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I ns t i t ut eo fMa na g e me nt & Te c hni c a lSt udi e s

MANAGEMENTPRACTI CE

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MANAGEMENT PRACTICE

MANAGEMENT PRACTICE

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MANAGEMENT PRACTICE CONTENTS Chapter: 01 01-07 Management – Introduction – Concepts- - Definition – Characteristics of Management - Process /Functions of management – Importance of Management Chapter: 02 08-15 Management and Administration – Management – a science or an art? – Management – a profession? – Levels of Management – Managers vs. Entrepreneurs – Managers vs. Leaders Chapter: 03 16-29 Pioneers of management – Principles of management – Management process – Managerial performance Chapter: 04 30-34 Management Functions – Planning – Organizing – Staffing – Directing – Motivating – communicating – Coordinating - Controlling Chapter: 05 35-46 Planning: Nature - Purpose – Steps in planning –Forms of planning - Types in planning– Limitations of planning – Planning Premises Chapter: 06 47-57 Decision Making – Nature – Types of Decisions – Significance and limitations of decision making – Decision making process – Hierarchy of objectives – Management by Objectives – Management by Exception Chapter: 7 58-71 Organizing – Nature – Importance – Principles of good organization – Formal vs. Informal organizations – Organization structure – Departmentation and its bases – Span of Management

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Chapter: 08 72-80 Delegation of authority – Meaning and Elements of Delegation – Authority and Responsibility – Principles of Delegation – Centralization and Decentralization Chapter: 09 81-96 Staffing – Importance – Human Resource Management – Elements of the staffing process – Human Resource Planning – Job Analysis – Recruitment – Selection – Placement and Orientation – Training and Development – Performance Appraisal Chapter: 10 97-110 Directing – Importance – Principles – Elements – Supervision – Leadership Qualities of a Leader – Leadership Styles - Theories of Leadership – Motivation – Importance – Theories of Motivation – Motivational techniques Chapter: 11 111-123 Communication – Importance – Communication process – Types of Communication Barriers of Communication -Effective Communication – Coordination – Need – Types - Techniques Chapter: 12 124-132 Controlling – Importance – Characteristics of an effective control system – Types of control – Control process – Techniques of controlling – Limitations of control

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CHAPTER I

CONCEPT AND NATURE OF MANAGEMENT

STRUCTURE 1.0 OBJECTIVES 1.1 INTRODUCTION 1.2 DEFINITION OF MANAGEMENT 1.3 CONCEPTS OF MANAGEMENT 1.4 CHARACTERISTICS OF MANAGEMENT 1.5 FUNCTIONS OF MANAGEMENT 1.6 IMPORTANCE OF MANAGEMENT 1.7 QUESTIONS 1.8 SUGGESTED READINGS


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1.0 OBJECTIVES After studying this unit, you should be able to understand: 

Definition of management

Concepts of management

Characteristics of management

Functions of management

Importance of management

1.1 INTRODUCTION Management is an interesting subject because it requires people work together to meet their needs and wants. Every human being is acting as a manager in his/her life, by performing number of activities. Human beings join together in the form of organisation and perform the activities. This organisation or association may be in the form of families, schools, colleges, businesses, banks, hospitals, religious bodies, government etc., where management is required in every moment. The objectives will be set and the people working in these groups are coordinated and directed towards the achievement of set goals through the process of management. Thus the task of managing and coordinating the work of group of people to accomplish the desired results within the predetermined constraints of time, effort and cost is known as management.

1.2 DEFINITION OF MANAGEMENT The concept of management is presently receiving a lot of attention because the organizations and their internal and external environments are becoming more complex. So it is very difficult to give a precise definition of the term ‘management’. All management thinkers have defined management in their own way. One widely used definition of management is “Management is the art of getting things done through others.” Some more definitions of management are stated below: “Management is guiding human and physical resources into dynamic organizational units which attain their objectives to the satisfaction of those served and with a high degree of morale and sense of attainment on the part of those rendering service.”

- American

Marketing Association. “Management is the art of knowing what you want to do and then seeing that it is done in the best and cheapest way.” - F.W. Taylor. “To manage is to forecast and to plan, to organize, to command, to co-ordinate and to control.” - Henry Fayol.

1.3 CONCEPTS OF MANAGEMENT The term ‘management’ has different viewpoints depending upon the context in which it is looked at and used by scholars and authorities. The following are some of the important concepts of management:

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MANAGEMENT PRACTICE 1.3.1 Management as an Activity: Management is an activity just the way a lecturer performs a lecturing activity; a dancer performs a dancing activity. It is a distinct activity which can be acquired by applying skills to achieve the objectives. 1.3.2 Management as a Discipline: Management is referred to as a discipline like economics, accounting, statistics etc. It has a specialized branch of knowledge. It comprises management principles and practices for the effective management of organizational problems. Management education is gaining huge popularity in the present day. 1.3.3 Management as an Economic Resource: The term ‘resource’ includes men, material, machinery and money in the organisation. These resources do not engage in production themselves. They require management as an effective tool to co-ordinate them to produce better results. 1.3.4 Management as a Process: The managerial activity is just not a single activity. It is a process, consisting of a series of inter-related functions. The functions which constitute the managerial activity are given as Planning, Organizing, Staffing, Directing, Coordinating and Communicating. 1.3.5 Management as a Team: It is common to associate management with a team. A team is a group of people having homogeneous characteristics to accomplish common goals. Some authors emphasis on the fact that an organisation comes into existence to attain goals and these goals are attained more readily by a team rather than by one person alone.

1.4 CHARACTERISTICS/NATURE/FEATURES OF MANAGEMENT The critical analysis of the above definitions of management has evolved the following features or characteristics of management: 1.4.1. Management is an Art as well as Science: Science teaches one to know and art teaches one to do. Managers have to know and do things efficiently and effectively to be successful, so they are in need of a unique scientific and artistic combination in practice. Management is an art as well as science as it develops certain principles or laws and its skillful application in a place where a group of activities are coordinated. 1.4.2 Management is a Continuous Process: Management is not static. The resources of an organisation should be effectively utilized to achieve the desired results so long as the organisation is in existence. The resources are put into its best use by various process of management such as planning, organizing, staffing, directing, controlling, coordinating etc. 1.4.3 Management is Purposeful: Management deals with the achievement of predetermined objectives of an organisation. Managerial success is commonly measured by the extent to which the objectives are

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MANAGEMENT PRACTICE achieved. These predetermined objectives are achieved through the functions of management. 1.4.4 Management has a Universal Application: The need of existence of management has increased tremendously. Management is not confined to one particular activity or one particular industry. The principles and practices of management are applicable to every type of activity and industry. 1.4.5 Management is Multidisciplinary: Management is the art of managing different people under different working environment. Hence, it requires knowledge over different disciplines like law, economics, psychology, sociology etc. 1.4.6 Management is a Social Process: Management achieves results through and with people. While taking decisions, the management must consider the behavioural implications to promote healthy social relations among people working in the organisation and ensuring a better success for the organisation.

1.4.7 Management is an Integrating Process: Management not only integrates individuals into a team but also integrates human and nonhuman resources, so as to utilize all such resources in the best possible manner. The management aims to extract maximum output from the minimum possible of inputs.

1.5 FUNCTIONS/PROCESS OF MANAGEMENT The elements of management process are known as functions of management. Many scholars and authorities on management have classified managerial functions into different ways and styles. Luther Gullick coined the word ‘POSDCORB’ which represents the initials of seven functions of management: Planning Organizing Staffing Directing Coordinating Reporting and Budgeting Henry Fayol deals with the functions of management such as forecasting, planning, organizing, commanding, coordinating and controlling. According to Koontz and O’Donnell, the functions of management include planning, organizing, staffing, directing and controlling. The important functions of management are briefly described below: 1.5.1 Planning: Planning is the first stepping stone in the functions of management. It involves determining the objectives and the future course of action to achieve the predetermined objectives. To

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achieve the objectives, the organisation plans what is to be done, when it is to be done, where it is to be done, how it is to be done and by whom it is to be done. 1.5.2 Organizing: Organizing is the process of dividing work into various small convenient tasks, dividing the entire work force into departments and sections, assigning duties to individual work force and delegating authority to each and everyone who is expected to accomplish the task. The role of each individual is well-defined and structured and they are brought into the relationship of superior and subordinate. 1.5.3 Staffing: Staffing refers to the selection of right persons to the right jobs at the right time. It refers to the selection and placement of a competent person on each position created in the organisation structure. Elements of the Staffing Process are

Human

resource

planning,

Job

analysis,

Recruitment, Selection, Placement and orientation, Training and development and Performance appraisal. 1.5.4 Directing: The above said functions of management are concerned with the preliminary work for the achievement of o7bjectives whereas direction deals with actual performance. The people in the organization must know what they are expected to do. The superiors fulfill this requirement of the subordinates by guiding, supervising, motivating and leading them. The process of directing consists of: 

Issuing orders and instructions

Supervising people at work

Motivating people to work for the objectives of the organization

Communicating the plans and procedures to the subordinates and

Leading the subordinates for better work performance

1.5.5 Controlling: It ensures that the actions of people are in conformity with the predetermined goals and plans. It brings to light all bottlenecks in work performance and takes corrective actions. The process of controlling consists of: 

Establishment of the standards of performance

Measurement of the actual performance

Comparison of actual performance with standards

Finding variances between the two and analyzing the causes for negative deviations

Undertaking the corrective action to ensure that performance of individuals is in conformity with the predetermined standards.

1.6 IMPORTANCE OF MANAGEMENT According to Peter Drucker, “management is a dynamic life giving element in an organization, without it the resources of production remain mere resources and never become production.” Management makes human efforts more productive. It brings better equipments, products,

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MANAGEMENT PRACTICE services and human relations. The importance of management has been highlighted with the following benefits: 1.6.1 Accomplishment of group goals: In an organization, there are various groups such as shareholders, employees etc. The members of these various groups may have different qualifications and values. Management brings out co-ordination among the members of the group. 1.6.2 Effective utilization of resources: Men, material, machinery and money are the various resources which are to be effectively utilized by the management. Management through effective communication tells workers what to do, how to do and when to do. It makes the workers efficient through training, supervision, motivation and inspiring leadership. 1.6.3 Innovation: Today, changes are unavoidable. It occurs at a very fast rate in all aspects. The organizations should keep a pace on these changes for its survival and growth. Therefore, the organizations require complex technology, specialization and competence to achieve better performance. 1.6.4 Economic development: By setting up and expanding business enterprises which are engaged in production, the country’s economy will develop by competing in the international market through exports and minimization of import and cost. It generates number of job opportunities to the society which will improve the standard of living of the people. 1.6.5 Human resource development: Management gives direction to workers and motivates them for effective performance of a job. Training and development programmes are provided by the management to improve the productivity of workers. A good manager serves as a friend and guide to his subordinates.

1.7 QUESTIONS i)

Very Short Answer Questions:

1.

Define management.

2.

What do you mean by management?

3.

What is planning?

4.

List out the elements of staffing.

5.

What is organizing?

ii)

Short Answer Questions:

1.

What is meant by management? Explain the concepts of management.

2.

Explain the importance of management.

iii) 1.

Essay Type Questions: Define management and outline its essential characteristics.

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MANAGEMENT PRACTICE 2.

Name the various functions which constitute the process of management and discuss each of them briefly.

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CHAPTER II MANAGEMENT AND ADMINISTRATION STRUCTURE 2.0 OBJECTIVES 2.1 MANAGEMENT AND ADMINISTRATION 2.2 MANAGEMENT – A SCIENCE OR AN ART? 2.3 MANAGEMENT – A PROFESSION? 2.4 LEVELS OF MANAGEMENT AND SKILLS REQUIRED 2.5 MANAGERIAL SKILLS 2.6 MANAGERS VS. ENTREPRENEURS 2.7 MANAGERS VS. LEADERS 2.8 QUESTIONS 2.9 SUGGESTED READINGS

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MANAGEMENT PRACTICE 2.0 OBJECTIVES After studying this unit, you should be able to understand: 

Management and Administration

Management – A Science or an Art?

Management – A Profession?

Levels of Management and Skills required

Managerial Skills

Managers Vs. Entrepreneurs

Managers Vs. Leaders

2.1 MANAGEMENT AND ADMINISTRATION There is often a terminological conflict between the terms management and administration. Some authors argue that there is no difference between these two terms. Some authors believe that these two terms are different and involve different set of activities. According to Oliver Sheldon administration is above management. He states that: “Administration is the function in industry concerned with the determination of the corporate policy, the co-ordination of finance, production and distribution, the settlement of the compass (structure) of the organization under the ultimate control of the executive: Management, on the other hand, is the function in industry concerned with the execution of policy within the limits set up by the administration and the employment of the organization for the particular objects set before it”. According to E.F.L. Brech, administration is a part of management. He states that, “Management is a social process entailing responsibilities for the executive and economical planning and the regulation of the operation of an enterprise, in the fulfillment of a given purpose or task. Administration is a part of management which is concerned with the installation and carrying out of the procedures by which it is laid down and communicated and the process of activities regulated and checked against plans”. According to Henry Fayol administration and management are one. He states that, “All undertakings require planning, organization, command, co-ordination, and control and in order to function properly, all must observe the same general principles. We are no longer confronted with several administrative sciences but with one which can be applied equally well to public and private affairs. Based on the views of various authors, the following three approaches have been made: 2.1.1 Administration is different from Management: According to many experts viz., Oliver Sheldon, Florence, Lansburg, McFarland, Spiegel and Milward, administration is different from management as the former is performed by the top level management and the latter is performed by the low level of management. Administration is a determinative function which is concerned with determination of objectives and policies whereas management is an executive function where the lower level people work to attain the objectives of the organization by following the policy framed by the administration. This view is held by eminent American experts on management.

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2.1.2 Administration is a part of Management: The European School of Thought holds totally a different view point and believes that administration is a part of management. This idea has been propounded by E.F.L. Brech and Kimball and Kimball, Copen and Richman also hold similar views. From their views, administration is concerned with day-to-day function and is a part of management. 2.1.3 Administration and Management are same: According to this approach, both administration and management are one. Both involve the same policies, objectives and activities. The terms administration and management are used synonymously. The difference between the two terms exists mostly in their usage in different countries or different fields of organization. According to Newman, “Management or administration is the guidance, leadership and control of the efforts of a group of individuals towards some common goals.” Distinction between Administration and Management: Basis of difference Nature

Administration Determinative

Major function

Determination of major objectives and policies

Levels of management

Mainly a top level function

Scope Qualities required

Broad and conceptual Administrative skills

Management Executive Implementation of policies and achievement of objectives Largely a middle and lower level function. Narrow and operational Technical skills

2.2 MANAGEMENT – A SCIENCE OR AN ART? There is a controversy with regard to the nature of management as to whether it is a science or an art. It has been said that management is an art struggling to become a science. Some argue that the formal study of management began as a science. Any practicing manager will agree, actually that management is an eclectic discipline with elements of both art and science. 2.2.1 Management as an Art: An art is the skillful application of the personal skills and knowledge which requires creativity to achieve concrete results. Managing, like other activities dancing, painting, sports etc. is an art. The art of management is a personal creative power plus skill in performance. The major elements of an art are: a) Personal skill and knowledge c) Creativity 

b) Concrete results d) personalized approach

To be a successful manager, a person should know the tactics to apply his personal skills and knowledge in solving managerial problems in practical life.

The environment of an organisation has become turbulent. It brings out lot of new situations where the manager is expected to effectively utilize the factors of production to produce something that had not existed before.

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MANAGEMENT PRACTICE 2.2.2 Management as a Science: A science may be defined as a body of knowledge concerning some specific field of enquiry; knowledge which is systematized and organized around – concepts, principles, theories and techniques. Management science is a body of systematized knowledge accumulated and accepted with reference to the understanding of general truths concerning management. The following are the elements of science: 

Science is organized knowledge.

Application of scientific method to the development of knowledge

Management is a science because there is a body of knowledge about management which is further extended into various specialized areas like production, marketing, finance, human resource etc. 2.2.3 Management: Both Science and art: To be a successful manager, the management uses both scientific knowledge and art in managing an organisation. Science teaches one to know whereas art teaches one to do. In a certain sense it can be said that the art of management begins where the science of management stops. For example, a physician with the science of medicine becomes a doctor, but only with continuous application he becomes a successful doctor, as he is a master of art. A balance between the two is required. People may have abundant knowledge but if they do not know how to use knowledge then they fail in their profession. Art makes a man to be expert in his field. 2.3 MANAGEMENT – A PROFESSION? “Is management a profession?” is a puzzling question. Factors such as globalization, growing size of business units, privatization, intensive competition, have increased the demand for professionally qualified persons. Management is regarded as profession by many, though it possesses only some features of a profession. 2.3.1 Meaning and Definition of a Profession: Profession is an occupation which involves rendering of specialized services for a fee called professional charges. According to Prasad L.M., Profession is “an occupation for which specialized knowledge, skills and training are required and use of these skills is not meant for self-satisfaction but these are used for larger interests of the society and the success of these skills is measured not in terms of money alone”. 2.3.2 Characteristics of a Profession: a) Well defined body of knowledge - Management has been developed as a distinct body of knowledge over the last few decades. Such a systematized body of knowledge contains principles, theories, techniques and skills. b) Acquisition of knowledge - The basic requirement to be a professional in any discipline is to acquire knowledge through formal education and vigorous training. For example, medical graduates practice after undergoing training.

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MANAGEMENT PRACTICE c) Restricted entry - The services rendered by a professional are of a specialized nature which is acquired through formal education and learning. An ordinary person cannot replace a professional, during his absence from work. d) Professional association - In any profession, there is a need for the establishment of an Association to regulate and develop the professional activities. For example, the Institute of Chartered Accountants of India regulates the accountancy profession in our country. e) Service motive - The unique feature of profession is that service element dominates selfinterest. For example, a doctor treats his patients and earns his livelihood; but he never treats his patients only for monetary gain. Service to the society should be the ultimate aim of any profession. The above discussion reveals that management satisfies many of the essentials of a profession. Management is a well defined body of knowledge in the form of theories, techniques and principles of management. A number of specialized management institutes have been set up to impart management education and training. But no minimum qualification is required to become managerial personnel. Management education and training are not compulsory for managers. Thereby it does not restrict the entry as in the case of medical profession. There is no association for regulating the management profession throughout India. Though we have, the All India Management Association (AIMA), is neither empowered to enforce a code of conduct nor authorized to issue licenses to the members. Therefore, management, at the most, is not a full-fledged profession like medicine, law or chartered accountancy, it is a half-hearted profession.

2.4 LEVELS OF MANAGEMENT AND SKILLS REQUIRED Every company has many managerial positions with different grades of authority ranging from the highest to the lowest, which form a management hierarchy. Depending on the size of organisation, chain of command and other related factors, the management levels may be classified as under: 2.4.1 Top Level Management: The top level management is the highest level in the managerial hierarchy, derives its powers directly from the owners of the organisation. For example, in a joint stock company, shareholders are the owners and they elect board of directors, who constitute the top level of management. The main functions of the top management are: 

To establish the fundamental objectives of the organization

To design strategies to attain the fundamental objectives

To formulate policies and procedures to attain fundamental objectives

To design organisation structure

To appoint key managerial personnel

To formulate and approve various budgets

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MANAGEMENT PRACTICE 

To co-ordinate and integrate the activities and to provide direction and leadership

To exercise an overall control of the organisation

2.4.2 Middle Level Management: The middle level management acts as a link between the top level and lower level management. It consists of departmental managers like the production manage, finance manager, marketing manager, deputy manager etc. The main functions at this level of management are: 

To frame and prepare departmental goals and plans based on the corporate goals and plans framed by the top level management.

To explain the objectives, strategies and policies laid down by the top management to the lower management.

To design organisation structure of various departments.

To look after interdepartmental co-ordination.

To submit report on the performance of various departments to the top management.

2.4.3 Lower Level/Operating Level/Supervisory Level Management: Lower level management is also called as operating level management because it is the level where actual operational work is performed by workers. It is also known as supervisory level management because it deals with overseeing the work and workers. It includes supervisors, foremen, accounts officers, purchase officers etc. The main functions of the lower level management are: 

To carry out day-to-day operational plan

To assign the work and issue of orders and instructions

To arrange all the facilities to create a conducive environment

To provide leadership and to motivate for better performance

To evaluate operational performance

To maintain discipline and good personal contacts with workers

To send feed back to the higher authorities

2.5 MANAGERIAL SKILLS To act as a better manager, everyone is in need of certain skills or qualities. These skills are broadly classified into three which are described below: 2.5.1 Technical Skills: Technical skills include understanding and being proficient in using a specific activity such as process, procedure or technique. For example, knowing how to operate a machine, how to develop a software, how to conduct an audit etc. 2.5.2 Human Skills: Human skills include the ability to work effectively with others and to win co-operation from the team members. Such skills require a sense of feeling for others and capacity to look things from the point of view of others. It is mainly concerned with understanding of people. 2.5.3 Conceptual Skills:

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Conceptual skills include the ability to visualize the organisation as a whole and the interrelationships among different parts of the organisation. It requires imagination, broad knowledge and the mental capacity to conceive ideas.

2.6 MANAGERS Vs. ENTREPRENEURS Managers and entrepreneurs are different from each other. Entrepreneurs are individuals who conceive the idea for a new business venture and gather and utilize necessary factors of production like land, labour and capital and bear the most personal and financial risk in the venture. Managers are those who utilize the factors of production on behalf of the entrepreneurs. Differences between Entrepreneurs and Managers Basis

Entrepreneurs

Managers

Size

Linked with small organizations Associated with mediumsized to large organizations

Policy

Frames the policy

Implements the policy

Nature of work Hard work

More routine work

Risk

High risk

Less risk

Goals

Determines the goals

Achieves the goals

Reward

Profit

Bonus

2.7 MANAGERS Vs. LEADERS Managers and leaders are not one and the same. A manager performs all the functions of planning, organizing, staffing, directing and controlling. A leader is guiding and inspiring the effort of his followers. A leader need not be a manager but a manager must have many of the qualities of a good leader. This statement implies that all management needs leadership but leadership may exist without management. Differences between Managers and Leaders Basis

Managers

Leaders

Nature of work Planning and budgeting

Establishing direction

Human network Organizing and staffing

Aligning people

Relationship

Arises within organizational

Occurs within or

context

without organizational context

Source of authority

A manager is appointed and

he obtains authority from

derives authority from

his position

his followers

Command of rewards

He is not appointed and

Over allocation and distribution Over social satisfaction related task and rewards

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MANAGEMENT PRACTICE 2.8 QUESTIONS i)

Very Short Answer Questions:

1.

Define Administration.

2.

Define Profession.

3.

What do you mean by an Art?

4.

Who is a leader?

5.

Who is an entrepreneur?

ii)

Short Answer Questions:

1.

Distinguish between Management and Administration.

2.

What are the attributes of a profession? Is management a profession?

3.

Describe the skills of a good manager.

4.

Distinguish between managers and entrepreneurs.

5.

Differentiate the role of managers from the role of leaders.

iii)

Essay Type Questions:

1.

“Management contains elements, those of a science and those of an art” – Comment.

2.

What types of skills are required at various levels of management? Why is the human skill most significant at all levels of management?

2

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CHAPTER III PIONEERS OF MANAGEMENT STRUCTURE 3.0 OBJECTIVES 3.1 INTRODUCTION 3.2 CLASSICAL OR TRADITIONAL APPROACH TO MANAGEMENT 3.3 NEO-CLASSICAL OR BEHAVIOURAL APPROACH TO MANAGEMENT 3.4 MODERN APPROACH TO MANAGEMENT 3.5 PRINCIPLES OF MANAGEMENT 3.6 MANAGEMENT PROCESS 3.7 QUESTIONS 3.8 SUGGESTED READINGS

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MANAGEMENT PRACTICE 3.0 OBJECTIVES After studying this unit, you should be able to understand: 

Pioneers of Management

Classical or Traditional Approach to Management

Neo-Classical or Behavioural Approach to Management

Modern approach to Management

Principles of Management

Management Process

3.1 INTRODUCTION Management practice is as old as civilization. Whenever group efforts are required, there is a need for management. The Great Wall of China and the Taj Mahal indicate that large projects such as these required group efforts and managerial skills even thousands of years ago. But development of management theory is relatively of recent origin. Purana’s like Arthasastra and Bhagavad-Gita speak about the managerial skills required for the application of knowledge in management. Management thinkers have made significant contributions to the evolution of management thought, which are considered as the pioneers of management. The contributions of these thinkers have been classified under three broad approaches: 

Classical or Traditional Approach to Management Henry Fayol’s Contributions to Management F.W. Taylor’s Scientific Management Max Weber’s Ideal Organization – Bureaucracy

Neo-Classical or Behavioural Approach to Management George Elton Mayo’s Human Relations Approach Behavioural Sciences Approach by A.H. Maslow, Douglas Mc Gregor etc

Modern approach to Management Systems approach Contingency Approach Mathematical Approach

3.2 CLASSICAL OR TRADITIONAL APPROACH TO MANAGEMENT 3.2.1 Henry Fayol (1841-1925): Henry Fayol was a French industrialist, started his career as a mining engineer and with hard work and sincerity he became the managing director of the company. In order to popularize his principles of management, he published a book on “Administration Industrielle at General” in 1915 and later it was published in English under the title, “General and Industrial Management” in 1949. His contributions to the world of management are considered still worthy. Classification of Business Activities

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MANAGEMENT PRACTICE Fayol has classified the business activities into the following six categories: 1. Technical activities (production) 2. Commercial activities (buying and selling) 3. Financial activities (raising and deployment of funds) 4. Security activities (protection of persons and property) 5. Accounting activities (recording, analysis and interpretation) and 6. Managerial activities (planning, organizing, commanding, co-ordination and control) Managerial Qualities: According to Henry Fayol, the following are the managerial qualities required to be an efficient manager such as Physical, Mental, Moral, General Education, Special knowledge and Experience. Functions of management: Henry Fayol has identified the following five functions of management: 1. Planning, 2. Organizing 3. Commanding 4. Co-ordination and 5. Controlling Principles of Management: Fayol has established fourteen principles of management out of his industrial experience which are very popular in the field of management. Division of work: More than 200 years ago Adam Smith described the benefits of division of work, which Fayol had applied in the management of business organizations. Division of work leads to specialization. More the people specialize, the more efficiency shown in their work. It increases the productivity.

Authority and Responsibility: Authority and responsibility are related and should go together. Whenever authority is given, the responsibility is shouldered automatically. Authority is the right to give orders and responsibility arises out of assignment of activity. There should always be parity between authority and responsibility. Discipline: Discipline is essential at all levels of management. It means obedience to the rules and regulations of the organisation by obeying the instructions of the superiors and maintaining smooth relationship with peers and subordinates. It can be obtained by fair remuneration, good supervision and judicious application of penalties. Unity of command: Unity of command is one of the most useful and significant principles of management advised by Fayol. According to this principle, a person shall get orders and instructions from only one superior. The source of command should be unified so that a subordinate receives assigned duties from one superior and is accountable only to that superior.

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MANAGEMENT PRACTICE Unity of direction: Unity of direction implies that each group with the same objectives must have one head and one plan. It provides better co-ordination among various departments in the organisation. Subordination of individual interest to general interest: The individual goals of people who are working in the organisation should be subordinate to the common group goals or to the organizational goals. When there is a conflict between the individual and common interest, the interest of the individuals should be sacrificed in favour of the corporate objectives. Remuneration of personnel: Remuneration is of vital importance for a smooth functioning of an organisation. Fayol states that employees should be given a fair and reasonable remuneration which should provide maximum satisfaction to both employees and employers. Centralization: Centralization refers to decreasing the role of subordinates in decision-making whereas decentralization refers to increasing the role in decision making. Management should strike out a balance between centralization and decentralization on the basis of the environment in which the organizational exists. Scalar chain: There should be a clear chain of command from the top to the bottom of the organisation and the line of authority should run in the order of rank from the top management downwards. This helps to ensure the orderly flow of information and communication. Order: This refers to both material and social order in organizations. Material order indicates that everything is kept in the right place to facilitate the smooth coordination of work activities. Social order implies that the right person is placed in the right job. Equity: All employees should be treated fairly and equally. Managers should be both fair and friendly to the subordinates. Employees expect management to be free from all prejudices, personal likes and dislikes. Stability of Tenure: In the interest of the efficiency of organisation, employee turnover should be minimized and employees should be motivated to stay in the organisation for as longer a period as possible. It results in a sense of belonging to the organisation. Initiative: Employees should be given the freedom to be innovative. They should be encouraged to initiate new ideas and carry out their plans, even when some acceptable mistakes result. Innovation which is the hallmark of technological progress is possible only where the employees are encouraged to take initiative. Esprit de Corps:

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MANAGEMENT PRACTICE This means “a sense of union.” Since union is strength, the management should create team spirit among the employees. Only when all the personnel pull together as a team, there is scope for realizing the objectives of the concern. Harmony and unity among the staff are a great source of strength to the organisation. 3.2.2 Frederick Winslow Taylor (1856-1916): F.W. Taylor is known as the ‘father of scientific management’. He was an American, who started his career as machinist in Midvale Steelworks, Philadelphia in 1875; with his hard work and endurance he became the chief engineer. He conducted several experiments in three companies where he worked viz., Midvale Steel Works, Simonds Rolling Machine and Bethlehem Steel Works. The important experiments and publications of Taylor developed a Theory of management which was written and titled as ‘Scientific Management.’ According to F.W. Taylor, Scientific management “consists in knowing what you want man to do exactly; and seeing to it that they do it in the best and the cheapest manner.” Scientific Management Scientific management is the application of scientific methods of study and analysis to the problems of management. It is a systematic approach to the managerial decision making and it discards unscientific approaches like rule of thumb, or trial and error approach. Taylor is the first person to develop the concept of scientific management and so he is known as the Father of Scientific management. According to him, scientific management consists of a certain philosophy of scientific selection and training of right persons for the right job, offering both monetary and non-monetary incentives, providing necessary infrastructure and assumptions of responsibilities by managers and superiors. He believed that the objective of management should be maximum prosperity to each employee and to the employer. The employer’s prosperity may be achieved through lower costs and higher returns. The employees’ prosperity may be achieved by means of fair wages and good working conditions. This is possible through the adoption of scientific management. Principles of Scientific management Taylor has given the following principles of scientific management: 1. Science, not rule of thumb Scientific management emphasizes precision in managerial decision making, whereas rule of thumb emphasizes estimation. According to Taylor, the decisions should be made on the basis of facts rather than mere estimates, opinions and beliefs. 2. Harmony in group action Group harmony prefers that there should be mutual understanding among the workers so that group as a whole contributes maximum towards the achievement of organizational goals. This can be achieved through scientific method of selection, training and development. 3. Co-operation Scientific management depends on mutual understanding and co-operation among the workers and between the management and workers. According to Taylor, “substitution of war for peace, hearty and brotherly co-operation for contentment and strife, replacement of

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suspicious watchfulness with mutual confidence of becoming friends instead of enemies” is co-operation. 4. Maximum output Scientific management suggests continuous increase in production instead of restricted output either by management or by worker. Maximum output is possible through division of labour. Maximum output and optimum utilization of resources will bring higher returns to the employers and fair wages to the employees. 5. Improvement of workers Scientific and systematic selection, training and development of employees improve the skills and efficiency of workers. Management must endeavour to develop workers to the greatest extent possible to ensure maximum prosperity to both employers and employees. Comparison between Taylor and Fayol Basis 1. Level 2. Attention Management 3. Approach 4. Personality 6. Scope

Taylor Shop floor level Top level Production management Micro Scientist Limited nature

Fayol General principles of Macro Practitioner More comprehensive

3.2.3 Max Weber (1864 – 1920) Max Weber, a German social scientist propagated his ideal form of organization based on the concept of bureaucracy. According to this bureaucratic model, high degree of precision efficiency, objectivity and rationality are the major features of an organization. This is the oldest form of organization and very popular in government and military organizations. Characteristics of Weber’s Bureaucratic model: 1. Division of work Division of work implies that the tasks in the organization are divided into various jobs and each job is assigned to an individual based on the abilities, skills and aptitude which leads to organization. 2. Hierarchy of authority A clearly defined hierarchy of authority is required to have a good control over subordinates. A subordinate is responsible to his superior for his actions.

3. Rules, regulations and procedures Strict adherence to rules, regulations and procedures will bring out orderly performance of tasks. Each and every employee will understand his rights and duties in a bureaucratic organization. 4. Technical competence In this type of organization, workers are selected and promoted based on their technical competence to do the job. 5. Record keeping

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MANAGEMENT PRACTICE One of the best features of bureaucratic model is that every decision and action in the organization is written and recorded in the documents for future reference. Limitations of Bureaucracy: Following are the major limitations of Weber’s Bureaucratic model: 1. Lack of flexibility Rules, regulations and procedures are very rigid, static and inflexible in a bureaucratic organization. It sometimes discourages the employees to work efficiently. 2. No human consideration Harmonious relationship with the management is not expected from the employees. The functioning of bureaucratic organization is completely mechanical way of doing things. There is no place for feelings, emotions and sentiments. 3. Displacement of organizational objectives In general, the individual goal should subordinate with the organizational goals. But in a bureaucratic organization, the individuals who more specialized forget that their goals are a means for achieving the organizational goals. 4. Red-tapism Every decision and action is to be recorded and should move through various officials which cause unnecessary delay. Because of record-keeping paperwork is also increased.

3.3 NEO-CLASSICAL OR BEHAVIOURAL APPROACH TO MANAGEMENT: 3.3.1 Human Relations Approach George Elton Mayo (1880 -1949): Elton Mayo was born in 1880 in Australia and initially started his profession as a teacher and became a lecturer at the University of Queensland. In 1922, he went to the United States of America. There he worked as a Professor of Industrial Research at Harvard University. He is known as the founder and father of modern sociological and psychological industrial research. The findings of Hawthorne studies conducted by Elton Mayo were a remarkable attempt on human relations approach. Hawthorne experiments were conducted at the Hawthorne Plant of the Western Electric Company in Chicago from 1924-1932, where nearly 30000 employees worked during this experiment period. The company was engaged in the production of telephone component and equipment. The objective of this experiment was to determine whether there is any relationship between the behaviour and attitude of employees and better working conditions, in terms of productivity. The company found that there was a great deal of dissatisfaction among the workers and productivity was also decreasing. So in 1924, the company requested National Academy of Sciences to find the reasons for low productivity. Elton Mayo along with his team started his experiments which consist of four phases: 1. Illumination experiments (1924-1927) 2. Relay Assembly Test Room experiments (1927-1928)

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MANAGEMENT PRACTICE 3. Mass Interviewing Programme (1928-1930) 4. Bank Wiring Observation Room experiments (1931-1932) Illumination experiments: The main aim of this experiment is to determine the effect of changes in lighting on productivity. The first group was kept under different lighting conditions and the second group was asked to work under stable lighting. It was found that lighting did not have any effect on productivity as the output of both groups increased steadily. Therefore, another phase of experiments was undertaken. Relay Assembly Test Room experiments The main aim of this experiment is to determine the effect of changes in working conditions on productivity. The changes were made in five stages such as change in the bonus incentive scheme, change in the rest period, free snacks, change in working hours and work day and finally withdrew all benefits and facilities offered. The employees were asked to express their opinion on these changes to their supervisors. Interestingly, it was found that the productivity increased in all the stages, even when the benefits and facilities were withdrawn. So it was concluded that changes in working conditions were not responsible for increased efficiency. Mass Interviewing Programme The main aim of this experiment is to find out the opinion and attitudes of employees towards their company, supervision, promotion, insurance plans and wages. About 20000 interviews were conducted from September 1928 to February 1929. It was observed that informal relationship and attitude of employees have influence on their behavior. Bank Wiring Observation Room experiments The main aim of this experiment is to analyze the functioning of small group and its impact on individual behavior. A group of fourteen workers were experimented during November 1931 to May 1932 and it was observed that workers restricted their output which was lower than the company’s target because of the following reasons: 

Fear of unemployment

Fear of raising the standards and

Protection of slower workers

Findings of Hawthorne Experiments: The conclusion of human relations approach is that management must recognize the significance of human factor and the decisions should be taken based on human considerations. The main findings of this study are: 

The social system or socio-psychological characteristics of the workers determine the output levels and efficiency.

Informal groups have an impact on workers’ productivity.

No direct relationship between productivity and working conditions.

Workers are not merely motivated by money.

There are conflicts between the organisation and the individuals.

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MANAGEMENT PRACTICE 

Friendly supervision has a favourable influence on the productivity.

Proper communication develops human relations.

Leadership styles have significant impact on employee satisfaction and performance.

Criticisms of Hawthorne Experiments Though Hawthorne Experiments have positive contributions towards human relations approach, it is not free from criticisms. The major limitations are: 

Hawthorne experiments were not conducted scientifically. The workers were not selected scientifically.

It was conducted in the Western Electric Company, U.S.A., which is a very rich country and the company has all facilities to work efficiently. So the findings are not applicable universally.

Forces such as class consciousness were not recognized.

In the second phase of experiment, only six girls were selected out of nearly 30000 employees. So, the conclusion cannot be generalized.

It has not taken into account the labour laws and trade union activities.

3.3.2 Behavioural Science Approach: Due to certain flaws in the human relations approach, the behavioural scientists, such as Maslow (Need hierarchy), Hertzberg (Motivation-hygiene theory), McGregor (Theory X and Y), Likert (Management systems and linking pin model) etc. have made constant efforts to analyze human behavior methodically. This approach is also known as ‘behavioural sciences approach’ or ‘human behavioural approach’. It suggests a study of behavioural sciences (like psychology, sociology etc.) for understanding human behavior at work, and applying the basic concepts, theories and models of these sciences for moulding human behavior in the desired manner. Features of Behavioural Science Approach 

It aims at studying and analyzing human behavior systematically.

An individual who is working in the organisation brings to work place his/her needs, values, beliefs and attitudes.

Motivation has a significant influence on human behavior at work.

Operating efficiency can be improved by expanding self-direction and self-control.

Allowing employees to take part in decision making process made them more committed to organisation.

The superior should create a healthy environment wherein all subordinates can contribute to the best of their capacity.

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MANAGEMENT PRACTICE 3.4 MODERN APPROACHES TO MANAGEMENT 3.4.1 Systems Approach This approach is of comparatively recent origin, starting late 1960 aims at identifying the nature of relationship among various parts of the organisation which is considered as a system. According to this approach, the organisation is a single unified and composed of various parts which are inter-related and inter-dependent. For example, the decision taken by the manager to remove lazy worker may invite problems from labour union. So when a manager takes a decision should consider the fact that organisation is a totality of many interrelated, inter-dependent parts, which strives to achieve certain objectives. Several management experts have made significant contributions to system’s approach such as Ludwig Von Rertalanffy, Kenneth Building, R.A. Johnson, F.E. Cast, Rosenzweig, E.L. Trish and Robert Weener. Classification of Systems On the basis of interaction of system with its environment, it may be categorized as a) Open systems

b) Closed systems

Open systems interact with the environment while closed systems do not interact with the environment. According to modern approach, no system is absolutely open or close, it is the combination of these two. Features of Systems Approach: 

An organisation is a system which is comprised of many parts or sub-parts.

The parts and sub-parts of a system are inter-related and inter-dependent.

It is an open adaptive system which continuously interacts with its environment.

It is also a dynamic system where the equilibrium in it always keeps on changing.

Every system has a specific purpose to which all its parts and sub-parts contribute to achieve.

System gets its inputs from some other system and transforms inputs into outputs.

Limitations of Systems Approach 

The system approach is too abstract.

It lacks universality and it can not be applied to all organizations.

This is considered as incomplete and does not offer anything new.

Too many sub systems and interdependence among them make the work of manager very difficult.

3.4.2 Contingency Approach: Contingency approach also known as situational approach is an extension of systems approach. It is an important contribution to the modern management theory. It suggests that there is no single best way of doing things under all conditions. Management techniques, approaches, methods and practices which are highly effective in a specific situation may not work in other situations. The choice of a particular method depends on the nature of the job, the people and the situation. According to this approach, the task of managers is to diagnose

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MANAGEMENT PRACTICE a particular situation and to identify the technique and method which will suit that situation. Tom Burns, Paul Lawrence, Jay Lorsch, Joan Woodward, Hickson James Thompson are those who have made their valuable contributions to contingency approach. Managerial development is the main advantage of contingency approach as it forces the managers to identify the technique which will suit in different situations. It makes them to think innovatively. This in turn motivates managers as they have a freedom to devise a method to all the situations. It is an action-oriented approach. Inadequacy of literature, which means it, says that actions should be different under different situations and it does not explain what a manager should do in different situations. Complexity, lack of applicability and incompleteness are the other limitations of the contingency approach. 3.4.3 Management Science Approach: Management science approach, also known as mathematical approach or quantitative approach or decision theory approach or operations research approach, has been developed during 1950. This approach believes that managerial problems can be solved by applying various mathematical and statistical tools like sampling, linear programming, queuing theory, simulation, game theory, time series analysis, probability theory, critical path method (CPM) and programme evaluation and review technique (PERT). James March, R.M. Cyert, Herbert Simon, Von Newman and W.C. Churchman have made significant contributions to this approach. This approach ensures precision and perfection in decision-making. It provides methods for evaluating risks and uncertainties. But the main criticism against this approach is that it can process only quantifiable variables and qualitative aspects will be completely out of the scope of this approach. It is also criticized that there is a difficulty in applying the results of the model in the real world.

3.5 PRINCIPLES OF MANAGEMENT A principle is a statement of fundamental truth which is established with reference to a cause and effect relationship between two variables or events that provides understanding and guidance to management thinking and practice. The principles of management are derived from two sources. They are: 

Observation and experience of practioners and scholars of management

Outcome of experimental studies conducted by researchers.

Some of the important management experts who contributed towards the principles of management are – Henry Fayol, F.W. Taylor, Elton Mayo, Mary Parker Follett etc. The principles suggested by them can be applied regardless of time and place of organisation. 3.5.1 Nature of Principles of Management The following features explain the nature of principles of management:

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MANAGEMENT PRACTICE Cause and effect relationship The present day managerial situations are influenced by so many factors such as technology, political, economic, social and international factors. The management decisions will have its impact on certain things. As such, management principles are a useful guide to management thinking and action by providing the cause and effect relationship between two variables. Universal application Principles of management are universal and it is required in all types of organizations eg Government, business, hospitals etc. The basics of management are universal and can be found in all types of organizations situated in any country or culture. Flexibility The basic principles and theories of management remain same regardless of the place of organisation, whereas the application of management techniques may differ from country to country. Relative Management principles are relative and not absolute truths. In the absence of scientific analysis, these principles must be taken as general ideas on which sound and effective action can be based. 3.5.2 Need for Principles of Management: The principles of management in the modern context assume significant role in all areas of management. The following are the various benefits of principles of management: To increase managerial efficiency Principles of management help managers to understand different managerial situations and to take decisions with maximum efficiency and effectiveness. They help to save time and effort in understanding and solving managerial problem. To develop research in management Management exists in a changing environment. It has to face a lot of challenges. Management research facilitates to bring modifications in the existing principles and come out with newer and better principles of management. To achieve social goals Principles of management aim at developing competent management. The competent management is able to make efficient utilization of human and material resources and thereby improving the quality of life of people. 3.5.3 Contributions to Principles of Management: Fayol’s and Taylor’s contributions towards principles of management are significant in the field of management. Henry Fayol is considered as the Father of Administrative Management Theory. He presented a set of fourteen principles of management as general guide to the management process and management practice. Frederick Winslow Taylor is considered as the Father of Scientific Management. He contributed towards the principles of management based on the series of experiments conducted by him in the companies where

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MANAGEMENT PRACTICE he worked. The contributions of both the experts were discussed in detail in the first part of this chapter.

3.6 MANAGEMENT PROCESS Kreitner defines management as “a problem solving process of effectively achieving organizational objectives through the efficient use of scarce resources in a changing environment.� Thus, management is a process whereby the work is getting done through the people in organizations. It consists of many activities which are to be carried out in a logical order. It is a continuous process where there is a flow of inter-related actions moving towards the determined objectives. Thus it is a result oriented process. The actions which are performed to achieve the objectives are known as functions of management which are described in Chapter 4. 3.6.1 Characteristics of Management Process The Management Process is characterized by the following features: Continuity Continuity is one of the features of management process. The performance of managerial functions viz., planning, organizing, staffing, directing, coordinating and controlling is required so long as an organisation is in existence. The activities are to be repeated again and again. Circular There always exists an interrelatedness and interaction between the various activities of the management. The activities are influenced by both the preceding and succeeding elements as they are the sub-functions of each other. So that it is considered as a circular and not a linear process. Composite Management refers to the totality of all the functions, which are performed to achieve the desired goals. Each function makes a distinct contribution towards the objectives and a single function can not operate in isolation. Organizing function cannot exist without planning similarly staffing cannot exist without planning. Social According to Newman, management is a social process because it deals with people. Management has to look after the interests of employees, shareholders, customers and society. The manager, while taking decisions on any managerial situation must consider the likely implications of the same as to social relations among people working in the organisation and on society. The elements of management process are known as functions of management. The functions of management are explained in Chapter 4.

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MANAGEMENT PRACTICE 3.7 QUESTIONS i)

Very Short Answer Questions:

1.

Define division of work.

2.

Define unity of command.

3.

Define scalar chain.

4.

What unity of direction?

5.

What is discipline?

ii)

Short Answer Questions:

1.

Explain bureaucratic organisation approach to management.

2.

Discuss on behavioural science approach.

3.

Discuss systems approach to management.

4.

Explain the contingency approach to management.

5.

What do you mean by management principles? Explain the nature of principles of management.

6. iii)

Explain the need for principles of management. Essay Type Questions:

1.

Assess the contributions of Henry Fayol to management thought.

2.

Explain the contribution of F.W. Taylor.

3.

What are the major findings of the Hawthorne Experiments?

3.8 SUGGESTED READINGS 1. Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi. 2. Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi. 3. Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill. 4. Satya Raju Parthasarathy, Management, PHI. 5. Mandal S.K., Fundamentals of Business, Jaico Publishing House. 6. Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books.

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CHAPTER IV MANAGEMENT FUNCTIONS STRUCTURE 4.0 OBJECTIVES 4.1 INTRODUCTION 4.1.1 Planning 4.1.2 Organizing 4.1.3 Staffing 4.1.4 Directing 4.1.5 Coordinating 4.1.6 Controlling 4.2 QUESTIONS

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4.0 OBJECTIVES After studying this unit, you should be able to understand: Various Management Functions such as  Planning  Organizing  Staffing  Directing  Coordinating and  Controlling

4.1 INTRODUCTION Management is what a manager does, refers to the job which could best be analyzed in terms of the functions of manager. Functions are the group of similar activities undertaken by managers in organizations in order to achieve organizational objectives. There is a disagreement among management authors on the classification of managerial functions. Luther Gullick has described functions with the catch word ‘POSDCORB’ which stands for Planning, Organizing, Staffing, Directing, and Coordinating, Reporting and Budgeting. Henry Fayol has identified Planning, Organizing, Commanding, Coordinating and Controlling. Newman and summer has recognized Organizing, Planning, Leading and Controlling. Koontz and O’Donnell divide management functions into Planning, Organizing, Staffing, Directing and Controlling. Managerial functions are essential in all organizations irrespective of their nature and size. The functions of management may be classified into various categories as given below: Planning,

Organizing,

Coordinating and

Staffing,

Directing,

Motivating, Communicating,

Controlling

4.1.1 Planning: Planning is a fundamental function of management and all other functions of management are based on the planning process. It determines well in advance what should be done. It is future-oriented. It is the process of determining the organizational goals and objectives and devising the methods to attain the determined goals and objectives. It aims to decide what is to be done, when it is to be done, where it is to be done, how it is to be done and who is to do it. This function of management is performed at all levels of management – top, middle and operating. Plans may be prepared for long-term period, intermediate-term period and shortterm period. The process of planning consists of: 

Determination of specific objectives

Selecting a particular course of action

Formulation of policies, programmes, schedules and budgets and

Setting of procedures and standards of performance.

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4.1.2 Organizing: For the attainment of objectives determined during the planning process, action is required. It is the process of dividing total work into convenient small tasks or duties, grouping of such duties in the form of positions, grouping of various positions into departments, assigning duties to individual positions and delegating authority and responsibility to each individual so that the task is carried out as planned. The process of creating various positions is known as organizing and it is clearly explained in the organisation structure. The organisation chart clearly indicates the superior-subordinate relationship exists in the organisation. The process of organizing consists of: 

Determining the activities to be performed to achieve the desired objectives.

Dividing the work into various small convenient tasks.

Defining the role of each and every individual.

Assigning duties to each and every individual.

Delegating authority to the people to whom duties assigned and

Fixing responsibility for performance.

4.1.3 Staffing: According to the classical approach of management, staffing was treated as a part of organizing function. But due to growing importance of human resource management, the modern management personalities consider it as a separate function. After determining the role and relationship of various positions in the organisation it becomes inevitable to select and place the most competent person on each position. Thus it is the process of filling all positions in the organisation with the right people at right time.

The process of staffing consists of: 

Determining the quality and quantity of workforce required for the organization.

Identifying the gap between manpower required and available.

Finding out the sources from where people can be selected.

Recruiting and selecting the people.

Placing the selected people in the right jobs.

Training and developing them.

Fixing final compensation and

Appraising them periodically to maintain them for longer period of time.

4.1.4 Directing: Selecting the right person for each job will not bring success to the organisation. Each and every person who has been selected for various positions should be given a direction so that they will work towards the best accomplishment of organizational objectives. There are four aspects of the managerial function of directing, viz., a) Leadership

b)

Motivation c)

Communication d) Supervision

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a) Leadership: Leadership is the process by which a manager issues instructions and guide the subordinates to attain the desired objectives. Directing is often referred as ‘actuating’ and ‘influencing’, where a manager assumes the role of a leader and activates his followers and influences their performance towards the common objectives. b) Motivation: Motivation is the most important function which is discussed as a part of directing. The highly motivated people show excellent performance and they need less direction and supervision. Motivation means arousing desire or urge in the minds of workers to give their best to the organisation. Highly motivated workers are the assets of any organisation as they give their loyalty and work effectively. Financial and non-financial benefits will help to motivate the employees by creating a congenial working atmosphere. Salary, bonus, communication, increment, profit-sharing are the financial incentives and job security, promotion, recognition are the non-financial incentives.

c) Communication: Communication is the process of transfer of information in the form of ideas, facts, opinions, thoughts, feelings etc. from the top level management to the low level management and vice versa in the organisation structure. It is a two-way communication where the information can be passed on to the subordinates and the feedback received back from them. d) Supervision: Sometimes it becomes inevitable that subordinates should be supervised to bring the desired results. In the present day situation, without supervision the managers can not expect that the workers will do their part as they are directed. They have to supervise the activities of the subordinates. 4.1.5 Coordinating: Co-ordination is the essence of management without which no other functions of management can be performed efficiently. It is a continuous process where the physical and non-physical efforts in the organisation are integrated and harmonized to bring out fruitful results. It makes planning more effective, organisation more knit, staffing more realistic, directing more efficient and control more regulative. It provides unity of action in the achievement of common objectives. Team work is the most important tool for the coordination. Advantages of Co-ordination: 

It helps in avoiding duplication of efforts on the part of individuals.

It ensures a smooth flow of the organizational life which leads to timely production and distribution of goods and services.

It imparts a feeling of job satisfaction to people

It makes for better human relations.

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It promotes stability, growth and prosperity of the organisation.

4.1.6 Controlling: Controlling is the process of ensuring that the organizational activities are on the right path and in conformity with the plans and positively contribute to the objectives of the organisation. The managers by adopting various measures ensure that all the activities are carried out according to the prearranged plans. In the absence of sound control system, there is no guarantee that the objectives have been successfully achieved. The process of controlling includes: 

Setting standards of performance.

Measuring actual performance.

Comparing actual performance against the standard and

Taking corrective actions to ensure accomplishment of goal.

4.2 QUESTIONS i)

Very Short Answer Questions:

1.

What is management process?

2.

What do you mean by planning?

3.

What is organizing?

4.

Explain the term staffing.

5.

State any two advantages of co-ordination.

ii)

Short Answer Questions:

1.

Write short notes on: a) Direction b) Motivation c) Communication d) Co-ordination e) Control

iii)

Essay Type Questions:

1.

Explain in detain the functions performed at various levels of management.

4.3 SUGGESTED READINGS 1. Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi. 2. Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi. 3. Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill. 4. Satya Raju Parthasarathy, Management, PHI. 5. Mandal S.K., Fundamentals of Business, Jaico Publishing House. 6. Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books

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CHAPTER V NATURE, PROCESS AND TYPES OF PLANNING STRUCTURE 5.0 OBJECTIVES 5.1 INTRODUCTION 5.2 MEANING AND DEFINITION OF PLANNING 5.3 NATURE/FEATURES OF PLANNING 5.4 IMPORTANCE OF PLANNING 5.5 STEPS IN PLANNING PROCESS 5.6 FORMS OF PLANNING 5.7 TYPES OF PLANS 5.8 LIMITATIONS OF PLANNING 5.9 PLANNING PREMISES 5.10 QUESTIONS 5.11 SUGGESTED READINGS

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MANAGEMENT PRACTICE 5.0 OBJECTIVES After studying this unit, you should be able to understand: 

Meaning and Definition of Planning

Nature/Features of Planning

Importance of Planning

Steps in Planning Process

Forms of planning

Types of Plans

Limitations of Planning

Planning Premises

5.1 INTRODUCTION Planning is the foremost function of the process of management. It provides the foundation based on which the other functions of management such as organizing, staffing, directing and controlling can be carried out. It is considered as the most basic function of management as all other functions are put into action based on planning. Every organisation should plan what it wants to achieve and by what means.

5.2 MEANING AND DEFINITION OF PLANNING A plan is a course of action to be taken in future to accomplish the reselected objectives of the organisation. It is a predetermined course of action. It bridges the gap between where we are and where we want to go. It is the process of deciding in advance what is to be done, when it is to be done, how it is to be done, where it is to be done and by whom it is to be done. Planning involves setting objectives and deciding on the actions to achieve the objectives; it requires imagination, foresight and decision making, to choose the best course of action among all alternative courses of action. Following are a few important definitions of planning: “Planning is the continuous process of making present entrepreneurial (risk taking) decisions systematically and with best possible knowledge of their futurity, organizing systematically the efforts needed to carry out these decisions and measuring the results of these decisions against the expectations through organized, systematic feed-back.” - Peter F. Drucker. “Planning is an intellectually demanding process; it requires the conscious determination of course of action and the basing of decisions on purpose, knowledge, and considered estimates”. - Koontz and O’Donnell.

5.3 NATURE/FEATURES OF PLANNING Planning is a critical managerial activity requiring the process of ascertaining objectives and deciding on activities to achieve these objectives. Planning has a number of characteristic features which are given below:

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MANAGEMENT PRACTICE 5.3.1 Planning is goal-oriented: Planning concentrates on the achievement of objectives. Thus objectives provide the basic guidelines for planning activities. Planning is considered useless unless it contributes positively to the accomplishment of desired objectives. 5.3.2 Planning is a primary function: Planning is the primary or beginning or basic function of management. It precedes all other functions of management viz., organizing, staffing, directing, and controlling. Planning specifies what should be done in each functions of management. 5.3.3 Planning is all pervasive: Planning is inevitable in all types of organisation and in all levels of management. The necessity for planning arises because those business organizations are operating in a highly dynamic economy. Though it is considered as the job of all managers from the highest to the lowest in the management hierarchy, the scope and extent may vary from one level to other level of management. 5.3.4 Planning is an intellectual process: It is an intellectual process which requires a manager to think before putting into action. He is able to select the best objectives and the best courses of action by applying imagination, creativity, foresight and sound judgement. It involves logical and systematic thinking. 5.3.5 Planning is a continuous process: Planning is a never-ending process. Koontz and O’Donnell rightly observed that like a navigator constantly checking where his ship is going in the vast ocean, a manager should constantly watch the progress of his plans. Due to changing economy, the plans set for a specific period have to be revised or new plans have to be prepared.

5.3.6. Planning is forward-looking: Planning is defined as deciding in advance about the objectives to be pursued by the organisation. Thus, it is a forward-looking approach where the results of the past are analyzed and preparing for the future. Therefore, forecasting is the essence of planning.

5.4 IMPORTANCE OF PLANNING Planning is an essential activity which has assumed great importance in all types of organizations in the modern world. The following are the advantages of planning: 5.4.1 It focuses on objectives: Planning focuses attention on the organizational objectives. Sometimes out of pressure of work the objectives may be forgotten. But plans are object-oriented which helps to keep objectives always in one’s mind, so that the objectives are sure to be achieved. 5.4.2 It provides a direction to action: Planning decides well in advance what is to be done in the future. It reduces aimless action. It shows the right path to the employees in the organisation. 5.4.3 It reduces uncertainty and risk:

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MANAGEMENT PRACTICE Planning aims at collection of relevant information for the purpose of forecasting the future to the extent possible. It helps to predict future and for proper acquisition and allocation of resources so that the degree of uncertainty and risk can be minimized. 5.4.4 It aims at innovation and creativity: No organisation can exist in this highly competitive modern business world which is characterized by rapid technological changes and changes in the taste and preferences of consumers, without innovation and creativity. Planning is an intellectual process where the managers constantly think about innovations. 5.4.5 It helps in co-ordination: Planning determines the activities of each and every individual in different departments in an organisation. Based on this all the resources of the organisation are effectively coordinated towards the achievement of objectives.

5.5 STEPS IN PLANNING PROCESS The main steps in planning process are as follows: 

Setting objectives

Developing planning premises

Identifying alternative courses of action

Evaluating alternatives

Selecting the best alternative

Formulating derivative plans

Measuring and controlling the progress

5.5.1 Setting objectives: The first step in planning process is to set the objectives of the organisation. The objectives for the plan must be in line with the mission of the organisation. The objectives must be realistic and they are established for the entire organisation and for each department. The external and internal factors which affect the organisation must be examined before setting objectives. 5.5.2 Developing planning premises: Planning is future oriented which is featured with full of uncertainty. Therefore it becomes necessary to make certain assumptions about the future. Premises are assumptions about the environment in which the plan is to be carried out. Planning premises are external and internal and explained at the end of this chapter. 5.5.3 Identifying alternative courses of action: Everyone knows that there are various alternatives to achieve the same goal. For example, the goal of an organisation is to improve the competency/efficiency of management by recruiting highly experienced managers for the top level. The organisation can select these managers by various means such as promotion, recruiting from competitors, advertising in the media etc. Thus the management must search for alternatives in view of its objectives.

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5.5.4 Evaluating the alternatives: After identifying various alternative courses of action, the next step is to critically evaluate the alternatives in the light of the goals and premises to select the best possible course of action. This can be done with the help of various techniques available. For example, in order to decide on the purchase of machinery, any one or the combination of the following capital budgeting techniques can be used: 

Non Discounting Cash Flow Techniques

Pay Back Period Method and Accounting Rate of Return Method

Discounting Cash Flow Techniques

Net Present Value Method, Present Value Index Method and

Internal Rate of Return Method

5.5.5 Selecting the best alternative After examining the strong and weak points of various alternatives, the next step is to select the best alternative. To select the best alternative the management should give importance for experience and experimentation. The choice is also made on the basis of cost and benefit analysis. Thus after evaluation of various alternatives, the fit one is selected. 5.5.6 Formulating derivative plans Derivative plans are also known as supporting plans or secondary plans or minor plans. Based on the main plans, a number of sub-plans have to be derived for various departments and units. 5.5.7 Measuring and controlling the progress The follow-up action is the last step in the planning process. No one expect success without continuously monitoring the progress of the plan. Without such a regular follow-up, plans may become out-of-date. So the management should check the progress so that they can take remedial action wherever necessary in the plan and to review the plan periodically to improve the planning process.

5.6 FORMS OF PLANNING The process of planning discussed in the last section is the same for all the organizations and for all the managers whereas there are many forms of planning. The planning practices are likely to differ based on different situations. But to have a wider knowledge on the various forms of planning, they are explained in the following paragraphs: Classification of Planning Bases

Forms

Time period

Long range and Short range planning

Level

Strategic and Tactical/Operational planning

Coverage of activities

Corporate and Functional planning

Approach

Proactive and Reactive planning

Degree of formalization

Formal and Informal planning

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MANAGEMENT PRACTICE 5.6.1 On the basis of time span, planning is generally divided into long range planning and short range planning: Long range planning – Long range planning is of strategic nature which normally covers a long period of time. It is prepared for a period of one year extending even to twenty years or more. It includes the formulation of overall broad objectives for the entire organisation. Short range planning – Short range planning covers a period between one and twelve months, depending on the nature of business. They are generally specific and detailed. Operational plan is an example of short range planning. In a successful planning process, short range plans are made with reference to long term plans. 5.6.2 On the basis of level of planning, it is classified into strategic and operational planning: Strategic planning – Strategic planning is based on long term goals which is normally done at higher levels of management. It decides on the major goals of the entire organisation and the overall allocation of resources to achieve these goals. Its purpose is to adapt to external environment based on internal strengths. Operational planning – It is also known as tactical planning. It is carried out at lower levels of management for short term. It decides on the detailed use of resources allocated for each department or unit for achieving the goals of the entire organisation. 5.6.3 On the basis of coverage of activities, planning is divided into corporate planning and functional planning: Corporate planning is establishing broad objectives for the whole organisation is known as corporate planning. It is integrative in nature. It lays down objectives, strategies and policies for the entire organisation. Functional planning – It is also known as departmental or divisional or sectional planning. It is undertaken for each major function of the organisation like production, marketing, finance, human resource etc. So there is no unified focus.

5.6.4 On the basis of approach adopted, planning is classified into proactive planning and reactive planning: Proactive planning – Organisation is always affected by various environmental factors due to its dynamic nature. Proactive planning involves designing suitable courses of action to manage future risks and challenges. Instead of reacting to events passively, managers are ready with alternate courses of actions. Reactive planning – Reactive planning is the one where the organisation reacts to the events after they have taken place. In such a situation, the organisation loses opportunities to those organizations which adopt proactive approach.

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5.6.5 On the basis of degree of formalization, planning is divided into formal planning and informal planning Formal planning – After a careful evaluation of the factors which have an impact on the organizational function, a written record is prepared indicates what an organisation intends to do to achieve the objectives of organisation. Informal planning – Managerial thoughts which do not find place on paper are informal plans. It is carried out without any direction where the managers may avoid their responsibility. It is generally undertaken by smaller organisation.

5.7 TYPES OF PLANS Organizational plans are generally classified into two types, namely standing plans and single use plans. Standing plans, also known as multi-use plans are formulated for repetitive activities. Standing plans are used repeatedly over a long period of time in situations of similar nature. Single use plans are developed to achieve a specific end and when that end is reached, the plan is dissolved. It will not be repeated and non-recurring in nature. Plans Standing plans

Single use plans

Objectives

Programmes

Strategies

Budgets

Policies

Schedules

Procedures

Projects

Rules Methods 5.7.1Objectives: Objectives are otherwise known as purposes, goals, ends or aims, which an organisation wants to achieve. It provides a sense of direction for the functioning of an organisation. It is the basic responsibility of the managers because the formulation of other standing and single use plans to the great extent depends on objectives. The objectives of the organisation should be stated clearly and precisely. It should also be easily attainable. It should be simple so that the employees of the organisation can easily understand and work towards the achievement. The objectives must be formulated keeping in view the mission of the organisation. Mission of the company says what it can do for the country while objectives suggest how this contribution can be made. Essential features of Objectives 1. Objectives must be clear and specific. 2. Objectives must be stated in measurable terms. 3. Objectives must be result-oriented. 4. Objectives must be realistic and attainable. 5. Objectives must be acceptable to all.

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MANAGEMENT PRACTICE 6. Objectives must be flexible 5.7.2 Strategies: The concept of strategy has been originated from the military organizations where it means a plan of action to fight the enemy. Due to growing importance of business, the concept has derived its importance in the field of business. The term strategy is explained as the determination of the basic long term objectives of an organisation and the adoption of various courses of action and allocation of resources necessary to achieve the predetermined objectives. According to D.I. Cleland and W.R. Kind, “Strategy is the complete plan for bringing the organisation from a given posture to a desired position in future period of time.” Essential features of Strategies: 1. The strategy should be consistent with the objectives and policies of the organisation. 2. The strategy should be able to cope with changes in the external environment. 3. The strategy should be time-bound. 4. The strategy should be realistic. 5. The strategy should create a proper match between risk and return. 6. The strategy must fulfil social and ethical responsibilities. 5.7.3 Policies: A policy is a statement of guidance and instruction for decision making at lower levels of management. But it shows the intention of top management. It directs the way in which goals are to be achieved. It ensures consistency and co-ordination in the planning done at various levels of management and it provides freedom to subordinates in decision-making but it should be within the boundary lines of policies. Recruitment policy, human resource policy, price policy, marketing policy, finance policy are the various forms of policies. Both objectives and policies are mutually interrelated. Objectives indicate ‘where we are going’ and policies indicate ‘how are we going to get there’. Essential features of sound Policies: 1. Policies must be capable of contributing towards the objectives of the organisation. 2. Policies should be stated in simple, clear and positive terms. 3. Policies should prescribe limits and yardsticks for future action. 4. Policies should be stable and flexible. 5. Policies should be constructed based on facts and sound judgement. 6. Policies should be updated. 7. Policies should be communicated to all. 5.7.4 Procedures: Procedures are the detailed guidelines by which the policies are carried out. So they are referred as ‘action guidelines’. A procedure is a chronological sequence of actions to be undertaken to enforce a policy and to achieve an objective. According to Terry and Franklin, “A procedure is a series of related tasks that make up the chronological sequence and the established way of performing the work to be accomplished.” It provides the most efficient and

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MANAGEMENT PRACTICE standard manner of doing work thereby simplifying decision making. Procedures are used in each and every functional area of the organisation. Essential features of Procedures: 1)

Procedures should be based on facts and not based on guesses.

2)

Procedures should focus on desired objectives and established policies.

3)

Procedures should be stable and flexible.

4)

Procedures should be reviewed periodically.

5)

Procedures should be kept to the minimum possible.

6)

Procedures should be recognized as a system of interrelated activities of a network.

5.7.5 Rules: Rules are prescribed guide for conduct in the working place. Rule is a statement of action directing employees to act in a particular manner. It specifies what should be done and what should not be done in different situations. Examples of rules may be ‘the working time is from 9.30 a.m. to 5.30 p.m.’ and ‘smoking is strictly prohibited inside the factory premises’. Rules are more rigid where there is no scope for deviation. Rules are helpful for the smooth flow of work which allows no discretion. Rules are established by the top level management and all the levels of management are expected to follow the set of rules. 5.7.6 Methods: A method specifies the detailed and best manner of performing a particular step in a procedure. It indicates the techniques to be employed for performing a given task with adequate consideration to the objectives and resources available in terms of time, money and effort. In order to control the wastage of raw materials, standard methods are essential. Various efforts have been made to simplify and standardize the methods for better efficiency. 5.7.7 Programmes: A programme is a comprehensive plan of action indicating what work is to be done to carry out a specific objective. For example, to improve the skills of human resources, there is a need for training and development programme. It is a complex of goals, policies, procedures, rules, steps to be taken, resources to be used and the time period within which the work is to be completed. A programme may be a major eg. programme for modernizations of plant or may be a minor eg. a scheme formulated by a supervisor to improve the morale of the workers. 5.7.8 Budgets: Budget is a plan of action or blueprint designed to achieve a specific goal. It is a statement of expected results expressed in numerical terms. A budget may be expressed in financial terms; in terms of labour-hours or machine-hours or sales-targets or in any other numerically measurable terms. The important budgets are cash budget, production budget, sales budget, master budget and expense budget.

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MANAGEMENT PRACTICE 5.7.9 Schedules: A schedule specifies the date when a work is to begin and the time needed to complete the work. The starting and completion date for each action are specified in the schedule. Identifying activities, determining their sequence and specifying the starting and finishing dates for each activity are the three main elements of a schedule. 5.7.10 Projects: A project is a complex scheme for the investment of resources which can be analyzed and evaluated as an independent unit. A project is designed and executed as a distinct plan. According to J.M. Steward a project has the following features: 

The activity has a clear objective.

The activity is complex and critical to the organisation.

The activity is temporary with respect to duration of need.

5.8 LIMITATIONS OF PLANNING Planning suffers from the following limitations: 5.8.1 Costly and time consuming: Planning is a time consuming and expensive process. The collection of information, evaluation of alternatives may consume a good deal of time and energy. 5.8.2 Inflexibility: Planning may result in internal rigidity in work. Policies, procedures and rules once established are difficult to change. 5.8.3 Resistance to change: Some people working in the organisation oppose planning as they have regard for the present rather than for future. They resist change due to fear of failure and uncertainty. 5.8.4 False sense of security: Planning may sometimes create false sense of security. Managers may believe that once plans are formulated that everything is well taken care of. As a result, they may fail to take note of problems in the plan. 5.8.5 Environmental constraints: There are certain uncontrollable factors such as social, political, technological, legal and economic which have an impact on the implementation of planning.

5.9 PLANNING PREMISES Planning involves anticipating the future and consciously choosing the future course of action. Since future is uncertain, the management makes certain assumptions about the future. Planning premises are assumptions about the external and internal environment in which the plan is to be carried out. It refers to the establishment of assumptions by management about relevant future conditions - economic, social, political, technological etc. on which the plans will be based. A careful identification of the premises is very important for effective planning, and forecasting is very important for accurate premising.

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MANAGEMENT PRACTICE 5.9.1 Types of Planning Premises: Planning premises are classified as under: i) External and Internal premises: External premises are those which are outside forces of the organisation. They are relevant external conditions on which plans will be based. Political conditions, social conditions, technological conditions are some of the examples of external planning premises. Internal premises are those which are within the organisation. They are relevant internal conditions of the organisation on which plans will be based. Management strategies, policies and programmes, manpower potential, availability of finance are some of the examples of internal planning premises. ii) Tangible and Intangible premises: Tangible premises are those which can be expressed in quantitative terms like units of product, monetary value, and machine hour and so on. Intangible premises are of qualitative nature and cannot be expressed in quantitative terms. Image of the company and employee morale are examples of intangible premises. iii) Controllable and Uncontrollable premises: Controllable premises are those over which the management has control. These include policies, procedures, advertising programmes and expansion programmes of the organisation. Uncontrollable premises are those which are beyond the control of management. Taxation policy of the government, population growth, war and natural calamities are some of the uncontrollable premises. 5.10 QUESTIONS i)

Very Short Answer Questions:

1.

Define planning.

2.

What do you mean by objectives?

3.

What is strategic planning?

4.

What do you mean by proactive planning?

5.

What is meant by reactive planning?

ii)

Short Answer Questions:

1.

Explain the types of plans.

2.

Write short notes on Rules and Budgets.

3.

Explain the following:

a) Policies b) Procedures c) Strategies d) Programmes 4.

How does strategic planning differ from operational/tactical planning?

5.

How does long-term planning differ from short-term planning?

iii)

Essay Type Questions:

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MANAGEMENT PRACTICE 1.

What are the essential features of a good plan? How can planning be made effective?

2.

“Planning is an intellectual process, the conscious determination of courses of action, the basis of decisions on purposes, facts, and estimates.” Discuss this statement and identify the steps involved in planning process.

5.11 SUGGESTED READINGS 1. Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi. 2. Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi. 3. Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill. 4. Satyaraju Parthasarathy, Management, PHI. 5. Mandal S.K., Fundamentals of Business, Jaico Publishing House. 6. Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books

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CHAPTER VI DECISION MAKING AND MANAGEMENT BY OBJECTIVES (MBO) STRUCTURE 6.0 OBJECTIVES 6.1 INTRODUCTION 6.2 MEANING AND DEFINITION 6.3 NATURE OF DECISION MAKING 6.4 TYPES OF DECISIONS 6.5 SIGNIFICANCE OF RATIONAL DECISION MAKING 6.6 LIMITATIONS OF DECISION MAKING 6.7 DECISION MAKING PROCESS/STEPS IN RATIONAL DECISION MAKING 6.8 HIERARCHY OF OBJECTIVES 6.9 MANAGEMENT BY OBJECTIVES (MBO) 6.10 MANAGEMENT BY EXCEPTION 6.11 QUESTIONS 6.12 SUGGESTED READINGS

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MANAGEMENT PRACTICE 6.0 OBJECTIVES After studying this unit, you should be able to understand: 

Meaning and definition of Decision Making

Nature of Decision making

Types of Decisions

Significance of Rational Decision making

Limitations of Decision making

Decision making process/Steps in Rational Decision making

Hierarchy of Objectives

Management by Objectives (MBO)

Management by Exception

6.1 INTRODUCTION Decision making is an integral part of life because every action of an individual in his life is based on the decisions taken by him. Needless to say, decision making is an important part of modern management. Hundreds of decisions are made by the managers every day. For example, a manager has to decide what the objectives of the organisation are, how to achieve these objectives, what are the strategies, policies and procedures to be adopted, what the manpower requirement is, how to recruit and train them and how to implement the controlling process in the organisation. Thus, all the functions of management are depending on the decisions.

6.2 MEANING AND DEFINITION A decision is a course of action which is consciously chosen from among a set of alternatives to achieve a desired result. Decision making is the process of choosing a course of action from among alternatives to achieve a desired goal. “Decision making is a conscious and human process involving both individual and social phenomenon based upon factual and value premises which concludes with a choice of one behavioural activity among one or more alternatives with the intention of moving towards some desired state of affairs.” - Shull, Delberg and Cumming.

6.3 NATURE OF DECISION MAKING 6.3.1 Goal-oriented Decision making is a goal-oriented process. Decisions are made to achieve preselected goals. The decision is an act where goals are the main source. 6.3.2 Set of alternatives A decision is a course of action to be chosen among a set of alternatives to achieve a predetermined objectives. Where there is no choice of alternative, no decision is required.

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MANAGEMENT PRACTICE 6.3.3 Continuous process Decisions are to be made for all activities in the organisation. It is to be made regularly. 6.3.4 Intellectual process Depending on the situational requirements, managers take suitable decisions using discretion and judgement. It is one which calls for creativity and imagination on the part of managers. 6.3.5 Commitment of resources Decision making implies commitment of resources like time, effort and money. It is required not only during the process of taking decisions and also at a time of implementation of decisions.

6.4 TYPES OF DECISIONS Decision making is really a complex mental exercise. Some of the decisions are highly significant with highly important consequences. The following are the major classification of decisions: 6.4.1 Programmed and Non-programmed decisions Programmed decisions are generally repetitive and routine and easy for managers to make. They are undertaken within the framework of the existing plans of the organisation. For example, the training and development programme for the employees, a procedure for admitting new patients in the hospital. Non-programmed decisions are taken by the management to meet emergency situations. They deal with unique problems. Location of plant and opening of a new branch are the examples of non-programmed decision.

6.4.2 Routine and Strategic decisions Strategic decisions or policy decisions are generally made by higher level management. They are one-time decisions involve long-term commitments and large investments. Launching of a new product, modernization of the existing business are examples of strategic decisions. Routine decisions are also known as operating or tactical decisions, which involve short-term commitments. These decisions relate to day-to-day operations of business. 6.4.3 Organizational and Personal decisions Decisions are taken by the managers in his official capacity. Such decisions can be delegated to lower levels. These decisions are aimed at achieving the organizational objectives. Personal decisions are those which are taken by managers in their capacity as individuals and in their own behalf. They cannot be delegated. Decisions to buy a house and to go for a picnic along with friends are the examples of personal decisions. 6.4.4 Individual and Group Decisions Individual decisions are those which are taken by an individual without consulting any other person. Individual decisions are taken where the problem is of a routine nature and is suitable for small organizations. Group decisions or collective decisions refer to the decisions which are taken by a group of members of an organisation, say Board of Directors.

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MANAGEMENT PRACTICE 6.5 SIGNIFICANCE OF RATIONAL DECISION MAKING 1. Managers are able to come up with high quality solutions to the problems. 2. Decision-makers have a clear understanding of alternative courses of action to accomplish a goal. 3. It is based on the information available with the decision makers and their ability to evaluate alternatives. 4. It aims at deciding the best solution by selecting the alternative that most effectively facilitates goal achievement. 6.6 LIMITATIONS OF DECISION MAKING Some common difficulties faced in making and implementing decisions are as follows: 6.6.1 Incomplete information The decisions are taken based on the information collected. Lack of information leaves a manager in a wrong decision. If the decision is not correct then it will be a waste of money and efforts. 6.6.2 Incorrect timing The decision should be taken in an appropriate time. It is essential to take decisions at the most opportune time. Otherwise it becomes futile. 6.6.3 Environmental influences The environment in which the organisation exists will influence the decision making process of the organisation. If the physical and organizational environments are conducive then there will be co-operation among the employees where the manager is encouraged to take decisions. 6.6.4 Difficulty in implementation The success of decision making is based on its effective implementation. Once a decision is taken then all efforts should be made to implement it. The manager should seek the cooperation of subordinates to avoid problems in implementation. 6.6.5 Ineffective communication The decisions taken should be properly communicated to the employees. If the decision is not communicated in an effective way then it will not serve the purpose of decision making. The manager should therefore, take care to communicate in clear, simple and precise language.

6.7 DECISION MAKING PROCESS/STEPS IN RATIONAL DECISION MAKING Rational decision making is a systematic process which involves a series of steps. Decision making process consists of the following steps: 6.7.1 Identifying the problem Identification of problem is the beginning of decision making process. A problem is the gap between present and desired state of affairs. To identify the problem both external and internal situations are analyzed. Identification of the problem involves diagnosis and analysis of the problem. Diagnosis is the process of gathering relevant facts and other additional information pertaining to the problem.

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MANAGEMENT PRACTICE 6.7.2 Defining the problem A problem well defined is half-solved. It means once the problem has been recognized it should be properly defined. The efficiency of the decision making process depends on clear definition of the problem. The problem may be clearly defined in terms of Nature of the problem, Origin of the problem, Importance of the problem, Scope of the problem, Impact of the problem and Nature of the decision required. 6.7.3 Generating alternative courses of action The next step in the decision making process is to search for the various possible alternatives. Managers should not take any major decision without exploring all the possible alternatives. If the manager accepts the first alternative without searching for other alternatives it is not possible for him to find the best solution to the problem. Some alternatives may be developed by managers by experience and expertise and others may be generated through research and analysis, creative thinking and innovativeness. For selecting alternatives time and cost constraints should be kept in mind. 6.7.4 Evaluating alternatives After generating alternative course of action, each alternative is critically evaluated in terms of its merits and limitations. Generally, there are some criteria on the basis of which alternatives are evaluated: feasibility, risk, quality, timing, cost, acceptability and limitation of resources. All alternatives available for decision making will not be taken for detailed evaluation because of the obvious limitations of managers in evaluating all alternatives. Considerable knowledge and judgement are required to measure the pros and cons and to find out the benefit of each alternative. 6.7.5 Selecting the best alternative This is the next step in the decision making process where the decision maker merely selects the alternative that will maximize the results in terms of existing objectives. A comparison is made among the alternatives by screening and conducting a critical evaluation to eliminate more number of alternatives. Managers can make use of three basic approaches for selecting among alternatives. These are: Experience: Managers can choose an alternative based on their past experience if they have solved similar problems earlier. Experimentation: Experimentation which is generally used in scientific enquiry involves that a particular alternative is put in practice, result is observed, and the alternative giving the best result is selected. Research and analysis: It tries to find relationships among the critical variables, constraints and premises which have a direct effect on the goal to be accomplished. 6.7.6 Implementing the decision Once the best among the available alternatives has been selected, it must be implemented properly to achieve the objective of the organisation. Poor implementation may lead to ineffective decision. Implementation of the decision requires the following managerial aspects:

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MANAGEMENT PRACTICE The decision should be communicated to those responsible for its implementation. Making all resources and facilities available for implementation Motivating people to implement the decision and Exercising general supervision over the implementation of the decision 6.7.7 Monitoring and Feedback The implementation of the decision should be constantly monitored. Monitoring becomes necessary to make sure that everything is progressing according to plan. Monitoring decisions involves gathering information to evaluate how the decision is working. Thus, feedback is an essential component of the decision process. Feedback allows managers to become aware of the recent problems associated with the solution. In view of the feedback obtained from the implementation of the decision, necessary modifications may be done in the decision.

6.8 HIERARCHY OF OBJECTIVES The objectives of the organisation form a hierarchy, ranging from the overall objectives of the organisation to specific individual objectives. At the top of the hierarchy is the socio-economic purpose, which requires an organisation to contribute to the welfare of society by providing goods and services at a reasonable cost. The second level contains is the underlying purpose of the business or mission. Mission states what the organisation plans to achieve. The third level of hierarchy contains more specific objectives for those areas in which the success of the enterprise depends on its performance. These areas are called key result areas. According to Peter F. Drucker, productivity, physical and financial resources, profitability, market standing, innovation, managerial performance and development, worker performance and attitude, profitability and social responsibility are the key result areas in business.

6.9 MANAGEMENT BY OBJECTIVES (MBO) Management by Objectives is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and is consciously directed towards the effective and efficient achievement of organizational and individual objectives. The term MBO was coined by Peter Drucker in 1954. It is now practiced around the world and has gained immense popularity in many organizations. According to George Odiorne, MBO “is a process whereby the superior and the subordinate managers of an enterprise jointly identify its common goals, define each individual’s major areas of responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.” 6.9.1 Features of MBO: 

MBO focuses attention on what must be accomplished i.e. goals rather than on how it is to be accomplished i.e. methods.

MBO stresses measurable and verifiable goals in key result areas.

MBO requires participation of subordinates in the goal setting and performance reviews.

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MANAGEMENT PRACTICE 

MBO is both a technique of planning and a technique of controlling.

MBO is a continuous process of goal setting and periodical appraisals.

6.9.2 Process of MBO MBO is a system which aims at achieving objectives of the organisation, facilitating employee participation and making them more committed to the organisation. The MBO process consists of the following stages: 6.9.2.1 Setting of organizational objectives Top management is involved in the first step of the MBO process. The mission and the fundamental objectives are set by the top level managers. The long term goals of the organisation must be set for all the key result areas. While setting organizational objectives, managers should keep in view the strengths and weaknesses of the organisation. 6.9.2.2 Setting individual/subordinates’ objectives The goals should be set for individuals or subordinates so that each goal contributes to the achievement of the overall objectives of the organisation. Each individual in the organisation should know what is expected of him. The superior should discuss with the subordinates to arrive at a set of actual goals that are mutually acceptable. Setting individual objectives clarifies each role in the organisation. 6.9.2.3 Matching objectives with resources The successful implementation of MBO scheme is based on the availability of resources. While setting organizational objectives, the managers should indicate the resource requirement. The resources should be properly allocated in consultation with the subordinate managers. Availability and proper allocation of resources ensure the achievement of objectives. The objectives might be revised suitably in view of limitations of resources. 6.9.2.4 Formulating action plans Once the goals are set for the overall organisation, various departments and individuals, action plans must be developed for their accomplishment. The action plan is the means by which an objective is achieved. It gives direction to achieve the objectives. It explains exactly what is to be done, when, where, how and by whom in order to achieve a goal. 6.9.2.5 Periodic performance reviews The MBO process not only gives subordinates a sense of direction; it also allows them to evaluate their progress. The periodic review process helps the managers to monitor progress towards the achievement of goals established during the first two steps of MBO process. Such reviews help to identify shortcomings and to improve the results by overcoming those shortcomings. 6.9.2.6 Final appraisal As a final step of MBO, ‘performance of subordinates’ is evaluated by the managers against objectives set for them. A detailed evaluation is done typically one year after the original goals were set. The appraisal session indicates the areas and the subordinates who have performed effectively. Rewards are provided on the basis of such appraisal. This step in the

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MANAGEMENT PRACTICE MBO process helps to develop new objectives by overcoming the drawbacks of the existing objectives. 6.9.3 Benefits of MBO: MBO offers a wide range of benefits. They are: 6.9.3.1 Clear goals: MBO results in clear and measurable goals. This clear definition of the objectives in the key result areas helps the organisation to develop effective long-term and short-term action plans. Goals are set in an environment of mutual trust, confidence and with the participation of subordinates. Clear goals aid in planning and facilitate evaluation and control, resulting in corrective measures. 6.9.3.2 Improved planning: MBO helps managers in managing and allocating organizational resources and plan activities effectively. Resources and activities are managed in such a way that they result in better performance. Better performance is possible by clarifying the roles and responsibilities of each individual in the organisation. 6.9.3.3 Motivational force: MBO motivates employees to work towards organizational goals because it provides an opportunity to participate in decision making process. It recognizes people at all levels by giving the employees the responsibility of setting their own objectives. 6.9.3.4 Effective communication: There is a continuous interaction between superiors and subordinates which helps to reduce conflicts. Better communication between all levels of management helps each individual to know what is expected of him. 6.9.3.5 Effective control: The greatest advantage of MBO is that it facilitates better control. There is least or no resistance to controlling process because objectives are determined by subordinates themselves in consultation with superiors. Controlling process involves the measurement of results and taking corrective action to check deviation from plans. 6.9.4 Limitations of MBO: 6.9.4.1 Difficulty in goal setting: The first step in MBO process is setting of organizational goals. MBO requires that the goals should be verifiable so that performance can be evaluated. Setting such objectives are difficult in some areas. It requires lot of information. 6.9.4.2 Time consuming: It takes too much time and effort on the part of the managers. A great deal of time is spent in setting the overall and individual objectives of the organisation. In addition a good amount of time is spent to hold many meetings with the subordinates to instill confidence. 6.9.4.3 More paper work:

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MANAGEMENT PRACTICE MBO involves more paper work because large number of forms is to be designed and put into practice. It consists of newsletters, instruction booklets, training manuals, performance data and reports to the organisation. 6.9.4.4 Inflexibility: In a dynamic environment, there is a need for revision of organizational objectives and policies, which will influence individual objectives in turn. If managers do not change their goals, it becomes obsolete. But once goals are established, the manager may not like to modify them due to fear of resistance. 6.9.4.5 Failure to teach philosophy of MBO There is a failure to teach the MBO philosophy to all participants. The success of MBO depends upon its proper understanding by managers. MBO is an innovative philosophy for managing organizations. The managers should make their subordinates to understand how the MBO process will benefit them. Failure to understand and make others understand the philosophy of MBO leads to the failure of the MBO process itself. 6.9.5 Suggestions for making MBO effective: Some of the prerequisites for implementing the MBO scheme and making it effective are given below: 6.9.5.1 Purpose The success of MBO scheme depends on the nature of the objectives set. The objectives should be realistic and easy to understand. 6.9.5.2 Top management support The successful implementation of MBO programme depends on the support of top management. In order to keep the MBO programme effective, the top management must provide continuous support. 6.9.5.3 Training Systematic training is required to help managers and subordinates to understand the concepts of MBO. Training in interpersonal relationships and group dynamics must, therefore, be provided to people at all levels. 6.9.5.4 Adequate time and resources It is a known fact that MBO programme can not be installed overnight. It may take few years to implement it. Therefore, managers should allocate adequate time and resources for its installation. 6.9.5.5 Feedback Managers should monitor the programme and provide feedback to subordinates from time to time.

6.10 MANAGEMENT BY EXCEPTION Management by Exception is a system of identification and communication that signals to the manager when his attention is needed. It has six basic ingredients as given below: 

Measurement assigns values to past and present performances.

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MANAGEMENT PRACTICE 

Projection analyses those measurements that are meaningful to organizational objectives and extends them into future expectations.

Selection involves the criteria which management will use to follow progress towards organizational objectives.

Observation stage of management by exception involves measurement of current performance so that managers are aware of the current state of affairs in the organisation.

Comparison stage makes comparison of actual and planned performance and identifies the exceptions that require attention and reports the variances to management.

Decision making prescribes the action that must be taken in order to bring performance back into control, to adjust expectations to reflect changing conditions, or to exploit opportunity.

6.10.1 Benefits of Management by Exception: 

It saves the precious time of the executives because they apply themselves on fewer problems which are important.

It helps managers to concentrate on major problems.

It facilitates better delegation of authority and the managers can concentrate on strategic management rather than engaging themselves in operational management.

It helps in identification of crises because the moment any exceptional deviation occurs, the attention of higher level managers is drawn.

6.11 QUESTIONS i)

Very Short Answer Questions:

1.

Define decision making.

2.

Define MBO.

3.

Explain in few words the concepts Individual and Group Decisions.

4.

What do you mean by organizational decisions?

5.

What do you mean by personal decisions?

ii)

Short Answer Questions:

1.

What is decision making? What is the importance of decision making?

2.

What are the characteristics of decision making?

3.

What are the different decisions made by managers at different levels in the organisation?

4.

Enumerate the types of decisions.

5.

What are the major features of strategic decision and tactical decision?

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MANAGEMENT PRACTICE iii)

Essay Type Questions:

1.

Explain the decision making process in organizations.

2.

What are the essential characteristics of a good decision? How can a manager make effective decisions?

3.

What do you mean by Management by Objectives? What are the different steps involved in it?

6.12 SUGGESTED READINGS 1.

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2.

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3.

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4.

Satyaraju Parthasarathy, Management, PHI.

5.

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6.

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books.

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CHAPTER VII NATURE AND PRINCIPLES OF ORGANISATION STRUCTURE 7.0 OBJECTIVES 7.1 INTRODUCTION 7.2 NATURE OF ORGANIZATION 7.3 IMPORTANCE OF ORGANIZATION 7.4 PRINCIPLES OF ORGANISATION 7.5 FORMAL AND INFORMAL ORGANISATION 7.6 TYPES OF ORGANISATION STRUCTURE 7.7 DEPARTMENTATION 7.8 SPAN OF MANAGEMENT 7.9 QUESTIONS 7.10 SUGGESTED READINGS

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MANAGEMENT PRACTICE 7.0 OBJECTIVES After studying this unit, you should be able to understand: 

Meaning and Definition of Organisation

Nature of Organisation

Importance of organisation

Principles of Organisation

Formal and Informal Organisation

Types of Organisation Structure

Departmentation

Span of Management

7.1 INTRODUCTION Organizing is one of the basic functions of management. Planning is the first function in the process of management. Planning focuses on deciding what to do and organizing focuses on how to do it and who will do it. In the process of management, a manager has set goals and devised a plan to achieve those goals. The next task to be performed by a manager is to bring together physical and human resources to carry out the plan. Thus organisation is the process of defining and grouping the activities of the organisation and establishing the authority relationships among them. The term ‘organisation’ is used in two different ways: 

Organisation as a structure and

Organisation as a process

Organisation as a structure refers to the network of relationships among jobs and positions in an organisation. The roles are assigned to group of people and the authority relationship has been created among them. Organisation as a process refers to the process by which employees, resources and tasks are related to each other, with a view to attains specific objectives. It involves assigning activities to individuals and defining the authority and responsibility of each individual.

7.1.1 Definition According to Koontz and O’Donnell, “Organisation is a structural relationship by which an enterprise is bound together and the framework in which individual effort is coordinated.” According to Louis A. Allen, organizing is “the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.”

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7.2 NATURE OF ORGANISATION 7.2.1 Common goals All the organizations have some common goals or set of goals. An organizational objective is a desired state of affairs which the organisation attempts to realize. 7.2.2 Division of work The total work of an organisation is divide into small parts and assigned to people working at various levels to obtain specialization with a view to improve the performance of individuals in the organisation. 7.2.3 Group of people An organisation always refers to people who interact among themselves to achieve some sort of objectives. The group may consist of two or more persons. 7.2.4 Co-ordination The co-ordination is necessary because all the members contribute to commonly agreed goals. With jobs specialized and divided among units, co-ordination becomes necessary. 7.2.5 Communication Organisation is an identifiable group of people who communicate with each other to contribute towards a common goal. Communication may be upward or downward based on the situation. 7.3 IMPORTANCE OF ORGANISATION Sound organisation is an essential prerequisite of efficient management which provides the following benefits: 7.3.1 Facilitates administration It enables the top management to delegate responsibility to lower levels for routine functions. It can avoid confusion and delays as well as duplication of work and overlapping of efforts. 7.3.2 Facilitates growth and diversification It helps in keeping various activities under control. The organisation can expand and grow by undertaking more activities without dislocation. 7.3.3 Facilitates optimum use of resources It helps to place the right persons for the right jobs. There is proper allocation of work by which human, technical and material resources are put to good use. 7.3.4 Provides co-ordination A well designed and defined organizational structure provides for thorough co-ordination and enables management to relish the essence of Managership and take the organisation to the heights of success. 7.3.5 Facilitates specialization An organisation exists basically to take care of and implement the division of work of various types, among managers and subordinates. Such division of work, leading to specialization in various spheres, is instrumental in bringing about increased human efficiency in the organizational functioning.

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7.4 PRINCIPLES OF ORGANISATION (FEATURES OF A GOOD ORGANISATION STRUCTURE) The following are the important principles of organisation: 7.4.1 Unity of Objective This principle requires that individual and departmental objectives throughout the organisation must be perfectly harmonized; and that all objectives must be mutually supportive and collectively contributing to overall common objectives. 7.4.2 Division of work Since the total work of the organisation can not be performed by only one person; it is imperative that such work must be suitably divided among a number of persons. In fact, the total managerial work ought to be divided among a number of managers; and the total operational work being divided among a number of operating personnel.

7.4.3 Span of control A manager should have a limited number of subordinates reporting to him directly. The span should be short for complex work and wide for simple and routine work. 7.4.4 Scalar principle A scalar chain or chain of command refers to the unbroken line of authority from the top level to the bottom of an organisation. A clear chain of command facilitates communication. 7.4.5 Functional definition The duties, authority and responsibility of every individual must be clearly and precisely defined. No individual should have doubts as to what he has to do and for whom. Clear definitions of tasks, authority and desired performance of each employee help to develop a sense of responsibility. 7.4.6 Exception principle Only exceptional matters which are beyond the authority of lower level persons should be referred to higher levels. Routine matters should be dealt with by executives at lower levels. This is also known as authority level principle. 7.4.7 Unity of command The unity of command principle states that for any given activity an employee should be made accountable to only one superior. 7.4.8 Balance A proper balance between centralization and decentralization should be maintained. Each function in the organisation should be developed to the point at which the value received is at least equal to costs.

7.5 FORMAL AND INFORMAL ORGANISATION In the early 1930s, the famous Western Electric studies revealed that groups of people who shared an informal relationship formed an important part of the total work situation. The

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studies concluded that the network of personal and social relationships, not established by the formal organisation, gave rise to informal organisation within an organisation. Formal organisation refers to the structure of well defined jobs each having a definite authority and responsibility. According to Louis A. Allen, a formal organisation is a group of people working together cooperatively, under authority, towards goals that mutually benefit the participants and the organisation. An informal organisation is a social group of individuals which comes into existence automatically, as a result of the operation and interaction of certain socio-psychological factors, among persons who are working in various capacities in the organisation. Formal Organisation vs. Informal Organisation Basis of distinction

Formal organisation

Informal organisation

Origin

Deliberately created

Emerged spontaneously

Purpose

To achieve planned goals of the organisation

To provide social satisfaction to members

Structure

A well defined structure No clear cut structure

Size

Large in size

Primary focus

Position

Communication

Through established Channel

Durability

Permanent and stable

Rules

Written

Small in size Person According to convenience Instable Oral

7.6 TYPES OF ORGANISATION STRUCTURE The nature of authority – responsibility relationships found in an organisation, makes for a particular pattern of the organizational structure. Organisation structure is primarily concerned with the allocation of tasks to be performed. There are several ways of division of work and delegation of authority. As a result, several types of organisation structure have been evolved. The six main types of organisation structure are given below: 7.6.1 Line organization Line organisation is the oldest type of organisation structure. It is also known as scalar, military or vertical organisation structure because it originated in the army. In line organisation, there is an unbroken vertical line through which authority flows from the top to the bottom of the organisation. It is governed by certain principles such as scalar chain, unity of command and span of management. it can be designed in the two ways:

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MANAGEMENT PRACTICE Pure line organisation – Under this form, similar activities are performed at a particular level. Each group of activities is self contained unit and is able to perform the assigned activities without the assistance of others. Departmental line organisation – Under this form, entire activities are divided into different departments on the basis of similarity of activities. Each department is placed under one departmental head. 7.6.2 Functional organization A functional organisation is one, in which all business functions are divided among various activities or functions; and each of the function is entrusted to a specialist. Each such specialist is known as a functional specialist, by virtue of, his expertise in the function entrusted to him: and the authority possessed and enjoyed by each specialist is knows as his functional authority. It is most widely used in the medium and large organizations having limited number of products. Features: 1. The entire work of the organisation is divided into major functions. 2. Every function is under the charge of a specialist. 3. Every functional expert is given functional authority to command people of other departments concerning his function. 4. Every subordinate receives instructions from a group of specialist. 7.6.3 Line and staff organization Line and staff organisation is a combination of line and functional structures. It refers to a pattern in which staff specialists advise managers to perform their duties. When the work of an executive increases, its performance requires the services of specialists which he himself cannot provide because of his limited capabilities on these fronts. Such advice is provided to line managers by staff personnel who are generally specialists in their fields. 7.6.4 Project organization Under a project organisation, a team of specialists and workers is drawn from various functional areas, out of the permanent functional structure of the organisation to work on a project. The project manager may take assistance from outside sources also. These are temporary organizational structures formed for specific projects for a specific period of time and once the goal is achieved these are dismantled. For example, the goal of an automobile manufacturing company may be to develop a new car. For this project, the specialists from different functional departments are drawn to work together. When the project is completed, the specialists go back to their respective departments. These specialists are basically selected on the basis of task related skills and technical expertise rather than decision making experience or planning ability.

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MANAGEMENT PRACTICE George R. Terry has defined a project organisation is a preferred means whenever a well defined project must be dealt with or the task is bigger than anything, the organisation is accustomed to.” Suitability: 

The project offers a unique or unfamiliar challenge.

The project has definite goals and well-defined specifications.

Successful completion of the project is critical to the organisation.

The project is complex with interdependent tasks.

The assignment is to be completed within the given time limit.

7.6.5 Matrix organization Project and Matrix organisation structures are of recent origin, developed after World War II. Two complementary structures, pure project structure and functional structure are merged together to create matrix structure. According to S.M. Davis and P.R. Lawrence, Matrix organisation is “any organisation that employs a multiple command system that includes not only the multiple command structure but also related mechanisms and an associated organizational structure and behavioural pattern.” Matrix organizational design is most useful when there is pressure for shared resources. For example, a company may need eight marketing specialists but have the resources only to hire four marketing specialists. In such a situation, a matrix structure provides a convenient way for the eight groups to share the skills of the four specialists. 7.6.6 Committee Organization A committee is a group of people who have been formally assigned some task or some problem for their decision and/or implementation. In modern business organizations there is a widespread use of committees in all areas of management and administration. According to Allen, “A committee is a body of persons appointed or elected to meet on an organized basis for the consideration of matters brought before it.” It has the following objectives: a)

To secure viewpoints and consultation of various persons in the organisation.

b)

To give participation and representation to different groups or interests.

c)

To co-ordinate the activities of different departments.

d)

To review the performance of certain units.

e)

To facilitate communication and co-operation among diverse groups.

7.6.6.1 Types of Committees Committees may be classified into the following categories: a) Standing or Ad hoc Committee:

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MANAGEMENT PRACTICE A standing or permanent committee exists continuously for an indefinite period of time. On the other hand, an ad hoc or temporary committee is constituted for a specific purpose. It is dissolved when the purpose is served. b) Advisory or Executive Committee: Whenever committees are vested with staff authority they are known as advisory committees. Advisory committees have only a recommendatory role and cannot enforce implementation of their advice or recommendation. Whenever committees are vested with line authority, they are called executive committees. Unlike advisory committees, executive committees not only take decisions but also enforce decisions and thus perform a double role of taking a decision and ordering its execution. c) Line or Staff Committee: A line committee is a plural executive as it coordinates and controls the activities of subordinates. But a staff committee simply disseminates information, advice and assistance to line managers. d) Formal or Informal Committee: Formal committees are duly constituted by management as per organizational policies and rules. They are a part of the organisation structure and are depicted on the organisation chart. Informal committees, on the other hand, are not constituted and no specific responsibilities are assigned to them.

7.7 DEPARTMENTATION Departmentation is the process of dividing large organizations into manageable smaller, flexible administrative units. It means dividing and grouping the activities and employees of the organisation into various departments. Such departments operate under the control of a manager known as departmental head. According to Louis A. Allen, departmentation is “the means of dividing a large and monolithic functional organisation into smaller, flexible, administrative units.� 7.7.1 Need and Significance of Departmentation Need for departmentation arises because of the principle of span of control, according to which no manager can effectively manage and control an indefinite number of subordinates. Hence the need for creating departments arises. The importance and need of departmentation can be explained on the basis of the following points: 7.7.1.1 Advantages of specialization: Departmentation enables an organisation to avail of the advantages of managerial specialization. In fact, in whatever way are departments created; it is sure that each departmental head is a specialist in matters pertaining to his department. 7.7.1.2 Fixation of responsibility: Departmentation helps in fixing the responsibility and consequently accountability for the results. Through departmentation, the work is divided into small units where it can be defined precisely and responsibility can be fixed accurately.

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MANAGEMENT PRACTICE 7.7.1.3 Facility in appraisal: Appraisal of managerial performance becomes easier when specific tasks are assigned to departmental personnel. The sources of information, the skills and competence required for total managerial decisions can be located. 7.7.1.4 Feeling of autonomy: Departmentation provides motivation by developing feeling of autonomy to the extent possible. Normally, departments are created in the organisation with certain degree of autonomy and freedom. The manager of a department can take independent decision within the overall framework of the organisation. 7.7.1.5 Facilitates expansion and growth: When organisation grows, the large number of activities has to be performed for achieving the goal. It requires proper grouping of these activities and creating departments for handling them. 7.7.2 Bases or Types of Departmentation There are several bases for departmentation, each of which is suitable for particular corporate sizes, strategies and purposes. They are discussed as below: 7.7.2.1. Departmentation by Functions The most widely used base for departmentation is function. Each major function of the organisation is grouped into a department. For example, there may be production, finance and marketing departments in a manufacturing company. If necessary, a major function may be divided into minor or sub-functions. For example, activities in the production department may be classified into quality control, processing of materials and repairs and maintenance. Advantages 1. It is a simple form of grouping activities for small organizations which manufacture only a limited number of products or render only a limited number of services. 2. It promotes excellence in performance because of development of expertise through specialization. 3. It leads to improved planning and control of the key functions. 4. It ensures economy, for there is only one department related to one function for the entire company. Disadvantages 1. There is too much emphasis on specialization. 2. It does not offer a good training ground for the overall development of a manager. 3. It is unsuitable where either geographical dispersal of units is required or emphasis on separate product lines is called for. 4. There may be difficulties in coordinating the activities of different departments. 7.7.2.2 Departmentation by Products This type is suitable for a large organisation manufacturing a variety of products. In product departmentation, each product or a group of related products is organized as a

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MANAGEMENT PRACTICE separate division with its full set of manufacturing, selling and financing functions. Several companies in India, such as Hindustan Lever Ltd., ITC, Larsen & Toubro have product based departments. Advantages: 1. There is individual attention of a specialist manager on each product. 2. This form relieves top management of operating task responsibility. 3. This form enables top management to compare the performances of different products and invest more resources in profitable products. 4. Since the responsibility for each product’s performance is entrusted to a particular departmental head, he is better motivated for improving his performance. Disadvantages: 1. It results in duplication of staff and facilities. 2. There is usually under utilization of plant capacity. 3. Extra expenditure is incurred in maintaining a sales force for each product line. 4. Employment of a large number of managerial personnel is required. 7.7.2.3 Departmentation by Territory Under this structural design, an organisation is divisionalized according to geographical areas or territories in which it operates. This is suitable to a large scale organisation whose activities are geographically dispersed; and similar operations are undertaken in different geographical areas. For example, banks, insurance companies, etc. Decisions regarding product design, pricing and marketing may be left to the discretion of the territorial managers who are close to customers and know their needs better. Advantages: 1. It motivates each regional head to achieve high performance. 2. It helps to assess the needs of local customers closely and serve them well. 3. Economies of localized operations are also available. 4. Every regional manager can specialize in the peculiar problems of his region. Disadvantages: 1. Geographical distance gives rise to the problems of communication, co-ordination and control. 2. It gives rise to duplication of various activities. 3. It requires more managers with general managerial abilities who may not always be available.

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MANAGEMENT PRACTICE 7.7.2.4 Departmentation by Customer In this type of departmentation, an organisation may be divided into a number of departments on the basis of the customers that it serves. Such forms of departmentation are more common in banking, book publishing and food industry. For example, a commercial bank may have different departments for general public, business men and farmers. Advantages: 1. It permits specialized attention and service to every customer group. 2. It helps to improve the goodwill and sales of the company. 3. Benefits of specialization can be obtained. Disadvantages: 1. There may be duplication and under utilization of facilities and resources. 2. It may be difficult to maintain co-ordination among the different customer departments. 7.7.2.5 Departmentation by Process In manufacturing organizations, the activities are often grouped on the basis of process or equipment. This form of departmentation brings together people and material to carry out a particular operation. It can be seen in the oil and textile industry. In a textile mill, ginning, spinning, weaving and dyeing are often organized as different departments. Advantages: 1. It enables an organisation to get the benefits of specialization and make optimum use of the resources and the equipment. 2. It is beneficial when the equipment or machinery requires special operating skills. 3. It facilitates the use of heavy and costly equipment in an efficient manner. Disadvantages: 1. It hinders the co-ordination of various functions due to the limitations that arise from specialization. 2. It results in conflicts between different managers at different levels on matters such as allocation of funds, providing facilities to different processes etc. 7.7.2.6 Departmentation by Time Departmentation by time is also one of the older forms of departmentation and generally used at lower levels of the organisation. In some organizations that work round-the-clock, departmentation is based on time. For example, in hospitals, round-the-clock patient care is essential and such departmentation facilitates this. Advantages: 1. It helps in efficient utilization of manpower and other resources.

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MANAGEMENT PRACTICE 2. An organisation can make its services available to those who need it at any hour. 3. It facilitates the use of processes requiring a continuous cycle without interruption. 4. It is convenient for some people like students as they can work at night. Disadvantages: 1. There may be a lack of supervision in the night shifts. 2. Most of the employees find it difficult to adjust to switches from one shift to another. 3. Employees may postpone their regular work in order to get paid for overtime work. 7.7.2.7 Composite Departmentation To satisfy the requirements of various situations, managers these days favour a kind of mixed departmentation. In practice, no single pattern is ideal to suit all situations. Most of the large organizations follow a composite or combination of several bases. For example, in a large organisation, functional departmentation may be adopted at the top level. Then the sales department may be grouped on the basis of products. Each product division may be divided on the basis of territories and each territorial department on the basis of customers. Such mixed departmentation is called combined or composite departmentation.

7.8 SPAN OF MANAGEMENT The term ‘span of management’ is also known as ‘span of control’ or ‘span of supervision’ or ‘span of authority’. Organizations are growing in terms of size and geographical coverage, thereby increasing the workload of executives. To cope up with this workload, managers should delegate routine activities to their subordinates. Delegation of such activities would leave managers free to handle key strategies. The number of subordinates a manager has to supervise has a direct bearing on the degree to which managers can interact with and supervise subordinates. The span of control refers to the number of subordinates a superior can supervise efficiently and effectively. According to Spiegel, span of management means “the number of people reporting directly to an authority. The principle of span of control implies that no single executive should have more people looking to him for guidance and leadership than he can reasonably be expected to serve. 7.8.1 Factors determining Span of Management There are a number of factors that influence or determine the span of management in a particular organisation. They are: 7.8.1.1 Ability of superior: Each manager has different ability and capacity in respect of such factors as leadership, communication, decision making, control etc. affecting management of subordinates. Managers having more capacity in respect of these factors can manage more number of subordinates in similar situation.

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7.8.1.2 Trained subordinates: Well trained subordinates perform their tasks efficiently without much help of their superior. For such employees, the manager only needs to provide broad guidelines for a particular task and he can therefore manage a large number of such employees. 7.8.1.3 Nature of work: When the work performed by subordinates is simple and repetitive in nature, they do not require frequent guidance. As a result the manager can supervise a large number of subordinates. 7.8.1.4 Clarity of plans: Much of what a subordinate is expected to do depend on the plans that are to be implemented. Therefore, plans should be well defined, workable and the authority required to implement them should be appropriately delegated. 7.8.1.5 Use of staff assistance: Managers can manage a large number of subordinates by delegating a certain amount of work to staff assistants, who gather information and communicate orders and instructions to the subordinates. 7.8.1.6 Degree of decentralization: If a manager clearly delegates authority to undertake a well defined task, a well trained subordinate can do it with a minimum of supervisor’s time and attention. As such, the span could be wide. 7.8.2 Type of Span of Management There are two types of span of management: a) Narrow span of management: Narrow span of management means very few subordinates report directly to a superior. It is also known as tall or vertical organisation. Under this type of supervision, there are many levels and more supervisors are required to perform the job of guidance and control for different activities. It increases the efficiency of supervision but the cost of supervision is very high as compared to wider span of supervision. b) Wider span of management: Wider span of management is also knows a flat organisation which implies a large number of subordinates reporting to a superior. In this type of span, the supervisor control and guides the activities of subordinates directly under his control. Wider span of supervision is favoured where workers are competent and trained. It reduces the cost of supervision. Tall and Flat Structure – A Comparison Tall Structure (Narrow Span)

Flat Structure (Wider Span)

Closer control

Loose control

Better co-ordination

Difficulty in co-ordination

Fewer mistakes due to close supervision

More mistakes due to loose supervision

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Suitable for those who prefer detailed Slow decision making

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Suitable for those who prefer guidance greater independence Faster decision making

Less pressure on managers Delayed communication

Heavy pressure on managers Speedy communication

Costly in terms of administrative overheads

Reduced overhead costs

7.9 QUESTIONS i)

Very Short Answer Questions:

1.

Define organisation.

2.

What do you mean by formal organisation?

3.

What is meant by informal organisation?

4.

Define departmentation.

5.

Define span of management.

6.

What do you mean by organizational structure?

ii)

Short Answer Questions:

1.

Explain the importance of organisation.

2.

Distinguish between formal and informal organisation.

3.

What are the various types of committees?

4.

Explain the significance of Departmentation.

5.

Discuss in detail the types of span of management.

iii)

Essay Type Questions:

1.

Enumerate the principles of organisation.

2.

Discuss on various types of organisation structure.

3.

What are the different bases for departmentation?

4.

Explain in detail the factors determining the span of management.

7.10 SUGGESTED READINGS 1)

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2)

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3)

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4)

Satyaraju Parthasarathy, Management, PHI.

5)

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6)

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books.

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CHAPTER VIII DELEGATION OF AUTHORITY, CENTRALISATION AND DECENTRALISATION STRUCTURE 8.0 OBJECTIVES 8.1 INTRODUCTION 8.2 ELEMENTS OF DELEGATION 8.3 STEPS IN DELEGATION 8.4 PRINCIPLES OF DELEGATION OF AUTHORITY 8.5 ADVANTAGES OF DELEGATION 8.6 BARRIERS TO EFFECTIVE DELEGATION 8.7 ESSENTIALS FOR EFFECTIVE DELEGATION 8.8 CENTRALISATION 8.9 DECENTRALISATION 8.10 QUESTIONS 8.11 SUGGESTED READINGS

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MANAGEMENT PRACTICE 8.0 OBJECTIVES After studying this unit, you should be able to understand: 

Elements of Delegation

Steps in Delegation

Principles of Delegation of Authority

Advantages of Delegation

Barriers to Effective Delegation

Essentials for Effective Delegation

Centralization

Decentralization

8.1 INTRODUCTION In an organisation the job of a manager is to get work done by others. But it is a difficult task for an individual to perform all the work. Therefore the total work in an organisation is divided and assigned to subordinates to facilitate the accomplishment of the organizational objectives. In simple terms, delegation means assigning work to others and giving them the authority to do it. 8.1.1 Definition “Delegation is the ability to get results through others. It is the dynamic of management. It is the process a manager follows in dividing the work assigned to him so that he performs that part which only he, because of his unique organizational placement, can perform and so that he can effectively get others to help him with what remains”. - Louis A. Allen.

8.2 ELEMENTS OF DELEGATION The capacity of the manager in an organisation to do work and to take decisions is limited. He, therefore, assigns some part of his work to his subordinates and also gives them necessary authority and responsibility and also accountability to make decisions within the area of their assigned duties. The elements of delegation of authority are given below: 8.2.1 Authority: Authority is the right and power which enables the manager to command subordinates, to take decisions, to issue orders and to use organizational resources for the purpose of facilitating and ensuring the achievement of organizational objectives. Henry Fayol has defined authority as “the right to give orders and the power to extract obedience”. For example, the sales manager who is responsible for the sales of the product has the authority to direct the salesman to go and get orders from the prospective customers and the salesman is expected to obey such an order.

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8.2.2 Responsibility: Responsibility is considered to be the duty to perform the assigned tasks in a satisfactory manner. It is the obligation or duty owed by a subordinate to the superior for the proper and efficient discharge of the job for which authority has been granted to the subordinate. In simple words, when a subordinate is assigned work and granted authority by a superior, the subordinate is responsible for the performance or poor performance or for the nonperformance of the assigned job. According to Koontz O’ Donnell, responsibility “is the obligation of a subordinate, to whom a duty has been assigned to perform duty”. 8.2.3 Accountability: The term accountability is more popular in case of military organizations and public enterprises, owned and operated by the state. Accountability is the obligation of a subordinate to report back to his superior that the job assigned to him has been performed. It is the management philosophy whereby individuals are held accountable for how they use their authority and live up to their responsibility of performing pre-determined activities. According to Mc Farland accountability is “the obligation of an individual to report formally to his superior about the work he has done to discharge the responsibility”. Differences between Authority, Responsibility and Accountability

Authority

Responsibility

Accountability

Right to give orders and to use resources performance

Obligation to complete the assigned job

Obligation to report about

Can be delegated

Can not be delegated

Can not be delegated

Arises from contract responsibility

Arises from authority

Arises from

Always flows from top to bottom

Always flows from down to up

Continuous

Temporary

Temporary

Can be terminated by notice

Can not be terminated

Can not be terminated

It is primary

It is secondary

It is secondary

Always flows upward

8.3 STEPS IN DELEGATION The entire process of delegation of authority entitles the following steps: 8.3.1 Determination of the results expected: The first step in the process of delegation is that the superior has to determine the results expected from the subordinates to whom the authority is to be delegated. The clarity in these helps for achievement of organizational objectives.

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MANAGEMENT PRACTICE 8.3.2 Assignment of tasks: The second step is to determine clearly what the subordinates are expected to do. The duty or task is assigned to the subordinates according to their competency, qualifications and experience. 8.3.3 Granting of authority: Assigning duty without granting authority is meaningless. So the necessary authority is granted or delegated to the subordinates to make and implement decisions and to perform the assigned work effectively. The authority should be clearly stated preferably in writing. 8.3.4 Creating accountability: The subordinate to whom authority is delegated is made answerable to the superior for the proper and efficient performance of the assigned task. They are required to report their performance to the superior.

8.4 PRINCIPLES OF DELEGATION OF AUTHORITY Delegation of authority can be made effective by observing some of the principles. They are described as follows: 8.4.1 Principle of delegation by the results expected: Authority should be delegated to the subordinates according to the results expected from them. Delegation of more authority is likely to be wasted or misused whereas delegation of lesser authority would surely affect the smooth functioning. So the manager should define the objectives and should delegate authority. 8.4.2 Principle of functional definition: Once the objectives are set, the manager should clearly define the functions to be performed by various departments and the methods of operations to be performed. The authority delegated must be adequate to perform the functions. 8.4.3 Principle of scalar chain: The scalar principle indicates that authority and responsibility should flow from the top to the bottom of the organizational hierarchy. So that everyone understands to whom they can delegate, who can delegate to them and to whom they are accountable. 8.4.4 Principle of level of authority: The superior should give necessary freedom to his subordinates to operate within their scope of authority. Subordinates should refer only those matters to the superior which can not be made at their level. 8.4.5 Principle of unity of command: A person can not work under two masters. This principle requires that only one supervisor must delegate authority to a particular subordinate. It facilitates to exactly fix responsibility on the subordinates and hold him accountable for the performance.

8.5 ADVANTAGES OF DELEGATION The advantages of delegation of authority are given below:

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MANAGEMENT PRACTICE 8.5.1 Reduction in the work load of managers: Delegation of authority leads to a reduction in the work load of managers by assigning some part of their work to his subordinates. Delegation relieves the manager from heavy work load and enables them to concentrate on important policy matters. 8.5.2 Quick decisions: Through delegation, decisions can be made quickly as soon as a deviation occurs or the situation demands without consulting the superiors. It would save a lot of time. 8.5.3 Motivation: Delegation of authority increases the status of subordinates. It improves their confidence level and increases their job satisfaction and morale. Such motivation and morale created by delegation made them to put in their best efforts towards the accomplishment of organizational objectives. 8.5.4 Specialization: Delegation is made to the subordinates according to their experience and qualification which helps managers to obtain the specialized knowledge and expertise of the subordinates. 8.5.5 Growth and expansion: Delegation of authority helps to create a formal organizational structure. It provides flexibility to the existing organisation structure by adding more layers depending on the growing needs of the organisation.

8.6 BARRIERS TO EFFECTIVE DELEGATION The advantages discussed above state that delegation of authority is vital for the most efficient functioning of an organisation. But many managers are found unwilling to delegate authority and many subordinates are found unwilling to accept it. 8.6.1 Reluctance to delegate: Love for authority: Autocratic managers want to keep all the authority in their hands. Such managers like to make his importance by forcing subordinates to approach them to get their decisions approved. Lack of trust in subordinates: The superior may not delegate authority if he has lack of confidence about his ability. Since the superior is responsible for the action of his subordinates, he may not be willing to take risk. Fear of subordinates’ advancement: Some managers may feel insecure in delegating authority especially when the subordinates may excel in their job and the good performance might earn them a promotion where the superior would lose a good subordinate and may work under his subordinates. Fear of exposure: Some managers do not delegate if they feel that they are incompetent and has lack of ability to direct their subordinates.

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8.6.2 Reluctance to accept delegation: Fear of criticism: The subordinates may not accept delegated tasks because of their fear of criticism by their superior in case of failure. Lack of self confidence: Sometimes, a subordinate may refuse to take up delegated tasks as they may lack selfconfidence in doing the job. Lack of information: Subordinates are reluctant to accept the tasks when they feel that there is no adequate information and resources to discharge their duties properly. Lack of incentives: Subordinates may not come forward to accept extra responsibility when they feel that there is no adequate incentive in the form of higher salary or promotional opportunities.

8.7 ESSENTIALS FOR EFFECTIVE DELEGATION The following measures may be used to make delegation effective: 

Before delegating authority, the objectives must be clearly defined.

The

authority,

responsibility

and

relationships

of

each

individual

in

the

organisation should be put in writing. 

Subordinates should be motivated by providing incentives.

Subordinates should be given proper training.

Proper control techniques should be developed.

Subordinates should be accountable to only one superior.

Managers should provide adequate information and resources to subordinates for effective delegation.

8.8 CENTRALISATION Centralization of authority is the philosophy of top management which refers to the location of decision-making authority in an organisation. In a centralized organisation, top management has the absolute authority for making most of the decisions. Middle and lower level managers are given only little authority. Louis A. Allen defines centralization as “the systematic and consistent reservation of authority at central points within the organisation”. In centralization, control and decision-making are at the top levels of the management.

8.9 DECENTRALISATION Decentralization of authority is an opposite term of centralization of authority where authority is dispersed throughout the organisation. In other words, dispersal of authority and power of decision-making among middle level managers and specially, lower level managers and minimum authority is kept by the top management. Louis A. Allen defines decentralization of

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MANAGEMENT PRACTICE authority as “the systematic and consistent delegation of authority to the levels where the work is performed”. Centralization and decentralization are relative terms and no organisation can be fully centralized or fully decentralized. They exist together. Every organisation has to decide as to how much decision making authority should be centralized in the hands of top management and how much should be distributed among the managers at middle and lower levels. The degree of centralization and decentralization varies from one organisation to another. An organisation should always strike a balance between centralization and decentralization. In the words of Henry Fayol, “everything which goes to increase the subordinate’s role is decentralization; everything which goes to decrease it is centralization.” 8.9.1 Factors determining the degree of Centralization/Decentralization: The following factors should be considered while determining the degree of centralization or decentralization in an organisation: Size of the organization: In a large and complex organisation, there is a need for decentralization. In a small organisation most of the decisions are taken by the top management.

History of the organization: An organisation which has grown internally shows a tendency to keep authority centralized. On the other hand, if it is expanded through absorption or amalgamation, it is likely to be more decentralized. Management philosophy: Top management philosophy is the most dominating factor in determining the degree of centralization and decentralization. When top management believes in individual freedom, there will be a high degree of decentralization. Availability of managers: If adequate number of managers and competent personnel are available, it is advisable to go for decentralization. If better quality managers are not available, there is more chance for centralization. 8.9.2 Advantages of Centralization/Limitations of Decentralization Centralization and decentralization are exactly opposite to each other. Therefore, the advantages of centralization become limitations of decentralization and limitations of centralization become advantages of decentralization. Hence, the evaluation aspect of centralization and decentralization is given below: Co-ordination/Lack of co-ordination: There are lesser problems of co-ordination under centralization because decisions are taken by a small group of managers at top level of management. In decentralization, due to substantial autonomy of each department, co-ordination poses a serious challenge to top management.

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MANAGEMENT PRACTICE Lower/Higher cost of administration: In a centralized organisation, the cost of administration is lesser because it can operate with a limited number of managers. In a decentralized organisation, the cost of administration is higher because a large number of managers are to be recruited and trained. Standardized/Non-standardized policies and procedures: Centralization provides opportunity to develop standardized policies and procedures which facilitates smooth functioning of an organisation. In decentralization, policies and procedures may not be applied uniformly across all the units. Each department may formulate its own policies and procedures.

Retention/Loss of control by top management: In centralization, top management retains tight control over the whole organisation because control and decision-making power reside at the top level of management. Under decentralization top management’s control over the organisation is lost as it dispersed the powers to the lower levels of management. Less/More conflicts: Centralization discourages inter-departmental conflicts because major decisions are taken at top level management. In decentralization, differences in opinions of top management and unit heads can often lead to conflicts. Mature/Risky decision-making: In centralization, top management because of its experience and broad outlook, is more mature in decision-making. In decentralization, lower level managers because of their less experience and narrow outlook are less mature in decision-making which carry the chance of being high risky. 8.9.3 Limitations of Centralization/Advantages of Decentralization: Burden on top executives/Relief to top executives: Centralization of authority increases the work burden of executives and decentralization helps to reduce the work load of top managers. They can devote greater time and attention to important policy matters. Demotivation/Motivation of subordinates: Centralization demotivates subordinates to work because of the non-fulfilment of their ego needs. Decentralization helps to improve the status of subordinates which motivates them to work. Delayed/Quick decision-making: Under centralization, authority to make decisions rests with the top management which delays decision making because top management is burdened with many organizational problems. Under decentralization, there is quick decision making as authority to make decisions is dispersed among middle and lower level managers.

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MANAGEMENT PRACTICE Organizational growth retarded/facilitated: As top management is already burdened with many issues, it hardly finds time to think over organizational growth. But decentralization facilitates organizational growth because each division is given sufficient freedom for innovation and creativity. Autocratic/Democratic management: Top management with its tight control over the entire organisation may not hesitate to impose autocratic policies on the organisation is the limitation of centralization. Decentralization allows lower level managers to make decisions which leads to democratic management.

8.10 QUESTIONS i)

Very Short Answer Questions:

1.

Define power.

2.

Define authority.

3.

Define responsibility.

4.

What is delegation?

5.

What is centralization?

6.

What is decentralization?

ii)

Short Answer Questions:

1.

Explain the meaning and process of delegation of authority.

2.

Discuss the principles of delegation of authority.

iii)

Essay Type Questions:

1.

What should be done to ensure effective delegation of authority?

2.

Discuss the relative merits and demerits of decentralization of authority.

3.

Discuss the merits and demerits of centralization.

8.11 SUGGESTED READINGS 1)

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2)

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3)

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4)

Satyaraju Parthasarathy, Management, PHI.

5)

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6)

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books

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CHAPTER IX FUNDAMENTALS OF STAFFING STRUCTURE 9.0 OBJECTIVES 9.1 INTRODUCTION 9.2 IMPORTANCE OF STAFFING 9.3 ELEMENTS OF THE STAFFING PROCESS 9.4 MANPOWER PLANNING 9.5 JOB ANALYSIS 9.6 RECRUITMENT 9.7 SELECTION 9.8 PLACEMENT AND ORIENTATION 9.9 TRAINING AND DEVELOPMENT 9.10 PERFORMANCE APPRAISAL 9.11 QUESTIONS 9.12 SUGGESTED READINGS

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MANAGEMENT PRACTICE 9.0 OBJECTIVES After studying this unit, you should be able to understand: 

Meaning and Definition of Staffing

Importance of Staffing

Elements of the Staffing Process

Manpower Planning

Job analysis

Recruitment

Selection

Placement and Orientation

Training and Development

Performance Appraisal

9.1 INTRODUCTION Management has been defined as achieving objectives through people and through the use of resources. In order to effectively utilize the resources the plans are formulated and an organisation structure is developed. It is important to have a good organisation structure, but it is even more important to fill the jobs with the right people. Filling the positions provided by the organisation structure with the right people is known as staffing. Staffing is the third element in the functions of management. It is the process of acquiring, developing, employing, appraising, remunerating and retaining people so that right type of people are available at right positions and at right time in the organisation. In today’s business environment, the staffing process is renamed as Human Resource Management (HRM). The people who work in the organisation i.e. human resources are considered as the most important resource of an organisation. The managers must recognize the potential of human resources, and then acquire, develop and retain these resources. 9.1.1 Definition Staffing is the process of matching the jobs with the people of right quality. It is concerned with the selection, placement, training and development of people in an organisation. “The managerial function of staffing involves manning the organisation structure through proper and effective selection, appraisal and development of personnel to fill the roles designed into the structure.” - Koontz and O’ Donnell.

9.2 IMPORTANCE OF STAFFING Among the various factors of production which are used in an organisation, human factor is the most important. Realizing its importance, in almost all organizations, a separate department is created known as Human Resource Department under the supervision and

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MANAGEMENT PRACTICE control of a person called Human Resource Manager. Human Resource Management forms a crucial function in all organizations irrespective of their sizes. The following points explain the importance of staffing: 9.2.1 Key to other managerial functions: Staffing is the most important function for the success of other functions such as planning, organizing and directing. Plans will not yield better results, unless right kind of people are appointed. The various job positions created in the organisation structure must be filled with the right kind of people to perform their duties. Similarly, unless right kind of people are selected, it will be difficult to direct and to get things done. 9.2.2 Realization of organizational goals: An organisation having the right kind of people can keep its activities on the right path and achieve the objectives smoothly without any hindrances. 9.2.3 Development of competencies of personnel: It helps in identifying talented and competent workers and developing them to the fullest of their potential by way of orientation, training and development to move up the corporate ladder. 9.2.4 Job satisfaction: Job satisfaction is the most important driving force to retain the efficient employees in the organisation. Staffing improves job satisfaction and morale of employees through objective assessment and fair compensation of their contributions.

9.2.5 Optimum utilization of human resources: Staffing hires right kind of people to fill vacancies, to develop their skills through training and to maintain them by creating favourable conditions of work. This helps in the optimum utilization of the human resources and thereby minimizes the cost of labour.

9.3 ELEMENTS OF THE STAFFING PROCESS The staffing process is an ongoing function that aims to keep the organisation supplied with the right people in the right positions, when they are required. The following elements are involved in the staffing process: 

Human Resource/Manpower Planning

Job Analysis

Recruitment

Selection

Placement and Orientation

Training and Development

Performance Appraisal

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MANAGEMENT PRACTICE 9.4 MANPOWER PLANNING Human Resource Planning also known as Manpower planning is the starting point in staffing functions of management. According to Geisler, “Manpower planning – including forecasting, developing, implementing and controlling – by which a firm ensures that it has the right number of people and right kind of people, at the right place, at the right time, doing things for which they are economically most suitable”. Thus it is the process of getting the right number of qualified people into the right job at the right time. 9.4.1 Importance of Manpower Planning: Effective human resource planning provides the following benefits: 

It defines future personnel need so that advance preparation may be made for procurement and development of the required personnel.

It helps for the survival of the organisation in the growing global competition where the organisation exists.

It ensures a continuous supply of personnel with requisite skills when the organisation wants to expand its scale of operations.

It helps in controlling manpower costs by avoiding shortage or excess in manpower supply.

It reveals the potential and shortcomings of existing personnel.

9.4.2 Manpower Planning Process The process of manpower planning consists of the following steps: 9.4.2.1 Forecasting manpower needs: It involves assessing how many people are required in the organisation in the future and what abilities they are required. The anticipated growth of the organisation, budget constraints, anticipated internal turnover and introduction of new technology are some of the essential factors that need to be considered while forecasting manpower needs. 9.4.2.2 Current manpower inventory: The organisation estimates the number and quality of its current employees and the available external supply of workers. The management has to explore both internal and external sources of supply for the replacement needs. Promotion is one of the internal source and advertisements and employment agencies are the external sources of supply. 9.4.2.3 Identifying manpower gaps: After estimating the demand and supply of human resources, managers should compare the existing number of personnel and their skills with the forecasted manpower need to determine the quantitative and qualitative gaps in the workforce. 9.4.2.4 Formulating manpower plans: After determining the net requirement for manpower, efforts are made to match the available manpower with organization’s needs. If it needs additional manpower, plans should be made for promotion or recruitment, selection and training of new personnel. An organisation which has more human resources than demand can resort to expansion of existing operations, layoffs, voluntary retirements etc.

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9.5 JOB ANALYSIS Job analysis is a process of collecting and analyzing facts of a job with a view to identify its contents and the characteristics of the person who is likely to perform the job. According to Flippo, “Job analysis is the process of studying and collecting information relating to the operations and responsibilities of a specific job. The immediate products of this analysis are job descriptions and job specifications.” Thus job analysis is a formal and detailed examination of jobs. Elements of Job Analysis The two elements of job analysis are: Job description and Job specification. 9.5.1 Job Description: Job description is a written statement showing job title, tasks to be performed, duties and responsibilities involved in a job, the working conditions and hazards and the relationship of the job with other jobs. Flippo has defined Job Description as “an organized, factual statement of duties and responsibilities of a specific job. In brief, it should tell what is to be done, how it is done and why”. Contents: A job description contains the following information: 

Job title, code number and the department

Activities or tasks to be performed

Job responsibilities

Working conditions

Materials, tools and equipments

Supervision level

Relationship with other jobs

Job location

9.5.2 Job Specification Job description provides various features of the job whereas job specification describes the various features of the job-holder. Job specification is a statement of minimum acceptable qualities required for the effective performance of the job. It is also known as man specification or employee specification. It specifies the knowledge, education, experience, skills and abilities required to perform a particular job. Flippo has defined Job Specification as “a statement of minimum acceptable human qualities necessary to perform a job properly. It is a standard of personnel and designates the qualities required for acceptable performance.” Contents: A job specification contains the following information:

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Personal characteristics such as age, sex, education, experience etc.

Physical characteristics such as height, weight, vision, hearing, health, voice etc.

Mental characteristics such as general intelligence, memory, judgement, etc.

Social and psychological characteristics such as emotional stability, flexibility, manners creativity etc.

9.6 RECRUITMENT Once the requirement of manpower is known and the job analysis is done, the process of recruitment starts. Recruitment is the process of identifying the sources of prospective candidates and attracting them to apply for the jobs. According to Flippo, “Recruitment is the process of searching for prospective employees and stimulating them to apply for jobs in the organisation.” 9.6.1 Sources of Recruitment: The sources of recruitment can be broadly divided into two categories: Internal sources and External sources. 9.6.1.1 Internal Sources: Internal recruitment involves identifying the potential candidates within the organisation. Whenever a higher level vacancy occurs, someone from within the organisation is upgraded, promoted or transferred to another department or location. Advantages Economical and convenient Enhances employee morale Sense of security among employees Prevents high quality employees from leaving the organisation Reduces productivity Improves industrial relations

Disadvantages Lack of new ideas Required talent may not be available Reduces competitiveness Job security even to incompetent persons Need for expensive training programs

9.6.1.2 External Sources Most organizations cannot fill their manpower needs from within and hence they look for outside sources. External recruitment involves attracting people from outside the organisation to apply for vacant positions in the organisation. Advertisement, Educational institutions, Employment agencies, Voluntary applicants, Employment exchanges, Referrals by current employees, Jobbers and Contractors and employees of the competition are the various external sources of environment. Advantages

Disadvantages

Wide choice

Expensive process

Influx of new ideas employees

Discouragement amongst existing

Better qualified and skilled persons

Time consuming process

Improves productivity

Lack of reliable information

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MANAGEMENT PRACTICE 9.7 SELECTION Selection is one of the important steps in the staffing process which involves choosing the right candidates who have relevant qualifications to fill jobs in an organisation. The aim of selection should be to choose candidates who can meet the organization’s goals from the available candidates. According to Stone, “Selection is the process of differentiating between applicants in order to identify those with a greater likelihood of success in a job.” The whole process from the stage of receiving applications up to the stage of actual recruitment is called selection. 9.7.1 Steps in Selection Procedure Selection is the process of finding the most suitable candidate who would perfectly match the requirements of the job. The selection process consists of the following steps: 

Receipt of applications

Scrutiny of applications

Preliminary interview

Application blank

Selection test

Selection interview

Medical examination

Reference check

Final approval

9.7.1.1 Receipt of applications: After estimating the manpower requirements, the organization tries to recruit through internal and external sources. In case of external sources the interested candidates send their applications along with their resume for the posts called for. The management gets the details of candidates either by specific application form or general application form. 9.7.1.2 Scrutiny of applications: The applications received are thoroughly scrutinized with regard to the required qualifications and experience. Candidates fulfilling criteria are sent communication for preliminary interview. 9.7.1.3 Preliminary interview: Those who are selected for interview on the basis of particulars furnished in the application are called for preliminary interview. The preliminary interview is used to make a quick evaluation of the applicant’s suitability for the particular job. It provides basic information about candidates and its main purpose is to eliminate the totally unsuitable candidates. 9.7.1.4 Application blank: Candidates who pass the preliminary interview are usually required to fill up a blank application form specially designed to obtain the required information about the candidate. It includes information about reasons for applying, expected salary, reasons for leaving the previous job, positions last held and time spent with last employer.

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MANAGEMENT PRACTICE 9.7.1.5 Selection tests: For further assessment of a candidate’s nature and abilities, some tests are used in the selection procedure. A selection test also measures certain psychological factors such as ability to reason, capacity for leading, temperament, specific aptitudes and physical abilities. Selection test may give information which cannot be known by application forms. There are different kinds of tests used in the selection process: a) Intelligence test: This test is used to find out the candidate’s intelligence of mental capacity. This test generally includes word fluency, memory, reasoning, speed of perception, visualization etc. By using the above, the candidate’s mental alertness, reasoning ability, power of understanding etc. are judged. The level of intelligence is measured in terms of Intelligence Quotient (I.Q.). b) Personality test: Personality test is used to measure the characteristics of a candidate which constitute his personality such as self-confidence, emotional stability, initiative, judgment, integrity etc. The Thematic Appreciation Test is a widely used personality test. c) Aptitude test: This test measures the applicant’s capacity to learn the skill required for a job. These tests indicate whether or not an individual has the ability to learn a given job quickly and efficiently. It helps in finding out whether a candidate is suitable for a clerical or a mechanical job. d) Interest test: This test is designed to discover a person’s area of interest and to identify the kind of jobs that is of his special concern, fascination and involvement. e) Achievement test: This test is also known as performance test or trade test or proficiency test. It is used to measure the candidate’s level of knowledge and skill in the job. For example, a candidate for a post of salesman may be asked to attend to a prospective customer to find out his convincing ability. 9.7.1.6 Selection interview This is the most essential step in the selection process where oral examination of candidates in conducted. It is a face-to-face talk between the employer and the candidates. This personal interview provides an opportunity to give relevant information about the organisation to the candidates. 9.7.1.7 Medical examination Physical or medical examination is carried out to check the physical fitness of the candidate for the job applied for. Certain jobs require certain physical qualities like clear vision, perfect hearing, clear tone etc. Some organizations accept the medical certificate obtained by a candidate from a qualified physician. Some require the candidate to pass the fitness test conducted by an expert appointed by the organisation.

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MANAGEMENT PRACTICE 9.7.1.8 Reference check Once the interview and medical examination of the candidate is over, the candidates are required to provide some references who can be contacted by the organisation if it wishes to know about the character and suitability of the applicant. Reference checks can be obtained by mail, by telephone and in person. 9.7.1.9 Communication of selection and final approval The applicant who qualifies in the selection test, interview, reference check and physical examination are now considered to be eligible to receive an offer of employment. If a candidate accepts the offer, he is formally appointed by issuing an appointment order or by entering into a service agreement with him. The appointment order contains the terms and conditions of employment.

9.8 PLACEMENT AND ORIENTATION The process of placing the selected candidates on a suitable job is known as placement. Placement is the actual posting of an employee to a specific job. It involves assigning authority and responsibility to do a specific job. A misplaced person is always a frustrated individual. Proper placement reduces labour turnover, absenteeism and accidents. In most organizations, the placement may be on probation, the period of which may range from six months to two years. After successful completion of the probation period, the candidate may be offered permanent employment. Orientation or induction is the process which involves introducing the new employees to the organisation and its policies, procedures, rules and regulations. The purpose of orientation is to ensure that the new employees get acquainted with the work environment and fellow employees. A formal orientation programme which aims to familiarize the employees with the working of the organisation generally provides information regarding the following: 

History of the organisation

Mission and objectives of the organisation

Products and services of the organisation

Organisation structure

Personnel policies and practices

Rules and regulations

Working conditions etc.

9.9 TRAINING AND DEVELOPMENT Training is an organized process which follows the selection of the right persons for a job. Training is the act of increasing the knowledge and skill of an employee for doing a particular job. The purpose of training is to improve the efficiency of the employees. It enables an employee to do his present job more efficiently and to prepare himself for a higher level job.

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MANAGEMENT PRACTICE Development is a wider concept when compared to training. Training has been referred to as teaching the basic skills and knowledge required for a particular job. But development involves the growth of the individual in all aspects. It is the overall development of the competency of managerial personnel in the light of the present requirement as well as the future requirement. Training is job-centred and for short term whereas development is careerbound and for long term. 9.9.1 Objectives of Training The employees should be given training to improve their knowledge, skill and performance on the job. The objectives of training are given below: 

To impart the basic knowledge and skill related to the job.

To make use of scarce resources efficiently.

To improve the abilities of employees.

To educate the employees with latest technology.

To equip the employees to meet the external changes in the environment.

To stimulate productivity and growth.

9.9.2 Advantages of Training Increased productivity: Training improves the job knowledge, skill and performance which in turn improve the quality and quantity of the product. As a result, the productivity of the organisation also increases. High morale: Training programmes build up confidence and satisfaction among employees. This positive attitude helps to increase the morale of the employees and helps to reduce absenteeism and turnover.

Less supervision: Trained employees need less supervision and guidance. They want freedom and autonomy in their work. The span of management can be increased with the help of reduced supervision which result in less cost of supervision. Better human relations: Training helps to increase the quality of human relations in an organisation. Growing complexity of organisation has led to various human problems like inter personal and intergroup problems. Many of these problems can be overcome by suitable human relations training. Improves safety: Accidents are generally arising due to untrained employees. Proper training can prevent industrial accidents and create a safer work environment. Efficient use of resources: Trained employees use machines, materials and tools in a proper way. Wastage is thus eliminated to a greater extent. The maintenance cost is thus reduced.

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MANAGEMENT PRACTICE 9.9.3 Methods of Training: Training programmes should be planned in such a way that individual needs should be in accordance with the organizational needs. Training methods are means of attaining the desired objectives in a learning situation. The methods of training are broadly classified into: On-the-job Training and Off-the-job Training 9.9.3.1 On-the-job Training This method is the most widely used method and the worker is given training at the workplace by his superior. Thus it is keeping the worker on the job under close supervision of a trained instructor. Employees are exposed to the real work situation. This training may be on a specific job or by moving employees from job to job, which is known as job rotation. Some of the widely used On-the-job training methods are given below: Job Rotation: This refers to the movement of employees from one job to another job or from one plan to another plan within the organisation. This would help the trained to be familiar with different aspects of the organizational operations which results in broadening of outlook and exposure to a variety of managerial skills. Coaching: Coaching involves direct personal instructions and guidance usually with demonstration and continuous critical evaluation and correction. In this technique, the trainer and the trained work together. Apprenticeship training: This method of training is meant to give the trainee sufficient knowledge and skill in those trades such as electricians, mechanics, tailors and carpenters in which a long period of training is required for gaining complete proficiency. Demonstration: In demonstration method of training, the trainer describes and displays something when he trains the people. The usual process is to perform the activity by the trainer in front of the trainees and to explain the various steps involved in the completion of a job. Vestibule training: This method involves the creation of a separate training centre within the plant itself for the purpose of providing training to the new employees. The main advantage of this method is that there is no interference with regular production. Refresher training: This method of training is suitable for the organisation which uses the techniques prone to rapid changes. Rapid changes in technology force companies to go for refresher training which is designed to revive and refresh the knowledge and up-to-date the skills of the existing employees.

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MANAGEMENT PRACTICE Orientation training The purpose of this method of training is to familiarize the newly recruited people with the working of the organisation; so that they can concentrate on their work with efficiency. 9.9.3.2 Off-the-job Training Off-the-job training programs are used outside the work setting. Under these methods, the worker is given training away from the workplace. The main advantage of this method is that the trainee is not distracted by job requirements; he can place his entire concentration on learning the job rather than spending his time in performing it. Off-the-job training methods are as follows: Lectures: It is a traditional and direct method of instruction. Under this method, a subject expert is invited from outside or from within the organisation to deliver lectures and to explain issues to a group of trainees in a classroom setting. Role play: The role playing techniques induce people to assume the role of a specific individual under specific organizational conditions. Each role player is expected to react to other role playing participants in the group. Case study: In this technique, an actual business situation is presented to the trainee in writing and in a comprehensive manner. The trainee is asked to identify the problems in the case, analyze the situation and suggest solutions. Conference: In this method, the executive interact freely to express pool and share their ideas, experiences as to different work situation. It is an effective method as people get the opportunity to learn from other’s experience. Sensitivity training: It is also known as laboratory or T – group training which is given to small group of people. The main purpose of providing sensitivity training is to develop capabilities and improve behavioural pattern of employee especially with regards view and feelings of others. Management game: Management game or business game is another popular technique which is used at management education level which is involvement-oriented process for skill development, particularly analytical and group processes. There may be different types of management games based on the type of skills they inculcate. These are skill games – to develop analytical skills, communication games – to develop biased free listening and talking, teambuilding games – to develop skills for collaborative efforts, and strategic games – to develop skills to plan ahead.

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9.10 PERFORMANCE APPRAISAL Performance Appraisal is the process of assessment of employee contribution to the success and growth of an organization. The assessment or evaluation of the performance of employees serves as a basis for judging the contributions and weaknesses of employees so that continuous efforts can be made to build a stronger and more effective work force. 9.10.1 Definition: “Performance Appraisal consists of all formal procedures used in working organizations to evaluate personalities and contributions and potentials of group members.” -

Dale Yoder.

9.10.2 Objectives of Performance Appraisal: 

To provide compensation, managers need performance appraisal to identify employees who are performing at or above.

To find out the potential of employees for promotion and development.

To identify the strengths and weaknesses of an employee for devising training and development programmes.

To provide feed back to employees that how well he is doing on the job.

To judge the effectiveness of selection and placement.

9.10.3 Methods of Performance Appraisal As performance is multi-dimensional, performance appraisal methods must also consider the various aspects of a job. There are a number of performance appraisal methods available and care must be taken to select a method which is most suitable for a given candidate for such appraisal. The most widely used methods for appraisal focus on employee behaviour or on performance results. Thus it may either be trait approach or result approach. 9.10.3.1 Appraisal based on Traits: Behaviour-oriented appraisal focuses on employee behaviour. Appraisal based on traits and behavioural patterns shown in job performance emphasizes various traits which the appraiser possesses and the behaviours he adopts in performing his job. There are various methods of performance appraisal based on traits which are discussed below: Ranking method: This is the oldest and simplest method of performance appraisal in which an employee is compared with all other employees and places him in a simple rank order. In this way, ranking is done from best to worst of all individuals comprising the group.

Paired comparison method: In this method, the rater compares each employee in his group with every other employee. With the final ranking of each employee determined by the number of times he was judged better than others. It can be determined with the following formula: Number of comparisons =

N (N-1)

2 Where, N is the total number of persons to be compared. Grading method:

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In this method, certain categories of abilities or performances are defined well in advance and persons are put in a particular category depending on their traits and characteristics. Such categories may be definitional like outstanding, good, average, poor, very poor or may be in terms of letters like A, B, C, D etc. with A indicating the best and D indicating the worst. The actual performance of the employees is measured against these grades. Forced distribution method: In this method, certain categories of ability are established and certain percentage of marks is assigned for each grade. The rater is forced to distribute the ratings fairly among different grades eg poor 10%, below average 10% etc. Forced choice method: The forced choice method contains a series of group of statements and the rater checks how effectively the statement describes each individual being evaluated. This method was developed to eliminate bias of high ratings that might occur in some organizations. Check list method: A check list is a list of statements that describe the worker and his behavior. Each statement is assigned a weight or value depending upon its importance. The rater writes ‘yes’ or ‘no’ against each statement depending upon whether it is applicable to the worker being rated or not. An individual’s rating is determined by adding together the weights of statements applicable to the individual. The following are some of the sample questions in the checklist: Is he hard working? Does he follow instructions properly?

Yes/No Yes/No

Critical incidents method: In this method, the first step is to draw-up for each job a list of critical job requirements, that is, those requirements which are vital for success or failure on the job. These critical incidents, both good and bad are recorded so that the supervisor has some factual basis for discussion during evaluations. Graphic Rating Scales: This method of appraisal requires the rater to rate the employee on factors like quantity and quality of work, job knowledge, dependability, punctuality, attendance etc. Graphic rating scale includes numerical ranges as well as written descriptions. These traits are evaluated on a ‘continuous’ scale from unsatisfactory to outstanding, wherein the rater puts his mark somewhere along this scale based on his judgement of that particular trait. 9.10.3.2 Appraisal by Results: In order to overcome the limitations of traditional methods of appraisal, various new techniques have been evolved and they are referred to collectively as modern techniques. These modern techniques are based on results. Thus conclusions are based on observation of actual performance rather than superior’s opinion of the individual. Appraisal by results draws its root from Management by Objectives (MBO) and the process of result-oriented appraisal consists of the following steps:

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MANAGEMENT PRACTICE 

Appraisal by result is a joint process whereby the subordinate discusses his job descriptions with his superior.

The subordinate prepares a plan for a specified period eg. six months or one year.

Through mutual consultation, the final target to be achieved by the subordinate and superior’s supporting role are fixed.

At the end of specified period, normally one year, the superior makes a performance evaluation of subordinate on the basis of mutually agreed criteria.

9.10.4 Obstacles to Effective Appraisal The main barriers to effective performance appraisal are as follows: Faulty assumptions: Very often performance appraisal is not effective due to unrealistic assumptions on the part of both superiors and subordinates. For example, some managers consider the appraisal system as perfect and expect too much from it. They rely too much on it. In reality, no appraisal system is absolutely perfect. Psychological barriers: The effectiveness of appraisal depends upon the psychological characteristics of managers to a great extent. Managers’ feeling of insecurity, the tendency to consider appraisal as extra burden, unwillingness to communicate etc. are the principal psychological characteristics that inhibit appraisal. Poor appraisal forms: The design of performance appraisal forms is sometimes not clear-cut and poor. The rating scale used in the appraisal forms is quite vague and unclear. 9.10.5 Essential characteristics of an Effective Appraisal System: 

Appraisal forms, procedures, ratings etc. should be standardized.

Before an appraisal system is established, its objectives should be defined clearly.

Appraisal system should provide consistent, reliable and valid information which can be used to defend the organisation.

The raters should be carefully selected and trained.

The appraisal forms should be designed without any technical pitfalls.

The rating should be discussed with the person concerned.

9.11 QUESTIONS i)

Very Short Answer Questions:

1.

Define staffing.

2.

Define man power planning.

3.

Define job analysis.

4.

Define job specification.

5.

Define job description.

ii) 1)

Short Answer Questions: What is recruitment? What are its sources?

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MANAGEMENT PRACTICE 2)

Explain induction or orientation and placement.

3)

What is training and development? What are its objectives?

4)

What is performance appraisal? What are its objectives?

5)

Discuss the methods of performance appraisal.

iii)

Essay Type Questions:

1)

What is selection? Discuss the process of selection.

2)

Discuss the methods of training.

3)

Briefly explain the steps involved in hiring human resources in an organisation.

9.12 SUGGESTED READINGS 1)

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2)

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3)

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4)

Satyaraju Parthasarathy, Management, PHI.

5)

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6)

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books

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CHAPTER X DIRECTION, SUPERVISION, LEADERSHIP AND MOTIVATION STRUCTURE 10.0 OBJECTIVES 10.1 DIRECTION 10.2 SUPERVISION 10.3 LEADERSHIP 10.4 MOTIVATION 10.5 QUESTIONS 10.6 SUGGESTED READINGS

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MANAGEMENT PRACTICE 10.0 OBJECTIVES After studying this unit, you should be able to understand: 

Concepts related to Direction

Concepts related to Supervision

Concepts related to Leadership

Concepts related to Motivation

10.1 DIRECTION Direction is one of the essential functions of management. For the effective implementation of any administrative decision, planning, organizing and staffing are not enough. The manager must stimulate action by giving direction to his subordinates through orders and also supervise their work to ensure that the plans and policies achieve the desired actions and results. Thus direction is the managerial function of guiding, motivating, leading and supervising the subordinates to accomplish desired objectives. 10.1.1 Definition “Directing is a complex function that includes all those activities which are designed to encourage subordinates to work effectively and efficiently in both the short and long run.” Koontz and O’Donnell “Directing consists of the process and techniques utilized in issuing instructions and making certain that operations are carried out as originally planned.” - Theo Haimann. 10.1.2 Importance of Direction Initiates action: Both human and non-human resources should be handled properly to get the desired results. Through direction, management conveys and motivates individuals in the organisation to function in the desired way to get organizational objectives. Achieves integration: Direction secures the whole-hearted co-operation among the members of a group through good communication, supervision and motivation. It tries to integrate the efforts of individuals in a proper way.

Motivates people: The employees in the organisation are motivated to work willingly and efficiently through the process of directing. Direction provides the way to utilize the capabilities of the employees and also helps in increasing their capabilities. Facilitates changes: An organisation must adapt itself to environmental changes in order to be effective. Moreover, there are changes in organisation structure and in its members. In order to incorporate and implement these changes, management has to motivate and guide the employees.

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MANAGEMENT PRACTICE Assists stability and growth: Effective leadership, communication and motivation provide stability in the organisation. In order to survive and grow in the long run, an organisation must maintain balance in its different parts. 10.1.3 Principles of Direction Effective direction is an art. Following are the important principles, governing the application of the directing function: Harmony of Objectives: Individuals join the organisation to achieve certain objectives, that is, they want to satisfy their physiological and psychological needs while working in the organisation. They are expected to work for the achievement of organizational objectives. Maximum individual contribution: Organizational objectives are achieved at maximum level when every individual in the organisation contributes maximum towards this end. Management should adopt that direction technique which enables subordinates to contribute maximum. Unity of command: As a principle of directing, unity of command implies that one employee must be issued orders and instructions only by one superior at a time. The observance of this principle is likely to yield the best results out of the performance by subordinates. Direct supervision: Direction becomes more effective when there is a direct personal contact between a superior and his subordinates. Such direct contact improves the morale and commitment of employees. Effective leadership: Leadership is the process of influencing individuals in the organisation for goal achievement. When subordinates function efficiently, organizational goals are achieved. The subordinates are influenced through the exercise of authority and exercise of leadership. 10.1.4 Elements of Direction In performing direction function, managers use different techniques, which are known as elements of direction. The directing function of management consists of the following elements: Orders and instructions Issuing of orders and instructions is essential to direct the subordinates so that they may work efficiently and effectively for the realization of predetermined objectives. The giving of orders and instructions to subordinates is an indispensable component of directing and no manager can get things done without them. Follow-up orders and instructions: Once orders and instructions are issued, it is not necessary that these are carried out instantly. The superior has to monitor whether the subordinates have carried out orders and

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MANAGEMENT PRACTICE instructions properly. If not, he tries to find out the reasons for that and removes the obstructions. Standard practices and procedures: Besides giving specific orders and instructions, a superior may rely on various standardized organizational practices and procedures for getting things done. Standard practice simplifies the instruction to be given by a manager. Behavioural pattern: A superior provides direction to his subordinates by adopting any one of the three behavioural patterns such as autocratic, participative or free-rein. In autocratic pattern, the superior gives orders and instructions in detail as he does not involve his subordinates in decision making process. In participative pattern, decision making is a joint process between the superior and his subordinates. In free-rein pattern, subordinates are given authority to make decisions within the broad guidelines provided by the superior.

10.2 SUPERVISION Supervision is a universal function of all managers, at all levels in the management hierarchy. It implies expert overseeing of people at work in order to ensure compliance with established plans and procedures. Every executive has to supervise the work of his subordinates. The Board of directors supervises the working of the top management; the top management oversees the working of middle level managers; middle level managers supervise the functioning of lower level managers and finally, the lower level managers watch and inspect the actual performance put in by workers or operators. Every manager while performing the task of supervision is known as a supervisor. 10.2.1 Definition: “Supervision is the achieving of desired results by means of intelligent utilization of human talents and facilitating resources in a manner that provides the greatest challenge and interest to the human talent.” - George R. Terry. 10.2.2 Functions of a Supervisor: The functions performed by the supervisor are given below: 

Planning the work schedule

Assignment of jobs to individuals

Communication of orders and instructions

Provision of work facilities

Maintain teamwork and discipline

Ensure industrial safety

Handling grievances and

Submitting reports to top management

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MANAGEMENT PRACTICE 10.3 LEADERSHIP The success or failure of managers depends on their leadership qualities. If there is any single factor that differentiates between successful and unsuccessful organizations, it could be considered as dynamic and effective leadership or the lack of it. Leadership is the process of influencing the behavior of others towards the accomplishment of goals in a given situation. Leadership is an important element in the process of directing. The leader is a person who influences the attitudes and behaviours of others in group activity. 10.3.1 Definition: “Leadership is the ability of a manager to induce subordinates to work with confidence and zeal.”

- Koontz and O’Donnell.

10.3.2 Qualities of a Good Leader “A leader need not be a manager but a manager must have many of the qualities of a good leader.” Some of the qualities required to be a good leader are given below: Intelligence: The leader is expected to possess intelligence above that of his followers. He should be able to examine the problems in the right way. He should be able to pass on his directions in a simple and understandable style. Communication skills: The leader should be able to communicate goals, plans and procedures clearly and persuade the subordinates to follow his guidance. Emotional balance: A leader must hold his emotions well in control, especially in situations of a crisis nature. He should neither be crushed by defeat nor over-elated by victory. He should be free from bias, logical in his action and refrain from any demonstration of emotion such as impatience, anger or contempt for any of his followers. Empathy: The ability of a leader to look at things from others’ point of view is known as empathy. To be a good leader, the manager must understand the needs and aspirations of his subordinates. Inner drive: The desire to be a leader should come from within the individual. He should have an inner urge to accomplish the objectives. He should work for success and set an example for others. Vision and foresight: A leader should be able to visualize events well in advance. He should have high degree of imagination, foresight and determination. Human relations skills: Dealing with the people is an important role of a leader. He should maintain personal contact and should be able to recognize the problems and feelings of his followers. Technical skills: A good leader should have mastery over the technicalities of the operations in which he guides his followers. He should be able to provide guidance to the followers in a competent way and command their respect.

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MANAGEMENT PRACTICE 10.3.3 Leadership Styles The behavior pattern exhibited by a leader while influencing the followers is known as leadership style. On the basis of how leaders use their power, leadership styles can be classified into following three broad categories: a) Autocratic style b) Democratic style and c) Free-rein style a) Autocratic style: In this type of leadership, the leader alone determines policies and makes plans. An autocratic leader exercises complete control over the subordinates. He tells others what to do and how to do it. He centralizes power in himself and takes all decisions without consulting the subordinates. It is also known as directive or authoritarian style. It seems to have originated in military organizations; where, there is no provision for advice or request. Merits: 

Leads to quick decision making.

Suitable at lower levels in an organisation.

Provides strong motivation and satisfaction to the leader who dictates terms.

Demerits: 

Leads to development of frustration in subordinates.

Little scope for developing the creative potential of people.

Subordinates shirk work and avoid responsibility.

b) Democratic leadership: It is also known as participative or person oriented leadership. Under this style of leadership, a leader encourages his subordinates to participate in the decision making process. He consults them before taking decisions. Good rapport is maintained with members of the group. A democratic leader provides freedom of thinking and expression. Merits: 

Motivates people to do better.

Helps to increase motivation, morale and job satisfaction.

Develops healthy attitude towards the organisation.

Demerits:  It delays decision making. 

Individuals may dominate the participation.

Decisions get diluted.

c) Free Rein Leadership: It is also known as Laissez-Faire style. In the free rein style, subordinates are asked to set their own goals and develop plans for achieving them. The leader exercises absolutely no

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control. It is successful when subordinates are highly competent and fully dedicated to the organisation. Merits:  Scope for development of subordinates  Full utilization of the potential of subordinates  Increases job satisfaction and morale of subordinates. Demerits: 

No guidance and support of the leader.

Lack of control may lead to disruptive behavior.

Group objectives may be ignored.

10.3.4 Theories of Leadership (Approaches to Leadership): Attempts to explain and understand leadership have led to the formulation of various leadership theories. They are discussed below: 10.3.4.1 Trait theory: Trait theory of leadership is an extension and modification of Great man theory. According to this theory, successful leadership depends on certain traits or qualities possessed by a leader; some of such traits are inborn and some traits could be acquired by a person by education, training and experience. Researchers have identified the following traits of leaders: Physical qualities: sound health, endurance, enthusiasm, forcefulness. Intellectual qualities: intelligence, sound judgement, ability to teach, decisiveness. Moral qualities: integrity, fair play, moral courage, will power, objectivity. Social

qualities:

ability

to

inspire,

tact,

self-confidence,

empathy,

initiative,

persuasiveness. 10.3.4.2 Behavioural Theory The behavior approach studies leadership by looking at leaders in terms of what they ‘do’. According to this theory, leadership is shown by a person’s acts more than by his traits. The leadership effectiveness is determined in terms of how leaders delegate their tasks, how they communicate with and motivate their followers. Notable among research studies in this area are the ones conducted at University of Michigan and Ohio State University. a) University of Michigan: After studying a large number of industrial situations, the Michigan researchers identified two leadership styles of employee-centred and production-centred influencing employee performance and productivity. They prescribed employee-oriented style of leadership to increase productivity. They contended that supervisory controls and production-centred leadership style will be frustrating to the employees; affecting their morale and leading to unsatisfactory performance on the job. b) The Ohio State University Studies: After analyzing actual leadership behavior in a wide variety of situations, researchers at the Ohio State University identified two leadership

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MANAGEMENT PRACTICE behaviours - consideration and initiating structure. Consideration (C) refers to the mutual trust, friendship and warmth between the leader and his staff. Initiation structure (IS) implies the degree to which the activities of subordinates are defined and work procedures are established. 10.3.4.3 Managerial Grid: The managerial grid, developed by Robert Blake and Jane Srygley Mouton, is a popular approach for defining leadership styles. They argue that managerial behavior is a function of two variables: concern for people and concern for production. The managerial grid identifies various alternative combinations of both basic styles i.e. concern for production and concern for people. These combinations are put in the horizontal and vertical dimensions of the grid, having a scale from 1 to 9. Thus the grid has 81 possible combinations; out of which Robert Blake and Jane Mouton have concentrated only on the following five combinations: 

Impoverished: Exertion of minimum effort is required to get work done and sustain organisation morale.

Country club: Thoughtful attention to needs of people for satisfying relationships leads to a comfortable, friendly organisation atmosphere and work tempo.

Middle road: Adequate organisation performance is possible through balancing the necessity to get work with maintaining morale of people at satisfactory level.

Task: Efficiency in organisation result from arranging conditions of work in such a way that human elements interfere to a minimum degree.

Team: Work accomplishment is from committed people and interdependence through a common stake in organisation that leads to relationships of trust and respect.

10.3.4.4 Fiedler’s Contingency Model: Fred E. Fiedler provided a starting point for situational leadership research. Fiedler and his associates at the University of Illinois suggested a contingency theory of leadership, which holds that people become leaders not only because of their personality attributes, but also because of various situational factors and the interactions between leaders and followers. Fiedler’s basic assumption is that it is quite difficult for managers to alter the management styles that made them successful. According to this model, the three situational variables are: a) Leader’s position power b) Leader-member relations c) Task structure 10.3.4.5 Path Goal Theory: The Path Goal theory was developed by Robert J. House and Terence R. Mitchell. This theory attempts to explain how a leader can help his subordinates to accomplish the goals of the organisation by indicating the best path and removing obstacles to the goals. Leaders should, in a nutshell:

Clear paths, Clarify goals, Provide support, Provide rewards and

Analyze the situation, task and employee’s needs. Leaders can perform these strategic functions by adopting the certain styles of behavior such as supportive, directive, participative and achievement oriented. 10.3.4.6 Life Cycle Theory It is also known as Situational Leadership Theory, developed by Paul Hersey and Kenneth Blanchard. It focuses on the maturity of the followers as a

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MANAGEMENT PRACTICE contingency variable affecting the style of leadership. Thus, this model suggests that appropriate leader behavior depends on the maturity of the follower. Situational leadership is based on an inter-play among three variables such as task behavior, relationship behavior and the maturity of the followers.

10.4 MOTIVATION In any type of organisation, a manager must know what motivates his workers in order to make each individual employee perform to the best of his ability. Motivation is the set of forces that cause people to behave in certain ways. It is the process of stimulating person’s inner drives to action to accomplish the desired goals of the organisation. Motivation is the process of steering a person’s inner drives and actions towards certain goals and committing his energies to achieve these goals. 10.4.1 Definition: According to Stephen P. Robbins, motivation “is the willingness to exert high levels of effort toward organizational goals, conditioned by the effort’s ability to satisfy some individual need.” 10.4.2 Importance of Motivation The success of an organisation depends on how effectively managers are able to motivate their subordinates. It is an important part of managing process. The following points bring out the importance of motivation: Best utilization of resources: Motivated employees make the best utilization of all resources such as materials, machines, technology and other physical work facilities which leads to cost minimization and profit maximization. Increased efficiency: Highly motivated employees make full use of their energy and other abilities to raise the existing level of efficiency. They produce more as compared to other employees.

Achievement of goals: Motivated employees put in their best efforts towards the attainment of common objective of the organisation. They are more committed and cooperative for seeking organizational goals. Reduced labour turnover: High motivation leads to job satisfaction of workers. Opportunities for job satisfaction make employees loyal and committed to the organisation. As a result labour absenteeism and turnover are low. Better industrial relations: Motivation brings employees closer to the organisation. The needs of employees are met through attractive rewards, promotion opportunities etc. There arises a sense of belonging and mutual cooperation at all levels. 10.4.3 Theories of Motivation Numerous theories have been developed by behavioural scientists about how managements can motivate employees. These theories assist managers

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MANAGEMENT PRACTICE in understanding why an individual chooses to work, why he may continue to work for a firm for a considerable amount of time, and how to boost the morale of a worker and motivate him to produce at his or her highest possible level. Thus, motivation theories are important for managers who want to be effective leaders. Some of the popular theories of motivation are given below: 

Maslow’s Need Hierarchy Theory

Hertzberg’s Two Factor Theory

McGregor’s Theory X and Theory Y

Vroom’s Expectancy Theory

McClelland’s Need Theory

Adam’s Equity Theory

Maslow’s Need Hierarchy Theory: All people have a variety of needs. At any given time, some of these needs are satisfied and others are unsatisfied. An unsatisfied need is the starting point in the motivation process. One of the most popular explanations for human motivation was developed by the psychologist, Abraham H. Maslow, known as the ‘Need Hierarchy Theory’. Maslow identified five general types of motivating needs which are described below: 

Physiological needs: Physiological needs are also known as biological or basic or survival needs, are at the top of the hierarchy. They include needs for food, drink, clothing, shelter, sleep etc. According to Maslow, until these needs are satisfied to the degree necessary to maintain life, other needs will not motivate an individual.

Safety and Security needs: Once the physiological needs of an individual are met, the individual aims to satisfy his safety and security needs. A person wants protection from physical dangers and economic security. They include needs of being free from danger, job security, provision for old age etc.

Social needs: Social needs are also called belongingness needs or need for love. Man is a social animal. He therefore, wants association, belonging, friendship, love and affection.

Esteem needs: This level represents the higher needs of humans. Esteem needs or egoistic needs are concerned with self-respect, self-confidence, a feeling of personal worth, feeling of being unique and recognition.

Self-actualization needs: These comprise the highest level needs in Maslow’s needs hierarchy theory. Self-actualization needs are an individual’s need to realize his full potential through continuous growth and self-development.

Hertzberg’s Two Factor Theory: Frederick Hertzberg’s two factor theory of motivation is based on his research conducted among 200 accountants and engineers of Pittsburgh area, U.S.A. The respondents in the study were asked to recall instances when they were particularly satisfied with their work and instances when they were particularly dissatisfied with their work. Accordingly, he put the responses into two categories:

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Factors that present dissatisfaction, known as hygiene factors.

Factors that have positive effect on job satisfaction, known as motivators.

Herzberg mentions the following factors as hygiene factors: Salary Job security Working conditions Status Personal life

Interpersonal relationships with peers Interpersonal relationships with supervisors Interpersonal relationships with subordinates Technical supervision Company policy and administration

Hertzberg mentions the following factors as motivators: Achievement

Recognition

Responsibility

Advancement

Opportunity for growth

Work itself

Based on these results, Herzberg concluded that the presence of good job content factors leads to satisfaction, and the absence of good job content factors leads to dissatisfaction. McGregor’s Theory X and Theory Y: Douglas McGregor has developed two sets of assumptions about human behavior, describing these as Theory X and Theory Y. Theory X contains a set of negative assumptions about human behavior; and Theory Y contains a set of positive assumptions about human behavior. Theory X Assumptions Employees inherently dislike work and will try to play.

Theory Y Assumptions Employees can view work as being as natural as rest or avoid

it. Since employees dislike work, they must be coerced, controlled and threatened with punishment to achieve goals.

People will exercise self direction and self-control if they are committed to goals.

. Employees will shirk responsibilities and seek formal direction whenever possible

Under proper conditions, employees do not avoid responsibility.

Theory X assumes that lower-order needs (Maslow) dominate human behavior. Money, fringe benefits and threats of punishment play a great role in putting people on the right track. Theory Y assumes that higher order needs (Maslow) dominate human behavior. In order to motivate people fully, McGregor proposed such ideas as participation in decision making, responsible and challenging jobs and good group relations in the workplace. Vroom’s Expectancy Theory The expectancy theory of motivation was originally proposed by Victor H. Vroom. The expectancy model is based upon the belief that motivation is determined by the nature of the

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MANAGEMENT PRACTICE reward people expect to receive as a result of their job performance. There are three important elements in this model. They are: i) Valence: Valence, according to Vroom, means the value or strength one places on particular outcome or reward. ii) Expectancy: It relates efforts to performance. iii) Instrumentality: By instrumentality, Vroom means the belief that performance is related rewards. McClelland’s Need Theory: David McClelland of the Harvard University, U.S.A. has contributed to the theories of motivation by highlighting the importance of three basic needs to understand motivation. They are power needs, affiliation needs and achievement needs and are explained below: i) Need for Power (n/PWR): It is the need for exercising superiority over others. An individual’s life style is characterized by striving to compensate for feelings of inferiority complex by exercising superiority over others. ii) Need for Affiliation (n/AFF): Such people as desire need for affiliation derive pleasure from being loved by others and tend to avoid the pain of being rejected by a social group. They try to maintain pleased social relationships and console and help others in trouble. iii) Need for Achievement (n/ACH): People who desire a need for achievement have intense desire for success and an equally intense fear of failure. Accordingly, they want to be challenged and set moderately difficult goals for themselves. Adam’s Equity Theory: Equity theory of motivation was formulated by J. Stacy Adams of the United States in 1965. The theory is based on the assumption that members of an organisation expect justice, balance and fairness in treatment by their employers. There are two main variables in this theory – inputs and outcomes. Inputs are the contributions which an individual perceives that he puts into his job. Outcomes are the rewards which the individual receives from the organisation and from his job. Inputs include the employee’s training, experience, special knowledge, personal characteristics, etc. Outcomes consist of pay, promotion, recognition, status, fringe benefits etc. 10.4.4 Motivational Techniques In motivating people toward higher productivity and better performance, an important step is to identify what they want out of their jobs. People look for a variety of things when they work. To fulfill their demands and expectations, various motivational techniques are used by managers. They are as follows: Job enrichment: Job enrichment is redesigning the job as to provide for opportunities for achievement, recognition, responsibility, growth etc. by introducing challenging work in the present job of an

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MANAGEMENT PRACTICE individual. Job enrichment demands greater use of skills on the part of a person and motivates him to work by providing high status. Job enlargement: Repetitive performance of jobs creates boredom for individuals. There is a need to provide a variety of performance through job enlargement for motivating people. It is a technique to combat the ill effects of division of work through job expansion by adding closely related activities to the present job of a person. Rewards: Managers have found that job performance and satisfaction can be improved by properly administered awards. Rewards may be defined as material or psychological payoffs for the accomplishment of tasks. Rewards can be classified into extrinsic or intrinsic rewards. Extrinsic rewards include money, perks and amenities, promotion, recognition and status symbols. Intrinsic rewards are self-granted and internally experienced. Participation: The right kind of participation ensures an increase in the motivation and knowledge levels which contribute to the success of an organisation. It gratifies the need for affiliation and acceptance. MBO is the most popular and modern method of motivating employees at all levels for better performance, since it ensures participation and freedom in setting goals and achieving them. Quality of Work Life (QWL): It is a widely accepted concept and has been adopted by many large companies like Procter and Gamble. Managers see this concept as a promising means of dealing with productivity problems and workers’ grievances. Workers also see it as a means of improving working conditions and justifying higher pay.

10.5 QUESTIONS i)

Very Short Answer Questions:

1)

Define direction.

2)

Define supervision.

3)

Define leadership.

4)

Define motivation.

5)

What is job enrichment?

ii)

Short Answer Questions:

1)

What is the nature of direction?

2)

What factors are responsible for effective supervision?

3)

Explain the financial and non-financial incentives.

4)

What are the essentials of sound motivational system?

5)

Explain the importance of leadership.

6)

What are the qualities of a good leader?

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iii)

Essay Type Questions:

1.

Explain the qualities required to be an effective leader?

2.

Discuss the theory of Maslow and Herzberg.

3.

Discuss the elements and techniques of direction.

10.6 SUGGESTED READINGS 1)

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2)

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3)

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4)

Satyaraju Parthasarathy, Management, PHI.

5)

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6)

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books.

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CHAPTER XI COMMUNICATION AND CO-ORDINATION STRUCTURE 11.0 OBJECTIVES 11.1 INTRODUCTION 11.2 IMPORTANCE OF COMMUNICATION 11.3 PROCESS OF COMMUNICATION 11.4 TYPES OF COMMUNICATION 11.5 METHODS/FORMS OF COMMUNICATION 11.6 BARRIERS TO COMMUNICATION 11.7 PRINCIPLES OF EFFECTIVE COMMUNICATION/ ESSENTIALS OF GOOD COMMUNICATION 11.8 CO-ORDINATION 11.9 QUESTIONS 11.10 SUGGESTED READINGS

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MANAGEMENT PRACTICE 11.0 OBJECTIVES After studying this unit, you should be able to understand: 

Meaning and definition of Communication

Importance of Communication

Process of Communication

Types of Communication

Methods/Forms of Communication

Barriers to communication

Principles of Effective Communication/ Essentials of good communication

11.1 INTRODUCTION Communication is essential in all the management functions. It is particularly important in the function of directing. According to various surveys, approximately 70 to 80 per cent of the time of managers is spent for interaction with subordinates, superiors, peers, government officials, customers etc. The goals of an organisation are to be communicated by the manager to all the stakeholders so that goals will be achieved smoothly. Effective communication helps for effective management. 11.1.1 Meaning, Definition and Features of Communication: The term communication is derived from the Latin word ‘communis’ which means common. It is an exchange of ideas, opinions, facts, desire, information and emotions to create mutual understanding. Communication can be defined as the transfer of facts, information, ideas, suggestions, orders, requests, grievances etc. from one person to another; so as to impart a complete understanding of the subject matter of communication to the recipient thereof; and evoking the desired response from the recipient to such communication. Some popular definitions of communication are given below: Communication is “an exchange of facts, ideas, opinions or emotions by two or more persons.” - Newman and Summer. Communication is “the sum of all things, one person does when he wants to create an understanding in the mind of another. It involves a systematic and continuous understanding.” - Louis A. Allen. From the above definitions of communication, the following features are given: 

It is a two way process where information flows from sender to receiver.

It is a continuous process because a manager must always be in touch with his superiors, subordinates etc. to get things done.

It is a pervasive function because it is required in all functions of management and takes place at all levels in an organisation.

It is a social process because it creates mutual understanding between persons.

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MANAGEMENT PRACTICE 11.2 IMPORTANCE OF COMMUNICATION Good communication is necessary for the functioning of organizations, as communication helps for the co-ordination of various managerial functions of organisation. Sound communication offers the following benefits: Facilitates planning and decision-making: Communication provides necessary information for sound planning and decision-making. The accuracy of planning and the quality of decisions in an organisation much depend on the accuracy and quality of information communicated to the management. Basis of action: Plans and decisions must be effectively communicated to those who are responsible for the implementation. Communication keeps the people working in accordance with the desires of managers. Facilitates co-ordination: Communication is the foundation of group activity. In an organisation, co-ordination is facilitated when persons doing similar work are in perfect mutual understanding with one another. Communication is a good and great aid to achieve co-ordination of individual efforts. Improves human relationships: Communication is the process of passing information and understanding from one person to another. A free flow of communication through facilitating transmission of understanding, paves the way for the development of good human relations in the organisation.

Improves motivation and morale: Managers communicate the objectives, policies, rules, procedures and instructions to their subordinates. Employees communicate their grievances, problems and needs to the management. It improves morale and motivation by keeping all the people informed about what they are expected to do. Helps in effective control: Controlling is the process in which actual performance is compared with the standard performance and remedial actions are initiated by the management to correct deviations. Such remedial action is possible only when the actual performance of people and the deviations from standards are communicated to management. 11.3 PROCESS OF COMMUNICATION Communication involves the exchange of ideas or information between two persons. Therefore, the presence of at least two persons i.e. a sender and a receiver is required. The communication process consists of the following elements: 

Sender (Source) – Communication starts with the sender, who is a starting point of communication system. Sender is the person who sends a message or an idea.

Message – The message might be a fact or an idea or a request or a suggestion or an order or a grievance. It is what conveyed by the sender.

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Encoding – It refers to the process by which the sender translates his thoughts into a series of verbal and non-verbal actions such as words, symbols, gestures, graph, drawings etc. known to both the parties.

Channel – It is a medium through which the message passed from the sender to the receiver. It connects the sender to the receiver. It may be face-to-face talk, telephone, letter etc. For example, oral communication may be made through telephone or faceto-face talk while a written communication may be made through a letter.

Receiver- The receiver is the person to whom the message is transmitted. A communication is complete only when it comes to the knowledge of the intended person i.e. the receiver.

Decoding – Decoding refers to the process of translation of symbols encoded by the sender into ideas that can be understood. The more the sender’s intended message matches the receiver understands, the more effective the communication is.

Feedback – It is a response or reaction or reply by the receiver to the sender’s message. It helps the sender to determine whether the receiver correctly understood the message.

Noise – Noise is anything that has a disturbing influence on the message. It may occur at the sender’s end during transmission or at the receiver’s end. A poor telephone connection is an example of noise.

11.4 TYPES OF COMMUNICATION Communication in an organisation is the process through which two or more persons exchange their ideas. A channel or type of communication is the route through which these persons are communicating with each other. The channels of communication are classified into two categories: 11.4.1 Formal Communication: Formal communication channel is established by the management and is formally laid down in the organisation structure. Much of the communication in an organisation is taken the type of formal communication. Formal channels are deliberately created. All the policies, procedures, orders, grievances and suggestions are communicated through this channel. In a well-established organisation, communication flows in four directions. They are: a) Downward communication: The communication which moves downwards or which flows from the top management to middle and lower level management is known as downward communication. Most decisions in an organisation flow through the various levels in the organisation structure. It travels fast in the organizational hierarchy. The purpose of downward communication is to communicate policies, procedures, programmes and objectives and to issue orders and instructions to the subordinates for the smooth functioning of an organisation. b) Upward communication: The communication which moves upwards or which flows from the lower level management to middle and top level management is known as upward

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communication. It provides feedback on how far downward communications have been understood and about the progress of the work. Upward communication generally takes the forms of reports by subordinates to superiors, ideas and suggestions of subordinates to top management, complaints, grievances, protests and problems of subordinates to superiors, etc. c) Horizontal communication: This type of formal communication takes place among persons of the same level in the organizational hierarchy. It is also known as lateral or sideward communication. It promotes co-ordination and teamwork by enabling one department to work with another department. For example, a meeting between production manager and purchase manager is horizontal communication. It takes the form of letters, memoranda, telephone contacts etc. d) Diagonal communication: In this type of formal communication, the information flows among persons at different levels who have no direct reporting relationships with one another. It is also known as crosswise communication. It takes place between a manager of one department and the subordinate of another department. It helps to improve understanding between employees and enhances coordination for achieving organizational objectives. It includes the company newspaper or magazine, board meetings and bulletin board notices to communicate. Comparison between Downward and Upward communication Downward

Upward

It moves downward

It moves upward

From top management to lower management

From lower management to top management

Directive in nature

Non-directive

It travels fast

It travels slowly

Orders, instructions, policies and procedures are examples problems are examples.

Reports, ideas, suggestions, grievances, complaints and

11.4.2 Informal Communication: Informal communication is also called grapevine communication, is taking place through formal groups, existing inside or outside the formal organisation structure. It arises from the social relationships that evolve in the organisation though it is not required by the management. People who know each other in the organisation talk together informally. The grapevine is an inevitable part of organizational life. But managers should make a constructive use of it to supplement formal communication. Rumour is an untrue part of grapevine. It is an unverified belief that is in general circulation. Rumour depends on the tendency of the employees.

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Comparison between Formal and Informal communication Formal

Informal

Official and most authentic channel

Unofficial and least authentic channel

It is slow Planned and systematic

It is very fast Unplanned and spontaneous

Impersonal nature It flows in formal routes

Personal in nature It flows in any directions

Controlled by management

Uncontrollable

Rigid and inflexible

Flexible

11.5 METHODS/FORMS OF COMMUNICATION In an organisation, different methods or media is used to communicate. The choice of the method of communication depends on various factors such as nature of the message, costs involved etc. There are three methods of communication: 1. Oral communication: The most popular form of communication in all the organizations is oral communication. In oral communication, both the sender and receiver exchange their ides through oral words either in face-to-face communication or through mechanical devices like telephone, intercom etc. Studies have shown that oral communication is more effective than written communication. Merits: 

It saves time and money.

It is more effective because of direct contact between sender and receiver.

Doubts can be clarified on the spot.

Immediate feedback is available.

Demerits: 

Not suitable for lengthy communication.

No permanent record of communication.

Chances of misinterpretation are high.

Not possible when parties of communication are at distant places.

Written communication: A written communication means putting the message in writing and is generally in the form of letters, circulars, memos, reports, handbooks, manuals etc. Merits: 

Suitable for lengthy communication.

It can be kept as a permanent record.

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MANAGEMENT PRACTICE 

More clear and specific and coverage are wider.

It is a cheaper means of communication.

Demerits: 

No scope for face-to-face discussion.

It is very time consuming.

Lack of flexibility.

It is slow when parties are at distant places.

Difficult to maintain secrecy.

Non-verbal Communication: Non-verbal communication refers to messages sent through human actions and behaviours rather than through words. It is also known as gestural communication. Gestural communication is very useful to convey feelings, emotions and attitudes. It is expressed through the body such as facial expression, posture, gestures etc. A person can communicate through wave of hands, movement of eyes, tilting of head, parting of lips etc.

11.6 BARRIERS TO COMMUNICATION One of the most important problems faced by managers is the breakdown in communication due to the presence of communication barriers. Specific communication barriers are given below:

Faulty organization: In a large organisation, where the scalar chain is too lengthy distortion is the biggest problem in the transmission of the message. Too many levels in the organisation structure causing delay in transmission. According to Koontz and O’Donnell, in oral communication, nearly 30% of the information is lost in each transmission. Lack of planning: The success of communication lies on various factors such as selecting the most appropriate channel, releasing the message at the right time etc. This in turn requires proper planning. Communication would be ineffective if the manager did not devote sufficient time to plan. Poorly expressed messages: The sender may be clear about the message he wants to convey or may organize his ideas poorly or may omit certain essential details. Inadequate vocabulary, poorly chosen words, lack of coherence, awkward sentence structure and unnecessary jargons are some of the common reasons for the poor transmission of messages. Un-clarified assumptions: In communication, both the parties assume certain things and do not attempt to get their assumptions clarified. Sometimes the un-clarified assumptions or too many assumptions in the message may create confusion.

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Semantic barriers: Semantic barriers occur due to differences in individual interpretations of words and symbols. The words should be interpreted with the same meaning as was intended by the sender. The choice of wrong word or a comma at a wrong place may distort the message. Example, ‘Hang him, not’ and ‘Hang him not’. The comma alters the meaning of the above two sentences. Poor retention: The message is usually lost its accuracy if it is transmitted from one person to another in a series. This is due to poor memorization power of the people. Studies indicate that employees retain only 50 per cent of communicated information. Information overload: As dynamic changes are occurring in the environment where the organizations exist, they need to create mass of information, to be processed for effective decision making. Overload occurs when individuals receive more information than they are capable of processing. Inattention: Many people often hear but do not listen. The receivers do not pay attention to the message. Instead of listening to what is being told, people tend to remain preoccupied with their problems. Perceptual differences: Perceptual difference is one of the reasons why different individuals interpret the same communication differently. It may be due to their past experiences, education, knowledge, emotions and values.

11.7

PRINCIPLES OF

EFFECTIVE COMMUNICATION/

ESSENTIALS

OF

GOOD

COMMUNICATION Communication is the most essential management tool which is required in each managerial function. The success of an organisation depends on the good and effective communication system. The following principles may help a manager to develop effective communication system: Clarity: The sender must be clear in his mind what he wants to communicate. The message should be free from ambiguity and the language used should be simple so that the receiver can understand it easily. Adequacy/Completeness: Communication should be adequate and complete in all aspects. Incomplete message may cause delay in action. The sender should provide all the necessary information. Timing: The communication should be made at the right time. An advance communication carries the danger of forgetting on the part of the recipient and a delayed communication loses its purpose and becomes meaningless.

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Brevity: The communication should be brief. Unnecessary repetition and over elaboration should be avoided. This can be achieved by insisting that only essential data should be communicated.

Integrity: The principle of integrity of communication suggests that messages should be consistent with the objectives, policies and programmes of the organisation. It should not be conflict with the objectives, policies and programmes of the organisation. Method of communication: The method or media of communication should be carefully selected. The selection should be in

conformity

with

the

nature

of

subject

matter,

situation

etc.

Flexibility: A good system of communication should be flexible so that it can be adjusted to the dynamic changes of the environment. Effective listening: Effective listening is one of the most essential elements of effective communication. A message can never be conveyed effectively unless the receiver listens to what is being told.

11.8 CO-ORDINATION Organisation is a system where the total work is divided into various convenient parts and entrusted to individuals who are working in different departments. In order to seek smooth and effective functioning of entire organisation, these different departments are to be integrated with each other so that they work together towards the accomplishment of organizational goals. Thus co-ordination is the process of integrating the objectives and activities of separate units of an organisation, to achieve organizational goals. Co-ordination is considered as an essential part of all the managerial functions of planning, organizing, directing, staffing and controlling. 11.8.1 Definition Some of the definitions of co-ordination are given below: “Co-ordination is the process whereby an executive develops an orderly pattern of group efforts among his subordinates and secures unity of action in the pursuit of common purpose” - Dalton E. Mc Farland. “Co-ordination is balancing and keeping the teams together by ensuring a suitable allocation of working activities to the various members and seeing that these are performed with due harmony among the members themselves.”

- E.F.L. Breach.

11.8.2 Need for Co-ordination Co-ordination is the essence of management. The co-ordination harmonizes all the activities of an organisation in order to facilitate its successful functioning. The need for co-ordination arises because of the following factors:

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MANAGEMENT PRACTICE Large number of personnel: In a large organisation, the increasing number of personnel complicates the problems of coordination. Due to increase in size and complexity of operations, managers divide work into specialized departments. The greater the division of labour is the greater the need for coordination. Specialization: Specialization arises out of the complexities of modern technology and diversification of tasks and persons needed to perform them. These specialists are more interested in developing their own departments. Increasing specialization poses increasing co-ordination problems for the management. Conflicting goals: Each department of an organisation has its own goals. Similarly, each individual has his own goals. As a result, they are forced to concentrate on their personal interests sacrificing organizational interests. Co-ordination helps to avoid conflict between individual and organizational goals. It harmonizes individual and departmental goals with the goals of the organisation. Independence of units: In an organisation, every department depends on the activities of other departments to carry out its own activity. For example, the production department depends on the purchase department for the required quantity of material at the right time to engage in continuous production. Team work: In the absence of co-ordination, members of a team may be diverted and fail to achieve the objectives. The skills and efforts on various employees are to be integrated through coordination. Economy and efficiency: Co-ordination helps to achieve economy and efficiency in operations. The economy is achieved through the elimination of duplication of work and work at cross – purposes which will improve the efficiency.

11.8.3 Types of co-ordination Different types of organizational relationships are created because of various forms of organisation structure and authority relationships which require various types of co-ordination within an organisation. On the basis of scope, co-ordination may be classified into: Internal co-ordination External co-ordination On the basis of flow, co-ordination may be classified into: Vertical co-ordination Horizontal co-ordination On the basis of action, co-ordination may be classified into:

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MANAGEMENT PRACTICE Substantive co-ordination Procedural co-ordination Internal co-ordination: Co-ordination between the different units of an organisation is called internal co-ordination. It is a co-ordination among the employees of the same departments, among workers and managers at different levels, among branch offices, plants and sections. External co-ordination: Co-ordination between an organisation and its external environment consisting of investors, suppliers, customers, dealers, trade unions, competitors and government is called external co-ordination. Vertical co-ordination: Co-ordination between different levels of an organisation achieved by top management through delegation of authority is known as vertical co-ordination. For example, co-ordination between department head and subordinates. Horizontal co-ordination: It refers to producing harmony among the actions of people, working at the same level in the organizational hierarchy. For example, co-ordination between the heads of two departments viz., production and sales. Substantive co-ordination: It involves deciding what to do. Substantive co-ordination is concerned with the content of organization’s activities. Procedural co-ordination: It involves deciding how to do. It prescribes the procedure for performing those activities which have impact on more than one department. For example, in an automobile plant, organisation chart depicts procedural co-ordination while blueprint for the engine block of the car being manufactured in the plant is an aspect of substantive coordination. 11.8.4 Techniques of co-ordination The basic objective of all managerial functions is to get things done by coordinated efforts. The following are some important techniques of control: Clearly defined goals: The goals of the organisation should be clearly defined. Each subordinate would understand about his contributions towards the organizational goals. Thus clearly defined goals would facilitate the understanding and the process of co-ordination. Sound planning: Planning ensures co-ordination. The management should plan the objectives to be achieved. The policies, procedures and rules should be stated in precise terms so that members are able to achieve the desired goals. Sound organisation structure: A sound organisation structure which clearly states the lines of authority and responsibility of each individual is an essential condition of co-ordination. It helps in avoiding inter-personal conflicts. Managerial hierarchy: The simplest technique for achieving co-ordination is hierarchy or chain of command. The chain of command states the relationship between a superior and a subordinate. The superior will co-ordinate with the activities of his subordinates.

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MANAGEMENT PRACTICE Free flow of communication: Through effective communication, each and every person in an organisation understands his scope of activity. Vertical, horizontal and diagonal channels of communication help people to come closer to a better mutual understanding. Modern communication systems such as computers, data processing system etc. facilitate the free flow of communication. Committees: Committee system of management and group decision making are important organizational devices for achieving co-ordination. These devices greatly eases the rigidity of the hierarchical structure, promotes effective communication and understanding of ideas, encourages the acceptance of the commitment to policies and makes their implementation more effective. Sound leadership: Leadership is the ability of a manager to direct the subordinates towards the achievement of organizational goals efficiently. Effective leadership ensures co-ordination of efforts, both at the planning and implementation stages.

11.9 QUESTIONS i)

Very Short Answer Questions:

1)

Define communication.

2)

What is grapevine?

3)

What do you mean by verbal communication?

4)

Define co-ordination.

5)

Explain the term internal co-ordination.

6)

Define formal communication.

ii)

Short Answer Questions:

1)

Explain the process of communication.

2)

What are the various methods of communication?

3)

Explain the term ‘grapevine’ as a channel of communication.

4)

What are the principles of effective communication?

5)

Enumerate the features of co-ordination.

6)

Discuss the types of co-ordination.

iii) 1.

Essay Type Questions: What are different barriers of communication? What steps can be taken to overcome these barriers?

2.

What are the essential characteristics of a good communication system?

3.

List out and explain the various techniques of achieving effective co-ordination.

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MANAGEMENT PRACTICE 11.10 SUGGESTED READINGS 1)

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2)

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3)

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4)

Satyaraju Parthasarathy, Management, PHI.

5)

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6)

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books

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CHAPTER XII NATURE, PROCESS AND TECHNIQUES OF CONTROLLING STRUCTURE 12.0 OBJECTIVES 12.1 INTRODUCTION 12.2 FEATURES/NATURE/CHARACTERISTICS OF CONTROL 12.3 IMPORTANCE/SIGNIFICANCE OF CONTROL 12.4 LEVELS OF CONTROL 12.5 TYPES OF CONTROL 12.6 STEPS IN CONTROLLING PROCESS 12.7 LIMITATIONS OF CONTROLLING 12.8 FEATURES OF A GOOD CONTROL SYSTEM 12.9 TECHNIQUES OF CONTROLLING 12.10 QUESTIONS 12.11 SUGGESTED READINGS

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MANAGEMENT PRACTICE 12.0 OBJECTIVES After studying this unit, you should be able to understand: 

Meaning and Definition of Control

Features/Nature/Characteristics of Control

Importance/Significance of Control

Levels of Control

Types of control

Steps in Controlling Process

Limitations of controlling

Features of a Good Control System

Techniques of Controlling

12.1 INTRODUCTION Control is the most important function of management in every organisation. It is required both in living of human beings and also in the organizations formed and managed by human beings. It is an important element of the management process. The management process includes planning, organizing, staffing, directing and controlling. Control is the process through which managers assure that actual activities conform to planned activities. The main objective of control is to bring light the variations between the standards set and performance and then to take necessary steps so that corrective action can be taken. 12.1.1 Meaning and Definition Control is the process of comparison of actual performance with standard performance for the purpose of taking action to correct the variations occurred between actual and standard performance. In case of expenses, actual performance is expected to be less than standard performance and in case of revenues, actual performance is expected to be higher than the standard performance. A few popular definitions of controlling are given below: “Control is checking performance against predetermined standards contained in the plans with a view to ensuring adequate progress and satisfactory performance.” - E.F.L. Brech. “Controlling is determining what is being accomplished, that is evaluating the performance and if necessary, applying corrective measures so that the performance takes place according to plans.” - George R. Terry.

12.2 FEATURES/NATURE/CHARACTERISTICS OF CONTROL Control is a continuous process – Controlling is a continuous managerial exercise to be undertaken on a regular basis as long as an organisation exists. Control is forward looking – Control aims at future. Through a close examination of past events, future remedial actions are indicated.

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MANAGEMENT PRACTICE Control process is universal – The presence of various degree of control is required at each level of management. Managers at each level have to regulate the activities towards the predetermined goals. Control is based on planning – Planning and controlling are deeply interconnected with each other. Controlling is not possible without planning. The controlling process concerns with the determination of the standards of performance, which is an aspect of the planning process. Control is goal-oriented – Controlling, through locating and analyzing deviations and resorting to appropriate remedial action, helps in the most efficient achievement of organizational objectives.

12.3 IMPORTANCE/SIGNIFICANCE OF CONTROL A good control system offers the following benefits: 12.3.1 Helps to achieve organizational goals: The basic purpose of controlling is to bring the actual operational performance of the organisation on the right track to effectively attain the organizational goals. 12.3.2 Helps in decision making: A properly designed control system provides opportunities to management to undertake better decisions by utilizing the information collected by the controlling feedback mechanism. 12.3.3 Facilitates decentralization of authority: Controlling is a great aid to the process of decentralization of authority. With the help of control, managers can allow their subordinates to take decisions while ensuring that the ultimate authority remains in their hands. 12.3.4 Cope with uncertainty: A properly designed control system helps managers to anticipate, monitor and react quickly to changes in the today’s turbulent business environment. 12.3.5 Minimizing costs: Controlling helps in obtaining maximum production at minimum cots. When implemented or practiced effectively, control also helps to reduce the costs and boost the output of an organisation.

12.4 LEVELS OF CONTROL Control is designed to evaluate actual performance against predetermined standards. Controlling is the process which is required at all levels of management. The following are the three levels of control required: 12.4.1 Strategic Control: Strategic control is the responsibility of the top level managers which focuses on monitoring critical environmental factors to ensure that strategic plans are implemented as intended, assessing the impact of strategic plans, and adjusting such plans when necessary.

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MANAGEMENT PRACTICE 12.4.2 Tactical Control: Tactical control is the responsibility of middle level managers which focuses on assessing the implementation of tactical plans at department levels, monitoring associated periodic results, and taking corrective action when necessary. 12.4.3 Operational Control: Operational control is the responsibility of lower level managers involves overseeing the implementation of operational plans, monitoring day-to-day results, and taking corrective action when necessary.

12.5 TYPES OF CONTROL There are three types of control system which are used by the organizations. They are: 12.5.1 Feedback control: It is also known as historical or post-action control. It is the process of adjusting future action based upon information about past performance. Thus it is the process of gathering information about a completed activity, evaluating that information and taking steps to improve similar activities in the future. 12.5.2 Concurrent control: It is also known as real time or steering control. It is concerned with the adjustment of performance by taking necessary and corrective steps before any major damage is done. The navigator of an aircraft adjusts its movements depending upon the direction of destination is an example of concurrent control. 12.5.3 Feed forward control: It is also known as predictive control. It is a proactive approach which attempts to anticipate problems or deviations from the standard in advance of their occurrence. Preparation of working capital requirements based on the current assets and current liabilities and preparation of cash budgets are the examples of feed forward control.

12.6 STEPS IN CONTROLLING PROCESS The basic control process consists of the following steps: 12.6.1 Establishment of Standards: The controlling process starts with the establishment of standards of performance. Standards are the yardsticks against which actual performance is compared. Standards are simply criteria of performance. Control standards are classified into two categories such as, Quantitative standards – which are set up in respect of production, sales, expenses etc. where results can be measured in exact quantitative terms. Qualitative standards – which are based on the level of perfection desired in respect of certain intangible items such as goodwill, employee morale etc. 12.6.2 Measurement of Actual Performance: The second step in the controlling process is the measurement of actual performance. Measurement of performance should be clear, accurate and reliable. A manager must decide

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MANAGEMENT PRACTICE how to measure the actual performance and how frequently it should be measured. Measurement should be done in the same terms i.e quantitative or qualitative in which standards have been laid down. 12.6.3 Comparison of Actual performance against Standard performance: Once actual performance is measured, it should be compared with the standards to determine the degree of variation between actual performance and standard. It involves two steps: 1. Finding out the extent of deviations and 2. Identifying the causes of such deviations. In case the performance matches with the standards, it is understood that everything is within control. If it is more or less than the standards then it is understood that deviation occurs. This comparison enables managers to determine whether actual performance meets the standards established. 12.6.4 Analysis of Causes of Deviation: For controlling and planning purposes, ascertaining the causes of variations along with computation of variations is important because such analysis helps management in taking up proper control action. The causes of deviations may be due to external environmental factors or internal environmental factors such as changes in government policies, inadequacy of production facilities, faulty selection of employees etc. 12.6.5 Taking Corrective Action: The final step in the controlling process is taking corrective action to remove or minimize the cause of deviation. Corrective action includes the change in compensation practices, revision of standards, training of employees, redesign of jobs etc. For example, if actual performance falls short of standards because of non-availability of raw materials, managers should take steps to procure these materials on time from some other suppliers.

12.7 LIMITATIONS OF CONTROLLING A control system may be faced with the following limitations: 12.7.1 Difficulty in setting standards: Standards are the targets against which subsequent performance will be compared. But fixing such standards is the difficult task for the managers. For example, no one can fix the standards for employees’ morale and honesty. 12.7.2 Expensive: Control is an expensive process in terms of time, efforts and money. The performance of each and every person in the organisation will have to be measured and reported to top level managers. This requires lot of money, efforts and time. 12.7.3 No control over external factors: An organisation can not control the external factors such as government policies, changes in fashion, technological changes etc.

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12.7.4 Resistance to controlling system by employees: Employees often resist control and as a result the effectiveness of control is reduced.

12.8 FEATURES OF A GOOD CONTROL SYSTEM: Effective control system tends to have certain qualities in common. They are: Suitability – A good control system should be suitable to the need of the organisation. It should be designed in view of the nature, size and scale of operations of the organisation. Simplicity – The control system should be easy to understand and operate. When the control system is designed easily and communicated properly, employees ensure its implementation. Economical – Any system of control has to justify the benefits that it gives in relation to the costs it incurs. It should be economical in its designing and implementation. Flexibility – Control system should keep pace with changing conditions of the environment where the organisation exists. Forward looking – A good control system should be forward looking. It should anticipate deviations and undertake preventive remedial steps. Acceptability – A good control system should be acceptable to everyone related to the organisation because the success of its implementation depends on the degree of acceptability. Promptness – The control system should be prompt in detecting and reporting deviations to the management so that corrective action may be taken in time.

12.9 TECHNIQUES OF CONTROLLING The primary objective of an organisation is to maximize its shareholders’ wealth. This requires the management to make decisions in utilizing the assets of the organisation. The management also has to analyze, plan and control the activities of the firm. A variety of tools and techniques has been used over the years to help managers control the activities in their organizations. Every organisation has its own methods to exercise control and some of the techniques are as follows:

Major Techniques of Managerial Control: 12.9.1 Break Even Analysis: Break Even Analysis, also known as CVP analysis studies the inter-relationship between cost, volume and profit. Break-even point is the point at which total revenue is equal to total cost. It is the point of no profit and no loss. It is a useful technique of decision making and control. Break Even Point (BEP) = Contribution per unit Contribution per unit

Fixed Cost =

Selling price per unit – Variable cost per unit

12.9.2 Budgetary control: Budgetary control is the process of determining various budgeted figures for the organisation, for the future period and then comparing the budgeted figures with actual performance for

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MANAGEMENT PRACTICE calculating variances, if any. Budgets are widely used as control measures because they establish clear standards of performance and any deviations can be quickly detected and corrected. Sales budget, production budget, cost of production budget, materials budget, labour budget, cash budget, master budget, fixed budget, flexible budget, zero base budgets etc. are the various types of budgets prepared by the organisation. 12.9.3 Responsibility Accounting: Responsibility accounting is a system of accounting under which each department head is made responsible for the performance of his department. Each department is designated as a responsibility centre. A responsibility centre is an organizational segment such as division or department headed by a manager who is responsible for the targets fixed for his unit. There are three types of responsibility centres, namely cost centre, profit centre and investment centre. In a cost centre, performance is measured by whether assigned tasks are accomplished within the specified amount of expenditure. In a profit centre, performance is measured in terms of profits, that is, the difference between revenues and expenses. In an investment centre, performance is based on return on investment. 12.9.4 Human Resource Accounting (HRA): Other techniques of controlling emphasize on profits, costs, performance etc. but ignore the value of the human asset which makes for all the difference in organizational performance. HRA is a process of identifying and measuring data about human resources. HRA is accounting for people in an organisation; which involves a measurement of costs incurred by an organisation to recruit, select, hire and train human assets and a measurement of the economic value of people to the organisation. HRA helps management by providing valuable information for effective planning and managing human resources. 12.9.5 Standard costing: Standard costing is an indispensable tool for cost reduction and cost control. Under this costing technique, standards are determined in advance, and actual costs are compared with the standards so that corrective action may be taken for any unfavourable variances. Standards are fixed for materials, labour, overheads and other components of total cost. It optimizes the use of plant facilities, current assets and working capital and helps in detecting the sources of inefficiency and wastage. 12.9.6 Management Audit: Management audit is a modern technique of controlling which aims to examine the efficiency of the management’s philosophies, policies, techniques etc. It is a systematic appraisal of overall performance of the management by managers and by special staff. Management audit, by identifying, deficiencies in management’s principles and practices helps in effecting structural improvements in the entire managerial system. 12.9.7 Programme Evaluation and Review Technique (PERT): PERT was developed by the special project office of the U.S. Navy in 1958. It is a scheduling tool that is essentially a network of project activities showing time to complete each activity and its sequential relationship to complete the project. It is most appropriate

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MANAGEMENT PRACTICE technique for planning, monitoring and controlling complex and unique projects like ship building, construction projects etc. 12.9.8 Critical Path Method (CPM): CPM was developed jointly by Du Pont and Remington Rand of USA in order to facilitate the control of large and complex industrial projects. It shows the sequence of events and activities within a programme evaluation and review technique network that requires the longest period of time to complete. 12.9.9 Management Information System (MIS): MIS is a computer based system that provides information and support for effective managerial decision making. MIS is a system which is installed in an organisation to provide necessary information to management for planning and controlling purposes on a regular basis. Quantity of information, quality of information, relevance of information and timeliness of information are the main criterions for evaluating information supplied by MIS. 12.9.10 Total Quality Management (TQM): TQM is an organizational strategy that makes quality a responsibility of all employees. It ensures an organization’s commitment to the continuous improvement of quality throughout the organisation. It calls for the active participation of members at all levels of the organization. TQM is not a one-time effort but a continual, long-term endeavour which has to be recognized, reinforced and rewarded by continuous monitoring of the ongoing data collection, evaluation, and feedback and improvement programs.

12.10 QUESTIONS i)

Very Short Answer Questions:

1.

Define control.

2.

What is operational control?

3.

What is the feature of Human Resource Accounting (HRA)?

4.

What do you mean by Break Even Point (BEP)?

5.

What is Responsibility Accounting?

6.

What is meant by standard costing?

ii) 1.

Short Answer Questions: What do you mean by controlling? Explain the importance of controlling in organisation.

2.

Examine the types of control.

3.

Write short notes on PERT and CPM.

iii)

Essay Type Questions:

1.

Outline the various steps involved in control process.

2.

Explain any five control techniques.

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MANAGEMENT PRACTICE 12.11 SUGGESTED READINGS 1)

Prasad L.M., Principles and Practice of Management, Sultan Chand & Sons, New Delhi.

2)

Gupta C. B., Management Theory and Practice, Sultan Chand & Sons, New Delhi.

3)

Tripathi P.C., and Reddy P.N., Principles of Management, Tata McGraw Hill.

4)

Satyaraju Parthasarathy, Management, PHI.

5)

Mandal S.K., Fundamentals of Business, Jaico Publishing House.

6)

Rao V.S.P., and Harikrishna V., Management: Text and Cases, Excel Books.

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IMTS BBA (Management practice)  

IMTS BBA (Management practice)

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