R 2

Managerial Functions, Roles and Skills

The Process of Management

Managerial Functions
Coordinatio-The Essence of Managing
Roles ot Managers
Levels of Management
Managerial Skls

Introduction
Management is the process of effective utilisation of human and other resources
for the accomplishment of organisational objectives. G.R. Terry has defined
management as "a distinct process consisting of planning, organising, actuating
and controlling performed to determine and accomplish objectives by the use
of human beings and other resources." Management is regarded as a process
because it involves a series of functions. As shown in Fig. 2.1, management
starts with planning and ends with controlling. But it does not mean that
managerial functions are followed in a specific sequence. In practice, a manager
performs all the managerial functions simultaneously to utilise labour, capital.
materials, machines and methods effectively for producing goods and services
required by the society.

2.1 THE PROCESS OF MANAGEMENT

Management is called a process because it comprises a series of functions that lead
to the achievement of certain objectives. The manager starts with formulating plans to

2.1
2.2 MANAGERIAL FUNCTIONS, ROLES AND S
achieve organisational objectives. He organises the human and non-human rese
and leads the human resources for the best possible use of materials, machines, ca esourca
ete. apita
This leads to the production of the required goods and services, and after this
manager will perform the function ofcontrolling. He will compare the performan
difterent individuals with the standards of performance already determined andncegj
take corrective actions. Thus, management is a process that involves certain essen then
functions which are performed continuously to achieve the objectives of the entern.
enta
prise
The process of management comprises hve elements (commonly known.
functions), namely, planning, organising, staffing, directing and controlling as shown
Fig. 2.1.

Planningg

--- ---
Controlling4-- Organising
----
Directing Staffing

Fig. 2.1. Interrelationship between Management Functions.

2.1.1 Interrelationship between Management Functions

Managing is a continuous process. When
a
manager reaches the last step, v
control, his job does not end here. Actually, he will again start with planning on tr
basis of his past observations and
cannot say that a
experience and his projection about the future. Or
manager will organise only when the job of planning is over or w
directonly when the stage of organising is completed. In
practice, a manager has
perform these functions activities simultaneously to achieve the desired objectve
Further, these functions are
interdependent and interrelated.
BOX-1
Interrelationship between Management Functions
For theoretical
purposes, it be
but practically they defy may convenient to separate management functo
function blends into the such
othercategorisation.
functions
They are highly inseparable. Ea
and is also affected by the others. In and affects the performance of otn
are interdependent and other words, the functions of manageme
interrelated. The interaction
management has been shown by dotted arrows in between the functions
Fig. 2.1.
 2.3
MANAGERIAL FUNCTIONS, ROLES AND SKILLS

2.2 MANAGERIAL FUNCTIONS

different
various studicd different organisations at
management scholars
Since
identified the functions of management in
their own ways. For instance,
rimes, they remarked: "To
administrative managements
the lather of functional or
Heni layol, coordinate and to control"
is t1o forecast and plan, to organise, to command, to
manage
dassihed management functions
into five categories as follows:
Thus, Fayol
() to forccast and plan,
(i1) to organise,

(iii) to command or to give orders,

(iv) to co-ordinate, and
(v) to control.
catchword
Luther Gullick oftered list of administrative functions under the
a
"PODSCoRB" stands for the following
"PODSCoRB". Each alphabet of this keyword
D for Directing, S for Staffing, Co for
activities: P for Planning O for Organisation,
Co-ordinating, R for Reporting, and B for Budgeting

According to Koontz and O'Donnell, "The useful method of classifying

most

them aroundthefunctions of planning. organ1sing, statting

managerial activities is to group function but is
and controlling "They think that co-ordination is not a separate
directing
sake of analysis of the management process,
the essence of management. Thus, for the
the management functions into the following categorics
:
we can classity
(1) Planning
(2) Organising
(3) Staffing
(4) Directing
5) Controlling

Planning to be followed to
Planning lays downthe objectives to be achieved and the step
achieve them. It is a mental process requiring
the use of intelleetual faculties, foresight
and naking and using
and sound judgement. It involves selecting and relating offacts
of assumptions regarding the future in the visualisation
and formation of proposed
resules. It involves deciding in advance
activities believed necessary to achieve the desired
what to do, when to do, where to do, how to do and
who is to do and how the results
alwut the ways and the
r e to be evaluated. Thus, planning is the systematic thinking
means for the accomplishment of predetermined objective.
Planning involves the lollowing ste
() Determination of objectives;
(i) Forecasting
(ii) Formulation of policies anl programncs
 2.4 MANAGERIAL FUNCTIONS, ROLES AND

() sehedules and procedures: ancd

SKLL
T'reparation of

Budgeting the objcctives, policies

includes determination of
'lanning Tule
The purpose of pla.
and procedures.
Progranmmes. sttategies, budgets lannin
IS to minimise the risk and to make at the samc time tull advant
the available opportunities. lt bridges thcgap from wherc we are and where we
advantage
want
it adjust to changes in busincss condi.
Gni planning is Hexible in nature as can
ditinng
toves both short term and long-term periods.

Organising
Organising is an important function of management by which management hrin
This function must be pertormed when
together the human and material resources.
aTiNin involkes nwo or more persons. Organising involves determining the activii
to be done. grouping the activities, assigning the grouped activities to individuals, an-
creating a structure of authoriry and responsibility among the people to achieve th
objectives of the enterprise.
Uwick defined organising as determining what activities are necessary to achies
the purpose and arranging them in groups which may be necessary to assign to th
individuals. The process of organisation involves the determination of authorityan
responsibiliry relations in the organisation. It is an important function of every manage
to determine the nature of the activities required to attain the group goals, the grouping
of these activities and the assignment of the activities to the individuals with necessam
delegation of authority
The process
of organisation involves the following steps:
(a) Determination of objectives;
(6)ldentihcation and grouping of activities;
()Assignment of duties to individuals; and
(dDevelopment of relationships.
Staffing or Human Resource Management
After organising the various activities
be
performed, management is
to
position to know the
manpower requirements
the organisation suructure. After of the enterprise at ditferent levcs i
be selected to fill different determining the number and types of personi nel w

jobs, management proceeds with

training the people fulhl the requirements
to
of the
recruiting, selectng
staffing is a continuous process because new enterprise. In a running entc prise
existing employees leave the enterprise. jobs are created in the enterpris an

Staffing comprises of those activities which the

positions created by the organisation structure. are essential to keep mannc h
It includes the
requirements with regard to number and task of determining
types of people for the
jobs to
jobs done, laying
to be done,
MANAGERIALFUNCTIONS, ROLES AND SKILLS
MAN
2.5
down qualifhcations for various jobs and recruiting, selecting and training people to
dow
those jobs efhciently
ertorm
Statingis concerned with both managers and non-managers. It is a function
xrrmod by managets at all levels, Farlier, staffing was considered a part of organising

Rut with the recognition of the importance of the human factor in industry and
husiness. it began to be considered as a separate function. Staffing usually includes the
ollowing activities:

Human resource planning.

Decidingsources of recruitment.
i Receiving applications.
(ir) Testing and interviewing.

) Final selection and issue of appointment letter.

() Orientation and placement.
(i) Training and development.

Direccing and Leading

Direction is the process of guiding, supervising, leading and motivating the
subordinates to work in a way that is beneficial to the enterprise. The manager not
only shows the right path but also leads the subordinates to achieve the objectives
of the enterprise. He creates a sense of belongingness, faith and loyalty among the
subordinates.
The direction function involves the following four elements
() Leadership. Leadership is the process by which a manager guides and
infuences the work of others in choosing and attaining specified goals. According to
hester Barnard, leadership is the quality of the behaviour of the individuals whereby
they guide people towards the accomplishment of some common goal.
Communication. A manager has to tll the workers what they are required to
do, how to do and when to do it. It has to create an understanding in the minds of
the subordinates of work be done. This is done
to
by the process of communication.
i) Motivation. It is the function of a manager to motivate the
under him to
people working
perform the work assigned. A successful manager motivate the people
to work
harmoniously for the attainment of desired objectives.
w) Supervision. Supervision is the process by which conformity berween
and actual results
planned
is maintained. Effective supervision ensures greater output of high
quality. It teaches the subordinates the way their tasks are to be performed.
Controlling
According to Fayol, "n an undertaking, control consists of verifying whether
Verything occurs in conformity uwith the plan adopted, the instructions issued and the
Principles established." Controlling is that management activity wherebythe managers
 2.6 MANAGERIAL FUNCTIONS, ROLES AND

hnd out the deviatione

compare actual performance against the planned one,
corrective action to remov the deviations, incorporate positive deviation
ons in
thepla
and help ensure the realisation of the specific goals.
control go together because plannine sesl
n a
running concern, planning and
set consistent, integrated and articulated goals or programmes, while control seel.
notable feature of the process of c
ecks
compel events conform to plans. The most
Cont
is that it is oward-looking. A manager cannot control the past but can avoid
problems in future by taking actions in the light of past experiences. The co
ont
process consists of the following steps:
Setting up of standards.
Measuring performance.
standards.
Comparing performance with
i Taking corrective action.
2.3 COORDINATION-THE ESSENCE OF MANAGING
Coordination has been viewed different management experts in difete
by
ways. Henri Fayol considers coordination as a function of manager. Louis A. Allen a
regards coordination as one of the separate managerial functions. James D. Moo
considers coordination as the first principle
coordination primarily
of organisation. Ralph C. Davis looks
up
as a vital phase of
controlling
Meaning of Coordination
In the words of Mooney and
Railey, "Coordination is the
group efforts to provide unity of action in the pursuit common orderly arrangemem
to ensure a smooth of a purp0se." It is the ett
interplay of the functions and forces of the different
parts of the organisation to the end that compone
its purpose will be
of friction and a
maximum of collaborative realised with a minimu
means the
orderly effectiveness. In other words, coordinatu
for the achievement synchronisation
of efforts of the people
of
organisational objectives. in theworking organisa
Coordination is
continuous process for
a

organisation. It leads to
the achievement of blending the activities of achieving unity of purpose in
certain different individuals and
) tis essential objectives. The features of coordination are as groups
an
managerial activity. It is needed at all tollows
(i) lt involves
(i) It is continuous orderly arrangement of
an
levels of managen
a
process group ettorts.
(w)
purpose is to secure carried on by the managers.
lts

Significance of Coordination unity of action towards common

The basic role of a objectives.
who directs the
music. As a activities ofmanager in an
enterprise is like that of an
the
orchestra
coordinator, the manager performs inthesuch a way that it orchestra conony
unified action party duo

throughout the produces har

function of securing
organisation. He directs the
and maintatain
activities of the gr
LANAGERIAL FUNCTIONS. ROLES AND SKILLS 2.7
stch a manner that it brings about harmonious relations and unifhed action to achieve
che given objectives

In a business enterprise. coordination will lead to the following advantages:

Better Results. Through coordination, duplication of efforts is avoided. The
rimand energ thus saved are better utilised in creative tasks. This results in total
aompushmcnt which will be far in excess of the sum of the individual parts.
Economy and Eticiency. Coordination leads to economy and efficiency
in the organisation by avoiding wastage of resources and duplication of efforts. Due
3 cordination, there will be no delays and breakdowns which will further increase
emciency.
Better Utilisation of Human Resources. Modern organisations employ
specialists in diverse fields for better results. Their efforts need to be integrated if the
services of such experts are to be utilised fully. Coordination can help in integration of
the activities of the experts or specialists.

BOX-2
Excellence through Coordination
The Dabbawallas of Mumbai is the story of excellence through coordination. The
success of the business lies in the complex yet well coordinated exercise that is carried
out on the streets of Mumbai day after day. What is the secret behind the efficiency with
which their business is conducted?
The story of the dabbawallas begins in the kitchens of Mumbai. After a person step out
of his door for work, someone begins the time-consuming process of preparing for him
or her a fresh, home-cooked lunch. What happens next demonstrates the coordination
of the dabbawallas system. The first dabbawalla pickS up the tiffins from the specified
homes and takes them to the nearest railway station. The second dabbawalla sorts out
the dabbas at the railway station according to them destination and puts them in the
nearest
uggage carriage. The third one travels with the dabbas to the railway stations
and
to the destinations. The fourth one picks
up dabbas from the railway station drops
them off at the respective offices.
By mid-morning, thousands of dabbawallas are bicycling through the streets of Mumbai,
a hot home cooked lunch for their customers. The
whole tiffin distribution
ensuring
equires negligible technology. The dabbawallas rely on low capital and use cycles,
There are several groups that
WOOden carriages and local trains to achieve their target.
Work independently and network with each other to achieve their common goal.
sectors and each sector is handled
Each area is divided into several small distribution
the addresses in that locality very well.
oy a particular person. This person understandsnew
USO, this perfection comes with practice. Many employees work for months under
the guidance of their seniors.
for dabbawallas. Whatever
unctuality and time management are on top of the agenda
De the circumstances, the dabbawallas never get delayed even by a few minutes.

economic, social, and

) Meeting Environment Challenges. The technological, coordination of
political environments of modern business are very complex. Proper
theoperations of different departments can help in meeting these challenges effectively.
 2.8 MANAGERIAL FUNCTIONS, ROLES AND SKILLS
() High Morale. Coordination in organisation and staffing leads to i
of employees. This jobsatisfaction
This improves the morale of difterent groups. As a result, their
to the organisation
tion is incrcased. They work whole heartedly for the attainment loyalt
of th
objectives of the
organisation.
Coordination as Essence of Managing
Co-ordination is an all-inclusive function of management and not just one of
functions. Management secks to achieve co-ordination by performing various functi.
like planning,
organising, directing and controlling. When all these functions are relate
to cach other harmoniously, co-ordination is achieved. As a matter offact, co-ordinarie.
is the essence of manag1ng tio
PLANNING

ORGANISING

STAFFING COORDINATION

DIRECTING

t--CONTROLLING

Fig. 2.2. Coordination : The Essence of Managing.

In orderachieve co-ordination among the subordinates and subunits, the

to

management performs its functions. Coordination is required in every function of

management as discussed below
() Coordination through Planning. Plans of different departments mus:
be properly coordinated, otherwise the
objectives of the organisation will not b
accomplished. Planning leads to formulation of budgets, policies and procedures which
are also tools of coordination.
(i) Coordination through Organising. Coordination is equally important i
organising. All activities required to achieve the desired objectives must be proper
grouped and assigned to the right people.
(iii) Coordination through Staffing. In staffing, a balance must be attain
berween job requirements and the qualities of the personnel who are placed on difere
jobs. Manpower planning is an important tool of coordination.
(iv) Coordination through Direction. The direction function of managemen
is an attempt in achieving coordination. Supervision, motivation, leadership a
communication are designed to secure unit of action in a group. Coordination is al
achieved through supervision.
(») Coordination through Controlling. The purpose of comparing pertorma
with the standards and taking corrective action is to achieve coordination. Correct
measures must match the types of deviation in the performance of various individuas
 FUNCTIONS, ROI ES AND SKI!IS 2.9
MANAGERIAL
Thus ondination n the wlken thvedd unning through the entire proces of
it is tallecd thhe csseme of managemcut
CmCni.That s why,
between Coondination
and Cooperation
Relation
voordnation is hroader than that of ooperatinn (oordnation is
7he onoepr of
of goup ellons to povide units of.action in the pursuit of common
arTangemen
an
bringing her the eltots of different components of the
oboves l means

anisation in onder to gIVe them a unity of purpose. But cooperation denotes the
ogan
the people working in the organisation voluntarily to accomplish
allative cttorts by
Aparticular purpose.

Table 2.1:Coordination vs.Cooperation

S No. Coordination Cooperation
Coordination is a deliberate effort by Cooperation is voluntary attitude of
1.
contribute
a manager to ensure synchronisation organisational members to
of various organisational activities. to organisational objectives.
Coordination is an orderly Cooperation denotes collective efforts
arrangement of group efforts to of the group members who contributed
provide unity of action in the pursuit voluntarily to accomplish a particular
of common objectives.
objective.
3 Coordination is essential where a Cooperation is voluntary in nature. It

group of people work together for a arises out of the desire of the people to
common purpose. work together.

4. Coordination is based on both formal Cooperation arises out of informal

and informal relations. relations.

. Coordination seeks whole- Cooperation without coordination is

hearted support of employees and fruicless. Cooperation alone may lead
departments which will definitely to imbalanced operations.
improve the results of the business.
Existence of cooperation among the members of a group facilitates coordination.
Bur coordination does not originate from the voluntary ettorts of the group menbers.
t has to be achieved by the conscious efforts of the management. For instance, five
persons engaged in pushing a taxi out of mud have a strong attitude of cooperation.
Bur they may not be succesful unless oneof them provides leadership and coordinates
ne activities of all. In the same manner, the orchestra conductor coordinates the ettorts
of the members of his group to produce finite music. In short, cvoperarion without
coordinatiom has no fruit and coordination without cooperation has no root. Cooperation
and coordination go hand-in-hand and one is the stepping stone of the other. A good
manager tries to achieve both because only through cooperation and coordination he
can
get things done through others.
 2.10 MANAGERIAL FUNCTIONS,ROLES AND SKILL
Techniques of Effective Coordination
The tollowing steps should be taken for achieving effective coordination
Clearly Defined Goals: The goals of the enterprise should be laid e

clearly. individual in the enterprise should understand the

Every
objectives and the contribution by his job to these objectives. Uni
coordination.
ity
purpose is a must for achieving proper
(i) Clear Lines of Authority and Responsibility : There is a line of aurhe
orit
in every enterprise which indicates as to who is accountable to whom.T
line of authority and responsibility should be clearly defined to achie
ceordination. Clear-cut authority relationships help in reducing confic
among different positions (particularly line and staff) which is essential f.
sound coordination.
i~n Precise and Comprehensive Programmes and Policies : Laying dow
well-defined programmes and policies is another measure for achieving
effective coordination. This brings uniformity of action because everybod
understands the programmes and policies in the same sense.
Civ) Cooperation : Coordination must be accompanied by cooperation. Th:
individuals in the organisation must be willing to help each other voluntarl
Cooperation can be brought about by keeping harmonious relation
among the people in the organisation by encouraging informal contact
to supplement formal communication and using committees fer exchang
of ideas and views at the top level.
() Effective Communication: Effective communication is the key to prope
coordination. The channels of communication used in the enterprise shoul:
be reliable so that they are able to create proper understanding in the mind
of the receivers. Personal contacts should be encouraged as it is the mos
effective means of communication for achieving coordination.
(vi) Effective Leadership and Supervision : Management can achieve bette
coordination through effective leadership and supervision. Effecti
leadership ensures coordination both at the planning and the implementin
stage. Eftective supervision is necessary to guide the activities of individu.
in the proper direction.

2.4 ROLES OF MANAGERS

Who is a
Manager?
A manager is a person who performs the functions
of planning,
organising, staljSina
directing, and controling for the accomplishment of the
a
manager pertorms the managerial functions, he is a
objectives of an undertaking. >
the organisation. Used in this member of the managemen
sense, management includes all th:
affairs of an organisation. those who manag
Every manager is concerned with taking certain ision
and their
implementation the achievement of organisational
for dec ide

the human resources in the

ettective use of materials, objectives. B
He
machines and technolog
MANAGERIAL FUNCTIONS ROES AND SKHIS 2.11
Some ofthe charatersths that are mmon to m t of rthe managere are as followe
Managers spend a manor ortmon ot thet tme m ahrevngodinaton herween
human and non-human resunes
Managers do much work at an unrelenung pae
Managerial tasks are haractersed by brevIty, Vanety, and fragmentatton.
Managers preter live a tron briet. speuhe. well dehned activities that are
current. non-routine. and non-retetve

Managers preter oral to wntten vommunication

6Managers maintain a vast number of contacts. spending most time with

subordinates. linking them with superiors and others in a complex nctwork

Tpes ot Roles
It has already been observed that managing involves certain functions. While
nerorming these functions. a manager has to play multiple roles. A role consists
of the
behaviour patterns displayed by a manager within an organisation or a functional unit.
Henn Mintzberg conducted a comprehensive survey on the subject of managerial roles
and integrated his hndings with the results ofa study of five practising chief executives.
He identined ren basic roles pertormed by managers at all levels from foremen to chiet
xecutives and classifñed them underthree heads: (1) interpersonal, (2) informasional
and(3)decisional as shown in Table 2.2. These roles describe what managers actually
do, whereas functions of managers had historically described what managers should
do. A brief description of the managerial roles is given below.

Table 2.2: Roles of Managers

INTERPERSONAL ROLES

Leader Liaison
Figurehead
Motivates, inspires, sets an Maintains relationship with
Performs symbolic duties
bestows honours, makes example, legitimizes the pow other organizations, gov
speeches, serves on ers of subordinates. ern-ments, industry groups.
etc.
com-mittees
INFORMATIONAL ROLES

Monitor Disseminator Spokesperson

Transmits information and Speaks for the organization.
Observes, collects and
judgements about internal Lobbies and defends. En-
reviews data on the meeting
and external environments in public relations.
of standards. Notes compli gages
ance.
DECISIONAL ROLES

Disturbance Handler Resource Allocator Negotiator

Entrepreneur
Initiates changes. Handles conflicts and Approves budgets, Works out agree
schedules and ment with cus-
Authorizes action. complaints Counters
Sets goals. Formu- actions of competitors promotions. Sets to-mers, suppliers
lates plans. priorities. and agencies.

urce: Adapted from Mintzberg. H., The Managers' Jo Folk lose and Fa1, Harand Buwnes Revrw

July/Aug. 1975). pp. 50-53.

 AND SKILu
MANAGERIAL FUNCTIONS, ROLES
2.12
Interpersonal Roles de
include the following
interpersotnal
roles, which
ofbehaviour duties su
concerns

The first set

number of c e r e n o n i a l such
managers
perform a functions. Lower lev
Exccutive oticial
Figurehcad. oversceing
affairs and
firm at public scale, including attendin.
ng
representing their
lesser
as on a
duties as well, perhaps
ceremonial
managers have
customers.

visitors, and hosting

weddings, grecting earlier includin.
employccs of duties suggested
a range activities thar
encompasses
Leader. This and encouraging
(i) work-related
behaviour,

workers, guiding
motivating
objectives.
organisational liaison berween groups and
help achieve themselves acting as

Liaison. Managers
find
organisation. The liaison
(ii) in contact with, an

which are part of, or come

coordinating
activities amone
individuals
contacts
with suppliers,
for establishing effective pertormance.
role is important needed to assure

and encouraging harmony

work groups,
Informational Roles
communication
informational roles are
concerned with
As the term implies,
must also be skilled in gathering an
and groups, but managers
among
individuals
decisions. More important, they should b
make effective
using
information to help and articulate
decisions. Mintzberg
information
communicators who can transmit
able
roles are as follows:
threeinformational gather data, an
solicit information,
Monitor. Managers monitor activity,
( prepared for decision-making
and cr
Well-informed managers are
observe behaviour.
redirect behaviour to improve organisational performance.
are reversed. Rather than rece
(i) Disseminator. Here communications
information. Obviously, this is a crucial aspect
information, managers transmit
similar work groups rely
management. Subordinates, superiors and managers of
timely information disseminated with clarity.
1) Spokesperson. Top executives find themselves more invoivc
spokespersons than lower-level managers. A firm's policy on
on compe
competilio

its philosophy of customer care, and its commitment to satety are top
n s wl
common in executive speeches. However, managers at all levels are spokesperso
may be called upon to represent their groups. For example, when departmen he
meet to discuss operating budgets, they must be prepared to present intorma
support budget requests of their respective departments.
Decisional Roles
Mintzberg identified four roles within the list of his behavioural sets. Thes
as follows:
 FUNCTIONS, ROLES AND SKILLS 2.13
MANAGERIAL
In recent years, entrepreneurs have been identihed with a
() Entrepreneur.
commitment to innovation. Managers in complex organisations act in entrepreneurial
wav, by constantly trying to improve their operations. They seek new ways of using
resources, new technologies for enhanced performance, and new systems of organising
human resources.

i Disturbance Handler. Historically, this may be the best understood role of

managers because they have always had the primary responsibility for resolving problems.
Itmayalso be the most stressful role as managers seem to find themselves constantly faced
with disturbances that threaten the harmony and effectiveness of their organisations.
(ii) Resource Allocator. The third role links planning and organising functions.
Managers must plan to meet their objectives and distribute resources accordingly.
There will never be sufficient time, money, materials, or manpower to accomplish
all that is expected, so resource allocation often involves carefully assigning scarce
resources.

iv) Negotiator. The allocation process bears on the role of negotiator. When
scarce resources must be shared among many operating units, managers with superior
negotiating skills will have advantages over others. However, negotiating extends to
many managerial activities both inside and outside the firm. Purchase manager, for
example, negotiates material prices and terms. Personnel manager negotiates union
contracts. Negotiation, of course, does not mean confict but it does imply face to
face bargaining berween managers and employees to resolve problems or formulate
pertormance expectations.
The above description of the managerial roles shows that
managers must change has
frequently and must be alert to the particular role needed at a given time. The ability
to
recognize the appropriate role to be played and to change roles readily is a mark of
an eftective manager.
However, it may be concluded that at the lower level, some of
the decisionalroles and informational roles are more important whereas at the
top level
interpersonal roles and decisional roles are of greater significance. At the middle level
of
management, informational roles are found to be more common.
Reconciliation of Managerial Roles and Functions
Mintzbergs roles approach describes 'what managers do and provides important
nsights into the problems and issues involved in managing. The functional
aPproach, on the other hand, provides the general framework for
analysing the job of a
manager. It prescribes what managers should do. The roles and functional
are two
sides of the same coin. They are rwo different but related
approaches
ways of analysing
the
job of manager. The relationship between the two
a
in Fig. 2.3. approaches has been shown
 MANAGERIAL FUNCTIONS, ROLES AND SKILI
2.14
Managerial Functions
Managerial Roles
DPlanning
DInterpersonal Organising
roles Staffing
OInformational Directing
roles
ODecisional roles
|uControlling
Functions.
between Managerial Roles and
Fig. 2.3. Relationship

and decisional roles. Thev reca:

eive
While planning, managers play informational and
disseminate information. They also take policy opera
erative
monitor and
store,
interpersonal and decisional roles. The.
decisions. In organising, managers play
activities and people, take decisions about utilisation ai
establish relationships between
resources and act as liaisons. In staffing, managers play decisional, informational annd
requirements, select and trai
They determine human
resource
roles.
interpersonal
records. In directing, play interpersonal
managers
people and maintain personnel motivate the people by providing
informational and decisional roles. They
various incentives and guide
them through communication process. Controlline
decisional roles. Managers obtain information of
involves mainly informational and
standards and take correctiveactions which involve
results, compare them with the
decision-making.

2.5 LEVELS OF MANAGEMENT

in any organisation. A
Management levels signify the hierarchy of management
shown in Fig. 2.4, the managers can be divided into a number
of levels depending upor
number «
their activities. The number of levels will depend upon the size of business,
workers and effective span of control.

Board
of Directors Top Management
Chief Executive
General Managers

Departmental
Heads Middle Management
Regional Managers
Plant Managers

Supervisors, Foremen Fapervlsory or

Section Officers Lower Management

Fig. 2.4. Hierarchy of Management

MANAGERIAL FUNCTIONS, ROLES AND SKILLS 2.15
The hierarnhy of management positions from top to bottom is called levels ofmanagement.
The level of a manager the hierarchy detemines the amount of authority and
in status

enioved by him. The supervisory level managers have less authority than middle level
managers who have in turn less authority than the top managers.

Classification of Management Levels

PAffner and Sherwood have classificd management levels into four viz., corporate
management, top management, middle management and supervisory management.
Koontz and O'Donnell and Brech have classificd the levels into two, viz., top level
management and supervisory level management. Joseph Litterer has suggested three
levels, viz., institutional level, general management and departmental management. J.B.
Batty has classihed management into four levels, viz., top management, upper middle
management, middle management and supervisory management.
For the sake of convenience, the levels of management may be classified into three
groups: (1) Top management, (2) Middle management, and (3) Lower orsupervisory
management. The various positions which are included in each level of management
areillustrated below:

Top Management
Top management lays down policies and objectives of the enterprise. It pertorms
the higher level management functions and takes the policy decisions. Top management
includes board of directors and chief executive of the company. In some cases, depart-
mental heads are also taken as a part of top management.

Top management coordinates the affairs of the business and reviews the performance
of the middle and lower levels of management. The board of directors is merely a
decision-making body and the decisions are implemented through the chief executive
of the company. Top management controls the affairs of the enterprise also.
The functions performed by the top management are given below:
1. Laying down broad objectives and policies of the organisation.
2. Taking decisions for the accomplishment of the goals of the enterprise.
3. Coordination of various departments and divisions.
4. Laying down guidelines for the departmental and divisional heads.
5. Making appointments to middle level positions in the company organisation,
such as Divisional Managers, Secretary, Departmental Heads, etc.
6. Reviewing the work of executives at different levels to ensure that their
performance is in accordance with the objectives laid down.

Middle Management
Middle management consists of heads of various departments. The job of middle
evel managers is to organise their departments to implement the top managements
Policies. They are responsible for the results in their areas. They also perform the
 MANAGERIAL FUNGTIONS, POLES AND 8ku
2.16 IL1
and controll..
management functions of planning, organising, statfhng, directing
They issue the instructions to the first level management, They serve as the channe.

communication betwcen the top and lower management.

belerw:
The functions of middle level managers
are given
1. Planning for the execution of policies and programmes of top managerne.

levels in the light of various plans

2 Analysing the achicvements of lower
programmes.

3. Discussing the solutions of current problems and proceeding further

their results.

4. Appraising the performance of subunits.

5. Guidance and motivation of supervisory personnel.
6. Achieving coordination berween different sections or units.

Lower or Supervisory Management

Lower or operative management consists of foremen, supervisors, off
superintendents, etc., who are engaged with the direction of the operative employe
The managers at this level are in direct contact with the operative employes. Theya
more concerned with direction and control functions as compared to planning a
organisation functions of management
First line supervisors serve as an important link berween the management and
workers. They implement the top management policies and provide feedback to
higher levels of management. The lower level managers plan the day-to-day activi
and assign tasks to their subordinates, guide them and take corrective steps whene
necessary.
The functions of first-line management or supervisors are given below:
1. To supervise and guide the operative workforce.
2. To plan and organise the activities of the
group.
3. To arrange for
necessary materials, machine tools, etc., for workers and to pro
them the necessary
working environment.
4. To provide training to the workers.
5. To solve problems of the
workers.
6. To communicate
workers' problems to the higher level management.
2.6 MANAGERIAL SKILLS
The term'managerial skill means the
accomplishment organisational goals. personal ability put by manag to use a
the of
The job of a modern beco

verycomplex. He requires ditferent types of skillsmanager na

to
manage a large org
ANAGERIAL FUNCTIONS, ROLES AND SKILLS 2.17
skills as
cnvifonment. R.IL. Katz has given thrcc types of managerial
the fast changing
follows
() Technical skills
() Human skills
(i) Conccptual skills.
Some authors have added two more skills to the above list. These are analytical

skills and administrative skils.

Technical Skills: Technical skill implies proficiency in a specific kind of activity
We can
particularly the one involving methods, processes, procedures or techniques.
visualise the technical skill of the surgeon, the musician, the accountant or the engineer,
when cach is performing his own special function. Such functions involve specialised

knowledge, analytical within the specialised field, facility in the use of tools and
ability
the techniques of the specific discipiine.
Technical skill is very important in managing. The first line supervisor in a manu-
facturing hrm needs greater knowledge about the technical aspects of the job compared
the
to his top boss. In a small manufacturing organisation, even the top boss who owns
skills. However, in big organisations, technical
company needs to have a lot of technical
skills are more important at the lower levels.

Managers need technical skills to guide and train subordinates. They cannot handle
their subordinates if they do not know how the jobs are done. There are two things
a manager should understand about technical skills. In the first place, he must know
what skills should be employed in his unit. Secondly, the manager must understand
the role of each skill employed and also the iner-relationships between different skills.
Human Skills: Human skill is the manager's ability to work effectively as a group
member and to build cooperative effort within the team he leads. Every managerial
level requires managers to interact with the subordinates working with processes and
physical resources. Human relations skills are required to win cooperation of others
and build effective work-teams. Such skills require a sense of feling for others and
capacity to look at things from others' point of view. Human skills are reflected in the
way a manager perceives his superiors, subordinates and peers. A person with human
skills is sufficiendy sensitive to the needs and motivations of others in the organisation.
Wth human skils, managers can resolve intra and inter-group conticts. An awareness
of the importance of human skills should be a part of every manager's orientation.

Conceptual Skills: Conceptual skill means the ability to see the organisation as a
whole and it includes recognising how the various functions of the organisation depend
on one another. It also makes the individual aware how changes in one part of the
organisation affect the others. It extends to visualising the relationship of the individual
business to the industry, the community and the political, social and economic forces
2.18 MANAGERIAL FUNCTIONS, ROLES AND S
of the nation
KILLS
as a whole. Thus, the manager gains insight into
improving the over
ettectiveness of the all
organisation.
Analytical Skils: These refer to abilities to procced in a logical, step-by-Sten
Sy'stematic mannc, to cxamine the various aspects of specifiC 1ssues and to understa.
and
complex characteristics of a phenonemon. It is also the ability to break down a proki.
stand
into its components and to 'clinically' examine its dimensions. Analytical skill
re
needed for problem solving and decision making, to evaluate performance, and
manage complex situations.
Administrative Skills: These centre around ability to act in a pragmatic manne
get chings done by implementing decisions and plans, to mobilise and organise resou
and efforts, to co-ordinate diverse activities and to regulate organisational events
ina an
orderly manner.

2.6.1 Skill Requirement at Different Management Levels

The managers at each level will
require technical, human and conceptual knou
edge and skills to sucessfully carry out the tasks assigned to him. However, the mix o
knowledge and skills required at each level will have to be different in tune with the
tasks to be performed. Fig. 2.5 shows the relative
levels of management. At the
importance of these skills at variouw
supervisory level, technical skills are more important for
the success of a
supervisor's job. As he moves up the hierarchy, increasing demand
are made for
conceptual skills. Human skills are more or less equally important
levels. Technical skills can be learnt a at

an individual has the

easily, but conceptual skills can't be attained unles
potential and capacity to learn them.
Top Management

Middle Level Management

Lower Level Management

Fig. 2.5. Skll Mix at Different Levels.

MANAGERIAL FUNCTIONS, ROLES AND SKILLSs 2.19

UESTIONNS
Short Answer Questions

1. Why is management viewed as a continuous process ?

2. How would you classify various functions of management ?

3. Explain the interrelationship between various management functions.
4. Why is coordination caled the essence of managing?
5. Briefly explain the roles of managers.

6. What are the functions perfomed by top management of an industrial enterprise?

7. What are the functions of supervisory management ?

8. What are technical skills?

9. Briefly explain human skills required by managers

Long Answer Questions

1. To manage is to forecast and plan, to organise, to command, to coordinate and

to control (Henri Fayol). In the light of this statement, discuss the functions of
managers.
2. What are the functions of a Manager ? Is mere knowledge of management
enough to become a successful manager ? Briefly explain your viewpoint.
What do you understand by the term'Levels of Management' ? Briefly describe
the diferent levels of management.
4. ustrate ifferent levels of management with the help of a suitable chart
5. What functions and duties are associated with top and middle management in
a modem industrial unit ? Explain briefly.
6. What roles are performed by the managers ? Explain each role in the context
of a business enterprise.

7. Discuss Henry Mintzberg's classification of basic roles perfomed by managers

in modern organisations.
8. Who is a Manager ? What are the qualities of a successful manager ?
9. What is meant by coordination ? Why is it called the essence of managing ?

10. "Coordination is the orderly arrangement of group eforts to provide unity of

action in the pursuit of a common purpose." In the light of this statement, explain
the nature of coordination.
1. "Each of the managerial functions is an exercise in coordination." Comment on
this staterment.
2.20 MANAGERIAL FUNCTIONS, ROLES AND: SKI
is expected of the managersa
12. What are managerial skills ? What skill mix
top level of the organisation ?
13. Explain in brief the functions of management.
14. Write explanatory notes on the following

(a) Coordination as the essence of managing

(b) Interpersonal Roles of Managers.

(c) Levels of Management.

(d) Managerial Skills.
CHAPTER 3
Development of
Management Thought

Approaches to Management

Classical Theory
Neo-Classical or Human Relations Theory
Systems Approach
Contingency Approach

Introduction
revolution in
The history of modern management can be traced to the industrial
England and other European countries during the l18th and 19th centuries. 1The inventions
during the industrial revolution, rise of factory system, growth of trade unionism,
expansion ofinternational trade, rise of consumerism, etc. have led to the development o
different schools of management thought. The divergent directions of management
thoughts have caused, Harold Koontz to call the resulting array "management

theory jungle.
3.1 APPROACHES TO MANAGEMENT

the ditterent approaches

Starting with the oldest school of management thought,
can be listed as follows :

i) Scientific Management approach.

(11 Management Process approach.
(1ii) Human Relations approach.
iu) Behavioural Science approach.

3.1
 3.2 DEVELOPMENT
OF AANAGEMENT TH
MANAGEMENT
THOU
(v) Quantitative approach.
(vi) Systems approach.
(111) Contingcncy approach.
(rii) Operational approach.
(ix) Empirical approach.
() Scientific Management Approach for the scien
an immense impetus
The industrial revolution in England gave
It brought about
such an extra ordinary mechanisation
management approach.
of n e w management principles a
that it necessitated the development
industry for the purpose of working in the fact
practices. Bringing groups of people together
owners. The
establishment of formal organisatic
posed problems for the factory
had to be underta
structure, formal lines ofauthority, factory
systems and procedures
these problems, a management moveme
for coordinated effort. In order to deal with
known as Scientific Management' was born.
Frederick Winslow Taylor (1865-1915) was the first to recognise and emphasi
the need for adopting a scientific approach to the task of management. The introducc

ofthe concept of standard time, standard output, standard cost, standardisation

production process, change in the attitude of management and workers to bring abe:
the mutuality of interests are the important landmarks of scientific management. Th
approach was supported and developed b Henry L. Gantt, Frank Gilbreth, Lillie
Gilbreth, Harrington Emerson, etc.
(i) Management Process or Administrative Management Approach
The advocates of this school perceive
management as a process consisting
planning, organising, commanding and controlling. In the words of W.G. Scot.
aims to analyse the
process, to establish a conceptual framework for it, to
ident
principles underlying it, and to build a theory of management from them". It
management as universal process, regardless of the type of the
a
rega
a
given enterprise. It looks upon management enterprise, or the leve
so that theory as a way of organising expetI
practice can be improved through research,
teaching of fundamentals involved in the empirical testing of principles
The process school is also management process.
called the 'traditional' or
believes that management principles are universalist' school
Fayol is regarded as the father of this school.applicable to all the group activities. I
I. Barnard are Oliver Shelden, J.D.
among the other important Mooney and Che
(i) Human contributors to this approach.
Relations Approach
The human relations
of human element in approach is concerned with the
organisations. Elton Mayo and recoenition of the impotan
famous Hawthorne Experiments and investigated thehismyriad of informal relation
associates conducted the wor
shi=
AEVELOPMENT OF MANAGE MI NI THOUOHI 3.3
i a l liques, attcins ol eommmunie Ation and pattens ol inomal leadership. As a resul
these espements, a tiend began wlich an be phed as 'heing,nier pesple

1his tfCnd was cventually temed as 'the human elats myerment

lhe human elattons apprech revealed the impuntance of uxialand prychougyal
factors in dctcmining workeis' proxduetivity and satisfaction. It was insrrumental in
creating a new image of man and the wonkplace. Ii pur stress on interperwnal relatiuns

and the infornmal groups. "Iis starting point was in inelividual prychoky rarher than the
analysis ofworker and work. As a result, there was a tendency for hunan rationalises t
degenerate into mere slogans which became an alibi for havingn management prlicy
in respect ofthe human organisation." Nevertheles, this school has done a unique jo
in recognising the importance of human clement in organisations.

(i) Behavioural Science Approach

The 'behavioural science' approach utilises methods and trchniques of wcial
sciences such as psychology, sociology, social psychology and anthropology for the study
of human behaviour. Data is objectively collected and analyscd by the woxcial «ientists
to study various aspects ofhuman behaviour. The pioneersof this school such as Gantt
and Munsterberg reasoned that in as much as managing involves getting things done
with and through people, the study of management must be centred around the peopie
and their interpersonal relations.
The advocates of this school concentrated on motivation, individual drives, group
relations, leadership, group dymamics and so forth. The noted contributors to this schoo
include Abraham Maslow, Fredrick Herzberg, Victor Vroom, Mc Gregor, Lawler, Sayles
and Tannenbaum.
() Quantitative or Management Science Approach
This approach stands for usingall pertinent scientihic tools for providing aquantita
tive basis for managerial decisions. The abidingbelicfofthis approach is that management
problems can be expressed in terms ofmathematicalymbols and relationships. The basic

Pproach 1s the construction ofamodel because it is through this device that the problem
S expressed in its basic relationships and in termns ofsclected objectives. The users of such
models are known as operations researchers or management scientists
Linear programming, Critical Path Method, Programme Evaluation Review
lechnique, Break-even analysis, CGames Theory and Qucucing Theory have gained

these days. These techniques help the

popularity for solving managerial problems
1anagers in improving their decisions by analysing the various alternatives in a scientihc
manner. The application of mathematical techniques is particularly useful in solving the
Pnysical problems of management such as inventory and production control. They can
hever be substitute for knowledge, experience and training necessary for understanding
the human behaviour.
3.4 DEVELOPMENT OF MANAGEMENT TH
(vi) Systems Approach THOU
A system is
composed of elcments subsystems that are related
or
ated and
and den
depen
on each other. The system
approach is bascd on the
generalisation that an
organi..
components are inter related and inter-dependent. This appreisat
is system and its
a

emphasis on the strategic parts of the system, the nature of their

set by thc
system and communication network in the system.
interdependenc.
the systems approach is that attention is
Another basic fearat
paid towards the overall effectiveness
system rather than the effectiveness of subsystems. Under system approach,
the. r
objectives and performance of the organisation are taken into account and not on
objectives and performance of its different
departments or subsystems.
The spiritual father of
this school of management was Chester I. Barnard
systems theory lays emphasis on the interdependency and
various parts of a system. It stresses communication and
interrelationships betweer
decision processes throughour
organisation. It follows an open system approach. The organisation: an
an interaction with the environment. It
open system
can
adjust to the changes in the environm
(vii) Contingency Approach
The latest approach to
management is known as 'contingency
situatc or
approach. Underlying idea of this approach is that the internal
functioning
organisations must be consistent with the demands of technology and exrem
environment and the needs of its members if the
organisation is to be effective. T
approach suggests that there is no one best way to handle any
The application of management proolem
management principles and practices should be contingent un
the existing circumstances. Functional,
behavioural, quantitative and systems toos
management should be applied situationally.
There are three
major parts of the overall conceptual framework for conting
management: (/) environment; (i) management concepts,
principles and techniques
(ii) contingent relationship between the two. The environment
and management variables
variables are indepenu
(process, quantitative, behavioural and systems tools
dependent. Every manager has to apply the various approaches of
to the demands of the
situation. management acto
(viii) Operational Approach
Koontz and O'Donnell have
advocated
This approach recognises that there is a centraloperational
core of
approach to manage
which exists in knowledge about ma
management such as line and staff, patterns of
of
management, managerial appraisal and various departmentatio
draws from other fields managerial control techniq
of knowledge and adapts within it those
which are specially useful for parts of thesc
managers.
The
operational
of knowledge that can approach regards
be brought to bear at all levelsasofa universally
management managing and in ble
a h
applicabi
of enterprises. Ar the time, this approach
same oble

managers face and the environments in which recognises that the actual pro
they operate may vary between enterpr
 3.5
DEVELOPME OF MANAGEMENT THOUGHT
DEVELOPMENT
take this into
and
leve
T h e application of science by a perccptive practitioner must
olutions to management problems.
unt in hinding
(a) Empirical Approach

of the experiences of
to this apPproach, managemcnt is the study
According can be applied
based on experiences of successful managers
The.knowledge
aers, The
managers.
Thus, the
problems in future and in making decisions.
in solving
by other
managers

is based on analysis past experience

and uses the case method ofstudy
npirical school of to do and how by studying
management
can get an idea of what
cmpiri
Managers
and research. and problem-solving skills. They
can

T can develop analytical

hey
diruations ofthe past. in comparable situations.
and learn to apply eftective techniques
understand to obtain a
lesson tor the
the value of analysing past experience
No one can deny and future
science based on precedent,
unlike law, is not a there is
management,
furure. But to occur. Indeed,
those of the past are unlikely
resembling that a
situations exactly experience for the simple r e a s o n
too much o n past similar
a positive
danger in rely1ng far from an exact fit for
a somewhat
the past may be
found "right in
technique
future.
situation of the

CLASSICAL THEORY
3.2 to management
and is
is one of the oldest approaches
The classical approach
Administrative
Process Approach and
Management
various n a m e s such functions and
as
s t r u c t u r e and
also known by o n organisation
It Weber, Gullick,
concentrates

Management Approach. writers include Taylor, Fayol,

The classical on work planning,
the
principles of management. emphasis
and others. They placed and the assumption
Urwick, Mooney and Reiley formal structure,
management,
technical requirements, principles of
behaviour.
of rational and logical Taylor's Scientific
three viewpoints: (i)
incorporates These writers
The classical theory and (ii) Weber's Bureaucray.
FayolAdministrative Theory is characterized
as
Managemen, (i) sometimes
that is why their approach
structure and application ofscientihc
concentrated on Taylor insisted
on

of organisation. EW. fourteen principles

of
structural framework Henri Fayol suggested
management. structure

nethods to the problems of Max Weber

rational
introduced

their universal application. rationality,

nagement and division of labour, specialization,
characterized by
bureaucracy. It is
called
etc.
competency of personnel,
CLASSICAL THEORY

Administrative or Functional

Scientific Management

Bureaucracy Management (Henri Fayol)

(Max Weber (FW. Taylor)

Approaches in Classical Theory

Fig. 3.1.
 3.6 DEVELOPMENT OF MANAGEMENT THOL
UGH
Contributions of Classical Theory
The main features of classical theory are as under:
( T h e classical thecory conccntrated on the study of formal organisaticon.
ons. |
laid cmphasis on division of labour, specialization, structure, scalar ch
a
unctional processes and span of control.
() Management is the study of managerial experiences. If the experience
nces a
studied and certain generalizations are derived theretrom, these will he
the practising managers.
(ii) The classical theorists emphasised organisation structure for coordinati
of various activities. They ignored the role of human element.
(iv) The relationship between workers and management is established thro
formal communications, defined tasks and accountability and formalis,
procedures and practices to minimise conflict berween them.
(vi) The worker is essentially an 'economic man' who can be motivated basia
by economic rewards. Money is considered the main motivator under th
theory.
(v) The effhciency of the organisation can be increased by making eac
individual efficient.
(vi) The integration of the organisation is achieved through the authority am
control ofthe central mechanism. Thus, it is based on centralisation
authority
(vi) There is conflict berween the individuals and the
no
organisation. In c
of any conflict, the interests of the
organisation should prevail.
(vii) The classical school is based on the study of past managerial experieni
and cases of various organisations. It implies that formal education an.
training is required for developing managers.
Criticism of Classical Theory
The classical theory has been criticized on the following
) The dassical approach grounds:
ignored
the role of human factor.
the human relations
aspect and undermin-
Its main emphasis was on
centralisation of authority, formal structu
unity of command and narrow span ot con ro
ii) It viewed
organisation as a closed system, i.e., having no interaction
the external environment
(ii) Economic rewards were
assumed as the main e. Th
role of
non-monetary factors was ignored. motivator of workforcc
(iv) The classical
principles are based on
limited observations. managerial experiences an
the
()The classical approach is based on
ciples are ambiguous and over-simplified assumptions. I spri
contradictory.
 VELOPMEN OF MANAGEMENT THOUGHT 3./
(vi) This school emphasized on strict adherence to rulesand regulations. The
scope for individual initiative is thus limited.
(u) Classical writers laid emphasis on the universality of management
principles. But in practicc, managemcnt principlescan't be applied blindly
they may necd modiications to suit the situation.

NEO-CLASSICAL OR HUMAN RELATIONS THEORY

3.3
and ignored the 'human
The classical theory concentrated on formal organisation
the
human relations approach was proposed as a reaction to
factor. The neo-classicalor the
human relations. The neo-classicists focussed on
dasical approach which ignored the fact
of industry. They modified the classical theory by emphasizing
human aspect
is a social system and the human factor is the most important element
that organisation
wichin it. They conducted some experiments
(known as Hawthorne Experiments
and investigated informal groups,
informalrelationships, patterns of communication,
human relations
of informal leadership, etc. This led to the development of
patterns
as the father of the
Human Relations
approach. Elton Mayo is generally recognized include Roethlisberger, Dickson,
School. Other prominent contributors to this school
Dewey, Lewin, etc.

Contributions of Human Relations or Neo-classical Theory

approach are as under :
The salient features of neo-classical
is a social system composed of numerous
( Social System. Organisation in general
defines individual roles and establishes norms that
interacting parts. The social system The workers follow a social norm

may differ from those

of the formal organisation.
amount of work, rather than
determined by their co-workers, which defines the proper
thinks they can achieve, even though this
trying to achieve the targets management
would have helped them to earn as much as they physically
can.

environment on the job affects the workers

ii) Social Environment. The social
variable.
and is also affected by them. Management is not the only
does also exist within the
(is) Informal Organisation. The informal organisation
the formal organisation.
framework offormal organisation and it affects and is affected by
At the the workers often do not act or react
workplace,
i) Group Dynamics.
A who resists pressure to change his
as individuals but as members of groups. it person if the group of which he is a
Dchaviour as an individual often changes quiteanreadily
nember changes its behaviour. The group plays important role in determining the
attitudes and performance of individual workers.
informal leadership as against formal
v) Leadership. There is an emergence of
norms. He helps the workers
to function
Cadership and that sets and enforces group ineffective unless he conforms to
a5ea social and the formal leader is rendered
group
Dorms of the group of which he is supposed to be incharge.
 3.8 DEVELOPMENT OF MANAGEMENT THOU.

(P7) Communication. Both way communication is necessary because it cari

e
ecessary intormation downward for the proper functioning of the organisation
n

transmits upward thc feclings and sentiments of people who work in the organisatice

(ri) Role of Money. Money is only one of the motivators, but not the se.
motivator of human behaviour. Man is diversely motivated and socio-psychologjc.

factors act as important motivators.

between organisational and individ
(rim) Conflict. There is always a conflict to achieve th
the organisation, it is necessary
goals. For the smooth functioning of
and those of the individuals.
integration berween the goals of the organisation
Criticism of Neo-classical Theory
Scott observed th
The neo-classical
"like classical theory,
theory is not free from its shortcomings.
neo-classical theory suffers from incompetency, a short-sightej
facets of human behaviour studie
perspective, and lack of integration among many
a tool for cynical puppeteering i
by it." The criticisms range from 'human relations as
more than a trifling body ofempirical
and descriptive
to 'human relations is no
people,
information. Trade unionists ridiculed it as a form of 'cow psychology. Huma
relationists are also nick named as 'happiness boys' who ignored the economic realities

The neo-classical theory has been criticised on the following grounds:

() Invalid Assumptions. Certain assumptions on which the neo-cassical theor
is based do not seem to be true. For example, the assumption that there is
a solution to every problem which satisfies everyone in the organisation is
not true. Ofren there are conflicts of interests among various groups in the
organisation that are structural and not merely psychological.
(i) Lack of Scientific Validity. The human relationists drew conclusions from
Hawthorne studies. These conclusions are based on clinical insight than
on scientific evidence. The groups chosen for study were not representati
in character. The findings based upon temporary
groups do not apply
groups that have continuing relationship with one another. Moreover, th
experiments focused on operative employees only.
(ii) Limited Application. The various structures of organisation given b
neo-classicists are not universal. Their application is limited. There is e
particular structure which may serve the purpose of all the organisatio
The relationists also overlooked some of the
environmental constrain
which managers cannot ignore and this
the theory limited.
lapse makes the practicability o

(iv) Limited Focus on Work. It lacks adequate focus work. Human

on
relatiot
apprach puts all the emphasis on interpersonal relations and on the infon
group. It tends to overemphasise the psychological
asp2cts at the cost of tn
structural and technical aspects.
() Over-concern with Happiness. Neo-classicists have
been criticised
single minded attention to the concept of 'happiness' of employecs. r
Hawthorne studies suggested that happy T
employees will
employees. This equation between happiness and job product be
satisfaction
DEVELOPMENT OF MANAGEMENT THOUGHT 3.9
unfortunate as it represents a naive and simplistic view of the nature of man.
Studies have failed to show a consistent relationship between happiness
or morale and productiviy. It is quite possible to have a lot of happy but
unproductive workers.
(u) Fragmented Approach. The theory lacks the unified approach. In fact, it
is not a theory at all. All that was done in neo-classical theory is simply a
modification of classical theory rather than organisational transformation.
So this theory has almost the same limitations as the classical theory has.
(vin Other Shortcomings. The neo-classical theory also suffers from
incompetency, a short-sighted perspective and lack of integration among
many facets of human behaviour studied by it. Some other modern thinkers
also opine that this theory is bankrupt and unable to suggest any thing new.

BOX-1
Hawthorne Experiments
Between 1927 and 1932, some significant experiments in the field of industrial
psychology were carried out by George Elton Mayo and FJ. Roethlisberger,
Professors of Industrial Research at the Harvard Graduate School of Business
Administration, and William J. Dickson of Western Electric Company. An overview
ofthe Hawthorne experiments is given below:
(1) Mlumination Experiment. The purpose ofthis experiment was to assess the effect
of illumination on employee output. Two groups were selected from among
theemployees. One group was placed in the room where lighting remained
constant. The other group was placed in another room where lighting varied
periodicall. Surprisingly, the output of both the groups increased steadily. t
was concluded that lighting was a minorfactor and there were other more
importantfactors influencing the output. At this stage, Mayo and his team
was invited to conduct further studies.

2) Relay Assembly Test Room Experiment. The test group consisted of six female
workers. Frequent changes were made in their working conditions such
as shorter working hours, rest periods, hot lunch, friendly and informal
Supervisors, free interaction among members ofthe group, etc. Productivity
of the group increased even when the improvements in working conditions
were withdrawn. It was concluded that
socio-psychological factors, e.g.,
special attention, recognition and sense of group belonging exercise a greater
influence on productivity than working conditions.
8) Bank Wiring Observation Room Study. In this experiment, a group of fourteen
Workers was put under close observation. The pay of every member was made
dependent on the performance of the group as a whole. It was found that
the group had developed its own norms of performance and various forms
ofsocial pressure were exercised to enforce these norms. As a result output
could not increase despite group incentive scheme.
 DEVELOPMENT OF MANAGEMENT THOUGL
JGHT
3.10

number of workers were interviewect

4) Moss Interview Programme. A large the factore
attitudes and opinioIIS on
by the reseorchers to understand their
that the opportunity talk freely
to about
influencing productivity. It was found ettect on their morale
thot to workers, has a positive
important
things are

ond productivity.
The major findings of the Hawthorne experiments or Human Relations studies are
os under
() An organisation is a psycho-social system.
(i) Human factor is the most important element in the social system.
(ii) The behaviour of an individual is dominated by the informed group of which
he is a member.
(iv) Workers are not merely rational economic beings motivated simply by money.
They are also socio-psychological beings and respond to the total work
situation.
()Social and psychological factors exercise a greater influence on employee's
behaviour and performance than physical conditions of work.
(vi) Workers act
react not as individuals but as members of
or
a
group. The
informal groups have their own norms and beliets. These
groups and their
leader exercise an
overriding influence the
on attitudes, behaviour and
performance of individual employees.
(vi) Workers respond to the total work situation. Their behaviour
are conditioned
and performance
by factors inside and outside the work- place.

3.4 BEHAVIOURAL SCIENCE APPROACH

Under behavioural science
approach, the knowledge drawn from behaviourl
sciences, namely, psychology sociology and
anthropology, is applied to study, explain and
predict human behaviour. This approach focuses on human
and seeks to promote veriiable behaviour in organisatio
propositions for scientific
behaviour. lays emphasis on the study of motivation, understanding
Jt of huma"
group dynamics, participative management, etc. leadership, communicato
The distinguishing feature
of the behavioural science approach is the methodolog'
employed in developing the research in the management
methodology lies the
collecu0n and analysis of
in discipline. The crux of the
relevant data scientifically. lt is
the sense that this approach differs from the
human relations u
behavioural scientists made the following approach. Further, the
propositions:
i) An organisation is
socio-technical system.
a

(i) Individuals differ with regard to attitudes,

As a result, they behave differently to perceptions and value systen
different stimuli under differen
conditions.
 OPMENT OF
MANAGE MINT IOUGU
DEVE

( l'eople working, inn otganiuation bave tlirin nerdo anl oals, uiwh may
the

ditler fronn the organisational Koals, Atenpe

slenlel Ie mde mhire
atud human eedo,
fusion berween otganisational pale
lactons inllhucnce ier emal anl pup hehavwnur e
i) A wide range of
pcople in organisations.

Features
of Behavioural
Science Approach
appoach a follovma :
teaturcs ot belhavioural scicncc are
The broad
Ir inegyates
) Bchavioural scicnccapproach is an inter diseciplinaryapproach.
rom dilleret diuiplines (psy heogy, wnivnlgy,
the knowlcdge drawn
cconomics, political scicnce and history)
for the sudy of
anthropology,
human behaviour.
of various
with an objective to apply the findingp
i) It is an applied scicnce
rescarches to solve the organisational problerns
causc and cffec relationship
is normative scicnce which not only suggcsts
(i) It a
means to solve organisational
problems.
but also prescribes ways and the
humanistic point of vicw. It acepts
attention on people from
It focuses bis
(i) and living organism and
of individual as a thinking leeling
value an
hin bchaviour
needs and motivations important role in determining
play
in the organisation. conficts and suggests
oriented. It recognizes organisational
() It is goal in order to achieve objectives for the
reconciliation of conflicting goals
and organisation.
satisfaction of individuals considerable
have shown
and social psychologists
Many sociologists, psychologists,
much
have contributed
of management. Sociologists
interest in studying the problems thcir work on groups,
the of organisations through who
to an understanding
of anatomy the sociologists
cohesiveness and cooperation. Among
and Kahn.
cultural patterns, group Dalton, and Katz
Selznick, Homans, Dubin,
are Blake,
might be noted understanding through
likewise contributed to management s o u r c e s of
Psychologists have inftuence, the
behaviour and
of rational individual
their illumination of the aspects the in the a r c a of
many
and the nature of leadership. Among to management
arc Maslow,
motivation, contributed materially
have and his associates,
social psychology who Tannenbaum
d Leavit, Blake
and Mouton, Sayles,
shown how human beings
coregor, Argyris, Herzberg. These scholars
have
should profitably
and
Dennis, Fiedler, Stogdill which the
elfective manager
concerned
of behaviour is
t o their task aspects and groups
with which a manger
these roles
it is individuals purposcs,
Crstand. After all, to accomplish
designed
group
and organisational roles are

by people. behavioural science approach lies in the following

aspects
must be filled
and
he central of the
core
group dynamics,
communication,

leadership,
motivation,
behaviour:
an
participative management.
 3.12 DEVELOPMENT OF MANAGEMENT THOLO
JGHT
The behavioural scicaces have provided managers with a systematic understand
of one of the most critical factors in the process of management-the human elemen anding
Insights evolving from that understanding have been used to design work situatione

encourage increased productivity. It has enabled organisations

to formulate progra
to more effhiciently train workers and managers, and it has effects in numerous ae
other
arcas of practical significance.
Appraisal of Behavioural Science Approach
The study of human behaviour is of great significance in management. Sincean
an
individual is a product ofsocial system, his behaviour is not determined by organisationi
na
forces alone, but many forces like perception, attitudes, habits, and socio-culturi
environment also shape his behaviour. Therefore, in understanding human behaviour in
the organisation, all these factors must be taken intoaccount. The behavioural science
approach suggests how the knowledge of human behaviour can be used in making
people more effective in the organisation.
Behaviourists have enriched management theory and practice through their
contributions in the areas of group dynamics, motivation communication, leadership
participative management, etc. However, they have failed in developing an integrated
theory of management. Although study of human behaviour in organisations is
extremely important, yet management cannot be confined only to this area. There ar
other variables such as technology and environment which have an important bearing
on the effectiveness of an
organisation.
However, the behavioural sciences have not achieved the
sciences. Often the complexities
precision of the physical
of human factor and the
the organisation setting make
exact
predictions almostimpossible. It is not uncommon for based
sound behavioural programmes o
principles to have unexpected results.
3.5 SYSTEMS APPROACH
The systems
approach is based on the view that
composed of elements that are interrelated and an
organisation is a
systc
and King, A is
system interdependent. According Clelan to
composed of related and
interaction,form a unitary whole. It is simply an dependent elements which, when
or
parts, forming complex whole. Its
a assemblage or combination of tn
hierarchy of subsystems. The world as a important feature is that it is
which various national whole can be considered composeu n
economies are industry is composed of firms, to and
be
subsystems. turn, each national ofsysten
a
composed of its various industries, each In couimy s
firm can be considereda econo se,2
finance, accounting system composed of
and, in turn, each
and
so on.
Thus, each subsystems such as production, markc eting
subsystem may be further system may comprise several sub>y
Closed vs. Open
System. A composed of sub-systems.
dependent and does not have any interaction
system may with the external
be closed or
environment. ruyisself
open. A closed
systeu
 MANAGEMENT THOUGHT 3.13
DEVELOPMENT OF
are closed systems. A closed system concentrates completely
and mechanical systems
1.e., interaction between sub-systems only. Because
of lack
an
o n internal relationships, in the
af interaction with environment, it is unable to monitor changes occurring
with the
external environment. On the other hand, open system has active interface
an

environment through the input-output process as shown in Fig. 3.2. It draws inputs

such as materials, technology and information form the environment

capital, labour,
desired by the society. It responds to the changes
and transforms them into output
the feedback mechanism. That is why, modern authors
in the environment through
consider organisation as an open system.

-Environment

Inputs (Capital, Outputs

|Labour, Materials Transformation (Goods
and
Machines Process
Services)
Information)

L--.
Feedback

Fig. 3.2. Organisation as an open system

Contributions of Systems Approach

The systems approach is far more superior to classical and neo-classical approaches
because of the following features:
theory
classical treated
(i) Open System View of Organisation. The
organisation as a closed system. But modern theory considers organisation
environment.
has continuous interaction with the
as an open system which
and transforms thenm into
lt gets various resources from the environment
environment. Due weightage has to be given to the
outputs desired by the
environmental factors affecting the management of an organisation.
) Adaptive System. An organisation is a dynanmic system as it is responsive

to its environment. It is
vulnerable to changes in its environment such
in the market, etc.
as government policies, new technology, competition
to deal with the
The management has to formulate appropriate strategies
environmental changes.
system consisting
is of
1) Interdependent Sub-systems. An organisation
a

in a business enterprise, production,

several sub-systems. For example,
are sub-systems. All these sub-systems are
sales and other departments
are tied together into
functionally interacting and interdependent. They Hows and so on.
an organic whole through goals,
authority flows, resource
 3.14 DEVELOPMENT OF MANAGEMENT THOUGt
( ) Whole Organisation. The systems approach provides a unihed focus t
organisational eftorts. It gives managers a way ot looking at the organisation
as a whole that is greater than the sum of its parts. The stress is laid on
integration of various sub-systems ot the organisation to ensure overall

eftectiveness of the system.

() Synergy. The output of a system is always more than the combined outpur
of its parts. This is called the law of synergy. The parts of a system become
more productive when they function collectively than when they act in
isolation.
(vr) Multi-disciplinary. Modern theory of management is enriched by
contributions from various disciplines like psychology, sociology, economics,
anthropology, mathematics, operations research and so on.
The systems theory provides a framework to understand interaction berween
various subsystems and visualise unanticipated consequences ofsuch interaction. With
the systems perspective, managers can more easily maintain a balance between the
needs of the various parts of the enterprise and the goals of the enterprise as a whole.
The systems approach facilitates better understanding of the forces in the
environment, that is, the supra system within which the organisation operates. It
emphasizes adaptability, ie., ability to respond to changes in the environment. Systems
approach representsa balanced thinking on organisation and management. It stresses
that managers should avoid analysing problems in isolation and rather develop the
ability for integrated thinking. It provides a unified focus to organisational efforts.
The systems approach stresses on the dynamic, multi-dimensional and adaptive
nature of organisations. It
provides a strong conceptual framework for meaningtul
analysis and understanding of organisations. It recognises the interaction and
interdependence among the different variables of the environment. It provides clues
to the
complex behaviour of an organisation. It warns against narrow
piecemeal approach to problems by stressing inter-relationships. fragmented and
Criticism of Systems Approach
The systems
approach is not free from limitations. It has the
(i) The
following deficiencies
systems approach cannot be considered a unified
This
is
in no
way a unified body of theory of organisation
a
comprehensive study to analyse thethought. Systemsfrom approach tail to ta
(i) The systems approach has failed to organisations ditterent angi
inter dependencies berween specify the nature of interactions and
(ii) The systems approach has failed organisation
an
and its external
to
environmen
spell out the precise relationship
various subsystems.
betwec
(iv) The systems approach does
types of organisations.
not
provide action framework
applicable to a"
() The systems
and synthesis approach
does not offer
of the any tools or
techniques for analys
system and
environment.
 VELOPMENT
OF MANAGEMENT THOUGHT 3.15
CONTINGENCY APPROACH
3.6
The contingency approach advocates that managerial actions and organisational
be appropriate to the given situation and a particular action is valid only
design must
design musSt

situation
certain conditions. It advocates that the managers should develop
under
fact, contingency approach
In has been termed as a
sensitivity and practical selectivity.
the formulation of
ser

common sense approach.

Adoption of this approach can be useful in
information systems, establishing
strategies,design of etective organisations, planning
motivational and leadership approaches,
communication and control systems, shaping
resolving conflicts, managing change,
etc.

described the contingency organisation in

views of
Kast and Rosenzweig have
is a
the following words:The contingency approach suggests that an organisation system
its environmental
subsystems and delineated by identifiable boundaries from
composed of within and
contingency view seeks to understand the interrelationship
suprasystem. The environment and to define
well as between the organisation and its
among subsystems
as
the multivariate nature

patterns ofrelationships
or configurations ofvariable. "It emphasises under varying
to understand how organisations operate
of organisations and attempts directed
circumstances. Contingency views are ultimately
conditions and in specific actions most appropriate for
and managerial
toward suggesting organisational designs
speciic situations.
major premise
is based upon the
to management
The contingency approach The application
handle all the managementproblems.
nat there is no one best way to the existing
should be contingent upon
Or
management principles
and practices
tools of management
behavioural, quantitative and systems
Cifrcumstances. Functional, of the overall conceptual
There are three major parts
should applied situationally.
be
(/) environment; (ü) management
concepts,
management:
CwOrkforcontingency between the first rwo.
relationship contingent
principles and techniques ; and (ii) has been shown in Fig.
3.3.
for the coningency
approach environment (1f)
A general framework model. The
contingency
C e r , it is an abstract depiction of the

IF
(Environmental Variables)

Model.
Framework of Contingency
Fia. 3.3. Conceptual
 3.16 DEVELOPMENI OF
MANAGEMFNT THMit.

(Then) is a dependent variatle t

ndependent variable whercas management ol ceontingrhe Y t1aage
axis. The oal ne.
ndeper dent "If's" arc along the horizontal lor cx"Iple, in the htt6os
of the matrix as possilble.
let

ni in as many cells
condition wotild be eentifieet
hand of the of the
ce.l
or a combination
matrix, a relevant environmental
"if's") and then be contingently related to an apprrti
cttective gval attainre.
ofthe "then's") for the
most
management variable (one or more
possible.
Environment
Congruence between Organisation and
view is this there shonld
An underlying assumption of the contingency
a congruence between the organisation and environment and among the vari
to maximize this congruence. Th
subsystems. The primary managerial role is
appropriate fit between the organisation and its environment and the appropria
internal organisational design will lead to greater effectiveness, eficiency, and participar
satisfaction. Kast and Rosenzweig have analysed the appropriateness of two kinds
strucrures under different circumstances. Firstly, the stable-mechanistic structure
more appropriate when the following conditions are fulfilled
(The environment is relatively stable and certain.
(i) The goals of the organisation are well defined and enduring
(ii) The technology is relatively uniform and stable.
(iv) There are routine activities; and productivity is the major objective.
() Decision making is programmable and coordination and control proCese
tend to make a tightly structured, hierarchical
system possible.
Secondly, the adaptive-organic structure is more appropriate when the following
conditions are fulfilled:
() The environment is relatively uncertain and turbulent.
(i) The goals are diverse and changing.
(ii) The technology is
complex
and dynamic.
1) There are
many non-routine activities in which
are important.
creativity and innovatio
(v) Heuristic decision-making processes are utilised and coordination
control occur through reciprocal adjustments."The system is less hierarchiat
and more fHexible.

Contributions of Contingency Approach

Contingencyapproach is an extension ofhave
of contingency approach is that organisations the systems
to cope with different
The situationme
approach. basic the
different ways. There is no single best
order to be effective, the internal of managing applicable to all situations.
way
rhe demands of the external functioning of an organisation must be consistent
environment. The managers
an organisation
in
harmony with the needs of its members keep the function n
must
and the external for
DEVELOPMENT
OF MANAGEMENT THOUaHT 3.17
Cantingeney approach highlights the multivariate natue of organisations and
cplains
how oganisations operate under varying conditions. With its help, managers
ures wl
structures
which are highly appropriate to the respective situations. If an
can
design
in a stable environment, it can havea mechanistic structure
sanisation is operating
ongan.
kaCterised by high
characterised degree of differentiation, centralisation of authority, rigid
higtarchical relationships,
hierare
rules and regulations, ctc. But ifthe environment is dynamic,
arranic structure
would be more appropriatc. Organic structure is characterised by
collaborative relationships, open communication, scope
docntralised decision-making,
decentralise

decision-tmaking, ctc.
for innovative
Based on the above discussion, we can highlight the following contributions of
contingency approach:
that there is no single way ofmanaging best
() Contingency approach advocates one that is
solution is the responsive
applicable in all situations. The best diterences exist
situation. Significant
to the peculiarities of the given
should deal
between situation and others. Thercfore, management
one
In other words, the effectiveness
with different situations in different ways.
on the situation. The conditions and
ofany technique is contingentdeterminegiven
which approach is applicable and
complexities of the situation
effective.
of manageent concept and it
(i) Contingency approach rejects universality than It requires
c o m m o n sense.
sense. But it is much
more
appeals to common
situation correctly. Use
the ability to analyse and diagnose managerial
a

without the ability to match the

of contingency approach is not possible
demands of the given situation.
management knowledge and skills to the
fit' its approach to the requirements ofthe
i) Management should match or and practices
management policies
particular situation. To be effective, structure,
environmental changes. The organisation
must respond to
to fit the
control system should be designed
the leadership style, and the
situational.
situation faced. Thus, management
is entirely
is action-oriented as it is directed towards the
) Contingency approach
concepts and
the knowledge gained from other
application of systems the nature of
It builds upon this perspective by analysing
approaches. of the organisation.
between various sub systems
relationships cxisting
to determine the predictable relationships
Contingency approach attempts
and outcomes.
between situations, actions
in the area of
significant contribution
D4) Contingency approach provides be
It suggests that no organisational design may
organisational design. determined,
the suitable design is to be
suitable for all situations, rather,
of environment, technology, task and
kecping in view the requirements
people.
3.18 DEVELOPMENT OF
MANAGEMENT THO
Table 3.1: Classical Approach vs. Neo-classlcal Approach OUG
Classical Appmach Neoclasival (Human Relations Apprma
t was
propounded by EW. laylor. | 1. t was propounded by lton Mavo
Henri Favol and Max Weber.
2.
tsuggested an
engineering approach | 2. |t suggested human relations as a metho
to
management problems. It applied achievinghigher noudoi
scientihic merhods. leproductivity. discard.
the engineering approach.
3.
lt focussed on the study of the |3. | It focussed on the study of individuals
productiviny problems of industry. needs and behaviour. hu
4. The main
concepts are division of work, | 4. | The main
span of control, organisation structure. concepts are job
satisfiactin
motivation and employee morale.
centralisation of authority, and
5.
authority-responsibility relationships.
It
originated from the experience
of|5. |It originated from the
Taylor and others in
dealing with the Hawthone
problems of factories. Experiments conducted by the psycholo
6. giests and sociologists.
It concentrated
productivity and efficiency.
on
improvements in 6. Itconcentrated on improvements in
inter
personal relations and human relations in
industiry.
Table 3.2:
Systems Approach vs. Contingency
Systems Approach
Approach
1. It treats all Contingency Approach
organisations
alike 1. It treats each
irrespective of their size, cultural setting entity.
organisation as a
unique
and dynamics.
2. It stresses
interactions and inter- 2. It identifies the
dependencies among systems and exact nature ot
subsystemns. interdependencies and their impact on
organisational design and managerial
3 It studies style
organisation at an abstract and 3. lt is more
philosophical level down-to-earth, pragmate
4. t is
and action-oriented.
neutral or
non-committal on 4. It
the validity of classical firmly rejects the blind application
management.
principles of
of principles regardless of realities ot
5. It stresses individual situations.
upon the synergetic effect of 5. It relates organisation structure
organisations and the external
input. design to the environment. au
6. It simply lays down that the
organisation
interacts with the environment. 6. The impact of environment o
the
organisation structure an
managerial style is the major concer
7, It provides a theoretical model of
of contingency approach.
understanding the organisation and its |7.
It stands for down-to-earth
oriented approach to
action
subsystems. problems.
organisa-tion
8. TcitOgests deterministic solutions of 8. It suggests
management problems.
solutions of
probabilistic and pragnma
management problems
 ANAGEMENT
VELOPMENT OF MAN THOUGHT
3.19

OUESTIONSs
Short Answer Questions

the contribution of the classical Theory.

1. Briefly explain
neo-classical approach?
2. What
is the basic theme of
are the features
of system approach?
3. What
contingency approach? Explain.
4. What is
behavioural science approach.
5. Briefly explain
approach ? Explain.
6. What is empirical
the features of bureaucracy?
7. What are
8. What are
the main features of social system approach?

Long Answer Questions

1. Explain in brief the various approaches to management.

from the early pioneers to
2. Explain the evolution of management thought
modern times.
Classical Theory of Management.
3. Outine the major contributions of the
explanatory note on the Classical Approach to the study of
4. Write an

management.
or Human Relations Approach to Management.
5. Write a note on Neo-classical
6. What are the features of Classical Approach.
Why is it criticised ?
neo-classical approaches to management.
7. Diferentiate between classical and
the salient features of
8. What is systems approach to management Explain
?

this approach.
to the development of
9. Examine the contribution of Contingency Approach
management thought.
10. What is the basic theme of Contingency Approach to management ? Explain
the practical utility of adopting this approach.
11, "Management is the art of muddling through the situations". Comment upon
approach.
this statement while discussing the features of contingency
12. Write notes on the following :
(a) Classical approach
(6) Behavioural science approach
(c) Systems approach.
 CHAPTER 4

Planning and Forecasting

Concept and Nature ot Planning

Types of Planning
Process of Planning
Essential Requirements of an Effective Plan
Derivative Plans
Barriers to Etective Planning
Key Principles of Planning9
Management by Objectives (MBO)
Business Forecasting
Techniques of Forecasting

Introduction
Planning is the most basic of all management functions since it involves deciding
ot Turure course of action. The other functions of management, viz., organising, staffing
irectung and control, must reflect proper planning. A manager organises, directs and
controls to ensure the accomplishment of predetermined goals according to plans. Thus,
lanning logically precedes the execution of all other managerial functions. Although all
nctions intermesh in practice, planning is unique in the sense that it establishes
c Obectives for the group effort and lays down steps to accomplish them before the
anager proceeds to perform other functions.

CONCEPT AND NATURE OF PLANNING

Definition of Planning
Killen, "Planning is the process of deciding in advance wbat is
to
to COrding
be done,
to
is to do it, how it is to be done and whe it is to be done". It is the
who :
determination
on
of a course of action to achieve the desired results. It bridges the gap
4.1
4.2 PLANINING AND FORECAST
from whcre we are' to 'where
TIN
want to go. It makes it possible for things
we

which would not orherwise happen. Planning is a mental

to
toe oC
process requiring the .

ot intellectual faculties. and

imagination. foresight sound judgement. In the wordrds
Koontz. ODonnell and Weihrich. "Planning is an
intellectually denanding tro.
it requires the conscions determination
of courses of action proce,
and the basing of decis
on
purpose knoweledge and considered estimates." sion
Planning involves anticipation of future course of events and deciding the .
course of
action. It is basically a process of thinking before doing is a deliberate bey
conscious rescarch used to formulate the
design and orderly sequence of actican
through which it is expected to reach the objectives. Thus, we can that
attempt to decide a particular course oft action for the future.plannin.
is sstenmatic
a
say
to determination of It leai
objectives of the group activity and the steps a
them. necessary to achie

Nature of Planning
The nature of
planning can be highlighted by studying the following
() Planning is Intellectual Activity Planning involvescharacteristic
an
:

foresightedness to decide the things to be done in future. It visionthe ang

between where we are and where we
want to
bridges g
It
go. is not a simple process. k
involves use of mental skills for the
achievement of group objectives.
(ii) Planning Involves Selection
Among
activity. The planning process involves Alternatives: Planning is a choia
ofthe best alternative to achieve specifiedfinding alternatives and selection
of
is an objectives. Thus, decision-makin_g
integral part of planning. Every manager finds himself surrounded
many alternatives. He has to
pick up the best one.
(ii) Planning is Forward-Looking: Planning means
out to achieve some looking ahead. It is carri
events such
objectives in future. It
may involve forecasting of futur
customers demand,
as
other words, the competition, government policies, etc.
manager attempts to handle future
theprocess of planning. Thus, effectively throug?
events

(iv) Planning is Related to planning is tuturistic in

nature.
Objectives:
attained in the future and the Every plan specifies the objectives to N
steps
said, "Plans forecast which actions necessary to reach thenm. As Billy E. Gioxt
will tend towards the ultimate
Managerial planning seeks to achieve a consistent, objectuvc
operations focused on desired coordinated strucure
ends."
(v) Planning is the Most Basic
of
All Management Functions: Since
operations in
organising, stafing. leading, and controlling managc
supporr the accomplishment of designced
are

precedes the execution of all otherenterprise objectives. planning loge

(vi)
managerial functions.
Planning is Pervasive Function of
a
all managers,
although the characterManagement: Planning is functn a
and breadth of
their authority and with the nature of
planning will vary W
policies and plans outlined by t
 ANINING AND
FORECASTING 4.3
superiorsS.

bjectives oft P'lanning

aims of planning are as follows:
The major
Planning is intended to give
of direction. of sense
To provide unity of
a

direction to all organisational activities by focusing on well defined goals

of interest among different departments would
the enterprise. The confict
be avoided.
enterprises operate
Business in an uncertain
(in To reduce uncertainty.
environment and face several types of risks. Planning enables the enterprises
of
future events and prepare for the same. Thus, with the help
to predict
and take steps to overcome
planning, managers can identify potential dangers
them.
and wasteful activities. Planning is done to

(ii) To check overlapping and

ensure clarity in thought
and action. There would be no confusion
of activities. Moreover,
misunderstanding. This would reduce overlapping
checked.
wasteful activities will also be
in advance and, therefore,
To promote new ideas. Planning thinking
is
(iv) ideas and better methods and procedures
to
there is scope of finding better
reach the goals of the enterprise.
Planning is intended to provide
To establish standards for controlling.
() which the actual performance of different
standards or benchmarks against of
could be measured and evaluated. A comparison
units and sub-units
standards would help to
find out deviations
performance with the
actual
actions in time.
and take corrective

4.2 SIGNIFICANCE OF PLANNING

the following advantages
Good planning can result in is directed cowards
Since all planning
on Objectives: focuses attention o n
rocuses Attention the very
act ot planning

achieving enterprise
objectives, in planning. If the
objectives is the first step
down the will also be directed
these objectives. Laying
the execution of plans
laid down,
clearly
are
obJectives
exercise
towards these objectives. lot ot mental
Operation:
Planning involves a the enterpris.. it
Economical in
Ensures

towards achieving
efficient operation activity, even

Which is directed uncoordinated

piecemeal
effort for for judgements.
Substitutes joint directed and deliberate
decisions snap

for unevenflow, and thus

minimising
costs.

now of work resources

utilisation of future
future
h i s helps in
better
in reducing
of
uncertainties

is the
Planning helps Ettective planning
in educes
Reduces Unc
Uncertainty:
of future
events.

anticipation It involves forecasting

Decause it involves facts and hgures.
based o n
thinking
result of deliberate
4.4 PLANINING AND FORECASTIN
also.Planning gives an opportunity to a business manager to foresee yar:
rariouy
uncertaintics which may be caused by changes in technology, taste and fash
ofthe people, etc. Sulficient provision is made in the plans to offset ashion
uncertainties. these
i) Facilitates Control: Planning helps the managers in
of control. Planning and control are
performing their functiction
inseparable in the sense that unplannned
action cannot be controlled because control involves
the predetermined course by
keeping activities
rectifying
deviations from plans. Plani
helps control by furnishing standards ot control. It lays down objectives
standards of performance which are essential for the an
function. pertormance conte
of

() Encourages Innovation and Creativity: Planning is basically the decidino

function of management. It helps innovative and
creative thinking amone
the managers because ideas
many new come to the mind of
he is planning. It creates forward manager when
a
a
looking attitude among the managers.
(vi) Improves Motivation: A good
planning system ensures participation of al
managers which improves
their motivation. It
workers also because they know improves motivation of
the
clearly what is expected of them. Moreover
planning serves as a good training device for future managers.
(vi) Improves Competitive Strength: Effective planning gives
edge to the enterprise over other enterprises that do competitive
a

not have
planning or have ineffective planning. This is because
involve expansion of planning may
capacity, changes in work methods, changes in quality
anticipation tastes and fashion of people and technological changes, etc.
(vii) Facilitates Coordination: Planning secures
unity of
organisational objectives. All the activities are directed direction
towards the
towards the common
goals. There is an integrated effort throughout the enterprise. It will also help
in avoiding
duplication of efforts. Thus, there will be better coordination in
the organisation.

4.3 TYPES OF PLANNING

We classifying planning on the basis of the following dimensions:
can

1.
Organisational Level. Corporate, divisional and functional planning
2. Focus.
Strategic, operational and tactical planning.
3. Time Period.
Long-range, medium-range and short-range planning.
4.3.1 Levels of Planning
(i) Corporate Planning (Top Level). Corporate planning may be defined
and
a
a
systematic comprehensive process of planning taking account of the resources a
capability of the organisation and the environment within which it has to operate ano
viewing the organisation as a total corporate unit. Corporate planning is strategie"
nature and it covers the entire spectrum of organisational activities. It lays down te
 PLANINING AND FORECASTING

iectives, policies and strategies lor

basic objectives lor the
thc
.5
fve
five e organisation orpan
as a
whole, It usually covers
long period of
ycars o
ycars orr evcn
more than this.
a

Corporate planning provicdes for tuture

contingencies and attemprs match the ro
organisational1resources withthe
at
opportunities and threats in the external
external envirrnmer
environment.
e

Plansat
Plans at the
the corporate
corporate level are formulated
are
bv the to
by the top level and they integrate
arious divisional and functional plans of the cnterprisc. managers

(: Divisional Planning (Middle Level). Divisional planning relates

ivision or department. 'Thus, it sets the
a
particular
objectives, policies and programmes of a
narticular division or
department in tune with the
plans of corporate the
The divisional head and middle level managers are responsible for enterprise.
divisional plans. For
instance, financial planning is the responsibility of finance
manager and sales budget
that of marketing manager.

(iit Sectional Planning (Lower Level). Sectional or unit planning is highly specific
as it is done to achieve the divisional objectives. Its focus is to lay down detailed plans
for a particular unit for the day-to-day guidance of personnel working there. The first-
line managers are responsible for developing plans for thcir units in the light of the
divisional plans. Such plans are more specific and detailed as compared to divisional
and corporate plans.

4.3.2 Focus of Planning

) Strategic Planning: Strategic planning is the process of deciding the objectives
of the organisation and determining the manner in which the resources of the enterprise
are to be deployed to realise the objectives in the uncertain environment.
A strategy represents the general direction of the organisational efforts. It is the
way In which the management chooses to utilise the organisation resources to reach its
objectives. It involves multilateral relationships among the organisation, its resources
of the hrm
nd environment. Strategic plans are made by the top management
the
and weaknesses in the light ofinternal
aking into account the firm's strengths
and external environment.
with the etticien
Operational Planning: Operational planningis concerned nechanism
resources already allocated and with
the development ofa control
he are achieved. lt lays
efhcient operation so that organisational objectives
do
down rules, etc. to implement
policies, procedures,
the s progrgrammes, budgets, projects,
plan (also called tactical planning)
8IC lan. In other words, an operational will be used to help
involves layin down how the firms
resources of the organisation
the 6firm
achieve its objectives. be
the strategic plans will
the details of how
Operational
ccOmational plans provide activate the strategic plan
domain
a r e do of
accomplished. In othe
her words, the
details that
often m o r e specihc
than a strategic plan.

operational
Planning. An
operational plan
is
made tor
s h o r t - t e r m m o v e s and
are
(in Tactica Tactical plans hrma objectives.
actical Planning : and achievIng
the strategic plans
euvres necessary
essary for
supporting
 PLANINING AND FORECASTINn
4.6 NG
They are required to meet the challenges of sudden changes in the environmen.
forces. For instance, tactical plans may be made to handle a sudden fall in the dema.
and
fhrms products of unexpectcd move by a competitor. Tactical planning may ale.
of
become nccessary to secure big orders by changing the price policy, terms of cred
and discount. ctc. The nature of a tactical plan is dictated by the threats posed by th

environment.

Table4.1: Strategic Planning vs. Operational Planning

Basis Strategic Planning Operational Planning
It covers a long period of time It covers a short-term perspective
1. Time Span
depending upon the nature of| upto one-year.
business and its environment.
2. Level of It is done by the top level managers. | It is done by the middle level and
lower-level managers.
Management
3. Scope It covers the whole enterprise. It may cover specific departments
or functional areas of business.
4. Primacy Strategic plans based on
are Operational plans are based on
organisational objectives and they strategic plans and they succeed
precede operational plans. strategic plans.
5. Details Strategic plans contain relatively Operational plans contain greater
less details and soare less specific. details and soare morespecific.
6. Resources Strategic plans are concerned with| Operational plans are made to
the acquisition and allocation of utilise the given resources efficiently.
new resources.
7. Environment Strategic plans are made inthelight Operational plans are focused on
of external environment. They the internal environment ofthe
are
generally based on long-term firm so as to make effective use of
forecasts of techno-logical changes, firms resources.
economic changes, socio-political
changes, etc.

4.3.3 Range or Time Span of Planning

() Long-range Planning. ILong-range planning is the process of establishing long
term goals, working out strategies, policies and programmes to achieve these goals.In
other words, long-range planning sets long-term goals for the enterprise and formulate
strategic plans for ataining these goals. It generally covers a period ranging from 5 yeus
to
20 years or even more. The period will vary from organisation to organisation.
may be five years fora departmental store and at least twenty-five years for a compau
intending to take up the production of timber. The purpose of long-range planning ma
include technological leadership, increase in market share, globalisation of
productuo
and marketing, public image, etc.
Long-tange planning may involve capital budgering. product panning. projo
planning, acquisition of competing units. It may involve a complete change in outdoo
 ANINING AND FORECASTING
4.7
usiness. h the broad technological, financial and
l deals w

t siness. Because ot this, long range planning is assoiated competitive

witlh grear a
aspects
deal of
inty. lts
will
sucres
bedetermined by the abiliny of the
the environmen. organisation to
predict
dealwith
d
alntermediate or Medum-range Planning. Intermecdiate plans mad are ro
the long-term plans They may relate to
Sy development of new
roduct publicity, increasing return investment from the
markets. poo on
products and
Medium-term
markets, ete. Me existing products
planning usually covers a period of more than one year
bur less aLssthan five years. The length of period
may vary from one business to another
ending upon the inature of business, risks and
uncertainties, government control,
hanges in technologY, nature of market, etc.
iin Short-range Planning.
Short-range planning relates to a
generally. Such plans are made to achieve short-term goals. period upto
of one

is concerned more with the current or near tuture

Short-range planning
operations of the enterprise. It may
he considered as a step by step approach to medium and long-range planning. Short-
range plans are instrumental in implementing long-term plans. They are quite specific in
ature such as change ot product design, training of workforce, reduction of
levels, preparation of production budget and so on.
inventory
action-oriented and is the reasonability of lower level managers.
Short-range planning generally
is

Table 4.2: Long-range, Medium-range and Short-range Planning

Basis Long-range PlanningMedium-a Planning Short-range Planning
1.Time Span Time horizon is|Time horizon is more than
Time span is restricted|
generally more than| one year, but less than five| upto one year.
five years. years.
2. Focus It is focussed on It is focussed on the
thel long-
Ies main focus is one
external environment| range plans and internal| internal environment
of the business. environnment of business. of business. Linkage|
bet-ween various|
elements of business|
is greatly emphasized.
3.Uncertainty It is very high. It is moderate. lt is low.
4. Specificity The actions are less The actions are specitied,| The actions are highly
but details are lacking. specificd and detailed.
specified.
5. Linkage It is linked with the|lt is linked wih long-range| lt is instrumental|
in implenening|
corporate objectives. planning. medium and long
range planning.
6. Means Methods, rules,
Strategies and long-|Policies, procedures, pr0-| budgets, schedules,
and projects are|
term policies arel
grammes
etc. are enployed
quite often used.
formulated.
4.8 PLANINING AND FORECASTI
NG
4.3.4 Formal and Informal Planning
Various types of planning discussed above are of formal nature. They
hey are.
are carried
on systematically by the management. They specify in black and white the specihc
and the steps to achieve them. They also facilitate the installation of internal congoa
svstems. Intormal planning, on the other hand, is mere thinking by some individu
which may become the basis of formal planning in future.

4.4 PROCESS OF PLANNING

It is dificult to specify the steps in the planning process tor all organisation
because of their differences in size and complexity. Nevertheless, it is possible tosugge
some important steps for effective planning. The steps which are applicable to the mon

ypes ot plans are discussed below:

Establishing Objectives : Planning is an intellectual process which an executi
carries out before he does any job with the help of other people. But while planning
the question which must arise in the mind of the executive is what is the objective
of doing the job ?" So, the first step in planning is the determination of objectiv

Objectives provide direction to various activities in the enterprise. Planning has o

utility if it is not related to objectives.
The establishment of objectives can, at times, be more important than the

objectivesthemselves since their establishment emphasizes how various people and

units fit into the overall organisation framework. The formalisation of this proces
can also be used to motivate individuals to achieve objectives which they have helped
to establish. Objectives clarify the tasks to be accomplished. Overall objectives define
what is to be accomplished in general terms. The derivative objectives focus on mor

derails, that is, what is be accomplished, where action is to take place, who s a
to
perform it, how it is to be undertaken, and when it is to be accomplised.

Forecasting of Demand,
Establishment of Planning Premises
Objectives Competition, Government|-
Policy, etcC.

Follow up Action Developing9

and Review Alternatives

Implementation Selection of Evaluation

of Plan Best Alternative of Alternatives

Fig. 4.1. Steps in Planning.

Istbe
(i) Collection of Information and Forecasting: Sufficient information
mu s the
collected in order to make the plans and subplans. Necessary information
include
 PLANINING AND FORECASTING 4.9
of the forward look
organisation together with
eritical assessment of the
current status a

h e environment that is anticipated. The assessment of external environment may

the strong and weak points of the organisation. Collection of information
consider

and making forecasts serve as an important basis of planning.

an

(iin Development ofPlanning Premises: This step involves making assumptions

-ancerning the behaviour ofinternal and external factors mentioned in the second step.
Te is essential to identify the assumptions on which the plans will be based. Assumptions
denote the expected environment in the future and are known as planning premises.
Again, forecasting is important in premising. It helps in making realistic assumptions
about sales, costs, prices, products, technological developments, etc. in the future. The
assumptions alongwith the future forecasts provide a basis for the plans. Since future
environment is so complex and uncertain, it would not be realistic to make assumptions
in greater details about every environmental factor. It is advisable to limit premising to
those factors which are critical or strategic to the planning process.
(iv) Search of Alternatives: Usually, there are several alternatives for any
plan. The planner must try to find out all the possible alternatives. Without
resorting to such a search, he is likely to be guided by his limited imagination.
At the time of finding or developing alternatives, the planner should try to
screen out the most unviable alternatives so that there are only a limited
number of alternative for detailed analysis. It may be noted that determination
of alternative plans can be a time consuming task because objectives which
have been established initially may be found to be inflexible. It is also
possible that the assumptions need revision in the light of the changed circumstances.
(v) Evaluation of Alternatives: Once alternative action plans have
been determined, they must be evaluated with reference to considerations
like cost, long-range objectives, limited resources, expected payback, risk,
and many intangible factors to select the satisfactory course of action. Many
quantitative techniques are available to evaluate alternatives. The manager may take
the help of these techniques to reach the most objective result.

(vi) Selection of Best Alternative and Formulation of Plan: The best

possible alternative may be chosen by the manager after detailed analysis.
dometimes, evaluation of available alternatives may disclose that two or more
courses are advisable and so the concerned manager may decide to choose
wo or more alternatives and combine them to suit the requirements of the situation.

(vin Implementation of Plan : The final step in the planning process is to develop
derivative plans to implement the plan. The derivative plans are required to support
the basic or overall plan because the latter cannot be executed ettectively unless it is

Supported by the derivative sub-plans. The derivative plans are developed within the
or
decides to acquire a fleet of
nework of the basic overall plan. For instance, if an airline
cW planes, it will be followed by the development of a host of derivative plans dealing
with
h e employment and training of various types of personnel, the acquisition of

parts, the installation of maintenance facilities, scheduling, advertising, financing

and insurance.
 4.10 PLANINING
AND FORECASTINg
viin) Follow up Action and Review: After the plan has been put into practice :
t
Is essential to follow it up so as to remove ditfhculties in its implementation. If necdoa
the plan may even be modified or revised to achicve the intended objectives.
ed,

4.4.1 Essential Requirements of an Effective Plan

An effective plan is one which hclps in the better management of the enterDrise
In order to be effective, a plan should possess the following characteristics
1. The plan should be specific. The more specific it is, the less chance there
for it to be misinterpreted. Objectives should be clearly defined. The meanins
for carrying out the plan should also be indicated in unambiguous terms,
2. The plan should be logical. The more facts it is based on, the better it i
If facts are not available, reasonable assumptions must be made about the

future.
3. The plan should be complete and integrated. A plan is said to be complete
when it is comprehensive enough to cover all actions expected from the
individuals and sections of the undertaking as a whole. It is said to be an
integrated one when various administrative plans are so welded into one
another that the whole undertaking operates at the peak of its efficiency
4. The plan should be flexible. No plan is infallible nor can it cover all possible
contingencies. Conditions under which a plan will be most effective change
as do the variables and factors on which the plan is formulated. Therefore,
it is essential to introduce some flexibility in every plan.
5. The plan should be capable of being controlled. Effective
of business activities depends upon the foresee
ability to
planning
with utmost accuracy the nature and requirements of future events
relating to industry in general and the business undertaking in
particular. Theretore, the plan must distinguish between controllable
and uncontrollable future environment for better administrative control.

4.5 DERIVATIVE PLANS

Objectives
According to Louis Allen, "Objectives ave goals established to guide the eforts f
the company and each ofits components." Objectives are key to effective planning. n
fact, planning has no meaning unless it is related to certain well-defined objectives or

goals. Objectvesare not onlyusetulin planning but also in other managerialfunctto

like organising, directingand controlling They are an important aid in decision-making
in any area of business. Clear-cut objectives encourage consistency in decision-making
in the long-run.
Objectives are the ends towards which the activities of an enterprise are direc
They provide direction to various activities of the enterprise. They depict a fut
state of affairs which an organisation strives to realise. They lay down guidelines
 PLANI AND FORECASTING
4.11
actVitIes
and also constitute
also.
a source of
legitimacy which justifhes the various
various
an organisation and aiso its very existence. Objectives serve as benchmarks
acti r the pertormance of various people working in the
o f
n m e a s u r i n g

and organisation the

ettectivencss and cfhciency of the organisation.
The management imust determine (a) overall and
long-term. and( cconomic and social jectives so as departmental., (b) effective
to make planningshort-term
and tives are clear, every individual in the organisation will understand what he
W hen objecm

achievement
tribute tor thea of these objectives. It is important to
at the top level.
the endpoints of
are
point out that
objactives planning, but at the intermediate and
levels, they also serve as standing plans. The objectives guide the laying down of
ower
nrocedures, etc., and also serve as benchmark for measuring the effectiveness
arganisation and its various departments.

Policies
Policies are guidelines or general limits within which the members of an enterprise
at. They are general statements or understandings which guide thinking and aciion.
Policies exist at various levels of the enterprise-corporate,
divisional and departmental.
Thev are valuable because they allow lower levels of management to handle problems
without going to top management for a decision each time. Some examples of policies
at various levels of the enterprise are given below
1. No employee will accept any gift from any supplier except for token gifts of
purely nominal or advertising value.
2. Each employee will proceed on one weeks vacation each year.
3. No employee will accept any outside assignment.
Policies provide broad guidelines as to how the objectives of a business are to be
achieved. While objectives provide the ends which a manager should try to achieve, the

Table 4.3:Policies vs.Objectives

Policies Objectives
. Policies are guidelines which facilitate the 1. Objectives are the ends towards which all

achievement of predetermined objectives. activities of the enterprise are directed.

Pol how the work is be | 2. Objectives determine what is to be done.
IEs determine to

done.
. Pol
Sprescribe the mode and the manner | 3. Objectives are the endpoints ot planning.

in which objectives can be achieved.

4. are determined by the owners
Policies are form
rmulated at the top level, | 4. Objectives
middle level and lower level management of
the business.
or top
management.

policies p
Poli Vide the guidelines which he should keep
in view while achieving the ends. A
objective, devised to govern the activities
tablished
the bbusines enterpt
ofthe guiding premised on conduct are derived."A
enterprise and from which the basic precepts of
policy is
Policy
"cd to
members to deal with particular
guide the organisational
a situation
 4.12 PLANINING AND FORECASTI
n
particular manner. It delimits the area within which a decision is to be made
a

asures that the decision will be consistent with and contributive to

business obiecs..Ane
tive
Strategies
The term strategy has been adapted from war and is increasingly used in bus
to reflect brmad objeetives and policies of enterprise. In the context of busin.
an
sines
strategy reters the firms overal plan for dealing with its environment. Strategiesines
ro
,

often denor general programme of action and deployment of emphasis and resou
a

to attain
oomprehensive objectives. Strategies are plans made in the light of the urcnni.
of the
competitors because a modern business institution operates in plan
environment. They arc a useful framework for
comperi titi
a

For instance. a
guiding enterprise thinking and acintion
company may follow a strategy of charging a lower price or
saletorce than competitors or using mes
advertising more heavily than competitors.
The purpose of
strategies is to determine and communicate, through a system
major objectives and policies, a
do not attempt to outline
picture of what kind of enterprise is envisioned. The
exactly how the enterprise is to accomplish its objectve
since this is the task of countless
major and minor supporting programmes. But the
are a useful framework for
guiding enterprise thinking and action. This usefulness
practice and importance in guiding planning do, however,
ype of plan for purposes of analysis.
justity their separation as
Procedures
Aprocedure is a systematic way of handling regular events. It is stated in erms
to be followed in
carrying out certain kinds of work. According to Terry, of ste
series of related tasks that make the procedure a s

of performing the work to be

up chronological sequence and the established w
events that occur
accomplished. It is list of systematic steps for handling
a

regularly. Chronological sequence of required actions is the essenc:

of anyprocedure. procedure is a guide to action rather than to
A
leaves any room for thinking, so it hardh
For instance, there
judgement. Procedures involve planned
sequence and consistena
may be different procedures in an
enterprise for processing an orde
shipping the goods, handling claims, collection of payment, and so on.
Table 4.4 : Policies vs. Procedures
Policy Procedure
1. A
policy is a
guide to
thinking and .
Aprocedure is aguide to action. It conta
decision-making. steps to be taken in a chronological ordet
2. It is derived from objectives of the 2. ltis laid down to implement some poley
enterprise.
3. It is flexible. It leaves some scope for 3. Tt is more less
manager's discretion.
or
rigid. It gives
aiscretion to the person concerned wi
its implementation.
4. lt is
expressed in the form of a
general 4. lt is
statement. expressed in more specific terms.
PLANINING AND FORECASTING 4.13
Dracedures are operational guides to acrion as they routines the way certain
recuring jobs are to be perform The establishment of various procedures tends
to impart systema matised order in place of confusion in the organisation. They serve as
ncans by
means by whici
which olicies and decisions are implemented. Well designed procedures
inallow effective delegation and decentralisation ofauthority without loss of control
and coordination.

Methods
of work A
There is a method for accomplishing each phase within a procedure.
means by
mechanical operation performed. means
which each It is
method is the manual or
an established manner of doing an operation. Thus, a method is more limited in scope
one step of a procedure. For
than a procedure because it deals with a task that only
is
instance, in the procedure for the processing order, there are methods for acknowledging
the sales
the incoming order, checking the credit status of the customer, preparing
invoice and distributing the copies of the invoice.

Rules
operate in an orderly way by laying down
to certain
Every organisation attempts
rules. The rules are the simplest and the most specific type of standing plans. They are
used for guiding what may or may not be done. A rule demands a specific action. Itis
more rigid than a policy. Rules generally pertain to the administrative area of a procedure.
A rule may not be a part of any procedure. For example, a rule like No Smoking is not
related to any procedure. Rules demand strict compliance. Their violation is generally
associated with some sort of disciplinary action.

Programmes the managers to

Togrammes schemes of action worked out by
are concrete
It
certain objectives. A programme is action-based and result-oriented.
Onplish
POVdes practical guidelines to managerial activities. It prescribes how enterprise
because it is not used in the same

urces should be used. It is also a single-use plan

form and again once the objectives have
been achieved.
directed towards the achievement of
."programme is a sequence of activities taken to
down the definite steps which will be
ODectives. A programme lays tor the completion ot each
the time to be taken
down
S psh a given task. It also lays activities as purchas1ng
n e w machines

whiePBramme might
include such general n e w cquipment
workforce to operate
o r hiring
chable to increase output is a complex of
ins programme
or
introductio of a new product in the market. Thus,
steps
a

to be taken, resources to be
task assignments,
Polcies, procedures, course
of action.
employed d Other elements
out
necessary
to carry
a given

Projects cluster of related

activities with a distinc
A complex be
project may defined be as a major plans can

objective a definite
4 a completion time period. In s o m e cases,
4.14 PLANINING AND FORECAS
decomposed into a number of projets cach with a clearcut set of objectivs
projects can be isolated and taken up for completion as a package. A proiec.
invoe the intmdue tion of lange automati plant. building of a dam or a build.
the introduction of a new
product. The task of exectuting the project is pur ding
undo
charge of a P'roject Manager. th
T'roject Manager is an expert in his area and he formulates variots
programmes and policies and takes ultinnate decisions. He designs various bidplan
and authorises expenditure on various items. However, he draws
personnel from
budge
functional departments of the organisation like finance, th
marketing. engineerino
production. Personnel from various departments go back to their departments wh.
their job is over. whe

Budgets
A budget is a
single-use plan since it is drafted for a particular period of time
buaget is a statement
of expected results expressed in quantitative terms. Since it is a stateme
of expected results, it is also used as
instrument of managerial control. It
an
a standard
provid
by which actual operations can be measured and by which variations
be controlled. But it should not be cou
A budget forces an
forgotten that making a budget is clearly
planain
enterprise to make in advance a numerical compilation of expecta
cash How, expenses and revenues,
capital outlays or machine hour utilisation.
Budgets are single-use plans and they help in achieving the following advantags
(1) Budgets present the objectives of the enterprise in financial and/or
terms.
quantitatie
() Budgets serve as
job descriptions. They define the tasks which have to
performed at various levels in the
organisation.
(ii) Budgets provide standards by which the actual
measured. This helps in taking corrective action whichperformance can
is an important pur
of controlling
u) Budgeting coordinates the activities or various departments of bus1n
enterprise by adjusting the departmental budgets into the master budget
(v) Since budgets portray verifable and measurable
goals to be achieved wichn
period of one year, they inject a sense of clarity in directing and pertornn
the activities of the
organisation.
4.6 BARRIERS TO EFFECTIVE PLANNING
Sometimes, planning fails to achieve the expected results. There are many C a u s s

of failure of planning in practice. These are discussed below: cau

() Lack of Reliable Data. There may be lack of reliable facts and ve

which plans may be based.

figures
Planning loses its value if reliable information is not aval
or if the planner fails to utilise the reliable information. In order to make
plann
PLANINING A N D F O R E C A S T I N G
4.15
base
reliability of facts and f1gures and
must
determine the
sful, the planner must

reliable information only.

his plans o n
looking proces. Ifa manager has
a
is forward
(in Lack of Initiative. Planning
a

not be able tomakegood plans. Therefore,

follow rather than lcad, he will
rendency t o should
initiativc, He should be an active plannerand
must take the required
rhe planner understood and imnplemented
to see that plansare
mcasures
rakdrquate follow up
properly This
Process. Planning is túme consuming and expensiveprocess.
(ii) Costdy that if sufficient time is not given
certain But it is also true
delay action in
cases,
may to be unrealistic. Similarly,
process, plans so produced may prove
the
ro the planning information and evaluation of
various
involves costs of gathering and analysing
Dlanning results
planning, the may
is not willing to spend on
alternatives. If the management
not be good.
Internal inflexibility in the organisation
(iv) Rigidity in Organisational Working. from
This may deter the managers
the planners to make rigid plans.
may compel have sufficient
innovative thinking. So, the planners
must

aking doing
initiative and to follow
They should not always be required
discretion and Hexibility
in the enterprise.
the procedures rigidly. another factor which
Resistance to change is
(ii) Non-acceptability Change.
of business
phenomenon in the
It is a commonly experienced
on planning.
puts limits and on other occasions they
themselves do not like change
world. Sometimes, planners the planning process
ineffective.
as it makes
to bring change
do not think it desirable the planning
also limit scope of
Barriers. Psychological factors certain.
(vi) Psychological because present is
than future
present
more important be forgotten
ome people consider to planning. But it should not

Such person are psychologically opposed well-being of the enterprise

look ahead. Long-range
that dynamic managers always for future.
achieved unless proper planning is done linited
Cannot be is sometimes
effectiveness of planning
Limitations. The External
(vii) External the control of the planners.
factors which arc
beyond control,
Decause of external of war, government
Sudden breakout They
difficult to predict. control of m a n a g e m e n t .
Bringencics are very the
factors are beyond
arural havocsand many other
difhcult.
make the execution of plans very
Limitations of Planning
chungingenvironment
Overcome
Measures to
.0.1 ritual i n the fast
is a mere
be associated
that planning Planning may
ome people say
of managerial
planning. ot planners,
1s not a c o r r e c t
assessment

of data, lethargy
on
thepart But
s non-availability
in external
environment.

difficulties such
as
Certain and changes
resistance to
change
steps:
procedures, the following
t y of by taking objectives is
necessary

these problems be clear-cut

o v e r c o m e

can existence of rational also.

The but
Objectives. u n d e r s t a n d a b l e

Clear-cut
only be
1. Setting Objectives
should not

for net c i e n t planning.

 4.16 PLANINING AND FORECAST
The overall objectives of the STIN
enterprise must be the guiding pillars for determinins
objectives of various departments. This would help in having coordinated plannthe
dinated planning
in the enterprise.
2. Management Information System. An cfficient system of managem
men
information should be installed so that all relevant facts and figures are made avail.k
able
to the managers betore they perform the planning function. Availability of right h
of information will help in overcoming the problems ofcompletc understanding oftype
objectives and resistance to change on the part of the subordinates.
3. Careful Premising. The planning premises constitute a framework withi
which planning is done. They are the assumptions ofwhat is likely to happen in futun
Planning always requires some assumptions to be made regarding future happenings, l.
other words, it is a pre-requisite to determine future settings such as marketing pricine
Government policy, tax structure, business cycle, etc. before giving the final shape
the overall business plan. The planning premises should be set up very carefully. Du
weighrage should be given to the relevant factors at the time of premising. It may be
pointed out that the premises which may be of strategic significance to one enterprie
may not be of equal significance to another because of size, nature of business, natue
of market, etc.

4. Business Forecasting. Business is greatly influenced by economic, socia

political and international environment. The management must have a mechanism
of forecasting changes in such environment. Good forecasts will contribute to the
effectiveness of planning.
5. Dynamic Management. The persons concerned with the task of planning
should be dynamic in outlook. They must take the required initiative to make businesis
forecasts and develop planning premises. A manager should always keep in mind thar
planning is looking ahead and he is making plans for future which is highly uncertain.
6. Flexibility. Some element of fexibility must be introduced in the
planning
process because modern business operates in an environment which keeps on chang1ng
For achieving effective results, there should always be a scope to make necessary addition
deletion, or alteration in the plans as is demanded by the circumstances.
7. Availability of Resources. Determination and evaluation of alternatives should
be done in the light of resources available to the
management. Alternatives
are
alwa
present in any decision problem. But their relative plus and minus points are to De
evaluated in the light of the resources available. The alternative which is chosen shoul
not only be concerned with the objectives of the enterprise, but also capable ot belug
accomplished with the help of the given resources.
8. Cost-Benefit Analysis. The
planners nmust undertake cost-benefit analysis
ensure that the benefius of
planning are more than the cost involved in it. This necessa
calls for established measurable goals, clear
insight to the alternative courses of ac
available, premising reasonably and formulation of derivative
the fact that environment is
plans keeping in v
fast-changing.
 PLANINING AND FORECASTING
4.17
KEY PRINCIPLES OF PLANNING
4.7
The important principles of planning are discussed below:
Principle of Contr1bution to Objectives. The purpose of
nents is to develop and facilitate the realisation of plans and their
c o

olans
m p o

should bbe
plans should
n e n t s

interwoven with aims. organisational Long-

ralige
hed with short-range ones
medium-range plans which, in
in order to
turn, should
etfectively and economically.
accomplish organisational objectives
Principle of Pervasiveness of Planning. Planning is found at all level of
2

anacement. Strategicplanningor long-range planning is related to

Lle intermediate and short-range planning are top management,
while the concern of middle and
management respectively. operating
3.Principle of Limiting Factors. Planning must take the limiting factors
money, machines, materials and management) into account
(manpower,
by concentrating on them
when developing alternative plans, strategies, policies, procedures, and
4. Principle of Flexibility. Flexibility should be built into
standards.
organisation plans.
Possibility of error in forecasting and decision-making and future uncertainties are the
common factors which call for flexibility in
wo
managerial planning. The principle
of fexibility states that management should be able to change an existing plan because
of change in environment without undue cost or delay so that activities
keep moving
towards established goals. Thus, an unexpected slump in demand for a product will
require change in sales plan as well as production plan. Changes in these plans can be
introduced only when these posses the characteristic of flexibility. Adapting plansto
Suit uncertainties or changing environment is easier if fexibility is an important
future
consideration while planning.
Both short-term and long-term plans need to have the element of flexibility.
Owever, Hexibility is more important in long-range plans. The reason is not difficult
o trace. Possibility of error or uncertainty is much high for long-term plans than for

rt-tem plans. However, the management can have fiexibility in planning only within
inis. External and internal rigidities and pressures greatly limit flexibility in managerial
Planning. Thus, the existing pattern of human behaviour, policy and procedure rigidities
Unlon pressures, government policy and legal requirements are important intlexibilities
y restricting adaptability of plans changing environment. to
that should
inciple of Navigational Change. This principle requires managers
p towards the desired
check on events and redraw plans to maintain a
course
Cool T whether his ship is following the
riphr e duty ofthe navigator to check constantly as scheduled. The navigator
destination
Cction in the vast ocean to reach the In the
the
path of the ship in case it is not going on
the right path. same
way,
ahmanager: that these are progressing as required. He
Snould check his plans to ensure

should
Plans c
changeBe the direction of his plans if he faces unexpected
events.

does not mean

It is useful if

ns contain an flexibility in plans

n an element of flexibility. But built-in
that pa
that to adapt and
plans 8get revised automatically. It is the responsibility of the
i
manager
 4.18 PLANINING AND FORECAST

change direction of plans to mect the challenge of constantly changing environm

that could not be foresecn. In this regard, the role of a manager is analogous nme
to th
role of the navigator of a ship to change its course it it is not going on the right na
pari
6. Principle of Conmmitment. An organisation should plan in the future
period of time sufficient to fulfil the commitments (goals or targets of the organisatio
fo
This principle helps in detcrmining the length of the planning Pperiod. It suggestsh
the time period covered by planning should be related to the commitments of
organisation. If the commitments are defined in terms of long-term goals, the resour
should be procured and deployed by the long-term plans to realise the goals.

4.8 MANAGEMENT BY OBJECTIVES (MBOo)

Management by objectives is an approach to management planning and evaluati
in wbich specific targets for a certain period of time are established for each manae
and employee on the basis of which results achieved are to be reviewed. At the end oft
period, the actual results are measured and evaluated against the original goals or targe
and steps are taken to improve performance.
Management by objectives is a comprehensive management technique a
is bound to atfect the entire organisational structure, culture and style. It calls r
regulating the entire process of managing in terms of meaningful, specific an
variable objectives at different levels of management hierarchy. Management b
objectives moulds planning, organising, directing and controlling in a numbe
of ways. It stimulates meaningful action for better performance and highe
accomplishment. It is closely associated with the concept of decentralisation
because decentralisation cannot work without the support of
management by objectives
The features of MBO are as follows:
) MBO focuses attention on what must be accomplished (goals) rather thar
how it is to be accomplished (methods).
i) It concentrates on key result It translates the abstract
areas.
philosophy
management into concrete plans.

it) It is a
systematic technique that allows management attain
maximu to
results from available by focussing on objectives. It allows
resources
subordinates plenty of room to take initiative and use
creativity in decISto
making.
(iv) It leads to
appraisal of performance and suggesting pro
measures to
imp
performance.

4.8.1 Steps in Management by Objectives

In order to put the philosophy of Management by Objectives into practice
following steps are to be undertaken
LANININGAND FORECASTING
.19
Goals. The goals of a subordinate are set up by the suubordinate
ofGo
Setting
( subordinate will fix the targets for himself for a specified period which
hunsel.The
m o n t h s
or on He will also list the resources required to meet the
at.
SIx

hav
be slk of the subordinate are the starting point of managing by objectives
the
) Approvalof Goals. The superiot will sit with the subordinate
to review

downby
the latter.
the. The goals may be revised, if necessary. Once this process
aiddown ot minds of the superior and his subordinate as to

there will exist meeting

a
nmplete. there
.
The finalised of objectives
accomplished in the torthcoming period.
version

aberis to
beaccomplish
This document
for the subordinate should be reduced into writing.
nsibilities
a n dr e s p o n s i b i l i t

information:
Analysis. It should contain the following
ermod as Key Result
Isterm
subordinate's job.
The overall objectives of the
)
he must accomplish.
() The key targets
short-term and long-term
priorities of his job.
() The
will be evaluated.
d The
standards by which his performance the job
of Job Descriptions.
Based on the Key Result Analysis,
(in) Revision be suitably modified.
The job descriptions
subordinate should
the inherent in the
descriptions of responsibilities, and authority
subordinate his objectives, him, relationship
dehne for a who would report to
and the people
to his
position, the person
he reports
and the standards by which
the managers
of other departments
to
with respect
be evaluated. tor
pertormance will objectives stand
Management by
Check-Points.
E s t a b l i s h m e n t of
must

iv) subordinate to do
his job. But the superior
the exercised in the proper
sufficient authority to is being
delegation of that authority
ensure will tacilitate
Cstablish certain
check-points to
the job. This
taken to accomplish
are being
anner and adequate steps subordinate.

of the performance
of che subordiunate is done
monitoring ota
Ontinuous appraisal will
Informal performance intervals
Review. at periodic
But formalappraisal
Performance
the background of
2)
everyday.
by his mediate
immediate senior almost analysed against
a r e carefully frank discu
cussion

and failures should be

tiee and
ensure his achievem ements
There review is
ot this
objectives. The aim
n c e s and given
prevailing circumstand subordinate
concerned.

of the performance review with the perkormance.

e his
improving
subordinate in
solelyto assist the
Objectives
Beneh of Management by
to the following
advantages

made at
various

leads that plans

Mana by objectives
Cment
in the
sense

action.
of planning of
focus the
( MBO leads t unity to

rganisation
have the
same

control by
clarilying

levels of the orga organisational

device
for
as a
Objectives serve
rve
 PLANINING AND FORECASt
STIN
4.20 cach job.
well as
of each unit
as
contribution
and makes.
organisational goals
into overall ea
(ii) MBO fits individual goals human
otivation in th
motivation.
and worthwhile. This stimulates
job meaningful
organisation.
(in) MBO leads to higher productivity because management concentrar
1atter rates o
on unimportant mar
energies
tasks rather than wasting
the important
coordination of efforts
and r e s o u r c e s of the enterne
Objectives facilitate
force managers to think in t.
by providing unity of direction. Objectives ter
of results.
decentralisation of authority. Obiect
(7) MBC is important m e a n s of
an

roles and s t r u c t u r e which are indispensable

clarify organisation
decentralisation of authority.
means ofanalysing training
needs and opportunin
(ri7) MBO provides a realistic
for growth on the basis of measurement of performance against accepte
standards.

Limitations of Management by Objectives

The system of managing by objectives has certain weaknesses. Some of
weaknesses are inherent in the system while others arise while introducing it. Thou
the philosophy of managing by objectives appears to be a simple process, yet in actu
practice, many managers are unable to implement it effectively. The weakneses
limitations of MBO are as follows:
) Managing by objectives is more successful where objectives for
subordinates can be expressed in quantitative terms. But all the objecte
cannot be expressed in quantitative terms. Moreover, in certain cases,
not
possible to lay down the objectives in specific terms. This makes
implementation of managing by objectives difficult.
i) Management by objectives may introduce inflexibility in the organisa
Since objectives are set every year, the superior may not like to modity ch
in between because of
fear of resistance from the subordinates.
(iii) Someimes,
objectives for the subordinates are too high to be accomp* plishe
It leads to frustration
among the subordinates.
(iv) The
implementation managing by objectives requires
of
lot of ara
and
farsightedness. Bur,
a
pic
generally, conflicts arise becauses objec tives.
targets set for different individuals othet
are not in
() Under management harmony
ony with each
eacn
by objectives, the
short-term objectives. subordinates concentraemore Crate

interest of the long-run

They ignore long-term objectives whicn tin

survival of the
enterprise.
 PLANINING AND FORECASTINGa 4.21
Implementation of MBO
Effective
Despite various diffhculties and shortcomings in management by objectives, it is
fective way of managing as it emphasizes the setting of objectives as the basis of
an

anning and control. In order to achieve the advantages from managing by objectives
plan.
should be followed:
rhe following guidelines
( The top management should give full support to the implementation of
che MBO philosophy throughout the organisation.
(i) The managers should be adequately trained in putting MBO into practice.

(gi The subordinates should be encouraged to set objectives for themselves and
take steps to achieve them.
their plans into
(i) The subordinates should be given adequate authority to put
action and achieve their targets.

()The appraisal process should concentrate

on improvement ofsubordinate's
performance rather than finding faults.

BUSINESS FORECASTING
4.9
help of known facts.
future with the
Forecasting is a systematic attempt to probe
discover those economic, social and financial
inftuence
to
It is the research procedure
business activity, so as to predict o r
estimate andfuture financia
current

governing of predicting
operations. Thus, forecasting is the process
production and marketing known as forecasts.
result of this process is
future systematically. The
estimating future
on a
It means
essential element of planning.
Forecasting is an
makes forecasts of
one thing or the
business executive
sy'stematic basis. Almost every well emphasized by
systematic basis
was very

to foresee
future on a
made up of
other. The need
entire planning in business is
the opinion that the
enri kayol. He was of Urwick also
visualised the pervasiveness
called forecasts. L. who starts a
4 STIes of separate plans, him, The
man

business. According to who

aspect of The man

1Orecasting in every for its products.

future demand
bness is making an
assessment of a requirements.
Thus, torecasting
organizational
future
has an eye to
E s Staff usually business right
from its birth.

LESSary activity for any

A
Forecasting in planning.
Need and Significance of from the
role it plays
the future.
A
is apparent about

The
C importance
of forecasting make some
forecasts

integrate
to facts helps
also supposed known

anager who is planning is inference

from
into which
o. the future by be developed

attempt to probe
can
systematic attempt unified
overall plans in taking
sound

that helps
all
all managementn t planning
so
meshed.
Forecasting

be
divie
division and dep
d
plans
departmental
can
4.22 PLANINING AND FORECASTI
poliy decisions which are necessany lor the achievement of organisational objectiv
By focussing auention on the fuure, forecasting assists In bringing unity of purne
tives
rpoe
n planning

Forecasting has assumed great impotance in the modern business world whil
ich
is haraterised by growing competition, rapidity of change in environment,
te hnological changes and increased government control. It offers the followin.
fas
advantages :
wine
( l helps in effective planning by providing a scientific and reliable basisf
anticipating future operations such as sales, production, inventory, supnit
of capital and so on.
i) Forecasting aims at reducing the area of uncertainty that surround
management decision-making with respect to costs, production, sales
profits pricing, etc. If the future were known with certainty, there woul
have been no need of forecasting, But the future is highly uncertain and
so there is a great need to have an organised system of forecasting in the
organisation.
(iii) Making and reviewing of forecasts on a continuous basis will compel the
managers to think ahead and to search for the best possible decisions with
a dynamic approach.

iv) Forecasting is necessary for efficient managerial control as it can disclose the
areaswhere control is lacking. Forecast of sales is in order
a must
contro
to
the costs of production and the
productivityof personnel. Forecasting wi
help in anticipating the areas where there is a great need to be attentive
control the costs.

Limitations of Forecasting
The limitations of
forecasting are as under:
) Though forecasting is a necessity in a modern business, it should
t
forgotten that all forecasts are subject to a degree of error
never be made with a
an
hundred percent accuracy. Guesswork can
omitted from
u
mum wich the
forecaststhough it can be reduced to a miuimum
help of modern
quanutative techniques.
(ii) The quanutative e have

also got
techniques with the help of which forecasts are
limitations. These techniques are based on certain assumpt
the conclusions derived by the
1o better than the
application of quantitative mouc
assumptions on which they are based.
 PLANINING AND FORECASTING
4.23
(iin Managers often neglect examine whether the forecasts
to

reliable information. Managers must use their are

supported by
knowledge, experience and
available information with a great degree of skill and take care to make
forecasts more dependable.
In spite of its limitations, forecasting has
gained wide acceptance because
managers
feel that they plan more successtully on the basis of forecasts than
can

An attempt should always be made to make forecast

they can think.
more reliable in order to
the effectiveness of
planning. The forecasting techniques should be improve
far as practicable, the assumptions underlying
improved and as

forecasting should be objective in nature.

Morcover, they should be based on all relevant facts. Sufficient
information must be
collected to have better forecasts.

4.9.1 Steps in
Forecasting
The process
of business forecasting involves the following steps:
() Understanding the Problem. The first
step in the forecasting process is the
understanding of real problem about which forecasts to be made. A
are
know manager
must
clearly the purpose of
forecasting. Forecasts may be made in regard to
technological conditions, sales, choice of people, availability of finance and so forth.
The clear understanding of the
scope of forecasting will help the manager to probe the
relevant information only.
) Developing the Groundwork. In this stage, the manager will try to understand
what
changes in the past have occurred. He can use the past data on
pertormance to
8 t a speedometer reading of the current rate (say of sales or production) and how fast

nis rate in increasing or decreasing. This will help in analysing the causes of changes
in the past.

2) Selecting and Analysing Data. There is a definite relationship berween the

C e of statistical facts and figures and the determination ofwhy business fluctultions

C OCCurred. Statistical data cannot be selected intelligently unless there is proper

und
CStanding of the business fuctuations. The reasons of business tluctuations will
he
: n0OSIng the relevant information. After selecting the data, they are analysed
in the "Et of past changes. Statistical tools can be used to analyse the data.
light of pas
) Estimating Future Events. Future events are estimated on the basis of

Lanalysi judgement. and

past data. Here, the manager must use his past experience
He m O of overall
St know clearly what he expects in the future in the light
orga
O n a l objectives. He should make an estimate of future business from a number
of probable of data. The estimated results
Can e trends revealed by the systematic analysis will
can be compat
with actual results in the future. This help in rehning the process
of for
of Pared
forecasting
 4.24 PLANINING AND FORECAST
BOX-1
Implicit vs. Explicit Forecasting
Forecasting may be either implicit or explicit. When a manager makes forecuste.
the basis of his past experience and intuition, he is said to be sts on
implicitly forecasting t
future events. This approach is generally not sUCcessful because it is unsysterme.
not very
relioble, not very precise and not very accurate. Implicit forecasts cano
be rationally evaluated and so cannot be used as rational basis for
planning Gnd
control. Therefore, it is
generally more useful consciously
to forecast and devel
explicit planning premises. Explicit forecasts
are systematic and are
more relioble,
precise and
likely to he
accurate. They can be used as the basis for
analytical evaluation and also for control ration
purposes. The various techniques of
explicit forecasting have common into existence.
They include time series analysis,
regression analysis and econometric models.

4.9.2 Techniques of Forecasting

Various techniques of forecasting may be classified into two major
Quantitative and (i) Qualitative. Quantitative techniques categories
tools to data for apply various statistica
predicting future events. They include Time Series Analysis,
Analysis, Econometric Models and Extrapolation. Regression
human judgement to Qualitative techniques employ mainy
predict future events such historical perspective (business
as
barometers), Panel Consensus, Delphi Method,
Relevance Tree Method. These methods are used Morphological Research Method and
where quantitative data is not read1ly
available. For instance,
quantitative methods cannot be used to forecast technologici
environment. A brief discussion of various
forecasting is given below:
quantitative and qualitative methods o
1. Time Series
Analysis. Time series analysis assists to identify and
)
explan
Any regular or systematic variation in the series of data which is due to soms
seasons ; and

ii) Cyclical trends that repeat every two or three years or more.
With the help of time series
of least squares) which is the best
analysis, trend line can be titted (by using the metn
a

indicator of the trend. Time series

initial
approximation forecast that takes into account the analysis provides
hich

may expected o persist. After the seasonal empirical regularities wn

ettects have been identitied and reu

the original data

may be adjusted for these intluences,
measurc
series consisting of yielding new historical be
a
the trend and seasonally adjusted data. The new time series
used in the analysis and may
interpretation of cyclical and residual intluences. This thod

hascertain limitations also. Since the future does not always rnet
time

retleet the past, the

ies analysis may give misleading of several years are available.
PLANINING AND FORECASTING 4.25
2. Regression Analysis. Regression analysis is the means by which we can select
from among the many possible relationships between different variables which are
relevant to forecasting. If wo variables are functionally related, then the knowledge
of one will make possible an estimate of the other. For instance, if it is known that
advertising expenditure and sales are correlated, then we can find out the probable
increase or decrease in sales with the given increase and decrease in the advertising
expenditure. Regression analysis also helps in forecasting where there are one dependent
variable and several independent variables. The help of computer programmes may be
sought to estimate the regression equations that are very complex and time consuming.

3. Econometric Models. Econometrics refers to the application of mathematical

cconomic theory and statistical procedures to economic data in order to verify economic
theorems and to establish quantitative results. Econometric models take the form of
a set of simultaneous equations. The number of equations may be very large in some
cases. So, the help of electronic data processing equipment may be sought to solve these
cquations. It is also signihcant to point out that the development of an econometric
model requires sufficient data so that the correct relationships can be established. The
econometric models reveal in quantitative terms the way in which various aspects of a
problem are interrelated. These models are very complex in practice as they combine
the knowledge of economics, mathematics and statistics. That is why, they are not
popular with the small business houses.
4. Extrapolation. This technique is used frequently for sales forecasts and other
estimates when other forecasting methods may not be justified. It is the simplest method
of forecasting. In many forecasting situations, it can be expected more reasonably that
the variable will follow its already established path. Extrapolation assumes the relative
onsistence in pattern of past movements in some time series. If this assumption is
taken, the problem is to determine accurately the appropriate trend curve and the values
Or jts parameters. Numerous trend curves are suitable for business forecasting. I hey

Include arithmetic trend, semi-log trend, modified exponential trend, logistic curve, etc.

clection of an appropriate curve depends on empirical and theoretical considerations

relevant the forecasting problem.

to

. Historical Perspective (Business Barometers). Historical perspective technique

is used to
CS business barometers to make business forecasts. The term 'barometer
behind the use of business barometers,
ate the economic situations. The assumption themselves in the future and
indices, is that past patterns tend to repeat
arious The
Tuture can be predicted with the help ofcertain
C happenings of the present.
include gros national product,
barometers which can be used in forecasting
Ds volume of money supply,
whole consumer prices, industrial production,
prices, numbers may also be
combined

Ahange quotations, etc. Some of these index

4.26 PLANINING AND FORECAC
into a general index of busines activity. The general index refers to gener: ASTIN
eral condii
of commerce and
industry. However, this composite index now quite cont
may show conty
tendencies from those of some of its components. So, proper care must be
taken wl
ustng the index numbers for business forecasting. If the business barometer bein .
1S reliable, it will reduce the chances of wrong forecasting
6. Panel Consensus Method. Under this method, data is presented
openly t,
group of experts related to a particular problem area is prepared with great
t
experts are brought together to have a face-to-face discussion and arrive at a congen.
forecast. Such
sensu
forecast is expected to prove better as compared to a forecast
a
made
one
expert. Several can determine a better forecast than one working alone.
7. Delphi Method. This method
enjoys respectability due to its scientific approad
to the
problem of forecasting. It is used for a systematic probing of the minds of t
people who possess the necessary expertise in the pertinent or related areas. Under
thi
method, a panel of experts related to a
of bringing these
particular problem
area is
prepared. Instez
experts together to have face-to-face discussion, they are kept apar
and their identity is
kept secret from one another. This is done to
expers prevent
from being influenced by others and to eliminate the possibility of the
a band-wagon mentality. emergence ci
The opinions of the experts are solicited by eliciting their response to a caretuly
prepared questionnaire. The answers collected are studied
carefully to separate the
answers to
questions on which general consensus has emerged. The
a

differed with majority opinion are fed back the experts who hax
results of the first round of
survey and
are
requested to communicate the reasons for their
of such questions on which wide divergence. Similarly, in the ca
difference of opinion has surfaced, the same
is employed to narrow down the proces
differences. The process of successive feedbacks
seeking of opinions continues until the experts re-evaluate their an
estimates and bet a
convergence of opinion emerges or at least the scatter of
final results are taken as opinions gets narrowed. I
the forecasts. It should be noted that
the Delphi method wou
not give only one answer
in all the cases.
8.
Morphological Research Method. "The
concerns itself with the morphological
development and the practical application of basic met
research
od
which will allow us to discover and
analyse the structural or metn
among objects, phenomena and
concepts and
morphological interrela o
the
construction of asound world." This method is usedexplore the results gained
fo
possible technological alternatives which can derived find out, at least theoreticaly"
to

from the various s and

combinations of the variables of the parameters relevant permutations

to the solution of a
blen
9. Relevance Tree Method. n its proD
normative application, the of the
relevance tree method is to
help the
businessman purpose o
and

in determining objectives
ning objectives
PLANINING AND FORECASTING 4.27
edicting ways to attain them. According to this method, the feasibility of the future
predi

of all, and then

objective isjudged first by working backwards,
attempt is made to
Gad the technological innovations necded to achieve the objective. In its exploratory
anlication, the rclevance trce method is similar to the decision tree method ofdecisions
applh
king. It is used to develop alternatives and to determine the most describe course

of action.

UESTIONS
Short Answer Questions

1. Explain the concept of planning.

2. Why is planning importantfor a business enterprise?
3. How does planning bridge the gap between present and future ?
4. Explain any five barriers to effective planning.
5. What are objectives and policies?
6. What is meant by 'Management by Objectives'?
7. Explain the principle of navigational charge.
8. What are the essential requirements of an effective planning.

9. is business forecasting important for a business?

Why
10. Briefly explain any two techniques of forecasting.

Long Answer Questions

What are its benefits ?
1. Explain the concept of managerial planning.
does planning confer to an
2. What is planning ? State what advantages
organisation ?
involved
business. Enumerate the steps
3. Discuss the role ofplanning ina modern
in process of planning.
What are the logical steps planning?
in
4. Describe the benefits of good planning.
the
between present and future." Comment and discuss
Planning is a bridge
signiicance of planning.
seeks to achieve a
coordinated structure of operations
Managerial planning
Comment.
its actions would be
soon disintegrate,
7W i t h o u t planning, an enterprise would and its employees as
an autumn wing,
as random as leaves scampering before statement and examine
the
upturned anthill." Elaborate
Onused as ants in
an

the significance of planning in

the managerial process.
process.
involved in the planning
Explain the various steps the advantages
and
Procedure. Explain
DIstinguish between Policy and
linitations of procedures.
 PLANINING AND FOREC
4.28 based on
organisational and tie
level and
al level tin
CAS
10. Explain the types
of planning
What are its efits and
benefits limitae per
and limitationg
by Objectives.
11. Define Management
forecasting ? Briefly
in
explain the steps business siness fforecass
12. What is business business forecasting
quantitative techniques of
13. Explain any four
14. Write notes on the following
(a) Advantages of planning.
(b) Principle of nativigational charge
(c) Policy and strategy
(d) Management by objectives
(e) Businesss forecasting.
 CHAPTER 5

Decision-Making : Process and

Techniques
Concept and Nature ot Decision-making

Signiticance ot Decision-making

Stages in Decision-making

Rationality in Decision-making
Techniques of Decision-making

5.1 CONCEPT AND NATURE OF DECISION-MAKING

What is Decision-Making?
According to McFarland, "A decision in an act of choice wherein an executive
forms a conclusion about what must be done in a given situation. A decision represents a

ourse otbehaviour chosen from a number of possible alternatives." A decision involves

e act of choice and the alternative chosen out of the available alternatives. The process
ncerned with searching and evaluating alternatives to a problem and selecting the
DEst alternative is known as decision-making.
DeCISion-making is a process ofselection from a set of alternative courses ofaction
which
thought to fulfil the objectives ofthe decision problem more satisfuctorily than
A 1 a course ofaction which is consciously chosen for achieving a desired result.
A
of
decision is sommething that takes place prior to pertormance ot a course
the actual
action
that has been chosen. To state this in terms of managerial decision-naking,
t is an act of choice wherein a manager selects a particular course ot action trom the
available alternative
atives in a given situation. Managerial decision-making nvolves the entire
proces of alternatives and developing
Plans
ans in
in establishing goals, defhning tasks, searching for
order to find the best answer to the decision problem.

5.1
 5.2 DECISION MAKING: PROCESS AND
ND TECHA
TECHNIOE
Characteristics of Decision-Making
The basiv characteristies of dee ision making are cnumeratcd below:
l t is a pmeess of choosing a course of action trom among the alter.
ourses ot ation.
rnat
l t i s a human pouess involving to a great cxtent the application ofintele
abilities.
7 l t is the cnd process preceded by deliberation and reasoning.
l t is alwavs related to the environment. A managermay take onedecision
particular set of circumstances atud another in a different set of circumstan
tance
) l t inmvolves a time dimension and a time lag.
7) lt aways has a purpose. Keeping this in view, there may just be a decisi
not to decide.
(r7 lt involves all actions like
defining the problem and probing and analysir
the various alternatives which take place before a final choice is

Types of Decisions
Decisions may be classified according to different bases which are discussed below
Routine and Strategic Decisions
Tactical routine decisions are made
or

rules.
repetitively following certain establishe
procedures and policies. They neither require collection of new data ne
conterring with people. Thus, they can be taken without much deliberation. The
may be
complicated but are always one-dimensional. They do not require any speci
eftort by the manager. Such decisions are
middle and lower
generally taken by the managers at te
level.
management or basicStrategic decisions,
are
important and so they are taken generally by the top
more
on the other han
middle management. The management an
he is required to take. The
higher the level of a manager, the more strategic decisio
strategic decisions relate to policy matters and so requir
a
thorough fact hnding and analysis of the possible alternatives.
problem in such decisions assumes great importance. The Finding the coro
about such decisions as managers are more set
they intluence decision-making at the lower lev els.
(ii) Policy and Operating Decisions
Policy decisions are of vital importance and are taken the
They affect the enire enterprise. But by top nmanagetu
operating decisions are taken by the lowe
management in order put into action the policy decisions. For
to

bonus issue is policy mater which is to be decided

a instance
by the top manag«men
caléulation of bonus is an operating decision which is taken at the lower
execute the policy decision. levco
(ii) Organisational and Personal Decisions
Organisational decisions are those which a
manager takes in his aci
Such decisions can be delegated. But personal decisions, which relate ofhcial
to the capa
mae
as an individual and not as a member of the
organisation, be
cannot delegited.
 ECISION-MAKING: ROCESS AND TECHNIQUESs
5.3
i ) Programmed and Non-programmed Decisions

The programmed decisions are of a routine and

repctitive nature which are to
dealt with according to spccihe procedures. But the non-programmed decisions
hecausc of unstructured problems. There is standard procedure for no

hDroblems. For instance, if an employee absents himself from his work forhandling
arise

without any intimation, the

long a
ne
tini
supervisor nced not refer this matter to the chief
tive. He can deal with such an employee according to the standard
exed

hich may include charge sheet, suspension, etc. But if large number of procedure a

shsent themselves trom work without any intimation, such

employees
Ce problem cannot be dealt
a

in routine manner. It has to be dealt with an unstructured

a
problem and the decision
should be taken by the chiet executive. Non-programmed decisions
study of the problem and scientihc analysis of the situational factors.require
There thorough
has to be
adequate probing and analysis of various alternatives before taking such decisions.

Table 5.1 :
Programmed vs Non-Programmed Decisions
Programmed Decisions
Non-programmed Decisions
1. These are made for solving routine and 1. These made for
are
solving unique and
repetitive problems. non-repetitive problems.
2. Decisions are made by using pre- 2. Decisions are made by
using experience,
determined procedures and rules. creativity and innovativeness.
3. These involve less use of judgement. 3. These involve more use of experience and
judgement.
4. There is often
consistency for longer 4. There is consistency in the
long-run.
period of time over many situations.
S. Such decisions made for
are
solving 5. Such decisions are made generally tor
bothsimple and
complex problems. solving complex problems.
6.
Techniques used for programmed 6. Techniques used for non-programmed
decisions include standard procedures decisions include linear programming.
and rules,
organisational structure, etc. queuing, theory, break even analysis,
simulation, replacement theory, etc.

) Individual and Group Decisions

when a decision is taken by an individual in the organisation, iu is known as
th a deccision. Such decisions are generally taken in small organisations and in
Tganisations where utocratic style of manageneint prevails. Groups or collective
members,
Ons refer to the decisions which are taken by a group of organisational
say Board of Directors or a Committe.
5.2
SIGNIFICANCE OF DECISION-MAKING
No business can irvive without effective decision-making. Decision-making is
an
essential r t of every function of management. In the
p apart «
words of l'eter F. Drucker,
 5.4 DECISION-MAKING: PROCESS AND TECHNI
"Whatever a manager does, he does through
decision-making. Decision-maki.
aking|
deeply embedded in the process of nanagement. Decision-making spreads
the managerial fuctions and covers all the arcas of the enterprise.
Manageme Ove
dccision making are bound up and go side-by-side. Whether knowingly or unkno: a,
nent
CVery manager akes desions constantly. owing
HerberA. Simon described decision-making
synonymousas
with
Joseph A. Literer felt that mana:
decision-making is the Agin
core of managerial
making involves thinking and deciding before doing and so is activity. Deci
inherent
eciske
managerial function. Fach manager has to take number of a
in o
his functions of decisions while perforn
planning, organising, staffing, directing and controlling. This
decision making is often called the essence is w
of managing.
Decision-inaking and
planning arc deeply
of objectives, poliies, programmes, strategies, etc.,interlinked.
involves
The determinati
managers also take decisions on the decision-making. T
organisational
lcading employces in work situations and on
the design, statfing, directing
prcdctermincd standards. In other words, all regulating performance in tune w
crtain managerial decisions managerial functions are
preceded
The
ourstanding quality of a successful manager is his
most
sound decisions. A
manager has to make up his mind ability to ma
is not correct
say that he has to make
to quickly on certain matters
While spur of the moment decisions all the
taking many decisions, he tim
alternativcs and choice of the bestgets enough time for careful fact analysisfinding,
alternative.
When a mnanager decides, he
chooses a course Decision-making
which he
is a human
procs
thinks is the best.
Right from the day when the size of the
business used to be very small tot
preent-day, the importance of
decision-making has been there. The only differen
that in todays business environment, the
omplex. Whatever a manager does, he
does
decision-making
is getting more
and
decisions are of routine nature through
and it mnight be that themaking decisions. Some ot
he is
takiny, decisions, Other decisions which are of manager does not realise
ofsystenatic and
scientific analysis. strategic
may require nature
take deijon, and initiate steps The fact them.
to implement remains
Thus,
thatmanagement is a DeuoUN
managers contin
thinkiny drridinyg and aution. lend

BOX7
The
Rational Decision
syrnonyrs of the word 'rational'
logical, sorvsiblo, stleontitic and tho like.according to most
dictionaries
an intuitivs docislon which ls A
rational decision must be
are
judio
so often lacks
objoctivity,
batsod
A rational
on hunch and past
oxperience
distinguishea
of the
nd
analysis the problom, collection of
of decision is backed by a managin
alternativ6s and oholce of best relovant data, review ofscientific process invtiono
basis ard dogs not suffer fromalternative. Such a decision could key factors, evaluic
the
personal blas of the
be justified a
on
decision-maker.
DECISION-MAKING: PROCESS AND TECHNIQUES
DEC PROCESS OF DECISION-MAKING
5.5
5.3
tiic or rational decision making involves the following stages
Defining the problem.
(
the problem.
(i) Analysing
Collcction of data.
in
( ) Developing alternatives.
of key factors.
()Review
best alternative.
() Selecting the
the decision.
(v7) Implementing
Defining Analysing9 Collection
Developing
Review of
the the of Key
Alternatives
Problem Problem Data Factors

Implementing
Decision
the Selecting the
Best Alternative
Feedback

Fig.5.1. Process of Decision-making.

the problem
Sufficient time should be spent on defining
() Defining the Problem : that is
the problem and to see the fundamental thing
as it is not always easy to define problem no ever presents
needs correction. Practically,
causing the trouble and that decision may be taken. It is, therefore, essential
Itself in a m a n n e r that an
immediate
otherwise the manager
will a n s w e r
action is taken,
to define the problem before any is
problem. Clear definition of the problem
than the core
tne
wrong question rather question.
be found only to right
a
answer can
ay important as the right the problem, the
next phase

Problem: After clearly recognising the problem

) Analysing the which involves classitying
On-making is
the analysis of problem in order to know
who should take
Classification is necessary classtheation,
information. it. Without proper
athering consulted in taking clas1ihed
should be
and who should bc The problem
sion jeopardised.
of the decision m a y be
L ctiveness
view the following factors
routine,

o r it is
KCcpingin strategic
whether it is
i.e.,
c hature of the decision, functions,
on
other
decision
the impact ofthe
decision,
c) the futurity of the
a) the periodicity of
the decision, anu
relevant
to the
decision.

problem.
factor classiBy any
to
be
the limiting o r strategic information
is required c l a s s i h c a t i o n
would

lot of any Trying

ii) Collection of Data : A
decision.
available,

So long information
is not
the quality
ofthe reading
the
lon as the require« impact
on
crossing
w i t h o u t

misanalyse
leading
adverse
at a
leadin This will also have
an
d i r e c t i o n s

to guessing
facts is like
withou'
 AND TECHi
5.6
DECISION-MAKING:
PROCESS
ANIOUE
type of
i n t o r m a t i o n isvery impor tant y
collection of right
highway signboards. Thus, that a jon is
decision as an.
is as
decision-making. lt would not be an cxaggeration
to say
good
the information on which it is based.
certain decisIons o n the
Collection of facts and figures also rcquires
and how he canoh.
part
tof t
manager. He must decide what type of information he requires btan
one must be clear to
how much time and me
this. Bctore gathering the information, mone
he can spend in gathering the information he
needs. It is also important to note
when onc gathers the facts to analyse a problem, he wants facts that relate to alternat
th
nati
courscs of action. So, one must know what the several alternatives are and thcn sheul
collect information that will help in comparing the alternatives. Needless to s
collection of information is not sufficient, the manager must also know how to use
(i) Developing Alternatives: After defining and analysing the problem, th
next step in the decision-making process is the development of alternative courses
action. Without resorting to the process of devcloping alternatives, a manager is likc
ro be guided by his limited imagination. It is rare for alternatives to be lacking for an
course of action. But sometimes, manager assumes that there is only one way of doing
a

a
thing. In such case,
a what the manager has probably not done is to force himsel
consider other alternatives. Unless he does so, he cannot reach the decision
which is the
best possible. From this can be derived a
key planning principle which may be termei
as the
principle of alternatives. Alternatives exist for every decision
problem. Effective
planning involves a search for the alternatives towards the desired goal.
() Review of Key Factors While developing alternatives, the
limiting factor has to be taken care of. A limiting factor is one which principle ot
of accomplishing the desired stands in the wa
goal. It is a
key factor in
properly identiied, manager can confine his searchdecision-making.
are
If such factos
for alternatives those
will the whi to
overcome
limiting factors. Depending upon the situation faced, the limitung
factor may be
inadequate funds, shortage of human resources, old machines, or lacs
of marketing skills.

(vi) Selecting the Best

Alternative: In order to make the final choice ot the dc
alternative, one will have to evaluate all the
down four criteria in order to possible alternatives. Peter Drucker has lau
weigh the consequences of various alternatives. I hey
(a) Risk: A manager should u
weigh the risks of each course of action the
expected gains. As a matter of fact, risks
are involved in all the
aganst
intensity of different types of risks in various solutio
What matters is the
ONs

(6) Economy of Effort: The best soluto

manager is one who can
for the achievement of
results with the minimum
mobilise the resou urces

be chosen
should ensure the maximum of efforts. The decisto
and time. possible economy of efforts,
() Situation or Timing: The
choice of a course n the

situation prevailing at a of action will depena up

particular point of time. If the situation
g r e a t

urgency, the preferable course of action is had

one that alarms the
organisat
organ
nECISION-MAKING: PROCESS AND TECHNIQUES 5.7
that something important is hapjpening. If a long and consistent efforr is
necdcd, a slow start gathers momentum approach nay be preferable.
d Limitation f Resources : Tn choosing among the alternatives, primary
attention must be given to those factors that are limiting or straregic to the
decision involved. 'The scarch for limiting factors in decision-making should
be aneverending proces. Discovery of the limiting factor lies ar the basis of
selection from the alternatives and hence of planning and decision-making.
(vri) Implementing the Decision: The choice of an alternative will nor serve
purpose if it is not put into practice. The manager is not only concerned with taking
decision, but also with its implementation. He should try to ensure that systematic
steps are taken to implement the decision. The main problem which the manager may
face at the implementation stage is the resistance by the subordinates who are affecred
by the decision. If the manager is unable to overcome this resistance, the energy and
efforts consumed in decision-malking will go waste. In order to make the decision
acceptable, it is necessary for the manager to make the people understand what the
decision involves, what is expected of them and what they should expect from
nanagement. The principle of slow and steady progress should be followed to bring
about a change in the behaviour of the subordinates.

5.4 RATIONALITY IN DECISION-MAKING

A business manager can make decisions by intuition, i.e., without considering
carefully all the alternatives. Practically, every one takes decisions in this way because of
the feeling that the particular course of action is the best one. This kind of
feeling may
have no logic behind it. Morcover, it is difficult to explain why one is
feeling particular
a

way. Psychologists emphasise that there are forces other than reason within a person
which influcnce and shape a decision. Decisions based on intuition are subjective and
are taken without any conscious effort to weigh the advantages and disadvantages of

various alternatives. On the other hand, if a decision is taken after thorough analysis and
asoning and weighing the consequences of various alternatives, such a decision will be
called an objective or rational decision. These are the two extremes in decision-making.

What is a Rational Decision?

Efective decision-making requires a rational choice ofa course of action. There is a
d to define the termn 'rational' here. Rationality is the ability tofollow a systenmaticul,
ogical, thorough approach in decision-making. Thus. ifa decision is taken afier thorough
alysis and reasoning and weighing the consequences of various alternatives, such
a

three dinmensions
W i l l becalled objective rational decision. Gross suggested
an or

etermine rationality: (i) the extent to which a given action satisthes human interests;
Casibility of means to the given end; and (i) consistency.
business decision relates means to end (or objectives). In other words, the
Osen to achieve an end must be justifiable. It must lad to the realisation of the
5.8 DECISION-MAKING: PROCESS AND TECHAe
objectives. According to Fred Luthans, "Mearn-cnd is the most often used defi
used definition g
rationalitry in decision-making. lfappropriate means are chosen to reach desired
decision is saidto be ational. Ofcourse, this is the result of the application ofre ends,
tion of
intelligence. good sense and judgement. In other words, reasoning is the prone reasoning
of the means to the proper goals." chotce
The end-nmens approach to rationality is faced with certain
problems
the ends to be attained are often incompletely or
incorrectly stated. Secondly, in Firih
practice, means cannot be separated completely from ends. Thirdly, the meanaactua
terminology obscures the role of the time-clement in decision-making. mcans end
Types of Rationality
Simon has identified six models of
rationality to describe choice behaviat.
decision-makers. A decision is
() Objectively rational if it maximises given values in a given situation.
i) Subjectively rational if it maximises attainment relative to knowledge of th
given subject.
(in) Consciously rational if the adjustment ot means to ends in a conscious
proces
(iv) Deliberately rational to the degree that the
been deliberately sought by the individual or
adjustment means to ends h
of
organisation.
() Organisationally rational to the extent it is directed towards the realisain
of the
organisational goals.
(vi) Personality rational, if directed to the realisation of
individual goals.
Rational Economic Model of
The classical
Decision-making
management thinkers stressed that managerial decision must
rational. They argued that the
decision-maker is an 'economic man and is
economic considerations in
the optimum solution to
choosing solution to a problem. Obviously, heguided
will
o
maximise the advantages. The classical
the following assumptions: approach is based
(i) The decision-maker intends to
maximise economic gains.
ii) He is fully objective and rational
uninfluenced by emotions.
ii) He can identify the
problem clearly and precisely.
(vi) He has full information
about various alternatives and is able to valuae
then1
intelligently to find out which
eva
alternative is the best.
(v) He has complete freedom to
choose the best alternative.
The rational economic
model is
should behave. But
perfect prescriptive and explains how decisSIO maker

In real life, the rationally is a norm

which can be aimed at but not
ttaine

decision-maker cannot be a
completely
trains

The decision-making rational due to several

behaviour is contingent upon personal and co co
Thus, managers may not
t a c t o

be rational
decision-makersin real
environmen
life situations.
 ECISION-MAKING: PROCESS AND TECHNIQUES 5.9
strative Model of Decision-making (Principle of Bounded Rationality)
1.a aCrual practice, managers take decision which involve different combination of
intuition and rational tthinking. A manager who depends much upon intuition is more
ive and a person who depends much upon logical thinking is more objective. This
subje
Herbert has called the principle of bounded rationality. Simon emphasized
nerson makes decision not only on absolutely logical analysis of facts but also
his intuition, value system and way of thinking, which are subjective in nature
on

Causes of Bounded Rationality. Herbert Simon of administrative man describes

decision-making behaviour of individuals in actual practice. It recognises that
managers are unable to make pertectly rational decisions due to the following constraints

orlimitations:
( The individual does not study and analyse the problem fully because of
personal bias, indifferent attitude, etc.
(i) The individual does not have the full knowledge ofthe alternatives and/or
their consequences.
iit) The individual interprets the organisational goals in his own way. He
may adopt a course of action which according to him will meet the goals
effectively.
(iv) The individual does not search for the best solution, but for 'good enough
solutions'. In other words, he aims at satisfactory' rather than 'optimum
decision.
()The decision-making situation may involve multiple goals all ofwhich cant
be maximized simultaneously. Further, these goals may be of conficting
nature.
environmental factors
(vi) The effectiveness of a decision is dependent upon
which are beyond the control of decision-makers. Thus, the consequences
because of uncertain
of various alternatives cannot be anticipated perfectly
environment.
affected by the above limitations.
rationality of the individuals is generally
The
T behaviour ot people in practice. Ihe
of bounded rationality explains the
ncept decisions which are satistactory
for
(not optimal)
L 74tive man seeks satisficing which are good enough
and do not make
decisions
Pctical purposes. He makes that a man c a n n o t be
and money. It recognises
demands on his 'me, efforts his capacity to perceive,
retain
and information and
PeCted to have fullI kne wledec traditional theory ot complete
rational
information is n o t unlimited. The
3nd
d
e
economic man cannot work in practice that will follow
of the consequences
quires complete knowledge
Rationality requ a choice among
But it is n o t always possible. Rationality further requires
each choice. But n o t be able
limitations. He may
all pos ce. individual has his which
alternatives. But every relates to future
o identify all possible alternatives. Moreover,
decision-making

able to imagine
objectively
because

requires some
Tequires
degree ofimagination.
One may n o t be
5.10 DECISION-MAKING: PROCESS AND TECHIe

ofhis frame of mind. From this, we can say that a man cannot be completely ratio
said by Simon. a man has only bounded rationally because they are certain lim.
mpletely rational. ,
to complete rationality. Thus, Simon's point of vicw is highly rcalistic as ir b mitatioy
understandingthe actual behaviour of the decision-maker. It also modifies subesh
the traditional theory of decision-making based on complete rational man. Suhi
factors are bound to aftfct a person's decisions cven though he is otherwise rati

5.5 TECHNIQUES OF DECISION-MAKING

The proves of managerial
decision-making has become very cumbersome. In o
to evaluate the alternatives, certain quantitative techniques have been
developed whi
facilitate making objective decisions. Some of these techniques are discussed belou
1. Marginal Cost Analysis
The technique is also known as marginal costing as under it the
revenues from additional costs are
additionna
compared. The profits are maximum at the leve
where marginal revenues and
marginal costs are equal. Marginal analysis can also be usei
in comparing factors other than costs
and revenues. For instance, in order to
find th
optimum output of machine, one can vary inputs against
a
until the additiona
inputs equal the additional output. This would be the output
of the machine. Break-even point of the maximum efficienc
analysis is a modification of this technique which tells the
management the point of production where there is not
2. Cost-Benefit Analysis profit and no loss.
It is
technique of weighing alternatives where the
a

be
conveniently reduced to monetary terms as in the case ofoptimum solution cann
is used for
choosing among alternatives to identify a marginal cost analys1s.
are far less preferred choice when objective
specific than those expressed by such clear
prohts. For instance, social
objectives may be to reduce quantities
as sales, costs o

which lacks pollution of air and wac

precision. Cost models may be
alternative and benefit
models to show the
developed to show cost estimates tor ea
its effectiveness. Then, relationship between each alternative
show the synthesizing models, combining these results,
relationships costs and effectiveness for
of may be mauc
de w

3.Operaions Research each alternative.

Operations Research has
organisational problems providebeenthe defined the scientific method ot
o
as

making suitable decisions. The executive the needed analys

with scientific
a
basis for object of operations
research
quantitative
is
intornia
o nn

components of the solving organisational provide

to the ma agen

problems
intuition, organisation. gone by, executive involving the interac
the basis In days
research seeks subjectively or decisions used to be ta ken
on

replace this processpast

to
by
experience even in
big organisations. rato
on
information
the operation. supplied by the system inanalytic, objective and
an
op
quantitative Dai
base

operation and possibly without dis trbi

 DECISION MAKING PROCESS AND TECHNIQUES
5.11
Ovcrations rescarch widely uscd
is
in modern business
models
invcntory model arc uscd to organisations. For instance
control the level of
for allocation ot work among inventory. Linear programming is

individuals the organisation. Sequencing theory

Lathe managenment to determine the
in

other techniques like

sequence of particular operations. In addirion
rothese, there
are
queuing theory, games theory, reliabiliry theory
d marketing theory which are
important tools of operations research which be can
usedby the management to
analyse the problems and take decisions.
4. Linear Programming
Linear programming is a technique
devised for
determining the optimum
combination limiting resources to achieve a given objective. It is based on the
of
asSumption that there exists a linear relationship between variables and that the limits
of variations could be ascertained. It is particularly
helpful where input data can
be quantified and objectives are subject to definite measurement. It is applicable in
such problem areas as production planning, transportation, warehouse location and
utilisation of production and warehousing facilities at an overall minimum cost. Linear
programming involves maximisation of minimisation of a linear function subject to a
set of some real or assumed restrictions known as constraints.

5. Network Analysis
Network analysis is used for planning and controlling the project activities. Under
this, a project is broken down to small operations which are engaged in a logical cycle.
The next step is to decide the sequence of operations to be pertormed. A nerwork
diagram may be drawn to present the relationship between all the operations involved.
The diagram will reveal gaps in the flow plans. It will also show the interdependence
of various activities of project and point out the activities which should be completed
before the others are initiated. A number of nerwork techniques have been developed
of which PERT (Programme Evaluation and Review Technique) and CPAI (Critical
Path Method) have become very popular.

UESTIONS
Short Answer Questions
decisions?
are strategic
.What is decision-making ? What
decisions?
and non-programmed
.Whatare programmed
of decision-making.
.
Briefly explain the significance the bestalternative
?
followed while selecting
W h a t criteria should be
. What is a rational decision ?
rationality.
Explain the principle of bounded
.Whatis cost-benefit analysis?
5.12 DECISION-MAKING: PROCESS AND TECHNIOI
IQUES
Long Answer Questions
1. Define is decision-making and discuss the process of decision making.
2. "Decision-making is the essence of management." Comment.
3. "Almost every position in any business is a decisional centre". Do you agree
Discuss the various types of business decisions.
4. Whatever a manager does, he does through decision-making." Amplify the
above statement and describe the different steps in the process of decision
making.
5. Decision-making is the vehicle for and discharging the
carrying workload
managerial responsibilities". Elucidate the is statement and examine the
significance of rational decision-making in management.
6. "Management means making of decisions and execution thereof." Comment
Describe the usual steps in the process of decision-making.
7. What are various stages in the process of decision-making ? Discuss with
references to a business decision.
8. What do you mean by decision-making ? Briefly describes the steps involved
in the process of decision-making.
9. Discuss the steps necessary in management decision-making. What are the
limits of rational decision-making ?
10. Explain the concept of rationality in decision-making. What are the limits of
rationality in decision-making?
11. What do you mean by bounded rationality ? What are its causes 2
12. "Rationality in decision-making is half-truth". Do you agree ? Provide reasons.
"Rational Decision-making'. What are its limitations 2
13. Explain in brief
rational decision-makers in real life." Discse
14. "Managers can't be
rationality. What are
the causesbounded rationalit, ?
of
15. Explain bounded
? Explain any two techniques of decision-makin.
16. What is
decision-making ing
note on rationality
in decision-making.
17. Write a
 CHAPTER6

Organising: Process and

Departmentation
Organising
Process and Signiticance
:

Fomal and Intomal Organisation

Organisation Structure
SpanSpan of Control
Scalar Chain
Traditional Foms of Organisation
Line Organisation
Line and Stalf Organisation
Functional Organisation
Nature and Pattens of Departmentation
Departmentation by Function
Product based Structure
Customer based Structure
Project Organisation
Matrbx Organisation
Network Organisation

Introduction Without ethcient organisation.

Organisation is the backbone

of management. contribures

smoothly. Sound organisation

its functions an
g e m e n t can perform enterprise.
Once A. Carnagic,
gre the continuity and
of the
success
our
trade, o u r
Avenues

take away
American i said, "Take away our factories, and in four years
we

industrialist organisation,
nothing but skills
our

our money
Leave of managerial
4101,
the significance
shall have re-e ourselves." That shows
e re-established

6.1
 PROCESS AND DEPARTMEN
6.2
ORGANISING:
NTAT
structure does not by itself
and organisation. However. good organisation
produ
presid.
good performance -just
as good
constitution does not guarantee greatt
presidents,
od perfor
good
good laws a moral society.
matter
poor organisation
But a

how good the individuals may

structure

be. The
makes

right pertorman
organi.

Impossible. no
the best performance in all orh.
foundation; without it
structure is the ncccssary
are
incffectual and frustrated.
of management will be

6.1 ORGANISING
: PROCESS AND SIGNIFICANCE
Mcaning of Organising
Onganising is the process of establishing relationships among the members nf

enterprisc. The relationships are created in terms of authority and responsibility F

member in the organisation is assigned a specific responsibility or duty to perform
a
is granted the corresponding authority to perform his duty.
According to Louis A. Allen, "Organisation involves identification andgroupm
the activitic to be performed and dividing them among the individuas and creatin
authority and responsibility relationships among them for the accomplishment
organisational objectives."
As a process, organising is concerned with arranging in a logical and ordetr
manner all the activities of the organisation. It specifies how the duties are to be divide
among the departments and the employees. It also creates relationship of one job to t
other jobs and lays down the scope or limits of authority and responsibility of eachj

Steps in Organising
Organising involves the following steps
(i) Determination of Objectives: Organisation is always related to
cert
objectives. Therefore, it is essential for the
management to identiry
objectives before starting any activity. It will help the management in
choice of men and materials with the help of which it can achieve its
objec
Objectives also serve as the guidelines for the management and the wotrkes
They bring about unity of direction in the organisation.
(i) Identification and Grouping of Activities: If the members of the grouP
to
pool their efforts effectively, there must be
proper division ot the
activities. Fach job should be
properly classified and grouped. This will et
the people to know what is
expected of them as members of the grouPa n
will help in avoiding
duplication of efforts. For instance, the total act
of an industrial organisation
may be divided into major functio
s

production, purchasing, marketing, financing, etc., and each such fun.

is further subdivided into various 1 and

jobs. The jobs, then, can be classific

grouped to ensure the effective implementation of the other steps.
 PROCESS. AND DEPARTMENTATION 6.3
RGANISING:
Assignment
Duties
of D : After classifying and grouping the activities into
(iin)
arious jobs, they should be allotted to the individuals so that there are
holes. Each individual should be given a specific job to
ALLnd pegs in round
be
do according to his ability and made responsible for that. He should also
oiven the adequate authority job assigned to him.
to do the

Developing Authority-Responsibility Relationships Since : so many

individuals work in the same organisation, it is the responsibility of

down structure of relationships in the organisation.
management to lay
should clearly know to whom he is accountable. This will
Everybody
of the delegation of
enterprise by facilitating
helo in the smooth working
responsibility and authority.

ignificance of Organisation
can contribute to the success of an enterprise in many
A sound organisation
it is the backbone of management. It helps the performance
matter of fact,
vavs. As a
like planning,
direction and controlling.
staffing,
f other functions of management in the following ways:
can help in achieving enterprise objectives
ound organisation allocates authoritry
Organisation s t r u c t u r e
1. Clear-cut Authority Relationships: direct whom and who is
accountable
who is to
and responsibility. It specifies member to know what his
helps an organisation
for what results. The
structure

other roles.
role is and how it relates
to
ot
the patterns
Organisation
structure provides
Communication :
2. Pattern of
structure

activities and people,

c o m m u n i c a t i o n and
co-ordination. By grouping activities. People
centred on their job
communication
between people
intormation.
Tacilitates share
solve often need
to
to
who have joint problems determines
the location

Centres: Organisation structure tor instance,

Location of Decision organisation. A

departmental
store,

matters

in the and other

or decision-making sales promotion
structure
that leaves pricing, that varied
departmental
follow a
y individual
departments
ensure
to concentrate
on

may
rgely up to
contrast,
an oil refinery ensure
that
considered. In levels to
Onditions a r e decisions at top
maintenance

scheduling and considered.

POauction, work are

the flow of
balance

rerdependencies along
s t r u c t u r e
creates the proper success

Organisation enterprises
4. the
Balancins of Activities
activities.
Those
more
critical
Research
to

in a
pharmaceutical

and nphasis of
organisation. to
the general
in the for reporting
might be placed higher out
of
comparable

be singled Activities

instance, might
them
for give
company director of the
company.

the
structure
to

managing levels in
manager or the
roughly equal
be given
mportance might
cqual emphasis.
 PROCESS AND DEPARTMs
6.4
ORGANISING:
structure stimulate.
ENTA
Sound organisation
5. Stimulating Creativity:
initiative among organisational
by providing
members wellCtea
thinking and
patterns
knows the area where
of authority. Everybody
he specialises
cialises and w
a

his efforts will be appreciated.

structure provides the framewn.
6. Encouraging Growth: An organisation orkv
which an functions. If it
enterprise
is flexible, it will help in
ch meeting
and creating opportunities for growth. A sound organisation structure f.
growth of enterprise by increasing its capacity to handle increased level of facli
Making Use of Technological Improvements :A sound organisati
Struc
which is adaptable to changes can make the best possible use of latest techn
chno
It will modify the existing pattern of authorityresponsibility relationsh
the wake of technological improvements.
In short, existence of a good organisation structure is essential forbe
management. Properly designed organisation can help to improve teamwotk
productivity by providing a framework within which the people can work toe
most ettectively.
While building the organisation structure, it is essential to
rela:
people to design. The organisation structure which has technical excellence ma
quite useless for practical purposes because it is not suited to the needs of the
per:
Thus, an organisation structure should be
people in the organisation.
developed according to the needs at

6.2 FORMAL AND INFORMAL

ORGANISATION
Formal Organisation
Formal organisation refers to the structure of well-defined each
measure
of authority responsibility and jobs, bearing a

designed to enable the people of the accountability. The structure is conse

the common
objectives.
organisation work together in accom
Thus, formal oganisation is
to

a
structure to which an
must
adjust. It tells him to do certain in
from designated things, in specified manner, oD
a to
individuals, and to work
proceeds according to prescribed
a
cooperatively with others. Coodna tion

pattern in the organisation

The formal
organisation facilities
structure
But the degree of success the determination of objectives anu pol
of these
people within the organisation. objectives will be determined by the capac
The basic characteristics
of formal organisation are listed
) below:
Organisation structure is predetermined
() Organisation structure is based by the top managenmCCialisariot
ent.

on division
(ii) The structure is based of labour and
on the
jobs to be spec
the individuals who
are to
performed and performed and not accord ndiid

who not according to tne

are to
pertorm jobs.
 PROCESS AND DEPARTMENTATION
ORGANISI 6.5
The organisationdoes not take into consideration emotional
aspect.
Theauthority and responsibility relationships created by the organisation
structure are to be honoured by everyone.
eof
portance of Form.
Formal Organisation. Formal organisation is the basis of effective
taf
managenent
any enterprise. It can help in achieving the following benefrs
Formal organisation helps in determining the objectives of various
rtments and units. It facilitates the attainment of organisational goals
through the fulhlment of objectives of various departments.
2. Jt facilitates optimum use ofresources and new technological developments.
3. It clarifies authority and responsibility relationships which lead to better
communication.

4, There is clear-cut division of work among the departments and individuals.

As a result, there is no overlapping of efforts. This will avoid wastage of
resources and conflicts between individuals.

5. Formal organisation creates a proper balance of activities of different

departments.
from top to bottom indicates avenues
6. The creation of a chain of command
hold a higher level job.
for promotion and the qualifications needed to
advancement.
Employees are motivated to work for personal
about stability in the enterprise through
7. Formal organisation brings
The working of different
procedures, policies, rules and regulations. and joining of
continues despite the leaving of old employees
departments
new hands.

Iaformal Organisation
in the organisacion
Informal organisation refers to the relationships
thepeople
between
relations not are

emotions, prejudices, likes, dislikes, etc. These

AdOnpersonalatitudes, laid down in the formal organisation.
Generally,
rmsofprocedures and regulations informal or social groups. These groups may
small
tormal groups give rise to culture or
other factor. These groups
some
are

language, the to
n common taste, automatically within the organisation according
Panned. They develop
CVIronment in the organisation.
listed below:
n e salient features ofinformal
organisation are
spontancously
Informal relations are unplanned. They arise
natural process.
is a
organisations
Formation of informal relationships.
reflects human language,
(in) Informal organisation
common
taste, problem,
based on

(G) Omal
organisations a r e

religion, culture, etc. is voluntary.

organisations
) The membership of the informal
 PROCESS AND DEPARTME
6.6
ORGANIsING: MENTA)
vs.
Informal Organisation
Fromal Organisation
Table 6.1:
Formal Organisation
nformal Organisation
Basis
lt has no determined objective
is created to achieve pre-|
|1. Purpose lt
determined objectives
of|Its structure is based on
2. Structure lis an official hierarchy
emotions and sentiments. I.
hum
relations. It refers tothestructure| ref
ofwell-defined authority and to the personal relationships wh
responsibility relationships. develop automatically whenDe
work together.
Formal relations are well- planned | Informal relations are unplanned
3. Formation
are created deliberately. they originate automatically
Fromal organisation follows the| Informal organisation does not ha
4. Chain of
Command
oficial chain ofcommand which fixed chain of command. It isbase
cant be changed. Communication the sentiments of the members. Tie
and
Communication |has to follow formal channels. are no fixed patterns of communicate

5. Stability Formal organisation is usually Informal organisation may nor

stable. so long.
6. Human Formal orgauisation reflects| Informal organisation reflects hum
Relations technological aspect of the| aspect. It is based on the attinuce
organisation. It does not take| like and dislikes, tastes, language
care of human sentiments.
of people.
7. Flexibility It follows a rigid structure. It is loosely structured. It is hig
| flexible.
8. Leadership Managers provide leadership to Informal leaders are chosen by
the workers. group members.

Importance of Informal Organisation.

Formal organisation is incom
without the support
of informal organisation. The informal relations support the
organisation. For instance, a superior is weak in planning and he accepts the adv
au
an
experienced subordinate. Informal communication can be used ent

formal communication. For

instance, management wants the workers to do
to
suppleu
the evening. formalThe instructions may reach the workers late, but
ovc
(me
will reach them at once and the workers intorna
can inform
their residence in
at
Thus, in some
cases, informal organisation proves to be better thantince t
organisation. The merits of informal
() The management can make organisation are as under:
use of informal
(i) Informal organisation has the groups for betterpertorm
per man
indirect effect of making the forma
to act
carefully and plan his work
knows that informal efficiently. This happens because m a n *

groups will undermine his authority for C o n c e

acts.
ill
 PROCESS AND DEPARTMENTATION
SING:
6.7
ORG

Tnformal organisation provides good training ground for rhe formal

a

managers to test and develoP their leadership qualities.

armal communication is very fast as it is free from the
(i) barriers of status
and position. It can be used by the
communication.
management to ensurc free How of

Tnformal groups raise to satisty soCial needs of members such security, as

eiendship, sense of belonging, etc. Thus, informal
8Vchological satistaction to its members. It provides them organisation gives
platform to a
express their feelings. It aiso satishes the natural desire of people to form
groups.

Problems Created by nformal Organisation

An informal organisation may create the
following problems for the management:
Resistance of Change. An informal organisation often resists
any change in
L visting work methods and routines. Change of whatever nature is
seen by it as a
to its values and culture.
danger
2. Role Conflict. A person may often find himself in
is a Conflict between his role as member of an informal organisation and the formal
a
position where there

Organisation. The informal organisation, for example, may require him to go slow in his
work, while the formal organisation may require him to work to his normal
capacity.
3. Conformity. An informal organisation forces its members to conform to
its
norms or code of behaviour even if
they are detrimental to the objectives of the formal
organisation. Because of lower group norms, informal organisation may restrict output.
4. Politics by Informal Leaders The informal leaders
: indulge in power politics.
lo seek dominance and to
prevail upon the management, they tend to undermine
organisational structure, values, goals and its environment. Unhealthy rivalry
among
NESe groups for getting more prominence may also affect the working of organisation
in an
adverse manner.
.
Generation of Rumours: Informal communication often carriers
inaccurate
mpleteand distorted information. Group members often indulge in spreading
em rorestall management action. Rumours are more common when the
yees are not kept informed on matters that directly affect them. Rumours make
the job of
management difficult and undetermine morale.
nagement Approach to Deal with Informal Organisation
instituticcording to Keith Davis, "Beneath the cloak of formal relationsbips in eery
exIsts a more of social velationships called informal
complex system
organi
anima sation". Crea Cation of informal organisation is a universal process as
man is a soctal

the basis
live in isolation. People form informal organisations
on

commonCannot
interests, preferences, tastes, religion, et
Some
use people do recognition of informal groups by
the management
ecause they feel that informa
dt
not favour
lnrormal
the

organisations c a n create problems for the management

6.8 ORGANISING: PROCESS AND DEPARTMENTAT
by spreading rumours and resisting introduction of change. But it should be noted i
management cannot eliminate the informal organisations because it does not ce. tha
them. The best course for the management creatl e
is to use the informal organisations in
n the
achievementof organisational objectives. For instance, informal communication is
fast and can break the barriers of the formal communication. Management can
ven
n
informal communication for getting acceptance its
to policies. Hence, manageme.
should consider informal mem
not
organisation hostile to formal organisation. Both hn.
of relationships are necessary for any group action just as two blades are essential to mai
a pair ofscisors workable.

6.3 ORGANISATION STRUCTURE

Meaning of Organisation Structure
An
organisation structure denotes the authority and responsibility
the various
positions in the organisation by showing who reports to relationships betuwen
whom. It is a set of
planned relationships between groups of related functions and between
and personnel
required for the achievement of organisational goals. physical facton
Organisation involves establishing an appropriate structure for the
activities. The structure of an goal seeking
organisation is
generally shown on an
organisation chart
or a
job-task pyramid. It shows the authority and
various positions in the responsibility relationships between
structure is
organisation. It is
significant to note that the organisation
directly related to the attainment of the
if an
undertaking is in production line, the dominant organisation objectives. For instance
would be element in its
organisation chart
be static but
manufacturing and assembling. A good organisation structure should not
dynamic. It should be subject to change from time to time in the light
the changes in the business
environment.
Developing the Organisation Structure
There are two
types of structural
mechanism. Designing of basic structurevariables, namely, basic structure and operans
of the
involves such central issues how the wo
organisation will be divided and assigned among as

divisions, etc. and how the coordination positions, groups, departme

necessary to achieve
brought about. But operating mechanism, on the organisational objecu uch
ceive
will be
factors as information other hand, includes su
system, control procedures, rules and
reward and punishment, etc. regulations, systen
The development of
organisation structure deals with two facts, namely,
()The functions which be are to

(ii) The form of strucutre.

performed, and
The first fact requires the determination
of activities, the and
division of these activities keeping in mind organisation neeui The
degree of specialisation it can afford.
 NISING:
OFGANISING PROCESS AND DEPARTMENTATION 6.9
of
form of structure, requires a detailed study and
i t , form
d fact, i.e., application of many
principles and practices.
isational

Organisa structure ablishes formal relationships among various positions

n
rise, Organisation structure of a medium-sized organisation is shown in
the enterprise.

GENERAL MANAGER

Productioon Finance Marketing

Manager Manager Manager

Piarth Purchase Stores Accounta Audit Sales Sales

Superinterdent Oficer Officer Officer Officer Officer Officer Promotion
Officer

PoremanI Foreman Head Clerk Chiet Cashler Sales Sales

Supervisorl Supervisor l

(Wiorrers) (Clerks) (Cashlers) (Salespereons)

Industrial Enterprise
Fig.6.1. Organisation Structure ofan
Structure
Organisation
6.3.1 Considerations in Designing
an
discussed
of an organisation are
Tne basic considerations in designing the structure

be.orw the identification

of s t r u c t u r e begins with
1. Objectives and Strategy. Design
no way of devising
what the main of structure

There is
Organisational objectives. is for
without an understanding of
what the organisation
OTganisation should be, system, it
is
organisation is a goal-oriented
is achieve. Since an
goals
W n a t it trying to Ihe
designing its
structure.
in
legitimate that its goals
guitegitimate have decisive role structure
demonstrate that
Chandler's studies
derermin uE 1tS tasks and strategies. Alfred the s t r u c t u r e
a signifcant
change in its strategy,
ollownsa
strategy.
yf
management
makes However, in

and support
such change.
some

eed to be modified to
accommodate
where the manager
particularly
structure,
be a 'fht
s, it may be true that strategy
follows
s t r u c t u r e .
In any case,
there must

het
the existing
choice but to cope with
Tween strategy
and structure forits success social,
cultural,
Organisation's economic,
all those the
2.
includes
indirectly attect
Environmen Environn
which
directly or
is to be

oitical, legal
nd
an technological
factors

the
s t r u c t u r e
of the
organisation

to it,
organisation
Therefore,
CIOning of the organ ganisation.

in
environment.
Added

regular
basis for
take place
igped in view of changes
chang likely
wof
to
with the
e n v i r o n m e n t
on

is
bound to
be

ga
nga
teracts
organisation

subsystem of
environment

structure
of uncertain

geting input and supplying output.

So the
operates
in fast
changing

afected
ed by the If the organisatio.
enviro
ne environment.
 6.10 ORGANISING: PROCESS AND DEPARTME

environment, its structure should be more ddaptive, dynamicand flexible. Dni

ENTAY
the na
hand, ifthe environmental changes have slow pace and are less complex in e
in nature
structure of the organisation will be marked by higher degrce of stability, It
noted that rapid, diverse and more complex changes in environment have
traditional structures incffective. rende
tes

3. Technology. An
organisation is a socio-technical system. Technol.
aspect which refers to the manner in which various activities will be performedlogy
,
important part of organisational structure. As the activities are related obieectie
to
they are also related to
technology. Because every activity to be
kind of
pertorned ren
some
technology,
the type of technology being used in the
organisation
performing different activities would also affect the structure of the organisation dire
and indirectly. For
example, use of sophisticated technology leading to greater de
of specialisation
complicate pattern of relationships among the employees. T.
may
span ot management, shape of organisation, length of chain of command,
managerial and number
infuenced the
non-managerial employees and How of work, etc.,
might be grei
by technology used by the organisation.
4. People.
Organisations are formed by and operated through people.
number of people are
employed for both Lare
managerial and
various activities are
assigned to them and finally they are put non-managerial
in authority
jobs a
values, perceptions, beliefs and attitudesrelationship
These people carry some
goals, which
direct reflection on the structure of ha
care of the time of
at
organisation. Therefore, these factors must be takr
designing the organisational structure. Indeed, the tasks, activitis
goals and
technology will gain more meaning if they built around the
are
Moreover, organisation operates peopt
through
depends the level of efficiency of its
on
the people and its
efficiency large ext"
to a

is affected by factors
such
employees. And the efficiency of its
employe
supportive
as

problem solving, existence of cohesive supervision, participative decision-makingl

groups, democratic
5. Size. The research
studies support the view that leadership,
etc.

exists between size and strong positive relatio

a

structure. Increase in size

organisation structure. Size increases
complexity and infuc
tends to increase
surveillance is replaced by formalisation differentiation and integration:
substituted for centralisation. Thus, there (rules and
is strong,
procedures); decentralisat
on one hand and
complexity and formalisation positive relationship betwee
other hand. If size increases, (two components of structure) oont
is inverse, opposite complexity formalisation also increase. Howevet.
and then

relationship between size and centralisation

structure). If size increases, centralisation (third compone
cnt

In small organisations, there is less decreases, being replaced by decentralls sation

of centralisation. complexity, less formalisation, but greater u legrë

6. Span of Control. Span

of control means the number of rca

direct. If too less number of persons a mana.

employees are
reporting v i l ln

there is a limit to supervisor,

to a
be utilised properly. It is also fact that his time w
a the numl of subordin"
number
 PROCESS AND
RGANISIN
DEPARTMENTATION
he
thatcan be. eficiently supervised by an
6.11
executive. Both these
nindwhile grouping and al points should be kept
allocating the activitics to various in
denite number of persons
Suggest a
manager can dircct. It departments.
It is difficult to
ofthe wor and a number of other factors such will
depend upon the nature
of
proxim of similarity as
subordinates, complexity of
ofsubordir of functions,
geographic
degree of coordination required, and so functions,
on. degree of direct supervision needed.
lob Design. It reters to the
7.
way various tasks or
nlete job. The jobs in the activitices are combined to
organisation should be form
dearly what activities have to be performed in ditterentproperly designed so as to specify
rlear, the manager can asign jobs to jobs. Once the job contents are
ditterent subordinates and
Moreover, it is on the basis of the fix their
jobs created that the structure accountability.
of
built. organisation can be
8.Departmentation. Atter the jobs have been designed, they would be
aCcording major functions like production,
to classificd
purchasing,
personnel, etc. Such grouping of activities would lead to marketing, financing,
related jobs are put under one creation of departments. Since
job-holders, becomes easier. department, coordination of the
working of various
9. Parity of
Authority and Responsibility. Responsibility should
coupled corresponding authority. Each subordinate must
with always be
have sufficient authority
to
discharge the responsibility entrusted to him. This
principle suggests that if a plant
manager in a multi-plant organisation is held accountable
he should not be for all activities in his
subject to orders from plant,
company headquarters specifying the
of raw
materials he should buy from whom he should quantity
Supervisor is responsible for the purchase raw materials. Ifa

aKEd to
quality of work of his department, he should be not
accept as a member of his workforce an
consulting him. employee who has been hired without
10.
Flexibility. The organisation structure should be flexible that it be
easily
so can
COnomically adapted to the changes in the nature of business as well as technical
Vations. Flexibility of organisation structure ensures the ability to change with the
vironment before mething serious may occur. So the structure should
such t organisation
it permits expansion and contraction without disrupting the basic activities.
6.4
PRINCIPLES OF ORGANISATION
In order to create a sound organisation, the following principles can be helpful:
a s
1. Principle
e Objective. An organisation and every part of it should be
of

rccted towards the accomplishment of basic objectives. Every member of the

ganisation should be well familiar with its goals and objectives. Common
objectives create monness of interests. In the words of Urwick, "Every
an expression of the
organ
ganisation and every
P irp
of the organisation must be
part
e of the undertaking concerned." The application of this principle
well-understood objectives. An
the existence of clearly formulated and
 6.12 ORGANISING: PROCESS AND DEPARTMENTAY
organisation structure must be measured against the criterion of effecti. TATION
in
meeting these objectives. i venex
2.
Principle of Division of Work. The total task should be divided in
manner that the work of
every individual in the organisation is limitcdsuch
as far
as
possible to the performance of a single leading function. The activiti.
the enterprise should be so divided and
grouped as to achieve specialica
However, the principle of division of work does not
imply ation
specialisation. The allocation of tasks should be on the basis ofoccupatio tiona
qualificar
and aptitude and should not make work mechanical ation
and boring.
3. Principle of Unity of Command. Each person should receive orders
one
superior and be acountable to him. This is necessary to avoid the from ononly
of conflict in instructions,
frustration, uncertainty and divided problene
ensure the
feeling of personal responsibility for results. This loyalty and t
co-ordination but may operate principle
against the principle of specialisation.promote
4. Principle of Span of Control. No executive should be
more subordinates than he can required tosuperie
time and ability. There is a effectively manage on account of the limitation oi
limit on the number of
can
effectively supervise. However, the exact numbersubordinates that an executive
from person to of subordinates will
person depending upon the nature of vay
infuence the frequency and job, and basic factors that
severity of the relationships to be
5. Principle of Scalar Chain. Authority and supervised.
unbroken line from the responsibility should be in de a

the chain of commandhighest

executive to the lowest executive.
As far as possibe
should be short. The more
from the ultimate clear the line of authory
more effective will
authority in an
enterprise every subordinate position, the
to
be
6.
decision-making and
organisation communication.
Principle of
Delegation. Authority delegated to individual
be adequate to enable him to accomplish an

results expected of him. shouid

manager
should be delegated to the Authori"
lowest possible level
so that co-ordination and consistent with necessary
the point ot action. decision-making can take place close possible
as
conto
as

7. Principle of Absoluteness of
subordinate to his
superior Responsibility.
is absolute. No
The
responsibility otibliy
for the of executive
delegation authority to his subordinates. can
escape responsipu
8. Principle of Parity of Authority and
responsibility must be co-extensive. Responsibility. Authority a and

should be commensurate with the The responsibility expected for pos a

sition

vice-versa. In addition, authority delegated to that positon and

for all positions. authority and responsibility should be clearly den

ehined

9. Principle of Co-ordination. There should be an

efforts and utility of action in the orderly arrangement of group

help in securing unity of effort. pursuit of a common purpose. This W o u l d

 PROCESSAND DEPARTMENTATION
AGANISING:

6.13
of Flexibility. The organisation must
permit growth and expansion
10
tion of operations. Devices,
vithout dislocatic

A he built into the structure to

techniques and environmental factors
permit quick and easy
to changes in its environment. (ood adaptation of the
cnterprise organisation is not a
straight
jacket.

11.
Principle of Eff. fficiency. An
organisation is efficient if it is able to accomplish
mined objectives at minimu possible cost. An
should
ovide maximum sible satisfaction to it members andorganisation
should contribute
he welfare of the community. The principle of efficiency should be applied
to

judiciously
Drinciple of Continuity. The organisation should be so structured as to have
12.
continuity ot operations. Arrangements must be made to enable people to gain
experience in positions ot increasing diversity and responsibilitry

1, Principle of Balance. The various parts of the organisation should be kept

in balance and none of the functions should be given undue emphasis at the
cost of others. In order to create structural balance, it is essential to maintain
a balance between centralisation and decentralisation, between line and staff.
etc. Vertical and horizontal dimensions must be kept in reasonable balance by
ensuring that the structure is neither too tall nor too flat.
within the
14. Principle of Exception. Every manager should take al! decisions
matters beyond the scope of his authoriry
should
scope of his authority and only
routine decisions
be referred to higher levels of management. In other words,
lower levels and top management should
concenerate on
should be taken at

matters of exceptional importance.

6.5 SPAN OF CONTROL

and span or
of control' is also known as 'span of supervision
'span
h e term
to be supervised and
conrolled by
limit ofsubordinates
uOrity. t representsa numerical This principle
based is

sound organisation.
mana is an important principle of
Graicunas., a French
management
V.A.
r y of relationships propounded by and developed
Con superior-subordinate relationship 4s
analvsed
a n t . Graicunas increase in complexities
ot managing

based on the gcometric

dtical formula
th
c
number of subordinates increases. direct, group
and cross

number ot these
thar a
number ot

tions
raicunas showed mathematically and his
subordinates.
The
showed

tüonships exist between a manager

number of the
subordinates.
Hc
direct
Telationships Creases
tionshine
increas with the increase in the
under him is
required to deal wich ()4

relationship,
i.e., in
executive havingfour
fo subordinates
and (ii)
28 group
gle
tormulae:

relationships,
forty-four
Orty-fo relations
(ii) 12
Clationships.
cross
relationships,

He derived
these on the basis the following
of

No. of direct relationships 1)

n(n
-

No. of cross relationships = n(2*-- 1)

No. of group relationships
 DEPARTMENIY
6.14
ORGANISING:
PROCESS AND
MENTATIO
2 n1 or n(2" +n -1)
Total No. of relationships -"2
where n represents the number of subordinates.
Levels
Organisational
impact of Span of Control
on

an cxecutive supervises haS

an important influene
nce on
The number of persons
structure. 1f the span is large, it means that fewer level.
els ar
the nature
of organisation and wide
needed in the organisation. 1he structure would tend to be flat as
shoun
e

in Fig. 6.2 (a). Presumably the possibility of communication blockages would

executive. If the span is smal
minimised because more people report directly to the top Smal
the structure would be narrow and deep as shown in Fig. 6.2(6). There would be m
more
levels in the organisation. More people will have to communicate to the top manap
through intervening layers of executives. The possibility of communication blockage
and distortions would increase.

Factors Determining Span of Control or Supervision

The span of control varies from individual to individual, time to time and plac:
to place. The factors which derermine the span of control are discussed below:
1. Ability ofthe Managers: Individuals differ in various qualities like leadersin
decision-making and communication. The span may be wider if the manag
possesses these skills in greater degree as compared to others.
2. Time Available for Supervision The span should be narrow at the high
levels because top managers have less time available for
supervision. Theyha
ro devote the major portion of their time to planning, organising, directing
and controlling. Each top manager will delegate the task of supervision to *
subordinates who have to devote comparatively less time on the imporu
functions of management.
3. Nature of Work When the spans are narrowed, the levels in the
:
organis
increase. This involves delegation
of authority and responsibility. odh
work is of a routine and
repetitive nature, it can be easily delegatea
subordinates.
4. Capacity of Subordinates: If the subordinates are skilled, etficient
knowledgeable, they will require less supervision. In such a case, the sup
per

may go in for a wider span.

5. Degree of Decentralisation Under decentralisation, the power to mak

decisions is delegated to the lower levels. The will

span of management
narrow in such cases so as to exercise more and more control.
ORGANISIN
PROCESS AND DEPARTMENTATION 6.15
6.Efectiveness of Communication: An effective system of communication
in the organisation favours large number of levels because there will be
no difficulty in transmission of information inspite of a large number of
intervening layers.
7. Control Mechanism: The span of control also depends upon the control
mechanism being followed. Control may be followed either through person
supervision or through reporting. The former favours narrow span and the
latter favours a wide span.
To sum up, it can be said that an executive should be expected to supervise
reasonable number of subordinates. What is reasonable depends on a variety of
and capacity of subordinates,
factors like individual difterences in executives, number
internal checks and
the nature of work, availability of time, ease of communication,
controls and of
degree delegationin the organisation. If the span of control is narrow,
there will be organisational levels, which in turn may impede communication.
more

If che number of levels is reduced and the span of control is widened, the supervisory

load may become too heavy. Sound management requires

a proper balance between
levels.
supervisory load and organisation
6.6 SCALAR CHAIN
structure of the organisation, the
This refers to the number of different levels in the
establishes the vertical graduation of
chain of hierarchical command. The scalar chain
and responsibility and the framework for superior-subordinate
relationships
authority within the structure
know his or position
her
as shown in Fig. 6.2. Every person must
introduces the concept of the scalar
of the organisation. The very act of organising used
that the principle of scalar chain is
chain. Most organisation charts demonstrate
A clear line of authority and responsibility
widely as a basis for organisational design.
Is necessary for the effective operation of the organisation.
and
that to help decision-making
be generally accepted, however,
lt seems to is the
in the scalar chain. There
there should be as few levels as possible
COmmunication, increased hierarchical
structure in such a way
that it results in
danger adding
of to the and the creation ot
to the risk of empire building
uthority and control, leading But it ettors are
made to reduce
work in justification of the
new position. with the
CCessary increase in the span otf control
about an
C number of levels, this may bring necessitates, theretore,
discussed. The design
of s t r u c t u r e
citing difficulties alrcady control and scalar
chain.
balance between span of
l n i n g an appropriate determines the overall pyramid
and scalar chain
n e combination of control
ofspan hierarchical
or 'tall' (Fig.
structure is "Hat
shapef
of the
the organisation
organ and whether the of control and
o of authority.
Broader spans

6.2).LPyramid represents the structure

tends to be found, for

structure as
few
rew levels of authot in a fat hierarchical
2ority result
anple, in universities and polytechnics.
 6.16 ORGANISING: PROCESS AND DEPARTME
IENTAT

(a) Flat Structure (b) Tall Structure

Fig.6.2. Flat'and Tall' Structures.

Narrower spans of control and more levels

of authority result in a taller hierarchi,
structure as is found, for
example, in the civil services or the armed forces. Howee
there is no one, ideal combination of
span of control and scalar chain. It will depe
upon the particular situation for each organisation.
6.7 TRADITIONAL TYPES OF ORGANISATION
The management of every business
enterprise has to evolve its own organisati
structure. The form of organisation structure mainly depends upon the nature of t
activities of business, competence of personnel and the philosophy of managemer
There are three basic types of organisation structures which are being used by diferer
enterprises. These are
() Line Organisation
ii) Line and Staff Organisation
(ii) Functional Organisation.
6.7.1 Line Organisation
Line organisation is the oldest and the
simplest form of organisation structurc
is also known as the scalar or
military organisation. Under this form of organisat
line of authority lows vertically from the
topmost executive to the lowest subordin
throughout the entire organisation structure. The authority is highest at the top
reduces through each successive level down the
organisational structure. A variatuoone
pure line organisation is the departmental line organisation under which the actuv
of the business are divided into several departments and the authoriry Hows dow?

from the chief executive through the departmental managers to the lower levels n th

organisation.
As shown in Fig. 6.3, every person is in the direct chain of command under
line organisation. The line of authority not only becomes the avenue of ndu

comman
operating personnel, but also provides the channels of communication, coordint
natior

and accountability in the enterprise. It upa chain

sets
superior-subordinate relatio
throughout the enterprise.
 PROCE AND DEPARTMENTATION 6.17
ORGANISIN

ce of line authority is that a

superior exercises direct command over

The

a bordinate. The.authority relationship is thus a direct line between superior and

member knows from whom he receives order or to whom he reports.
rdinate. Each

features of line organisation are as under:

essenti

The
) Line organisation
consists of direct vertical relationships.
( the lowest level.
Authority in line organisation fows top level to

i) receive orders and whom he

knows from whom he has to ro

(i)
Each ember
orders.
has to give
exercise direct command over his subordinates.
li) A superior of
of those who are directly responsible for the accomplishment
(g)It consists
objectives of the enterprise.
GENERAL
MANAGER

MARKETING
FINANCE
PRODUCTION MANGER
MANAGER
MANAGER

ASST.
ASST. FINANCE MARKETING
SUPERINTE MANAGERS
MANAGERS
NDENTS

SALES
SUPERVISORS
ACCOUNTANTS
FOREMEN

SALESMEN
CLERKS

WORKERS

Line Organisation
Fig. 6.3.
under
are as and are

Merits: The merits of lineorganisation authority

relationships

establish the
to
()Simplicity. Itis very simple difficulty. and
without any of authority
understood by the employees There is
clear-cut
identitication

organisation.

(i) Clear-cut Relationship.

confusion in the conforms to

There is no and thus

Tesponsibility relati
ationships.
facilitates unity of
command

receives
i n s t r u c t i o n s
trom one

and. It
Unity of Comman subordinate

Every
the scalar prind of o r g a n i s a t i o n . individual
knows
Uiple
boss only. enterprise
because every

in the
(io) Discipline. It ensureure
discipline

o
whom he is responsible.
6.18 ORGANISING: PROCESS AND DEPARTMENTATL
() Prompt Decision-making. It facilitates prompt
ATION
Is dehnite authority at
decision-making bcCause th
level. An executive cannot shift his duty
every of
to others, nor can the blame be shified.
decision-ma. Kiny
(vi) Fixcd
Responsibility. Every person knows Irom whom he gets orders andd
whom he is accountable.
Unity of command avoids buck passing. Fivery exccutiye.
be held fully
responsible for the actions of his subordinates. Can

(rin Effective Coordination. All activities

affecting department arc under
control of one executive. This makes for unified and harmonious
a
t

limited number of opecrations. Due

departments, close personal contact between the ecxecutives become
possible.
Demerits: The demerits of line
organisation are as under:
() Concentration of Authority. There is
the top executives are not
concentration of authority at the top.i
capable, the enterprise will not be successful. Moreover, the
key executives are overburdened with the administrative work.
(i) Difficulty in Staffing. Executives in a line
knowledge of diverse functions. Capable executives are organisation are required to have
difficult to recruit and train.
(i) Instability. The success and survival of
the enterprise
individuals. There is a little for depends upon a te
Loss of key executives
scope expansion of business
beyond their capabilitie
may result in the complete ruin of the firm.
training or development of persons who may There is little scope for
(iv) Lack of
replace the line executives, when necessar
Specialisation.
because there is lack of
Line
organisation is not suitable for big organisations
specialisation. line executive can't be an expert in all unctions
A
() Ineffective Communication. There is
bottom upwards because of concentration of practically no communication trom
attitude of the top executives. authority at the higher levels and autocra
The line
where there are
organisation has been found be quite suitable for
to
a small number of small enterpre
the owner or employees. In such
undertakings,
it is tor
manager to give orders
directly responsible to the directly to the workers while the possibie are

sometime worked well. manager or the

owner. Even in workets
larger organisations
ith

6.7.2 Line and Staff

Organisation
Staff refers to those clements
to the
line. In line and stalf of theorganisation
organisation, the line serveswhich provide advice ana rVicc

and discipline whereas the staff to maintain

unity ot co
nmand

of managerial problems. Line provides expert knowledge and advice in the o l u t i o n

executives
supervision of employees. Staff is are
responsible for the execution of sond and

and assistance to line woO

auxiliary to line. It provides advice and informat n a t i o n

marketing and hnanceexecutives

to enable themintoa manufacturing enterProducio
are line departments work
efficently. rouik
more
purchasing, personnel and accounting staff are enterprise
whie

charge ofa staff specialist wh has command functions. Each staff function
ction is
is und
r t h e

over un
subordinates in his
tment

in own depart"
RGANISING: PROCESS AND DEPARTMENTATION 6.19
His advice and counsel is not binding on linc exccutives. FHe cannot direct issue
only
o s to Subordinates in the line departments. Thus, unity of command is maintained
assistance is also available to line managers as shown in Fig. 6.4.
nd the expert
and

Production Manager

Chief Plant Quality

Engineer Superintendent Inspector
Assistant

Foremen Foremen

ww w w ww w w
Fig. 6.4. Line and Staff Organisation

The features of line and staff organisation are as under:

() In line and statf organisation, line authority moves down in the same manner
as in the line origanisation.
(i) Specialists are attached to line managers to advise them on important matters.
They stand ready with their speciality to serve line managers as and when
their services are called for to collect information and to give expert advice.
) The staff officers do not have any power of command in the origanisation
advice to the line officers.
as employed provide
theyare to
to the need for help in
() In most organisations, the use of staff can be traced
advice on specific managerial
handling details, gathering data and offering
problems.
discussed below
Merits The of line and staff organisation are
advantages
and expansion of the
Scope of Growth.There is a greater scope of growth
is available to cope up with higher
prise as assistance and advice ofstaff specialists
volume of work.
2) plan1ned specialisation and
Specialisation. This type of organisation is
based on

about the expert knowledge for the benefit ofthe management

better
Decisions. Staff specialists help the line manager in taking
. Better
at the right time.
information of right type
decisions
n s by
by providing them with adequate
of the line officers is considerably
Lesser Burden Line Officers. The work
) on
and specialised matters
are
red with the help of staff officers. Technical problems
unde
cd administrative
the matters are
concern of

n by the staff and the routine and

i line officers.
 6.20 ORGANISING: PROCESS AND DEPARTMEA
() Advancement of Research. As the work under this type of ENTATI
oreani
carricd out by expeits, they constantly undertake the rescarch and exDeri
for the improvement of the product. New and economical means of prodte
developed with the help of research and experimentation.
xDerimenttion,atu,
(7)Training of Line Officers. It has been observed that staff services have.
an cxcellen1 traininß medium for line officers.
iices have prove
Demerits: The demerits of line and staff organisations are
follows: as

( Conflicts Between Line and Staff. There may be chance of

line and staff authorities. Line officers resent the activities
conflict ber.
that they do not always
of staff members on th
give correct advice; and staff officials complain that their adple
is not properly carried out. dvi
(i) Different Orientations. There is a wide difference between the
the line and staff men. Line executives deal with orientation.
ons o
But staff officials who are
problems in a more
practical manne
specialists in their fields tend to be more theoretical. unnet.
(ii) Lack of Coordination. The allocation of duties between
the line and st
cxecutives is generally
not very clear. This may
at
hamper coordination in the organisation
(iv) Lack of Responsibility. As the staff
such
specialists are not accountable for the resuls
as
they may not
perform their duties well.
() Costly Structure. The appointment of experts involves a
Small and medium-size heavy expenditure
organisations cannot afford such a system.
(vi) More Reliance on Staff. Some of the line officers
This rely excessively on the staf
may considerably reduce the line control.
Superiority of Line and Staff Organisation
Line and staff
organisation is an
improvement over the line organisation as discuset
below
Relief to Line Executives. Staff executives
1.
look after
their respective arcas. As complicated problems
such, line executives are relieved of matters of technical natute
2.
Expert Advice. Line executives and the
expert advice of staff executives. enterprise as a whole get the benen
3. Better Co-ordination. The
line and staff organisation
ordination in the organisation as the staff provides for better
put them into action.
provides expert advice and the line ol fhces

4. Benefits of Research and

Development.
indispensable these days. Staff officers constantly undertake and
Research
developm
research and
improving the quality of products. New and economical methods of n aft

developed by them. productto

5. Training Facilities. Staff
officers provide training, and guidance to the
ofhcen

Line officers are benefited by their expert

knowledge.
 AIISING:
ORGANIS
PROCESS AND DEPARTMENTATION 6.21
Decision. Decisions taken under this organisation are generally better as
n
are
iointly by the line and staff ofhcers. Staff officers with their experience
knowledge
provide; adequate information for taking decisions.
and
d
staff organisation is more suitable for large enterprises as compared to
Line and s t a f f

isation because ofthe th need of expert and

up-to-date information for taking
ine
ecisions.
ortant decis The line can exist independently, but staff leans heavily on the
existance. Li
Line manager can make use of the expert advice of staft
isation for its
organis
line and staff organisation. Therefore, line and staff organisation
c a s e of lin
cialists in
better than line organisation.
is rtainly
.7.3 Functional Organisation
It is not an independent form of organisation. Like line and staff organisation,
slso makes use of line authority. The functional authority occupies a mid-way
sirion berween line and staff authority. It is a means of putting the specialists in top
positio

ositions throughout the enterprise. It confers upon the holders a limited power of
command over the people deparements concerning their functions. Functional
of other
authoriry remains confined to functional guidance of different departments. It helps in
maintaining quality and unitormity of the performance of functional areas throughout
the organisation.

Managing
Director

Finance Personnel
Production Marketing
Director Director
Director Director

Manager Manager
Manager Plant ll
Plant Plant l

Line Authority
- Functional Authority

Fig. 6.5. Functional Organisation

development
EW. aylor, the father of scientific management, is credited with thethe
ot fune
of functional various activities
of enterprise
e rganisation. As the name suggests, marketing, hnance,
ssified according functions like production,
Cording to certain shown in Fig.
personnel, etc. and are put under the charge of throughout the organisation in
functional specialists
as

6.5.The
The
incharge directs the
subordinates

receive orders and

is particular
ParticuOnal
operation. That
means
subordinates
o r business
6.22 ORGANISING: PROCESS AND DEPARTMENT

instructions not from superior but from several functional specialists. In other.
the subordinates are accountable to different functional specialists for the perfor wor
of different functions.
forman
has thc following features:
Functional organisation structure
T h e organisational activitics are divided into specified functions
Such
operations, finance, marketing, personncl
etc.

)Each functional area is put under the charge ofa functional specialist
t.T
spocialist has the authority or right to give orders regarding his fin.
wheresoever that function is pertormed in the enterprise.
unctir
i Three types of authority relationships exist ine authority relationsh
staff authority relationships and functional authority relationships.
1shi
(iv) It is a more complex type of organisation than l1ne organisation, and
and staff organisation.
() It does not follow the principle of unity of command as is the case withi
organisation.
Merits. The merits of functional organisacion are as under:
) Specialisation This system derives the benefits of specialisation. As ev
functional incharge is an expert in his area, will lead to
specialisation and will, wi
the help of the subordinates, try to attain the specified objective.
(i) Increased Efficiency: Functional origanisation ensures enhanced
the workers operate under the
efficiency:
expert and competent personnel and perform limia
operations.
ii) Executive Development: A functional
in manager is required to have experts
one function only. This makes it easy to develop executives.
iv) Reduction of Workload: Functional organisation reduces the burden
top executives. There is joint supervision in the enterprise. Every functional on
supervises his area only. ey
(v) Scope of
Expansion : Functional
expansion of business enterprise without anyorganisation offers a great scope
tor th

employee grows in his own speciality. dislocation and loss of efficiency s

(vi) Flexibility:
It a is fexible pattern
of organisation. Any
can be made without disturbing the whole organisation. In the words ot L o u anisan
lsh
change in Olle
"Function a whole can be cut by
as

eliminating positions
seriously affecting its total performance". at the lower leves
W i c h o w

Demerits.The drawbacks of
( functional
organisation discussed beloW
Conflicts:
command'. It
The authority relationship violates
are

creates several bosses the principle unitoy

the minds of the workers instead of one o
whom they should line authority.
c o n f t u s

leads to co
y. It leads to

obey and whom they shou i g n o

 PROCESS AND DEPARTMENTATION 6.23
ORGANISIN
ING:

6.2:Comparison on of Line, Line & Staff and Functional

Table
Organisations
Line Organisation Line and Staff Functional O-zganisation
Basisof Organisation
C o m p a r i s o n

form of Two forms of authority Three forms of authoriry

Only one
(viz. line authoriry, staff
i /Tipeof authority (viz. line (viz. line authority and
authority and functional
iuthority
authority) exists. advisory authority)
Co-exist. authority) exist together
Departments are created
Departments are
Departments are
Creation of
created both for both for basic and specia-
created only for basic
Departments
basic and specialised lised activities.
activities.
activities.

There is moderate There is high degree

of
There is low degree since
Specialisation specialisation since the degree of special-isation of specialisation
in addition to
since the specialised specialists
specia-lised activities
are
activities are specifically |
their advisory authority
not sp ecifically recog are
with a
also entrusted
recognised.
nized. limited line authority
This principle is generally
is
This principle is strictly | This principle not observed
because one

4. Unity of observed.
observed to a great
instructions from
Command may get
extent. many functional bosses.

for
The workload is
more
The workload of
The workload of who are
those manager
5. Workload of mangers is moderate
entrusted with functional
managers is higher because each manager
Managers because each line authority in
addition to

has handle either

to their respective authority.
manager has to
basic activities or
and
handle both basic specialised activities.
specialised activities.
It is very expensive
to
lt is expensive to operate
because of
economical to
6. Econorny in Itis operate because employment ot unctional

operate because of
Operation of employment of specialists.
generalist mana-gers.
specialists.
complex
lt is more

more
line and statt
It is relatively than the
type
7. Simplicity lt is a very simple complex than
»riganisation.

of organi-sation. line organisation

and relatively
less complex
t h a n functional

organisation.
suitable
tor relauvely
lt is
suitable
for large enterprises.

It is
8. Suitablity for small medium enierprises.

lt is suitable
of the
n o n - a p p l i c a t i o n

hx and
ofthe
enterprises.
a c c o u n t
to
On m a n a g e m e n t

shirking
for the top
for
Gi)Difficulty to Fix
R e s p o n s i b i l i t y :

difficult tendency
n t y to arises a
it is very

ptinciple of'unity of
i p l eo ot command'
foreman.
There

locate the ponsibility ofa

particular

of responsibility.
 6.24 ORGANISING: PROCESS AND DEPARTMENTA
(ii) Expensive Structure : This pattern of organisation is quite expen.
ATIO
Multiplicity of experts increase the overhead expenditure. I he small organisa ensiv
cannot afford to install such
sation
a system.
(iv) Lack of Discipline: Discipline among the workers as well as lower supervi
staff is difhcult to maintain as they are required to work under different bosses anvisor
and th
may hamper the progress of the organisation.
()Lack of Co-ordination: Appointment of several experts in the organisti
creates the problem of co-ordination and delay in decision-making especially wh
decision problem requires the involvement of more than one specialist. when
6.7 NATURE AND PATTERNS OF DEPARTMENTATION
lt has already been observed that organisation structure has wo dimension
the horizontal and the vertical. The horizontal aspect refers to grouping of activitie
(departmentation) while vertical dimension denotes the hierarchy of superiors a
subordinates (pyramid or scalar chain). In this section, we shall have an overview g
the nature and patterns of departmentation.

Meaning of Departmentation
A department may be defined as a work-group brought together for performin
certain functions of
similar nature. Departments are the various parts or divisions oi
an
enterprise. Departmentation is used to group various business functions and aso
personnel who will perform these functions. In other words,
process of division of enterprise into different departmentation is the
parts known as departments.
Departmentation involves grouping all operating tasks into jobs,
efective work-groups and combining combining ofjobs n
al groups into divisions ofiten
termed as departme
Grouping activities into departments is a
part of process of
aims of
departmentation are as follows: organisation. 1e

a) to
promote the attainment of overall
(b) simplify co-ordination;
to organisational objectives;
()to effect economies
of scale and exploitation of
d) to assist in executive special opportunic
and

development.
Significance of Departmentation
Departmentation helps in simplifying the task
organisation and control of the unctioning of the enterprise.
of top The other advantage
facilica
departmentation are as under: management. a
it

()
Specialisation: Departmentation enables
benefits of oft
specialisation. an organisation to
function, expertise Whenand
is developed efficiency
every avaOne mao
of operations increa
department looks atter o
ses.
 ANISING: PROCE AND DEPARTMENTATION
ORG

ORO 6.25
i)
Increased
Eficiency: The efficiency of managementa and
a1SC CVeryone knows his duties and enterprise increases
authority. Well- defined jobs and limits
authority help the individuals achicve better
performance
iation of Responsibility: Departmentation cnables cach
he sDecific part he is to
person to know
play in the total organísation. It
provides basis a

for building up loyalty and commitment. The

responsibility for results
he defined more precisely and an individual can be
can

held accountable for

pertormance.

i) Appraisal : Appraisal of managerial performance becomes easier when

specific tasks are assigned to departmental personnel. The sources of
information, the skills and competence required for total managerial decisions
can be located.
(u) Training of Executives:The departmental managers are given the opportunity
to take initiative. Departmentation is a training device for them. They can
learn managerial skills which will help them to move higher in the hierarchy
of management.
because objectives of
(vi) Control: Departmentation facilitates better control
which are one of the control
various departments are well known. Budgets,
mechanisms, can be prepared to control the income and expenditure of
also providesa basis on which top
different departments. Departmentation
can co-ordinate the activities of
different departments.
management

Types of Departmentation functional,

include: ()
h e basic patterns or methods of departmentation matrix.
area, (iv) customers, (v) project, (vi)
product, (iii) geographical of such
structures is given
network. The nature and suitability
27)
below.
Function
6.7.1 Departmentation by Functions of similar
medium sized enterprises. directuon to
the
This in
asis
is widely employed a view
to give a
dehinite

nature are gro in a single

unit with under
various depatments
activities
whole Ouped its departments
whole group. A business enterprise may
group
etc.
These
functional
insurance

like duction, finance, marketing,

personnel,
For
instance,
in an

agency
differ fror those in case of
non-business
organisations.

such
functions as
underwriting,
is
around of the
enterprise

Company, departmen'
Partmentation
could cluster
major
department
be
divided into

daims adjustments, It is also possible that

C n t s , etc.
a

marketing
function may
etc. Thus,
1hus,
research,
m a r k e t i n g research,
etc.
Subdivided intovdrlous
various For sections.
example,
advertising,
marketing

levels in
the hierarchy.
The

erchandising, selling, custome

s e r v i c e s ,, functional
C us
stto
omme
er successive

of
r

functiona through a c h i e v e m e n t

place
aonaldifere* l a t i o n may take contribute
to
the

activities grouped into functions ns

should
objectives

obiective which are linked the organisational

to
 DEPARThM
6.26
ORGANISING:
PROCESS AND
MENTATIC
Chief Executive

Marketing
Finance Human Resources
Production
Department
Department
Department Department

Quality
Production Manufacturing Control
Planning

Foundry Lathe Assembly Stores

Fig. 6.6. Functional Departmentation

Functions that are basic to the objectives of a company are given distin:
departmental status. These functions are called "organic functions" as their performar
and contribution are vital for the success of the enterprise. In manufactu
organisations, production, marketing and fhnance belong to this category. Ot:
functions called "secondary or staff functions" are meant to
provide support to orgar
functions. Quality control, personnel, public relations, etc.,
may be organised i
separate departments created as sub-departments of
or
organic departments.
Merits. The functional specialisation and division of
labour promotes excelkn
in performance because of
activities for
development of expertise.
It is a simple form
of group
organisations producing a few
products. It leads to the
following bene
i) Functional
departmentation provides unity of direction to closely
reu
activities.
i) lt brings about
specialization which leads to optimum utilisation ot manp
and other resources.
ii) lt lays
emphasis
on each and every modern
its conribution to
the activity. Every departme
iv) t facilitates organisational
objectives.
executive.
delegation of authority and thus reduces the burden orthech
(v) Specialists can be
employed to perform various activities
knowledge. requiring°
S p e c a l s

(vi) It facilitates
co-ordination both within
departmental level. It is easier the function and
a
int
to
co-ordinate activities of the for an executive of a partm
co-ordinate activities persons in his particularT
ratherthan
department,
pertaining to different functions. ra
 PROCESS AND DEPARTMENTATION
aGANISING: 6.27
ORGA
Demerits. The disadvantages of functional structure are as under :
( Each departmen concentrates on a narrow range of activitues relatung to its

function only.
(i) It may be difficult to achie coordination between different departments
because of their different orientations.

There may be lack of understanding between different departments. The

(iin) atmosphere of mistrust may lead to inter-departmental conficrs.
Decisions are delayed where decision-making involves two or more
(iv)
departments.
(Excessive specialisation may destroy teamwork in the organisation.
diversifed
Functional organisation may prove unsatisfactory in handling
(ud
product lines and specialized projects.
restricts development of generalists or managers
(ri Functional specialisation
with all-round capabilities.

Based Structure
6.7.2 Product
by giant
followed organisations having multiple product
Product based structure is
line is organised as a separate
each major product or product
lines. Under this, characteristics of the product
are of great

division. It is employed
where the unique
machines and equipment
and trained personnel.
signiñicance and they require specialised deal of capital is
is relatively complex and a great
It is appropriate when
each product divisions for textiles,
instance, Century Mills has separate
For
required for each product.
Cement and shipping as
shown in Fig. 6./

Company Headquarters

Research &
Legal Development
Finance
Corporate
Planning
C e m e n t Division

Shipping Division

Textiles Division

Production Marketing Fina cing

Production Marketing Fina cing Person el
Fig. 6.7.
Product
based
Structure.

creates
product
divisions

because
it purposes.

a c c o u n t a b i l i t y

ofdepartmentation

for at the
basis for profits
'roduct is an importan
lnportant
viable profit
centre

responsibility

Cach of which could be considered as

a
lines and
fixes
t placa
place product
ntion and efforts
on j
 ORGANISING:
PROCESS AND
DEPARTMENT

NTATIG
semi-autonomous,
it permits growel
wth a
6.28 growth-ori
Since the product
divisions
arc
M a r k e t - o r i e n t e d
long-range

easily e
riente
division level.

of productsand
and services.
The top
management
can

to the
valua,
produg
Dro
diversiication

implementcd. attention

c a n be
planned d iv is io ns
and pay greater
strategies or departmentati
of different product others. T
his type
performance to Drod
the

line which is
less profitable
as comparcd

coordinate
the
rclating
to a particular
activities odu
service.
cssential to
where it is
customer

uscful improve
coordination, it will also follows
bctter a r e as
Besides based
structure

() Productadvantages
Merits. The of product
departmentation can reduce the coordination problems which.
tivitie
a
There is integration ofacti
departmentation.
functional expansior
created under facilitates product
of product. It
to a particular line
relating
diversification.
individual attention
on each product line.
(i) It focuses
facilities on the basis of products whi
ii) t leads to specialisation of physical
results in economy.
the pertormance ot
various produa
evaluate and compare
(iv) It is casier to

divisions.
isolated from those of others.
(u) It keeps problems of production
the diverse functions of
(vr Since each product manager is required to supervise ther
to a particular product line,
production, sales and finance with respect
is a wide scope for the training and development of
allround executives.

Demerits. The disadvantages of product based structure are as under

() It results in the duplication of personnel and physical facilities. Each produr
division maintains its separate facilities and personnel. It may beco
uneconomical where full use cannot be made of the specialised skilsa
cquipment of each department. High cost of operations and large investmet
make it unsuitable for small firms.
7) Jt may be difficult for an
enterpriseadapt itself to
to
changes in technog
demand, etc.
though product lines be added and
dislocating the existing operations.
can
dropped easily witn
(ii) Product
departmentation may sometimes lead to difficulties in nation

specialised activities like marketing, financing and coordina

of certain
ng
Thus, account
departmentationthe product generally leads to duplication of facilities. High
by
cost of
operation prevents small
said above, product based structure companies
is suitable
from adopting this
type of structu
t u r e

multi-product lines and which can appoint toponly fairly large organisation
for n sh a v i n g

autonomous product divisions. managerial personnel to hanale sem

6.7.3 Geographical Territory or

Geographical structure is followed in Based Structure
case of service organisations whichh
bhad
ofices in different regions or geographical areas.
Each regional office has indepe
Zependet
 PROCESS. AND DEPARTMENTATION 6.29
ORGANISIN

departments
to realise its objectives. For instance, Life Insurance Corporation
onal -autonomous divisions in different regions of the country.
tunction

(LIC) has semi-au

of
division regulatestheLIC branches in its territory and each branch has separate
India

ments for operations such as new policies, collection of prenia, adjustment of

Divisional structure based on territories served has been
depar
d
claims a n d
administration.
6.8.
in Fig.
shown
L.I.C.
Head Ofice
(Bombay)

Southern Westerm
Central Northern
(Chenai) (Mumbai)
Eastern
(Kanpur) (New Delhi)
(Calcutta)

Chandigar Ajmer
New Delhi
Jalandhar

(Division)

Branch Branch
Branch Branch Unit 4
Unit 3
Unit 1 Unit 2

Structure.
6.8. Geographical
or Territory based
Fig.
industries such as
suitable for service
territories is more
It
Departmentation by customers are spread throughout
the country.
whose of each region.
and insurance
transport, banks the customers

requirements of
the special
on
helps in concentrating has the following
advantages:
departmentation are m o r e
Merits. Territorial The local managers

) I t leads the benefits

to of local operations.
of their
customers. They can adapt
and those
with their needs
conversant
situations with speed and accuracy.
and respond to the local more effectively.
the demands of
various regions the
can m e e t thereby raising
h e company local
customer groups
of products
be paid to quick delivery
(i) Better atten
ttention can
It ensures
markets.
of the company. of local
and goodwill intensive
exploitation
nage and of
areas, and supervision
Customers in different coordination
and
better cransporration
achieve
A regional
division can
help in reduciung
area. It also
in a particular
units.
vities autonomous

as
distribution costs. can
function

territories

) The departments ased on

business in various regions.

development.

(vi) It facilitate the expansion of country's

economic

viewof
Cllitates difficulties:

the pointof from the

following
vin t is also beneficial from
may
suffer
to
u n e c o n o m i c a l

leads
partmentation

It
merits. Territorial physical
facilities.

of
ThCre Is
multiplication

operations.
6.30
ORGANISING: PROCESS AND
DEPARTMENT
TMENTATI
regional office.
7)There may be problems of
integration
certain
between

areas.
various

ffices.The
othcr in
with cach
may compete
talented personnel
to take charge of re
arge of region,
( ) There may be lack of

departments. centralised services to t

) There will also be problems in providing vario
ditferent regions.
are located in
departments which
and personnel policies in all t
all
(Attempts to enforce unitorm marketing
units may be contrary to
the local needs of some units.
regional

6.7.4 Customer Based Structure

followed enerprises engaged in provid
Departmentation by customer may be
in

Under this, customers

specialised services to different classes of
customers. are
guide for grouping the activities. The management groups the activities on h
basis to cater to the requirements of clearly defined customer groups. For instance
a big automobile servicing enterprise may organise its departments as tollows: he
vehicle servicing division, car servicing division, and scooter servicing division. Mar
educational institutions usually follow this type of departmentation. They offer d
courses, evening courses and correspondence courses to meet the requirements
different types of students. Similarly, a commercial
organisation may be divided
wholesale, retail and export departments as shown in Fig. 6.9.
i

Company
Headquaters

Corporate Finance
Planning Marketing Research &
Development

Wholesale
Division Retail
Division Export
Division
Fig.6.9. Customer based Structure
Merits. T'he benefits
of structure based on customers
) Customer are as follows:
deparumentation can focus on the
of customers. special needs of ditteren kine
(i) lt
employs personnel with
special abilities for meeting
requirements. different cuIsto
(ii) It leads to greater
of the satisfaction of
enterprise among the public.customers which enhances the repP Puta

Customer based structure is also

the difficulty of not free
co-ordination between the from drawbacks. For instance, 1 C e , i tc r e a

departments organised on this Da

 PROCESS ND DEPARTMENTATION 6.31
SING:
other bases. Greater emphasis to the nced of the customers may lead
ORG

aised on
those
m use of space, cquipment and specialised personnel.
to
l e st h a n

A.7.5 Projact Organisation

defined asa complex set of activities which are diverse, specialised

may de
A project' The
performed within the given time frame and
cost structure.
bnical to be
and
u c t u r e is
designed to handle such set alongwith the already existing
ofactivities
o r o j e c t

structure designed to facilitate

execution of
structure. It is a termporary
aisational
onga
a specihe p r o j e c t .

organisation is oriented towards the completion of a big project or a

Project is
of specialists from different
areas

projects. Under this,

a team
ual uumber of big
Smal

Such a team is separate from independent of functional

and
eated for each project. from one project to another.
The
The size of the project team varies
ents. obtain
departmen

team are coordinated by

the project manager who can
acrivities of the project organisation.
both inside and outside the
assistance of experts
advice and work on and
creating a team of specialists
to
calls for
The project organisation with situation where
It has been developed to deal
complete a particular project. fit into a pure
functional organisation.
strategies do not
production and marketing aircraft manufacture,
construction and
is employed in aerospace,
subject
Project organisation consultancy. In such cases, projects are too

professional a r e a s like
management horizontal relations
on
and there is a strong emphasis
standards of performance t e a m s may be
high In industrial c o n c e r n s , projects

from diverse fields. or setting up

among the specialists development of
n e w products
and
structured to facilitate the designing 6.10, where
General Manager is
been shown
structure
in Fig.
has teams

new plant. Project number of

autonomous
a
projects. Each project has a
Scheduling.
0oking after two independent Engineering, Quality Control,
and Development, is created

uC as Project Design
structure

etc. The project

Resource Management,
Ocurement, Human functional) of the organisation.
structure (say,
wnOut affecting the existing
General Manager

ProjectI
Project

Human Procurement
Resource

|Project Design Engineering

Quality
Scheduling Management

and Control

Development
Structure
6.10. Project
Fig.
 DEPARTMENTAT
6.32 ORGANISING:
PROCESS AND
ATION
an organisation
to execis
is to execute a
organisation is
felt when
necd for project
standards of performance
as in casee of
or programme which is subject
to high
t crcatcd for o n e time project.
aircraft anies. If the project
organisation is
when the project is completed.
How. wever
have tempora and will be disbandcd
rary set up of the project is quite
ite
in
practice, it takes a m a n e n t form
pern
when the duration long
regular autonomous projcct division, functionally organised
and it may become a

project structure under the followin

Suitability. Modern organisations use
wing
circumstances:
with well-deined specifications and
T h e project is a onc-time assignment
concentration on its regular activities
the organisation wants to continue
T h e assignment presents a unique or untamiliar challenge.
(ii) Successful completion of the project is critical for the organisation.
) The project must be completed within the given time limit.
Merits. The benefits of project organisation are as under
() Project organisation facilitates concentrated attention on the complex projec.
It can be tailored to meet the requirements of the particular project.
(i) Project management requires specialists in various fields. Specialists get higher
satisfaction while working on complex projects. Thus,
project organisation
allows maximum use of specialised
knowledge available with the organisation.
ii) Project organisation provides
flexibility handling specialised projects
in
It
adopts logical approach to any challenge in the form of a
a

definite beginning, end and well-defined project wth

result.
(iv) Project organisation facilitates the
timely
disturbing the normal activities of the completion
of project
withou a

Demerits. The limitations organisation.

of project organisation are as under
i) Uncertainty in
project structure arises because the
deal with
specialists from a number of
Project Manager na
have different diverse fields. The
types of approaches and specialists o
ii) Lack of prescribed perspectives.
organisational processes, lack of clearly
responsibility, lack of communication
lines and measurement deti ake
the job ofa
project manager often more yardsticks
(ii) The project manager has to
face a very
challenging.
from the severe unusual decision esuls

penalties to be pressure that r

imposed because of the delay in
of the project. comp
eion

(i) Motivation of specialists may pose

Moreover, there may be
another problem for the ager
of their
confiicts
different orientations. among the specialists project ma
quite often D
 P R O C E S S

AND DEPARTMENIATION 6.33

:ING:
mANISING
6.7.6 tr
Mat ri
ixx St
S tr
ruuc
chtu re

latcst
lar es of organisational designs which has been developed
one
ol the
his is

ible suuucture
to hieve a
sericsof projretr objec rives. Marrix organisaron,
ablish as an answer to the growing sze and complexiry
has bccn desigicd
id. has
grid,
as structure thar is more Hexible and
k n o w n

of undettakings w h i c lwhich rcquirc an orgarnisation

traditional linc and sStaft or functional structure

ated than the

Matrix organisatio tion is crcated by merging thc t w o complemenrary organisarions

It represents a combination of departmental
unctional
e functional.
projcct and the
functional lines.
projects cut across the
organisation. In it,
project
anisation and departmenrs who arethe functional
teams
are composed lof people from When their
project
for the duration of the project.
The fora specific period or
t the project
ito
signed
r e t u r n to the
functional departments to which they belong
tis complete, they
assignment

are as follows
features of the
matrix organisation
Thesalient projects. The charge of
the
focuses attention on specihic
( Matrix organisation who is given the necessary
authority

to the project manager

project is given accordance with the time,
cost, qualiry
and other

in
to complete the project
communicated to him by the top management functional
conditions from various
draws groups of personnel
manager Upon
(i) The project the various
tunctional groups.
to
departments.
He assigns work return to their respective
the functional groups
completion of the project,
himseit
The project manager
to other projects.
reassignment
departments for
the division manager.
reassignment by
is also available for have ditterent
roles. Ihe project
functional managers
and the to his project.
) Both
the project with
management
viewpoint
regard
ot his
exerts a general the integrity
manager for maintainng
manager
is responsible
Each functional
and
ot thinking
function. to the way

is paramount

a n a g e m e n t by
project objectives
The
matrix organisation. in Fig. 6.l1.
Working in a
has been
illustrated
objectives
and
structure

The specihc
organisation
each with
dtriX three projects Production,
:Production,

stTuction Division is composed ot functional

naruhents:
d eparnents
the projects.
has tour to
period of completion.The ivision
tunctional
support
trom
various

Personnel which
provide
ngineering, Finand
Ech
and
mnanager and
functional
work groups

objectives
with the
project
project is composed ofa project
achieves the departments

lunctional The Project ments.

Manager
back to
their
respective

elp of functional groups who assigned

when the
are

When their
assignment is over.
 PROCESS AND DEPARTMENT.
6.34 ORGANISING:
TATIO
Construction
Division

Engineering Finance Personnel

Production

Fin. Pers.
Prod. Engg. group
Project group group
Manager group

Engg Fin. Pers.

Project Prod.
group group group
Manageri group

Engg. Fin. Pers.

Project Prod.
Managerll group group group group

Fig. 6.11. Matrix Organisation

BOX-1
Roles of Project Manager and
Role of
Functional Manager
Project Manager
The project manager is assigned the responsibility for
His role is explained below: managing the specific projec.
()The Project Manager is the overall incharge of
the basic policies and the project. Therefore, he lays down
strategies to achieve the project
i) He determines the efforts and resources objectives.
He will draw required to
personnel from different functional complete a specific projet
requirements of the project. departments according to u
i) He determines the cost and time
of the project at schedule of the project. In order to
control
various stages of its
(iv) He coordinates the activities execution, he formulates the project CU
of functional buog
schedule of various groups. As an integrator, he
groups. He operations and communicates the same to drandl
use of line
also motivates the personnel working under his the Tun
the
authority. guidance witnou
ne

Role of Functional
Each functional
Manager
area. The role of manager
is
a functional responsible
manager is
for
maintaining the integrity of his ru onal
as follows
() A functional
manager
ensure uniformity exercises line
of his authority over his subordinates in
i) He is responsible for hisfunctional area in all the
order

functional area and projects.

discipline to ensure efticiency of concentrates on the activities his
(in He assigns
specific individuals tooperations.
managers. various projects at the
request of tno
project

(v) He evaluates the

or performance
assigned to different projects.of all his
subordinates working directly under him
 DEPARTMENTATION
6.35
PROCESS AND
the need of large
ORGANISING:

has been developed to meet

Matrix organisation
tability. and tcchnically sound.
Suital

structure
which is fHexible Temprrary project
ganisarionsfor
for a
in
of partiular projects. For instance,

a m sa r ed e p u t e d
for thesuccessful completion
chemical, mechanical, industrial and electronic engineers
organisation,

an indu
dustrial accountants and other professionals ro develop a

together
vith
wit physicists,
work
may
in

highly complex producrs

n e w p r o d u c t .
as
with
organisation
is used in industries
Matrix
teams are created for specihc space o r weapon systems.
hdustrywhere project number of projects ranging
from
a e r o s p a c e

useful when an organisation has a

also highly
t is of a
construction company.
in c a s e
mall to large as
vs. Matrix Organisation
Table 6.3: Project Organisation
Matrix Organisation
Project Organisation and project
1. Combination offunctional
1 Independentstructure. structures.

Multiple command system.

2.
Single command system. resources
with
share
2. Project managers
each 5.
Exclusive use of resources
by the functional heads.
3. between
project manager. conflict
Possibility
of
heads. 4. and project manager.
the functional functional heads
4. No conflict with

Suitable for multiple projects.

of
limited number
5. Suitable for a

projects
under:
are as
organisation tacilitates

of matrix
which
Merits. The merits separately
on each project in time
of projects
a t t e n t i o n and
resources

completion
.lt focuses
control. It also helps in lt can be
and organisation.
Detter planning functional trom
traditional ranging
flexible than the involved in projects
market
l t 1S m o r e organisation technology,
to an in
more usefully the changes
aPplicd respond to clicnt quickly
better ot the
nall to large. It can
to the needs as

also respond
o r g a n i s a t u o n

It
matrix

can ot the
etc. in rank ot
case
COnditions, utilised than
better
are knowledge
3. Service of professi
ssionals

the authority
of
placed o n
emphasis is
utilise
hierarchy. They
can

re organisational
in project. of the
individuals in the
a
engaged
e x e c u t i o n

personnel for the

t o the c o n t r i b u t i o n

by
facilitating ng
4. It provides motiva maximum
coordination

make and groups.

and communication
their competen ence f u n c t i o n a l

a n d the project.
oject. It also
nproves cach
manager
to

contact between the project personnel is

required the project
atter
the
provide departments

5. unctional departr rtments

their parent

back t o
The personnel
vert
6.36 ORGANISING:

in the
PROCESS AND

use of the
EPARTMENTATI
DEPARTMe.

sed servies
specialised
cconomy
completced. This brings arcas.
dilferent functional
pcrsonncl from
from the following limitations-
Demerits. Matrix organisation suffeIs
unity of cominand as personnel receis ve
1. It violates the principle of orden
boss. This mav nay give
and the tunctional rise
from thc project manager t

jurisdietional contticts in the organisation.

also operate in the
relationships, informal
oncs
Apart from formal
organisation. Thus. organisational
relationships become more comnle.
ani
ther may reate the problem of coordination.
Functional groups generally visualise the signihcance of their resDec
3. function. ect
This may lead to conflicts between the functional groups

4. In matrix organisation, personnel are drawn temporarily from diffe

Ten
departments and the project manager does not have line authority over then
This may lead to lack of commitment to project objectives on the pat
personnel. Moreover, morale of the personnel may also be low.
Matrix organisation cannot constitute a homogeneous and compact
group. The multiplicity of vertical and horizontal relationships may impar
organisational efficiency. The functional experts may try to emphasise ther
own specialisation at the cost of the project because of lack of clarity
urisdiction the project and functional managers.
of
6. Deputation of personnel from functional departments to a number of project
over a
period of time makes it difficult for the functional heads to appri
employee performance. It is quite likely that job requirements in projects
different from the jobs in functional departments. In some cases, the
personne
may find it difficult to adjust to the requirements of the new
project.
6.7.7 Network Organisation
A network
organisation is based on the networking between a number
organisations accomplish predetermined assignment. It is also known as
to a
virt
organisation. A virtual organisation is a temporary netwvork between a er

companies that come together to accomplish a specific venture. It is createduumDE

fast esp
changing opportunities and share skills and facilitate access to global markets.
to

partiopaung company conuibues what it does best.

Network strucure is created around a central organisation that
es

other organisau0ns
tc
to
perform manufacturing, distribution, tinancing
other crucial business functions
basis as shown in Fig. 6.12.
Virquw

on a contract

organisation allows different "

organisations engaged in research and m e n

consultancy, manufacturing, financing, uansportation, etc., to develop

bring the
capabilities together. The core of the network structure is the central s a r i o

which coordinates relationships and activities organ

with the other o n s

the network. The organisati

managers in the central organisation spend most
o ft h e

o
ORGANISING: PROC
PROCESS AND DEPARTMENTATION 6.37
between rhe
ordinating and1 monitoring external rclations. 1aringof information
ork organisation is usually facilitatcd by electronic technology
f t h enetwork
This avoids the expenses of renting offices
c o n s t i t
ter. clectronic mail, fax, etc. new

a n d costly travel time between companics.

s u h
and.
venture
the
tr

R&DConsulting Transport
Company Company

Materials Supply Central Security

Company Organisation/ Agency

Manufacturing Financial
Company Company

Fig. 6.12. Virtual Organisation

Virrual organisations have been created by large companies such as IBM, Apple,
Ford etc. though there is no bar on small companies to create such organisations.

Nerwork organisation is suitable for all endeavours which require high fHexibility to
has been used by several U.S.
respond quickly to changing environment. This form
multinational corporations whose manufacturing operations require low-cost labour
that can best be utilized by contracting with foreign suppliers. However, virtual
lack of close control
organisations may suffer from two problems. Firstly, there may be
Over manufacturing operations. Secondly, there may be doubt over the reliability of the

Pners. However, with advances in information technology, the network structure is

gning popularity. It may be the wave of the future for organisations to capitalize o n
ertan types of ventures or projects favoured by the external environment.

UESTIONS
Short Answer Questions
1. Explain the ortance of organising as a function of management
2.
Explain briefly the steps in the process of organising.
3.What are the merits of functional departmentation?
4.
State the merits of matrix organisation.
.What are the features of project organisation?
6.
7.
Explain the suitability of line and staff organisation.
Explain network organisation.
 PROCESS
ND DEPARTMENTAT
AND
DEPARTME

ORGANISING:

6.38 of
informal
organisation?

features ?
8. What arethe informal
groups

problems
created by
organisation
mal orgni
and informal organisatio
9. State the formal
between

out the
difference
?
10. Bring formation of groups
of
are the causes

11. What

of organising in
the n..
Long Answer Questions

and explain
the importance oresen
1. Define organising
business environment.
of organisati
Discuss the significance ion
process of organising.
2. Explain the business enterprise.
running of a of effers
the s u c c e s s f u l essential prerequisite
ecive
structure is an
"Sound organisation
management". Comment.

achieve enterprise objectives". Explainh

Organisation is an
important tool to

statement
considerations in designing an organisation structure.
5. Explain the basic discuss any two patterns
by departmentation ? Briefly
6. What is meant
departmentation.
7. What is functional departmentation
? What are its merits and demerits?

8. What is line and staff organisation ? How

does it differ from line organisation?
9. Discuss in brief the characteristics, advantages and limitations of proje
organisation.
10. What do you understand by project organisation ? Give its advantages.
11. What is a matrix organisation ? Examine its merits and limitations.
12. Discuss in brief the characteristics, advantages and limitations of ma
organisation.
13. Explain the concept of Matrix Organisation. How does it differ from Pro
Organisation?
14. What is matrix organisation ? Under what circumstances is it most useru
15. Distinguish between matrix and project organisation structures. inbrel
the merits and demerits of Explain
project organisation.
16. What is a network organisation ? Discuss its salient features.
17. Explain the
meanings of formal organisation and rma

organisation.
organisation.
Differentiate between formal organisation andinm nform

18. Write notes on the following:

(a) Span of control
(b) Line and staff
organisation
(c) Project organisation
(d) Network organisation
(e) Informal organisation
 CHAPTER 7

Delegation and Decentralisation

Authority and Power

Concept and Elements of Delegation

Signihicance ot Delegation

Problems or Obstacles in Delegation

Securing Efective Delegation of Authority
Decentralisation of Authority
Centralisation of Authority

Introduction
manager assigns some
of the
Delegation of authority is a process by which a

a selective basis, allows

him to
bES WIthin his work jurisdiction to his subordinate on

and nmakes him accountable

rcise authority his behalf to accomplish the tasks
on
core of the process
ot organising and
pertormance. Delegation of authority is at the
members
among the
he establishment of superior-subordinate relationships
of organisation.
t is delegated by his superior is
The manager to whom authority
empowered to decide and do certain specified things. 'decentralisation
in this chapter is
which we will take up
ther related process and management
which
ofauthority. .
D e c e n t r a l i s a t i o n is a philosophy
of organisation
concentration of authority
invel as well as
involves both sele
o t h selective delegation
of authority
controls.
but adequate
hrough the imposition
the imposh of policies and selective
 7.2 DELEGATION AND DECENTRA
7.1 AUTHORITY AND POWER RALS SR
Concept of Authority
Louis A. Allen has defined authority as the rights entrusted to a posit:.
to make possible the performance of the work assigned. Authority is basic
of managing. A manager must have adequate authority to get things done .
subordinates. The features of managerial authority are as under: throwa
( Authority is the right or power to command and control the suborh
(i) ltis granted to a position-holder (or manager) for the achievementof bordinae
objectives.
(ii) The authority may be exercised through persuasion or sanctions t
subordinate does not obey, the superior has a
right to take discinli
action.
(iv) The purpose of exercising authority is to infuence the behaviour and ac
of subordinates in the direction of
organisational objectives.
Concept of Power
The term power' may be
defined as the capacity to exert inftuence over other
person has power, it means that he is able to influence the behaviour of other individu
The essence of power is control over the behaviour of others. In
one's role as a supervis
a
manager power may be seen as the ability to cause subordinates to do whati
manager wishes him to do. A manager's power may be measured in terms of the abi
to: (1) give rewards, (2) promise rewards, (3) threaten to withdraw
(4) withdraw current rewards, (5) threaten current rewan
punishment, and (6) punish.
Distinction between Authority and Power
The terms
'authority and power are
generally used interchangeably, but
is a clear-cut distinction between the
discussed belowy:
two as
) Definition. Authority is the
is the right of a person to influence others wheres
capacity of a person to infuence others.
ii) Nature. Authority is
always positional and legitimate and is conterreu
position. But power is not institutional, rather it is personal. It is peyp

in various ways and

exercised upon others. It is acquired Dy
having certain personal attributes. acquired through political mea
(iii) Association with Structure.
position in the formal organisation. It Authority of person a is
associac
hierarchy. But it need not necessarily be increases as one goes up the org
(iv)
Relationship. The structure accompanied by more powe. rh
relationships. In practice, these of an organisation merely shows i nt

organisation. Some individuals relationships modified by power po

are

authoriry and less power. may have more

power and less authority
() Flow.
Authority is a
directions. Authoriy can be downward flowing concept whereas
delegated to the lower levels in po nisation. The"
the organisatio
 CENTRALISATION
DECE
D E L .
ATION
AND
7.3
the lesser is the authority as
down the ierarchy,
st with a
authority Afows from top to
may rcst person lower down the
3ut power
bottonm. Bua
e more infuencial than a middle level
organisation. For example.
Supervisor manager.
sl Responsibility. The extent of authority is limited to the amount of
(r1)
rity
biliry. Authorit and responsibility are co-extensive and balance each other.
case
f ofp.
power, there is no such balancing factor. Persons wielding greater power
But in l1mited responsibility.
have only

BOX-1
Sources of Authority
There are three theories which highlight three different sources of authority as discussed
below

1. Formal Authority Theory. According theory, authority originates at the top of

to this
downward through the process of delegation. The
an organisation hierarchy and flows shareholders. The shareholders
lies with its owners or
utimate authority in a company
of the company to the Board of Directors and delegate to it most
entrust the management Executive and
Board of Directors delegates authority to the Chief
of their authority. The in the
to the departmental heads and so on. Every manager
the Chief Executive in turn is the
because of his organisational position. That why,
organisation has some authority Subordinates accept the authority of a superior
authority is known as formal authority. has
the organisation. A manager in the organisation
because of his formal position in
which is delegated to him by
his superior.
only that much of authority is the power which is
to this theory, the authority
2. Acceptance Theory. According unless it is accepted by the
others. Formal authority has no significance
accepted by is measured
possessed by a manager
Subordinates. The degree of effective authority order will
The acceptability of an
who accepts it.
subordinate
Dy the willingness of the both positive and negative.
Many orders may be

epend upon relative consequences, acceptable. Barnard

unacceptable and
others only partially
it well, and (i)
uy acceptable, many fully will accept an order if () he understands

a subordinate compatible with

inains that with the organisational objectives and
consistent
Deleves it to be
his own interest. authorTy
because
individual derives
an
According to this theory, as being
conterred
mpetence Theory. formal authority
Urwick identified knowledge or skill,
personal competence. in a special
as being
implicit may
Thus, a person
organisation, technical authority seniority or popularity. but
conferred by formal authority,
personal author
unority
as being
b e c a u s e he is having any
competence
and
get his order or advice accepted
aco not
be technical field
may a particular
These qualities
because of his sonal qualities.
persor person
is expert in order.
example, a advice as if
it w e r e an
alstatus in the o r g a n i s a t i o n . For follow his and
and other o p i e go to him for guidance,
and
concluded
that
acceptance

But
it c a n be of a n o t h e r .
From the alysis theories of authority, obeys
the order
of and why
individual
an
The
authority
formal
s h o uld

Detence theories 9gest how

sug99 undermined.
authority a s
the im be cannot
and
competence
is
ance of formal authority acceptance formal
position

be regarded to managerial
job and
like army
and poice,

product
the mosts important
Dasic
eadership. In some
source of authority.
rganisations

orga
 DELEGATION AND DECENTRA
7.4
7.2 CONCEPT AND ELEMENTS
OF DELEGATION
RALISAT
Meaning of Delegation of Authority
Louis A. Allen has defincd delegation of authority in the followi
"Delegation is the dynamics of management ; it is the process
Ocess aa mana o
in dividing the work assigned to him so that he pertorms that
manager
part which fol
because of his uniquc organisational placement, can pertorm and so tharonly
he
ettectively get others to help him with what remains."
Delegation f authoriy means the assigument of work to others and n.
and grant
them the requisite authority to accomplish the job assigned. lt enables the manaor
distribute their load of work others and concentrate on more
to
anagen
important funenctir
which they can perform better because of their in
position the organisation. Deleon
is the ability of a manager to share his burden with others. How can he best egat
shan.
burden? Firstly, he must entrust to others the pertormance of a
part of the wor
would otherwise have to do himself; secondly, he must
provide a means of check
up the work that is done for him to ensure that it is done as he wishes.
Elements of Delegation of
Authority
The process of
delegation of authority involves three elements
(i) Assignment of Responsibility: The superior entrusts some
duty to a subordinate for performance. responsibilitya
Gi) Granting of
Authority: The superior grants authority to the
carry out the subordinat
duty assigned. This may include right to use resources,
money, engage people, etc. sp
(iii) Accountability for Performance The last step in
with creating
obligation
an
to out duty
delegation is conce
account of the
carry responsibility and renac
or
results achieved
through the use of delegated authorit.
subordinate must be held accountable
for the exercise of
him. By
accepting the duties and authoriry gran
to his superior. authority, subordinate becomes resp
a

virtue
Responsibility. Responsibility denotes the
work or duties
of hisposition organisation. refers to the mental assigned
to
in the
It ap
which must be and activin"

performed to carry out a task or physical

pertorms some kind of mental or duty. That nmeans everY P
In order to enable the physical activities as an assigned task has
subordinate resp
clearly tell the former to what is perform his responsibility well, the supe
Superiorm"
as
determine clearly the task or expected of him. In other words, the ant
mp
duty that is deleg
expressed either in terms of function in assigned to the delegate. The duy
or
uty
must

terms of
to control the
operations of a
machine, the
objectives. If subordinah a
asked to produce a certain duty in terms of function.
is
number of
pieces of product, the duty is in Ds oftasg
a
tern
 AND DECENTRALISATION 7.5
DELEGATION
o ro b j e c t i v e
D e t c r m i n a t i o n

.D e t e r m i r
ofduties in terms of objectives will enable rhe subordinare
standards
his performance will be evaluated.
be b
w know what the
Authority is the right granted to an employee to make possihle
thority. ask
P'ower to procure or use raw materials, spend money,
or

of uork asigned. individuals

fire people, etc. has to be delegated to ro

to hire:and
of money, Producrion
instance, if the Plant Manager assigns the
l o t m e n t

For
work is assigned.
services, he will also grant
whomthe
the roduction of particular type of goods and
Managerwith
machinery, hire workes and so on to

to u s e
materials, money and
authority
himthe
production
schedule prescribed as his duty.
the amd
fulhil.
to carry out responsibility
Accountability s the obligation
Accountability. It m e a n s
standards established by the superior.
terms performance of
uthority in results. The subordinate is
held accountable
answerable for final
xercise

Aalding an
individual
because the manager
has a right to require
originates
subordinate. The process of
Accountability
ro thesuperior. and task assigned
to a
for the delegated is created.
an
accounting unless accountability
is incomplete
authority
delegation of should n o t be
confused with 'responsibility
'accountability subordinates.
to the
The t e r m done. It can be assigned
be
the work to sufficient authority
denotes
Responsibility well if he is given
responsibility
will perform his he commits himself
A subordinate by the subordinate,
is accepted for t h e
it. When the authority is the obligation
alongwith Thus, accountability
the u s e of authority.
for
and authority delegated.
to a c c o u n t

performance of work assigned

characterised by
the following features: by t h e
Accountability is
out the respomsibiliey orduties
is the obligation to cary
Accountability
is the obligacion
use of delegated authority. Since
accountability
it
moves upwards. to his superior,
aluways subordinate

ofauthority by
Accountabiliy a
exercise
to account for the subordinate.

4
naturally moves upward. allocted to
of duties ot

limited to the runge for the

the scope
beyond
is always
Accountability answerable
acts

cannot
be held
Subordinate
tact that
because
ot the
his responsibility. This is A superior,

delegated. authority.
be ot
(iv) Accountability ltogether.
cannot
delegation
c u l m i n a t i o n
of a c c o u n t a b i l i c y

the his ot his

ccountab.lity is
abdicate
on
the part
c a n n o t

omussion

authority, of
merely, by delegating
acEs

untable
for the
be
He n t i n u e s to

ed?
subordinates. be
Delegated: make
possible
to

an Both Authorit,
i n d i v i d u a l
m a t e r i a l s ,
Responsibility

tyand
raw
an
to to
use

granted or

for himAuthority is the right

r o c u r e

power
to proc
The right
to do the work effectively.
 7.6 DELEGATION AND DECENTRALISA
spend money, hire people, etc. has to be delegated to the persons to whom
SATIO
assigned. That means, authority can be delegated. But responsibility
whom
thein task
work
the assigne
se
accountability cannot be delegated. It is an obligation to carry out the task ast sense
and exercise authority judiciously.
The extent of accountability depends upon the extent of delegation of auth.
Responsibility or accountability for results cannot be delegated. A manager
delegates his authority remains accountable for the performance of his subordin
The accountability of the superior for the acts of his subordinates is unconditie
Accountability moves upward because a person is always accountable to the exeC
tiona
who delegated authority to him. On the other hand, the ffow ofauthority isdownatve
ward
Accountability cannot be delegated. Though it is incurred as a result of assignme
of dury and conferring of authority, accountability in itself cannot be
delegated. Th.
delegant cannot abdicate responsibility. He remains accountable to his superior f
that which the latter has delegated to him. Since
accountability cannot be delegatei
the accountability of persons higher in the
hierarchy for the acts of the subordinates i
unconditional. This can be illustrated by an example of three executives
different levels of management. representing

AUTHORITY
A
A

B B

C
C

ACCOUNTABILITY
Fig. 7.1. Flow of Authority and
Accountability
As shown in Fig. 7.1, A is the chief boss. B is A's
B delegates subordinate and C is B's subord
inate

authority and
responsibility to C. In this process, C becomes ablk

to B. In spite of
this, B continues to be accou
accountable to A for even that
tion «

responsibility which he has delegated to C. He cannot be po t i cw s

the responsibiliry or the free on the pretext

liability of Cbecause he had put that tnait 2sibiliy

to him. B
may however hold C accountable portion of his respor
him to the point of termination and may take the a g a i n s

severest action *
of his services
because of negligence of duty
The above illustration also
shows that
flows upward. The subordinate authority flows downward and accou tabilie

will be accountable
to his boss who is over
hierarchy of organisation.
 AND DECENTRALISATION 7.7
DELE
of Authority
of fDelegation

the
following forms under different
take
i

P
p e s

D e l e g a t i o n
of authority can situation:

or oral delegation: Perferably authority

must be
(Written
delegated in writing,
1may create confusion and misunderstanding
oraldelegation
of general delegation, the
Delegation of generalo specific authority:In
case

authority is delegated in the same form and spirit as retained by the original
is delegared, will be
cet. If only specihe part of work and authority it

specific delegation.
the delegatee has
Soft and
hard elegation: In the case
of hard delegation
himself. This sort of delegation is generally at lower level.
do the work the
levels of management. In this
to case
takes place at higher
Soft delegation of other colleagues.
delegatee has
to pertorm work with the help
work
In this delegation the subordinate has
to perform
i)Lateral delegation: of his own level.
with the help of colleagues his
a s s u m e work just to please

delegation: The subordinates themselves

()Informal formal delegation.
his authorities without any
their superiors and use

SIGNIFICANCE O F DELEGATION

7.3 tied together through

are vertically
the hierarchy
All managerial positions in and these relationships
a r e created by
relationships in che
authority-responsibility
Each managerial position
of authority. obligations
the process of delegation relationship and
responsibilities,
Organisation is a cluster
of rights, roles, in certain ways.
to function
that position
wnich demand the person occupying effective organisation.
Every
essential tool for is wide
of authority is
an authority
Delegation activities. His scope of
L V e has to perform
wider range of it is always in the interest
so
is limited, to
to work
and supervise work should be delegated

Dut his capacity and general

work o n
the
of the organisation that the routine, ordinary accomplishment ot

f the effective The manager

This will result in the
executive.
ntsubordinates.
increase eficiency
of and he subordinates,

onehand ando n the other hand it will done by

competent
by deleg.
cgatees.
vil
willbe in position to get
a major part of work done a on his behalt
g work
quantity of
hiuuselt.
the muliply
nuliply himself as regards
re
whereby
a
manager
can

lies in
his ability
to

tool
Delegation of authority is a
how well
success

his
capacity,
Once man's
deteruunes

his personal
a delegates
job grows vS beyond
How well he once
remarked,

muliply himself thro igh

America
people. other of he can do
i n d u s t r i a l i s t
than
better
a leading do job
manage. Andrew Carnage, e, him to
Is a n
important

when a
in man realises he
call
in
can
others to help
Delegation
of
auchoriuy

alone, he has taken big

bigstep
step KCn aa
in his
life".

agerial skill requiring a manager

to:
t e r m s ;

in operational
)size up his total workload

into sub-t
ivide his total workload
 DELEGATION
AND DECENTRAL
ISA
SATION
himself from those which
from those
7.8 which he has to
retain for
sub-tasks
(11) separate
the
the assignable sub...
subordinates;

his
hecan assign
to
content required
to carry out
out theauthority with the authority content an.

(r)work
sub-tasks together
distribute the assignable
()
to him for carryine ou.
t the
his subordinates accountable

individually
subordinates
authority; and
(7) makc his the delegated
and for exercising
assigned tasks in discharging the
subordinates
motivate the
instruct. guide
and
(P7
responsibilities.

Advantages of Delegation
administrative process that can lead
is an important
Delegation of authority
to the following advantages:
Delegation enables the executive
( Multiplication ofthe executives capacity: no doubt, multiplie
the subordinates which
jobs to be performed by and attends to important
executive capacity. He is spared
from routine affairs
complicated matters.

subordinates are granted adequate authority

i) Speedy decision-making: The
to take decisions required to perform the work or duty assigned to them

This speeds up the process of decision-making.

subordinates to
(tit) Means of co-ordination : Delegation enables managers and
establish close relationship with each other. It improves the atmosphere and
maintains effective co-ordination at all levels of management.
Giv) Opportunity for professional training and growth: The delegateelearnste
executive job and becomes capable of doing it, which increases his ability
understanding and competency and thus results in professional growth.
() Increasing the morale of employee : The subordinate performs the wons
assigned by the executive and thereby his morale and self-confidence ae
increased. He works with zeal, and
improves his etficiency to earn promo
(vi) Helping the expansion of business: If the enterprise expands, well-trai
experienced and competent persons are readily available to take up the
ne
positions.These persons are also habituated of working in the real situat
of the business.

7.4 PROBLEMS OR OBSTACLES IN

DELEGATION
Delegation appears be simple process, but in
to a
come in the
way of etfective
practice, many ditn
delegation.
three categories which are discussed
These difficulties may be
groupeu
below
1. On the Part of the
Superior
Managerial failure in delegation
may result because of the ations

) Resistance : A manger may think following limita

that he can do the job better 1self and
DELEGATION AND DECENTRALISATIOON 7.9
will be reluctant to delegate authority. "I can do it bctter myself" fallacy
he

delegation of authority. Such cxecutives often oppose the idea of

SO

obstructs

with the others.

sharing authorny
and direct: Lack ability the manager
of of correctly
of ability to plan
to
(i)
a Lack
Lack
( andi issue suitable in guiding the subordinates,
instructions though he
plan
willing to delegate, crcates hurdles in the way of effective delegation.
to let go : the work of
The desire of dominance over
Lackof willingness
(in) subordinates at each st hampers the delegation. Morcover, a manager may
lets the subordinate make decisions, he may outshine him.
he afraid that if he
trustful
Lack of willingness to trust subordinates : Delegation implies a

and the subordinate. Lack of confidence in the

attitude between the superior
of the subordinate obstructs the superior
capacity, ability and dependability the subordirnate,
lacks confidence in
delegate authority. Since manager
a
to
to give him any chance to make mistakes and
he will not delegate authority
learn how to take correct decisions.

superior the find means

Lack of controls : While delegating authority,
must
(
is used to accomplish the given
of assuring himself that the authority being has
does not set up adequate controls o r
assignments. Where the manager the
no m e a n s of knowing
the use of authority, he may hesitate to delegate

authority.
Subordinates
2. On the Part of the
though there
The subordinates may avoid shouldering
responsibilities even

be reluctant to accept authority

is no fault of the part of the superior. They may
because of the following reasons:
fear of

)Subordinates may lack

self-confidence because of incompetence or
failure. criticism
criticism or may have
been victims of undue
Subordinates may fear
for committing nistakes in the past.
the boss for decision making.
Some people prefer to depend upon where required
to accept delegation
ubordinates may be unwilling ettective
communication

available or when
rormation and facilities
are not

is lacking.
additional responsibility.
sufficient incentives for accepting
cre
may n o t be already over-
. delegation when
they are

burden on
uDOrdinates will not accept increase
delegation will
merely
Or when they feel that
C
them.
3.On the Part of the Organisation o f in practice may
also lie

COntributing
the weakness
to
delegation l
of delegation
the
(a organistion. They may include the following: responsibility

) Defective and non-clarity of authority

structure

Organisation

relationships.
 DELEGATION AND DECENTRALISA
7.10
(ii) Inadequate planning.
JSATION
i ) Splintercd authority.
of command.
77) Intringement of the principle of unity
() Lack of cffective control.

7.5 SECURING EFFECTIVE DELEGATION OF AUTHORIty

For securing eftective delegation of authority in an organisation, the followin
considerations should be kept in mind:
wing
1. Clear-cut objectives: Subordinate know the objective of thew
must
work
delegated to him and also the business goal of the enterprise clearly, soth
his efforts should be directed towards desired goal of the organisation.
2. Unity of command: Authorities should be delegated in such a
way that the
principle of unity of command be maintained at every level of organisatinn
The subordinate should receive orders and instructions from one
singe
executive and to whom he should be made answerable also.
3. Clear explanation of the worlk assigned and authority delegated: The dur
and authority delegated to the subordinate must be explained to him, so
that he may understand the limitations of the work
of authority delegated.
assigned and the scope
4. Reasonable control over
delegatee: The executive should have adequate
control over the delegatee, so that he
may evaluate the performance and issue
necessary instructions from time to time.
5. Free communication: There
should be constant link between the superiot
and subordinate, so that the
the
delegatee may put forward his problems regarding
job before the executive, who may
6. No intervention in
suggest and guide his eftorts.
the day to day affairs
day-to-day work: The officer should not intervene
of the subordinate. Thedelegatee should be allowed
work with a
courage, zeal and sense of
7. Training of subordinates The subordinateresponsibility.
the job entrusted to
him.
must be
reasonably trainc d tor
8.
Co-operative attitude and atmosphere :
goodwill, mutual There should be an atmospne o f
the
co-operationand
adjustment between the supetio
and

subordinates in the
organisation.
7.5.1 Principles of Delegation of Authority
Delegation of authority can be made
effective by adhering to the ciples
of delegation. The additional hints for prin
making delegation efective as follo
1. Proper Planning: Before
delegating, an
are tolloas

and

cisely the oiobjectives to be achieved by the

precisely executive should define clearly
early.
delegation of authority and responsisibilig
 LEGATION AND DECENTRALISATION 7.11
obsshould be designed clearly to achieve these objectives. The subordinates must
rand cle:
understand clearly what activities they must undertake and what results they must show.
This will enable them to know by what standards their performance will be judged.
2. Parity of Authority and Responsibility : Authority and responsibiliry should
bear logical relation to each other. So much authority should be granted which is
fill the responsibility. This parity is not mathematical, but rather
ient to fulfll
etensive because both relate to the same assignment. Authoriry can never be delegared
coext

equal to responsibility
responsibili as both are different things. Responsibility is the work assigned
to a sition and is related to objectives, whereas authority is related to the rights
ivcn to perform the work assigned. There is no common denominator for measuring
gcauality between these. However, authority should be delegated commensurate with

responsibility. For instance, if a manager tries to hold subordinates accountable for

it will be unfair. It is also not
duties for which they do not have the requisite authority,
are given sufficient authoriry, but are not held accountable
Droper if the subordinates
use.
for its proper
must be clarified
3. Clarification of Limits of Authority Limits of authority
so that they may not assume more authority than
desired. Clear
to the subordinates
themselves
limits of authority will allow subordinates to exercise initiative, develop
will also avoid
through freedom of action and to know their area of operation. This
misuse of authority.
4. Effective Communication: There should be free flow of information
communication
and ideas between a superior and his subordinates. Two-way
can give clear and precise
instructions and
system is essential so that the superior
Accurate and
the subordinate seek the necessary clarifications and guidance.
can
enable them
information should be made available to the executives to
timely the subordinates.
out the responsibilities by
to remove obstacles in effectively carrying
being an obligation
S. Absoluteness of Accountability: Since acountability,
accountability for the activities
superior can escape
ov Cannot be delegated, no
and assigned
it is the superior who has delegated authority
s subordinates, for his boss to the
account tor to
utes. The superior c a n n o t pass on
his obligation to
of the subordinates
Likewise, the accountability
Ordinates
to t
alongwith his authority.
superior for the performance of assigned tasks is absolute
accountability is unitary. Each
states
This principle
OUnity of Command: as he cannot

one superior
for delegated authority
Pers be accountable only to for the same duty,
contusion

to two superiors instructions.

O m a s t e r s well.
Ifa person reports conflicting
frequently receiving
ind fr will find himself the risk of
ton will result. He his two
bosses or to r u n
should be
is either to get
t h i s is the case, his only hope
subordination
ossible, dual
as far as
displeasing eith
either or both. Therefore,
avoided.
 7.12 DELEGATION AND DECENTRALISA.
SATIO
7.6 DECENTRALISATION OF AUTHORITY

Meaning of Decentralisation
According to Mclarland. "Decenralisation is a situation in which ulti
is localised as far
imate
command and ultimate responsibility for results
authority to

in the organisation as efficicnt management of the organisation permits". Accord

down
Allen. "Decentralisation refers to the systematic effort to delegate to the Lo. ording
leveks all authority exrnepr that which can only be exercised at central points,"
lowen
Thu
decentralisation means reservation of some authority (to plan, organise, direct an.
and
control) at the top level and delegation of authority to make routine decisions
points as near as possible to where actions take place.
Decentralisation is an extension of delegation which means entrustment o
responsibility and authority from one individual to another. But decentralisation means
scattering of authority throughout the organisation. It is the diffusion of authority within
the entireenterprise. Delegation from one person to another is a complete process. Bu
decentralisation is completed only when the maximum
possible delegation is made to
people at lower levels in the organisation. This can be explained with the help oi
the following example.

Suppose in a company, all leave applications are approved by the General Manager
He feels over-burdened and transfers this authority to the Personnel Manager. This is
an
example of delegation of authority. If the General Manager disperses the
to various heads of authori
departments to approve the leave applications of their respectve
departments, this is an example of decentralisation of authority. In other word
decentralisation is
extension of delegation of
an
authority. If an executive delegat
authority, he multiplies it by two and if he decentralises it, he
Under multiplies it by many
delegation, control rests entirely with the
decentralisation, the top delegant, but unu
the authority management
o f controlling may exercise
to the departmental managers. minimum controlbeand
It should notedegace
deicg thut
complete decentralisation may be
more that one level in the
not
possible or desirable, but it certainly inv
volves

organisation.
Factors Leading to Decentralisation
The
important factors that
follows
cause
decentralisation of authority
() Decentralisation of authority is facilitated
and when it is released to take IICK

appropriate decisions at a level at which

view to cash on the they are really required with
opportunity present.
(ii) When the top
management wants to reduce
w o r k

decentralisation of authority is communication

preferred.
 LEGATIONAN DECENTRALISATION
The nature of
(iit) companys products or markets 7.13
provide special emphasis require
of decision-making to may
decentralisation
market. Technological changes
may also create
to a
product line or a
decentralisation. conditions favourable to
.Crowth and diversification of
activities of the
decentralisation necessary to introduce fHexibility incompany may make
nroper direction and relieve the operation, facilitate
top executive of the burden of extra
work.
(u)Physical dispersion of activities of the company may
of authority for better results. require decentralisation

Gauging the Degree of Decentralisation

How decentralised a particular organisation is ? There are no hard and fast
Tules. but the following guidelines may be used to test the
degree of decentralisation
in a company:

1. The greater the number of decisions made at the lower levels in the
o1 ganisation,
the greater the degree ofdecentralisation.
2. The closer the level at which the decision is made in relation to the point where
the problem arose, the greater the decentralisation. Suppose a customer in
Maharashtra has a problem, and the western division manager is authorised
to make the necessary decisions. Then to that extent the company is more
decentralised than if the boss in New Delhi had to make the decisions.
3. The more important are the decisions that can be made at the lower levels,
the greater the decentralisation. For example, a company in which division

managers can make equipment purchase decisions for up to 5lakh is more

decentralised than one in which they are authorised to make these decisions

up to a limit of 1 akh.
decisions in of the number
T h e greater the breadth of terms

Thus, the company in

decentralisation.
I Sunctions they cover, the greater the marketing and
which division managers are authorised to take production,

personnel decisions is m o r e decentralised

than one in which the managers
decisions.
can take only production and personnel decisons, e

D e less a check with his superior before tuking

subordinate has to
does not
in which a manager
8eater the decentralisation. Thus,
a company
which
one in
decentralised than
is m o r e
to check at all with his superior
2ve beforehand.
most of his decisions approved andrules,
C
manager m u s t get procedures
6. Thegreater the discretion permitted by the companys policies, procedures,
such as policies,
decentralisation. Standing plans
and
situation
egreater the proceed in a given
are to
tell employees how they
les,
therefore can limit their authority
7.14
DELEGATION AND DECENTRALIS

on
TRALISATIO
managers, the
controls imposed gred
The the breadth of the which each product
ct d.
division
narrouer
in
Thus, a company
the
decentralisation.

once or
twice a year on te
the rate of re
of
return hi
report
manager simply has to

its
investment is more
decentralised.
The divisin
The.
division has carned
on
and
in which a variety of day-to day
production, marketing,
personn
In the typical "decent..
Dere.

decisions
monitored is less
decentralised.
ntralise
caretully giving the m
are

controls are imposcd selectively,

companv.
But they still providee
enough "breathing space" to do his job his way.

to allow for early

identihcation of problem.
enou
en

feodback to the top-mangers ns

Advantages of Decentralisation

listed below
The merits of decentralisation are
workload.
() It relieves top management of much
(i) It makes jobs at the lower levels of the organisation more attractive and
interesting. As a result, the level of motivation of the employee increases
(ii) It encourages initiative at lower levels where the employees are allowed n
participate in the decision making process.
e) Decisions made closer to the actual situations are likely to be more realisti
Effective decisions are possible because of the speed and first-hand
knowledg
that decentralisation provides.
) It helps management development. Future executives develop best when ther
are
given authority and responsibility to manage some thing.
(vi) It is easier to judge the performance of an executive when he is put in chag
of an autonomous unit of
administration.
Disadvantages of Decentralisation
Decentralisation of
authority may suffer from the
weaknesses following limitations
i) lt increases the
administrative cost due to
appointment of capable executives duplication
and the of specialist se rviCE

at lower levels.
ii) t becomes difficult for
top management to exericse control over what ision
they are taking. ace
(ii The executives at lower levels
of the over-all interest of may develop a
the
narrow outlook to the deu rimen

(iv) It hampers organisation.

unitormity
in decision making and ncy o
procedures. consistene
() Emergency situations cannot be tackled
properly ina decentralised stru
ICture

Adjustment changing conditions be

to
may difficult.
DELEGATION AND DECENTRALISATION
7.15
Decentralisaation
Table 7.1: Delegation vs.
Decentralisation
Delegation
Basis

It refers to entrusting the authority | It refers to systermatic delegation

1. Meaning
by a manager to his
immediate | of authority at all levels and inIt allis
subordinates in a work unit. functions of the organisation.
an extension of delegation to the|
lowest level in the organisation.

involves wide distribution

Delegation involves a
limited | It a

2. Scope and hence its of authority throughout the

transfer of authority
scope is limited. organisation.

nearest It goes beyond delegation of

The delegant is the transfer of
3. Relationship subordinate of the delegator. It is, | authority. It innvolves
level to
relation between the authority from a higher
therefore, a
lower levels in the organisation.
two persons i.e., the superior and |
the subordinate.
Decentralisation is a deliberate
Delegation is adopted by
the | formulation
4. Nature effort and it requires the
done the
m a n a g e r s for getting level to disperse
works of daily routine. of policy at the top
authority.
is essential for
Decentralisation is not essential for | Delegation
5. Pre-condition| decentralisation.
delegation.
Decentralisation is optimal. Top
executive
Delegation is essential if
an
6. Compulsion of an organisation
assistance of his management
or Need wants to get the it necessary o ranster
task. may not think
subordinate in doing s o m e levels.
authority to the lower
decentralisation. top
his Under
| management
8. Control The delegator continues having exercises control
subordinates even
control over his manner. Sutticienet
in a general
after delegation of authority. or freedom of action is
autonomy
granted to the lower l vels.

UESTIONS
Short Answer Questions
of authority.
. Explain the concept of delegation
sound organisation
is considered a key to
Why delegation ?
decentralisation of authority it be made
What is meant by ? How can

understand by
delegation of authority
a t do you
effective ?
?
5. to delegate authority ?
Why is it necessary
of delegation
is an extension
6. nwhat respects,
decentralisation
7.16
T. Differentiate between delegation and
DELEGATION AND DECENTRALISA
decentralisation.
JTRALISATi
8. How does delegation of authority help in reducing the workload of man
9. "Delegation of authority is the process involving authority, responsihi
in brief. bility a.
accountability". Explain this statement,
10. "The concept of decentralisation is related to the concept of delegation

Long Answer Questions

1. What is meant by delegation of authority ? Explain its limitations. Howe
he made effective ?
How can
2. Define delegation. What are its elements ? Also explain the importans
delegation.
3. Explain the concepts of authority and power. What is the difference
the two concepts ?
betwe
twe
4. Describe the process of delegation of authority and comment
upon the followe
statement: "Delegation provides the means whereby a
himself."
manager multiplie
5. "Delegation is the ability go get results through others". Comment.
6. Comment the
on
following statements:
(a) "Assigning tasks and delegating authority two
separate activities."
are
independent a
(b) "A manager frees himself of his
a
responsibility
part of his authority to his subordinate."
the moment he delegat
7. "Delegation of authority is the key to organisation." Discuss the above
and state the
guidelines for securing effective delegation of authority.stateme
8. Why is it necessary to delegate authority ?
of delegation. What Explain the obstacles in the proces
steps help achieving effective
in
9. (a) Explain the reasons for: delegation
?
() non-delegation, and
(i) non-acceptance
delegation.
(b) Suggest measures to
10. encourage executives to delegate.
Distinguish clearly between delegation of
authority. Discuss the basic authority and decentralisau
11. principles of effective
delegation of authorny
Explain the term 'decentralisation' and
that govern the give its advantages. What
degree of decentralisation in an
What are
are the face
the
12. "Delegation and decentralisation are organisation?
Comment. interchangeable terms in manag gemet

13. Discuss the

significance of decentralisation in
decentralisation be made more effective ?
efficient management How
14. Write notes on
the following:
(a) Delegation of Authority
(b) Decentralisation of
Authority.
 AFTER8

Staffing
eenewes

Concept and Nature of Stating

Manpower/Human Resource Planning
Recruitment

Selection
w ww www w.www.ww.ww.www

STAFFING
8.1 CONCEPT AND NATURE OF

Meaning of Staffing
the process of procurement and development
The term 'staffing' may be defined as
the organisation. The
of required number of persons to fill
various positions or jobs in
recruitment, selection, training, development,
to
1aTngfunction ofmanagement pertains of every manager to pertorm
PPTa1sa, and remuneration of personnel.
It is the duty
this function.
In
manning various positions in the organisation.
tafhng is concerned with involuves

O'Donnell, "The managerial function ofstutfing

e
words of Koontz and selection, appras4s
proper and efective
the organisational structure through
ng the roles desigued into
the structure.
development of personnel fill
to
are as
tollows:
function of management
h e features of the staffing
function of management.
) Staffing is an important

8.1
 of
manpower
STAFFK
or huma
8.2 staffing
is
m a n a g e m e n t

c o n c e r n
of
The basic
1)
on right jobs.
resourccs. of persons
types
in getting
right by rthe managers at all l
) Stafhng helps function. t is
performed

a pervasive
( ) Stafhng is
of management.

Responsibility for Stafhing eno

in performing the basic
stafthng function.
engage
of He is actively associated with recruitment, sele
the chi
managcment.
Every manager
is continuously

Stafthing is a
function

training and appraisal of his subordinates. These activities are performed by theThu
ection

foremen in relation to their subordinates

and
departmental managers the manaper.
Cxecutive.
and IS performed by
function of management
pervasive
stafhng is a

all ievels. such as selectinOn

to perform staffhng a c t i v i t i e s
the
lt is the dury of every manager In many enterprise
appraisal and counselling of employees.
training. pertormance does tha
these activities. But it
not mean
Personnel Department is created to perform concerned assistance
different levels are relieved of the responsibility
the managers at
manager has to ensure
the managers in performing their staffing function. Thus, every
the responsibility of staffing.

Nature of Staffing
The nature of staffing and human resource management has been highlighted
in its following features:
1. Inherent Part of Management: Human resource management is inher
in
theprocesofmanagement. This function is pertormed by all the manags
throughout the organisation rather than by the personnel department on
If a manager is get the best of his he
to undertake the Das people, must
responsibility of selecting people who will work under him. He must a
take interest in
training and motivating the employees and of appraising
their performance for improving their quality.
2. Pervasive Function: Human resource uncion
management is a
of pervasive j
management. It is performed by all managers at various levels in che *

organisation. In other words, every manager from

managing dirce
Tor

the foreman is
required to perform the personnel function n u o u s

basis. It is not a on a
cont
responsibility
someone else. However, he
that a manager can leave
compic
rely t

may secure advice and help in cople

from experts who have managing

special competenre P and

industrial relations. in personnel managen

3. People Centred duman resource s
management is people centred:i
and
levant in all types of
organisations. It is concerned with all
egoris

cac
 8.3
STAFFING
bottom of the organisation. The broad
of personnel from top to the
classification of personnel in an industrial enterprise may be as follows:
those working on machines and engaged
() Blue collar workers (i.e.,
white collar workers (i.e., clerical
in loading, unloading, etc.) and
employecs).

(i) Managerial and non-manager:al personnel.

(i) Professionals (such as Chartered Accountant, Company Secretary,
Lawyer, etc.) and non-professional personnel.
4. Personnel Activities or Functions: Human resource management involves
several functions concerned with the management of people at work. It
includes manpowerplanning employment, placement, training, aPpraisal and
compensation of employees. For the performance of these activities efficiendy,
Personnel Department is created in
eparate department known as most

of the organisations.
5. Based on Human Relations : Human resource management is concerned
with the motivation of human resources in the organisation. The humar.
beings cannot be dealt with like physical factors of production. Every person
has different needs, perceptions and expectations. The managers should
give due attention to these factors. They require human relations skills to
deal with the people at work. Human relations skills are also required in
training, performance appraisal, transfer, and promotion of subordinates.
If the personnel function is performed properly, the human relations in the
organisation will be cordial.

8.2 IMPORTANCE OF STAFFING

Effective performance of thestaffing function is necessary to realise the following
benefits.
1. Eficient Performance of Other Functions. Staffing is a key to the efhcient
ormance of other functions of management. If an organisation does not have
Ompetent personnel, it cannor perform planning, organising and control functions
properly.
Use of Technology and Ocher Resources. It is the human factor chat
2. Efectivein the
nstrumental effective utilisation of latest technology, capital, materials,
agement can ensure right kinds of personnel by pertorning the stathng function.
The
etc.

5.Optimum Utilisation of Human Resources. The wage bill of big concerns is

C hgh.They also spend money on recruitment, selection, uraining, and development
mployees. In order to get the optimum output from the personnel, the stathng
unctions should be performed in an efficient manner.
. Development of Human Capital. The management is required to determine
the inanpo
power requirements well in advance. It has also to train and develop the existing
8.4
personnel for career advancement. This will meet the requirements of the
he cocompa
STAFFING
in future.
5. Motivation of Human Resources. The behaviour of individuals is sha
many factors such as education level, needs, socio-cultural factors, etc. Thar aped t
the human aspect of
organisation has become very important. The workers can rkers can b
motivated through financial and non-financial incentives.
6. Building Higher Morale. Right type of climate should be
created for
workers cUntribute to the achievement of organisational objectives.
to the
By performi.
the staffing function eftectively,
management can show the rming
signiicance it atach
increase the morale ofAche
to the
personnel working in the enterprise. This will
th.the
employees.

BOX-1
Why Staffing?
To ensure efficient
performance of planning, organising, directing and
functions of management. controlling
To ensure effective use
of technology and other physical resources.
To ensure
optimum utilisation of human resources.
To develop human
capital.
To motivate human
resources for better performance.
To develop higher employee morale.

Objectives of Staffing
Staffing has multiple objectives as
) To procure enumerated below:
right type of personnel for various
(i) To train and jobs.
ii) To develop
develop human resources.
(iv) To mould
personnel policies regards as

effectively the human

transfer, promotion, etc.
performance. resources and
motivate them for highe
()To establish desirable
employees and berween working
groups of
relationships between employc rs
and
(vi) To ensure
satistaction of the needs employees.
and committed of the
to the workers so that they become oya
(vii) To build high
morale
organisation.
relations. among employees
by maintaining goo hum
 STAFFING

8.5
BOX-2
Human Resource Management (HRM)
hafing function of management revolves around the personnel or numan resources
The stafir

Efficient managementof human resources is a key to attain objectives of

o ft h e e n t e r p r i s e . .

terorise. According to Gary Dessler, "Human resource management is the process

facquiring, training, appraising, and compensating employees, and attending to their
iabour relations, health, safety and fairness concerns." Mikovich and Boudreau have
defined human resource management as a series of integrated decisions that form the
employment relationship, their quality contributing to the ability of the organisation and
empk
the employees to achieve their objectives. Human resource management is basically
concerned with creating good relationships in the organisation and development of
people for contributing to the organisational objectives.
Human resource management (HRM) is that partof management process which develops
and manages the human element of the enterprise considering their resourceftulness
in tems of total knowledge,skills,creative abilities,talents, aptitudes and potentilities
for effectively contributing to the organisational objectives.

8.3 STEPS OR ELEMENTS IN STAFFING

The efficient performance of staffing involves the following activities or steps:

is the first step in the process of staffing. It is

1. Manpower Planning. This
concerned with determining the number and types ofstaff required for the organisation

recruitment and selection of personnel

2. Employment of Personnel. It involves of
identification of the sources
organisation. Recruitment refers
to
a5 needed in the
to secure applicants for
the various job
manpower availability and making of efforts
Positions in the organisation.
various
the right candidates for
Clection is the process of choosing and appointing
employment
oDS in receiving and screening ofapplications,
the organisation. It includes
n t e r v i e w and medical examination of
candidates.
on the
Ug reports for duty, he is to be placed
lacement. When a new employee ensure
as it can

suited. Placement is
a very important process
Which he is best is not able to adjust
on his job,
employee
righ
*PErson doing the right job'.
Ifa new

some otherjob.
he or
transferred to
DEgIVen some training or orienting
0 4.anduction. Induction is concerned
with the process of introducing with their
familiarised
are
The new employees
new ployee
emp to the organisation. also to be informed about the
They are

units,
WorlPerVisors and fellow
employees.
lunch period, procedure
for aváiling
leaves, safety

coffee breaks,
8ours, tea or
facilities,
etc.

autions,medical
m facilities, transport
 TAFF
ls aand
theskills
nd knowled
increasing

8.6 training
helps
in

training
can be used
used to
enhanc
Systematic of
useful fo
methods
is.
are more
Training. Various methods

5. job.
for th
their On-the-job

employees
in doing employees.
also be employed for the superv
skills of the methods
can
and
knowledge the job
and oft-
operative
emplovees
involves
fixation ofthei.
their wage
workers
of
personnel. R e m u n e r a t i o n

k involved,e
degree ofrisk
6.
7.
Compensation.

their level,
Performance Appraisal.
of work,
It is concerned with
nature

the rating or evaluatic.

baset
upon tion
salaries depending
of the staff are

Transter and promotion

employees.
performanve of the
pertormane appraisal.
MANPOWER/HUMAN RESOURCE P L A N N I N G

8.4
or human
resource planning as the r
defined manpower
Dale S. Beach has will have an adequate numie
that the organisation
and ensuring personnel ha
faeermining
concerned with having
a right
number of
It is
aualifed personnel. It is a two-phased process by which managem
Tequisite qualificatrions and training. manpower piz
future human resource requirements and develop
can project of
so that right types pe
employment and training programmes
t heips preparing
in of produca
available to fill various positions
in the organisation. Preparation
are

is a pre-condition for developing manpower plans.

programmes
factor
Manpower planning is an essential activity because of the following
transter and t r
) Manpower forecasting provides a basis for recruitment,
of employees.

i) It reduces labour cost by avoiding surplus of manpower. Overstar

be known quickly and steps taken to control the surplus workror
i)lt helps in identifying talent available in the organisation. Ira
promotion could be given to the talented employees.
It helps the growth and diversification of business. Suitable
in
na
)

made available to handle new

is
jobs.
V)t leads to greater awareness
of the significance ot souna
manageinert throughout the
enterprise.
Steps in Human Resource Planning
The process of
manpower planning involves the
1. Analysis of
Current following steps
Manpower Supply. Analysis of curre
inventory or supply may be undertaken upation.App
e n t manp

r p

adjustments in these could be made in bythedepartment, or by occupatio we

hours of work, holidays, leave light of anyy foreseeable

foreseeable changes
cnae
entitlements etc.
STAFFING 8.7
2. Forecasting of Manpower Requirements. Forecast of manpower required may
de by determining the total workload and then converting it into the number
be
kinds
and ki of personnel required. This is known as workforce analysis.
In addition to above, the management has to identify several other factors which
aence the estimation of manpower requirements. Some of these factors are listed
in
below:

) Expansion plans of business.

(i) Nature of technology to be adopted.
(ii) Retirement schedule of employees.
(iv) Expected separation of employees.
(v) Number and types of surplus staff, if any.
3. Comparing the Expected
Manpower Demand with the Internal
Supply. The human resource planner must compare the projected demand Manpower
for human
resources with the internal supply of human before coming to any conclusion.
resources
This exercise should be carried out
department and skill-wise to know the
surplus of various types of personnel in future. The possibilities of transfer deficiency
or
of personnel
from one department to another and
promotion personnel to higher jobs must also
be considered to determine the net human
of

as a whole.
resource
requirements
for the
organisation
4. Planning
Employment of People. Long-term employment programme
must be chalked out to
deal with forecast deficits of
like manpower. It will include the
steps recruitment, selection, placement, performance appraisal, transfer and
promotion.
5.
Training and Development Programme. The purpose of assessing the
inventory is to find out the training and development needs in the manpower
organisation.
nployees must be given appropriate training so that they may acquire the required
The

KIls. Appropriate development programmes should also be designed for he

d
future executives so that the present
required talents could be developed in time.
8.5 RECRUITMENT

ecruitment is the process of identifying the sources for prospective candidares to

aLtethem apply for jobs in
to the It includes
pool of organisation. seeking and attracting
people from which qualified candidates for job vacancies be choosen. can

a Recruitm
ltment is done before selection or employment of workers. Recruitnent is
positive process of searching the
tor vacancies. and attracing them
prospective employees to apply
ources of Recruitment
The sources
sOurces of recrurces of recruitment of employees may be either internal or external. Internal
Sources de tment means the personnel already working in the organisation. External
recruitment from sources outside the organisation.
 STAFFING
soURCES OF RECRUTMENT

8.8 EXTERNAL SOURCES

INTERNAL sOURCES

EMPLOYMENT

OF
REEX-EMPLOYEES
PROMOTIONS

TRANSFERs RECOMMEN LABOJ

CAMPUS
DATIONS GONTRA
PLACEMENT
RECRUITMENT
TOPS
FACTORY ADVERTISING EMPLOYMENT A G E N C I E S

E X C H A N G E

GATE
promotion
and
Internal Sources include transfer
recruitment another having milar
simil

internal
sources
of from one job
to
The worker
shifting a
It means

1. Transfer.
an enmployee from oneo
status and responsibilities.

involves the shifting

of
"A transfer compensation".
Transe
to Dale Yoder, responsibilities
or
According changing another or one
without special
reference to one unit to
another to another,
to from one job
a n employee
shifting of
location.
n e w geographical
means
involve a mon
shift to
another and may
an employee
to a job thar pays
is the transfer of of an
Promotion. A promotion involves reassignment
2. A promotion
status.
that enjoys some preferred more privileges
money
or increased responsibilities,
pay,
position having higher provide
is to
employee to a
The purpose of a promotion
increased benefits
and greater potential. posinon
than the incumbents present
to the organisation
which is worth
more

vacancy
is the advancement ofan
employee wi
"Promotion
and Myres,
According to Pigors par
skill, higher status and higher
betterjob-in terms
of greater responsibilities, greater to higher position
in tn

training for promotion

existing employees may given
be
The
it acts as a stimulating ro
filled from within the enterprise,
enterprise. Ifa vacancy is
themselves.
for the employees to develop yees

Ex-employees. It refers to employing

the emplo
3. Re-employment of
be on a tempord
who have left the organisation because of some reason. It may
permanent basis.

External Sources : In

available from the internal source

Many a time, suitable candidates are not d. The

order to meet the demands of the company, the external sources have to be uscu

personnel department may use the following external sources of recruitment

1. Direct Recruitment. The unemployed persons may contact the emp f r m

section of various enterprises to ascertain if they can be casually employed. Man

STAFFING 8.9
follow the practice of recruitment at factory gate to fill casual vacancies. Such workers
are known as Budli Workers. This method is very useful for recruiting unskilled workers.
T does not involve cost of advertising the vacancics. Whenever the regular workers
ahsent themselves in large number or whenever there is rush of work, this source of
recruitment may be used.
2. Casual Callers. In case of reputed organisations, many qualified people apply
for employment on their own initiative. Such applications are known as unsolicited
anplications or casual callers. They serve as a good source of manpower. A proper file may
he kept of such applications and the candidates may be called whenever the need arises.
Advertising. Advertising job has become the fashion of the day with the large
3. a

companies particularly when the vacancy is for a higher post or when there are large a
number of vacancies. This helps in approaching the candidates spread over different
parts of the country. Information about the job descriptions and job specifications can
be given in the advertisement so that only the candidates who think
themselves to be
suitable may apply only. This method also increases the choice of the
management.
4. Employment Exchanges. There is a network of
employment exchanges in the
country which is run the
by Government has also made it compulsory for the employers
to fill some vacancies
through the employment exchanges. Thus, employment exchanges
play an important role.

5. Placement Agencies. Professional bodies have come into existence which

provide their servicesto the
enterprises for recruitment and selection of employees.
I hese agencies specialise in the
supply of particular categories of workers.
6. Management Consultants or Head Hunters.
Management consultancy
firms help the
organisations to recruit technical, professional and managerial
personnel. They specialise in middle level and top level executive
placements.
They maintain data bank of persons with different qualification and skills
and even advertise the
jobs on behalf of their clients to recruit right type of personnel.
7. Campus Recruitment. Colleges and institutes of management and technology
nave become a popular source of recruitment for technical, professional and managerial
JoDs. Many big organisations maintain a close liaison with the universities, vocational

o s and management institutes to recruit qualified personnel for various jobs.

NECFuitment from educational institutions is the well-established practice of business
nd other organisations. This is referred to as campus recruitment
8. Recommendations by the Existing Employees. Some employers recruit

ployees on the basis of recommendations of the existing workers. This policy creates
reliable candidates.
w l l among the present employees and helps in finding
 interm.
STAFFINO
8.10
Labour
Contractors.
Recruitment may
also take place through

cases,
intermediaie
Our contra
the labour contractors at
9. In some

themselves the members of the companies concerned. This system of recri

the worker,
recruitmen
contractors.

or
labour
known as agents
has lost populariry these days. If a labour contractor leaves enterprise,liable
the metho
Thus, it is not a reliable m.

the organisation.
him will also lcave
employed through
of employment. T.V. (Doordar!
vacant posts ovcr arshan
10. Telecasting.
The practice of telecastingot The detailed requiremen.
importance
these days.
and other channels)
gaining
is the profile ofd
it publicised alongwith he
required to do
are

the job and the qualities

exists.
where the vacancy
organisation
a popular
source of recruitmen
Internet is becoming
11. Web Publishing. dedicated for the purpose .t

certain websites specifically

There are
these days. both. In fact, websit
information about job seekers and job opening
providing etc. are very commonly visited
www.naukri.com,
www.jobstreet.com
such as
for suitable people
and the organisations searching
both by the perspective employees
SELECTION
8.6 It leads
best person for a particular job.
Selection is the process of choosing the
Selection is a negative process as it involves rejection of unsuitable
employment ofworkers. involves several
than are selected. Selection
candidates. More candidates are rejected
consideration. Criteri
candidates for the job under
to weed out the unsuitable
steps are rejected.
are down at each
laid Those who do not fulfil these criteria
stage.
Recruitment and Selection
Table 8.1: Difference between
Tabie Selection
Recruitment
1. It aims at selection of right kinds o
1. It aims at searching for sources of labour
and stimulating people to apply for jobs. people for various jobs.
2.lt is a negative process as it involVe
2. It is a positive process.
rejection of unsuitable candidates.
itable
3. It creates a large pool of applicants for 3. It leads to screening out unsuita
jobs. candidates.
4. It is a simple process. It involves l t is a complex and time-consuni
contacting the various sources of labour. process. The candidates
have to cieu
a number of hurdles before
they a|
selected for jobs.

Steps in the Selection Procedure

Selection procedure involves the following steps
() Preliminary interview.
 8.11
STAFFING

and their screening.

(i) Application forms
(in) Employment tests.

(iv) Final interview.

(w) Reference checking.
(vi) Medical examination.
(vii) Appointment letter.

APPLICATION

SCREENING OF
APPLICATION

SELECTION
TESTS REJECTION
OF
CANDIDATE
EMPLOYMENT
INTERVIEN

REFERENCE
CHECKING

MEDIC
EXAMINATION

APPOINTMENT
LETTER

Fig. 8.1. Selection Procedure

() Preliminary Interview. The preliminary interview is generally taken for

Cxecutive jobs. It is briefand has the job of eliminating the totally unsuitable candidates.
Lack of certain requirements in education, training or experience may determine
unsuitability. The candidates who clear the interview are asked to fill in the application
blank.
i) Screening of Application Forms. The application form is provided to
ne candidates on request. It asks for a written record of qualiftications, experience

nd other qualities of the candidate. The application form should be as simple as

for
DIeand incorporate questions having effect on the suitability ofthe applicant
the job.
the committee.
Pplication forms are received and processed by screening
The Pplication blanks are properly screened to select the candidates who to be are
.
given employment tests and called for an interview. The purpose of preliminary
Screeni S to reject the totally unsuitable candidates. This will lot of time and
save a
 8.12
money.
STAFF
(ii) Selection or Employment Tests. Employment tests are being
to select persons for various jobs. These tests help in matching the
he chara widely
individuals with the vacant jobs so as to employ right type of personnel. The characteristi
types of tests are given to the candidates: foleon
(a) Intelligence test.

(6) Aptitude test.

() Occupational or Professional test.

(a) Personality test.

(iv) Employment Interview. After an applicant clears the various empls
tests, he is called for final interview. The interview is taken by the Board consisti
ployte
Isting
the personnel manager and the representatives of other departments. Theintervi
held to determine suitability of the candidate and to provide him a complete
pio
of the responsibilities associated with the job.

Employment interview is of great importance to the applicant and the emple

There should be proper physical arrangement for the interview. t will
enhance
reputation of the employer and give confidence to the candidates. Privacy and comi
should not be forgotten to ensure that the objectives of interview are achieved. ftis
not done, there would be wastage of money on interviewing and right type of candidrs
may not be selected. The interviewers should also come fully prepared for the inei
and should give proper attention to each candidate.
(») Reference Checking. Many employers request names, addresses,
numbers of references for the purpose ofverifying information and, gaining adio
information on an applicant. Previous employers known persons, teachers and unnes
professors, can act as references.
ndid
(vi) Medical Examination. Medical examination is given to the selected cand
ysis
ascertain their physical capability and protect the employer from employing
to
Pn1by
unsuitable candidates. Medical test is given by the medical expert appointed
employer.
ared
(vi) Appointment Letter or Job Offer. When a candidate has cleu
above listed hurdles in the selection procedure, he is given an appoint tor a

and is requested to join the organisation. When the employee repor

he

he is given some sort of orientation and placed on thee job for whic

appointed.
STAFFING 8.13

BOX-3
Selection Tests
1. Intelligence Tests. This test measures the individual learning ability. ie, ability to
catch or understand instructions and also ability to make decision and
judgement.
There are many verbal as well as non-verbal
intelligence tests constructed
psychologists for different jobs.
by many

2. Aptitude
Tests. Aptitude means the
potential which an individual possesses for
leaming the skill required do a job efficiently. Aptitude tests measure an applicant's
to
capacity and his potential for development. Aptitude tests are the most promising indices
for predicting workers' success.
3. Trade Tests. Trade tests are those which are
designed to measure the skills already
acquired by the individuals. They are also known as performarnce, or occupational tests.
They are used to test the level of knowledge and proficiency acquired by an
applicant.
A trade test should be differentiated from the
aptitude test. An aptitude test measures
the potentials of the applicant to learn skills
required on a job.
4. Personality Tests. Personality tests probe for the qualities of the personality as a
whole. It is very ditficult to devise and use personality tests because
they are concemed
with discovering clues to an individual's value
system, emotions, reactions, maturity,
his
etc.
5. Interest Tests. Interest tests idetify
patterns of interests in which the individual shows
special concern, fascination and involvement. These tests
suggest what types of jobs
may be satisfying to the employees. Interest tests are more often used for vocational
guidance.

UESTIONs
Short Answer Questions
1. Explain the meaning of staffing.
2. Who in responsible for the performance of staffing function ?

S. Why has staffing gained importance in modern organisations.

4. Differentiate between recruitment and
selection
5. Explain any two external sources of recruitment
6. What is the significance of employment tests in the selection

procedure?

Long Answer Questions

1, What is meant by staffing ? Who is responsible for stafing?
8.14 STAFFING
2. Describe the nature and importance of staffing.

3. Briefly explain the elements of staffing.

4. Explain the steps in determining the human resource requirements of an
organisation.
5. Briefly discuss the various sources of recruitment for filling vacancies in industral
enterprises.
6. Explain in brief the steps involved in the selection procedure for the acquisition
of skilled employees.
7. Write short notes on the following:
(a) Elements of staffing
(b) External sources of recruitment
(c) Employment tests
(d) Responsibility for staffing.
 CHAPTER 9
HTAVIY
Motivation

Concept and Nature of Motivation

Theories of Motivation

Maslow's Need Hierarchy Model

Herzberg's Motivation-Hygiene Model

McClelland's Theory
McGregor's Theory X and Theory Y
Ouchi's Theory Z

Financial and Non-financial Incentives

Job Enrichment
Job Enlargement

Introduction
The term 'motivation' has been derived
from the word 'motive. Motive is anything
state that energises,
activates or moves
tnat initiates or sustains activity. It is an inner
Motive is a psychological torce
and that directs or channels behaviour towards goals.
for the achievement of certain goals
or

Within an individual that sets him in motion

Satisfaction of certain needs.

management. lt is an important
According Likert, "Motivation of
is the core
to work tor the
performs for enthusing people to
nction which every manager Issuance ofwellconceived
instructions and
objectives.
plishment of organisational make appropriate
use
followed. A manager has to
does not mean that they will be motivation succeeds
s to follow
them. Effective
to enthuse the employees 1s
determination to see
that it
vation gaining a
accepted but also in
Only in having an order
9.1
 9.2
rhe conce
Cxecuted effhciently and effectively. In this chapter, we shall study the concept, the MOTNA
and techniques of motivation.

9.1 CONCEPT AND NATURE OF MOTIVATION

According to Robert Dulbin. "Motivation is the complex of forces star

keeping a person at work in an organisation. Motivation is something that m tarting
perxon to acion, and continues him in the course ofaction already initiated"M
refers to tnc way a person is enthused at work to intensify his desire and wil Motir
to use his cnergy for the achicvement of organisational objectives. It is somer wilig
moves a person into action and continues him in the course of action enthusi thing.
The role of motivation is to develop and intensify the desire in
every member .to
siastic
organisation to work effectively and efficiently in his position.
In the words of Dalton E. McFarland, Motivation refers to the way in
whichmung
drives, desires, aspirations, strivings or needs direct, control or
avww explain the beha
ofhuman beings." Motivation has close relationship with the behaviour of hum
beings. It explains how and why the human behaviour is caused. McFarland numa
the consie
terms used in his definition in
general sense "as forms of tension occurring wite
a

individuals, with resulting behaviour aimed at reducing,

tension. Understanding the needs and drives and
eliminating or diverting
their resulting tensions helps
explain and predict human behaviour, ultimately providing a sound basis for manage
decision and action." Thus, motivation is a term which
applies to the entire clas
urges, drives, desires, needs and similar forces.

Needs Tension
(Motives) Goals
Behaviour

Reduction of Tension Goals

Achieved
Goals Not|
Achieved

Frustration

Fig. 9.1. A Simple Model of

Motivation.
As shown in Fig. 9.1, the unsatisfied needs of a person are the tinthe

motivation process. The unsatisfied need starting

poin
results in tension within the
motivates him to search for the indivia gon
ways to relieve this tension. He
for himself. If he is successful in develops certa"
which will lead
achieving
his goals, certain other needs
wdd
to
setting
idua

will engage
goal.
a new
But if the goal is not
achieved, the
himself in either constructive or destructive behaviour. This nend

It
stops. keeps on working within an individual. pro
 9.3
MOTIVATION

Nature of Motivation

of motIvation are as under

The features
internal feeling of an individual. It cannot
a lnternal Feeling: Motivation is an

be observed directly; we can observe an individual's actions and then interpret

his behaviour in terms of underlying motives. This leaves a wide margin of

Our interpretation may not reveal the individual's true motivation.
error.
Process : Motivation is a complex process. Individuals may differ
in Complex
A in their motivation even though they are performing the same type of job.
it two engaged in cutting stones for constructing a
For example, men are

the other
temple, one may be motivated by the amount of wages he gets and
by the satisfaction he gets by pertorming his job.
(i) Continuous Process: Motivation is a continuous process that produces goal
directed behaviour. The individual tries to find alternatives to satisfy his needs.
from time to
(iv) Dynamic Process : Needs and motives of an individual change
time, even though he may continue to behave in the same way. For example, a
temporary worker may produce more in the beginning to become permanent.
When made permanent, he may continue to produce more, this time to ger
a promotion.
(o) Different from Satisfaction: Motivation is different from satisfaction.
Motivation implies a drive towards an outcome while satisfaction involves
ourcomes already experienced. Satisfaction is the contentment experienced
when a want has been satistied.

9.1.1 Need and Significance of Motivation

Rensis Likert has called motivation as the 'core of management. Motivation is
an important function which every manager performs tor actuating the people to work
for the accomplishment of objectives of the organisation. Issuance of well-conceived
instructions and orders does not mean that they will be followed. A manager has to
make appropriate use of various techniques of motivation to enthuse the employees
to follow them. Effective motivation succeeds not only in having an order accepted
Dut also in gaining a determination to see that it is executed efficiently and ettectively.
the
Motivation is an effective instrument in the hands of manager tor inspiring
wOTKTOrce and creating a confidence in it. By motivating the worktorce, management

s work' which is necessary for the achievement of organisational goals.

will to
to
n involves getting the menmbers of the group to pull weight ettectively, give
their loyalty
to the group, to carry out properly the purpose
of the organisation. The
cOyalty to grov
followi
wing results may be expected if the employees are properly
motivated:

them with
The workforce will be better satisfied if management provides
and psychological needs. The
OPportunities to fulfl their physiological
and will contribute
Workers will voluntarily with the management
cooperate
their maximum towards the goals of the enterprise.
9.4
) Workers will tend to be as efficient as
possible by improving upon
MOTIVATI
skills and knowledge so that they are able to contribute to the proegress
the organisation. This will also result in increased productivity.

i The rates of labour turnover and absentecism among the workers will .
There will be good human relations in the organisation as friction."
be
the workc1s themselves and between the workers and the managemen
n
decrease.
)The number of complaints and grievances will come down. Acciden.
will also be low.
(7) There will be increase in the quantity and quality of products. Wastape
scrap will be less. Better quality of products will also increase the public in
of the business. ima
9.2 THEORIES OF MOTIVATION
Management can do its job effectively only through motivating people to wor
for the
accomplishment organisational objectives. But according to authors lis
of
McGregor, Maslow, Herzberg and Vroom, it is diffhcult to understand
without considering what motivatice
people want and
expect from their work. Maslow's
is considered an
important theory of motivation because it highlights the needs theor
of the
people
9.3 MASLOW'S NEED HIERARCHY
MODEL
A.H. Maslow
developed a conceptual framework for
motivation which has been
widely acclaimed. He
understanding human
function of defined a
person's effectiveness a
matching man's
opportunity with the
of needs. Process of
motivation begins with an appropriate position of hieraren
is
part, directed towards the assumption that behaviour, atleast
that human achievement of satisfaction of needs.
needs can be Maslow propos
as shown in arranged in a
particular order from the lower
Fig. 9.2.The need the nig to

1. Basic
hierarchy is follows as

Physiological Needs: The needs that taken the

motivation theory are chor
the so-called
are starting p as
to the survival and maintenance
physiological needs. These needs
of human life. They include such thi relate

food, clohing, shelter, gs a

air, water and other

2.
Safety and Security Needs: After necessities of lite.
want the
assurance of satisfying the physiological needs, eopk

security, personal maintaining given economic level. They Ph

a
ant}
bodily wa
old age, insurance againstsecurity, security
risks, etc.
of source of
income, prov
3.
Social Needs: Man is social
being. He is, therefore, interested in
sociabiliry, exchange of feelings
grievances, companionship,conveio
O n v e r s a t i o

and
recog
 9.5
MOTIVATION

belongingness, etc.

such things self-confidence,

and Status Needs: These needs embrace
as
4. Esteenm
and success. They are
independence, achievement, competence, knowledge, and status
needs. They are concerned with prestige
cgoistic
also knownan

of the individual.
under the necd priority model is the
5. Self-Fulfilment Needs: Thc final step
considers to be
for sclf fulfilment or the need to fulfil what a person
nced continued self-
involves realising one's potentialities for
his mission in lite. It word. After
creative in the broadest sense of the
devclopment and for being
a man has the desire
for personal achievement. He
his other needs are fulfilled, him
to do something
which is challenging and since this challenge gives
wants
work, it is beneficial to particular and
him in
dash and initiative to
enough
in general. The sense of
achievement gives him psychological
to the society

satisfaction.

5
Self fulfilment
needs

4
Ego
needs

3
Social
needs
2
Safety
needs

Physiological
needs

Maslow's Need Hierarchy.

Fig. 9.2.
domination. Second
have a defnite sequence of
that the needs satishied and
third need
Maslow proposed is reasonably
dominate until first need satistied and so

need does not reasonably

needs have been animal, he
dominate until first two
is wanting
does not
hierarchy is that m a n
need satisfied. If o n e
The other side of the is fully
other. He
never
on.
o r the Maslow),
w a n t something (according co
continues to
As said above
need arises. Thus, if one's
satisfied, the other randomly.
need is preference and
n o t
he c a n
certain order of
unsatistied,
are
in a needs)
needs arise security and his
satistying
(physiological and not

lower level
needs lower level needs certain order
his
motivated only by
satistying
is that once a need or a bread alone
be point to
note
for
Another Man lives
level needs.
be a motivating
fuctor.
higher it ceases to
satisfied,
ofneeds is
9.6 MOTIVATION
available. In the absence of air o n e c a n n o t live, ittisis plenty
as
long as it is not

of air vhich ceases to be motivating.

APpraisal of Maslow's Need Hierarchy

Maslow's need hierarchy has application to the lower level workers in a cous
like India where the basic needs of the workers are not satisied. It points out
untry
that
People are motivated by unfulfilled needs. It also postulates that as lower-level na
eeds
are fulfilled. upper-level needs replace them. Thus, Maslow's theory seems to be a
a
very simple description of the complex process of motivation of human beings. The
limitations of the Maslow's theory are as under
() Every individual may have a different need hierarchy which may not follow
the sequence suggested by Maslow. For instance, an individual may have
social or egoistic needs even though his safety need is not satisfied as yer

(i) it is wrong to presume that only one need is satisfied at one time. Mans
behaviour at any time is mostly guided by multiplicity of motives. However,
one or two motives in any situation may be prepotent, while others may be of
secondaryimportance. Moreover, at different levels of needs, the motivation
will be different.
in) Money can act as a motivator only for physiological and social needs, nor
for satisfying higher level needs. Employees are enthusiastically motivated
by
what they are seeking, more than by what they already have. They may react
cautiously in order to keep what they already have, but they move forward
with enthusiasm when they are seeking something else. In other words, man
works for bread alone as long as it is not available.
(iv) There are always some people in whom the need for self-esteem seems to be
than that of love. There are also creative people in whom
more prominent
the drive for creativeness seems to be more important. In certain people, the
level of operation may be permanently lower. For instance, a person who
has experienced chronic unemployment may continue to be satished tor
rest of his life if only he can get enough food and clothes. Another cause
reversal of need hierarchy is that when a need has been satisfied for a long
time, it may be under valued.

(v) It is doub1ful that once a need is satisfied it loses its motivating force. It
also doub1ful that satisfaction of one need automatically activates the nex
nced in the hierarchy. Some persons will not aspire after their lower-oru
eds
needs have been satisfied. Human behaviour is the outcome of several ner
acting simultaneously. The same need may not lead to the same respo
all individuals.
(vi) Needs are not the only determinant of human behaviour. People may eng
ds.
in behaviours chat are in no way concerned with the satisfaction of their nec
MOTIVATION
9.7
In practice, behaviour is influenced by needs, cxpectations, perception, etc.

also influcnccd by the cultural background of people.

9.4
HERZBERG'S MOTIVATION-HYGIENE MODEL
in motivation distinction between motivational
A signihcant development
was

factors in job situation. A research was conducted by Herzberg and

nd maintenance
based on the interview of200 cngineers and accountants who worked tor
h i sassociates
recall specific incidents
leren different firms in Pittsburgh area. These men were asked to
which made them feel either particularly good or particularly bad
in their experience
in the group under
Ahout iobs. The findings of the research were that good feelings than to background
to the specific tasks that the men performed rather
rest were keyed
or working conditions and when they felt bad,
it was
factors such as money, security
disturbance in these background factors which had caused them
to
because of some
treated unfairly. This led to draw a distinction between
believe that they were being and
and 'hygiene factors'. To this group of engineers
what are called as 'motivators'
opportunities to become more expert and to
accountants, the real motivators were
factors served to prevent loss of money
handle more demanding assignments. Hygiene but
provide the
motivation to employees,
and efficiency. Thus, hygiene factors
no

dissatisfier.
the absence of these factors serves as

conditions operate primarily to dissatisfy employees they when are

Some job of these
but their does not motivate employees in a strong way. Many
absent, presence factors are
as motivators, but the
factors are traditionally perceived by management
maintenance factors in job because
more potent as
dissatisfiers. They are called
really satisfaction among the employees
are necessary to
maintain a reasonable level of
they dissatisfier. They are also known as
dissatistfiers
Their absence proves to be a strong
mental health. Another set of job
or hygiene factors because they support employees
satisfaction among
motivation and high job
conditions operates primarily to build strong maintenance
'motivational factors. Herzbergs
the employees. These conditions are
Table 9.1.
and motivational factors have beon shown in
Motivational Factors
Table 9.1: Maintenance and
Motivational Fuctors
Maintenance or Hygiene Factors
1. Achievement
Administration
1. Company Policy and 2. Recognition
2. Technical Supervision 3. Advancement
3. Interpersonal relations with Supervisor
4. Work iself
4. Interpersonal relarions with Peers 5. Possibility of growth
Subordinates
.lnterpersonal relations with 6. Responsibility
6. Salary

Job Security
8. Personal life
9. Working Conditions
10. Status
 9.8 MOTIVATI
Hygicne factors include such things as wages, fringe benefits, physical
ese factors
cond.
and overall comp policy and administration. The presence of these dion
Satisfactory level prevcnts job dissatisfaction, but they do not provide motivati
the employccs. So they are not considered as motivational factors. Motivational
tion
on the other hand, arc cssential for increasing the productivity of the emnl.. acto
They are also known as satisfiers and incude such faccors as recognition, feelin ployes
accomplishment and achievement, opportunity of advancement and potenti
personal growth. responsibility and sense of job and individual importance
expericnce and challenging work, etc.

Criticism of Herzberg's Theory

Herzberg's theory has been criticised on the following grounds:
Herzberg drew conclusions from a limited study covering engineersa
accountants. Engineers, accountants and other protessionals may li
responsibility and challenging jobs. But the general body of worker
motivated by pay and other financial benefits.
(i1) In Herzberg's study, the interviewees were asked to report exceptionally godi
or exceptionally bad moments. This methodology is defective because the
is a common bias among human beings to take more credit for good thing
and put the blame on others for bad things.
(i) Herzberg gave too much emphasis on job enrichment. But job enrichmen
is not the only answer. Off-the-job satisfaction of the workers is also ver
important. Herzberg did not attach much importance to pay, status5,
interpersonal relationships which are generally held as important contens
of satisfaction.
(iu) The distinction between maintenance factors and motivating factors is not
definite. What is a maintenance factor (eg, pay) for a worker in the Unitcd
States may be a motivator for a worker in a developing country. Thus
Herzberg ignored the dominating infuence of situational variables.

Comparison of Herzberg and Maslow Models

There appears to be agreat similarity berween Herzberg's and Maslow's modls
close examination of Herzberg's model indicates that what he actually says is thats
employees may have achieved a level of social and economic progress in the society u
for them higher level needs of Maslow (esteem and self-actualisation) are theprina
motivators. However, they still must satisfy the lower level needs for the maintenan
eratie

their current state. Thus, we can say that money might still be a motivator for ope
employees and for some managerial employees. Herzberg's model adds to the Mas
kactos

need hierarchy model because it draws a distinction between the two groups ofla factos

namely, motivational and maintenance, and points out that the motivational
are often derived from the job itself. Most of the maintenance factors come
comparatively lower order needs. In economically advanced countries, such nc
the employees are fulfilled and hence cease to be motivators.
M O T I V A T I O N
9.9
-Motivational factors
Self-fulfilment

Esteem
Soclal

Safety

Physiological
Maintenance
factors

Fig.9.3. Relationship between Maslow's and Herzberg's Models.

As shown in Fig. 9.3, Maslow's physiological, security and social needs come under
Herzberg's maintenance factors whereas self-fulfilment under motivating factors. It
may further be noted that a part of esteem need comes under maintenance factors and
another under motivational factors. The esteem needs are divided because there are
some distinct differences between status per se and recognition. Status tends to be a
function of the position one occupies. This position may be gained through family ties
or social
pressures and so this may not be a reftlection of achievement or earnedpersonal
recognition. Recognition is gained through competence and achievement. It is earned
and granted by others. That is why, status is classified with
social needs as a hygiene factor, while
physiological, safery and
recognition classified with esteem as a motivator.
is

Table 9.2: Maslow Model vs. Herzberg Model

Basis Maslow Herzberg
1. Hierarchy of
Sequential arrangement of needs No hierarchical arrangement of
Needs needs.
2. Naturee
Descriptive theory. Prescriptive theory.
3. Central Theme
Unsatisfied needs energize behaviour:| Gratified needs cause performance.
this behaviour causes performance. performance.
4. Motivational
Any need can be a motivator if t is Only higher order needs serve as
Factor relatively unsatisfied. motuvaOIS.
5. Applicability
Takes a general view of the Takes a microview and deals with
motivational problenms of all work-oriented moüvational problems
workers. of higher-level professional employees.
. Empirical Data
Need hierarchy theory is Motivation-hygiene theory is based
based on intuition and not on study of empirical data collected
on any empirical study. from professional accountants and
engineers.
 9.10 MOTIVATIO
THEORY Y
McGREGOR'S 'THEORY X' AND
9.5

Theory X X indicates the traditional approach to managerial motivation and conts.he

Theory
ntrol
style of motivation. T
authoritarian management
and
t represents old stereotyped
are as follows
theory
underlying assumptions of this a n nherent
dislike to wnel
basically lazy and has work
( ) T h e average
human being is
he
He will avoid work, if
can.

interested in achievement. The.

are not
people lack ambition. They
(i Most
like to be directed.
in solving organisationa
little capacity for creativity
(i) Most people have
problems.
indifferent to the organisational goals.
(ir) Most people are
controlled and often threatened to achiee
() Most people must be closely
organisational goals.
Motivation of average human beings occurs at the physiological (food,
(zr7)
clothing, shelter, etc.) and safety levels.
behaviour underlie the traditional
These negative assumptions of human
to be full of unskilled
mechanisation of people and processes. The world is supposed
a matter of vigilance and
workers, peons and messengers and to manage them is largely
strict supervision. Management merely thinks of catering to their physical and safery

needs with some fringe keeping the implied threat of punishment handy in
benefits,
X
case of need. Thus, carrot and stick approach to motivation is followed. Theory

to manage people. It
suggests that threats of punishment and strict control are the ways
practised during the days the Scientific Management approach gained prominenc
and human beings were treated like machines.

The above assumptions have been challenged by the human relationists becaus
employees are treated merely as a commodity or passive factor of production. McCiregoi
questioned the assumptions of Theory X which followed carrot and stick appro
to motivation of people and suggested autocratic style of leadership. He telt t
uch
management by direction and control is a questionable method for motivating su
people whose physiological and safety needs have been satisfied and whose sol
esteem and self-actualisation needs are important. In his own words, "The 'carrota
well
stick theory of motivation which goes along with Theory X works reasonably w
thin
under certain circumstances." The means for satisfying man's physiological and (WI
itselh

limits) safery needs can be provided or withheld by management. Employment1

is such a means, and so are wages, working conditions, and benefits. By these mc
ends

the individual can be controlled so long as he is struggling for subsistence. Man te

MOTIVATIOn
9.11
for bread alone when there is little bread. But the 'carrot and stick'
ro
live thcory does
suark at all once the man has reachcd an adequate subsistence level and after that
wo
not

he is motiIvated
primarily by higher levels necds.
Theory Y
After challenging the validity of Theory X, McGregor developed an alternative
Jeary of human behaviour which is known as Theory Y. This theory assumes that
are not inreliable
and lazy by nature. It they are properly motivated, they could
unreli
people
b e creative. The main task of the management is to unleash the potential in the
really
mnloyees. An employee who is properly motivated can achieve his goals by directing
his own efforts and, thus, he can help in accomplishing the organisational goals. The
a5sumptions of McGregors Theory Y are as follows

( Work is as natural as play, if the conditions are favourable. The

average person
does not inherently dislike work.

i) External control and threat of punishment are not the only means for bringing
about efforts towards organisational objectives. The average human being will
exercise self-direction and self-control in the service of objectives to which
he is committed.

(ii) Commitment to objectives is a function of the rewards associated with their

achievement. The most significant of such rewards, eg, the satisfaction of
go and self-actualisation needs can be direct products of efforts towards
organisation objectives.
iv) The average human being learns under proper conditions, not only to accept
but also to seck responsibility. Avoidance of responsibility, lack of ambition
and emphasis on security are generally the consequences of experience. not
inherent in human characteristics.
) The capacity to exercise a relatively high degree of imagination. ingenuity and
creativity in the solution of organisational problems is widely, not narrowly
distributed in the population.
(o)The intellectual potentialities of the average human being are only partially
utilised under the conditions of modern industrial life.
Theory Y assumes that goals ofthe organisation and those of the individuals are

Cessarily incongruent. The basic problem in most of the organisations is that

of securing commitment of workers to organisational goals. Workers commitnment is
direc
related to the satisfaction of their needs. Thus, this theory places emphasis
on

tisfaction of the
t needs of the workers. It does not rely heavily on the use of authority as
an
an o n of
hst: that workers exereise selt direction
It
ument of command and control.
assumes

which they feel thenmselves committed.

Control in the direction of the goals to
9.12 MOTINATI
Because of these reasons, "Thcory Y' is realistic and frequently used at differenr
in most of the eve
organisations.
In support of the assumptions embodied in "Thecory Y', McGregor cited
practices whercin the subordinatcs are given a freedom to direct their activiti
ared ale,
assume responsibility and, importantly, to satisfy their cgoistic needs. These Dra
VItiCs,
include decentralisation and delegation, job enlargement, parricipation and congul
managemcnt, and management by objectives.
Table 9.3: Comparison of Theory X and Theory Y
Theory X Theory Y
1. Based the assumption that people
on 1. Based on the assumption that
are basically lazy and so shirk work. work
people lik
as children like play.
2. People do not take initiative. They 2. People like to take initiative.
They see
like to be directed. self-direction and self-control.
3. People avoid responsibility whenever 3. People
possible.
assume
responsibility gladly if
conditions are favourable.
4. For getting
things done, people must 4. People do not require close and strict
be supervised strictly.
supervioion for properly performing
their jobs.
5. Autocratic style of
leadership is likely 5. Democratic or participative style of
to be more effective.
leadership is likely to be more effective.
6. Applicable to illiterate, unskilled and 6. Applicable to educated and skilled
lower-level workers.
employees who occupy higher positions
in the organisation.
7. People lack self-motivation. 7. People are self-motivated.
8. Believes in mental sickness and so 8. Believes in mental
health and so posive
negative motivation of employees. and intrinsic motivation of
employees.
Appraisal of McGregor's Contribution
Douglas McGregor's Theory X and
fencing within which the Theory Y represent extremes to draw the

belong completely either

organisational man is seen to behave. No man
vould

to
Theory X w
varying degrees under different Theory
Y. He or
possesses the traits ot Do
situations. Thus, these theories
understanding the behaviour of human are
important t lsu
to motivate the beings and in designing the incentive
employees. Neither of the two theories is s all the
situations and to all fully applicable a tO
types of human
unskilled and uneducated employees beings.
whereas
However, Theory X is more pplicable
Theory Yis more applicable to skilled an t
appL
educated employees wh0 are zndued
mature
enough and understand the
responsibil1ty. 1e
 M O T I V A T I O N
9.13
1Cment should use an amalgamation of both the theories to motivate the different
the
at differrnt levels in the organisation.
kinds of employees
The chicfmerit of McGrcgors contribution is that it helped crystallise and set the
F lawthorne Studies which had then
icht perspective to the indings of Elton Mayos
and set in motion a wave of research
nu77led management
and productivity experts
lt (alongwith Hawthorne Studies) can
the behaviour of the organisational
man.
into
and mainspring that evoked wide and lasting
be said to have been the starting point
behaviour
interest in the
area
of motivation, leadership and techniques of understanding
element of the enterprise.
of the human

9.6 OUCHI'S THEORY Z

International attention is being focussed on the outstanding pertormance

economy and the

success of management practices being adopted
of the Japanese
rapidly increased in
firms. Interest in Japanese management has
by Japanese of
America and other countries.
William Ouchi made a comparative study
He came to the conclusion
American and Japanese management practices.
can be adopted in
American
that many of the Japanese management practices
Z
context. He suggested the adoption
of Theory Z. It may be noted that Theoryy
with type Z.
is merely a lable interchangeable
is not a theory in the true sense. It
the case of Theories X and Y. The expression
It describes human behaviour as in
but for promotional
n o t for analytical purpose
Theory Z was adopted Urwick. Rangnekar
that the label Z has been used by
purpose. It may be noted business
much publicity in the
and Ouchi. But Ouchi's views have got

world.

Japanese Management
characterised by the tollowing principles:
can be
Japanese management
on human
emphasis
rather than the individual: (2)
an
an emphasis on the group as generalSts and
view of top management
aEr than functional relationships; and (3) a
management
decision-makers. The broad features of Japanese
dtatorS rather than as

are discussed below: commitmenu

workers tend to make a litetime

Japanese for
.Litetime Employment: assume
responsibility
in turn, organisations
organisations and,
to their and harmonious
Promotions are
based on seniority, loyalty
litetime employees.

behaviour.
9.14
Table 9.4: Japanese and American Management Styles
MOTIVATION
Japanese Stryle American Style

. Lifetime Employment Japanese| 1. Short-term Employment:The Amerie

TICAn
organisation don t commit lifetim
workers tend to make a lifetime|
time
employment. The employees also seek berte
commitment to their organisations
and, in turn, organisations assume careers by moving between organisations

responsibilityfor lifetimeemployees.
SlowAdvancement: Employees 2. Rapid Advancement: Employees gain
rise slowly through established economically and socially from rapid
ranks; when opportunities arise for advancement with a premium on succes
promotion, loyal and harmonious measured by promotions.
behaviour are considered.
3. Collective Decision-making:3. Personal Decision-making: Americans
|Employees and managers seek tend to rely on individual judgment and
consensus on decisions and prefer to make decisions unilaterally. Each
endorse collective decision-making acts as an individual controlling his own
processes. | destiny.

4. Group Responsibilities : Japanese| 4. Individual Responsibilities Americans

prefer group processes and accept prefer taking personal initiatives.
group responsibilities through shouldering responsibilities as individuals
conciliatory communications; group| rather than in groups.
rewards are not uncommon.
5. Holistic Concern for Employees: 5. Segmented Concern for Employees
The employees are treated as integral American firms tend to focus on the roles
parts of the total organisation. The of employees at work. There is less concern
management takes care of their| for family, social issues and health. of the
needs even beyond their workplace.
employees.
It provides for housing, day care
services, mental and physical
counselling, etc.
6. General Career : Careers arel 6. Specialisation in Career
linked to organisation, not|
:
Amet
organisations are founded on specialisato
professions. Japanese firms don't of skills. Employees create intensity in cau
prefer specialisation. They emphasise choices and follow specialised career paths
flexibility and internal training to
reassign personnel.

Source: Basedon William Ouchi, Theory 2, Reading, Mass: Addison-Wesley, 1981, p.20
2. Emphasis on Group Japanese relish life in groups. By che

group instead of the individual,

focussing on
their
Japanese companies are able to get o
employees in terms of both quantiry and quality. cment

Japanese manag
MOTIVATION 9.15
emphasizes the permanence of the group. The employees are appointed with
he understanding that they are joining for life. Pay and incentives for workers
deend partly on thec financial performance of the group. Group cohesiveness
is supported by copany songs, recitations of the company creed. and other
activities. The "us against them mentality in a Japanese cornpany is likely
to put the company against its
competitors-not the workers
against
management.

3Concern for Employees: American organizations tend to view people

as tools to fill slots that have specific job descriptions. In Japan, however.
the permanence oft the group forces managers to place more emphasis on
people than on the system. This emphasis on human relations can be seen in
careful recruitment practices, a concern for the whole employee, harmonious
resolution of contlict, etc. The companies provide housing facilities. welfare
facilities and counselling services to their employees.
4. Collective Decision-Making : Employees and managers seek consensus
on decisions and endorse collective decision-making processes. Thus, joint
decision-making is emphasized by the Japanese management.
5. Role of Top Management: Managers are generalists and they operate as social
and symbolic leaders. Their role is that of facilitator and not of decision-maker.
In other words, group decision-making is encouraged. The managers do not
follow specialised career paths as is the case with the American managers
Features ofTheory Z
Theory Z represents the adoption ofJapanese management practices by the American
companies. The 'hybrid' type of system incorporates the strengths of Japanese
anagement (group decision-making, social cohesion, job securiry, holistic concern
Cmployees, etc.) and American management (quick decision-making, individual
Cdom, risk-taking by individuals, etc.). The features of Theory Z or US-Japancse
7cm
of management are discussed as under
.Strong Bond berween the Company and the Employees : Theory Z suggests
life time employmentin the company as followed in Japan. Retrenchment, lay
off, etc., should be avoided as far as possible. Alongwith hnancial incentives,

he management should also use non-fnancial incentives to motivate the

wOrkers. To strengthen the bond between the company and the workers,
th management should follow the paternalistic style. The needs of workers

ust be satisfied.
2 mployees' Participation The employees
must participate in decision-

the management and their suggestions

laking. They must be consulted by to the
commitment organisational
u s t be considered. This will increase their
9.16
decisions. Thus, decision making under Theory Z. is less centralised as MOTI
sed andNATImoo
consensus secking. lt involves the cmployces in decision-making
king andg
them due recognition.
3. Mutual Trust : There should be trust between employees, suDes.
work groups, unions and management. According to Ouchi, trust, in
and opcnness are closely related. All these are necessary for an ef integry
organisation.
or To develop trust, there should be complete openne
n in relationsthu
candour relationships. The chances of conlicts should be reduced.
he made
minimum. Attempts should be made to achieve
ach win-win relationshine
organisation. This would make the employees committed tonitted
the organisat e
to the
organisatina
ation
4. Integrated Structure: No formal structure is recommended by Theory 7 T
organisation structure should be based on team-work as in case of a basThe
ball team where there are no formal reporting relationships and the playe
play together. An integrated organisation need not have any chart or visihe
structure.
Theemployees develop the group spirit.
must

5. Human Resources Development: The management must work to develon

ew skills
among the employees. In Theory Z, human resources potentialis
recognized and the greater emphasis is on job enlargement and career planning
as well as socialisation. Technical
training, research and development are also
emphasised.
6. Informal Controls: Theory Z requires the managers to reduce their reliance
on formal control system. As far as possible, organisational controls should e
formal and flexible. In other words, the managers should
emphasize mutu
trust and cooperation rather than their
authority over the subordinato
There should be free flow of information throughout the organisation so
that corrective actions could be taken quickly whenever needed.
From the above discussion, it is obvious that
Theory Z is a comprehensive phileso
ofmanagement. It is not merely a technique of motivation. It rather involves a comp
amalgamation of management principles and techniques for obtaining maxin
cooperation of the employees. It provides a complete transformation of manag
people at work as compared to Theory X and Theory Y. It calls for mutual trust ber
management and workers, strong bond berween organisation and workers, involve
of employees in
decision-making and on. so

Theory Z has been practised successfully by the Japanese firn1s operat

USA. With the collaboration of Indian
organisations and Japanese
been a lot of talk about the application of Theory Z to lndian firms, in
conditions. a
Udyog (having collaboration with Suzuki Motors of Japan), an attempt has
m a d t

be
to
implement Theory Z. The workplace has been designed on the Japanese ISation

There is a common canteen for all

enmployees irrespective of level in the org
Similar uniform has been introduced for all. These practices have been
feeling
class the
followed
among employees and to remove the problems the status a
among different levels bring about.
M O T I V A T I O N
9.17
FINANCIAL AND NON-FINANCIAL INCENTIVES
9.7
term 'incentive mcans an inducement which rouses or stimulates one to
The
in a desired direction. An incentive has a motivation power: it infuences the
action

isions of individuals on
putting performance. In modern
in cftorts towards task
incentives are uscd to motivate the people. These
rCanisations, a large varicty of
acentives may be broadly grouped into: () financial or pecuniary incentives, and
7) non-financial in
incentives. The financial or pecuniary incentives are monetary in
irc they involve flow of money from the organisation to its staff. The examples
wages, salaries, allowances, bonus, fringe benefits, etc. On
af pecuniary benehts
are

incentives do not involve much hnancial commitments

rhe other hand, non-pecuniary
of the organisation. They do not add to the money income of those who
on the part
rcceive them. They take the form of job enrichment, participate management, praise,
opportunity for growth, etc.
Role of Money or Financial Incentives in Motivation

Money plays an important role in motivation. Managements generally make use of

financial incentives like wages and salaries, bonus, retirement benefits, health insurance
medical reimbursement, etc., to motivate the workers. However, such incentives may
not always prove to be motivating. In many cases, management may have to increase the
financial incentives to keep the workers with the organisation. This can be appreciated
from the practice of making wages and salaries competitive between various enterprises
so as to attract and maintain good workforce.

Money is a real motivating factor uwhen the physiological and security needs of the
workers have not been fully satisfied. Money plays a significant role in satistying these

necds. Therefore, management can use financial incentive for motivation. Money helps
in satistying the social needs of the workers to some extent because money is often
means ot
COgnised as a basis of status, respect and power. Money is also an important
'minimum' has the tendency to
unieving a minimum standard of living' although this
conclude that
50upas people become more afftuent. But this should not lead one to
Noney will always be a motivating factor to all people. To some people, importance of
are more
Oney will be reduced after certain stage. To them, non-tinancial rewards
a
are struggling tor
portant, They are motivated by money only upto the stage they
Physiological and security needs.
Money provides for the satisfaction physiological
of and safety needs which have
and salaries
beer factors include wages
Called bygienic factors by Herzberg. Hygienic
factors at a satisfactory level prevents
e r fringe benefits. The presence of these
'on the job satistaction' to the employees and,
atistaction. They do not provide findings based
Herzberg's
are

therefore, can
A, Cannot be considered as motivational factors.
9.18 MOTIVAT
on
empirical research which lhave already been discussed in the chapter. Acco
to it is necessary to provide
motivate the employecs,
Herzberg, in order to for
satisfaction of cgo, social and self-actualisation needs. But these are present gene the
in case of employees at higher eral
levels in the enterprise. Thus, we can say that peonl.
the higher positions, who get higher monetary rewards, are not motivated byincte ple in
rease
monctary bencfits. Thcy may be motivatcd by money only if the increase is large enou
to raise their standard of living and status in the society. But in case of employees ars Ough
operative levels, moncy certainly plays a significant role in
at the
motivating them ber.
ause
absence of monetary incentives will put their survival and safety into jeopardy.
From the above discussion, it can be said that money is not the only motivator.
and
it is not always a motivator. A good management should devise a motivational syste
/stem
which is capable of satisfyving the different kindsof human needs. Job satisfaction can e
provided by helping the employees to develop themselves. Job enlargement, participati
e
management, recognition, status symbols and making the job challenging are someai
bt
the other non-financial incentives which motivate the employees.

Role of Non-Financial Incentives in Motivation

Financial incentives do not work for ever to motivate the people at work. As
matter of fact, when the physiological and security needs are fulfilled with the help o
money, money ceases to be the motivating force; it becomes the maintenance factor
assaid by Herzberg. Therefore, the employees do not always run after money They
have other needs also. They want status and recognition in the society, they want o
satisfy their egoistic needs and they want to achieve something in their lives. In order to
motivate the employees having such needs, management can take the help offollowing
non-financial incentives
1. Competition: Competition is a kind of non-financial incentive. If there isa
healthy competition among the individual employees or groups ofemployea
it will lead them to achieve their personal or group goals in a better way.
2. Group Incentives: Group incentives are more powerful to motivate te
employees than the individual incentives. When the prestige of the group
at stake, Its members will work with a team spirit. They will have highm
and their productivity will also go up.
more
3. Praise Praise satisfies one's ego needs. Sometimes, praise
:
is
effective than any other incentive. We have seen that 1n usery

nd
home
e v e

at or elsewhere, people respond better to

praise. t
this incentive should be used with ecause

greater degree of care petent

praising an incompetent employee would create resentment among co

employees. Of course, occasionally, a pat on the back on an inco

p e r e n t

employee may act as an incentive to him for improvement.

MOTIVATION
9.19
ATob Enrichment : Job enrichment means increasing the contents of a
iob leading to upgradation of responsibility, scope and challenge in its
performance. Executives at the higher levels like job enrichment because the
iob becomes more challenging. Job enrichment gives higher satisfaction to
he job-holders and increases the level of their motivation.
5. Opportunity for Growth: Opportunity for growth is another kind of
incentive. If the employees are provided opportunities for their advancement
and growth and to develop their personality, they feel very much satisfied
and beconme more committed to organisation goals.

6. Knowledge of Results : Knowledge of the results leads to employee

satisfaction. A worker likes to know the result of his performance. He gets
satisfaction when his superior appreciates the work he has done. In modern
industry, the production workers have no contact with the customers and so
they cannot get the reaction about their efforts from the customers. They can
be motivated to a greater extent if they are told the rating of their performance
7. Workers' Participation in Management: Employees participation in
management provides an important iñcentive to the employees. It gives them
psychological satisfaction that their voice is being heard because workers
participation in management provides for two-way communication.
8. Suggestion System : Suggestion system is an incentive which satisfies many
needs of the employees. Many organisations which use the suggestions system
make use of cash awards for useful suggestions. They,somerimes, publish the
worker's name with his photograph in the company's magazine. This motivates
the employees to be in search for something which may be of greater use to
the organisation.

9.7.1 Job Enrichment

lo motivate the workers, Herzberg gave emphasis on job enrichment in his
wO-tactor theory. Job enrichment implies enriching contents of job or the deliberate
Pgrading of responsibility, scope and challenge in work. "Job enrichment is d
OTTational technique which emphasises the need for challenging and interesing work. It
u
68Csts that jobs be redesigned so that intrinsic satistaction is derived trom aoing the
3 n its best application, it leads to a vertically enhanced job by adding kunctions
trom other
ther organisational levels, making it contain more variety and challenge and
ofer autono and
pride to the employec."
In order to enrich the job, management should take the following measures:

give more freedom to workers in deciding about work methods, pacesequence

etc.

6increas responsibility;
 9.20 MOTIVATIO
()encourageparticipatio:
(d) provide feedback to the workers; and

(e)make the workers understand

how tasks
contribute to a
fnished product
finished nr

the enterprise.

9.72 Job Enlargement

tasks and responsihk.
Job enlargement of enlarging jobs by adaing
is the strategy tlitie
means of borizontalload
and width f the job by
lt involves cxpansion of the scope who is responsibl
assistant
For instance, an ofhce de
ertain closely relared operations.
the computer may also be assigned the tasks of drafting letters, s orting
data entry on
to concerned
offhicials. This will reduce
mails and forwarding the same th
ot incoming
boredom and increase his interest in
his work.
on the employees. seems It
Job enlargement has a great psychological impact checks his own wo
because the employee who
improve quality standards, possibly satistaction is higher in
to do so. Also job
responds favourably to the opportunity
enlarged jobs.
Both job enlargement and jobenrichme
Job Enlargement vs. Job Enrichment.
are important forms of job redesign
in order to enhance productivity and satisfacion
to the following points:
ofthe job-holders. They differ from each other regard
in
of tasks in a job. It invovre
) Job enlargement refers to expansion ofthe range
horizontal loading or expansion of job, i.e., addition of tasks
of the same

nature. But job enrichment refers to an improvement

of the quality ora

job in terms of its intrinsic worth. It involves vertical loading of functios

and responsibilities of the job-holders.
(i) The purpose of job enlargement is to reduce the monotony in pertorming
certain repetitive jobs by lengthening the cycle of operations. But jo
enrichment is meant to make the job more lively, challenging and satistyug
It satisfies the higher level needs such as ego satisfaction, selt expressio
sense of achievement, and advancement of the job-holders.
(iin Job enlargement may not necessarily call for acquisition or utilisato
higher level skills on the part of the job-holders. But job enrichmen
vation

for development and utilisation of higher skills, initiative and innova

on the part of the job-holders.
ofdhe
(iv) Job enlargement does not reduce the need for direction and control
superiors. The job-holder may need more supervision in view ofenlargemeu
e job
of the scope of his responsibilities. But in case of job enrichment, tne
rection
holder needs less of supervision. He utilises his capabilities for seir
and control.
 9.21
MOTIVATION

OUESTIONs
Short Answer Questions

Explain the importance of motivation.

1.
is the core of management". Comment.
2, "Motivation
brief Maslow's motivation theory.
3. Explain in
4. What is need for achievement ? Explain.

5. State the hierarchy of human needs as given by Maslow.

6. Explain the meanings of job enrichment and job enlargement.

7. Briefly explain Herzberg's two-factor theory of motivation.
8. Differentiate between job enrichment' and job enlargement
9. Enumerate the assumptions of Theory Y.
10. What 'motivational factors' have been given by Herzberg ?
11. What are the features of Theory Z?

Long Answer Questions

1. Explain the concept, nature and significance of motivation.
2. "Motivation is the core management'. Discuss. What can management do to
motivate the workers in an industrial organisation ?

3. What is motivation ? What does Maslow's hierarchy of needs tell us about

people's needs?
4. What is meant by hierarchical nature of needs ? Is this hierarchy rigid ? Discuss
with suitable examples.
5. Crtically examine Abraham, H. Maslow's "Need Hierarchy' theory of motivation.
6. Explain Herzberg's Two-Factor Theory and differentiate it from Maslow's Theory
of Need Hierarchy.
1. Distinguish between Maslow's theory of need hierarchy and Herzberg's wo-

factor theory of motivalion.

. Compare and contrast Maslow's theory and Herzberg's two-factor theory of

motivation. What are the limitations of Maslow's theory?

X and Theory Y. Which one
.Enumerate the assumptions of McGregor's Theory
is applicable in India ?
X and Theory Y of human behaviour.
.Distinguish between Theory
Explain McGregor's Theory X and Theory Y. Theory Y an improvement
How is
them more
Over the traditional view that you can motivate employees by paying

money ?
9.22
12. Explain Theory Z of motivation. Do you think this theory is the
MOTIVATI
answo
problem of low level of motivation in the Indian industry.
swer toot
13 "Ouchi's Theory Z is the last word on motivation". Comment. What
t are
are the
the bas
features of this theory?
14. Explain the
postulates of Ouchi's Theory Z and comment on its
applicat,
indian conditions. atin
15. "Theory Z is a comprehensive philosophy of
16.
management." Elucidate
"Money holds the key to work motivation in modern
Discuss and explain the role of business organisatio.
non-financial incentives in motivation ions
17. "Non-financial incentives are as strong motivators
as the financial
examine this statement in the ones. Crtic
of motivation.
light ofneed-priority model and two-factor the
 CHAPTER 10

Leadership

Concept and Nature of Leadership

Types of Leaders
Styles of Leadership
Likert's Management Systems and Leadership
Tannenbaum's Continuum of Leadership Behaviour
Great Man Theory of Leadership
Traits or Qualities of a Good Leader
Production Centred and Employee Centred Leadership
Managerial Grid
Situational Theory of Leadership
Fiedlers Contingency Theory

Introduction interprets
He the
A leader is one who guides and
directs other people.
Because he
it towards their accomplishment.
objectives of the group and guides the leader must grve
his command,
subordinate to him and subject to
the
thers
Managers at all
levels must pertorm
and purpose.
cforts a direction
tact,
detinite direction. ln
lead the subordinates towards a
Ction of leadership to to achieve

of managing for intluencing people

element or
S p is an essential process of intuencing tollowers
It is a psychological situation

ally compatible goals. to them.

It is always
related to a
another.
guidance ineffective in
n a t e s and providing effective in
situation while the
which meanss a leader may be
one

style depending
upon
To a leader should change his leadership
etfective,
cquirements of the situation.
10.1
10.2
10.1 CONCEPT AND NATURE OF
LEADERSHIP
FADERSHI -

Meaning of Leadership
Leadership is the quality of behaviour of a person whereby he is tionshipahi.

persuade others to seck group goals enthusiastically. It is the influence relar.

in which one person (the leader) influences the behaviour of others (the i
followers) in a given situation to work together on related tasks to attain whar
former desires. Leadership is that part of a manager's job by which he influenthe
the behaviour of his subordinates towards the desired goals. ences

Definitions of Leadership
"Leadership is the inter-personal influence exercised in a situation and directed throuah
communication process towards the attainment of specified goals." gh
-Robert Tannenbaum
"Leadership is a process of influence on a group in a particular situation at a given point
oftime and in a specific set of circumstances that stimulates people to strive willinglyta
attain organisational objectives, giving them the
experience of helping attain the common
objectives and satisfaction with the type of leadership provided."

-James Gibbin
"Leadership is the process by which an executive
imaginatively directs, guides and
influences the work of others in choosing and
between the individuals and the
attaining specified goals by mediating
maximum satisfaction."
organisation
in such a manner that both will attain

-Theo Haimann

Leadership is the process of influencing the behaviour and work of others in

group effort towards the realisation of specified goals in a given situation. In other
words, leadership is a function of
three factors : () the leader, (in) the led (follower
and (ii) the situation. From this it follows
that managerial leadership is the
of infuencing a group of subordinates attain organisationai
to
procs
pursuit of common goals under the advice and guidance objectives.
of the leader
It implies
in the interest or
individuals and the group as well as for the benefit
of the organisation. The interaction
between the leader and his followers is based on
inter-personal relations.
Leadership is a process of influence: Leadership is a tant

process whose imp S said

ingredient is the infuence exercised by the leader on group members.
to have an intluence over
A person l
others when they are and
accept his advice, guidance and direction. willing carry
to ry out his wishes.
Successful leaders are able to
behaviour, attitudes and beliefs of their followers. influe cethe
The style
of leadership depends upon the nature of the followers or
subordinates : As is well known
to attain organisational
leadership involves motivating people to strive wile
lingy

objectives. Leaders considered successful when they

are
to subordinate the
individual interests of the aChe
employees to the general
organisation. A successtul leader allows his subordinates to have their interestss
set by them in such
way that they do not conflict
a individu
organisational objectv
with the
When this congruency is achieved,
workers goas
act
enthusiastically to achieve tne
LEADERSHIP
10.3
Leadership is related to situation: When we talk ofleadership, it is always related
to a
oarticular situation, at a given point of time and under a specific set of circumstances.
particulars

adership
hat means lcade styles will be different under different circumstances. At one
at oftime, the subordinates may accept the autocratic behaviour of the leader while
Pdifterent point oftime and under a different situation, only participative leadership
at a d
style
maybe
ful. That is why, it is said that leadership is always particular and
successful

not general.

Characteristics of Leadership

The characteristics of leadership are as under

)Leadership is the personal qualityof manger: It is the personal abiliry, tact
and competence of the leader who leads, directs, co-ordinates and channelises
the group efforts towards desired goal of the business. To some extent, itis
an inherent quality but it can be developed also.
( It is a process of influence: The basic purpose of leadership is to infuence
the behaviour of followers. It involves interaction between the leader and the
followers.
Table 10.1: Management vs. Leadership

Basis Management (Manager) Leadership (Leader)

1. Scope Responsible for planning, organising Infencing groups processes resuiting
in the establishment of goals that
processs resulting stafing, directing
and controlling processes as they relate will contribute to a higher level of

to the total organisation. goal attainment and satistaction.

Leading is a part of management.

Focuses on promoting the interests Leader clarifies and influences

2. Interests
the roles and rask pertormance
of the entire organisation by
balancing interests of various groups.
of individuals to maximise their
simul-
personal rewards and
taneously contribute to organisa-

tional goals.
3. Authority directs the employees| Leader exercises his intluence
Management through informal authoricv
through formal authority
and
Leaders may be both tormal
4. Structure Management has formal structure.
both
informal. They function in
It functions only in the organised
orgunisedand unorganised groups.
groups.
There is informal relationship
Kelationship There is formal
relationship between | the followers.
subordinates. berween the leader and
the manager and the
not be stable.
stable. Leadership may
6. Stability Management is generally are not managers.
leaders, they | All the leaders
7. Dominance All the managers
are

enjoy dominating position.

in the
oriented: It implies pursuit of common goals
Leadership is goal as a whole.
as well as the group
Interest of individuals
10.4
is related to a situation: When we
talk ofleadership.ir
LEADERS
Leadership
related to a particular situation, at a given point of time and under-
under aspec
set of cireumstances.

Functions of Leadership
follows
he hunctions of a leader may be described as

() Setting Goals: A leader provides guidance to the group by setin.

ting
explaining goals to his subordinates. He acts as a guide of his foll.
setting the main goals of the group. Wersi
()Organising : The leader crcates and moulds the organisation by.
roles appropriate to individual abilities. He shapes the character oftha assignino
the grov
shows the way and leads it towards the goals.
Motivation : A leader creates and sustains enthusiasm among the foll
He inspires them to perform the allotted tasks with confidence and Ner.
He establishes a motivational system that enables people to meer
bOth
organisational and personal goals.
(i) Coordination: A leader reconciles individual and common objectives
resolves internal conficts and creates a community of interests in the
grou
His main task is to develop voluntary cooperation and to foster mun
understanding and teamwork.
() Representation: A leader represents the group to his superiors and pen
An effective leader is theguardian of the interests of the subordinates. Hes
the personal embodiment of the
impersonal organisation, inside and ouse
the organisation. He also defends the
integrity ot the group by reconcie
different viewpoints of group members.
(vi) Control: The leader maintains order and
discipline
and creates posi
response on the part of members of the group. Control also involie
management of internal conflict. In the words of Drucker, "the hrst
leader's competence is its ability to testa
keep people working with minimum
disruption and the maximum of effectiveness."
Role and
Importance of Leadership
Lcadership is regarded as the most crucial quality of behaviour of the
The importance of leadership can be discussed as tollows: mang
) Providing Inspiration urge u
Employees. A leader creates strong
to
employees for higher performance. By showing the proper way to do u
a
heirjoh
the leader
helps employees to give their best to the ntedon

by Terry, "leadership triggers person's will-to-doorganisation.

As
a
p kewann

and
desires for achievement into transtorms
burning passions for successful accomp s h m e n t

(i) Securing Cooperation. A dynamic leader brings life into the8toupH

infuences the behaviour of gr wod

employees in such a way that they rea

EADERSHIP
10.5
fororganisational objectives. He makes them realise that by translating plans
into action, they can earn adequate rewarcds. He, thus, inculcates a sense of
collectivism in the employees and forces them to work as a team. Ieadership
is essential to group action. Without sound leadership, cooperative cffort
towards a goal is not possible.
(iCreation of Confidence. Sometimes, individuals fail to recogae :ti
qualities and capabilitics. The leader creates confidence among th m by hs
superior knowledge. He provides psychological support and intuses the sparir
ofenthusiasm in the followers by his conduct and expression
it) Providing Conducive Environment. Efficiency of performance depend,
on the work environment. Leadership aims at creating and maintaining a
satistactory environment for employees to contribute their maximum towards
achieving the goals. The leader or manager encourages subordinates to take
initiative and helps them in their personal advancement.

() Building Higher Morale. Good leadership is indispensable in building high

employee morale. The leader shapes the thinking and attitudes of the group
and maintains discipline. He develops good human relations and facilitates
interactions between the members of the group. He maintains voluntary
cooperation and discipline among the tollowers.
(vi) Facilitation of Change. Dynamic leadership is the cornerstone of
organisational change and development. A good leader prepares the people
for change and gives them the necessary support to adapt to change.

10.2 TYPES OF LEADERS

Various kinds of leaders are found in different spheres of life. Alford and
Beatty have classified them into the following categories
1. Intellectual Leaders: As the term implies, intellectual leaders are thosewho
win the confidence of their followers by their superior intellect or knowledge. Nearly
in all big organisation, there are experts whose advice is sought on matters in which
they are experts. He may be a purchase specialist, a production expert, a job analyst
oran advertising specialist. Regardless of his function, he is able to get results threough
others because of his superior knowledge.
2. Autocratic Leaders: Such a leader dominates and drives his group through
the
oercion, command and the instilling of fear in his followers. Such leaders preter
their power tor
e of power in promoting their own ends. They never like to delegate
the fear that
they may lose their authority in this way.
acts according to the
. Democratic Leaders: A democratic leader is one who
wants. He follows the majority opinion
acs of his followers. He does what the group to his
by his He holds his leadership position because he is loyal
Xpressed group.
to them, and is
aways concerned with their interests, is friendly and helpful
PIS
ways ready to defend them, individually and collectively.
 10.6 LEADERS
leader possesses magnetic personal
4. Persuasive Leaders: The
persuasive
in doing things. He is the te
to infuence his
followers to join him
enables him
responds because they love and
guys" and the whole group resper
can
say, "lets go.
him. have confidence in him. trait that can help ina
Charisma is a leadership
5. Charismatic Leaders :
It is form ofinter-personal attrars
uenr
and sustained action. a
employees to take carly others. Charismatic leadership
is accordinel.
and acceptance from
nspires support charisma. All else being equal, somen
infuence based on the leader's personal
of able to intuence others
than s o m c o n e without cha
charisma is likely to be
more narisma
will be m o r e successful in infe
For example, a highly
charismatic supervisor
who lacks charisma.
uencin
subordinates than a supervisor
behaviour of the
dynamic risk-takers who expertise and. seli.
show their
Charismatic leaders are
and use symbols and langi-
confidence, express high performance expectations, guage t
also be mentors who treat employees individuall n an
inspire others. They can
warm

Research shows a positive correlation ber

guide them to work enthusiastically.
charismatic leadership and high performance and satistaction among followers. Peonl
charismatic leaders motivated to work extra, because they likethe
working for are

leader, and attain greater satisfaction by working with him.

6. Transformational Leaders: A transformational leader is one who inspir
followers beliefs in what an organisation
organisational success by profoundly affecting
should be, as well as their values, such as justice and integrity. This style of leadership
creates a sense of duty within an organisation, encourages new ways of handling

and promotes learning for all organisation members. Transformationa

problems,
leadership is closely related to concepts like charismatic leadership and inspirationa

leadership
Transformational leaders go beyond ordinary expectations by transmitting a sehs

ofmission, stimulating learning experiences, and inspiring new ways of thinking among
the followers. They often possess the following characteristics:
() They develop a sense of mission among the followers to make t
committed and loyal to organisational purpose.
i) They develop confidence among the followers
() They promore problem solving skills among the followrs.
iv) They take personal interest in the development of the followers.
Transformational leadership style is receiving more attention
cause

of the dramatic changes that many organisations are going through and the cri
nowaduyd riical

ISations

importance of transformational leadership in "transforming" or changing org

successfully. Transformational leaders play the following roles:
(i) They raise their followers' awareness of organisational issues and po
p o s s i b e

consequences. build

(i) They create a vision of what the organisation should be and

commitment to that vision
throughout the organisation.
LEADERSHIP
10.7
(ii They facilitate organisational changes that support the vision.
Transactional Leaders: Transactional leadership involves exchange relationship
recn the leader
berween the leac and the followers. A transactional leader is one who guides and motivates

hisfollowersin.the direction of established goals by clarifying role and task requirements.

adership involves exchange relationship between the leader and the
Transactional lead
Traditional
ollowers. T theory of leadership, Ohio State Studies, Fielder's contingency
nodel, and Path-G-Goal theory are all transactional in nature.
Transactional leaders determine the goals for the subordinates and guide them
wards their achievement. They offer rewards to those who perform weli. In other
words, they exchange rewards for the efforts of the subordinates.
The main characteristics of transactional leaders are as follows:
( They set goals for the subordinates and motivate them to achieve the same.
(in They lay down work standards and evaluate subordinates' performance on
the basis of work standards. They take actions to check deviations from the
standards.
(iit) The offer rewards to the subordinates for their good performance. Thus,
rewards are exchanged for efforts.
Traditional theory of leadership is transactional in nature. Cn the basis of his
research findings, Bass concluded that in many instances (such as
relying on passive
management by exception), transactional leadership is a prescription for mediocrity
and that transformational leadership leads to
superior performance in organisations
facing demands for renewal and change. He suggested that fostering transtormational
leadership through policies of recruitment, selection, promotion, training, and
development will pay off in the health, well-being, and effective performance of today's
organisation.
Transactional vs. Transformational Leadership
The traditional transactional
leadership involves an exchange relationship berween
leaders and followers, but transformational
the
leadership
is based more on leaders'
shifting
values, beliefs, and needs of their followers. It may be noted that traits, behavioural
and
situational theories of leadership discuss more about transactional leaders and not
4Dout
transformational leaders. A transactional leader determines what subordinates
c a to do to achieve objectives, classifies those requirements, and helps subordinates

Ecome confident so that they can achieve the objectives. A transformational leader
pires his followers through vision and energy. Trait, behavioural, and situational
dership theories fail to explain the reasons behind the deeds of great political
r s like Mahatma Gandhi, Martin Luther King, Lenin, etc. who transformed
theinations, or great industrialists like JRD Tata, GD Birla, Dhirubhai Ambani, who
ated vast industrial empires because of their vision, energy, and entrepreneurship.
Transformati leadership approach does that.
10.8
Table 10.2..Distinction between Transactional and Transformati EADERSH
sformatio
Leadership

Basis of Tivansactional Leadership Transformational.Leaderhin

Distinction
1. Basis It is based on exchainge relationship| It is based on
leader'svalue
values, belet
berwecn the leader and the
followers. and needs of followers,.
Rewards and recognition for good | Leader's charisma, vision:
2. Sourre of and energ
Inspiration pertormance.
The leader follows task orientation. The leader follows goal
3. Orientation orientatin
4. Approach Passive and stable. Active and dynamic.

Main functions Determination of objectives, clarifying |Providing vision and mistin

S1on
of Leaders tasks and helping subordinates in instilling pride, gaining
achieving objectives. and trust, inspiring people, Specr
givin
personal attention to the follower

10.3 STYLES OF LEADERSHIP

The behavioural pattern which a leader exhibits is known as his style of leaderhi
Different leadership styles exist among leaders in different times and in
differe
situations. The leadership style in a particular situation is determined by the leaderi
personality, experience and value system, nature offollowers and nature ofenvironme
There are three important leadership styles which are based on use of
authority. The
are

1. Autocratic leadership;
2. Participative leadership; and
3. Free rein leadership.
1. Autocratic Leader It is also known
:
authoritarian or direct
as
style of leadership. The autocratic leader gives orders which must be obeyed
the subordinates. He centralises
decision-making power in himselt. He t
decisions for the
group without consulting the group members and p
tells the group what the members si
have to do. The autocratic leader rsond

gives pe from
praise or criticism to each member on his own initiative and remains aloor
the group for most of the time. There are three categories of autocratic
ders a

follows: leau
(a) Strict autocrat: He relies on negative influences and h the

subordinates must accept. He follows gives orders

the work done. negative motivational syic
Negative motivation includes imposing penalty, c
subordinates, and so on.
Ni
N
LEADERSHIP

A Benevolent autocrat: An 10.9

autocratic leader may also
af using his power to disburse rewards follow positive style
to the
altocrat is effective in getting subordinates. A bernevolent
higher productivity in
devcloping etfective human relationships. many situations and

aManipulative autocrat: Such leader makes the

a
subordinates feel that they
are participating in decision making, but he takes all
the decisions
Merits. Autocratic leadership is
himself
supposed to
bring the
following advantages
(Autocratic leadership style facilitates quick decision-making
(it) It provides strong motivation and satisfiaction to the leader who dictates
terms.

id This is style may yield positive results when great

achieving the targets.
speed is required in

(i) This style is helpful in managing less educated and unskilled employees at
the lower levels.
Demerits. Some of the demerits of autocratic leadership are as follows

()Autocratic leadership style leads to frustration and low morale among the
subordinates.

(i) It does not allow the subordinates to offer suggestion for better working
(i) It expects the subordinates to just obey the orders of the boss and behave
like immature people.
iv) It does not allow utilisation of full potential of the subordinates and their
creative ideas.
the absence of the leader because
(v) Organisational continuity is threatened in
subordinates get no opportunity for leadership training.
be successful in many cases. In particular,
Autocratic leaders have proved to
initiative get
do not want to take any
Subordinates who depend upon the boss and where
successtul in cases
Autocratic style has also proved
4staction from this style. people the who are
is not liked by
decisions. Autocratic style
n e e d of quick Autocratic style ot leadership
ghtened and want to participate in decision-making.
Another drawback of autocratic leadership
.copardise the organisational efficiency.
is future leaders in the organisation.
t does not help develop democratic leader is one
who gives
Leader : A
or
Democratic
worked out in group
Participative are
to it that policies
order afterco
Consulting the group.
He sees

He never asks people to do things

dise. of the group. it
discussi ons and with the acceptance
on which they are working and
makes

the long-term plans

decisions are
without KEtching
s out
all the group
members. His

clear that pra blame will be shared by

praise or
10.10 LEADERSH
not unilateral becaus rs and participa
they arise from consultation with followers

by them. Unlike an utocratic manager who

controls fhcial
through the offic authorin
participative manager exercises control mostly by using forces within the groun

Participative leadership increases theacceptance of managemecnt's idcas and ai

morale. It also leads to reduction in the n

resistance to change. It increases their numbe
of grievances of the workers.

(Leader Leader Leader

(b) (c)
(a) Laissez faire Leader
Autocratic Leader Participative Leader

Fig. 10.1. Styles of Leadership.

Merits. Participative leadership may lead to the following advantages:

() Active participation in decision-making by the employees ensures

greate
productivity and satisfaction.

(i) Workers develop a greater sense of self-esteem,

due to importance given to
their ideas and their contribution.
about by
(ii) Workers become more committed to changes that may brought the*
be

policy changes, since they themselves participated in bringing about

changes. tne
(iv) The leadership induces confidence, cooperation and loyalty among

employees.
() The morale of the employees is increased.
(vi) Rates of employee absenteeism and attrition are reduced considerabi
Demerits. Some of the demerits of democratic leadership are stated belov

) Democratic style of leadership involves wide consultations with subordinace

This may result in delays in decision-making and action.
(ii) Consultation may be interpreted as a sign ofincompetence on th pa
leader to deal with problems.
licaine
(ii) It may be used as a means of passing the buck to others and of abal
leadership responsibility.
(iv) It may not yield positive results when subordinates prefer min m i n i m u

interaction with the leader and even do not want to be consulted.

LEADERSHIP 10.11
Itrcquires considerable communicating and persuasive skills on the part of
the lcader to be cffective.
Laissez faire or Free Rein Leader : A free rein leader does not lead. but leaves
rhe group cntircly 1o itself. He is reprcsented by the chairman of the board who leaves
all responsi for most of the work to his subordinates. The free rein manager

ids using
avoid.
depends largely upon the group to establish its own goals and
power. He
kQut its own problcms. Group membcrs work themselves and provide their own
ation. The manager serves as a contact man with the outsiders to bring for his
mation
roup the inform: and resources it needs to
accomplish its goals.
Table 10.3: Different Leadership Styles
Feature Autocratic Style
Participative Style Free-rein Sryle
1. Decision-making Leader is the sole Leader makes decisions Subordinates them
decision-maker in consultation selves make decisions
with subordinates
-

2. Communication One way Two-way Free How of

Communication communication communication
3. Motivational Fear and punishment Rewards and
Techniques Self-dircction
(negative incentives) involvement and self-controi
positive incentives)
4. Needs of Physiological and Ego needs Self-actualisation
Subordinates safety needs need

5. Initiative by No scope for initiative Scope for initiative and Full scope tor
Subordiantes and creativity T style creativity We style .

iniuative and
.

6. Focus creativicy You stve

Task-oriented style People-oriented sryle People-oriented stvie
7. Mode of
Implicit obedience of Interchange of ideas
Discipline orders and instructions Self-discipline
and recognition of or control
human values

This type of
leadership is evident in research
laboratories where the scientists are
Tairly free to conduct theirresearch and make their decisions. Similarly, in a
he
Principal does not interfere in the faculry teaching methods, but college
urses to be taught. From then onwards, the faculty members are free only asigns the
to decide about
method of teaching, books to be
recommended and various teaching aids to be used.
Merits. The
possible advantages of free rein style of leadership are as under
l t creates an environment of freedom, individuality as well as team
With a free and informal work environment, it is spirit.
work.
highly conducive to creative
i) lt is very suitable where people are highly motivated and achievement
oriented.
iv) t
ofters maximum scope for development of subordinates.
10.12
Demerits. The main demerits of free rein style of leadership are as
LEADERSH
follow.
)It ignores the contribution of leader in task accomplishment.
i) It fails to check the undersirable activities of the subordinates at the
rign
.

timc.

11) t fails give

to
proper guidance and support to the
subordinates, in
need. eof
10.4 LIKERT'S MANAGEMENT SYSTEMS AND LEADERSHID
Rensis Likert and his associates, of the
University of Michigan, condise.
an extensive survey of management and
leadership patterns cte
organisations. Within the basic style categories of task orientationlarge
in a
number.
er
and emplot
orientation, Likert developed a four level model of
patterns of leadership were termed Systems of
leadership effectiveness. The.
from 1 to 4 to indicate the Management and were assigned numbes
stages of evolution in the patterns of
organisations. Likert's four systems of management in
in terms of
management
asfollows: leadership styles ate
System 1- Exploitative authoritative.
System 2- Benevolent authoritative.
System 3 -Consultative.
System 4-Participative (Democratic).
System 1-Exploitative Authoritative Leader.
autocratic, has no trust and confidence in System 1 manager is highiv
subordinates, motivates them through fear and
punishment, seldom gets ideas and opinions of subordinates in
and keeps
decision-making with himself. solving job problems
System 2-Benevolent Authoritative Leader. Such a
and trust in
subordinates, motivates with rewards and some manager shows conhdence
subordinates in solving job punishments,
and opinions, sometimes of gets idea
delegation of decision-making authority. problems
and allows somt
System 3-Consulative Leader. Such a
confidence and trust in manager has substantial but not
subordinate. He usually gets ideas and compr
make constructive use of
them, uses rewards with occasional opinions and tries
participation, allows two-way communication and exercises punishments and ome so
System 4-Participative Leader. Such a delegation authotn of
trust in subordinates
in all matters, manager has complete contidence
and tries to make always gets ideas and opinions from
constructive use of them. He subordinis of
group participation and involvement in such gives economic rewards on the ba
progress towards goals, engages in
areas as
setting of goals and appra Ng
communication down and up and witn peers,

encourages decision-making throughout the P

of team
among the subordinates. organisation and tries to create
feeling
a ies
 L E A D E R S H I P 10.13
Likert advocated participative style of leadership. He was of the view that
Lership and other processes of the organisation must be such as to ensure a maximum
leader.

1hility that in all interactions and in all relationships within the organisation, each
p r o b a

h e t in the light of his background, values, desires, and expectations, will view the
memb
cricnce as supportive and one which builds and maintains his sense of personal
th and importance. Likert found this approach as the most effective way to lead
worth and

N a
He tfound that the companies managed by the system 4 approach
uD. He
group.
were most

and achieving them and were generally more productive. He

ffective in setting goals
ct

These are:
ialated three variables which are representative of this approach.
( Use of supportive relationships;
and
(ii) Use of group decision-making, group supervision,

(ii) High performance goals.

in Systems 2 and
Likert also found many managers and organisations operating
he suggested extensive and intensive leadership training at

3. For such organisations,

so as to move them into system 4-Management.
all levels of management

4
Superiority of System
is the only valid approach
and viable
Likerr's thesis is that participative leadership
satisfaction. His research findings
to optimize organisational
performance and employee
democaratic o r participative style
of leadership. He found
confirmed the superiority of
hI
to be most effective
in improving productivity
the principle of supportive relationships
of the organisation
ear
satisfaction. He felt that leadership and processes
and workers' interactions and in all
DIW
as to ensure a maximum probability that in all
must be such ot his background,
each member in the light
within the organisation, which
relationships as supportive
and one
hdd will view the experience
values, desires and expectations, System 4 is likely
S JUP worth and importance.
sense of his personal and
Dulds and maintains a with the c o n s e n s u s
the leader manages
to be m o s t etfective in
the long-run as tiull conhdence
decisions and enjoys
followers. He respects group
of the
Cooperation

and trust of the group members. LEADERSHIP

CONTINUUM
OF
ds
10.5
TANNENBAUM'S

other
BEHAVIOUR of cach
exist independent
styles do There is a lot of
not
t leadership
n actual practice, distinct categories.
into of leadership
possible to
classify them The concept

t is n o t
various
leadership styles. and
inter-dependence

among
the the variability
apping to highlight 'boss-centred
leadership

cont has been developed is the

shown in
nuum of the continuum as
o n e end
leadership,
of eadership styles. At 'subordinate-centred

is the
and
a t the other
extreme

Fig. 10.1.
 Table 10.1. Likert's Systems of Leadership
Organisational Systcm 1 System 2 System 3 System 4
Variable (Exploitative) (Benevolent) (Consulative (Democratic)
Authoritative (Authoritative)
1. Extent to which Has no trust and Has condescending Substantial but not
superiors has
Compiete con dence
con dence in con dence and trust complete con dence and trust in all matters
con dence and subordinates. such as master has and trust, still wishes
trust in
on servant. to keep control of
subordinates decisions.
2. Extent to which
Subordinates do not Subordinates do not Subordinates feel Subordinates feel
superiors behave so feel at all free to feel very free to
that subordina tes rather free to feel completely free to
discuss things about discuss things about
feel free to discuss discuss things about discuss things about
the job with their the job with their the job with their the job with their
important things superior. superior.
about their immne superior. superior
diate superior.
3. Extent to which
Seldom gets ideas Sometimes gets
superior generally and opinions of
Usually gets ideas Always gets ideas and
ideas and opinions and opinions and
tries to get opinions and tries to
subordinates in of subordinates in tries to make
subordinates' ideas make constructive use
solving job problems solving problems. constructive use of of them.
and opinions and
make constructive them.
use of them.

Adapted from Renis Likert, The Hunian

Oganisation, McGraw-Hill, New York, 1967.
 ( M e G r o w - 1 i l I , N e w York, 1967.
Adapted irom Rernis Likert, The Hiu7nnan ganiativn,

(D

D
 10.16
The choice of a leadership style will depend upon the following factor
ors:
LEADERSHe
()Forces in the Manager The manager's personality, experience,value
leadership inclinations, feelings of security in an uncertain situatinSt
confhdence in his subordinates are important considerations,
(i) Forces in the Subordinates These include subordinates
need
independence, readiness to a ssume responsibility for decision-h
tolerance for ambiguity, understanding and identification with orpann
goals, interest in the problem at hand, knowledge and experience
with the problem and learning to expect share in decision-making dea
i Forves in the Situation-These include the type of organisation, nan.
objectives, group effectiveness, complexity of the problem itself, n nature
of time on the situation, etc. ressue
Tannenbaum and Schmidt concluded that successful leaders
of those forces which are most relevant to their behaviour at a
are
keenly aware
particular time, T
are able behave appropriately in
to
terms of their understanding of themselves The
individuals and the group, the he
organisation,
managers are both perceptive and Hexible.
and environmental influences.
Suces
10.6 TRAIT THEORY OF LEADERSHIP
Most of the early
not made. We
thinking on leadership suggested that leaders are bom
may describe it "great-man
emphasised that approach" to leadership. This approact
a
person is born with or without the
Famous figures in the necessary traits of leaderships
history are used
by the of this
validiry. For instance, Napolean was said to havesupporters
had the
approach to prove is
rise out of any situation to 'natural' leadership abilities "
be a great leader. Great
"charismatic" leadership, charisma man
approach actually emphasiss
such a natural leader finds being the Greek word for gift. No matter what
himself in, he will group
always be
recognised for what he
According to the great man theory of 1.

qualities like commanding leadership, leadership calls for certun

personality, charm,
aggressiveness. These qualities are of such a courage, intelligence,
in a tormal sense.
One either has or nature that they can't pursuasivenes
be taught or iea
this does not have these
approach are as follows: qualities. The ns of
implicatio
)LeaderS in
They have general and great
certain inborn leaders qualities
leadership in which are bestowed onmade
particular are born and not
by the divine power. hem

i) The inborn
leadership qualities alone are
to be successful.
necessary and Sufficient
sutficient rofora leade"
iii) Ordinary persons cannot
(iv) Leadership qualities cannotaspire
be
to
become leaders and attain atness.
gra
(v) Leadership qualities and acquired through formal
factors such nature effectiveness are educatioSituation
as
independent variables. SI
environment have littleand needs of followers
iables.

infuence and general 0-econom"

leader's effectiveness.socio-
on a
LEADERSHIP
10.17
Modern theorists argue that lcadership qualities could be acquired also through
ining and experience. It is a wrong viewthat success of a leader depends merely on
training
born qualities and not on acquired knowledge and experience. For instance, Hitler,
hisi
hscure house painter in his youth,
an
power in Germany apparently by sheer
rose to

forceof
personality. But:as a soldier during First World War, he never rose higher than
rDoral cven when heavy casualties created many new openings. This shows that he
d not get leadershipP qualities by inheritance. Under complex business conditions,
uccss in managing cannot be thought of without formal and informal acquisition of
education and training can also
nagement knowledge and training. Management
mana
help to brighten the inborn qualities of the managers. If an organisation wants to have
managers who are capable of leading and guiding the human resources effectively, it
can do so only through management education and training.

10.6.1 Traits or Qualities ofa Good Leader

made. Successful leaders
Traditionally, it is believed that leaders are born not
said certain traits or qualities that separate them from the 'crowd'.
are to possess
of the qualities that commonly make for good leadership
are
Some
examine problems in
1. Intelligence: A leader should be intelligent enough to
and
the right perspective. He should have the ability to think scientifically,
It is a natural quality of
analyse accurately the problems before a person.
individuals to a great extent.

and level of maturity determine

2. Physical Features : Physical characteristics
personality of an individual which is an important factor in determining
success of leadership. Height, weight, physique, health and appearance of
an individual are important
for leadership to some extent.
and
3. Maturity: A leader should possess a high level of emotional stabiliry
have
high degree of tolerance. He
must an
cool temperament. He needs a

new ideas as and

when necessary. He also requires social
open mind to absorb
maturity and breadth.
visualise events well
4. Vision and Foresight: A
leader should be able to
have a high degree
of imagination, breadth and
in advance. He should

determination.
motivation to accomplish
have a strong personal
. Inner Motivation: Leaders time is the main task
of a
initiate suitable action in proper
something. To motivation.
due to strong inner
leader. This initiative is to shoulder
the
reliable leader is prepared
Responsibility: A takes. He
. Sense of of any steps he contemplates
or

responsibility for
the consequence he holds.
associated with the position
duties and obligations
1S aware of the from others' point ofview
leader to look at things the
.Empathy: The ability of a
understand
the manager m u s t
To be a good leader, behaviour
is known as empathy. s u b o r d i n a t e s . The
effect of his o w n
of his
with empathy.
needs and aspirations the leader
by
can also be anticipated
on followers
 10.18
. Human Relations Attitude: A good leader should developfriendly
LEADERSHID
maintain personal contact and should
with his followers. Heshould
recognise the problems and feelings
of his followers. He must be conveTe
with human behaviour SAn
9. Emotional Balance : A leader must hold his own emotions well in.
Conte
in critical situations. He should ncither be crushed by de
especially
over-clated by victory. He should have high frustration tolerance.e. He
tHe sh
be free from bias, logical in his actions and refrain from any demonsie. shoilk
ofemotion such as impatience, anger or contempt for any of his folloutratim
The trait approach has been criticised on the following grounds Ners
The list of personality traits is very long. The researchers often disagree
which traits are most essential for an effective leader. OVer
(i) It is difficult to define traits. When posed with the question of defining
trait, executives often come out with a bewildering variety of ing
making a mockery of the trait theory.
explanatione
(ii) It is difficult to measure traits. The measurement tools
traits (in ways that will make them useful to
employed to quani
executives) are open to doubt
For example, some of the
annot be observed but can
psychological attributes (intelligence, initiative
only be inferred from the behaviour.
(iv) There have been many people with the traits
could
for specified leaders, but ther
not prove to be effective leaders.
Trait
theory of leadership is not
acceptable as it does not consider the whole
leadership environment. Personal traits are only part of the whole a
environment
Though certain trait exists, it will not become active until certain situation
a

it. Thus, there is no sure calls for

a
connection between traits and
always related to particular situation. A person
a
leadership acts. Leadership s

due to may prove successful in one siruaton

some traits but may fail in another.

10.7 PRODUCTION CENTRED AND EMPLOYEE

CENTRED
LEADERSHIP
The Institute for Social
Research at the University
of Michigan
a number of studies conduct
to
identify styles of leaderbehaviour that result in inctca
work-group performance and satisfaction. These studies resulted in the
oftwo distinct
developm
nent

styles of leadership
() Production-centred (rask-oriented)
rules, leadership style emphasising the u
procedures and close supervision of subordinates, and
(i) Employee-centred (relationship-oriented)
delegation of authority and concern for leadership style emphas
and personal growth. employee welfare, needs, advanceC e m e n t

Leaders who are described as

their job. They feel that every employee-oriented stress the
relationship asp
o

accepting their individuality andemployee

is
important and take interest
evc in
eryonc

personal needs. Production a s i s e s

orientation emp
 LEADERSHIP
10.19
produc
tion and technical aspects of the job : cmployees are seen as tools to accomplish
goalso.of the organisation. These two orientations parallel the authoritarian (rask)

a n d
democratic (relationship) concepts of the leader behaviour continuum discussed
.

carlier.

It was found in the Michigan studies that both the styles of leadership led to
acrease in production, but it was slightly more in case of production or job-centred style
However, the use of direct pressure and close supervision led to decreased satisfaction and
increased turnover and absenteeism. The employee-centred approach led to improved
work-flow procedures and more cohesion in interactions which resulted in increased
satisfaction and decreasedturnover and absenteeism. This suggested the superioriry of
the employee-centred leadership style.
Table 10.4 Basic Leadership Orientations

Employee-centred Leader Production-centred Leader

Treats subordinates as human beings Emphasises technical aspect of job
Shows concern for the well-being of Shows concern for work standards
employees and performance.
Encourages and involves the employees Close supervision, employees are
in setting and implementing goals considered as a tool in the production
process.

10.8 MANAGERIAL GRID

A
widely known approach ofleadership styles the
is managerial grid developed by
Blake and Mouton. They emphasise that leadership style consists of factors of both the
Task-oriented and relation-oriented behaviour in varying degrees. 'Concern for people
s e has been used to convey how managers are concerned for people or production,
rather than 'how much'
production getting out of group. Thus, it does not represent
production or the extent to which human relationship needs are being sacisfied.
Concern for production means the attitudes of superiors towards a variety of things,
such a,
s , quality of policy decisions, procedures and processes, creativeness ot research,
tyof staff services, work efficiency, and volume of output. Concern tor people
seleacs degree of personal commitment towards goal achievement, maintaining the
Tecem of workers, responsibility based on trust, and satistying inter-personal
elations. The managerial grid identifies five leadership styles based upon these two
factors found in organisations. These are shown in Fig. 12.2.
The 9,1 Managerial Style (Task)
Under this style, the leader has maximum concern for production (level 9)
bined with minimum
mini concern for people (level 1). He attempts to maximize
produ ction control subordinates. These
using authority and power to achieve
over

leaders decidey on
leadere,
provide subordinates with detailed instructions
and on work
supT s e closely
nd sunee assignments,
to make sure their directives are properly carried out. Subordinates
10.20
c
orders with an unquestioning obedience.
ce. They are
They are i
LEADERSH
CXpected carry
to out
taken
erely a means for doing the tasks assigned to them. Little attention is given t.
given
acvelopment or to communicating with them beyond the issuing of instruc th
to

orders.

1-9 9-9
9 (Country Club) (Team)

5-5
5
(Middle Road)

1-1 9-1
(Impoverished) (Task)
1 2 3 4 5 6 7 8 9
(Low)-Concern for Production > (High)

Fig. 10.2. Managerial Grid.

The 1, 9 Managerial Style (Country Club)

The managers who employ this style have a minimum concern for producton
coupled with a maximum concern for people. Since 1, 9 managers believe tna
attitudes and feelings of
are utmost
importance, their emphasis is on
promot ng
good feelings. The 1, 9 manager may be highly motivated to work hard, Du
that motivation is based on a need for
approval and acceptance rather than o
commitment to the production goals of the
organisation.
The 1, 1 Managerial Style (Impoverished)
Such a
manager exerts minimum influence on the with the gzroup
contacts
members. He expresses little concern for isor
production or people. In superv
a

position, he is most likely to be found ctions

messenger executing carrier fun
communicating orders from the layer above to the layer below. He is an c x p e r t

in passing on blame to others tor tailures in such a way that he absolves hims msel

from responsibilities, yet he rarely initiates criticism riticism

spontaneously.
is strictly in self-defence. He wants minimum involvement in the
His sations

organiba
purpose and with its people.
 LEADERSHIP
10.21
The 9,9 Managerial Style (Team)
The
a 9 style meets the people's need to be involved and committed to work.
Os ifference between
A major d i f 9, 9 style and other
managerial styles is in
1Se as a basic management approach to a large variety of problems. The
goal setting
a n d

ar of people to be involved in organisational objectives through commitment

capacity

ectives is fundamental.
fundamental. In oother words, the 9, 9
orientation aims
to o
ro
and prod
production dimension of work under conditions of high concern
at
integrating
the eople and
orowth. The key is the involvement and participation of those responsible for
forgro
xecution of work. This brings about team spirit that leads to
planning and exe
it in
high performance.

The 5, 5 Managerial Style (Mid of the Road)

The 5, 5 style seeks to maintain a balance between the people dimension
and production dimension. A basic assumption of this style is that people work
willingly and do as they are told if the reasons for doing so are explained to them.
However, just enough is communicated so that people have a general sense of what
is going on. If too much is told, it is feared that they might resist. Enough concern
is shown for the people so that adequate production may be achieved. This is seen
in the 5, 5 approach to management development, communication and performance
review. Meetings are held to listen to the suggestions of subordinates and to create
a sense of belonging.
Each of the five styles given by Blake and Mouton points out the relative
concern for production and people and implies that the most desirable leadership
behaviour is 9, 9, i.e.,, maximum concern for both production and people.It
may be noted that the five positions emphasised in the managerial grid are rarely
found in their pure form in actual life. That means a manager may have a styie
TIOD 0r 8, 2 or 4, 6 or some other. Nevertheless, managerial grid is widely used as
tha
various combinations ot
neans of managerial training and of identifying
leadership styles.
10.9 SITUATIONAL THEORY OF LEADERSHIP
the effectiveness of a leader depends
CCording to the situational approach, is a function of the
in which leadership is exercised. Leadership
lead ituation interaction berween the
ou
led o r followers and the
situation. There is an
lead ue
leader and the leader when they perceive
him to

the gro tend follow

be CanaL he group. People to
ot achieving the
Thus, a leader is
a means

capable of
goals of the fulfilling
their aspirations. include the
situational variables
The main
and of its members. relations
type of the group
leader-tollowers

the nature of the task or job,

und the ors
Organisation,
working
environment.
 10.22
According to the situational theory, leadership is situational, ie, tffer LEADERSHtHi
of
leadership affected by the situation from which a leader emerges and in
is
nerges in
Kivene
group, the problem and its envirswh
he works. In other words, the situation-the
will affect the type of
leadership. An important aspect of this theory is the inte. ironmen
rganisationteractinn
berween the group and its lcader within the parameters of the
and
SItiuational factors as shown in Fig. 10.3.

EXTERNAL ENVIRONMENT

International ORGANISATION Economic

(Objectives, People, Structure

and Technology]

LeaderE Followers
Technological Politico-lega

Socio-cultural

Fig. 10.3. Situational Model of Leadership.

The leader recognises his followers needs
and adopts such methods
on the situation) which (depending
satisfy them. The main thrust of the situational theory
the leadership style may be effective is tha
under one situation and ineffective under
other. In other words, situational theory the
emphasises that there is no one best style
leadership universally applicable to all situations and that the leader has to
his style of
leadership from situation to situation. If the leader chang
under all situations, he
may not be successful,.
adopts the same
syie
For example, Winston Churchill was
most effective and
successful Prime Minister of Britain tne
World War, but he was a during period
the of the Seu
flop afterwards when the situation changed.
Though this theory states leadership ability of an individual in
leadership potentialities, it is silent the point whether given situation a
a
measures his
on this individual w
fit in another situation. The situational
theory suffers from the following weaknesse
) fgives much emphasis situaion on led
aspect and overlooks the qualities ne
in a successtul leader.

(i) Leadership is a subjective consideration in which qualities of head and heaart

of a leader play their part. But this
theory overlooks this aspect
 EA
LEADERSHIP

10.23
andi
envit QUESTIONs
Short Answer Questions
1. Give a comprehensive definition of leadership.
2. What are the characteristics of a charismatic leader ?
3. Explain autocratic leadership.
4. What is task centred leadership?
5. ldentify the characteristics of a transformational leader.
6. Under what conditions relationship oriented leader is most effective?
7. Enumerate the traits of a good leader.
8. What is managemerial grid?
9. What are the functions of a leader ? Explain.
Long Answer Questions
1. Define leadership and explain the role of leadership in modern organisations.
2. "Leadership is the driving force which gets things done by others." Examine
this statement.
3. "Good leadership is an integral part of effective direction of human resources."
Discuss, bringing out clearly the qualities of an effective leader.
4. "Management has been defined as the technique of executive
Discuss the nature and significance of leadership in industry.
leadership.
5. "A good leader need not be a good manager, but an effective manager must
have many of the qualities of a good leader." Comment and distinguish between
management and leadership.
6. What do you understand by leadership ? Examine the different styles of
leadership. What is the importance of leadership in modern business?
7. Identify the leadership styles describing the situations under which each style
is useful. What factors influence the choice of leadership style ?
8. What is free rein leadership ? Make a distinction between autoractic and
democratic leadership.
. Describe Managerial Grid. How can it be used for imparting training in

leadership?
0. Effective leadership is a function of three factors : the leade, the led and the

situation." Discuss.
Hints Refer to characteristics of leadership and situational theory of

leadership.]
Command on this statement.
Leadership is situational".
10.24
12.
LEADERSHID
Explain Likert's Management systems and comment on the superiority of
system 4 management. kerts
13. Explain Tannenbaun and Schmidt's continuum of leadership behaviour
14. Write
notes on the following
(a) Transformational Leadership.
(b) Participative Leadership.
(c) Task-oriented Leadership.

O00
 CHAPTER11

Controlling

Concept and Nature of Control

Significance of Controling
The Process of Control
Prindiples or Requirements of a Good Control System
Control by Exception
Types of Controls
Techniques of Controling
Budgetary Control

Introduetion
Control is an important function of management. It is the process that measures
current performance and guides it towards some predetermined objectives. It involves
setting up standards of individual and organisational
performance against these standards to make sure that the performance, checking actual
objectives being achieved as
are
originally anticipated in organisation's plans. In this chapter, we shall study the concept,
mportance
of a
and process of control and also have a look at the essential
requirements
good control system.
11.1 CONCEPT AND NATURE OF CONTROL
Definition of Control
COntrol is a basic managerial function which implies measurement and correction
perform
accon
ormance of subordinates to ensure that the pre-determined objectives are
mplished. E.FL. Breach has defined control as follows: "Control is the process
of checking act performance against the agreed standards or plans with a view.
g actual

11.1
11.2 GONIOAN
der w
suring adequate prgrvs and vttinfactory prrfor munee."u otlei word,
l, mu
consists of those au tivities whin h ae neceaty t eune tlhat perlonnaee Lake

n accondane wish the taugets lail lown by the nmaluayree. f abon involves
corective autions in vase the perlormanee is nol l l lae tory,
Acconding to Koontz anl Weihrich, " T h e m a n a g e r i u l j u n e t i o no fc o n t r o l l n n

easurement and oorvretion of the performanee in onder to make ure thut e

objectives and the plans devised to attain them are aeromplis/ed." "Thus,
function of conrol inplies measuremetofactual pcrtormance, comparing it wi mAnAyena
standands set by plans and correvtion of deviations to ensane attainent of oe
livey
according to plans,

Characteristics of Control
The process of control has the following characteristics
1. Pervasive Function: Control is a function of every maager alongwith oher
managerial functions ike planning, organising, statting and directing lin
infact, a follow-up action to other functions of management.
all levels have
Managers a W
to
perform this function to contribute to the achievcmcnt of
organisational objectives.
2. Review of Past Events: Control leads to appraisal of past activitics. Tus, i
is looking back. The deviations in the
past are revealed by the control proces
This is also known as ferdback information. I will help in knowing the reaom
ofpoor performance. Corrective actions can be initiated accordingly
3. Forward Looking
Control is linked with future as past
cannot be
controlled. A manager can take corrective action only in regard to
future operations. Control is usually preventivc as presence of contro
system tends to minimise wastages, losses and deviations trom
standards.
4. Action-Oriented: Control implies taking corrective nmeasures. Action pla
essence of control. The
s
purpose of control is achieved only when correct
action is taken on the basis of feedback information. It is
only actiO11 w
adjusts performance to predetermined standards whenever deviations
A good system of control faciliates timely action so that there S
waste of ime and
energy.
5.Continuous Process : Just like other functions of Contro

is also a continuous managennenl, Cor

activity. lt involves constant analysis ot va
standards, policies, procedures, ctc. lt also
suggests corrective alom this
various processes. It does not
stop anywhere. A manager has to per
function continuously alongwith other functions.
rigidl
6. Dynamic Process: Control
is a dynamic process. It is flexible anda nndresult
Control involves continuous review of standards of
in corrective action which may lead
performance au w
to change in the perfornan
 cONTROLLING
11.3
fupctions of management. Since management is managing a business entity
which keeps on changing, managerial control is also dynamic. Management
will be failing in its duty if its approach is not dynamic.

7 Control does not Curtail the Rights of Individuals: To some people, control
is opposite offreedom. It is not so. It is a preventive action so that losses may
he avoided in future. It is, in fact, an act of guidance. Control in an enterprise
is bascd on facts and figures and not on the whims of managers. Its purpose
is to achieve and maintain acceptable productivity form
ali the resources oft
an enterprise.

between Controlling and Planning

11.1.1 Relationship
to each other as shown in
Planing and controlling are closely related
Fc,11.1.After a plan becomes operational, control is necessary to
measure progress, to

from the targets and to take corrective steps. It is also not possible
uncover deviations
E.
to think
of an ettective system of control without the existence of good plans. Billy
between planning and controlling in the followingg
Geotz has explained the relationship
and articulatedprogrammes, while
words, "Managerialplanningseeks consistent, integraied
management control seeks to compel events conform to plans".

PLANNING PERFORMANCE cONTROL

L
and Controlling.
Fig. 11.1. Relationship between Planning
also that in a running enterprise
always based on planning. It is
true
Control is
uses certain standards
tor measuring
pranning depends upon controlling. Every manager controlprocess, in
laid down by planning. The
d
appraising performance which are revision ot planning. lt
lead to the
rn, may reveal the deficiency of plans and may
in the
to setting of new goals, improving
stafting and making changes
ad
n u e s of supervision, motivation
and leadership.
is blind.
and control without planning
without control is meaningless
1anning will n o t bring any
Plann without controlling. A good plan
a n empty exercise in controlling. Planning identihes
the goals
result if the management is lacking attainment of
and It is control which
ensures

mines the ways of achieving them.

t corrective action.
Control presupposes
goals by evaluating perforn and taking
pertormance is to be compared.
It the
the e which the actual
ence of standards with
'what
have n o idea of
the manager will
standards of perforr
pertormance are
not set in advance,
the actual operation
and control
should

1sControfThus,
Thus, planning must
be done before
The experience gained
in controlling
tollow n
low plans during and after the actual operation.
ing
elp improvethe process of planning
11.4 CONTRAL
11.1.2 Significance of Controlling
will help in achieving the followine hen.c ehita
An eftective system of control
of modern business organisatíons is quite i
1. Coordination The size Jat
and large number ot people are employed
large amount of capital
This complicates the problem of control as there are many units Dee
ts pr
and distributing difterent products. In order to coordinate their
an efhcient system of control is necessary.

2. Corrective Action : An efficient system of control provides the

the ain '
future action. Takingcorrective action may lead to modihcation of plan
organising and directing. Control will also check the mistakes being
in future.
repa
3. Decision-making: Control is basic to decision-making. I he processof
is complete when corrective actions are taken. This involves makinga -
decision as to what type of follow up action is to be taken. This
to accomplishment of organisation objectives. According to W.T. Ie
"Control is needed both to simplify the making of subsequent decisions
to ensure the realisation of the
objectives implicit in the original long-
policy decisions."
4. Better Planning: Control is the only means to ensure that the plans are
implemented in the real sense. It points out the shortcomings of planning:
comparing the actual performance with the planned standards and sugs
steps to improve planning.
5. Decentralisation of Authority: The modern trend of business enterpes
towards decentralisation calls for a systematicattempt for controlling. lae
decentralisation, the authority of decision-making is dispersei thvug
theorganisation. Management must keep control in its hands w
whether the authority is being used properly. Without adequatr n s
decentralisation cannot succeed.
6. Effective
Supervision: Control facilitates effective supervision bv nn
out significant deviations. It keeps the subordinates under chak an
discipline among them. While control cannot cure habitual
cases, is
dishans
managementirresponsible if it does not make a reasonanC c
provide order and
discipline among its employees through ettertne
processes. A good system of control detects the weak
enables the expansion of points very qun s
span of control at all levels in the oxanisa

11.2 THE PROCESS OF

CONTROL
The essential elements
of any control systenm are:
(1) Establishment sta ef
(2) Measurement of pertormance ; (3)
and (4) Taking corrective action. These
Comparison performance with sta
of
steps are discussed below :
 cONTROLL ING 11.5

Establishment of Standards
e emmn 1.
The tirst step in control process is the setting up of standards of measure ment.
ndands represent criteria for performance. A standard acrs as a reference line or a
Srand

hasis of
appraisal Iof actual performance. Standards should be set
precisely and preferable
quantuative
terms. should be noted that setting standard is also closely linked
It sh.
in
rh and is an integral part of the planning process. Standards are used as the crireria

haut. ax benchmarks by which performance is measured in the control process. Different

candards of pertormance are set up for various operations at the planning stage. Asa

matterof tact. planning is the basis of control.

hE pToes Feedback
Meets
Aken. Setting
Standards
Operations
(Organising
Measurement
of Standards
ng to (Planning) stafina,
staffing, Performance Does not
quenm e directing) meet

orimme Standards
Feedback
the piza Corrective
Action
ings otpa Feedback
dards z
Fig. 11.2. The Process of Control.

uSinGsa Establishment of standards in terms of quantity, quality and time is necessary

contol for effective control because it is essential to determine how the pertormance will be
persed appraised. The second step in the control process, i.e., measurement ot pertormance.
s hasi has no sense unless it can be compared with some predetermnined standards. Scandards
e0u! should be accurate, precise, acceptable and workable. Standards should be Hexible.
adequa
1.e, capable of being changed when the circumstances require so. Standard is bound
to fail if it is based on records of past performance which show either too high or too
VZsion low achievement.
cheais

2 . Measurement of Performance
d s h a r

After establishing the standards, che second step is to measure avtual pertormance
arous individuals, groups or units. Managemen should not depcnd upon the guess
Standards are being met. It should measure the pertormanee and compare it wich
Sandards. The quantitative measurement should be done in cases where standards
Deen set in numerical terms. This will make evaluation easy and simple. lu all
Cases, the perfornmance should be measured in terms of qualitaive tartors s in
O pertormance of industrial relations manager. His pertormance can be measured
m s of attitude of workers, frequency of strikes and motale ot workers. Again,
attitude
a nand mor of workers are not capable of being neasured quantitauively.
d morale They
have to be
neasured qualitatively.
 116
3. Comparison of Performance with Standards
CONTAOL
Appraisal ofperformance or comparing of a tual pertormance with predete,
standards isan important step in control process. (omparsOn 1s casy where ermine
have been set in quantitative terms as in produc tion and marketing. standay
In orhe
her
where results are intangible and cannot be measurcd quantitatively, direce CAe
observation. inspection and reports are a few methods which can be used for ev periwn
The cvaluation will eveal some deviations from the set standards. The evl
should point out the defects or deficicncies in pertormance and investigatethe aluar
responsible for these. CAUe
All deviations need not be brought to the native ot top
management
deviations should be brought to the notice of top management when Th
they areTon
,
high. A range of deviations should be established beyond which the attention ai.
ot
management is warranted. Only such cases should be reported up which pinnso
excepticnal siruations. This is what is known as 'management by exception. Accordinn
to Dale, the control
reports should meet there criteria.Firstly, control reports mu
produce figures that truly comparable from one
are
period to another and from one
section of the business another. Secondly, they must be coordinated so that they
to
nor
only portray the results in different sections of the business, but also make
reasons why the business is or is not
plain the
doing so well as could be expected. Finally, the
must be
presented in such form that the manager can get the bird's eyeview.
4. Taking Corrective Action
The final step in the control
process is
taking corrective action so that deviations
may not occur again and the objectives of the
taking certain decisions by the managementorganisation
are achieved. This will involve
like replanning or redrawing ot gous or
standards, reassignment or clarification of duties. It
the process of selection and may also necessitable retormng
training of workers. Thus, control
change in all other managerial functions. If the standards are foundfunction may requie
to be detective, tho
will be set up again in the
light of observations. Joseph Massie has pointed out thit
manager may commit two types of mistakes at this
action is needed, and (2) stage : (1) taking action when ne
A good control
failing to take action wen
some corrective action is neeuu
system should provide women basis for
the risks of making either of
these types of errors. Of
helping the manager estu
course, the tinal test ot a
system is whether correct action is taken at the co
correct time.

11.3 EFFECTIVE
REQUIREMENTS OF CONTROL SYSTEM
For having
an eftective control system, certain
. Emphasis prerequisites are enumerateu
Objectives: Before planning a control
on

know clearly the objectives of the system, cs it is

towards the organisation. The control

system must be
a
potentialactual
or
deviation from plans
corrective action. early enough to
permit eftecaive
 11.7
CONTROLLING

ControT. TechniqueN: (Control techniques are efficient when they

2.
Eficieney of
andd make possible cofrective action with the ninimun
detet devia,
a t i o l s Irom plans
o fu n s o u g h tc o n s c q u i c n c e s .

Responsibility for Control : The main responsibility for controlling should

m a n a g e r charg.
with the implemnentation of plans.
in the
rest maintain direct
Direct Control: Any control system should be designed to

between the controller and controlled. Even when there arc a number ofcontrol
between the c o r
contact

ystems
by staff specialists, the foreman at the first level is still important
provided

because
he has dircct knowledge of performance.
6 Suitability: Controls should be tailored to fit the needs of the organisation.
The fow of
information concerning current performance should correspond with the
anisational structure employcd. Ifa superior is to be able to control overall operations,
hemust fnd a pattern that will provide control for individual parts. Budgets, quotas
and other techniques may be uscful in controlling separate departments.
6. Flexibility: A good control system must keep pace with the continuously
changing pattern of a dynamic business world. It must be responsive to changing
conditions. It should be adaptable to new developments including the failure of the
control system itself. Plans may call for an automatic system to be backed up by a
human system that would operate in an emergency; likewise, an automatic system
may back up a human system.
7. Self-Control: Units may be planned to control themselves. Ifa department
can have its own goals and control system, much of the detailed controls can be handled
within the department. These sub-systems of self-control can then be tied together by
the overall control
system.
8. Control by Exception: This is also known as 'management by exception'.
hccording to this principle, only significant deviations from standards, whether positive
Or negative, require management's attention as they constitute exceptions. An artempt
go through all deviations tends to increase unnecessary work and decrease attention
portant problems. In practice, it is not possible for a manager to check each and
y tem being produced because of limited time available with him. An attempt
ro everything may prove to be a futile exercise. Therefore, the control system
ho
Do acsigned in such a manner that only significant deviations from the standard
performance are reported to the higher level managers. This will ensure etfective action
by the manager.
trategic Point Control: It is not sufficient merely to look at exceptions. Some
deviations from standards have rather little impact and others have agreat deal. Small
ations in certain areas may have greater significance than large in other areas. For
xample, deviation«of 5 per cent in budgeted labour cost may be nmore troublesome to
a manager
than
deviation of 20 per a in budgeted postal charges. Therefore, the
principle of Kception must be accompani by the principle of strategic point control cent
 ON

key or strategi
NTAOLG,
point. It is points
critical,
achieved if
11.8 be those point.

that
effective
control
can

directed
to
adjustment
at

at critical
at
|

not
critical pointen
which state ates
attention for
exceptions
look
and close must

be i d e n t i f h e d

for
exceptions,
a
manager

of
d e v i a t i o n s is n o t
sufficient in ag
suficien..

to look
Merelypointing check de
just
10. Corrective Action:
to
corrective
action to
be taken
to

directing.
eviations h,
lead and
It must
organising
control system.
appropriate
planning,
be direrre
directedisystem
d
should
through control
o n t r o l : The
standards
future. It should report all theCdeviations
Forward-looking
from the standards quickly in orderto
toassafe
they
11.

directed at future, they a r e of no use as

are not
reports rectify the past
past ddevia
the future. If the controlthe of measures to be taken to rectify

be 12.
ableHuman Factor: Atypes
to suggest good system ofcontrol should find the persons acc
direce
not
ounT
take place. They
must be guided and direr
deviations
tor results,
whenever large attention while controllina :

Thus, human factor

must given be proper
necessary.
should not be resisted by
the employees. A technically wel-de
use of
ontrols
react unfavourably to the swe
control fail because the human beings may
system may
of control must be
worth their costs. Thev
13. Economical: The systems
is if the savings anticipa
justify the expenses involved. A control system justihable
from it exceed the expected costs in its working. Small scale production unitscanm
afford elaborate and expensive control systems.
14. Objective Standards: As far as possible, standards should be objecive.
they are subjective, a manager's or a subordinates personality may influence judgem
of performance. Effective control requires objective, accurate and suitable standin
Objective standards may be quantitative or qualitative. However, in either case.
standard should be determinable and verifiable.
From the analysis of the requirements of a good control system, it is qu
obvious that planning is the basis of
control, action its delegation 1 essence,
and information its guide. As far
relation with planning.
planning concerned, control has an imp
is as por

Planning refers to visualisation of the firms furure p

over a
specified period of time and the determination of the
to enable the firm to
reach that position.
required course o
Often, it is regarded the hrst stS
management process over which the
down the subsequent stages are developed. ri nning
objectives various activities and determines the
of ertorman

to evaluate the standards or p

pertormance various
of
individuals and serves

basis of the control

process which is departments.
concerned with ensuring that
I
naio C o n t o r m

the standards laid down in even

advance.
Without planning, there is andin"

nothing to control. Basic plans, sub-plans a

provide the bench-marks to monitor,
measure, evaluate and
af perfoman

as it takes
place. To quote Robert Anthony, regulate actuaP E S SC a r e

established by "Management control

on within the is a
guidelines P o m

possible the achiever ent of plannedd planning. The process is intc ended

objectives effectively and eficientuy

 11.9
CONTROLLING
control
e Essence
Action is the of Control: There is no use of developing
Act

action is to be taken afterwards.

The comparison of actual performance
anism it
no
mechan

standards reveals the

deviations which guide for future action.
serve as a
che
and directing. It may
improvement of planning, organising, staffing
against

na lead to
This
ut that top managerspertorm the control function minutely
cannot
The task
be pointed
of their authority of controlling.
have to delegate a portion
emsclves. They can be delegated to the
middle level managers
regulation ofoperational action plans to the
to report only exceptional
of
regulation matters
may be asked
frst line managers. They to effective controlling.
Thus, delegation is a key
management.
eon
is great extent by
intfuenced to a

The effectiveness of planning and controlling

are based.
Information is a guide to
information on which these
of the availabie
he acCuracy
that suffhcient information right type is of
it is necessary
controlling. Therefore, corrective in time. The control
mechanism should
for taking steps
management mechanism does n o t
to the If a control
information to the management.
provide for timely it is not going to last long.
information to the management,
transmit the important for feedback in any good system
of controlling.
Therefore, there must be a provision

EXCEPTION
CONTROL BY
11.4 control. This
of organisational
important principle
by exception is
an
Control standards ofperformance
deviations (exceptions)from
principle holds that only significant is according to
If actual performance
attention.
the managements to the
should be brought it need not be brought
to
standards already laid down),
But if there is
planned performance (i.e., as no follow-upaction is necessary.
attention of the concerned managers to the manager.
it should be reported
deviation from the standard, which says
a major control standard
establishes a quality
For example, a manager Under the management
are permissible.
that five defects per
100 units produced standard-six or
deviations from this
only significant the notice ot
the
by exception principle, be brought to
this case-should
in
more defects per 100 units
time, effort
manager. to conserve managerial
has been devised ot separating
exception principle
The areas. It is
a technique

in m o r e important such
intormation

talent and apply these information. COnly

ana the unimportant This facilitates
information from the management.
Portant control is sent
to
management
s Critical for
control system. controleverything
the installing of an effective that a n atiempt
to
a n old saying on each
recognises to have an eye
ontrol by exception executive who wants

be able
devore
nothing. An
to
controlling He will not

End up in
ineffective.
to beexception suggests
and will prove of control by
minor operation principle deviations
ry The signihcant
t critical problems.drawn only when there
much time to the control
are
in the
should be
better
thatanagers
attention
business. lt
will ensure

in performance critical areas of

ce in the
of authority.
delegation
ganisation also facilitate
 11.10
The benefits of control by exception are as follows ONTROLN
() It helps the managers to concentrate better on exceptional or critical .
ical mater
(i) lt saves the valuable time of mangers which could be taken in dealk.
minor problems. caling w
(ii) lt helps the manager in taking quick decisions whenever required,
(i)It facilitates delegation of authority for routine work to the subordn
() It allows the subordinates to take decisions on routine matters. Thus
nates
6, It a
be used to develop executives for the future.

11.5 TECHNIQUES OF CONTROLLING

Modern business enterprises use a large number of techniques of manaoe-
ager
control. These may be grouped into two
categories as follows
1. Traditional or Conventional techniques such as
personal observatie
statistical reports, responsibility accounting, break-even
ana.ysis, return on
investment budgetary control, etc.
2. Modern or
contemporary techniques such as
Management Audit, PERT
CPM and Management Information System.
11.6 TRADITIONAL TECHNIQUES
Personal Observation
This is the oldest method of
controlling under which the manager obsens
the performance of his subordinates. Thus, he is enabled
to
get quick information
about what is happening. Personal observation creates a psychological pressure on
the employees to work properly and avoid wastage of time and material. Howevet
personal observation has limited applicability. A manager can't observe all the employes
simultaneously and he may not have sufficient time for personal observation.
Statistical Data and Reports
Statistical data are widely used for the
purpose of managerial control. Sta
data may be presented in the form of statistical tables, graphical charts
spr toror
reports. The quality of presentation of essential data will determine their etticiency
the purpose of
managerial control.
A report is form of datu
a
systematúc presentation of information and statistica
relating to some aspect of business, It may arise out of available factual data, tho
ouyh

enquiry, investigation or experiment. The information provided by the rt

may

be used for the purpose of managerial control. repo

It will help in knowing
policies of the management are being followed and if not, what steps shouldhiett
be
kent
implement them. The task of making reports is generally cntrusted to « tcertain specl
ialists

who will collect the desired information and present the sane in the form of a epont
 11.11
CONTROLLING

ng
Responsibility Accounting
in which costs and revenuet are

Responsibility accounting is a system of accounting

functions. It
ned to their control rather than with products or

with persons
dentifed that respons1ble are
according to the responsibility
centres
dasifies costs and revenue

the It also classifies the cosr assignedto

revenues.

acurring the cost

and generating non-controllable.
for n
centre according to whether they are controllable or

ach responsibility is show the results of operation

classihed by items. The aim to
Cantrollable costs are and their use.
having control over
resources
section or division
hw each
unit such as diviston, department
or
centre is an organisational
A responsibility There are four types of
a manager who is responsible for specified targets.
sction headed by c e n t r e and investment
r e v e n u e centre, profit
centres, namely, cost centre,
responsibility which
is measured, by the degree to
centre. In a cost centre, financial performance
of expense. In a revenue
accomplished within the budgeted
amount
assigned tasks are
levels of
financial perkormance is measured by the s u c c e s s in achieving budgeted
centre, actual
performance
financial is measured by comparing
sales revenue. In a profit centre,
In an investment centre, the manager is held responsible
profits with budgeted profits.
the budgeted return on investment.
for the effective use of capital or for

11.7 MODERN TECHNIQUES

Break-Even Analysis
costs, varraole
Break-even analysis is concerned with the effect which changes fixed
in
In other words, it establishes
cOsts, sales volume, sales pricesandsales mix will have onproftts.
and sales. This
relationship between costs of production, volume of production, profits
which total cost will be fully covered
analysis helps in determining the volume of sales at
and beyond which profits will accrue. The volume of sale at which there is nor proñt

Or loss is known 'break-even point.

tormula:
The break-even point can be calculated with the help of the tollowing
Fixed Costs
Break-even Pint = Vanable cost per un1t)
per unit-
(Selling price
a S c e r t a i n the break
electronic toys w a n t s to
oCxample, a company producing
cost ot Rs. 6 per
pinty. It has the annual fixed cost two lac rupees, a variable
of as follows:
c a n be calculated
dle price per unit of Rs. 10. The break-even point
BEPKS.2,00,000 =50,000 units
Rs.(10-6)
chart as in hgure. The shaded area
be shown by a
- e v e n point c a n also 1S crossed. In this
Tepresents pro
rofits which start acCruing o n c e the
break-even
total
point
and revenue

fhgure, break-even
Cak-even point has been shown at 50,000 units where
cost

the right of this

both are equ loss. The spread to

point of no profit and

no
It is the
Poine qual. a
potential and the spread to
d d e d area in the figure) represents the profit
COST AND REVENUE (Ra N LAKDA

T
 I1.13
cONTROLLING

in locating areas where capital is being fruirfully urilised and in

(iin It helps
planning future operations accordingly.
Management Audit
Management audit may be defned as a comprehensive and constructive review of the
team of any organisation. It is an important aid for evaluation
Aerformance of management
techniques and performance. It undertakes a systematic search of the
af nanagement
effectiveness and effhciency
of the management. It investigates formally and in depth
contrasted with day-to-day informal impressions.
the performance of management as

Management performs many functions like planning. organising, stathing.

chief objective of management audit is whether
directing and controlling. The
to see

Management audit locates

these functions are being performed efficiently
or not.

deficiencies in the performance of various functions and suggests possible improvements.

in
help the management in managing the operations of the enterprise
a more
This will
efficient manner.

Programme Evaluation and Review Technique (PERT)

PERT s a basic network technique which includes planning, moniroring and
In addition its in schedule planning and control, the
controlling of project. to use

network concept in PERT provides the framework for treating a wide range of project
management problems.
PERT/cost is an integrated management system designed to provide managers
with the information they need in planning and controlling schedules and costs in
development projects. Thus, PERT/cost system is directed towards the dynanmic
management of projects. It specifies techniques and procedures co assist projecr
managers in

) Planning schedules and costs.

ii) Determining time and cost status.
4) Forecasting manpower skill requirements.
(iv) Prediction of schedule slippages and cost overruns.

() Developing alternate time-cost plarns.

V) Allocating resources among tasks.

Network Analysis
and control.
Network widely used as a tool ot project management
analysis is
Under
etwork analysis, a project is broken down
to small activities or operations which
ar
in a logical sequence. After this the order in which various operations
s nged
should be
OC performed is decided. A network diagram is drawn to present the relationship
 1.14
berween all the perations involved. Thediagram will reveal the gaps in the foy
CONTROL
ties ofa
various activities ot a pre plan
he newvrk thus drawn shws the interdependenceof project an
also points out the ae tiv ities whiuh have to be completecd betore the others Are .
others are
utated
H

Project
Complete
D

Critical Path

Fig.11.5. Network Diagram ofa Project

The object of nerwork analysis is to help in planning, organising and controlling

the operations to enable the management in accomplishing the project economically and
eficiently. A number of network techniques have been developed by various researh
scholars. But PERT and CPM have gained wide popularity. Both PERT (Programme
Evaluation and Review Technique) and CPM (Critical Path Method) recognise the
interrelated nature of elements within large work projects.
PERT is used in construction of ships, buildings and highways, in the planning
and launching of new products, in the publication of books, in the installation and
debugging of computer systems. Frequently, PERT systems are used in conjuncton
with computers. A computer programme is employed that permits calculations to x
made without reference to a flow chart or diagram.
Critical Path Method (CPM)
CPM is applied in those projects where activity tinmings are relatively well-ko
ts wedfor planning and controlling the most logical sequence of activities for acompu
a project.

Under CPM, the project is and

analysed into different operations or activi
their relationships are determined and shown on vork or
the network diagram. The netwo
flow plan is then used for optimising the use of resources and time. CPM marks iticadl

e the
activities in a project and concentrates on them. It
is based on the assumption
expected time is actually the time taken to complete the
project. ClPM is suita
construction projects and plant maintenance.
Critical Path Method is hichs
basically technique of project managementh
a

useful in planning, scheduling and control. The

planning of any project in
cONTROLLING
11.15
various jobs performed
that have to be to complete the venture. Requirements
ing ofvarious
listing
of
the estimates of costs and
den, materials and equipment are drawn up alongwith
ofmen, materi

for the various jobs, in the process of planning.

duraticns fo
the arrangement of the actual jobs of the project in order of time
Scheduling is
have to be performed. Estimation of human resources and materíals
hich they
required
at each stage of production is made alongwith the expected completion time
process of control commences with comparison of the difference
af each job. The
herween schedules and actual pertormance, once the project has begun. The analysis
the remedial action taken is the essence of control.
af the differences and
Thesteps in PERT/CPM are as follows
that must be performed.
() Identify the component activities
activities in a network.
(i) Show the sequencing of the component
individual activities
(iit) Perform an analysis of the time required complete
to

and the entire proJect.

iv) Improve upon the initial plan through modifications.

() Control the project.
of PERT/CPM leads to the following
Advantages of PERT/CPM. The application
advantages:
the achievement of project objectives
() It provides an analytical approach to effort and
utilisation oftime,
which are defined clearly. It facilitates better
capital.
attention on those activities.
i) It identifies most critical elements and pays
more

and increases effectiveness in

Thus, it facilitates 'control by exception
handling projects.
ditterent
time schedules and budgets tor
n) It helps in ascertaining proper
use of resources.
activities. This leads to rational allocation and eftective

standard mechanism of communicating

project plans, schedules
) lt provides a

and costs.
the flow chart.
project together in
() PERT/CPM brings all the components ofa
and inter-relationships ditferent
components,i

By showing the sequence

of
of different parts of the project. It also
permits simultaneous performance
ditferent activities
interdependence among
highlights network analysis
to nake a
because it is impossible
l t forces managers to plan Every subordinate
how the pieces fit together.
WIthout planning and seeing
which he is responsible.
1S also forced to plan
the events for
action for at the right
creates a pressure
network with its sub-systems
right time.
he
and at the
spot and level in
the organisation
11.16
feedforward
control ol by
CONTROLLN
visualisin
by visualisi
a sort of
(viii) PERT/CPM provides activities. This allov
lows modifh
diffhcultics in the completion of critical
of future activities.

Management
Information System (MIS)
designed supply to infr
Managemeni Information
System (MIS) is system
a
matinn
An organization is mana
of an organisation. naged
Tequiredfor effecrir managcmeni
hierarchy. Informe
at the vatious
levels of its management matinn
taking various decisions decisions will largely depend upon.
is needed take these decisions. Quality of pon th
to
decisions. Therefore, desion
for taking the gnine
nature and ypc of information provided of an organisartion
information system is vital
for the etfhcient working
of an eftective
case of big organisations. Manageme
ement
electronic computers in
It is built around tor ettective managemen
Intormation System is vital to supply information required
of the organisation.
of a variety of its hierarchy. A wmde
A modern enterprise is managed by m e a n s
decisions. Quality of decisions will large
of information is needed to make such
range
on the nature and quality ofinformation
provided for making the decisions
dependent
information system is vital for the etfectime
Thus, installation ofan efficient management
functioning of an organisation.
follows:
The advantages of MIS are as
information to all the managers at
different levels.
) It provides right
information in a cost effective manner.
(i) It provides the required
information provided to the managers.
iii) It improves the quality of
(iv) It reduces information overload, i.e., only relevant information is provu
to the managers.
(v) It helps in planning, controlling and decision-making.

11.8 BUDGETARY CONTROL

Budgetary control is the oldest rechnique of control which is still being u
e
business enterprises. h involves the use ofbudgets to plan, coordinate und consrol
o-day opErations of business in accordance with its overall objectives.
A budger is an estimate of future needs, arranged according to an orue
budge
A
covering some or all the activities of an enterprise for definite period of lime.
a

is an imporant device for managerial control. t provides a standard by wn

operations can be evaluated to know variations from the planned expendituie
control
There are three basic objectives of any budget. namely, planning, co
coordination. From the definition of budget, it is quite obvious that formu serve

budget is planning since it involves determination of future needs and targe

a too! of control because it lays down the standards of performance
 11.17
c O N T R O L L I N G

individuals and subordinates.

bench evaluate the performance of various
to eva

result of the coordinated thinking of a

thought out process. It is the

is aa well
well
coordination.
serve the purpose ofan instrument of
Budgeting

cople. Thus, budgets also

because
grou

correlating the operations ofvarious departments of the enterprise

in
help.
They are interrelated and inter-dependent.
denartmental budgets
Control
Benefits of Budgetary
control are as under
The benefits of budgetary
can be
standards against which actual performance
1. Budgets provide
action which is an important part
measured. This helps in taking corrective
of controlling
coordination. In preparation of various
2. Budgets are an important tool of
of executives are combined
budgets, knowledge, skils and experience many leads to
to concrete numerical terms. This
and the business plans are reduced
coordination of the efforts ofvarious departments
of the enterprise.
proper
minimising wastage
3. Budgeting helps in reducing unproductive operations by
after considerable thought and are directed
of resources. Budgets are prepared
towards certain aims and objectives.
and control
easy. The ultimate effect of
4. Budgeting makes financial planning
examination and scrutiny of the financial aspect
budgeting is the thorough
use of financial resources
of the business enterprise. This helps in optimum
of the enterprise.
facilitates control devoting the
by exception. It helps in
Budgetary control
which are very important for the
time and effort of the managers upon area
survival of the organisation.
the responsibility of various
6. Budgeting is an important device for fixing
various positions can be made
to
positions. The persons occupying
understand their responsibilities with the help of budgets.

BOX-1
Types of Budgets
sales during a specified period (say.
Sales Budget. It includes a forecast oftotal relates to the total volume
one in money and/or quantities. Forecast
year) expressed
area-wise.
and
of sales and also its breakup product-wise
cash receipts;
Cash Budget. The cash budget usually gives
detailed estimates of(a)
ensure that
the budget period. It is prepared: () to
and (b) cash disbursements for
and (i) to use cash
Cash is available in time for meeting
the financial commitments,

available in the best possible manner.

11.18
3. Production Budget. It includes a forecast of the output during:
CONTRO
during apanlio
period analysed according to (a) products, (b) manufacturing departm
(c) periods of production. It is generally based on the sales budget
responsibility ofthe production department to schedule its production
ion accrrn
to sales forecast.
Material Budget. It generally deals with the direct naterials for the budsete
It in based on the production budget. Materials requirements for a unit ofeted
Gen o
is determined and is multiplied by the budgeted output to arrive at the ttal
of direct materials required Materials budget helps in scheduling the gre
materials to produce the budgeted volume of output during the budget te
meet the requirements of customers during the period. pere
5. Labour Budget.It is based upon the estimates of the production
budget. t ro.
the requirements of labour and the financial requirements to meet
the the wane
rve
wage til1
workers for the budget period.
6. Master Budget. The master budget is the summary budget, incorporatings
component functional budgets, which is finally approved, adopted and
Thus, master budget incorporates all functional budgets. It
implement
projects a comprehersie
picture of the proposed activities and anticipated results during the budget pero

Limitations of Budgetary Control

There are certain dangers of budgetary control which are discussed below
1. Too much emphasis on budgeting may bring about rigidity in the enterpra
It may deprive the managers of
the flexibility they require in managing
departments.
2. Budgeted estimates are
generally based on the price level at a
part
period of time. These estimates may become useless when there is a
infation depression in the market.
or

3 Sometimes, budgets are treated as an end in themselves. Some pcop

be extra cautious to function within the
boundaries of budget hgures ratDe
than achieving the enterprise
objectives.
4. A budget which allows liberal
expenditure may be used to hide inem
For instance,
department may be inefficient even though its epcnses
a

within the budget limits.

5. Budgetary control itself does not
in 1ons trom appeal.
prevent deviatior
neither ensures satistactory results nor controls automatically d e l i b e r k

efort has to be made in this dircction.

6. Budgetary conurol requires expenditure of ime, money and
it is not casy to ero o fobvio
prepare various kinds of budgets becausc
difficulties in torecasting estimates to be used in
budgeting
 c O N T R O L L I N G
11.19

NOUESTIONS
ShortAnswer Questions

1, Explain controlling as a pervasive function of management.

2. What are
the advantages of efficient system of control.
Briefly explain the relationship between planning and controlling.

4. Explain with an example the concept of control by exception.

of budgetary control.
5. Explain the concept
forward looking." Comment.
6. "Control is
control.
7. Briefly explain any two techniques of managerial
as a technique of controlling.
8. Write a note on PERT
Long Answer Questions
Dree
of managerial control. Explain the steps in managerial
ge 1. Describe the concept
control.
the requirements of an
and process of control. State
2. Discuss the concept
effective control system.
Comment.
without controlling."
belin 3. "Planning is an empty exercise
the basic steps in thee
features of controlling. What are
pnt 4. Examine important
process of controlling?
the requirements
nag
must in business management? What are
5. Why is control a

effective control system?

ofan in a business enterprise.
Discuss briefy

"6. Explain the importance of control of an effective

control
What are the requirements
the process of control.
system ? and
delegation its key
action its essence,
basis of control,
,Planning is the statement.
Comment on the
information its guide." function ofthermostat
management is similar to the the
function of main steps in the
. The controlling and bring out
Elucidate the statement
in a refrigerator."
without
aimless
control process. control is
without control and
meaningless
Planning is
planning." Examine critically.
statement
following nothing."
Critically examine the may
end up bycontroling
control
everything, you statement.

"you want to Comment

on this
action".
is
11. "The ssence of ontrol
inseparable
twins of management"
are the
13 ) "PIlanning and control
control system.
Comment.
the
requisites of a good
note on
explanatory
Write an
11.20 CONTRO
the basic requirements of
a good control systa.
Stem
13. What do you think are

Explain.
is looking ahead and control is looking back." Do you agree w
14. "Planning
this statement ?

15. Explain any two modern techniques of controlling.

16. Write notes on the following
(a) Relation between planning and controlling.
(b) Control by exception.
(b) PERT and CPM.