearranged channel.
iv. Classification Based Scope/Organizational Level
Scope of plan refers to the range of activities covered by the plan. In this system of classification
there are three types of plans as described below.
 Strategic plan: is the process of analyzing and deciding on the organizational mission,
objectives, major courses of action/strategy and major resource allocation. Strategic
planning is done by taking into account environmental analysis-strengths, weaknesses,
opportunities and threats (SWOT analysis). Generally, strategic planning is performed by
top level managers, mostly long range in its time frame, expressed in relatively general non
specific terms and provides general direction to the organization.
 Tactical planning: strategic/long range planning answers the questions: where are we now?
& where we want to go? Tactical planning answers the question: how do we get there? In
other words, tactical plans refer to the processes of developing action plans through which
strategies are executed. Tactical plans are narrower in scope than strategic plans. Strategic
plan is concerned with both the means and ends where as tactical planning is mainly
concerned with the means. Middle level managers are often involved in tactical planning.
 Operational Planning: is most specific and detailed. It is made at the operational level and is
concerned with the day to day and week to week activities of an organization. It is mainly of
short range, usually covering one year or less.
Strategic planning and tactical planning are highly complementary in that they are like two sides of
the same coin. Strategic planning provides the big picture; operational planning provides the detail
without which the big picture would remain in blank outline.
3.7. Basic Planning Processes
All types of planning require a manager regardless of their organizational levels to use basically the
same planning steps even though the plans being developed may be different. In order to better
understand the managerial planning process, one should grasp the following eight steps of planning
process:
1) Being aware of the existing situations: an awareness of opportunities and threats in the external
environment as well as the strengths and weaknesses within the organization is the real starting
point of planning. All managers should know where they stand in the light of their strengths and
weaknesses, understand what problems they wish to solve and why, and know what they expect
to gain. Setting a realistic objective depends on this awareness.
2) Developing Planning Premises: this step in planning is concerned with establishing, circulating
and obtaining agreement to utilize critical premises such as forecasting, applicable basis
principles and analyzing existing company plan. Planning premises are assumptions about the
environment in which the plan is to be carried out. Forecasting is important here. Although the
future is full of uncertainties, the manager must make certain assumptions about it in order to
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 plan properly. These assumptions are based on forecasts of the future. The assumptions are
developed for both internal and external environment such as availability of capacity, required
skills, company policy, and procedure, economic condition, labor supply, government control,
etc.
3) Setting clear cut Objectives: Objectives or goals are the end results towards which activities are
aimed. It is not only the end point of planning but the end towards which organizing, staffing,
leading and controlling are aimed. When a manager sets objectives (goals), he or she is deciding
on a target for the energies and efforts of the organization or its sub units. Peter Drucker has
developed an effective aid to objective setting, that is, management by objective (MBO) which is
a management philosophy emphasizing on collaborative objective setting by managers and
employees. According to MBO, managers and employees jointly set objectives for the
subordinates. MBO usually results in employees who are more committed to the achievement of
the objectives than they might be if they were not involved in setting their objective.
Management by objectives is a comprehensive managerial system that integrates many key
managerial activities in a systematic manner and that is consciously directed toward the effective
and efficient achievement of organizational and individual objectives.
Features of MBO
 Superiors and subordinates jointly identify the common objective, the results that should be
achieved and the contribution of each individual.
 Objective orientation is its essence; the basic emphasis of MBO is an Objective
 It tries to match the objective and available resources.
 The MBO is characterized by the participation of concerned managers and employees in
objective setting and performance reviews.
 Periodic review of performance is an important feature of MBO.
Process of MBO
MBO is a stepwise activity which involves the steps given below:
1) Setting of organizational purpose and objectives
 The first step in MBO is to determine the purpose or mission and the more important goals
of the enterprise for a given period ahead
 Why does the organization exist?
 What business are we in?
 What should be our business?
2) Identifying Key Result Areas (KRA’s): KRA’s are derived from the expectations of the various
stakeholders and indicate the priorities for organizational performance i.e., profitability,
productivity, market standing, labor reactions, innovations and diversification.
3) Setting subordinate’s objective: The subordinate’s states his own objective as perceived by him.
Objectives are set by mutual negotiation.
4) Matching resources with objectives: The next step is to match the resources with the objectives
and verify that resources are adequate to fulfill the individual and organizational objectives.
5) Appraisal (Evaluation): Measuring whether the subordinate is achieving his/her objective or not.
Ongoing process with a review to find out deficiency and to remove it promptly.

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Benefits of MBO
 Better management: MBO forces managers to think about planning for results, rather than
merely planning activities or work.
 Clarity in organizational action: MBO tends to provide the KRA’s. It provides basis for
long-range planning.
 Encouragement of personal commitment: It encourages people to commit themselves to
their goals
 Development of effective controls: It aids in effective control because it provides a clear set
of verifiable goals as the best guide.
Limitations of MBO
 Failure to understand the philosophies of MBO: Managers fail to understand and appreciate
this new approach. MBO demands vigorous analysis as an integral element of the
management process.
 Difficulty in setting goals: truly verifiable goals are difficult to set; objectives are more in the
form of statement rather than in quantitative form.
 Emphasis on short-run goals: There is a danger of emphasizing on the short run at expense of
the longer range. Periodic review of performance e.g. sales manager.
 Danger of inflexibility: Managers often hesitates to change objectives
 Frustration: introduction to MBO tends to arise high expectations for rapid changes (the
vision of new world)
Characteristics of Effective Objectives
Objectives set by a company should, in general, possess the key features stated below. In short, they
should be SMART.
 Specific: objectives should be as specific as possible i.e. they ought not to be general.
 Measurable: objectives should be expressed in numerical terms such as increase in ROI by
5%, so that whether they are attained or not can be easily known.
 Achievable but challenging: challenging goals inspire employees to work hard; however, if
they are beyond what can be achieved with the available resources, they can result in
frustration and low motivation of employees. Objectives should not be too easy or too
difficult to achieve.
 Realistic: what is aimed to achieve should be something that can be realized or possible.
E.g. an agro business which plans to cause rain to fall may not realize it as it is unrealistic.
Rather, such a business can plan to use water from wells through irrigation.
 Time bound: objectives should be set for a definite period of time during which they have to
be achieved such as six months, one year, etc.
 Focus on key result areas: activities that contribute most to the firm need to be focused
while setting objectives.
 Linked to rewards: employees should be privileged to rewards upon the achievement of
stated objective.
4) Determining alternative courses of actions:

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This step focuses on constructing a list of possible courses of actions that will lead to goal
achievement. Courses of actions available to a manager to reach a goal represent alternative paths to
a destination. When developing alternatives, a manager should try to create as many as possible
roads to each objective so that the best alternative can be selected among them.
5) Evaluating alternative course of actions
Each alternative must be evaluated to determine which one or which combination is most likely to
achieve the set objectives efficiently and effectively. Most managers begin their evaluation by
listing advantages (benefits) and disadvantages (cost) for each alternative. When evaluating
alternatives, managers need to know the kind and amount of resources including time that each
alternative will require. In addition to financial and time factors, managers need to consider the
effects each alternative is likely to have on organizational members and external society at large.
6) Select the best alternative
The analysis of each alternative’s benefit and cost should result in determining one course of action
that appears better than others. If no single alternative emerges as a clear winner, managers should
consider combining two or more of them, either in part or in their entirety. The alternatives not
selected now may be considered as possible fall back position- a choice for contingency plan or
derivative plan that supports the major plan.
7) Implementing the Plan
After the optimum alternative/s selected, the manager needs to develop an action plan to implement
it/them. Among the issues to be resolved include: who will do what? By what date will each task be
initiated and completed? What resources will each person have to perform the task? What type and
degree of authority will be granted to achieve the ends? & so forth.
8) Evaluation and control
Once the plan is implemented, managers must monitor the progress being made and be prepared to
make any necessary modification. Since environmental conditions are constantly changing, plans
must often be modified. Modification may also be required due to problems with implementation
process. Generally, the essence of evolution and control is to see whether the desired objective is
achieved or not.
3.8. Barriers to Planning

All managers want their plans to be effective-yield the desired results. They must be aware of the
potential barriers and work to avoid/overcome them. Here are some of the common barriers that
inhibit success of planning:
1) Inability to Plan: people are not born with the ability to plan. Some managers are not
successful planners because they lack the background to plan. Some may not have conceptual
ability; this is a more difficult barrier to overcome. Most people can, however, improve their
planning ability through training and practice.
2) Improper planning process: some managers have not been exposed to the idea of planning as a
process and do not know how to plan and how to go about it, but it can be remedied with
management training.
3) Lack of commitment to the planning process: Some managers merely react to situations rather
than try to anticipate the events through sound planning. The development of plan is hard

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 work; it is much easier for a manager to claim there is no time for planning. Another reason is
the fear of failure. This happens if the organizational climate discourages innovation and
punishes failures.
4) Improper information: Information that is outdated, inaccurate, of poor quality, or of
insufficient amount can be a major barrier to planning.
5) Focusing on the present at the expense of the future: failure to consider the long term
implications because of emphasis on the short-term problems will lead to troubles in
coordinating plans and getting ready for the future. Emphasis on immediate profit can turn the
manager’s attention away from long range goals and efforts to guarantee profits in the future.
6) Too much reliance on the planning Department: Planning departments conduct studies, do
research, build models, and project probable results, but they do not implement plans. They
are aids in planning. Somewhere, somehow, a manager or managers must be able to translate
the planning department’s output in to programs to achieve specific goals at specific times. The
values of vast experience acquired by managers outside the planning departments are
sometimes ignored.
7) Over emphasis on controllable variables: managers concentrate on the things and events
within their powers to control while failing to consider outside factors. Managers show a
decided preference for the known and an aversion to the unknown. But plans are educated
guesses about the future. They are only attempts to predict the impact of present decisions on
the future and the future’s impact on the organization.
Making Planning Effective
To improve the effectiveness of planning, one may employ the following guidelines:
 Use as much information as possible: the manager should increase the probability of having
both the proper quantity and quality of information needed by acquiring as much data as
possible within the limits of time and money.
 Multiple sources of information: by developing multiple sources of information, the
manager can overcome the limitation brought about by focusing on a goal from only one
view point. Additional critical information can be received from accounting, legal counsel,
personnel and production. All potential sources need to be cultivated.
 Take time to plan: Planning should never be done in haste and repent. One may save some
time by developing a plan quickly. But in the event of things going wrong, if you have not
considered all the factors in a hurry, you are under pressure of both the time and resources.
This becomes a sure recipe for trouble. The trouble is not only for the individual, but also
for the organization.
 Involve and communicate with all those concerned: opening the planning process to those
who have the ability and interest could result in more and perhaps better plans. Such an
exercise inculcates in people a commitment to achieve the goals. Participation in the process
of planning gives a sense of pride and binds them to the objectives.
 Evaluate and revise: Evaluate the plans at regular intervals to make sure that it is
contributing to the objectives in the expected manner
3.9. Skills Required In Planning
Forecasting and decision making are the two indispensable skills required in planning.
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a) Forecasting: is the attempt to predict outcomes and future trends that can serve as basis for
planning by inference from known things. By relating the past and the present information,
management should be able to anticipate the future environment.
Forecasting Methods
We can use both qualitative and quantitative forecasting methods to predict future situations.
 Qualitative Forecasting: is a judgment based forecasting technique used when hard data are
scarce or difficult to find.
 Quantitative Techniques: is a technique used when enough hard data exist to specify
relationships among variables. Quantitative forecasting can be used if information about the
past and the present exists and if this information can be specified numerically and if it can
be assumed that the pattern of the past will continue. On the contrary, inputs to the
qualitative forecasting come mainly from intuitive thinking, judgment and accumulated
experience.
4. Managerial decision making
 Meaning and definition of decision making

Decision making is defined as the process of selecting, based on some criteria, the best course of
among a number of alternatives. It is rational choice among alternatives. There should be options to
choose from; otherwise choosing is not possible and no decision. Decision making is a process; not
a single act like switching/opening light.
Managers at all levels as well as non-managers are engaged in decision making, thus decision
making is indeed universal. Although decision making is part of everyone’s life, it is an important
function of managers because the quality of the decision made by them determines the success or
failure of the business and, like it or not, managers are evaluated and rewarded on the bases of the
importance, number, and results of their decision. In management, the term decision making and
problem solving are used interchangeably because managers mostly make decisions to solve
problems. But all decision makings are not aimed at solving problems. Many decisions are made to
seize opportunities. Managers see a chance, event or breakthrough that requires a decision to be
made.
 Types of Decision Making
Not all decision making situations are identical. The nature of the decision often dictates the
manager what approach to take. In this section, various types of decisions will be discussed.
a) Programmed and Non-Programmed Decisions
 Programmed decision: decisions are said to be programmed if they are repetitive and a
definite procedure or policy has been developed for determining when the decision should be
made and what actions should be taken.
 Non-programmed decision: decisions are non-programmed when they are novel, unique, one
time and unstructured. This calls for general problem solving process, judgment, intuition and
creative problem solving abilities of the manager. Ideally the main concern of top level

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 managers should be non programmed decisions while programmed decisions deserve
attention of managers at the first level.
b) Proactive and Reactive Decisions
 Proactive decisions: decisions made in anticipation of external changes or other future
conditions are referred to as proactive decisions.
 Reactive decisions: a reactive decision is one made in response to changes that have already
occurred.
c) Intuitive and Systematic Decisions
 Intuitive decision: it involves the use of estimates, guesses, or hunches to decide among
alternative courses of action. Sound intuition is developed primarily from experience and
training.
 Systematic decision: in contrast to purely intuitive decision making, systematic decision
requires a clear set of objectives, relevant information basis and sharing of ideas among key
managers and other employees.
3.10 Decision Making Conditions
Decisions can also be classified according to the level of risk and certainty associated with them.
Based on degree of certainty, there are three conditions of decision making-certainty, risk and
uncertainty.
 Certainty: this is the condition in which the decision maker has full information about the
problem, the alternative solutions, complete knowledge of the probability of the outcomes
of each alternative. It is rare to find decisions made under certainty condition in highly
dynamic environment.
 Risk: in this situation, the manager knows what the problem is, knows the alternatives, but
does not know how each alternative will work out even though he/she has some estimate of
the probability of possible outcomes of each alternative. Decision making under risk is,
probably, the most common situation faced by managers.
 Uncertainty: in this situation, there may be limited information about the alternative
solutions, but the decision maker has absolutely no knowledge of the probability of the
outcome of each alternative. Confidence in decision making is low because decisions are
made on educated guesses, relevant experience, subjective judgment and intuition. Thus,
decision making under uncertainty is mostly non programmed decision.
3.11 Decision Making Process

Because decision making is such an important part of a manager’s job, we need to have clear
understanding regarding it. One of the most effective measures to this end is to follow a conscious,
rational decision making process. Decision making is a sequential process. It includes the following
major steps:
1. Identifying the Problems or Opportunities: the decision making process begins with the
determination of a problem or opportunity that may exist. This is the most crucial step as the
accuracy of this step affects all the steps that follow. Problem is the realization that discrepancy
exists between a desired state and current reality. Opportunities must also be clarified before any

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 decision can be made. Opportunity is a chance, occasion, event, breakthrough that requires a
decision to be made.
In problem solving a manager must differentiate between a problem and symptoms. A symptom
is signals that something is wrong and draws the manager’s attention to find the cause-the
problem. To isolate symptoms from problems, a manager needs to develop a sound questioning
process and ask the right questions. According to peter Drucker, the most common sources of
mistakes in management is the emphasis on finding the right answer rather than the right
question. Searching for the root cause of a problem leads to better definition of the problem. It is
difficult to determine a solution to a problem if the root cause of the problem is unknown. For
instance, large number of a bank’s customers may close their accounts. The cause of the problem
should not be stated as loss of account since this is just a symptom or visible indicator of other
root causes resulting in awareness that a problem exists. The bank might have identified
dissatisfaction of customers as a cause to the problem. Still this is not enough until the root cause
for customer dissatisfaction is known which may be impolite treatment of customers by the
bank’s tellers or a very low interest rate that the bank pays for deposits.
2. Establishing Priorities: all problems are not equal in importance. As a result it is necessary
establish priorities for problems by determining their significance level and resource
requirements. Based on this fact we can consider the following issues:
 Urgency: time is critical factor for success. For example, fighting a fire that broken out in
the store is more urgent problem than fixing a broken machine. On the other hand, the
machine fixing is more likely to be urgent than repairing a type writer.
 Impact: describes the seriousness of a problem. It may affect people, sales, equipment and
any other organizational resource. Impact also describes whether effects of the problem
are short term or long term.
 Growth tendency: addresses future consideration even though a problem may currently be
of low urgency and have little impact if allowed to go unattended it may grow.
3. Developing Potential Alternative Solutions: at this point, it is necessary to look at, develop and
list as many possible alternative solutions to the problems as possible. These alternative
solutions should eliminate, correct or neutralize the problem. Note that doing nothing about a
problem sometimes is a proper alternative, until the situation has been thoroughly analyzed.
Occasionally, just the passing of time provides cure. Decision maker must always seek out
alternatives to ensure that there are choices to be made, and it is to be hoped that the best choice
will result in the best decision. Feasible alternatives to the problem should be developed using
one’s own creativity and brain storming techniques and the possible consequences of each
alternative should be evaluated.

4. Evaluating Alternative Solutions

Once alternative solutions have been developed, they may be evaluated and compared. In every
decision situations the purpose is to select the alternative that will produce the most favorable
result. The purpose of this step is to evaluate the relative merits and demerits of each alternative.
To evaluate the alternatives, decision criteria and weight to each criterion should be allocated so
that rational/ proper selection will result.
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5. Selecting The Best Alternative Solution
After we evaluate the alternatives, the next logical step is to select the best alternative that suits
to solve the decision problem. After the alternatives have been listed along their corresponding
merits and demerits, a decision maker selects the best one. In selecting an alternative or
combination of alternatives, one must find a solution that appears to offer the fewest serious
disadvantages and the most advantage. Thus, this is critical point of the decision making, the
point where a decision is actually made.
6. Implementing The Best Alternative Solution
Any decision is little more than an abstraction if it is not implemented; and it must be
implemented effectively if it is to achieve the desired objective. It is entirely possible for a good
decision to be hurt by poor implementation. Therefore, a manager’s job is not only to choose
sound course of action but also to transform the choice into effective action. Everyone involved
in carrying out the decision must know what he/she must do, how to do it, why and when it must
be done.
7. Establishing Evaluation And Control Systems:
Effective decision making involves periodic assessments of results of the chosen course of
action. If actual results are not conforming planned results, change must be made. On the other
hand, once a course of action has been decided upon, a manager cannot simply assume that its
implementation will match with the objectives; action must be monitored and their consequences
assessed. This final step provides feedback on how well the decision is being implemented, what
the negative and positive results are and what adjustments are necessary to get the results that
were desired when the solution was chosen.

 Self -Assessment Questions

1. Define planning
2. What is the purpose or importance of planning?
3. Identify the types of plan we have based on time duration
4. Describe the type of plan based on scope or organizational level
5. List out the planning process
6. What are the different barriers of the planning process that makes planning ineffective?
7. Discuss the types of decision making?
8. Describe decision making processes?
9. Explain decision making under certainty with the help of example?
10. Explain the difference between decision under risk and decision under uncertainty?

CHAPTER FOUR
4 ORGANIZING
4.1 Meaning and Definition of Organizing
What to do and how to do have already been determined in the planning process. The result of a
good planning process is a detailed program of what actions are to be taken to accomplish

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predetermined objectives, how long it will take, and where it will take place. The next task becomes
that of organizing.
Organizing is the process of identifying and grouping tasks to be performed, assigning
responsibility, delegating authority and establishing relationships for the purpose of enabling to
work most effectively together in the accomplishment of objectives. Organizing is a detailed
arrangement of work and working conditions in order to perform the assigned activities in an
effective manner. Put more specifically, the organizing function has the following four distinct
activities:
 It determines what work activities are to be done to accomplish organizational objectives
 It classifies the types of work needed and groups them into manageable way
 It assigns the grouped work to individuals and entrusts appropriate responsibility
 It designs a hierarchy of decision making relationships
4.2 Formal Vs. Informal Organization
Formal organizations, as depicted in an organizational chart, are characterized by well defined
authority relationships, job titles, policies, and specific job duties necessary to achieve set goals.
Informal organizations exist within the formal organization but operate outside formal authority
relationships. Formal organization is deliberately and rationally designed and approved by
management through the organizing process so as to achieve organizational objectives. Informal
organizations are natural groupings of people in the work situation based on their behavioral
patterns, interests, beliefs, objectives, etc. informal organizations appear in response to the social
needs-the need of people to associate with others.
Even though informal organization is not established officially, it always exists within the formal
organization. It may affect the formal organization negatively or positively. Managers should
recognize that the informal organization exists in the formal organization; nothing can destroy it.
Therefore, managers should try to use the informal organization for the benefit of the formal
organizations, instead of trying to eliminate it.
Informal organization is characterized by the following:
 Group Norms: are unwritten laws that govern the behavior of members of the informal
organization
 Group Cohesiveness: is an atmosphere of closeness or common attitudes, behavior and
performance. There is common agreement on group views. The group members develop a
cooperative spirit which is important for success. Cohesiveness is affected by such factors as
time spent together, group size, the gender make up, external threats, previous success,
frequency of interaction, etc.
 Group Leadership: the informal organizational has a group leader. This person is the one who
most actively seeks the fulfillment of the group’s informal objective.
 Communication Network: the informal organization has a communication network called
grapevine.
4.3 Importance of Organizing
Organizing is important as a way to achieve organizational goals. The points described below show
the main significance of organizing.

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  It clarifies the work environment: everyone understands what to do. The tasks and
responsibilities of all individuals, departments, and major organizational divisions are clear.
The type and limits of authority is determined.
 It creates a coordinated environment: confusion is minimized and obstacles to performance are
removed because it defines the interrelationships of the various work units and establishes
guidelines for interaction among personnel.
 It achieves the principle of unity of direction: the principle of unity of direction calls for the
establishment of one authority figure for each designated task of the organization; this person
has the authority to coordinate all plans concerning that task.
 It establishes the chain of command: the chain of command is the unbroken line of reporting
relationships from the bottom to the top of the organization. It defines formal decision making
structure and provides for the orderly progression up and down the hierarchy for both decision
making and communication. As a result, the confusion highlighted by the question, “who is in
charge here, anyway?” does not occur.
4.4 Organizing process
The organizing function is consists of the following five basic steps:
1) Reviewing plans and goals
2) Determining work activities
3) Classifying and grouping activities
4) Assigning work and delegating authority
5) Designing a hierarchy of relationships
Below, each of the five processes of organizing is discussed.
1) Reviewing Plans and Goals
A company’s goals and its plans to achieve them dictate its activities. Some purposes and
activities are likely to remain fairly constant once a business is established. For example, the
business will continue to seek profit and it will continue to employ people and other resources. In
time and with new plans, however, the ways in which basic activities are carried out will change.
New departments may be added, old ones may be given additional responsibilities; some
departments may cease to exist and new relationships among groups of decision makers may
come into being as well. Organizing will create the new structure and relationships and modify
the existing ones.
2) Determining Work Activities:
In the second step, managers ask what work activities are necessary to accomplish these goals.
Creating a list of tasks to be accomplished begins with identifying ongoing tasks and ends with
considering the tasks unique to this business. Hiring, training, and record keeping are part of the
regular routine for running any business. What, in addition, are the unique needs of this
organization? Do they include assembling, machining, shipping, storing, inspecting, selling, and
advertising? Identifying all necessary activities is of paramount importance as ignoring any may
lead to disorder, confusion and interruption of the normal flow of tasks.

Specialization: refers to the degree to which organizational tasks are subdivided into separate
jobs. Degree of required specialization dictate the number of tasks assigned to a person; the

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 greater the degree of specialization, the fewer the number of tasks assigned to a person and vice
versa. Specialization, also known as division of labor, refers to the breaking down of potentially
complex jobs into simpler tasks or activities. The result of specialization is that one person or
group may complete only a single activity or group of related activities. Division of labor creates
many different and often narrow jobs which intensifies the need for effective managerial
coordination.

Advantages of Work Specialization

 Work can be performed more effectively if employees are allowed to specialize.
 It facilitates the process of selecting employees as well as decreases training requirements.
 It enables a person performing a task to become proficient at it in relatively short time and
this in return increases efficiency.
 It saves time that always lost in shifting from one job to another.
 There is less wastage of materials in the learning process when specialization is employed.
 It allows managers to supervise more employees
 As each job is simplified, managers know what performance standards to expect and can
detect job related performance problems quickly.
Disadvantages of Work Specialization
Despite its disadvantages, specialization can create problems such as the ones mentioned below:
 When specialization is overdone, jobs become too simplified and when employees do one
simple task- for example, tightening a nut-for eight hours day, five days a week, they
become bored and tired.
 When employees become bored and tired, safety problems and accident rates increase,
absenteeism rises and the quality of work may suffer.
 The specialist lacks job enrichment, that is, his skills will be limited to only few job.
3) Classifying and Grouping Activities
Once managers know what tasks must be done, they classify and group these activities into
manageable work units. When managers group jobs that are similar in terms of tasks, processes,
or skills they are grouping them by the principle of functional similarity or similarity of activity.
This principle asks managers to apply three steps:
1. They examine each activity identified to determine its general nature. Normally,
identifiable areas include marketing, production, finance, and human resources.
2. They group the activities into these related areas.
3. They establish the basic department design for the organizational structure

In practice, the first two steps occur simultaneously, sales, advertising, packaging and shipping can
be considered marketing related activities. Thus, they are grouped under the marketing heading.
Machining, grinding, assembly and inspection are manufacturing processes; they can be grouped
under production. Personnel related activities include recruiting, hiring, training, and compensation;
they are grouped under human resources.

As the tasks are classified and grouped into related work units (production, marketing, finance,
and human resources), the third step, departmentalization, is being finalized, that is, a decision is
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being made on the basic organizational format or departmental structure. Groups, departments and
divisions are being formed on the basis of the organization’s objectives. Management can choose
one of the five departmental types.
1. Functional Departmentalization
2. Geographic Departmentalization
3. Product Departmentalization
4. Customer Departmentalization
5. Matrix Departmentalization
1. Functional Departmentalization
It involves creating departments on the basis of specialized activities of the organization like
finance, marketing, production, human resource. It groups activities based on similar skills,
expertise, and resources. It is the most common form of format for departmentalization.
Advantages of Functional Departmentalization
 Putting specialists together results in economies of scale
 It minimizes duplication of personnel and equipments.
 Employees feel comfortable in a functional structure because it gives them the opportunity to
talk the same language with their peers.
 As the structure acknowledges occupational specialization, it also simplifies training.
 It offers a way to centralize decision making and provide unified direction from the top.
 It increases the quality of technical problem solving as it gives workers quick access to those
with technical expertise.
Disadvantages of Functional Departmentalization
 Because functions are separated from one another, employees may have little understanding of
and concern for the specialty areas outside their own functional area.
 This narrowness can lead to barriers in communication, cooperation and coordination.
Departments may develop their own focus rather than a company focus.
 As the structure has rigid and separate chains of command, response time to changes in the
environment may be slow.
2. Geographic Departmentalization
This is concerned with grouping activities and responsibilities according to territory. All activities in
a geographic area are assigned to a particular manager. This individual is in charge of all operations
in that geographic area. A business firm that is dispersed geographically often uses territory as a
departmentalization basis. The territorial basis is frequently used by firms whose operations are
similar from region to region. Banks and universities employ geographic departmentalization.
The main advantages of territorial departmentalization include:
 It provides a training ground for new managers. The company can place managers out in
territories and then assess their progress. The division managers gain a broad range of
experience in running their autonomous units.
 The experienced manager’s gain away from headquarters can provide invaluable insights into
how the organization’s products or services are accepted in the field. An organization that has
a large number of divisions is developing a number of generalists for the company’s top
positions.
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  It also helps a firm develop local market knowledge and adjust its offerings more quickly to
local customer’s needs.
 Coordination among different functions within the division benefits from singleness of
purpose.
 As each division is a self contained unit, responsibility and accountability for performance are
easier to target.
The disadvantages associated with territorial departmentalization include:
 Difficulties in maintaining consistent adherence to company policy and practices
 Duplication of activities and resources
 The necessity of having relatively large number of managers.
 The company that uses this type of departmentalization often needs large number of
headquarters staff to control the dispersed operations.
 The structure lacks efficiency and economies of scale; and lack of technical specialization,
expertise and training can result.
3. Product Departmentalization
This type of arrangement assembles the activities of creating, producing, and marketing each
product into a separate department. This option is adopted when each product of a company requires
a unique marketing strategy, production process, distribution system or financial resources. In many
large, diversified companies, activities are grouped on the basis of product.
The main advantages of product departmentalization include:
 As a firm grows, coordinating its various functional departments becomes more difficult, and
product departmentalization can ease coordination problems.
 This form of structure allows personnel to develop total expertise in research, manufacturing,
and distribution one product line.
 Concentrating authority, responsibility and accountability in a specific product department
allows top management to better coordinate its activities. The need for coordinating
production, engineering, sales and service cannot be overestimated.
The main disadvantages of product departmentalization include
 Within each product line, there is production, marketing, personnel and finance-duplication of
personnel and other resources.
 Since group executives coordinate the sales, manufacturing and distribution of a product, they
become overseers of a profit center. This is the manner in which profit responsibility is
exacted from product organizational arrangement.

4. Customer Departmentalization
This type of arrangement group’s activities and responsibilities in departments are based on the
needs of specific customer groups. Customers are the key to the ways activities are grouped when
each of the different things an enterprise does for them is managed by one department head.
Business owners and managers frequently arrange activities on this basis to cater to the requirements
of clearly defined customer groups. For example, BahirDar University offers regular, weekend,
evening and distance education services to its various clients.
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The main advantages of customer departmentalization include:
 It enables to address the special and widely varied needs of customers for clearly defined
services.
 It implies the interest and commitment of the firm to serve the various customer groups as per
their special needs and wants.
 It allows the firm to gain expertise in the businesses of its customers.

The main disadvantages of customer departmentalization include:

 The difficulty of coordination among customer departments and those organized on other
bases, with constant pressure from the manager of customer department for special treatment.
 It requires managers and staff specialists familiar with the customers’ situations.
 The possibility of underemployment of facilities and specialized workers like during periods of
recession, some customer groups may disappear.
5. Matrix Departmentalization
Another kind of departmentalization is matrix or grid or project organization. The essence of matrix
organization, normally, is combining different bases of departmentalization in a single
organizational structure. This type of arrangement is prevalent in construction, marketing,
installation of an electronic data processing system, in management consulting firms whereby
experts from various fields work together.
The main problems of matrix departmentalization include:
 A state of conflict exists between functional and project managers, as both compete for limited
resources.
 Role conflict, role ambiguity and role overload may result in stress for functional and project
managers as well as for the team members.
 Imbalance of authority and power, as well as horizontal and vertical influence of the project and
functional managers can lead to problems.
 Due to the potential conflict, managers may want to protect themselves against blame by putting
everything in writing which increases administration cost.
 It requires many time consuming meetings
Guidelines for making matrix management effective
 Define the objectives of the project manager
 Clarify the roles, authority, and responsibilities of managers and team members
 Ensure that influence is based on knowledge and information, rather than on rank
 Balance the power of functional and project managers
 Select an experienced manager for the project who can provide leadership
 Undertake organizational and team development
 Install appropriate cost, time and quality controls that report deviations from standards in timely
manner.
 Reward project managers and team members fairly.

4) Assigning Work and Delegating Authority

So far activities necessary to achieve objectives has been identified, they are classified and grouped
into and organizational structure has been selected. The activities now must be assigned to
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individuals who are simultaneously given the appropriate authority to accomplish the tasks. The
nature, purpose, task, and expectations dictate the amount and type of authority the manager needs
to be able to function. Authority does not come first; assignment of activities establishes the basis
for authority. Below let us define authority and see its types.
Authority is the formal and legitimate right of managers to make decisions, give orders, and
allocate resources. All managers in an organization have authority of different degree based on the
level of management they occupy. Authority is vested in manager because of the position he/she
holds. The person who occupies a position has his formal authority as long as he remains in that
position. As the job changes in scope and complexity, so should the amount and kind of authority
possessed.

Types of authority
 Line Authority: Defines the relationship between superior and subordinate. It is a direct
supervisory relationship. Managers with line authority are those people in the organization
who are directly responsible for achieving organizational goals. Line authority is represented
by the standard chain of command. Line authority is based primarily on legitimate power.
 Staff Authority: Is advisory in nature. Advisory authority does not provide any basis for
direct control over the subordinates or activities of other departments with whom they consult.
They provide services and advices to line managers. Staff authority is based primarily on
expert power.
Line and Staff Departments: line and staff departments have different roles or positions within the
organizational structure.
 Line Department: are the departments established to meet the major objectives of the
organization. Example: production, marketing & finance. In functioning with the employees
and departments under their control, line managers exercise line authority.
 Staff Departments: provide assistance to the line departments and to each other. They can be
viewed as making money indirectly for the company – through advice, service and assistance
e.g.: legal, personnel and public relations.
There are some real dangers inherent in line staff interaction that all management should be
aware of. Because staff people must “sell” their ideas, there is a possibility that the line
personnel will view the staff members as “pushy” or, as undermining the line manager. Staff
managers need to develop tact and persuasive skills along with ideas. They also need to foster
credibility for their ideas to be accepted: Bad advice can result in no audience the next time.
Finally, line managers are inclined to feel that” the buck stops here” with them. In other words,
because it is line managers who ultimately make the decisions, staff is not responsible for the
results.
 Functional authority: is authority delegated to an individual or department over specific
activities undertaken by personnel in other department. Staff departments may be given
functional authority to control their system’s procedures in other departments e.g. a personnel
department monitors and receives compliance in operating departments for recruitment,
selection and performance appraisal systems.

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Delegation is a downward transfer of formal authority from higher level to lower level. Superiors
delegate or pass authority to subordinates to facilitate the accomplishment of work. It is a concept
describing the passing of formal authority to another person. It is the act of assigning formal
authority and accountability for carrying out specific activities. Managers delegate not only routine
matters but also tasks. Delegation causes employees to accept accountability and exercise judgment.
Delegation may become necessary when managers are absent from their jobs or just may be the
philosophy of the manager in order to develop subordinates.
Obstacles to Delegation
Some managers do not delegate their authority to subordinates for different reasons such as the
following:
 They fear giving up authority
 They may lack confidence in subordinates
 Others may worry that the employees perform the job better than they can, are too detail
oriented, impenitent to let the subordinates to undertake the activities
 Others even do not know how to delegate
 Delegation is also hindered by the subordinates who are reluctant to assume an equal amount
of responsibility because either the subordinates believe that decision making is the boss’s job
or they fear criticism for making bad decisions, i.e., they lack confidence..
 Managers may pay no incentive for subordinates for assuming higher responsibility
Sequence of Events in Delegation
 Allocation of duty: the manager must identify specific tasks or duties to assign to the
subordinates. Before authority can be delegated, the duties over which the authority rests
must be allocated to subordinates.
 Delegation of authority: In order for the subordinate to complete the duties or tasks, the
authority necessary to do them should be delegated by the manager to the subordinate. This is
passing of formal rights to act on behalf of another. The guideline for the amount of authority
to be delegated is that it be adequate to complete the task; no more no less.
 Acceptance of responsibility: responsibility is the obligation to carryout one’s assigned duties
to the best of one’s ability. Responsibility is not delegated by a manager to an employee, but
the employee becomes obligated when the assignment is accepted. When one is given rights,
one must also be assigned a corresponding obligation to perform.
 Creation of accountability: Accountability is having to answer to someone for your actions.
It means taking the consequences, either credit or blame. When the subordinate accepts the
assignment and the authority, he or she will be held accountable or answerable for the actions
taken. Accountability is the result of delegation, when subordinates are given jobs to
accomplish. Delegation is done by superior to subordinate level whereas accountability is
from subordinate to superior.
Note that delegation does not relieve managers from responsibility and accountability. Managers
are responsible for the use of their authority and for their personal performance as well as the
performance of subordinates.
5) Designing a Hierarchy of Relationships

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The last step requires managers to determine the vertical and horizontal operating relationships of
the organization as a whole which is known as organizational structure. The vertical structure of the
organization results in decision making hierarchy that shows who is in charge of each task, each
specialty areas and the organization as a whole. Levels of management are established from bottom
to top in the organization. These levels create a chain of command or hierarchy of decision making
levels in the company.
The horizontal structuring has two important effects: 1) it defines the working relationships between
operating departments, and 2) it makes the final decision on the span of control of each manager.
Span of control is the number of subordinates under the direction of a manager.
The result of this step is a complete organizational structure which is the arrangements and
relationships of the component parts and positions of an organization. An organizational chart
shows this structure visually. The organization chart tells us about:
 Who reports to whom? This specifies the chain of command
 How many subordinates work under each manager-this is the span of control
 The channels of official communication. Communication channels are shown by the lines that
connect each job.
 The work being done in each position. The labels in each box describe each person’s
activities.
 The hierarchy of decision making. This details where the ultimate decision maker for a
request, problem, appeal or grievance is located.
 The types of authority relationships. The solid connections between boxes illustrate line
authority, single arrows show staff authority, and double arrows trace functional authority.

The chart does not, however, show the degree of authority, informal communication channels, and
informal relationships- all keys in managing successfully.
Major Organizing Concepts
a) Power: is the ability to exert influence in the organization, that is, the ability to change the
attitudes or behavior of individuals or groups. Having power can multiply the manager’s
effectiveness to influence people beyond what they can attain through formal authority alone.
Authority is positional-it will be there when the incumbent leaves. But power is personal-it
exists because of the person. A person does not need to be a manager to have power.
b) Span of Control: the span of control or span of management is concerned with the number of
subordinates each manager should have to direct. As a general rule, the more complex a
subordinate’s job, the fewer should be that manager’s number of subordinates. Another
predictable guide is that the more routine the work of subordinates, the greater the number of
subordinates that can be effectively directed and controlled. Because of these general rules,
organizations always seem to have narrow spans at their top end and wider spans at lower levels.
The higher one goes in the organization’s hierarchy, the fewer will be his or her subordinates.

Narrow Span of Control: Tall hierarchy, number of levels will be more.

Advantages
 Close supervision and control
 fast communication
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 Disadvantages
 Many levels of management,
 high costs, and
 Superiors tend to get too involved in subordinate’s work.
 Excessive distance between lower level and top level
Wide span of control: Flat hierarchies, number of levels will be less.
Advantages:
 Superiors are forced to delegate
 Clear policies must be made, and
 Subordinates must be carefully selected.
Disadvantages:
 Tendency of overloaded superiors to become decision bottlenecks-delay in decision making
 danger of superior’s loss of control
 Requires exceptional quality of managers.
Given the above guidelines, how many subordinates should one manager have? The answer depends
on many factors and must be determined in terms of:
 The complexity and variety of the subordinate’s work
 The ability of the manager
 The ability and training of the subordinates themselves
 The superior’s willingness to delegate authority
 The company’s philosophy for centralization or decentralization of decision making.
c) Centralization Vs Decentralization: The terms centralization and decentralization refer to a
philosophy of organization and management that focuses on either the systematically retaining
authority in hands of higher level managers /centralization or systematically delegating authority
throughout the organization to middle and lower level managers/decentralization. In short
centralization is concerned with the concentration of decision making authority on the hands of
higher level managers where as decentralization, on the contrary, refers to the dispersion of
decision making authority to lower level managers. The question of where authority resides is
resolved in an operating philosophy of management-either to concentrate authority for decision
making in the hands of one or a few or to force it down the organization structure into the hands
of many.
Some Guidelines
 The greater the number of decisions made at the lower levels of management, the more the
company is decentralized.
 The more important the decisions made at lower levels, the greater the decentralization.
 The more flexible the interpretation of company policy at the lower levels, the greater the
degree of decentralization.
 The more widely dispersed the operations of the company geographically, the greater the
degree of decentralization.
 The less a subordinate has to refer to his or her manager prior to a decision, the greater the
decentralization.
Advantages and Limitations of Decentralization

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The common advantages of decentralization include:
 Relives top management of some burden of decision-making and forces upper level
managers to let go
 Encourages decision-making and assumption of authority and responsibility
 Gives managers more freedom and independence in decision-making
 Promotes establishment and use of broad controls which may increase motivation
 Makes comparison of performance of different organizational units
 Helps in setting up profit centers
 Facilitates product diversification
 Promotes development of general managers
 Aids in adaptation to fast-changing environment
Limitations of Decentralization
 Makes it more difficult to have a uniform policy
 Increases complexity of coordination of decentralized organizational units
 May result in loss of some control by upper-level managers
 May be limited by inadequate control techniques
 May be constrained by inadequate planning and control systems
 Can be limited by the availability of qualified managers
 Involves considerable expenses for training managers
 May be limited by external forces (national labor unions, governmental controls, tax policies)
 May not be favored by economies of scale of some operations

Relationship of Centralization to Span of Control: The Company’s philosophy of centralization or

decentralization in decision making can influence the span of control of subordinate managers. A
philosophy of decentralized decision making generally means that the span of control should be
wider for each manger. Conversely, a philosophy of centralized decision making should result in a
narrower span of control and more levels of management.

Self-Assessment Questions
1. Write the difference between formal and informal organization
2. What are the unique characteristics of informal organization?
3. What is the importance of organizing?
4. What are the five major processes of organizing function?
5. Why departmentalization is so important in organizing?
6. Describe the three types of authority; line authority, staff authority and functional authority

CHAPTER FIVE
5 STAFFING
5.1 Introduction
The primary purposes of staffing are to attract, hire, train, develop, reward and retain the required
number of good people, helping them meet their needs while they help the organization meet its

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needs. Good people are those with proven performance records or potential that demonstrates they
will fit into the organization’s culture and climate. Since most job applicants have some
deficiencies, the key issue is the employer’s willingness and ability to help applicants remedy their
deficiencies. Providing needed investment, for example training, makes good people even better,
making them more confident, capable and more valuable to their organizations.

Once good people are on board, organizations must retain them. Human resource is the only factor
of production that contributes more than its input. Human resources are considered as human assets.
They produce synergic effect. It is the only factor that can be motivated.
5.2 Meaning and Definition of Staffing
Staffing involves the proper and effective recruitment, selection, placement, training and
development, performance appraisal and retention of employees with appropriate qualification to fill
positions created by the manager. Staffing, follows organizing, links people and processes. People
create an organization’s intellectual capital which makes the organization unique and separates it
from its competitors. Without dedicated, knowledgeable, and motivated employees, the best laid
plans cannot bear fruit. Empowered people working in a diverse and open climate-one based on
mutual trust and respect- can make bad plans work and good plans better. It is also defined as efforts
designed to attract, hire, train, develop, reward and retain the people needed to attain an
organization’s goals and provide job satisfaction.

Staffing is another name for managerial function of human resource management. The
managerial function of staffing is defined as filling, and keeping filled, positions in the organization
structure. This includes identifying work-force requirements, inventorying the people available and
recruiting, selecting, placing, promoting, appraising, planning the careers of, compensating and
training or otherwise developing both candidates and current jobholders to accomplish their tasks
effectively and efficiently. In other words, human resource management encompasses those
activities designed to provide, motivate and coordinate the human resources of an organization.

Without competent people, organizations will either pursue inappropriate goals or find it difficult to
achieve the desired goals. Human dynamics play an important role in surmounting obstacles,
defusing complex situations and achieving organizational goals. It is because of this reason that
some organizations succeed in spite of major obstacles, environmental changes and challenges,
while others crumble rather quickly under external pressures.

In small organizations, every manager is responsible for the staffing function, even worker teams
can participate. A large firm usually establishes a separate department dedicated to staffing. A sub
unit that focuses on staffing is usually called a personnel or human resource department. Managers
of such a department, human resource manager or personnel manager, assist others by planning,
organizing, staffing, coordinating, controlling, and sometimes executing specific personnel and
human resource management functions.

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Some human resource managers and practitioners are specialists who focus on a separate aspect of
human resource management such as compensation, training, or recruiting and so forth. Others are
generalists who are responsible for several functions.
5.3 Staffing processes
The staffing process involves the following eight basic activities:
1) Human resource planning 5) Training and development
2) Recruitment 6) Performance appraisal
3) Selection 7) Transfers, promotion & demotion
4) Orientation 8) Separation

1) Human Resources Planning

It is the process of translating overall organizational objectives, plans and programs to achieve
specific performance into workforce needs. It is the systematic and continuing process of analyzing
an organization’s human resource needs under changing conditions and developing personnel
policies, appropriate to the long term effectiveness of the organization. It is an integral part of
corporate planning.
Human resource planning has the following components:
 Job Analysis: before managers can determine personnel needs, they must perform a job analysis
for each job. The first step in a job analysis is to prepare up to date descriptions that list the duties
and responsibilities of each job holder. It is important to develop job specification and job
description.
Job description: A written description of a management position, covering job title, duties and
responsibilities, the level of authority above and below the jobholder; the equipment and
materials the jobholder must use, and any physical demands or hazardous conditions the job may
involve.
Job specification: this lists human dimensions that a position requires. These include level of
education, experience, skills training and knowledge needed to perform the job effectively. To
avoid even the appearance of discrimination, those who prepare specifications must take care to
list only those factors directly linked to successful work performance.
 Human Resource Inventory: It provides information about the organization’s current personnel.
Human resource inventory states the skills, abilities, interest, training, experience, qualifications
and promotion potential of each person in an organization. The information need to be updated
periodically and supplemented by the most recent appraisals given to job holders.
 Human Resource Forecasting: It is based on the analysis of the plan and objectives of the
organization. It attempts to assess the future personnel need of a firm. Here managers need to
consider the strategic plans of the company and its normal level of attrition. Strategic plans
determine the company’s direction and its needs for people. A long term plan to stabilize the
company at its current level will mean the need to replace those who leave.
 Inventory and forecast comparison: by comparing the inventory and forecast, managers
determine who in the organization is qualified to fill the projected openings and which personnel
needs must be met externally. It helps the manager develop the plan for the quantity and quality
of the personnel needed in the future as well as ensure the availability of the workers.

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Human resource planning is designed to ensure that personnel needs will be constantly and
appropriately met. It has the following four basic aspects:
1. Planning for future needs: how many people with what abilities will the organization need to
remain in operation for the foreseeable future?
2. Planning for future balance: how many people presently employed can be expected to stay
with the organization? The difference between this number and the number the organization
will need leads to the next step.
3. Planning for recruiting and selection or layoff of employees: how can the organization attain
the number of people it will need?
4. Planning for development of employees: how should the training and development of
employees within the organization is managed so that the organization will be assured to
continued supply of experienced and capable personnel?
2) Recruiting
It is defined as the activities of developing a pool of qualified candidates from which the
organization may choose the most appropriate employees. It can also be defined as announcing and
advertising vacant positions and developing sources of applicants and receiving applications. It is
the process of locating and soliciting a sufficient number of qualified candidates.

Recruitment takes place within a labor market. This includes a mass of available people who have
the skills to fill open positions. Sources for recruitment depend on the availability of the right kinds
of people in the local labor market as well as on the nature of the positions to be filled. An
organization’s ability to recruit employees often hinges as much on the organization’s reputation and
the attractiveness of its location as on the attractiveness of the specific job offer. In general, the
sources of employment can be classified into the following two types:
•Internal source of Recruitment: Many organizations have a policy of recruiting or promoting from
within except in very exceptional circumstances. Filling a job opening from within the organization
has the following advantages:
 Individuals recruited from within are already familiar with the organization and its members
and this knowledge increases the likelihood they will success
 A promotion from within fosters loyalty and inspires greater effort among organization
members
 It is usually less expensive to recruit or promote from within than to hire from outside the
organization
The disadvantages of the internal recruitment are as follows:
 The obvious limitations of available talents
 It may encourage complacency among the employees who assume promotions
 It reduces the chances of fresh viewpoints entering the organization
•External source of Recruitment: The process of evaluating and deciding the best and qualified
candidates out of the pool of applicants received in the recruitment process for job openings based
on their abilities, skills and performance. If human resource managers are to make good match
between jobs and candidates, they should use the job description and job specification before they
decide on the application.

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3) Selection

Selection is the process of deciding which candidate out of the pool of applicants possesses the
qualifications for the job to be filled. Selection begins where recruitment ends. Once the recruiting
effort has developed a pool of candidates, the next step in the staffing process is to determine who is
best qualified for the job. This step is called the selection process. Selection involves mutual
decision and prediction. The enterprise decides whether to make a job offer and how attractive the
offer should be. The job candidate decides whether the enterprise and the job offer fit his or her
needs and personal goals. The process also seeks to predict which applicants will be successful if
hired. Success, in this case, means performing well on the criteria the enterprise uses to evaluate
employees.

Correct selection decisions are those where the candidate was predicted to be successful in advance
and prove to be successful on the job. At times the applicant is predicted to be unsuccessful and, as
expected, performs unsatisfactorily after getting selected. While in the first case, we say the worker
is successfully accepted, in the later the worker is successfully rejected. Errors arise when we reject
a candidate who would have performed successfully on the job. This is termed as reject error. In
certain situations a worker is accepted ultimately and performs unsatisfactorily. This is called accept
errors. Both the above errors can be minimized if the system is impartial, has a degree of objectivity
and follows a fairly uniform standard of assessment.
Steps in the Selection Process
The common steps of the selection process are:
 Preliminary interview: by which the obvious unqualified are screened out and observable factors
and preliminary checks are made easy, on expectations and interests.
 Filing application form: by which factual information is obtained with carefully designed
questions including identification information, personal information, physical characteristics,
education, experience, etc.
 Reference letters: which can be specifically addressed or written in a “to whom it may concern”
form, confidential or non confidential, and refer to character, experience and other elements.
 Employment interview: which is most of the time used as a single screening mechanism provides
an opportunity to have face to face contact, serves to verify information acquired through other
methods, and enables the employer to investigate the candidate’s ability in work related areas.
 Employment tests: are practical examination of the candidate’s abilities and knowledge in the
areas of the future job assignments. They may include intelligence tests, achievement tests,
aptitude tests, etc.
 Physical examination: is carried out to check the physical fitness of the candidates, to prevent
existing employees from the communicable disease and from unwanted claims in the form of
medical and insurance expenses.
4) Orientation:
The new hire needs a warm welcome so he/she can begin contributing as soon as possible. The
newcomer needs to be introduced to his or her workstation, team, and coworkers. A new employee’s
first impressions and early experiences should be realistic and as positive as possible. Orientation is
the beginning of a continuing socialization process that builds and cements employee’s
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relationships, attitudes, and commitment to the company. Here, new employee learn about their
working environment, meet their co-worker and learn about the rules and regulations and benefits
expected. Orientation should be thoroughly planned and skillfully executed.
1)Training and Development
Training supplies the skills and knowledge needed by the individual to perform their present job.
Training programs are directed toward maintaining and improving current job performance.
Training is mainly given to non managers to improve their technical skills.
Development is training at present offered for future upgrading to higher level positions.
Developmental programs seek to develop skills for future jobs. Managers receive assistance in
developing the skills required in future jobs- conceptual and human relations skills.

Both training and development are designed to give people something new and both have three
prerequisites for success:
 Those who design training or development programs must create needs assessment to
determine what the content and objectives of the programs should be
 The people who execute the programs must know how to teach, how people learn, and what
individuals need to be taught, and
 All participants-trainers, developers, and those receiving the training or development-must be
willing participants.

Training has many objectives which include:

 To provide the knowledge, skills and attitudes for individuals to undertake their current jobs
more effectively. Part of the process also is to assist employees at all levels to extend their
untapped talents and to understand the implications and significance of their roles.
 To help employees become capable of assuming other responsibilities within an organization
either at more senior or at their current levels.
 To help employees adapt to changing circumstances facing organizations such as new
technologies, new business environment, new products, etc.
 To reduce waste and increase efficiency, that is, to improve performance
 To relieve supervisors from close supervision for other duties.
 To orient new employees: while schools and training institutions provide general education in
many skills, new employees require additional training to acquaint them with specific
situations of the organization and the job.

 Training Methods

There are two different methods of training: on the job and off the job training
a) On-the-job training: involves learning methods and techniques by actually doing the job and
increasing the levels of skills of the employees. The employee usually learns under the
supervision of the immediate boss or coworker who has greater knowledge and skill about the
job.
It is widely used because it is economical and convenient; no special facilities, equipments,
and training places are required and the employee produces and contributes to the
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 organizational objectives and at the same time he/she learns. Job rotation, coaching, and
internship are some of the on the job techniques. It is convenient for small number of trainees.
Some of its disadvantages include:
i. It creates disinterest of employees as they have dual responsibility
ii. It is not convenient for large number of trainees.
b) Off-the-job Training: this technique involves participation of employees in a series of events
removed from the actual performance of the organization and the work situation.
Advantages of the off training method include:
 It creates interest of employees as they are removed from their routine activities and are
moved to new environment.
 It is convenient to large number of trainees
Its disadvantages include:
 It is expensive: there are costs of trainers, facilities, and also the employee does not
contribute while training
 There is a problem of transfer of knowledge from the training situation to the actual
situation of the job.
2)Performance Appraisal
It is a formally structured system designed to measure the actual job performance of an employee
with designated performance standard. It is the evaluation of an employee’s job performance by his
superiors. These standards are introduced and reinforced in the selection and training processes.
Purposes of Performance Appraisal
Most organizations use appraisals to:
 Provide feedback about the success of previous training and disclose the need for additional
training
 Develop individual’s plans for improving their performance and assist them in making such plans
 Determine whether rewards such as pay increases, promotions, transfers, or commendations are
due or whether warning or termination is required.
 Identify areas for additional growth and the methods that can be utilized to achieve it
 Develop and enhance the relationship between the person being evaluated and the supervisor
doing the evaluation
 Give the employee a clear understanding of where he or she stands in relation to the supervisor’s
expectations and in relation to the achievement of specific goals
Components of Appraisal System
Performance appraisal system includes three major components:
1. The criteria (factors and standards) against which the employee’s performance is measured.
Criteria could include quality of work, efforts at improvement, specific attitudes, and quantity
of output.
2. the rating that summarizes how well the employee is doing
3. The methods used to determine the ratings. Methods could involve specific forms, people and
procedures.

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Different personalities, jobs, organizations and subsystems call for different criteria, ratings and
methods. Appraisal systems can be classified as subjective or objective. Subjective systems allow
raters to operate from their own personal points of view. Raters may be allowed the freedom to
create factors, define what each factor means, and determine the employee’s proficiency in each
category. Objective performance appraisals attempt to remove rater bias. Criteria are clearly defined
and shared with the employee well in advance of the actual rating.

3)Promotion, Demotion and Lateral Transfer

a)Promotion is movement of employee to a higher level position that has more prestige, higher
status, pay and greater responsibility based on good performance. Promotion is job changes
that lead to higher pay and greater authority and that reward devoted, outstanding effort. It
serves as incentive as well, offering the promise of greater personal growth and challenges to
those who seek them. Employees usually earn a promotion by exhibiting superior performance
and going beyond what is expected.

Sometimes past performance is not the sole criteria for promotion. Affirmative action
requires that understanding groups such as women and minorities be better represented at all
levels within an organization. Advancement within an organization is ordinarily labeled as
promotion. Ordinarily, the change to the higher job is accompanied by increased pay and
privileges but not always. The term dry promotion refers to an increase in responsibility and
status without any increase in pay. On the basis of factors involved in promotion, it can be
classified into the following two forms:
Basis for Promotion
Many complex and interrelated factors enter into the decision in a promotion system.
Management faces difficult task of deciding whom to promote since there are usually more
candidates than openings. The bases on which decision can be made concerning promotion
are:
 Merit: management personnel generally prefer merit as determined by job performance
and by analysis of employee’s potential for promotion. In this way, they ensure that
competence shall be the fundamental determinant of progress. If promotion is to be an
incentive, the best performing employee ought to be promoted. When merit is taken as base
for promotion, efficiency is ensured in the organization. However, the argument for merit
has little foundation unless conscientious and systematic attempts are undertaken to
measure merit. The main difficulty in weighing merit, while making a promotion decision,
is the lack of objective criteria.
 Seniority: distinguishing among persons on the basis of seniority is as old as civilization
itself. Seniority is widely recognized in all types of organizations such as military,
government and business organizations. The extent to which promotions should be based
on seniority is always an area of dispute between work force’s unions and management.
Seniority can be defined as the length of recognized service in an organization. Seniority
and experience are not necessarily equivalent, although they may be generally associated.
Experience measured in years has little value except as applied to particular individuals

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 who make the experience meaningful in on-going situations. While determining the
seniority of individuals in an organization, the rules should be carefully and specifically
spelled out. If they are not, seniority can generate more personnel problems than it can
eliminate.
b)Demotion: is a reassignment to a lower rank in an organization’s hierarchy. In today’s
business climate, demotions are rarely used as punishment for ineffective performers are fired,
not retained. Demotions are used to retain employees who lose their positions through no fault
of their own. Some people prefer taking a lower status, lower paying job to the alternative of
being laid off. Others choose a demotion to decrease stress, allow them more freedom to
pursue outside interests, or meet challenges such as having to care for children or an elderly
parent.
c) Lateral Transfer: refers to the movement of an employee from one job to position to another
without involving any significant change in the employment status, salary, and responsibility.
It is movement of employees from one position to another at similar levels with same pay and
responsibility within an organization. For years, companies have used lateral moves in attempt
to train and develop employees. Job rotation is one way of exposing people to different
aspects of an organization and helping them see big corporate picture. Transfers can help
people advance by moving from one area where few opportunities exist to an area that offers a
less congested career track.
4)Separation/Termination: separation is the termination of the relationship between the workers
and the organization due to various reasons such as retirement, resignation, lay off. Separation, a
departure of an employee from an organization, may be voluntary or involuntary. Voluntary
separation includes resignation and retirements. Involuntary separation includes firings, layoff
and death. Employers sometimes, encourage voluntary separation by offering incentives to
encourage employees to retire early. Layoffs due to declining business, personal performance, or
company bankruptcies have cost millions of employees their job.
5.4 Factors affecting staffing
The actual process of staffing is affected by many environmental factors and these factors can be
categorized into two broad categories as external and internal environmental factors.
a) External Environment: these influences can be grouped into educational, socio-cultural,
and economic constraints, legal, equal employment opportunity and women management.
 Educational: the high technology used in many industries requires extensive and
intensive education.
 Socio cultural: managers want to become active participants in decision making process.
They have to respond to public’s legitimate needs.
 Economic and competitive: determines the external supply of, and demand for managers.
 Legal and political: requires that firms follow law and guidelines issued by various
governments.
 Equal Employment Opportunity (EEO): The law prohibits employment practices that
discriminate on the basis of race, color, religion, national origin, sex, or age. Equal
Employment opportunity is based on federal, state, and local laws and these laws have
impact on staffing. Example, Equal employment opportunity for ages 40-70, equal pay
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 for equal work regardless of sex, EEO during pregnancy, and reasonable affirmative
action for handicapped people.
 Women in Management: Women have made significant progress in obtaining responsible
positions in organizations due to laws governing fair employment practices, changing
societal attitudes towards women in the work place and women’s representation in top
posts etc.
b) Internal environment: Internal factors that affect staffing include:
 Organizational goals
 Tasks and technology
 Organization structure and the kinds of people employed
 the demand for and supply of managers within the enterprise
 the reward system, and
 Various kinds of policies.

 Self-Assessment Exercise
1. Define staffing
2. What is human resource planning? Why it is so important in the staffing function?
3. Describe the difference between job description and job specification
4. What is recruitment? What are the two sources of recruitment with their advantages and
disadvantages?
5. Write the merits and demerits of the two types of training
6. Discuss the difference between promotion, demotion and lateral transfer.
CHAPTER SIX
6 LEADING/DIRECTING
6.1Overview of Leading
Leading is one of the functions of management. It is vital to the execution of the other four
functions. Leading people and their organizations requires the ability to do many activities. The
principles governing communication, decision making and motivation form the foundation of
leading. At the top of any organizations leading is most concerned with:
 Establishing values, cultures and climate
 Defining vision
 Identifying core competencies
 Scanning environments
 Sensing the need for change
 Creating a vision for the future
 Enlisting cooperation and support for the vision
 Keeping people and processes focused on satisfying various customers
 Unleashing the potential in and soliciting contributions from all the organization’s human
resources through training, development, and empowerment.

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Leading is the process of integrating the people with the organization so as to obtain their willing
and enthusiastic cooperation for the achievement of its goals. This requires integration of
organizational goals with individual and group goals. Employees as individuals and as group
members contribute their abilities and efforts for the achievement of organizational goals to the
extent that they perceive that it simultaneously results in advancement towards their own individual
and group goals. People with the ability to lead, however, must exist at all organizational levels and
within each of its units and teams.
6.2 Importance of Directing
Directing is a function that enables a manager to convert his/her decision into effective actions. In
fact, there is a high degree of correlation between directing and work performance. There is a
dominant feeling that directing is more of an art than it is a science since considerable amount of
skill is required to understand and work with people.
The importance of the directing function in an organization can be presented as follows:
 Directing initiates by giving directives and guidance to employees
 Directing integrates employees’ effort by coordinating actions of the members and leading
toward the objectives
 Directing attempts to get the maximum out of individuals by providing ways to fully utilize
the potentials and capabilities of employees.
 Directing facilitates changes by incorporating environmental and internal changes into the
organization
 Directing provides stability by balancing the different parts of the organization.
Managers should try to integrate both organizational and individual objectives in order to get the
work done by subordinates. Managers must be good leaders to guide, counsel and influence
subordinates so as to win their confidence and acceptance. To this end, managers should motivate
their subordinates to volunteer themselves for the accomplishment of organizational objectives.
6.3. Definition and Elements of Leading
6.3.1. Definition of Leadership
The following are among the common definitions of leadership provided by various authors:
 Leadership is the function of management involving the process of influencing people so that
they will contribute willingly to the organization and group goals. Influence is the power to sway
other people to one’s will or views. Leaders-those who practice leadership- guide, direct,
persuade, coach, counsel, and inspire others.
 Leading is the process by which managers seek to influence subordinates to accomplish goals by
communicating with them.
 Leadership is defined as the interpersonal process by which managers try to influence employees
to accomplish set task goals.
 According to Stoner, Freeman and Gilbert, leadership is the process of directing and
influencing the task related activities of group members.
 According to Terry and Franklin, leadership is the relationship in which the leader influences
others to work together willingly on related influences others to work together willingly on
related tasks to attain goals desired by the leader or group.

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 “Leadership is influencing people to follow in the achievement of a common goal”- Harold
Koontz and Cyril O’Donnell.
6.3.2. Elements of Leading
Leading has three major components/elements: leadership, motivation and communication. Below
each of the components will be discussed in detail.

a) Leadership
Leadership is the art of influencing individual or group activities towards the achievement of
organizational objectives. Leaders are extremely important in a variety of organizations. Leadership
has the following features:
1. Leadership involves people: employees or followers by their willingness to accept directions
from the leader, group members help define the leader’s status and make the leadership
process possible.
2. Leadership involves unequal distribution of power between leaders and group members.
Group members can shape group activities but leader will have usually more power.
3. Leadership has the ability to use the different forms of power to influence follower’s
behaviors in a number of ways.
4. Leadership constitutes values. It concerns values and requires that followers be given
enough knowledge of alternatives to make intelligent choices when it comes to respond to a
leader’s proposal to lead.
5. The ability to comprehend that human beings have different motivation forces at different
times and in different situations.
6.4. Leadership Styles

Leadership style implies the way in which the leader exercises leadership; it is the way in which
the functions of leadership are carried out or the way how the leaders behave towards their
subordinates in the accomplishment of the work. These ways of behaving towards subordinates are
influenced by management philosophy towards work and people. Behind every managerial
decisions or actions are assumptions about human nature and human behavior. There are three
common leadership styles. Moreover, managers’ orientation towards either employees or tasks can
also be considered as leadership style and described below:
1. Autocratic style/ “I” approach: a manager who uses autocratic style does not share decision
making authority with subordinates. The manager makes the decision and then announces it.
Autocratic managers may ask for subordinates’ ideas and feedback about the decision, but input
does not usually change the decision unless it indicates that something vital has been
overlooked. The hallmark of this style is that the manager, who retains all the authority, executes
the entire process. Consequently, the autocratic style is sometimes called the “I” approach.
Under certain conditions, the autocratic style is appropriate. When a manager is training a
subordinate, for instance, the content, objective, pacing, and execution of decisions properly
remain in the hands of the trainer. However, the manager has to elicit feedback from the trainee.
During a crisis like a hazardous material spill or bomb threat, leaders are expected to take
charge, issue orders and make decisions. When a subordinate directly challenges a manager’s

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 authority, an autocratic response may be needed to preclude acts of insubordination. Some
subordinates do not want to share authority or become involved in any way beyond the
performance of their routine duties. Managers should respect these preferences but also make
incentives and growth opportunities available. The autocratic style is effective when managers
face issues that they are best equipped to solve, create solutions whose implementation do not
depend on others and desire to communicate through orders and instructions.
2. Participative/ Democratic/“We” approach: managers who use the participative style share
decision making authority with subordinates. The degree of sharing can range from the
manager’s presenting a tentative decision that is subject to change to letting the group or
subordinate participate in making the decision. Sometimes called the “we” approach,
participative management style involves others and lets them brings their unique viewpoints,
talents, and experiences to bear on an issue. This style is strongly emphasized today because of
the trends toward downsizing, employee empowerment and worker teams.
A consultative and democratic approach works best for resolving issues that affect more than
just a manager or decision maker. People affected by decisions support them more
enthusiastically when they participate in the decision making than when decisions are imposed
on them. Also, if others in the management’s unit know more than the manager does about the
issue, common sense urges their inclusion in decisions concerning it.
Before subordinates can be brought into the process, mutual trust and respect must exist between
them and their managers. The subordinates must be willing to participate and be trained to do so.
People need training in rational decision making. They must also possess the related skills and
knowledge needed to cope with the problems they are expected to solve. It takes time to give
people the confidence and competence needed to make decisions. Managers must have time,
means and patience to prepare subordinates to participate. When employees participate, they
devise solutions they feel they own. This sense of ownership increases their commitment to
making solutions work.
Limits on subordinate’s participation must be clearly spelled our beforehand; there should be no
misunderstanding about who holds authority to do what. Mistakes will be made and some waste
will occur, but the power of the participative style to motivate and energize people is great.
3. Laissez faire style/Free rein style/ “They” approach: often called “they” approach or the
spectator style, the free rein style empowers individuals or groups to function on their own,
without the involvement from the managers to whom they report. The style relies heavily on
delegation of authority and works best when the parties have expert power, when participants
have know how to use the tools and techniques needed for their tasks. Under this style, managers
set limits and remain available for consultation. The managers also hold participants accountable
for their actions by reviewing and evaluating performance. Free rein leadership works
particularly well with managers and experienced professionals in engineering, design, research,
and sales. Such people generally resist other kind of supervision.

In most organizations managers must be able to use the decision making style that circumstances
dictate. As people and circumstances constantly change, managers should also switch from one
style to another depending on the situation they face at a time.

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 Laissez faire leaders are characterized by the following behavioral patterns:
 They make few attempts to increase productivity or to meet subordinates’ psychological
needs
 They use their power very little, if at all, giving subordinates a high degree of
independence in their operation.
 These leaders maintain hands off policy where each subordinate’s work is clearly defined.
 Such leaders depend on subordinates to set their own goals and the means of achieving
them, and they see their role as one of aiding the operations of followers by furnishing
them information and acting primarily as a contact with the groups in the external
environment.
4. Employee oriented vs. Task oriented leadership style: the way managers lead varies along at
least two important directions:
 People/ employee centered leadership style.
 Task oriented leadership style.
i. Employee oriented leadership style: The leader focuses on the people, considering their
feelings and the quality of their mutual relationship. The employee-oriented leader is described
as democratic, permissive, follower-oriented, participative or considerate. The essence of this
leader’s style is sensitivity to subordinates as persons. They seek friendly, trusting and
respectful relationships with employees. Research findings on the effects of people centered
leadership on productivity, employee satisfaction and group cohesiveness can be summarized as
follows:
 People centered leadership is not consistently related to productivity. There is no assurance
that the leader’s being more people centered can increase group productivity.
 People centered leadership does not tend to enhance employee satisfaction; it also tends to
enhance group cohesiveness.
ii. The task oriented leadership style: The leader focuses on the task to be performed, the
progress being made, and the means of accomplishing the work. The leader closely supervises
employees to make sure the task is performed satisfactorily. The emphasis is given on getting
the job done, rather than employee’s growth or personal satisfaction. The tasks centered leader
is described variously as autocratic, restrictive, socially distant, directive and structuring. The
essence of this leader’s style is overriding concern with the task itself and not with workers as
people.
Research findings on the effects of task centered leadership on productivity; satisfaction and
group cohesiveness can be summarized as follows;
 Task centered leadership concentrates positively with productivity.
 Task centered leadership tends to depress satisfaction and cohesiveness. But structuring the
subordinate’s task, in the sense of letting them know what is expected of them, tends to
increase their satisfaction and cohesiveness.
6.5. Theories of Leadership
Here, three important leadership theories are discussed.
i. Trait Theory of Leadership: traits are inborn and inherent personal qualities of individuals. This
theory believes leaders possess certain specific inborn traits, which are inherited rather than
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 acquired. It has its root from “the great man theory” dating back to the ancient Greeks and
Romans time, holds that leaders are born not made.
The trait theory studies focused on the personal traits of leaders and attempted to identify a set of
individual characteristics that distinguish leaders from followers and also successful leaders from
unsuccessful ones. In general, trait theory hasn’t been fruitful approach to explain leadership.
ii. The Behavioral Theory of Leadership: The behavioral theory of leadership focuses on what
leaders do rather than their traits. Studies showed that one set of traits/leadership styles might
not be equally appropriate in all situations. This theory suggested that there were two distinct
types of leadership which are known as employee oriented/people oriented and task/production
oriented.
iii. The Situational/Contingency Theory of Leadership: According to this theory, leadership is
strongly affected by a situation from which a leader emerges and in which he/she works. It is a
function of the leader, the followers and the situation. It attempts to discover that the one unique
set of leadership traits were largely unsuccessful. Modern management theories are more prone
to the belief that leadership is more complex; that is, it cannot be represented by one set of traits
or by single set of behavior. Thus, effective leadership behavior depends on the environment or
the situation.

b) Motivation
Simply defined, motivation is the act of stimulating someone or oneself to take a desired course of
action. It is the act or process of furnishing with an incentive or inducement to action. It is an
internal drive that pushes people to do something. Management requires the creation and
maintenance of an environment in which individuals work together in groups towards the
accomplishment of common objectives. To motivate employees requires having knowledge about
what motivates them.

The primary task of managers is to get people to contribute activities that help to achieve the
mission and goals of an organization. To guide people’s activities in desired directions requires
knowing what leads them to do things, i.e., what motivates them. The basic element of all human
behavior is some kind of activity whether physical or mental. Activities are goal oriented, i.e. people
do things that lead them to accomplish their goals. Human motives are based on needs felt.

Motivation plays a central role in shaping behavior and specifically in influencing work
performance. However, motivation is not the only thing that determines performance. There are
various determinants of job performance. Job performance can be viewed as a function of the
capacity to perform, the opportunity to perform and the willingness to perform. The capacity to
perform is related to the degree to which an individual possesses task related skills, abilities,
knowledge and experience. Unless an employee knows what is supposed to be performed and how
to dot it, high level of job performance is not possible. The opportunity to perform refers to the
availability of needed resources at the employee’s disposal. Willingness to perform is related to the
degree to which an individual both desires and is willing to exert effort toward attaining job

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performance. The willingness to perform indicates motivation. No combination of capacity and
opportunity will result in high level of job performance in the absence of motivation.

6.6. Theories of Motivation

There are several theories of motivation. In general, these theories can be grouped into two as
content theories and process theories. Theories that belong to the former category include: Abraham
Maslow’s hierarchy of needs theory, Herzberg’s two factor theory, Mccelland’s need for
achievement theory and Alderfer’s ERG theory. Theories that belong to the latter category include:
V. Vroom’s expectancy theory, B.F. Skinner’s reinforcement theory, equity theory and goal setting
theory. Below, some of these theories are discussed briefly while the rest theories are to be covered
in advanced courses.
a) Content Theories: these theories focus on the factors within the person that energize, direct,
sustain, and stop behavior. They attempt to determine the specific needs that motivate people.
 Maslow's Need Hierarchy Theory
This is one of the most widely known theories of motivation. The critical part of this theory is that
needs are arranged in hierarchy. Since one need does not disappear when another emerges, all needs
tend to be partially satisfied in each area. According to Maslow, human needs can be categorized
into five as: physiological needs, safety needs, social needs, esteem needs and self actualization
needs.
 Physiological Needs: The physiological needs are at the bottom of the hierarchy because they
tend to bear the highest strength until they are reasonably satisfied. Unless these needs are
satisfied to the degree necessary for the efficient operation of the body, the majority of a
person’s activities will probably be at this level. The other levels will provide him with little
motivation. These needs include the need for food, shelter, cloth, water, rest, air, sex, etc.
They are survival needs without which human being’s survival will be in danger.
 Safety Needs: until the physiological needs of the human race are addressed to a reasonable
degree, safety needs will not be fully addressed. The degree of reasonableness is subjective. In
this hierarchy comes the need for safety- a need for being free of physical danger also referred
to as self-preservation. These needs show the need to live in an environment where there is no
harm. In the industrial society, safety needs may gain considerable importance in the context
of the dependent relationship of employees to employers. As pointed out by McGregor, safety
needs may serve as motivators in such circumstances as arbitrary management actions,
behavior which arouses uncertainty with respect to continued unemployment and
unpredictable administration of policy.
 Social Needs: After the first two needs are satisfied, social needs become important in the
need hierarchy. This category includes the need for friendship, affection, acceptance, and
interaction with others. Since man is a social being, he has a need to belong and to be accepted
by various groups. When social needs become dominant, a person will strive for meaningful
relations with others. If the opportunity for association with other people is reduced,
individuals often take vigorous action against the obstacles to social interaction. In the
organization, individuals form informal group environments.

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  Esteem Needs: Esteem needs are concerned with self-respect, self-confidence, a feeling of
personal worth, feelings of being unique and a need to be recognized by one and all.
Satisfaction of these needs produces feelings of self-confidence, prestige, power and control.
The satisfaction of esteem needs is not always obtained through mature or adaptive behavior.
It is sometimes generated by disruptive and irresponsible actions. Some of the social problems
have their roots in the frustration of esteem needs.
 Self Actualization Needs: includes self fulfillment and realization of one’s potential. Self
actualization is the need to maximize one’s potential, whatever it may be. This is related to the
development of intrinsic capabilities which lead individuals to seek situations which can
utilize their potential. This includes competence which implies control over environmental
factors, both physical and social, and achievement. An individual with high levels of
achievement needs will be restless unless he can find fulfillment in doing what he is trained to
do best. As Maslow puts it, "this need might be phrased as the desire to become more and
more what one is, to become everything that one is capable of becoming."

Self-Actualization Needs
Esteem Needs

Social Needs
Safety Needs
Physiological Needs

Figure 6.1 Maslow's Need Hierarchy

The major assumptions upon which the need hierarchy theory is based are:
- A satisfied need ceases to motivate; i.e. it is no longer a motivator.
- Unsatisfied need can cause frustration, conflict, and stress. It is the unsatisfied need that
motivates an individual.
- A person should minimally satisfy a lower level need before starting thinking about the
satisfaction of the next higher level need.
- The needs are arranged in the order of importance; i.e. as one goes up the hierarchy, the
importance one attaches to the corresponding needs falls.
- A person redirects his effort to the already satisfied and passed level need upon the
disturbance of that need. Sudden unemployment or loss of loved one could lead a person to
shift his/her concern.
The main drawbacks of this theory include:
- There is no evidence that human needs are found arranged in such a hierarchy.
- There is also little evidence to support the idea that people must meet their needs in sequence
up the hierarchy as outlined by Maslow.
However, the significance of this theory to management is to apply different motivators to different
employees found in the hierarchy.
 Herzberg’s Two Factor Theory
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The findings of the two factor theory indicate that the work characteristics associated with
satisfaction are quite different from those pertaining to dissatisfaction which prompted the notion
that two factors influence work motivation, namely hygiene factors and motivation factors.
Hygiene factors include salary, job security, status, company policies, quality of technical
supervision and quality of interpersonal relationships among peers, supervisors and subordinates.
These are the primary elements involved in job dissatisfaction. When present in sufficient amount,
they have no effect; when absent, they lead to job dissatisfaction. Motivation factors include
achievement, recognition, responsibility, advancement, the job itself and possibility of growth.
These are the primary elements involved in job satisfaction. When present, they can stimulate
personal and psychological growth.

Mc CLELLAND’S NEED THEORY:

DAVID C. Mc CLELLAND has contributed to the understanding of motivation by identifying three
types of basic motivating needs as follows:
1. Need for Achievement
2. Need for Power
3. Need for Affiliation.
NEED FOR ACHIEVEMENT: A strong need for achievement is a drive to succeed and excel. It
depends on how well individuals are motivated to perform their work tasks. People with a high
need for achievement like to take responsibility for solving problems; they tend to set moderately
difficult goals for themselves and take calculated risks to meet those goals; and they greatly value
feedback on how well they are doing.
NEED FOR POWER: The need for power deals with the degree of control a person desires over
his or her situation. People think about their control and influence they have over others and how
they can influence to change people’s behavior, gain authority and status and dominate decisions.
Manipulating and controlling others satisfy their needs.
NEED FOR AFFILIATION: Many people spend much of their time thinking about developing
warm, friendly, personal relationships with others in the organization. They have a high need for
affiliation; more sensitive to others feelings, seek to establish friendly relationships in groups, share
agreeable and supportive ideas.
b) Process Theories of Motivation: these theories provide a description and analysis of how
behavior is energized, directed, sustained and stopped. In other words, while the content theories are
concerned with what motivates people, the process theories are concerned with how people are
motivated. Below, three such theories are elaborated.
 Vroom’s Expectancy Theory: this theory is based on the belief that people will act to maximize
their rewards. Vroom defines motivation as a process governing choices among alternative
forms of voluntary activities. Motivation-the spur to act- is a function of how badly we want
something and how likely we think we are to get it. Its intensity functions in direct proportion to
perceived or expected rewards. Expectancy theory includes three variables:
- Effort-Performance link: will the effort achieve performance? How much effort will
performance require? How probable is success?
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 - Performance-reward link: what is the possibility that a certain performance will produce the
desired reward or outcome?
- Attractiveness/valence: how attractive is the reward? This factor relates to the strength or
importance of the reward to the individual and deals with his or her unsatisfied needs.
 Adam’s Equity Theory: this theory states that people’s behavior relates to their perception of
the fairness of treatment they receive. It also includes the fairness that an individual perceives in
the relationship between effort expended and reward. People calculate equity by calculating a
simple ratio: the efforts they are expected to invest on the job (their input) in relation to what
they expect to receive after investing that effort (their outcome). Equity exists when the ratios
are equivalent. Inequity exists when, in the employee’s mind, inputs exceed the relative or
perceived values of the outcomes.
 Skinner’s Reinforcement Theory: states that behaviors result in desirable consequences are
likely to recur; and those that result in undesirable consequences will be less likely to recur.
There are various types of reinforcement as mentioned below.
- Positive reinforcement: is a type of reinforcement that strengthens behavior by providing a
desirable consequence when a desirable behavior occurs. Thus, it increases the likelihood that
a desired behavior will be repeated. Positive reinforcement can be praise, pay, or promotion.
- Avoidance: this reinforcement attempts to increase the probability that a positive behavior will
be repeated by showing the consequences behavior the manager does not desire. The
employee is allowed to avoid those consequences by displaying the desired behavior. For
example, a manager has a policy of penalizing all employees who do not turn in reports in
time.
- Extinction: managers can ignore the behavior of subordinates in order to weaken the behavior.
This approach is most effective when behavior is temporary and not serious. The supervisor’s
hope is that behavior will go away or disappear soon if it is ignored. Say a manager and en
employee have developed the habit of talking during working hours about off –the- job topics.
After the manager is promoted to another job in another area, the employee continues to drop
by, a practice that makes the manager uncomfortable. If the manager continues to work while
the employee is there, the employee will eventually get the message and the behavior will be
extinguished.
- Punishment: managers might attempt to decrease the recurrence of a behavior by applying
negative consequences. The trouble with punishment as a response to behavior is that the
person will learn what not to do but will not necessarily learn the desired behavior.
Theory X and Theory Y
Douglas McGregor, a professor of industrial management, said that an individual’s management
philosophy reflects one of two assumptions about workers. He called the two sets theory X and
theory Y. Theory X is a philosophy of management with a negative perception of subordinates’
potential for work and attitudes toward them. It assumes that subordinates dislike work, are poorly
motivated, and require close supervision. A manager with these beliefs tends to control the group,
use negative motivation, and refuse to delegate decision making. Theory Y is philosophy of
management with a positive perception of subordinates’ potential for attitudes toward work. It
assumes that subordinates can be self directing, seek responsibility and find work as natural as play

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or rest. The outcome of this belief is a manager who encourages people to seek responsibility,
involves people in decision making, and works with people to achieve their goals.

The theory can be summarized in the following manner.

Theory X c) Communication
 People basically dislike work and avoid it Theory Y
whenever possible  Most people find work as natural as play or
 Because most people dislike work, they rest and develop an attitude toward it based
have to be closely supervised &threatened on their experience with it.
with punishment  People do not need to be threatened with
 Most people prefer to be told what to do, punishment; they will work voluntarily
have little ambition, want to avoid towards organizational objectives to which
responsibility& want security above all they are committed.
else  The average person working in an
 Most people have little creativity; they are environment with good human relations
not capable of solving problems. Rather, will accept and seek responsibility.
they must be directed.  Most people possess a high degree of
 Most people have limited intellectual imagination, ingenuity, and creativity with
potential. Contribution above basic which to solve organizational problems.
performance should not be expected.  Although people have intellectual
potential, modern industrial life utilizes
only part of it.

Communication is the process through which people and organizations accomplish objectives. By
communicating with others we share attitudes, values, emotions, ambitions, wants, and needs.
Behind every success, there is effective communication that is well planned and thoughtfully
executed. Successful managers effectively communicate their vision for a work unit or the company
as a whole.

Communication Process
Communication is the transmission of information-data in a coherent, usable form-from one person
to one person or group to another. Rational communication strives to achieve a common
understanding-agreement about the meaning and intent of the message-among all parties to each
communication. Although much of the managerial information that managers rely on is in numeric
form, the greatest portion of managerial activity depends on verbal communication and competent
use of language. Able communicators respect the conventions of language-grammar, spelling and
punctuations. They know precisely what they wish to say and thoughtfully select the best way to say
it. In addition, the communicator needs to be certain that the person who receives the information
actually understands the message.
Communication is a process- a set of steps usually taken in a definite sequence. As a process,
communication is consists of the major elements described below.
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1. Sender: is the initiator or source of the information.
2. Receiver: is the person or group that gets the information
3. Encoding: it takes place when the sender translates the information to be transmitted into a series
of symbols. It is the mechanism through which one’s mental thoughts into understandable
symbols.
4. Decoding: is the process by which the receiver interprets the message and translate it into
meaningful information.
5. Medium/Channel: is the means chosen by the sender to transmit the message
6. Message: is the information that the sender wants to transmit.
7. Feedback: is the mechanism that enables the sender and the receiver to assure if the intended
communication has taken place and mutual understanding has been achieved.
8. Noise: is any factor that disturbs, confuses or interferes with communication. Noise can arise
along what is called the communication channel or method of communication.

The communication process is depicted in the following diagram.

Message

Sender/ Encoding Channel Decoding Receiver

source
Noise

Feedback
Types of Communication
Communication can be classified into two broad categories as formal and informal communication.
a) Formal Communication: is communication that results from company’s organizational
structure. These designated pipelines for messages run in three directions: upward, downward
and horizontally. Managers are charged with the responsibility of creating, using, and keeping
these channels open and available to organization’s members. The channels act as connections
between members and outsiders and as paths through which official communication flows. One
look at a company’s formal organizational chart will reveal who is connected to whom and,
therefore, in which direction communication flows.
- Downward Communication: it takes place daily, in on-the-job conversation and interactions
between managers and team leaders and their subordinates. It conveys such information as
CEO’s vision, company mission, changes in rules and regulations, delegation of authority, job
designs, performance appraisal results, orders, etc. Typical devices used to carry downward
communication include company procedure manuals, newsletters, public relations
announcements, annual statements, and various types of memos, reports, letters, and
directives.
- Upward communication: this provides the feedback required by downward communication.
It allows workers to request assistance in solving some problems, and it provides a means for
workers to recommend solutions to others. Workers also use upward communication to

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 provide status reports and inform higher authorities about employee complaints. It conveys
such information as complaints, feedback, recommended solutions, research results, etc. The
tools of upward communication include employee surveys, regular meetings between
managers and their subordinates, suggestion systems, team meetings and open-door policy
which provides to employees access to managers.

- Horizontal communication: connects people of similar rank and status within an

organization and outside stakeholders with those insiders who can best meet their needs.
Through horizontal channels, workers and managers provide feedback, keep teammates
informed, coordinate activities, seek assistance, and stay in contact with customers.

b) Informal Communication: informal communication networks carry casual, social and personal
messages on a regular basis in or around the workplace. These channels are often called,
collectively, the grapevine. Informal communication channels disseminate rumors, gossip,
accurate as well as inaccurate information and occasionally official messages. Anyone inside or
outside an organization can originate a grapevine message. Grapevine messages are transmitted
in many ways-faces to face, by telephone, e-mail, etc.

Messages transmitted through informal channels usually result from incomplete information from
official sources, environmental influences in the organization or outside it, and the basic human
needs to socialize and stay informed. When changes occur, people like to speculate about what
they will mean. When people feel insecure or fearful because of cutbacks and layoffs, rumors fly
about what will happen next. Grapevine has the following characteristics:
 It can penetrate the tightest security
 It spreads in a higher speed like wildfire
 It tends to carry messages from anonymous sources
 Its messages are difficult to stop or counter once they get started
 It is accessible to every person in an organization
 It can be supportive or destructive to management efforts

 Self-Assessment Questions
1. Define leading/directing
2. Compare and contrast the three major leadership styles; autocratic, participative and laissez-
faire
3. What is the difference between employee oriented and task oriented leadership styles?
4. Discuss the basic idea behind the three theories of leadership (trait theory, behavioral theory
and situational theory)
5. What is motivation?
6. Differentiate process and content theories of motivation
7. Explain the importance of communication in leadership
CHAPTER 7

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 CONTROLLING
 Introduction
7.1. Controlling Defined
 Controlling is the process of ensuring that actual activities conform to planned activities. Control
is more pervasive than planning. Control helps managers to monitor the effectiveness of their
planning, organizing and leading activities. An essential part of the control process is taking
corrective actions as needed.
 Controlling is the measurement and correction of performance in order to make sure that
enterprise objective and plans are accomplished.
 “Controlling means the process of gathering and ‘feeding back’ information about performance
so that decision makers can compare actual results and decide what to do about any apparent
discrepancies or problems”.
 Management control is systematic effort to set performance standards with planning objectives,
to design information feedback systems, to compare actual performance with these predetermined
standards, to determine whether there are any deviations and to measure their significance, and to
take any action required to assure that all organizational resources are being used in the most
effective and efficient way possible in achieving organizational objectives.

Controlling begins with the framework of expectations provided by the standards. From that point,
control consists of a series of steps intended to help ensure that actual performance conforms to
expected performance. Controlling is the management function in which managers set and
communicate performance standards for people, processes, and devices. A standard is any guideline
or benchmark established as the basis for the measurement of capacity, quantity, content, value,
cost, quality, or performance. Whether qualitative or quantitative, standards must be precise,
explicit, and formal statements of the expected result
7.2. Controlling Processes
One can notice that the forth definition given above divides the controlling function into four steps:
1) establishing performance standards, 2) measuring actual performance, 3) comparing actual
performance to established standards and 4) taking corrective action, if necessary. These steps of
controlling are discussed below:
1. Establishing Performance Standards: the controlling process begins with the establishment of
standards of performance to serve as a basis for determining whether organizational objectives
are being accomplished. The goals and objectives established during the planning process should
be stated in clear, measurable terms. Plans are the yardsticks which managers devise controls.
Standards are the criteria of performance. Precisely, worded and measurable objectives are easy
to communicate and to translate into standards and methods that can be used to measure
performance.
2. Measuring Actual Performance: after standards are established, managers must measure
actual performance to determine variations from standards. The frequency of measurements
depends on the type of activity being measured. Measurement of performance should be done on
a forward looking basis so that deviations can be detected in advance of their occurrence, and

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 avoided by appropriate actions. Thus, feedback of performance measurements makes it possible
to compare actual with intended results.
3. Comparing Actual Performance with the Established Standards: It is a matter of comparing
measured results with established targets or standards previously set. It is nothing but
comparing the actual results with the planned targets. If performance matches the standards,
managers may assume that ‘everything is under control’. If deviations from the standards exist,
the evaluator must decide if they are significant-if they require corrective actions. If so, the
evaluator must determine what is causing the variance.
4. Taking Corrective Actions: When a controller/evaluator determines the cause or causes of a
significant deviation from a standard, he or she must take corrective action to avoid repetition of
the problem or defect. Policies and procedures may prescribe the actions. Such guidelines help
shorten the time needed to react to deviations. The corrective action could involve a change in
one or more activities of the organization’s operations. This is an exercise of the principle of
navigational change. Correction of deviations is the point at which control can be seen as a part
of the whole system of management. Managers may correct deviations by redrawing their plans
or by modifying their goals.
Thus, controlling is a dynamic process. Unless managers go through the control process to its end,
they are merely monitoring performance rather than exercising control. The emphasis should always
be on devising constructive ways to bring performance up to standard, rather than on merely
identifying past failures.
7.3. Types of Control
1. Feed Forward Control: This is a preliminary control that takes place before operations
begin and includes the development of policies, procedures and rules that are designed to
ensure that planned activities will be carried out properly. It is a future directed control
method. Feed forward systems monitor inputs into a process to ascertain whether the inputs
are as planned. If not, the inputs are changed in order to obtain desired results. Locks on
doors and bars on windows, safety equipments and guidelines, employee selection
procedures, employee training programs, and budgets are all feed forward controls. McAfee
and Norton antivirus computer software are other examples of feed forward control.
2. Concurrent Control: Concurrent control is the heart of any operating control system.
Concurrent control takes place during the action phase of carrying out the plans and includes
direction, monitoring and adjusting the activities as they occur. Concurrent plan can assist in
achieving that the plan will be carried out at the specified time and under required
conditions. Consider word processing software, which allows a writer to change a document
before storing or printing. The soft ware provides concurrent control. A word processor’s
spelling checker also provides concurrent control. Some concurrent controls are designed to
provide readouts or audible warnings. Most photocopiers and computer printers, for
example, have display panels that alert their users to malfunctions during operations. Many
of the devices on the dashboard of an automobile are concurrent controls.
3. Feedback Control: feedback control measures outputs of a process and feed into the system
or inputs for corrective action to obtain desired outputs. Feedback system is similar to that
which operates in the usual household thermostat. Managers measure actual performance,
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 compare the measurement with actual standards, and identify and analyze deviations. They
develop a progress for corrective action and implement it to achieve the desired
performance. At the end of a year, for example, a manager should carefully review the
budget control report. Which accounts were overdrawn? Which accounts retained a
surplus? , etc.
7.4. Making Control Effective
Controls at every step focus on inputs, processes and outputs; but what characteristics make controls
effective? Effective controls are focused on critical points integrated into the organizational culture.
They are timely and accepted by those who use them or abide by them. In addition, controls are
economically feasible, accurate and comprehensive.
 Focus on critical points: critical control points are all the operations that directly affect the
survival of an organization and the success of its most essential activities. Critical control
points exist in many areas of business activity-production, sales, customer service, and
finance, for example. Controls should focus on those points at which failures can not be
tolerated and where time and money costs are greatest. The objective is to apply controls to
the essential aspects of a business, not the peripheral ones.
 Integration: controls exhibit integration when the organizational culture supports and
enforces them and when they work in harmony, not at cross purposes. When controls and the
need for them are congruent with the organization’s values, the control will be effective.
Coordinated controls do not impede work; they function harmoniously to give people what
they need to make informed judgments. When managers and employees trust each other and
workers at all levels believe that the controls are necessary, employees can be relied on to
implement the controls.
 Acceptability: people must agree that controls are necessary, that the particular kinds of
controls in use are appropriate, and that the controls will not have negative impacts on
individuals or their efforts to achieve personal goals. Controls that seem to be arbitrary,
subjective or an invasion of privacy will not elicit the support of those they affect. Too many
controls, confusing controls, and too few controls create stress and resistance. Frustration,
fear, and loss of motivation and initiative can result.
 Timeliness: controls must ensure that information reaches those who need it when they need
it; only then can a meaningful response follow. One reason for setting deadlines is to ensure
that information flows promptly. If deadlines are treated causally or unrealistically, people
will soon come to ignore them.
 Economic Feasibility: the costs of a control system must be weighted against its benefits. If
the resources expended on the controls do not return an equal or greater value, the controls are
better left unimplemented. Suppose a costly security system includes highly trained personnel,
sophisticated electronic surveillance equipment, and fingerprint scanning. Such a system is
suitable for capital equipment and facilities, but not the office supply cabinet.
 Accuracy: information is useful if it is accurate. Accuracy relates to concurrent controls used
to diagnose deviations from standards. Controls that offer inaccurate assessments feed
decision makers the wrong input, which causes them to give inappropriate responses.

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  Comprehensibility: the more complex a control system becomes, the more likely it is to
create confusion. The simpler the control, the easier it will be to communicate and apply.
Controls in the form of instructions are often complex because more than one person created,
implemented, or interpreted them. Complexity can also result when control users lose sight of
the purposes of the controls.
 Tailoring controls to plans and positions: All control techniques and systems should reflect
the plans they are designed to follow. Every plan and every kind and phase of an organization
has unique characteristics. Likewise controls should be tailored to positions. A small business
will need some controls that differ from those in a large business. The very nature of control
emphasizes the fact that the more controls are designed to deal with and reflect the specific
nature and structure of plans, the more effectively they will serve managerial needs.
 Tailoring controls to individual managers: Control systems and information systems are
intended to help individual managers carry out their function of control. Adequate authority
should be given. Taking the proper corrective action necessitates sufficient authority to
accomplish this task.
7.5. Techniques of Control
Managers use a series of control methods and systems to deal with the different problems and
elements of their organizations. The methods and systems can take many forms and can be intended
for various forms: budgetary methods, non-budgetary control devices and modern methods.
a) Budgetary Methods: budgets are formal quantitative statements of the resources set aside for
carrying out planned activities over given periods of time.
 Operating Budgets: The most common types of operating budgets are the expense, revenue and
profit budgets.
- Expense Budgets: are of two types: engineered cost budgets and discretionary cost budgets.
Engineering cost budgets usually describe the material and labor costs involved in each
production item as well as the estimated overhead costs. Discretionary cost budgets are
typically used for expense centers- administrative, legal, accounting, research etc.
- Revenue Budgets: are meant to measure marketing and sales effectiveness. It is the most
critical part of a profit budget. They consist of the expected quantity of sales multiplied by the
expected unit selling price of each product.
- Profit Budgets: combine cost and revenue budgets in one statement. They are also called
master budget, which consists of a set of projected financial statements and schedules for the
coming year. They serve as annual profit plans.
 Variable Budget: Variable budgets are cost schedules that show how each cost should vary as the
level of output varies. Variable budgets are used where operations are repetitive, where there are
a large number of different expenses and where these expenses can be accurately estimated.
Three types of costs are considered when developing variable budgets: Fixed, Variable, and
semi-variable costs.
- Fixed costs: are those that are unaffected by the amount of work being done Example:
monthly salaries, insurance payments, rent etc.
- Variable costs: are expenses that vary directly with the quantity of work being performed ex:
raw material.
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 -Semi variable costs: are those that vary with the volume of work performed but not in a
directly proportional way ex: short term labor costs.
 Zero Base Budgeting: The enterprise’s programs are divided into packages composed of goals
and activities and then costs are calculated from the base. By starting the budget of each package
from base zero, costs are calculated afresh for each budget period, without referring the changes
from the previous period.
b) Non-Budgetary Control Methods:
 Statistical Data: Statistical analysis with wider application of tools and techniques, and the clear
presentation of statistical data, whether of a historical or a forecast nature, are important to
control. It is easy when data are presented in a graphical or chart form to highlight the trends and
relationships.
 Special Reports and Analysis: For control purposes, special reports and analyses help in
particular problem areas. Although routine accounting and statistical reports furnish a good share
of information, there are areas in which they are inadequate. Reports should be reviewed
periodically to be sure that they are useful.
 Auditing: Auditing validates the honesty and fairness of financial statements to provide a critical
basis for management decisions. It is a process of appraisal. External audit is largely a
verification process involving the independent appraisal of the organization’s financial accounts
and statements. The audit is conducted by accounting personnel employed by an outside firm or
by chartered accountants. Internal audit or operational auditing is carried out by members of the
organization. Its objectives are to provide reasonable assurance that the assets of the organization
are being properly safeguarded and that financial reports are kept reliably and accurately enough
for the preparation of financial statements. Internal audits also assist managers in evaluating the
organization’s operational efficiency and the performance of its control system.
 Personal Observation: Managers have the risk of seeing that enterprise’s objectives are
accomplished by people and go to the area of activities and taking notice of what is being done.
This is nothing but “Management by Walking Around”.
c) Modern Methods of Control
 Program Evaluation and Review Technique (PERT): PERT is a refinement of the original Gantt
charts, which were designed to show in bar chart form, the various things that must be done, and
when in order to accomplish a program, using the sequence of events and the times required for
each program, one can determine the critical path.
 Management Information system (MIS): MIS is a formal system of gathering, integrating,
comparing, analyzing and dispersing information internal and external to the enterprise in an
effective and efficient manner.
 Computers: computers are extensively used and their impact on managers at various
organizational levels differs. Computer networks link work stations with each other.
REFERENCES
 Daft, R. L. (2008). Management. (Ninth Edition Ed.). Nashville, Tennessee: South-Western,
Cengage Learning.
 Mason, C. T., Bauer, B., & Erdogan. (2010,) Management Principles (Vol. 1). Jupiter images
corporation.
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  Ernest Dale. “Management. Theory and Practices.” McGraw Hill Inc. New York, 1981.
 Fred Luthans, “Introduction to Management, A Contingency Approach”, McGraw Hill Book
Company New York, 1973.
 George R. Terry and Stephen G. Franklin, “Principles of management”, All India Traveller
book Sellen New Delhi, 1991.
 Harold Koonz, Cyril O’Donnell and Heinz Weihrich, “Management”, McGraw Hill
International New York, 1980.
 Peter F. Druker, “Management: Task and Responsibility”, IIaper & Row, New York, 1973.
 Peter F. Druker,” The practice of management” Haper & Brothers, New York, 1986.
 Samul C. Certo, “Principles of Modern Management”, Allyn and Bacon Inc., Boston, 1986.
 Robert N. Lussier, Management: concepts, Applications, and skil development, “South
western college publishing, 1997.
 Richard m. Hodgets & Donald F. Kuralko, “Management,” Harcount Brace Jovanovich
publishers, 1991, third ed.
 Plunkett and Attner, Introduction to management, Wadsworth publishing company, 1994. 5 th
ed. And 6th ed.

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