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PRINCIPLES OF

MANAGEMENT
(BBA 103)

Jaipur National University


Directorate of Distance Education
_________________________________________________________________________________
Established by Government of Rajasthan
Approved by UGC under Sec 2(f) of UGC ACT 1956
(Recognised by Joint Committee of UGC-AICTE-DEC, Govt. of India)
PRINCIPLES OF MANAGEMENT
Management: Concept, Nature, Objective, Principles, Importance, process and Functions. MBO. Planning:
Nature, type, importance, principles and techniques of decision making.

Nature of Management: Meaning, Definition, it's nature purpose, importance & Functions, Management as
Art, Science & Profession- Management as social System, Concepts of management-Administration-
Organization

Organization: Structure, importance, process and principles. Types of organization. Organization design,
Types of authority, Delegation of authority.

Communication: Significance, Channels of communication, types and process of communication, barriers


and remedies.

Leadership: Functions, qualities.

Co-ordination and co-operation, co-ordination as essence of management, principles and techniques,


obstacles in co-ordination, essential of effective co-ordination.

Direction: Concept, nature, importance and principles, Importance, type process and techniques, Nature,
process, techniques and essentials of effective control.

Decision-Making: Meaning and Importance, Forms of Decision-Making, Techniques of Decision-Making,


Decision-Making Process.

Authority: Delegation , Decentralization, Difference between authority and power, Uses of authority,
Distinction between Centralization and Decentralization, Responsibility

Business Organization: Significance and establishment of business organization, Different types of business
organization.

Finance: Need and importance of Finance. Sources of Finance. SIDBI, RFC and RIICO.

Evolution of Management Thought: Contribution of F.W.Taylor, Henri Fayol ,Elton Mayo , Chester Barhard
& Peter Drucker to the management thought. Various approaches to management (i.e. Schools of management
thought) Indian Management Thought

Strategic Management: Definition, Classes of Decisions, Levels of Decision, Strategy, Role of different
Strategist, Relevance of Strategic Management and its Benefits, Strategic.

Recent Trends in Management: Social Responsibility of Management –environment friendly Management,


Management of Change.

Management of Crisis: Total Quality Management, Stress Management, International Management


CONTENTS
Unit 1: Management 1-13
1.1 Concepts of Management
1.2 Nature of Management
1.3 Objectives of Management
1.4 Principles of Management
1.5 Importance of Management
1.6 Process and Function of Management
1.7 Management by Objectives (MBO)
1.8 Summary
1.9 Keywords
1.10 Self Assessment Questions
1.11 Review Questions

Unit 2: Nature of Management 14-27


2.1 Meaning and Definition of Nature of Management
2.2 Purpose and Importance of Management
2.3 Functions of Nature Management
2.4 Management as Art, Science and Profession
2.5 Management as Social System
2.6 Management-Administration and Management Organization
2.7 Summary
2.8 Keywords
2.9 Self Assessment Questions
2.10 Review Questions

Unit 3: Organisation 28-41


3.1 Structure of Organization
3.2 Importance of Organization
3.3 Process and Principles of Organization
3.4 Types of Organization and Organization Design
3.5 Types of Authority, Delegation of Authority
3.6 Summary
3.7 Keywords
3.8 Self Assessment Questions
3.9 Review Questions

Unit 4: Communication 42-55


4.1 Significance of Communication
4.2 Channels of Communication
4.3 Process of Communication and Types
4.4 Barriers and Remedies
4.5 Summary
4.6 Keywords
4.7 Self Assessment Questions
4.8 Review Questions

Unit 5: Leadership 56-69


5.1 Definitions of Leadership
5.2 Nature, Characteristic, and Issues of Leadership
5.3 Leadership Styles and Patterns
5.4 Leadership Skill
5.5 Importance of Leadership
5.6 Functions of a Leader
5.7 Types of Leaders
5.8 Transactional and Transformational Theories
5.9 Qualities of Leadership
5.10 Summary
5.11 Keywords
5.12 Self Assessment Questions
5.13 Review Questions

Unit 6: Co-ordination and Co-operation 70-81


6.1 Definition of Co‐Ordination
6.2 Co-Ordination As Essence Of Management
6.3 Principles of Co‐ordination

6.4 Techniques Objectives of Co‐ordination


6.5 Obstacles in Co-ordination
6.6 Essential of Effective Co-ordination
6.7 Summary
6.8 Keywords
6.9 Self Assessment Questions
6.10 Review Questions

Unit 7: Direction 82-96


7.1 Concept of Directing
7.2 Nature of Direction
7.3 Importance of Directing
7.4 Principles of Directing
7.5 Process of Direction
7.6 Techniques and Essentials of Effective Control
7.7 Summary
7.8 Keywords
7.9 Self Assessment Questions
7.10 Review Questions

Unit 8: Decision-Making 97-105


8.1. Meaning and Importance
8.2 Forms of Decision-Making
8.3 Techniques of Decision-Making
8.4. Decision-making Process
8.5 Summary
8.6 Keywords
8.7 Self Assessment Questions
8.8 Review Questions

Unit 9: Authority 106-119


9.1 Delegation
9.2 Decentralization
9.3 Difference between authority and power
9.4 Uses of authority
9.5 Distinction between Centralization and Decentralization
9.6 Responsibility
9.7 Summary
9.8 Keywords
9.9 Self Assessment Questions
9.10 Review Questions

Unit 10: Business Organization 120-134


10.1 Meaning of Business
10.2 Importance of Business Organization
10.3 Basic Principle of Business Organization
10.4 Significance and Establishment of Business Organization
10.5 Types of Business Organization
10.6 Summary
10.7 Keywords
10.8 Self Assessment Questions
10.9 Review Questions

Unit 11: Finance 135-149


11.1 Importance of Finance
11.2 Sources of Finance
11.3 Small Industries Development Bank of India (SIDBI)
11.4 Resident Foreign Currency (RFC)
11.5 Rajasthan State Industrial Development and Investment Corporation (RIICO)
11.6 Summary
11.7 Keywords
11.8 Self Assessment Questions
11.9 Review Questions

Unit 12: Evolution of Management Thought 150-163


12.1 Contribution of F.W. Taylor
12.2 Henri Fayol, Elton Mayo
12.3 Chester Barnard & Peter Drucker to the Management Thought
12.4 Explain the Various Approaches to Management (i.e. Schools of Management Thought)
12.5 Indian Management Thought
12.6 Summary
12.7 Keywords
12.8 Self Assessment Questions
12.9 Review Questions

Unit 13: Strategic Management 164-176


13.1 Definition of Strategic management
13.2 Classes of Decisions
13.3 Levels of decision
13.4 Strategy
13.5 Role of Different Strategies
13.6 Relevance of Strategic Management and its Benefits
13.7 Summary
13.8 Keywords
13.9 Self Assessment Questions
13.10 Review Questions

Unit 14: Recent Trends in Management 177-186


14.1 Social Responsibility of Management
14.2 Environment Friendly Management
14.3 Management of Change
14.4 Summary
14.5 Keywords
14.6 Self Assessment Questions
14.7 Review Questions

Unit 15: Management of Crisis 187-195


15.1 Total Quality Management
15.2 Stress Management
15.3 International Management
15.4 Summary
15.5 Keywords
15.6 Self Assessment Questions
15.7 Review Questions
1
Management
CONTENTS
Objectives
Introduction
1.1 Concepts of Management
1.2 Nature of Management
1.3 Objectives of Management
1.4 Principles of Management
1.5 Importance of Management
1.6 Process and Function of Management
1.7 Management by Objectives (MBO)
1.8 Summary
1.9 Keywords
1.10 Self Assessment Questions
1.11 Review Questions

Objectives
After studying this chapter, you will be able to:
Explain the concept of management
Define nature of management
Understand the objective of management
Describe the principles of management
Discuss about the importance of management
Explain the process and functions of management
Define management by objectives (MBO)

Introduction
Management means managing an activity. When we talk of managing an activity, we really mean to make the
activity a success. In other words, we have in mind some goal and we decide about the ways of carrying out
the activity so as to achieve the goal. Consider a situation. When a person goes for shopping, his primary aim
is to buy what he requires at a reasonable price. He has a number of questions in his mind what should he buy?
How will he reach there? Will he be able to come back at the right time? And so on. To make his shopping a
success, he should think of these questions in advance.
Take another example of a housewife. When she gets up in the morning, she has in her mind a number of
activities to be performed, e.g., house is to be cleaned, clothes are to be washed, young children are to be
helped in getting ready for the school, breakfast is to be prepared, food is to be cooked and packed and handed
over to the children while they leave for school and so on. In the family, she may have three persons to help
her servant, her eldest daughter and her mother-in-law. Her aim is to divide the work in such a way that all the
work gets completed in the right way at the appropriate time. What the housewife does in this example, taken
together, to achieve her aim, means management.

1.1 Concepts of Management


One of the enduring questions in the field of management is whether it is an art or a science. It is an art as
―skill in conducting any human activity‖ and science as ―any skill or technique that reflects a precise
application of facts or a principle.‖ Reflected in the differences in these definitions is the use of precision in
science, in that there is a particular, prescribed way in which a manager should act.

Thus, management as a science would indicate that in practice, managers use a specific body of information
and facts to guide their behaviours, but that management as an art requires no specific body of knowledge,
only skill. Conversely, those who believe management are an art are likely to believe that there is no specific
way to teach or understand management, and that it is a skill borne of personality and ability. Those who
believe in management as an art are likely to believe that certain people are more predisposed to be effective
managers than are others, and that some people cannot be taught to be effective managers. That is, even with
an understanding of management research and an education in management, some people will not be capable
of being effective practicing managers.The term management has been interpreted in several ways; some of
which are given below:

Management as an Activity
Management is an activity just like playing, studying, teaching etc. As an activity management has been
defined as the art of getting things done through the efforts of other people. Management is a group activity
wherein managers do to achieve the objectives of the group.
The activities of management are:
Interpersonal activities
Decisional activities
Informative activities

Management as a Process
Management is considered a process because it involves a series of interrelated functions. It consists of getting
the objectives of an organization and taking steps to achieve objectives. The management process includes
planning, organizing, staffing, directing and controlling functions.
Management as a process has the following implications:
Social Process: Management involves interactions among people. Goals can be achieved only when
relations between people are productive. Human factor is the most important part of the management.
Integrated Process: Management brings human, physical and financial resources together to put into
effort. Management also integrates human efforts so as to maintain harmony among them.
Continuous Process: Management involves continuous identifying and solving problems. It is repeated
every now and then till the goal is achieved.
Interactive Process: Managerial functions are contained within each other.
For example, when a manager prepares plans, he is also laying down standards for control.

Management as an Economic Resource


Like land, labour and capital, management is an important factor of production. Management occupies the
central place among productive factors as it combines and coordinates all other resources. This is shown in
Figure 1.1.

Figure.1.1: Management as resource.

Did You Know?


Chanakya wrote the Arthashastra around 300BC in which various strategies, techniques, and management
theories were written.

1.2 Nature of Management


The success of any management activity is accessed by its achievement of the predetermined goals or
objective.
Management is Goal-Oriented
Management is a purposeful activity. It is a tool which helps use of human and physical resources to fulfil the
pre-determined goals. For example, the goal of an enterprise is maximum consumer satisfaction by producing
quality goods and at reasonable prices. This can be achieved by employing efficient persons and making better
use of scarce resources.

Management Integrates Human, Physical and Financial Resources


In an organization, human beings work with non-human resources like machines, materials, financial assets,
buildings etc. Management integrates human efforts to those resources. It brings harmony among the human,
physical and financial resources.

Management is Continuous
Management is an ongoing process. It involves continuous handling of problems and issues. It is concerned
with identifying the problem and taking appropriate steps to solve it. For achieving this target various policies
have to be framed but this is not the end. Marketing and Advertising is also to be done. For this policies have
to be again framed. Hence this is an ongoing process.
Management is all Pervasive
Management is required in all types of organizations whether it is political, social, cultural or business because
it helps and directs various efforts towards a definite purpose. Thus clubs, hospitals, political parties, colleges,
hospitals, business firms all require management. Whenever more than one person is engaged in working for a
common goal, management is necessary. Whether it is a small business firm which may be engaged in trading
or a large firm like Tata Iron and Steel, management is required everywhere irrespective of size or type of
activity.

Management is a Group Activity


Management is very much less concerned with individual‘s efforts. It is more concerned with groups. It
involves the use of group effort to achieve predetermined goal. Management refers to a group of persons
managing the enterprise.

Organized Activities
Management is a process of organized activities. Groups of people cannot be involved in the performance of
activities without organized activities. Management comes into existence where a group of people are involved
in achieving a common objective. The organized activities may take a variety of forms ranging from a tightly
structured organization to a loosely-knit organization.

Management is Dynamic
Management has framed certain principles, which are flexible in nature and change with the changes in the
environment in which an organization exits.

Relative, Not Absolute Principles


Management principles are relative, not absolute, and they should be applied according to the need of the
organization. A particular management principle has different strengths in different conditions. Therefore,
principles should be applied according to the prevailing conditions

1.3 Objectives of Management


The management is the core of an organization it plays a basic role in organization‘s development. There are
many objectives of the management some of them are discussed as:
Getting Maximum Results with Minimum Efforts
The main objective of management is to secure maximum outputs with minimum efforts and resources.
Management is basically concerned with thinking and utilizing human, material and financial resources in
such a manner that would result in best combination. This combination results in reduction of various costs.

Increasing the Efficiency of Factors of Production


Through proper utilization of various factors of production, their efficiency can be increased to a great extent
which can be obtained by reducing spoilage, wastages and breakage of all kinds; this in turn leads to saving of
time, effort and money which is essential for the growth and prosperity of the enterprise.

Maximum Prosperity for Employer and Employees


Management ensures smooth and coordinated functioning of the enterprise. This in turn helps in providing
maximum benefits to the employee in the shape of good working condition, suitable wage system, incentive
plans on the one hand and higher profits to the employer on the other hand.
Establishes Equilibrium
It enables the Organization to survive in changing environment. It keeps in touch with the changing
environment. With the change is external environment, the initial co-ordination of organization must be
changed. So it adapts organization to changing demand of market/changing needs of societies. It is responsible
for growth and survival of organization.

Essentials for Prosperity of Society


Efficient management leads to better economical production which helps in turn to increase the welfare of
people. Good management makes a difficult task easier by avoiding wastage of scarce resource. It improves
standard of living. It increases the profit which is beneficial to business and society will get maximum output
at minimum cost by creating employment opportunities which generate income in hands. Organization comes
with new products and researches beneficial for society.

1.4 Principles of Management


A principle refers to a fundamental truth. It establishes cause and effect relationship between two or more
variables under given situation. They serve as a guide to thought and actions. Therefore, management
principles are the statements of fundamental truth based on logic which provides guidelines for managerial
decision making and actions.
These principles are derived:
a. On the basis of observation and analysis i.e. practical experience of managers.
b. By conducting experimental studies.

There are 14 Principles of Management described by Henri Fayol:


1. Division of Labour
a. Henry Fayol has stressed on the specialization of jobs.
b. He recommended that work of all kinds must be divided and subdivided and allotted to various persons
according to their expertise in a particular area.
c. Subdivision of work makes it simpler and results in efficiency.
2. Party of Authority and Responsibility
a. Authority and responsibility are co-existing.
b. If authority is given to a person, he should also be made responsible.
c. In a same way, if anyone is made responsible for any job, he should also have concerned authority.
3. Principle of One Boss
a. A sub-ordinate should receive orders and be accountable to one and only one boss at a time.
b. Therefore, dual sub-ordination should be avoided unless and until it is absolutely essential.
c. Unity of command provides the enterprise a disciplined, stable and orderly existence.
4. Unity of Direction
a. Fayol advocates one head one plan which means that there should be one plan for a group of activities
having similar objectives.
b. Related activities should be grouped together. There should be one plan of action for them and they should
be under the charge of a particular manager.
c. According to this principle, efforts of all the members of the organization should be directed towards
common goal.
5. Equity
a. Equity means combination of fairness, kindness and justice.
b. The employees should be treated with kindness and equity if devotion is expected of them.
c. It implies that managers should be fair and impartial while dealing with the subordinates.
d. They should give similar treatment to people of similar position.
6. Order
a. This principle is concerned with proper and systematic arrangement of things and people.
b. Arrangement of things is called material order and placement of people is called social order.
c. Material order- There should be safe, appropriate and specific place for every and every place to be
effectively used for specific activity and commodity.
7. Discipline
a. According to Fayol, ―Discipline means sincerity, obedience, respect of authority and observance of rules
and regulations of the enterprise‖.
b. This principle applies that subordinate should respect their superiors and obey their order.
c. It is an important requisite for smooth running of the enterprise.
8. Initiative
a. Workers should be encouraged to take initiative in the work assigned to them.
b. It means eagerness to initiate actions without being asked to do so.
c. Fayol advised that management should provide opportunity to its employees to suggest ideas, experiences
and new method of work.
9. Fair Remuneration
a. The quantum and method of remuneration to be paid to the workers should be fair, reasonable, satisfactory
and rewarding of the efforts.
b. As far as possible it should accord satisfaction to both employer and the employees.
c. Wages should be determined on the basis of cost of living, work assigned, financial position of the
business, wage rate prevailing etc.
10. Stability of Tenure
a. Fayol emphasized that employees should not be moved frequently from one job position to another i.e. the
period of service in a job should be fixed.
b. Therefore employees should be appointed after keeping in view principles of recruitment and selection but
once they are appointed their services should be served.
c. According to Fayol. ―Time is required for an employee to get used to a new work and succeed to doing it
well but if he is removed before that he will not be able to render worthwhile services‖.
11. Scalar Chain
a. Fayol defines scalar chain as ‘The chain of superiors ranging from the ultimate authority to the lowest‖.
b. Every orders, instructions, messages, requests, explanation etc. has to pass through Scalar chain.
c. The sake of convenience and urgency, this path can be cut shirt and this short cut is known as Gang Plank.

Figure 1.2: Gang plank.


12 Sub-ordination of Individual Interest to General Interest
a. An organization is much bigger than the individual it constitutes therefore interest of the undertaking
should prevail in all circumstances.
b. As far as possible, reconciliation should be achieved between individual and group interests.
c. But in case of conflict, individual must sacrifice for bigger interests.
13 Espirit De’
a. It refers to team spirit i.e. harmony in the work groups and mutual understanding among the members.
b. Spirit De‘ Corps inspires workers to work harder.
c. Fayol cautioned the managers against dividing the employees into competing groups because it might
damage the moral of the workers and interest of the undertaking in the long run.
14 Centralization and De-Centralization
a. Centralization means concentration of authority at the top level. In other words, centralization is a situation
in which top management retains most of the decision making authority.
b. Decentralization means disposal of decision making authority to all the levels of the organization. In other
words, sharing authority downwards is decentralization.
c. According to Fayol, ―Degree of centralization or decentralization depends on no. of factors like size of
business, experience of superiors, dependability and ability of subordinates etc.

Caution
Be Aware about the external resources while developing the management for an organization.

1.5 Importance of Management


Management is a necessary evil of any business. They provide the leadership and administration that will
ensure that the business runs the way. There are some management personnel that are more effective than
others.
Some are very involved in the day to day operations while others choose a ―hands-off‖ approach. Typically
though, managers will ensure that the staffs are doing what they should be doing so that customers are being
treated the way they should in a timely manner.
Encourages Initiative
Management encourages initiative. Initiative means to do the right thing at the right time without being told or
influenced by the superior. The employees should be encouraged to make their own plans and also to
implement these plans. Initiative gives satisfaction to employees and success to organization.

Encourages Innovation
Management also encourages innovation in the organization. Innovation brings new ideas, new technology,
new methods, new products, new services, etc. This makes the organization more competitive and efficient.
Facilitates Growth and Expansion
Management makes optimum utilization of available resources. It reduces wastage and increase efficiency. It
encourages team work and motivates employees. It also reduces absenteeism and labour turnover.

Improves Life of Workers


Management shares some of its profits with the workers. It provides the workers with good working
environment and conditions. It also gives the workers many financial and non-financial incentives. All this
improves the quality of life of the workers.

Reduces Absenteeism and Labour Turnover


Absenteeism means the employee is absent without permission.
Labour Turnover means the employee leaves the organization.
Labour absenteeism and turnover increases the cost and causes many problems in the smooth functioning of
the organization. Management uses different techniques to reduce absenteeism and labour turnover in the
organization.

Encourages Team Work


Management encourages employees to work as a team. It develops a team spirit in the organization. This unity
brings success to the organization.

Did You Know?


The definition of management ―management is getting things done through other people‖ was pronounced by
the President of the American Management Association (AMA) in 1980.

1.6 Process and Function of Management


Management as a process refers to a series of inter-related functions, such as planning, organizing, staffing,
leading and controlling.

1.6.1 Process of Management


Actually, managers are known by the work they do. According to James Lundy, ‗Management is what
management does. The management process suggests that all managers perform certain functions to realize
certain goals. (See Figure 1.3)

Figure 1.3: The process of management.

Management, it should be noted, is a social process because it is concerned with relations among people at
work. A manager sets the objectives of an organization. He provides an environment that is helpful for group
action. He offers incentives to those who perform well and thus helps the organization realize its goals.
The term ‗management‘ is used to denote individuals who manage the affairs of an organization. Expressions
such as management has declared a lockout, management takes a tough stand against workers, often hit
newspaper headlines. When such statements are made, the reference is actually made to the people who
manage the affairs of an organization. Thus, as a group of people, management includes all those who are
accountable for making decisions and supervising the work of others

1.6.2 Function of Management


Management has been described as a social process involving responsibility for economical and effective
planning and regulation of operation of an enterprise in the fulfilment of given purposes. It is a dynamic
process consisting of various elements and activities.
These activities are different from operative functions like marketing, finance, purchase etc. Rather these
activities are common to each and every manger irrespective of his level or status.
Figure 1.4: Functions of management.

Planning
Planning involves mapping out the process of achieving a given goal. It looks ahead and prepares for the
future. It is a process of settling on the business objectives and charting out the methods of attaining those
objectives.

Organizing
To organize a business is to equip it completely. This includes its functioning, employees, raw materials, tools,
capital etc. All this may be divided into two main sections, the human organization and the material
organization.

Staffing
Staffing is a continual process since people may leave, be terminated, retire or die. Often, changes in the
organization generate new positions, which must be filled.

Directing
After planning, establishing and staffing the organization, the next step is to define its objectives. This function
can be termed as leading,

Controlling
The manager must ensure that everything happens in consistency with the plans, the instructions provided and
the principles established.

Innovation
Innovation means developing new thoughts that may also bring about the creation and innovation of new
products or identifying new uses for the old ones

1.7 Management by Objectives (MBO)


The process of setting objectives in the organization to give a sense of direction to the employees is called as
Management by Objectives. It refers to the process of setting goals for the employees Management by
objectives guides the employees to deliver their level best and achieve the targets within the stipulated time
frame. Figure 1.5 shows MBO process.
Figure 1.5: The MBO process.

In order to set the objectives for the employees, the following steps are followed:
1. The management chunks down the organizational goals and assign chunks to senior managers.
2. Senior managers then derive objectives for them to achieve the assigned organizational goals. This is
where senior managers assign the objectives to the operational management.
3. Operational management then chunk down their objectives and identify the activities required for
achieving the objectives. These sub-objectives and activities are then assigned to rest of the staff.
4. When objectives and activities are assigned, the management gives strong inputs to clearly identify the
objectives, time frame for completion, and tracking options.
5. Each objective is properly tracked and the management gives periodic feedback to the objective owner.
6. In most occasions, the organization defines processes and procedures in order to track the objectives and
feedback.
7. At the end of the agreed period (usually a year), the objective achievement is reviewed and an appraisal is
performed. Usually, the outcomes of this assessment are used to determine the salary increments for year
ahead and relevant bonuses to employees.
Activity trap is one of the issues that prevent the success of MBO process. This happens when employees
are more focused on daily activities rather than the long-term objectives. Overloaded activities are a result
of a vicious cycles and this cycle should be broken through proper planning.
For many people working in modern business environments, it is hard to remember a time when non-
managerial employees were not involved with, and interested in, corporate strategy and goals. We are
regularly reminded about the corporate mission statement, we have strategy meetings where the ―big
picture‖ is revealed to us, and we are invited to participate in some decisions. And we are aware of how
our day-to-day activities contribute to these corporate goals.

Case Study-A Document Management Procter and Gamble


Despite state-of-the-art IT systems and sophisticated business processes, the volume of paper that assaults the
typical enterprise is overwhelming.
And nowhere is the problem worse than for companies developing drugs and over-the-counter medications.
Regulatory issues, R&D and potential litigation stack up to an avalanche of documents and files.
―As a result, Cincinnati-based P&G is attempting to eliminate and migrate to a system that allows it to store
R&D information electronically, while managing secure digital signatures. The consumer goods giant—with
Rs 3825 billion in 2007 sales and a portfolio that includes Crest, Tide, Gillette, Pampers and Charmin—aims
to gain greater control of documents, reduce administrative oversight, trim costs, accelerate R&D initiatives,
and improve tracking and signature compliance.
About 320 employees are now using P&G‘s system, which runs on Adobe Live Cycle software and employs
two-factor authentication. The company hopes to roll out the application to more than 4,500 workers by the
end of 2009. ―The idea is to create a searchable archive of PDF files and a common set of tools for the
enterprise,‖ Bross explains. ―People must be able to use the system globally and have access to key documents
on an instantaneous basis. Seamless interaction is essential.‖

Signing On
The migration from paper to pixels has flummoxed more than a few companies. The task can involve major
changes to workflow and create enormous challenges related to approvals and compliance.
At P&G, any possibility of slowing an already complex R&D process and interfering with the approval and
introduction of a product could wreak havoc on the bottom line. For example, a successful over-the-counter
medication can generate sales of upward of Rs50 million per day.
Typically, researchers, clinicians, quality-control staff, marketing specialists, and dozens of other internal P&G
staff and external partners must exchange and share documents. In the past, storing all those documents meant
stuffing filing cabinets internally, producing microfiche, managing indexes and renting warehouses to store
reams of documents off-site.
―Digging through all the records is a long, laborious process,‖ Bross notes. ―If a court case comes up, the
process of pinpointing a document and pulling it out is extremely time-consuming and painful.‖
Not surprisingly, the perils of paper have exacted a toll. In the past, some indexes were not entirely accurate
and manually searching for a particular section of a document—or associated documents—devoured even
more time. And outsourcing records management had its own problems. In one instance, a London warehouse
operated by an outside service provider burned to the ground, and P&G permanently lost hundreds of boxes of
records. Although P&G has considered migrating to an electronic record-keeping system for the last several
years, Bross and other executives felt that key pieces were not in place at that time. After all, the company had
to ensure that it could authenticate digital signatures and build signing and storage processes into its everyday
workflow. In addition, P&G‘s legal department wanted to be sure it had a legally enforceable signature on file.
Designing an electronic system with backups was too expensive and did not offer an adequate return on
investment. Then, in 2005, all the pieces began to fall into place. That is when P&G embraced the
pharmaceutical industry‘s SAFE (Signatures and Authentication for Everyone) BioPharma Association
standard. It was established to help companies go less and still interact with regulatory authorities on a global
scale. The initiative not only focused on ways to manage digital signatures, it also created a method to confirm
the identity of the signer. The SAFE ―was the only digital signature approach that offered an identity-proofing
scenario,‖ Bross says. ―It provided a legally enforceable component within the overall liability framework.‖
P&G‘s IT and legal departments examined the initiative and agreed that it met the company‘s business needs
and risk requirements.Today, once a digital signature is added to a file, an auditor can examine it in a tracking
bin or view a validation report. It is immediately possible to view all the activity related to the document.
―You simply right-click on the signature and view the entire audit trail‖ Bross explains. ―The signature can
also be exposed and appended as a last page of the file so that it can be shared appropriately on an external
basis, such as in a court of law or if there were a sale of the product.‖
Questions
1. Write the sort not of Adobe Live Cycle software.
2. Discuss about the R&D process.
1.8 Summary
Management reduces the wastage of human, material and financial resources. Wastage is reduced by
proper production planning and control. If wastage is reduced then productivity will increase.
Management encourages employees to work as a team. It develops a team spirit in the organization.
The core aim of management by objectives is the alignment of company goals and subordinate objectives
properly, so everyone in the organization works towards achieving the same organizational goal.
The main objective of management is to secure maximum outputs with minimum efforts and resources.
Management is required in all types of organizations whether it is political, social, cultural or business
because it helps and directs various efforts towards a definite purpose.

1.9 Keywords
Controlling: Controlling is an important function because it helps to check the errors and to take the corrective
action so that deviation from standards are minimized and stated goals of the organization are achieved in a
desired manner.
Leading: Leading refers to motivating, directing and guiding people in the organization it involves ensuring
that the people in the organization are willing and capable of performing the required tasks.
Management: Management is the act of getting people together to accomplish desired goals and objectives
using available resources efficiently and effectively.
Organizing: An organizing is the managerial function of arranging people and resources to work toward a
goal.
Planning: Planning in organizations and public policy is both the organizational process of creating and
maintaining plan

1.10 Self Assessment Questions


1. ................................. is not an activity of management.
(a) Interpersonal activities (b) Divisional activity
(c) Decisional activities (d) Informative activities.

2. Management involves a series of……………….


(a) correlated function (b) interrelated functions
(c) iterative function (d) None of these.

3. Management process does not include………….


(a) planning, (b) organizing
(c) serializing (d) staffing.

4. Management involves interactions among people is defined as the process of..............


(a) Social Process (b) Interactive process
(c) Integrated Process (d) Integrated Process.

5. Management process involves decision making at all levels.


(a) True (b) False
6. Management is more concerned with……………
(a) individual‘s efforts (b) groups
(c) manager (d) None of these.
7. Management is a science or art.
(a) True (b) False

8. Management is very much less concerned with………….


(a) group efforts (b) manager‘s efforts
(c) individual‘s efforts (d) None of these.

9. Management ensures ………….. and coordinated functioning of the enterprise.


(a) hard (b) smooth
(c) sophisticated (d) None of these.

10. Management cannot integrate human, physical and financial resources.


(a) True (b) False

1.11 Review Questions


1. Explain the concept of management.
2. What are the objectives of management?
3. What do you understand by the principle of management?
4. What are the functions of management?
5. Explain the nature of management.
6. Define the management by objective process.
7. Briefly explain the management as an economic resource.
8. How can you say that management is continuous?
9. Explain an importance of management.
10. What is the process of management?

Answers for Self Assessment Questions


1. (b) 2. (b) 3. (c) 4. (a) 5. (a)
6. (b) 7.( a) 8.( c) 9.( b) 10. (b)
2
Nature of Management
CONTENTS
Objectives
Introduction
2.1 Meaning and Definition of Nature of Management
2.2 Purpose and Importance of Management
2.3 Functions of Nature Management
2.4 Management as Art, Science and Profession
2.5 Management as Social System
2.6 Management-Administration and Management Organization
2.7 Summary
2.8 Keywords
2.9 Self Assessment Questions
2.10 Review Questions

Objectives
After studying this chapter, you will be able to:
Understand the meaning and definition of nature of management
Define the purpose of management
Describe importance and functions of nature of management
Discuss management as art, science and profession
Explain management as social system
Describe the concepts of management-administration and management organization

Introduction
People working in organizations need to have their activities co-ordinate, controlled and directed toward the
objectives of the organization. Effective management is essential if the organization is to succeed in the
achievement of its objectives. It is therefore prudent for students to have a knowledge and understanding of the
principles, functions and roles of managers so that they can identify appropriate strategies for the management
of their own particular organization.

Various contributions to the field of management have changed its nature. The nature of management can be
described as follows:
Multidisciplinary: Management is multidisciplinary because it includes knowledge/information from
various disciplines- economics, statistics, maths, psychology, sociology, ecology, operations research,
history, etc. Management integrates the ideas and concepts taken from these disciplines and presents newer
concepts which can be put into practice for managing the organizations.
Management is Dynamic: Management has framed certain principles, which are flexible in nature and
change with the changes in the environment in which an organization exits.
Relative, Not Absolute Principles: Management principles are relative, not absolute, and they should be
applied according to the need of the organization. A particular management principle has different
strengths in different conditions. Therefore, principles should be applied according to the prevailing
conditions.
Management: Science or Art: Management likes other practices- whether medicine, music composition, or
even accountancy- is an art. It is know-how. Yet managers can work better by using the organized
knowledge about management. It is this knowledge that constitutes science. Thus, managing as practice is
an art; the organized knowledge underlying the practice may be referred to as science.
Management as Profession: Management has been regarded as a profession by many while many have
suggested that it has not achieved the status of a profession. Schein concluded that by some criteria
management is indeed a profession, but by other criteria it is not. Today we can see many signs that
management is working towards increased professionalism.
Management is Universal: Management is a universal phenomenon. However, management principles are
not universally applicable but are to be modified according to the needs of the situation.

2.1 Meaning and Definition of Nature of Management


Management is a continuous, lively and fast developing science. Management is needed to convert the
disorganized resources of men, machines, materials and methods into a useful and effective enterprise.
Management is a pipeline, the inputs are fed at the end and they are preceded through management functions
and ultimately we get the end results or inputs in the form of goods, services, productivity, information and
satisfaction.
Management is a comprehensive word which is used in different sciences in the modern business and
industrial world. In the narrow sense, it signifies the technique of taking work from others. In this way a
person who can take work from others is called manager. In the wide sense, the management is an art, as well
as science, which is concerned with the different human efforts so as achieve the desired objective.

Management has been defined by different authors in a number of ways. Some call it a process of managing.
Some call it a coordination of resources, some call it body of personnel challenged in the task of managing
while others call it as an organized distinct discipline. The following are some of the main definitions of
management:

2.1.1 Management as process


Kimball, Koontz and O'Donnell, Newmann and Summer, Stanley Vance, Theo Haimann, F.C. Hooper and
E.F.T Breach they all call it a process. It is evident from the following definitions also:
According the Kimball-management may be broadly defined as the art of applying the economic principles
that underlie the control of men and materials in the enterprise under consideration.
According to Koontz"-Management is the art of getting things done through and with people in formally
organized groups."
According to Theo Haimann,-"Management is the function of getting things done through people and
directing the efforts of individuals towards a common objective."
According to Sisks,-"Management is the process of working off with and other to effectively achieve
organizational objectives by efficiently using limited resources in changing environment."

2.1.2 Management as an Activity


According to this approach management consists of those activities, which are performed by managers in
attaining the predetermined objectives of the business. This approach may be referred to Henry Fayol, who
classified management activities into the following categories:
Technical: referred to production department.
Commercial: relates to buying, selling and exchange.
Financial concerned with maximum utilization of capital.
Security concurred with protection of property and person.
According concerned with maintenance of accounts, presentation and statistics and
Management concerned to planning, organizing, commanding, coordinating and controlling.

2.1.3 Management as a group of personnel


According to this approach human factor plays an important role in accomplishing business objectives.
Management is concerned with those who have been managing the affairs of the business. Managers are
assigned duties and are also granted requisite authority to perform their duties efficiently and thus,
management is effective direction, coordination and control of individual and group efforts to accomplish
business objective.

This approach is advocated by management authorities like Taylor, Wilson and others. They have defined
management as following. As per F.W. Taylor's approach, "Management is the art of knowing exactly what
you want your men to do and then seeing that they do it in the best and cheapest way."

2.1.4 Management as a discipline


Sometimes the term ―Management‖ is used to connote neither the activity nor the personnel who exercise it,
but as a substantive describes the subject, the body of knowledge and practices of management as a subject of
study. Management is being taught in different college and universities as a district subject.
Thus, management, as such is a process, an activity, a discipline and as effort to coordination, control and
direct individual and group efforts towards desired goal of the business.

The main characteristics of management are as follows:


Management is an activity: Management is an activity which is concerned with the efficient utilization of
human and non-human resources of production.
Invisible Force: Management is an invisible force. Its existence can be felt through the enterprise or
institution it is managing.
Goal Oriented: Management is goal oriented as it aims to achieve some definite goals and objectives.
According to the Haimann, "Effective management is always management by objectives". Managers and
other personnel officers apply their knowledge, experience and skills to achieve the desired objectives.
Accomplishment through the Efforts of Others: Managers cannot do everything themselves. They must
have the necessary ability and skills to get work accomplished through the efforts of others.
Universal Activity: Management is universal. Management is required in all types or organizations.
Wherever there are some activities, there is management. The basic principles of management are
universal and can be applied anywhere and in every field, such as business, social, religious, cultural,
sports, administration, educational, politics or military.
Art as well as Science: Management is both an art and a science. It is a science as it has an organized body
of knowledge which contains certain universal truths and an art as managing requires certain skills which
apply more or less in every situation.
Multidisciplinary Knowledge: Though management is a distinct discipline, it contains principles drawn
from many social sciences like psychology, sociology etc.
Management is distinct from ownership: In modern times, there is a divorce of management from
ownership. Today, big corporations are owned by a vast number of shareholders while their management is
in the hands of paid qualified, competent and experienced managerial personnel.
Need at all Levels: According to the nature of task and scope of authority, management is needed at all
levels of the organization, i.e., top level, middle and lower level.
Integrated Process: Management is an integrated process. It integrates the men, machine and material to
carry out the operations of the enterprise efficiently and successfully. This integrating process is result
oriented.

2.2 Purpose and Importance of Management


It helps Achieving Group Goals: Management converts disorganized resources of men, machines, money
etc. into useful enterprise. It arranges, assembles, organizes and integrates the factors of production. These
resources are coordinated, directed and controlled in such a manner that enterprise work towards
attainment of goals.
Optimum Utilization of Resources: Management utilizes all the physical and human resources
productively. Management provides maximum utilization of scarce resources by selecting its best possible
alternate use in industry from out of various uses. This leads to optimum utilization of resources and avoid
wastage.
Reduces Costs: It gets maximum results through minimum input by proper planning and by using
minimum input and getting maximum output. Management uses physical, human and financial resources
in such a manner which results in best combination. This helps in cost reduction.
Establishes Sound Organization: To establish sound organizational structure is one of the objective of
management which is in tune with objective of organization and for fulfillment of this, it establishes
effective authority and responsibility relationship i.e. who is accountable to whom, who can give
instructions to whom, who are superiors and who are subordinates.
Establishes Equilibrium: It enables the organization to survive in changing environment. It adapts
organization to changing demand of market / changing needs of societies. It is responsible for growth and
survival of organization.
Essentials for Prosperity of Society: Efficient management leads to better economical production which
helps in turn to increase the welfare of people.. It improves standard of living, increases the profit which is
beneficial to business and society will get maximum output at minimum cost by creating employment
opportunities which generate income
2.3 Functions of Nature Management
Management is a process which refers to various functions which a manager performs in an organization.
Various management scholars studies different organizations at different times and identified separate
functions of management.
For instance, Henry Fayol, the father of functional management remarked, "To manage is to forecast and plan,
to organize, to command, to coordinate and to control." Thus, Henry Fayol classified management functions
into five categories they are as given under:
Planning
Organizing
Staffing
Direction and Leadership
Coordinating
Controlling
Motivation

Planning
Planning function determines the objectives to be achieved and the course of action to be followed to achieve
them. It is a mental process requiring the use of intellectual facilities, for sight and sound judgment. It is
selecting and relating of facts and making and using of assumptions regarding the future in the visualization
and formation of proposed activities believed necessary to achieve the desired results. It involves deciding in
advance what to do, when to do it, where to do it, how to do it and who is to do it and how the results are to be
evaluated. Thus, planning is the systematic thinking about the ways and the man‘s for the accomplishment of
predetermined objectives.

Organizing and Organization


Organization or organizing is an important managerial activity by which managers bring together the
manpower and material resources for the achievement of objectives of the enterprises. Organization has also
been defined as the process of establishing relationships among the members of the enterprise. The
relationships are created in terms of authority and responsibility. Each member in the organization is assigned
a specific responsibility or duty to perform and is granted the corresponding authority to perform his duty.
Thus, organization involves identification and grouping the activities to be performed and dividing them
among the individuals and creating authority and responsibility relationships among them.

Staffing
Staffing is an executive who involves the recruitment, selection, training, placement, compensating promotion
and demotion and finally the retirement of an employee. Thus, staffing is a process of managing the
organization and keeping it manned. The sole aim of staffing is to take right man for the right job. It needs
manpower planning, job analysis and such other staff functions. It is the capacity of hired personnel which
governs the future of the business enterprise.

Direction and Leadership


Direction and leadership is an important function of management. As the process of management is concerned
with getting work done through and with people, they require continuous encouragement to work effectively.
According to Terry, "Directing means moving to action and supplying simulative power to group of
persons.‖So management guides and leads tem continuously. It imparts instructions to them, communicates
those orders, rules and decisions, motivates, provides leadership and guidance, supervises their work and
behavior, and inspires them towards improved performance.

Co-ordination
Some others consider co-ordination as a separate function of management while many others call it as "essence
of manager-ship". The process of co-ordination involves synchronizing individual actions with the goals of the
enterprise. Today, organizations have grown in size and in character. A large number of people work there in.
So co-ordination has become very necessary. In the words of Koonty and O Donnell "The best co-ordination
occurs when individuals see how their jobs contribute to the dominant goals of the enterprise. This implies
knowledge and understanding of enterprise objectives."

Controlling
The next function of management is controlling. In the words of Henry Fayol, "In an undertaking control
consists in verifying whether everything occurs in conformity with the plan adapted, the instructions issued
and principles issued." Thus, the control is a measuring and corrective device. It measures performance against
goals and plans. Whereas planning guides the management in the timely use of resources to accomplish
specific goals, the control ensures the effective planning.

Motivation
The term, motivation, is derived from the word ―motive‖ which means a need or an idea emotion that prompts
an individual into action. It is a psychological process of creating urge among the subordinate to do certain
things or behave in a desired manner.
Motivation is an activity for behave in a desired manner. Motivation is an act of providing personnel an
inspiration to get to their hobs with zeal and enthusiasm and perform efficiently the work assigned to the
management. Management has responsibility to utilize the capacity of its task force to the maximum. This
could only be possible with the help of motivated personally who, if satisfactorily and effectively motivated,
would pull their respective weigh in right direction and gave their loyalty to the enterprise wholeheartedly.
They would then carry out the activities allocated to them with purposeful sincerity.

Did you know?


Henri Fayol was a French mining engineer and director of mines who developed a general theory of business
administration

2.4 Management as Art, Science and Profession


Management as an Art
Art involves the systematic application of theoretical knowledge and personal skills to achieve desired results.
The function of art is to effect change and to bring about desired results through deliberate efforts. Art
represents 'how' of human behaviour because it is the know-how to accomplish concrete practical results.
Art is a personalized pro-cess as every artist has his own style. Art is essentially creative and the success of an
artist is measured by the results he achieves. A carpenter making furniture out of wood and a goldsmith
shaping gold into orna-ments are examples of art. Art prescribes how to do things and it can be improved
through continuous practice. Art is result-oriented involving practical way of doing specific things. It consists
of bringing about desired results through the use of skills. Art involves practical applica-tion of theoretical
knowledge.
Management is essentially an art because of the following reasons:
The process of management involves the use of knowledge and skills. Every manager has to apply certain
knowhow and skills while dealing with people
Management seeks to achieve concrete practical results, e.g., profits, service, etc. According to Prof. John
F. Mee, "management is the art of securing maximum results with a minimum of effort so as to secure
maximum prosperity and happiness for both employer and employee and give the public best possible
service."
Like any other art, management is creative. It brings out new situations and makes resources productive. In
fact, management is one" of the most creative arts because it requires moulding and welding the attitudes
and behaviour of people at work for the accomplishment of specific goals in a changing environment.
It is the art of securing desired response from people. Management makes things happen.
Like any other art, management is a personalized process. Every manager has his own approach and
technique depending upon his perception and the environmental conditions.
As an art, management requires judgment and skills. The art of management can be refined with
continuous practice of management theories and principles.
The art of management is as old as human civilization. The impor-tance of management art has increased
with rapid growth in the number size and complexity of organizations.

Management as a Science
Science is an organized or systematized body of knowledge pertain-ing to a particular field of enquiry. Science
is systematized in the sense that it establishes cause and effect relationship between different vari-ables.
Such systematized body of knowledge contains concepts, prin-ciples and theories which help to explain past
events and to predict the outcome of specific actions. These principles are capable of universal application, i.e.,
they can be applied under different situations. They rep-resent fundamental truths derived through empirical
results. These principles or basic truths are developed through scientific methods of continuous observation,
experiment and testing.
When generalizations or hypotheses are empirically verified for accuracy through continuous observation and
experimentation they become principles. Science explains 'why' of human behavior. Management is a science
because it contains all the characteristics of science. Firstly, there is a systematized body of knowledge in
manage-ment. Principles are now available in every function of management and these principles help to
improve managerial effectiveness. For instance, there are a number of principles which serve as guidelines for
delegating authority and thereby designing an effective organization structure. Similarly, there are several
techniques (ways of doing things) in the field of management. Budgeting, cost accounting, ratio analysis, rate
of return on investment, critical path method (CPM), programmer evalua-tion and review technique (PERT)
are some of these techniques which facilitate better management.
Secondly, principles of management have been developed through continuous observations and empirical
veri-fication. Thirdly, management principles are capable of universal application.

Management as a profession
Management developed as since the days of F.W. Taylor the advancement of science of manage-ment has been
very fast. Management as a science should be differen-tiated from the term 'management science which is used
to refer to the application of quantitative techniques in solving managerial pro-blems. Management is a social
science as it involves the study of human behavior. It is a comparatively young and growing behavioral
science. Being an in-exact social science, management cannot be as perfect as natural sciences like Physics,
Chemistry and Biology.

It is not possible to study and predict human beings under controlled laboratory con-ditions. Human behavior
is ever changing and unpredictable. There-fore, we cannot have the same kind of experimentation in
management as is possible in natural sciences.
The concepts, principles and techni-ques of management are still in a developing stage. Therefore, the
prin-ciples of management are flexible guidelines rather than hard and fast rules or absolute truths. That is why
management has been described as a 'soft science'. Management is also an inter-disciplinary science be-cause
it draws freely on Economics, Mathematics, Sociology, Psycho-logy and Anthropology. There are no full proof
rules in management that do away with judgment and common sense. Management is an applied science.
Thus, management is both an art as well as a science. "Essentially, managing is the art of doing and
management is the body of knowledge which underlies the art". It is said that management is the oldest of arts
and the youngest of sciences.

It must, however, be noted that science and art are not mutually exclusive but complementary to each other.
They are two faces of the same coin. Science without art is sterile and art without science is blind. According
to Barnard, "it is the function of the arts to accomplish concrete ends, effect results, produce situations that
could not come about without the deliberate efforts to ensure them. These arts must be mastered and applied
by those who deal in the concrete and for the future. The function of the sciences, on the other hand, is to
explain the phenomena, the events, the situations of the past. Their aim is not to produce specific events,
effects or situations but to provide explanations which one can call knowledge". Every art is based on an
underlying body of knowledge and with every advancement in science; art is improved by reducing
dependence on intention and judgment. For example, a physician without the knowledge of medical science
becomes a 'witch doctor or 'quack' with science an artful surgeon. Similarly, an executive without principles of
manage-ment has to depend on luck or intuition. But with formal knowledge and training in management, he
has a better guide to design workable solution to managerial problems of his firm.
There is a systematic body of knowledge that underlines the competent practice of management. Managers are
not always born. They can be made through education and training. However, mere knowledge of theory
cannot lead to success unless one knows how to apply the theory. A person with a degree in management
cannot necessarily be an effective manager just as a person with a merely cookery book cannot be a good
cook.

No amount of reading books on medical science will make a man a good physician or surgeon. Theoretical
knowledge must be supplemented and perfected by practical skills. Theory and practice supplement each other.
Use of judgment and experience is essential for efficient application of science. The art and science of
management go hand in hand. As an artist, a manager has to depend on his intuition, judgment and experience
while as a scientist he relies on the theory of management. A successful manager must not only acquire the
knowledge of the science of management but learn to apply this knowledge. Competence in management
requires mastery of scientific knowledge as well as practice in the use of knowledge.

Caution
The principal object of management should be to secure the maximum prosperity for the employer, coupled
with the maximum prosperity for each employee.

2.5 Management as Social System


This is an age of management for the developed nations, in which to be some kind of manager is the
commonest form of skilled employment, and managerialism is the representative political mode. Clearly, the
management function is in some sense definitive of modern societies. Yet, perhaps because of this very
dominance, the function of management remains opaque. What is management, and what does it do? The
nature of management may be conceptualized from a perspective of Systems Theory as the process by which
an organization generates a global representation of its own processes. In other words, management depends
upon modeling an organization.
Modeling allows management to perform its distinctive information-processing activities such as monitoring,
evaluation, prediction and control. The purposes to which these activities are directed define the function of
management. The function of management is a product of the interaction between a management system and
its environment. This is a consequence of the way that management systems will tend to adapt to survive and
grow in whatever specific context in which they are operating - this can lead to very different management
functions in different environments. There is, of course, a vast and diverse literature in the discipline of
Management Science which refers to the nature and function of management. It is not our intention here to
engage with this literature.

Systems Theory is based upon the analytic division of the natural world into environment and systems. This
division constitutes the major foundational, axiomatic philosophical assumption of Systems Theory. On the
one hand there is an infinitely complex ‗environment‘, and on the other hand there are self-replicating systems.
Systems are engaged in processing information. Systems also model the environment, and can respond
adaptively to environmental changes. The planet earth presumably began as pure ‗environment‘ with only
simple, self-organising physical and chemical systems which arose by the chance contiguity of components
and energy. For instance, the water cycle is a system by which water molecules associate and dissociate in
processes such as evaporation and condensation.

More complex systems can only be built incrementally, so that over time, simple physical and chemical
systems must have evolved into complex biological systems such as those observable and biological systems
eventually led to the social systems generated by human culture. A system might therefore include entities
such as a single cell, a multicellular organism such as human or social organisations of varying sizes from a
corporation, to the UK National Health Service, to a whole nation. For any given analysis, the 'environment' is
everything that is external to such a system under consideration. Systems are actually defined in terms of
processes, but sometimes processes coincide closely with physical structures so that a cell's environment might
(approximately) consist of everything outside the cell, including other systems such as other cells, the whole
organism and other organisms. For a human organisation such as an autonomous hospital, the environment
external to the system might include physical aspects such as climate and geography, but also other
organisational systems such as politics, the law and the media. Management systems (where they occur) are a
form of social organisational system which is engaged in modelling the organisation it manages. For a system
of management, everything other than itself is ‗environment‘, but the organisation that is being managed
constitutes the most immediate environment.

Caution
One should be careful that technological effects on members of the society in turn affect business practices.

Did You Know?


―Management is getting things done through other people‖ was pronounced by the President of the American
Management Association (AMA) in 1980.

2.6 Management-Administration and Management Organization


The most common element of our organizations is that there is a goal or purpose. Without a goal, there is no
reason for an organization to exist. They acquire and allocate the necessary resources to achieving their goals.
Our organizations are not self dependent, but always exist in an environment with other organizations on
which they are dependent for the resources they need. Finally there is some leader or manager who is
responsible for helping the organizations to achieve their goals. Without some manager, a coach, a conductor, a
sales executive, the organization cannot flourish.
The leadership and control within an organization. It is made up of people interacting with other people and
machines that, together, set the goals and objectives, outline the strategies and tactics, and develop the plans,
schedules and necessary controls to run an organization.

A management system is a proven framework for managing and continually improving your organization's
policies, procedures and processes. The best businesses work as complete units with a shared vision. This may
encompass information sharing, benchmarking, team working and working to the highest quality and
environmental principles. A management system helps your organization to achieve these goals through a
number of strategies, including process optimization, management focus and disciplined management
thinking.

Management organization is the foundation upon which the whole structure of management is built.
Organization is related with developing a frame work where the total work is divided into manageable
components in order to facilitate the achievement of objectives or goals. Thus, organization is the structure or
mechanism (machinery) that enables living things to work together. In a static sense, an organization is a
structure or machinery manned by group of individuals who are working together towards a common goal.
Alike 'management', the term 'organization' has also been used in a number of ways. Broadly speaking, the
term 'organization' is used in four different senses: as a process, as a structure of relationship, as a group of
persons and as a system, as given below:
Organization as a Process: In this first sense, organization is treated as a dynamic process and a
managerial activity which is essential for planning the utilization of company's resources, plant and
equipment materials, money and people to accomplish the various objectives.
Organization as a Framework of Relationship: In the second sense organization refers to the structure of
relationships and among position jobs which is created to release certain objectives. The definitions of
Henry, Urwick, Farland, Northcourt, Lansburgh and Spriegel Breach, Davis, Mooney and Reily etc., come
under this group. For example: According to Mooney and Reily, "Organization is the form of every human
association for the attainment of a common purpose."
Organization as a Group of persons: In the third sense, organization is very often viewed as a group of
persons contributing their efforts towards certain goals. Organization begins when people combine their
efforts for some common purpose. It is a universal truth that an individual is unable ability and resources.
Barnard has defined 'Organization' as an identifiable group of people contributing their efforts towards the
attainment of goals.
Organization as a System: In the fourth sense, the organization is viewed as system. System concepts
recognize that organizations are made up of components each of which has unique properties, capabilities
and mutual relationship. The constituent element of a system is linked together in such complex ways that
actions taken by one producer have far reaching effect on others.

Organizing is the determining, grouping and arranging of the various activities deemed necessary for the
attainment of the objectives, the assigning of people to those activities, the providing of suitable physical
factors of environment and the indicating of the relative authority delegated to each individual charged with
the execution of each respective activity. Administrative management is about managing information through
people. Information is central to all management processes and people are the resources who make best use of
that information to add value.
Most working professionals and all managers have some element of administrative management in their jobs.
Evidence of good administration is when you don‘t know it is happening!‖ Officiating at an Institute of
Administrative Management Graduation Ceremony in London he was addressing an audience of over two
hundred graduates and their guests. He was impressed by the organization of the event combining the
formality and gravitas of the ceremony with informal social mingling to ensure everyone enjoyed the occasion.

Management of information, whether based or computerized, is central to the effective running for any
organization in a competitive global marketplace. Many administrative processes are repetitive and require to
be regularly reviewed. A good administrative manager can add value to the company by challenging the
efficiency and reliability of procedures that have been running for a period of time whilst striving to look for
continuing improvements and identifying and cutting out any outdate practices. With the speed of change in
business today the manager has to value the people who are expected to operate often complex systems.
Software aids all aspects of administration, it has to be remembered it is just a tool for collection and
dissemination of data. The information produced needs to be clear and concise to be of value to a manager.
Many quality controls have been put in place by companies over recent years and should not just be viewed as
just another ― pushing exercise‖. If controls are not working then it is up to the company to review why the
procedure was implemented in the first place. In the drive for efficiency if the implementation of a new
procedure prevents the staff member from actually getting on with the job, impedes production or hampers
service output, then obviously rethinking the whole strategy is part of the administrative process.

Recent controversial thinking in some quarters suggests that highly trained freelancers and software may
replace administrative managers within organizations. With the increasing use of tale-workers and outsourcing
by companies the role of the administrative manager becomes even more necessary than ever before. We
therefore have to ensure that all administrative managers are given the essential training required to be able to
make the best use of their own technical skills and those of their staff to full potential. The 1990‘s saw most
office functions being revolutionized by the improvements in information technology. To keep pace with
business changes each individual needs to keep their management skills up to date to ensure their continued
employability.

Whilst it is very feasible to accept that as more people have access to computers and the need to employ
clerical and secretarial support lessens, the role of an administrative manager becomes even more important.
They are crucial to the smooth running of any office. Computers will never take the place of a committed well-
trained individual who has the empathy for staff of all abilities who make up the lifeblood of an organization.
All companies and organizations are only as good as the people they employ. If an organization has to run
―lean and mean‖ then the selection and recruitment of the right administrative manager, who can make the best
use of the tools at his or her disposal, is truly a valuable asset. There will always be a necessity for good
administration in any organization; the American government is run by ―The Administration‖. In the UK there
is not a great deal of importance placed on the use of the word ―administration‖, but which company can be
successful without its existence?

Case Study-Management as a Science


The transition from motion picture film to a completely digital infrastructure has one unintended but hugely
important – consequence: no guaranteed long-term access to digital data. Motion picture film is relatively
simple and inexpensive to preserve, since it only requires suitable environmental conditions (temperature and
humidity) to remain stable and accessible for 100 years or longer.
By contrast, digital motion picture materials require continual and active management, which in turn requires
substantial and ongoing capital and operational expenditures. In 2005, the Science and Technology Council
began researching the issues and challenges facing the motion picture industry and other large entities in their
efforts to manage and store massive amounts of digital data. The results are covered in two of the Council's
Questions. However, the Council felt it was important to gain some firsthand experience managing digital
motion picture materials to better understand the digital dilemma.

In 2006, as part of its partnership with the Library of Congress's National Digital Information Infrastructure
and Preservation Program (NDIIPP), the Council launched a digital archiving case study project to examine
the practical realities of various digital archiving strategies and technologies. Using the Standard Test and
Evaluation Material co-produced in 2003 by the American Society of Cinematographers and the major
Hollywood studios and deposited in the Academy Film Archive in 2004, the Council developed requirements
and design specifications for a digital preservation system based on motion picture film archiving best
practices and current digital data management theory. The Academy Case Study System was built to these
specifications, and the Council is now using the system to test the design assumptions.
Long-Term Management and Storage of Digital Motion Picture Materials: A Digital Motion Picture Archive
Framework Project Case Study documents the Council's experiences in researching, specifying and building
For audiovisual archives, the report provides practical information arising from real-world experience with a
digital motion picture collection. For equipment manufacturers and service providers, the report provides
detailed end-user requirements that may guide future product development.

Question
1. What is the concept of science and technology council?
2. What is the long-term management?

2.7 Summary
People working in organizations need to have their activities co-ordinate, controlled and directed toward
the objectives of the organization
Management is a continuous, lively and fast developing science. Management is needed to convert the
disorganized resources of men, machines, materials and methods into a useful and effective enterprise.
Art involves the systematic application of theoretical knowledge and personal skills to achieve desired
results
Science is an organized or systematized body of knowledge pertain-ing to a particular field of enquiry.
Science is systematized in the sense that it establishes cause and effect relationship between different
vari-ables
Management organization is the foundation upon which the whole structure of management is built.
Organization is related with developing a frame work where the total work is divided into manageable
components
Administrative management is about managing information through people. Information is central to all
management processes and people are the resources who make best use of that information to add value.

2.8 Keywords
Controlling: Controlling is an important function because it helps to check the errors and to take the corrective
action so that deviation from standards are minimized and stated goals of the organization are achieved in a
desired manner.
Leading: Leading refers to motivating, directing and guiding people in the organization it involves ensuring
that the people in the organization are willing and capable of performing the required tasks.
Management: Management is the act of getting people together to accomplish desired goals and objectives
using available resources efficiently and effectively.
Planning: Planning in organizations and public policy is both the organizational process of creating and
maintaining a plan and the psychological process of thinking about the activities required to create a desired
goal on some scale
Organization: Organization (or organisation) is a social group which distributes tasks for a collective goal.

2.9 Self Assessment Questions


1.........is essential if the organization is to succeed in the achievement of its objectives
(a) Coordination (b) Proper management
(c) Effective manage (d) All of these

2. Management is a continuous, lively and fast developing science


(a)True (b) False

3. Management is a process which refers to various functions which a manager performs in an organization
(a)True (b) False

4. ….is an executive who involves the recruitment, selection, training, placement, compensating promotion
and demotion
(a)Controlling (b) Staffing
(c)Direction (d) Organizing

5……. function determines the objectives to be achieved and the course of action to be followed to achiev
them
(a)Controlling (b) Staffing
(c)Planning (d) Organizing

6. The process of ……..involves synchronizing individual actions with the goals of the enterprise
(a) controlling (b) staffing
(c) direction (d) co-ordination

7. Management is a .......as it involves the study of human behavior


(a) Mathematics (b) social science
(c) Science (d) art

8. ..........is the form of every human association for the attainment of a common purpose
(a) Planning (b) Controlling
(c) Managing (d) Organization

9. All companies and organizations are only as good as the people they employ
(a) True (b) False

10. A good administrative manager can add value to the company by challenging the efficiency
(a) False (b) True

2.10 Review Questions


1. Explain the meaning of management
2. What is the concept of management?
3. What is the nature of management?
4. Explain the purpose of management in detail.
5. Describe importance and functions of nature of management
6. Write the short note on management as art
7. Define management is a science and profession
8. Explain the role of management in social system
9. Describe the concepts of management-administration or administrative management
10. What do you mean by management organization?

Answers for Self Assessment Questions


1. (d) 2.(a) 3.(a) 4.(b) 5.(c)

6. (d) 7.(b) 8.(d) 9.(b) 10.(b)


3
Organization
CONTENTS
Objectives
Introduction
3.1 Structure of Organization
3.2 Importance of Organization
3.3 Process and Principles of Organization
3.4 Types of Organization and Organization Design
3.5 Types of Authority, Delegation of Authority
3.6 Summary
3.7 Keywords
3.8 Self Assessment Questions
3.9 Review Questions

Objectives
After studying this chapter, you will be able to:
Understand structure of organization
Discuss importance of organization
Explain process and principles of organization
Define types of organization. organization design
Explain the types of authority and delegation of authority

Introduction
The environment in which organizations operates is constantly changing. Occasionally, organizations process
rational reorganizations to meet new demands. A new organizational design is then rationally developed;
establishing the formal organization. Simultaneously, the informal organization develops in accordance with
individuals‘ interpretations and behaviour. The organization studied had a large focus on organizational
objectives and requirements but neglected the importance of enabling individuals to construct their own
realities, in the new organizational design, resulted in organizational stress. When individuals‘ attitudes and
behaviour have common characteristics with organizational expectations of roles, performance, processes and
overall structure, a win-win situation is created where employees are satisfied and the organization is efficient.
Consider an organization with an explicitly coordinated structure. Individuals are merely functional parts of
this overall structure and their roles are strictly defined to fulfil business purposes. Moreover, procedures are
formally and rationally planned by top management according to organizational directives. In this web of roles
and procedures, there is no question about who is doing what, when or how. The organizational set-up is
maintained through supervision and control. The organization functions as clockwork.

Now consider an organization formed by the employees. It is designed in accordance with individuals‘
preferences, values and beliefs. Every member of the organization gets listened to, appreciated and stimulated
to do what they are best suited for. When questions and challenges arise, employees discuss and participate in
the search for answers and solutions. The organizational set-up is dynamic and continuously changing
according to its members and the environment in which it operates. The people are the organization.

The two types of organizations just described, characterize two extremes of organizational design.
1. The first has its origin in old-school organizational theory, where organizations generally are seen as
machines and the people as components in this machine.
2. The second approach reflects the human relations view, where the organization is seen as an organism
where individuals signify the essential parts.

3.1 Structure of Organization


Organizing refers to the way in which the work of a group is arranged and distributed among members to
efficiently achieve the objectives of an organization.
The process of organizing consists of the following steps:
(a) Determining the activities to be performed.
(b) Identification of the major functions to which these activities relate.
(c) Grouping and sub-dividing activities within each department on the basis of similarity or relatedness.
(d) Establishing relationships among different individuals and departments.
Responsibility is the obligation of a subordinate to perform the assigned duties.
Authority includes the right to decide, issue orders and take action in case orders are not carried out.
Accountability means answerability. Each person has to report to his superior how the work has been done
and how authority has been used.

Organization Structure
Structure refers to the arrangement of parts and interrelationships among activities and people.
The structure of an organization mainly involves the following
(a) The number of departments, sections and positions in which an organisation has been divided.
(b) The levels of management.
(c) The relationships among different parts and levels.
In most organizations, structure is created on the basis of functions. A small manufacturing organization may
have only two departments to perform the functions of production and sale.
These two functions are known as line functions. In large organizations, there are staff officers and staff
departments to help the line departments. Staff departments may be created at any level in the organization.
The principle of span of control states that there is a limit to the number of subordinates who can be
effectively supervised by a manager. The span of control gives rise to management levels.
There are three types of authority relationships viz. line, staff and functional.
(a) Line authority is the authority to issue orders and to see that these orders are carried out.
(b) Staff officers are appointed to help line managers. Their main job is to give advice.
(c) Functional authority is the authority of a manager over a person who is not his immediate subordinate. The
main reason of using functional authority is to take advantage of the special knowledge and skill of functional
specialists

3.2 Importance of Organization


It is much easier to deal with, but that is just not the case. While the concession trailer business is a difficult
undertaking no matter what we do, there are many things that we can do to make our life easier. One of the
most important traits to make sure that we perfect when opening and running any business is organization.
Developing our organizational skills can help we have a much easier time with paperwork, routine for
business, and can make our life easier in general.

The first thing that getting organized can do for us is to give we help with our paperwork. Keeping track of
income, expenditures and taxes is all a part of running a successful business. Coming up with an organizational
system can help obliterate confusion. Plus, when we need to find something, we can go right to the items we
are looking for because they are well organized. There are several systems out there that we can put into place
for our concession business. There are electronic tracking systems available or we can come up with a system
that is all our own that can work for us. Taxes are something we must keep very close track of or it becomes
difficult to prepare them when the time comes. Payroll is something else that organization can aid with if we
have employees.

Organization does not just come in handy with regard to paperwork. It can also help when we are dealing with
inventory and daily and weekly business routines. Listing the things we expect from our business operations
and from our employees is a great way to make sure everything gets done when it is supposed to. Also, having
a system for the stocking and restocking of inventory can make the business run a lot more smoothly? If we do
not have a system in place, do some research? The internet is a fantastic source of information.
Organization is not simply for the business world. It can make our overall life better in general. Organizing our
life will make things easier to find, save we time, and could even save us money. Wasting time looking for
things we have misplaced and forgetting to take that defective product back to the store can cost us two of the
most valuable commodities that exist. Time and money do not grow on trees and if we take the time to
organize and then we keep it that way, they are two commodities we do not have to worry about losing.
Organizing our business can bring us the same benefit, in a much bigger way. The value of our time is more
and the money we stand to lose is a much higher amount.

3.3 Process and Principles of Organization


The organizing process can be done efficiently if the managers have certain guidelines so that they can take
decisions and can act. To organize in an effective manner, the following principles of organization can be used
by a manager.
Principle of Specialization
According to the principle, the whole work of a concern should be divided amongst the subordinates on the
basis of qualifications, abilities and skills. It is through division of work specialization can be achieved which
results in effective organization.
Principle of Functional Definition
According to this principle, all the functions in a concern should be completely and clearly defined to the
managers and subordinates. This can be done by clearly defining the duties, responsibilities, authority and
relationships of people towards each other. Clarifications in authority- responsibility relationships help in
achieving co- ordination and thereby organization can take place effectively. For example, the primary
functions of production, marketing and finance and the authority responsibility relationships in these
departments should be clearly defined to every person attached to that department. Clarification in the
authority-responsibility relationship helps in efficient organization.

Principles of Span of Control/Supervision


According to this principle, span of control is a span of supervision which depicts the number of employees
that can be handled and controlled effectively by a single manager. According to this principle, a manager
should be able to handle what number of employees under him should be decided. This decision can be taken
by choosing either from wide or narrow span. There are two types of span of control:
Wide span of control- It is one in which a manager can supervise and control effectively a large group of
persons at one time.
The features of this span are:
Less overhead cost of supervision
Prompt response from the employees
Better communication
Better supervision
Better co-ordination
Suitable for repetitive jobs
According to this span, one manager can effectively and efficiently handle a large number of subordinates at
one time.

Modern organizational structures have evolved from several organizational theories, which have identified
certain principles as basic to any organization structure.

Line and Staff Relationships


Line authority refers to the scalar chain, or to the superior-subordinate linkages, that extend throughout the
hierarchy. Line employees are responsible for achieving the basic or strategic objectives of the organization,
while staff plays a supporting role to line employees and provides services. The relationship between line and
staff is crucial in organizational structure, design and efficiency. It is also an important aid to information
processing and coordination.

Departmentalization
Departmentalization is a process of horizontal clustering of different types of functions and activities on any
one level of the hierarchy. Departmentalization is conventionally based on purpose, product, process, function,
personal things and place.

3.4 Types of Organization and Organization Design


Organizations can be divided into four types. Each type will be briefly discussed here, with attention for the
culture and structure being used. One way to ‗measure‘ organizational types is by using OCAI, the
Organizational Culture Assessment Instrument. This system is quite popular due to its effective and simple
nature. Two primary characteristics are measured by this system:
The ratio of stability versus flexibility, and
The ratio of internal versus external mindedness.
Based on these two dimensions, four types of organizations can be discerned, which are briefly discussed.

3.4.1 Line Organization


Line organization is the oldest and simplest method of administrative organization. According to this type of
organization, the authority flows from top to bottom in a concern. The line of command is carried out from top
to bottom. This is the reason for calling this organization as scalar organization which means scalar chain of
command is a part and parcel of this type of administrative organization. In this type of organization, the line
of command flows on an even basis without any gaps in communication and co-ordination taking place.

Features of Line Organization


It is the simplest form of organization.
Line of authority flows from top to bottom.
Specialized and supportive services do not take place in this organization.
Unified control by the line officers can be maintained since they can independently take decisions in their
areas and spheres.
This kind of organization always helps in bringing efficiency in communication and bringing stability to a
concern.

Merits of Line Organization


Simplest: It is the most simple and oldest method of administration.
Unity of Command: In these organizations, superior-subordinate relationship is maintained and scalar
chain of command flows from top to bottom.
Better discipline: The control is unified and concentrates on one person and therefore, he can
independently make decisions of his own. Unified control ensures better discipline.
Fixed responsibility: In this type of organization, every line executive has got fixed authority, power and
fixed responsibility attached to every authority.
Flexibility: There is a co-ordination between the top most authority and bottom line authority. Since the
authority relationships are clear, line officials are independent and can flexibly take the decision. This
flexibility gives satisfaction of line executives.
Prompt decision: Due to the factors of fixed responsibility and unity of command, the officials can take
prompt decision.

Demerits of Line Organization


Over reliance: The line executive‘s decisions are implemented to the bottom. This results in over-relying
on the line officials.
Lack of specialization: A line organization flows in a scalar chain from top to bottom and there is no scope
for specialized functions. For example, expert advices whatever decisions are taken by line managers are
implemented in the same way.
Inadequate communication: The policies and strategies which are framed by the top authority are carried
out in the same way. This leaves no scope for communication from the other end. The complaints and
suggestions of lower authority are not communicated back to the top authority. So there is one way
communication.
Lack of Co-ordination: Whatever decisions are taken by the line officials, in certain situations wrong
decisions, are carried down and implemented in the same way. Therefore, the degree of effective co-
ordination is less.
Authority leadership: The line officials have tendency to misuse their authority positions. This leads to
autocratic leadership and monopoly in the concern.

3.4.2 Line and Staff Organization


Line and staff organization is a modification of line organization and it is more complex than line organization.
According to this administrative organization, specialized and supportive activities are attached to the line of
command by appointing staff supervisors and staff specialists who are attached to the line authority. The power
of command always remains with the line executives and staff supervisors guide, advice and counsel the line
executives. Personal Secretary to the Managing Director is a staff official. (See Figure 3.1)

Figure 3.1: Line and staff organization.

Features of Line and Staff Organization


1. There are two types of staff :
a) Staff Assistants-P.A. to Managing Director, Secretary to Marketing Manager.
b) Staff Supervisor-Operation Control Manager, Quality Controller, PRO
2. Line and Staff Organization is a compromise of line organization. It is more complex than line concern.
3. Division of work and specialization takes place in line and staff organization.
4. The whole organization is divided into different functional areas to which staff specialists are attached.
5. Efficiency can be achieved through the features of specialization.
6. There are two lines of authority which flow at one time in a concern:
a) Line Authority
b) Staff Authority
7. Power of command remains with the line executive and staff serves only as counsellors.

3.4.3 Merits of Line and Staff Organization


1. Relief to Line of Executives: In a line and staff organization, the advice and counselling which is provided
to the line executives divides the work between the two. The line executive can concentrate on the
execution of plans and they get relieved of dividing their attention to many areas.
2. Expert Advice: The line and staff organization facilitates expert advice to the line executive at the time of
need. The planning and investigation which is related to different matters can be done by the staff
specialist and line officers can concentrate on execution of plans.
3. Benefit of Specialization: Line and staff through division of whole concern into two types of authority
divides the enterprise into parts and functional areas. This way every officer or official can concentrate in
its own area.
4. Better Co-ordination: Line and staff organization through specialization is able to provide better decision
making and concentration remains in few hands. This feature helps in bringing co-ordination in work as
every official is concentrating in their own area.
5. Benefits of Research and Development: Through the advice of specialized staff, the line executives, the
line executives get time to execute plans by taking productive decisions which are helpful for a concern.
This gives a wide scope to the line executive to bring innovations and go for research work in those areas.
This is possible due to the presence of staff specialists.
6. Training: Due to the presence of staff specialists and their expert advice serves as ground for training to
line officials. Line executives can give due concentration to their decision making. This in itself is a
training ground for them.
7. Balanced Decisions: The factor of specialization which is achieved by line staff helps in bringing co-
ordination. This relationship automatically ends up the line official to take better and balanced decision.
8. Unity of Action: Unity of action is a result of unified control. Control and its affectivity take place when
co-ordination is present in the concern. In the line and staff authority all the officials have got
independence to make decisions. This serves as effective control in the whole enterprise.

3.4.4 Demerits of Line and Staff Organization


1. Lack of Understanding: In a line and staff organization, there are two authorities flowing at one time. This
results in the confusion between the two. As a result, the workers are not able to understand as to who is
their commanding authority. Hence the problem of understanding can be a hurdle in effective running.
2. Lack of Sound Advice: The line official get used to the expertise advice of the staff. At times the staff
specialist can also provide wrong decisions which the line executive has to consider. This can affect the
efficient running of the enterprise.
3. Line and Staff Conflicts: Line and staff are two authorities which are flowing at the same time. The
factors of designations, status influence sentiments which are related to their relation, can pose a distress
on the minds of the employees. This leads to minimizing of co- ordination which hampers a concern‘s
working.
4. Costly: In line and staff concern, the concerns have to maintain the high remuneration of staff specialist.
This proves to be costly for a concern with limited finance.
5. Assumption of Authority: The power of concern is with the line official but the staffs dislike it as they are
the one more in mental work.
6. Staff Steals The Show: In a line and staff concern, the higher returns are considered to be a product of
staff advice and counselling. The line officials feel dissatisfied and a feeling of distress enters a concern.
The satisfaction of line officials is very important for effective results.

3.4.5 Organizational Design


An organizational design is a shows the structure of an organization as well as the relationships and relative
ranks of its positions. The term ―design‖ refers to a map that helps managers navigate through patterns in their
employees. Designs help organize the workplace while outlining the direction of management control of
subordinates.
Increasingly a necessary management tool, organizational designs are particularly useful when companies
reorganize, embark on a merger or acquisition, or need an easy way to visualize a large number of employees.
An organizational design is a design which represents the structure of an organization in terms of rank. The
design usually shows the managers and sub-workers who make up an organization.
The design also shows relationships between staff in the organization which can be:
Line: Direct relationship between superior and subordinate.
Lateral: Relationship between different departments on the same hierarchical level.
Staff: Relationship between a managerial assistant and other areas. The assistant will be able to offer
advice to a line manager. However, they have no authority over the line manager actions.
Functional: Relationships between specialist positions and other areas. The specialist will normally have
authority to insist that a line manager implements any of their instructions.
In many large companies the organization design can be large and incredibly complicated and is therefore
sometimes dissected into smaller designs for each individual department within the organization.
There are three different types of organization design (See Figure 3.2):
1. Hierarchical
2. Matrix
3. Flat

Figure 3.2: Organization design.

3.5 Types of Authority, Delegation of Authority


Types of Authority
Authority is the power to manage the sub-ordinates to control them and to instruct them according to the rules
norms and standards of the organization. Authority of managers helps to keep the sub-ordinates in obedience.
Three main types of authority can exist within an organization:
1. Line Authority
2. Staff Authority
3. Functional Authority
Each type exists only to enable individuals to carry out the different types of responsibilities with which they
have been charged.
Line Authority
The most fundamental authority within an organization reflects existing superior-subordinate relationships. It
consists of the right to make decisions and to give order concerning the production, sales or finance related
behaviour of subordinates.
In general, line authority pertains to matters directly involving management system production, sales, finance
etc., and as a result with the attainment of objectives. People directly responsible for these areas within the
organization are delegated line authority to assist them in performing their obligatory activities.

Staff Authority
Staff authority consists of the right to advise or assist those who possess line authority as well as other staff
personnel. Staff authority enables those responsible for improving the effectiveness of line personnel to
perform their required tasks.
Line and Staff personnel must work together closely to maintain the efficiency and effectiveness of the
organization. To ensure that line and staff personnel do work together productively, management must make
sure both groups understand the organizational mission, have specific objectives, and realize that they are
partners in helping the organization reach its objectives.
Size is perhaps the most significant factor in determining whether or not an organization will have staff
personnel.The larger the organization, the greater the need and ability to employ staff personnel.
As an organization expands, it usually needs employees with expertise in diversified areas. Although small
organizations may also require this kind of diverse expertise, they often find it more practical to hire part time
consultants to provide it is as needed rather than to hire full time staff personnel, who may not always be kept
busy.
Functional Authority
Functional authority consists of the right to give orders within a segment of the organization in which this right
is normally nonexistent. This authority is usually assigned to individuals to complement the line or staff
authority they already possess. Functional Authority generally covers only specific task areas and is
operational only for designated amounts of time. It is given to individuals who, in order to meet
responsibilities in their own areas, must be able to exercise some control over organization members in other
areas.

Delegation of Authority
Delegation of authority is one vital organizational process. It is inevitable along with the expansion and growth
of a business enterprise. Delegation means assigning of certain responsibilities along with the necessary
authority by a superior to his subordinate managers. Delegation does not mean surrender of authority by the
higher level manager. It only means transfer of certain responsibilities to subordinates and giving them the
necessary authority, which is necessary to discharge the responsibility properly. Delegation is quite common in
all aspects of life including business. Even in the college, the principal delegates some of his authority to the
vice-principal.

In delegation, an attempt is being made to have meaningful participation and cooperation from the
subordinates for achieving certain well-defined results. Due to delegation, the routine responsibilities of the
superior are reduced. As a result, he concentrates on more urgent and important matters. Secondly, due to
delegation, subordinate becomes responsible for certain functions transferred to him. Delegation is a tool,
which a superior manager uses for sharing his work with the subordinates and thereby raising his efficiency.
According to Koontz and O‘Donnell ―the cement that binds the organization together is called delegation.‖
According to Brech, ―delegation means the passing on to others of a share in the essential elements of
management process‖. Delegation involves three important aspects like assigning duties by the executives,
granting of authority and creation of obligation or accountability. Delegation is not a process of abdication.
The person who delegates does not divorce himself from the responsibility and authority with which he is
entrusted. He remains accountable for the overall performance and also for the performance of his
subordinates. Delegation is needed when the volume of work to be done is in excess of an individual‘s
physical and mental capacity.
Delegation of Authority is defined as the specific written transfer of authority from one official in ED
(delegator) to another official in ED (delegate). The transfer of authority must be signed
By the official authorized to delegate the authority (See Figure 3.3).
Figure 3.3: Delegations in organization.

Caution
Lack of understanding in the staff may be the cause of failure of the proper organization.

Case Study-Tax Authority


This customer, who wishes to remain anonymous, is the tax authority for one of the regional governments in
Europe. For historical reasons the regional government has its own set of tax regulations that are coordinated
with the central government. Information in this case study is based on customer interviews conducted by
James Taylor. Decision Management Solutions
Challenge
The tax authority‘s primary responsibility is to calculate the tax obligation for all individuals and businesses in
the local region. In the past this was a centralized business function. As the tax code has become more
complex, the function has become more decentralized. The organization now has a structure similar to that of
the tax code with groups focused on direct taxes, indirect taxes etc. Business people within each group are
responsible for ensuring the tax regulations are applied correctly and that obligations are calculated accurately.
But these business people do not know exactly how the legacy systems calculate tax obligations. As a result
they have a number of challenges.

The system‘s calculation of tax obligation does not always match the regulations as written and the business
people cannot explain why. This results in the inability to accurately assess taxes. When citizens prove they are
right their tax obligation is put on an exclusion list. When the tax authority discovers individuals or businesses
have more obligations this is put on an inclusion list. But the incorrect rules that caused the problem cannot
readily be identified and corrected ensuring similar inconsistencies in the future. And the authority cannot
adopt more sophisticated tax policies, something that has become a critical issue. In particular the ability to
adapt the systems to detect potential fraud has been identified as crucial to future tax revenue stability.
To address these issues the authority determined that it must improve the communication between business
people and IT staff. Given the need for business experts to interpret the legislation and for IT to develop
systems to collect taxes, such communication has a direct impact on revenue collected and the fairness of the
tax code. As citizens naturally focus on attempts to collect too much tax, any problems tend to reduce the
amount of tax collected.
To succeed, the authority had to create a conscious and accurate linkage between the regulations and the
current implementation. And it had to create an effective process for the ongoing improvement of the tax
regulations. A precise language that could describe the implementation of the tax code without technical jargon
was essential. Only then would the business people be able to take on their legal responsibility to manage the
implementation of the tax code.

Attempts to use documents to document the rules were unsatisfactory because they did not allow the rules to
be managed. Similarly the use of a business rules management system alone did not offer enough in terms of
business user understanding. In particular the business users wanted to be able to write their rules in perfect
natural language. Those who work with the legislation take language seriously and do not like to work with
artificial words or phrasing. Business users would see pseudo code as a sign that this was IT work and that
would undermine the kind of collaboration that was required.

Solution
The authority adopted Rule press and the Rule Speak approach to writing rules. Using RuleXpress, business
users document the terms, facts and rules of the tax code. Each case or element of the tax code is considered.
First a business user documents the rules and terms for the case working directly from the current legislation.
RuleXpress allows these rules and terms to be defined in the local language exactly as the business user
understands them. The rules and terms created are linked back to the original in the legislation so that it is clear
which rules come from which in which pieces of legislation. A group of business experts then reviews these
rules, seeking a consensus. Management criteria can be added to the original legislation to document exactly
how it should be applied. The code in the legacy system is now reverse engineered and compared with the
rules in RuleXpress. Sometimes the code reflects additional guidelines or criteria that need to be added to the
specification. At this point RuleXpress contains an exact specification of the rules required and final decisions
can be made about the logic required to implement the particular in the tax code.
Documenting all the business logic for the regional tax code in this way has taken just twelve months
including a significant amount of training, adoption and change management effort. Both the external
knowledge management consultant and business users in the group tasked with coordinating with IT use Rule
press. Rule press allows non-technical users to access and update the rules and generate the reports that the IT
and business departments need.

Rule press Offers


Easy and effective management of Terms
Rule press provides complete term management, supporting term definition, information links and navigation
facilities. Business users can see term definitions from rules, navigate, conduct impact analysis and determine
traceability. Integrated look-up for Terms and automatic identification of defined Terms make it easy to use
terms in rules.

Rule and Term Quality


RuleXpress provides built-in quality checks for business rules and terms. These quality checks keep everyone
focused and improve the clarity and usability of rules and terms. RuleXpress makes it easy to apply best
practices and organizational guidelines.

Searching for rules


RuleXpress allows sophisticated searches of the rules and their relationships allowing business users to find
rules with particular kinds of relationships and then print the results of these searches to improve collaboration
and understanding.

Derived terms
The tool allows for effective connections between derived terms and the rules that derive them. This ensures
that users can easily find out exactly how a term is derived.

Ease of use for business people


Intuitive and easy to use, RuleXpress has a non-technical interface that allows non-technical users to create
and manage business rules and terms. Users get up to speed quickly and find it easy to use day to day.
RuleXpress avoids any use of pseudo code or technical jargon, and supports writing in local languages.
Results
As the business users have developed their rules model in RuleXpress their understanding of both the tax code
and its current implementation has grown. They have also been able to improve and correct some problems in
the current systems, improving the accuracy of tax obligation calculations. In several cases the systems had
errors in the code that had never been found before. These became clear once there was a definition of the
rules that both the business users and their IT counterparts could understand. The authority has also been able
to improve compliance with current regulations and have begun to provide feedback to improve the next cycle
of legislation.

Besides these improvements in accuracy they also see a dramatic reduction in implementation complexity. For
example, one piece of transformed legislation showed a 95% reduction in descriptive complexity. Where the
traditional approach had required 4,700 words to describe the design and nearly 60,000 words to implement it,
the complete rules based approach required just 2,800 words to describe and implement the rules.

Plans for the Future


Our customer continues to use RuleXpress to understand, manage and improve their current tax system. Future
plans could be the replacement of this legacy system with one built on a business rules management system.
RuleXpress will ensure the right rules get built into this system from the start and will play a key role in
ensuring that any automated case for an individual taxpayer can be linked back to the original regulation.

Questions
1. Describes the tax authority.
2. Explain the challenge of tax authorities.

3.6 Summary
Organizing refers to the way in which the work of a group is arranged and distributed among members to
efficiently achieve the objectives of an organization.
Properly designed organization can help improve teamwork and productivity by providing a framework
within which the people can work together most effectively.
Departmentalization is a process of horizontal clustering of different types of functions and activities on
any one level of the hierarchy.
Organizing refers to the way in which the work of a group is arranged and distributed among members to
efficiently achieve the objectives of an organization.
Authority is defining as the right to give orders and provides to exact obedience.
Delegation means the passing on to others of a share in the essential elements of management process.
The key to effective delegation of tasks is the transference of decision-making authority and responsibility
from one level of the organization to the level to which the tasks have been delegated.

3.7 Keywords
Accountability: It means giving explanations for any variance in the actual performance from the expectations
set.
Authority: It is a force that is essential to the functioning of any organization.
Delegation: It means assigning a certain task to other person providing proper authorization keeping in mind it
should be effective and result oriented.
Productivity: Productivity is a ratio of production output to what is required to produce.
Organizing: It refers to the way in which the work of a group is arranged and distributed among members to
efficiently achieve the objectives of an organization

3.8 Self Assessment Questions


1. ………… is a process of horizontal clustering of different types of functions and activities on any one
level of the hierarchy.
(a) Organizing (b) Staffing
(c) Departmentalization (d) None of these.

2. Which one is not a type of authority?


(a) Line authority (b) Staff authority
(c) Functional authority (d) All of these

3. Organizing refers to the way in which the work of a group is arranged and distributed among members to
efficiently achieve the objectives of an organization.
(a) True (b) False

4. ……… is the authority to issue orders and to see that these orders are carried out
(a) Staff authority (b) Line authority
(c) Functional authority (d) both a and b

5. Delegation means the passing on to others of a share in the essential elements of management process.
(a) True (b) False

6. The first leadership style is the authoritarian or.


(a) Five right of delegation (b) Laissez-faire leadership
(c) Autocratic leadership style (d) Democratic leadership

7. Being answerable for the consequences of one‘s actions or inactions


(a) Delegation (b) Management
(c) Accountability (d) Multicratic

8. ....................results from knowledge, expertise, or experience in a particular area.


(a) Supervision (b) Delegation
(c) Expert power (d) Collaboration

9. Exists when a person has information that others need to accomplish certain goals
(a) Informational power (b) Democratic leadership
(c) Laissez-faire leadership (d) Democratic leadership

10. Promoting the cause of another person or organization


(a) Management (b) Advocacy
(c) Multicratic (d) Autocratic
3.9 Review Questions
1. What is organizational structure?
2. Write down the importance of organization.
3. Describe process and principle of organization.
4. What are the types of organization? Explain.
5. Define authority and its types.
6. Define sources and delegation of authority.
7. What are the elements of delegation?
8. Explain the principles of delegation.
9. Define formal and informal delegation.
10. What are the characteristics and limitation of effective delegation?

Answers for Self Assessment Questions


1 (c) 2 (d) 3 (a) 4 (b) 5 (a)
6 (a) 7 (a) 8 (b) 9 (b) 10 (a)
4
Communication
CONTENTS
Objectives
Introduction
4.1 Significance of Communication
4.2 Channels of Communication
4.3 Process of Communication and Types
4.4 Barriers and Remedies
4.5 Summary
4.6 Keywords
4.7 Self Assessment Questions
4.8 Review Questions

Objectives
After studying this chapter, you will be able to:
Understand significance of communication
Explain channels of communication
Describe types and process of communication
Define barriers and remedies

Introduction
The word ―communication‖ derived from the Latin word ―communicare‖ that means to impart, to participate,
to share or to make common. It is a process of exchange of facts, ideas, and opinions and as a means that
individual or organization share meaning and understanding with one another. In other words, it is a
transmission and interacting the facts, ideas, opinion, feeling and attitudes.
It is the ability of mankind to communicate across barriers and beyond boundaries that has ushered the
progress of mankind. It is the ability of fostering speedy and effective communication around the world that
has shrunk the world and made ―globalization‖ a reality. Communication had a vital role to play in ensuring
that people belonging to a particular country or a culture or linguistic group interact with and relate to people
belonging to other countries or culture or linguistic group. Communication adds meaning to human life. It
helps to build relationship and fosters love and understanding. It enriches our knowledge of the universe and
makes living worthwhile.

4.1 Significance of Communication


Communication is a process of interaction with people and environment. Two or more individuals interact and
influence the ideas, beliefs and attitudes of each other. They can exchange information through words,
gestures, signs and symbols, expressions etc. Today language in its developed form is the most competent
means of communication but it is not the only one. We make use of other means, too, for effective
transmission of information

Example: Look at the situation given here. You come to National Institute of open schooling for taking
admission to class X. You need information regarding conditions and procedures for admission. So you
approach to the officer at the inquiry counter. The officer looks at you. His look seems to be asking ―How can
we help you?‖ You greet him and tell him that you have come for admission (words). The officer explains the
procedures and gives you a printed form to fill in information about yourself. You fill in the form and give it
back to him and say ―Is it O.K.?‖ he may say ―Yes‖ (words) or he may nod his head (gesture).
Thus you see that communication is a continuous process of giving and receiving information, of building up
social relationships. We make use of speech, writing, printed and pictorial matter, gestures and expressions and
also of technical media like telegraphy, radio, television, computer etc. for communication. Let us define
communication. It can be defined as ―a process by which two or more people exchange ideas, facts, feelings or
impressions in ways that each gains a common understanding of the message‖.

4.1.1 Elements of Communication


The following are the key elements of communication:
(i) Communication is a two way process: It involves a sender and receiver. The sender or receiver can be an
individual or a group.
(ii) There Has To Be a Message: The message can be information, a directive, an enquiry, a feeling, an opinion,
an idea or any other.
(iii) Commonness of Understanding: Communication can occur only when there is commonness of
understanding between the sender and the receiver. The commonness includes factors like common culture,
common language and common environment. Words, phrases, idioms, proverbs, gestures and expressions are
deeply colorized and possess high communicative potential for people from similar background.
(iv) Modifying the behaviour of other individuals: The information transmitted to the receiver evokes a
response in the form of some change in his behaviour. For example, the information received at the
information centre of NIOS satisfied your curiosity and encouraged you to take admission.
(v) Method of giving information: Information can be given through words or through other means like signs
gestures, expressions etc.

The five elements of the process of communication can be presented graphically

There is more to communication than just talk and gesture. Listening, understanding and interpreting are as
much integral to communication as words verbal, written or gestured.
4.1.2 Communication Process
The communication process involves a sender or communication source, the subject matter of communication,
expressions used for communicating (encoding), the medium of communication, receiver(s) of the
communication and the interpretation thereof (decoding) and feedback.
This can be diagrammatically represented as follows:

SENDER >> MESSAGE >> ENCODING >>


DECODING << RECEIVER << MEDIUM <<
>> FEEDBACK

I.e. feedback is crucial in determining whether the communication has been understood by the receiver in the
same light as intended by the sender. Let us try and understand the Significance of communication in different
walks of our daily lives.

4.1.3 Significance of Communication in Business


The success of any business lies as much in networking and building sound professional relationships as it
does in individual tact and business acumen. Communication is a crucial decisive factor in business relations.
It is very important to say the right things at the right time and at the right place when dealing with partners,
customers, stakeholders, media and, sometimes, even competitors. Any miscommunication or ambiguity can
pour pails of cold water on your hard work and ruin your chances of survival in today‘s competitive business
environment.

4.1.4 Significance of Communication in the Workplace


The most difficult part of running an organization is managing the human resources. This is one resource
which does not work on any principle of management, economics, psychology or any other social science!
This is the most random and volatile resource which must be managed with great dexterity to reach desired
organizational goals. Communication is that lubricant which keeps this resource moving throughout the
organizational machinery.

4.1.5 Significance of Communication in Leadership


What is the role of a leader? A leader is expected to represent his/her followers and motivate them to reach
heights of success through individual and collective effort. Communication is the best equipment a leader can
employ to achieve this goal. Even ideals resting upon strong principles can fall flat and fail to motivate due to
lack of effective communication skills. History is galore with examples of many national leaders who have
moved the masses by their life-changing speeches and powerful writings!

4.2 Channels of Communication


In an organization, information flows forward, backwards and sideways. This information flow is referred to as
communication. Communication channels refer to the way this information flows within the organization and
with other organizations.
In this web known as communication, a manager becomes a link. Decisions and directions flow upwards or
downwards or sideways depending on the position of the manager in the communication web.
For example, reports from lower level manager will flow upwards. A good manager has to inspire, steer and
organize his employees efficiently, and for all this, the tools in his possession are spoken and written words.
For the flow of information and for a manager to handle his employees, it is important for an effectual
communication channel to be in place.

4.2.1 Working of a Communication Channel


Through a modem of communication be it face to face conversations or an inter-department memo,
information is transmitted from a manager to a subordinate or vice versa. An important element of the
communication process is the feedback mechanism between the management and employees.
In this mechanism, employees inform managers that they have understood the task at hand while managers
provide employees with comments and directions on employee‘s work.

4.2.2 Significance of a Communication Channel


A breakdown in the communication channel leads to an inefficient flow in information. Employees are
unaware of what the company expects of them. They are uninformed of what is going on in the company.
This will cause them to become suspicious of motives and any changes in the company. Also without effective
communication, employees become department minded rather than company minded, and this affects their
decision making and productivity in the workplace.

4.2.3 Types of Communication Channels


The number of communication channels available to a manager has increased over the last 20 odd years. Video
conferencing, mobile technology, electronic bulletin boards and fax machines are some of the new
possibilities. As organizations grow in size, managers cannot rely on face to face communication alone to get
their message across.
A challenge the manager‘s face today is to determine what type of communication channel should they opt for
in order to carryout effective communication.
In order to make a manager‘s task easier, the types of communication channels are grouped into three main
groups: formal, informal and unofficial. (See Figure 4.1)

Figure 4.1: Communication channel.

Formal Communication Channels


Formal communication is organized and managed information that is shared with relevant individuals in order
to secure coordinated action throughout the organization. Formal communication channels are based on an
individual‘s role in the organization and distributed in an organized way according to the established chain in
organizational charts.
Formal communication flows ―downward‖ from executives to directors to managers to staff regarding
company direction and instruction and ―upward‖ from staff to managers to directors to executives in the form
of data and reports. The communication flowing through these channels is specific to the jobs and
departments.
The better the communication the better employees and staff will understand what is expected and required of
them.
1. A formal communication channel transmits information such as the goals, policies, and procedures of an
organization. Messages in this type of communication channel follow a chain of command. This means
information flows from a manager to his subordinates and they in turn pass on the information to the next
level of staff.
2. An example of a formal communication channel is a company‘s newsletter which gives employees as well
as the clients a clear idea of a company‘s goals and vision. It also includes the transfer of information with
regard to memoranda, reports, directions, and scheduled meetings in the chain of command.
3. A business plan, customer satisfaction survey, annual reports, employer‘s manual, review meetings are all
formal communication channels.

Informal Communication Channels


Informal communication in the workplace satisfies a variety of needs, particularly social and emotional, and is
not based on the positions individuals occupy within the organizations. As a result, the communication is not
managed or planned in any organized fashion. It is more relaxed, casual and tends to be spread by word-of-
mouth quickly throughout a department or organization because it is not restricted to approvals and an
established path of distribution.
When used with thought and planning, however, there are several advantages of grapevine communication. It
can
spread information quickly throughout an organization
serve a social purpose
reduce stress and anxiety
can be used to identify problems or lack of satisfaction in the workplace
While the organizational grapevine can never be eliminated, even if there are several advantages of grapevine
communication, it can be reduced by removing the need for information.
Managing the grapevine can be partly achieved by providing information through good, effective
communication such as:
Supplying sufficient information through the formal communication channel about the concerns that are of
Significance to employees and staff
Present as much factual information as possible as soon as it is obtained
Keeps information coming on a regular basis especially during times of change when the employees are
stressed and wondering what is going on? Daily communication with them will reduce the pressure of
uncertainty.
Open the lines of the formal communication channels to receive feedback and concerns. Respond to these
as quickly as possible. If concerns are submitted from staff and no response is given by management,
rumours through grapevine communication will begin to fill in the communication gap which was created
by management.

Unofficial Communication Channels


1. Good managers will recognize the fact that sometimes, communication that takes place within an
organization is interpersonal. While minutes of a meeting may be a topic of discussion among employees,
sports, politics and TV shows also share the floor.
2. The unofficial communication channel in an organization is the organization‘s ―grapevine‖. It is through
the grapevine that rumours circulate. Also those engaging in ―grapevine‖ discussions, often form groups
which translate into friendships outside of the organization. While the grapevine may have positive
implications, more often than not information circulating in the grapevine is exaggerated and may cause
unnecessary alarm to employees. A good manager should be privy to information circulating in this
unofficial communication channel and should take positive measures to prevent the flow of false
information.
3. An example of an unofficial communication channel is social gatherings among employees.

Did you know?


A medium through which a message is transmitted to its intended audience, such as print media or broadcast
(electronic) media.

Caution:
Always remember what you say in public could end up in the press, or on a blog or social media site.

4.3 Process of Communication and Types


The transmission of sender‘s ideas to the receiver and the receiver‘s feedback or reaction to the sender
constitute the communication cycle.

4.3.1 Communication Process


The process of communication begins when one person (the sender) wants to transmit a fact, idea, opinion or
other information to someone else (the receiver). This facts, idea or opinion has meaning to the sender. The
next step is translating or converting the message into a language which reflects the idea. That is the message
must be encoded. The encoding process is influenced by content of the message, the familiarity of sender and
receiver and other situation of factors.
The process of communication involves the following elements:
1. Sender or transmitter: The person who desires to convey the message is known as sender. Sender initiates
the message and changes the behaviour of the receiver.
2. Message: It is a subject matter of any communication. It may involve any fact, idea, opinion or information.
It must exist in the mind of the sender if communication is to take place.
3. Encoding: The communicator of the information organizes his idea into series of symbols (words, signs,
etc.) which, he feels will communicate to the intended receiver or receivers.
4. Communication Channel: The sender has to select the channel for sending the information. Communication
channel is the media through which the message passes. It is the link that connects the sender and the receiver.
5. Receiver: The person who receives the message is called receiver or receiver is the person to whom the
particular message is sent by the transmitter. The communication process is incomplete without the existence
of receiver of the message. It is a receiver who receives and tries to understand the message. (See Figure 4.2)

Figure 4.2: The communication process.


6. Decoding: Decoding is the process of interpretation of an encoded message into the understandable
meaning. Decoding helps the receiver to drive meaning from the message.
7. Feedback: Communication is an exchange process.
8. Brain Drain: On whole process there is a possibility of misunderstandings at any level and is called brain
drain. It may arise on sender side if they do not choose the adequate medium for delivery of message, by using
default channel and it may also arise when receiver does not properly decode the message. In other words, we
can say that it is breakdown of cycle at any level.

4.3.2 Types of Communication


Verbal Communication
The basis of communication is the interaction between people. Verbal communication is one way for people to
communicate face-to-face. Some of the key components of verbal communication are sound, words, speaking,
and language. At birth, most people have vocal cords, which produce sounds. As a child grows it learns how to
form these sounds into words. Some words may be imitative of natural sounds, but others may come from
expressions of emotion, such as laughter or crying. Words alone have no meaning. Only people can put
meaning into words. As meaning is assigned to words, language develops, which leads to the development of
speaking.

Interpersonal Speaking
Verbal communication is an essential part of business and when it is executed correctly, good things happen.
Here are a few different ideas and styles to remember when speaking to anyone in a business setting. Because
speaking is such an indelible activity, we tend to do it without much thought. But, that casual approach can be
a problem in business.

Here are some things which will make you an effective communicator:
Remember to become aware of what you are saying.
Apply the same process you use in written communication when you are communicating orally.
Before you speak, think about your purpose, your main idea, and your audience.
Organize your thoughts in a logical way.
Decide on a style that that suits the occasion and then edit your remarks mentally.
As you speak, watch the other person to see whether your message is making the desired impression. If
not, revise it and try again.

Hierarchical Communication
People communicate in businesses with each other most often by oral communication. This talking takes place
between mangers, co-workers and subordinates alike. In organizations, communication skill is used to send
messages 34% of the time. That is why it is important to understand all the concept of communication.
Communication from a manager to a subordinate is also different. One reason for this may be because of the
arising concern by managers not to offend their workers or say the wrong thing. In today‘s society, lawsuits
run rapid over conversations that some employees may take offensive from their bosses. Managers have a
responsibility to know and follow guidelines of good business communication etiquette.

Etiquette
Competitive business environment, social skills and proper etiquette can mean the difference between finding
and winning the job of your career and standing still in your career.
The confidence of knowing you can hold your own in any social setting, from the white-knuckled nervousness
of a first interview to a casual business lunch, can change the way people perceive and judge you. The key to
proper business etiquette is: ―Do unto others as they would want you to do unto them.‖
Learning the basics - and they are not very difficult - is the first step.

Basic points to remember when making introductions:


The most important point about introductions is to always make them, even if you cannot remember
names. Failing to do so causes embarrassment and discomfort. If given a choice, most people would prefer
you to make the introduction incorrectly, even if you forgot their name, rather than stand there
unacknowledged and disregarded.
A second important point in any introduction is the order of names. The name of the person being
introduced is mentioned last, and the person to whom the introduction is made is mentioned first. In a
business setting, introductions are based on power and hierarchy. Simply, persons of lesser authority are
introduced to persons of greater authority. Gender plays no role in business etiquette; nor does it affect the
order of introductions.

Public Speaking
Seven Steps to Creating an Effective Speech
The first step in making a speech is choosing a topic. We will assume you already have a topic since your
qualifications, the audience, or the occasion usually determines it. If you do not have a topic, your most
effective speeches will come from a topic you are familiar with or that you want to learn more about.

The second step is to define the purpose of your speech. Are you speaking to persuade your audience, inform
your audience, or a combination of the two? And, what are you persuading your audience to do, or what are
you informing them about? The answers to these questions will define the purpose of your speech.
The third step is to get to know your audience. Get to know the demographic features of your audience. You
want to know how large the audience will be, what sort of setting or conditions you will be speaking in, how
the audience feels about the topic, and how the audience feels about you as the speaker. Gauge how important
these factors will be on the speaking situation and adjust your speech accordingly. Keep in mind the audience
is the focus of your speech, and you are looking for a positive response from them.

The fourth step is to gather information for your speech. There are countless sources of information, but here
are a few: interviews, the Internet, scholarly journals, government documents, newspapers, and magazines.
This information can be used in your speech in a variety of ways. It may be used to supply examples for
supporting your ideas, or as statistics to quantify your ideas.

The fifth step is to organize your speech. Start by identifying the main points you want to make, and then put
them in an order that makes sense to your topic. You can order them chronologically if your topic covers a
sequence of events; spatially if you are describing something from top to bottom, east to west, or according to
some other avenue; or, problem-solution order if you are presenting a problem followed by a solution.
The sixth step is adding an introduction to your speech. The introduction is aimed at getting the attention of
your audience. There are several ways to accomplish this, the most common are: relating the topic to the
audience, shocking the audience with an intriguing or astonishing statement, questioning the audience, or
telling a suspenseful or provocative story.
The next phases of the introduction are to state the topic of your speech so the audience will know what you
are going to talk about, and to preview the main points of your speech so the audience will know what to listen
for.
The seventh step is adding a conclusion to your speech. First, signal to the audience that your speech is coming
to a close by using phrases such as ―In conclusion,‖ In closing, and ―Let me end by saying.‖ Second, reinforce
the main point of your speech. You can do this by simply restating your main points, ending with a quotation
that summarizes your main points, or by making a dramatic statement that emphasizes your main points.

Non-verbal Communication
It has been written on the Significance of non-verbal messages. Some studies suggest that from 30% to 90% of
a message‘s effect comes from nonverbal cues.
This chapter presents a brief overview of nonverbal communication:
Body language
Sign language
Paralanguage
Circumstantial language – space, surroundings and time

Body Language
Body language is the way the body communicates by its physical movements. When we study body language,
we specifically look for inner states of emotion as expressed through different parts of the body and their
physical movements. Body language mainly includes following subparts:

Facial Expressions
The facial expressions can divulge hidden emotions – anger, annoyance, confusions, enthusiasm, fear, hatred,
joy, love, interest, sorrow, surprise, uncertainty and others. They can also contradict verbal statements.

Eye Contact
Within the facial area, the eyes tell us much than other facial features. The eyes, along with the eyebrows,
upper and lower eyelids, and size of pupils, convey some inner body state. In fact, eye contact may be the best
indicator of how involved a person is in the situation.

Posture
Posture is the way we carry ourselves. Like we may choose to stand or sit erect, or lean forward or backward,
or slouch haphazardly. Postures non-verbally convey impressions of self-confidence, status and interest.

Gestures
Gestures are the physical movements of the arms, legs, hands, torso and head. When you are speaking some
gestures have standard meanings – for example, touching and tapping your forefinger to the top of your head
means you are thinking, a slight variation with a single rapid tap means you have an idea.

Body Shape
The physical shapes of our body also communicate to others. Like tallness usually equates with dominance.
We cannot do much about the shape of our body, but by adopting right kind of postures and dressing style, we
can improve the impact of our physical appearance.

Smell and Touch


Various doors and artificial fragrances on human beings can sometimes convey emotions and feelings better
than words. Similarly, touching people in different ways can silently communicate friendship, love, approval,
hatred, anger or other motives and feelings.
Silence
Silence can be a positive or negative influence in the communication process. It can provide a link between
messages or sever relationships. It can create tension and uneasiness or create a peaceful situation.

Sign Language
The most basic element of communication is the sign. A sign is a symbol. A symbol is something that stands
for something else. Everything in our world that we can visualize or sense has symbolic meaning and can be
used in communication. For example, a map is a symbol that represents an actual physical geographic territory,
and the 21 gun salute is a symbol of respect.

Paralanguage
Another type of non-verbal communication is known as paralanguage or paralinguistic. Of all non-verbal
types, it is the closest to the actual communication. ―Para‖ means ―like‖; thus paralanguage literally means
―like language‖. This ―like language‖ is the where we use our voice in uttering words.
It is everything other than words-intonation, pitch, regional accent, sarcasm, hesitations, truthfulness, emotion,
etc.

(a) Pitch variation – how high or low your vocal tones are.
(b) Volume – refers to the loudness of the voice.
(c) Speed and pause – speaking in a very high speed may make the matter incomprehensible and at too low
speed may make the matter boring. Thus a speaker should use normal pace.
(d) Stress on words – by emphasizing different key words in a sentence you can purposely indicate your
feelings about what is important.

4.4 Barriers and Remedies


Communication is a process beginning with a sender who encodes the message and passes it through some
channel to the receiver who decodes the message.

4.4.1 Barriers
Communication is fruitful if and only if the messages sent by the sender are interpreted with same meaning by
the receiver. If any kind of disturbance blocks any step of communication, the message will be destroyed. Due
to such disturbances, managers in an organization face severe problems. Thus the managers must locate such
barriers and take steps to get rid of them. There are several barriers that affect the flow of communication in an
organization. These barriers interrupt the flow of communication from the sender to the receiver, thus making
communication ineffective. It is essential for managers to overcome these barriers. The main barriers of
communication are summarized below.
Following are the main communication barriers:
1. Perceptual and Language Differences: Perception is generally how each individual interprets the world
around him. All generally want to receive messages which are significant to them. But any message which
is against their values is not accepted. A same event may be taken differently by different individuals.

Example: A person is on leave for a month due to personal reasons (family member being critical). The HR
Manager might be in confusion whether to retain that employee or not, the immediate manager might think of
replacement because his team‘s productivity is being hampered, the family members might take him as
emotional support. The linguistic differences also lead to communication breakdown. Same word may mean
different to different individuals. For example: consider a word ―value‖.
a. What is the value of this Laptop?
b. I value our relation?
c. What is the value of learning technical skills?
―Value‖ means different in different sentences. Communication breakdown occurs if there Is wrong perception
by the receiver.
2. Information Overload: Managers are surrounded with a pool of information. It is essential to control this
information flow else the information is likely to be misinterpreted or forgotten or overlooked. As a result
communication is less effective.
3. Inattention: At times we just not listen, but only hear. For example a traveler may pay attention to one ―NO
PARKING‖ sign, but if such sign is put all over the city, he no longer listens to it. Thus, repetitive
messages should be ignored for effective communication. Similarly if a superior is engrossed in his paper
work and his subordinate explains him his problem, the superior may not get what he is saying and it leads
to disappointment of subordinate.
4. Time Pressures: Often in organization the targets have to be achieved within a specified time period, the
failure of which has adverse consequences. In a haste to meet deadlines, the formal channels of
communication are shortened, or messages are partially given, i.e., not completely transferred. Thus
sufficient time should be given for effective communication.
5. Distraction/Noise: Communication is also affected a lot by noise to distractions. Physical distractions are
also there such as, poor lightning, uncomfortable sitting, unhygienic room also affects communication in a
meeting. Similarly use of loud speakers interferes with communication.
6. Emotions: Emotional state at a particular point of time also affects communication. If the receiver feels
that communicator is angry he interprets that the information being sent is very bad. While he takes it
differently if the communicator is happy and jovial (in that case the message is interpreted to be good and
interesting).
7. Complexity in Organizational Structure: Greater the hierarchy in an organization (i.e. more the number of
managerial levels), more is the chances of communication getting destroyed. Only the people at the top
level can see the overall picture while the people at low level just have knowledge about their own area
and a little knowledge about other areas.
8. Poor retention: Human memory cannot function beyond a limit. One cannot always retain what is being
told specially if he is not interested or not attentive. This leads to communication breakdown.

4.4.2 Remedies or the Way to Get Rid of these Barriers


1. Begin paying attention to the type of facial expressions you use and when you use them. You may not be
aware of when you frown, roll your eyes, or scowl.
2. Make sure your facial expressions are appropriate based on your topic, listeners and objective. When you
are smiling while communicating a serious or negative message, you create a discrepancy between your
facial expression and your message. The same discrepancy applies when you are communicating a positive
message without facial expressions.
3. Once you have increased your awareness of facial expressions, practice the skill of incorporating them into
your message, matching the appropriate expression to each situation. You would not want to have a stone-
cold look on your face when you are expressing your passion for your company‘s products.
4. Time Management: Time is money. We do not know who quoted the magic line. Many entrepreneurs,
leaders, business magnets and all other successful people strongly believe in this motto. There is not a
single person who has succeeded without making proper time management. Unfortunately, it is also a
barrier in cross cultural communication. Without proper time management, anything would turn into a
void conclusion. But in cross cultural communication, time management differs from country to country.
Did You Know?
A sender was a circuit in a 20th century electromechanical telephone exchange which sent telephone numbers
and other information to another exchange.

Caution
Every person has a unique body language so be careful not to make decisions based solely on body language.

Case Study-The Logistic Company


Most of the courier and cargo companies, when they send their total consignments (load in their language) to a
particular station, they do it with advance intimation by way of sending E-mail (pre-alert message in their
language). ABC Logistics was no exception to this procedure. Whenever they sent their load by evening flight
to Mumbai, they sent pre-alert to Mumbai giving details of the load like flight number, total number of bags,
total weight of the bags etc. Night-duty Airport Executive at Mumbai Airport use to retrieve the load and use to
confirm the receipt of the load to the Bangalore office.The arrangement worked fine for months and even
years. Airport Executive continued to get the pre-alert message and after retrieval of the load, he continued to
confirm the receipt of the load.

On one fine night, Satish who was on night-duty at Mumbai airport observed that neither any pre-alert has
been received from Bangalore. Nor Bangalore office had sent any load to them. He tried calling Bangalore
office. But it was well past midnight and there was no response from Bangalore office. Security guard on duty
told to the Airport Executive that nobody is available in the Bangalore office and staff on duty had left already.
Satish knew that generally Ravi works in the night time. He tried calling on Ravi‘s mobile number but it was
switched off. Satish had no other option except calling Asst Manager Operations of Bangalore. Charles tried
calling other operations staffs to find out whether anybody knew home of Ravi. But none of them knew where
Ravi‘s house was. Charles was disappointed. Though he had disturbed couple of staffs in the dead of the night,
there was no much headway. Charles was on the horns of dilemma. As a last resort, Charles called Hari, HR
Executive. Documents of Ravi. By the time it was 01:30 hours and Hari was aghast to find out that he was told
to go to office at dead of the night. Willy-nilly, Hari went to his office, pulled out personal documents of Ravi
and noted his address. Later he confirmed the address to Charles.Charles had no option but to commute 15 km
in order to go to house of Ravi. He reached Ravi‘s home at 02:15 hours. For Ravi, it was a strange experience
to find out that his manager was knocking his door at well past midnight.

Questions
1. What are the problems of communication?
2. Does communication plays a vital role in an organization?

4.5 Summary
Communication is a process of interaction with people and environment.
A leader is expected to represent his/her followers and motivate them to reach heights of success through
individual and collective effort.
Communication is necessary to issue directions by the top management or manager to the lower level.
Decoding is the process of interpretation of an encoded message into the understandable meaning.
The communication theory is the necessary key in order to make all transactions and business connections
successful.
4.6 Keywords
Body Language: Body language is a form of mental and physical ability of human non-verbal communication,
which consists of body posture, gestures, facial expressions, and eye movements.
Communication: It is exchange of thoughts, messages, or information, as by speech, visuals, signals, writing,
or behaviour.
Feedback: Feedback is a process in which information about the past or the present influences the same
phenomenon in the present or future.
Message: It is a subject matter of any communication. It may involve any fact, idea, opinion or information.
Non-verbal Communication: Non-verbal communication is usually understood as the process of
communication through sending and receiving wordless messages between people.

4.7 Self Assessment Questions


1. What is "context"?
(a) An interference with message reception
(b) Effective communication
(c) A physical and psychological environment for conversation
(d) Verbal and nonverbal responses to messages

2. Interpersonal communication occurs only when


(a) Intimate conversation takes place.
(b) An individual interacts with another person as a unique individual.
(c) An individual converses with people they have no interest in knowing.
(d) Three or more people are communicating with each other at the same time

3. Time management is a barrier in communication.


(a) True (b) False

4. How many types of communication are?


(a) One (b) Three
(c) Two (d) None of these.

5. Does body language make communication effective?


(a) True (b) False

6. Verbal communication is effective in business communication


(a) True (b) False

7. The language of dumb people is:


(a) Verbal (b) Non verbal
(c) Both (a) and (b) (d) None of these.

8. Schramm had given his model in


(a) 1952 (b) 1954
(c) 1955 (d) 1956
9. A leader should have effective communication skill.
(a) True (b) False

10. The person who desires to convey the message is known as:
(a) Receiver (b) Sender
(c) Both a and b (d) None of these.

4.8 Review Questions


1. How do you define communication?
2. Discuss the elements of communication process.
3. What do we mean by ―effective communication‖? How does the knowledge of the communication process
help us in communicating effectively?
4. Discuss the role of communication in our life.
5. What are the models of communication?
6. What is the verbal and non-verbal communication in?
7. Explain the non-verbal communication types?
8. What are the barriers in proper communication?
9. Discuss the importance of effective gestures in communication?
10. What are the ways of getting rid of communication barriers?

Answer of Self Assessment Questions


1. (a) 2. (d) 3. (a) 4. (c) 5. (a)
6. (a) 7. (b) 8. (b) 9. (a) 10. (b)
5
Leadership
CONTENTS
Objectives
Introduction
5.1 Definitions of Leadership
5.2 Nature, Characteristic, and Issues of Leadership
5.3 Leadership Styles and Patterns
5.4 Leadership Skill
5.5 Importance of Leadership
5.6 Functions of a Leader
5.7 Types of Leaders
5.8 Transactional and Transformational Theories
5.9 Qualities of Leadership
5.10 Summary
5.11 Keywords
5.12 Self Assessment Questions
5.13 Review Questions

Objectives
After studying this chapter, you will be able to:
Define meaning of leadership
Discuss about characteristic and features of leadership
Explain leadership styles and skills
Understand the importance of leadership
Explain the functions and types of leaders
Introduction
Our introduction to management and leadership is a comprehensive two day management and leadership
training course that will give delegates an insight into the management and leadership of people. This is one of
the key areas that effects motivation and productivity in business today and will make delegates aware of
different management and leadership styles and the affect they can have on others.

Successful managers are able to develop and use a range of management and leadership styles and to apply the
most appropriate one for the task facing them. The management style chosen may also need to be adapted to fit
with different teams and individuals and this course will provide delegates with a range of management and
leadership styles to employ in the workplace plus the ability to judge which the best one to use

5.1 Definitions of Leadership


Leadership is a great quality and it can create and convert anything. There are many definitions of leadership.
Some of the definitions of leadership are reproduced below:
Leadership according to Alford and Beatty is the ability to secure desirable actions from a group of followers
voluntarily without the use of coercion
According to Chester I Barnard, It refers to the quality of the behaviour of the individual whereby they guide
people on their activities in organized efforts‖.
According to Terry, a leader shows the way by his own example. He is not a pusher, he pulls rather than
pushes‖.
According to Koontz and O‘Donnell––Managerial leadership is ―the ability to exert interpersonal influence by
means of communication, towards the achievement of a goal. Since managers get things done through people,
their success depends, to a considerable extent upon their ability to provide leadership‖. In the words of R.T.
Livingston Leadership is ―the ability to awaken in others the desire to follow a common objective‖.
According to the Encyclopaedia of the Social Sciences––―Leadership is the relation between an individual and
a group around some common interest and behaving in a manner directed or determined by him‖.
According to Peter Drucker––Leadership ―is not making friends and influencing people i.e., salesmanship.
Leadership is the lifting of man‘s vision to higher sights, the raising of man‘s performance to higher standards,
the building of man‘s personality beyond its normal limitations‖.

According to Louis A Allen––A leader is one who guides and directs other people. He gives the efforts to his
followers a direction and purpose by influencing their behaviour‖.
In the words of Theo Haimann––: Leadership is the process by which an executive imaginatively directs
guides and influences the work of others in choosing and attaining specified goals by mediating between the
individuals and the organization in such a manner that both will obtain maximum satisfaction‖.
In the words of James Gibbon––Leadership is a process of influencing on a group in a particular situation at a
given point of time and in a specific set of circumstances that stimulates people to strive willingly to attain
organizational objectives, giving them the experience of helping attain the common objectives and satisfaction
with the type of leadership provided‖.

5.2 Nature, Characteristic, and Issues of Leadership


There are two main approaches of leadership- traitist and situationist. In the early times leadership was
considered to originate from the personal qualities of the leader and insufficient attention was given to the
contribution of the group structure and situation. The early studies focused their attention on certain traits to
compare leaders with non leaders.
Gibb remarked that the leader traits are relative to a specific social situation and are not exhibited in isolation.
He pointed out that attempts to find a consistent pattern of traits that characterize leaders had failed and said
that the attributes of leadership are any or all of those personality characteristics that in any particular situation
make it possible for a person either to contribute to achievement of a group goal or to be seen as doing so by
other group members. The person who becomes a leader surpasses others in some qualities required by the
goal in the particular situation. He writes leadership is both a function of these two interactions.

The situations approach to leadership provides a corrective to the traitist approach which regarded leaders as
uniquely superior individuals who would lead in whatever situation or time they might find themselves. This
approach emphasizes that leadership is specific to a specific situation. It is a way of behaving exhibited by
individuals in differing degrees in different situations. A leader in one group is not necessarily a leader in
another. A leader in the class may not be a leader in the playground. Though leadership may be considered as
behaviour specific to a given situation yet it does not mean that there is no generality of traits on the basis of
which certain persons may be rated leaders.

Leadership is absolutely specific to a given situation then it cannot be a subject of scientific analysis and
generalization. Leader is necessarily a part of a group and leadership is status and role in that group. It is
obvious that leadership can occur only in relation to other people. No one can be a leader all by himself. The
relationships which the leader bears to other individuals are status and role relationships. He is part of the
group structure and as such he carries on reciprocal relationship with other members of the group. These
relationships define his role in the group. When leadership is viewed as a status in a group structure and a role
defined by reciprocal relations with others in the particular structure it is easy to understand why there cannot
be a generalization of traits characteristic of leaders.

There many characteristics of the leadership are as follows:


Leadership Implies The Existence Of Followers: We appraise the qualities of leadership by studying his
followers. In an organization leaders are also followers for e.g. Supervisor works under a branch head. Thus, in
a formal organization a leader has to be able to be both a leader as well as a follower, and be able to relate him
both upward and downward.

Leadership Involves A Community Of Interest Between The Leader And His Followers: In other words, the
objectives of both the leader and his men are one and the same. If the leader strives for one purpose and his
team work for some other purpose, then it is not a leadership.

Leadership Involves An Unequal Distribution Of Authority Among Leaders And Group Members: Leaders
can direct some of the activities of group members, i.e., the group members are compelled or are willing to
obey most of the leader‘s directions. The group members cannot similarly direct the leader‘s activities, though
they will obviously affect those activities in a number of ways.

Leadership Is A Process Of Influence: Leadership implies that leaders can influence their followers or
subordinates in addition to being able to give their followers or subordinates legitimate directions.

Leadership Is The Function Of Stimulation: Leadership is the function of motivating people to strive
willingly to attain organizational objectives. A successful leader allows his subordinates (followers) to have
their individual goals set up by themselves in such a way that they do not conflict with the organizational
objectives.

A Leader Must Be Exemplary: In the words of George Terry ―A Leader shows the way by his own example.
He is not a pusher, he pulls rather than pushes‖.
According to L.G. Urwick ―it does not what a leader says, still less what he writes, that influences
subordinates. It is what he is. And they judge what he is by what he does and how he behaves‖.

A Leader Ensures Absolute Justice: A leader must be objective and impartial. He should not follow unfair
practices like favouritism and nepotism. He must show fair play and absolute justice in all his decisions and
actions.

Issue of Power
The concepts of power and leadership have much in common. Certain people are leaders because they exercise
power. It is unthinkable that a leader should not have power. Consequently the exercise of influence is a central
part of most definitions of leadership. According to La-Pierre, leadership is a behaviour that affects the
behaviour of other people more than their behaviour affects that of the leader. Pigor also says leadership is a
concept applied to the personality to describe the situation when a personality is so placed in the environment
that it directs the feeling and insight and controls others in pursuit of a common cause. According to Allen
leadership is the activity of persuading people to cooperate in the achievement of a common objective. Terry
defines it as the activity of influencing people to strive willingly for mutual objectives.

Leadership always involves attempts on the part of a leader to affect the behaviour of a follower or followers
in a situation. Power is not equivalent with influence or with initiating change in another person‘s behaviour
without regard to the situation in which it occurs. A new born infant can influence and change the behaviour of
his parents but this influence is not equivalent with power in the family.

Issue of Headship
Leadership is not necessarily headship. Gibb has noted that there is almost general agreement in the literature
of the last few years that leadership is to be distinguished by definition from domination or headship. Headship
means a position in the official hierarchy.
A person who is the head of an organization may not have any influence over the members. He may be a head
without an influence. But as he gains influence he becomes a leader because leadership basically involves the
capacity to influence.

5.3 Leadership Styles and Patterns


Tannenbaum and Schmidt have described the range of possible leadership behaviour available to a manager.
Each type of action is related to the degree of authority used by the boss and to the degree of freedom available
to his subordinates in reaching decisions.

The Manager Makes Decision And Announces: It is an extreme form of autocratic leadership where by
decisions are made by the boss who identifies the problem, considers alternative solutions, selects one of them
and then reports his decision to his subordinates for implementation.

The Manager Sells His Decisions: It is a slightly improved form of leadership wherein the manager takes the
additional step of persuading the subordinates to accept his decision.
The Manager Presents His Ideas and Invites Questions: There is greater involvement of the employees in
this pattern. The boss arrives at the decision, but provides a full opportunity to his subordinates to get fuller
explanation of his thinking and intentions.
The Manager Presents A Tentative Decision Subject To Change: Herein the decision is tentatively taken by
the manager but he is amenable to change and influence from the employees.

The Manager May Present The Problem, Get The Suggestions And Then Take His Own Decision: Herein
sufficient opportunity is given to the employees to make suggestions that are coolly considered by the
Manager.

The Manager May Define The Limits And Request The Group to Make a Decision: A manager of this style
of management lets the group have the right to make the decision. The subordinates are able to take the
decision to the limits defined by the manager.

The Manager May Permit Full Involvement of the Subordinates in the Decision Making Process: It is often
designated as ‗Democratic‘ leadership.

Leadership style refers to the behaviour pattern adopted by a leader to influence the behaviour of his
subordinates for attaining the organizational goals. As different leadership styles have their own merits and
demerits, it is difficult to prefer one leadership styles to another. The selection of a leadership style will depend
on the consideration of a number of factors. Tannenbaum and Schmidt have pointed out the important factors
that affect the choices of a style of leadership are:
Forces in the manager i.e., the manager‘s personality, experience, and value system.
Forces in the subordinates i.e., the subordinates readiness for making decisions, knowledge, interest, need
for independence etc.
Forces in the situation i.e., complexity of the problem, pressure of time etc.

Did You Know?


Kurt Lewin, Ronald Lipitt, and Ralph White developed in 1939 the seminal work on the influence of
leadership styles and performance.

5.4 Leadership Skill


The leader is expected to play many roles and therefore, must be qualified to guide others to organizational
achievement.
Although no set of absolute traits or skills may be identified, the individuals who possess abilities to lead
others must have certain attributes to help them in performing their leadership roles. In a broad
way the skills which are necessary for an industrial leader may be summarized under four heads:
1. Human skill
2. Conceptual skill
3. Technical skill and
4. Personal skill.

5.4.1 Human Skill


A good leader is considerate towards his followers because his success largely depends on the co-operation of
his followers. He approaches various problems in terms of people involved more than in terms of technical
aspects involved. He should know people; know their needs, sentiments, emotions, and also their actions and
reactions to particular decisions, their motivations etc. Thus, a successful leader possesses the human relations
attitude. He always tries to develop social understanding with other people.
The human skill involves the following:
Empathy: A leader should be able to look at things objectively. He should respect the rights, belief and
sentiments of others. He should equip himself to meet the challenges emanating from the actions and reactions
of other people. The leader should be empathetic towards his followers so that he can carefully judge their
strengths, weakness, and ambitions and give them the attention they deserve.

Objectivity: A good leader is fair and objective in dealing with subordinates. He must be free from bias and
prejudice while becoming emotionally involved with the followers. His approach to any issue or problem
should be objective and not based on any pressure, prejudice or preconceived notions. Objectivity is a vital
aspect of analytical decision making. Honesty, fair play, justice and integrity of character are expected of any
good leader.

Communication Skill: A leader should have the ability to persuade, to inform, stimulate, direct and convince
his subordinates. To achieve this, a leader should have good communication skill. Good communications seem
to find all responsibilities easier to perform because they relate to others more easily and can better utilize the
available resources.

Teaching Skill: A leader should have the ability to demonstrate how to accomplish a particular task.

Social Skill: A leader should understand his followers. He should be helpful, sympathetic and friendly. He
should have the ability to win his followers confidence and loyalty.

5.4.2 Conceptual Skill


In the words of Chester Barnard, ―the essential aspect of the executive process is the sensing of the
organization as a whole and the total situation relevant to it‖. Conceptual skills include:
• The understanding of the organization behaviour,
• Understanding the competitors of the firm, and
• Knowing the financial status of the firm.

A leader should have the ability to look at the enterprise as a whole to recognize that the various functions of
an organization depend upon one another and are interrelated, that changes in one affect all others. The leader
should have skill to run the firm in such a way that overall performance of the firm in the long run will be
sound.

5.4.3 Technical Skill


A leader should have a thorough knowledge of, and competence in, the principles, procedures and operations
of a job. Technical skill involves specialized knowledge, analytical skill and a facility in the use of the tools
and techniques of a specific discipline. Technical competence is an essential quality of leadership.

5.4.4 Personal Skill


The most important task of the leader is to get the best from others. This is possible only if he possesses certain
qualities. These personal skills include:

Intelligence: Intellectual capacity is an essential quality of leadership. Leaders generally have somewhat
higher level of intelligence than the average of their followers.
Emotional Maturity: A leader should act with self-coincidence, avoid anger, take decisions on a rational basis
and think clearly and maturely. A leader should also have high frustration tolerance.
According to Koontz and O‘Donnell ―Leaders cannot afford to become panicky, unsure of themselves in the
face of conflicting forces, doubtful of their principles when challenged, or amenable to influence‖.

Personal Motivation: This involves the creation of enthusiasm within the leader himself to get a job done. It is
only through enthusiasm that one can achieve what one wants. Leaders have relatively intense achievement
type motivational drive. He should work hard more for the satisfaction of inner drives than for extrinsic
material rewards.

Integrity: In the words of F.W Taylor ―integrity is the straight forward honesty of purpose which makes a man
truthful, not only to others but to himself; which makes a man high-minded, and gives him high aspirations
and high ideals‖.

Flexibility of Mind: A leader must be prepared to accommodate other‘s viewpoints and modify his decisions,
if need be. A leader should have a flexible mind, so that he may change in obedience to the change in
circumstances. Thomas Carle has said ―A foolish consistency is the hobgoblin of a little mind‖.

5.5 Importance of Leadership


The importance of leadership in an organization cannot be denied. The leader guides the action of others in
accomplishing these tasks. A good leader motivates his subordinates, creates confidence and increases the
morale of the workers.
In the other words ―Good leadership is a must for the success of a business but the business leaders are the
scarcest resources of any enterprise‖.
The following points highlight the importance of leadership:
Leadership is the process of influencing the activities of an individual or a group towards the achievement
of a goal.
An effective leader motivates the subordinates for higher level of performance.
Leadership promotes team spirit and team work which is quite essential for the success of any
organization.
Leadership is an aid to authority. A leadership helps in the effective use of formal authority.
Leadership creates confidence in the subordinates by giving them proper guidance and advice.

The history of business is full of instances where good leaders led their business concerns to unprecedented
peaks of success .To quote George R. Terry ― The will to do is triggered by leadership and lukewarm desires
for achievement are transformed into burning passé for successful accomplishments by the skilful use of
leadership.‖
Leadership is an important function of management which helps to maximize efficiency and to achieve
organizational goals. The following points justify the importance of leadership in a concern.

Initiates Action: Leader is a person who starts the work by communicating the policies and plans to the
subordinates from where the work actually starts.

Motivation: A leader proves to be playing an incentive role in the concern‘s working. He motivates the
employees with economic and non-economic rewards and thereby gets the work from the subordinates.
Providing Guidance: A leader has to not only supervise but also play a guiding role for the subordinates.
Guidance here means instructing the subordinates the way they have to perform their work effectively and
efficiently.
Creating Confidence: Confidence is an important factor which can be achieved through expressing the work
efforts to the subordinates, explaining them clearly their role and giving them guidelines to achieve the goals
effectively. It is also important to hear the employees with regards to their complaints and problems.

Building Morale: Morale denotes willing co-operation of the employees towards their work and getting them
into confidence and winning their trust. A leader can be a morale booster by achieving full co-operation so that
they perform with best of their abilities as they work to achieve goals.

Builds Work Environment: Management an efficient work environment helps in sound and stable growth.
Therefore, human relations should be kept into mind by a leader. He should have personal contacts with
employees and should listen to their problems and solve them. He should treat employees on humanitarian
terms.

Co-ordination: Co-ordination can be achieved through reconciling personal interests with organizational
goals. This synchronization can be achieved through proper and effective co-ordination which should be
primary motive of a leader.

5.6 Functions of a Leader


―An effective leader is one who can make ordinary men do extraordinary things, make common people do
uncommon things. Leadership is a lifting of a man‘s sights to a higher vision, the raising of man‘s standard to a
higher performance, the building of a man‘s personality beyond its normal limitations.‖
This view point of Peter stresses the leaders‘ obligation to attain organizational goals and gives attention to the
needs of the individuals who are his subordinates. The important functions of a business leader may be briefly
summarized as follows:

To Take the Initiative: A leader initiates all the measures that are necessary for the purpose of ensuring the
health and progress of the undertaking in a competitive economy. He should not expect others to guide or
direct him. He should lay down the aims and objectives, commence their implementation and see that the goals
are achieved according the predetermined targets.

He Identifies Group Goals: A leader must always help the group identify and attain their goals. Thus, a leader
is a goal setter.

He Represents The Organization: A leader represents the organization and its purpose, ideals, philosophy and
problems to those working for it and to the outside world .In other words, leaders is true representative of the
entire organization.

He Acts As Arbitrator: When groups experience internal difference, whether based on emotional or intellectual
clashes, a leader can often resolve the differences. He acts as an arbitrator to prevent serious group difference.

To Assign Reasons for His Action: It is a delicate task of leaders to assigns reason to his every command. He
has to instruct things in such a way that they are intelligible to all concerned and their co-operation is readily
forthcoming.
To Interpret: He interprets the objectives of the organization and the means to be followed to achieve them; he
appraises his followers, convinces them, and creates confidence among them.
To Guide and Direct: It is the primary function of the leader to guide and direct the organization. He should
issue the necessary instructions and see that they are properly communicated.

To Encourage Team Work: A leader must try to win the confidence of his subordinates. He must act like the
capital of a team.

He Manages the Organization: Last, but not the least, he administers the undertaking by arranging for the
forecast, planning, organization, direction, coordination and control of its activities.

Did You Know


B.F. Skinner is the father of behavior modification and developed the concept of positive reinforcement.

5.7 Types of Leaders


The different types of leadership are:
1. Autocratic or task Management Leadership,
2. Participative or Democratic Leadership,
3. Laissez faire or Free-rein Leadership, and
4. Paternalistic Leadership.

5.7.1 Autocratic or Task Management Leadership


The autocratic leader gives order which he insists shall be obeyed. He determines policies for the group
without consulting them, and does not give detailed information about future plans, but simply tells the group
what steps they must take.

In other words, an autocratic leader is one who centralizes the authority in himself and does not delegate
authority to his subordinates. He is dictatorial by nature, and has no regard for the subordinates. He drives
himself and his subordinates with one thought uppermost in his mind action must produce results.
An Autocratic leader operates on the following assumptions:
An average human being has inherent dislikes of work and will avoid it if he can.
His assumption is that if his subordinate was intelligent enough, he would not be in that subordinate
position.
He assumes that unintelligent subordinates are immature, unreliable and irresponsible persons. Therefore,
they should be constantly watched in the course of their work.
As he has no regard for his subordinates, he gets the work done by his subordinates through negative
motivation i.e. through threats of penalty and punishment.

Types of autocratic leadership are:


Strict Autocratic Leaders: A strict autocratic relies on negative influence and gives orders which the
subordinates must accept. He may also use his power to disperse rewards to his group.

Benevolent Autocrat: The benevolent is effected in getting high productivity in many situations and he can
develop effective human relationship. His motivational style is usually positive.
Manipulative Autocrat: A manipulative autocratic leader is one who makes the subordinates feel that they are
participating in decision making process even though he has already taken the decision.

5.7.2 Participative or Democratic Leadership


A democratic leader is one who consults and invites his subordinates to participate in the decision making
process. He gives orders only after consulting the group; sees to it that the policies are worked out in group
decisions and with the acceptance of group.
The manager largely avoids the use of power to get a job done. He behaves that a desired organizational
behaviour can be obtained if employees‘ needs and wants are satisfied. Therefore, he not only issues orders but
interprets them and sees to it that the employees have the necessary skill and tool to carry out their
assignments. He assigns a fair work lead to his personal and recognizes the job that is well done; there is a
team approach to the attainment of organizational goals. He recognizes human value for greater concern for his
subordinates.

A participative leader operates on the following assumptions:


Subordinates are capable of doing work and assuming the responsibility if they are given opportunities and
incentives.
Subordinates are supervised, guided and aided rather then threatened and commanded to work.
Mistakes are not viewed seriously. The assumption is that disciplinary action breeds discontent and
frustration among employees and creates an unhealthy work environment.

5.7.3 Laissez Faire or Free-rein Leadership


A free-rein leader does not lead, but leaves the group entirely to itself. The leader avoids using power and
interest the decision making authority to his subordinates. He does not direct his subordinates and there is
complete freedom for the subordinates. Group of members work them and provide their own motivation. The
manager exits as a contact man with outsiders to bring for his group the information and resources it needs to
accomplish its job.
A free-rain leadership operates on the following assumption:
He follows the rule of minimum exposure to accountability.
He relieves himself of responsibilities and is ready to blame his subordinates if something goes wrong.
He has no clear idea of the goals to be attained.
He is more security conscious than status conscious.

This mode of direction can produce good and quick results if the subordinates are highly educated and brilliant
people who have a will to go ahead and perform their responsibility.

5.7.4 Paternalistic Leadership


Under this type of leadership, the leader assumes that his function is fatherly. His attitude is that of treating the
relationship between the leader and his groups that of family with the leader as the head of the family.

The leader works to help to work, guide, protect and keep his followers happily working together as members
of a family. He provides them with good working condition, fringe benefits and employee services. It is said
that employees under such leadership well work harder out of gratitude.

Caution
A strict autocratic leader relies on negative influence and gives orders which the subordinates must accept.
Did You Know?
The managerial grid model was developed by Robert Blake and Jane Mouton in 1964 and suggests five
different leadership styles, based on the leaders.

5.8 Transactional and Transformational Theories


―Transformational leadership is closer to the prototype of leadership that people have in mind when they
describe their ideal leader, and it is more likely to provide a role model with which subordinates want to
identify‖.
Transactional leadership has been the traditional model of leadership with its roots from an organizational or
business perspective in the ‗bottom line‘. Stephen Covey writing in ‗Principle-Cantered Leadership‘ suggests
that transformational leadership ― focuses on the ‗top line‖ and offers contrast between the two (a selection
being):

Table 5.1: Difference between transactional leadership and transformational leadership


Transactional Leadership Transformational Leadership

• Builds on man‘s need to get a job done and make a • Builds on a man‘s need for meaning
living • Is preoccupied with purposes and values,
• Is preoccupied with power and position, politics morals, and ethics
and perks • Transcends daily affairs
• Is mired in daily affairs • Is orientated toward long-term goals without
• Is short-term and hard data orientated compromising human values and principles
• Focuses on tactical issues • Focuses more on missions and strategies
• Relies on human relations to lubricate human • Releases human potential identifying and
interactions developing new talent
• Follows and fulfils role expectations by striving to • Designs and redesigns jobs to make them
work effectively within current systems meaningful and challenging
• Supports structures and systems that reinforce the • Aligns internal structures and systems to
bottom line, maximize efficiency, and guarantee reinforce overarching values and goals.
short-term profits.

―The goal of transformational leadership is to ‗transform‘ people and organizations in a literal sense to change
them in mind and heart; enlarge vision, insight, and understanding; clarify purposes; make behaviour
congruent with beliefs, principles, or values; and bring about changes that are permanent, self-perpetuating,
and momentum building‖

Caution
Leadership technique should good working condition, fringe benefits and employee services to organisation.

5.9 Qualities of Leadership


A leader is one who knows that though the risk of failure may be great, they do not give up on themselves or
others. Leaders are people of exceptional character who are capable of bringing others through a crisis. All
leaders share certain qualities or characteristics, including:
1. Self-respect and Respect for Others. If you do not have a healthy self-respect, you would not respect others.
If you do not respect others, they will not respect you. You cannot lead people who do not respect you.
2. The Ability to Communicate Effectively. Leaders say what they mean and mean exactly what they say.
Effective communicators are far more persuasive than those who do not communicate well.
3. Integrity and Character. Leaders are not swayed by unsubstantiated opinions or unfounded rumours. Fame,
power, or material gains do not motivate them. Leaders have integrity, that strength of character that resists
assault.
4. Having a Vision: A mission (or a purpose), a sense of direction, and a clear set of goals. Moreover, they
know that their job is not done when one set of goals is reached. Leaders know that life is a journey.
5. Being Grounded. Leaders have a vision of what the world around them ought to be, but they are also
pragmatic. Things will not always go smoothly, but leaders understand that and have the presence of mind to
deal with that.
6. Courage. Fear is a powerful motivator; it causes many of us to turn away from our goals when our belief in
ourselves and our cause is not strong. Leaders are not fearless — leaders make a conscious choice to act in
spite of their fear.
7. Persistence, Commitment, and Dedication. It is like they always say: ―Winners do not quit, and quitters do
not win.‖ Nothing worth having comes easily. When setbacks crop up, leaders do not flag because they always
have their eyes on the prize.
8. Humility. Leaders are not self-promoting or self-aggrandizing. They do not take all the credit. They give
credit to others and refuse it for themselves.
9. A Sense of Responsibility. Leaders are willing to bear the ultimate responsibility for their undertakings.
They do not point the finger of blame when things go awry.
10. Decisiveness. When action is called for, real leaders do not waffle. Knowing that a window of opportunity
exists (―the time to act is now‖), they act quickly and effectively, based on the best available information.

Case Study-Coco Raynes Associates


Coco Raynes is a pioneer in the field of Universal Design. Her work includes an Accessible Information and
Way finding system for Charles de Gaulle Airport in Paris, and inclusive exhibits that have opened National
Museums in Colombia and France to blind visitors. She designed the award winning, multisensory identity for
the United States Access Board, as well as manufacturing techniques to permit tactile maps and information on
glass. The Raynes Rail, a Braille and Audio Handrail System with multilingual capabilities have been
recognized as an invention and are covered by U.S. and international patents.

Coco Raynes Associates, Inc. is a leader in the field of Environmental Graphics and Coco has lectured
worldwide on the subject. Her philosophy to work beyond minimum requirements with regard to quality,
aesthetics, ADA-Americans with Disabilities Act, and client expectations has resulted in innovative designs
and solutions. The firm‘s design excellence has been acknowledged with many prestigious awards, including
the Gold Awards from the industrial Designers Society of America (IDSA) in 1994, Honor Awards from the
society of Environmental Graphic Design (SEGD) in 1994 and 2002, and the CLIO Award in 2003.

For her career achievements, Coco Raynes was honored with the 2006 Women in Design Award of Excellence
from the Boston Society of Architects.

Question
1. Explain about the Coco Raynes.
2.What is the problem create in Coco Rayne association?
5.10 Summary
Leadership is a process of influencing on a group in a particular situation at a given point of time and in a
specific set of circumstances that stimulates people to strive willingly to attain organizational objectives,
Leadership style refers to the behaviour pattern adopted by a leader to influence the behaviour of his
subordinates for attaining the organizational goals.
The importance of leadership in an organization cannot be denied. People working in an organization
needs individuals (leaders) who could be instrumental in guiding the efforts of groups of workers to
achieve goals and objectives of both the individuals and the organization.
The subject of leadership is so vast and perceived to be so critical; there are four distinct approaches to
leadership, viz. Traits theory, Behaviouristic theory, Contingency theory and Charismatic theories of
leadership.
The dynamics of the relationship change when two people go from uncommitted companionship to
making a lifelong promise in front of God and a few of their closest friends.

5.11 Keywords
Communication Skill: A leader should have the ability to persuade, to inform, stimulate, direct and convince
his subordinates. To achieve this, a leader should have good communication skill. Good communications seem
to find all responsibilities easier to perform because they relate to others more easily and can better utilize the
available resources.
Conceptual Skill: Conceptual skills are skills that utilize the ability of a human to form concepts. Such skills
include thinking creatively, formulating abstractions, analyzing complex situations, and solving problems.
Leadership: Leadership has been described as the ―process of social influence in which one person can enlist
the aid and support of others in the accomplishment of a common task‖.
Social Skill: A social skill is any skill facilitating interaction and communication with others. Social rules and
relations are created, communicated, and changed in verbal and nonverbal ways. The process of learning such
skills is called socialization.
Teaching Skill: A leader should have the ability to demonstrate how to accomplish a particular task.

5.12 Self Assessment Questions


1. The importance of leadership in an....................... cannot be denied.
(a) Organization (b) leadership
(c) Leader (d) None of these.

2. Leadership is the........................of influencing the activities of an individual or a group towards the


achievement of a goal.
(a) Organization (b) process
(c) Leader (d) None of these.

3. There are five possible bases of power which are: reward power, coercive power, legitimate power,
referent power, and expert power.
(a). True (b). False
4. Referent power is based on the subordinate‘s identification with the leader. The leader is able to influence
the followers because of the interpersonal attraction and his personal charisma.
(a). True (b). False

5. A social skill is any skill facilitating interaction and........................ with others.


(a) Organization (b) process
(c) Communication (d) None of these
6. A democratic leader is one who consults and invites his subordinates to participate in the ........................
process
(a) Influence (b) decision making
(c) Communication (d) All of these.

7. A leader should act with........................ avoid anger, take decisions on a rational basis and think clearly
and maturely.
(a) Self-coincidence (b) decision making
(c) self- act (d) All of these.

8. It is closer to the prototype of leadership that people have in mind when they describe their ideal leader,
and it is more likely to provide a role model with which subordinates want to identify‖.
(a) Transactional Leadership (b) Transformational leadership
(c) Both (d) None of these

9. Types of leadership are.


(a) 2 (b) 3
(c) 4 (d) 5.

10. Leaders are people of exceptional character who are capable of bringing others through a crisis.
(a) True (b) False

5.13 Review Questions


1. What are the skills of leadership possess?
2 What are the differences between leadership and management?
3. What is the importance of leaders in an organization?
4. Explain the functions of a leader.
5. What do you mean by group decision-making?
6. Define leadership. Discuss about issues.
7. Explain the characteristics of leadership.
8. What are the differences between transactional leadership and transformational leadership?
9 Explain the various theories of leadership.
10 Explain the qualities of a good leader.

Answers for Self Assessment Questions


1. (a) 2.(b) 3.(a) 4.(a) 5.(c)
6. (b) 7(a) 8.(b) 9.(c) 10.(a)
6
Co-ordination and Co-operation
CONTENTS
Objectives
Introduction
6.1 Definition of Co‐Ordination
6.2 Co-Ordination As Essence Of Management
6.3 Principles of Co‐ordination

6.4 Techniques Objectives of Co‐ordination


6.5 Obstacles in Co-ordination
6.6 Essential of Effective Co-ordination
6.7 Summary
6.8 Keywords
6.9 Self Assessment Questions
6.10 Review Questions

Objectives
After studying this chapter, you will be able to:
Define definition of co‐ordination.
Explain co-ordination as essence of management,
Explain the principles of co‐ordination

Describe techniques objectives of co‐ordination


Explain obstacles in co-ordination
Discuss essential of effective co-ordination.

Introduction
An element in construction with a coordinate constituent must be syntactically construable with each conjunct,
the term co-ordination refers to syntactic constructions in which two or more units of the same type are
combined into a larger unit and still have the same semantic relations with other surrounding elements. Co-
ordination is a construction consisting of two or more members which are equivalent as to grammatical
function and bound together at the same level of structural hierarchy by means of a linking device.

Co ordination is the unification, integration, synchronization of the efforts of group members so as to provide
unity of action in the pursuit of common goals. It is a hidden force which binds all the other functions of
management. Co ordination is orderly arrangement of group efforts to provide unity of action in the pursuit of
common goals. According to Charles Worth, ―Co-ordination is the integration of several parts into an orderly
hole to achieve the purpose of understanding ―. Management seeks to achieve co ordination through its basic
functions of planning, organizing, staffing, directing and controlling. That is why; co ordination is not a
separate function of management because achieving of harmony between individuals efforts towards
achievement of group goals is a key to success of management. Co-ordination is the essence of management
and is implicit and inherent in all functions of management. A manager can be compared to an orchestra
conductor since both of them have to create rhythm and unity in the activities of group members.

6.1 Definition of Co‐Ordination


Co ordination is the unification, integration, synchronization of the efforts of group members so as to provide
unity of action in the pursuit of common goals. It is a hidden force which binds all the other functions of
management. Co ordination is orderly arrangement of group efforts to provide unity of action in the pursuit of
common goals. According to Charles Worth, ―Co-ordination is the integration of several parts into an orderly
hole to achieve the purpose of understanding ―. Management seeks to achieve co ordination through its basic
functions of planning, organizing, staffing, directing and controlling. That is why; co ordination is not a
separate function of management because achieving of harmony between individuals efforts towards
achievement of group goals is a key to success of management. Co-ordination is the essence of management
and is implicit and inherent in all functions of management. A manager can be compared to an orchestra
conductor since both of them have to create rhythm and unity in the activities of group members.
Co ordination is an integral element or ingredient of all the managerial functions as discussed below:
Co-ordination through Planning: facilitates co ordination by integrating the various plans through mutual
discussion, exchange of ideas (co ordination between finance budget and purchases budget).

Co-ordination through Organizing: Mooney considers co ordination as the very essence of organizing. In fact
when a manager groups and assigns various activities to subordinates, and when he creates department‘s co
ordination uppermost in his mind.

Co-ordination through staffing: A manager should bear in mind that the right no. of personnel in various
positions with right type of education and skills are taken which will ensure right men on the right job.

Co-ordination through directing: the purpose of giving orders, instructions and guidance to the subordinates
is served only when there is a harmony between superiors and subordinates.

Co-ordination through Controlling: Manager ensures that there should be co ordination between actual
performance and standard performance to achieve organizational goals.

Caution
In leadership technique manager should bear in mind that the right no. of personnel in various positions with
right type of education and skills are taken.
6.2 Co-Ordination As Essence Of Management
The need for co-ordination arises because of the following factors:
Division of Labour
When managers divide work into specialized functions or departments, they, at the same time create a need for
the co-ordination of these activities If all the work of an organization is done by two people in one unit, it is
clear that there is little need for co-ordination. But if the work has been divided into 10 units with 100
employees, the need for co-ordination is much greater. Co-ordination ensures proper synchronization between
activities of different units, avoids interruptions in operations due to reasons such as delay in the supply of
materials, tools, or vague directions or omissions, or wrong allocation of duties, and eliminates overlapping or
duplication of work.

Interdependence of Units
The need of co-ordination in an organization also arises because of the interdependence of various units. The
greater the interdependence of the units, the greater the need for co-ordination, this is illustrated by James
Thompson‘s typology of interdependence. Thompson points out that unit can be linked in any of three ways.

Pooled interdependence
Units linked by pooled interdependence make contributions to the total organization but are not directly
related. Hindustan Zilic smelter plants in Udaipur and Visakhapatnam both contribute to the company‘s profits,
but they are not directly interrelated. The need for co-ordination between them is minimal. All product based
departmentalization‘s, where there are separate self contained units for the manufacturing and marketing of
each product, are examples of pooled interdependence.

Sequential Interdependence
In this kind of linkage, one organizational unit must act before the next can. For example, in a beer company
its distribution unit will have nothing to distribute until the beer has been brewed and bottled. Similarly in a
textile company having ginning, spinning, weaving and printing units later units depend on earlier ones.
Greater co-ordination is necessary in sequential than in pooled interdependence, though here also the
dependence of units can be reduced by creating buffer inventories.

Reciprocal Interdependence
In this relationship, the input of one unit becomes the output of the other and vice versa. The maintenance and
operations departments of an airline company provide an example of this kind of relationship. When the
maintenance department finishes servicing an aero plane, the aero plane is an output of maintenance. The
serviced aero plane then becomes an input to operations. When the operations department sees that an aero
plane needs maintenance, the aero plane is an output of operations and becomes an input to maintenance.
Obviously, this close interrelationship leads to the strongest need for co-ordination between maintenance and
operations.

Individual Interests versus Organizational Interests


The need for co-ordination is also felt to integrate the activities and objectives of the separate units of an
organization in order to efficiently achieve organizational goals.
Without co-ordination, individuals and departments would begin to pursue their own specialized interests,
often at the expense of the larger organizational goals. Co-ordination reconciles differences in approach, effort
or interest of various departments by avoiding inconsistencies in their priorities, objectives and policies. It
harmonizes corporate and individual goals by making individuals see how their jobs contribute to the
dominant goals of the enterprise. This implies knowledge and understanding of enterprise objectives, not just
on the part of a few at the top but by everyone, throughout the enterprise. In short, if the efforts of employees
are closely coordinated, their total accomplishment is far greater than the sum total of the individual
achievements. Within any group, co-ordination makes possible a total accomplishment in excess of the sum of
the individual parts making up that total. The total accomplishment of department consisting of ten employees,
whose efforts are closely coordinated, is far greater than that of the same ten employees working as
individuals. This is the synergic effect of co-ordination.

6.3 Principles of Co‐ordination


Co-ordination is a person entered assessment based, interdisciplinary approach to integrating Principal of
Management, support services in which an individual‘s needs and goals are assessed and a care plan developed
to address those needs and goals. Services are managed and monitored by a trained care coordinator or
interdisciplinary team according to established standards.
Efficiency and Effectiveness
Co-ordination helps to improve the efficiency of operations by avoiding overlapping efforts and duplication of
work. Quality of co-ordination determines the effectiveness of organized efforts.

Unity of Direction
Co-ordination helps to ensure unity of action in the face of disruptive forces. It helps unity of action and helps
to avoid conflicts between line and staff elements.

Human Relation
Co-ordination helps to improve team spirit and morale of employees. In a well coordinated organization,
organizational goals and personal goals of people are reconciled.

Quintessence of Management
Co-ordination is all inclusive concepts and the end result of management process. Co-ordination helps in the
accomplishment of organizational goals.

Did You Know?


Establishment and development has been at the core of UN mine action ever since the first such centre was
established for Afghanistan in 1989.

6.4 Techniques Objectives of Co‐ordination


Coordinating completion of complex tasks in an organization typically requires planning and organization.
With technology advancements, business owners have a variety of freely available software application
options to manage their company‘s projects and operations. Techniques such as effective decision making,
process improvement and time management, allow your company to get more done in less time to achieve
your strategic goals and objectives.
The main techniques of effective co-ordination are as follows:
Sound Planning
Unity of purpose is the first essential condition of co-ordination. Therefore, the goals of the organization and
goals of its units must be clearly defined. Every member of the organization must understand fully how his job
contributes to the overall objectives. Plan-ning is the ideal stage for co-ordination. Clear cut objectives,
harmonized policies and integrated procedures ensure uniformity of action. Various plans should be integrated
properly. Precise policies and comprehen-sive programmers facilitate co-ordination of activities and
individuals. Standard procedures and rules create uniformity in repetitive operations.

Simplified Organization
A simple and sound organization is an important means of co-ordination. The line of authority and
respon-sibility from top to the bottom of the organization structure should be clearly defined. Clear cut
definition of authority and responsibility of ach department and individual helps to avoid conflicts. Clear cut
authority relationships help to reduce conflicts and to hold people res-ponsible. Related activities should be
grouped together and jobs should properly inter relate. Well drawn organization charts, organizational manuals
and proper allocation of work make for uniform action. Some cases, rearrangement of departments may be
necessary to chief co-ordination of thought and action.

Effective Communication
Open and regular communication is they to co-ordination. Effective inter change of opinions and information
helps in resolving differences and in creating mutual understanding. Personal or face to face contacts are the
most effective means of communication and co-ordination. Committees help to promote unity of purpose and
uniformity of action. They provide an opportunity for free and frank exchange of views. Co-ordination
becomes easier when different functional groups are represented in the decision making process. Committees
are helpful in integrating the activities of different departments. Committee decisions are collective decisions
and such group decisions themselves provide co-ordination among different departments or func-tions in the
enterprise. Personal or face to face communication may be supplemented by written communication. Informal
communication can also be utilized for the purpose of co-ordination.

Effective Leadership and Supervision


Effective leadership ensures co-ordination of efforts both at the planning and the execution stage. A good
leader can continuously guide the activities of his subordinates in the right direction and can inspire them to
pull together for the accom-plishment of common objectives. Sound leadership can persuade subor-dinates to
have identity of interests arid to adopt a common outlook. Effective leadership reduces the dependence on such
formal means of co-ordination as authority, rules and procedures. In fact, no technique of co-ordination can
replace effective leadership. Personal supervision is an important method of resolving differences of opinion. It
helps to ensure that work proceeds as planned. Co-ordination is a human task and a manager can accomplish it
through interpersonal relations. Informal contacts with subordinates help to create climate of mutual trust and
cooperation which is the foundation of co-ordination, Luther Gallic has called coordinating by ideas to
describe the use of leadership in co-ordination.

Chain Of Command
Authority is the supreme coordinating power in an organization. Exercise of authority through the chain of
command or hierarchy is the traditional means of co-ordination. Chain of command brings together the
different parts of an organization and relates them to a central authority. Co-ordination between interdependent
units can be secured by putting them under one boss. Because of his organizational position, a superior has the
authority to issue orders and instructions to subordinates.
He can resolve inter positional and intergroup conflicts. However, behavioral scientists have warned against
over dependence on chain of command. According to Chris Argyrols, the hierarchy techni-que of co-ordination
makes individuals dependent upon and passive towards the leader. It is inconsistent with the needs of mature
per-sonality. The hierarchical structure may impair communication and decision making.
Indoctrination and Incentives
Indoctrinating organizational members with the goals and mission of the organization can transform a neutral
body into a committed body. Similarly, incentives may be used to rebate mutuality of interest and to reduce
conflicts. For instance, profit sharing is helpful in promoting team spirit and cooperation between employers
and workers. Such mutuality of interest reduces strife and insures better co-ordination.

Liaison Departments
Where frequent contact between different organizational units is necessary, liaison officers may be employed.
For instance, a liaison department may ensure that the production depart-ment is meeting the delivery dates
and specifications promised by the ales department. Special coordinators may be appointed in certain assets.
For instance, a project coordinator is appointed to coordinate the activities of various functionaries in a project
which is to be completed it in a specified period of time. Liaison officers act as ‗linking pins‘ in organization
and compensate for lack of face to face contacts.‘

General Staff
In large organizations, a centralized pool of staff experts is used for co-ordination. A common staff group
serves as the clearing house of information and specialized advice to all the depart-ments of the enterprise.
Such general staff is very helpful in achieving inter departmental or horizontal co-ordination.

Voluntary Co-ordination
When every organizational unit appreciates the working of related units and modifies its own functioning to
suit them, there is self co-ordination. Self co-ordination or voluntary co-ordination is possible in a climate of
dedication and mutual cooperation. It results from mutual consultation and team spirit among the members of
the organization. It arises when every member of the group takes cognizance of the effects of his actions on
others. Under self co-ordination, members of an organization voluntarily adjust their behaviour according to
the needs of the situation. Self co-ordination is the voluntary efforts of independent units or subunits of an
organization to achieve the harmonious performance of their respective responsibilities. But self co-ordination
requires that individuals have sufficient knowledge of organizational goals, adequate information concerning
the specific problem of co-ordination, and the motivation to do something on their own. Managers cannot rely
on self co-ordination as these con-ditions are not always fulfilled. Self co-ordination cannot be a substitute for
co-ordination from above. Managers have to make deliberate efforts to bring unity of purpose in the activities
of subordinates. In the words of Harman, ―neither the principle of self co-ordination nor the concept of self
adjustment is a substitute for co-ordination.

Did You Know?


In September 2000 by the largest gathering of world leaders in history, committing their nations to a new
global partnership to reduce extreme poverty.

6.5 Obstacles in Co-ordination


Coordination problems reflect a child‘s experience of his or her body in space. Movement is a child‘s first
language. Through movement, he explores the world, gains a sense of his own position in space, develops an
awareness of his own body map and learns to co-ordinate eyes and body together.
His body is also his first vehicle of expression; posture and gesture tell a story of their own, long before fluent
speech develops. Body language stays with us for the remainder of our lives. The most advanced level of
movement is the ability to stay totally still. To remain still requires whole muscle groups to operate together in
perfect synchrony with the balance mechanism. The child in reception class or year 1 who is unable to sit still
may be demonstrating that he does not yet have sufficient control over his body to sublimate movement, and
focus attention on other tasks.
Movement and language are linked in the early stages of language development. Ask a two-and-a-half-year-old
to say ―hand‖ and he will usually wave his hand as he says it. Only as a child starts to develop automatic
control of movement, can language emerge as an independent skill. Why are these things so important for
learning at school?

It used to be thought that primitive reflexes could not persist in their crude form amongst normal children. A
growing body of research now suggests that vestiges of early reflex patterns can and do persist amongst some
normal schoolchildren, and continue to hamper these children in the development of basic skills. An
inadequate vocabulary of voluntary movement patterns will limit a child‘s expressive abilities. Children who
are motor-impaired find it difficult to integrate their personalities into the environment because they do not
have a complete repertoire of appropriate reactions. Lack of atomization in motor skills will impede cognitive
processing, so that a child may know what he wants to say, but be unable to combine the motor actions of
writing with fluent expression of ideas.
Movement helps to develop spatial awareness, directionality and control of balance. The balance mechanism is
linked to the muscles that control eye movements via a circuit called the vestibular-ocular-reflex arc. Children
with poor balance frequently also show impaired eye movements which in turn can affect reading ability and
simple tasks such as aligning columns for calculation in maths.

Less and less is movement a part of our children‘s daily lives. From birth they often go into molded baby seats
for their waking hours. Whilst these are invaluable for the modern mother, they should never replace the floor
as the first exercise ground. Crawling represents a crucial stage in the integration of motor patterns, for in the
process of crawling the infant learns to synchronies this balance, motor, kinetic and visual systems for the first
time. Then hand-eye co-ordination involved in crawling is carried out at exactly the same visual distance that a
child will use to read and write.
The two-to-three-year-old needs plenty of time to run, to hop, skip and jump; to roll and tumble. These
activities help to prime the motor system in preparation for fine muscle skills. Hours spent in front of the
television are hours of passive learning – they do not integrate new material into existing systems. The child
under the age of 7 learns best when he relates physically and emotionally to material.

The old-fashioned system of ―sounding out‖ as a class was an example of an active method of learning. It
helped to build auditory memory,. Before we learn to sub vocalize, something many of us do when trying to
commit something to memory, and we first need to vocalize. The school-age child needs time to move as well
as time to sit still – not all difficulties with reading, writing and attention reside in the head; some are linked to
the body.

Did You Know?


Abridged extract from Natural Parent magazine January/February 1999 by Sally Goddard Blythe.

6.6 Essential of Effective Co-ordination


The main-techniques of effective coordination are as follows:
Sound planning
Unity of purpose is the first essential condition of coordination. Therefore, the goals of the organization and
goals of its units must be clearly defined. Every member of the organization must understand fully how his job
contributes to the overall objectives. Planning is the ideal stage for coordination.
Clear-cut objectives, harmonized policies and integrated procedures ensure uniformity of action. Various plans
should be integrated properly. Precise policies and comprehensive programmers facilitate coordination of
activities and individuals. Standard procedures and rules create uniformity in repetitive operations.

Simplified organization
A simple and sound organization is an important means of coordination. The line of authority and respon-
sibility from top to the bottom of the organisation structure should be clearly defined. Clear-cut definition of
authority and responsibility of ach department and individual helps to avoid conflicts.
Clear-cut authority relationships help to reduce conflicts and to hold people responsible. Related activities
should be grouped together and jobs should properly inter-related. Well-drawn organization charts,
organizational manuals and proper allocation of work make for uniform action.

Effective communication
Open and regular communication is they to coordination. Effective inter-change of opinions and information
helps in resolving differences and in creating mutual understanding. Personal or face-to-face contacts are the
most effective means of communication and coordination.
Committees help to promote unity of purpose and uniformity of action. They provide an opportunity for free
and frank exchange of views.

Coordination becomes easier when different functional groups are represented in the decision-making process.
Committees are helpful in integrating the activities of different departments.
Committee decisions are collective decisions and such group decisions themselves provide coordination
among different departments or functions in the enterprise.
Personal or face-to-face communication may be supplemented by written communication. Informal
communication can also be utilized for the purpose of coordination.

Effective leadership and supervision


Effective leadership ensures coordination of efforts both at the planning and the execution stage. A good leader
can continuously guide the activities of his subordinates in the right direction and can inspire them to pull
together for the accomplishment of common objectives.
Sound leadership can persuade subordinates to have identity of interests arid to adopt a common outlook.
Effective leadership reduces the dependence on such formal means of coordination as authority, rules and
procedures. In fact, no technique of coordination can replace effective leadership.
Personal supervision is an important method of resolving differences of opinion. It helps to ensure that work
proceeds as planned.

Coordination is a human task and a manager can accomplish it through interpersonal relations. Informal
contacts with subordinates help to create climate of mutual trust and cooperation which is the foundation of
coordination, Luther Gallic has called coordinating by ideas to describe the use of leadership in coordination.

Chain of Command
Authority is the supreme coordinating power in an organization. Exercise of authority through the chain of
command or hierarchy is the traditional means of coordination. Chain of command brings together the
different parts of an organization and relates them to a central authority.
Coordination between interdependent units can be secured by putting them under one boss. Because of his
organizational position, a superior has the authority to issue orders and instructions to subordinates. He can
resolve inter-positional and intergroup conflicts.
However, behavioral scientists have warned against over-dependence on chain of command. According to
Chris Argyrols, the hierarchy technique of coordination makes individuals dependent upon and passive
towards the leader. It is inconsistent with the needs of mature personality. The hierarchical structure may
impair communication and decision-making.

Indoctrination and incentives


Indoctrinating organizational members with the goals and mission of the organization can transform a neutral
body into a committed body. Similarly, incentives may be used to rebate mutuality of interest and to reduce
conflicts.
For instance, profit sharing is helpful in promoting team-spirit and cooperation between employers and
workers. Such mutuality of interest reduces strife and insures better coordination.

Liaison departments
Where frequent contact between different organizational units is necessary, liaison officers may be employed.
For instance, a liaison department may ensure that the production department is meeting the delivery dates and
specifications promised by the ales department.
Special coordinators may be appointed in certain assets. For instance, a project coordinator is appointed to
coordinate the activities of various functionaries in a project which is to be completed it in a specified period
of time. Liaison officers act as 'linking pins' in organization and compensate for lack of face-to-face contacts.'

General staff
In large organizations, a centralized pool of staff experts is used for coordination. A common staff group serves
as the clearing house of information and specialized advice to all the departments of the enterprise.
Such general staff is very helpful in achieving inter-departmental or horizontal coordination.

Voluntary coordination
When every organizational unit appreciates the working of related units and modifies its own functioning to
suit them, there is self-coordination. Self-coordination or voluntary coordination is possible in a climate of
dedication and mutual cooperation. It results from mutual consultation and team-spirit among the members of
the organization. It arises when every member of the group takes cognizance of the effects of his actions on
others. Under self-coordination, members of an organization voluntarily adjust their behavior according to the
needs of the situation. Self-coordination is the voluntary efforts of independent units or subunits of an
organization to achieve the harmonious performance of their respective responsibilities.

But self-coordination requires that individuals have sufficient knowledge of organizational goals, adequate
information concerning the specific problem of coordination, and the motivation to do something on their own.
Managers cannot rely on self-coordination as these conditions are not always fulfilled. Self-coordination
cannot be a substitute for coordination from above. Managers have to make deliberate efforts to bring unity of
purpose in the activities of subordinates.
In the words of Harman, "neither the principle of self-coordination nor the concept of self-adjustment is a
substitute for coordination. It takes the efforts of the leader or the manager to bring about coordination, and the
goal of the enterprise cannot be successfully obtained without it."

Caution
Every member of the organization must understand fully how his job contributes to the overall objectives.
Planning is the ideal stage for coordination.
Case Study-Theory and Practice of Co-ordination and Ownership
The case shows that main actors in the Bangladesh health SWAP interpret ownership and co-ordination,
fundamental aspects of SWAP, differently. As long as work ran smoothly, the different definitions did not
create any problems, but when disagreements arose they became an obstacle. It is concluded that partners in
development should devote more effort to their working relationships and that responsibilities within a SWAP
need to be more clearly delineated. During the study period the Government of Bangladesh decided to reverse
a decision to unify the two wings of the Ministry of Health and Family Welfare. The decision led to
disagreements with development partners, which had serious implications for cooperation between key actors
in the Bangladesh health sector leading to deteriorated relationships and suspension of donor funds. The donor
community in itself was also in disagreement which led to inconsistencies in the dialogue between the
development partners and the Government of Bangladesh.
The population in Bangladesh was at very high growth levels in the 1970s and 1980s. In spite of increasing
efforts, it stubbornly refused to come down. The urgent need for population control led to donor demand on the
Government of Bangladesh to create a separate directorate within the Ministry of Health and Family Welfare
(Ministry of Health) responsible for all family planning activities. During the four health and population
programs that were undertaken following independence in 1969, Bangladesh experienced a rapid growth in
both number of donors as well as the amount of money available. The large aid presence resulted in a
fragmented sector with little co-ordination and a large number of projects. The Fourth Health and Population
Program alone accounted for around 75 different projects.
This was partly due to the fact that there was no mechanism established for co-ordination of donors. During
the 1990s, it was recognized that increased co-ordination and comprehensive reform of civil service was
needed, which led to emphasis being placed on developing a sector wide development program that would
initiate reforms and increase efficiency. After reviewing and evaluating the Fourth Population and Health
Project in Bangladesh, it was concluded that the focus on carrying out activities in the form of projects was
inefficient. The Health and Population Sector Program (HPSP), which commenced in 1998, therefore marked a
change in the way health sector development was designed in Bangladesh. In the HPSP, a model of sector wide
management was adopted to plan the health and population sectors jointly. With the HPSP major structural
changes were introduced to strengthen the health system. Up until the inception of the HPSP, there had been
different structures for management and delivery of family planning services and regular health services. There
had also, at every level, been very little collaboration between the two. In the design of the HPSP it was agreed
that stronger integration in service delivery was needed in order to increase efficiency.
Situation
The study object was a process of decision making in the Government of Bangladesh in 2003. In the past
decade the sector wide approach (SWAP) model has been promoted by donors and adopted by governments in
several countries. The purpose of this study is to look at how partners involved in the health SWAP in
Bangladesh define ownership and co-ordination, in their daily work and to analyse the possible implications of
these definitions.

Questions
1. Discuss the health and population sector program.
2. What is SWAP model?

6.7 Summary
Mooney considers co ordination as the very essence of organizing. In fact when a manager groups and
assigns various activities to subordinates, and when he creates department‘s co ordination uppermost in his
mind.
Manager ensures that there should be co ordination between actual performance and standard performance
to achieve organizational goals.
Co ordination is the basic responsibility of management and it can be achieved through managerial
functions. No manager can evade or avoid this responsibility.
Co-ordination may be variously classified as internal or external, vertical or horizontal and procedural or
substantive.
Procedural co-ordination implies the specification of the organization in itself. Substantive co-ordination is
concerned with the content of the organizations activities.
Co-ordination is defined with respect to all parties who are in any way affected by a venture, and not just
those who join in voluntarily.

6.8 Keywords
Co–operative Venture: The term cooperative venture is often used merely to signify some alternative to 100%
equity ownership of a foreign affiliate.
Co–ordination through Planning: It is co ordination by integrating the various plans through mutual
discussion, exchange of ideas,
Directing: Directing means giving necessary information, proper instructions and guidance to sub-ordinates.
This results in co-ordination.
Division of Labor: When managers divide work into specialized functions or departments, they, at the same
time create a need for the co-ordination of these activities.
Internal and External Co-ordination: Co-ordination between the different units of an organization is known
as internal co-ordination. External co-ordination refers to co-ordination between an organization and its
external environment customers, investors.

6.9 Self Assessment Questions


1. Co–ordination may be variously classified as:
(a) Internal or external (b) Vertical or horizontal
(c) Procedural or substantive (d) All of these.

2. The function of co-operation is performed by:


(a) Top level management only. (b) Mid level management.
(c) Low level management. (d) Any level.

3. Which of the following statements is incorrect?


i. Co-ordination is not an ongoing and dynamic process.
ii. Co-ordination is the basic responsibility of management and it can be achieved through managerial
functions.
iii. Co-ordination can arise spontaneously or by force.
iv. The heart of co-ordination is the unity of purpose which involves fixing the time and manner of performing
various activities.
(a) i (b) ii, and iv
(c) i and iii (d) None of these.

4. When information is exchanged between superiors and subordinates of an organization then it is known as:
(a) Vertical communication (b) Horizontal communication
(c) Both a and b (d) None of these.

5. Giving necessary information, proper instructions and guidance to sub-ordinates is termed as:
(a) Directing. (b) Division of Labour.
(c) Internal Co-ordination. (d) External Co-ordination.

6. Vertical communication is more formal than horizontal communication.


(a) True (b) False

7. Co-operation is termed as a part of co ordination


(a) True (b) False

8. Co-operation is broader than co-ordination which includes as well because it harmonizes the group efforts
(a) True (b) False

9. In case of horizontal communication maintaining the secrecy is difficult


(a) True (b) False

10. Staffing involves recruitment and selection.


(a) True (b) False

6.10 Review Questions


1. What do you mean by co‐ordination?
2. Defined Characteristics of a Good Co‐ordination
3. Explain types of co-ordination.
4. Describe chain of command?
5. Define voluntary co-ordination.
6. What is vertical and horizontal co‐ordination?
7. Distinguish between vertical and horizontal communication.
8. What do you understand by effective leadership and supervision?
9. Explain the factors of production increasing the efficiency.
10. Explain human betterment and social justice.

Answers for Self Assessment Questions


1. d 2. d 3. b 4. a 5. a
6. a 7. a 8. b 9. a 10.a
7
Direction
CONTENTS
Objectives
Introduction
7.1 Concept of Directing
7.2 Nature of Direction
7.3 Importance of Directing
7.4 Principles of Directing
7.5 Process of Direction
7.6 Techniques and Essentials of Effective Control
7.7 Summary
7.8 Keywords
7.9 Self Assessment Questions
7.10 Review Questions

Objectives
After studying this chapter, you will be able to:
Understand concept of directing
Describes nature of direction
Explain importance of direction
Discuss about principle of direction
Describes the process of direction
Define techniques and essentials of effective control

Introduction
The managerial function of directing is like the activities of a teacher in a classroom. In order to teach, a
teacher has to guide his students, maintain discipline, inspire them and lead them to the desired goal. It is a
very important function in the management of any enterprise. It helps the managers in ensuring quality
performance of jobs by the employees and achievement of organizational goals. It involves supervision,
communication and providing leadership to the subordinates and motivating them to contribute to their best of
capability.

Directing means giving instructions, guiding, and counselling, motivating and leading the staff in an
organization in doing work to achieve Organizational goals. Directing is a key managerial function to be
performed by the manager along with planning, organizing, staffing and controlling. From top executive to
supervisor performs the function of directing and it takes place accordingly wherever superior – subordinate
relations exist. Directing is a continuous process initiated at top level and flows to the bottom through
organizational hierarchy.
Someone who directs is one who delegates work and responsibility, but they keep ultimate responsibility for
the final result. They often give work to others and keep all of those involved on track - making sure they meet
their goals and that they meet them on time. While they expect individuals to do their part, they often allow
those individuals to do things their way - basically allowing them the freedom to decide how they will achieve
their goals. The director only gets involved in the smaller details if something goes wrong.

―Management is the art and process of getting things done through and with the people.‖ The managers have,
therefore, the responsibility not only of planning and organizing the operations but also of guiding and
directing the subordinates. Thus, direction, in simple words, is guiding the subordinates in doing work. In this
way, direction is an important managerial function performed by all the managers at all levels of organization.
Direction is concerned with directing human efforts towards the achievement of organizational goals and
objectives. A superior or boss in an organization gives direction to his subordinates and the subordinates
receive directions from their superiors or bosses.

7.1 Concept of Directing


Directing means giving instructions, guiding, counselling, motivating and leading the staff in an organisation
in doing work to achieve Organisational goals. Directing is a key managerial function to be performed by the
manager along with planning, organising, staffing and controlling. From top executive to supervisor performs
the function of directing and it takes place accordingly wherever superior – subordinate relations exist.
Directing is a continuous process initiated at top level and flows to the bottom through organisational
hierarchy.

Directing is said to be a process in which the managers instruct, guide and oversee the performance of the
workers to achieve predetermined goals. Directing is said to be the heart of management process. Planning,
organizing, staffing has got no importance if direction function does not take place.
Directing initiates action and it is from here actual work starts. Direction is said to be consisting of human
factors. In simple words, it can be described as providing guidance to workers is doing work. In field of
management, direction is said to be all those activities which are designed to encourage the subordinates to
work effectively and efficiently. ―Directing consists of process or technique by which instruction can be issued
and operations can be carried out as originally planned‖ Therefore, Directing is the function of guiding,
inspiring, overseeing and instructing people towards accomplishment of organizational goals.
While managing an enterprise, managers have to get things done through people. In order to be able to do so,
they have to undertake many activities, like guide the people who work under them, inspire and lead them to
achieve common objectives. An office manager, for instance, has to supervise the activities of his subordinates,
i.e., typists, office assistants, dispatchers, accounts clerks, etc. He has to issue instructions to them and describe
and illustrate the work and related activities. He has to tell them what to do, and how to do it.
The office manager can plan, organize and appoint people, but he cannot get things done, unless he assigns
specific duties to his subordinates and motivates them to perform well. All these activities of a manager
constitute the directing function. Thus, directing is concerned with instructing, guiding, supervising and
inspiring people in the organization to achieve its objectives. It is the process of telling people what to do and
seeing that they do it in the best possible manner.
The directing function thus, involves:
Telling people what is to be done and explaining to them how to do it
Issuing instructions and orders to subordinates to carry out their assignments as scheduled
Supervising their activities
Inspiring them to meet the mangers expectation and contribute towards the achievement of organizational
objectives
Providing leadership
Managers plan and take decisions. They organize to define the work and create suitable positions in the
enterprise. People are employed to perform the jobs, but the actual work of getting the job done comes
under the directing function. Thus, directing is ‗management in action‘. It is through the exercise of this
function that managers get things done through people.

7.1.1 Definitions of Direction


Direction has been defined by certain important managerial authorities in the following words:
In the other words, ―Direction is a complex function that includes all those activities which are designed to
encourage subordinates to work effectively and efficiently in both short and long term.‖
In the other words ―Direction is telling people what to do and seeing that they do it to the best of their ability.
It mistakes are corrected, providing on-the-job instructions and, of course, issuing orders.‖
In the other words ―Directing consists of the process and techniques utilized in issuing instructions and making
certain that operations are carried on as originally planned.

It is that part of managerial function which actuates the organizational methods to work efficiently for
achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in motion the
action of people because planning, organizing and staffing are the mere preparations for doing the work.
Direction is that inert-personnel aspect of management which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the achievement of organizational goals.
Direction has following elements:
Supervision
Motivation
Leadership
Communication
Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching and
directing work and workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive,
negative, monetary, non-monetary incentives may be used for this purpose.
Leadership- may be defined as a process by which manager guides and influences the work of subordinates in
desired direction.
Communications- is the process of passing information, experience, opinion etc from one person to another. It
is a bridge of understanding.

7.1.2 Essential Components


Direction has three essential components:
Issuing of Instructions and Orders
Fayol has identified ‗direction‘ as the function of command. While a manager issues orders, he should have it
in his mind that he is dealing with people.

Guiding the People


Management is the process of getting things done, or to get the work done, a manager will have to guide and
teach the subordinate in the proper method of work.

Supervising the People


Lastly, management will have to supervise the subordinates to ensure that their performance conforms to the
plans..

7.1.3 Sub-functions of Directing


Communication, supervision, motivation and leadership are the four sub-functions of directing discussed
below:

Communication
Communication is a basic organizational function. Communication is the process by which a person transmits
information or messages to other persons. In an organization, supervisors transmit information to subordinates.
Proper communication results in securing the cooperation of subordinates. Faulty communication may create
problems due to misunderstanding between the superior and subordinates. The purpose of communication is to
convey orders, instructions, or information so as to bring desired changes either in the performance or attitude
of employees. When a message is conveyed to subordinates and it is correctly understood, supervisors are said
to have communicated it effectively to the subordinates.

Hence effective communication may be said to take place when:


There are two parties, that is the sender and the receiver
There is a message
The communication is made orally or in writing or through non-verbal means
The process of communication is complete, i.e., the message is understood properly

Sometimes due to the use of faulty language by the sender, or wrong perception of either the sender or
receiver, the communication is not understood properly. For instance, the office manager may issue
instructions to the typist to type certain documents by lunch time. The typist may understand it to mean typing
after 2 o‘clock in the afternoon. Here, communication is not effective and the manager may not get the typed
material in time. This may result in delaying related actions or postponing the action. It may also create
misunderstanding between the superior and subordinates. The message in the communication must, therefore,
be clear. The method adopted to communicate the message should be simple and effective. It is only through
effective communication that managers could direct the subordinates, and get things done.
In oral communication, the receiver should pay attention to what is being said, avoid not to get influenced by
one‘s personal feelings and listen to the main points. While communicating a message the sender should take
into account people‘s feelings, convey the message clearly and in steps and control his voice and tone.
Communication is not merely interchange of words. It may also be nonverbal. It includes use of facial
expressions, gestures, emphasis etc. that suggest real meaning to the receiver. The sender should use all these
elements effectively in order to add meaning to his words. Such qualities enhance the effectiveness of
communication.
Importance of Communication
In their daily routine managers spend a lot of time communicating with their subordinates in the form of
listening, speaking, reading and writing. They are to establish an understanding with the employees to get
things done through and with their help. In the absence of orders and instructions work cannot be performed.
Managers must also be informed about the progress of work, for which subordinates must communicate with
their superiors. If the employees are not properly informed about the work to be performed during a specified
period and how every job is related with other jobs, they may not realize the importance of their jobs in
achieving the goals of the business. Thus, communication not only helps in developing mutual understanding
among the employees but also unifies their activities into a team work.

Facts and figures are the basis of decision making. Communication of information is necessary for all types of
decisions. After any decision is made the same must be communicated to those who are to implement it.
Communication also plays an important role in motivating employees. Supervision depends upon effective
communication. When instructions are passed on, the same must be understood by the subordinates in the
same sense in which the supervisors want to convey it.
Effective communication builds up mutual trust and confidence between management and employees. It
establishes a chain of understanding that binds an enterprise vertically and horizontally.

Leadership
While motivation is the process through which employees are made to contribute voluntarily to work,
leadership is the ability to persuade and motivate others to work in a desired way for achieving the goal. Thus,
a person who is able to influence others and make them follow his instructions is called a leader. For example,
in an organization the management decides to install some new machines to which the workers are resisting.

However, one of the workers takes the initiative, explains the fellow workers the benefits of working with the
new machines and moulds them to accept the management‘s decision. Now he is said to be leader as he is able
to influence a group of workers who followed him. In practice, the managers have to guide and lead their
subordinates towards the achievement of goals, and so, to be an effective, a manager has to be a good leader.
Leadership is the process, which influences the people and inspires them to willingly accomplish the
organizational objectives. The main purpose of managerial leadership is to get willing cooperation of the
workgroup in pursuit of the goals.

Importance of Leadership
The objectives of any organization can only be fulfilled if its employees are working towards accomplishment
of such objectives. To make people work in the desired manner, proper instructions and guidance are
necessary. And this direction process becomes effective when the persons who give such direction have
leadership qualities. Leadership is essential in functioning of any organization and its importance and benefits
are varied.

Some of these importance‘s are:


Leadership improves the performance of the employees. Leaders can motivate the followers to work and
thereby increase their performance level.
With continuous support and guidance, leaders are able to build confidence among the followers, thereby
increasing speed and accuracy and decreasing wastage.
With friendly and cooperative efforts the leader is able to build employees‘ morale which in turn
contributes to higher productivity.
Motivation
Inspiring people to work as efficiently as possible is an important task of managers. If managers fail to inspire
employees, they will not contribute their maximum effort. Motivation, thus, is necessary so that jobs may be
performed satisfactorily. Motivation requires the use of means to fulfil the needs and desires that may induce
individuals to apply their best abilities in work. People want to satisfy their needs for food, clothing and
shelter. They work and receive wages and salaries to satisfy their needs.

When they are rewarded with additional pay or increments, they are all the more willing to contribute their
maximum efforts. Thus, motivation is the internal feeling of individuals, which is activated through external
factors like increase in pay or appreciation of work they have performed. The internal feeling generally relates
to the felt needs and desires of individuals which influence their behaviour. Individuals then adopt an
appropriate behaviour so as to satisfy the desires and needs.

They may decide to work seriously on the job or may adopt an indifferent attitude towards it depending on
their expectations about the fulfilment of needs and desires through job performance. For instance, a worker
who earns wages for his work and satisfies his basic needs may work more efficiently if he gets higher wages
for his performance. But for the same worker, other needs may become more important once his basic needs
are satisfied. He may seek recognition and appreciation for the good work done and if these needs are not
satisfied, he may not devote himself full to the work. His earlier needs and desires may no longer be effective
as motivating factors at that stage. In order to motivate the employees, it is, therefore, necessary that managers
should ascertain the needs and desires of those working under them.

But merely knowing about the needs and desires of people is not enough. It is also necessary to find out
whether people are work minded. It is also possible that in spite of the manager‘s initiative to satisfy their
needs the work situation may not be favourable for motivating employees.
Employees may be given monetary rewards in the form of higher wages or salaries; or promoted to higher
position or awarded certificates of merit in recognition of good work they have done. These are known as
incentives. Although needs differ from individual to individual, there are certain common needs which are
known to exist in most cases.

For instance, people have basic needs like the needs for food, clothing and shelter. These are known as
Physiological needs. People generally work so as to be able to earn money to satisfy such needs. Once the
basic needs are satisfied, people wish to satisfy higher category of needs. They want safety and security and
desire to be protected against loss of employment, sickness, accident etc. These are known as Safety and
Security needs. Thereafter, people want to have a sense of belonging to the organization and to be accepted by
fellow workers. These are known as social needs. Similarly, there are people who wish to be considered
important and expect that their opinions should be recognized by others. These needs are known as ego needs.
Further, a person may wish to achieve what he thinks is due to him, i.e., he wants to realize his ambition fully.
These needs are known as self-actualization needs.
Importance of Motivation
Motivation helps managers in getting things done more efficiently by the employees. If employees are not
motivated, they may not fully utilize the production facilities and put their best efforts in performing the job.
Motivation is thus one of the important factors which determine organizational efficiency.
Motivated employees are likely to stay with the organization and try to achieve their own goals along with the
goals of the organization. They accept change in the work routine more easily than no motivated employees.
Hence, motivation is regarded as an important function of managers. The importance of studying it is related
with observing, understanding and influencing human behaviour in the organization for improving the
performance of employees.

Did You Know?


Rensis Likert was an American educator and organizational psychologist best known for his research on
management styles.

Caution
If the employees are not properly informed about the work to be performed during a specified period and how
every job is related with other jobs, it may be cause of delay in the project.

7.2 Nature of Direction


Directing is one of the important functions of management. It consists of elements such as issuing orders,
continuous training activities, and motivation of subordinates, maintaining discipline and rewarding those who
perform properly.
The following are some of the important characteristics of directing:
Directing is one of the important functions of management.
It is concerned with the direction of human efforts towards the enterprise objectives.
It helps in achieving co-ordination among the various operations of the enterprise; coordination is a
necessary by-product of good directing.
It is a pervasive function. It must be performed by every manager at different levels of the organisation.
It is a continuing function. A manager continuously directs and supervises the execution of his order and
instruction by the subordinates.
It motivates commands, communicates, supervises the staff and controls the organisation.
It also provides the necessary leadership in the business.
It facilitates in securing co-operation of the employees for attaining the objectives of the organisation.
Direction has the following characteristics as its inherent nature:

Management Function
Direction is a managerial function performed by all the managers or supervisors at all the levels of an
enterprise.

Guiding Process
Direction is not limited to the issuing of orders as well as instructions but it also includes the process of
guiding and inspiring subordinates.

Continuous Activity
Direction is the continuous activity. It starts from planning function throughout and there is no end to it and
directing function continues at all the levels of the management process till the end.
Flow of Direction
The flow of direction in an organisation initiates from the top level to the bottom level.

Direction has Wide Dimensions


Direction has wide dimensions. It is not concerned with only issue of orders and instructions to the
subordinates. It also includes communication, motivation and supervision of subordinates.
Readily Acceptable
Direction should be such which is readily acceptable to the subordinates. It should be both oral and written
keeping in view the time factor and the capability of subordinates.

Caution
Direction should be such which is readily acceptable to the subordinates.

7.3 Importance of Directing


In the absence of direction, subordinates will have no idea as to what to do. They will probably not be inspired
to complete the job satisfactorily. Implementation of plans is, thus, largely the concern of directing function.
As a function of management, directing is useful in many ways.
It guides and helps the subordinates to complete the given task properly and as per schedule.
It provides the necessary motivation to subordinates to complete the work satisfactorily and strive to do
those best.
It helps in maintaining discipline and rewarding those who do well.
Directing involves supervision, which is essential to make sure that work is performed according to the
orders and instructions.
Different people perform different activities in the organization. All the activities are interrelated. In order
to co-ordinate the activities carried out in different parts and to ensure that they are performed well,
directing is important. It thus, helps to integrate the various activities and so also the individual goals with
organizational goals.
Directing involves leadership that essentially helps in creating appropriate work environment and build up
team spirit.

7.4 Principles of Directing


Direction is a complex function as it deals with people whose behaviour is unpredictable. Effective direction is
an art which a manager can learn and perfect through practice. However, managers can follow the following
principles while directing their subordinates:

Harmony Objectives
Individuals join the organisation to satisfy their physiological and psychological needs. They are expected to
work for the achievement of organisational objectives. They will perform their tasks better if they feel that it
will satisfy their personal goals. Therefore, management should reconcile the personal goals of employees with
the organisational goals.

Maximum Individual Contribution


Organisational objectives are achieved at the optimum level when every individual in the organisation makes
maximum contribution towards them. Managers should, therefore, try to elicit maximum possible contribution
from each subordinate.

Unity of Command
A subordinate should get orders and instructions from one superior only. If he is made accountable to two
bosses simultaneously, there will be confusion, conflict, disorder and indiscipline in the organisation.
Therefore, every subordinate should be asked to report to only one manager.
Appropriate Techniques
The managers should use correct direction techniques to ensure efficiency of direction. The techniques used
should be suitable to the superior, the subordinates and the situation.

Direct Supervision
Direction becomes more effective when there is a direct personal contact between a superior and his
subordinates. Such direct contact improves the morale and commitment of employees. Therefore, wherever
possible direct supervision should be used.

Strategic Use of Informal Organization


Management should try to understand and make use of informal groups to strengthen formal or official
relationships. This will improve the effectiveness of direction.

Managerial Communication
A good system of communication between the superior and his subordinates helps to improve mutual
understanding. Upward communication enables a manager to understand the subordinates and gives an
opportunity to the subordinates to express their feelings.

Comprehension
Communication of orders and instructions is not sufficient. Managers should ensure that subordinates correctly
understand what they are to do and how and when they are to do. This will avoid unnecessary queries and
explanations.

Effective Leadership
Managers should act as leaders so that they can influence the activities of their subordinates without
dissatisfying them. As leaders, they should guide and counsel subordinates in their personal problems too. In
this way, they can win the confidence and trust of their subordinates.

Principle of Follow Through


Directing is a continuous process. Therefore, after issuing orders and instructions, a manager should find out
whether the subordinates are working properly and what problems they are facing. He should modify, if
necessary, his orders in the light of these findings.

Did you know?

Koontz and O‘Donnell explained five functions of management. They are; Planning, Organizing, Staffing,
Directing and Controlling.

7.5 Process of Direction


Process of Direction
1. Defining the objectives.
2. Organizing the efforts.
3. Measuring the work.
4. Developing the people.
Ever manager in the organization gives direction to his subordinates as superior and receives direction
subordinate from his superior. Direction may be defined as the function of management which is related with
instructing, guiding and inspiring human factor in the organization to achieve organization objective. The
direction is not merely issuing orders and instructions by a superior to his subordinates, but is includes the
process of guiding and inspiring them.

The analysis of definition reveals that direction function consists of three elements
Motivation
Leadership
Communication
Direction has the following characteristics

Direction is an important managerial function. Through direction management can initiates actions in the
organization.
Direction function is performed at every level of management.
Direction is a continuous process and it continuous throughout the life of the organization.
Direction initiates at the top level in the organization follows and bottom through there hierarchy. It
emphasizes that a subordinates is to be directed by his own superior only

7.6 Techniques and Essentials of Effective Control


Control is necessary in every organization to ensure that everything is going properly. Every manager,
therefore, should have an effective and adequate control system to assist him in making sure that events
conform to plans. In this tailoring of control system, there are certain requirements which should be kept in
mind.

1. Reflecting Organizational Needs; all control systems and techniques should reflect the jobs they are to
perform.
2. Forward Looking: Control should be forward looking. Though many of the controls are instance, they must
focus attention as to how future actions can be conformed with plans.
3. Promptness in Reporting Deviations The success of a thermostat lies in the fact that it points the deviation
promptly and takes corrective actions immediately.
4. Pointing out Exceptions at Critical points: Control should point exception at critical points and suggest
whether action is to be taken for deviations or not.
5. Objectives: The control should be objective, definite and determinable in a clear and positive way.
6. Flexible Control system should be flexible so that it remains workable in the case of changed plans,
unforeseen circumstances or failures.
7. Economical Control should be economical and must be worth its costs. Economy is relative since the
benefits vary with the importance of the activity, the size of the operation the expense that might be incurred in
the absence of control and the contribution the control system can make.
8. Simple Control system must be simple and understandable so that all managers can use it effectively.
9. Motivating: Control system should motivate both controller and controlled10.Reflecting Organizational
Pattern: The control should reflect organizational pattern by focusing attention on positions in organization
structure through which deviations are corrected
Figure 7.1: Feedback loop of management control

7.6.1 Techniques of Control


To control the activities in the organization, managers can use variety tools and techniques. They are broadly
grouped under two heads.
1. Traditional techniques.
2. Modern technique

Traditional Techniques
Traditional techniques are those which have long been used by the managers. Some of the important
techniques under this heads are budgetary control, financial statement and ratio analysis, auditing, break-even
analysis and report writing etc.

―Budgetary control is a process of comparing the actual results with the corresponding budgeting detains order
to approve accomplishments or to remedy differences by either adjusting the budget estimates or correcting the
cause of the difference.‖ The different budgets such as production budget, sales budget, overhead budget,
labour budget etc.clearly indicate the limits for expenses and also the results to be achieved in a given period.
It ensures effective co-ordination of the work of the entire organization.
It promotes co-operation and team spirit among the employees Standard Costing is one of the techniques of
cost control and it is being increasingly used by modern business concerns for the purpose of cost reduction
and cost control. It involves a comparison of actual with the standards and the discrepancy is called
variance.Break-even analysis is useful in planning and control because it emphasizes the marginal cost and
benefit concept. It helps to make profit estimation at the different levels of activity, ascertaining turnover for
desire profit and estimating the impact of the variations of fixed and variable costs. It magnifies a set of
relationships of fixed costs, variable cost, price, level of output and sales mix to the profitability of the
organization.
Financial statement analysis such as Found Flow analysis, Cash Flow analysis and Ratio analysis help to know
the financial performance and financial position of the business unit. The liquidity, profitability and solvency
position of the business unit can be ascertained and efforts can be taken to maintain these factors in an
optimum proportion, Auditing is the process of investigating financial and other operation of a business
establishment.

It may be carried out by internal and external members. It helps to scrutinize the applicability and relevance of
policy, procedure and method which have a tendency to become obsolete. This it helps in choosing a suitable
working procedures and methods. Adoption of reporting system helps to analyses a particular problem and to
take necessary corrective action over it.

Reports may be prepared regarding taxation, legislation and its effect on profit, make or buy decisions,
replacement f capital equipment, social pricing analysis etc. A manager can also exercise effective control over
his subordinates by observing them while they are engaging in work. Personal observation helps the managers
not only in knowing the workers attitude towards work but also n correcting their work and method, if
necessary.

Modern Techniques
These are of recent origin, which provide information not readily available with traditional methods. These
techniques help to give sharper focus and promise increasingly to improve the quality of control. Program
Evaluation Review Technique (PERT) and Critical Path Method (CPM) are two major techniques coming
under this head.

System and is credited with reduction the completion time of the program by two years.CPM has been jointly
developed by DuPont and Remington Rand USA in order to facilitate the control of large, complex industrial
projects. These techniques are used to minimize total time, minimize to cost, minimize idle resources etc. It is
helpful in solving problems of scheduling the activities of on-time projects. These tools are widely being used
in construction industry, planning and launching new projects, scheduling ship construction etc. It ensures
improved management of resources by facilitating better decision-making. It aims to have future oriented
control mechanism for the organization.

Management Information System provides needed information to each manager at the right time, in right form
which aids his understanding and stimulates his action. MIS is a refined form of traditional information
collection and supply to the organization points.

Management Audit is an evaluation of management as a whole. It examines the total managerial process of
planning, staffing, directing and controlling. To evaluate the management achievement, the organization plans,
policies, procedures, organization structure, system of control personnel relation should be measure with its
end results.

1. Budgetary control -Financial performance


2. Cost control -Cost performance
3. Production control -PERT CPM Production, performance, quality
4. Inventory control -Stores function performance
5. Profit & Loss Control ROL control -Overall organizational objective performance.
6. External audit control -Statutory performance
7. Management self audit

Did You Know


PERT has been, developed by an U.S. Office in 1958 in connection with the Polaris Weapon
Case Study-Leadership Development using Personality Assessments
This case study shows how Harrison Assessments combined with coaching can create dramatic shifts in
behaviour through increasing the subject‘s self-awareness and designing behaviour and attitude changes that
work with their personality and preferences.

The Problem
The coaching client, June (not her real name), was experiencing frustration in leading her team of 6
subordinates. She saw that they were not taking initiative. She felt all the responsibility for the quality of their
work fell to her. Consequently she was taking on more organizational duties than she desired and she did not
have time to focus on the bigger picture issues that her leadership role demanded.

June knew that she had to let her subordinates take initiative for the tasks within their roles, but she was not
able to effectively make this change. Every time she let go of her usual responsibility, the subordinates still did
not step forward and the team‘s results suffered.

The Root Cause


One of the causes of June‘s frustration was that she was trying to stop doing something rather than doing
something. When she stopped herself from solving her subordinate‘s problems, she had nothing else do to and
felt she was merely holding back and not contributing. With her experience, she could see many problems
arising and found it very difficult to hold back and leave it to the team. The solution was to find some way to
be active but without taking responsibility for other‘s roles.

The Insight
June‘s coach suggested a new strategy of focusing her attention on positive actions that would contribute to the
solution without taking responsibility away from the subordinates. Using the Harrison Traits and Definitions
Report and the Paradox Report, June realized that she could use her strengths in ‗enlisting cooperation‘ and
‗forthright diplomacy‘ to move the team forward without taking over their roles.

The Solution
With this insight, June experienced an immediate shift in her attitude towards the team and her leadership role.
Since the actions she chose to focus on were her preferred traits, the change was easy for her and enjoyable.
Her team responded immediately to her requests for cooperation and her clear communication about their
behaviours and results. By continuing to focus on her strengths, June was confident she could move her team
to learn how to do their jobs, while still retaining control of the results.

Conclusions
It is more effective to focus on taking positive actions, rather than on stopping behaviours.
People can more easily begin actions that rely on their preferred traits.
Different preferred traits can be used in different situations to get the desired results.
Therefore it is possible to customize behavioural solutions for different personalities, based on their personal
preferences, as identified by Harrison Assessments.

Question
1. Explain the leadership development using personality assessments.
2. What are the problems of leadership development using personality assessments?
7.7 Summary
Directing is a continuous process initiated at top level and flows to the bottom through organizational
hierarchy.
Directing involves supervision, which is essential to make sure that work is performed according to the
orders and instructions.
Verbal communication is supported by non verbal communication such as facial expressions and body
gestures
Leadership is essential in functioning of any organization and its importance and benefits are varied. in
organisation.
Motivation requires the use of means to fulfil the needs and desires that may induce individuals to apply
their best abilities in work. People want to satisfy their needs for food, clothing and shelter.

7.8 Keywords
Communication: Communication is the process by which a person transmits information or messages to other
persons.
Directing: It is a key managerial function to be performed by the manager along with planning, organizing,
staffing and controlling.
Job Enlargement: It workers being given a greater variety of tasks to perform which should make the work
more interesting.
Leadership: It is the process, which influences the people and inspires them to willingly accomplish the
organizational objectives.
Motivation: It is the process through which employees are made to contribute voluntarily to work, leadership
is the ability to persuade and motivate others to work in a desired way for achieving the goal.

7.9 Self Assessment Questions


1. Directing is said to be the heart of………………...
(a) management process (b) selection process
(c) Business process (d) None of these

2. Directing is concerned with ………………….. people in the organization.


(a) guiding (b) supervising
(c) inspiring (d) All of these

3. ………………. is the act of watching and directing work and workers.


(a) motivation (b) leadership
(c) supervision (d) None of these

4. Inspiring people to work as efficiently as possible is called.....................


(a) leadership (b) motivation
(c) communication (d) None of these

5. Leaders can motivate the followers to work and increase their performance level.
(a) True (b) False
6. Direction process includes ……………….. of subordinates.
(a) communication (b) motivation
(c) supervision (d) All of these

7. Direction is not performed by all the managers or supervisors.


(a) True (b) False
8. Organizational objectives are achieved at the optimum level when individual makes ……………… towards
them.
(a) optimum contribution (b) maximum contribution
(c) minimum contribution (d) none of these

9. Direction is a complex function as it deals with people whose behaviour is…………...


(a) unpredictable (b) predictable
(c) Sophisticated (d) None of these.

10. Implementation of plans is, thus, largely the concern of directing function.
(a) True (b) False

7.10 Review Questions


1. What is the meaning of directing?
2. What is the importance of directing?
3. What do you mean by sub-functions of directing?
4. What do you mean by the leadership?
5. What is the importance of leadership?
6. How can you explain about motivation in terms of management?
7. What is the importance of motivation?
8. What are the principles of direction?
9. Briefly explain the nature of direction.
10. Define the component of the directing process.
Answers for Self Assessment Questions
1. (a) 2. (d) 3. (c) 4. (a) 5. (b)
6. (d) 7. (b) 8. (b) 9. (a) 10. (a)
8
Decision-Making
CONTENTS
Objectives
Introduction
Objectives
Introduction
8.1. Meaning and Importance
8.2 Forms of Decision-Making
8.3 Techniques of Decision-Making
8.4. Decision-making Process
8.5 Summary
8.6 Keywords
8.7 Self Assessment Questions
8.8 Review Questions

Objectives
After studying this chapter, you will be able to:

Describe Importance of Decision making

Define Forms of Decision-Making

Explain Techniques of Decision-Making

Discuss Decision-Making Process

Introduction
Decision-making increasingly happens at all levels of a business. The Board of Directors may make the grand
strategic decisions about investment and direction of future growth, and managers may make the more tactical
decisions about how their own department may contribute most effectively to the overall business objectives.
But quite ordinary employees are increasingly expected to make decisions about the conduct of their own
tasks, responses to customers and improvements to business practice. This needs careful recruitment and
selection, good training, and enlightened management. For better or worse, our decisions and those of the other
members of our organization define today‘s realities and tomorrow‘s outcomes. In a world that is becoming
increasingly knowledge based, more and more members of an organization are making impactful decisions
every day; thereby extending decision-making‘s importance from the executive suites to the desks of the vast
majority of professionals. Every day people are posed with options and choices to make. In the many actions
and situations that individuals face each day, decisions have to be made.

One part of the answer is good information, and experience in interpreting information. Consultation i.e.
seeking the views and expertise of other people also helps, as does the ability to admit one was wrong and
change one‘s mind. There are also aids to decision-making, various techniques which help to make information
clearer and better analyzed, and to add numerical and objective precision to decision-making (where
appropriate) to reduce the amount of subjectivity. Managers can be trained to make better decisions. They also
need a supportive environment where they would not be unfairly criticized for making wrong decisions (as we
all do sometimes) and will receive proper support from their colleague and superiors. A climate of criticism
and fear stifles risk-taking and creativity; managers will respond by playing it safe to minimize the risk of
criticism which diminishes the business effectiveness in responding to market changes. It may also mean
managers spend too much time trying to pass the blame around rather than getting on with running the
business.

According to studies, a lot of people are poorer in coming up with decisions than they think. That is why
leaders exist to take the role of decision makers for the group or team. Yet, a good knowledge of the concept of
decision making, the skills needed, and some tools or techniques to be used will help in developing sound
decisions.
People often find it hard to make decisions. We cannot decide if this is an introduction or outline! Some people
put off making decisions by endlessly searching for or getting other people to offer their recommendations.
Others resort to decision making by taking a vote, sticking a pin in a list or tossing a coin.
Regardless of the effort that is put into making a decision, it has to be accepted that some decisions will not be
the best possible choice. This is the technique that can be used in decision making that should help we to make
effective decisions in the future. Although the following technique is designed for an organizational or group
structure, it can be adapted to an individual level.

8.1. Meaning and Importance


Decision making means to select a course of action from two or more alternatives. It is done to achieve a
specific objective or to solve a specific problem.
Decision making involves the selection of a course of action from among two or more possible alternatives in
order to arrive at a solution for a given problem."
A decision is a choice between two or more alternatives. If you only have one alternative, you do not have a
decision. Webster‘s 9th Dictionary adds some richness to the idea of choice by introducing the idea of
uncertainty. It has this to say about the word ―decide‖, the root of ―decision ―Decide: to arrive at a solution that
ends uncertainty or dispute.
A typical thesaurus might use words like accommodation, agreement, arrangement, choice, compromise,
declaration, determination, outcome, preference, resolution, result, and verdict to try and give the concept of
―decision‖ some dimension. In our minds Webster‘s definition and these potentially illuminating synonyms
seem to miss the driving idea behind a decision. a decision as an irrevocable allocation of resource.
This is where the concept of attention comes in. Attention implies the use of resource. It means you actually
allocate some time, money, effort—something—to turning your intentions into action.

The concept of irrevocability means commitment: putting time, money, and/or resource on the line to put your
decision into action. Having decided, you‘re not going to re-litigate your decision every time someone has a
new thought. Getting to that point with confidence is what separates low quality decisions from high quality
decisions, and mediocre decision makers from good and great ones.
Decision-making is a process of selection from a set of alternative courses of action, which is thought to fulfill
the objectives of the decision problem more satisfactorily than others. It is a course of action, which is
consciously chosen for achieving a desired result. A decision is a process that takes place prior to the actual
performance of a course of action that has been chosen. In terms of managerial decision-making, it is an act of
choice, wherein a manager selects a particular course of action from the available alternatives in a given
situation. Managerial decision making process involves establishing of goals, defining tasks, searching for
alternatives and developing plans in order to find the best answer fo the decision problem.

The essential elements in a decision making process include the following:


1. The decision problem,
2. The environment in which the decision is to be made,
3. The objectives of the decision maker,
4. The alternative courses of action,
5. The outcomes expected from various alternatives, and
6. The final choice of the alternative.

8.1.1. Characteristics of decision-making:


1. It is a process of choosing a course of action from among the alternative courses of action.
2. It is a human process involving to a great extent the application of intellectual abilities.
3. It is the end process preceded by deliberation and reasoning.
4. It is always related to the environment. A manager may take one decision in a particular set of
circumstances and another in a different set of circumstances.
5. It involves a time dimension and a time lag.
6. It always has a purpose. Keeping this in view, there may just be a decision not to decide.
7. It involves all actions like defining the problem and probing and analyzing the various alternatives, which
take place before a final choice is made.

Did You Know?


In 1972.Technique is a convert elimination process that involves comparing all available alternatives by
aspects.

8.2 Forms of Decision-Making


It is an important to consider that full participation is not required in every occasion. We cannot expect in a
group all decisions to be made by the entire group. It would be an incredible waste of time according to the
type of decision; a group might prefer different systems with more or less people involved.
Traditionally, organizations count on different types of decisions:

Irreversible: These decisions are permanent. Once taken, they can't be undone. The effects of these decisions
can be felt for a long time to come. Such decisions are taken when there is no other option.
Reversible: Reversible decisions are not final and binding. In fact, they can be changed entirely at any point of
time. It allows one to acknowledge mistakes and fresh decisions can be taken depending upon the new
circumstances.

Delayed: Such decisions are put on hold until the decision maker thinks that the right time has come. The wait
might make one miss the right opportunity that can cause some loss, specially in the case of businesses.
However, such decisions give one, enough time to collect all information required and to organize all the
factors in the correct way.

Quick Decisions: These decisions enable one to make maximum of the opportunity available at hand.
However, only a good decision maker can take decisions that are instantaneous as well as correct. In order to
be able to take the right decision within a short span of time, one should also take the long-term results into
consideration.

Experimental: One of the ways of decision making is the experimental type in which the final decision cannot
be taken until the preliminary results appear and are positive. This approach is used when one is sure of the
final destination but is not convinced of the course to be taken.

Trial and Error: This approach involves trying out a certain course of action. If the result is positive it is
followed further, if not, then a fresh course is adopted. Such a trial and error method is continued until the
decision maker finally arrives at a course of action that convinces him of success.

Conditional: Conditional decisions allow an individual to keep all his options open. He sticks to one decision
as long as the circumstances remain the same. Once the competitor makes a new move, conditional decisions
allow a person to take up a different course of action.

Styles of Making Decisions for Leaders


A leader gives direction to people to follow. He is responsible for ensuring that his decision provides the right
direction to the organization. Be it in a business or in other organizations, decision making is an important
component of leadership skills. The different ways of decision making that a leader typically encounters are:

Authoritative: In authoritative type the leader is the sole decision maker which subordinates follow. The leader
has all the information and expertise required to make a quick decision. It is important that the leader is a good
decision maker as it is he who has to own up to the consequences of his decision. Though effective, in case the
leader is an experienced individual, it can harm the organization if the leader insists on an authoritative type of
decision making even when there is expertise available within the team.

Facilitative: In facilitative type of decision making, both the leader and his subordinates work together to
arrive at a decision. The subordinates should have the expertise as well as access to the information required to
make decisions. Such an approach could be useful when the risk of wrong decision is very low. It is also a
great way of involving and encouraging subordinates in the working of the organization.

Consultative: consultative decisions are made in consultation with the subordinates. However, the fact remains
that unlike in the facilitative decision-making style, in consultative decision making it is the leader who holds
the decision-making power. A wise leader tends to consult his subordinates when he thinks that they have
valuable expertise on the situation at hand.
Delegative: As per the term, the leader passes on the responsibility of making decisions to one or more of his
subordinates. This type is usually adopted by the leader when he is confident of the capabilities of his
subordinates.

It would have been so good had there been a universal model for decision making. However, due to the
dynamic nature of conditions, be it our workplace or our personal lives, we have to resort to different types of
making decisions.

Did You Know?


Carlyle identified the talents, skills, and physical characteristics of men who rose to power. In Galton's
Hereditary Genius (1869), he examined leadership qualities in the families of powerful men.

Caution
The relative must be over 18 years of age, be available and willing to make the decision and have been in
contact with the adult within the past 12 months.

8.3 Techniques of Decision-Making


Quantitative techniques help a manager improve the overall quality of decision making. These techniques are
most commonly used in the rational/logical decision model, but they can apply in any of the other models as
well. Among the most common techniques are decision trees, payback analysis, and simulations.

8.3.1 Decision Trees


A decision tree shows a complete picture of a potential decision and allows a manager to graph alternative
decision paths. Decision trees are a useful way to analyze hiring, marketing, investments, equipment
purchases, pricing, and similar decisions that involve a progression of smaller decisions. Generally, decision
trees are used to evaluate decisions under conditions of risk.

The term decision tree comes from the graphic appearance of the technique that starts with the initial decision
shown as the base. The various alternatives, based upon possible future environmental conditions, and the
payoffs associated with each of the decisions branch from the trunk.
Decision trees force a manager to be explicit in analyzing conditions associated with future decisions and in
determining the outcome of different alternatives. The decision tree is a flexible method. It can be used for
many situations in which emphasis can be placed on sequential decisions, the probability of various
conditions, or the highlighting of alternatives.

8.3.2 Payback Analysis


Payback analysis comes in handy if a manager needs to decide whether to purchase a piece of equipment. Say,
for example, that a manager is purchasing cars for a rental car company. Although a less-expensive car may
take less time to pay off, some clients may want more luxurious models.

To decide which cars to purchase, a manager should consider some factors, such as the expected useful life of
the car, its warranty and repair record, its cost of insurance, and, of course, the rental demand for the car. Based
on the information gathered, a manager can then rank alternatives based on the cost of each car. A higher-
priced car may be more appropriate because of its longer life and customer rental demand. The strategy, of
course, is for the manager to choose the alternative that has the quickest payback of the initial cost. Many
individuals use payback analysis when they decide whether they should continue their education.
They determine how much courses will cost, how much salary they will earn as a result of each course
completed and perhaps, degree earned, and how long it will take to recoup the investment. If the benefits
outweigh the costs, the payback is worthwhile.

8.3.3 Simulations
Simulation is a broad term indicating any type of activity that attempts to imitate an existing system or
situation in a simplified manner. Simulation is basically model building, in which the simulator is trying to
gain understanding by replicating something and then manipulating it by adjusting the variables used to build
the model.
Simulations have great potential in decision making. In the basic decision-making steps, Step 4 is the
evaluation of alternatives. If a manager could simulate alternatives and predict their outcomes at this point in
the decision process, he or she would eliminate much of the guesswork from decision making.

Did You Know?


Decision-Making Stages are developed by B. Aubrey Fisher, there are four stages that should be involved in all
group decision making.

8.4. Decision-making Process


Decision-making is one of the defining characteristics of leadership. It is core to the job description. Making
decisions is what managers and leaders are paid to do. Yet, there is not a day that goes by that you don‘t read
something in the news or the business press that makes you wonder, ―What were they thinking?‖ or ―Who
actually made that decision?‖ That is probably always been the case, but it seems exponentially more so in the
opening decade of the new millennium where everything seems marked with, ―too big, too fast, too much, and
too soon.‖

The reality seems to be that most organizations aren‘t overrun by good decision makers, yet alone great ones.
When asked, people don‘t easily point to what they regard as great decisions. Stories of bad decisions and bad
decision-making come much more readily to mind.
Some of that is due to our tendency to notice and recall exceptions vs. all the times things go as planned. For
example, you‘ve walked along side buildings more times than you could possibly count. Yet you remember
vividly the one time you got nailed by a pigeon overhead.
That‘s how we are about bad decisions. We‘re also that way because the really bad ones tend to really hurt.
It is not that people don‘t have the capacity to make high-quality decisions in them. Decision-making is a
distinctly human activity. It is what that great, big frontal lobe is for. We all make decisions all the time.
But the fact that we‘re hard-wired to make decisions doesn‘t by itself make us good decision-makers. That
takes discipline:
discipline to do at least four things all the time and well.
1. Realize when and why you need to make a decision.
2. Declare the decision: decide what the decision is, how you‘ll work it, and who should be involved.
3. Work the decision: generate a complete set of alternatives, gather the information you need to understand
the possibilities and probabilities, and ultimately make a choice that best fits your values.
4. Commit resources and act.

Everyone does those four things consistently or consistently well. We‘ve worked with a lot of leaders and
managers in some of the most widely regarded companies in the world and our observation is that most people
don‘t. In fact, the distribution generally looks something like this:
There are some really wretched decision makers. For them, a good outcome is usually a matter of luck.
There are a lot of people who are reasonably competent decision makers. Their decision processes aren‘t
great, but they‘re not bad, and the outcomes they experience track accordingly.
There is a small group of people who could be described as ―good decision makers‖ These people are
proactive and decision oriented. They‘re able to focus attention on what‘s important and critical. They
know how to break a decision down into logical parts. They know how to work each of those parts in a
high quality way. They know how to deal with possibilities and probabilities. They‘re able to see
opportunities where others see problems. They‘re able to make quality choices in the face of uncertainty.
They‘re able to turn thought into action.
There is a sprinkling of people we‘d describe as great decision makers. Like other good decision makers,
these people consistently make high quality decisions. Their ―greatness‖, a word that is probably way
overused, comes from their ability to create the dynamics needed to ensure that the people in their
organizations can do the same.

Good and great decision makers expect high quality outcomes and they‘re generally not disappointed. When
they are, it is usually because of some random thunderbolt or some unforeseen dynamic, not because they
didn‘t do a good job of working the problem. There are exceptions to this syllogism. But over the long-term,
we think the good decision/good outcome connection holds up, and the outliers have either not been in the job
long enough for their bad decisions to catch up, or have been extraordinarily lucky.

Caution
The decision tree is a flexible method. It can be used for many situations, in which emphasis can be placed on
sequential decisions.

Case Study-Mandatory or Voluntary Evacuation?


The town of Fort Rice, North Dakota is located on the western bank of the Missouri River. Affirming and
ranching community, Fort Rice‘s residents are known for their tenacity in fighting the weather—and the
river—to earn a living.

It has been raining for 12 hours, and the National Weather Service has forecast severe flooding conditions
through most of the upper Midwest. The Missouri River and the rivers and streams that feed it are on the rise
and are expected to continue to rise over the next several days as the storm is held in place by a large high-
pressure area that is currently stationary over the Ohio Valley. Despite the fact that sandbagging crews have
been supporting all local levees, severe flooding is a near certainty.
The mayor and all emergency management professionals from Fort Rice have been keeping abreast of the
situation since before the rain began. They have been communicating with the local Weather Forecast Office,
as well as county and State emergency management personnel.
The question on the table at this point is not whether to issue an evacuation order but whether to make the
evacuation mandatory. Historically, farmers and ranchers have been unwilling to evacuate, even when flooding
is severe. Most have grown up in the area and are aware of the damage that flooding can cause, but they are
also aware of their investment in their land and livestock and will fight to save what they can.
After considerable discussion, the mayor, with the emergency management group‘s concurrence, makes the
decision to activate the Emergency Alert System and issue the evacuation order. But although they decide to
word the message strongly, they do not make the evacuation mandatory
Questions
1. What is the potential impact of the decision not to make the evacuation mandatory?
2. What is the importance of forecasting?
8.5 Summary
Decision making is the process of identifying and selecting a course of action to solve a specific problem.
A number of characteristics have been exhibited by decision makers, and those decisions can be timed
right or off centered.
The entire decision-making process is dependent upon the right information being available to the right
people at the right times.
When deciding on the most suitable decision-making method, it is important to consider that full
participation is not required in every occasion.
Making decisions in our daily lives and in the workplace can be one of the most overlooked processes.
A rational decision making model provides a structured and sequenced approach to decision making.

8.6 Keywords
Decision Making: The process of deciding about something important, especially in a group of people or in an
organization.
Quantitative Techniques: Quantitative techniques help a manager improve the overall quality of decision
making.
Decision Tree: A decision tree shows a complete picture of a potential decision and allows a manager to graph
alternative decision paths.
Payback Analysis: Payback analysis is simply a calculation of how long it will take to recover our investment.
Simulation: Simulation is a broad term indicating any type of activity that attempts to imitate an existing
system or situation in a simplified manner.

8.7 Self Assessment Questions


1. .................means to select a course of action from two or more alternatives?
(a) Planning (b) staffing
(c) Decision making (d) controlling

2. Decision-making is one of the defining characteristics of...


(a) Decision making (b) planning
(c) Controlling (d) leadership

3. Decision-making is a process of selection from a set of …………..courses


(a) Simulation (b) techniques
(c) Alternative (d) All of these

4. A decision tree shows a complete picture of a..................?:


(a) Potential decision (b) Simulation
(c) Techniques (d) All of these.

5. Which of the following is not the Form of Decision-Making?


(a) Irreversible (b) Reversible
(c) Simulation (d) Quick Decisions
6. A decision tree shows a complete picture of a potential decision and allows a manager to graph alternative
decision paths.
(a) True (b False

7. Simulation is a broad term indicating any type of activity that attempts to imitate an existing system or
situation in a simplified manner?
(a) False (b) True

8. Decision making means to select a course of action from two or more alternatives. It is done to achieve a
specific objective or to solve a specific problem.
(a)True (b) False

9. A decision tree shows a complete picture of a...................?


(a) Decision making (b) Quick Decisions
(c) Potential decision (d) Controlling

10. Realize when and why you need to make a decision...


(a) True (b) False

8.8 Review Questions


1. What is decision‐making?
2. What are the characteristics of decision‐making?
3. What are the elements of decision‐making?
4. Describe the steps in decision‐making.
5. What are the principles of decision‐making?
6. Explain the types of decisions.
7. What are the importances of decision‐making?
8. Explain rational decision‐making.
9. Describe the quantitative techniques of decision making.
10. What are the decision making approaches and its component?

Answers for Self Assessment Questions


1. (c) 2.(d) 3.(c) 4.(a) 5.(c)
6. (a) 7.(b) 8.(a) 9.(c) 10.(a)
9
Authority
CONTENTS
Objectives
Introduction
9.1 Delegation
9.2 Decentralization
9.3 Difference between authority and power
9.4 Uses of authority
9.5 Distinction between Centralization and Decentralization
9.6 Responsibility
9.7 Summary
9.8 Keywords
9.9 Self Assessment Questions
9.10 Review Questions

Objectives
After studying this chapter, you will be able to:
Understand the delegation
Explain the concept of decentralization
Discuss difference between authority and power,
Define t uses of authority
Discuss the distinction between centralization and decentralization,
Explain the responsibility

Introduction
Authority is the power to manage the sub-ordinates to control them and to instruct them according to the rules
norms and standards of the organization. Authority of managers helps to keep the sub-ordinates in obedience.
According to Henry Fayol, ―Authority can be defining as the right to give orders and provides to exact
obedience.‖ According to Theo Haimann, ―Authority is the rightful legal power to request subordinates to do a
certain thing for refrain from doing so, If he does not follow this instructions, the manager is in opposition, if
need be, to take displinery action.‖
Authority signifies hold over knowledge, skill or position. First two are expert. The role of authority is like
soul to the body. Administrators do not actually perform duty directly but they get things done. The right to get
things done is called authority. Authority is legal or rightful power, a right to command or to act. In formal
organization it is vested with job position and not to the person. Hence it is a bureaucratic concept.
Organizations where authority and responsibility are clearly defined are good and less corrupt and hence
termed as: Two Pillars on which organization is sustained. Authority is the formal and legitimate right of a
manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes.
A manager's authority is defined in his or her job description.

Authority is a conceptual framework and, at the same time, an enigma in the study of organizations. The
authority patterns in an organization, most commentators agree, serve as both a motivating and a tempering
influence. This agreement, how-ever, does not extend to the emphasis that the different commentators place on
a given authority concept. Early theories of management regarded authority more or less as a gravitational
force that flowed from the top down. Recent theories view authority more as a force which is to be accepted
voluntarily and which acts both vertically and horizontally. Although authority is one of the keys to the
management process, the term is not always used in the same way. Authority is usually defined as a legal or
rightful power to command or act. As applied to the manager, authority is the power to command others to act
or not to act. The manager‘s authority provides the cohesive force for any group. In the traditional theory of
management, authority is a right granted from a superior to a subordinate

Organizational authority has three important underlying principles:


Authority is based on the organizational position, and anyone in the same position has the same authority.
Authority is accepted by subordinates. Subordinates comply because they believe that managers have a
legitimate right to issue orders.
Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested with more
formal authority than are positions at the bottom.
we can say that authority is a legal power to instruct, order and control the subordinates as desire by the
manager under the regulations of organizations and the manager also holds the power to punish the
subordinates in case of this obedience.

9.1 Delegation
Delegation of authority is one vital organizational process. It is inevitable along with the expansion and growth
of a business enterprise. Delegation means assigning of certain responsibilities along with the necessary
authority by a superior to his subordinate managers. Delegation does not mean surrender of authority by the
higher level manager. It only means transfer of certain responsibilities to subordinates and giving them the
necessary authority, which is necessary to discharge the responsibility properly. Delegation is quite common in
all aspects of life including business. Even in the college, the principal delegates some of his authority to the
vice-principal.
Delegation, an attempt is being made to have meaningful participation and cooperation from the subordinates
for achieving certain well-defined results. Due to delegation, the routine responsibilities of the superior are
reduced. As a result, he concentrates on more urgent and important matters. Secondly, due to delegation,
subordinate becomes responsible for certain functions transferred to him. Delegation is a tool, which a superior
manager uses for sharing his work with the subordinates and thereby raising his efficiency.
According to Koontz and O‘Donnell ―the cement that binds the organization together is called delegation.‖
According to Brech, ―delegation means the passing on to others of a share in the essential elements of
management process‖. Delegation involves three important aspects like assigning duties by the executives,
granting of authority and creation of obligation or accountability.
Delegation is not a process of abdication. The person who delegates does not divorce himself from the
responsibility and authority with which he is entrusted. He remains accountable for the overall performance
and also for the performance of his subordinates. Delegation is needed when the volume of work to be done is
in excess of an individual‘s physical and mental capacity.

9.1.1 Characteristics of Effective Delegation


Effective delegation requires not only a structured process, but also the proper attitude on the part of the
manager. Some characteristics of an effective delegator are described below:
Developers trusting relationships with employees.
Is able to let go of detail work.
Can let others make decisions.
Focuses on desired results, not methods.
Is open to new ideas and approaches.
Helps people learn from their mistakes.
Feels rewarded by the success of others.

An effective system of delegation is one in which


The managers as well as the employees of an organization understand the value and advantages of
delegation.
The abilities and talents of employees at all levels are used in the right degree
Achievement standards for jobs to be performed for delegated authority are clearly laid down.
There is close cooperation between the manager and subordinate
An adequate system of employee education and training exists.
The worker is permitted maximum freedom to reach his goals without interference.

9.1.2 Steps to Effective Delegation


1 Define the Task: Confirm in our own mind that the task is suitable to be delegated. Does it meet the criteria
for delegating?
2 Select the Individual or Team: What are our reasons for delegating to this person or team? What are they
going to get out of it?
3 Assess Ability and Training Needs: Is the other person or team of people capable of doing the task? Do they
understand what needs to be done, if not, we cannot delegate.
4 Explain the Reasons: We must explain why the job or responsibility is being delegated, and why to that
person or people? What is its importance and relevance? Where does it fit in the overall scheme of things?
5 State Required Results: What must be achieved? Clarify understanding by getting feedback from the other
person. How will the task be measured? Make sure they know how we intend to decide that the job is being
successfully done.
6 Consider Resources Required: Discuss and agree what is required to get the job done. Consider people,
location, premises, equipment, money, materials, other related activities and services
7 Agree Deadlines: When must the job is finished? Or if an ongoing duty, when are the review dates? When
are the reports due? And if the task is complex and has parts or stages, what are the priorities? At this point we
may need to confirm understanding with the other person, getting ideas and interpretation. As well as showing
we that the job can be done, this helps to reinforce commitment. Methods of checking and controlling must be
agreed with the other person. Failing to agree this in advance will cause this monitoring to seem like
interference or lack of trust
8 Support and Communicate: Think about whom else needs to know what‘s going on, and inform them.
Involve the other person in considering this so they can see beyond the issue at hand. Do not leave the person
to inform our own peers of their new responsibility. Warn the person about any awkward matters of politics or
protocol. Inform our own boss if the task is important, and of sufficient profile.
9 Feedback on Results: It is essential to let the person knowhow they are doing, and whether they have
achieved their aims. If not, we must review with them why things did not go to plan, and deal with the
problems. We must absorb the consequences of failure, and pass on the credit for success.

Did You Know?


One of the most important areas where delegation theories have been applied has been in the debate over the
merits of Independent Central Banks (ICBs)

Caution:
Proper authority should be provided at each level of management for proper coordination.

9.2 Decentralization
Decentralization is a systematic delegation of authority at all levels of management and in all of the
organization. In a decentralization concern, authority in retained by the top management for taking major
decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the
middle level and lower level of management. The degree of centralization and decentralization will depend
upon the amount of authority delegated to the lowest level. According to Allen, ―Decentralization refers to the
systematic effort to delegate to the lowest level of authority except that which can be controlled and exercised
at central points.

Decentralization is not the same as delegation. In fact, decentralization is all extension of delegation.
Decentralization pattern is wider is scope and the authorities are diffused to the lowest most level of
management. Delegation of authority is a complete process and takes place from one person to another. While
decentralization is complete only when fullest possible delegation has taken place.
For example, the general manager of a company is responsible for receiving the leave application for the
whole of the concern. The general manager delegates this work to the personnel manager who is now
responsible for receiving the leave applicants. In this situation delegation of authority has taken place. On the
other hand, on the request of the personnel manager, if the general manager delegates this power to all the
departmental heads at all level, in this situation decentralization has taken place.

There is a saying that ―Everything that increasing the role of subordinates is decentralization and that
decreases the role is centralization‖. Decentralization is wider in scope and the subordinate‘s responsibility
increase in this case. On the other hand, in delegation the managers remain answerable even for the acts of
subordinates to their superiors.

9.2.1 Implications of Decentralization


There are fewer burdens on the Chief Executive as in the case of centralization:
1. In decentralization, the subordinates get a chance to decide and act independently which develops skills
and capabilities. This way the organization is able to process reserve of talents in it.
2. In decentralization, diversification and horizontal can be easily implanted.
3. In decentralization, concern diversification of activities can place effectively since there is more scope for
creating new departments. Therefore, diversification growth is of a degree.
4. In decentralization structure, operations can be coordinated at divisional level which is not possible in the
centralization set up.
5. In the case of decentralization structure, there is greater motivation and morale of the employees since they
get more independence to act and decide.
6. In a decentralization structure, co-ordination to some extent is difficult to maintain as there are lot many
department divisions and authority is delegated to maximum possible extent, i.e., to the bottom most level
delegation reaches. Centralization and decentralization are the categories by which the pattern of authority
relationships became clear. The degree of centralization and de-centralization can be affected by many
factors like nature of operation, volume of profits, number of departments, size of a concern, etc. The
larger the size of a concern, a decentralization set up is suitable in it.

9.2.2 Importance of Decentralization


1. Quick Decisions: Decentralization makes the quick decisions and also improves the quality of decisions by
pushing decision-making closest to the situation. It facilitates prompt and more accurate decisions because
decisions are made by those who are fully aware about the realities of the situation.
2. Development of Managers and Executives: Decentralization helps in increasing the efficiency of managers.
Development of self reliant managers is encouraged. Every manager knows what he is expected to do. Good
managers are tested and can be encouraged whereas weak managers can be counselled and guided to overcome
their weaknesses.
3. Reduction in the Burden of Top Executives: With the expansion and increasing complexities in the business,
the top managers remain always pre-occupied with the disposal of lot of problems. But with the help of
decentralization, the burden on these managers can be reduced and they can utilize their precious time on
planning, controlling and direction of important functions.
4. Growth and Diversification: Use of decentralization becomes imperative when an institution carrying the
manufacture of one product wants to diversify in the other different ranges of the product. So decentralization
facilitates growth and diversification of products and markets.
5. Improvement in Motivation: It has been proved through various experiments that the managers will feel
satisfaction proportionate to the rights delegated to them. Opportunities to make decisions provide sense of
belonging and satisfies the needs for power and prestige. Decentralization thus improves the job satisfaction,
motivation, and morale of subordinates.
6. Fixation of Responsibility: As the managers are not delegated with sufficient rights in the centralized
institution, so they cannot be made responsible for the decisions executed by them. However, the managers are
delegated with all the rights for each product and definite area of market under decentralization.
7. Importance in Individual Product: The producer several times remains unknown to the choice of customers
for each product manufactured by him due to manufacturing of a number of products. Decentralization is
helpful as the responsibility of each good or product is delegated to a separate and managers can able to know
the demand of the customers regarding their specific product.

9.2.3 Features of Decentralization of Authority


1. Decentralization is concerned with the attitude and philosophy of organization and management.
2. Decentralization is the result of effective delegation of authority.
3. Decentralization transfers authorities to the subordinates.
4. Decentralization is wider from the delegation of authority.
5. It is an integral part of organizing.
9.2.4 Demerits of Decentralization
These are the decentralization:
In decentralized organization communication among various levels becomes difficult. At times the
message communicated from top becomes blurred and changes its contents and meaning when it reaches
the concerned individual in the organization. Moreover, geographical distanced also create problems in the
way of effective communication and control systems.
It is very difficult to introduce effective system of coordination both at policy making and policy
implementation levels. Centralization and Decentralization
It leads to overlapping and duplication of efforts in most of the organizations as they fail to clearly identify
and define the activities and responsibilities in precise terms.
Duplication in the performance of staff functions is a rule rather than an exception in a decentralized
organization.
It may become difficult to maintain desired uniformity in the standards in decision making due to
comparatively less control of the higher levels of the organization.
The decentralized system necessarily results in higher costs of its operational activities. For such a
situation there can be many factors but one easily identifiable factor is the underutilization of the
availab1.e talent in the organization.

9.2.5 Centralization versus Decentralization


The general pattern of authority throughout an organization determines the extent to which that organization is
centralized or decentralized.
A centralized organization systematically works to concentrate authority at the upper levels. In a decentralized
organization, management consciously attempts to spread authority to the lower organization levels.
A variety of factors can influence the extent to which a firm is centralized or decentralized.
The following is a list of possible determinants:
1. The external environment in which the firm operates: The more complex and unpredictable this
environment, the more likely it is that top management will let low-level managers make important
decisions. After all, low-level managers are closer to the problems because they are more likely to have
direct contact with customers and workers. Therefore, they are in a better position to determine problems
and concerns.
2. The nature of the decision itself: The riskier or the more important the decision, the greater the tendency to
centralize decision making.
3. The abilities of low-level managers: If these managers do not have strong decision-making skills, top
managers will be reluctant to decentralize. Strong low-level decision-making skills encourage
decentralization.
4. The organization's tradition of management: An organization that has traditionally practiced centralization
or decentralization is likely to maintain that posture in the future.

Did You Know?


Dennis Fox, a retired professor of legal studies and psychology, proposed an ideal village size of
approximately 150 people in his 1985 paper about the relationship of anarchism to the tragedy.

Caution:
Management should be decentralized to the lowest appropriate level.
9.3 Difference between authority and power
Authority
Authority is seen as the legitimate right of a person to exercise influence or the legitimate right to make
decisions, to carry out actions, and to direct others. For example, managers expect to have the authority to
assign work, hire employees, or order merchandise and supplies. As part of their structure, organizations have
a formal authority system that depicts the authority relationships between people and their work. Different
types of authority are found in this structure: line, staff, and functional authority. Line authority is represented
by the chain of command; an individual positioned above another in the hierarchy has the right to make
decisions, issue directives, and expect compliance from lower-level employees.

Staff authority is advisory authority; it takes the form of counsel, advice, and recommendation. People with
staff authority derive their power from their expert knowledge and the legitimacy established in their
relationships with line managers. Functional authority allows managers to direct specific processes, practices,
or policies affecting people in other departments; functional authority cuts across the hierarchical structure. For
example, the human resources department may create policies and procedures related to promoting and hiring
employees throughout the entire organization. Authority can also be viewed as arising from interpersonal
relationships rather than a formal hierarchy. Authority is sometimes equated with legitimate power. Authority
and power and how these elements are interrelated can explain the elements of managing and their
effectiveness. What is critical is how subordinates perceive a manager's legitimacy. Legitimate authority
occurs when people use power for good and have acquired power by proper and honest means. When people
perceive an attempt at influence as legitimate, they recognize it and willingly comply. Power acquired through
improper means, such as lying, withholding information, gossip, or manipulation, is seen as illegitimate. When
people perceive the authority of others as illegitimate, they are less likely to willingly comply.

Power
Power stems from a variety of sources: reward power, coercive power, information power, resource power,
expert power, referent power, and legitimate power. Reward power exists if managers provide or withhold
rewards, such as money or recognition, from those they wish to influence. Coercive power depends on the
manager's ability to punish others who do not engage in the desired behavior. A few examples of coercion
include reprimands, criticisms, and negative performance appraisals.
Power can also result from controlling access to important information about daily operations and future plans.
Also, having access to and deciding to limit or share the resources and materials that are critical to
accomplishing objectives can provide a manager with a source of power. Managers usually have access to such
information and resources and must use discretion over how much or how little is disseminated to employees.
Expert power is based on the amount of expertise a person possesses that is valued by others. For example,
some people may be considered experts with computers if they are able to use several software programs
proficiently and can navigate the Internet with ease. Those who do not have the expert knowledge or
experience need the expert's help and, therefore, are willing to be influenced by the expert's power. When
people are admired or liked by others, referent power may result because others feel friendly toward them and
are more likely to follow their directions and demonstrate loyalty toward them. People are drawn to others for
a variety of reasons, including physical or social attractiveness, charisma, or prestige. Such politicians as John
F. Kennedy were able to use their referent power to effectively influence others.
Legitimate power stems from the belief that a person has the right to influence others by virtue of holding a
position of authority, such as the authority of a manager over a subordinate or of a teacher over a student.
In some respects, everyone has power he power to either push forward or obstruct the goals of the organization
by making decisions, delegating decisions, delaying decisions, rejecting decisions, or supporting decisions.
However, the effective use of power does not mean control. Power can be detrimental to the goals of the
organization if held by those who use it to enhance their own positions and thereby prevent the advancement
of the goals of the organization.

Truly successful managers are able to use power ethically, efficiently, and effectively by sharing it. Power can
be used to influence people to do things they might not otherwise do. When that influence encourages people
to do things that have no or little relationship to the organization's goals, that power is abused. Abuses of
power raise ethical questions. For example, asking a subordinate to submit supposed business-trip expenses for
reimbursement for what was actually a family vacation or asking a subordinate to run personal errands is an
abuse of power. People who acquire power are ethically obligated to consider the impact their actions will
have on others and on the organization.

Employees may desire a greater balance of power or a redistribution of authority within the existing formal
authority structure. People can share power in a variety of ways: by providing information, by sharing
responsibility, by giving authority, by providing resources, by granting access, by giving reasons, and by
extending emotional support. The act of sharing information is powerful. When people don't share information,
the need to know still exists; therefore, the blanks are filled in with gossip and innuendo. When people are
asked to take on more responsibility, they should be provided with tasks that provide a challenge, not just with
more things to increase their workload that don't really matter. People need the legitimate power to make
decisions without having to clear everything first with someone higher up in the organization. People who
have power must also have the necessary range of resources and tools to succeed. Access to people outside as
well as inside the organization should be provided and encouraged. People should be told why an assignment
is important and why they were chosen to do it. Emotional support can come in the form of mentoring,
appreciation, listening, and possibly helping out.

Did You Know?


Thomas Hobbes defined power as a man's ―present means, to obtain some future apparent good‖.

9.4 Uses of authority


The purpose of the General retention and disposal authority: local government records is to identify records
created and maintained by NSW councils and county councils which are required as State archives, and to
provide approval for the destruction of certain other records after minimum retention periods have been met.
The authority applies to all records of council business and administration. Someone only has authority if we
choose to recognize it. Building a high performance team is all about developing levels of trust and
understanding and having the team establish the types and levels and distribution of authority within its ranks.
It is about the distribution of authority.
There are three sources and uses of authority:
1. Charismatic Authority means that deference and obedience will be given because of the extraordinary
attractiveness and power of the person. The person is owed homage because of their capacity to project
personal magnetism, grace and bearing. For instance, management gurus such as Jack Welch, politicians
such as Nelson Mandela, or popular characters such as Princess Diana are charismatic authorities: people
follow them because of their personalities and the success they have achieved.
2. Traditional Authority occurs where deference and obedience are owed because of the bloodline. The title
held is owed homage because the person who holds it does so by birthright – they are in that position by
right of birth. Prince Charles, for instance, is not so much an authority because of his charisma, but
because of tradition: as the Queen's eldest son, he is the future King of England.
3. Rational-legal Authority signifies that deference and obedience are owed not to the person or the title they
hold but to the role they fill. It is not the officer but the office that is owed homage because it is a part of a
rational and recognized disposition of relationships in a structure of offices. Examples are easy to find –
one just has to think of passport control or the police. These are authorities, although one does not know
the people acting in the roles: they are ‗secondary‘ – what is important is the office they represent.

The third source of authority, based on rational-legal precepts, is exactly what Weber identified as the heart of
bureaucratic organizations. People obey orders rationally because they believe that the person giving the order
is acting in accordance with a code of legal rules and regulations. Members of the organization obey its rules
as general principles that can be applied to particular cases, and which apply to those exercising authority as
much as to those who must obey the rules. People do not obey the rules because of traditional deference or
submission to charismatic authority; they do not obey the person but the office holder. Whether one likes the
office holder or not is supposed to be unimportant; police officers might sometimes be disagreeable, but they
hold an office that legitimizes their actions.

Weber's view of bureaucracy was as an instrument or tool of unrivalled technical superiority. ‗Precision, speed
and un-ambiguity, knowledge of the files, continuity, discretion, unity, strict subordination, reduction of
friction, and of material and personal cost, these are raised to the optimum point in the strictly bureaucratic
administration‘. Weber saw modern bureaucratic organizations as resting on a set of ‗rational‘ foundations.
These include the existence of a ‗formally free‘ labor force; the appropriation and concentration of the physical
means of production as disposable private property; the representation of share rights in organizations and
property ownership; and the ‗rationalization‘ of various institutional areas such as the market, technology and
the law.

The outcome of this process of rationalization, Weber suggests, is the production of a new type of person: the
specialist or technical expert. Such experts gained control of reality by means of increasingly precise and
abstract concepts. Statistics, for example, began in the nineteenth century as a form of expertly compiled
information about everyday life and death, which could inform public policy. The statistician emerged as a
paradigm of the new kind of expert, dealing with everyday things, but in a way that was far removed from
everyday understandings. Weber sometimes referred to the results of this process as disenchantment, meaning
the process whereby all forms of magical, mystical, traditional explanation is stripped away from the world.
The world is laid bare, open and amenable to the calculations of technical reason. While Weber believed that
the technical superiority of bureaucracy was irresistible, this irresistibility alarmed him. It seemed that
achieving the benefits of modernity involved reducing everything to rational calculation irrespective of other
values and pleasures. Yet bureaucracy seemed to be a necessary and unavoidable feature of organizing in the
modern world: if you wanted modernity.
In another way, the sources of authority are:
1. Position or Post: The position or post or leave of the managers or employees may have shortened
authorities. The personal capacity can defer actual practice of such authorities.
2. Formal Sources of Authorities: According to this sources or theory authorities is created or originated
from the real owners and it is transfer to the top level management. For e.g. CEO can receive authority from
BOD, and delegates such authorities to be lower levels.
3. Acceptance Theory of Authority: Another source of authority is acceptance from the sub-ordinates. If the
ideas, activities, opinions and procedures followed by the superiors are accepted by the sub-ordinates than only
the authorities than only the authorities can be practice such sources or authorities is known as acceptance
theory.
4. Competence Theory: According to this theory, Authorities also dirges from the personal skills, knowledge
experience, extra-ordinary academic excellence such factors shown the competency of the managers.
5. Environmental Factors: The authorities is also creates or formed the external environmental forces in
another words degree of authority can be increased or decreased based on favor and unflavored situation of
environment. It the environment is favorable then the manager can use maximum degree of authorities.

9.5 Distinction between Centralization and Decentralization


Decentralization can be called as extension of delegation. When delegation of authority is done to the fullest
possible extent, it gives use to decentralization.Delegation is the act of assigning tasks that are regarding work
and/or power to subordinate workers. It is basically the turning over of some kind of authoritative power and
responsibility to another individual to perform certain predefined tasks. Delegation gives the power to a person
to make all major decision pertaining to the given task. In essence, delegation is simply the shift of power to
make decisions from one hierarchal level to another, usually a lower one. Delegation if not done effectively, is
called as micromanagement, when the subordinate is overloaded with too much data to handle.

On the other hand, decentralization refers to the transfer of decision making authority to the different unit of an
organization. It is basically the procedure of spreading out the decision making, getting it closer to the point of
action. Basically, it is delegation on a larger level so as to disperse the work and give each unit its own
freedom and authority, instead of there being one centralized entity to which everyone reports.
Some differences Delegation and Decentralizations are:
1. Delegation is a compulsory act because no individual can perform all tasks on his own while
decentralization is an optional policy decision as it is done at the discretion of the top level mgmt.
2. In delegation there is more control by superiors hence less freedom to take own decisions while in
decentralization less control over executives hence greater freedom of action.
3. Delegation is a process followed to share tasks while Decentralization is the result of the policy decision of
the top mgmt.
4. Delegation has a narrow scope as it is limited to superior and his immediate subordinate while
decentralization has a wide scope as it implies extension of delegation of the top mgmt.
5. Delegation is to lessen the burden of the managers while delegation is to increase the role of the
subordinates in the organization by giving them more autonomy. (See Table 9.1)

Table 9.1: Delegation and Decentralization


Basis Delegation Decentralization
Meaning Managers delegate some of their Right to take decisions is shared by top
function and authority to their management and other level of management.
subordinates.
Scope Scope of delegation is limited as Scope is wide as the decision making is shared
superior delegates the powers to the by the subordinates also.
subordinates on individual bases.
Responsibility Responsibility remains of the Responsibility is also delegated to subordinates.
managers and cannot be delegated
Freedom of Freedom is not given to the Freedom to work can be maintained by
Work subordinates as they have to work as subordinates as they are free to take decision and
per the instructions of their superiors. to implement it.
Nature It is a routine function It is an important decision of an enterprise.
Need on Delegation is important in all Decentralization becomes more important in
purpose concerns whether big or small. No large concerns and it depends upon the decision
enterprises can work without made by the enterprise, it is not compulsory.
delegation.
Grant of The authority is granted by one It is a systematic act which takes place at all
Authority individual to another. levels and at all functions in a concern.
Grant of Responsibility cannot be delegated Authority with responsibility is delegated to
Responsibility subordinates.
Degree Degree of delegation varies from Decentralization is total by nature. It spreads
concern to concern and department to throughout the organization i.e. at all levels and
department. all functions
Process Delegation is a process which It is an outcome which explains relationship
explains superior subordinates between top management and all other
relationship departments.
Essentiality Delegation is essential of all kinds of Decentralization is a decisions function by
concerns nature.
Significance Delegation is essential for creating the Decentralization is an optional policy at the
organization discretion of top management.
Withdrawal Delegated authority can be taken It is considered as a general policy of top
back. management and is applicable to all departments.
Freedom of Very little freedom to the subordinates Considerable freedom
Action

9.6 Responsibility
Responsibility is the obligation to accomplish the goals related to the position and the organization. Managers,
at no matter what level of the organization, typically have the same basic responsibilities when it comes to
managing the work force: Direct employees toward objectives, oversee the work effort of employees, deal with
immediate problems, and report on the progress of work to their superiors. Managers' primary responsibilities
are to examine tasks, problems, or opportunities in relationship to the company's short-and long-range goals.
They must be quick to identify areas of potential problems, continually search for solutions, and be alert to
new opportunities and ways to take advantage of the best ones. How effectively goals and objectives are
accomplished depends on how well the company goals are broken down into jobs and assignments and how
well these are identified and communicated throughout the organization.

Table 9.2: Differences between authority and responsibility


Basis Delegation Decentralization
Meaning Managers delegate some of their Right to take decisions is shared by top
function and authority to their management and other level of management.
subordinates.
Scope Scope of delegation is limited as Scope is wide as the decision making is shared
superior delegates the powers to the by the subordinates also.
subordinates on individual bases.
Responsibility Responsibility remains of the Responsibility is also delegated to subordinates.
managers and cannot be delegated
Freedom of Freedom is not given to the Freedom to work can be maintained by
Work subordinates as they have to work as subordinates as they are free to take decision and
per the instructions of their superiors. to implement it.
Nature It is a routine function It is an important decision of an enterprise.
Need on Delegation is important in all Decentralization becomes more important in
purpose concerns whether big or small. No large concerns and it depends upon the decision
enterprises can work without made by the enterprise, it is not compulsory.
delegation.
Grant of The authority is granted by one It is a systematic act which takes place at all
Authority individual to another. levels and at all functions in a concern.
Grant of Responsibility cannot be delegated Authority with responsibility is delegated to
Responsibility subordinates.
Degree Degree of delegation varies from Decentralization is total by nature. It spreads
concern to concern and department to throughout the organization i.e. at all levels and
department. all functions
Process Delegation is a process which It is an outcome which explains relationship
explains superior subordinates between top management and all other
relationship departments.
Essentiality Delegation is essential of all kinds of Decentralization is a decisions function by
concerns nature.
Significance Delegation is essential for creating the Decentralization is an optional policy at the
organization discretion of top management.
Withdrawal Delegated authority can be taken It is considered as a general policy of top
back. management and is applicable to all departments.
Freedom of Very little freedom to the subordinates Considerable freedom
Action

Case Study-Jennifer’s Challenge


The case study on the following pages gives us the opportunity to review the process of choosing the right
tasks to delegate. Try to develop an appropriate delegation strategy – what would we do if we were in
Jennifer‘s position? With the Christmas break only two weeks away, Jennifer looked at her To Do list and
shook her head. If she ignored the minor items, she had ten major priorities to complete before the end of the
year. Even with no interruptions or other pressing matters, she would be lucky to get half of them done.
Jennifer supervises a team of six people but knows that they too have a heavy workload. She also has four peer
supervisors. Unfortunately, one is off sick and two have complained that they will never get all their work
finished before the holiday. Jennifer also knows that a temporary secretary is working on the same floor for the
next week. Jennifer‘s admin skills are average but she is quicker than most with the computer and is an
excellent team communicator.
This is ironic, since almost half her team‘s workload is in putting together a script for an information video to
be released in the New Year to customers – but she is too busy to contribute to this. Jennifer has never been
able to delegate easily. She tends to think that she is faster than most people, even if she does make a few
mistakes. However, she may have no option but to delegate if she wants to achieve her goals this year! Jennifer
faces quite a challenge but delegation and plenty of collaboration are the keys here. Her first task should be
some careful analysis and subsequent planning of her workload. Of the ten items on her list, at least two
should not be delegated: Phil‘s appraisal and talking to the team about next year‘s reorganization. The other
items all have potential to be delegated.
A good approach is for her to estimate the time that each would take her. Given her average admin skills, the
best tasks to delegate would be: proof reading and correcting the 80-page report (which the temporary
secretary could do); planning the office relocation and the customer complaint exercise. Even designing the
training course could be delegated, with a little extra help from her peers. Although already very busy, her
team would probably enjoy planning the office relocation and visiting the furniture supplier. They might even
volunteer to work with her on the budget and to visit the new distributor. To eliminate some tasks altogether
for now, the office supplier could send in catalogues and defer a visit, and the customer complaint 48 analysis
could wait until January

Questions
1. How should Jennifer plan her delegation approach?
2. Who could be handling their support and approach?

9.7 Summary
Authority is the power to manage the sub-ordinates to control them and to instruct them according to the
rules norms and standards of the organization. Authority of managers helps to keep the sub-ordinates in
obedience.
Delegation of authority is one vital organizational process. It is inevitable along with the expansion and
growth of a business enterprise.
Authority is seen as the legitimate right of a person to exercise influence or the legitimate right to make
decisions, to carry out actions, and to direct others.
Power stems from a variety of sources: reward power, coercive power, information power, resource power,
expert power, referent power, and legitimate power.
Decentralization can be called as extension of delegation. When delegation of authority is done to the
fullest possible extent, it gives use to decentralization.
Responsibility is the obligation to accomplish the goals related to the position and the organization.

9.8 Keywords
Authority: It is a force that is essential to the functioning of any organization.
Delegation: It means assigning a certain task to other person providing proper authorization keeping in mind it
should be effective and result oriented.
Full delegation: It means complete conferment of the principal‘s powers on the agent.
Responsibility: It is the duty of the person to complete the task assigned to him.
Power: It is the ability to exert influence in the organization beyond authority, which is derived from position.
Decentralization: It is the process of dispersing decision-making governance closer to the people and/or
citizens.

9.9 Self Assessment Questions


1.....is based on the organizational position, and anyone in the same position has the same authority
(a) Responsibility (b) Delegation
(c) Authority (d) None of these

2........ mean assigning of certain responsibilities along with the necessary authority by a superior to his
subordinate managers
(a)Authority (b) Decentralization
(c)Power (d) Delegation

3. Delegation involves important aspects like assigning …………duties by the executives, granting of
authority and creation of obligation or accountability
(a) one (b)three
(c) four (d)two

4. Effective delegation requires not only a structured process, but also the proper attitude on the part of the
manager
(a)True (b) False

5. A centralized organization systematically works to concentrate authority at the ....... levels.


(a) upper (b) lower
(c) middle (d)None of these

6......... is the obligation to accomplish the goals related to the position and the organization
(a)Power (b) Responsibility
(c)Delegation (d) Organization

7. Delegation if not done effectively, is called as...........


(a) micro management (b)macro management
(c) active management (d)Inactive management

8. Decentralization can be called as extension of delegation


(a)True (b) False

9. In delegation there is more control by superiors hence less freedom to take own decisions
(a)True (b) False

10. In decentralization less control over executives hence greater freedom of action
(a)True (b) False

9.10 Review Questions


1. What do you mean by delegation? Explain
2. Explain the concept of authority
3. What is the concept of decentralization in detail
4. What is the difference between authority and power?
5. Write the uses and sources of authority
6. What are the implications of decentralization?
7. Write the importance of decentralization?
8. What is the distinction between centralization and decentralization?
9. Write the short note on responsibility
10. Write the difference between authority and responsibility
Answers for Self Assessment Questions
1. (c) 2.(d) 3.(b) 4.(d) 5.(a)
6. (a) 7.(a) 8.(a) 9.(a) 10.(a)
10
Business Organization
CONTENTS
Objectives
Introduction
10.1 Meaning of Business
10.2 Importance of Business Organization
10.3 Basic Principle of Business Organization
10.4 Significance and Establishment of Business Organization
10.5 Types of Business Organization
10.6 Summary
10.7 Keywords
10.8 Self Assessment Questions
10.9 Review Questions

Objectives
After studying this chapter, you will be able to:
Explain the meaning of business
Define the importance of business organization
Understand the basic principle of business management
Discuss the types of business organization

Introduction
The study of Business Organization and Management has acquired an important status in the field of business
studies at the under-graduate level. It embraces the study of the methods, techniques and practices of efficient
organizations and management of business. The knowledge of this subject is essential not only for the
commerce students, but also for all those who want to enter into any line of business.
The original word ‗organization‘ comes from the Greek word Oregano which itself is derived from the word
Ergon which literally translates to ‗organ‘ which is a compartment for a particular job. There are a wide range
of different organizations within our social structure that allow our society to function and fulfil their public
duties; co-operatives, charities, non profit corporations, governments, corporations, Universities, companies,
non government organizations, international organizations, armed forces and any other types that are similar
that cover the public sector and the private sector.

There are also what is known as hybrid organizations which are a combination of two of the above such as a
combination of a corporate organization and the government. If we look at organizations from a social sciences
perspective then we need to understand that it is a subject for analysis using a number of disciplines which
include; sociology, political sciences, psychology, economics, management and organizational
communications. When people say they are studying organizations they may say that they are studying;
organizational studies, organizational structure, organizational analysis and organizational behaviour. All of
these names mean the exact same thing but are the names that are given by different institutes to their courses.

10.1 Meaning of Business


A business may be defined as an institution organized and operated to provide goods and services to the
society with the objective of earning profit. L.R. Dickson has defined business as a form of activity pursued
primarily with the object of earning profit for the benefit of those on whose behalf the activity is conducted.
―Business involves production and/or exchange of goods and services to earn profits or in a broader sense, to
earn a living. Profit is not the sole objective of the business. It may have other objectives like promotion of
welfare of the workers and the general public. Business activities include production and distribution of goods
and services which can satisfy human wants.
The term business should be used to convey the same meaning as the term trade simply denotes purchase and
sale of goods whereas ‗business‘ includes all activities form production to distribution of goods and services. It
embraces industry, trade and other activities like banking, transport, Insurance and warehousing which
facilitates production and distribution of goods and services. According to F.C. Hopper ―The whole complex
field of commerce and industry which includes the basic industries, processing and manufacturing industries,
and the network of ancillary services: distribution, banking, insurance transport and so on, which serve and
inter penetrate the world of business as a whole‖ are called business activities.

10.1.1 What is Business Law?


Businesses interact in many and varied ways. To name just a few types of business transactions, there are
contracts, mergers and acquisitions, leasing, etc. How these transactions are carried out is overseen by
Business Law. Additionally, how businesses are formed is a large part of Business law. This area of law is very
wide-ranging, although it deals primarily with defining the rights and responsibilities of businesses, rather than
enforcing these laws.
Because of its extensive scope, Business law has spawned a large number of legal practice area subcategories,
which include Sales and Secured Transactions, Banking, Landlord-Tenant, Mortgages, Real Estate
Transactions, Debtor and Creditor, Bankruptcy, Consumer Credit, Negotiable Instruments, and Contracts.
Business law and Commercial law are very closely related, so much so that the terms are often used
interchangeably and the legal issues they address frequently overlap. The Uniform Commercial Code (UCC) is
the principal presiding authority over commercial.

Business Law
Section of Business Law: The Mission of the Section is to serve the public, the profession and the Section by
furthering the development and improvement of business law, educating Section members in business law and
related professional responsibilities, and helping Section members to serve their clients competently,
efficiently and professionally.
Commercial Law: Commercial law (sometimes known as business law) is the body of law that governs
business and commercial transactions. It is often considered to be a branch of civil law and deals with issues of
both private law and public law. Commercial law includes within its compass such titles as principal and
agent; carriage by land and sea; merchant shipping; guarantee; marine, fire, life, and accident insurance; bills
of exchange and partnership. It can also be understood to regulate corporate contracts, hiring practices, and the
manufacture and sales of consumer goods.

Compliance with Business Laws: Most aspects of running a business have some legal consequences. Whether
your business is just starting up, expanding, or winding down, you must comply with the federal, state, and
local laws that govern your business activities.

Employment Law for Businesses: The laws Advisors are interactive e-tools that provide easy-to-understand
information about a number of federal employment laws. Each Advisor simulates the interaction you might
have with an employment law expert. It asks questions and provides answers based on responses given.

Self-Employment Assistance: Self-Employment Assistance offers dislocated workers the opportunity for early
re-employment. The program is designed to encourage and enable unemployed workers to create their own
jobs by starting their own small businesses. Under these programs, States can pay a self-employed allowance,
instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing
businesses and becoming self-employed. Participants receive weekly allowances while they are getting their
businesses off the ground.

Essential Government Forms: Here you will find info on how to obtain important business forms at each stage
of your business. For info on obtaining forms from Federal government agencies, visit the Federal Forms
Catalog, a database of over 5,000 forms for businesses and citizens.

Legal Information for Small and Large Businesses: Broad ranging material on business laws, regulations,
structuring, capital, taxes, securities, employment, contracts, labour and more.

Model Business Corporation Act: A corporation is a legal entity created through the laws of its state of
incorporation. Individual states have the power to promulgate laws relating to the creation, organization and
dissolution of corporations. Many states follow the Model Business Corporation Act.

Partnership Law: A partnership is a for-profit business association of two or more persons. Because the
business component is defined broadly by state laws and because ―persons‖ can include individuals, groups of
individuals, companies, and corporations, partnerships are highly adaptable in form and vary in complexity.
Each partner shares directly in the organization‘s profits and shares control of the business operation. The
consequence of this profit sharing is that partners are jointly and independently liable for the partnership‘s
debts.

Organizations Related to Business Law


All Business: AllBusiness.com is an online media and e-commerce company that operates one of the premier
business sites on the Web. The site has received critical acclaim and notoriety from The Wall Street Journal,
Forbes, Business 2.0, Fortune, The New York Times, US News and World Report, USA Today, and other
publications. AllBusiness.com helps business professionals save time and money by addressing real-world
business questions and presenting practical solutions. The site offers resources including how-to are, business
forms, contracts and agreements, expert advice, blogs, business news, business directory listings, product
comparisons, business guides, a business association and more.

Association for Corporate Growth: The Association for Corporate Growth, Inc. is a global association for
professionals involved in corporate growth, corporate development, and mergers and acquisitions.

Association of Business Trial Lawyers: The ABTL was founded in Los Angeles in 1972 to provide a collegial
forum for the discussion of business litigation issues. From the very start, the ABTL has been committed to
promoting and enhancing communications between the bar and the federal and state benches.

Association of Corporate Counsel: The Association of Corporate Counsel (ACC), the in-house bar
associations, serves the professional needs of attorneys who practice in the legal departments of corporations
and other private sector organizations worldwide. ACC promotes the common interests of its members,
improves the understanding of the role of in-house attorneys, provides useful and practical resources and
programs, and ensures that members have a voice on issues of most concern.

Better Business Bureau (BBB): BBB‘s mission is to be the leader in advancing marketplace trust. BBB
accomplishes this mission by: Creating a community of trustworthy businesses, Setting standards for
marketplace trust, Encouraging and supporting best practices, Celebrating marketplace role models, and;
Denouncing substandard marketplace behaviour.

Centres for Corporate Policy: The Centres for Corporate Policy is a non-profit, non-partisan public interest
organization working to curb corporate abuses and make corporations publicly accountable.

Corporate and Business Law Association: The Corporate and Business Law Association (CBLA) was
established to focus on current corporate trends and business laws and to evaluate how they impact the legal
community today and in the future. The mission of the CBLA is to create a gateway for students to integrate
with the Columbus legal community by fostering a professional atmosphere for networking, learning, and
mentoring.

Legal Information for US Business Organizations - Free Management Library: The Library provides easy-to-
access, clutter-free, comprehensive resources regarding the leadership and management of you, other
individuals, groups and organizations. Content is relevant to the vast majority of people, whether they are in
large or small for-profit or non-profit organizations. Over the past 15 years, the Library has grown to be one of
the world‘s largest well-organized collections of these types of resources.

Minority Business Development Agency (MBDA): The Minority Business Development Agency (MBDA) is
part of the U.S. Department of Commerce. MBDA is the only federal agency created specifically to foster the
establishment and growth of minority-owned businesses in America. MBDA is an entrepreneurially focused
organization committed to wealth creation in minority communities. The Agency‘s mission is to actively
promote the growth and competitiveness of large, medium and small minority business enterprises (MBEs).

Publications Related to Business Law


Business Law - Business Exchange News and opinion about the latest developments in all aspects of business
law, ranging from law firm practices to regulatory decisions to business-related rulings from state and federal
courts.
Foster Business Library: We are a collaborative learning community of faculty, staff, students, alumni and
business partners dedicated to the creation, application, and sharing of management knowledge. We are
recognized thought leaders whose research contributes to the understanding of important management issues.
Our programs place special emphasis on leadership and strategic thinking. Our students are capable of leading
teams, and ultimately organizations, and can roll up their sleeves to solve complex, unstructured real-world
problems.

Franchises and Business Opportunities: Want to be your own boss? A franchise or business opportunity may
sound appealing, especially if you have limited resources or business experience. However, you could lose a
significant amount of money if you do not investigate a business carefully before you buy. By law, franchise
sellers must disclose certain information about their business to you, the buyer. This guide provides helpful
advice on buying and evaluating a franchise and information on how to avoid common scams.

Mondaq-Business News: Mondaq, launched in August 1994, is one of the most comprehensive electronic
resources of professionals‘ knowledge and expertise. We provide legal, regulatory and financial commentary
and information supplied directly by hundreds of the world‘s leading professional advisors, covering over 70
countries.

Examples Product Organization Structure


Product organization structures lend well to organizations such as department stores and supermarkets.
Organizations operate in multiple regions, a hybrid between geographical and product organization structures
are suitable.

Figure 10.1: Product business organization structure.

10.2 Importance of Business Organization


Business organization is an act of grouping activities into effective co-operation for specific objective. It is
primarily concerned with the creation and distribution of utilities for earning profit. Its study reveals that it
covers all spheres, of economic functions and it provides a common link between. It guides us to the improved
method of organization and operation concerning production, marketing, financing, transporting, and trading.
It restricts wastage of time, material and factory overheads which lower‘ the cost per unit. It is to be noted that
business organization teaches us all methods and principles of office organization and the best way of
performing the secretarial functions. It provides the adequate solution of many business problems. So it has
enabled the businessman to conduct the business affairs efficiently. Business organization thus consists of the
skilful activities of the businessman with a view to promoting trades, commerce and industry.

10.3 Basic Principle of Business Organization


Following are the basic principles of a business organization defined as:
The Ups and Downs of running a Business
Running a business means taking some calculated risks which is called ―Entrepreneurship‖. A business is not
100% safe activity like a job where you sell your skill and time for a fixed pay check. The basic qualification
for running a business is having enough guts to face the ups and downs that you may experience while
managing your business activities. Why, then, people start new ventures? The answer is for reaping the
rewards that follow successful implementation of ‗Basic‘ principles of business management. Let us discuss
some of these principles which keep encouraging many new entrepreneurs all over world to start new business,
run it efficiently and achieve their career goals.

1. Have A Well Designed Business Plan: Before starting journey you must know your destination. Are you
working to grow your family business? Have you planned your small venture to grow fast and become a
corporate house one day? Are you going to start a business with an aim to sell it after few years? Make a
clearly defined business plan to focus on your ultimate goals. Know your strengths and weaknesses. Focus on
your strengths. Make adequate financial backing that is required to keep you in business. These plans need
constant review and updating.

2. Keep Motivated: You are not the first to start a new business; many more have done it in the past. Some of
them might have failed but you can find many successful business owners around you. Get inspiration from
successful people. Read their experiences – what hurdles did they face and how did they handle them to reach
where they have reached. Plenty of information is available online to keep you guided. It is always better to
learn from others‘ experiences.

3. Be Positive And Be Flexible: Seeing brighter side of the picture is positive thinking. What do you call a
bottle half full of water–half full or half empty? This will keep you always open to any new technology that
may be beneficial for your business growth. Be flexible to consider new products or services and add it to your
product range if your judgment so requires. Be open to adding something unique to your product or service
that can give you an edge over your competitors.

4. Be Focused: Your prime goal of making a successful and profitable business should never be out of sight.
Distraction might pull you back. Earning customers‘ faith is utmost important which can be achieved by
extending friendly and personalized service to your clients. Happy customers are your best business promoters.

10.4 Significance and Establishment of Business Organization


The concept of permanent establishment (―PE‖) has gained considerable importance with the growing trend of
globalization. The concept of a PE is important for several of the Convention and the concept or its cognate,
also appears in the domestic laws of some countries. For example, in India we have the concept of ‗business
connection‘ (―BC‖). The PE concept marks the dividing line for businesses between merely trading with a
country and trading in that country; if an enterprise has a PE, its presence in a country is sufficiently
substantial than when it is trading in a country.
10.4.1 Significance
One of the paramount objectives of a tax treaty is to resolve the claims of competing jurisdictions where an
enterprise is resident in one country and carries out business activities in another. Most often, domestic laws of
countries prescribe the threshold for taxing business profits of a foreign enterprise carrying on business within
their taxable territory. For instance in India, we have the concept of a ‗business connection‘, which is discussed
below, and is analogous to the concept of a PE. In the UK, the threshold is described as the point when a
foreign enterprise trades within the UK, as opposed to merely trading with the UK. The PE concept is
therefore a major contribution to international tax law and is a significant feature of bilateral tax treaties in
force throughout the world. Where a tax treaty is in operation, the crucial question is whether a foreign
enterprise is carrying on business through a PE in the country where the profits are earned. If the enterprise
does not have a PE then it can be taxed only in the country where it is a resident.

10.4.2 Analysis

Figure 10.2: Structure of PE clause.

Article 5(1): The general rule: the PE must be a fixed place of business at the disposal of the enterprise through
which the business of the enterprise is carried on.
Article 5(2): contains a list of places of business, which prima facie constitute PE, provided they satisfy the
requirements of Article 5(1).
Article 5(3): Special rule for construction and installation sites a limitation on Article 5(1).
Article 5(4): lists activities, which may be carried on at a fixed place of business without giving rise to a PE.
Article 5(5): provides that dependent agents constitute a PE.
Article 5(6): identifies certain forms of independent agents who do not constitute a PE.
Article 5(7): states that an associated company will not necessarily give rise to a PE.

Article 5(1)
The official commentary on the OECD Model explains the basic criteria for the existence of a PE as follows:
the existence of a ‗place of business‘, i.e., a facility such as premises or, in certain instances, machinery or
equipment;
this place of business must be ‗fixed‘, i.e., it must be established at a distinct place with a certain degree of
permanence;
The ‗carrying on of the business‘ of the enterprise through this fixed place of business. This means usually
those persons who, one way or another, are dependent on the enterprise (personnel) conduct the business
of the enterprise in the State in which the fixed place is situated.

Article 5(2) to Article 5(7)


From the above definition it can be observed that the basic structure of the PE concept has been characterised
as involving three acid tests; assets test, agency/relationship test and an activities test. The acid tests can be
diagrammatically represented as below:

Figure 10.3: Acid tests.


We now analyze each of these acid tests.

10.4.3 Asset Test


In no way can this list be said to be exhaustive as it is mainly indicative. An important point to be borne in
mind here is that the OECD observes that it is assumed the list of examples will be interpreted by treaty states
in accordance with the principles of paragraph 1.

Place of Management: Management means the possession of actual decision making power. The place where
the person actually makes these decisions is crucial, irrespective of the title that he or she bears. Further, it
must be noted that management does not mean ownership.

Branch: ‗Branch‘ is one of the most common terms appearing in treaty specifications of PE. Surprisingly the
term has not been defined! Generally, we understand a branch to mean an office or other establishment of a
corporation incorporated under the laws of a country other than the one on which the branch is located.

Office: the term ‗office‘ is used in almost all tax conventions entered into between countries. A single desk or
even an office at home can be treated as an office leading to the constitution of a PE.

Factory: The term factory has been defined as a building in which goods are manufactured. In a case the
factory in question was owned and operated by an Australian company, an entity separate and distinct from the
taxpayer- an English company, which held shares in it but was not its parent. The Australian company
produced and sold a portion of the production to the taxpayer company and was duly paid for the articles
supplied.

Workshop: This is a clause which hardly has ever led to the establishment of a PE. Its inclusion in 1928
probably carried some special weight in the US.
A dictionary definition of that era explains that in Britain, the term had, by various acts of Parliament; been
declared to be any place in which collective manual labour, under an employer having right of access to or
control over the place, is done by way of trade or in making, repairing, or the like, to be sold, and in which no
machinery moved or worked by any mechanical power is used.

Figure 10.4: The EPC contracts.

In a situation where each of the contracts are performed for separate contractors/each project is an independent
project, the period for which the EPC contract is present in India, will be considered independently for each
such project. In the above situation, though the total period spent in India is more than 12 months, since such
period is spent for different projects, the EPC contractor would not be regarded to have a PE in India. The
administrative court of appeal of Nancy in Paris in France held that the mere supervision of building works in
Algeria did not give rise to a PE. Similarly the Income Tax Appellate Tribunal held that a French company did
not have a PE in India when it merely supervised an Indian company installing telephone switching
equipment.
In 1989 the revenue authorities of Belgium, the Netherlands and Germany issued an interpretation of tax treaty
provisions.

This interpretation had the following rules:


1. the length of time separate construction sites last does not have to be added up for computing whether a PE
is formed;
2. work performed for separate principals may normally be treated as a separate project, unless it forms one
unit with another project or series of projects, from an economic point of view;
3. different projects performed for one principal by virtue of one contract are treated as ‗one‘ unless the
different projects are not performed in any relationship to each other;
4. Projects performed for one principal by virtue of several contracts are also to be treated as ‗one‘ if the
construction, although performed at different sites, is only part of a more global project and there is no
appreciable interruption of the activity between the sites.‖

10.4.4 Agency Test


The states that a non-independent agent who has an authority to conclude contracts on behalf of an enterprise,
and who habitually exercises that authority will constitute a PE of the enterprise. The official commentary on
the OECD Model furthers states that a person will only have independent status if it is independent both
legally and economically, and it acts in its ordinary course of business when acting on behalf of the enterprise.
If an agent acts almost exclusively for one enterprise it may be difficult for him to show that he is independent,
and in some Indian treaties (for example the one with UK) it is expressly provided that in such a case the agent
will be deemed not to have an independent status. Paragraph 7 recognizes that an overseas subsidiary company
is a separate legal entity from its parent and as such cannot automatically be regarded as a PE. However, if the
subsidiary functions as a no independent agent/entity on behalf of its parent, it will constitute a PE.

10.4.5 Activities Test


The OECD Model is of great significance as it sets out those activities, which even if carried on through a
fixed place of business will not constitute a PE. Thus, if the operations are structured properly to fall within
these exclusions, it could very well fall within the exceptions and avail of the benefits thereto.
Perhaps the logic behind providing these exceptions was so as to exclude services that are really very remote
from the actual realisation of profits. A mere sales solicitation office is sufficient, whether intended for one‘s
own goods or services or those of an unrelated supplier for the constitution of a PE.

Mailing Address: The question arises as to whether the existence of a mailing address of the enterprise in a
foreign country would lead to the existence of a PE. In a case decided by the US court it was held that a
Canadian company which only had a mailing address in the US, but had no office, telephone listing or bank
account there, could not said as to having a PE in the US.

Trade Fairs: Merely selling merchandise at the end of a trade fair or convention would not result in a PE in the
state in which the trade fair is held. The trade fair or convention clause would indicate that sales and delivery
to customers from stock on any regular basis should produce the PE characterisation for the place of business,
even if operated for relatively short periods of time.

The above ruling involving the solicitation by one entity of orders for the goods and services of another,
suggest that PE status may be avoided by careful legal structuring. Consider for example, the creation by a
foreign enterprise of a representative office in the source country.

That office has as its purpose the creation of customer goodwill and product awareness through representative
office brochures, advertising, participation in trade fairs, and customer visits (in which direct solicitation is
avoided). Suppose further that the representative personnel share office space in the source country with
personnel of an unrelated source –country corporation who attend to (and to whom are referred) all source
country customer orders, bookings and the transmission to and acceptance by the foreign enterprise at a
foreign location. If such separation of functions is required by agreement and adhered to in practice, the
foreign enterprise has no PE in the source country

10.5 Types of Business Organization


The various forms of organization are established by state law. There are a wide variety of business
organizations recognized by the states.
For example, a popular form of organization is the Limited Liability Company (LLC). The LLC is a state
designation. At the federal level, an LLC is taxed as a partnership. If the LLC so chooses, it can be taxed as a
corporation at the federal level. While there are a variety of designations at the state level:
Federal tax purposes there are only 6 forms of business organizations:
Sole Proprietor (1040 Schedule C),
Corporation (1120),
Partnership (1065),
S-Corporation (1120S),
Trust (1041), and
Non-profit organization (990)
Sole Proprietors: are unincorporated businesses. They are also called independent contractors, consultants, or
freelancers. There are no forms you need to fill out to start this type of business. The only thing you need to do
is report your business income and expenses on your Form 1040 Schedule C. This is the easiest form of
business to set up, and the easiest to dissolve. (An LLC with only a single shareholder, a so-called single-
member LLC, is taxed as a sole proprietor on a Schedule C.)

Corporations: are incorporated businesses. Every form of business besides the sole proprietor is considered a
separate entity, and this often provides a measure of legal and financial protection for the shareholders. The
shareholders of corporations have limited liability protection, and corporations have full discretion over the
amount of profits they can distribute or retain. Corporations are presumed to be for-profit entities, and as such
they can have an unlimited number of years with losses. Corporations must have at least one shareholder.

Partnerships: are unincorporated businesses. Like corporations, partnerships are separate entities from the
shareholders. Unlike corporations, partnerships must have at least one General Partner who assumes unlimited
liability for the business. Partnerships must have at least two shareholders. Partnerships distribute all profits
and losses to their shareholders without regard for any profits retained by the business for cash flow purposes.
(LLCs are taxed as partnerships, unless they choose to be taxed as corporations.)

S-Corporations: have features similar to a partnership. An S-corporation must have at least one shareholder,
and cannot have more than 100 shareholders. If any shareholder provides services to the business, the S-Corp
must pay that shareholder a reasonable salary. This salary is a separate payment from distributions of profits or
losses.

Trusts: are usually formed upon the death of an individual and are designed to provide continuity of the
investments and business activities of the deceased individual. We will not discuss trusts further.

Nonprofits: are corporations formed for a charitable, civic, or artistic purpose. Nonprofits are generally
exempt from federal and state taxation on their income, and so they are often called ―exempt organizations.‖
Nonprofits have substantial responsibilities for reporting their activities, income, and assets to ensure that they
are in compliance with federal and state laws governing charities.

Did you know?


Business history was founded by Professor N. S. B. Gras, at the Harvard University Graduate School of
Business Administration, starting in 1927.

Caution:
It is not uncommon for non-profit organizations, large and small, to have money making opportunities during
their existence.

Case Study-Autopoiesis in the Business Organisation


The business operation of a well-known Malaysian fast food chain, KFC Holding (M) (KFCH), as a case for
an ‗autopoietic brand management‘. It may be that brand management (or branding) is a crucial aspect to the
survival of business enterprise and would be the most appropriate discipline to adopt autopoietic systems.
Indeed, Kapferer noted that branding could be identified as the ‗corporate DNA‘ of most business entities.
Existing discussions on autopoietic theory strongly suggest that the application of an autopoietic system to a
business enterprise could enhance its competitiveness and innovativeness, allowing it to sustain its position in
the fast changing global market. The issue of how this occurs and justification of the application of autopoietic
systems to business enterprise is an ongoing debate, though the theory has received unprecedented attention by
researchers in various disciplines; for example, in law, chemistry, governance, organization science, psychiatry,
psychology, public administration and second-order cybernetics. This case shows the application of autopoietic
theory to business enterprise activities and in particular to brand management. Thus, the discussion will be
focused on ‗autopoietic brand management.

Theoretical Background
The seminal work on autopoiesis was undertaken by two Chilean biologists, Maturana and Varela, in 1974.
They originally introduced it as a biological theory, in which living beings are seen as systems that produce
themselves in a perpetual way, and thus an autopoietic system can be construed as being the producer and the
product at the same time. In this respect, an autopoietic system was defined as a network of productions of
components, which: participate recursively in the same network which produced them and (ii) realize the
network productions as a unity. Also, in an attempt to define the term ‗autopoiesis‘, Fitzgerald and van
Eijnatten noted, ―The term connotes the dynamic by which a complex system, via intrinsic processes of
production, is able to maintain its own organizational pattern.
Such a system is constitutively emergent from the interactivity of its members rather that an a priori abstract
unit‖. They further offered that primary autopoietic capacities consist of self-organisation, self-reference and
self iteration. It was pointed out that, ―autopoietic systems are systems which produce and reproduce the
elements they consist of with the help of the elements they consist of. And everything these systems use as a
unity – their elements, processes, structures, and the system themselves – is produced precisely by all those
unities within the system‖. Indeed, the concept of autopoietic systems offered by Maturana and Varela aims to
address two questions, namely (i) ―what is common to all living systems that we qualify them as living?‖ and
(ii) ―what is cognition?‖.

Method of Review of Past Research


The search for literature has been conducted through searching the electronic journals available online. Using
the Business Source Primer database, all refereed academic journals published were searched under the terms
‗autopoietic‘ and ‗business‘ or ‗brand management‘ appearing as titles or in the abstract. However, only a small
number of refereed journals were found.

As a result, it was decided that the literature search should be expanded by looking at the terms ‗autopoietic‘
and/or ‗business‘. In addition, in order to fully appreciate the term ‗autopoietic brand management‘, the
literature on brand management was also searched. A time limit was not set, as the results of search were very
limited, generating less than 50 for autopoietic-related areas. Thus, studies published as early as the 1980s
were considered.

Review of Past Research


With an analysis of the literature on brand management being provided in the first part, followed by an
analysis of the literature on autopoiesis and its application to brand management in the second part.

Brand Management
People purchase a product to suit their specific needs, and this means that people are purchasing a particular
benefits package offered by a brand to fulfil their requirements.
Indeed, customers look to brands to reassure themselves that the product will give them the expected quality,
price and many other factors. In this context, brands of a product have to satisfy the self-expressed needs and
intangible needs of the purchaser. First, a brand should have ‗value expression‘ that indicates the consumer‘s
self-concept in using the brand.
Second, brand ‗utilitarianism‘ attracts the consumer‘s attention to the product‘s performance. Similarly,
Solomon argued that the use of a particular brand is a result of two factors, namely functional utility and social
implication. Represent is related to the consumption of a product by consumers with the aim to convey
something about themselves pointed out that ‗representational brands‘ give their purchasers a consistent belief
and meaning with regard to the product or service that exists, over and above its obvious physical functioning.
‗Brand functionality‘ is related to the fact that consumers assign certain attributes to different brands, such that
the use of a brand would requires the consumer‘s assessment on issues relating to quality, reliability, speed,
taste etc. Indeed, the whole process is related to the brands‘ functional capabilities and physical attributes and
not the buyer‘s personality.

Autopoiesis and its Application to Business Enterprise/Brand Management


The pioneering work on the application of autopoiesis theory to the social sciences was undertaken by
Luhman, who explored the issue of self-preferentiality of social systems and concluded that the maintenance
of social systems necessitates self-referential production. Kickert extended this concept to management and
pointed that autopoiesis could overturn the current stance of the association between organisations and
environments. Indeed, business organisations could be considered as complex, adaptive and nonlinear. Nonaka
and Takeuchi studied Japanese creative firms and noted that self-regulating principles are important to
knowledge creation. An effort to apply the autopoiesis theory to business enterprise was undertaken by
Zeleny, who applied the autopoiesis concept to small and medium enterprise networks (SME) and argued that
an autopoietic system would exist in an organisation that was circular or ‗closed upon itself‘.
A circularly ‗closed‘ set of rules assures the self-perpetuation of a system and recursively recreates its own
network or process and rules for the coordination that produced it. Zeleny noted that there are networks that
are ‗covering‘ the value chain and are flexible and adaptive enough to maintain and expand their ‗coverage‘
through dynamic reshaping of their own linkages. Such dynamic networks survive and prosper and are capable
of directly competing with superlarge companies in the arena of global competition. Zeleny argued that an
autopoietic SME would be able to compete globally with innovative, flexible and knowledge production that is
self-sustainable in an ever-changing global environment. Consistent with this argument, Liang (2004) believed
that the ability to compete was originated from two important factors namely, self-organising and autopoietic
dynamics.

Summary of Past Findings


The body of literature on autopoiesis and its application to business enterprise/ management/marketing is
relatively small. Indeed, most of the research work has been undertaken in the form of theoretical approaches;
therefore, it is difficult to compare and contrast the results. This phenomenon may have arisen due to the
weaknesses of the autopoietic theory itself, as suggested by Scheper and Scheper, who point out that the
theory, is unobservable and thus not accessible to empirical testing. We know branding is an important process
in business, which incorporates certain values and images to the product, thus encouraging consumers to attach
to characteristics when they decide to purchase the brand.
Questions
1. What was the main reason to become KFC as a brand?
2. What is the meaning of autopoiesis?

10.6 Summary
The study of Business Organization and Management has acquired an important status in the field of
business studies at the under-graduate level.
A business may be defined as an institution organized and operated to provide goods and services to the
society with the objective of earning profit.
The term business should be used to convey the same meaning as the term trade simply denotes purchase
and sale of goods whereas ‗business‘ includes all activities form production to distribution of goods and
services.
Business organization is an act of grouping activities into effective co-operation for specific objective.
The concept of a PE is important for several of the Convention and the concept or its cognate, also appears
in the domestic laws of some countries.
The administrative court of appeal of Nancy in Paris in France held that the mere supervision of building
works in Algeria did not give rise to a PE.

10.7 Keywords
Efficiently: Efficiency in general describes the extent to which time or effort is well used for the intended task
or purpose. It is often used with the specific purpose of relaying the capability of a specific application of
effort to produce a specific outcome effectively with a minimum amount or quantity of waste, expense, or
unnecessary effort.
Management: Management in all business and organizational activities is the act of getting people together to
accomplish desired goals and objectives using available resources efficiently and effectively.
Production: The product manager is often responsible for analyzing market conditions and defining features or
functions of a product.
Promotion: Generally, promotion is communicating with the public in an attempt to influence them toward
buying your products and/or services.
Psychology: Psychology is an academic and applied discipline that involves the scientific study of human or
animal mental functions and behaviours. In this field, a professional practitioner or researcher is called a
psychologist, and can be classified as a social, behavioural, or cognitive scientist.
Sociology: Sociology is the study of society. It is a social science (a term with which it is sometimes
synonymous) which uses various methods of empirical investigation and critical analysis to develop a body of
knowledge about human social activity.

10.8 Self Assessment Questions


1. Business activities include production and distribution of goods and services which can satisfy......................
(a) organization wants (b) industrial wants
(c) human wants (d) none of these.

2 Psychology is an academic and applied discipline that involves the scientific study of human or animal
mental functions and behaviours.
(a) True (b) False

3..........................Most aspects of running a business have some legal consequences.


(a) Compliance with Business Laws (b) Compliance with Business Laws
(c) Both (a) and (b) (d) None of these

4. The understand CBLA is...............


(a) Compliance and Business Laws Association
(b) Compliance and Business Laws Association
(c) Corporate and Business Law Association
(d) None of these.

5. The understand MBDA is.............


(a) Minority Business Development Agency
(b) Motion Business Development Agency
(c) Minority Business Development Association
(d) None of these.

6. The study of Business Organization and Management has acquired an important status in the field of
business studies at the under-graduate level.
(a) True (b) False

7. Business involves production and/or exchange of goods and services to earn profits or in a broader sense, to
earn a living.
(a) True (b) False

8. Business organization is not an act of grouping activities into effective co-operation for specific objective.
(a) True (b) False

9. Commercial law also known as business law.


(a) True (b) False

10. Compliance with Business Laws is not most aspects of running a business have some legal consequences.
(a) True (b) False

10.9 Review Questions


1. What is business organization?
2. What is the importance‘s of business organization?
3. Explain the basic principle of business organization.
4. Explain the types of business organization.
5. Explain the example of product organization structure.
6. What are the ups and downs of running a business?
7. What is the significance of business?
8. Explain the activities test.
9. What is the asset test?
10. What are the organizations related to business law?
Answers for Self Assessment Questions
1. (a) 2. (b) 3. (a) 4. (c) 5. (a)
6. (a) 7. (a) 8. (b) 9. (a) 10. (b)
11
Finance
CONTENTS
Objectives
Introduction
11.1 Importance of Finance
11.2 Sources of Finance
11.3 Small Industries Development Bank of India (SIDBI)
11.4 Resident Foreign Currency (RFC)
11.5 Rajasthan State Industrial Development and Investment Corporation (RIICO)
11.6 Summary
11.7 Keywords
11.8 Self Assessment Questions
11.9 Review Questions

Objectives
After studying this chapter, you will be able to:
Discuss important of finance
Explain about source of finance
Discuss about SIDBI
Explain about RFC
Understand the term RIICO

Introduction
Business concern needs finance to meet their requirements in the economic world. Any kind of business
activity depends on the finance. Hence, it is called as lifeblood of business organization. Whether the business
concerns are big or small, they need finance to fulfil their business activities.
In the modern world, all the activities are concerned with the economic activities and very particular to earning
profit through any venture or activities. The entire business activities are directly related with making profit.
(According to the economics concept of factors of production, rent given to landlord, wage given to labour,
interest given to capital and profit given to shareholders or proprietors), a business concern needs finance to
meet all the requirements. Hence finance may be called as capital, investment, fund etc., but each term is
having different meanings and unique characters. Increasing the profit is the main aim of any kind of economic
activity.

Meaning of Finance
Finance may be defined as the art and science of managing money. It includes financial service and financial
instruments. Finance also is referred as the provision of money at the time when it is needed. Finance function
is the procurement of funds and their effective utilization in business concerns.
The concept of finance includes capital, funds, money, and amount. But each word is having unique meaning.
Studying and understanding the concept of finance become an important part of the business concern.

Definition of Finance
According to the researcher, ―Finance is the art and science of managing money‖. Or the word ‗finance‘
connotes ‗management of money‘.
Another defines finance as ―the Science on study of the management of funds‘ and the management of fund as
the system that includes the circulation of money, the granting of credit, the making of investments, and the
provision of banking facilities.

Definition of Business Finance


Business finance is that business activity which concerns with the acquisition and conversation of capital funds
in meeting financial needs and overall objectives of a business enterprise‖. Or Business finance can broadly be
defined as the activity concerned with planning, raising, controlling, administering of the funds used in the
business‖.
Business finance deals primarily with raising, administering and disbursing funds by privately owned business
units operating in nonfinancial fields of industry‖.

11.1 Importance of Finance


Finance is very important for business organisation. Finance includes planning of financial resources, making
of optimum capital structure and effective utilization of financial resources by deep analysis of cost of capital
and capital budgeting tool.

It is very advance technology. Like other technology, it can also increase the efficiency of business, so
effective utilization with reasonable care is very necessary in Finance. Without this Finance can become
dangerous for company. Suppose, if company obtains large amount through his network resource but company
has not made good financial planning regarding its effective utilisation, then company can reach at the stage of
Bankruptcy, because If company has not good plan for investment, it will unable to provide good return to its
creditor and shareholder, after this creditors of company can aback company after demanding their fund. So,
study of finance and its tool is very important.

11.1.1 Types of Finance


Finance is one of the important and integral part of business concerns, hence, it plays a major role in every part
of the business activities. It is used in all the area of the activities under the different names. (See Figure 11.1)
Finance can be classified into two major parts:

Figure 11.1: Types of finance.

Private Finance
Private finance includes the individual, firms, business or corporate financial activities to meet the
requirements.

Individual Finance
Individual finance refers to the financial decisions which a person or a family unit is required to make to
obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and
future life events. When planning individual finances the person would consider the suitability to their needs of
a range of banking products (checking, savings accounts, credit cards and consumer loans) or investment and
insurance products (stock market, bonds, mutual funds) (life insurance, health insurance, disability insurance)
or participation and monitoring of individual or employer sponsored retirement plans, social security benefits,
and income tax management.

Partnership Finance
In partnership finance, two or more person shares in the ownership and profit and loss of the business. There
are three main types of partnerships. In general partnerships, two or more partners, jointly and severally, share
all profits and losses, management authority, and risk for the business. In a limited liability partnership,
partners share profits and losses and divide management authority according to the company‘s specific
structure. In case of liquidation, every partner is only liable for the amount he/she has invested in the company,
much like a stockholder in a corporation. Limited partnerships have elements of both the structures, having
both general partners and limited partners.

Business Finance
Business finance is that business activity which is concerned with the acquisition and conservation of capital
funds in meeting financial needs and overall objectives of business enterprises.

Public Finance
Public finance which concerns with revenue and disbursement of government such as Central Government,
State Government and Semi-Government Financial matters.
The finance from the central government and state government is provided for the small business and also for
those who are not capable to invest the money in business.
11.1.2 Finance Functions
The functions of finance that includes tax, treasury, risk management which will contribute to the achievement
of the strategic objectives and goals of the company.

Importance of Finance Functions


The importance of finance has arisen because of the fact that present day business activities are predominantly
carried on company or corporate form of organization. The advent of corporate enterprises resulted into:
The increase in size and influence of the business enterprises
Wide distribution of corporate ownership and
Separation of ownership and management.

The above factors have further increased the importance of corporate finance. As the owners in a corporate
enterprise are widely scattered and the management is separated from the ownership, the management has to
ensure the maximization of owner‘s economic welfare. The success and growth of a firm only by
maximization of principles and procedures as lay down by corporation finance.

11.1.3 Role of Finance


The role of finance has been emerging from a conventional viewpoint to an innovation viewpoint in current
competitive business world.
Conventional View – It is operational and risk focused.
Reactive
Efficient
Number crunching quantitative
Risk averse

Innovation View – It is lateral and forward thinking skills


Vision – oriented
Opportunity and growth focus
Intuitive
Risk-taker

11.1.4 Impact of Finance Function


In ever changing competitive business environment, it is vital to re-examine the role of finance function due to
the following change drivers:
Gaining importance of finance in strategic role
Higher volatility
Financial evaluation of Mergers & Acquisitions
Information economy
Mitigation of evolving business risks
New organizational hierarchy roles and requirement

11.1.5 Issues in Finance Role


In today‘s competitive world, the roles and responsibilities of finance and accounting functions are facing key
knowledge and skills related issues such as:
Lack of consistency in the current process which in turn will impact the transparency of financial reporting
abilities
Ever growing demand for knowledge workers in finance and accounting field in the market place
Lack of focus on internal compliances and control issues like Sarbanes-Oxley and Basel II law framework
Focus on aligning the finance and accounting role as a strategic advisors and also business partners in
order to understand clearly operational realities to identify future growth and opportunity in the business.

11.1.6 Modern Finance Function


There are four key roles in any organization in present day scenario:
Steward: Has control over assets of the organization with meeting all compliance standards to mitigate
business risks involved in the process
Operator: Create a strategic framework to monitor the efficiency of finance process which in turn will drive
cost effectiveness factor across the organization
Strategist: Acting as a strategic advisor to align the organizational goals in tandem with achieving the
operational realities by means of measuring and analyzing organization performance with interpretation of
financial information in the organization.
Catalyst: Acting as change agent to execute and monitor necessary changes to achieve the overall strategic
objectives of the organization.

11.2 Sources of Finance


Sourcing money may be done for a variety of reasons. Traditional areas of need may be for capital asset
acquirement - new machinery or the construction of a new building or depot. The development of new
products can be enormously costly and here again capital may be required. Normally, such developments are
financed internally, whereas capital for the acquisition of machinery may come from external sources. In this
day and age of tight liquidity, many organisations have to look for short term capital in the way of overdraft or
loans in order to provide a cash flow cushion. Interest rates can vary from organisation to organisation and also
according to purpose. A company might raise new funds from the following sources:
The capital markets:
New share issues, for example, by companies acquiring a stock market listing for the first time
Rights issues
Loan stock
Retained earnings
Bank borrowing
Government sources
Business expansion scheme funds
Venture capital
Franchising.

11.2.1 Ordinary (equity) Shares


Ordinary shares are issued to the owners of a company. They have a nominal or ‗face‘ value, typically of 1 or
50 cents.
The market value of a quoted company‘s shares bears no relationship to their nominal value, except that when
ordinary shares are issued for cash, the issue price must be equal to or be more than the nominal value of the
shares.
Deferred Ordinary Shares
These are a form of ordinary shares, which are entitled to a dividend only after a certain date or if profits rise
above a certain amount. Voting rights might also differ from those attached to other ordinary shares.
Ordinary shareholders put funds into their company:
a) By paying for a new issue of shares
b) Through retained profits.

Rights Issues
A rights issue provides a way of raising new share capital by means of an offer to existing shareholders,
inviting them to subscribe cash for new shares in proportion to their existing holdings.
For example, a rights issue on a one-for-four basis at 280c per share would mean that a company is inviting its
existing shareholders to subscribe for one new share for every four shares they hold, at a price of 280c per new
share.

11.2.2 Loan Stock


Loan stock is long-term debt capital raised by a company for which interest is paid, usually half yearly and at a
fixed rate. Holders of loan stock are therefore long-term creditors of the company.
Loan stock has a nominal value, which is the debt owed by the company, and interest is paid at a stated
―coupon yield‖ on this amount. For example, if a company issues 10% loan stocky the coupon yield will be
10% of the nominal value of the stock, so that INR 100 of stock will receive INR 10 interest each year. The
rate quoted is the gross rate, before tax.
Debentures are a form of loan stock, legally defined as the written acknowledgement of a debt incurred by a
company, normally containing provisions about the payment of interest and the eventual repayment of capital.

Security
Loan stock and debentures will often be secured. Security may take the form of either a fixed charge or a
floating charge.
a) Fixed charge; Security would be related to a specific asset or group of assets, typically land and buildings.
The company would be unable to dispose of the asset without providing a substitute asset for security, or
without the lender‘s consent.
b) Floating charge; With a floating charge on certain assets of the company (for example, stocks and debtors),
the lender‘s security in the event of a default payment is whatever assets of the appropriate class the company
then owns (provided that another lender does not have a prior charge on the assets). The company would be
able, however, to dispose of its assets as it chose until a default took place. In the event of a default, the lender
would probably appoint a receiver to run the company rather than lay claim to a particular asset.

The Redemption of Loan Stock


Loan stock and debentures are usually redeemable. They are issued for a term of ten years or more, and
perhaps 25 to 30 years. At the end of this period, they will ―mature‖ and become redeemable (at par or
possibly at a value above par).
Most redeemable stocks have an earliest and latest redemption date. For example, 18% Debenture Stock
2007/09 is redeemable, at any time between the earliest specified date and the latest date The issuing company
can choose the date. The decision by a company when to redeem a debt will depend on:
a. How much cash is available to the company to repay the debt?
b. The nominal rate of interest on the debt. If the debentures pay 18% nominal interest and the current rate of
interest is lower, say 10%, the company may try to raise a new loan at 10% to redeem the debt which costs
18%. On the other hand, if current interest rates are 20%, the company is unlikely to redeem the debt until the
latest date possible, because the debentures would be a cheap source of funds.
There is no guarantee that a company will be able to raise a new loan to pay off a maturing debt, and one item
to look for in a company‘s balance sheet is the redemption date of current loans, to establish how much new
finance is likely to be needed by the company, and when.
Mortgages are a specific type of secured loan.

11.2.3 Retained Earnings


For any company, the amount of earnings retained within the business has a direct impact on the amount of
dividends. Profit reinvested as retained earnings is profit that could have been paid as a dividend. The major
reasons for using retained earnings to finance new investments, rather than to pay higher dividends and then
raise new equity for the new investments, are as follows:
a) The management of many companies believes that retained earnings are funds which do not cost anything,
although this is not true. However, it is true that the use of retained earnings as a source of funds does not
lead to a payment of cash.
b) The dividend policy of the company is in practice determined by the directors. From their standpoint,
retained earnings are an attractive source of finance because investment projects can be undertaken
without involving either the shareholders or any outsiders.
c) The use of retained earnings as opposed to new shares or debentures avoids issue costs.
d) The use of retained earnings avoids the possibility of a change in control resulting from an issue of new
shares.
Another factor that may be of importance is the financial and taxation position of the company‘s shareholders.
If, for example, because of taxation considerations, they would rather make a capital profit (which will only be
taxed when shares are sold) than receive current income, and then finance through retained earnings would be
preferred to other methods.

11.2.4 Bank Lending


Borrowings from banks are an important source of finance to companies. Bank lending is still mainly short
term, although medium-term lending is quite common these days.
Short term lending may be in the form of:
a) An overdraft which a company should keep within a limit set by the bank. Interest is charged (at a variable
rate) on the amount by which the company is overdrawn from day to day;
b) A short-term loan, for up to three years.
Medium-term loans are loans for a period of from three to ten years. The rate of interest charged on
medium-term bank lending to large companies will be a set margin, with the size of the margin depending
on the credit standing and riskiness of the borrower. A loan may have a fixed rate of interest or a variable
interest rate, so that the rate of interest charged will be adjusted every three, six, nine or twelve months in
line with recent movements in the Base Lending Rate.
Lending to smaller companies will be at a margin above the bank‘s base rate and at either a variable or fixed
rate of interest. Lending on overdraft is always at a variable rate. A loan at a variable rate of interest is
sometimes referred to as a floating rate loan. Longer-term bank loans will sometimes be available, usually for
the purchase of property, where the loan takes the form of a mortgage. When a banker is asked by a business
customer for a loan or overdraft facility, he will consider several factors, known commonly by the mnemonic
PARTS.
Purpose
Amount
Repayment
Term
Security
P The purpose of the loan A loan request will be refused if the purpose of the loan is not acceptable to the
bank.
A The amount of the loan. The customer must state exactly how much he wants to borrow. The banker must
verify, as far as he is able to do so, that the amount required to make the proposed investment has been
estimated correctly.
R How will the loan be repaid? Will the customer be able to obtain sufficient income to make the necessary
repayments?
T What would be the duration of the loan? Traditionally, banks have offered short-term loans and overdrafts,
although medium-term loans are now quite common.
S Does the loan require security? If so, is the proposed security adequate?

11.2.5 Leasing
A lease is an agreement between two parties, the ―lessor‖ and the ―lessee‖. The lessor owns a capital asset, but
allows the lessee to use it. The lessee makes payments under the terms of the lease to the lessor, for a specified
period of time.
Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars and
commercial vehicles, but might also be computers and office equipment. There are two basic forms of lease:
―operating leases‖ and ―finance leases‖.

Operating Leases
Operating leases are rental agreements between the lessor and the lessee whereby:
a) The lessor supplies the equipment to the lessee
b) The lessor is responsible for servicing and maintaining the leased equipment
c) The period of the lease is fairly short, less than the economic life of the asset, so that at the end of the lease
agreement, the lessor can either
i. lease the equipment to someone else, and obtain a good rent for it, or
ii. Sell the equipment second-hand.

Finance Leases
Finance leases are lease agreements between the user of the leased asset (the lessee) and a provider of finance
(the lessor) for most, or all, of the assets expected useful life.
Suppose that a company decides to obtain a company car and finance the acquisition by means of a finance
lease. A car dealer will supply the car. A finance house will agree to act as lessor in a finance leasing
arrangement, and so will purchase the car from the dealer and lease it to the company. The company will take
possession of the car from the car dealer, and make regular payments (monthly, quarterly, six monthly or
annually) to the finance house under the terms of the lease.

Other important characteristics of a finance lease:


a. The lessee is responsible for the upkeep, servicing and maintenance of the asset. The lessor is not involved
in this at all.
b. The lease has a primary period, which covers all or most of the economic life of the asset. At the end of the
lease, the lessor would not be able to lease the asset to someone else, as the asset would be worn out. The
lessor must, therefore, ensure that the lease payments during the primary period pay for the full cost of the
asset as well as providing the lessor with a suitable return on his investment.
c. It is usual at the end of the primary lease period to allow the lessee to continue to lease the asset for an
indefinite secondary period, in return for a very low nominal rent. Alternatively, the lessee might be
allowed to sell the asset on the lessor‘s behalf (since the lessor is the owner) and to keep most of the sale
proceeds, paying only a small percentage (perhaps 10%) to the lessor.

11.2.6 Hire Purchase


Hire purchase is a form of instalment credit. Hire purchase is similar to leasing, with the exception that
ownership of the goods passes to the hire purchase customer on payment of the final credit instalment, whereas
a lessee never becomes the owner of the goods.
Hire purchase agreements usually involve a finance house.
i. The supplier sells the goods to the finance house.
ii. The supplier delivers the goods to the customer who will eventually purchase them.
iii. The hire purchase arrangement exists between the finance house and the customer.
The finance house will always insist that the hirer should pay a deposit towards the purchase price. The size of
the deposit will depend on the finance company‘s policy and its assessment of the hirer. This is in contrast to a
finance lease, where the lessee might not be required to make any large initial payment.

11.2.7 Government Assistance


The government provides finance to companies in cash grants and other forms of direct assistance, as part of
its policy of helping to develop the national economy, especially in high technology industries and in areas of
high unemployment.

11.2.8 Venture Capital


Venture capital is money put into an enterprise which may all be lost if the enterprise fails. A businessman
starting up a new business will invest venture capital of his own, but he will probably need extra funding from
a source other than his own pocket. However, the term ‗venture capital‘ is more specifically associated with
putting money, usually in return for an equity stake, into a new business, a management buy-out or a major
expansion scheme.
The institution that puts in the money recognises the gamble inherent in the funding. There is a serious risk of
losing the entire investment, and it might take a long time before any profits and returns materialise.
When a company‘s directors look for help from a venture capital institution, they must recognise that:
The institution will want an equity stake in the company.
It will need convincing that the company can be successful.
It may want to have a representative appointed to the company‘s board, to look after its interests.

11.2.9 Franchising
Franchising is a method of expanding business on less capital than would otherwise be needed. For suitable
businesses, it is an alternative to raising extra capital for growth. Franchisors include Budget Rent-a-Car,
Wimpy, Nando‘s Chicken and Chicken Inn.
The advantages of franchises to the franchisor are as follows:
The capital outlay needed to expand the business is reduced substantially.
The image of the business is improved because the franchisees will be motivated to achieve good results
and will have the authority to take whatever action they think fit to improve the results.
The advantage of a franchise to a franchisee is that he obtains ownership of a business for an agreed number of
years (including stock and premises, although premises might be leased from the franchisor) together with the
backing of a large organisation‘s marketing effort and experience. The franchisee is able to avoid some of the
mistakes of many small businesses, because the franchisor has already learned from its own past mistakes and
developed a scheme that works.
11.3 Small Industries Development Bank of India (SIDBI)
Small Industries Development Bank of India (SIDBI) is an independent financial institution aimed to aid the
growth and development of micro, small and medium-scale enterprises in India. Set up on April 2, 1990
through an act of parliament, it was incorporated initially as a wholly owned subsidiary of Industrial
Development Bank of India. Current shareholding is widely spread among various state-owned banks,
insurance companies and financial institutions.

Beginning as a refinancing agency to banks and state level financial institutions for their credit to small
industries, it has expanded its activities, including direct credit to the SME through 100 branches in all major
industrial clusters in India. Besides, it has been playing the development role in several ways such as support
to micro-finance institutions for capacity building and on lending. Recently it has opened seven branches
christened as Micro Finance branches, aimed especially at dispensing loans up to INR. 5.00 lakh. It is the
Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and
Medium Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged in
similar activities.

Did You Know?


Small Industries Development Bank of India (SIDBI) is set up on April 2, 1990 through an act of parliament.

11.4 Resident Foreign Currency (RFC)


The term RFC stands for Resident Foreign Currency (RFC), this name itself implies that this account is meant
for maintaining the foreign currencies while you are resident Indian. This account can be opened by the
persons who are returning to India to settle permanently.
After you are coming back to India, you are allowed to open RFC account and transfer all the foreign
currencies from other NRI bank accounts like NRE, NRO or FCNR. As per the regulations, the NRI bank
accounts NRE or NRO must be converted as the normal resident accounts. You are not allowed to continue
using the NRE and NRO accounts. To solve that problem, you can create new RFC account to maintain the
foreign currency.
You can place RFC deposits in any of these four currencies: US Dollars, Pound Sterling, Japanese Yen, and
Euros.

Key Features of RFC Deposit Account


RFC Deposits In Four Global Currencies
Continue holding your savings in US Dollar / Pound Sterling / Yen / Euro deposit even after you return to
India.
Shift monies to RFC deposits
Transfer funds currently held in NRE Accounts, FCNR Deposits and overseas remittances accounts into
RFC Deposits when you return.
Earn Indian Fixed Deposit Rates
Maintain your funds as a Fixed Deposit in India. The Deposit comes with an auto renewal facility.
Send funds overseas from your RFC Deposit
The deposits can be used to make bona fide remittances overseas without any prior approval.
Who can apply for RFC?
If you are an individual of Indian nationality / origin returning to India permanently after being resident
outside India for at least one year, you can place an RFC Deposit.

11.4.1 Requirements for RFC


If the applicant meets any of the following conditions then it can open RFC account.
You are an NRI who has returned to India on or after 18th April, 1992
You stayed abroad (maintaining as NRI status) for minimum of one year prior to coming back to India
If you are a person returning from abroad less than one year and want to open RFC account, need to apply
Reserve Bank of India (RBI) to get the approval.
You have been permanently settled in India since your return
To open RFC account, you must submit the following documents:
a) Passport details
b) Copy of valid visa and immigration stamps showing evidence of foreign stay for at least 1 year
c) RFC declaration form

11.4.2 Features and Benefits of RFC


While on visit to any place outside India by way of payment for services not arising from any business in
or anything done in India; or
From any person not resident in India and who is on a visit to India, as honorarium or gift payment for
services rendered or in settlement of any lawful obligations; or
By way of honorarium or gift while on a visit to any place outside India; or
From an authorized person for travel abroad and represents unspent amount: or
Gift received from close relative; or
Foreign exchange earned through export of goods and/ or services; or royalty, honorarium etc
NO Charges on non-maintenance of minimum Average Quarterly Balance

11.5 Rajasthan State Industrial Development and Investment


Corporation (RIICO)
Rajasthan State Industrial Development and Investment Corporation popularly known as RIICO is a premier
agency of Government of Rajasthan that has played an important role in the industrial development of
Rajasthan.

The RIICO is mainly engaged in site selection and acquisition of land, financial assistance to smalls medium
and large scale projects, equity participation in large projects on merit, technical consultancy for project
identification and technical tie up, escort services, facilitation of government clearances, merchant banking and
financial tie -ups and extending incentives and concessions as per the policy of the State Government.
The corporation was incorporated on 28 March 1969 as RIMDC and got its present name on 1 January 1980. It
has 26 offices in Rajasthan and one on Delhi and has staff strength of 1054. RIICO has so far developed 321
industrial areas by acquiring about 59,084 acres (239.10 km2) of land. More than 26633 industries are in
production within the industrial areas developed by RIICO in Rajasthan.

Did You Know?


RIICO Corporation was incorporated on 28 March 1969 as RIMDC and got its present name on 1 January
1980.
Caution
A company making a rights issue must set a price which is low enough to secure the acceptance of
shareholders, who are being asked to provide extra funds, but not too low, so as to avoid excessive dilution of
the earnings per share.

Case Study-Reliance Petroleum’s Triple Option Convertible Debentures


The case Reliance Petroleum‘s TOCD issue analyzes an innovative convertible security TOCDs issued by
Reliance Petroleum Limited in September 1993 to finance its grassroots refinery project at Jamnagar, Gujarat.
It provides a detailed explanation of the instrument and the various options available to the investor which was
evaluated on the basis of their yield to maturity.
The case also provides a concept note highlighting the various methods of raising finance from public
investors by an organization.
An Innovative Financial Instrument
In September 1993, Reliance Petroleum Ltd. (RPL), a part of the Reliance Group made an initial public
offering (IPO) to partly finance its PNR 51.42 billion refinery project. RPL planned to establish a 9-million-
tonne refinery at Jamnagar, Gujarat. This was the first private sector refinery to be set up in India, pursuant to
the oil sector reforms.
The total public issue was of PNR.21.72 billion while the net offer to the Indian public amounted to PNR.8.62
billion. This was the largest issue in India at that time and was made through an innovative financial
instrument in the form of Triple Option Convertible Debentures (TOCDs). The RPL TOCDs were rated BBB+
(‗triple B plus‘) by Crisil and Fitch. Capital market analysts appreciated RPL‘s move to issue TOCDs to raise
capital from the public since they felt that these financial instruments would benefit the company as well as the
investors. The TOCDs were not structured as a conventional debt since they did not have to bear the burden of
interest costs for the company.

Moreover, they also provided with an option to investors to opt for equity shares at the time of TOCD
conversion in September 1997 in case the listed price of RPL stocks was higher. Analysts believed that the
TOCDs would also ensure that RPL maintained its debt-equity ratio at 1:1.
However, some market observers expressed doubts whether this mega issue would be fully subscribed given
the depressed stock market conditions during that time. Despite these fears, the RPL TOCD issue was
successful. The issue created an investor base exceeding two million, the second largest in the Indian corporate
sector next only to Reliance Industries Limited (RIL).
Market analysts attributed this success to the investor friendly image of the RIL Group. The use of convertible
securities that reduced the investors‘ risk and provided them with the option of converting debentures into
tradable securities also contributed to its success. They also said that the Reliance Group was among the few
Indian business houses, which recognized the importance of public investors, discovered the vast untapped
potential of capital markets and channelized it for the growth and development of the industry. Commenting on
the success of the RPL TOCDs issue, Business Standard stated, ―Reliance‘s uninterrupted dividends and
increasing market value were sure signs for the success of the TOCD issue.‖

The Reliance Petroleum Story


Reliance Group was among the largest business houses in India with interests in several businesses including
textiles, petrochemicals, petroleum products, oil and gas, power, telecom, synthetic fibers, fibre intermediates,
financial services, refining and marketing and insurance.
The significant success, which the RIL Group had witnessed over the years, could be mainly attributed to the
founder and former chairman of Reliance Group, Dhirubhai H. Ambani. In 1950, at the age of 17 he went to
Aden (now part of Yemen) and worked for A Besse & Company Ltd., a distributor for Shell products. In 1958,
he returned to Mumbai and started his first company, the Reliance Commercial Corporation (RCC), a
commodity trading enterprise and an export house.

In 1966, as a first step towards its highly successful strategy of backward integration, he set up a textile mill
called Reliance Industries Limited (RIL) in Naroda, Ahmedabad. In 1975, a technical team from the World
Bank certified that the Reliance textile plant was ―excellent according to developed country standards.‖
In 1977, RIL went public. For much of the 1980s, Reliance Group‘s fund-raising was centred on its flagship
company RIL, which came out with the public issue of equities as well as convertible debentures.
The use of convertible financial instruments to raise finances from public was actively practiced by Reliance to
ensure that its debt equity ratio did not exceed 1:1.
Since the first public issue, the RIL Group had made efforts to build an investor friendly image. RIL had a
history of paying uninterrupted dividends with the dividend growing from 15% in 1976-77 to 55% in 1994-95.

Sources of Finance
An organization can raise money through public investors by issuing various financial instruments. These can
be in the form of equity shares, preference shares, debentures and bonds and can be classified into two broad
categories of equity and debt.

Equity
Equity refers to the raising of funds from the public by issuing shares from the equity share capital of the
company at face value or at a premium. Companies that have a proven track record or new companies
promoted by well-known existing companies can issue shares at a premium. In India, the price of the issue is
determined in consultation with the Lead Manager for the issue. However, the price has to be justified as per
the Malegam Committee recommendations. Though equity is the most common source of raising funds, it
involves larger issue expenses including underwriting costs, registration costs, listing fees, lead manager
expenses etc.

Questions
1 What are the factors which should be kept in mind while investing in convertible securities?
2 Explain the term Equity.

11.6 Summary
Finance may be defined as the art and science of managing money. It includes financial service and
financial instruments.
Business finance is that business activity which concerns with the acquisition and conversation of capital
funds in meeting financial needs and overall objectives of a business enterprise.
Finance includes planning of financial resources, making of optimum capital structure and effective
utilization of financial resources by deep analysis of cost of capital and capital budgeting tool.
Private finance includes the individual, firms, business or corporate financial activities to meet the
requirements.
In partnership finance, two or more person shares in the ownership and profit and loss of the business.
Franchising is a method of expanding business on less capital than would otherwise be needed.
11.7 Keywords
Business Finance: It is that business activity which concerns with the acquisition and conversation of capital
funds in meeting financial needs and overall objectives of a business enterprise.
Catalyst: It is acting as change agent to execute and monitor necessary changes to achieve the overall strategic
objectives of the organization.
Corporate Finance: It is concerned with budgeting, financial forecasting, cash management, credit
administration, and investment analysis and fund procurement of the business concern.
Operator: It Create a strategic framework to monitor the efficiency of finance process which in turn will drive
cost effectiveness factor across the organization
Steward: It has control over assets of the organization with meeting all compliance standards to mitigate
business risks involved in the process
Strategist: It is acting as a strategic advisor to align the organizational goals in tandem with achieving the
operational realities by means of measuring and analyzing organization performance with interpretation of
financial information in the organization.

11.8 Self Assessment Questions


1. Business concern needs ……………….to meets their requirements in the economic world.
(a) man power (b) finance
(c) security (d) None of these.

2. Finance is also called as……………………


(a) capital (b) investment
(c) fund (d) All of these.

3. Finance is the art and science of managing.......................


(a) time (b) records
(c) money (d) None of these.

4. ……………concerns with the acquisition and conversation of capital funds in meeting financial needs.
(a) Business finance (b) Private Finance
(c) Partnership Finance (d) None of these.

5. Finance is the lifeblood and nerve centre of a business.


(a) True (b) False

6. Direction process includes ……………….. of subordinates.


(a) budgeting (b) financial forecasting
(c) cash management (d) All of these.

7. Individual finance refers to the financial decisions.


(a) True (b) False

8. Private finance includes the ……………………….activities to meet the requirements.


(a) Individual (b) firms
(c) Corporate financial (d) All of these.

9. ……………has control over assets of the organization with meeting all compliance standards.
(a) Operator (b) Steward
(c) Catalyst (d) None of these.

10. Medium-term loans are loans for a period from three to ten years.
(a) True (b) False

11.9 Review Questions


1. What do mean by finance? Explain in terms of management.
2. What is the importance of finance?
3. How many types of finance involve? Discuss in detail.
4. What is the finance function? Write down its importance also.
5. Write down the impact of finance function in business environment.
6. What do you understand by term PARTS?
7. What do understand by SIDBI?
8. What is the resident foreign currency?
9. Discuss about the term RIICO?
10. What is the role of finance?

Answers for Self Assessment Questions


1. b 2. d 3. c 4. a 5. a
6. d 7. a 8. d 9. b 10. a
12
Evolution of Management Thought
CONTENTS
Objectives
Introduction
12.1 Contribution of F.W. Taylor
12.2 Henri Fayol, Elton Mayo
12.3 Chester Barnard & Peter Drucker to the Management Thought
12.4 Explain the Various Approaches to Management (i.e. Schools of Management Thought)
12.5 Indian Management Thought
12.6 Summary
12.7 Keywords
12.8 Self Assessment Questions
12.9 Review Questions

Objectives
After studying this chapter, you will be able to:
Describe the contribution of F.W.Taylor
Discuss concept of Henri Fayol, Elton Mayo
Discuss the Chester barnard & peter drucker to the management thought
Explain the various approaches to management
Define the thought of Indian management.

Introduction
The Industrial Revolution provided the impetus for developing various management theories and principles.
Pre classical theorists like Robert Owen, Charles Babbage, Andrew Ure, Charles Dupin, and Henry R. Towne
made some initial contributions that eventually led to the identification of management as an important field of
inquiry. This led to the emergence of approaches to management: classical, behavioural, quantitative and
modern. The classical management approach had three major branches: scientific management, administrative
theory and bureaucratic management.

Scientific management emphasized the scientific study of work methods to improve worker efficiency.
Bureaucratic management dealt with the characteristics of an ideal organization, which operates on a rational
basis. Administrative theory explored principles that could be used by managers to coordinate the internal
activities of organizations. The behavioural approach emerged primarily as an outcome of the Hawthorne
studies. Mary Parker Follet, Elton Mayo and his associates, Abraham Maslow, Douglas McGregor and Chris
Argyris were the major contributors to this school. Modern managers use many of the practices, principal, and
techniques developed from earlier concepts and experience.

Theories of Management:
Implications for organizational behaviour and development of evaluated management include classical, human
relations, and human resources management.
The development of management thought has been evaluated in nature under the following four parts:
Pre-Scientific Management.
Classical management.
Neo-classical Management.
Modern Management.

Classical Management includes


Scientific Management School
Administration Management School
Bureaucracy Management.

Neo- classical Management: includes


Human relation school
Behavioural Management School

Modern Management: includes


Social system school
Decision theory school
Quantitative Management school
System Management school
Contingency Management school

12.1 Contribution of F.W. Taylor


Under Taylor's management system, factories are managed through scientific methods rather than by use of the
empirical "rule of thumb" so widely prevalent in the days of the late nineteenth century when F. W. Taylor
devised his system and published "Scientific Management" in 1911.
The main elements of the Scientific Management are "Time studies Functional or specialized supervision
Standardization of tools and implements Standardization of work methods Separate Planning function
Management by exception principle The use of "slide-rules and similar time-saving devices" Instruction cards
for workmen Task allocation and large bonus for successful performance The use of the 'differential rate'
Mnemonic systems for classifying products and implements A routing system A modern costing system etc.
etc. " Taylor called these elements "merely the elements or details of the mechanisms of management" He saw
them as extensions of the four principles of management.

The development of a true science


2. The scientific selection of the workman
3. The scientific education and development of the workman
4. Intimate and friendly cooperation between the management and the men.

Taylor warned of the risks managers make in attempting to make change in what would presently be called, the
culture, of the organization. He stated the importance of management commitment and the need for gradual
implementation and education. He described "the really great problem" involved in the change "consists of the
complete revolution in the mental attitude and the habits of all those engaged in the management, as well of
the workmen." Taylor taught that there was one and only one method of work that maximized efficiency. "And
this one best method and best implementation can only be discovered or developed through scientific study
and analysis.

This involves the gradual substitution of science for 'rule of thumb' throughout the mechanical arts."
"Scientific management requires first, a careful investigation of each of the many modifications of the same
implement, developed under rule of thumb; and second, after time and motion study has been made of the
speed attainable with each of these implements, that the good points of several of them shall be unified in a
single standard implementation, which will enable the workman to work faster and with greater easy than he
could before. This one implement, then is the adopted as standard in place of the many different kinds before
in use and it remains standard for all workmen to use until superseded by an implement which has been shown,
through motion and time study, to be still better.‖

An important barrier to use of scientific management was the limited education of the lower level of
supervision and of the work force. A large part of the factory population was composed of recent immigrants
who lacked literacy in English. In Taylor's view, supervisors and workers with such low levels of education
were not qualified to plan how work should be done. Taylor's solution was to separate planning from
execution. "In almost all the mechanic arts the science which underlies each act of each workman is so great
and amounts to so much that the workman who is best suited to actually doing the work is incapable of fully
understanding this science." To apply his solution, Taylor created planning departments, staffed them with
engineers, and gave them the responsibility to:
1. Develop scientific methods for doing work.
2. Establish goals for productivity.
3. Establish systems of rewards for meeting the goals.
4. Train the personnel in how to use the methods and thereby meet the goals.

"Scientific Management has for its foundation the firm conviction that the true interests of the two are one and
the same; that prosperity for the employer cannot exist a long term of years unless it is accompanied by
prosperity for the employee [sic], and vice versa .."
However, this emphasis on monetary rewards was only part of the story. Rivalry between the Bethlehem and
Pittsburgh Steel plants led to the offer from Pittsburgh of 4.9 cents per ton against Bethlehem's rate of 3.2 cents
per day to the ore loaders. The ore loaders were spoken to individually and their value to the company
reinforced and offers to re-hire them at any time were made. The majority of the ore loaders took up the
Pittsburgh offers. Most had returned after less than six weeks. The rates at Pittsburgh were determined by gang
rates. Peer pressure from the Pittsburgh employees to not work hard meant that the Bethlehem workers
actually received less pay than at Bethlehem. Two of the Bethlehem workers requested to be placed in a
separate gang; this was rejected by management for the extra work required by management to keep separate
record for each worker. Taylor places the blame squarely on management and their inability "to do their share
of the work in cooperating with the workmen."

12.2 Henri Fayol, Elton Mayo


Henri Fayol
Elton Mayo is known as the founder of the Human Relations Movement, and is known for his research
including the Hawthorne Studies, and his book The Social Problems of an Industrialized The research he
conducted under the Hawthorne Studies of the 1930s showed the importance of groups in affecting the
behaviour of individuals at work. However it was not Mayo who conducted the practical experiments but his
employees Roethlisberger and Dickinson.

This enabled him to make certain deductions about how managers should behave. He carried out a number of
investigations to look at ways of improving productivity, for example changing lighting conditions in the
workplace. What he found however was that work satisfaction depended to a large extent on the informal
social pattern of the workgroup. Where norms of cooperation and higher output were established because of a
feeling of importance.Physical conditions or financial incentives had little motivational value. People will
form workgroups and this can be used by management to benefit the organization. He concluded that people's
work performance is dependent on both social issues and job content. He suggested a tension between workers'
'logic of sentiment' and managers' 'logic of cost and efficiency' which could lead to conflict within
organizations.

Criticism regarding his employees' procedure while conducting the studies


The members of the groups whose behaviour has been studied were allowed to choose themselves.
Two women have been replaced since they were chatting during their work. They were later identified as
members of a leftist movement.
One Italian member was working above average since she had to care for her family alone. Thus she affected
the group's performance in an above average way.

Elton Mayo's Beliefs


Individual workers cannot be treated in isolation, but must be seen as members of a group. Monetary
incentives and good working condition are less important to the individual than the need to belong to a group.
Informal or unofficial groups formed at work have a strong influence on the behaviour of those workers in a
group.
Managers must be aware of these 'social needs' and cater for them to ensure that employees collaborate with
the official organization rather than work against it.

Criticisms about Elton Mayo


Mayo's contributions to management thought have come increasingly under fire. "Mayo wrote up his idea of
substituting therapy for democracy, 'A New Way of Statecraft."

12.2 1 Elton Mayo


Henri Fayol was one of the most influential contributors to modern concepts of management, having proposed
that there are five primary functions of management:
(1) Planning,
(2) Organizing,
(3) Commanding,
(4) Coordinating, and
(5) Controlling

Controlling is described in the sense that a manager must receive feedback on a process in order to make
necessary adjustments. Fayol‘s work has stood the test of time and has been shown to be relevant and
appropriate to contemporary management. Many of today management texts including Daft (2005) have
reduced the five functions to four: (1) planning, (2) organizing, (3) leading, and (4) controlling. Daft's text is
organized around Fayol's four functions.

Fayol believed management theories could be developed, then taught. His theories were published in a
monograph titled General and Industrial Management (1916). This is an extraordinary little book that offers
the first theory of general management and statement of management principles.
Fayol suggested that it is important to have unity of command: a concept that suggests there should be only
one supervisor for each person in an organization. Like Socrates, Fayol suggested that management is a
universal human activity that applies equally well to the family as it does to the corporation.

Fayol has been described as the father of modern operational management theory although his ideas have
become a universal part of the modern management concepts; some writers continue to associate him with
Frederick Winslow Taylor. Taylor's scientific management deals with the efficient organization of production
in the context of a competitive enterprise that has to control its production costs. That was only one of the
many areas that Fayol addressed. Perhaps the connection with Taylor is more one of time, than of perspective.
According to Claude a primary difference between Fayol and Taylor was that Taylor viewed management
processes from the bottom up, while Fayol viewed it from the top down.

George's comment may have originated from Fayol himself. In the classic General and Industrial Management
Fayol wrote that "Taylor's approach differs from the one we have outlined in that he examines the firm from
the "bottom up." He starts with the most elemental units of activity -- the workers' actions -- then studies the
effects of their actions on productivity, devises new methods for making them more efficient, and applies what
he learns at lower levels to the hierarchy He suggests that Taylor has staff analysts and advisors working with
individuals at lower levels of the organization to identify the ways to improve efficiency. According to Fayol,
the approach results in a "negation of the principle of unity of command. ―management lies in the fact that
each workman, instead of coming in direct contact with the management at one point only, receives his daily
orders and help from eight different bosses Those eight, It was first published in English as General and
Industrial Management in 1949 and is widely considered a foundational work in classical management theory.
In 1987 Irwin Gray edited and published a revised version of Fayol�s classic that was intended to free the
reader from the difficulties of sifting through language and thought that are limited to the time and place of
composition Gray retained the 14 points shown below.

Fayol 14 Principles of Management


1. Specialization of labour. Specializing encourages continuous improvement in skills and the development of
improvements in methods.
2. Authority. The right to give orders and the power to exact obedience.
3. Discipline. No slacking, bending of rules. The workers should be obedient and respectful of the
organization.
4. Unity of command. Each employee has one and only one boss.
5. Unity of direction. A single mind generates a single plan and all play their part in that plan.
6. Subordination of Individual Interests. When at work, only work things should be pursued or thought about.
7. Remuneration. Employees receive fair payment for services, not what the company can get away with.
8. Centralization. Consolidation of management functions. Decisions are made from the top.
9. Chain of Superiors (line of authority). Formal chain of command running from top to bottom of the
organization, like military
10. Order. All materials and personnel have a prescribed place, and they must remain there.
11. Equity. Equality of treatment (but not necessarily identical treatment)
12. Personnel Tenure. Limited turnover of personnel. Lifetime employment for good workers.
13. Initiative. Thinking out a plan and do what it takes to make it happen.
14. Esprit de corps. Harmony, cohesion among personnel. It is a great source of strength in the organization.
Fayol stated that for promoting esprit de corps, the principle of unity of command should be observed and
the dangers of divide and rule and the abuse of written communication should be avoided.

12.3 Chester Barnard & Peter Drucker to the Management Thought


Chester Barnard
By far the most important contribution to this school has been made by Chester I. Barnard. His classic treatise
entitled ―The Functions of the Executive‖, published in 1938, is considered by some management scholars as
―one of the most influential books published in the entire field of management. Like Fayol, Barnard
established a new approach to management on the basis of his life long experience as a top-level executive.
But the approach of the former president of New Jersey Bell! Telephone Company was different from-‘
Fayol‘s. Barnad devised a more abstract systems approach. In his ―The Functions of‘ the Executive,‖ Barnard
characterised all Organizations as a co-operative, system. Such a co-operative Organization is a system of
consciously co-ordinate activities needed by individuals, to overcome his biological, physical and social
limitations. According to him, ―a Co-operative system is a complex of physical, biological, personal and social
components which are in a specific systematic relationship by reason of the co-operation of two or more
persons for at least one definite end.‖ He emphasized the role of the individual and the importance of his co-
operation as a strategic factor.

Barnard viewed willingness to serve, common purpose and communication as three important elements in an
Organization. He considered that an Organization did not exist if these three elements were not present and
working interdependently. His analysis of the manager‘s job is really a social systems approach as Barnard
looks for their major tasks in the system in order to understand and analyse the functions of executives where
they operate. In determining their tasks (for all kinds of managers) which are to maintain a system of co-
operative effort in a formal Organization, Barnard addresses himself first to the reasons for, and the nature of.
Co-operative systems.

Barnard was an early pioneer of the Systems perspective. His work encouraged subsequent management and
Organization theorists to study Organizations as complex and dynamic wholes rather than piecemeal. Barnard
led to the opening up of a promising horizon in the development of management thought. ‗The Systems
approach, too, has its critics. According to some management-diolars. ―Systems approach is long on
intellectual appeal and catchy.crmmology and short on verifiable facts and practical advice.‖
It is also criticised on grounds of complexity, particularly when it comes to the study of arge and complex
Organizations. However, it may be said in conclusion that the Systems approach is an instructive way of
thinking rather than a collection of final answers to managing modern Organizations.‖
12.3.1 Peter Drucker to the Management Thought
A giant has died. Peter Drucker, the world's #1 financial guru, passed away last Friday at his home in
California at the glorious age of 95 Drucker was a genius whose ideas can help you be a better money
manager, businessman and citizen. I met and interviewed Peter Drucker for Forbes in the early 1990s. For
years, he refused me an interview. He was known to be feisty and stubborn. Then one day, he suddenly
changed his mind.

When we arrived at his home in Claremont, CA, we were surprised by his modesty. For a man who made
millions consulting with CEOs of multinational corporations, he was shocked to see him living in a modest
and unpretentious home. He had no secretary, and never did.
Peter Drucker could be unpredictable and cantankerous. When he asked him a question, he said, "Who cares?
Ask me a better question!" Finally, he said, "Well, what do you want to talk about?" He then started talking
about Japan, and warned that the Japanese were headed for trouble and a long slump because they had become
too bureaucratic and arrogant. He was right, as he was on many of his predictions.
Investors who followed Drucker's wise advice avoided Japan as an investment (now, Japan is making a
comeback after a 15-year slump).
Below, you'll find three more bits of Peter Drucker's wisdom you can apply to your own investing strategies
today…
1. Invest Like Peter Drucker by Investing in Entrepreneurial Companies
Invest in companies that are entrepreneurial, and avoid companies that are too bureaucratic.
Drucker, an Austrian economist, was a big believer in entrepreneurship, innovation and capital formation. He
favoured companies that took big risks and spent lots of capital on R&D. He hated companies that had nothing
better to do than repurchase their stock, or pay out big dividends.
Drucker would probably love our top three candidates for the new "Benny" award - Steve Jobs at Apple
Computers; Pierre Omidyar, founder of eBay; and John Mackey, CEO of Whole Foods Markets.
2. Spend Less, Save, and Invest More
You can never save and invest too much. Drucker disliked big spenders, heavy borrowers and governments
that couldn't balance budgets. The smart investor always lives within his means, and uses his savings
productively - either in expanding his business, or investing in other people's successful businesses (i.e.,
buying quality stocks).
He blamed Keynesian economics for an unhealthy anti-saving mythology, causing "under-saving on a massive
scale" in the West, both by individuals and government.
Government, Drucker said, is only good at three things: Inflation, taxation and making war! He once bluntly
told a U.S. president, "Government is obese, muscle-bound and senile." Yet he wasn't against government, per
se. He wanted a strong, healthy, vigorous government. To accomplish this goal, he recommended privatization
of many state services.
In fact, Peter Drucker and Robert Poole invented the term "privatization." Drucker was a long-time supporter
of privatizing pension plans, both by government and corporations (he preferred defined-contribution plans
like 401k's and IRA's, rather than defined-benefit plans such as Social Security and corporate pensions).
3. We an Optimist - Look for Bull Markets around the World Be an optimist. Drucker was encouraged by the
collapse of the Soviet Marxist model in the early 1990s, which helped developing countries privatize,
denationalize and open up their domestic economies to foreign capital.
He recommended investing in emerging market economies. Not surprisingly, stock markets have boomed in
Russia, Eastern Europe, Asia and Latin America.
In the U.S., he was a big supporter of tax cuts, especially tax breaks for capital investment and
entrepreneurship. The corporate income tax, said Drucker, is the "most asinine of taxes" and should be
abolished.
Business According to Peter Drucker: the Ideal "Social Institution"
Finally, he felt that the private sector - major corporations and nonprofits institutions - was the only "free, non-
revolutionary way" to a stable, prosperous society. Business and private charities provided a superior
alternative to socialism and big government. According to Drucker, only business could assume the social
responsibilities such as job security, training and educational opportunities, and social benefits such as health
care, retirement, paid vacation, etc.

12.4 Explain the Various Approaches to Management (i.e. Schools of


Management Thought)
Classical School of Management
The oldest and perhaps most widely accepted school among practitioners has been called the classical school
of management thought. This is the approach to management thought that arose mainly from efforts between
1900 and 1940 to provide a rational and scientific basis for the management of organizations. This is
sometimes referred to as the traditional school of management.
As a result of the Industrial Revolution, people were brought together to work in factories. This system was in
marked contrast to the handicraft system whereby people worked separately in small shops or in their own
homes. Thus industrialization created a need for the effective management of people and other resources in the
emerging organizations. In other words, there was a need for efficient planning, organizing, influencing, and
controlling of work activities.
In response to the growth of large organizations in the late nineteenth century and during the early twentieth
century, there was an intensified interest in management as a process and as a science. It was apparent to many
that management could be made more effective and efficient. The primary contributions of the classical school
of management include the following:
1 Application of science to the practice of management.
2 Development of the basic management functions: planning, organizing, influencing, and controlling.
3 Articulation and application of specific principles of management
Classical management concepts have significantly improved the practice of management.

12.4.2 Scientific Management


Frederick Taylor, who made major contributions to management thinking around the turn of this century, is
often called the Father of Scientific Management. Taylor was supported in his efforts by Henry Gantt, Frank
and Lillian Gilbert, and Harrington Emerson. All of these Taylor disciples became famous in their own rights.
Together with Taylor they revolutionized management thinking. Scientific management is the name given to
the principles and practices that grew out of the work of Frederick Taylor and his followers and that are
characterised by concern for efficiency and systematization in management.
Instead of abdicating responsibility for establishing standards, for example, management would scientifically
study all facets of an operation and carefully set a logical and rational standard. Instead of guessing or relying
solely on trial and error, management would go through the time-consuming process of logical study and
scientific research to develop answers to business problems. Taylor's philosophy can be summarized in the
following four principles:
1 Develop and use the scientific method in the practice of management (find the "one best way" to perform
work).
2 Use scientific approaches to select employees who are best suited to perform a given job.
3 Provide employees with scientific education, training, and development.
4 Encourage friendly interaction and cooperation between management and employees but with a separation
of duties between managers and workers.

Taylor stated many times that scientific management would require a revolution in thinking by both the
manager and the subordinate. His purpose was not solely to advance the interests of the manager and the
enterprise. He believed sincerely that scientific management practices would benefit both the employee and
the employer through the creation of a larger surplus. The organization would achieve higher output, and the
worker would receive more income.
The greater part of Taylor's work was oriented toward improving management of production operations.
Frank and Lillian Gilbert concentrated on motion study to develop more efficient ways to pour concrete, lay
bricks, and perform many other repetitive tasks. After Frank's death, Lillian became a professor of
management at Purdue University. Until her death in 1972, she was considered the First Lady of Management.

12.4.3 General Management Theory


Taylor, Emerson, Gantt, and the Gilberts, Henri Fayol and C.I. Bamard attempted to develop a broader theory
concerned with general management. (Although Frederick Taylor and Henri Fayol were contemporaries, the
two apparently never knew of one another's work. Fayol's major contribution to management literature,
Industrial and General Management, was not translated into English until long after Taylor died and, in fact,
after Fayol himself had died.) Fayol's thesis was that the fundamental functions of any manager consist of
planning, organizing, commanding, coordinating, and controlling. He attempted to develop a number of
general principles designed to improve the practice of general management.

Chester Barnard's ideas, expressed in his classic book, The Functions of the Executive, have significantly
influenced the theory and practice of management for nearly half a century. For years, Barnard was president
of New Jersey Bell Telephone and also held a number of important public service posts. Barnard believed that
the most important function of a manager is to promote cooperative effort toward goals of the organization. He
believed that cooperation depends on effective communications and a balance between rewards to, and
contributions by each employee.

12.4.4 Behavioural School of Management


In the 1920s and 1930s, some observers of organizations became convinced that scientific management was
short-sighted and incomplete. In particular Eiton Mayo and F.J. Roethlisberger began to point out that the
approaches advanced by scientific management were not necessarily the most efficient, nor did they always
work as intended. These researchers believed the human aspects of business organizations had been largely
ignored. The behavioral school of management is the approach to management thought that is primarily
concerned with human psychology, motivation, and leadership as distinct from simple mechanical efficiency.
The behavioural school of management thought includes what has come to be called the human relations
movement, as well as modern behaviourism.

12.4.5 Human Relations


The field of human relations emerged from the work of Eiton Mayo, who has become recognized as the Father
of the Human Relations Movement.
The human relations movement is the name given the trend that began in the 1920s and that reached its
apogee in the 1940s and 1950s toward treating satisfaction of psychological needs as the primary management
concern. The project that had the most to do with the beginning of the concern for human relations in business
was the Hawthorne experiments, conducted in the Chicago Western Electric Company plant (the Hawthorne
works) between 1927 and 1932. In these experiments, researchers attempted to prove the validity of certain
accepted management ideas. Several of the experiments attempted to determine the relationship between
working conditions and productivity.

Mayo and the other researchers concluded that their presence had influenced the behaviour of the workers
being studied. The influence of behavioral researchers on the people they study has come to be called the
Hawthorne effect. A management corollary is that when employees are given special attention, output is likely
to increase regardless of the actual changes in the working conditions. Mayo and Roethlisberger followed up
the early experiments at the Hawthorne plant with (1) an investigation of cliques, work groups, and other
information relationships in organizations, and (2) an intensive interviewing program. The basic conclusions
reached as a result of the interviewing program were that the psychological needs of individuals have a
significant impact on group performance and that employees often misstate their concerns.
Much behavioural research supports the thesis that reasonable satisfaction of the needs and desires of
employees will lead to greater output. This suggests that any management approach that ignores or
deemphasizes the human element may result in only partly accomplished objectives.

12.4.6 Modern Behaviourism


Since the early experiments at the Hawthorne plant, there has been an increased interest in and application of
behavioural science in management. The human relations approach has evolved into modern behaviourism.
The term "modern behaviourism" refers to the current stage of evolution of the behavioural school of
management, which gives primacy to psychological considerations but treats fulfilment of emotional needs
mainly as a means of achieving other, primarily economic goals.

In recent years, there has been renewed interest in developing techniques to utilize people more effectively in
organizations. The contributions of such well-known behavioural scientists as Abraham Maslow, Douglas
McGregor, Chris Argyris, Frederick Herzberg, and Rensis Liker have provided considerable insight into ways
to achieve managerial effectiveness.
Behavioural scientists have often criticized classical management theory and scientific management as not
being responsive enough to the human needs.

The behaviourists‘ specific criticisms include the following:


Jobs have been overly specialized.
People are underutilized.
Managers have exercised too much control and have prevented employees from making decisions they are
competent to make.
Managers have shown too little concern about subordinates' needs for recognition and self-fulfilment.
Behavioural scientists argue that the design of work has not changed to keep pace with changes in the
needs of today's employees.
In today's complex, affluent, and rapidly changing society, they say, employees cannot be treated like
interchangeable parts. Today's worker has a higher level of education and tends to possess higher expectations
for the working environment than workers of the past did. Modern behaviourists say employees of today desire
diverse and challenging work. This desire has placed increased pressure

12.5 Indian Management Thought


Whatever a great man performs, common men follow. And whatever standards he sets by exemplary acts all
the world pursues. Indian theory of leadership is base on the ―Raj Rishi‖ model of leadership where the
administrator of the state, the king (Raja) discharges all his worldly duties as a trustee and custodian of the
community and for the welfare of the society. Though he has all the wealth he uses it for the good of the
people. At heart he is SEER (Rishi) and has renounced everything. Example is given of Raja Wanaka who was
a great administrator and was a spiritually evolved soul. According to Sherman Bagdad Gita, people look up to
a leader to teach the public by practical behaviour. A leader must follow the principles of Shasta (Scriptures) to
teach the common man. The king, the Executive Head of the State or Prime Minister, the father, the school
teacher, all are considered natural leaders. These natural leaders have a great responsibility to their dependants.
They must follow the moral and spiritual code.

12.5.1 Autocratic Leader


The leader plans, orders, gives direction, and wants that followers should obey his order. He never involves
followers in the decision-making process; He can behave like a dictator. He is power hungry person. Hitler, for
instance, was an autocratic leader. Autocratic style can be suitable when the subordinates do not have job
maturity (i.e. they do not have the ability to do the jobs on their own) and psychological maturity (i.e. they are
not interested or willing to do the job).

12.5.2 Democratic Leader:


A democratic leader involves the followers in the decision-making process. The leader is liberal, Subordinates
have faith on him. They respect and support him. Being believers in ‗we‘, ‗us‘ and ‗our‘, the democratic
leaders multiply their output with the contributions from the followers. Democratic style should be followed
when: Employees have to be involved purposefully in the decision making process. Followers are able to do
the job or to take decision and they are interested to do the job. To build up team spirit a number of alternative
solutions are required. Organization is large one where many professionals are working.

Did You Know?


Management in all business and organizational activities is the act of getting people together to accomplish
desired goals and objectives using available resources efficiently and effectively.

Caution:
Individual workers cannot be treated in isolation.

Case Study-Management Thought


The history of management thought suffers from a constricted definition of its subject. Constituent fields
(marketing) and cognate fields (economics and law) are often neglected in studies of the subject. The term
"thought‖ tends to be equated to knowledge, and thus given a positivist cast, or described in instrumental terms
and thereby reduced to a generalized form of practice. The history of management thought, in short, invites
more expansive treatment than it has hitherto received.
focuses on two economists, Edwin Gay of Harvard and Richard Ely of the University of Wisconsin, who
influenced the development of management thought, and whose careers illuminate aspects of it that have been
neglected in histories. Both are associated with institutions that promoted scholarship, education, and public
discourse about business and its social function-- institutions whose role in shaping management thought has
received little attention.
Both showed a keen interest in the role of the state in economic life. Their advocacy of regulatory and fiscal
policies suggests that ideas about techniques of managing grew up alongside ideas about political and social
life, and that in any satisfactory account of management thought these two strands must be interwoven. Both
played a role in the professionalization of economics in the early twentieth century: their contribution to
management thought highlights interconnections between the two fields that have yet to be explored.
Gay and Ely are not the most prominent figures of their era, either in management education or in any of the
other fields with which they are associated.

Their intellectual commitments, however, are representative of those of many of their colleagues, and the
themes of their work point toward an enlarged history of management thought and a more nuanced account of
how ideas about the administration of business have influenced politics and social life.

Gay, Ely, and the Influence of the German Historical School


The backgrounds of both Gay and Ely point to an influence on the development of management thought that
has not been studied in depth. Economists by profession, both Gay and Ely did graduate work in Germany and
were attracted to Historical Economics, which offered a method and philosophy very different from the
neoclassical approach then gaining ground in the United States. Members of the Historical School--Scholar,
Somber, and Weber among others--criticized the classical system for overdependence on deductive reasoning
and urged an inductive approach in the study of economic forces. Historical economists

Questions
1. What is the similarity of constricted definition?
2. What is development of management thought?

12.6 Summary
Identify two key assumptions supporting the universal process approach, and briefly describe Henri
Fayal‘s contribution.
The Evolution of Management Thought has been thoroughly reviewed and updated to convey an
appreciation of the people and ideas underlying the development of management theory and practice.
Theories of management in their historical context, showing how they‘ve changed over time. The text does
this in a chronological framework, yet each part is designed as a separate and self-contained unit of study;
substantial cross-referencing provides the opportunity for connecting earlier to later developments as a
central unifying theme.
Scientific management emphasized the scientific study of work methods to improve worker efficiency.
The use of "slide-rules and similar time-saving devices" Instruction cards for workmen Task allocation and
large bonus for successful performance.
Fayol suggested that it is important to have unity of command: a concept that suggests there should be
only one supervisor for each person in an organization.

12.7 Keywords
Bureaucratic Management: Bureaucratic management may be described as "a formal system of organisation
based on clearly defined hierarchical levels and roles in order to maintain efficiency and effectiveness."
Contingency Management: Any of a group of techniques used in behaviour therapy that attempts to modifies
a behavioural response by controlling the consequences of that response.
Empirical: A chemical formula showing the simplest ratio of elements in a compound rather than the total
number of atoms in the molecule <CH2O is the empirical formula for glucose.
Human Relations Movement: Human relations movement refers to the researchers of organizational
development who study the behaviour of people in groups, in particular workplace groups.
Consolidation of management: Consolidation is the process of combining all your unsecured debts into a
single monthly payment. Debt consolidation might be done with a debt consolidation loan.

12.8 Self Assessment Questions


1. The authoritarian leadership style goes with:
(a) Theory X (b) Theory Y
(c) Theory Z (d) None of these

2. Scientific management requires first, a careful investigation of each of the many modifications of the same
implement.
(a) True (b) False

3. Taylor‘s differential piece work plan provides that:


(a) All labourers should be assigned different amount of work
(b) All labourers should be put in different time-period
(c) Those who produce above standard should receive higher wages than those producing below standard
(d) Payment should be the same on a fixed standard

4. Taylor viewed management processes from the bottom up, while Fayol viewed it from the top down.
(a) (a) True (b) False

5. Taylor whose thoughts go under the name of scientific management made two assumptions:
1. The application of the methods of science to organizational problems leads to higher industrial
efficiency.
2. The incentive of high wage will promote the mutuality of interest between workers and managers
which, in its turn, will lead to higher, productivity.
3. The staff members are personally free, observing only the impersonal duties of their offices.
4. There is a clear hierarchy of offices. Select the correct answer from the codes given below:
(a) 1 and 2 (b) 1 and 3
(b) 2 and 3 (d) 1, 2, 3 and 4

6. Effective leadership behaviour is a result of following variable:


(a) Structure
(b) Consideration
(c) Environment
(d) All of these

7. Consideration is synonymous with:


(a) Task (b) Relations
(c) Style (d) Attitude

8. Henri Fayol supports the:


(a) Humanistic approach
(b) Mechanistic approach
(c) Organic approach
(d) Scientific approach
9. Who is regarded as the Father of Scientific Social Surveys?
(a) Darwin (b) Best
(c) Marx (d) Angels

10. Generalized conclusion on the basis of a sample is technically known as


(a) Statistical inference of external validity of the research
(b) Data analysis and interpretation
(c) Parameter inference
(d) All of the above

12.9 Review Questions


1. What is the Evolution of Management Thought?
2. Write down the contribution of F.W.Taylor.
3. Describe the Henri Fayol, Elton Mayo.
4. What is the Chester Barnard? Explain it
5. Define the peter drucker to the management thought.
6. What are the Scientific Management and General Management?
7. What are the Human Relations and Modern Behaviourism?
8. Explain the various approaches to management.
9. What is the difference between Autocratic Leader and Democratic Leader?
10. What is the importance of the Indian management thought?

Answers for Self Assessment Questions


1 (a) 2 (a) 3 (a) 4 (a) 5 (a)
6 (d) 7 (b) 8 (b) 9 (b) 10 (a)
13
Strategic Management
CONTENTS
Objectives
Introduction
13.1 Definition of Strategic management
13.2 Classes of Decisions
13.3 Levels of decision
13.4 Strategy
13.5 Role of Different Strategies
13.6 Relevance of Strategic Management and its Benefits
13.7 Summary
13.8 Keywords
13.9 Self Assessment Questions
13.10 Review Questions

Objectives
After studying this chapter, you will be able to:
Define definition of strategic management
Explain classes of decisions
Discuss levels of decision
Define strategy
Understand role of different strategies
Define strategist
Define the Relevance of Strategic Management and its Benefits.

Introduction
Strategic management was first introduced as a body of knowledge in the early 1980s. This course was
originally introduced by Harvard University in USA in the 1920s and it was then known as business policy.
The focus of the course was then to integrate the functional areas of business management like accounting,
human resource management, finance, production, accounting and marketing so that learners could understand
the interrelationship and linkages of each of the functional areas with the operations and management of the
entire organization. However, changes in the business environment had forced organizations to make necessary
incremental and structural changes to cope with the rapid dynamics of the business environment.
Consequently, the field of strategy management evolved as it stands today. Managers and Chief Executive
Officers (CEO) of large corporations adopted some or part of the body of knowledge in strategic management
and found potential benefits to their organization. Therefore, it is the purpose of this chapter to provide
learners an understanding of the field of strategic management, the historical perspective, changing business
dynamics and the potential advantages and benefits of strategic management to organizations.

Why strategic management?


Strategic planning and management are more than a set of managerial tools. They constitute a mind-set, an
approach to looking at the changes in the internal and external environment that confront the manager. Using
planning and management tools strategically, then, involves essentially a way of thinking, a mental framework
or approach, as well as a set of analytic tools. For strategic management to be effectively used the manager
must develop a strategic mentality or outlook. The problem for the consultant is how to help the manager
acquire that mentality

Strategic Approach
First, the strategic approach is oriented toward the future. It recognizes that the environment will change. It is a
long range orientation, one that tries to anticipate events rather than simply react as they occur. The approach
leads the manager to ask where his/her organization wants to be after a certain period, what it will need to get
to where it wants, and how to develop strategies and the means to get there, and finally, how to manage those
strategies to achieve the organization‘s goals and objectives. It is recognized that the future cannot be

13.1 Definition of Strategic management


The term ‗strategy‘ proliferates in discussions of business. Scholars and consultants have provided myriad
models and frameworks for analyzing strategic choice. For us, the key issue that should unite all discussion of
strategy is a clear sense of an organization‘s objectives and a sense of how it will achieve these objectives. It is
also important that the organization has a clear sense of its distinctiveness.

13.1.1 Components and elements of strategic management


There are three major components in strategic management, namely strategy formulation, strategy
implementation, and strategy evaluation and control as shown in Figure 13.1 In each component, there are
several elements that make up the component. In the strategy formulation component, the key elements are
vision, mission, goals, and objectives of the organization. The other elements are the external analysis, internal
analysis, industry analysis and competitive analysis. Identifying strategic alternatives and selection of the
strategic choices also form part of the strategy formulation component.
Figure 13.1: Components in strategic management.

In the strategy implementation component, there are at least three key elements that affect strategy
implementation. These are organizational structure, people and leadership, and organizational systems and
processes. It is in this component where action begins for the organization and presents a major challenge to
many organizations. In the strategy evaluation and control component, the key elements are the evaluation
model and processes, evaluation criteria, and control methods and mechanisms for better organizational
performance and meeting the organizational objectives

Features of Strategy
Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms
must be ready to deal with the uncertain events which constitute the business environment.
Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of
innovations or new products, new methods of productions, or new markets to be developed in future.
Strategy is created to take into account the probable behavior of customers and competitors. Strategies
dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization


It defines the overall mission, vision and direction of an organization. The objective of a strategy is to
maximize an organization‘s strengths and to minimize the strengths of the competitors.
Strategy, in short, bridges the gap between ―where we are‖ and ―where we want to be‖.

Did you know?


Lamb, 1984 Strategic Management can also be defined as "the identification of the purpose of the organization
and the plans and actions to achieve the purpose.

13.2 Classes of Decisions


Strategic deals with the long-run future of the entire organization and have three characteristic
Rare-Strategic decisions are unusual and typically have no precedent to follow.
Consequential-Strategic decisions commit substantial resources and demand a great deal of commitment
Directive- strategic decisions set precedents for lesser decisions and future actions throughout the
organization.
Mintzberg’s mode s of strategic decision making
According to Henry Mintzberg, the most typical approaches or modes of strategic decision making are
entrepreneurial, adaptive and planning.

Making better strategic decisions


The book proposes that in most situations the planning mode, which includes the basic elements of strategic
management process, is a more rational and thus better way of making strategic decisions.
Following eight-step strategic decision-making process is proposed
Evaluate current performance results
Review corporate governance
Scan the external environment
Analyze strategic factors (SWOT)
Generate, evaluate and select the best alternative strategy
Implement selected strategies
Evaluate implemented strategies

13.2.1 Characteristics/Features of Strategic Decisions


Strategic decisions have major resource propositions for an organization. These decisions may be
concerned with possessing new resources, organizing others or reallocating others.
Strategic decisions deal with harmonizing organizational resource capabilities with the threats and
opportunities.
Strategic decisions deal with the range of organizational activities. It is all about what they want the
organization to be like and to be about.
Strategic decisions involve a change of major kind since an organization operates in ever-changing
environment.
Strategic decisions are complex in nature.
Strategic decisions are at the top most level, are uncertain as they deal with the future, and involve a lot of
risk.
Strategic decisions are different from administrative and operational decisions. Administrative decisions
are routine decisions which help or rather facilitate strategic decisions or operational decisions.
Operational decisions are technical decisions which help execution of strategic decisions. To reduce cost is
a strategic decision which is achieved through operational decision of reducing the number of employees
and how we carry out these reductions will be administrative decision.

Table 13.1: The differences between strategic, administrative and operational decisions

Strategic Decisions Administrative Decisions Operational Decisions

Strategic decisions are long-term Administrative decisions are taken Operational decisions are not
decisions. daily. frequently taken.

These are considered where The These are short-term based These are medium-period based
future planning is concerned. Decisions. decisions.

Strategic decisions are taken in These are taken according to These are taken in accordance
Accordance with organizational strategic and operational with strategic and administrative
mission and vision. Decisions. decision.

These are related to overall These are related to working of These are related to production.
Counter planning of all employees in an Organization.
Organization.

These deal with organizational These are in welfare of employees These are related to production
Growth. working in an organization. and factory growth.

Did you know?


Yiftachel (1995) talked about "dark side of modernism" and describe how to planning is used for control and
oppression of minorities.

Caution
In organization behavior concept reverse law is not applied.

13.3 Levels of decision


Decisions are made at different levels in an organization's hierarchy:
Strategic decisions are long-term in their impact. They affect and shape the direction of the whole
business. They are generally made by senior managers. The managers of the bakery need to take a strategic
decision about whether to remain in the cafe business. Long-term forecasts of business turnover set against
likely market conditions will help to determine if it should close the cafe business.
Tactical decisions help to implement the strategy. They are usually made by middle management. For the
cafe, a tactical decision would be whether to open earlier in the morning or on Saturday to attract new
customers. Managers would want research data on likely customer numbers to help them decide if opening
hours should be extended.
Operational decisions relate to the day-to-day running of the business. They are mainly routine and may be
taken by middle or junior managers. For example, a simple operational decision for the cafe would be
whether to order more coffee for next week. Stock and sales data will show when it needs to order more
supplies.
Decisions at all levels need data. A business creates a trail of data. This includes data on sales, employee
costs and payments. In a large company, such as Tesco, millions of data items are created every day
against thousands of cost and sales headings. This data can provide a picture of trends, which the business
can use in its forward planning.

13.4 Strategy
The first three components, in combination, give direction to the enterprise, establish the directional map for
strategic action, and, in effect, define what is called an organization's strategic plan. is fourth component is
easily the most complicated and challenging one because it involves not only deciding on but also undertaking
the administrative actions needed to convert the strategic plan into results; indeed, or chest rating the execution
of strategy is probably 5 to 10 times more time consuming than is formulating the strategic plan.
Figure 13.2: Process of strategy.

13.4.1 Approaches of Strategy


The idea of strategy has received increasing attention in the management literature. The literature on strategy is
now voluminous and strategic management text grows ever larger to include all the relevant material. In this
book our aim is motto cover the whole area of strategy – that would require yet another mammoth tome– but
to present a clear, logical and succinct approach to the subject that will be of use to the practicing manager.

We do not attempt a summary of the field; rather we present what we see as a useful framework for analyzing
strategic problems based on our own experience of teaching the subject on a variety of courses and to a variety
of audiences over the years. Our premise is that a firm needs a well defined sense of its mission, its unique
place in its environment and scope and direction of growth. Such a sense of mission defines the firm‘s strategy.
A firm also needs an approach to management itself that will harness the internal energies of the organization
to the realization of its mission. Historically, views of strategy fall into two camps.
There are those who equate strategy with planning. According to this perspective, information is gathered,
sifted and analyzed, forecasts are made, and senior managers reflect upon the work of the planning department
and decide what the best course for the organization is. This is a top-down approach to strategy. Others have a
less structured view of strategy as being more about the process of management.
According to this second perspective, the key strategic issue is to put in place a system of management that
will facilitate the capability of the organization to respond to an environment that is essentially unknowable,
unpredictable and, therefore, not amenable to a planning approach. We will consider both these views in this
text. Our own view is that good strategic management actually encompasses elements of each perspective.

13.4.2 Types of strategy in strategic management


Formulation:
It is useful to consider strategy formulation as part of a strategic management process that comprises three
phases: diagnosis, formulation, and implementation. Strategic management is an ongoing process to develop
and revise future-oriented strategies that allow an organization to achieve its objectives, considering its
capabilities, constraints, and the environment in which it operates.

Implementation
Strategy implementation is the translation of chosen strategy into organizational action so as to achieve
strategic goals and objectives.
Strategy implementation is also defined as the manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and culture to follow strategies that lead to competitive
advantage and a better performance. Organizational structure allocates special value developing tasks and roles
to the employees and states how these tasks and roles can be correlated so as maximize efficiency, quality, and
customer satisfaction-the pillars of competitive advantage. But, organizational structure is not sufficient in
itself to motivate the employees.
An organizational control system is also required. This control system equips managers with motivational
incentives for employees as well as feedback on employees and organizational performance. Organizational
culture refers to the specialized collection of values, attitudes, norms and beliefs shared by organizational
members and groups.
Following are steps in implementing a strategy:
Developing an organization having potential of carrying out strategy successfully.
Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
Making use of strategic leadership.

Evaluation
Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and
effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the
appropriateness of the current strategy in today‘s dynamic world with socio-economic, political and
technological innovations. Strategic Evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers,
groups, departments etc, through control of performance. Strategic Evaluation is significant because of various
factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward,
development of the strategic management process, judging the validity of strategic choice etc.
Following are the main differences between Strategy Formulation and Strategy Implementation-

Table 13.2:Difference between formulation and implementation

Strategy Formulation Strategy Implementation

Strategy Formulation includes planning and Strategy Implementation involves all those means
decision-making involved in developing related to executing the strategic plans.
organization‘s strategic goals and plans.

In short, Strategy Formulation is placing the In short, Strategy Implementation is managing


Forces before the action. forces during the action.
Strategy Formulation is an Entrepreneurial Activity Strategic Implementation is mainly an
based on strategic decision-making. Administrative Task based on strategic and
operational decisions.

Strategy Formulation emphasizes on effectiveness. Strategy Implementation emphasizes on efficiency.

Strategy Formulation is a rational process. Strategy Implementation is basically an operational


process.

Strategy Formulation requires co-ordination Strategy Implementation requires co-ordination


among few individuals. among many individuals.

Strategy Formulation requires a great deal of Strategy Implementation requires specific


initiative and logical skills. motivational and leadership traits.

Strategic Formulation precedes Strategy Strategy Implementation follows Strategy


Implementation. Formulation.

The process of Strategy Evaluation consists of following steps


Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as -
what benchmarks to set, how to set them and how to express them. In order to determine the benchmark
performance to be set, it is essential to discover the special requirements for performing the main task. The
performance indicator that best identify and express the special requirements might then be determined to be
used for evaluation. The organization can use both quantitative and qualitative criteria for comprehensive
assessment of performance. Quantitative criteria include determination of net profit, ROI, earning per share,
cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of
factors such as - skills and competencies, risk taking potential, flexibility etc.
Measurement of performance - The standard performance is a bench mark with which the actual
performance is to be compared. The reporting and communication system help in measuring the performance.
If appropriate means are available for measuring the performance and if the standards are set in the right
manner, strategy evaluation becomes easier. But various factors such as manager‘s contribution are difficult to
measure. Similarly divisional performance is sometimes difficult to measure as compared to individual
performance. Thus, variable objectives must be created against which measurement of performance can be
done. The measurement must be done at right time else evaluation will not meet its purpose. For measuring the
performance, financial statements like - balance sheet, profit and loss account must be prepared on an annual
basis.
Analyzing Variance - While measuring the actual performance and comparing it with standard
performance there may be variances which must be analyzed. The strategists must mention the degree of
tolerance limits between which the variance between actual and standard performance may be accepted. The
positive deviation indicates a better performance but it is quite unusual exceeding the target always. The
negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the
strategists must discover the causes of deviation and must take corrective action to overcome it.
Taking Corrective Action - Once the deviation in performance is identified, it is essential to plan for a
corrective action. If the performance is consistently less than the desired performance, the strategists must
carry a detailed analysis of the factors responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements, then the standards must be
lowered. Another rare and drastic corrective action is reformulating the strategy which requires going back to
the process of strategic management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process

Did you know?


The fifth component, evaluating strategic performance and making corrective adjustments, is both the end and
the beginning of the strategic management cycle.

13.5 Role of Different Strategies


Every organization has both a strategy and an internal action agenda for executing it, however conscious or
well considered or imperfect they may be. Sometimes strategic plans are openly stated by management, and
sometimes they remain implicit in management decisions and the organization's patterns of operation.

Sometimes courses of action are chosen after exhaustive analysis, and sometimes strategic decisions emerge
haphazardly from chance occurrences and historical accidents occasioned by the experiences and personalities
of leaders, the position of the company in the industry, and the economic circumstances surrounding its
development. Or, in perhaps the most frequent case, an enterprise's menu of strategic actions and approaches is
the product of many internal analyses and reviews, years of market feedback regarding what worked and what
didn't, prior strategic moves and decisions, assessments about what the future will bring, and a solid dose of
experience and judgment, in other words all the knowledge gained in time by an organization.
The advantages of first-rate strategic thinking and a deep commitment to the strategic management process
include the guidance it provides to the entire management hierarchy in making clear just what it is the
company is trying to do and to achieve; the contribution it makes to recognizing and responding to market
changes, new opportunities, and threatening developments; the rationale it provides for management in
evaluating competing requests for investment capital and new staff; the coordination it adds to all the strategy-
related decision making done by managers across the organization; and the proactive instead of reactive
posture that it gives to the organization.

As already stated, high-performing companies use their knowledge and global expertise to deliberately try to
impact their target markets with a powerful strategy; they try to initiate and lead, not just react and defend. In
their view, the real purpose and value of strategy is to come up with an action plan that will successfully attract
buyers, produce a sustainable competitive advantage, boost the firm‘s market stature, put added competitive
pressure on rivals, and push performance to superior levels.

13.6 Relevance of Strategic Management and its Benefits


Benefits of Strategic Planning
Strategic planning serves a variety of purposes in organization, including to:
Clearly define the purpose of the organization and to establish realistic goals and
objectives consistent with that mission in a defined time frame within the organization‘s
Capacity for implementation.
Communicate those goals and objectives to the organization‘s constituents.
Develop a sense of ownership of the plan.
Ensure the most effective use is made of the organization‘s resources by focusing the
Resources on the key priorities.
Provide a base from which progress can be measured and establish a mechanism for
Informed change when needed.
Bring together of everyone‘s best and most reasoned efforts have important value in
Building a consensus about where an organization is going.
Other reasons include that strategic planning:
Provides clearer focus of organization, producing more efficiency and effectiveness
Bridges staff and board of directors (in the case of corporations)
Builds strong teams in the board and the staff (in the case of corporations)
Provides the glue that keeps the board together (in the case of corporations)
Produces great satisfaction among planners around a common vision
Increases productivity from increased efficiency and effectiveness
Solves major problems

When Should Strategic Planning Be Done?


The scheduling for the strategic planning process depends on the nature and needs of the organization and the
its immediate external environment. For example, planning should be carried out frequently in an organization
whose products and services are in an industry that is changing rapidly. In this situation, planning might be
carried out once or even twice a year and done in a very comprehensive and detailed fashion (that is, with
attention to mission, vision, values, environmental scan, issues, goals, strategies, objectives, responsibilities,
time lines, budgets, etc). On the other hand, if the organization has been around for many years and is in a
fairly stable marketplace, then planning might be carried out once a year and only certain parts of the planning
process, for example, action planning (objectives, responsibilities, time lines, budgets, etc) are updated each
year .
Assume the following guidelines:
Strategic planning should be done when an organization is just getting started. (The strategic plan is
usually part of an overall business plan, along with a marketing plan, financial plan and
operational/management plan.)
Strategic planning should also be done in preparation for a new major venture, for example, developing a
new department, division, major new product or line of products, etc.
Strategic planning should also be conducted at least once a year in order to be ready for the coming fiscal
year (the financial management of an organization is usually based on a year-to-year, or fiscal year, basis).
In this case, strategic planning should be conducted in time to identify the organizational goals to be
achieved at least over the coming fiscal year.

Did You Know?


Strategic planning process depends on the nature and needs of the organization and the its immediate external
environment

Case Study-Strategic planning of Durdarshan (DD)


DD is the India‘s premier public service broadcaster with more than 1,000 transmitters covering 90% of the
country‘s population across on estimated 70 million homes. It has more than 20,000 employees managing its
metro and regional channels. Recent years have seen growing competition from many private channels
numbering more than 65, and the cable and satellite operators (C and S). The C & S network reaches nearly 30
million homes and is growing at a very fast rate.DD‘s business model is based on selling half – hour slots of
commercial time to the programmed producers and charging them a minimum guarantee .For instance, the
present tariff for the first 20 episodes of a programmed INR.30 lakes plus the cost of production of the
programmed. In exchange the procedures get 780 seconds of commercial time that he can sell to advertisers
and can generate revenue. Break-even point for procedures, at the present rates, thus is INR.75,000 for a 10
second advertising spot. Beyond 20 episodes, the minimum guarantee is Rs.65 lakes for which the procedures
has to charge INR.1,15,000 for a 10 second spot in order to break-even.
It is at this point the advertisers face a problem – the competitive rates for a 10 second spot is INR.50,000.
Procedures are possessive about buying commercial time on DD. As a result the DD‘s projected growth of
revenue is only commercial time on DD. As a result the DD‘s projected growth of revenue is only 6-10% as
against 50-60% for the private sector channels. Software suppliers, advertisers and audiences are deserting DD
owing to its unrealistic pricing policy. DD has options before it. First, it should privates, second it should
remain purely public service broadcaster and third, a middle path. For several years Doordarshan was the only
broadcaster of television programmers in India. After the opening of the sector to the private entrepreneur
(cable and satellite channels), the market has witnessed major changes.

The numbers of channels have increased and also the quality of programmers, backed by technology, has
improved. In terms of quality of programmers, opportunity to advertise, outreach activities, the broadcasting
has become a popular business. Broadcasters too have realized the great business potential in the market. But
for this, policies need to be rationalized and be opened to the scope of innovativeness not only in term of
quality of programmed. This would not come by simply going to more areas or by allowing bureaucratic set up
to continue in the organization. Strategically the DD needs to undergo a policy overhaul. DD, out of three
options, namely privatization, public service broadcaster or a middle path, can choose the third one, i.e. a
combination of both. The whole privatization is not possible under the diversified political scenario. Nor it
would be desirable to hand over the broadcasting emotively in the private hand as it proves to be a great means
of communication of many socially oriented public programmers. The government could also think in term of
creating a corporation and provide reasonable autonomy to DD. So far as its advertisement tariff is concerned
that can be made fairly competitive. However, at the same time cost of advertising is to be compared with the
reach enjoyed by the doordarshan. The number of viewers may be far more to justify higher tariffs

Questions
1. What is the best option, in your view, for DD?
2. Why do you think that the proposed alternative is the best?

13.7 Summary
Strategic management was first introduced as a body of knowledge in the early 1980s.
There are three major components in strategic management, namely strategy
formulation, strategy implementation, and strategy
Rare-Strategic decisions are unusual and typically have no precedent to follow.
Consequential-Strategic decisions commit substantial resources and demand a great deal of commitment
Directive- strategic decisions set precedents for lesser decisions and future actions throughout the
organization.
Strategic decisions are long-term in their impact. They affect and shape the direction of the whole
business.
The first three components, in combination, give direction to the enterprise, establish the directional map
for strategic action.
13.8 Keywords
Strategic planning:-It is a management tool, period. As with any management tool, it is used for one purpose
only: to help an organization do a better job
Strategy:-It implies power relationships based on the acceptance of managerial power by subordinates and
society.
Implementation:- Implementation is the translation of chosen strategy into organizational action so as to
achieve strategic goals and objectives.
Planning:-It is the process of how to define your view.
Formulation:-It includes planning and decision-making involved in developing organization‘s strategic goals
and plans.

13.9 Self Assessment Questions


1. Strategic management was first introduced as a body of knowledge in the early ……..
(a) 1980s (b) 1970s
(c) 1990 (d) None of these.

2. Management involves a series of……………….


(a) correlated function (b) interrelated functions
(c) iterative function (d) None of these.

3. Management process does not include………….


(a) planning, (b) organizing
(c) serializing (d) staffing.

4. Three major components in strategic management, namely strategy formulation, strategy implementation,
and strategy
(a) True (b) False

5. Formulation is the component of decision making.


(a) True (b) False

6. The key elements are vision, mission, goals, and objectives of the………………...
(a) organization (b) groups
(c) manager (d) None of these.

7. Decisions at all levels need data.


(a) True (b) False

8. What is called an organization's ………………..


(a) group efforts (b) manager‘s efforts
(c) strategic plan (d) None of these.

9. Strategic decisions affect and shape the direction of the whole................


(a) hard (b) business
(c) sophisticated (d) None of these.

10. The scheduling for the strategic planning process depends on the ……..of the organization.
(a) nature and needs (b) business
(c) sophisticated (d) None of these.

13.10 Review Questions


1. What do you mean by strategic management?
2. What is the Component of strategic management system?
3. What is the process of formulation?
4. What is process of Implementation?
5. Evaluate process of Evaluation.
6. What do you mean by role of strategic
7. Discuss the process of strategy.
8. Define benefits of strategic management.
9. What is the Purpose of strategic management?
10. What is the role of strategic management in your life?

Answer for Self Assessment Questions


1. (a) 2.(b) 3.(c) 4.(a) 5.(b)
6. (a) 7.(a) 8.(c) 9.(b) 10. b
14
Recent Trends in Management
CONTENTS
Objectives
Introduction
14.1 Social Responsibility of Management
14.2 Environment Friendly Management
14.3 Management of Change
14.4 Summary
14.5 Keywords
14.6 Self Assessment Questions
14.7 Review Questions

Objectives
After studying this chapter, you will be able to:
Describe social responsibility of management
Explain environment friendly management,
Define management of change.

Introduction
Current trends include taking many factors in consideration to include the following:
What employees if any should work from home, utilizing the technology? What technology should we
implement and how long should we allow for it to be implemented. We know if we don't change with the times
and the new innovative technologies, we will struggle for continued success. Current trends include hiring
contractors directly rather through employment placements. Contractors have more motivation to do a good
job. Current trends include hiring individuals that used to work as computer analyst in some form or fashion
and now want to change careers to a new job field. These individuals can apply their innovative computer
skills to these job roles to enhance the quality of work flow.

Current trends include managers that manage the work and not the people. Work is more predictable than
people. Rather than trying to manage people so strictly, managers are living in the light and kindness with
employees as they are real people; their own neighbors.These developments in the business environment have
implications for business strategy at three levels. At the most general level, volatility and unpredictability of
the technological, economic, and political environments have increased the importance of companies being
edible and responsive. Second, these developments have called for specific strategy responses from companies.
For example, rapid industrialization in China and IT development in India has encouraged widespread
outsourcing of manufacture o China and business services to India. The convergence of the markets for
telecom, entertainment, computers, and consumer electronics requires that the firms in these sectors develop
strategies for competing within a far broader market space. Finally, the new realities of the 21st century have
triggered new thinking about the nature of strategy, the responsibilities of the corporation, and the role of
management.

We shall review the issues and ideas that are redirecting firm strategies and reshaping strategic analysis. We
will begin by considering some of the major current trends in the external environment of business and
consider their implications for strategic management. We will then go on to explore the ideas and theories
influencing strategic thinking. Finally, we will consider how the structures, systems, and leadership of
companies are adapting to these emerging imperatives.Unlike the other chapters of this book, this chapter will
not equip you with tools and frameworks that you can deploy directly in your own companies or in case
analysis. My approach is exploratory. My goal is to introduce you to some of the ideas that are reshaping our
thinking about business strategy and to stimulate your thinking about the kinds of strategies that are likely to
be effective during this era of uncertainty and rapid change and the types of organization suited to
implementing such strategies.

14.1 Social Responsibility of Management


The term social responsibilities can be defined as the obligation of management towards the society and others
concerned. Reason for Social Responsibilities: Business enterprises are creatures of society and should
respond to the demands of society. If the management does not react to changes in social demands, the society
will either force them to do so through laws or will not permit the enterprise to survive.

Therefore the long-term interests of business are best served when management assume social responsibilities.
The image of business organization liked with the quality of its products and customer service and the extent
to which it fulfills the expectations of owners, employees, consumers, government and the community at large.
For long-term success it matters a great deal if the firm has a favorable image in the public mind. Every
business enterprise is a organ of society and its activities have impact on the social scene. Therefore, it is
important for management to consider whether their policies and actions are likely to promote the public good,
advances the basic values of society, and constitute to its stability, strength and harmony.
Increasing concern for the social responsibility of management, it is now recognized that besides taking care of
the financial interest of owners, managers of business firms must also take into account the interest of various
other groups such as employees, consumers, the government and the community as a whole. These interested
groups are directly or indirectly affected by the pursuit of business activities and they are the stake-holders of
the business enterprise.

Responsibility towards owners: The primary responsibilities of management is to assure a fair and reasonable
rate of return on capital and fair return on investment can be determined on the basis of difference in the risks
of business in different fields of activity. With the growth of business the shareholders can also expect
appreciation in the value of their capital.
Responsibility towards employees: Management responsibility towards employees relate to the fair wages and
salaries, satisfactory work environment, labor management relations and employee welfare. Fair wages should
be fixed in the light of labor productivity, the prevailing wage rates in the same or neighboring areas and
relative importance of jobs. Managers‘ salaries and allowances are expected to be linked with their
responsibility, initiative and skill. But the spread between minimum wages and highest salaries should be
reasonable. Employees are expected to build up and maintain harmonious relationships between superior and
subordinates. Another aspect of responsibility towards employees is the provision of welfare amenities like
safety and security of working conditions, medical facilities, and housing, canteen, leave and retirement
benefits.

Responsibility towards Consumers: In a competitive market, serving consumers is supposed to be a prime


concern of management. But in reality perfect competition does not prevail in all product markets. In the event
of shortage of supply there is no automatic correction. Besides consumers are often victims of unfair trade
practices and unethical conduct of business. Consumer interests are thus protected to some extent with laws
and pressure of organized consumer groups. Management should anticipate these developments, satisfy
consumer needs and protect consumer interests. Goods must be of appropriate standard and quality and be
available in adequate quantities at reasonable prices. Management should avoid resorting to hoarding or
creating artificial scarcity as well as false and misleading advertisements.

Responsibility towards the Governments: It is a part of their social responsibility, management must conduct
business affair in lawful manner, honestly pay all the taxes and dues, and should not corrupt public officials for
selfish ends. Business activities must also confirm to the economic and social policies of the government.

Responsibility towards the community and society: The socially responsible role of management in relation to
the community are expected to be revealed by its policies with respect to the employment of handicapped
persons, and weaker sections of the community, environmental protection, pollution control, setting up
industries in backward areas, and providing relief to the victims of natural calamities etc.

Caution
If the management does not react to changes in social demands, the society will either force them to do so
through laws or will not permit the enterprise to survive.

14.2 Environment Friendly Management


Environmental Friendly Management can be understood as those administrative functions that are associated
with development, implementation, and monitoring of the environmental policy of an organization. It is a
systematic approach to minimize the ill-effects to the environment by an organization.
This has become an important issue in organizations because now consumers increasingly expect businesses to
be at least environmentally aware, if not environmentally friendly. This has put the onus on senior managers to
adopt a corporate strategy that balances economic growth with environmental protection.
Figure 14.1: Environment management.

Some of the activities involved are:


Reducing pollution
Reducing waste
Reducing the consumption of natural resources

Did You Know


The Energy Rating Label is a Type III label that provides information on "energy service per unit of energy
consumption ―It was first created in 1986, but negotiations led to a redesign in 2000‖

14.3 Management of Change


We can look at change in two ways. We can consider it, first of all, in terms of the change itself – the new
syllabus, the new technique, the new textbook etc. However, this kind of view will not explain many of the
difficulties and apparent irrationalities that are experienced in the change process. An alternative is to view
change in terms of the change in behaviour (and the attitudes and values that underlie that behaviour) required
of the people involved in order to accommodate themselves to the actual innovation.

Change as a human problem


When we view change as a human problem in this way, a number of fundamental features emerge:
1. Change is not just a professional concept. Change is a natural part of the human condition. It is likely that
people react to professional change in the same way as they react to change in other aspects of their lives,
such as marriage, accidents, growing up etc.
2. Change in one aspect of a person‘s life will have an effect on, and be affected by, other aspects. Reactions
to professional change, therefore can often have little or nothing to do with the actual change itself, but
may be conditioned by apparently unrelated factors.
3. Change poses a potential threat to what psychologists call the ‗key meanings‘ of our lives. Key meanings
provide stability and security, and make our behaviour meaningful.

Examples of key meanings are our relationships with other people, our perception of our status, our moral or
religious values, our group allegiances, our habits and routines. Any change poses a threat to one or more of
these key meanings. We aim to maintain a balance in the complex ecology of our key meanings. Change
threatens this balance. As a result, the commonest reaction to change is resistance.

Individual reactions to change


Marris argued that if we study how people react to what must be the most disruptive of all changes the death of
a loved one -, this can give us an indication of how people react to change in general. The behavior of the
bereaved follows predictable patterns and is characterised by apparent contradictions. For example, they say
that they have nothing to live for and yet rush back to work; they say that they want to forget, but obsessively
cultivate reminders of the dead loved one.
The shock of bereavement, Marris argues, throws the key meanings of a person‘s life out of balance. In the
process of grieving the bereaved person tries to restore the balance by resolving the contradictions and
conflicts that the disturbance has created. Methodological change, of course, cannot compare in severity to the
shock of bereavement. But any significant change will disturb the key meanings of an individual‘s life and
create the need to restore the balance. The important feature of this process, however, is its highly personal
nature.
‗To protect key meanings we will defend the contexts within which they developed. Reason, persuasion and
argument by others are not enough to help people adjust to significant losses, for no-one can solve for someone
else the crisis of re-integration that disruptive changes impose‘ The individual reaction to change, therefore, is
slow, fraught with contradictions and highly personal.

Group reactions to change


Each individual is a member of a network of different groups – national, regional, ethnic, gender, family,
language and age groups, as well as work groups, political and leisure groups, etc. Groups provide a number of
benefits. List the following ‗psychological rewards‘ of group membership:
1. Groups provide identity and esteem
2. Groups enable us to test reality
3. Groups satisfy our need to belong and to be wanted
4. Groups make individuals more powerful and thus better able to achieve their aims Groups develop norms of
behavior which provide an identity for the group and which mark it off from other groups. The price we pay
for the benefits of group support is loyalty to these group norms. Group norms change very slowly and any
threat to them will provoke defensive action.

Individuals act both as themselves and as representatives of their groups. Since individuals greatly fear
isolation from their groups, when in doubt it is best to trust the group loyalty to dominate.
The power of groups to affect individual behavior is generally ignored in ELT teacher training, where teachers
are by and large trained or retrained as individuals. The logic of the ideas on group norms argues in favor of
educating teachers in their normal work groups i.e. their school, faculty or department.

Varying perceptions of a change


When considering human behaviour, there is no objective reality. People behave in accordance with how they
perceive the situation to be. And perceptions vary, because individuals approach the same situation with
different key meanings. ‗Changes which appear reasonable and straightforward to some may, in altogether
unforeseen ways, undermine certain key attachments that are felt by others.‘ ).
If changes are to be effective, the differing perceptions of all concerned parties must be taken into account. If
they are not, there is a risk that reaction to the change will be non-committal or downright obstructive.
Educational innovation is particularly prone to this kind of problem, as educational systems comprise a large
number of groups with differing needs and interests – as well as teachers and students, there are head teachers,
ministry officials, inspectors and advisers, examination bodies, textbook writers, academics and publishers.
As far as teacher development is concerned, the concept of differing perceptions throws up the question of
who should decide the content and nature of INSET courses. What may be perceived as a problem by the
trainers may not be seen as problematic by the teachers themselves and vice versa.

How do people resist change?


Resistance to change follows general patterns
1. The simplest strategy is inertia.
2. If personal inertia does not work, the next stage is to exploit the inertia of other interested parties such as
the ministry, the inspectorate, the trade unions, the parents, etc.
3. A more active form of resistance is to accentuate all the negative aspects of the change. ―It‘s too time-
consuming. It‘s too noisy, etc.‖
4. If this fails, resistance has to take the more personal form of questioning the abilities of change agents or
their right to introduce the change.
5. Finally resisters can exploit the lack of insider knowledge of the change agents. The expatriate ELT ‗expert‘
is particularly vulnerable to this strategy.

These general strategies have one underlying characteristic – they all put the responsibility elsewhere. The
motivation for resistance is basically fear of the disturbance of key meanings or fear of isolation from a group.
People, however, are reluctant to admit to fears and inadequacies. They, thus, look for a socially acceptable
mask (Berne 1967). When people say ―That won‘t work in my classroom‖, they are really saying: ―I‘m scared
of trying that in my classroom.‖

Dealing with resistance


How can we make use of these ideas in the management of change? Fundamentally we need to be more
concerned with getting the process of change right and worrying less about the product. In this approach we
can identify a number of important guidelines:
1. All concerned parties must be involved in order to gain the commitment of everyone to the change. This is
generally known as ‗getting a contract for change.‘
2. People should be encouraged to express their resistance. So long as resistance remains hidden, it remains a
problem and a potential threat to the success of the change.
3. The commitment of all parties to a change is vital, if the necessary time and effort are to be invested. This
commitment will be most readily given, if the people involved feel that it is their own change. This is
known as sharing the ownership of change.

None of the above strategies will guarantee the effectiveness of any change, but as a general approach they are
at least consistent with the studies of how people react to change, described above.

Furthermore, there is empirical evidence from the world of industry for the validity of this kind of approach.
The most coherent model is the Total Quality Approach, variations of which are used by the world‘s most
successful companies. A key feature of the Total Quality Approach is the high level of worker involvement in
quality control and improvement through such mechanisms as Quality Circles. While such a model cannot be
taken over wholesale into ELT, we can learn a lot from the approach in general and exploit a number of the
techniques.
Did you know?
Linda Ackerman Anderson, co-author of Beyond Change Management, described how in the late 1980s and
early 1990s top leaders were growing dissatisfied with the failures of creating and implementing changes in a
top-down fashion

Caution
All concerned parties must be involved in order to gain the commitment of everyone to the change.

Did you Know


Marris (1974) approached the question of individual reactions to change by studying reactions to bereavement

Case Study-Asian Airlines


Environmentally friendly management
The business case Asian Airlines recognizes the importance of preventing global warming as a part of its
corporate social responsibility and makes companywide efforts to do so by saving energy and reducing aircraft
emissions. Carbon offsets are applicable to all employees who go on business trip on Asian operated flights
and a carbon offset program for customers is set to be introduced in 2009. The company also has energy
savings activities for its operations, ranging from procedural and flight plan improvements to reduced flight
distance & altitude and weight management. Asian Airlines also creates energy savings through maintenance.
By combining all of its efforts, Asian Airlines reduced emissions by 220,000 tons in 2007. The company will
continue to reduce CO2 emissions by introducing high-efficiency aircraft and through other measures.
Situation
Asian Airlines has rapidly expanded since its establishment in 1988 to become a midsized, global carrier with
a fleet of 69 aircraft providing international services to 66 cities in 21 countries on 82 routes, and domestic
services to 12 cities on 15 routes. In 2007, the airline had net sales of some US 3 billion. Headquartered in
Seoul, Korea, the company has more than 8,400 employees. In line with its aim to be an environmentally
friendly airline that harmonizes the needs of nature, humans and businesses, Asian Airlines is committed to
ensuring a clean environment. Asian Airlines aims to be respected by society, live up to its promises, be sound
and trustworthy, fulfill its social responsibilities, and make a contribution to society. Environmental
management is part of these objectives. Although CO2 emissions from aircraft are not included among
greenhouse gas reduction targets under the Kyoto Protocol, Asian Airlines has made systematic efforts to
improve energy efficiency and reduce emissions by creating a road map to actively participate in global
endeavors to prevent global warming. Additionally, since the European Union currently plans on extending an
emissions trading scheme to the airline industry, Asian Airlines is also making efforts in order to control
potential management risk.

Targets
Despite the harsh business environment in which it is currently operating, the airline continually pursues a
management style that goes hand in hand with nature, people and fellow corporations even under the most
severe conditions. As part of its efforts, Asians Airlines has set environmental goals as a major practice
towards implementing its environmental policy.

Asian’s Environment Goals


1. Minimize energy and resource consumption Introduce up-to-date and fuel efficient fleet and engines
WBCSD Continually develop and apply energy-efficient operation techniques
2. Establish strict internal environmental standards Set internal standards that are stricter than general
environmental laws applied worldwide, and minimize pollutants through systematic management and
observance of standards
3. Systematically analyze the company‘s environmental impact and make use of the outcome to carry out
reductions Evaluate the environmental impact of its aviation operations, maintenance and service and improve
environmentally friendly processes continually improve environmental systems through feedback
4. Systematically practice transparent and sustainable management Carry out sustainable management
educational activities and participate in environmentally sustainable activities Continually publicize
transparent environmental information as requested by interested parties Thoroughly understand and comply
with international climate change agreements

Activities
Asians airlines started focusing on its environmental efforts in 1994 when it developed and adopted a special
emblem and the catchphrase ―The one and only Earth, as precious as our customers‖. In 1995, the airline was
the first airline in the industry to ban smoking and the In 1996, Asians Airlines achieved certification for ISO
14001 environmental management, another industry first, and through its various initiatives is playing a
leading role with respect to the environment.
Asians Airlines maintains its drive to protect the environment and conserve natural resources through
initiatives such as the introduction of environmentally friendly products and in-flight services. In addition, the
concentration of pollutants released by Asian‘s various facilities is 20% percent lower than mandated by law
and the company has increased the recycling of waste to reduce consumption of resources. Through these
various efforts, in 2001, Asians Airlines was designated as the first environmentally friendly company within
the service industry by the Korean Ministry of Environment. In 2006, Asians was recognized as an
environmentally friendly company for its maintenance facilities at Inchon International Airport and is still the
only company to have such a distinction within the entire airport and its vicinity. Asians Airlines has long
recognized the critical nature of global warming. As a major global issue, it has brought further attention to the
importance of corporate social responsibility.
In response to the United Nations Framework Convention on Climate Change‘s (UNFCCC) call for business
to become more involved in finding solutions to the climate change challenge, Asians Airlines has made
systematic efforts to reduce emissions by creating a roadmap and actively participating in global endeavors to
prevent global warming. Asians Airlines also makes companywide efforts to do so by saving energy and
reducing aircraft emissions. The company has developed a fuel management information system (MIS) that
includes aircraft emissions information. Atmospheric pollutants that enter the engine during flight hinder air
flow inside the engine and lower engine efficiency. By washing the engines of 83 airplanes with water during
2006, Asians Airlines improved fuel efficiency by 0.5% to 0.6%, resulting in the reduction of some 5,000 tons
of CO2 emissions. In 2008, 48 engines were washed with water, reducing CO2 emissions by 2,860 tons. By
using the Ground Power Unit (GPU) at aircraft ramps instead of the Auxiliary Power Unit (APU) inside
aircraft for power supply during ground maintenance, jet fuel consumption and gas emissions have been
reduced.
Results
As a result of these efforts, Asians Airlines has won numerous awards and accolades, including the 2001
designation by the Korean Ministry of Environment as the first environmentally friendly company within the
service industry; the 2006 environmental distinction for its maintenance facilities at Inchon International
Airport; and the 2008 Presidential Award of the National Environmental Management Grand Prix for the
company‘s energy savings and CO2 reduction activities, most notably the introduction of Korea‘s first carbon
offset program, improvements in route operations procedures and aircraft engine washing, and providing on-
board Rainforest Alliance coffee.
The Rainforest Alliance is an international nonprofit conservation organization that certifies coffee farms,
ensuring that they meet rigorous standards for the conservation of natural resources and the rights and welfare
of farm workers and local communities.
Just one cup of coffee with the Rainforest Alliance Certified™ seal of approval can help protect the
environment and subsequently improve worker‘s rights and welfare in the developing world. Coordinated by
the Ministry of Knowledge Economy and the Ministry of Environment, this award has strengthened corporate
environmental competitiveness and plays a key role in setting standards for sustainable industrial development.
Questions
1. What is the situation of Asians Airlines?
2. What are the environment goals of Asians Airlines?

14.4 Summary
Social responsibilities can be defined as the obligation of management towards the society and others
concerned
social responsibility, management must conduct business affair in lawful manner which consist all the
organization.
Management responsibility towards employees relate to the fair wages and salaries, satisfactory work
environment, labor management relations and employee welfare. Fair wages should be fixed in the light of
labor productivity, the prevailing wage rates in the same or neighboring areas and relative importance of
jobs
Change is a natural part of the human condition it is not just a professional concept.
Environmental management can be understood as those administrative functions that are associated with
development, implementation, and monitoring of the environmental policy of an organization

14.5 Keywords
Social Responsibilities: It can be defined as the obligation of management towards the society and others
concerned.
Society: it is a community, nation, or broad grouping of people having common traditions, institutions, and
collective activities and interests
Responsibility: A duty or obligation to satisfactorily perform or complete a task (assigned by someone, or
created by one's own promise or circumstances) that one must fulfill, and which has a consequent penalty
for failure
Enterprise: The term enterprise seemed to do the job. In practice, the term is applied much more often to
larger organizations than smaller ones.
Consumers: A purchaser of a good or service in retail.

14.6 Self Assessment Questions


1……can be defined as the obligation of management towards the society and others concerned.
(a) Social Responsibility (b) Society Responsibility
(c) Both a and b (d) None of these.

2. Business enterprises are creatures of society and should respond to the demands of society.
(a) True (b) False

3. Managers salaries and ............. are expected to be linked with their responsibility, initiative and skill
(a) Allowances (b) salary
(c) Account (d) None of these.

4. .....is not just a professional concept. ...... is a natural part of the human condition.
(a) Flow (b) change
(c) Both a and b (d) None of these.

5. As a part of their social responsibility, management must conduct business affair in lawful manner
(a) True (b) False

6. When considering.........., there is no objective reality.


(a) animal behaviour (b) Bird behaviour
(c) Human behaviour (d) None of these.

7. The behaviour of the bereaved follows predictable patterns and is characterised by apparent contradictions
(a) True (b) False

8. If personal inertia does not work, the next stage is to exploit the inertia of other interested.
(a)True (b) False

9 The ...............for resistance is basically fear of the disturbance of key meanings or fear of isolation from a
group.
(a) Leadership (b) motivation
(c) Both a and b (d) None of these.

10. All concerned parties must be involved in order to gain the commitment of everyone to the change.
(a)True (b) false
.
14.7 Review Questions
1. Describe Recent Trends in Management?
2. Explain social responsibility of management?
3. What are the reasons for social responsibility?
4. What is the responsibility towards the governments?
5. Describe responsibility towards consumers?
6. What is environment friendly management?
7. What do you mean by management of change?
8. What‘s type of change of human problem?
9. How can we deal with resistance?
10. Explain Group reactions in your own words?
Answers for Self Assessment Questions
1. (a) 2. (a) 3.(a) 4.(b) 5.(a)
6. (c) 7. (a) 8.(a) 9.(b) 10.(a)
15
Management of Crisis
CONTENTS
Objectives
Introduction
15.1 Total Quality Management
15.2 Stress Management
15.3 International Management
15.4 Summary
15.5 Keywords
15.6 Self Assessment Questions
15.7 Review Questions

Objectives
After studying this chapter, you will be able to:
Describe total quality management,
Define stress management,
Define international management

Introduction
Crises can strike any company at any time. Microsoft, value jet, Chrysler, Pepsi and the tobacco industry are
some of the most recent companies that can attest to this fact, but they are not the only ones. Crises do not
discriminate based on a company's size or notoriety, and they can hit when a company least expects them.
They come in many forms - strikes, layoffs, product recalls or allegations of misconduct, but while some of
these may seem small, every crisis has the potential to damage the reputation of a company.Regardless of the
severity of the situation, crises pose a serious threat to companies - not only to their reputation but their fiscal
health as well. When oddball‘s apple juice was thought to be the cause of an outbreak of E. coli bacteria, the
company lost a third of its market value. The same allegation against Jack in the Box restaurant in 1993 caused
the hamburger chain's stock price to fall from INR 14 a share to nearly INR 3 a share. On the other hand, some
companies emerge from crises unscathed in the eyes of consumers and investors. Johnson and Johnson is one
such company.
The factor that determines how a company will withstand a crisis is its ability to respond to the crisis. ―The
public forgives accidents, but it doesn't forgive a corporation if its response to the public is inadequate.‖ Once
a crisis occurs, the company is suddenly a target for the media, who are acting on behalf of the public to find
out the answers to the important questions about their own safety. One substantial barrier the company must
overcome is the public's perception, because it is a well-known fact in the public relations field that perception
is, indeed, reality.

One survey discovered some unsettling facts:


Three-fourths of the people surveyed said companies do not take responsibility for crises
Three-fourths said companies do not usually tell the truth
This high level of cynicism is important to overcome, for it is how the company is perceived by the public that
ultimately will determine the future of the organization.
Time is at a premium during a crisis, so it is essential for companies to plan ahead. "In a world where the
wrong split-second decision can cost a company millions in negative publicity, not being prepared is not worth
the risk - to executives or the companies they work for." Many companies today recognize this and have in
place a crisis communication plan that outlines the steps to be taken during the first few hours of a crisis. They
spell out the who, what, when, where and how the company should deal with the crises. The best plans
produce many of the materials necessary ahead of time, including initial official statements, press releases, fact
sheets and backgrounders so that the missing information simply must be inserted and the materials are ready
to go. A good crisis plan is "everything you need in one place so you don't have to search - because you may
not have time to search."

15.1 Total Quality Management


Total Quality Management (TQM) is management approaches to long–term success through customer
satisfaction. In a TQM effort, all members of an organization participate in improving processes, products,
services and the culture in which they work.A core concept in implementing TQM is Deming‘s 14 points, a set
of management practices to help companies increase their quality and productivity.
1. Create constancy of purpose for improving products and services.
2. Adopt the new philosophy.
3. Cease dependence on inspection to achieve quality.
4. End the practice of awarding business on price alone; instead, minimize total cost by working with a single
supplier.
5. Improve constantly and forever every process for planning, production and service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, exhortations and targets for the workforce.
11. Eliminate numerical quotas for the workforce and numerical goals for management.
12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system.
13. Institute a vigorous program of education and self-improvement for everyone.
14. Put everybody in the company to work accomplishing the transformation.

Total Quality Management (TQM) is an approach that seeks to improve quality and performance which will
meet or exceed customer expectations. This can be achieved by integrating all quality-related functions and
processes throughout the company. TQM looks at the overall quality measures used by a company including
managing quality design and development, quality control and maintenance, quality improvement, and quality
assurance. TQM takes into account all quality measures taken at all levels and involving all company
employees.

15.1.1 Origins of TQM


Quality management has evolved from the quality assurance methods that were first developed around the
time of the First World War. The war effort led to large scale manufacturing efforts that often produced poor
quality. To help correct this, quality inspectors were introduced on the production line to ensure that the level
of failures due to quality was minimized

After the First World War, quality inspection became more commonplace in manufacturing environments and
this led to the introduction of Statistical Quality Control (SQC), a theory developed by Dr. W. Edwards
Deming. This quality method provided a statistical method of quality based on sampling. Where it was not
possible to inspect every item, a sample was tested for quality. The theory of SQC was based on the notion that
a variation in the production process leads to variation in the end product. If the variation in the process could
be removed this would lead to a higher level of quality in the end product.
After World War Two, the industrial manufacturers in Japan produced poor quality items. In a response to this,
the Japanese Union of Scientists and Engineers invited Dr. Deming to train engineers in quality processes. By
the 1950‘s quality control was an integral part of Japanese manufacturing and was adopted by all levels of
workers within an organization.
By the 1970‘s the notion of total quality was being discussed. This was seen as company-wide quality control
that involves all employees from top management to the workers, in quality control. In the next decade more
non-Japanese companies were introducing quality management procedures that based on the results seen in
Japan. The new wave of quality control became known as Total Quality Management, which was used to
describe the many quality-focused strategies and techniques that became the center of focus for the quality
movement.

15.1.2 Principles of TQM


TQM can be defined as the management of initiatives and procedures that are aimed at achieving the delivery
of quality products and services. A number of key principles can be identified in defining TQM, including:
Executive Management – Top management should act as the main driver for TQM and create an
environment that ensures its success.
Training – Employees should receive regular training on the methods and concepts of quality.
Customer Focus – Improvements in quality should improve customer satisfaction.
Decision Making – Quality decisions should be made based on measurements.
Methodology and Tools – Use of appropriate methodology and tools ensures that non-conformances are
identified, measured and responded to consistently.
Continuous Improvement – Companies should continuously work towards improving manufacturing and
quality procedures.
Company Culture – The culture of the company should aim at developing employees ability to work
together to improve quality.
Employee Involvement – Employees should be encouraged to be pro-active in identifying and addressing
quality related problems.

15.1.3 The Cost of TQM


Many companies believe that the costs of the introduction of TQM are far greater than the benefits it will
produce. However research across a number of industries has costs involved in doing nothing, i.e. the direct
and indirect costs of quality problems, are far greater than the costs of implementing TQM. The American
quality expert, Phil Crosby, wrote that many companies chose to pay for the poor quality in what he referred to
as the ―Price of Nonconformance‖The costs are identified in the Prevention, Appraisal, failure (PAF) Model.
Prevention costs are associated with the design, implementation and maintenance of the TQM system. They
are planned and incurred before actual operation, and can include:
Product Requirements – The setting specifications for incoming materials, processes, finished
products/services.
Quality Planning – Creation of plans for quality, reliability, operational, production and inspections.
Quality Assurance – The creation and maintenance of the quality system.
Training – The development, preparation and maintenance of processes.
Appraisal costs are associated with the vendors and customers evaluation of purchased materials and
services to ensure they are within specification. They can include:
Verification – Inspection of incoming material against agreed upon specifications.
Quality Audits – Check that the quality system is functioning correctly.
Vendor Evaluation – Assessment and approval of vendors.
Failure costs can be split into those resulting from internal and external failure. Internal failure costs occur
when results fail to reach quality standards and are detected before they are shipped to the customer. These
can include:
Waste – Unnecessary work or holding stocks as a result of errors, poor organization or communication.
Scrap – Defective product or material that cannot be repaired, used or sold.
Rework – Correction of defective material or errors.
Failure Analysis – This is required to establish the causes of internal product failure.
Repairs – Servicing of returned products or at the customer site.
Warranty Claims – Items are replaced or services re-performed under warranty.
Complaints – All work and costs associated with dealing with customer‘s complaints.
Returns – Transportation, investigation and handling of returned items.

Did You Know?


The term ―Total Quality Management‖ has lost favor in the United States in recent years: ―Quality
management‖ is commonly substituted. ―Total Quality Management,‖ however, is still used extensively in
Europe.

Caution
The best plans produce many of the materials necessary ahead of time, including initial official statements,
press releases, fact sheets and backgrounders

15.2 Stress Management


Employers should provide a stress-free work environment, recognize where stress is becoming a problem for
staff, and take action to reduce stress. Stress in the workplace reduces productivity, increases management
pressures, and makes people ill in many ways, evidence of which is still increasing. Workplace stress affects
the performance of the brain, including functions of work performance; memory, concentration, and learning.
In the UK over 13 million working days are lost every year because of stress.
Stress is believed to trigger 70% of visits to doctors, and 85% of serious illnesses Stress at work also provides
a serious risk of litigation for all employers and organizations, carrying significant liabilities for damages, bad
publicity and loss of reputation. Dealing with stress-related claims also consumes vast amounts of
management time. So, there are clearly strong economic and financial reasons for organizations to manage and
reduce stress at work, aside from the obvious humanitarian and ethical considerations. If you are suffering
from stress yourself the stress management guidelines here are just as relevant. Stress and stress management
are directly related to personal well-being and specifically to workplace well-being. See the separate on
workplace wellbeing for a detailed explanation of wellbeing and its relevance to modern work and
management.

15.2.1 People Most at Risk from Stress


Workers described their jobs as very stressful. While not a scientific gauge and not measuring serious stress
health problems, this gives some indication as to how prevalent work-related stress is. As regards official
health records, in the UK, the nursing and teaching occupations are most affected by work-related stress, with
2% of workers at any one time suffering from work-related stress depression and anxiety. UK HSE work-
related stress statistics suggest that work-related stress affects men and women in equal numbers, and that
people in the 45-retirement age suffer more than younger people. More socially-based USA research suggests
that the following American social groups are more prone to stress young adults, women, working mothers,
less educated people, divorced or widowed people, the unemployed, isolated people, people without health
insurance, city dwellers. Combined with the factors affecting stress susceptibility, it's not difficult to see that
virtually no-one is immune from stress. An American poll found that 89% of respondents had experienced
serious stress at some point in their lives. The threat from stress is perceived so strongly in Japan that the
Japanese even have a word for sudden death due to overwork.

15.2.2 Work-Related Stress Trends


Data is sparse and confused, but the statistics do indicate certain growth. In the UK HSE statistics indicate a
doubling of reported clinical cases Working days lost per annum appear to have been to over Greater
awareness of the stress ailment in reporting no doubt accounts for some of this variance, but one thing's for
sure: the number of people suffering from work-related stress isn't reducing.

15.2.3 Costs of Stress


UK HSE statistics suggest stress-related costs to UK employers in the region of £700m every year. The cost of
stress to society is estimated.

15.2.4 Stress Causes


Stress is caused by various factors not all of which are work-related of course, Causes of stress known as
stressors - are in two categories external stressors and internal stressors.
External stressors -Physical conditions such as heat or cold, stressful psychological environments such as
working conditions and abusive relationships.
Internal stressors -Physical ailments such as infection or inflammation, or psychological problems such as
worrying about something.
From the above, it is easy to see that work can be a source of both external and internal stressors.

15.2.5 Causes of Stress at Work


These are typical causes of stress at work:
bullying or harassment, by anyone, not necessarily a person's manager
feeling powerless and uninvolved in determining one's own responsibilities
continuous unreasonable performance demands
lack of effective communication and conflict resolution
lack of job security
long working hours
excessive time away from home and family
office politics and conflict among staff
a feeling that one's reward is not commensurate with one's responsibility
working hours, responsibilities and pressures disrupting life-balance (diet, exercise, sleep and rest, play,
family-time, etc)

Did You Know?


Care workers, managers and professionals are the next highest affected occupations, with over 1% suffering
from serious work-related stress at any one time

15.3 International Management


The international dimension of management and business – due mainly to globalization – has become a major
challenge to governments, institutions and organizations. This helps explain why the area of international
management (IM) is becoming more important within the academic setting. In spite of the increasing
importance of this area researchers have been overlooking important issues at a higher level of reality.

The Enron scandal, among others, is a good example of the sort of ‗governance crises brought by
globalization. The IM literature fails to address in a more realistic fashion the dynamics and local implications
brought by the growing investments of transnational corporations (TNCs) and their political power in
developing countries .IM researchers should address not just issues at the ‗management‘ level but also at the
level of governance. Accordingly, they should challenge the United States (US) hegemony in the field.
Moreover, they should foster interdisciplinary developments with two fields: international relations (IR) and
international business (IB).Why IR? One of the reasons is that IR has historically focused its attention on
international issues led by states or governments. Another important reason is that, more recently, researchers
related to the area of international political economy (IPE) recognized the growing importance of TNCs and
their interactions and relations with governments from a governance standpoint Why IB? One of the reasons is
the growing debate within IM on its diverse meanings on what differentiates IM from IB and on the use of IB
paradigms to define the domain of IM

15.3.1. International Management and Governance Issues


Globalization has demanded a great deal of efforts, skills and resources from the field of management – in both
private and public contexts and developed and developing countries – to make managers, executives, public
officers and researchers capable of dealing with this new reality.
As a result, the development of the IM field, under the leadership of US scholars resulted in excessive
emphasis on the private sector and in the marginalization of fields historically related to the public context,
such as IR and, to some extent, IB as well.

15.3.2 A Historical Understanding of the National-International Issues in IM


A more comprehensive understanding of those issues demands a critical and interdisciplinary analysis of the
national-international dichotomy that lay behind the constitution and legitimization of the IM field. Who
should define what international management is? Should exist a universal definition of international
management, applicable to any country? These critical questions are grounded on the argument that academic
knowledge is not neutral. One may argue that the IM field has a particular meaning and relevance by opposing
the notion of ‗national management‘. In other words, the IM field exists because it could address those issues
that could not be addressed by such ‗national‘ field. Nevertheless it is worth noticing that the formal label of
‗national management‘ does not exist. In practice, however, ‗national management‘ means ‗universal
management‘ in the US and this explains the subordinate/marginal status of the IM field and their difficulties
to develop the field from a realistic approach

15.3.3 An Understanding of the National-International Issue in IM


Recent research on globalization, in the IR field, challenged the historical understanding of the national-
international interplay regarding the role played by business organizations and national governments.
Researchers demonstrated that a key feature of the globalization is that TNCs gained the status of states in
economic and political terms. The IM field ignored the political implications of this turn because its
recognition could bring to the forefront the understanding that TNCs became a threat to national sovereignty.
This was a central issue for critical IR researchers because it brought a serious asymmetry between the
political and economic power of those corporations and local governments, not only abroad (especially in
developing countries) but also domestically

Did You Know?


The most influential authors in IM have argued, since the beginning of the 90s, that is globalization challenges.

Caution
The Use of appropriate methodology and tools must ensure that non-conformances are identified, and
measured responded to consistently.

Case Study-Centers for Disease Control and Prevention


In April 2009, a new strain of the H1N1 influenza virus was detected in Veracruz, Mexico. The ―Swine Flu‖
pandemic quickly became top of everyone's mind as buzz built and concern spread in the media, social
networks, and blogosphere. Unlike a specific brand scenario, say that of a soft drink or brand of aspirin, this
crisis involved everyone. The CDC responded with a full arsenal of social media communications strategies
and tactics. It was critical that the CDC moved quickly and led the conversation.
While its response was quick, the public had been quicker. In time zones across the globe, concerned
communities had already started to talk. The CDC began by giving the public the information they needed to
make sense of all the noise. By equipping the public with clear and consistent information, it started an
approach that remained consistent throughout engage, empower, and equip every concerned individual with
the tools necessary to share the right message, speak on behalf of the CDC, and help calm the masses.By
giving the public the tools and information to get their facts straight, everyone could be on the same page, and
useful education and prevention measures could be communicated. The next step was truly masterful. The
CDC wielded social media tools like a maestro waves his baton, and instead of musicians being conducted, it
was Face book, Twitter, MySpace, blogs, YouTube, mobile, email updates, e-cards, e-games, podcasts,
widgets, and even a dedicated online channel called CDC TV all playing together to harmoniously convey the
CDC‘s message to the public.
The CDC raised the bar for how to incorporate social media tools into corporate crisis management plans. But
there was one thing it did particularly well: It quickly recognized the target was global and that it literally had
to target everyone. Recognizing the difficulty in reaching everyone individually, the CDC focused on taking
the right message to the masses and then giving them the tools they would need to easily take the right
message to their individual communities. It correctly leveraged the very nature of social media for the good of
all people

Questions
1. What is the social media communications?
2. What do you mean by corporate crisis management plans?
15.4 Summary
The term ―total quality management‖ has lost favor in the United States in recent years: ―quality
management‖ is commonly substituted. ―, total quality management,‖ however, is still used extensively in
Europe.
This quality method provided a statistical method of quality based on sampling. Where it was not possible
to inspect every item, a sample was tested for quality. The theory of sqc was based on the notion that a
variation in the production process leads to variation in the end product
More socially-based USA research suggests that the following American social groups are more prone to
stress (this therefore not limited to work-related stress): young adults, women, working mothers, less
educated people
The area of international management (I m) is becoming more important within the academic setting.
The private sector and in the marginalization of fields historically related to the public context which
increase the reliability.

15.5 Keywords
External Stressors: Managing stress can involve making changes in the external factors which confront you,
or in internal factors which strengthen your ability to deal with what comes your way.
Internal Stressors: Internal stresses come from inside of us and determine our body's ability to respond to, and
deal with, the external stress-inducing factors or stressors:
Quality Assurance: refers to the planned and systematic activities implemented in a quality system so that
quality requirements for a product or service will be fulfilled.[ It is the systematic measurement, comparison
with a standard, monitoring of processes and an associated feedback loop that confers error prevention
Related Stress: tress is a conscious or unconscious psychological feeling or physical situation which comes
after as a result of physical or/and mental 'positive or negative pressure' to overwhelm adaptive capacities.
Statistical Quality Control: It is a method of quality control which uses statistical methods. SPC is applied in
order to monitor and control a process. Monitoring and controlling the process ensures that it operates at its
full potential.

15.6 Self Assessment Questions


1 The case is now well-documented as an example of successful.................?
(a) Crisis Management (b) Production
(c) Total Quality Management (d) External Stressors

2. Time is at a premium during a crisis, so it is essential for...................?


(a) Companies (b) Crisis Management
(c) Total Quality Management (d) Production

3.…………… however, is still used extensively in Europe.


(a)Total Quality Management (b) Production
(c) Companies (d) All of these

4. The threat from stress is perceived so strongly in..................


(a) India (b) Japan
(c) China (d) All of these.

5. The area of international management is becoming more important within the……………..


(a) total quality management (b) crisis management
(c) external Stressors (d) academic Setting

6. Physical ailments such as infection or inflammation, or psychological problems such as worrying about
something?
(a) True (b False

7. Physical conditions such as heat or cold, stressful psychological environments such as working conditions
and abusive relationships?
(a) False (b) True

8. Globalization has demanded a great deal of efforts, skills and resources from the field of management.
(a)True (b) False

9. US study as many as 40% of workers described their jobs as very stressful?


(a) False (b) True

10. The term ―Total Quality Management‖ has lost favor in the United?
(a) True (b) False

15.7 Review Questions


1. What is concept total quality management?
2. What is stress management?
3. Define the international management.
4. What is the Cost of TQM?
5. Explain national-international issue in IM.
6. Distinguish between International Management and Governance Issues.
7. Distinguish between external stressors and internal stressors.
8. Describe the Principles of TQM?
9. Explain a historical understanding of the national-international issues in IM.
10. What are the causes of stress at work?

Answers for Self Assessment Questions


1. (a) 2.(a) 3.(a) 4.(a) 5.(d)
6. (a) 7.(b) 8.(a) 9.(b) 10.(a)

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