Table of Contents

Course overview……………………………………………………….……………………… I
1. Module introduction............................................................................................................................II
CHAPTER ONE.......................................................................................................................................1
1. FUNDAMENTALS OF MANAGEMENT......................................................................................1
1.2 Concept and definition of Management...........................................................................................1
1.3 Significance of Management............................................................................................................5
1.4 Levels of Management and types of Management...........................................................................8
1.5 Managerial roles and Skills...........................................................................................................10
CHAPTER TWO.......................................................................................................................................18
DEVELOPMENTOFMANAGEMENT THOUGHT...............................................................................18
2.1 An over view...............................................................................................................................18
2.2. Rational of studying management thought.....................................................................................18
23 Practices in management.............................................................................................................19
24 Evolvement of Theories in Management..........................................................................................20
2.5 FORERUNNNERS TO SCIENTIFIC MANAGEMENT...............................................................22
2.6.1 Early Contributors to Scientific Management..............................................................................22
2.7 THE ERA OF CLASSICAL MANAGEMENT..............................................................................23
2.8THE HUMAN-RELATION MOVEMENT.....................................................................................35
2.9The Hawthorne Study.......................................................................................................................36
2.10 THE MODERN ERA..................................................................................................................39
CHAPTER THREE..................................................................................................................................45
[Link] PLANNING FUNCTION..............................................................................................................45
3.1 Concepts and need for planning......................................................................................................45
3.2 Types of plans..................................................................................................................................50
CHAPTER FOUR....................................................................................................................................65
4. THE DECISION MAKING..............................................................................................................65
4.1 Meaning of decision making...........................................................................................................65
4.2 Rational decision making process...................................................................................................65
4.3..........................................................................................................................................................67
CHAPTER FIVE......................................................................................................................................72
5. THE ORGANIZING FUNCTION....................................................................................................72

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 5.1 Concept of organizing and organization..........................................................................................72
5.2 Formal and informal organization...................................................................................................73
5.3. Organization chart..........................................................................................................................77
5.4 Departmentalization: Meaning and Bases.......................................................................................79
5.5 Span of management.......................................................................................................................84
5.6. Authority and power: Source of power..........................................................................................85
5.7. Line and staff authority...................................................................................................................87
5.8. Delegation, centralization and decentralization..............................................................................88
CHAPTER SIX.........................................................................................................................................96
6. STATFING AN ORGANIZATION..................................................................................................96
6.1 The procurement function...............................................................................................................96
CHAPTER SEVEN................................................................................................................................114
7. THE LEADING/DIRECTING FUNCTION.......................................................................................114
7.1 Meaning and the need for leadership.............................................................................................114
7.2 Concept and meanings of Leadership theories..............................................................................117
7.3. Concept and meaning of Leadership styles..................................................................................119
7.4 Motivation.....................................................................................................................................120
7.5 Concept and meaning of Communication.....................................................................................140
CHAPTER EIGHT.................................................................................................................................144
8. THE CONTROLLING FUNCTION...............................................................................................144
8.1 Meaning and need for control........................................................................................................144
8.2 Control process.............................................................................................................................145
8.3 Types of Control............................................................................................................................146
8.4 Techniques of control....................................................................................................................147
8.5 Effective control system................................................................................................................148
Reference ………………………………………………………………………………………… 151

II
 1. Module introduction
Dear students, this material is prepared with a due considerate so as to enhance your understanding about the
changing trends and crucial issues in management. With regard to this, this module is sorted from different
types of relevant management books to assure the quality of the material as well as to equip you with an in-
depth understanding about the gradual evolution of management discipline.

Moreover, this module contains eight chapters; under chapter one you will be introduced with the general an
overview of management, in chapter two you will discover basic concepts about early contributors to
management thought, in chapter three you will discover the planning function of management, under chapter
four you will be introduced with the decision making, under chapter five you will be introduced with the
organizing function of management, under chapter six you will be introduced with the staffing function of
management, under chapter seven you will be introduced with leading function of management, and finally
under chapter eight you will be introduced with the controlling function of management.

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 CHAPTER ONE

1. FUNDAMENTALS OF MANAGEMENT
An overview of Management

We often come across the word management referring to people who run enterprises organized as either
sole-trading or partnership firms. These organizations are either owner-manager or managed by
professional managers. But in the current situation require professionally trained people to manage the
business. The extent of success these managers achieve depends on their knowledge of management theory
and its skillful application. In the transition from owner-managed enterprises to professional-managed
enterprises, profit is no longer the sole indicator of success. The management is obliged to put up
performance in areas which are concerns of groups other than owners. Hence, students should be familiar
with the concepts and action needed to make successful managers.
Learning Objectives
By the end of this chapter, you should be able to:
 Understand the meaning and concepts of management

 Identify the different managerial skills and hierarchy

 Identify and describe the five functions of management and explain how they are applied in practice

 Discussed whether management is an art or a science

 Demonstrate that management concepts have universal applications

 Differentiate the major differences between managerial functions and managerial roles

1.2 Concept and definition of Management

Management is essential at all levels of an organization. But the word management has been given
different interpretations. It is used as a noun, a process, and a separate discipline.

1.1.1 Management as a noun

In general and popular usage, management refers to a distinct group of people who direct the
activities of other people and material resources toward the attainment of predetermined goals.
Giving a Broader meaning to it, one can look at management as a resource, a system of authority, and
a class of elite.

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1.1.2 Management as an economic resource: The economist's view of management is that it is a factor
of production just like entrepreneurship, capital and labor. The managerial resource, to a large extent,
determines organizational effectiveness and efficiency. Hence in a dynamic environment managerial
development is more important and its use must be more intensive.

1.1.3 Management as a system of authority: Management is a system of authority in the sense that it
consists of a team of managers who are responsible for making decisions and supervising the work of
others. Managers at different levels possess varying degree of authority. Higher level managers
manage managers at middle levels. Middle and lower level managers supervise and control their
subordinate managers and workers.

1.1.4 Management as a class of elite: Sociologists view management as a class and status system.
Increasing complexity of management in the modern complex organization has led to managers
being regarded as a distinct class in society, who possess knowledge and skill of higher order. Access
to managerial positions is based on achievement criteria, rather than on astrictive criteria (i.e. on
family and social origins). This development is viewed by some as managerial revolution in which
the managerial class threatens to become autonomous groups with increasing amount of power.
Others view this development not with alarm because increase in power of managers attracts more of
them, which prevents managerial autocracy.

1.1.5 Management as a process

Interpreted as a process, Management consists of a series of inter-related managerial activities
classified into various functions with a systematic approach, so as to integrate physical and human
resource into an effective operating unit. Management is thus, regarded as the process by which a co-
operative group directs action towards common goals.

1.1.6 Management as a discipline

Another connotation of management is that it is a separate discipline having a systematized body of
knowledge which managers use in performing their jobs. As a separate field of study, management
includes the principles and practice of general management as well as of the various functions of
management. It has developed its own techniques and approaches. The theoretical foundations of
management have evolved on the basis of experience, observation and scientific investigations.

However, management as a discipline has along history; there are no common agreements among its experts
and practitioners about its precise definitions. Various management schools or scholars defined management
from their perspective and experiences. The most common definition of management that have been defined
by different schools of thought are;
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1. Process School: The process School defines management in terms of functions undertaken by the
manager in an integrated way to achieve organizational purposes. According to Henri Fayol, to manage is to
forecast and plan, to organize, to command, to coordinate and to control. All other definitions of
management related to this school are marginal additions, deletions, or elaborations of the functions listed
out in the above definition.
2. Human Relations School: This school emphasizes the human aspect of organization and conceives it as a
social system. It is a social system because managerial actions are principally concerned with relations
between people. In fact, management is concerned with development of people and not the direction of
things. The essence of this school is well reflected in the definition of Lawrence Appley to whom
management is the accomplishment of results through the efforts of other people.
3. Decision School: The Decision School defines management as rule-making and rule-enforcing body. In
fact the life of a manager is a perpetual choice making activity and whatever a manager does, he does
through his decisions. Moreover, decision making power provides a dynamic force for managers to
transform the resource of business organization into a productive and cooperative concern.
4. System and Contingency School: According to this school, organizations like any living organism must
adapt themselves to their environments for survival and growth. Thus, management involves designing
organizations adaptable to changing markets, technology and other critical environmental factors. The
systems theory of organizations are organic and open systems consisting of interacting and interdependent
parts and having a variety of goals. Managers are supposed to maintain balance among the conflicting
objectives, goals and activities of members of the organization. He must achieve results efficiently and
effectively. According Contingency School there is no best way to design organizations and manage them.
Managers should design organizations, define goals and formulate policies and strategies in accordance with
the prevailing environmental conditions.
Different schools of thought defined management differently due to three reasons: 1. Difference in
perspectives of management and organization theories, 2. shifts in emphasis in the study of the organization
from economic and technical aspects to conceptual and human aspects, and 3. focus on internal and external
environments of the organization.

In general, the following are some of the common and most widely used definitions of management given by
different scholars of management.
 Management is the art of getting things done through/ with people in a formally organized group.
 Management is set of activities (including planning & decision making, organizing, leading and
controlling) directed at an organization’s resources (human, finance, physical and information) with
the aim of achieving organizational goals in an effective and efficient manner.
 Management is the art of knowing what you want to do in the best and cheapest way.

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  Management is the process of planning, organizing, staffing, directing/ leading and controlling the
use of resources effectively and economically to attain objectives.
 Management is the art of securing maximum results with minimum efforts so as to secure maximum
happiness and prosperity for employer and employee; and to give best services to the public.
 Management is the process of working with/ through others to effectively achieve the organizations

objectives by efficiently utilizing scarce resources of the organization in this changing environment.
 Management is the process of designing and maintaining an environment in which individuals,
working together in groups, effectively accomplish selected aims.

1.3 Significance of Management

Management is one of the most important human activities. It is essential to ensure the coordination of
individual efforts where people are working in group to accomplish activities those could not be achieved by
individual effort.
Ever since people began forming groups to accomplish aims they couldn’t achieve as individuals, managing
has become essential to ensure the coordination of individuals’ effort. As society has come to rely
increasingly on group effort, and as many organized groups have become large, the task of managers has
been rising in importance. The basic purpose of management is to ensure that organizational goals are
achieved in an effective and efficient manner.
Organizations and Managers
For better or worse, our society is strongly influenced by managers and their organizations. Organizations
play major roles in our lives. They influence our behavior. Every scientific and technological development is
the result of organizations, and the achievements of the organizations are the achievements of their
managers. Therefore, understanding how organizations operate and how they are managed is important.
Any organizations are established to accomplish certain defined objectives. This is possible when resources
are properly combined and effectively managed. Defining organization is relatively simple but the concept
of management is more elusive.
Organization is a group of people working together in a structured and coordinated fashion to achieve clearly
stated, and commonly held sets of goals or objective; or a group of people associated for such as business,
politics, religious, athletic, social and other purposes. It requires human beings to interact or communicate,
and it is where each member do part of jobs to meet objectives.
Organizations create surplus. This surplus in business organizations termed as profit, where as in non-profit
organizations is satisfaction of the needs.
All organizations use resources from their environment. The basic resources are: human resources
(managerial talent and labor), financial resources (the capital used by the organization to finance both
ongoing and long term operations), physical resources (raw materials; offices and production facilities, and
equipments), and information (usable data needed to make effective decisions).
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These resources are generally obtained from the organization’s environment.
Managers are responsible for combining and coordinating these various resources to achieve organization’s
goals and are chiefly concerned with efficient combination of resources and obtaining results through
people.
A manager is someone whose primary responsibility is to carry out the management process. He is in
particular who plans & makes decisions, organizes, leads & controls humane, financial, physical and
information resources. To obtain results managers should provide healthy working atmosphere, manage
resources effectively and efficiently, treat human beings as mature, creative and innovative creature rather
than passive and lifeless machine.
Organization/ enterprises succeed if there is competent leadership/ manager. Competent manager turn the
losing concerns (organization) while incompetent managers could hasten its closure.
Management is essential whenever and wherever human efforts are to be undertaken collectively to achieve
specific goals. No group activity can succeed with out management.
Efficiency/ Efficient mean using resources wisely in a cost-effective way and it is concerned with the
relationship between input and output i.e. the achievement of ends with the least amount of resources. Where
as effectiveness/ effective means making the right decision and successfully implementing them, i.e. the
achievement of objectives or getting things done right.
1.3. Managerial function an overview
We have already discussed that management is a process. It comprises different stages. These stages in the
process are known as the functions of management. Each of these functions are described below:
(a) Planning
Planning is deciding in advance what is to be done, when it is to be done, how it is to be done and why it is to
be done. It emphasizes the fact that if one knows where he is going; he is more likely to get there. Planning
involves (i) problem-solving and (ii) decision-making. Whenever there is a problem, the manager should
know what alternatives are there to solve it. Out of the alternative courses of action he has to choose the
most suitable one. This process of making choice is known as decision making. Planning requires decisions
to be made on what should be done, how it should be done, who will do it, where it will be done, and why it
is to be done. The essential part of the planning consists of setting goals and programmers of activities.
(b) Organizing
After plans have been drawn, the management has to organize the activities. Managers determine what
activities are necessary to achieve the objectives and how these activities should be divided among the
departments and employees. The performance of any activity requires different type of work. Suppose the
manager of a sugar mill decides to produce 100 tons of sugar. This is his objectives. Now to achieve this, he
has to divide the activities and operations into certain departments. The production work is given to the

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production department; finance department is assigned the work of arranging funds; personnel department is
to procure people with required skills and the sales department is to take care of sales. The organizing
function of management involves creating departments and defining the duties and responsibilities of people
in different positions within each department.
(c) Staffing
Staffing is concerned with employing people for the various activities to be performed. The objectives of
staffing is to ensure that right type of people have been recruited for different positions. It includes the
function of recruitment, selection, and placement of employees.
(d) Directing
The directing function of management includes guiding the subordinates, supervising their performance,
communicating information and motivating. A manager should be a good leader.
He should be able to instruct and guide his subordinates in the work assigned to them. He should keep a
watch on the performance of his subordinates and help them out whenever they come across any difficulty.
The communication system, i.e, exchange of information should take place in clearly understandable words
and without delay. Information should flow from managers to workers and from workers to managers at the
right time. Managers should also understand the needs of subordinates and accordingly inspire them in their
work.
(e) Controlling
This function of management consists of the steps taken to ensure that the performance of work is in
accordance with the plans. Controlling means measuring the actual performance with the planned one. If
differences are noticed, corrective steps are taken which may include revision of plans, improvement in the
division of work and providing better guidance.
(f) Co-ordination
We have discussed each of the five vital functions of management separately. But it is important to note that
all the activities should contribute to the achievement of the objectives of the business as a whole. The heads
of different departments should not treat each other as competitors but should work as organs of one body.
As the proper functioning of every organ of a human body is important for a healthy body, the work of every
department is important for the organization as a whole. Managers should, therefore, see that everybody in
the organization understands its objectives and works in co-operation with others to achieve these objectives.
This function of management is called co-ordination. It consists of harmonizing group effort so as to
achieve common objective.

1.4 Levels of Management and types of Management

We have already stated how managers jointly perform the various functions. Different managers perform

6
 different types of duties. Some managers decide about the objectives of the business as a whole: some
managers perform functions to achieve these and some of the managers are concerned with the supervision
of day- to- day activities of workers. Managers performing different types of duties, may thus are divided in
to three categories:
POSITION FUNCTIONS

Board of directors
and chief TOP Defining the objectives and
executives LEVEL formulating the policies.

Departmental Identifying the depart- mental

heads and guiding the lower
managers obobjectives and
MIDDLE level towards the
LEVEL achievement of
these

Supervisors
and foremen LOWER Carrying out
LEVEL The operations
and their
supervisions

WORKERS

.
.

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The diagram show that the top level management includes the board of directors and the chief executives.
The chief executives may have , the designation of chairman, managing directors, president, General
Manager. This level determines the objectives of the Business as a whole and lays down policies to achieve
theses objectives (Making of policy means providing guide lines for action and decision). The top
management also exercises an overall control over the organization. The middle level Management includes
heads of various departments e.g. production, sales, and other departmental managers some times senior
departmental heads are in the top level management. The objectives of the business as a whole are
translated in to departmental objectives for the middle level Management. The heads of departments then
issue instructions to subordinates so as to achieve these objectives. Middle level managers are particularly
concerned with the activities of their respective departments.

1.5 Managerial roles and Skills

Regardless of level or area within an organization, all managers must play certain roles and exhibit certain
skills to be successful. A person doing certain things meets certain needs in the organization, and has certain
responsibilities.
Managerial roles
In previous section we tried to explain the function of Management these are the broad areas of activities that
represent the ends for which management is practiced where as managerial roles represent specific tasks that
managers under take to ultimately accomplish the functions of planning, organizing, staffing, leading and controlling.
They are organized set of activities belonging to an identifiable job that give more realism and systematize
managerial functions.
Mintzberg identified ten roles of managers and categorized them in to three groups:
 they are
1. Interpersonal roles
2. Informational role and
3. Decisional role
Interpersonal roles -refers to activities that involve interacting with others.
o External or internal to the organization
o At higher or lower levels
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  arise directly from manager’s formal authority and classified into as
1. Figurehead role
o representing the organization as the ceremonial and symbolic functions, acting as public
official for the organization or performing ceremonial duties important for the organization’s
image and success. e.g.
 taking visitors to dinner; attending ribbon-cutting ceremonies;
 the mayor who presents a key of a city to a local hero.
 the supervisor who attends the wedding of the mechanic operator.
o is the most basic and the simplest of other roles.
2. Leadership role
o is directing and coordinating the activities of subordinates to accomplish objectSkill
o include some aspects like
 creating a vision that employees can identify with.
 doing with staff:- hiring, training, promoting.
 motivating subordinates to meet organizational needs.
3. Liaison role
o Relationship made outside the areas of command or interacting/ dealing with managers,
people/ peers outside the organization. It helps to seek support from people who can affect the
organization’s success.
Managers are asked to serve as figurehead, leader and liaison. Figurehead and liaison roles give access to
great deal of important information to managers.
Informational roles
Informational roles is the processing of information, and flow naturally from the interpersonal roles
It is an activity that focuses on obtaining and disseminating data important for the decisions that managers
need to make.
It is The process of carrying out this role places a manager at a strategic point to gather and disseminate
information. Effective managers build networks of contacts for sharing information, i.e. managers emerge as
the nerve system centers of their organization.
 are classified as
1. Monitor role
o It involves actively seeking out, receiving and securing information that may be of value.
Here managers, just as radar, scan their environment. It is like a nerve center.
o managers seek information to detect problems or opportunities, build general knowledge
about the work situation, make necessary changes
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 o Information comes from
 Formal mechanisms, such as report, news medias, public forecasts etc…
 Informal conversations with both organization’s members and those external to the
organization.
Much information received is oral (from hearsay, gossip, formal meeting). Hence managers must evaluate
and decide whether to use this information.

2. Disseminator role
It is transmitting or providing relevant information back to others in the workplaces. i.e. sharing/ sending
information found from internal and external sources to others both internal and external to the organization.
3. Spokesperson role
It focuses on external communication. It is representing an organization to outside party on the behalf of
members of the organization, or transmitting information about the work group to others especially outside
the organization. e.g. to public, press, customer group, etc…
Manager is a person who speaks for his organization to people outside the organization.
Decisional/ decision making roles
Decisional roles are related making decision and the most important of the three categories of roles,
which activities are dealing with the allocation of resources to reach organizational objectives.
Manager’s informational role typically leads to decisional roles. Managers use information to make
decision to commit their organization to new actions or objectives.
Decisional roles are classified into:
1. Entrepreneurial role
o Making change that is important for the improvement and betterment of the organization, i.e.
acting as designer and initiator of change with in the group to improve organization’s
position.
o Managers play this role when they initiate new project; launch a survey; test new market; or
enter a new business; etc…
2. Disturbance handler role
o Making decisions or taking corrective actions in response to situations that are beyond their
control, or dealing with problems and changes beyond manager’s immediate control.
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 o type of problems/ disturbances include strikes, bankruptcy, breaking of contracts, etc…
Disturbances may arise when poor manager ignores the situation until it becomes a crisis. If disturbance
occurs, solution must be found.

3. Resource-allocator role
It is critical role. It refers to the allocation of resources. It is is both protecting and using organizations assets/
money, material, HR equipment, data reputation, time/. Managers decide how resources are distributed, and
with whom they will work most closely.
4. Negotiator Role
It refers to mediating internal conflicts and negotiating with others for the advantage of the unit. It focuses
on reaching an agreement with others outside the work group on work related issues or materials or
agreement with other units within the organization. Manager enters into negotiations with other groups or
organization as a representative of the organization. They 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. It
closely linked to resource allocator role.
Managerial skills
At all levels, Managers require three types of skills. They are:
1. Technical Skills
2. Human Skill

3. Conceptual Skills

1. Technical Skill: It is the ability of a manager to use the equipments, methods and techniques involved
in performing specific tasks. Technical skill is required more at the lower level of management I.e. at
the supervisory level. At higher levels, the technical skill is less important as managers can rely upon
others for technical information.

2. Human Skill: The ability of a manager to work with, understand, and motivate people in the
organization is known as human skill. It also involves the ability to build effective work teams. The
human aspect of management requires individual as well as group relations to be maintained and
developed for achieving maximum efficiency. Human skills are important at all levels of
management. For instance, first line managers must:

 Provide on going feedback to employees

 Resolve interpersonal and performance problems

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  Motivate subordinates to change and improve performance

 Oversee the other activities in involved in managing individuals and group performance

Middle managers and top managers also use human skills equally in their respective level of responsibility.
3. Conceptual Skill: This consists of the manager's ability to coordinate all organizational activities
and varied interests involved in it. It involves viewing the organization in its totality and
understanding the inter-dependence of its individual parts. Of all the skills, this conceptual skill is the
most difficult skill to acquire. Conceptual skill is very important for top management in formulating
long-range plans, broad policies and relating the business enterprise to the industry and economy.

Human skill Conceptual skill

Middle First
Line

First Technical
Skill

1.6 Universality of Management

Many professionals in the field of management agree that “management is universal”. These proponents
argue the universality of management by stating that the functions of managers are really the same weather
the organizations are private or public, profit making or non profit, manufacturing and service giving, small
firms or industrial giants
The basic principles and concepts of management are universally applicable to all types of organization.
The main points which characterizes the universality of management:
 All managers operate in organization with specific objectives
 All managers must plan, organize, lead, and control in order to achieve these organizational
1objectives
 The functions of planning, organizing, leading and controlling are similar in all organizations
regardless of the types of ownership.
 The vital force of management is needed to integrate scarce resources in optimum productive
relationships
 Management, in all organizations, helps to achieve organizational objectives.
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1.7 Nature of management: Is it a science or an art?
We have discussed the various interpretations of the term ‘Management’. When a manager performs his
functions or takes decisions, the systematized body of knowledge helps him to apply one or more principles
or methods in the course of his activities. Adoption of principles and methods already known to him during
his education and training may be regarded as the application of science in management. In this sense
management is a science.

Science is defined as a body of systematized Knowledge accumulated through study and

accepted to understand the general truth. It uses operational definitions, careful observations,
systematic data collections and analysis, and accurate measurement carried on to determine the
nature and principles of the subject under study.

However, there may be situations in the day-to-day activities where a manager may not find it useful to
apply the known methods and principles. He may have to understand the nature of the situation and of the
problem and then act or take a decision after careful thinking of the nature of the situation. He has to apply
his skill and judgment rather than simply use the methods and principles known to him. In this sense,
management may be regarded as an art. Managers sometimes may apply methods and principles in their day-
do-day activities as well as use their mind and skill where necessary. Therefore, management may be
regarded as both a science as well as an art.

Art is a system of doing a particular working in the best way in a specific time, place, and
condition tactfully, wisely, and creativity.

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 CHAPTER TWO
THE DEVELOPMENTOFMANAGEMENT THOUGHT

Learning objectives
Dear learners, after successful completion of this chapter, students will be able to:
 Explain the rationale of studying management thought
 Understand and investigate ideas about practices in management
 Describe the evolvement of theories in management
 Demonstrate an understanding of the system approach to management
 Explain the major components of a system theory

2.1 An over view

The purpose of this chapter is to give a brief account about the evolution of management. Management as
a theory is the result of 20th c, but as practice is as old as human civilization. In fact the practice of
management started early ever since people began to perform a task which they could not
accomplish had they been alone. Thus, even though it is too young as recognized discipline, in
practice it is as old as human civilization. More over, the knowledge about management came from the
field of management and other fields.

2.2. National of studying management thought

Basically, a primary reason which force people to discover and state the emergence of certain
discipline is to know where that discipline is originated , where it is today and finally helps to estimate
where does that discipline will reach at in the future . Hence , management is not exceptional as such ,
thus studying the historical evolution of management thought will support to build a comprehensive
know ledge of the past management by integrating with afore coming knowledge , skill and
innovation so as to tackle a multi faceted and dynamic complex problems in management.
The contribution of management theory to the practice of management

14
  To provide a constant (stable) focus for understanding what we experience. A theory provides criteria
for determining what is relevant.
 To communicate efficiently; it enable us to move in to more and more complex relationships with
other people.
 To keep learning about our world; if we are aware of theory, we are better able to ask ourselves if
there are alternative ways of looking at the world.
 To understand the basic process of management; as a manager to decide what must to do for the
function; the theories and principles of management make it easier for us to understand underlying
processes and, on that basis, decide what we must to do function most effectively as managers.
Without theories all we have are intuition, hunches, and hope-all of which are of limited use in to
days increasingly complex organizations.

Management theories, used to build organizations guide them to ward their goals. As a manager, we have
many ways of looking at organizations; their activities, performance, and satisfaction of employees. For
example; a management theory that emphasizes the importance of good work environment may be more
useful in dealing with a high employee turn over 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.

2.2 Practices in management

Management as practice was used from ancient times. The practice of management can be traced back
thousands of years. Ancient civilizations used management techniques like planning, organizing &
controlling to build their large empires & settlements. Historically, there were many evidences indicating the
existence of management in early human carriers. Some of the evidences are:
 Sumerians (5000 B.C.)
o Used written rules and regulations for governance
 Egyptians (4000-1600 B.C.)
The Egyptians used the management functions of planning, organizing, and controlling when they
constructed the great pyramids.
 Babylonians (1800 B.C)
o Used extensive sets of laws and policies for governance
 Hebrews (1941 B.C)
o Moses Exodus indiçâtes some management concepts.
 Chinese (1100 – 500 B.C)
o Used extensive organization structure for governance and the arts
15
  Greece (400 B.C)
o Used different governing systems for cities and states

 India (321 B.C)

o Kavtilya addresses organization & management of trade & commerce; law & court; social
customs; marriage; taxation; etc.
 Romans (284 B.C)
o The Roman Catholic Church is an organization with a formal structure and hierarchy that
existed long before the term<<management>> comes in to common usage.
o They also developed a well-defined organizational structure that greatly facilitated
communication and control. All the above mentioned activities are a manifestation of
management practices in ancient time.

2.3 Evolvement of Theories in Management

What is theory?
It is a coherent group of assumptions put forth to explain the relation between two or more
observable facts. It is a principle or set of principles that explains the relationship between two or
more observable facts or events. It is a conceptual frame work that explains existing observations and
predicts new ones. It is a conceptual frame work for organizing knowledge and providing a blue print
for action.

Management as a discipline was not given a serious attention for several centuries. For this reason, the study
of management was not fully undertaken as a recognized discipline until the mid 19 th century.
Management as a field of study was 19th C development, in response to industrial revolution in Europe and
America.
Until the mid of 18th C, management practices remained stable, but with the introduction of industrial
revolution, there were a series of inventions & innovations which resulted in change in economic system,
and management would be expected on progress.
In the early stages, management study was not developed as expected because of:
 Low esteems given to business in society (existence of undermining).
 Different approaches of economists, political scientists, sociologists. & others towards business
organizations
 Treatment of management as an art, not as a science
 Attitudes (mind sets) of successful managers are born not made, i.e. management can not be transferred
to others through training.

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Therefore, the study of management (how managers achieve their results) is predominantly a 20 th C
phenomenon.
In the 20th C, situations changed that requires systematic study of management due to:
 The development of capitalism & emergence of industries
o forced organizations/industries to be efficient.
 The complexity of organizations, i.e. society became complex due to:
Increasing size of organizations, High degree of division of labor & specialization, Increase in
government regulations & controls, Scarcity of resources, Saturation of markets , Organization of
workers (trade unions), Pressure of various conflicting interest groups in society, Technological
inventions & innovations, etc.
These complexities had increased the demand for efficient management, and have resulted in the divorce of
ownership & management. And these forces have been vital for the development of systematic management
principles, concepts etc.
To handle and tackle these complex situations, managers of the time started to study & developed the
scientific approaches to management.

Principles of Management
A principle is a basic truth or law which governs the whole activities while undertaking certain
actions. Developing principles of management is more complicated than developing scientific
principles. It is unlikely that researchers would find identical companies to study.
Because controlled management experiments are so difficult to Cary out; most management principles are
developed through observation and deduction. Deduction is the process of drawing a general conclusion
from specific examples.
For example:-A researcher may observe that employees in 15 companies work more efficiently when their
supervisors treat them well. In this case, the researcher may deduce that a pleasant work environment
contributes to productivity. This conclusion might then become a management principle.
Management principles are more likely to change than physical principles. They also are likely to be
interpreted differently by different people. For this reason management principles are best viewed as guides
to action rather than rigid laws.
A manager follows management principles most of the time. If, however, a principle clearly does not apply
to a specific situation, an experienced manager will not use it. An important part of being a manager is
recognizing when a principle should be followed and when it should not. Being able to change and adapt,
particularly during times of uncertainty is an important management skill.

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2.4 FORERUNNNERS TO SCIENTIFIC MANAGEMENT

2.4.1 Early Contributors to Scientific Management

Management as a filed of study was 19th c. development, in response to industrial revolution in Europe and
America. The development of management thought as we know it is relatively modern concept. The age of
industrialization in the 19thcentury and the subsequent emergency of large corporate organizations called for
new approaches to management. In the 20 thcentury the development of capitalism and emergency of
industries, a complexity of organizations due to increasing size of organizations, technological inventions
and innovations increased the demand for efficient management, and have resulted in divorce of ownership
and management.
To handle these complex situations, managers of the time started to study and have scientific approaches to
management. The work of early contributors to managements is discussed below.

2.4.2. Times of Robert Owen and the Management era

Robert Owen (1771-1858), a British industrialist and reformer, was one of the first managers to recognize
the importance of an organization’s human recourse. Until his era, factory workers were generally viewed in
much the same way that machinery and equipment were. Owen believed that workers deserved respect and
dignity. He implemented better working conditions, higher minimum working age for children, meals for
employees, and reduced work hours. He assumed that giving more attention to workers would payoff in
increased out put.

2.4.3. Early Works and contribution of Charles Babbage

Charles Babbage (1792-1871), an English mathematician, focused his attention on efficiencies of
production. He placed great faith in the division of labor and advocated the application of mathematics to
problems such as the efficient use of facilities and materials. In a sense, his work was a forerunner to both
the classical and quantitative management perspectives. Nor did Babbage overlook the human element. He
understood that a harmonious relationship between management and labor could serve to benefit both, and
he favored such devices as profit-sharing plans. In many ways, Babbage was an originator of modern
management theory and practice. Owen was primary interested in employee welfare, where as Charles
Babbage focused his attention on efficiencies of production.

2.4.4. Other influential early thinkers and practitioners in Management

Several disciples and colleagues of Taylor helped to promote scientific management. Among them, Carl
Barth was the one who was known as the most orthodox of Taylor’s followers. He worked with Taylor at
Bethlehem steel company and followed him as consultant when Taylor left Bethlehem. However, Barth did

18
not alter or add to scientific management to any significant degree; rather, rather he worked to popularize the
idea of Taylor.

2.5 THE ERA OF CLASSICAL MANAGEMENT

The classical approach to management resulted from the first significant, concentrated effort to develop a
body of management thought. The classical approach to management was originally propounded by the
gentle thinkers and pioneers of management practitioners. Basically, the classical approach to management
recommends that managers continually strive to increase organizational efficiency which was purposely
aimed at increasing productivity. The classical approach to management can be seen from two basically
similar but logically different perspectives.
The first perspective emphasized on studying and analyzing the practice of lower level management, which
was commonly termed as “scientific management approach” (developed by Fredrick W. Taylor. During this
era (scientific management) the main intention of the organizations was scud to wards finding ways through
which to obtain the maximum possible productivity. The concept of scientific management consists
primarily the work of Fredrick W. Taylor, Frank and Lillian Gilberth and Henry L. Gantt. These individuals
studied mainly the work (jobs) of workers at lower level of the organization (at the operation at level) of the
organizations.
The 2nd perspective concerned with a comprehensive investigation and analysis of management concentrated
more on the management of the organization i.e., the management of the organization or functions of
management as a whole this approach was primarily advocated by Henry Fayol (1841-1925 )

2.51. Scientific Management Theory

At the turn of the 20th C, business was expanding and creating deluxe products and new markets, but labor
was in short supply (there was no sufficient skill man power, which could support and sustain the
dramatically advanced human needs in a remarkably turbulent business environment mostly after industrial
revolution of the western world.
As a possible remedy to over come these problems, two solutions were available: in one case either to
substitute capital for labor or else the use of man power sufficiently as another option. For surprise , due to
the costly nature and other constraints, scientific management kept attention and concentrated on the second
solution, that is the use or deployment of human power in a proper manner to achieve efficiency and
productivity which were a hot debate of that time.
Lower level management was the main focus of analysis, primarily as special target through which to find
one best way to perform a task; that means it assesses how task situations can be structured to get the highest
productivity from workers. The process of finding this “one best way” has become known as the scientific
method of management (in short, scientific management). Although the techniques of scientific management

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could conceivably be applicable to all levels of management, the study of scientific management was firmly
confined at lower level organization. The development of specialized tasks and the departments with in
organizations had come with the rapid change in industrial growth and the creation of big business. Thus,
one person no longer performed every task but specialized in performing only a few tasks.

2.5.2. PRINCIPLES OF SCIENTIFIC MANAGEMENT

Frederick Winslow Taylor (1856 – 1915)
Under Taylor's management system, factories are managed through scientific methods rather than by use of
the empirical "rule of thumb" so widely prevalent in the days of the late nineteenth century when F. W.
Taylor devised his system and published "Scientific Management" in 1911.
The main elements of the Scientific Management are: "Time studies Functional or specialized supervision
Standardization of tools and implements Standardization of work methods Separate Planning function
Management by exception principle. The use of "slide-rules and similar time-saving devices" ,Instruction
cards for workmen, Task allocation and large bonus for successful performance ,The use of the 'differential
rate, Mnemonic systems for classifying products and implements A routing system, A modern costing
system etc. " Taylor called these elements "merely the elements or details of the mechanisms of
management."
The main elements of the Scientific Management are: "Time studies Functional or specialized supervision
Standardization of tools and implements Standardization of work methods Separate Planning function
Management by exception principle .The use of "slide-rules and similar time-saving devices" ,Instruction
cards for workmen, Task allocation and large bonus for successful performance ,The use of the 'differential
rate, Mnemonic systems for classifying products and implements A routing system, A modern costing
system etc. " Taylor called these elements "merely the elements or details of the mechanisms of
management"
Perhaps the key idea of scientific management and the one which has drawn the most criticism was the
concept of task allocation. Task allocation is the concept that breaking task into smaller and smaller tasks
allows the determination of the optimum solution to the task. "The man in the planning room, whose
specialty is planning ahead, invariably finds that the work can be done more economically by subdivision of
the labor; each act of each mechanic, for example, should be preceded by various preparatory acts done by
other men."
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The main argument against Taylor is this reductionist approach to work, dehumanizes the worker. The
allocation of work "specifying not only what is to be done but how it is to be done and the exact time
allowed for doing it" is seen as leaving no scope for the individual worker to excel or think. This argument is
mainly due to later writing rather than Taylor's work as Taylor stated "The task is always so regulated that
the man who is well suited to his job will thrive while working at this rate during a long term of years and
grow happier and more prosperous, instead of being overworked." Taylor's concept of motivation left
something to be desired when compared to later ideas. His methods of motivation started and finished at
monetary incentives. While critical of the then prevailing distinction of "us "and "them" between the
workforce and employers he tried to find a common ground between the working and managing classes.
Frederick Winslow Taylor, an American engineer, was the founder of the scientific management school of
thought. He spent the greater part of his life working on the problems of achieving greater efficiency on the
shop-floor worker himself and later as a manager. His career began as an apprentice in engineering. He later
moved to the Midvale Steel Company and the course of 11 years he rose from labor to shop superintendent.
In 1889 he left Midvale to join the Bethlehem Steel Company, where he consolidated his ideas and
conducted some of his most famous experiments in improving labor productivity.
As stated earlier, at the beginning of the 20 th century skilled labor was in short supply, especially in the U.S.
To expand productivity, ways had to be found to increase the efficiency of workers. In an effort to address
these problems, Taylor build the body of principles that know constitute the essence of scientific
management.
The real trouble, Taylor decided on reflection, was that no one knew how much work it was reasonable to
expect a man to do. Either employers gauged a “fair day’s work” by a general impression gained from
observation or, as in his case, by actually working on some of the jobs themselves – or they had a record of
the shortest time in which certain jobs had ever been performed. And there was plenty of room for argument
about either standard.
Taylor based his managerial system on production-line time studies. Instead of relying on traditional work
methods, Taylor analyzed and timed steel workers’ movements on a series of jobs. With time study as his
base, Taylor broke each job down into its components (“elements”) and designed the quickest and best
methods of operation for each part of the job. He thereby established how much workers should be able to
do with the equipment and materials at hand. Taylor also encouraged employers to pay more productive
workers at higher rates than others. The increased rate was carefully calculated and based on the greater
profit that would result from increased production. Thus, workers were encouraged to surpass their previous
performance standards and earn more pay. Taylor called his plan the differential rate system. Under this
system, a man received on piece rate if he produced the standard number of pieces and another rate if he

21
surpassed the standard, and in the latter case, the higher rate would be applied to all the pieces he produced,
not merely to those over the standard.
Management, Taylor said, could well afford to pay the higher rates because of the economies achieved
through better methods and the elimination of slowdowns.
Taylor also called for a drastic reorganization of supervision. His system embodied two new concepts: (1)
separation of planning and doing and (2) functional foremanship.
When Taylor first entered industry, it was customary for each man to plan his own work, generally following
a pattern he had learned by watching others when he was an apprentice. The order, in which the operations
were performed, for example, was entirely up to the man insofar as it was not dictated by the nature of the
job; so was the selection of the tools. The foreman or gang boss simply told the worker what jobs to perform,
not how to do them-except, possibly, in the case of new work.
Taylor’s plan also supplemented the gang boss with a number of functional foremen, each of whom was a
specialist in one type of work – for example, in the use of a lathe or a grinder. The specialists occupied a
“planning room,” and each gave orders to the workmen on his specialty. Thus, if the gang boss assigned a
worker to a job that called for several different operations, the man would be told how to proceed by seven
or eight other bosses.
But the essence of scientific management, Taylor believed, lay in none other than what he called “mental
revolution”. If workmen were paid handsome amounts for producing more and were shown how to do so,
they would cease their slowdowns. Since management would be enjoying the fruits of increased
productivity, it would be happy to pay the higher wages. Interests of management and labor would be
identical, and there would be no reason for strife between them. Neither side would be interested in getting
the larger percentage of the pie because both would profit so much more by working together to increase its
size. This would automatically mean bigger slices for both, and relative shares would be unimportant.
He believed that workers, who met the higher standards, need not fear of layoffs because their companies
benefited from the increase in productivity. The higher payments would continue because they were
“scientifically correct” rates set at a level that was best for the company and for the worker. At the same
time, mo one would be hurt by the differential system. Workers who fell below the standard in productivity
would find other work “in a day or two,” as he put it, because of the existing labor shortage.
By 1893, Taylor decided he could best put his ideas into effect as a private consulting management engineer.
He was soon able to report impressive improvements in productivity, quality, worker morale, and sages
while working with one client Simonds Rolling Machine Company. In one operation, Simonde employed
120 women workers to inspect bicycle ball bearings. The work was tedious, the hours were long, and there
seemed little reason to believe improvements could be made. Taylor proved otherwise. First, he studied and
timed the movements of the best workers. Then he trained the rest in the methods of their more effective co-

22
workers and transferred or lay off the poorest performers. He also introduced rest periods during the
workday, along with his differential pay rate system and other improvements. The results were impressive:
expenses went down while productivity, quality, earnings, and worker morale went up.
Although Taylor’s methods led to dramatic increases in productivity and to higher pay in a number of
instances, workers and unions began to oppose his approach. Like the workers at Midvale, they feared that
working harder or faster would exhaust whatever work was available and bring about layoffs. The fact that
workers had been laid off at Simonds and in other organizations using Taylor’s methods encouraged this
fear. As Taylor’s ideas spread, opposition to them continued to grow. Increasing numbers of workers
became convinced that they would lose their jobs if Taylor’s methods were adopted.
By 1912, resistance to Taylorism had caused a strike at the Watertown Arsenal in USA, and hostile members
of the US congress called on Taylor to explain his ideas and techniques. Both in his testimony and in his two
books, Shop Management and The Principle of Scientific Management, Taylor outlined his philosophy. It
rested, he said, on four basic principles:
1. The development of a true science of management, so that the best method for performing each task
could be determined.
2. The scientific selection of the workers, so that each worker would be given responsibility for the task
for which he or she is best suited.
3. The scientific education and development of the worker.
4. Intimate, friendly co-operation between management and labor.

Taylor also contended that in order for these principles to succeed, “a complete mental revolution” on the
part of management and labor was required. Rather than quarrel over whatever profits there were, they
should both try to increase production and profits to be shared. In short, Taylor believed that management
and labor had a common interest in increasing productivity. And increasing productivity is the explanation
for the development of western economy.
Followers of Taylor
Henry L. Gantt
Gantt was a contemporary and colleague of Taylor’s at the Bethlehem Steel Company, and he strongly
supported the ideas of scientific management propounded by Taylor. He also emphasized the concept of
mutuality of interests between management and workers. He stressed the need to appreciate that “in all
problems of management, the human element is the most important”.
Gantt made improvement in Taylor’s incentive system, and developed what is known as the “task and
bonus plan”. This is the foundation of many incentive plans in out times. Under this incentive plan, the
worker is paid a guaranteed daily wage whether or not he completes the standard work. But if he completes
four hour’s work in three hours or less, he is paid for four hours.
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Gantt is perhaps best known for his development of graphic methods of describing plans and making
possible better managerial control. He emphasized the importance of time, as well as cost, in planning and
controlling work. This led eventually to the famous Gantt Chart – a chart used for planning and following up
work progress against time. The Gantt chart is regarded by some social historians as the most important
social invention of the twentieth century.
Frank and Lillian Gilbreth
Frank and Lillian Gilbreth, a husband and wife team, have been regarded as important contributors to
scientific management. Frank Gilbreth became interested in motion study and reduced the number of
movements in bricklaying from eighteen to five. This increased the productivity of bricklayers from 120 to
250 bricks per hour. Frank emphasized the need of developing or discovering the “one best way of doing a
given task”, whereas Lillian concerned herself with the human aspects of management. The Gilbreths held
that the most important cause of workers dissatisfaction was the lack of management’s interest in them. They
emphasized that management should understand their needs and personality.
Frank Gilbreth also invented a flow chart which showed the progress of an entire operation through time and
various tasks involved in it. Every operation is broken down into tasks which enable the identification and
elimination of unnecessary motions.

2.5.3 Importance of scientific Management

The importance of scientific management becomes evident when considering the effect it has in the
workplace. The study has discussed how scientific management has been used to solve the problem of
wasted human effort. Scientific management, in its attempt to promote efficiency in the workplace, becomes
important to offer the greatest amount of service to the organization in the least amount of time while
expending the least amount of resources. This study has showed that scientific management identifies the
importance of performance evaluation in that it brings about the discovery of the most productive methods
of personnel operation.
Scientific management was showed supporting the study of motions, positions, and task for classification to
expedite the process of production. The study has reported the importance of using scientific management in
training individuals to perform efficiently as opposed to searching for individuals who are already
experienced. The discussion has included that the principle of scientific management to hire managers who
can direct subordinates efficiently and effectively while establishing rapport is critical to the organization.
Scientific management has been depicted as increasing positive relationships between management and
subordinate personnel, which implies that scientific management sets the foundation for Total Quality
Management. Scientific management shows the importance of educating personnel and paying them well to
encourage efficiency and increasing retention. Focus was drawn to the importance of hierarchy for the best
approach of developing and implementing policy, having competent leaders to guide subordinates.
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2.5.4. Classical organizational Theory
Another body of ideas developed at the same time as scientific management. These ideas focused on the
problems faced by top managers of large corporations. Since this branch of the classical approach focused on
the management of organizations while scientific management focused on the management of work, it was
labeled classical organization theory. Its two major purposes were to (1) develop basic principles that could
guide the design, creation, and maintenance of large corporations and (2) identify the basic functions of
managing organizations.
Engineers were the prime contributors to scientific management; practicing executives were the major
contributors to classical organization theory. As with scientific management, there were many contributors
to the classical organization theory. Henri Fayol is singled out for discussion, however, because this ideas
reflect classical organization theory.
Henri Fayol (1841 – 1925)
Henri Fayol, the celebrated French industrialist and theorist, began his working life as a young mining
engineer at the age of 19. He spent his entire working life with the same company, rising to Managing
Director at the age of 47 and only retiring after his 77 th birthday. Under his leadership the company
prospered despite its near-bankrupt state when he took over.
He published a book entitled Administration Industrielle et Generale in 1916 and that brought to light the
distillation of his lifetime’s experience of managerial work.
The works of Taylor and Fayol are essentially complementary. They both realized that the problem of
human resources and their management at all levels is the key to business success. Both applied scientific
method to this problem. Taylor worked primarily on the operative level, from the bottom of the
organizational hierarchy upward. Fayol concentrated on the Managing Director (his term) and worked
downward. Fayol was perhaps the first individual to discuss management as a process with specific
functions that all managers must perform. He proposed planning, organizing, commanding and controlling
as the four management functions.
Fayol found that activities of an industrial undertaking could be divided into six groups: (1) technical
(production). (2) Commercial (buying, selling, and exchanging), (3) financial (search for, and optimum use
of, capital), (4) security (protection of property and persons), (5) accounting (including statistics), and (6)
managerial (planning, organization, command, coordination, and control). Pointing out that these activities
exist in business of every size, Fayol observed that the first five were well known, and consequently he
devoted most of book to an analysis of the sixth.
Fayol developed fourteen managerial principles for which he became known. He stated that principles of
management are flexible, not absolute, and must be usable regardless of changing and special conditions.

25
In concluding discussion of his principles of management, Fayol observed that he had made no attempt to be
exhaustive but had tried only to describe the most occasions to use. The fourteen general principles of
management developed by Fayol are presented below.
Fayol’s General Principles of Management
i) Division of Work. This is the specialization that economists consider necessary for efficiency in
the use of labor. Fayol applies the principle to all kinds of work, managerial as well as technical.
ii) Authority and responsibility. Here Fayol finds authority and responsibility to be related, with
the latter arising from the former. When authority is exercised, responsibility arises. He sees
authority as a combination of official factors, driven from the manager’s position, and personal
factors, “compounded of intelligence, experience, morale worth, past service, etc.”
iii) Discipline. “Seeing discipline as respect for agreements which are directed at achieving
obedience, application, energy, and the outward marks of respect” Fayol declares that discipline
requires good superiors at all levels. Discipline is absolutely essential for the smooth running of
business and without discipline no enterprise could prosper.
iv) Unity of Command. This means that employees should receive orders from one superior only.
v) Unity of Direction. According to this principle, each group of activities with the same objective
must have one head and one plan. As distinguished from the fourth principle, it relates to the
organization of the “body corporate” rather than to personnel.
vi) Subordination of Individual to General Interest. This is self-explanatory; when the two are
found to differ, management must reconcile them.
vii) Remuneration. Remuneration and methods of payment should be fair and afford the maximum
possible satisfaction to employees and employer.
viii) Centralization. Without using the term ‘centralization of authority,’ Fayol refers to the extent to
which authority is concentrated or dispersed. Individual circumstances will determine the degree
that will “give the best overall yield.”
ix) Scalar Chain (line of authority). The scalar chain is the chain of command ranging from the
highest to the lowest ranks. In short, it is line of authority. Adhering to the chain of command
help implement unity of direction, but sometimes the chain is too long, and better communication
and better decisions can result from two or more department heads solving problem directly
rather than referring them up the chain until a common superior is reached.
x) Order. Both equipment and people must be well chosen, well placed, and well organized fro a
smooth-running of organization. For material things; “a place for every thin and everything in its
place.” For people “a place for everybody and everybody in his place.
xi) Equity. Kindness and justice will encourage employees to work well and be loyal.

26
 xii) Stability of Tenure of Personnel. Changes in employee assignments will be necessary, but if
they occur too frequently, they can damage morale and efficiency.
xiii) Initiative. Thinking out a plan and carrying it out successfully can be deeply satisfying.
Managers should encourage employees to do this as much as possible.
xiv) Esprit de crops. This is the principle that “in union there is strength,” as well as an extension of
the principle of Unity of command, emphasizing the need for teamwork and the importance of
communication in obtaining it.

2.5.5. Bureaucratic Management Theory

The advocates of the bureaucratic theory contributed yet a third, widely divergent stream of thought – a
concern for how the overall structure of an organization influences managerial effectiveness. The chief
advocate of the bureaucratic organization was Max Weber (1846 – 1920).
A wealthy German intellectual, Max Weber described what he believed was the ideal or pure form of
organization. Weber’s “pure form” of organization is characterized by rationality and impersonality. The
part of rationally structured organizations are designed and coordinated to achieve specific ends.
Rationality implies goal directedness. Impersonality implies objectivity in interpersonal relations.
Human resource decisions in bureaucracies were to be strictly impartial – based on qualifications and
work demands rather than on a caste system or the personal preferences of decision makers.
The building blocks of organizations are clearly defined offices (positions) organized into a hierarchy
with a fixed chain of command. Weber’s ideal bureaucratic organization was designed for efficiency,
predictability, and the ‘reign of rules.” To Weber the rational structuring of organizations was a reaction
against the unwarranted influence of political control and the power of charismatic personalities of
royalty.
Bureaucracy is characterized by:
 Hierarchy,
 Impersonality,
 Written rules of conduct,
 Promotion base don achievement,
 Specialized division of labor, and
 Efficiency

According to Weber, bureaucracies are goal-oriented organizations designed according to rational principles
in order to efficiently attain their goals. Offices are ranked in a hierarchical order, with information flowing
up the chain of command, directives flowing down. Operations of the organizations are characterized by
impersonal rules that explicitly state duties, responsibilities, standardized procedures and conduct of, office
27
holders. Offices are highly specialized. Appointments to these offices are made according to specialized
qualifications rather than ascribed criteria. All of these ideal characteristics have one goal, to promote the
efficient attainment of the organization’s goals.
The major advantage of bureaucracy is that, precision, speed, unambiguity, knowledge of the files,
continuity, discretion, unity, strict subordination, reduction of friction, and of material and personal costs is
raised to the optimum point. Its major disadvantages lie in red-tape (excessive procedure), rigidity, and
neglect of human factor.

2.5.6. Total appraisal of the classical Theories

The greatest contribution of the classical approach was that it identified management as an important
element of organized society. Management has increased in importance. The facts that management skills
must be applied in schools, government, and hospitals, as well as business firms, are stressed. Advocates of
the classical approach believed that management, like law, medicine, and other occupations, should be
practiced according to principles that managers can learn.
The identification of management functions such as planning, organizing, and controlling provided the basis
for training new managers. The manner in which the management functions are presented often differs,
depending upon who is presenting them. But any listing of management functions acknowledges that
managers are concerned with what the organization is doing, how it is done, and whether it was done.
The contributions of the classical approach, however, go beyond the important work of identifying the field
of management and its process and functions. Many management techniques used today are direct outgrowth
of the classical approach. For example, time and motion analysis, work simplification, incentive wage
systems, production scheduling, personnel testing, and budgeting are all techniques derived from the
classical approach.
One major criticism of the classical approach is that the majority of its insights are too simplistic for today’s
complex organizations. Critics argue that the scientific management and classical organization theory are
more appropriate for the past, when the environments of most organizations were very stable and
predictable. The changing environment, changing worker expectations, and changing expectations of society
today are tremendous.

2.6 THE HUMAN-RELATION MOVEMENT

The term human-relation refers to the manner in which managers interact with subordinates. To develop
good relations, followers of this approach believed, managers must know why their subordinates behave as

28
they do and what psychological and social factors influence. While scientific management concentrated on
the physical environment of the job, human relations concentrated on the social environment.
The very significant contribution to the human-relations school of thought came form professor Elton Mayo,
an Australian by birth and a Psychologist by training. He has been described as the founder of the human-
relations movement, whose advocates have stressed the need for managerial strategies to ensure that concern
of people at work is given the highest priority. Appropriately, the title of Mayo’s first work was “The First
Inquiry.”

2.6.1. Behavioral school

Other individuals who were university trained in social sciences such as psychology, sociology, and
anthropology began to study people at work. They had advanced training in applying the scientific approach
to the study of human behavior. These individuals have become known as behavioral scientists and their
approach is considered to be distinct from the human relations approach.
The individuals in the behavioral science branch of the behavioral approach believe that man is much more
complex than the “economic man” descriptions of the classical approach and the “social man” description of
the human relations approach. The emphasis of the behavioral science approach concentrates more on the
nature of the work itself, and the degree to which it can fulfill the human need to use skills and abilities.
Behavioral scientists believe that an individual is motivated to work for many reasons in addition to making
money and forming social relationships. They also focused on communication, motivation leadership areas.

2.62. The Hawthorne Study

The Hawthorne Studies made one of the early important contributions to the human-relations approach.
These were studies conducted at the Hawthorne plant of the Western Electric Company in Chicago, USA,
between 1927 and 1932, in a number of different stages. These were as follows:
First stage (1924 – 1927):- This was conducted by the company’s own staff under the direction of Messrs
Pennock and Dickson. This stage was concerned with the effects of lighting on output. Two groups of
comparable performance were isolated from the rest and located in separate parts of the plant. One group,
the control group, had a consistent level of lighting; the other group, the experimental group, had its lighting
varied. To the surprise of the researchers, the output of both groups increased. Even when lighting for the
experimental group was reduced to a very low level, they still produced more! At this point pennock sought
the help of Mayo and his Harvard University colleagues.
Stage Two (1927 – 1929):- This stage became known as the Relay Assembly Test Room. The objective was
to make a closer and more detailed study of the effects of differing physical conditions on productivity. At
this stage there was no deliberate intention to analyze social relationships and employees attitudes. Six
women workers in the relay Assembly section were segregated from the rest in a room of their own. By
29
discussing with the women, changes in rest periods, and lunch times were made in timing and length.
Productivity increased whether the conditions were made better or worse. Later studies concluded that
altered the working week. Once again output increased regardless of the changes. By the end of stage two
the researchers realized they had not just been studying the relationship between physical working
conditions, fatigue, monotony and output, but had been entering into a study of employee attitudes and
values. The women’s reaction to the changes, i.e., increased output regardless of whether conditions
improved or worsened, has come to be known as “the Hawthorne Effect’. That is to say the women were
responding not so much to the changes as to the fact they were the center of attention – a special group.
Stage Three (1928 – 1930):- Before the relay assembly test had come to an end, the company had decided to
implement an interview program designed to ascertain employee attitudes towards working conditions, their
supervision and their jobs. The interviews were conducted by selected supervisors, first on structured bases
and later on unstructured bases. Before the program was suspended, about 20,000 employees were
interviewed, and the pool of material amassed was used to improve several aspects of working conditions
and supervision. It also becomes clear from the responses that relationships with people were an important
factor in the attitudes of employees.
Stage four (1932):- This was known as the Bank Wiring Observation Room. In this stage fourteen men on
Bank Wiring were removed to a separate observation room, where, a part from a few differences, their
principal working conditions was the same as those in the main wiring area. The aim was to observe a group
working under more or less normal conditions over a period of six months or so. The group was soon
developing its won rules and behavior-it restricted production in accordance with its own norms; it short
circuited the company wage incentive scheme and in general protected its own sectional interests against
those of the company. The supervisors concerned were powerless to prevent this situation. The group had
clearly developed its own unofficial organization, run in such a way that it was able to protect itself from
outside influences whilst controlling its internal life too.
Final Stage (1936):- This final stage was based on lessons learned from the earlier studies. Its focus was
firmly on employee relations and took the form of personnel counseling. The counselors encouraged
employees to discuss their problems at work, and the results led to improvements in personal adjustment,
employee-supervisor relations and employee management relations.
The main conclusions to be drawn from these studies are:-
i. Individual workers cannot be rated in isolation, but must be seen as members of a group;
ii. The need to belong to a group and have status within it is more important than monetary
incentives or good physical working conditions;
iii. Informal (unofficial) groups at work exercise a strong influence over the behavior of workers;

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 iv. Supervisors and managers need to be aware of these social needs and cater for them if workers
are to collaborate with the official organization rather than work against it.

What the Hawthorne studies dramatized was that humans are social-that business operations are a matter not
merely of machinery and methods but also of gearing these with the social system to develop a complete
socio technical system. These experiments led to the recognition that managers operate in a social system. It
should not be inferred from this that prior to the Hawthorne experiments successful managers did not
recognize the importance of the human factor, or that management theorists overlook it but what the work of
Mayo and his associates did underscore was the need for a greater and deeper understanding of the social
and behavioral aspects of management.
Summary: in fact, during the classical period the primary motives of the organizations were fulfilled,
however, the issue of workers security and satisfaction were the two over looked concepts .Hence, through
the genuine efforts deployed by prominent human relationists, the facts over looked during the classical
period were taken into consideration .It is at this time that another logic which state ;man is social animal
thus , more than monetary incentive, workers motivation to perform their task at desired standard, is
influenced by several factors including group norms in experienced in the job environment .

2.7 THE MODERN ERA

Modern management theories indicate further refinement, extension, and synthesis of all the classical and the
Human relation approaches to management. Classical approach satisfied the basic economic needs of the
organization and the society. The Human relation approach is trying to satisfy personal security, and social
needs of workers. Both approaches must be suitably integrated to emphasize the need not only for
recognition of human values but also for recognition of productivity simultaneously. Modern management
must have the twin primary objectives of productivity (classical approach) and satisfaction (human relation
approach). Under the modern management theory, we have the following streams.
i. The Systems Approach and
ii. The Contingency Approach

2.7.1. Systems Approach

The systems theory approach to organization and management appeared around 1960, and soon acquired a
dominant position in management literature and practice. Its early contributors include Ludwing Von
Bertalanffy, Lawrence J. Henderson, W.G. Scott, Daniel Katz, Robert L. Kahnm etc. they viewed
organization as an organic and open system, which is composed of interacting and interdependent parts,
called subsystems. From the systems perspective, management involves managing and solving problems in
each part of the organization but doing so with the understanding that actions taken in one part of the
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organization affect other parts of the organization. For example, implementing a solution to a problem in the
production department of a company will likely affect other aspects of the company such as marketing,
finance, and personnel. Each part is tightly linked to other organization parts; no single part of an
organization exists and operates in isolation from the others. Thus, in solving problems, managers must view
the organization as dynamic whole any try to anticipate the unintended as well as the intended impacts of
their decisions.
The systems approach to management views the elements of an organization as interconnected. The
approach also views the organization as linked to its environment. Organizational effectiveness, even
survival, depends on the organization’s interaction with its environment.
Systems have the following features:
System: - A set of interrelated parts that work together to achieve an objective. A company, a university, and
the human body are examples of systems.
Subsystem: - A set of related parts that work together to achieve an objective as one component of a large
system. For example, the human body’s circulatory system, nervous’ system, respiratory system, etc. are
subsystems of the human body.
Open and Closed Systems: - Two extremes on a continuum, open systems interact freely with their
environments, closed systems interact much less. A large, publicly held, internally flexible organization
would be a relatively open system, as demonstrated by its many interactions with stockholders, governments,
customer, and others. These are intra-subsystem interactions, inter-subsystem interactions, and interactions
with super systems.
Input-Transformation-Output Model: - An open system receives inputs from its environments (such as
money, material, personnel, and technology) which it transforms into outputs (such as goods and services) in
interaction with environmental variables (market conditions, world affairs, and so forth). This is shown in
Figure 5.1

Inputs Transformation Outputs

Human Resource Organizational Environmental Products
Money Variables Variables Services
Materials Methods Economic Conditions Profits
Knowledge Processes Actions of Competition Education
Energy Objectives Union Activity Energy
Policies
Decisions

Management know-how and

technology transforms inputs
An organization, according to the systems view, is:

Feedback 32
 i. A subsystem of its broader environment;

ii. Goal oriented: people with a purpose of maximization of profits and shareholders’ wealth, survival
iii. of organizational unit, supply of goods and services to the consuming public, meeting the society’s
expectation, etc.;
iv. A technical subsystem using knowledge, techniques, equipment and facilities; and

A structural subsystem, people working together to interrelated activities: - A steady state is the dynamic
equilibrium, homeostasis, or balance an organization maintains (with suppliers and customers, for example)
to maintain health, and prosperity.
System Boundary: - In closed systems the boundaries (lines of demarcation) between an organization and
its environment are difficult to penetrate (for example, the boundaries of a secretive, bureaucratically
structured, closely held corporation).
Steady State: - A steady state is the dynamic equilibrium, homeostasis, or balance an organization maintains
(with suppliers and customers, for example) to maintain health, and prosperity.
System Goals: - Organizations have a variety of goals. The supreme goal of an organization is survival. All
other goals depend on the achievement of this one goal. Another goal, which is intimately correlated with
survival goal, is the goal of adaptation and integration with environment. Generally speaking, organizations,
like other systems, also seek growth. Growth is a sign of development, promise, and opportunity.
Feedback: - Every business system has an inherent feedback mechanism that provides various types of
useful information to management. Management makes use of this information in controlling the
performance at different stages of work. Feedback is also helpful in improving the quality of the products
being manufactured, and services rendered by an organizational unit. See Figure 2-1.
Psycho-social system: - A business organization is a psycho-social system in the sense that people working
in a firm develop social relationships and they constantly interact with one another.
Creativity: - Business system is creative in the sense that it fruitfully converts the available resources into
useful products. Business system creates various forms of utility and hence adds value to the inputs.
Interdependence: - Various subsystems of a business system are interdependent and interacting. Different
departments are linked together in one way or other to achieve specified goals. Interdependence exists
between different firms and industries also in addition to interdependence between different departments
with a firm.

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2.8.2. The Contingency Theory Approach
Contingency theory has been developed mainly in the 1970s. it builds on the major premises of the systems
theory that organizations are organic and open systems, and there is a relationship of interdependence
between an organization and its environment, as well as within and between its subsystems. The contingency
theorists aim at integrating theory with practice in a systems framework.
When an organization behaves in response to forces in its environment, its behavior is said to be contingent
on the forces. Hence, a ‘contingency’ approach is an approach where the behavior of one sub-unit is
dependent on its environmental relationship to other units or sub units that have some control over the
consequences desired by the sub-unit. Thus, behavior within an organization is contingent on situations, and
if a manager wants to change the behavior of any part of the organization, he or she must attempt to change
that part of its environment that is influencing it.
Contingency approach emphasizes that there is no one best way to design organizations and manage them.
Management is situational, and managers should design organizations, define objectives, and formulate
strategies, policies, and plans in accordance with the prevailing environmental conditions. Secondly,
managerial policies and practices, to be effective must respond to changes in the environment. Thirdly, since
management’s success significantly depends on its ability to cope with its environment, it should sharpen its
diagnostic skill so as to anticipate and comprehend environmental changes. Forth, managers should have
adequate human relations skills to accommodate change, and abilities to manage transition, as well as
stabilize change. Finally, it should use the contingency model in designing the organization, developing its
information and communication system, adopting its effective leadership styles and formulating suitable
objectives, strategies, policies and practices. Thus, contingency theory provides a method of analysis as well
as a way of integrating organization with its environment.

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 CHAPTER THREE

3. THE PLANNING FUNCTION

Objectives of the chapter
 To enable students understand the basic concept and the need for planning
 To enable students understand the types of plans
 To enable students understand the planning process
 To know what organizational objectives mean
 To understand the planning technique

3.1 Concepts and need for planning

What is planning?
All managers share in the execution of the management functions – planning, organizing, staffing, directing
& controlling. An organization can succeed in effective utilization of its resources when its management
decides its objectives & methods of achieving them.
Planning Terminology
Basic planning terminology from general to specific are:
Vision: is nonspecific, directional and motivational guidance for the entire organization. Top managers
normally provide a vision for the business.
Mission or purpose: is an organization's reason for being to exist. It is concerned with scope of the business
and what distinguishes this business from similar businesses. It defines the basic task of an organization.
Mission reflects the culture and values of top management.
Goals: refine the mission and address key issues within the organization such as market standing,
innovation, productivity, physical and financial resources, profitability, management and worker
performance and efficiency. They are expected to be general, observable, challenging, and untimed.
Objectives: are the ends towards which activity is aimed. They are specific statements of anticipated results
that further define the organization's goals. They are expected to be SMART (Specific, Measurable,
Attainable, Rewarding, and Timed).
Strategies are the means of achieving the aim of an enterprise. They are major plans that commit large
amounts of the organization's resources to proposed actions, designed to achieve its major objectives and
goals.
 An organization's strategies define the business the firm is in, the criteria for entering the business,
and the basic actions the organization will follow in conducting its business (Higgins, Page 229.)

35
Tactics are the most specific and narrow plans, describe who, what, when, where and how activities will take
place to accomplish a goal.

Definition
Planning is an essential, critical and complex managerial function. It is the primary and the most
fundamental function of management. Nothing can be performed without planning. Planning doesn’t occur
in vacuum. Each manager has to plan. The plans of managers are influenced i.e. affect or affected by the
plans of other managers. i.e. there are vertical and horizontal influences.
Planning is the process of determining how the organization can get where it wants to go; outlining the
activities that are necessary to achieve organization’s goals.
Planning involves determination of objectives/ goals; establishment of overall strategy; formulation of
programs; maps the courses of action for their attainment; development of schedules, timing of action &
assignment of responsibilities for their implementation.
Planning is a process of setting organizational objectives and choosing in advance the most suitable means
for achieving those objectives. Planning concerned with ends (what is to be done) and with means (how it is
to be done). Planning already determines what and how to do, what actions to be taken to accomplish
predetermined objectives, how long it will take and where it will take.
Planning is constructive reviewing of the future needs so that present situations can be adjusted in the view
of the established goal. (Gorge R. Terry).
In the business world, organizations should achieve their objectives. In order to achieve objectives, the
organizations should plan. Planning process produces the plan. Plan is a blueprint for action & prescribes
activities necessary for an organization to realize its goals.
Understanding of planning process requires knowing the relationship between goals, plans & controls as
shown below.

Goals Plans Controls

Goals represent the designed position of an organization that is sought to be achieved; Plans establish the
means for achieving the organization goals; and through planning managers outline the activities necessary
to insure that the goals of the organization are achieved; and Controls monitor the extent to which goals have
been achieved and ensure that the organization is moving in the direction suggested by its plans. Goals are
the outcomes of planning and benchmarks for controls. They are taken from the plan. Goals, plans &
controls are inextricably intertwined & must be well integrated so as to make the planning process
successful.

36
Planning answers six basic questions in regard to any intended activity.

 The ‘what’ or what to do - the goal that we want to achieve. It may be long term or short term.
 The ‘when’ or when to do - is the question of timing. Each long term goal may have a series of short term
goals that must be achieved before the long term can be achieved.
 The ‘where’ or where to do - the place at which the plan is put into practice.
 The ‘who’ or who does it - the individual/ unit supposed to undertake specific tasks. It asks which
specific people will perform specific tasks.
 The ‘how’ or how it is done or by whom it is done - the strategy/ method for achieving the goal. It
describes what specific steps are to be taken and in what kind of sequence.
 The ‘how much’ or how much is required to do - concerns with the expenditure of resources that are
determined to be essential to reach goals.
Planning is the process of preparing for change & the dynamics of the environment. Planning bridges the
gap from where we are, to where we want to go.
Need for planning
Why managers need to plan?
“Failing to plan is planning to fail”
Planning is important for every organization irrespective of its size, objectives, and location. Organizational
tasks can’t be performed with out plans. Planning is critical managerial function that forms the basis for
other managerial functions. Without planning business decisions would become inconsistent, random & ad
hoc choices, and this may lead to failure of entire organization. i.e. “Failing to plan is planning to fail”
Planning is important for several reasons. It provides direction for an organization by specifying objectives;
It reduces risk and uncertainty for the future; It allows organizational members to concentrate on common
organizational objectives; It provides the criteria for decision making; It provides basis for control or
facilitates control; it helps organizations to succeed or reach their objectives; it promotes efficient utilization
of resources; it enables an organization to use opportunities and face challenges; and it contributes to the
performance of other managerial functions.
Planning is exercised for several reasons or advantages. Among them the most one are
1. to minimize risk & uncertainly.
2. for better coordination
3. to focus attention on organizational goals
4. to facilitate control
5. to promote foreword thinking
Minimizes risk & uncertainty
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Planning process require information and provides for managers & organizations a more rational & fact-
based procedures for making decision. It allows managers not to suffer from risks of random & uninformed
decisions. Planning can't make managers to carry out their activities without risk. Risk is an inherent part of
decisions that operates in a dynamic environment.
Better co-ordination or lead to success
Planning provides a foundation for the co-ordination of broad range of organizational activities. A plan helps
to define the responsibilities of multiple work groups & to co-ordinate their activities. Without co-ordination
mechanisms, it would be difficult to direct the efforts of organizational members and groups towards the
common organizational goals.
Focuses attention on organizational goals
Planning helps managers to focus their attention on organization’s goals & activities. And it forces the whole
organization to embrace identical goals & elaborate in achieving them. Without plans each individual or
group will function in its own interest; and activities performed in this way are not important one to achieve
organizational goals.
Planning promotes efficiency & effectiveness of the organizations performance; and also enables managers
to outline in advance an orderly sequence of steps for realization of organizational goals and avoid
unnecessary duplication & overlap of activities.

Facilitate control
In planning, managers set goals & develop plans to accomplish these goals. And these goals & plans then
become standards or benchmarks against which performance can be measured. The function of control is to
ensure activities confirm to the plan; and control can be exercised if there are plans. Controlling is possible
when there is a benchmark (plan or goal) against which actual performance is compared.
Promote forward thinking
Planning forces managers to think ahead; consider resource needs; potential opportunities to be exploited
and threats from which the organization is protected in the future. This enables organizations to prepare for
better performance in the future.
Where does planning start?
Organizations should plan. Planning is carried out at the various levels of the organization. There are two
basic approaches to planning, namely the top - down approach and the bottom - up approach.
1. The top - down approach

38
It is the planning efforts that begin at the top level managers. Top level managers determine the direction of
the organization and establish a master plan to achieve over all goals. The master plan provides direction
within which departments & work groups develop their plans.
2. The bottom - up approach
It is the planning that is initiated at the lowest level of the organizational hierarchy. In this approach, the
managers and employees at the operational level began the planning process, finally the top levels bring
together all the plans of the organizations work groups to develop a cohesive & well integrated master plan,
then this establishes the over all direction of the organization.
These planning modes/ approaches are not mutually exclusive. By being flexible, mangers can capitalize on
the benefits of both approaches. The current trend is towards integrating the aspects of both top down &
bottom up planning approaches.

Requirements of planning
All organizations want smooth transition from present to the future. Planning represents the way in which
decision makers attempt to build bridge into the future. For several reasons, planning is not given the
attention that it requires. But Planning requires time; knowledge, commitment; forecasts; thought and paper-
work.

3.2 Types of plans

Plans can be classified on different bases or dimensions. The most important ones are:
1. Repetitiveness (frequency of use)
2. Time dimension/ horizon (duration) &
3. Scope/ breadth dimension.
Classification of plan based on repetitiveness
Based on repetitiveness, plans are classified into two, as Standing plans and Single use plans.
1. Standing plans
Standing plans are plans that are used again & again; followed each time; and designed to deal with
organizational issues or problems that recur frequently. They can limit employees' flexibility & make it
difficult to respond to the needs of the customers. By using standing plans management handles repetitive
problems.
Standing plans include mission or purpose; goals/ objectives, strategy; policy; procedure; method and rule.
 Purpose or mission

39
They are used interchangeably. Purpose or mission indicates the basic function or task of an enterprise.
Every organization to be meaningful should have a purpose/mission. E.g. the purpose of a university is
teaching & research.
 Goals or objectives:
Objectives or goals are the end points towards which all management functions aimed.
 Strategies:
Strategies are ways or means to achieve the established objectives. They are major courses of action that the
organization plans to take in order to achieve objectives. Every objective at least must have one strategy to
accomplish every objective.

 Policies:
Policies are general statements or understandings that guide or channel thinking and action in decision
making. They govern how certain organizational situations will be addressed. They provide guideline to
managers who must make decisions about circumstances that occurs frequently within the organization.
Policies exist at all levels of the organization ranging from major company policy to minor policies
applicable to the smallest segments of the organization.
Policies are guides to decision making, they must allow discretion or room for exercising power & be
flexible to handle situations. If there is no room for flexibility, the guideline is rule that tells the Dos & the
don't Dos. The degree of flexibility can be narrow or broad depending on the position and authority of the
manager in the organization. The narrower the room of flexibility, the lower is the authority, and the broader
is the room for flexibility, the higher is the position/authority in the organization.
 Procedures:
Procedures outline chronological sequences of required actions/ activities. They are sequentially arranged
rules or actions that need to be done in orderly manner to complete recurring tasks.
Procedures are guides to action rather than to thinking and they detail the exact manner in which certain
activities must be accomplished.
Procedures found in every parts of the organization. Like plans, they exist in a hierarchy. They help the
implementation of policies. Procedures are more specific & action oriented than policies. They are designed
to give explicit instructions on how to complete a recurring task. e.g. the university handout book.
 Methods:

40
Methods are more detailed than procedures. Procedure shows a series of steps to be taken where as a method
is only concerned with a single operation, with one particular step, and tells exactly how this particular step
is to be performed.
 Rules:
Rules are the simplest and strictest type of standing plan found in organizations. They provide detail &
specific regulations for action, and reflect managerial decisions that certain actions must or must not be
done. Rules are different from policies & procedures. Rules also serve as guidelines, but allow no discretion
in their application; allow no deviation from the stated course of action. A procedure might be looked upon
as of rules but a rule may or may not be a part of procedure. e.g. “No smoking” is a rule unrelated to any
procedure.
Rules are already decided measures that are applied in response to a certain action. And they are pre-decided
actions by top level managers. Employees don't have right to modify or change rules by themselves.
Rules, procedures & methods, by their nature, are designed to repress thinking; we should use them only
when we don’t want people in an organization to use their discretion.

2. Single – use plans

Single – use plans are developed to address a specific organizational situation.
They are used up only once but not over & over again as the standing plans. They are not used up again once
the objective is accomplished.
Single – use plans are commonly three types, namely programs; projects and budgets.
 Programs:
Programs are a relatively broad set of activities designed to accomplish a particular set of goals. They are
complex and encompass goals, policies, procedures, rules, task assignments, steps to be taken, resources to
be employed, and other elements necessary to carry out a given course of action; they are supported by
budgets. Programs may be of various size & duration.
 Projects
Projects are a part of a general program and direct the efforts of individuals or work groups towards the
achievement of well defined goals. They are typically less comprehensive & narrower in focus than
programs; and usually have predetermined target dates for completion. Project is a subset of a specific
program. It is a smaller portion of a program. Projects are connected with a major program but a project can
be handled by itself.
 Budgets
Budget is the plan required in numerical terms. It is referred as a numerated/ numberized program.

41
Budget is a fundamental planning instrument in companies that deals with the future allocation and
utilization of various resources to different organizational activities over a given time period.
Budget can be expressed in financial terms; labor units; products/ unit of product; machine hours or in any
other numerically measured term. Budget is necessary for control; and serves as a benchmark for controlling.
Budgets are 3 types.
 Variable or flexible budget - budgets that vary according to the organization’s level of output.
 program budget - when an organization & its departments identify goals, develop detailed programs
to meet the goals estimate the cost of each program. To prepare effective program budget, a manager
must do some fairly detailed & through planning.
 Zero – base budget - the programs started from the scratch or “base zero.
Programs are the most comprehensive, projects have the narrower scope and often undertaken as a part of a
program. Budgets are developed to support programs & projects.
Classification of plans based on time
All planning deals with the future; and the future are measured in time. All the kinds of plans are interrelated
and one is the derivative of the other. Plans in terms of time periods are classified into three as long term/
range; intermediate range and short range.

 Long – range planning:

Long – range planning has longer time horizon; and usually concerned with the future direction of the
organization but not concerned with the immediate future but with distant future. The time usually ranges
from 5-10 years, but the time length is a relative term that depends on the size & the nature of the
organization.
 Intermediate – range planning
Intermediate – range planning ranges between long & sort range planning; and they are usually developed
for 1-5 years, but the time dimension can also vary depending on the size & nature of the organization.
 Short – range planning
Short – range planning are not developed separately. They are also taken as operational plans derived from
the long ranging or intermediate plans. The time length is commonly taken as less than 1 year.

What is long or short range in most cases depends on the size of the organization & the type of business of
the organizations.
Classification based on scope/ breadth
Planning that is strategic in nature; focuses on changing the competitive position and the overall
performance of the organization is the long term.

42
Based on scope, plans are classified into 3 categories as Strategic plan; Tactical plan & Operational plan.
 Strategic planning
Strategic plan is a general plan outlining decisions of resources allocation, priorities, and action/ steps
necessary to reach strategic goals. Strategic planning is a process of analyzing & deciding the organs
mission; objective; strategy (major courses of action) and the major resource allocations.
It is developed by top level managers; mostly long – range in its time horizon; expressed in relatively
general, non-specific terms & a type of planning that provides a general direction to the organization.
The "where are we now?" question is answered through the first three steps of the strategy formulation
process:
1. Perform internal and external environmental analyses,
2. Review vision, mission and objectives, and
3. Determine SWOT: Strengths, Weaknesses, Opportunities and Threats.
SWOT analysis is very crucial. Going on to strategy choices without a comprehensive SWOT analysis is
risky. Strengths and weaknesses come from the internal environment of the firm. Strengths can be exploited,
built upon and made key to accomplishment of mission and objectives. Strengths reflect past
accomplishments in production, financial, marketing and human resource management. Weaknesses are
internal characteristics that have the potential to limit accomplishment of mission and objectives.
Weaknesses may be so important that they need to be addressed before any further strategic planning steps
are taken. Opportunities and threats are uncontrollable by management because they are external to the firm.
Opportunities provide the firm the possibility of a major improvement. Threats may stand in the way of a
firm reaching its mission and objectives.
 Tactical planning
Tactical plan is a plan aimed at achieving tactical goals and developed to implement specific parts of
strategic plan. It refers to the process of developing action plans through which strategies are executed. It is
concerned with shorter time frame & narrower scopes than strategic planning. Departmental managers in
organizations are often involved in tactical planning. The strategic planning & tactical plan are highly
interrelated.
 Operational planning
Operational plans focuses on carrying out technical plans to achieve operational goals. Operational planning
is mainly short range; more specific & detailed. It is made at operational level & concerned with day- to day;
week – to - week activities of the organizations.
 Contingency planning
Contingency planning is an approach that has become very popular in today's rapidly changing business
environment. It is the determination of alternative courses of action to be taken if the original plans are

43
disrupted or become inappropriate due to the changing circumstances. It is proactive in nature & the
management tries to anticipate changes in the environment and prepares to cope with the future events. It is
necessary at each level of management and for strategic, tactical, and operational plantings.
It is the development of two or more plans based on different conditions. The plan to be implemented is
determined by the specific prevailing situation.
The planning process
The planning process indicates the major steps taken in planning. And generally there are 10 steps in
planning process.
Step 1: Understanding the existing situation
Awareness to the external environment to the organization is great important in planning to identify
opportunities (O) & threats (T) and identify strength (S) & weaknesses (W) of an organization.
To understand external environment organizations should analyze economic situations (competition, prices,
demand, supply, etc.); Political situations (government policies, taxation, peace & stability, etc.); Socio –
cultural situations: (culture of the society, direction in change of the culture, attitude of the society towards
different products, etc.); Environmental situations and Technological situations. In addition to external
environment, understanding the internal environment is also essential, i.e. different types of resources an
organization possesses. Therefore managers must look at O and T as well as S &Ws, and understand what
problems they wish to solved & why, and know what they expect to gain.
Setting realistic objectives depends on this awareness. Planning requires a realistic diagnosis of the
opportunity situation.
Step 2: Forecasting
Forecasting is assumption what the future looks like. To decide where one wants to go, it is necessary to
have information about what the future looks like. Planning is deciding what is to be done in the future. The
future is full of uncertainties; the manager must make certain assumptions about it in order to plan properly.
These assumptions are based on forecasts of the future.
Step 3: Establishing objectives
Objectives established for the entire enterprise and then for each subordinate work unit. They specify the
expected results and indicate the end points what is to be done, where the primary emphasis to be located, &
what is to be accomplished by the network of strategies, policies, procedures, rules, budgets, & programs.
Organizational objectives give direction to the major plans, by reflecting these objectives departmental
objectives defined, departmental objectives intern control objectives of subordinate departments, etc. down
the line. The objectives of lesser departments will be more accurate if the subdivisions managers understand
the over all organizational objectives and the derivative goals.
Step 4: Determining the alternative courses of action

44
Determining the alternative courses of action is searching for & examining alternative course of action
(strategies), especially for those not immediately apparent. The more common problem is not finding
alternatives but reducing the number of alternatives. It is seeking out alternative courses and examining their
strong & weak points.
Step 5: Evaluating alternative courses of action
Evaluating alternative courses of action is assessing the alternatives by weighing them in light of premises
and goals.

Step 6: Selecting a course of action

Selecting a course of action is the point at which the plan is adopted. It is the real point of decision making.
Step 7: Formulating derivative plans
Derivative plans are those supports the basic or main plan.
Step 8: Numberizing plans by budgeting
After decisions are made & plans are set, the final step is giving them meaning. Budgeting is to numberize
plans by converting them into budgets. The organization’s budget represents the sum total of income &
expenses. If done well, budgets become a means of adding together various plans & also set important
standards against which planning progress can be measures.
Step 9: Implementing the plan
After selecting optimum alternative, the manager has to develop an action plan to implement it. The manager
must decide these issues
o Who will do what
o By what date will the tasks be initiated & completed
o What resources will be available for the process (human & material)
o How will the plan be evaluated
o What reporting procedures are to be used
o What type & degree of authority will be granted to achieve these ends
Step 10: Controlling & evaluating the results
Once the plan is implemented, the manager must monitor the progress, i.e. evaluate the reported results, and
make any modifications necessary. Plans have to be modified because the environment is constantly
changing. Modification is needed because plans are not quite perfect when they are implemented.

Organizational Objectives
Types of objectives in organizations
Objectives can be separated in to two categories: Organizational and individual.

45
Organizational objectives are the formal targets of the organization and are set to help the organization
accomplish its purpose. They concern such areas as organizational efficiency, productivity, and profit
maximization.
Individual objectives, which also exist within organizations, are the personal goals each organization
member would like to reach through activity within the organization. These

Objectives might include high salary, personal growth and development, peer recognition, and societal
recognition.
A manager problem arises when organizational objectives and individual objectives are not compatible. For
example, a professor may have an individual goal of working at a university primarily to gain peer
recognition. Perhaps she pursues this recognition primarily by channeling most of her energies it to
research. This professor’s individual objective could make a significant contribution to the attainment of
organizational objectives if she were at a university whose organizational objectives emphasized research.
Her individual objective might contribute little or nothing to organizational goal attainment, however, if she
were employed at a teaching oriented university. Rather than improving her general teaching ability and the
quality of her courses, as the university goals would suggest, she would be secluded in the library writing
research articles.

Goals and objectives commonly used interchangeably. They are closely related to planning. Goals and
objectives represent the end point towards which all management functions are aimed. And also they are the
desired future outcomes/ state end results. i.e. they represent not only the end point of planning but also the
end towards which organizing, staffing, leading and controlling are aimed.
They specify the expected results and indicate the end point of what is to be done; where the primary
emphasis is to be placed and what is to be accomplished by the network of strategies, policies, procedures,
rules, budgets and programs.
Goals and objectives are the important ends towards which organizational and individual activities are
directed
Purposes of goals
Goals serve four important purposes.
1. To provide guideline and direction
 They provide guidance and a unified direction for people in the organization. They can help
everyone understand where the organization is going and why getting there is important

46
 2. To facilitate planning
 Goal setting practices strongly affect other aspects of planning; and good planning facilitates future
goal setting. Goal settings & developing plans to reach the goals should be seen as complimentary
activities.
3. To inspire motivation and commitment
 Goals can serve as sources of motivation to employees of the organization. They motivate peoples to
work harder if attaining the goal is likely to result in rewards.
4. To promote evaluation and control
 Goals provide an effective mechanism for evaluation and control. This means that performances can
be assessed in the future in terms of how successfully today’s goals are accomplished.
The Difference between goals and objectives
Although goals and objectives commonly used interchangeably, they are differentiated as follows.
 Goals are the refinements of an organization’s mission where as objectives state end-results and they
are more specific and need to be supported by sub-objectives.
 Goals are broad where as objectives are narrow.
 Goals are general intentions; where as objectives are precise.
 Goals are intangible; where as objectives are tangible.
 Goals are abstract; where as objectives are concrete.
 Goals can't be validated as is; where as objectives can be validated.
 Goals can be likened to a mission and to complete the mission one has to complete certain tasks.
 Objectives make up a goal and they are SMART (specific; measurable; attainable/ achievable;
relevant and time bound)
Example:
Goal: To speak English fluently
Objective: Take two college English courses in three months.
Objective: Work with a language tutor once a week
Hierarchy of objectives/ goals
Organizations establish different kinds of goals. Goals vary by level, area, and time frames. Goals/
Objectives form a hierarchy reaching from corporate purpose & mission down to individual goals as well as
networks within an organization. Hierarchy of objectives is a series of objectives linked to one another.

47
 Top level

Middle level

Lower level

(Mission/ purpose; overall objectives; more specific overall objectives; division objectives; department/
unit objectives individual)
Fig: The relationships of objectives and organizational hierarchy
Overall objectives need to be supported by sub-objectives. Each higher level objective is supported by one or
more lower level ones. Managers at different level are concerned with different kinds of objectives.
o The top levels very much involve in determining the purpose/ mission & the overall objectives of the
firm as well as the more specific overall objectives in the KRAs.
o Middle levels are involved in setting of KRA objectives, division & department objectives.
o Lower levels primarily concerned in setting objectives of department & units as well as of their
subordinates.
o Individual objectives consisting of performances & development of goals. Managers at the top level
should set objectives for their performance & development.
Key result areas (KRAs) are areas where performances are essential for the success of the organization.
They are operative objectives
Organizations can use to set objectives top–down approach or bottom–up approach. In top–down approach
the upper–level managers determine the objectives for subordinates where as in bottom–up approach the
subordinates initiated the setting of objectives for their position and present them to their superiors.
Both approaches are important, but the emphasis should depend on the situation, i.e. the size of the
organization; the organizational culture; the leadership style and the urgency of the plan.
Management by objectives (MBO)
Definitions & applications of MBO differ widely. Some think it as an appraisal tool; others see it as
motivational technique; and others consider it as planning & controlling device.
MBO is a system of managing or a special planning technique. It is a comprehensive managerial system that
integrate many key managerial activities in a systematic manner and that consciously directed toward the
48
efficient & effective achievement of organizational & individual objectives. MBO is the philosophy of
management and an approach to planning. It emphasizes that the management and the subordinates work
together in identifying and setting up of objectives and make plans together in order to achieve these
objectives. And also it is based on the assumption that involvement leads to commitment.
MBO begins when employees with their managers establish a set of goals that serves as a basis for the
development of their work plan. Ones mutually agreeable goals are determined criteria for assessing work
performance are identified. Next/ then employees formulate & implement the action plans necessary to
achieve their goals & review their progress with their managers periodically. At the end, the performance of
the employees is compared with the goals established at the beginning of the period. Performance rewards
should be based on the goals achieved.
MBO programs provide a foundation for a more integrated & system oriented approach to planning and
enhances communication between employees & their managers. And MBO approach leads to a more
participatory work environment and employees have a voice & can have inputs into their jobs how it should
be designed and what their performance targets should be.
Planning techniques
Forecasting is one of the tools for planning and decision making. To plan, managers must make assumptions
about future events. Forecasting is the process of developing assumptions or premises about the future that
managers/ planners can use in planning and decision making.

Forecasting techniques
To carry out various kinds of forecasting, managers use different techniques. The common models are the
quantitative forecasting techniques and the qualitative forecasting techniques

 The quantitative forecasting techniques

They use mathematical analysis. The most quantitative techniques are Time-series analysis and casual
modeling.
 Time-series analysis
Time-series is analysis forecasting technique that extends past information into the future through
calculation of a best fit line. Time –series analysis assumes that the past is the past is a good predictor of the
future; it is most useful when the manager has a lot of historical data are available, trends are stable, and
patterns are apparent.
 Casual modeling

49
Casual modeling is a group of different techniques that determine casual relationships between different
variables. The common casual modeling forecasting techniques are regression modes; econometric models
and economic indicators.
Regression models are equations that use one set of variable to predict another variable, i.e.
Econometric models are casual models that predict major economic shifts and the potential impact of those
shifts on the organization.
Economic indicators are a key population statistic or indexes that reflect the economic well-being of a
population.
The qualitative forecasting techniques
Organizations also use several qualitative techniques to develop their forecasts. The qualitative forecasting
techniques are one of the several techniques that rely on individual or group judgments or opinions rather
than on mathematical analysis. Some of the widely used qualitative approaches to forecasting are
 The Delphi method/ procedure
o A mechanism for managing group decision making activities; can also be used to develop
forecast.
 The jury-of-executive/ expert-opinion approach
o involves using the basic Delphi process with members of top management. In this instant top
management serves as a collection of experts asked to make prediction about something.
 The sales-force-composition method
o is the pooling of the predictions and opinions of experienced salespeople. Their experience
enables to forecast quite accurately what various customers will do.
 The customer evaluation/expectation
Involves a survey of customers as to their future needs. It is collecting data from costumers of the
organization. The customers provide estimate of their future needs for the goods and services that the
organization supplies, and then the managers combine, interpret and act on their information.

50
 CHAPTER FOUR

4. THE DECISION MAKING

Objectives of the chapter
 To enable students understand the basic concept of decision making
 To enable students understand the types of decision making
 To know the rational decision making process

4.1 Meaning of decision making

. What is decision making?
Decision making is defined as a rational choice among alternatives. “If there is no option, there is no choice
& no decision.” In decision making, manager is making judgments – reaching conclusion- from a list of
known activities. Decision making is universal. It is the main part of all managers job. A management makes
decisions constantly while performing management functions. Decision making is not a separate, isolated
function of management, but the common core to other functions.
Managers at all levels are engaged in decision making and make big & small decisions daily. They make
decisions while
 Planning a budget
 Organizing a work schedule
 Interviewing a prospective employee
 Watching a worker on the assembly line
 Making adjustment to projects, etc.
4.2 Rational decision making process
Decision making is a process which an important part of a manager’s job. It is necessary to find anything
that can improve the quality of decision making. The effective measure is to follow conscious, rational
decision making process. The decision making process are logical & simple and all are essential to the
process.
Decision making process has seven (7) steps.
Step 1. Define the problem
Defining the problem is the critical step. There is a particular problem you have to solve. The accurate
definition of a problem affects all steps that follow. If the problem is inaccurately defined, every step in the
decision making process will be based on that incorrect point.
The good method for manager to define the problem is to focus on the problem but not on the symptoms.
This is accomplished by asking the right question & developing a sound questioning process.
As to Peter Drucker, “The most common source of mistake in management decision is the emphasis on
finding the right answers rather than the right questions.”
51
Finding a solution to the problem will be greatly aided by its proper identification. The consequence of not
properly defining the problems is wasted time & energy.
Step 2. Identify the limiting or critical factors
Once the problem is defined, the manager needs to develop the limiting or critical factors of the problem.
Limiting factors are the constraints those rule out certain alternative solutions. The common limitations are
time, resources, personnel, money, facilities, and equipment. They narrow down the range of possible
alternatives.
Step 3. Develop potential alternatives
At this point, it is necessary to look for, develop & list as many possible alternative solutions to the problem
as you can. These alternatives should eliminate, correct, or neutralize the problem. Doing nothing about a
problem sometimes is the proper alternative at least until the situation has been thoroughly analyzed.
Occasionally, just the passing of time provides a cure. Censorship/ restriction limits the number of
alternatives developed. Alternatives should be separate solutions to the problems. In developing alternatives,
the goal has to be creative and wide-ranging as possible. Sources for alternatives include:
o Experience
o Persons (whose opinions & judgments are respected)
o The practice of successful manager
o Group opinions through the use of task forces & committee
o The use of outside sources, including managers in other organizations.

Step 4. Analyze the alternatives

This step is to decide the relative merits and demerits of each of the alternatives. If the alternatives conflict
with critical (limiting) factors, they must be automatically discarded. Depending on the type of problem, the
potential solutions developed. The manager might need to make a more through analysis by applying
specific decision making aids.
Step5. Select the best alternative
Here all the alternatives are listed along with their corresponding advantages and disadvantages.
To select the alternatives, you must find a solution that appears to offer the fewest serious disadvantages &
the most advantages. Take care not to solve one problem & create another with your choice.
Step 6. Implement the solution
Managers are paid to make decisions and to get results from these decisions. A decision has to be put into
effect. Everyone involved with it must know what s/he must do; how to do it; why & when.

52
A good alternative that half–heartedly applied by uncommitted person will often create problems. Like
plans, decisions need effective implementation to yield the desired results. People must be sold on their roles
& must know exactly what they must do & why. Programs, procedures, rules or policies must be
thoughtfully put into effect.
Step 7. Establish a control & evaluation system.
This is the final stage of decision – making process. Ongoing actions need to be monitored. It should provide
feedback on
 how well the decision was implemented
 what results are positive & negative , and
 What adjustments are necessary to get the results that were wanted & when the solution was chosen.
If a manager uses this decision making process, the probability for success in decision would be improved,
because it provides a step–by–step roadmap for the manager to move logically through decision making.
4.3 Types of decisions
Manager in organizations may be separated by their background; lifestyle & distance, they all sooner or later
must share common experience of decision making. They all face situations involving several alternatives &
an evaluation of the outcome.
Types of decisions are
1. Programmed decisions
Programmed decisions are decision managers make in response to repetitive & routing problems. If a
particular situation occurs often, managers will develop a routine procedure for handling it.
Most management faces a great number of programmed decisions in their daily operations. Programmed
decisions should be made with out expending unnecessary time & effort. In most organizations, programmed
decisions are handled through policies; in some management scientists have developed mathematical
models.
2. Non – programmed decisions
Non – programmed decisions are decisions made for novel and unstructured problems. When a problem
hasn’t arisen in exactly the same manner before, or is complex or extremely important, it requires a non
programmed decision. Non programmed decisions are more complicated. They require the expenditure of
lots of money, worth of resources every year. Very little is known about this type of decision making. They
are usually handled by general problem solving processes, judgments, intuitions, and creativity.
These two types/ classifications of decisions are broad. It is important to differentiate between them clearly.

Types of decisions & level of management

53
The nature of the problem how frequently it occurs, and the degree of certainty surrounding it should dictate
at what level of management the decision should be taken/ made.
Problems that arise infrequently & having a great deal of uncertainty surrounding them are often strategic in
nature and should be the concern of top management. Problems that arise frequently & have fairly certain
outcomes should be the concern of lower level management. Middle managers in most organizations
concentrate on programmed decisions.

Top Non
programmed

Unstructured

Structured
Programmed

Lower

Organizational Hierarchy Nature of problems Nature of decision

making
Fig: The relationship between levels of managers & kinds of decision

The decision making environment

As there are different kinds of decisions, there are also different conditions in which decisions must be made.
The manager must be aware of the environment in which s/he makes decisions. Decision making like other
management functions doesn’t take place in vacuum. There are factors in the environment that affect the
process & the decision maker. In some situations one manager can have perfect knowledge/ understanding
of what to do & what the consequence of the action will be; where as in others has no such knowledge or
have few clues.
Decisions are made under the conditions of certainty, risk & uncertainty. These different decision making
environments/ circumstances require different responses from a manager.

Decision making conditions/ environments

Certainty Risk Uncertainty

Level of ambiguity & chance of making bad decision

54
 Lower moderate higher
Fig: The decision making condition
1. Decision making under conditions of certainty
This situation means the manager has what is known as perfect knowledge, i.e. the manager had had this
decision before; the alternatives are known; and the consequences of each alternative are fully understood. It
can mean a manager can rely on standing plans; the decisions will be made routinely.
2. Decision making under conditions of risk
This situation provides a more difficult decision making environment than the certainty situation. In this
situation, the manager knows what the problem is; what the alternative are; but doesn’t know how each
alternative will work out even though s/he knows the odds (probabilities) of possible outcomes. The
manager is faced with dilemma of choosing the best alternative available.
3. decision making under conditions of uncertainty
This is the most difficult situation for managers. It is like being a pioneer/ breaking new ground. In this
situation, the manager is not able to determine the exact odds (probabilities) of the potential alternatives
available. S/he may be dealing with too many variables, or perhaps there are too many unknown facts. The
management is unable to accurately predict the probable results of choosing anyone of the alternatives.
Reliance on experience, judgment & other people’s experience can assist the manager in assessing the value
of the alternatives.
Summary
Decision making is a rational choice among alternatives. “If there is no option, there is no choice & no
decision.” In decision making, manager is making judgments – reaching conclusion- from a list of known
activities. Decision making is universal. It is the main part of all managers job. A management makes
decisions constantly while performing management functions. Decision making is not a separate, isolated
function of management, but the common core to other functions.
Decisions can be programmed or non – programmed; Programmed decisions are decision managers make in
response to repetitive & routing problems. If a particular situation occurs often, managers will develop a
routine procedure for handling it. Where as non – programmed decisions are decisions made for novel and
unstructured problems. When a problem hasn’t arisen in exactly the same manner before, or is complex or
extremely important, it requires a non programmed decision. Non programmed decisions are more
complicated. They require the expenditure of lots of money, worth of resources every year.

CHAPTER FIVE

55
 5. THE ORGANIZING FUNCTION
Objectives of the chapter
 To enable students understand the basic concept of organizing and organization
 To help students to understand the existence of informal organization in the formal organization
 To enable students understand the main bases for departmentalization/ grouping jobs
 To know what span of management mean
 To explain the sources of power
 To differentiate line and staff authority
 To know the difference between centralization and decentralization
 To enable students understand the meaning of Groups and Committees in an organization

5.1 Concept of organizing and organization

An overview of organizing
Grouping the work of organization and assigning workers to carry out the work with the provision of
appropriate authority are undertaken in the organizing function. In organizing, managers must match the
work, the workers, and the resources necessary to carry out the work. Organizing are boldly exploring new
approaches to designing work, linking jobs, and coordinating activities. And these approaches fundamentally
changing the ways jobs, businesses & relationship between businesses are structured.
No single organizational structure can be effective in all situations. A structure suitable to one organization
may be ineffective to another because two different organizations cannot have the same people, resources or
objectives. Organizations should continuously adapt the challenges of competition. Organizations those do
not revise their structures periodically with the ongoing global competition will face extinction/ death.
Organization is used in two different ways. One denotes the process of organization; and the other denotes
the result of the process called organizational structure. There fore organization refers to the result of the
organizing process.
As to the first sense organization is the process of defining and grouping activities and establishing the
authority relationship among them.
In performing organizing functions, the manager differentiates and integrates activities of an organization.
Differentiation means the process of departmentalization or segmentation of activities on the basis of some
homogeneity, or segmentation of the organizational system into subsystems. Where as integration is the
process of achieving unity of effort among different departments, or various subsystems while achieving the
stated goals. Therefore, organizing consists of dividing work among groups/ individuals and providing
coordination between individual and group activities.
Definition of organizing
Organizing is the process of establishing orderly uses for all resources in the organization.
56
Organizing is the process of identification, classification and grouping of tasks that are necessary to achieve
objectives and assigning of work to individuals and designing hierarchy of decision making relationship.
Organizing is a managerial function; it leads to the creation of the formal organization and results in an
organization structure.
The main objectives of organizing are
 Determining what kind of activities should be performed to materialize objectives
 Classifying those activities and grouping them based on certain criteria
 Assigning the work to individuals and delegating authority
 Creating hierarchy of decision making

5.2 Formal and informal organization

Organizations can be classified into formal and informal types.
Formal organization
Formal organization is an organization that is deliberately and rationally designed and approved by
management through organizing process to achieve organizational goals/ objectives. It is planned structure
of an organization which is deliberately created to attain desired objectives. It is a system with well-defined
jobs, definite authority, responsibility, and accountability.
Common characteristics of formal organization are
1. Consciously designed
 Formal organization are purposefully designed and established to attain certain end results.
2. Based on delegated authority
 In a formal organization each employee has delimited authority; therefore there is superior-
subordinate relationship.
3. Organizational chart is drawn
 Organizational chart shows jobs & departments, and it is the most tangible depiction/ picture
of an organizational structure.
4. Deliberately impersonal
 Positions in an organization are not personal properties. They are always open to some one
who fit the position. People who meet the requirements of the job can fulfill the position.

Informal organization
Informal organization refers to people in-group associations, but these associations are not specified in the
structure of the formal organization. They are not included or established deliberately/ officially in the
formal organization channel but formed adjacent to the formal organization. They always exist in the formal

57
organization; nothing can destroy them; they can not be avoided. They are natural grouping of people in the
work situation based on their behavioral patterns; interests; beliefs; objectives; etc..
No conscious attempt is made to create it. Informal organization may affect formal organizations positively
or negatively. Managers should recognize that it exists in a formal organization; and should try to use it for
the benefit of the formal organization.
Reasons for the formation of informal organization are
1. Mutual benefit
 Members of an organization have their own personal interests that tied them to their colleagues so as
to meet these interests. Hence the communality of people’s interest in the formal organizations leads
to the formation of informal organization.
2. Friendship
 Members of an organization establish friendship among themselves due to different reasons. This
friendship among the members paves the way for the formation of informal organization.
3. The need to fulfill social needs
 A need to be the member of a society put the workers in the organization together. Therefore, one of
the mechanisms through which people in the organization meet their social needs is being the
member of informal organization.
4. Physical work condition
 People working in the same unit are closely related. Hence, working in proximity or together is one
of the reasons for the formation of informal organization.
5. Administrative practice
 Some managers encourage while others suppress the formation of informal organization. Thus the
type of management entertained by managers is the result for the establishment of informal
organization.

Characteristics of informal organization

1. Group norms
This is the core behavior among the workers in the informal organization. There are agreements/ rules
and regulations which may not be written that govern the behavior of members. The members act
accordingly with out showing any deviation.
2. Group cohesiveness
Members of the informal organizations basically have strong relationships. The more the group sticks
together the more they will be successful in attaining the objectives.

58
3. Group leadership
Members in the informal organization select someone who is most active among the others as a leader,
and such people are conventional leaders.
4. Communication network
It is also called grapevine. It is the network outside the formal communication channel established by the
organization;.
5. Lifespan and purpose
Informal organizations have short life span in comparison with formal organization. Therefore they cease
to exist when the members meet their interests and re-established when another need arises.
6. Existence of a number of informal organizations in a formal organization
The divergent nature of people’s interest, their feeling, tradition, attitude, etc, lead to the formation of
different informal organizations in a big formal organization
7. Informal organizations gradually can develop into formal organization
Informal organizations gradually can be emerged as formal organization.
Advantages and disadvantages of informal organizations
Advantages
1. They are additional assets for the formal organization.
If informal organizations are properly associated to the formal organization, they are additional
assets for the formal organization because they may come up with innovative ideas to promote the
work of the organizations.
2. They could be useful channels of communication.
In the informal organization, information can be easily and rapidly reach the members of the
organization through their informal ways of communication.
3. They provide satisfaction and stability in the organization
When workers are given opportunity to establish the informal organizations, they entertain their
idea that leads them to be satisfied and stable in the organization.
4. Their existence alerts managers to plan and act accordingly than otherwise.
A manager becomes watchful more than any other time when there are informal organizations to
check whether they are out of line or not. And if the activities seem against the interest of the
formal organization, necessary measures are taken to normalize or reverse the condition.
5. They inform managers sensitive issues that would be embarrassing if formally released.
Some information may destruct the normal organizational climate if formally released. In such
cases, informal organizations informally disseminate the information to the group’s endurance
and then the manager also becomes aware of the consequences if formally communicated.

59
 Disadvantages
1. Resistance to change
There is often a tendency to resist changes.
2. Role conflict
Bothe types of organizations have their own objectives. These objectives will not be the same and
this may arise role conflict in the organization.
3. Rumor
Managers may not equally release information to the members of the organization. When there is
too much secrecy or ambiguous situations informal organizations disseminate distorted
information.
4. Conformity
Some leaders of informal organizations may have hidden agenda or promote destructive actions,
hence such leaders may use the members as an instrumental to create challenge to the leaders of
formal organization.

5.3. Organization chart President

The organizing process leads to the creation of organization structure, which defines how tasks are divided
and resources deployed. Organization structure is defined as (1) the set of formal tasks assigned to
individuals and departments; (2) formal reporting relationships, including lines of authority, decision
Vice
responsibility, numberDirector
of hierarchical levels, and spanVice Director
of managers’ control; and (3) the design of systems to
President Human President Marketing
ensure effective coordination
Accounting Resourcesof employees across departments.
Production

The set of formal tasks and formal reporting relationships provides a framework for vertical control of the
Information Benefits Maintenance Mountain
organization. The characteristics of vertical structure are portrayed in the organization
Administrator chart,
Region Saleswhich is the
Center supervisor
visual representation of an organization’s structure.

Financial Industrial Quality Mid-state Sales

Analyst relations Control
Example: Organization chart for a soda Bottling Plant
Manager Manager

Chief Bottling Plant Western Sales

Accountant Super-
intendent

Accounts Bottling
Payable Supervisors

Payroll Clerk 60
5.4 Departmentalization: Meaning and Bases
Departmentalization is the process of grouping/ combining jobs into groups or manageable units. A manager
must have basis for combining jobs. The main bases for departmentalization are function; location or
Geography; product; customer and process.
Hence the types of departmentalization are
1. Functional departmentalization
2. Geographic departmentalization
3. Product departmentalization
4. Customer departmentalization
5. Process departmentalization and
6. Multiple departmentalization
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Functional departmentalization
The common form where activities are grouped based on similarity in function or content. It is grouping jobs
according to the functions of an organization. It is common for business firms. Within each department
individuals perform specialized jobs.

General Manager

Marketing Production Finance Personnel R&D

Fig: Functional departmentalization for business firm

 Advantages
o It promotes specialization and organizational efficiency.
o Avoid overlap performing basic businesses
o It provides unity of direction. Among members of the department, there is job interrelation.
o It facilitates staffing and training. If there are highly qualified staffs in a department, other
workers will be initiated or encouraged to fill the position.
o It promotes communication within departments.
o Create strong team sprit among people working in one department.
 Disadvantages
o It has problems of horizontal coordination, i.e. Lack of understanding of interrelationship and
dependency between all functions
o The tendency of “empire building”. Unhealthy competition will occur between/ among
departments.
o It frustrates the development of managerial talents from the organization as a whole to top
managerial position. There is a tendency for the manager who comes to the position of
organization’s to favor the workers in his department.
o focuses on departmental problems and objectives; and ignores organizational issues and
objectives, i.e. Narrows the understanding of employees about the organization at large
o Create communication barrier among people with different specialization
o Department managers can not develop general managerial skills to take up higher managerial
position
o Lack of generalism and internal destructive competition among different departments reduces
the success of the entire organization
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Geographic departmentalization
It is also called location departmentalization or departmentalization by territory. It is grouping of jobs on the
bases of geographic areas. It is established when a company has different branches that are geographically
dispersed. The operations are similar from region to region

General Manager

Region one Region two Region three

 Advantages
o It helps in exploiting local advantages.
o It provides a training ground for new managers, i.e. to place managers out of territory and
then asses their progress.
o It enables the firm to develop local market areas and adjust quickly to local customers’ needs
o It helps the company to reach close to raw materials.
o It saves a substantial amount of transport costs.
o It provides chance to local people employment opportunity.
o Create customers goodwill and awareness of local feeling and desire.
o Facilitate decision making
o It can provide a high level of service as employees know the local culture and language.
 Disadvantage
o Difficulties in maintaining consistent adherence to company policy and practices
o Duplication of effort
o The necessity of having a relatively large number of managers
o It poses serious problems of coordination and control.
o It may create gaps between head offices and branch offices.
o It is costly to host many geographically dispersed departments.
A company uses territory as basis for departmentalization often needs a large head quarter’s staffs to control
dispersed operation.
Product based departmentalization
It is grouping on the bases of products (goods/ services). Such kind of departmentalization is best to large
and multiple product organizations.

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 General Manager

Shoe Dep’t Clothing Dep’t Cosmetic Dep’t

 Advantages
o Allows workers to identify with a particular product and develop team sprit.
o It results in high product visibility.
o It facilitates innovation; and also enhances specialization of production.
o Stem from the need to create relatively independent division
o Each division has its appropriate personnel
 Disadvantages
o Employees’ insecurity during time of turmoil.
o Pressure for highly qualified managerial resources.
o It results in poor coordination across the product lines.
o Duplication of efforts among divisions
Customer based departmentalization
It is grouping of tasks based on the type of customers served. Customers are the key to the way activities are
grouped. Such forms of departmentalization are more common in banking, book publishing and food
industry.

General Manager

Women shoe Men shoe Kids shoe

 Advantages
o Customers’ interest and priority is respected;
o Helps to meet customers’ special needs by setting up separate departments
o Indicate the willingness to understand the business of its clients
o Workers are identified with a particular group of customers that create team sprit
 Disadvantages
o It is almost impossible to consider all the customers, their interests, habits and customs.

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 o In the period of no or little demand for goods and services of an organization, some sections
may not be profitable.
o There is a problem of duplication of resources
o Creates difficulty in coordination between departments
o High competition among departments may deter the overall organizational performance
o Requires manager and staff specialists similar with the customers’ situation
o Differentiation among the various customer groups might be difficult
Departmentalization by process
It is appropriate when departmentalization by production is inflow. Under it activities are grouped on the
basis of various manufacturing process.

General Manager

Drilling Grinding Welding Assembling Finishing

Fig: departmentalization by process

Advantages
o It is appropriate for organizing certain types of work.
o It helps to group production facilities.
o It puts full responsibility of completing each stage of the job.
Disadvantages
o Failure in one of the process may adversely affect the whole job.
o Due to sub specialization a worker has, he can not be shifted to another department, i.e. it
restricts flexibility.
Multiple bases for departmentalization
It is the combination of two or more departments discussed above. It helps to divide work exhaustively. It is
also a way of combining jobs into departments. E.g. matrix organizations
Matrix organization
They are also called grid organizations or project/ product management. They are combining functional and
project or product patterns of departmentalization in the same organization. They are common in engineering
and R& D, and also in product-marketing organization.
Typical problems of matrix organizations are
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  Conflict exists between functional and project managers due to competition for limited resources
 Role conflict, role ambiguity and role overload may result
 Imbalance of authority and power, and may result inefficiencies
 Managers protect themselves against blame by putting everything in writing which increases
administration cost because of potential conflicts
 Requires many time-consuming meetings
Guidelines to make matrix management effective are
1. Define the objectives of the task/ project clearly
2. Clarify the roles, responsibilities and authority of managers and team members
3. Ensure influence based on knowledge and information rather than rank
4. Balance the power of functional and project managers
5. Select experienced manager who can provide leadership
6. Undertake organization and team development
7. Install appropriate cost, time and quality control that report deviations from standards in timely
manner
8. Reward project managers and team members fairly

5.5 Span of management

Manager can not supervise unlimited number of employees. There should be a limited capacity to control the
work of different subordinates.
The manager’s ability to supervise a large number of subordinates is constrained by knowledge, experience,
tine, energy, etc.. To overcome this limitation, every manager has to delegate work to subordinates.
Span of management/ control refers to the number of subordinates that single manager can effectively
supervise or should have to direct. There is no correct number for the span of control or there is no exact
formula to determine the span of control. It varies from one situation to another.
As a general rule
 The more complex a subordinate’s job, the fewer will be the manager’s number of subordinates.
 The more routine the work of subordinates, the grater will be the number of subordinates that can be
effectively directed and controlled.
Because of these general rule organizations have a narrow span of control at the top and wider span at the
lower levels. i.e. as one goes up the hierarchy, the fewer will be the number of subordinates. A well trained
person/ subordinate follows directions and routines; master tasks; requires less supervisory of time and
energy.
Factors those influence spans of control of a manager are
1. The ability & the experience of a manager;
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 2. the complexity & variety of the subordinates’ work
3. the qualification of the manager and subordinates;
4. growth in competence and experience in personnel
5. The company’s philosophy towards centralization or centralization in decision making.
If the manager has
 Too many people to supervise, the subordinates will be frustrated by their ability to get immediate
assistance from their boss; time & other resources could be wasted; plans, decisions& actions be
delayed or made without proper control or safeguard.
 Too few people to supervise, the subordinates could become overloaded or over supervised; and
frustrated & dissatisfied.
 The more capable & experienced the subordinates, the more that can be effectively supervised by one
competent manager; the less time is needed to train & acclimate; the more there is to devote to
producing output.

5.6. Authority and power: Source of power

Authority
All managers in an organization have authority. They have different authorities based on the management
position they occupy. Authority is described as institutional power. It is the right to act, or to give order/
command, or deploy resources in an organization. It is the power derived from the rights that comes with
position. Authority represents legitimate exercise of power in the organization structure. With out authority a
manager can not perform tasks with confidence and show results.
Essential features of authority
 It is the relationship between two individuals - one superior and the other subordinate.
 It is the right to act.
 It is the power to make decisions and seeing that they are carried out.
 It is used to achieve organizational goals.
Power
Power is the ability to affect the behavior of others or power is the ability to exert influence on others, or the
ability to do something.
In an organizational setting, there are different sources of power. Some of them are
1. Legitimate power
Legitimate power is Power granted through organizational hierarchy. i.e. power due to position. All
managers have legitimate power over their subordinates. A manager can assign subordinates tasks, and
subordinate who refuses to do them can be reprimanded or even fired. Such outcomes stem from the
manager’s legitimate power as defined and vested in her or him by the organization. Legitimate power
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 then is authority. All managers have legitimate power over their subordinates. The mere possession of
legitimate power, however, does not by itself make someone a leader. Some subordinates only follow
orders that are strictly within the letter of organizational rules and policies. If asked to do something not
in their job description, they refuse or do a poor job. So, the manager of such employees is exercising
authority but not leadership.
2. Reward power
Reward power is the Power to give /withhold rewards. Rewards that a manager may control include
salary increases, bonuses, praise, recognition, and interesting job assignments. In general, the greater the
number of rewards a manager controls and the more important the rewards are to subordinates, the
greater is the manager’s reward power. If the subordinate sees as valuable only the formally
organizational rewards provided by the manager, then the manager is not a leader. But if the subordinate
wants and appreciates the manager’s informal rewards, then the manager is exercising leadership
3. Coercive Power
Coercive Power is a Power to force compliance via psychological, emotional or physical threat. In the past
physical coercion in organizations was relatively common. In most organizations today, however, coercion
is limited to verbal reprimands, written reprimands, disciplinary layoffs, demotion and termination. The
more punitive the elements under a manager’s control and the more important they are to subordinates, the
more coercive power the manager possesses. On the other hand, the more a manager uses coercive power,
the more likely he is to provoke resentment and hostility and the less likely he is to be seen as a leader.
4. Reference power
Reference power is the power based on identification, imitation or charisma i.e. followers may react
favorably because they identify in some way with a leader, who may be like them in personality,
background, or attitudes. In other situations, followers might choose to imitate a leader with referent power
by wearing the same clothes, working the same hours, or espousing the same management philosophy.
Thus, a manager might have referent power, but it is more likely to be associated with leadership.
5. Expert power
Expert power is the power derived from information & expertise. It is the power resulting from a leader’s
special knowledge or skill regarding the tasks performed by followers. When the leader is a true expert,
subordinates go along with recommendations because of his/her superior knowledge. Leaders at
supervisory levels often have experience in the production process that gains them promotion. At top
management levels, however, leaders may lack expert power because subordinates know more about
technical details than they do.
The relationship between power and authority

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Authority is the power that has been legitimized by the organization. Where as power is ability to exert
influence on others, or the ability to do something. Like authority, power is institutionalized and impersonal.
In organizations, it is necessary to keep a balance between power and authority. In some cases a manager
may have the authority (the right to do something), but may lack the power (ability to do something) and
vice versa. Failure to associate power and authority at all organization levels may lead to disastrous
consequence.
‘Power with out authority may be abused and authority without power is totally meaningless.’

5.7. Line and staff authority

The process of accomplishing organizational objectives through people entails the establishment of
relationship among the members of the organization and different hierarchies of the management. This
results the presence of the two distinct types of authority in business organization.
Line authority
Line authority is the relationship between superior and subordinates. It is directed supervisory relationship. It
enables the manager to tell subordinates what to do. It is represented by the chain of command. It flows
downward in an organization. A manager supervising employees or other managers has line authority.
Staff authority
Staff authority is the right to give advice. It is advisory in nature. Thus the people in the staff position assist
and advise the line manager. People in theses positions have the authority to offer advice and
recommendations. e.g. legal service; public Relation service. It is an advisory authority for manager.
Advisory authority doesn’t provide any basis for direct control over subordinates or activities of other
departments.

5.8. Delegation, centralization and decentralization

Delegation
Every manager must delegate duties to subordinates since management means getting work done through
others. Effective managers normally delegate as many operation tasks as possible to subordinates and
concentrate their efforts on core managerial tasks.
Delegation is authorizing subordinates to act in a certain manner independently. It is a concept describing the
passing of formal authority to another person or passing authority downward to subordinates. It helps to
facilitate work being accomplished. It is delivering to another the right to act; to make decision; to
requisition resources; and to perform other tasks in order to fulfill jobs responsibility. Delegation is a two

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side relationship, i.e. the assigner and assignee. It is an act of trust; an expression of confidence; requires
necessary skills & strength, and requisite application and dedication to duties.
Delegation occurs for two purposes
1. When managers are absent from their jobs - Subordinates act on behalf and exercise authority.
2. To develop subordinates and facilitate decision making process
Process of delegation
Steps for delegation are
1. Assignments of tasks - Kinds of tasks to be performed by subordinate are identified and assigned to
the subordinate
2. Delegation of authority - A subordinate to carry out the activity, the necessary authority should be
given by the manager. A guideline for authority is that “no more no less”. i.e. It has to be adequate
to complete the task.
3. Acceptance of responsibility - When subordinates are assigned with duties and delegated authority,
then they will be responsible or obliged to perform the tasks to the maximum ability they can
perform.
4. Creation of accountability - When subordinates are assigned for certain tasks and are delegated a
certain authority, and then they will be accountable for the actions taken.
Accountability
Accountability is just having an answer to somebody; answer for the actions taken with regard to the tasks
assigned and authority delegated. Accountability means taking the consequence - either credit or blame. If
one accepts assignments and authority, s/he is answerable for the actions taken. A manager is accountable
for the use of his/her authority and performance, and the performances and actions of subordinates.
The process of delegation produces clear understanding on the part of manager and of the subordinates.
 The manager should take time to think thoroughly what is being assigned and to confer authority
necessary to achieve results.
 The subordinate accepting the assignment, obliged (responsible) to perform and is accountable for
the results.
To delegate a manager must be able to consider the following issues.
1. Analyze how the manager spends his/ her time.
 This enables to list out the duties that the manager undertakes.
2. Determine the tasks that can be assigned.
 All duties of the manager cannot be delegated. The manager should identify which of the duties
should be delegated while doing so, and the manager should consider the ability of the
subordinates.

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 3. Decide which task can be handled by whom among the subordinates.
4. Delegate the authority and create the responsibility.
5. Control whether the delegated subordinates are performing the tasks to the expected standard or not.
In delegation, managers are required to think the principle of parity that states “authority and responsibility
must coincide”; i.e. responsibility created should be equivalent to the authority granted.
 If employees are assigned tasks without authority, they can not perform tasks as expected because
the necessary authority is not granted for them. Therefore, this creates frustration and anxiety.
 If employees are delegated more authority than the expected responsibility they discharge, they
will interfere on the job of others and hinder others job.
Both centralization and decentralization refers to the nature of authority within an organization structure.
Centralization and decentralization are merely the results of circumstances. Absolute centralization or
absolute decentralization is impossible in practice; it is a matter of the degree along a con
Centralization
Centralization is a systematic and consistent reservation of authority at central point within the organization.
It is the concentration of authority for decision making within the hands of one or few.
In centralization
 There is little delegation of authority
 Rules, power & discretion are concentrated at the top level
 Control & decision making reside at the top level of management
The more highly centralized the organization, the more control and decision making will be exercised at the
top.
Centralization is essential in case of small organizations to survive in a highly competitive world. The larger
the size of the organization, the more consent is the need for decentralization.
Special circumstances forcing managers to reserve/ keep authority and centralize decision making power are
1. To facilitate personal leadership
Centralization generally works well in the early stages of organizational growth. Dynamic and talented
leader can derive advantages in a small firm in the form of quick decisions, enterprising & imaginative
action, and highly flexible.
2. To provide for integration
Under centralization the organization moves as a unit. It keeps all parts of the organization moving together
harmoniously toward a common goal. It assures uniformity of standards and policies among organizational
units. The manager acts like a unifying force and provides direction to the activities. Duplication of effort
and activity are also avoided.
3. To handle emergencies

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Centralization is highly suitable in the time of emergency because it helps to mobilize resources and
information quickly. Centralization of decision making ensures prompt action necessary to meet the
emergencies.
Centralization makes
 difficult for managers to process the bundles of data in time and take decision in an appropriate manner
 the manager burdened with a great amount of detailed & exhaustive work
 managers to work painfully long hours
 forces top management to posses a broad view they may have beyond their capacity
 the vast amount of power given to a few people may be abused
 the organization is highly vulnerable to what happens to its dynamic and talented top management
people
Centralization floods communication lines to a few individuals at the top of the organization. As a result the
speed of communication upward and decision processes are slow. Centralization kills the initiative; self
reliance and judgment of lower level personnel.
Decentralization
Decentralization is a systematic effort to delegate all authority to the lowest levels except that which can be
exercised at central point. It is pushing down of authority and power of decision making to the lower levels
of organization. The essence of decentralization is the transfer of authority from a higher level to the lower
level. Nowadays decentralization has become to be the fundamental principle of democratic management.
Some guidelines to identify the degree of decentralization in a company
1. The greater the number of decisions made at the lower level of management, the more the company
is decentralized.
2. The more important decisions are made at the lower level, the greater is the decentralization.
3. The more flexible the interpretation of the company policy at the lower levels, the greater the degree
of decentralization.
4. The more widely dispersed the operations of the company geographically, the greater the degree of
decentralization.
5. The less the subordinate has to refer to his/her manager prior to decision, the greater the
decentralization.
Advantages and disadvantages of decentralization
Decentralization is extremely beneficial but also dangerous unless it is carefully constructed and constantly
monitored.
Advantages
 It reduces the work load on overburdened manager.

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  It brings the decision making process closer to the scene of the action.
 It facilitates product diversification. i.e. treats each product lines as separate and important.
 It gives individuals an opportunity to learn by doing.
 It facilitates effective control. i.e. often results in improved controls & performance measurements.
 It ensures participative management.
Disadvantages
 Conflict
o Decentralization puts increased pressure on each heads to realize profit at any cost. To meet this
each deviate or veer away form corporate objective. i.e. leads to competition that may ultimately
result in bitter individual rivalries.
 Cost or duplication
o Decentralization results in duplication of staff effort. To be independent each division should have
access to purchasing, personnel, etc. hence each carry a large group of specialists at numerous cost.

Groups and committees

Groups
A group is any numbers of people who (1) interact with one another, (2) are psychologically aware of
one another, and (3) perceive themselves to be a group.
Kinds of groups in organization
Groups that exist in organizations typically are divided into two basic types: Formal and informal.
 Formal group is a group that exists in an organization by virtue of management decree to
perform tasks that enhance the attainment of organizational objectives. Organizations actually
are made up of a number of formal groups that exist at various organizational levels.
Formal groups commonly are divided in to command groups and task groups.
Command groups are formal groups that are outlined on the chain of command on an organization
chart. They typically handle the more routine organizational activities.
Task groups are formal groups of organization members who interact with one another to accomplish
most of the organization’s non routine tasks. Although task groups commonly are considered to be
made up of members on the same organizational level, they can consist of people from different levels
of the organizational hierarchy.
Committees
A committee is a group of individuals that has been charged with performing some type of activity..
Committees are a more traditional formal group that can be established in organizations. It usually is
classified as a task group. From managerial viewpoint, the major reasons for establishing committees

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 are (1) to allow organization members to exchange ideas, (2) to generate suggestions and
recommendations that can be offered to other organizational units, (3) to develop new ideas for solving
existing organizational problems, and (4) to assist in the development of organizational policies.
Committees typically exist within all organizations and at all organizational levels. However, the larger
the organization, the greater the probability that committees will be used within that organization on a
regular basis.
 Informal groups
Informal groups, the second major kind of group that can exist within an organization, are groups that
develop naturally as people interact. An informal is defined as a collection of individuals whose
common work experiences result in the development of a system of interpersonal relations that extend
beyond those established by management.
Informal groups generally are divided into two types: interest groups and friendship groups.
Interest groups are informal groups that gain and maintain membership primarily because of a special
concern each member possesses about a specific issue. An example is a group of workers pressing
management for better pay or working conditions. Once the interest or concern that causes an informal
group to form has been eliminated, the group needs to disband.
As its name implies, friendship groups are informal groups that form in organizations because of the
personal affiliation members have with one another. Personal factors such as personal interests, race, gender,
and religion serve as foundations for friendship groups. As with interest groups, the membership of
friendship groups tends to change over time. Here, however, group membership changes as friendships
dissolve or new friendships are made.

Summary
Grouping the work of organization and assigning workers to carry out the work with the provision of

appropriate authority are undertaken in the organizing function. In organizing, managers must match the

work, the workers, and the resources necessary to carry out the work. Organizing are boldly exploring new

approaches to designing work, linking jobs, and coordinating activities. And these approaches fundamentally

changing the ways jobs, businesses & relationship between businesses are structured.

No single organizational structure can be effective in all situations. A structure suitable to one organization

may be ineffective to another because two different organizations cannot have the same people, resources or

objectives. Organizations should continuously adapt the challenges of competition. Organizations those do

not revise their structures periodically with the ongoing global competition will face extinction/ death.

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Organization is used in two different ways. One denotes the process of organization; and the other denotes

the result of the process called organizational structure. There fore organization refers to the result of the

organizing process.

Organizing is the process of establishing orderly uses for all resources in the organization.

It is the process of identification, classification and grouping of tasks that are necessary to achieve objectives

and assigning of work to individuals and designing hierarchy of decision making relationship. This process

results in organizational structure which portrayed in the organization chart.

Departmentalization is the process of grouping/ combining jobs into groups or manageable units. A manager

must have basis for combining jobs. The main bases for departmentalization are function; location or

Geography; product; customer and process.

CHAPTER SIX

6. STATFING AN ORGANIZATION
Learning objectives
At the end of this part, students should be able to:
 Define staffing as part of the over all management process
 Recognize the staffing process
 Explain what human resource planning is
 Know the importance of manpower inventor(auditing) in human resource planning
 Define recruitment as one part in staffing process
 Understand concepts like, selection, orientation and induction, Training and development,
performance appraisal, transfer and separation in staffing process.

6.1 The procurement function

After jobs are identified, grouped & organizational structure is created, then comes the other managerial task
staffing.
Organizations possess and utilize different kinds of resources to achieve their objectives. These resources
can be; materials, capital, machineries, money information and men. Among these resources human
resources is the most important one. It is impossible for organizations to accomplish their objectives and
utilize other resources. Without HR other resources remain futile and organizations are said to be lifeless
without HR. Human resources have the ability to develop and improve their abilities and skills. As Robert
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Owen said human resources are the most important resources of an organization, which deserve special
treatment, respect and dignity
The managerial function of staffing is defined as filling and keeping filled position in the organization
structure through identifying work force requirement, inventorying the people available, recruiting,
selection, Placing, promoting, appraising, compensating, training and developing both candidate and
comment job holders to accomplish their tasks effectively and efficiently.

6.1.1. Staffing Processes

Staffing process incorporates the different series of activities/steps that one should follow during staffing
function.

The staffing process

Staffing involves a series of steps. They are
1. HR planning (manpower planning)
2. Recruitment and selection
3. Placement & Employment decision
4. Induction & Orientation (Socialization)
5. Training and development
6. Compensation & performance appraisal (PA)
7. Separation, Promotion, Transfer & Layoffs
1. Human Resource planning/Man power planning
It is the process by which management determines how an organization should move from its current
manpower position to its desired manpower position. One can also define human resource planning as the
process of determining the need of the provision of adequate human resources to the job in the organization.
It is designed to ensure that the personnel need of the organization will be constantly and appropriately met.
Through planning management strives to have the right number and the right kind of people at the right
place, at the right time, to do things which would result in achievement of maximum long term benefit for
both the individual and the organization. It is accomplished through analysis of:
 Internal factors such as current and expected skill needs, vacancies, and departmental expansions and
reductions.
 External environmental factors such as the labor market, the government regulation, the labor union
etc.

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As a result of this analysis, plans are developed for executing the other steps in the starting process. This
helps an organization to determine the need of employees for short term or for long term. The activities
generally seen in human resource planning are,
 Forecasting about the future manpower requirements.
 Making an inventory of the present manpower and also finding out to what extent they are effectively
deployed.
 Anticipating future manpower problems by comparing the forecasted requirements with that of the
current manpower assessments.
 Planning the necessary programs and procedures to overcome the problems identified. The planning can
be done for programs concerning, requirements, recruitment, selection, training, development,
promotions, companions etc.
Why human resource planning is needed?
 To carry out the work of the organization, skilled and qualified manpower is needed. A good human
resource plan would help the management in recruiting and selecting the best available personnel to
carry out the activities of the organization effectively and efficiently.
 People leave organizations for a number of reasons like retirement, transfer, better opportunities in
other organizations and it is the duty of the human resource department to replace them.
 A good human Resource plan would go a long way in trying to predict when the vacancies would be
created and when the recruitment and selection should be carved out.
 Labor turn over and absenteeism seem among workers are also factors which make human resource
planning important.
 In order to meet the requirements of expansions and diversification programs of the organization
human resource is important.
 The present situation of fast paced change in technology and changing needs of the work force has
also necessitated creation of an effective human resource plan to cope up with future uncertainties.
 Human resource planning will help the management in identifying the areas where there are surplus
personnel. These surplus personnel can be transferred to other departments or can be assigned some
other duties.
Model of human resource Planning
Basically a human resource plan consists of the following five phases or steps.
 Determining future human resource requirement
 Determine future human resource availability
 Conducting external and internal environmental scanning
 The Concealing requirements and availabilities

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  Action planning
After developing the model of human resource planning the manager will try to audit the human content of
the organization to decide on the quality and quantity of workers that might stay with the Organization for
the future plan. Following the human resource audit the manager is also responsible to conduct job analysis
to determine the vacant position available in the organization.
2. Recruitment and selection
Recruitment
This is the second stage in procurement process of any personnel department, the first being human resource
planning. The recruitment process acts as a bridge between the prospective employees and the organization.
Recruiting is the discovering of potential applicants for actual or anticipated organizational vacancies. Hence
the main purpose of recruitment is to identify sources of manpower so as to satisfy the man power
requirement of the organization. It can be considered as the most important function of the personnel
department. Unless and until the organization attracts the best and the brightest professionals it would not
succeed. Even the best personnel policies, the best devised plans and the latest technology cannot be
harnessed properly if the manpower is of low quality. The process of recruitment is considered to be both
positive as well as negative. Positive because, stimulates people to apply for the vacancies created in the
organization and negative because, it screens out or rejects the majority of applicants who don not match the
broad job requirements. So, during recruitment the potential candidates will be pooled together throu8gh the
advertisement of vacancies on mass media. The vacancy to be announced to the candidates should
incorporate at least the two statements.
1. The job description statements and
2. The job specification statement
Job description- is the written record of duties, responsibilities and requirements of a particular job. It gives
information of about the title, locations, duties, working conditions and hazards. It is the description of job
quality characteristics.
Job Specification -It is a statement giving the requirements of personnel who should be made responsible
for a given job. It gives information regarding the characteristics, qualities (physical, psychological and
demographic), qualifications, experience, etc, of the worker who is most suitable to carry out the activities
mentioned in the job description. So it is a statement specifying the characteristics of the worker occupying
the position.
Sources of Recruitment
Sources of supply are the places, agencies, and institutions to which recruiters go and seek potential
candidates that will fill the vacant positions or the job needed. The sources of supply are generally
categorized in to two, internal and external.

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1. Internal Recruitment (Recruitment from with in)
This involves recruitment from with in the organization; it could be through promotion, demotion or lateral
transfer. The employees who already are a part of the organization are given an opportunity for filling up
vacant positions. Here, not only the existing employees but also ex employees of the organization who left
the organization for various reasons belong to the internal source of recruitment.
The advantages of these sources are:-
 Employees have high moral because they are sure of getting relations for the hard work they put in to
the organization growth.
 The old employees can be better evaluated than out sides
 Since the organization gives preference to existing employees in filling up vacancies, ob security is
more and also the opportunity for advancement is higher which enhances employee loyalty towards
the organization.
 Minimum time needs to be spent on training since the employees are already used to the organization
policies, procedures and philosophy.
 Employees selected from the internal sources are generally more reliable because they have more
loyalty to the organization than a new comer.
 Recruiting from the internal sources is much cheaper than the external source.
The disadvantages are:
 Too much dependence on the internal sources will lead to inbreeding and discourages people with
fresh ideas, more qualification and more creativity room entering the organization
2. External source of Recruitment
Here the potential candidates are totally coming from the external environment i.e. Out side the
organizations and generally these sources are new entrants or fresh products, the educated, but unemployed
section of the society, employees of other organizations, retired persons, etc.
The advantages of external sources are:
 The management need not compromise in their recruitment; they can get the best professionals
available in the market with the required experience, skill, education etc.
 Recruitment can be done which might include all sections of the society
 Fresh blood can be pumped in to the organization personnel who are creative and who are specialists
can be attracted.
The disadvantages can be:
 Adequate time and money needs to be spent on training and induction
 Chances of brain drain or the employees being recruited by other organizations increase

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  The whole process of external recruitment is more expensive than internal
Methods of recruitment
Direct method recruitment:- The recruiters are sent directly to the colleges, universities, educational
institutions, and contact the graduating students and select the best among them. The recruiters also contact
the prospective employees directly, the recruiters may hold conference and seminars for the prospective
employees and encourage them to apply for vacancies, and the recruiters may participate in job exhibitions
or job fairs to attract prospective employees.
Indirect method: - In this method the organization encourage prospective employees to apply for vacancies
through advertisements in newspapers, magazines, journal etc. Generally the advertisements for top-level
position are given in national newspapers and for lower level and workers advertisements are given in
regional newspapers. The advertisements could be detailed (name of the organization, type of the job, salary
and Third party method: - There are many private employment agencies which carry out the recruitment
process of an organization for a fee. Governments also have employment exchange which provide
organizations with man power. Placement services of colleges and universities, trade unions etc, are also part
of the third party method of recruitment.
Selection
Selection is the procedure, which is concerned with securing and extracting relevant information about an
applicant. The objective of the selection process is to help the organization in determining whether the
applicant has the required qualifications for a specific job or position and in hiring the best candidate among
all the applicants.
Selection process
To select the best workers who best fit to the position from the potential candidates, there are various stages
that one should follow. There are:-
1. Application blank:- The applicants are made to fill up a predesigned application form which tries to
extract detailed information about the applicant’s personal information (name, age, sex, family
background etc) educational qualifications, training programs, undergone, work experience, salary
expected, future career plans, self assessment of previous work, reasons for leaving the current or
previous employer etc, or the applicant is asked to submit his/her bio-data instead of filling up the
form. This information is used by the interviewer at the time of final interview and is filled in the
employee record if the applicant is selected.
2. Preliminary interview: - This is generally done by a junior executive of the human resource
department where in the general information about the company and the job/po0sition is given and
brief information about the applicants, educational and professional qualifications and obtained.
Observation is also made of the general physical feature and physical fitness of the applicant.

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 3. Final Interview: - Interview is the most widely used selection tool. It is a complex process in which
the interviewer tries to form an opinion about the interviewee’s personality, intelligence, technical
competence, interests, attitudes etc. through face-to-face interaction. It is an attempt to secure
maximum amount of information from the candidate concerning his/her suitability for the job under
consideration. This technique can also be used for purposes other than selection like, in performance
appraisal, in grievance handling, in disciplinary action, for counseling and other general problem
solving.
The basic objectives of interviews would be as under
 To properly judge an applicants qualifications and characteristics
 To give the applicant important and relevant information about the job and the organization
 To establish a good rapport with all the candidates attending the interview
 To promote the good will of an applicant towards the organization, immaterial of the out come to the
selection process
 To help the management in grievance handling in conduction of disciplinary actions and in
interactions with the workers union
 To observe the applicants, appearance personality, confidence level etc.
 To solve the problems arising out of the various interactions seen inside the organization
Types of interviews
Patterned or structured interview:-
This is a very common type of interview in which the focus is on asking structured predetermined questions
in a strict sequence. There is little or no deviation of the sequence of questions and most of them are
job/skill oriented.
Non-directive or free interview:-
These interviews are unstructured and un planed. The basic aim of this type of interview is to judge the real
nature of the applicant. General, unstructured questions are asked and the candidate is given adequate time to
answer in detail. The discussions in the interview may be regarding various subjects unrelated to the job
under consideration.
Depth or Action interview
This interview is semi structured, where structured questions are asked in intervals of unstructured questions
or conversations. It is a combination of the patterned and free interview styles. The aim of this interview is to
obtain detailed information about both the personal as well as the professional life of the interviewee.
Group or Discussion interview:-
The interview is held for more than one candidate and the role of the interviewer becomes that of the
observer, where in he tries to identify the persons with the required qualities for the concerned job. The

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group of candidates is given a topic or a problem for discussion and the observers identify the persons who
are having good leadership skills, who influence the discussion, who are good analyzers, who have good
communication skills etc. and select the ones most suitable for the given job.

Panel or board interview

It is an interview in which the number of interviewer would be many and the interviewee will be one. The
panel (board) consists of expertise of different areas.
Stress interview
It is in which the interviewer pretends to be hostile & provokes the candidate by asking questions rapidly by
criticism & trying to annoy him. It is conducted to find out the reaction of the candidate under pressures &
also to observe the presence of the mind of the candidate when he is angry or confused.
Physical examination
It is checking the physical fitness of the candidates
Medical examination of the candidate before employment is a necessary step in the selection process. To
prevent the existing employees from the communicable diseases & unwarranted claims in the form of
medical & insurance expenses
Also needed to identify the disabilities/ handicaps the candidates have so as to help the management in
allocation of the jobs.
This step is necessary for 3 vital reasons: to assure that the applicant is fit to work in the organization, to
assure that the candidate is physically fit for placement in a particular job, to provide base against which
later physical examination may be compared. (- is important in the disability claims that may occur during
the job assignments).
Reference letters/ Reference check & background investigation
Verification of information obtained from the candidates application form & selection interview. After a
candidate has passed successfully all the above stages in the process of selection, a reference check is made
where in the HR manager gets in touch with the current or previous employer of the candidate and find out
relevant details. This is done to see whether the candidate has furnished correct details & also to cross check
the suitability of the candidate for the given position. Include: letter of recommendation; references;
testimonials, etc… from the former employers so that it is possible to know the competence of the
candidates.
Final selection & communication (Job offering)
After getting a positive reference, a final list of selected candidates is made & this information is passed on
to the candidates, the concerned line managers & other people.

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3. Decision making and Placement
The candidates who have been selected should be given placement letters that state their employment and
specific positions, and other employment related matters.
4. Induction & Orientation (Socialization)
When the candidate is selected and offered a job, it is necessary to introduce the new employee to the
organizations philosophy, rules, policies, etc…..then the new employee begins his work. He should be
assimilated to the job & organizational environment.
Induction & orientation have to do with familiarizing the new employee with the organization. They can be
done by oral communication and physical observation, written media like manuals, guidelines and others.
The employee will be given information on the organizations history, products, operations, policies & rules,
services available, opportunities & other issues.
Induction & orientation are the two important tasks to be accomplished to ensure smooth organizational
membership of a new employee. They are assimilation & socialization of a new employee.
Induction- Refers to the process of familiarizing a new employee with the overall organizational
environment through the provision of adequate information to bring about change in new employee’s
expectation, behavior, and attitude in order to assure the best match with organizational interest. It involves
providing information about the organization’s history, purpose, operations, products/services and his
contribution to the organization and needs & benefits for the new entry. It is done through the interaction of
the employee, the immediate supervisors & personnel.
Orientation-It is designed to enable new employee to familiarize with working environment through the
provision of adequate information. It involves discussion between a manager & employee regarding the job
assignment including specific location, rules and procedures of the work as well as the materials, equipments
needed to do the job.
The purposes of induction & orientation
 Reduce the start-up cost - enable a new employee to meet performance standards sooner.
 Reduce anxiety - employee fear of failure on the job can be avoided, and he develops self confidence.
 Decrease turn over - provision of all kinds of information during the entry time make new employee
stable in the organization.
 Save time to supervision - reduce the time of a supervisor to supervise and observe the performance
of an employee.
5. Training and development
Having qualified and well trained personnel, to perform various jobs is a very basic necessity for any
organization. Training becomes necessary because of changing technology, up production of skills and
knowledge of the workers, the need to increase the productivity of the workers etc, so as to retain the

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competitive edge. Training and development seem to indicate the same meaning but a detailed examination
would real some differences. Training is a process of leaving a sequence of programmed behavior, which
help the trainees in improving their job performance and better apply their knowledge where as development
covers not only performance improvement activities but also those, which enhance personality, gain better
attitudes, values and behavior.
The scope of development is wider than training. To understand the difference between training and
development more clearly we need to look at their impact on the learning dimensions.
Training
Training becomes necessary because of the changing technology, up-production of skills & knowledge of
workers, the need to increase the productivity of the workers, etc.
Training is any process by which the aptitudes, skills and abilities of employees to perform specific jobs are
increased. It is the act of increasing the knowledge & skills of employee for doing a particular job; and a
process of learning a sequence of programmed behavior which help the trainees in improving their job
performance and better apply their knowledge.
Training is designed to improve a person’s skills to do the current job at high level from the first day they
start working. To ensure improvement in person’s skills & knowledge to perform the work through training,
effective training system should be designed.
Objectives of Training
 To make the workers perfect in their work
 Proper training would help the worker in producing quality product
 Training will help the management in developing personnel for future expansion or diversifications
 A good and well-planed training program will help in improved performance
 Proper training will help the worker in adopting safe work procedures
 Proper training will help the worker in adopting safe work procedures
 Training will help the worker in avoiding them from being obsolete

Importance of training
It is important that the employee be indicated into training programs to improve their knowledge, skills and
future performance. The need for proper training is increased by the following considerations.
 Increased productivity
 Improvement in employee moral
 Availability for the future personnel needs of the organization
 Improvement in health and safety
 Reduced supervision
 Personal growth
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  Organizational stability
Steps in designing effective training
1. Need assessment-assess the needs for training based an organizational analysis, person analysis &
task analysis.
2. Assessment of employee readiness-Consider whether employees are motivated to learn.
3. Creation of learning environment -Lay a foundation for successful training by creating the conditions
under which employee will learn best.
4. Ensuring transfer of training -Ensure that employee will be able to apply what they have learned to
their jobs.
5. Selection of training methods-Consider the possible training methods & select those that will be most
appropriate.
6. Evaluation of the training program-Evaluate the outcome of the training program.
Methods of training
Organizations can use training methods that they believe appropriate to satisfy their training needs &
accomplish objectives. The commonly used training methods are classified into:
 On-the- job training
 Off- the-job training
 Vestibule/ Simulated training

On-the-job-training:- In this type of training, an employee is put on the work floor directly and is assigned
to a superior to an experienced co-worker who teaches/guides him in how to do the work practically. These
methods are parts of the every day job activity of the organization. This is the most common method of
training, because it is practical it is practical oriented, less expensive and the focus is on the job. The various
techniques used under this method are, coaching (understudy) apprenticeship, where the super visor or an
experienced worker gives personal and in-depth guidance to an employee or subordinate.
Off the job-training- This type of training is given to the trainees away from the work floor and is not the
every day activity of the organization. The trainees are imparted theoretical knowledge in a classroom or a
training center and the most popular kind of off the-job training methods are lectures, conferences, group
discussions, case studied, role-play, programmed instructions, etc.
Vestibule/Simulated training: - This is a combination of on the job training methods. In this method
identical machines and equipment, which are used on the work floor, are installed in a training center and
also an effort id made to implicate work atmosphere found on the actual work floor. This method tries to
give the trainees a chance of getting trained in a situation that is as close to the original work situation as
possible. Here the work environment is almost similar to the actual environment, but is not the rest
environment. Eg. Training given for a pilot.
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6. Performance Appraisal and Compensation
Performance appraisal is a process of evaluating an employee’s performance of the job assigned.
Performance appraisal is a step which tells the management how effective their processes of recruitment,
selection, and training are. It basically involves the estimation of the value, excellence and quality of the
personnel of the organization. Performance appraisal is also called as merit ratings, employee evaluation,
progress report, staff assessment etc.
Objectives of performance Appraisal
 It helps the management in maintaining the inventory of man power along with their quality and
worth for the organization
 A good performance appraisal helps the management in identifying and meeting the training need of
the employee
 It helps the management in deciding about salary increments, incentives and in deciding who should
get promotions, transfers and demotions.
Performance Appraisal Process
The steps to be followed during the evaluation of workers performance are:-
 Establishing performance standards:- performance standards are developed at the time of
developing job descriptions and job specifications. These standard should be clear, precise, and
objective oriented.
 Communication of standards to employees:- Performance standards should be fcommunicated to
all the concerned employees, because unless and until the employees are aware of the standards, they
will not be in a position to meet them.
 Measurement of the actual performance:- In this third stage the actual performance of the
employees is noted and the information about the employees performance is collected through
personal observation, written report, oral report etc.
 Comparison of the actual performance with that of the standard:- An objective and impartial
comparison of the actual performance with the standard perfomance is carried out short falls, if any
of the employees are identified and deviations, if any, are noted down. This comparison is also used
to identify the most promising employees who have the potential for growth and =advancement.
 Communication of the results: - These results are communicated to the concerned employees and
discussions are held with them to identify their strengths and weaknesses and also to identify the
difficulties in carrying out their activities. Objective discussions and accurate information about the
performance will help the employee in bettering his performance.
 Corrective actions: - If there are any short falls in the performance of the employees the
management along with the concerned employees should identify the reasons of the short falls. After

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 the reasons are properly identified, the ways and means of overcoming these difficulties are devised
and implemented.
Compensation
People work in organizations for the sole purpose of earning enough money to live comfortably and satisfy
alls their needs. Wage and salary administration is the establishment and implementation of sound policies
and practices of employee compensation. Compensation is just the reward for the work done by an employee
and it should be balanced so as to keep the parties, the employer and the employee happy and satisfied.
Compensation includes the money paid as reimbursement.
Factors affecting compensation policies of the organization
 Organizational ability to Pay:- The organization should have enough funds to pay enough salary or
wage to the employee.
 Supply and demand of labor:- If the supply of labor is more than the requirement then the
management can pay less wages and salaries to its employee and reverse in case of less supply
 Prevailing market rate: - The going wage rate or salary in the industry also influences the wage and
salary policy of the organization. An organization cannot give less salary/wage than the average
salary of the industry.
 Cost of living:- The cost of living differs in different cities
 Productivity: - The level of productivity of the workers also has an impact on the kind of
wage/salaries they get; more productive workers get more salaries.
 Bargaining Power of the worker’s unions:- Powerful worker’s union generally have a lot of
influence on kinds of wages and salaries given by the organization
 Job requirement: - Some jobs are more hazardous and dangerous than others and the employees
understating them would get more pay than others who are in relatively safer positions.
 Managerial attitude: - The top management has a lot of influence on the wage and salary
administration because they can choose whether to pay the industry average salary, above or below
the average salary, the kind of working conditions to be provided to the employees, the length of
work hour etc.
Types of incentives
Intrinsic rewards: - These are rewards which a worker receives for himself and are totally dependent on the
kind of work done by him. These individual incentives could be in the form of participation in decision-
making , job freedom, more responsibility, more interesting work assignment, opportunity for personal
growth etc.
Extrinsic rewards: - These incentives are meant for all the employees of the organization and they can be
follows.

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  Direct compensation: - These incentives are given to all employees of the organization and basically
are monetary in nature and the payment is made immediately like salaries or wages paid to the
employees , over time earning’s, holding premiums, performance bonus, profit-sharing, stock options
etc.
 Indirect Compensation:-These incentives are realized at a later period of time, generally once in a
year or at the time of retirement like group insurance schemes, contribution for provident fund
services etc.
The time and mode to payment
There are two basic methods of payment:
 payment by time and
 payment by output
The relative advantages of each of the two basic methods of payment; by time or by out put are summarized
in terms of the circumstances or situations under which each is preferable:-
1. Payment on a time basis is more satisfactory when
 Units of out put are not distinguishable and measurable
 Employees have little control over the quantity of out put or there is no clear-cut relation between
effort and out put, as on some machine-paced jobs.
 Work delays are frequent and beyond employees’ control
 Supervision is good, and supervisors know that constituter’s a fair day’s work
2. Payment on the basis of out put is more satisfactory when:-
 Units of out put are measurable
 A clear relation exists between employee effort and quantity of out put
 The job is standardized, the flow of work is regular, and break downs are few or if many consistent
 Quality considerations are somewhat less important than quantity of out put
 Supervision is unsatisfactory, or supervisors cannot devote enough attention to individual
performance
 Competitive conditions and lost control make it imperative that labor costs per unit be definite and
fixed in advance, as in the shoe and clothing industries
7. Separation, Promotions, Transfers and Layoffs
Separation
Separation refers to the discontinuation of the relation between employee & the employer. It is the final
HRM function. Like other functions it requires preparation & planning.
Separation can be initiated by
 the employers like - mandatory retirement; dismissal; layoff

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  the employees like - resignation; voluntary retirement; quit
 the agreement - when the contract ends; or they can also be caused by things outside the will of both
the employer & the employee (accidents, death)
Causes for separation
Causes for separation of employee from the organization mainly are retirement; layoff; dismissal;
permanent; disability; resignation; quit; outplacement; …
Promotion
Promotion is the advancement of an employee to a better job. Characteristics of ' better job' to which an
employee seeks promotion are greater responsibilities, more prestige or status, greater skill, and specially
increased rate of pay or salary, better hours or better locations or working conditions. If the job doesn’t
involve greater skill or responsibilities & high pay, it should not be considered as promotion. Upgrading
refers to a practice related to promotion, but it amounts to a small scale advance in status. It is the movement
of an employee to a more responsible job within the same occupational unit and with a corresponding
increase in pay. Both upgrading & promotion are ways of recognizing & developing the abilities of
employees within the organization instead of filling skilled and responsible positions from outside. They
should be distinguished from transfer.
Transfer
Transfer is the movement of an employee from one job to another on the same occupational level of wage/
salary. No appreciable increase or decrease in duties and responsibilities involved but there may be a change
in their specific nature and in working conditions. Some transfers entail a decrease in job duties and
especially in pay, and called downgrading or bumping. It is more frequently used to protect employment
opportunities for employees displaced from higher rated jobs. It is moving to less desirable jobs.
Layoff
Layoff occurs when there is lack of business or budget curtailment/ shortage. It is forced reduction of the
number of employees. It is the most frequent type of separation of employees from the employed workforce.
Layoff is unlike quits, retirements or deaths, it doesn’t necessarily involve a permanent separation from the
payroll. Laid-off employees normally expect to be rehired by their employer when conditions improve.
Quits-Quit refers to the voluntary movement of the worker from the organization such as health problem
resignation.
Summary
It is necessary to forecast human resource needs based on the firm′s future strategic goals. Organization
may have to retain employees, hire new employees, or reduce the work force. One of the key human
resource decisions is staffing-deciding whom to hire. Once employees are hired, it is important to provide
them with tools to succeed. The orientation program can ease the entry of employees into the company so

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that they become fully functioning in the shortest time possible. Training provides employees with specific
skills to enhance their job performance. Career development offers long-term growth so that employees can
use their abilities to the maximum during their employment with the organization.

CHAPTER SEVEN

7. THE LEADING/DIRECTING FUNCTION

Lesson Objectives
After completing this chapter students should be able to:
 Explain what leading function of manager is?
 Identify and discuss different theories of leadership
 Discuss different leadership styles
 Define the term motivation
 Trace the different theories of motivation
 Identify the need levels in Maslow’s hierarchy
 Explain Aldfer’s ERG theory
 Contrast the different theories of motivation
 Identify the weakness and strengths of different theories of motivation
 Discuss the importance of communication on effective leadership

7.1 Meaning and the need for leadership

People are the most important source in an organization. To achieve organizational objectives HR should be
directed towards the accomplishment of goals. Hence, the successful achievement of organizational
objectives is greatly the manifestation of the managers’ ability to lead employees.
Planning, organizing & staffing are simply the preparation for doing the work and the actual work starts
when managers start performing the directing function.
Different authors define leading in different ways, but the general ideas of each definition give the same
messages. Therefore, directing is simply defined as the process of influencing people so that they will
contribute to the organization & group goals or actuating organizational members to work efficiently &
effectively for the attainment of organizational goals /objectives. Influencing means motivating people to
contribute their maximum efforts for the achievement of organizational goals; but it does not to mean
coercing/ forcing, imposing sanctions or pushing people at the behind.
Directing is a management function performed by the top level management. It is aimed at getting the
members of the organization to move in the direction that will achieve organizational objectives. And it is
also the interpersonal aspect of management which deals with influencing, guiding, supervising &

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motivating the subordinates for the accomplishment of the predetermined objectives. It is a challenging
function of management because it deals with human elements of the organization.
Directing is the process of integrating the people with the organization, so as to obtain their willingness and
enthusiastic co-operation for the achievement of its goals. It requires the integration of organizational &
individual goals. It is the heart of managerial functions because it is involves with initiating actions.
Elements of directing
Employees as individual or group members, contribute their efforts & abilities to achieve organizational
goals which can result in advancement towards their own individual or group goals.
There are three elements of directing that helps managers to influence people contribute willingly for the
achievement of organization goal. These are:-
 Leadership
 Motivation and
 Communication
Leadership
To lead is to guide, direct, conduct & proceed. Leaders act to help a group to achieve objectives with the
maximum application of their capabilities. Success of a business concern is dependent upon the ability of its
leadership, leadership exists in any types of organization whenever and in whatever situation. If someone
tries to influence the behavior of another individual or a group, there is leadership in an organization,
wherever an individual has subordinates, he may act as a leader. The efforts of subordinates (followers) are
to be channeled in the right direction. As leaders, they are not only the responsible for the attainment of
goals of the organization.
It is believed that leaders are born and not made at the same time; a few people also believe the leaders are
not born but made. But generally, leaders are born and also made.
Need or Importance of Leadership
Perfect organization structure-An organization structure cannot provide for all kinds of relationships. That
is why; informal relationships are made to exist within the framework of formal organization structure. But
the organization structure is complete or perfect with the help of effective leadership.
Directing group activities-The personal conduct and behavior of a leader can direct others to achieve
organization goals. The main responsibility of a leader is to get the work hard and effectively without
leadership. A leader alone can consolidate the efforts and direct them towards the goal.
Technological, economic and social changes-There is frequent change in technology, economic and social
structure in the present computer world. So, the organization should change its operation and style. This is
possible only with the help of effective leadership. If the changes do not take place the organization cannot
survive.

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Better Utilization of man power -A leader treats with equal importance plans policies and programs of an
organization. The plans, policies and programs do not work themselves. There is a need for a leader. The
leader implements the plans, policies and programs to utilize the available manpower effectively and get
highest production with minimum cost.
Avoiding imbalances-An organization grows in size and complexity with the imbalances. Complexity
arises due to the introduction of new functions. The reason is that the introduction of new functions resulted
in increased levels of management. So, there is a problem of command, Co-ordination and control. A leader
can tackle these problems and maintain balances.
Source of motivation-Simply, the existence of leadership does not motivate the workers. The leadership
style should be utilized to motivate the workers according to the situations prevailing. The achievement of
goals is doubtful in the absence of leadership.
Reconciliation of goals-An organization has it own goals. The employees of the organization have their
own goals; they are working mainly for achieving their goals instead of achieving organizational goals. An
effective leadership can reconcile the goals of organizations and employees. It is necessary for the success of
an organization.
Developing good human relations-Human relations represent the relations between the leader and the
followers (subordinates). An efficient leader can develop the skill of the followers and promote self-
confidence apart from motivation. Next, the leader creates. Opportunity to show their abilities and induces
the followers to work to wards the accomplishment of goals. In this way, the leader promotes the co-
operative attitude of workers and maintains better relations with them.
Promoting the spirit of Co-ordination-A dynamic leader can co-ordination the activities of the
subordinate. In an organization, workers in group so, there is a need for co-ordination among the group
member, A leader promotes the spirit of co-ordination among the workers.
Fulfilling social responsibilities-Social responsibilities refer to the high standard of living to workers,
higher productivity and income to the organization, more revenue to the government, reasonable price to
consumers and fair return on investment to the investors. These could be achieved with the help of effective
leadership. Only efficient leader can get work done and fulfill social responsibilities.

6.2 Concept and meanings of Leadership theories

Leadership is a complex interpersonal process of influencing behavior, and it is crucial ingredient in
organizational effectiveness. The systematic study of personal characteristics & traits of leaders is important
to discover the characteristics that distinguish the most effective managers from least effective ones. There
are three leadership theories:
 Trait theory
 Behavioral theory, and
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  Situational theory
Trait theory

According to this theory, leadership is largely a matter of personality, a function of specific traits. Leaders
differ from followers with respect to some key traits, which remain unchangeable across time.
Trait theory attempts to insulate the attributes of successful & unsuccessful leaders that help select leaders
for organization. But it failed to consider how different situations demand different characteristics, styles &
skills. It describes leaders on the basis of what leaders are. It examines successful leadership from the stand
point of individual’s personal characteristics’ even as intelligence, initiative, self-assurance, etc... According
to this theory there exists some basic trait or set of traits that differentiate leaders form non-leaders, leaders
are different from other people. If they were not different, we wouldn’t be interested in them; Leadership is
to be found in the characteristics of leadership.
Behavioral theory
Behavioral theory in contrast to trait theory, attempts to describe leadership in terms of what leaders do.
According to this approach leadership is the result of effective role behavior; what matters a lot is not
person’s traits rather his acts.

Situational theory
There is no one-best way to lead. The best way to lead varies with the forces that exist in specific situations.
Effective leader must be flexible enough to adapt to differences among subordinates & situations.
Qualities of Leadership
A leader should have some leadership qualities in order to provide effective leadership.
The important qualities of a leader are discussed below
1. Physical appearance and strength

The leader has to put in hard work physically. He should have a capacity to work for long hours than others.
It proves the diligence of the leader to his followers easily.
2. Mental vigor

The leader is also strong mentally. It means that the leader is expected to withstand strain in finishing the
work properly.
3. Emotional Stability

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The leader should not be moved by emotion or sentiment. He should analyze the problem rationally and take
a decision without bias. The leader should not have short temper. Besides, he should show firmness in his
decision and not show despair or indecision on his face.
4. Sense of judgment

A leader should know to human psychology. He should understand the behavior, needs, thoughts, motives
etc. of his followers. This will help him to take a strategic decision and get it recognized by his followers.
Besides, he can set right his actions.
5. Good will

A leader should be able to understand the feelings of others. He takes decision on the basis of expectations of
his followers. If he does do so, he will not win the good will of his followers.
6. Motivation

A leader should know the motivation techniques and how to use them. If a person is forced to do his job
under the threat of getting punishment, he will not perform his job more than the expectations of his leader.

7. Communication skill

Whatever the information needed to workers, it should pass through the leader. So, the leader should
communicate the information to the workers, now the leader is acting as an effective speaker and write. If
the leader has communication skills he will direct his followers effectively.
8. Guiding ability

The leader acts as a teacher to new workers. So the leader helps his followers to learn their work. He should
train the workers by work and deed to complete the job effectively.
9. Sociability

An able leader can easily mingle with the workers. The workers should be encouraged to discuss their
problems and difficulties with their boss. The leader should also meet the workers frequently. The leader
should show his keen interest to develop the ability of workers.
10. Technical knowledge
A leader should possess a through knowledge of the theory and practice of his job. Besides, he should know
the current developments in his job along with technical knowledge; for example, a computers department
manager should know all the latest developments in computers.

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These are some qualities of a leader. Besides, he should be honest, sincere and fair. Others mostly like
sincere, fair and honest people and their leadership is accepted by one and all.
11. Be honest, sincere and fair
A leader should also be honest, sincere and fair. Others mostly like sincere, fair and honest people and their
leadership is accepted by one or all.

6.3. Concept and meaning of Leadership styles

Leadership style is the behavior exhibited by a leader during influencing subordinates to accomplish
organizational objectives. It implies the ways in which the leaders exercise leadership; the ways in which the
functions of leadership are carried out, and the ways how the leaders behave towards their subordinated in
the accomplishment of the work. Leadership style describes how a leader has relationship with his group
some of the leadership styles are discussed below.
Autocratic leadership style
Autocratic leadership style centralizes power & decision making for him & exercises complete control over
the subordinates. In autocratic situations frustrations, low moral & conflict develop easily.
Under this leadership style, the leaders have full power or authority to take a decision. The leaders create a
work situation under which the subordinates are expected to work they will work no more or less than the
instruction of the leader. So, the leaders have full responsibility.
The followers are not aware of organization goals besides; the followers fell insecure and are afraid of the
authority of the leaders. The reason is that these leaders have the desire to wield loving more powers.
The leader uses his power for the interest of his group and motivates his followers. Then the productivity is
increased and the followers get full satisfaction from their job.
Democratic/ Participative leadership Style
Participative leadership style initiates decision sharing & practices leadership by consultation. It improves
job satisfaction & moral of the employees. It is just opposite to autocratic style. The authority is
decentralized. So the followers are permitted to take decisions under this style. The decisions are taken
whole-heartedly; the reason is that the superior has consolation with his subordinates before taking a
decision. The subordinates know the goals of the organization, so, they after fruitful ideas during discussion.
Laisez- fair or free –rein leadership
Lasses fair or Free –rein leadership style is a complete delegation of authority to subordinates so that they
must plan, motivate & control and be responsible for their own actions. The free- rein manager avoids power
& relinquishes the leadership positions.

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6.4 Motivation
Motivation refers to the forces within a person that affect his or her direction, intensity, and persistence of
voluntary behaviour. Motivated employees are willing to exert a particular level of effort (intensity), for a
certain amount of time (persistence), toward a particular goal (direction). Technically, the term motivation
can be traced to the Latin word mover, which means “to move.” This meaning is evident in the following
comprehensive definition:
Motivation is a process that starts with a physiological or psychological deficiency or need that activates
behaviour or a drive that is aimed at a goal or incentive.
Importance of motivation
The importance of motivation is briefly explained below

1. Maximum utilization of factors of production

Workers perform the work sincerely through the inspiration of motivation. This creates the
possibility of maximum utilization of factors of production, viz, labour, capital.
2. Willingness to work
Motivation influences the willingness of people to work. A man is technically, mentally and
physically fit to perform the work but he may not be willing to work, motivation creates a
willingness on the part of workers to do the work in a better way.
3. Reduced absenteeism
Financial incentives shames coerce the workers to work more. Financial incentive scheme is framed
in such a way that monetary benefits are given on the basis of number of hours engaged. This reduces
absenteeism.
4. Reduced labor turn over
Motivation has both financial and non-financial intensive schemes. This helps to retain the existing
laborers. The enterprise can plan its activities on long-term basis with the help of reduced labor turn
over.
5. Availability of right personnel
Financial and non-financial incentives not only retain the existing employees but also attract the
employees from outside the enterprise. In other words right people are attracted from outside to work
for the enterprise.
6. Building of good labor relations
Motivation helps to solve the labor problems of absenteeism, labor turn over, indiscipline and
grievances. This ensures building of good labour relations.
7. Increase in the efficiency and out put

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 Both workers and management have got benefits from motivational plans. On the one hand, wages of
the workers increase corresponding to the increase of out put and efficiency. On the other hand, the
productivity of the organizations and its profits increases due to consolidated efforts of the motivated
people.
8. Sense of belonging
A proper motivation scheme promotes closer rapport between enterprise and workers. The workers
begin to feel that the enterprise belongs to them and consider its interests as their own. Thus there is
no difference between workers and enterprise.
9. Basis of cooperation
Efficiency and output are increased through co-operation. The cooperation could not be obtained
with out motivation, so motivation is a basis of co-operation.
10. Helps in realizing organizational goals.
Organization goals are achieved quickly through motivation. Motivated employees have a feeling of
total involvement in the performance of organization task. Employees may work whole heartedly for
the realization of organizational goals.
11. Improvement up on skill and knowledge
Employees have promised efficient job performance or completion. Hence the employees may
improve upon their skill and knowledge require for the job.

6.4.1. The Concept of Motivation

Understanding the concept of motivation lies in the meaning and relationships among needs, drives, and
incentives. Needs set up drives aimed at incentives. In a systems sense, motivation consists of these three
interacting and interdependent elements:

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 1. Needs:
Needs are
created
whenever
there is a

physiological or psychological imbalance. For example, a need exists when cells in the body are
deprived of food and water or when the personality is deprived of other people who serve as friends or
companions. Although psychological needs may be based on a deficiency, sometimes they are not. For
example, an individual with a strong need to get ahead may have a history of consistent success.
2. Drives. With a few exceptions, drives, or motives (the two terms are often used interchangeably), are set up
to alleviate needs. A physiological drive can be simply defined as a deficiency with direction.
Physiological and psychological drives are action oriented and provide an energizing thrust toward
reaching an incentive. They are at the very heart of the motivational process. The examples of the needs
for food and water are translated into the hunger and thirst drives, and the need for friends becomes a
drive for affiliation.
3. Incentives. At the end of the motivation cycle is the incentive, defined as anything that will alleviate a
need and reduce a drive. Thus, attaining an incentive will tend to restore physiological or psychological
balance and will reduce or cut off the drive. Eating food, drinking water, and obtaining friends will tend to
restore the balance and reduce the corresponding drives. Food, water, and friends are the incentives in
these examples.
These dimensions of the basic motivation process serve as a point of departure for the content and process theories
of work motivation. After discussion of primary, general, and secondary motives, those work-motivation theories,
more directly related to the study and application of organizational behavior and human resource management are
examined.
Primary motives. Such motives are variously called physiological, biological, unlearned, or primary. Two criteria
must be met in order to be included in the primary classification: It must be unlearned, and it must be

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physiologically based. These include hunger, thirst, sleep, avoidance of pain, sex, and maternal concern. Although
the precedence of primary motives is implied in some motivation theories, there are many situations in which
general and secondary motives predominate over primary motives.
General motives. There are a number of motives that lie in the grey area between the primary and secondary
classifications. To be included in the general category, a motive must be unlearned but not
physiologically based. Where as the primary needs seek to reduce the tension or stimulation. Thus, these
needs are sometimes called “stimulus motives.” The motives of curiosity, manipulation, activity, and
affection seem to best meet these criteria for this classification. General motives are more relevant to
organisational behaviour than are primary motives.
Secondary motives. The secondary drives are questionably the most important to the study of human
behaviour in organisations. As human society develops economically and becomes more complex, the
primary drives, and to a lesser degree the general drives, gives way to the learned secondary drives in
motivating behaviour. Secondary motives are closely tied to the learning concepts. In particular, the learning
principle of reinforcement is conceptually related to motivation. The relationship is obvious when
reinforcement is divided into primary and secondary categories and is portrayed as incentives.
A motive must be learned in order to be included in the secondary classification. Need for power,
achievement, affiliation, security and status are important secondary needs.
WORK-MOTIVATION APPROACHES (THEORIES)
In order to understand organizational behavior; the basic motives must be recognized and studied. However
these serve as only background foundation for the more directly relevant work-motivation approaches.
Figure below graphically summarizes 3 major approaches:

6.4.2. EARLY THEORIES OF MOTIVATION

• Maslow’s Theory of Need Hierarchy
• Motivation and Hygiene Two Factor Theory
• Theory X and Theory Y

Maslow’s Need Hierarchy Theory

Abraham Maslow was a clinical psychologist in USA. His motivation theory is widely accepted and studied.
Maslow suggested that every individual has complex set of needs at any particular moment and his
behaviour is determined by the existence of strongest need. He stated that human beings have five types of
needs and physiological need is the strongest hence the individual behaves in a particular manner to satisfy
that need. Needs are hierarchal in nature and only one need dominates at any one point of time. Once the
strongest need is satisfied then the second need emerges as being the strongest need and human behaviour is
regulated in process of achieving satisfaction in series of need requirements.
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Maslow further started that there is only one need satisfying process is underway at any one time. They do
not disappear once they are satisfied but their intensity reduce (relegated) below the subsequent need. He has
arranged the needs as per figure below.

F
Fig. 4.1. Abraham Maslow’s need hierarchy
Let us discuss the hierarchy of needs theory:
1. Physiological Needs - As per Maslow physiological need is strongest in every human being and hence it
has highest strength as compared to the other needs. Individual behaves in a particular manner to satisfy
basic bodily needs like hunger; thirst, shelter and clothing. These needs keep dominating unless they are
reasonably satisfied.
2. Safety Needs or Security Needs - Once the physiological need of an individual is satisfied, the safety
need /security need arises and is dominant at that point of time. This need is related to the following:–
(a) Every worker is concerned about his personal safety and wants to be free of physical danger.
(b) There are various dangerous processes in the work setting. Individual desires to be free and work toward
self-preservation.
(c) Safety need is also related to employee/employer relationship, which should be cordial and free from any
threat to job security.

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(d) There should be certainty in the job and non existence of arbitrary action on the part of management/
employer.
(e) Administration policy of any organization must cover various points that related to safety of an
individual like pay, pension, insurance, and gratuity.
3. Social Needs - Once the safety need is satisfied, third need i.e. social need arises.
People want to belong to some social group where their emotional need of love, affection, warmth and
friendship are satisfied. Being member of sports club, social organizations or being the company of friends
and relatives, needs can satisfy social.
4. Esteem Need or Ego Need - Fourth need in the hierarchy of needs as suggested by Maslow is Esteem
need or Ego need. Individual wants self-recognition, appreciation for the work done. It is related to self-
respect, self-confidence, praise, power and control. If these needs are satisfied it gives an individual a sense
self-worth and ego satisfaction.
5. Self-actualization Need - Self-actualization is the last need in the need hierarchy.
Once esteem need is satisfied, there appears the self-actualization need of human being. It is related to an
intense carving for something supreme one wants to achieve in life. It is transcended and related to achieving
the very best that maybe possible of human endeavour. People set high goals, achieve them and set a higher
goals again and to achieve the same by utilizing fullest potential. It is related to development of intrinsic
capabilities. An individual seeking to satisfy self-actualization need seek situations or jobs that are
challenging in nature -achievement of highest value out of the work. Mahatma Gandhi wanted to achieve
freedom for India by unique weapons of peace and non-violence. He strived hard, faced various challenges
but ultimately achieved his goal. With his innovative ideas he bound the whole nation in one thread of
togetherness for the cause of freedom.
In essence Maslow’s Motivational Theory covers the following.
(a) There are five levels of human needs.
(b) These needs are hierarchical in nature.
(c) A satisfied need is no longer a need. Once that need is satisfied, the next level need becomes stronger.
(d) Needs do not diminish. It is the gravity that changes. Individual strives to satisfy the need that has a
strong appeal at any point of time.
Critics of Maslow’s Hierarchy of Needs Theory and Its Application
Maslow has laid down that individual has a particular pattern and hierarchy of needs which may not be true.
There are craftsmen, poets, sculptures, painters who have devoted their entire life towards fulfilment of self-
actualization need without having satisfied physical, safety or even social needs.
Level of need satisfaction generally differs from person to person hence the theory cannot be universally
applied.

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Maslow has been criticized for laying down needs in particular order. But in reality it may not be so. For
Example a person may like to ‘belong’ to a particular organization or a social group and his social need may
be dominant as compared to the physical need or the safety needs. On the other hand a worker who is a sole
income earner for the whole family may feel job security as his most dominant need. It is therefore fair to
state that we may not find the needs in the given order and that the strength of particular need is situation-
based. It is therefore necessary that the contingency approach should be adopted by various managers while
applying the model to real life situations in the organization.
Herzberg’s Motivation— Hygiene Theory (Two Factor Theory)
Fredrick Herzberg and his associates developed Motivation Theory based on two main factors in late 1950’s.
This theory is also known as Two Factor Theory. Herzberg carried out research in nine different
organizations where 200 respondents comprising accountants and engineers were subjects. A structured
interview was carried out. The purpose of the study was to identify various factors for goal achievement and
also the factors that could be included so that motivation levels do not fall. Findings of the study: Herzberg
concluded, “There are two types of needs, independent of each other”.
(a) Motivational Factors: There is a set of job conditions, which operates primarily to build strong
motivation and job satisfaction. These factors are called motivational factors. They are intrinsic in nature and
help increase one’s output. These factors have positive effect on morale, productivity, and job satisfaction
and overall efficiency of the organization. These factors are as under:
 Achievement
 Advancement
 Possibility of Growth
 Recognition.
 Work Itself
 Responsibility
(b) Maintenance Factors: There are some job conditions which operate primarily to dissatisfy employees
when these conditions are absent. These factors are also called hygiene factors. When these factors are
present they do not motivate in a strong way, when absent they dissatisfy, that is why these factors are called
dissatisfies. These factors are.
• Company Policy and administration.
• Technical supervision.
• Interpersonal relationship with superiors.
• Interpersonal relationship with peers.
• Interpersonal relationship with subordinates.
• Salary.

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• Job security.
• Personal Life.
• Working condition.
• Status.
Above factors are not intrinsic parts of a job. They prevent losses due to work restrictions. These factors
are necessary to maintain a reasonable degree of satisfaction of employees. As stated earlier they are
demotivators if they are not present. Herzberg has identified that employees are either maintenance seekers
or motivation seekers.
McGregor’s Theory X and Theory Y
Douglas McGregor introduced Theory X and theory Y which are diagonally opposite to each other.
McGregor is aware that human beings are rational in their thought process and they are social by nature.
They display very high degree of behavior relating to achieving self-actualization. There is interaction of
variety of need fulfillment phenomenon and complex nature displayed by an individual in different
situations.
Theory X
Theory X is a traditional theory of human being McGregor assumed that with respect to managerial action.
Management is responsible for organizing various element of an enterprise like money, material equipment
and people. With respect to people, it is a process of directing people, their efforts, motivating them,
controlling their actions, modifying their behaviors so that they fit in the organizations. In Theory X
McGregor assumed that people would be passive therefore management must persuade, reward and punish
the worker to achieve the desired behavior of workers.
Theory Y
(a) Expenditure of physical and mental efforts on the part of employees is as natural as play or rest. The
average human being does not inherently dislike work.
(b) Workers seek direction and exercises self-control. He dislikes punishment.
(c) Commitment to organizational objective is associated with rewards like pay promotion etc, ego
satisfaction and satisfaction of self-actualization needs.
(d) Average human being learns under proper conditions. He accepts seeks responsibilities. At times, it will
be seen that certain individuals display phenomenon like avoidance of responsibility, lack of ambition and
lay undue stress on security.
McGregor suggested that these are due to inherent human characteristics.
(e) Capacity to exercise high degree of imagination, ingenuity and creativity is widely distributed among
workers that must be identified and fully utilized.

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(f) Intellectual potential of workers is partially utilized. In the above situation McGregor recommends that
the organization should reorient based on the human behavioural change.
More co-operations, maximum output with minimum control and self-directions predominant among
workers. It is also seen that there is no conflict between individual and organizational goals. The emphasis is
on very smooth running of organization with greater participation of individuals.
Assumption about human nature that underlines Theory X and theory Y propagated by McGregor
Under Theory X, the four assumptions held by managers are:
• Employees inherently dislike work and, whenever possible, will attempt to avoid it.
• Since employees dislike work, they must be coerced, controlled, or threatened with punishment to achieve
goals.
• Employee will avoid responsibilities and seek formal direction whenever possible.
Under Theory Y, the assumptions are:
• Employees can view work as being as natural as rest or play.
• People will exercise self-direction and self-control if they are committed to the objectives.
• The average person can learn to accept, even seek, responsibility.
• The ability to make innovative decisions is widely spread throughout the population and is not necessarily
the sole responsibility of those in management positions.
Analysis: Paul HERSEY has analyzed Theory X and Theory Y. He states that managers who accept theory
X assumptions about human nature usually direct, control, and closely supervise people, whereas theory Y
managers are supportive and facilitating. We want to caution against drawing such consolation because it
could level to the trap of thinking that Theory X is “bad” and Theory Y is “good”. It is unusual to find
exclusively Theory X people or Theory Y people in any organization. There would always be a mix of both
types of employees in varying proportions. Managers therefore will have to tailor their motivational
application in appropriate manner suiting behavioural patterns.

1.2. CONTEMPORARY THEORIES OF MOTIVATION

ERG Theory of Motivation
Clayton Alderfer of Yale University carried out further studies on Maslow’s theory of need hierarchy. He
identified three basic needs of human being against five needs of Maslow. These are as under:
(a) E-Existence need - There are related to provision of basic material requirement of human being and are
related to Maslow’s Physiological and safety needs.
(b) R-Relatedness - This need is related to desire of an individual to maintain sound inter personal
relationship. It is related to Maslow’s, Social need and External component of Esteem need i.e., status,
recognition and attention.

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(c) G-Growth - Growth is an intrinsic desire for personal development. It is related to intrinsic component
of Esteem Need like advancement, self-respect, autonomy, achievement and self-actualization need.
ERG theory does not propose that move up or down a hierarchy of needs in a fashion similar to that
suggested by Maslow’s need hierarchy theory. Instead, ERG argues that it is possible for more than one
set of needs to be activated at the same time. The theory also suggested that people may move down, as
well as up, the three steps hierarchy of needs. Satisfaction of needs at one level leads to progression to
the next higher level of needs. However, when people become frustrated in their attempts to fulfill
needs at one level, this frustration can also lead to increased importance for lower levels of needs.
Expectancy Theory
Expectancy theory, developed by Victor Vroom, focuses on how workers make choices among alternative
behaviors and levels of effort. With its emphasis on choices, expectancy theory focuses on workers’
perceptions and thoughts or cognitive processes. By describing how workers make choices, expectancy
theory provides managers with valuable insights on how to get workers to perform desired behaviors and
how to encourage workers to exert high levels of effort.
It, developed by Edward E. Lawier, is effective at explaining employee motivation, yet avoids the
unnecessary complexity of Vroom’s original model. Lawler’s expectancy theory model is presented as
shown below. The key variable of interest in expectancy theory is the effort (-the individual’s actual exertion
of energy).
An individual’s effort level depends on three facts:
o Effort - to - performance (E P) expectancy,
o Performance - to –outcome ( P 0) expectancy, and
o outcome Valences (V)
Employee motivation is influenced by all three components of the expectancy theory model. If any
component weakens, motivation weakens.

E P PO Outcomes and
Expectancy Expectancy their valences

+ Or valence
Out come
+ Or valence
Effort Performance
Outcomes
Figure . 7.3 Expectancy theory of Motivation
Expectancy theory makes two assumptions: (1) workers Out
are come
motivated to receive positive outcomes and
avoid negative outcomes and (2) workers are rational, careful processors of information. Expectancy theory
identifies three factors that determine motivation: valence, instrumentality, and expectancy. The most

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comprehensive and widely accepted explanation of employee motivation to date is Victor Vroom's
expectancy theory. Although the theory has its critics, most research evidence supports it.
Expectancy theory states that an individual tends to act in a certain way based on the expectation that the
act will be followed by a given outcome and on the attractiveness of that outcome to the individual. It
includes three variables or relationships.
Goal-Setting Theory
There is substantial support for the proposition that specific goals increase performance and that difficult
goals, when accepted, result in higher performance than do easy goals. This proposition is known as goal-
setting theory.
Intention to work toward a goal is a major source of job motivation. Studies on goal setting have
demonstrated the superiority of specific and challenging goals as motivating forces. Specific, hard goals
produce a higher level of output than does the generalized goal of "do your best." The specificity of the goal
itself acts as an internal stimulus. For instance, when a FedEx delivery truck driver commits to making 10
weekly round-trip hauls between Toronto and Buffalo, New York, this intention gives him a specific goal to
try to attain. We can say that, all things being equal, the delivery person with a specific goal will outperform
someone else operating with no goals.
“You may have noticed what appears to be a contradiction between the research findings on achievement
motivation and goal setting. Is it a contradiction that achievement motivation is stimulated by moderately
challenging goals, whereas goal-setting theory says that motivation is maximized by difficult goals? No, and
our explanation is twofold. First, goal-setting theory deals with people in general. The conclusions on
achievement motivation are based on people who have a high achievement.
Second, the conclusions of goal-setting theory apply to those who accept and are committed to the goals.
Difficult goals will lead to higher performance only if they are accepted.
Finally, people will do better when they get feedback on how well they're progressing toward their goals
because feedback helps identify discrepancies between what they have done and what they want to do; that
is, feedback acts to guide behaviour.
Equity Theory
J. Stacy Adams developed equity theory, based on the premise that workers pay attention to the relationship
between the inputs they contribute, such as skills, training, education, experience, effort, and time, and the
outcomes they receive, such as pay, benefits, status, job satisfaction, job security, and promotions.
Motivation is based on the perception of one’s own outcome/input ratio compared to that of a similar
individual or group, called a referent. Equity theory proposes that motivation is based on the worker’s
perception of the work situation.

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Equity occurs when an individual’s outcome/input ratio equals that of the referent. Because the comparison
of these ratios (rather than absolute levels) determines whether equity is perceived, equity can exist if the
referent receives more than the person making the comparison. When workers perceive ratios to be equal,
they are motivated to maintain the status quo or increase inputs to receive greater outcomes.

4.2. Implication of motivation for performance and satisfaction

Learning organizations represent something of an ideal in pushing the envelope of learning and motivation.
However, even less forward-looking organizations still struggle with the key question that learning
organizations are addressing:
How do we keep our workers motivated to perform in the present and learn for the future? That particular
challenge is the focus of this chapter.
Understanding how and why employees are motivated is critical if the manager hopes to capture a worker's
full potential to learn and perform. Motivating workers to learn and perform at their best is a complex and
difficult challenge for the manager. To begin with, no two employees—not even two employees doing the
same job—are alike. At any point in time, different employees will have different needs and different
desires. Further, what motivates an employee to do his or her work today and to do it well may not motivate
that same employee the next year, the next week, or even the next hour. At the same time, motivated
employees represent tremendous promise. When workers are motivated, performance, learning, and
satisfaction can all improve dramatically. Everyone benefits

7.5 Concept and meaning of Communication

Communication is one of the most important skills managers need for effective accomplishment of
management functions. It is when managers effectively communicate with the external and internal
stakeholders that the organizations can achieve their objectives.
Communication is the exchange of facts, ideas, opinions or emotions by two or more people. It is the transfer
of information from the sender to the receiver with the information being understood by the receiver. It is the
act of influencing & inducing others to interpret an idea.
Every management function involves communication. Therefore, understanding & proper use of
communication are essential to successful management. Managers at any level should know elements of
communication, methods of communication, barriers of communication & ways overcoming them.
Importance of Communication
Communication is the means by which people are linked together in an organization to achieve a common
purpose. The importance of communication is:
1. An aid to managerial performance
A manager can take appropriate decisions with the help of communication. The manager may solve the
problems with out much difficulty. The manager can get things done by subordinates through
communication. He can impart the objectives of organization to the subordinates through communication.
2. Achieving coordination
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 Co-ordination among employees working on the basis of division of work obtained through
communication. There is a need for coordination among such workers to attain organization’s goals. The
coordination is obtained through communication.
3. Helps in smooth working
Communication helps the worker to know the real situation prevailing in an organization. Subsequently
workers perform their duties with out any delay, which leads to the smooth function of an organization.
4. Increase managerial efficiency
Out of the total time available to the manager, the manager nearly spends 80% of his time in transmitting the
information to others regarding the business targets, rules, programs, policies etc. Communication helps the
manager discharge his duties systematically and facilitates him to increase his efficiency.
5. Helps in decision making
Good communication system provides all the necessary information which enables the manager to take
quality decisions in the proper time.
Objectives of communication
Communication enables organizations to give & receive information (advice, order, suggestions, persuasion,
education, warning, motivation, etc.). it is impossible to speak about organization without speaking about
communication. Communication is indispensable in every managerial function.

Formal and Informal communication

Formal communication follows the hierarchy of authority and chain of command of the organization. For
example, technical information, decision-making process, procedural policies and rules as set forth in
company manuals might be downward, upward or horizontal.
Down ward communication: - It starts with top management and flows down through management level to
line workers and non-supervisory personnel. Its major purpose is to advise, inform, direct, instruct and
evaluate subordinates and to provide organizational members with information about organizational goals
and objectives.
Upward communication:- Is transmission of information formally from the lower or bottom level of the
organization to the top levels of the organization its function is to supply information to the upper level
about what is happening at the lower levels. It includes progress reports, suggestion and request for aid or
decision:
Lateral/Horizontal Communicational:-this is a type of formal communication between people at different
units having the same status in organizational structures. It is a communication between and among members
of work group, different departments, one work group and another. Its main function is to provide a direct

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channel for organizational coordination and problem solving. It helps to avoid a much flower procedure of
communication through a common superior. It also enables organizational members to form relationships
with their peers.

CHAPTER EIGHT

THE CONTROLLING FUNCTION

7.1 Meaning and need for control

Objective of the chapter
Dear students at the end of this chapter you should be able to:
 Define controlling
 Describe the process of controlling
 Explain the importance of controlling
 Identify and describe the types of controlling
Organizational resources are limited. Their acquisition & use are critical to the survival of the organization.
Controlling is the last management function and it affects or is affected by the other managerial functions.
Planning, organizing, staffing & directing must be monitored to maintain their effectiveness & efficiency.
Efficiency and effectiveness are the measures of performance. Managers review performances of employees
daily, weekly, and monthly to determine actual performances. Control is the process of monitoring,
evaluating, comparing performance to standards and taking corrective action, if needed. In other words,
control involves measurement and regulation. It is the means by which management assures that desired
objectives are being achieved. Control is closely associated with the management function of planning.
People often refer to«planning and control» in one phrase, as if the two were almost one function. Control
complements planning because it is the means by which management assesses whether or not plans are being
appropriately carried out. Corrective actions get the organization back on track and help managers achieve
their intended goals. Control is the process of monitoring activities to ensure that they are being
accomplished as planned and of correcting any significant deviations.
The purpose of controlling is to determine whether people & the various parts of an organization are on
target, achieving the progress towards the planned objectives. Planning and controlling are highly
interrelated in a sense that it is the planned objective that is supervises and it is usually the objective, when
developed clearly that is used as a bench mark for controlling. Controlling attempts to prevent failure reduce
the degree of failure and learn from previous failure and are able to function properly.
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Management control is a systematic effort to design information feedback systems, to set performance
standards with planning objectives, to compare actual performances with those predetermined standards, to
determine whether there are any deviations and to measure their significance, and to take corrective action
accordingly required to assure that all organizational resources are being used in the most effective &
efficient way in achieving organizational objectives.

8.2 Control process

Feedback provides information on the progress of the various levels of plan or individual performance to
management. In undertaking managerial controlling there are a series of activities that need to be performed.
The initial view of control process reveals that it composed of a cycle of steps includes following:
1. Establishing Standards
2. Measuring Performance and compare it against standards
3. Taking corrective action
1. Establishing Standards
Standards are the bench marks against which performance is compared. Standards can take a variety of
forms and be derived from a variety of sources. For example, standards could take the form of goals or could
consist of professional guidelines or legal or financial procedure. Standards can also be derived from the
practice of benchmarking, examining the performance of other organizations. No mater how standards are
derived and whatever types they are, they form the requirements of the job. The standards are the criteria
against which performance will be compared. A critical issue is how the standards are developed. It can be
relatively easy and quick to take a top- down approach and unilaterally develop standards; this approach may
not work well in practice. A participative approach to creating standards takes longer but yields standards
that are understood by every one. When employees participate in creating standards, they are likely to be
more committed to the standards and will work harder to achieve the desired results.
2. Measuring Performance and compare it against standards
It is measuring the performance & determining whether the performance is in line with the set of standards.
It is comparison between ‘what is’ & ‘what should be’. It is discovering the deviation.
3. Taking corrective action
The final step in the control process is taking corrective action. When deviations from a standard are
meaningful gaps in performance, a manager should take action. If corrective action is appropriate but is not
taken, the control process becomes simply a measurement exercise. Corrective actions need to be directed at
the cause(s) of the deficiencies but not to aspects of the performance system that are not the cause of the
problem. The cause of performance deficiencies need to be carefully identified so that corrective action can
be effective and lead to improvement. Taking action without first carefully determining the cause of the

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deficiency can easily lead to workers questioning the quality of management and can erode respect for the
manager.
Determining precise action to be taken depends on three things.
1. the standard
2. accuracy of the measurements that determine the existence of deviation &
3. the diagnosis of the person or device investigating the causes of deviation.
Corrective action can be prescribed by management in advance through policies, procedure & practices. It is
sometimes automatic.

8.3 Types of Control

Work performed by an organization & their employees has
 a starting point (Where inputs takes place)
 a period of performance (where inputs are processed) &
 a final product (out put)
Based on the nature of work and work flow, various types of control have been developed. There are three
basic types of control that managers can exercise:
1. Prevention control
It is sometimes called pre-action control. Prevention control is designed to prevent problems before they
occur. It is established to prevent problems from occurring rather than to fix them after they happen. It is
also represented by rules and procedures that are to be followed so that ethical and performance problems
are minimized.
2. Feed forward/Concurrent control
Concurrent control takes place as the work process is being carried out. A knowledgeable manager observes
the work process and quickly corrects problems as they occur. The focus of control is on the ongoing
activities in feed forward control.

3. Feedback control
It is sometimes called post-action control. Feedback control occurs after a process has been completed.
Feedback control uses data from past performance to improve future performance. Timelines is a serious
concern with feedback. The longer feedback is delayed, the less useful it becomes. In feedback control the
focus is on the end results.

8.4 Techniques of control

Formal and outcome-focused control techniques regulate performance by applying standards or guidelines to
the outcomes of a process.

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 Market control-Market control is the use of indicators of market values as standards for regulating
performance. For example, an organization may use profits as the means for evaluating the performance of a
business unit. Poor profit levels may result in corrective actions, from various improvement efforts to closing
or selling the unit.
Financial controls –Financial control use various monetary measures to regulate performance. While
market controls rely on external measures of the value of products or services, financial controls focus on
internal monetary values, largely regarding revenues and expenses in the organization. A business unit
could, for example, be doing very well in terms of the market value of its products or services, but may not
be in a good financial health internally.
Budgetary control- Budgets used to specify amounts to be expended for various activities or events.
Budgets are frequently stated in monetary terms, but they can take other forms. A production budget might
specify the number of units to be produced and a labor budget might specify the number of hours of labor
that will be available along with dollar amounts. Normally, budgets are stated in monetary terms. Whatever
the unit of measurement, budgets provide quantitative measures. These measures provide the yardstick by
which performance can be judged. Further, budgeting allows management to control and allocate its
resources. Without budgetary control, the best of business ventures can easily run into financial trouble and
even bankruptcy.
Financial statements – In addition to budgets, financial statements are also tools that are used to asses and
control the financial health of the organization. Two of the most commonly used are balance sheets and
profit and loss statements.

8.5 Effective control system

An effective control system requires the following essentials.
1. Control must be understandable.
 Individuals must understand what the control system is attempting to do.
2. Control must be flexible.
 Standards and plans on which controls are based frequently need modification or revision when
underlying circumstances change. Flexibility makes control workable and effective when there are
changes in plans and in unforeseen circumstances.
3. Control must be economical.
 Controls should be worth in its costs.

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4. Control must be objective.
 Effective control system calls for objectives, accurate, suitable and definite standards or plans.
5. Control should recognize the importance of time element.
 Timeliness is very important factor that cannot be ignored in controlling.
6. Control system should provide useful and understandable information.
 Effective control system provides information to the right people who can use them in correcting
deviations and fostering growth.
7. Control should be forward-looking.
 Effective control system is always aiming at the future. Control aids in further planning.
8. Control should be selective.
 Management should also concentrate on certain control points as to who is responsible for what
execution of plans and for any deviations for them.
9. Control should reflect the organization structure and needs.
 Organizational structure clarifies the roles of people in organization and the control system reflects
as to who is responsible for what execution of plans and for any deviations for them.
10. Control should lead to corrective action.
 Only discovering deviations in the performance of operations is not enough. Effective control
system must lead to appropriate and corrective action.

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