CHAPTER TWO

THE PLANNING
FUNCTION
 “If you don’t know where you are going, you’ll end up
someplace else.” – Yogi Berra
 “Have a bias towards action – let’s see something
happen now. You can break that big plan into small
steps and take the first step right away.” – Indira Gandhi
 “A man who does not plan long ahead will find trouble
at his door.” – Confucius
 “Always plan ahead. It wasn’t raining when Noah built
the ark.” – Richard Cushing
 “Just because you made a good plan, doesn’t mean that’s
what’s gonna happen.” Taylor Swift
 “Failing to plan is planning to fail” Benjamin Franklin
 Introduction
 Planning is the first managerial function that all managers
perform at different levels.
 It is very important because it lays down the groundwork for the
other functions.
 Through planning managers prepare their organization to achieve
success in both the long term and the short term.
 Planning is the process by which managers set objectives, assess
the future, & develop courses of action to accomplish these
objectives.
 Planning is the process of preparing for change coping, with
uncertainty by formulating future courses of action.
 2.1 Meaning of Planning
What is planning?
 Planning is defined in a variety of ways;
 Planning is anticipating the future events and determining how to meet
the demands of such event.
 Planning is a dynamic process of making decision today about future
action and it is a selection or choice among alternatives as to
accomplish goals.
 “Planning is a continuous process of making present entrepreneurial
decisions systematically and with best possible knowledge of their
futurity, organizing the efforts needed to carry out these decisions and
measuring the results of these decisions and measuring the results of
these decisions against the expectation through organized and
systematic feedback.”(Peter Drucker)
 Planning is determining in advance what is to be accomplished and how it is
to be accomplished.
 Because planning paves the way for all downstream management functions, by
serving as a bridge between the present & the future, it is regarded as the
primary function of management.
 Planning answers six basic questions in regard to any intended activity- what,
when, where, who, how, and how much.
 What- refers to goal or objectives
 When- refers to question of timing
 Where- refers to place where planning ends?
 Who- refers to specific people will perform the plan
 How- refers to method for reaching
 How much- refers to the expenditure of resources
 In general, the planning activity involves defining the organization’s
objectives, establishing an overall strategy for achieving these goals and
developing comprehensive hierarchy of activities to integrate or coordinate.
 2.2 Nature/ Characteristics of Planning
Planning has the following characteristics
a) The contribution of planning to purpose/objectives:
Objectives are the very important reason for the existence of any
organization, so every plan and its derivatives should facilitate the
accomplishment of organizational objectives.
b) The primacy of planning: Planning logically precedes the
execution/implementation of all other managerial functions.
 It involves establishing the objectives necessary for group
effort; where as other managerial functions are designed to
support the accomplishment of enterprise objectives.
 Even if planning precedes all other functions planning and
controlling are inseparable by their very nature, i.e. all plans
are standards and are means for controlling.
c) Planning is pervasive/universal: This means all managers
from top to bottom carryout the planning function but at different
scope and depth.
 It is doubtful to call a person a manager if he does not plan.
d) Efficiency of plan: Planning is directed towards efficiency.
 We can measure the efficiency of a plan by its contribution to
our purpose and objectives offset by the cost and other factors
required for formulating and operating it.
 Plans are efficient if they achieve their purpose at a reasonable
cost.
e) Planning concerns future activity: A decision must be made
as to what to do, how to do, who to do, when to do, where to do
and what to achieve before it is actually done.
f) Planning Requires information: Basically there is no plan
without information, for a plan to exist information is necessary.
g) Planning is a means to an end: Planning is not an end by
itself, but a means to an end. It is an instrument that pushes
human effort towards the achievement of objectives.
 2.3 Needs for Planning /Importance of Planning
Planning is important for the following purposes in an organization.
 To coordinate efforts: Management exists because the work of
individuals and groups in organizations must be coordinated; and
planning is one important technique to achieve coordinated effort. i.e.
planning helps to focus attention on objectives.
 To prepare for change/to offset uncertainty: An effective plan
of action allows room for change.
 The longer time between the completion of a plan and
accomplishment of an objective, the greater the necessary to
include contingency plans.
 To focus attention on objectives: Because all planning efforts are
directed towards achieving enterprise objectives, the very act of
planning focuses attention on these objectives.
 Well considered overall plans unify interdepartmental activities.
 To gain economical operation: Planning minimizes costs
because of its emphasis on efficient operation and consistency.
 It substitutes joint directed effort for uncoordinated
piecemeal activity.
 To develop performance standards: Plans define expected
behavior, and in management terms they are performance
standards.
 As plans are implemented throughout an organization the
objectives and course of actions assigned to each individual
and groups are the bases for standards, which can be used to
asses actual performance.
 This facilitates control of actual performance against expected
performance.
 To Facilitate Control: Planning and controlling are inseparable, and
commonly referred to as the Siamese twins.
 This is because unplanned action cannot be controlled, for control
involves keeping activities on course by correcting deviations from
plans.
 Any attempt to control without a plan would be meaningless, since
there is no way for people whether they are going where they want
to go (the task of control), unless they first know where they want
to go (the task of planning).
 Plans thus furnish the standards of control.
 To develop managers: Good planning involves the art of making
difficult things simple.
 This requires high level of intellectual activity so that planners can
be able to deal with complex, abstract ideas and information.
 Planners must think systematically about the present and the future
because planning implies that managers be proactive and make
things happen rather than reactive and let things happen.
 2.4 Principles of Planning
 A principle is a general rule of truth that may be expected to apply
under similar conditions anywhere to reach or get similar outcomes.
 The most important/essential guiding principles of planning are the
following.
 Principle of contribution to objectives: The purpose of every
plan and all its supporting plans is to promote the accomplishment of
enterprise objectives.
 Principle of efficiency of plans: Efficiency of a plan is measured
by the amount it contributes to purpose and objectives as offset by the
cost required to formulate and operate it and by unsought
consequences.
 Principle of planning premises: The more thoroughly individuals
are charged with planning premises, the more coordinated enterprise
planning will be.
 Principle of strategy and policy framework: The more
strategies and policies are clearly understood and implemented in
practice, the more consistent and effective will be the frame work
of enterprise plans.
 Principle of the limiting factor: In choosing among
alternatives, the more individuals recognize and solve those
factors, which are limiting or critical to the attainment of the
desired goal, the more easily and accurately they can select the
most favorable alternatives.
 Principle of commitment: Logical planning should cover a
period of time in the future necessary to foresee as well as pass
through a series of action to the fulfillment of commitments
involved in a decision made today.
 Principle of flexibility: Building flexibility in to plans will
decrease the danger of losses incurred through unexpected events;
but the cost of flexibility should be weighed against its benefit.
 Principle of navigational change: It implies reviewing plans
from time to time and redrawing them if that is required by
changed events and expectations. Unless plans have built-in
flexibility, navigational change may be difficult or costly.
 Principle of communication: The making of plan by itself is
not enough; it should be conveyed to all concerned parties.
 Principle of feasibility: Plans should not be mere wishes, but
things that can allow taking action and that are attainable or
realizable.
 2.5 Process of Planning
 Process is a systematic method/way of handling things.
 Process is group of related activities that create values.
 The following are the steps in the process of planning.
1. Identifying and defining the real problem/Being aware of
opportunities:
 This step precedes actual planning and it is not strictly part of planning.
But it is the real starting point for planning.
 It is a process of being aware of opportunities in light of the market,
competition, what customers want, organizational strengths and
weaknesses.
2. Establishing Clear-cut Objectives:
 Objectives specify the expected results and indicate the end points of
what is to be placed and what is to be accomplished by the network of
strategies, policies, procedures, rules, budgets and programmes.
 Thus, every organization has to establish its goals or objectives.
3. Establishing the Planning Premises and Constraints:
 Premises are assumptions providing a background against which
estimated events affecting the plan will take place.
 They are assumptions about the environment in which the plan is
to be carried out.
 Knowledge of the organization’s goals and existing conditions
provide a framework for defining which aspects of the
environment will have the greatest influence on the organization’s
ability to achieve its objectives.
 Forecasting is important in premising, because the future is so
complex; it would not be profitable or realistic to make
assumptions about every detail of the future environment of plan.
4. Identifying alternative courses of action:
 There is seldom a plan for which reasonable alternatives do not exist
and quite often an alternative that is not obvious proves to be the best.
 The more common problem is not in finding alternatives, but in
reducing the number of alternatives so that the most promising way to
be analyzed requires the assessment of their probable consequences.
 Thus, the planer must usually make a preliminary examination to discover the
most fruitful possibilities.
5. Evaluation of alternative courses of action:
 Having sought out alternative courses and examined their strong and
weak points, the planner must next evaluate them by weighting them in
the light of premises and goals.
 Then an adjustment for the forecast plan if any must be made; see if the
cost, time and quality requirements are satisfied and if mechanization
expedites the work or the achievement of the desired end in terms of
each possible course of action.
6. Choosing the proposed plan:
 Selecting the course of action is the point at which the plan is adopted-
the real point of decision-making.
 Here one has to make sure that if the plan possesses flexibility to adjust
to varying conditions, acceptance of the plan by operating personnel as
well as the existing capacity of the firm and need for new equipment,
space, personnel training and supervision.
7. Arranging detailed sequence and timing for the proposed
plan:
 At this point of decision will be made to support the basic plan of action
chosen; that is,
 identification of the derivative plans that support the major plan of
action,
 the sequence of the activities necessary to accomplish the desired
aim and other details required to implement the plan should be
ascertained.
8. Numberizing plans by making budgets:
 After decisions are made and plans are set, the final step is to give
them meaning by numberizing plans, i.e. budgeting to establish
verifiable targets of achievement to facilitate controls.
9. Implementing the plan into action:
 So far, all activities are related to mental and paper works.
 This practice/activity alone would bring about nothing to the
planner.
 Therefore, they must be tested in action; the plans must be
implemented.
10. Monitoring the Implementation:
 The planner/manager should monitor/supervise how the
implementation is going on and should be certain that the plan is
implemented as it was intended.
11. Evaluating the Implementation:
 When the planner/manager plans, he/she sets a result to be
attained at a specific period of time in the future.
 Therefore, he/she should compare/check the actual results with
the expected results.
 To facilitate this, proper records and sufficient reports must be
collected over a reasonable period of time and must be reported
to the management members to measure results as well as what
remedial or correcting action could be proposed if results indicate
weakness when plans are in action.
 2.6 Elements of Planning
 The planning function requires managers to make decisions on
four fundamental elements of plans.
2.6.1 Objectives
 Objectives specify future conditions that a manager hopes to
achieve.
 The following are the characteristics of sound objectives.
1. Priority of objectives: This implies that at a given time,
accomplishing one objective is more important than accomplishing
others. Priority of objectives also reflects the relative importance
of certain objectives regardless of time.
2. Hierarchy of objectives: Objectives are arranged in a hierarchy
from overall companywide objectives to individual objectives.
 3. Organizational objectives should be stated in writing:
 Objectives should be specific and communicated clearly to all so
that all members of the organization are aware of what is expected
of them.
 This eliminates ambiguity and confusion.
4. Objectives should be specific and measurable: General
objectives are difficult to interpret and measure.
5. Objectives should be realistic and attainable: Over
optimistic but unrealistic objectives serve as moral deflators and hence
are ineffective.
 Generally, objectives should be SMART (Specific, Measurable,
Achievable/attainable, Realistic and Time bounded)
 2.6.2 Courses of Action
 Courses of action are the means or specific activities planned
to achieve the objectives.
 Eg. If increasing productivity is the objective of the
organization, the alternative course of action would be:
 improved technology,
 employee training,
 management training,
 improved work conditions, etc.
 Managers should select the least costly but the most effective
strategy, policies, procedures, programs, rules, budgets and
projects which are part of the action.
 2.6.3 Resources
 The third phase in the planning function is budgeting
resources for each important plan.
 Shortage of resources could be constraints on the course of
actions, and therefore, planning should be based on available
resources.
2.6.4 Implementation of Plans
 Implementation involves the assignment and direction of
personnel to carry out the plan.
 Authority and enabling employees to understand and accept
organization policy are the manager’s means of
implementing plans.
 2.7 Types of Plans
 Plans can be classified on the bases of different factors:
1. Plans Based on Formality/Status
 Informal Plans: are unwritten plans which are made in the
daily life of individuals.
 Formal Plans: are written, documented plans developed
through an identifiable process.
2. Plans Based on Scope/Breadth Dimension.
 These types of plans refer to the level of management; i.e. they are
related to the hierarchy of plans at the three levels of management.
 Therefore, based on where (in the organization’s hierarchy of
management) the plans are formulated, determines the classification
of the plans into: strategic plans, tactical (intermediate) plans, and
operational plans.
i. Strategic Plans:
 Strategic plans are defined as plans that determine the major
objectives of an organization and the policies and strategies designed
by top-level management to govern the acquisition, use and
disposition of resources to achieve organizational objectives.
 The following are distinguishing characteristics of strategic plans.
 Strategic plans require looking outside of the organization at the
external environment of the organization for threats and
opportunities.
 They take longer period of time.
 They tend to be top management responsibility
 They address such issues as:
 How to allocate resources;
 What the business is and what it should be.
ii.Tactical Plans:
 Tactical plans are the means to achieve strategic plans and
their usual span is one year.
 They usually center on translating the broad objectives set
by top-level management into more specific goals.
iii. Operational Plans:
 Operational plans are concerned with the day-to-day
activities of the organization and are made and/or
developed by lower level managers.
 3. Plans Based on Time Dimension
 These plans show how long they stay in operation. Based on time frame or
length of them, we can classify plans into three; these are
 Long-term Plans: These plans establish long-term goals and work out
strategies, policies and programs to achieve the goals.
 They extend beyond five years.
 Medium-term Plans: These plans are usually made to support long-
term plans.
 They cover a period of more than one year, but less than five years.
 Here the length of time may vary from one business to another
depending on the nature, risk and other factors.
 Short-term Plans: Generally such types of plans are made to achieve
short-term goals and are instrumental in implementing long-term
plans.
 These plans are action-oriented and the responsibility of lower level
managers.
4. Plans Based on Use Dimensions:
 Use-based plans indicate whether we can use the plans repeatedly
for uniformity or for a single period.
 Based on use dimension, plans could be further classified in to
single-use plans and standing use plans.
i. Single-Use Plans: These types of plans focus on relatively
unique situations within the organization and are used only
once.These plans can be subdivided into:
 Programs: Programs are a complex of goals, policies,
procedures, rules, task assignments, steps to be taken,
resources to be employed and other elements necessary to
carry out a given course of action.
 Eg. The Ethiopian airlines may have a major program of
acquiring a $500 million fleet of jets within a period of
two years.
 Projects: A project is a small and separate portion of a
plan. Each project has a limited scope and distinct directives
concerning assignments and time.
 Projects are characterized by the following;
 They are a one-time activity or a unit activity with a well-
defined set of desired end results.
 They can be accomplished in order to achieve the project
goals.
 A project must often be coordinated with other projects
being carried out by the same parent organization.
 Budget: Budgeting is the formulation of plans for a
given future period in numerical or financial terms.
 A budget is a financial plan outlining how funds will
be spent in a given period of time and how these
funds will be obtained.
 Budgets have to be based on past experience present
realities and an accurate assessment of future events.
ii. Standing Use Plans: These are plans which remain roughly
the same for a long period of time and are used in organizational
situations that occur repeatedly.
 The most common kinds of standing plans are:
 Policies: Policies are broad and general guides to action that
constrain or direct and facilitate objective attainment.
 They do not tell organizational members exactly what to do but
they do establish the boundaries within which they must operate
and ensure that decision will be consistent with and contribute to
an objective.
 Policy is a general statement or understanding which guides or
channels thinking in decision making.
 Requirements for a sound policy:
 They should be consistent with strategies and objectives.
 They should be renewed frequently and amended as needed.
 Policies should be in writing.
 Written policies are more precise than unwritten ones.
 They can be transmitted quickly to those who must
implement them.
 Written policies are easier to understand and less time-
consuming to communicate to new managers and
management trainees.
 Advantages of policies
 Policies help to save time.
 Policies help to prevent managerial mistakes.
 Policies help to improve the consistency of managerial
performance.
 Procedures: A procedure is a series of related steps or tasks expressed
in chronological order for a specific purpose.
 Procedures are defined in step-by-step fashion through which policies
are achieved.
 They are guides to action rather than to thinking and they give the
details of the exact manner in which certain activities must be
accomplished.
 The following are some of the requirements for sound procedures.
 Procedures should be simple enough to be understood by those
who implement them.
 They should be in writing.
 They should be tested prior to full adoption.
 They should be well communicated so that they may be
thoroughly understood by those who are required to follow
them.
 Rules: Rules are statements that a specific action must or
must not be taken in a given situation.
 Rules leave little doubt about what is to be done. They
permit no flexibility and deviation.
 Unlike procedures, rules do not have to specify sequence.
 Procedures and rules are subsets of policies.
 Example of a rule: Employees must wear safety clothes
and equipment while operating their machines.
 2.8 Limitations of Plans
 Though planning function is a primary function of management
and facilitates other functions of management, it suffers from
certain limitations.
 Most of the limitations are related to the uncertainties of the
future.
 Planning should be based on reliable information about the
future.
 If reliable information is not available, planning loses its
importance.
 Here, the controversy is not on planning or not planning, but on
the context of planning techniques.
 Planning is a must for every organization because unplanned
operations produce chaos and disorder universally without any
exception.
 CHAPTER THREE

DECISION MAKING
 Introduction
 Decision making is the primary role of managers.
 For a person to be considered as a manager, he/she has to make
decisions.
 The decisions also determine their success in their life.
 Decisions of managers affect not only their individual right but
also a various stakeholders such as owners of businesses,
employees and the society at large.
 Decision-making permeates through all managerial functions.
 Therefore, managers must develop the skill of making a good
decision.
 3.1 Definitions of decision making
Different management experts define decision making from their
different point of view.
 Plunkett and Attner define decision making as a rational choice
among alternatives.
 According to them, there have to be an option to choose
from, otherwise there is no decision.
 Similarly Koontz & Weihrich define it as the selection from
among alternative course of action; it is the core of planning.
 They argue that a plan cannot exist unless a decision has
been made.
 However, Agrawal (1994:89) argues that choosing or selecting
from among alternative course of action is one of its several
aspects and he defines it as
 the process of locating and defining the problem,
developing alternative solutions to the problem, weighing
the various alternate solutions in terms of their possible
consequences, choosing the optimum solution from
among them, and implementing the decision effectively.
 3.2 Types of Managerial Decision Making
According to Donnelly and others, decision can be classified in to
two:
3.2.1 Programmed Decisions
 Programmed decisions are those that are made in predictable
circumstances and have predicable results.
 If a particular problem occurs often, managers will develop a
routine procedure for solving it.
 Decisions are programmed to the extent that they are repetitive
and routine and a definite procedure has been developed for
handling them.
 The managers of most organizations face a great number of
programmed decisions in their daily operations.
 Such decisions should be made without expending unnecessary
time and effort on them.
 3.2.1 Non-programmed Decisions
 Non-programmed decisions are those that are made in
unique circumstances and often have unpredictable results.
 When a problem has elements that are different from
previous occurrences or is complex or extremely
important, it requires a different unique decision.
 Non programmed decisions are solutions for unstructured
and novel problems.
 Such decisions have traditionally been handled by general
problem solving process, judgment, intuition and creativity.
 3.3 Rational Decision Making Process
 Rational decision making involves a serious of steps or activities that
contribute to high quality decisions.
 Effective decision-making requires a rational selection of a course of
action. Managers’ goals can be reached under existing circumstances
and limitations.
 The following is a simple process followed in making decision in
normal situations.
1. Ascertain the Need for a Decision: The decision making
process begins by determining/identifying a problem.
 Problem arises due to difference between what is and what
should be.
 So the manager should define what the problem is. Then, the
manager should find the causes of a problem.
 Because it is said that well-defined problem is half solved.
2. Establish Decision Criteria: Once the need for a decision has
been determined, there comes the need to establish decision
criteria which requires identifying those characteristics that are
important in making the decision.
3. Allocate Weights to Criteria: The list of criteria must now be
prioritized. Since some are obviously more important than
others, there is a need to weight each criterion to reflect its
importance in the decision.
4. Develop Alternatives: This includes developing a list of
alternatives that may be viable in dealing with the stated
problem. Creative thinking is necessary to develop or discover
many alternative courses of action.
5. Evaluate Alternatives: The strengths and weaknesses of each
alternative will become evident as they are compared against the
criteria and weights established.
 As we compare alternative courses of actions to achieve
objectives, we should consider both tangible/quantitative factors
and intangible or qualitative factors.
 Tangible factors include profits earned, time taken,
money invested, rate of returns on investment, rate of
depreciation, etc.
 Intangible factors include public relations, good will of
the company, loyalty of employees, quality of labor relations,
the risk of technological changes, the international political
climate, etc.
 Peter. F. Drucker has suggested the following criteria to evaluate
the available alternative courses of action:
 Risk- Degree of risks is includes in each alternative.
 Economy of efforts- Cost, time and efforts are included in
each alternative.
 Timing or situation- Whether the problem is urgent has to
be considered.
 Limitations or resources- Physical, financial and human
resources available in the organization need consideration.
6. Select the Best Alternative: The decision maker can select
the best alternative after careful evaluation of alternatives which
gives maximum benefits to the organization. At the same time,
the selected alternative should fit with the organizational
objectives.
7. Putting Decision into Action/ implementing the
decision: The future course of action is scheduled on the basis
of selected alternative or decision.
 The decision is communicated to the concerned persons. This
communication facilitates easy implementation of decision.
 The language of decision should be simple and easily
understandable.
 Next, the manager has to implement the decision to achieve
desired goals. Decision making process comes to an end with the
actual implementation of the decision.
8. Following up Decisions/ Control and Evaluation: It is
the duty of every manager to see whether the decision is
properly implemented or not.
 The selected alternative may be ill-chosen on (due to many
reasons) and might cause loss to the organization.
 This can be measured with the help of verifying the decision with
the actual performance.
 If the manager feels that the selected alternative is not the best
one, amendment may be made to achieve desired goals.
 CHAPTER FOUR

THE ORGANIZING
FUNCTION
 4.1 Concepts of Organizing and Organization
What is organizing?
Different authors gave various but supplementary definitions.
Among others the following are a few:
 “Organizing involves the establishment of an intentional
structure of roles through determination and enumeration of the
activities required to achieve the goals of an enterprise and each
part of it; the grouping of these activities, the assignment of such
groups of activities to the manager, the delegation of authority
and informational relationship horizontally and vertically in the
organization structure” (Harold Koontz and O’Donnell, 1985)
 It is one of the functions of management, the one concerned with
choosing what tasks are to be done, who is to do them, how the
tasks are to be grouped, who is to report to whom and where
decisions are to be made.
 It defines the part, which each member of an enterprise is
expected to perform and the relation between such members to
the end that their consorted endeavor shall be most effective to
the purpose of the enterprise.
 Organizing is the part of managing that involves establishing an
intentional structure of roles for people to fill in an organization.
 Hence, it is a function of identifying, classifying, grouping, and
assigning various activities and prescribing authority relationships
to create an organism or structure capable of accomplishing
predetermined objectives.
 As we can see from the above definition and many other definitions
given by other authors, organizing is a process and it involves the
following activities.
 Identification of key activities necessary to achieve objectives
 Grouping of these activities in a manageable manner
 Assignment of each group of activities to a manager who has the
authority and responsibility to manage
 Delegation of authority to managers so as to accomplish their
duties efficiently
 Coordination of different groups of activities horizontally or
vertically.
 It is also possible to see that organizing is a process of creating a
coherent whole (organization), whereas organization is any human
association created to achieve some common objectives of members of
the group.
 In other words, organizing is the process and organization is a social
grouping.
 4.2 Nature of Organizing
Organizing possesses the following characteristics.
1. Division of Labor: The total work of an organization can be
divided into many parts for effective performance of the work.
 The division of labour results in the creation of specialized
persons, because a person does the same work again and again.
Specialization in turn has the following advantages.
 It eliminates waste of time, energy and resources. Efficient
utilization of resources is made possible.
 It increases quality of output, and
 It increases quantity of product without any additional capital
& productivity.
2. Co-ordination: Each and every department or section of the
organization should have relationship with each other to get mutual
co-operation.
 This will result in sharing resources and experiences, which will
help them to tackle problems and increase productivity.
3. Objectives: The objectives of the organization should be
defined clearly.
 The objectives cannot be achieved without the existence of a
good organizational structure. In turn, the organization cannot
exist without objectives for a long period.
 Hence, objectives are the inherent characteristics of
organizations.
4. Authority-Responsibility Structure: -An organization
means an arrangement of position of executives by adopting rank
system.
 The position of each of the executives is defined with regard to
the extent of authority delegated and responsibility assigned to
him/her to discharge the duties.
 This structure indicates who has authority over whom and the
responsibility of each person at different ranks of the structure.
5. Communication: Every organization has its own
communication systems and methods.
 The channels of communication may be divided into formal,
informal, downward, upward or horizontal.
 It is through communication that organizations achieve mutual
co-operation.
 4.3 Importance of Organizing
 Organizing creates the relationship between top level executives
and lower level staff members.
 The following importance are achieved through the process of
organizing.
1. Facilitate administration: Duplication of work, wrong
planning, inefficient personnel, and lack of motivation,
improper allocation of duties and responsibilities, absence of
coordination, communication gap, and improper instructions
are the ingredients of ineffective administration.
 This ineffective administration can be removed by having a
sound organization.
2. Facilitates growth and diversification: The growth of business means
an increase in the scale of operation; diversification means starting of
production of a new type of product.
 For both growth and diversification, organization identifies the necessary
activities, raises the necessary resources and determines how and when to use
it.
3. Increases the efficiency of management: Under good organization,
there is division of work and specialization, which are the tools for:
 Optimum utilization of workers’ ability, resources, materials, technology,
etc in full;
 Placing proportionate importance on the various activities of the
enterprise.
 Money and efforts are spent in proportion to the contribution made by
each and every department. More money and time are given to a
department that contributes more than others.
 Avoiding confusion, delay and duplication of work through dividing and
regrouping of activities into a manageable whole.
4. Improves the efficiency and quality of work through
synergism: It facilitates co-ordination.
 Through coordination it helps parts to contribute their roles
more efficiently and effectively, as every part is a specialist for its
duties.
 No part is working alone. In order to get more results as the
theory of synergism states, “A whole is greater than the sum of
the parts”, and thus all parts should be coordinated properly.
5. Encourage creativity and initiative: A sound organizational
structure will give an opportunity for the staff to show their
hidden talents, which will help the enterprise to achieve the
business goals and earn higher profits.
 It provides opportunities for training new staff members and give
refresher courses to existing employees.
6. Establish lines of authority/vertical division of labor: As it is
already stated, organization is the arrangement of position of executives
by adopting rank system.
 This represents who in the organization reports to whom and who has
authority over whom.
 This creates order within the group. Its absence almost always leads to
chaotic situations where everyone tends to tell everyone else what to
do.
7. Improves communication: A good organization structure clearly
defines channels of communication among the members of the
organization.
 This develops transparency among members and improves flow of
information.
 A good organization structure also develops morale, honesty, devotion
to duty and loyalty to the business firm. This will help remove
corruption, secretiveness and unjustified influence.
 4.4 Types of Organization
 Organizations can be classified on the basis of legality authority
delegated and responsibility assigned to the personnel and their
relationship with each other.
 On the basis of this, an organization can be either formal or
informal.
1. Formal Organization
 It is the intentional structure of roles in a formally and legally
organized enterprise.
 It is flexible enough in structure so as to furnish an environment
in which individual performance, both present and future,
contributes most effectively to group goals; it allows for
discretion, for taking advantage of creative talents and for
recognition of individual likes and capacities in the most formal
organizations.
 The establishment of effective formal organization must be based on
 the principles that pertain to the unity of objectives and
organizational efficiency.
 developing a responsive organizational structure committed to
quality.
 Organizational structure is the framework of jobs and departments that
directs the behavior of individuals and groups towards achieving the
objectives of the organization (Ivancevich et al., 1994, p. 254).
a) Characteristics of Formal Organization
 It is properly planned.
 It is based on delegated authority.
 It is deliberately impersonal.
 The responsibility and accountability at all levels of organization
are clearly defined.
 Unity of command is normally maintained.
 It provides what for division of labor.
b) Advantages of Formal Organization
 The definite boundaries of each worker are clearly fixed and this avoids
conflict among the workers.
 Overlapping of responsibility is easily avoided.
 Shifting responsibility is very difficult.
 A sense of security arises from classification of the task
 There is no chance for favoritism in evaluation and placement of the
employee.
 It makes the organization less dependent on one man.
c) Disadvantages of Formal Organization
 In certain cases, the formal organization may reduce the initiative of
employees.
 Sometimes authority is used for the sake of convenience of the employee
without considering the need for using the authority.
 It does not consider the sentiments and values of the employees in the
social organization.
 It may reduce the speed of information communication.
 2. Informal Organization
 It is a network of personal and social relations not established
or required by the formal organization, but arising
spontaneously as people associate with one another on the
basis of the likes and dislikes of members without
considering the rules, regulations and procedures of the
organization.
 The relationship does not appear on an organization chart.
 Informal organizations are influenced by the number of
people in the group, the actual personnel involved, what the
group is concerned with its changing leadership and the
continuing process of change.
a) Characteristics of Informal Organization
 It arises without any external causes, i.e. voluntarily.
 It is a social structure formed to meet personal needs.
 It has no place in the organization chart.
 It acts as an agency of social control.
 It can be found on all levels of organization within the
managerial hierarchy.
 Its rules and traditions are not written but are commonly
followed.
 It develops from habits, conduct, customs and behavior of
social groups.
 It is one of the parts of the total organization.
 There is no structure and definiteness to the informal
organization.
b) Advantages of Informal Organization
 It fills up the gaps and deficiency of the formal organization.
 It gives satisfaction to the workers and maintains the stability of work
 It is a useful channel of communication.
 Its presence encourages the executives to plan to work correctly and
act accordingly.
 It also fills up the gaps among the abilities of the managers.

c) Disadvantages of Informal Organization

 It has the nature of upsetting the morality of the workers.
 It indirectly reduces the efforts of management to promote greater
productivity.
 It spreads rumors among the workers regarding the functioning of the
Organization unnecessarily
 4.5 Process of Organizing
Organizing as a function of management follows the steps.
1. Determination of Activities: This includes the
identification of the required activities and the division of
these activities to achieve the objectives of the organization
in to homogenous groups.
2. Grouping of Activities: The tasks to be done are
grouped into reasonably homogenous or similar activities
and are arranged under one individual or department.
 Eg. Finance department.
3. Allotment of Duties to Specified Persons
/Departmentalization/: The grouped activities are allotted to
specified persons.
4. Delegation of Authority: Assignment of duties to specified
persons is followed by delegation of authority.
 It will be very difficult for a person to perform the duties
effectively if there is no authority to do it. While delegating
authority, responsibilities are also fixed.
 Authority and responsibility should be in parity with each other.
 Authority: - represents the legitimate exercise of power.
It is a power derived from the rights that come with a
position.
 Responsibility:-is accountability for the attainment of
objectives, the use of resources and the adherence to
organizational policy.
 Power: - is the ability to influence, command, or apply
force. It is usually derived from the control of resources.
5. Defining Relationship: When a group of persons are working
together for a common goal, it becomes necessary to define the
relationship among them in clear terms.
 If it is done, each person will know who his boss is, from whom
he has to receive orders, or to whom he is answerable.
 In other words, each boss should know what authority he has
and over which person.
6. Co-ordination of Various Activities: The delegated
authority and responsibility should be co-coordinated by the
chief managerial staff.
 The reason is that there must be a separate and responsible
person to see whether or not all the activities are going on to
accomplish the objectives of the organization.
 4.6 Key Elements of Organizing
4.6.1 Departmentation
 Departmentation is a process by which similar activities of a business
are grouped into units for the purpose of facilitating smooth
administration at all levels. It is one of the key concepts of organizing.
 "Departmentation is a process of dividing the large monolithic functional
organization into small and flexible administrative units” (Koontz &
O'Donnell).
1. Need and Importance of Departmentation
 Departmentation contributed to the success of the organization in a
number of ways given below.
a) Departmentation increases the operating efficiency of the
employees. It facilitates the grouping of activities, which are of
similar nature.
b) There is a fixation of responsibilities to various executives of the
organization. Executives will be alert and efficient in their duties.
c) The departmental heads (managers) are given certain powers and
are allowed to make their own decisions.
d) The workings of the various departments are evaluated by the top
management and the departments which are not managed properly
are identified. This makes the departmental heads efficient,
responsible and accountable.
e) There is a possibility of the expansion of the organization because of
fixing of the responsibilities to the executives.
f) Besides, departmentation gives other advantages such as facilitating
budget preparation, effective control of expenditure, attaining
specialization, better co-ordination among the managerial personnel,
etc.
 2. Factors Considered in Departmentalization
 The following factors are to be taken into consideration in
departmentation.
a. Specification: Departmentation is concerned with
identifying and specifying organizational activities as coherent
whole.
 Departmentation should yield the advantages of
specialization. Specialization may be functional such as sales,
finance, production and personnel.
b. Control: As a general rule, there should be scope for
automatically checking the activity of one person by another
person.
 There should be a proper control under departmentation
and simplification of control process.
c. Coordination: The whole business activities are grouped
department wise and it requires co-ordination in order to direct
organizational activities in the same direction.
 One department should be organized so that it can support
the other department and vice-versa.
 No department is independent but is interdependent with
other departments of the same organization.
d. Securing Attention: Sometimes, certain functions emerge
from a unit that desires a special treatment.
 Hence, the activity may be entrusted to a separate division or
a higher level of organization according to its importance.
 Even an unusually important activity of the business could be
given recognition in the organization.
e. Recognition of Local Conditions: The departmentation
should take into consideration the local conditions of the place
concerned.
 Local conditions may include such factors as the area
dispersion, diversity of customers’ needs, types of product
and availability of specialized man power.
f. Economy: The departmental arrangement will be effective if
the departmentation is done with minimum expenses.
 Cost of departmentation should not exceed benefits
generated from departmentation.
 3. Bases of Departmentation
 There are certain basic methods of dividing the duties and
responsibilities within an organization structure. They
are:
 Departmentation by functions
 Departmentation by products or service
 Departmentation by regions (area or location) or
territory
 Departmentation by customers
 Departmentation by process
 Departmentation by time
 Departmentation by numbers
 Departmentation by marketing channels
 a) Departmentation by Function
 Functional departmentation is perhaps the most logical and basic
form of departmentalization.
 It is a form of departmentalization in which everyone engaged in
one functional activity, such as marketing or finance, is grouped
into one unit.
 It works best when the organizational environment is stable and
tight control over processes and operations is desired.
 It is used mainly (but not only) by smaller firms that offer a
limited line of products, because:
 It makes efficient use of specialized resources;
 It makes supervision easier;
 It makes it easier to mobilize specialized skills, and bring them
to bear where they are most needed.
 b) Departmentation by Product or Service
 This type of departmentation comes as a result of organizing a
company by divisions that bring together all those involved with a
certain type of product or service.
 This type of departmentation is made by the large multi-product
companies.
 Each department is responsible for a product or related family
/product line
 It is a logical pattern to follow when a product type calls for
manufacturing technology and marketing methods that differ
greatly from those used in the rest of the organization.
 c) Departmentation by Regions (Area or Territory)/
Geographical Departmentation
 This brings together in one department all activities performed in the
region where the unit conducts its business.
 This arrangement follows logical pattern when a plant must be located
as close as possible to:
 Its sources of raw materials - mining and oil producing
companies;
 Its major markets;
 Its major sources of specialized labor.
 Territorial departmentation is especially attractive to large-scale firms
or other enterprises whose activities are physically or geographically
dispersed and its customers’ needs and characteristics vary greatly.
 It is most often used in sales and in production; it is not used in finance,
which is usually concentrated at the headquarters.
 d) Departmentation by Customers
 It occurs when a division sells most or all of its products to a
particular class of customers.
 This type of departmentation is preferred when the various
needs of customers are different in nature.
 For example a bank may divide its loan section into a number of
heads and assign them to various departments such as;
 Loan to businessmen
 Loan to farmers
 Loan to professionals, and so on.
 e) Departmentation by Process or equipment
 In this kind of departmentation, people and materials are
brought together in order to carry out a particular operation.
 This type of departmentation is followed when the production
activities are carried on in many places.
 For example, a textile factory may have many departments such
as ginning, spinning, weaving, dyeing and printing, packing and
sales distribution.
 Textile, sugar, beverage and many other factories also follow this
kind of departmentation.
 f. Departmentation by Time
 Business activities can grouped together on the basis of the time
of performance.
 If the work is not completed within the normal working hours,
extra time will be given to complete after the normal working
hours.
 Whatever may be the work performed after the normal working
hours, a separate department will be in charge of this type of
activity.
 For example: - University extension programs have their
coordinator. Hospitals, fire departments, steel furnaces etc.
use same methods.
 g) Departmentation by numbers
 It was once an important method in the organization of tribes,
clans and armies.
 The essential fact is not what these people do, where they work
or what they work with, but that the success of the undertaking
depends only upon the number of people involved in it.
 Departmentation by number is still used in the army where
soldiers are grouped into squads, battalions, companies, brigades,
and regiments.
 The principles that govern span of management or span of
control or span of supervision are used in this type of
departmentation.
h) Departmentation by Marketing Channels

 This type of departmentation is adopted on the basis of the

channel of distribution chosen by the particular business unit.
 Normally the channel of distribution is selected by the
business unit on the basis of nature of goods and
marketability of the product.
4.6.2 Organizational Chart
The horizontal structuring has two important effects:
1. It defines the working relationships among operating
departments
2. It makes the final decision on the span of control (the number
of subordinates under the direction) of each manager.
 The result of this step is a complete organizational structure. This
structure is shown visually by an organizational chart
 The organization chart has its value to managers in depicting the
basic framework of the organization.
Shows us what the chart can tell us:
 Who reports to whom – the chain of command
 How many subordinates work for each manager – the span of
control
 Channel of official communication through the solid lines that
connect each job (box)
 How the company is structured by function, customer, or by
product and so on -Departmentation
 The work being done in each job - the labels on the boxes.
 The hierarchy of decision-making
 How current the present organization structure (if a date is on the
chart)
 Types of authority relationships – solid connections between boxes
illustrate line authority and dotted lines show staff and functional
authority
 4.6.3 Span of Management
 Span of management is the number of subordinates who report
directly to a given manager or the number of people managed
efficiently by a single officer in an organization.
 Span of management may be narrow or wide.
 The alternative names for span of management are span of control,
span of supervision, span of authority and span of responsibility.
 A narrow span of control is where the number of subordinates under a
given supervisor are very few.
 A narrow span of supervision has the following characteristics:
a) The organizational structure is tall, i.e., there is a long distance between
top level management and supervisors.
b) There are many managerial levels between top and lower level
management.
c) The number of employees supervised by a manager will be very few.
Narrow span of control
a) Advantages of Narrow Span of Supervision
 Close supervision of employees or work is possible.
 Close control is simple.
 Fast communication between subordinates and
superiors is possible.
b) Disadvantages of Narrow Span of Supervision
 Superiors tend to get too involved in subordinates’
work.
 There are many levels of management, and therefore
the cost is high.
 The distance between the lowest level and the top level
is long.
 A wide span of control is an arrangement where the numbers of
subordinates under a given supervisor are many.
 A wide span has the following characteristics
 The organizational structure is flat.
 There are few managerial levels between the top and lower
level managers.
 There are few middle level managers.
 There is short distance between the top-level management and
the supervisors.
wide span of control
a) Advantages of Wide Span of Supervision
 Superiors are forced to delegate authority.
 Clear policies are required.
 Subordinates are carefully selected.
b) Disadvantages of Wide Span of Supervision.
 There is a tendency of becoming decision bottlenecks on the
part of overloaded superiors.
 There is a danger of losing control on the part of superiors.
 A wide span requires exceptionally qualitative managers.
 The appropriate span of control must be determined by the
management of the respective organization, because the span of
management affects the efficient utilization of managers and effective
performance of their subordinates.
 Factors Affecting Span of Management
 No formula exists for determining the ideal span of control.
 The ideal number of people that one person can supervise depends on
a variety of factors.
 The following are some of the factors which influence the span of
management.
 Subordinate training or quality of subordinates
 Clarity of delegation of authority
 Clarity of plans
 Use of objective standards
 Rate of change
 Variety of tasks
 Proximity
 Communication techniques
 Complexity of jobs
 Quality of a manager
 4.6.4 Delegation of Authority


 It is the act of entrusting formal authority and assigning

responsibility to a subordinate for completion of specific
activities.
 Just as no one person in an enterprise can do all the tasks
necessary for accomplishing a group purpose, it is also
impossible, for one person to exercise all the authority for
making decisions as the enterprise grows.
The Steps Followed in the Delegation process
 The delegation of authority involves the following key activities
1. Analyze how time is spent.
2. Decide which task can be delegated and the expected results
Authority and tasks delegated must be clearly stated, and should be
modified when necessary for accomplishing these tasks.
3. Decide who should get the assignment. The right person
should be selected from members based on merit or
effective performance of job.
4. Delegate the authority. Assign the task with the right
authority to the right person.
5. Create an obligation (responsibility)
6. Establish a feedback system
7.Follow unity-of-command and chain-of-command
principles as you delegate.
 Factors That Determine the Delegation of Authority
 Most of the factors that affect delegation lie in the personal attitudes of both
superiors and subordinates towards delegation. Some of them are discussed
as follows.
A. Personal Attitudes of Superiors
i). Receptiveness/ Avoidance of Risk
 Decision-making always involves some discretion, and a subordinate's
decision is not likely to be exactly the one a superior would have made.
 Therefore, managers who delegate authority must be willing to give other
people's ideas a chance and be ready to take the risk, due to the possible
mistake that could be committed by the subordinate.
 One has to give up the old saying, “If you want something done right, do it
yourself.”
ii).Willingness to Let Decision Making Authority Go
 A manager who is ready to effectively delegate authority must be willing to
release the right to make decisions to subordinates.
 If the manager has an autocratic attitude, delegation will not be effective.
 Some managers’ fear that a subordinate who looks so good might replace
him/her.
iii). Perfectionism/Unwillingness to let Others Make Mistakes
 Since superiors cannot delegate responsibility for performance,
they should not delegate authority unless they are willing to find
means of getting feedback; that is, of assuring them that the
authority is being used to support enterprise or department goals
and plans.
 If superiors target to be perfect in their job and if they fear
subordinates may not be as perfect as themselves, they avoid
delegation.
iv). Willingness to Trust Subordinates/ Confidence in
Subordinates
 Superiors have no alternative to trusting their subordinates, for
delegation implies a trustful attitude between them.
 Some people do not like to delegate and argue that it is easier for
a manager to do a task than to teach a subordinate how to do it.
B) Attitudes of Subordinates
 Subordinates may refuse accepting delegation of authority
because of any of the following reasons.
 Love of spoon-feeding. They want superiors to do the job
or show them how to do it.
 Fear of criticism.
 Lack of information or resource.
 Lack of self-confidence.
 Too much workload.
 Inadequate incentives.
 Fear of failure.
Guides for Overcoming Weak Delegation
The five practical guidelines of delegation are:
 Define assignments and delegate authority in the light of
results expected.
 Select the person in the light of the job to be done.
 Maintain open lines of communication to avoid
misunderstanding among and between organizational
members.
 Establish proper controls because responsibility cannot
be abandoned by the superior.
 Reward effective delegation and successful assumption of
authority.
Advantages of Delegation
 Delegation allows for promptness in action.
 It enables managers to perform higher-level work. Managers get enough time to
pursue other tasks.
 It can be a training experience for supportive staff. It helps to develop
subordinates and satisfy customers by giving them better service
 It can result in better decisions.
 It can improve morale. Subordinates gain feelings of belongingness and being
needed which leads to a genuine commitment on the part of the subordinates
 The expansion and diversification of business activities is possible
Disadvantages of Delegation
 Delegation has two potential limitations.
i) Control at the top may be more difficult
 The further decisions are removed from the highest level, the more difficult it is to
pen point problem areas and to take effective corrective action.
ii) A manager may over time lose touch with what is really happening in the organization:
Without proper communication and feedback channel, the subordinate may make
decisions and take actions without the knowledge of the superior.
 4.6.5 Centralization versus Decentralization
 Centralization and decentralization are important features that
become obvious in the process of delegation.
 This is due to the fact that authority is decentralized or
centralized in the process of delegation.
A. Centralization is defined as the systematic and conscious
reservation of authority at central points in the organization.
 In a centralized set-up, decision-making authority is concentrated
in a few hands at the top.
 Most of the time even though the degree might be high or low,
both centralization and decentralization can appear and exist in an
organization.
B. Decentralization implies the placing of greater power in the
hands of persons away from the center.
 It means a greater number of important decisions are made at the
lower levels and few of these decisions are subject to prior
approval of the higher authorities.
 So decentralization can be defined as the systematic effort to
delegate all authority to the lowest levels except that which can
be exercised at central points.
 In other words, there cannot be absolute decentralization.
 If managers delegate all authority without exception, their status
as managers would cease, their position would be eliminated, and
there would again be no organization.
The degree of decentralization is greater when:
 The number of decisions made at lower levels of the
organization are greater;
 The decisions made at lower levels of an organization are more
important;
 More functions are affected by decisions made at lower levels
of the organization;
 The manager has less checking on decisions made by others;
 There is no checking on decisions made by others; and
 Fewer people at the lower level in the hierarchy are consulted.
 C) Factors Determining the Degree of Decentralization of Authority
Although the temperament of individual managers influences the
extent to which authority is delegated, other factors also affect it.
They are:
 Costliness of the Decision: The more costly the action to be
taken the more probable it is that the decision will be made at
the upper levels of management.
 Desire for Uniformity of Policy: Those who value consistency
above all invariably go for centralized authority since this is the easiest
road to such a goal.
 Size and Character of the Organization: The larger the
organization, the more the decisions that are to be made, the more
the places in which they must be made and the more difficult it is to
coordinate them.
 History and Culture of the Enterprise: Whether authority
will be decentralized frequently depends upon the way the
business has been built. Owner founders have a tendency toward
high centralization of authority.
 Management Philosophy: Sometimes top managers are not
interested to delegate to others and they want to safeguard their
authority as a source of power. In many cases, top managers may see
decentralization as a way of organizational life that takes advantage of
the innate desire of people to create, to be free, and to have status.
 Desire for Independence: Individuals and groups often
desire a degree of independence from bosses who are far away.
 Availability of Trained Managers: A real shortage of
managers would limit decentralization of authority, since
delegation of authority requires qualified managers.
 Control Techniques: A good manager at any level of the
organization cannot delegate authority without having some way of
knowing whether it will be used properly. Some managers do not
know how to control. They may think that it takes more time to
correct a mistake committed by others than to do the job themselves.
 Decentralized Performance: It refers to the situation where the
managers of an enterprise are dispersed over a geographic area.
 The reason is basically a technical matter that depends upon such
factors as
 The economies of the division of labor;
 The opportunities for using machines;
 The opportunities for using machines;
 The nature of the work to be performed; and
 The location of raw materials, labor supply and customers.
 Authority tends to be decentralized when performance is
decentralized.
 Business Dynamics: The Pace of Change: If a business is growing fast
and facing complex problems of expansion, its managers, particularly those
responsible for top policy, may be forced to make a large share of the
decisions; but strangely enough, this very dynamic condition may force these
managers to delegate authority and take a calculated risk on the costs or
error.
 This dilemma is resolved by implementing the following:
 Directing of delegation;
 Avoid delegating authority to untrained subordinates;
 Give close attention to rapid formation of policies;
 Accelerate training in management; and
 Slow the rate of change.
 In old well-established or slow-moving business, there is a natural tendency
to centralize authority, whatever danger too much centralization may carry.
 Environmental Influences: In addition to the internal factors, there are
definite external forces affecting the extent of decentralization.
 Among the most important of these are governmental controls, national
unionism, and tax policies (political, social and economic factors).
 4.6.6 Authority, Power and Source of Power
 Authority has been defined as the right to command.
 The authority gives the management the power to enforce
obedience.
 It is the power to give orders and made sure that these orders are
obeyed.
 Authority can be retained by central management which makes
policies and decisions and then it is passed on to lower level
through hierarchical structure for action.
 Authority can also be delegated to proper subordinates who can
make decisions relative to their operations.
 Sources of Power
 John French and Bertram Raven have identified five sources or bases of
power.
 The concept of power involves how people want to view their
relationships to one another.
1) Reward Power: It is a power based on a person ability to reward
another person (the influences) for caring out orders or meeting
performance requirements.
2) Coercive Power: A power based on the influencer’s ability to punish
the subordinate for not meeting requirement, or expectations. It is a
negative side of reward power. Punishment in an organization may
range from a reprimand to loss of a job.
3) Legitimate Power: Formal authority exist when an employee or
influence acknowledge that the influencer is entitled to exact influence
within certain bounds. It is also implied that the influence has an
obligation to accept this power.
4) Referent Power: A power which may be held by a person or a
group is based on the influence’s desire to identify with or
imitate the influencer. For example; popular, consolations
managers will have referent power if employees are motivated to
cumulate their work habits. Referent power also functions at the
peer-level-charismatic colleagues may sway us to their view
plover of department meeting.
5) Expert Power: Power which derives from knowledge.
Sometimes called sapient authority, this is power based on an
acknowledgement of others expertise e.g. Physician.
 A manager has the potential to operate from all five-power bases.
Some of them are inherent in the position.
 4.7 Principles of Organizing
1) The Scalar or Chain-of Command Principle: Authority flows directly
and clearly from the top executive in an organization to each subordinate at
each succeeding level.
2) The Unity-of-Objective Principle: This principle suggests that all
individuals in the organization and the departments to which they belong
should contribute to the principal objectives of the organization.
3) The Adequacy-of Authority or the Parity Principle: It means that
each manager in the organization should be given sufficient authority to
achieve the desired result. Authority and responsibility should be in parity
with each other.
4) The Responsibility-for-Results Principle: It states that even if a superior
delegate authority to a subordinate to achieve a goal, the superior is still responsible
for the result if the goal is not attained.
5) The Accountability Principle: It holds that when managers accept a plan
from their superiors, they are duty bound to carry it out. In other words,
they are accountable to their superiors for results.
6) The Division of Work Principle: According to this principle, work
would be divided and grouped in a logical manner in order to eliminate
duplication of effort and other forms of waste.
7) The Unity-of-Command Principle: This principle states that each
individual in an organization should report to only one superior and should
receive the instruction or direction from one authority or boss.
8) Principle of Definition: It is necessary to define and fix the duties, responsibilities
and authority of each worker, and the organizational relationship of each worker with
others.
9) Principle of Co-ordination /Unity of Direction/: Whenever
coordination exists among the workers, objectives may be achieved quickly
and each work can be done effectively.
10) Principle of Efficiency: According to this principle of an organization work
should be completed with minimum members, in less time, with minimum resources
and within the right time.
11) Principle of Uniformity and Balance (Equilibrium): The
organization should make the work distribution in such a manner that there
should be an equal status and equal authority and powers among the same line
officers.
12) Principle of Continuity and Flexibility: It is essential that
there should be a re-operation of objectives, re-adjustment of plans
and privation of opportunities for the development of future
management. The organizational set up should be flexible to adjust to
the changing environment of business.
13) Principle of Leadership Facilitation: Span of control refers to
the maximum number of members effectively supervised by a single
individual. The number of members may be increased or decreased
according to the nature of work done by the subordinate or the ability
of the supervisor.
14) Principle of Simplicity and Homogeneity: The
simplicity of the organizational structure enables the staff
members to maintain equality and homogeneity.
15) Principle of Joint Decision: Whenever decisions are made
jointly, the deciding group would be more duty bound to keep its
word individually or as a group.
 4.8 Group Dynamics and Committees
 Managers deal with groups of people. They give direction to groups of
people in the organization.
 Therefore they need to understand group dynamics (the interaction of
people in-group setting).
Behaviors Manifested by Groups
 Groups show behaviors such as conformity, aggression,
competition and cooperation.
 Conformity is compliance with existing rules or customs.
 Aggression is offensive action that is caused by frustration,
annoyance or attack.
 Competition is a struggle between two or more individuals or
groups to obtain encouragement.
 Cooperation is a joint effort by two or more people to attain a
common goal and requires an individual to subordinate his or her
self-interest.
  Committees and their Characteristics
 A committee is a group of persons assigned or asked to investigate or act on
some matter. Committees can be permanent or temporary.
 Standing Committees are permanent committees. They can be given
authority to make key decisions.
 Ad Hoc Committees are temporary committees formed for specific
purposes. An ad hoc committee is usually dissolved after its
recommendations have been submitted.
 Committees are widely used to provide more information for decision-
making. They facilitate coordination. They foster support for decision. They
can broaden the knowledge of the people who participate in them.
 Limitations of Committees
 They are expensive.
 They often act slowly.
 They may come up with compromise solutions.
 They do not fix responsibility. Whatever decision is made, no individual
takes the responsibility.
CHAPTER FIVE

THE STAFFING
FUNCTION
 Introduction
 The most important resource of any organization is its human
resources.
 It is one of the manager’s most important duties because the
success of any organization depends on the quality of its
employees.
 Most companies consider human resources so important that
they create separate departments to handle personnel matters.
 They recognized that without competent people at all levels;
organizations will either pursue inappropriate goals or find it
difficult to achieve the appropriate goals that they have already
set.
 5.1 Meaning of Staffing
 The staffing function can be viewed as a series of activities that
managers should perform in order to provide the organization
with the right people in the right place.
 Staffing deals about the proper and effective recruitment,
selection, placement, training and development, performance
appraisal, and retention of employees with appropriate
qualifications to fill positions created by the manager or designed
in the organizations structure.
 The staffing process involves the following basic activities.
Human Resource Recruitment Selection
Planning

Performance Induction and

Training and
Appraisal Orientation
Development

Transfers or
rewards: Separation
Promotion
Demotion
 5.2 The Procurement Function
 The procurement function includes Human Resource Planning,
Recruitment, Selection and, Induction or orientation.
5.2.1 Human Resource Planning (HRP)
 HRP is the strategy for acquiring, using, improving, and preserving a
firm’s human resources.
 It is the process of determining the human resource requirements of
the organization at its different levels for achieving its goals
 It covers three distinct activities.
(1) Conducting human resource audit of the present condition of the
organization.
(2) Forecasting future employee skill needs or labor requirements of the
organization.
(3) Determining the appropriate human resource actions based on the
comparison result of the personnel forecast and personnel inventory.
 Forecast Employee Present Employees
Compare with
Skill Needs Skill Base

Match
Yes End

No

Actions:
Overtime
Decisions: If surplus If shortage Recruiting
Retraining
Early Retirements Transfers
Layoffs Subcontracting
Terminations End End Retraining
 5.2.2 Recruitment
 Recruitment is defined as the process of developing a pool of qualified
candidates from whom the organization may choose the most appropriate
employees.
 It is the practice that defines the characteristics of applicants to whom selection
procedures are ultimately applied.
 It is an attempt to identify and attract potential candidates to meet the
requirements of the organizations.
 Recruitment can also be defined as announcing and advertising vacant positions
and developing sources of applicants and receiving applications
a. Internal Sources – recruitment within the organization. It could be
through promotion, lateral transfer, or demotion.
b. External Sources - recruitment outside the organization.
 Applicants are provided with a variety of outside sources including
newspaper advertising, state employment services, private employment
agencies, job fairs, professional associations, at colleges and universities, and
employee referrals
 Organizations must ensure that their recruitment practices
conform to the law.
 Equal employment opportunity laws stipulate that recruiting and
hiring decisions cannot discriminate on the basis of religion, race,
national origin, or sex.
 Affirmative action refers to the use of goals, timetables, or other
methods in recruiting to promote the hiring, development, and
retention of persons historically underrepresented in the
workplace.
 It is an action taken to correct or redress imbalances that have
resulted because of sex or other social, political, or economic
inequalities.
 Realistic job previews can also enhance recruiting effectiveness.
 5.2.3 Selection
 In the selection process, employers attempt to determine the
skills, abilities, and other attributes needed to perform a
particular job.
 Then, they assess applicants’ characteristics in an attempt to
determine the applicant that best fits the job.
 Thus, selection is defined as the process of evaluating and
deciding the best and qualified candidates out of the pool of
applicants developed in the recruitment process for job openings
based on their abilities, skills and characteristics.
 A good place to start in making a selection decision is job analysis
(job description and job specification).
 Job analysis is the process of gathering, analyzing, and recording
accurate and complete information about each job in a firm
through a systematic examination of job content.
 It is performed on three occasions:
(a) when an organization is just starting,
(b) when a new job is created, and
(c) when a job is changed significantly as a result of new
technology, additional duties, or new methods and
procedures.
 The data gathered and analyzed through job analysis helps to
develop job descriptions (job duties) and job specifications
(human qualifications).
 Job Description: is a written statement of what a jobholder does, how it is
done, and why it is done.
 It lists the important duties to be performed on a job.
 Job Specification: states the minimum qualifications that a person must
possess to perform a given job successfully.
 Job specification is the knowledge, skills and abilities as well as physical
characteristics, experience and other desirable qualifications necessary for
successful job performance.
 The most frequently used devices and steps in the selection process are the:
1. Application forms
2. Interviews
3. Testing
4. Reference check
5. Medical examination to assure the physical requirements of the job
6. Then, offering employment by ranking applicants and negotiating on their
salary.
 5.2.4 Induction and orientation
 After the hiring decision has been made, the final phase of the
selection process is induction and orientation.
 Orientation is the process that introduces new employees to their
new work environment. It mainly involves:
1. Making introduction of the new employee to colleagues.
2. Discussing specific job duties and responsibilities
3. Explaining the organization’s history, rules, policies,
regulations and objectives.
4. Familiarizing the products, processes, and major operation
of the organization.
5. Introducing the line and staff relationships in the
organization.
 5.3 Training and Development Function
5.3.1 Training and Development
 Training and development represent a planned effort by an
organization to facilitate employees learning of the job-related
behaviors. Some authors try to distinguish between training and
development.
 According to Daft (1991:351), training refers to teaching lower-
level or technical employees how to do their present jobs
whereas development refers to teaching managers and
professionals the skills needed for both present and the future
jobs.
 Training improves the specific skills, knowledge, and attitudes
needed by individuals to perform the present job and
development helps to provide adequate knowledge /educate/ to
employees beyond the current requirements of the job.
Training may occur in a variety of forms.
1. On-the-job training and job rotations: This is when an
experienced employee is asked to take a new employee and show
the newcomer how to perform job duties. The organizations senior
employees often conduct in-house training.
2. Off-the-job training or classroom-training including lectures,
films, audiovisual techniques and simulations such as university
management and apprenticeship programs.
3. Orientation training in which newcomers are introduced to the
organization’s culture using company owned training centers.
4. Programmed and computer-assisted instruction in which the
employee works at his or her own pace to learn material from the
text that includes exercises and quizzes to enhance learning.
5. Conference and case discussion groups in which participants
analyze cases or discuss topics assisted by a training leader.
 5.3.2 Performance Appraisal
 Performance appraisal is the process of determining the
extent to which an employee is performing a job effectively.
 It is the process of observing and evaluating an employee’s
performance, recording the assessment, and providing
feedback to the employee. (Daft, 1991:353)
 A valid performance appraisal system serves a number of
purposes.This includes the following;
 It provides employees with feedback so that they will
know how well they are performing.
 It develops valid data for pay (salary and bonus) and
promotion decisions.
 It helps managers make discharge and retention decisions
and provides a means of warning subordinates about
unsatisfactory performance.
 It helps managers counsel subordinates so that they will
improve their performance and develops their future
potential.
 It develops commitment to an organization by identifying
career opportunities and encouraging career planning.
 It motivates employees through recognition and support.
 It encourages management-subordinate relations.
 It provides input to the human resource planning process.
 5.4 The Maintenance and Utilization Function
5.4.1. Transferring
 Transferring is moving a person from one job, organizational
level, or location to another. It includes:
 Promotion is moving an employee to a higher-level, position
that has more prestige, higher status, higher pay, and greater
responsibility based on his or her good performance.
 Demotion is shifting a person to a lower-level position in the
hierarchy (less pay and less responsibility) due to inefficiency or
in-competency to meet the assigned task.
 Lateral transfer is movement of employees from one position
to another at similar levels (pay and responsibility) within the
organization.
 5.4.2 Employee Safety and Health
 Safety: refers to protecting employees from accidents by creating secured
working environment
 Health: refers to the employees freedom from physical or emotional illness
such as
 Stress
 Fatigue or frustration
 Alcoholism
 Carpal tunnel syndrome
 Aids
 In the work place, to protect the employees from accidence, illness,
harassment, or other emergencies, organizations or companies have safety
and health policies.
 The safety and health policy specifies which job requires what kinds of
clothes, shoes, materials, equipments and others.
5.4.3. Employee Relations
 It is called Industrial Relation
 Employee Relation is the relationship between employee and management.
 5.5 Separation (Termination)
 Separation is the termination of the relationship between the workers
and the organization due to various reasons.
 Some will retire, others will depart voluntarily for other jobs
(resignation), and still others will be forced out through mergers and
cutbacks (layoffs).
 The analysis of the type and quantity of termination helps to maintain
an effective work force in the organization. It has the following
purposes.
 Employees who are poor performers can be dismissed.
 Employers can determine why employees are leaving by conducting
an interview with the departing employees (exit interview). The
exit interview is an excellent and inexpensive tool for learning
about the reasons of dissatisfaction within the organization and
hence for reducing future turnover.
 When there is voluntary separation such as due to retirement and
the natural course of the business operation, it will help
management to determine layoff procedures.
 CHAPTER SIX

THE LEADING/ DIRECTING

FUNCTION
 6.1 Meaning of Leading/Directing

 Directing is a management function which deals with what

managers do to employees or cause them to do certain activities
that lead to the achievement of the objectives of the organization.
 Directing is the process of integrating people with the
organization so as to obtain their willing and enthusiastic
cooperation for the achievement of its goals.
 Directing is a challenging function of management, because it
deals with the human element of the organization.
 A person’s beliefs, hopes, ambitions, behavior, satisfaction and
interaction with the other persons are all involved in the
directing function.
 It includes guidance, supervision, communication, leadership,
inspiring, coordinating and motivating employees for an action.
 6.2 Components of Leading/Directing

 Directing includes many activities such as guidance,

supervision, communication, leading, coordinating and
motivating.
 Among these only three major components will be
discussed:
 Leadership
 Motivation and
 Communication
 6.2.1 Leadership
6.2.1.1 Concepts and Needs for Leadership
 Leadership is the art of inspiring subordinates to perform their duties
willingly, competently and enthusiastically.
 Leaders are examples or symbols to their subordinates.
 Therefore, they are expected to lead subordinates by their talent and skill.
 A leader is one who plays a directing role and imposes a commanding
influence over others.
 Leaders can be chosen or appointed. Managers are appointed leaders.
 Chosen leaders are those chosen from among members. The leader is
chosen by members; i.e. members choose their leader. The leader is chosen
on the basis of dominance physically or psychologically.
 Appointed leaders are those that are not chosen by members. They may or
may not be members of the group. They are appointed by someone outside
the group.This is practical in formal organizations.
 6.2.1.2 Concepts and Meaning of Leadership Theories
 There are three major approaches to the study of leadership:
Trait, behavioral and situational approaches.
1) The Trait Theory of Leadership
 Traits are inborn and inherent personal qualities of individuals such as
intelligence, appearance, sociability, self-confidence etc.
 This theory believes that leaders possess certain specific inborn traits
(characteristics), which are inherited rather than acquired.
 It holds that leaders are born not made (not acquired).
 It focuses in what leaders are rather than what they do.
 According to this approach, leadership emphasizes psychological traits
(qualities), compelling obedience from subordinates.
 The leader is endowed with natural psychological traits that give him/her
advantages over most mortals.
 In general the trait theory beliefs that effective leadership is dependent on
the inborn personal traits of individuals not dependent on behaviors which
can be learned (acquired)
2) The behavioral theory of leadership
 Unlike traits, behaviors are learned and so it follows that
individuals trained in appropriate leadership behavior would be
able to lead more effectively.
 Thus, rather than trying to figure out what effective leaders
were, researchers tried to determine what effective leaders did,
how they delegate tasks, how they communicated with and tried
to motivate their subordinates, how they carried out their tasks
and so on.
 The behavioral theory of leadership-focused what leaders do
rather than their traits.
 Studies showed that one set of traits/leadership style might not
be equally appropriate in all situations.
 Followers of this theory believe that if individuals are trained in
appropriate leadership behavior they can lead more effectively.
 Because the behavior (which can be learned) is more important
than trait (which is inborn).
 However it doesn’t mean that personal traits have no influence
on leadership. So effective of leadership is a function of both
inborn personal traits and acquired behaviors.
 The effectiveness of leaders is mainly measured by the outcomes
of individual subordinates who are under the supervision of that
person.
3) The Situational/ Contingency leadership theory:
 According to this approach no one trait was common to all
effective leaders and no one style was effective in all situations.
 Therefore, this new approach was developed to include situations
that influenced the effectiveness of a particular leadership style.
 Leadership is not orally dependent on personal traits and
behaviors, but also dependent on situations.
 To lead effectively different traits or behaviors are required in
different situations.
 Contingency approach is the view that the management
technique that best contributes to the attainment of
organizational goals might vary in different types of situations or
circumstances.
Some of the situational factors in leadership effectiveness are:
 The leader’s personality, past experience and future
expectations.
 The expectations and behavior of superiors.
 Subordinate’s characteristics, expectations and behaviors.
 Task requirements
 Organizational culture and policies
 Peers’ expectations and behavior
 6.2.1.3 Leadership Styles
 Leadership style can be defined as the various patterns of behavior favored by leaders
during the process of directing and influencing workers.
 It is determined by leader’s personality, experience and value system, nature of
followers and environment.
 There are three important leadership styles;
a) Autocratic Leadership style:
 This leadership style is characterized by the following behavioral patterns of leaders.
 The leader doesn’t seek any opinions from subordinates, holds conflicts and with
less creativity.
 Exercises rigid control and close supervision, relies on punishments.
 Subordinates typically react by doing only what’s expected and by suppressing
their frustration.
 They structure the entire work situation in their own way and expect the
workers to follow their orders and do not tolerate deviation from their order.
 The autocratic leader is task-oriented, gives little value on showing consideration
to subordinates.
 Depends on one way communication, downward only.
 They assume full responsibility for all actions.
b. Democratic /participate/ leadership style
 This leadership style is characterized by the following behavioral
patterns of the leader.
 Allows the group members to participate in decision making
process, proposed actions and encourages participation at all
levels.
 The leader will develop two-way communications and
promote team spirit.
 The democratic leader explains to the group members like
reasons for personal decisions when necessary and objectively
communicates criticism and praise to subordinates.
c. Laissez-fair/free rein/leadership style
 In this type of leadership style,
 The leader is just a figurehead and does not give any
direction.
 He acts principally as a liaison/contact between the group
and the outside environment and supplies necessary materials
and provides information to group members.
 Their main role is aiding /facilitating the operations of
followers.
 He let the subordinates plan and organize and develop their
own techniques.
 This type of leadership is essential in research laboratories,
where the scientists are fairly free to conduct their research and
make their decisions.
6.2.1.4 Personal Characteristics of an Ideal Leader
 Leadership is an intangible art. The success /effectiveness of
leaders can best be judged by the behavior of their subordinates
not by what they profess.
 When subordinates perform well, cooperate effectively and put
forth extra effort to achieve group goals, the manager is
described as a good leader.
 When people perform badly fail to cooperate and do a minimal
amount of work the manager is described as a weak or ineffective
leader.
 “The overall effectiveness of leadership is a function of the
effectiveness of decisions minus the cost of making the decisions
plus the value realized in developing people’s abilities by means
of committed decision making.”Vroom and Jago.
The following are personal characteristics of an ideal leader
1. Ability to inspire others.
2. Ability to understand human behavior.
3. Similarity to the group
4. Verbal assertiveness.
5. Willingness to communicate honestly
6. Ability to set up example to be followed
7. Willingness to take risks
8. Willingness to assume responsibility.
9. Willingness to be supportive of personnel.
10. Skill in the art of compromise.
11. Ability to tolerate criticism.
 6.2.2 Motivation
6.2.2.1 Concepts, Characteristics and Importance of
Motivation
Concepts
 Motivation is the act of inducing, instigating, inciting or
promoting someone to a particular course of action to get the
results expected of him/her.
 “Motivation is a general term applying to the entire class of
drives, desires, needs, wishes and similar forces that induce an
individual or a group of people to work.” Koontz and O’Donnell.
 The goal of motivation is to cause people to put forth their best
efforts with enthusiasm and effectiveness in order to achieve and
hopefully surpass the organizational objectives.
 In order to motivate employees, managers should identify the
basic motives that initiate people.
 Motives are inner forces that move a person to believe in a
certain way.
 Sources of motives can be biogenic or psychogenic needs.
 Biogenic needs arise from physiological states of tension such as
hunger, thirst, and discomfort.
 needs arise from psychological states of tension such as a need
for self-esteem, affiliation, achievement, status, recognition or
belonging.
 This fact can be expressed in short as follows.
/Needs=>Motives=>Drive=>Action=>Satisfaction/
Characteristics of Motivation
 Motivation is characterized by the following features
1. Motivation is unending process: As man has a number of wants and
all wants cannot be satisfied at one time, motivation becomes a
continuous task of managers. Human needs are infinite.
2. Motivation is a psychological concept: It deals with the psychology
of workers
3. Motivation is total and not partial: An individual is motivated fully
and not partly because motivation is related to the needs and
psychological states of people.
4. Motivation may be financial or non-financial: Motivation includes
increasing wages, allowances, recognition, and praise, giving more
responsibility and inducing to participate in the decision-making process.
The appropriateness of motivation depends on the situations and
individual characteristics.
5. Motivation is determined by human needs: In order to motivate, knowing the
need of an individual is mandatory. A need that is already satisfied cannot be a
motivator.
6. Motivation cannot be applied to a frustrated man.
7. Motivation may be positive or negative.
Importance of Motivation
Motivation provides the following advantages to an organization.
1. Through motivation an organization can utilize the factors of
production to the maximum.
2. When people are motivated there is willingness to work.
3. When people are highly motivated absenteeism would be less.
4. Labor turnover would be low. If employees are motivated positively,
there is a tendency on their part to stay in the organization.
5. Efficient personnel would be attracted to the organization.
6. If there is positive motivation in the organization, there will be good
labor relations.
7. The knowledge and skill of employees can be developed and
improved.
8. Motivation develops a sense of belongingness.
9. Motivation serves as a basis of co-operation.
 6.2.2.2 Motivation Theories
 At different stages in the evolution of management thought managers
subscribed to different theories of motivation. They held their own
views or supported the views of others.
1) Carrot and Stick Theory/ Approach
 The reward vs punishment or the stick vs carrot theory states that if
employees perform well reward them if not punish them.
 The reward/ carrot given for “good” behavior could be in the form of
money, bonus, titles, special office arrangements, awards, and more
power or company cars.
 The Punishment/stick administered for “bad” behavior could be in the
form of demotion, undesirable transfers, no pay increase or lack of
recognition.
2) Maslow’s Hierarchy of Needs Theory
 Needs were categorized as five levels of lower- to higher-order
needs.
 Individuals must satisfy lower-order needs before they can satisfy
higher order needs.
 Satisfied needs will no longer motivate.
 Motivating a person depends on knowing at what level that
person is on the hierarchy.
 Hierarchy of needs
 Lower-order (external): physiological, safety
 Higher-order (internal): social, esteem, self-actualization
3) Herzberg’s Motivation-Hygiene Theory
 Job satisfaction and job dissatisfaction are created by different factors.
 Hygiene factors: extrinsic (environmental) factors that create job
dissatisfaction.
 Hygienic factors also known as extrinsic factors do not in themselves
inspire or motivate a person to put forth maximum effort on a job.
 Their existence does not motivate a person but their absence de-
motivates an individual.
 Motivators: intrinsic (psychological) factors that create job
satisfaction.
 Attempted to explain why job satisfaction does not result in increased
performance.
 The opposite of satisfaction is not dissatisfaction, but rather no
satisfaction.
4) McGregor’s Theory X and Theory Y
 Theory X
 This assumption is a pessimistic, static and rigid approach.
 Assumes that workers have little ambition, dislike work, avoid
responsibility, and require close supervision.
 TheoryY
 Assumes that workers can exercise self-direction, desire
responsibility, and like to work.
 Assumption:
 Motivation is maximized by participative decision making,
interesting jobs, and good group relations.
5) Three-Needs Theory (McClelland)
 There are three major acquired needs that are major motives in
work.
 Need for achievement (nAch)
 The drive to excel and succeed
 Need for power (nPow)
 The need to influence the behavior of others
 Need of affiliation (nAff)
 The desire for interpersonal relationships
 Expectancy Theory (Vroom)
 States that an individual tends to act in a certain way based on the
expectation that the act will be followed by a given outcome and on
the attractiveness of that outcome to the individual.
 Key to the theory is understanding and managing employee goals
and the linkages among and between effort, performance and
rewards.
 Effort: employee abilities and training/development
 Performance: valid appraisal systems
 Rewards (goals): understanding employee needs
 Expectancy Relationships
 Expectancy (effort-performance linkage)
 The perceived probability that an individual’s effort will result in
a certain level of performance.
 Instrumentality (performance-reward linkage)
 The perception that a particular level of performance will result
in the attaining a desired outcome (reward).
 Valence
 The attractiveness/importance of the performance reward
(outcome) to the individual.
 Equity Theory
 Equity theory, developed by J. Stacey Adams
 Proposes that employees perceive what they get from a job situation
(outcomes) in relation to what they put in (inputs) and then compare
their inputs-outcomes ratio with the inputs-outcomes ratios of
relevant others.
 If the ratios are perceived as equal then a state of equity (fairness)
exists.
 If the ratios are perceived as unequal, inequity exists and the
person feels under- or over-rewarded.
 When inequities occur, employees will attempt to do something
to rebalance the ratios (seek justice).
 Equity Theory (cont’d)
 Employee responses to perceived inequities:
 Distort own or others’ ratios.
 Induce others to change their own inputs or outcomes.
 Change own inputs (increase or decrease efforts) or outcomes (seek greater
rewards).
 Choose a different comparison (referent) other (person, systems, or self).
 Quit their job.
 Employees are concerned with both the absolute and relative nature of organizational
rewards.
 Distributive justice
 The perceived fairness of the amount and allocation of rewards among individuals
(i.e., who received what).
 Influences an employee’s satisfaction.
 Procedural justice
 The perceived fairness of the process use to determine the distribution of rewards
(i.e., how who received what).
 Affects an employee’s organizational commitment.
 Goal-Setting Theory
 Proposes that setting goals that are accepted, specific, and
challenging yet achievable will result in higher performance than
having no or easy goals.
 Is culture bound to the U.S. and Canada.
 Benefits of Participation in Goal-Setting
 Increases the acceptance of goals.
 Fosters commitment to difficult, public goals.
 Provides for self-feedback (internal locus of control) that guides
behavior and motivates performance (self-efficacy).
 Guidelines to Effective Motivation
 Richard M. Steers and Lyman W.Porter suggest the following guidelines of effective
motivation.
1. Managers must actively and intentionally motivate their subordinates.
2. Managers should understand their own strengths and limitations before
attempting to modify those of others.
3. Managers must recognize that employees have different motives and
abilities.
4. Rewards should be related to performance, not seniority or other non-
merit based considerations.
5. Jobs should be designed to offer challenge and variety; subordinates must
clearly understand what is expected of them.
6. Management should foster an organizational culture oriented to
performance.
7. Managers should stay close to employees and remedy problems as they
arise.
8. The active cooperation of employees should be sought in improving the
organization’s output; employees are, after all also stakeholders in the
organization.
 Basic Factors that Motivates an Employee
The following factors are considered as motivators.
 Challenging work
 Participation in planning
 Recognition and status
 More responsibility and power
 Independence of action
 Opportunity for personal growth
 Good working conditions
 Finally, the result of motivation is high morale. High morale is a
confident, resolute, often self-sacrificing attitude of a group that
has strong faith in its leadership and believes organizational goals
can be achieved.
 Low morale is just the opposite. It is characterized by depression,
lack of confidence and negative attitude toward the achievement
of goals.
 6.2.3 Communication
6.2.3.1 Concepts, Elements andTypes of Communication
Concepts of Communication
 There is no agreeable single definition for communication but a
number of scholars define it in the following manner.
 Communication is sharing information of providing entertainment
through works or speech or other methods.
 Communication is the exchange of meanings between individuals
using a common symbol system.
 Communication is the process whereby one person transmits a
message through a channel to another person, with some effect.
 Communication is an intercourse by words, letters, symbols or messages and
is a way that one organization member shares meaning and understanding
with another.” Koontz and O’Donnell.
 To communicate means to make known, to impart or to transmit
information.
 Elements in the Communication Process
1) Messages: It is the verbal or non-verbal symbol that each
communicator conveys. It is the idea or information that an individual
hopes to transmit.
 The message is the physical form in which the sender encodes the
information.
 Encoding is converting ideas into communicable codes which will be
understood as a record of the message.
 Thus, a message may take or be represented by any of symbols: - verbal
(spoken words) written (printed words) gesture (non-verbal).
2) Sender: He/she is the person or a generalized source of a message.
Sender (source or communicator) initiates the communication process.
 By initiating the message, the sender attempts to achieve to understand
and change in the behavior of the receiver.
3) Receiver: He/she is a person who is supposed to receive information.
The receiver marks the end point of a message.
 If the message fails to reach the receiver, communication cannot be said
to have taken place.
 Decoding is the process by which the receiver draws meanings from
the symbols encoded by the transmitter.
 The process of decoding is affected by the receiver’s past experience,
educational and cultural background, perception, mutuality with the
transmitter.
4) Channel: It is the vehicle, medium or form in which a message
travels.
 Channel is the link or the medium that connects the source and the
receiver.
 It takes the form of letters, memorandum, press, radio, computer
information system …etc.
 The receiver must be considered while selecting channel.
4) Feedback: It is the message sent in response to the initial message or it is
information that enables corrections to be made.
 It is a response from a person who has received a message.
 The receiver becomes the sender and feedback goes back.
 Generally, the greater the feedback, the more effective the communication
process is likely to be.
5) Noise: It is any disturbance that interferes with or distorts the transmission
of the message.
 Noise keeps a message away from being understood or accurately
interpreted.
Types of Noise:
 Physical noise: - e.g. people talking loudly, a helicopter passing, the speaker’s
poor grammar, cold air in the room, light too bright or too dim.
 Psychological noise: - e.g. headache, daydreaming, thought, feeling, lack of
sleep, lack of knowledge on the topic…etc. It occurs in the minds of
receivers.
 Feedback

Sender Noise Receiver

Message Channel
 Types of Communication
1) One way communication: is any communication from the
sender without expecting or getting feedback from the receiver.
Example, policy statements from top managers
2) Two way communication: is any communication that occurs
or exists when the receiver provides feedback to the sender.
Example, making a suggestion to a subordinate and receiving a
question or counter suggestion
3) Formal communication is inherent to organizational
communication and it might be vertical (downward, upward) or
horizontal.
 It follows formal channels in an organization and maintains the
hierarchy of authority and chain of command.
a). Downward communication starts with top management and flows
down through management levels to line workers and non supervisory
personnel.
 Its major purposes are to advise, inform, direct, instruct and evaluate
subordinates and to provide organization members with information about
organizational goals and objectives.
b) Upward communication is the transmission of information formally
from the lower levels of the organization to the top.
 Its main function is to supply information to the upper levels about what is
happening at the lower levels.
 It includes progress reports, suggestions, explanations, and requests for aid
or decisions.
c) Lateral/Horizontal Communication is a type of formal
communication between people at different units having the same status in
an organizational structure.
 It is communication between and among members of work group, different
departments, one work group and another, line and staff.
 It also organization members to form relationships with their peers.
4) Informal Communication is the grapevine.
 Grapevines are developed within an organization as a result of
common hobbies, hometowns, lunch or tea breaks, family ties,
and social relationships among employees.
 The grapevine in an organization is made up of several informal
communication networks that overlap and intersect at a number
of points.
 It disregards rank and authority and may link organization
members in any combination of directions-horizontal, vertical
and diagonal.
 Barriers to Effective Communication
 Any factor that impels the exchange of information between a sender
and receiver is a barrier to communication.
 Differing perceptions
 Language differences
 Noise
 Emotionality: Emotional reactions such as anger, love, defensiveness,
hate, jealousy, fear, and embarrassment influence how we understand
others messages and how we influence others with our own messages.
 Inconsistent Verbal and Nonverbal Communication
 Distrust: The credibility of a message is to a large extent a function of
the credibility of the sender in the mind of the receiver. A sender’s
credibility is in turn determined by a variety of factors.
 Filtering: Is the act of interpreting information only having better
conditions
 Overcoming Barriers to Communication
 Overcoming barriers is a two-step process. First one must
learn to recognize the various types of barriers that can
occur. Second, one must act to overcome the barriers.
 Overcoming differing perceptions
 Overcoming differences in language
 Overcoming noise
 Overcoming emotionality
 Overcoming inconsistent verbal and nonverbal
communication
 Overcoming distrust
 Redundancy
 Characteristics of Communication
The following are some of the characteristics of communication
 Communication is a process.
 Communication is symbolic-gestures, sounds, letters, numbers
and words represent an idea meant to communicate.
 Communication is contextual-the meaning may vary depending
on contexts
 Communication is purposive- it is done to share meaning, to
impart information or influence.
 Communication is two way
 Communication involves people.
By- Temesgen Enk. (MBA)