LESSON - 1

NATURE AND PROCESS OF MANAGEMENT

Objectives
After studying this lesson, you should be able to:
understand the nature of management
familiarise with the basic managerial functions
describe the levels in management and
acquire an indepth knowledge of the skills required of a manager.
Outline
A. Introduction
B. What is Management?
C. Nature of Management
1. Management as a Science
2. Management as an Art
3. Management as a Profession
4. Professionalisation of Management in India
D. Functions of Management
1. Planning
2. Organising
3. Leading
4. Controlling
E. Management Levels
1. Front-line Managers
2. Middle level Managers
3. Top level Managers
F. Managerial Skills
1. Technical Skills
2. Human Skills
3. Conceptual Skills
G. Summary
1. Review Questions
2. Case Study
3. Further Readings
A. INTRODUCTION
Modern societies are often described as 'Societies of organisations'. When we think of
any modern society, institutions like business enterprises, hospitals, religious and social
organisations naturally come to our mind. All these organisations affect our lives in
many ways. Despite the differences in their functioning and approaches, they all strive
to achieve certain objectives. It must also be noted that organisations cannot achieve the
objectives effortlessly. Several activities have to be performed in a cohesive way. As
such, it is the function of the management to facilitate the performance of activities in a
systematic fashion such that the accomplishment of the objectives becomes possible.
B. WHAT IS MANAGEMENT?
Management means many things to many people. Economists regard it as a factor of
production. Sociologists see it as a class or group of persons while practitioners of
management treat it as a process. In simple terms, management is what a manager
does. It has been called by Mary Parker Follet as "the art of getting things done through
people". This definition throws light on the fact that managers achieve organisational
goals by arranging others to perform rather than performing the tasks themselves.
Management, in fact, is much more that no one single definition has been universally
accepted. Nor can any one definition capture all the facets of management, given its
dynamic nature. That is why, it is often said that there are as many definitions of
management as there are authors in the field. However, the definition given by James
A.F. Stoner encompasses all the important facets of management. According to him:
"Management is the process of planning, organising, leading and controlling the efforts
of organisation members and of using all other organisational resources to achieve
stated organisational goals".
This definition suggests that:
- Management is a process because all managers irrespective of their level in the
organisation, engage in certain interrelated activities in order to achieve the desired
goals;
- Managers use all the resources of the organisation, both physical as well as human;
- Management aims at achieving the organisations goals.
To achieve the objectives, every organisation uses certain inputs like materials,
machinery, money and the services of men. These inputs are drawn from the
environment in which the organisation exists. Whether in organisation is engaged in
business or non-business, the various inputs are judiciously used to produce the outlays.
This process which involves the conversion of inputs into outputs is common to all
organisations and it shown in exhibit 1.

The output of the firm may be a physical product or service. Since a business
organisation is an economic entity, the justification for its existence lies in producing
goods and services that satisfy the needs of the people. Here arises the question of
effectiveness in transforming the inputs into outputs. How effectively the goods and
services are produced is a matter of concern for any society, given the scarcity of
resource. Effective management plays a crucial role in this context.
C. NATURE OF MANAGEMENT
Inspire of the growing importance of management as an academic discipline immensely
contributing to the quality of human life, the concept is still clouded by certain
misconceptions. No doubt, management as an academic body of knowledge has come a
long way in the last few years, has grown in stature and gained acceptance all over the
world. Yet, it is paradox that the term 'management' continues to be the most
misunderstood and misused.
1. Management as a Science:
It is therefore relevant to examine the exact nature of management whether it is a
science or an art. Before arriving at a conclusion, let us understand the nature of science
as well as art. Any branch of knowledge to be considered as science, (like the ones we
have physics, chemistry, engineering, etc.) should fulfill the following conditions:
a. the existence of a systematic body of knowledge encompassing a wide array of
principles;
b. the principles have to be evolved on the basis of constant enquiry and examination;
c. the principles must explain a phenomenon by establishing cause-effect relationship;
d. the principles have to be amenable for verification.
Looked at from this angle, management as a discipline fulfils the above criterion. Over
the years, thanks to the contributions of many thinkers and practitioners, management
has emerged with its own principle. The application of these principles helps any
practising manager to achieve the desired goals. However, while using the principles,
one should not lose sight of the variables in the situation, since situations differ from
one another. Thus the importance of personal judgment cannot be undermined in the
application of principles. Further, management is a dynamic subject in that it has drawn
heavily from economics, psychology, sociology, engineering and mathematics, to
mention a few. It is multi-disciplinary in nature.
Though management, considering its subject matter and the practical utility, may be
considered as 'Science' for reasons discussed below, it cannot be viewed as an 'exact
science'. In other words, it is a science, but an 'inexact science' because:
i. Management by definition, involves getting the things done through people.
Compared to the other inputs, 'people', who constitute the human resource of any
organisation are unique in respect of their aspirations, attitudes, perceptions and the
like. Dissimilarities in the behaviour patterns are so obvious that standard results may
not be obtained in otherwise similar conditions.
ii. Secondly, the behaviour of the human beings cannot be accurately predicted. Hence
readymade and standard solutions cannot be prescribed.
iii. Thirdly, management is more concerned with future which is complex and
unpredictable. As the saying goes, 'many a slip between the cup and lip', many variables
in the environment may affect the plans and render them ineffective.
iv. Lastly, since a business organisation exists in an environment, it has a two-way
interaction with the environment. The organisation influences the environment by its
several decisions and in turn, is influenced by the various elements of the environment
Important among these are technological, economic, socio-cultural and political factors.
The whole thing is so complex that however effective the plans are, one is prone to be
taken unaware of unexpected changes in the environment.
Unlike the pure or exact sciences where the results are accurate, in the Case of
Management the various factors totalized above may force even the excellent plans and
strategies go haywire. Too many complexities and uncertainties renders management an
'inexact science'.
2. Management as an Art:
Art refers to the 'know-how' to accomplish a desired result. The focus is on the ways of
doing things. As the saying goes 'practice makes a man perfect', constant practice of the
theoretical concepts (knowledge base) contributes for the formation of skills. The skills
can be acquired only through practice. In a way the attributes of science and art are the
two sides of the same coin. Medicine, engineering, accountancy and the like require
expertise on the part of the practitioners and can only be acquired through practice.
Management is no exception. A university gold medalist in surgery may not necessarily
turn out to be a good surgeon. Similarly a management graduate from the best of the
institutes may not be very effective in practice. In both cases, the application of the
knowledge acquired through formal education, requires ingenuity, correct
understanding of the variables in the situation, pragmatism and creativity in finding
solutions to problems.
Effective practice of any art requires a thorough understanding of the science underlying
it. Thus science and art are not mutually exclusive, but are complementary. Executives
who attempt to manage without the conceptual understanding of the management
principles and techniques have to depend on luck and intuition. With organised
knowledge and the necessary skills to use such knowledge, they have a better chance to
succeed. Therefore, it may be concluded that management is both a science and an art.
3. Management as a Profession:
Another important dimension of the nature of management is whether it is a profession.
McFarland gives the following characteristics of a profession:
existence of an organised and systematic body of knowledge,
formalised methods of acquiring knowledge and skills,
existence of an apex level body with professionalisation as its goal,
existence of an ethical code to regulate the behaviour of the members of the
profession,
charging of fees based on service, and
a concern for the social responsibilities.
Management as a profession does not strictly conform to the above criterion. Unlike
medicine or law, management has to go a long way to have a universally acceptable
norm of behaviour. There is no uniform code of conduct that governs the behaviour of
managers. The apex level body, All India Management Association (AIMA) provides
only guidelines and does not have any controlling power over the erring members. Vast
differences are also found among managers in respect of their concern for the ethics and
values of the system in which they function. Many a time, in their obsession with profit,
the societal interests are neglected. However, as in the case of other professions, it is
implied that managers are expected to set an example in doing good to the society. After
all, given the enormous resources they have at their command, the expectation that
managers should address themselves to the problems of society is not unnatural.
Compared to other professions like engineering, medicine, accountancy, etc., the entry
to management positions is not restricted to individuals with a special degree. To quote
Peter Drucker, 'no greater damage could be done to an economy or to any society than
to attempt to professionalize management by licensing managers, for instance, or by
limiting access to management to people with a special academic degree'.
The question whether management is a profession often breathes life into the widely
debated issue "whether managers are born or made". It is true that many founding
fathers of the industry in India and elsewhere too, did not study management in the
formal way. The native wisdom coupled with their vision and ingenuity in organising the
enterprises helped them earn name and fame. Huge industrial empires were built with
sheer business acumen. Business history of any nation is fully replete with many "rags to
riches" stories. The Marwaris and Parsees in North India and Chettiars and Naidus in
South India, for instance, offer a classic example of such success stories. The success
achieved by the pioneers in these cases amply demonstrates that success in business
requires much more than the academic degrees.
The achievements of the pioneers of the industrial development need not, however,
shadow the importance of management as a profession, in arguing for and against, we
must not ignore the context of the business. There has been a sea change in the
environment of the business. Modern business has become more complex due to the
uncertainties arising mainly from:
* rapid technological changes
* increased sophistication in technology
* expansion in the size of organisations and consequently the markets.
All these variables which have a significant bearing on the functioning of a business
point to the need for formal training and acquisition of skills in management by
pursuing management education.
4. Professionalisation of Management in India:
In the last few years, management as a profession has gained a firm footing in India. The
awareness about the contributions of professional managers has been increasing.
Consequently, there has been a manifold increase in the number of institutes offering
MBA and related diploma courses. There has also been a phenomenal increase in the
number of students seeking admission into the management programmes.
The following factors seem to be mainly responsible for the growing demand for
professional managers:
- The liberalisation policies pursued by the government opened up new vistas for the
Indian organisations. As a consequence, competition has increased in all the sectors of
Indian economy.
- Private industrial houses which were indifferent before, have fully realised the need for
professional managers. While the promoters in many cases reserve the policy
formulation for themselves, the day-to-day managerial activities are entrusted to the
professional managers.
- Public sector undertakings are also, of late, forced to perform. As a result, qualified
managers are sought after by PSU's than ever before.
- Apart from the manufacturing concerns, public utilities like transport,
telecommunications, and a host of service organisations are recruiting professional
managers in a big way.
D. FUNCTIONS OF MANAGEMENT
Management is widely regarded as a process. A manager no matter what his level is in
the organisation, performs a series of functions. Surprisingly, there is no consensus
among the management thinkers on the classification of management functions. The
number of functions as well as the terminology used to describe them are not alike.
Henry Fayol identifies five functions, vis., planning, organising, commanding,
coordinating and controlling. For instance, Newman and Summer recognize only
four functions, namely organising, planning, leading and controlling. Luther Guile's
popular catch word POSDCORB suggests seven functions, namely, planning, organising,
staffing, directing, coordinating, reporting and budgeting. Koontz and O'Donnel
classify the functions into planning, organising, staffing, directing and controlling. For
the purpose of our study, we shall examine the following four functions of management
- planning, organising, leading and controlling.
1. Planning
Planning, simply, is outlining a future course of action. It is unique in that it precedes all
the other managerial functions. It attempts to capture the future. It involves deciding
the objectives and formulating the policies and procedures to achieve them. Effective
planning provides answers to questions like - what to do, how to do, who is to do it, and
when to do?
Planning is a function performed by managers at all levels. However, plan made by top
managers have a wider scope with a focus on the organisation as a whole and normally
cover a longer period. On the other hand, plans developed by middle and lower level
managers relate to the divisions or departments and usually cover a short period.
Systematic planning helps in facing the uncertainties of future with less embarrassment.
It helps in making things happen in the expected way.
2. Organising
Organisations achieve objectives by using physical and human resources. When people
work in groups, everyone in the group should know what he is expected to achieve and
what reporting relationship he has with others. The manager's task in organising aims at
creating a structure that facilitates the achievement of goals.
Organising involves:
determination of activities required to achieve goals;
grouping of these activities into departments;
assignment of such groups of activities to a manager;
delegation of authority to carry them out; and
provision for coordination horizontally and vertically in the organisation.
It must be remembered that the structure varies with the task. A large organisation with
huge markets needs a different structure compared to a small organisation. Similarly,
structure of an organisation operating in a stable environment may be different from the
one operating in a dynamic environment. The way one goes about in organising the
affairs of the organisation, is thus influenced by the size and nature of the activities
involved, the type of environment, and the overall business strategy.
3. Leading
Once plans are finalised and the structure of the organisation is determined, the next
step is to help the people achieve the objectives. This involves directing or leading the
activities of the people. The manager directs the activities of his subordinates by
explaining what they have to do and by helping them perform it to the best of their
ability. In leading the people, the manager performs the following three distinct tasks:
Communication - the process of passing information from one person to another
Leadership - the process of directing the activities of the people by explaining them what
they have to do.
Motivation - the act of stimulating the people so that they give their best to the
organisation
Leading is a function predominantly interpersonal in nature. In the organisational
context many problems arise because of the failure of managers to understand the
people, their aspirations, attitudes, behaviour as individuals and in groups. If the
manager fails in leading the people towards better performance, any amount of planning
and organising, however effective they are, may not help the organisation.
4. Controlling
While plans of the organisation spell out the objectives to be achieved, control as a
managerial function facilitates to know whether the actual performance is in conformity
with the planned one. So that, in the event of deviations, appropriate corrective
measures can be taken. In the absence of adequate control mechanism, unexpected
changes in the environment may push the organisation off the track. Thus, controlling
implies measuring and correcting the activities to assure that events conform to plans. It
involves four main elements:
a. Establishing standards of performance;
b. Measuring the actual performance and comparing it against the standard
performance;
c. Detecting deviations, if any, in order to make corrections before it is too late; and
d. Taking appropriate corrective measures.


Please use headphones

E. MANAGEMENT LEVELS
Though the term 'manager' is used to mean anyone who gets the things done through
other people, we find the managers in any organisation with varying authority and
responsibilities. In any company the total management job requires many skills and
talents. Obviously, therefore, the job of manager is divided and subdivided. Such an
arrangement implies different levels of management. As a matter of custom and
convenience, we normally visualise a company's management as a pyramid as shown in
EXHIBIT 2
Levels of Management

The three levels of management that are commonly found in any organisation are lower
or front-line, middle and top managers.
1. Front-Line Managers
This is the entry level job in the management. Managers at this level direct the operating
employees (workers). They are close to the action, for their job involves supervising the
activities of operatives. Front-Line managers are called foreman, supervisor, inspector
and so on in any organisation.
2. Middle Level Managers
Middle management level includes, in many organisations, more than one level.
Managers who work at all the levels between the lower arid top levels constitute the
middle management, departmental heads and regional managers. Zonal managers and
so on fall in this category. They report to top managers. Their principal responsibilities
are to direct the activities of lower level managers who implement the organisation's
policies.
3. Top level Managers
This level consists of a small group of executives. Board of Directors, Chairman,
Managing Director and the top functional heads and divisional managers comprise this
level. Top managers are responsible for the overall management of the organisation.
They decide the enterprise objectives, policies and strategies to be pursued to achieve
those objectives. They provide direction to the organisation by guiding the
organisation's interactions with its environment.
F. MANAGERIAL SKILLS
Management job is different from other jobs. It requires elements of stewardship and
commitment to the purpose. It involves the obligation to make prudent use of human
and material resources. It requires resourcefulness and capacity for judgment to handle
complex situations. Further, the nature of the job becomes increasingly complex at each
higher level because of the increase in the scope of authority and responsibility.
Therefore, each higher level requires increased knowledge, broader perspective and
greater skills.
For purpose of analysis, skills required of any manager are classified under three
different heads - technical, human (Employee relations skill) and conceptual skill as
shown in Exhibit 3. The exhibit helps in understanding the levels of management
responsibility, the principal skill requirements, and the extent to which each kind of skill
is required at each level.

1. Technical Skill
Technical skill is the ability to use the procedures, techniques, and knowledge of a
specialised field. It is primarily concerned with the ways of doing the things. It implies
proficiency in a specific field of activity. Technical skill is most important for the lower
level managers because by nature their job involves supervision of the workers. Effective
supervision and coordination of the work of the subordinates, therefore, depends on the
technical skill possessed by the lower level manager. Any supervisor without a sound
knowledge of the job cannot make an effective supervisor. Such supervisors are not
respected by the subordinates at the shop floor. The relative importance of the technical
skill as compared to the other skills diminishes as one moves up to higher levels of
management.
2. Human Skill
Human skill is the ability of the manager to work effectively as a group member and to
build cooperative effort in the team he leads. It is the ability to work with, understand
and motivate people. This skill is primarily concerned with persons, as contrasted with
"things". When a man is highly skilled in employee relations, he is aware of his own
attitudes, assumptions, and beliefs and recognizes their limitations as well as their
usefulness. He accepts as an important fact of life the existence of viewpoints and
feelings different from his own. He understands why people behave as they do and is
able to make his own behaviour understandable to them. He can foresee their reactions
to possible courses of action and, is able to take their attitudes into account. His skill in
working with others is natural and continuous. He does not apply it in random or in
inconsistent fashion. It is a natural ingredient of his every action.
3. Conceptual Skill
This skill is also called design and problem-solving skill. It involves the ability to see the
organisation as a whole, to understand how its various parts and functions mesh
together, and to foresee how changes in any one of these may affect all the others.
Conceptual skill extends to visualising the relation of the organisation to industry, to the
community and to the political, economic and social forces of the nation as a whole, and
even to forces which operate beyond the national boundaries. It is the creative force
within the organisation.
A high degree of conceptual skill helps in analyzing the environment and in identifying
the opportunities and threats. Managements of companies like ITC, Larsen & Turbo,
Asian Paints, Bajaj Auto in the private sector and National Dairy Development Board in
the public sector, to mention a few have amply demonstrated this skill in competitive
edge over their competitors.
All the three types of skills discussed so far are not mutually exclusive. In other words,
management job always requires all the three skills but in different proportions
depending upon the level of management. There is a gradual shift in the emphasis from
the bottom to the top of the pyramid. Technical skill and human skill are always in
greater demand at the base of the pyramid, for it is there the productive processes and
operations are carried out. It is there where you find most of the people. It is there
where the action takes place. The need for conceptual skill is greatest at the peak of the
pyramid. Obviously, the top managers are not often involved in the direct application of
specific methods, procedures and techniques than those at the lower echelons of
management.
Although, each of these skills is needed in some degree at every level of management,
there are successful executives who have no great amount of technical skills. But they
are able to compensate the lack of that skill through superior creative ability and skill in
selecting, planning and effectively motivating subordinates who are strong in technical
skill.
As you have understood by now, at every level, management job is different from all
other jobs in respect of the skills required. At the entry level into the management job,
that is, at the supervisory level, besides technical skills, you have to realise the need to
acquire human skill and the problem-solving skills (conceptual). To climb up the
organisational ladder, you must not only be good at the skills required for the present
job. But also learn and acquaint yourself with the skills required at the next level. As a
result, in the event of promotion to the next higher level, you would feel at home and
discharge the responsibilities with ease.


Please use headphones

G. SUMMARY
Organisations engaged in business or non-business use the inputs to produce the output
(may be products or services). The conversion of inputs into outputs depends on the
effectiveness of management. Management as a discipline has both the elements of
science and art. The theory with principles and techniques constitute the science
component, while skills and talent required for the use of the principles constitute the
art. Management has, of late, emerged as highly respected profession. The process of
management is understood under the four basic functions, viz., planning, organising,
leading and controlling. To execute the managerial job successfully, every manager
requires three types of skills - technical, human and conceptual skills. The proportion in
which these skill are required varies from one level to the other. Technical skills are
important it the lower while human skills and conceptual skills are required in that
order at higher levels of management.
Review questions
1. Describe whether management is a science or art.
2. What do you mean by a profession? Examine the recent trends towards
professionalisation of management in India.
3. Discuss the important functions of management.
4. Present a detailed account of the levels of management that are commonly found in
any large scale organisation. What are the important skills at each level?
CASE
Traditional Manager or Professional Manager
Ravi, a brilliant young man, obtained his MBA degree from an Indian university in 1991
with specialisation in the area of Finance. His basic degree is B.E. in Chemical
Engineering. The engineering background coupled with the management education
aroused in him new spirits to strike on his own. Careful and systematic analysis of the
various opportunities enabled him finally to zero in on the production and marketing of
polythene bags that are increasingly used by fertilize and cement industries. The
location of a fairly good number of units of these two industries in South India
influenced his decision of the product choice. The fact that technology involved is not
complicated or volatile further reinforced his belief about the market potential.
To reap certain locational advantages, he preferred to set up the unit in a fast growing
district headquarters town in Tamilnadu connected with a good network of transport
and communication facilities. But the cost of land as well as its availability became a
problem. With the limited funds at his disposal, he could not afford to buy land and
construct the unit which involved the commitment of substantial portion of his meager
funds. On enquiry he came to know of certain sick units in the industrial estate in the
outskirts of the town, which had ceased to function for sometime in the past. The
machinery in a few such units having been already auctioned, the sheds were available
for sale and/or lease. This opportunity came in handy for Ravi. He took on lease one
such shed and spent about one lakh to effect a few changes to suit his requirements.
He started contacting the suppliers of the plant and machinery. He is confident of
obtaining financial assistance to meet the fixed as well as working capital requirements
of the business. But at the same time, he is also confused of the multiplicity of
organisations/agencies that have come up to cater to the needs of small-scale
entrepreneurs. He doesn't have adequate knowledge of the assistance available and the
incentives offered by all these agencies.
Further, even though he doesn't foresee any problems in the technical aspects relating to
production, he is rather apprehensive of marketing the product. The demand for his
product, being a derived one, is influenced by two factors - one, the demand for
fertilisers, cement and other bulk commodities and two, the extent of the success made
in replacing the gunny bags which are still in wider use. To add to his bother,
Government of India, of late, has made use of gunny bags mandatory to protect the jute
industry which has been languishing and is likely to vanish. However, all these problems
could not deter the spirit of Ravi who is fully determined and bent on going ahead.
Please Answer:
1. Is Ravi a professional manager? Substantiate your answer with the characteristics of a
professional manager.
2. Does Ravi face any problem? If so, analyse the problem.
3. Has Ravi acted in a professional way in analysing the environment before taking a
decision? How could he have averted the problem?
FURTHER READINGS
Drucker, Peter P., 1981, Management Tasks, Responsibilities and Practices, Allied
Publishers, New Delhi
Hodgets, Richard M., 1986, Management Theory: Process and Practice, Academic
Press, London.
Katz R.L., 1974, Skills of an Effective Administrator, Harvard Business Review, 52(5)
90-102.
Koontz, Harold and Cyril O'Donnell, 1976, Management: A System and Contingency
Analysis of Managerial Functions, McGraw-Hill, Tokyo
Newman, William H. Summer, Charles E. and Warren, E, 1974, The Process of
Management Concepts, Behaviour and Practice, Prentice Hall of India, New Delhi.
Stoner, James A P, and Freeman Edward, R, 1989, Management, Prentice Hall of India,
New Delhi.

- End of Chapter -

LESSON-2
EVOLUTION OF MANAGEMENT THEORY

Objectives
After studying this lesson, you should be able to:
gain insights into the historical perspective of management,
appraise the major contributions to the management thought, and
analyse the trends that have taken place in the evolution of management thought
over the years.
Outline
Introduction
Pre-Scientific Era
* Charles Babbage
* Robert Owen
Scientific Management Era
* F. W. Taylor
* Henry Fayol
Human Relations Era
* Elton Mayo and the Hawthorne Experiments
Social Sciences Era
* Chester I. Barnard
* Rensis Likert
* Douglas McGregor
* Herbert A. Simon
* Peter F. Drucker
Summary
Review Questions
Self-assessment Test
Further Readings
INTRODUCTION
The practice of management is as old as human civilisation. In fact, much of the
progress of mankind over the centuries may be attributed to the effective management
of resources. The irrigation systems, existence of public utilities, the construction of
various monuments like Taj Mahal, and the Egyptian pyramids of the bygone era amply
demonstrate the practice of management in the olden days also. The ancient
civilisations of Mesopotamia, Greece, Rome and Indus valley displayed the marvellous
results of good management practices. However, the study of management in a
systematic way as a distinct body of knowledge is only of recent origin. That is why,
management is often described as "oldest of the arts and youngest of the sciences".
Thus, the practice of management is not new. It has been practiced for thousands of
years. But the science part of it the systematic body of knowledge is, no doubt, a
phenomenon of the present century.
The traditional management practices remained quite stable through the centuries until
the birth of Industrial Revolution in the mid 18th century. The industrial revolution
brought about the substitution of machine power for manpower through several
scientific inventions. As a result, within a few decades, the picture of industrial activity
had undergone a metamorphic change. Man's quest for new ways of doing things,
coupled with his ingenuity in adopting the scientific and technological inventions in the
production of various goods and services resulted in:
Mass production in anticipation of demand;
Advent of corporate form of organisation which facilitated such large scale
production;
Spectacular improvements in the transport and communication facilities;
Increase in competition fox markets;
The establishment of the new employer-employee relationship and so on.
Industrial Revolution had thus sown the seeds of modern management. The early
scientific inquiries into the practice of management began. In what follows in this
lesson, the evolution of management thought over the years is discussed in a
chronological way.
PRE-SCIENTIFIC ERA
The captains of the industry in the early 18th and 19th centuries were confronted with
many problems in managing the organisations. They had no previous experience to
guide them. The concept of automation and the consequent mass production were
totally new. For the first time, the need for standard systems and procedures was felt.
The new situation around the academic interest and the search for new principles and
theories to ensure better management began.
Notable among the early thinkers is Charles Babbage, the British professor of
Mathematics. He is often regarded as father of Operations Research. In the early 1800's
he was convinced that the application of scientific principles to work processes would
both increase productivity and reduce expenses. He introduced work measurement
methods, profit sharing and bonus plans. He had invented a predecessor to the modern
day computer, an invention he called the "difference machine" that performed
mathematical calculations. He had also published a book titled "On Economy of
Machinery and Manufacturing". Babbage was an early advocate of division of labour. He
believed that each factory operation should be analysed so that the various skills
necessary to execute the operation could be identified. It is interesting to note that our
modem assembly line in the manufacturing concerns is based on Babbage's ideas.
At about the same time Robert Owen, an entrepreneur and manager of several cotton
textile mills in Scotland introduced many reforms to improve the working conditions of
the employees. He built better houses for workers and started company store to supply
goods to the employees cheaply. He also reduced the working day to 10 hours and
refused to hire children under the age of 10. Owen argued that better working conditions
would contribute to larger output and profits. At a time when his counterparts
concentrated on investing only on machines, he believed in investing in the workers in
terms of improving their working and living conditions. He considered workers as "vital
machines". He also introduced "rating system" to evaluate the employees' work on a
daily basis and emphasised the human element in the factories.
Similarly, the thinking of James Montgomery, a textile mill owner in Scotland who
addressed himself to the problems of planning, organising and controlling in early
factories and Henry Varnm Poor, editor of the American Rail road Journal created
good impact on the then management practices.
Though the contributions of the owner managers and a few academicians in the 19th
century were in haphazard manner and had failed to stimulate interest in management
it must be accepted that some thought provoking issues on the day to day management
of organizations were raised. Their ideas created awareness about managerial problems.
Thus by the end of the 19th century, adequate ground was prepared for a more
systematic effort for the study of management.
SCIENTIFIC MANAGEMENT ERA
Frederick Winslow Taylor (1856-1915) should be ever remembered for his
contribution to the management movement. In an effort to address several
organisational problems, Taylor developed the body of knowledge what is now called
"scientific management". Taylor investigated the effective use of human beings at the
shop floor level in the industrial organisation. He defined managing as the art of
"knowing exactly what you want men to do and then seeing that they do it in the best
and cheapest way". For the emphasis he had placed on the scientific way of doing things,
he is often called the "Father of Scientific Management".
Salient Features of Scientific Management
Taylor conducted various experiments at the work place to find out how human beings
could be made more efficient by standardising the work. These experiments have
provided the following features of scientific management.
i. Separation of planning and doing
Taylor emphasized the separation of planning from actual doing. Before Taylor's
Scientific Management, a worker used to plan about how he had to work and what
instruments were necessary for that. This was creating lot of problems. Taylor insisted
that planning should be left to the supervisor and the worker should concentrate on
doing the work.
ii. Functional Foremanship
Separation of planning from doing resulted in the development of supervision system.
For this purpose, Taylor evolved the concept of functional foremanship based on
speclalisiation of functions.
iii. Job analysis
According to Taylor the best way of doing a job is one which requires the least
movements, consequently less time and cost. He analysed the various jobs to find out
the best way of doing the things with the help of Time and Motion and Fatigue studies.
a) Time Study involves the determination of time, a movement takes to complete.
The movement which takes minimum time is the best one. This helps in fixing the
fair work for a period.
b) Motion Study involves the study of movements which are involved in doing a
job and thereby eliminating the wasteful movements and performing only
necessary movements.
c) Fatigue Study shows the amount and frequency of rest required in completing
the work. Thus job analysis, as given by Taylor, suggests the fair amount of a day's
work requiring certain movements and rest periods to complete it.
iv. Standardisation
Instruments and tools, period of work, amount of work, working conditions and cost of
production have to be standardized on the basis of job analysis and various elements of
costs that go into the job.
v. Scientific Selection and Training of Workers
Taylor suggested that workers should be selected on a scientific basis taking into
account their education, work experience, aptitude, physical strength, etc. A worker
should be given work for which he is physically and technically most suitable. Apart
from selection, proper emphasis should be laid on the training of workers to make them
efficient and effective.
vi. Financial Incentives
Taylor introduced financial incentives to motivate workers to put in their maximum
efforts. He applied the concept of differential piece rate system. According to this
scheme, a worker who completes the normal work gets wages at higher rate per piece
and one who does not complete gets at lower rate. To make the differential piece rate
system work, he has suggested that wages should be based on individual performance.
vii. Economy
While applying scientific management, not only scientific and technical aspects should
be considered but adequate consideration should be given to economy and profit. For
this purpose, techniques of cost estimates and control should be adopted. The economy
and profit can be achieved by making the resources more productive as well as by
eliminating the wastages.
viii. Mental Revolution
Taylor strongly suggested a change in the attitude of employers and employees. Mutual
conflict should be replaced by mutual cooperation which is beneficial to both. Taylor
argued that mental revolution is the most important feature of scientific management
because in its absence, no principle of scientific management could be applied.

In his crusade against the unscientific methods of management which were prevalent at
that time, Taylor had to face bitter criticism from different quarters. It is an irony that in
the beginning both workers and the managements did not understand Taylor's
preachings correctly. Workers had struck work in protest against the proposed changes
in the work routine and systems. The American congress had even called Taylor for an
explanation. Taylor's philosophy, in simple, as reiterated by him before the congress and
also in his book "The Principles of Scientific Management", rested on the following four
basic principles:
Development of a true science of management, so that the best method for
performing each task could be determined;
Scientific selection of the workers, so that each worker would be given
responsibility for the task for which he or she was best suited;
Scientific education and development of the worker; and
Intimate, friendly co-operation between management and labour.
Henry Fayol (1841-1925), is widely acclaimed as the founder of the classical
management school. He was the first to systematise what management is all about.
Fayol believed that sound managerial practice falls into certain patterns that can be
identified and analysed. From this basic insight, he developed a comprehensive
philosophy of management which is found relevant to this day. Fayol was a
contemporary of Taylor. It is important to note that, while Taylor was basically
concerned with technical aspects at the shop floor, Fayol was interested in the total
organization. He looked at the problems of managing an organisation from top
management point of view.
His emphasis that management was not a personal talent but a skill like any other was a
major contribution to managerial thought. It had generally been believed that
"managers were born, not made". Fayol, opposed that view and argued that
management could be taught once its underlying principles were understood and a
general theory of management was formulated. Many of the managerial concepts we
take for granted today were first articulated by Fayol.
In an attempt to develop a science of management, Fayol began by dividing business
operations into six activities. These activities were
1) Technical - producing and manufacturing products
2) Commercial - buying raw materials and selling products
3) Financial - acquiring and using capital
4) Security - protecting employees and property
5) Accounting - recording and taking stock of costs, profits, and liabilities, keeping
balance sheets and compiling statistics, and
6) Managerial.
Fayol's primary focus, of course, was on the last activity because he felt managerial skills
had been the most neglected aspect of business operations. He defined management in
terms of five functions - planning, organizing, commanding, coordinating, and
controlling.
Fayol's Principles of Management
1. Division of Labour
The more people specialize, the more efficiently they can perform their work. The
principle is epitomized by the modern assembly line.
2. Authority
Managers must give orders so that they can get things done. While their formal
authority gives them the right to command, managers will not always compel obedience
unless they have personal authority (such as relevant expertise as well).
3. Discipline
Members in an organization need to respect the rules and agreements that govern the
organization. To Fayol, discipline will result from good leadership at all levels of the
organisation, fair agreements (such as provisions for rewarding superior performance),
and judiciously enforced penalties for infractions.
4. Unity of Command
Each employee must receive instruction about a particular operation from only one
person. Fayol believed that when an employee reported to more than one superior,
conflicts in instruction and confusion of authority would result.
5. Unity of Direction
Those operations within the organization that have the same objective should be
directed by only one manager using one plan. For example, the personnel department in
a company should not have two directors, each with a different hiring policy.
6. Subordination of Individual Interest to the Common Good
In any undertaking, the interests of employees should not take precedence over the
interests of the organization as a whole.
7. Remuneration
Compensation for work done should be fair to both employers and employees.
8. Centralization
Decreasing the role of subordinates in decision making is centralization, increasing their
role is decentralization. Fayol believed that managers should retain final responsibility
but also need to give their subordinates enough authority to do their jobs properly.
9. The Hierarchy
The line of authority in an organization often represented today by the neat boxes and
lines of the organization chart runs in order of rank from top management to the lowest
level of the enterprise.
10. Orders Materials and people should be in the right place at the right
time
People in particular should be in the jobs or positions most suited for them.
11. Equity
Managers should be both friendly and fair to their subordinates.
12. Stability of Staff
A high employee turnover rate is not good for the efficient functioning of an
organisation.
13. Initiative
Subordinates should be given the freedom to conceive and carry out their plans, even
though some mistakes may result.
14. Espirit de Corps
Promoting Team Spirit will give the organization a sense of unity. To Fayol, even small
factors could help to develop this spirit. He suggested, for example the use of verbal
communication instead of formal, written communication, whenever possible.


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HUMAN RELATIONS ERA
The Human Relations Era, also Called Behavioural School emerged because the
Scientific Management principles propounded by classical thinkers like F. W. Taylor,
Henry Fayol, Frank and Lillian Gilbreth did not achieve sufficient production efficiency
and industrial harmony at the work place. Understanding human behaviour at work still
remained a big puzzle for the managers. Therefore, systematic attempts were made by a
few psychologists and sociologists to help managers understand the dynamics of human
behaviour.
The term 'human relation' is used to describe the employer-employee relation in the
organisational context. When the relations are effective employees contribute their
maximum for the achievement of the organisational goals. On the other hand, human
relations are ineffective when morale and efficiency of the workers deteriorate. They are
present at the work place but do not perform. Therefore, to create effective human
relations, it is essential that managers must know why employees behave as they do and
what psychological and sociological factors motivate them.
Elton Mayo and the Hawthorne Experiments
The Hawthorne Experiments conducted by Elton Mayo and his associates at the
Western Electric Company from 1924 to 1933 provided new insights into the human
behaviour. Many of the experiments were performed at the Western Electric's
Hawthorne plant near Chicago. Mayo's findings in these experiments marked the
beginning of the human relations era.
The studies attempted to investigate the relationship between the physical conditions at
the workplace and the productivity of workers. The researchers divided the employees
into two groups. One group called the test group was subjected to changes in lighting.
The lighting condition for the other group called the control group remained constant
throughout the study. When the test group's lighting conditions were improved,
productivity increased as expected. What surprised the researchers most was the fact
that productivity continued to increase even when the lighting was reduced. Further, to
add to the mystery, the control group's output also increased as the test group's lighting
conditions were changed, though there was no change in the lighting conditions for the
control group. As a result, for the first time, it was realised that something in addition to
lighting was influencing the worker's performance.
In another set of experiments, the changes in the performance of a group of workers
were observed by changing the various work related factors such as:
* increasing the wages;
* introducing rest periods; and
* reducing the workdays and workweek.
Workers were also allowed to choose their own rest periods and to have a say in all these
changes. These experiments revealed that financial incentives alone were not causing
the productivity improvements. It was found that a complex set of attitudes were
responsible for the productivity increase. Employers develop group norms at the work
place. The test and the control groups developed some group understanding that
motivated them to perform well. The fact that employees would work hard if they are
convinced that supervisors pay special attention to their welfare was also made
abundantly clear. This is often referred as the Hawthorne Effect.
Another conclusion of the studies was that informal work groups exist in the work place.
The informal groups help the individuals share common values, understanding and
beliefs. These informal groups exert significant influence on the employees'
performance. It is our common knowledge that many a time we find in the organisations
how employees associations and friendships with co-workers influence their attitude
towards the work and the superiors.
The contribution of the Human Relations Movement is quite significant in that the
individual and the impact of his association with a group had received due attention.
Employee productivity was viewed as a function of the human relations at work rather
than an engineering problem. Elton Mayo's studies in fact, contributed for a thorough
change in the attitude and approach towards training.
SOCIAL SCIENCES ERA
Chester I. Barnard's contribution is often described as the Social Science Era in the
development of management thought. His book "The Functions of the Executive" is
regarded as a classic on management even to date. He argued in favour of looking at the
organisations as social systems and analysing the managerial tasks in the system in
which they operate. This is a significant departure from the earlier approaches.
Barnard used his work experience as the chief executive of New Jersey Bell. Based on his
experience and extensive readings in sociology and philosophy, he had formulated his
theories on organisational life. According to him, people come together in formal
organisations to achieve things they could not achieve working alone. As they pursue
organisation's goals they also try to satisfy their individual needs. Thus Bernard arrived
at the theme: 'an enterprise can operate efficiently and survive only when both the
organisation's goals and the needs of the individuals working for it are kept in balance.'
According to Barnard, an organisation exists when the following three conditions are
fulfilled:
1. There are persons able to communicate with each other
2. They are willing to contribute to the action
3. They attempt to accomplish a common purpose
He has identified three types of functions which an executive performed in an
organisation. These are:
* Maintenance of organisational communication.
* Securing of essential services from individuals in the organisation so as to achieve the
overall purpose.
* Formulation and definition of organisational purpose.
Barnard's views on the concept of authority are noteworthy. He does not agree with the
traditional view that authority transcends from the top to down. In his view, a person
does not simply obey an order or directive because it has been given by a superior. As
such, the exercise of authority depends on its acceptance, which is possible only when an
individual:
* understands the communication;
* believes that it is not inconsistent with the organisational purpose;
* believes it to be compatible with the personal interest as a whole; and
* is mentally and physically able to comply with it.
The contribution of Barnard shows his perception of the organisation as a social system.
His contribution is regarded quite high in management. Commenting on Barnard's book
"The Functions of Chief Executive", William Wolf once said, "The book is a sociology of
management. Its style of writing was purposely pitched at a high level of discourse. He
believed that the field of management was lacking In concepts and was clouded by
ambiguous and even erroneous thinking, hi a sense, he hoped that the functions would
set things right and guide the social scientists to more realistic studies of organisation
and management.
Mary Parker Follet (1868-1933) - USA, strongly believed that management and
labour share a common purpose as members of the same organisation, however the
distinction is order givers and order takers. She believed leadership should not come
from the power of formal authority, as was traditional, but from the manager's greater
knowledge and expertise. The manager should simply be the person best equipped to
head the group. She believed that the participative mode of management could increase
cohesiveness, the sense of belonging and creativity the root cause of conflict is 'desire to
dominate'. The tendency to acquire man power to oneself and reluctance to delegate
authority are two consequences such behaviour pattern. She advocated 'behavioural
approach' in management
Rensis Likert is an American social psychologist born in 1903. Likert and his
associates carried out extensive research on management practices in a wide variety of
situations like industrial units, railways, hospitals, schools and voluntary organisations
and covered unskilled workers in factories to top scientists in research laboratories. He
believed that the body of knowledge of social sciences can pave the way to frame a
generalised theory of organisation and management. His findings provided deep
insights into supervision, general management systems and Likert classified supervisors
into two categories: "job centered' and "employee centered". The primary concern of the
first category of supervisors is to ensure performance of assigned tasks and maintenance
of prescribed standards. On the other hand supervisors in the second category are
primarily concerned with the human aspects of their subordinates and effective team-
building for high task performance.
It is argued that high performing managers are humane to their subordinates, and low
performing managers are compelled to get tough with their subordinates to achieve
better results. To resolve this dilemma, Likert and his colleagues conducted a series of
experiments in which high and low performing managers were changed into each
other's jobs. While high performing managers succeeded in improving the performance
of low production units, low performing managers placed in high production units
brought down their output over a span of time.
Management Systems 1-4
The most important contribution of Likert is his conceptualisation of different systems
of management along a continuum. He identifies four distinct points along the
continuum for purpose of illustration of the characteristics of each of the management
systems. He labels these points
1. Exploitative - Authoritative
2. Benevolent - Authoritative
3. Consultative
4. Participative
The four management systems are then arrayed along the two important dimensions,
the type of authority or control an organisation exercises over its members is
represented as one dimension. The second dimension relates to the motivational forced
used to control the activity of the people.
The operating characteristics include leadership, motivation, communication,
interaction influence, decision-making, goal-operating characteristics are juxtaposed
over the four types of management systems.
Likert rigidly points out that authoritarian-exploitative management system displays a
steep hierarchical structure, centralised decision-making, top-down communication,
tight supervision, performance under pressure, and low degree of employee motivation.
On the other hand, the participative management system displays flat structure, group
decision processes, open and authentic three-way communication (up, down and
lateral), adaptive supervision. individual and work groups with a high degree of
achievement motivation. The other management systems 2 and 3 reveal intermediate
combination on forms and processes.
The intermediate forms of management systems 2 and 3 will reveal transitory
characteristics of progression from management system from 1 to 4 over a period. In
system 2 management orientation is still authoritative, but becomes less exploitative
and more benevolent towards the members of the organisation. In system 3, exercise of
authority is more broad-based with delegation of powers to middle levels and
consultation of effected interests at tower levels. To the extent motivation,
communication and involvement of subordinates replace reliance on exercise of formal
authority, consultative management systems will be well set to move forward to the
management system 4.
Douglas McGregor proved that reliance on authority as the primary means of control
leads to resistance, restriction of output and indifference to organisational objectives.
His monumental classic "The Human side of the Enterprise" (1960) marked the
watershed in the history of management movement. He questioned the various models
describing man as rational, economic, and self-actualizing.
McGregor's assumptions, on the other hand, about human beings in the form of Theory
X and Theory Y present contrasting nature of man.
Theory X revolves around the Traditional Theory of Human Behaviour. In his own
words these assumptions are as follows:
* The average human being has an inherent dislike of work and will avoid if he can;
* Hence most people must be controlled, directed and coerced with punishment to get
them to put forth adequate effort towards the achievement of organisational objectives;
* The average human being prefers to be directed, wishes to avoid responsibility, has
relatively little ambition, wants security above all.
Theory Y assumptions on the other hand, hold an optimistic view of human nature.
According to this set of assumptions modern industrial life does not fully tap the
potential of the average human being. They suggest managers should take advantage of
the subordinates willingness and ability to work by providing a climate for their
performance. The assumptions under Theory Y as pronounced by McGregor are as
follows:
* The expenditure of physical and mental effort in work is as natural as play or rest;
* External control and the threat of punishment are not the only means for producing
effort towards organisational objectives. People will exercise self direction and self-
control in the service of objectives to which they are committed;
* The degree of commitment to objectives is in proportion to the size of the rewards
associated with their achievement:
* Average human beings learn, under proper conditions, not only accept but also to
check responsibility
* The capacity to exercise a relatively high degree of imagination, ingenuity and
creativity in the solution of organisational problem is widely, not narrowly distributed in
the population;
* Under the conditions of modern industrial life, the intellectual potentialities of human
being are only partially utilised.
As can be easily seen, these two sets of assumptions are fundamentally different. Theory
X is pessimistic, static and rigid. Control is external in that it is imposed on the
subordinate by the superior. In contrast. Theory Y is optimistic, dynamic and flexible
with an emphasis on self-direction. It also advocates the integration of individual needs
with organisational demands.
Herbert A. Simon is an eminent American social scientist. Born in 1916, he was
awarded the Nobel Prize in Economics in 1978, in recognition of his outstanding
contribution in analysing the decision-making process. He goes to the extent of equating
decision-making with management. He laid emphasis on how decisions are made and
how they can be made more effectively.
In his writings on decision-making, he maintained that to be scientific, one must
exclude value judgments and concentrate on facts, apply rigorous analysis and test
factual statements. Simon viewed an organisation as a structure of decision-makers. The
missing factor, according to him is correct decision-making. He argued that optimum
rational choice between alternative courses of action is rarely made.
Simon divides the decision-making process into three phases, namely:
1. Intelligence activity: This involves finding occasions calling for decision. The
manager analyses the environment and identifies conditions that need action;
2. Design activity: Identifying, developing and analysing all possible alternative
courses of action are the important tasks in this stage.
3. Choice activity: Finally, the manager selects one of the alternative sources of action
available to him.
According to Simon, every decision consists of a logical combination of facts and value
propositions. He argues that complete rationality in decision-making is not always
possible. He, in fact, disputes the concept of total rationality in administrative
behaviour. Human behaviour is neither totally rational nor totally non-rational. It
involves, to use his own word, "bounded rationality" and "satisfying" are the two
important terms used by him to drive home the point further. "Satisfaction" involves the
choice of a course of action which is satisfactory or at least good enough. Simon argues
that managers do not aim at maximum satisfaction or result from a decision but are
satisfied with reasonably good enough outcome or result. It is because of the limitations
involved in identifying the alternatives, collecting all the facts and data, knowing the
values of all the alternatives, etc.
Though some of Simon's views on decision-making are widely acclaimed, his critics
point out that social, political, economic and cultural factors did not get due attention.
His theory is criticised as being extremely general and does not provide the details to
guide the managers in decision-making. Inspite of some imperfections, Simon's
contribution is undoubtedly a major breakthrough in the decision-making behaviour of
managers.
Peter F. Drucker is a highly respected management thinker. He is a prolific writer
and has published several books and articles on the management practices. He is so
versatile that there is hardly any area in management which is not touched by him. He
has drawn heavily from his consultancy experience spread over the last four to five
decades. Drucker perhaps is the only western management thinker who is admired by
even the socialist block countries also. His views on management may be summarised as
follows:
i. Management as a practice:
According to Drucker management has two important functions: Innovation and
Marketing. He has treated management as a discipline as well as a profession. For him,
management is more a practice. It is always goal oriented. His comment on the purpose
of business as the creation of customer, if understood and in the right way helps any
organisation to achieve success.
Drucker's view on innovation are equally important for the emphasis they place on new
product development. He argues that "new products should drive out the existing
products" rather than the other way round. As such, he is against bureaucratic
management for it stifles the innovative spirit and the initiative among the people in the
organisation. He contends that modern organisations are knowledge based organisation
and describes the modern workers as 'knowledge workers' considering their skills, and
innovative abilities.
ii. Functions of management:
Drucker points out three basic functions of management. The actions of management
should contribute to
* the achievement of purpose and mission of the institution;
* make the work productive and the worker achieving; and
* effective management of social responsibilities.
iii. Objective setting:
Drucker has attached great importance to objective setting. He has specified that
objectives should be set for all the result areas of business. To make the objective
setting and their achievement more meaningful, he has given a new tool, what is
popularly known as 'Management by Objectives' (MBO). MBO is regarded as one of his
most important contributions to the discipline of management. He has discussed the
concept in great detail in his book, 'The Practice of Management' (1954). MBO is a
process whereby superiors and subordinates jointly identify the common objective, set
the results that should be achieved by subordinates and assess the contribution of each
individual. It is viewed more as a philosophy than as a tool or technique to achieve the
objectives.
iv. Orientation towards future:
Drucker is a great visionary and futurologist. He was ahead of others in visualising the
future trends that affect the society. He visualised the concept of modern organisation
and its impact on the society several years ago. His views on the many facets of the
modern corporations have almost all become reality now. To put it in his own words, he
described the present age as the "age of discontinuity".
v. Federalism:
Drucker has advocated the concept of federalism. Federalism according to him, involves
centralised control in a decentralised structure. Federalism has certain positive values
over other methods of organising. These are as follows:
* It sets the top management free to devote itself to major policy formulation and
strategy development;
* It defines the functions and responsibilities of the operating people;
* It creates yardsticks to measure twin success and effectiveness in operating jobs; and
* It helps to resolve the problem of continuity through giving education to the managers
of various units while in an operating position.
Drucker's realistic way of looking at the organisations and society has earned him the
status of a management guru. His contributions have made tremendous impact on the
management practices all over the world. He is one of the few contemporary
management thinkers, who is highly admired in Japan. Similarly, the contributions of
Peter's and Waterman who extensively studied a few American companies known for
their excellence in modern management practices is no less significant. McKingsly
consultancy firm's contribution of the 7S model for the management of the firm and
Edward Deming's preachings on Quality Control created tremendous impact on modern
management all over the world in the recent past. Michael Porter's work on competitive
strategy turned a new leaf in the strategic, management area. His books on competitive
strategy suggest the ways: and means that help organisations and nations to gain
competitive edge.


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SUMMARY
Though management has been in practice in some form or other since time
immemorial, the development of a systematic body of knowledge dates back to the last
few decades. Industrial revolution has immensely contributed for the development of
management thought. Over the years, it has drawn heavily from various disciplines like
economics, psychology, sociology, operations research and so on. The contributions of
prominent thinkers who have created an everlasting impact on management have been
discussed in this lesson in detail. An attempt is made to expose the learner to the
historical development of management over the years.
REVIEW QUESTIONS
1. "Management is oldest of the Arts and youngest of the Sciences". Discuss.
2. Analyse the contributions of F. W. Taylor and Henry Fayol to the Modern
Management Thought and discuss how the two differ in their approaches.
3. Examine the significance of 'Hawthorne studies' to the development of managerial
thinking.
4. Assess the contributions of Chester Barnard and Herbert Simon to the management
thought.
5. "Among the contemporary management thinkers, Peter F.Drucker, perhaps,
outshines all". Elucidate,
SELF-ASSESSMENT TEST
Indicate whether the following statements are True or False.
1. Scientific management is concerned with the application on mathematics to the
practice of management. ( )
2. Henry Fayol is known as the father of modern management theory. ( )
3. Scientific management lays emphasis on the top management functions. ( )
4. Hawthorne experiments proved that productivity of the workers depends on the
physical conditions at the work place only. ( )
5. Elton Mayo completely ruled out the possibility of the existence of informal groups at
the work place. ( )
6. Herbert Simon is widely known for his thesis that absolute rationality is not always
possible in the decision making. ( )
7. Theory X is optimistic of the human behaviour while Theory Y is pessimistic. ( )
8. Hawthorne is the management thinker who conducted 'Hawthorne experiments'.
( )
9. Unity of command suggests the exercise of multiple commands. ( )
10. Rensis Likert's system-4 management is highly authoritative. ( )
FURTHER READINGS
Barnard, Chester, I. 1938. The functions of the Executive, Harvard University Press,
Cambridge.
Drucker, Peter F. 1954, The Practice of Management, Harper & Row, New York.
Koontz Harold, O'Donnell Cyril, 1984, Management, McGraw Hill, New York.
Likert Rensis, 1961, New Patterns of Management, McGraw Hill, New York.
McGregor, Douglas 1960, The Human Side of Enterprise, McGraw Hill, New York.
Terry, George R and Franklin, Stephen G. 1988, Principles of Management, All India
Traveller Bookseller, Delhi.

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LESSON-3
PLANNING

Objectives
After studying this lesson, you should be able to:
Understand the nature and purpose of planning;
Acquaint with the important principles of planning; and
Describe the basic steps in planning.
Outline
Introduction
Purpose of planning
To achieve objectives
To make the things happen
To cope with change
To control the events
Principles of planning
Take time to plan
Planning can be top down and bottom up
Involve and communicate to all those concerned
Plans must be flexible and dynamic
Evaluate and revise
Steps in planning
Establish goals
Establish planning premises
Decide the planning period
Develop a course of action
Develop derivative plans
Review periodically
Summary
Review Questions
Case Illustration: Bajaj Auto - Corporate Mission and Objectives
Further Readings
INTRODUCTION
Most of us plan many things in our day to day lives. We plan to go on a holiday trip, plan
our careers, plan our investments and so on. Organisations are no exception and lot of
planning is done by managers at all levels. Thus individuals and organisations both need
to plan. Planning is the basic process by which we use to select our goals and determine
the means to achieve them. Lot of information has to be gathered and processed before
a plan is formulated. In other words, a plan is like a jigsaw puzzle. All the pieces have to
be put together property, so that they make sense.
Planning is necessarily forward looking. It is looking into the future. It bridges the gap
between where we are and where we want to go. Let us look at what the following
observations suggest about planning:
"Planning is outlining a future course of action in order to achieve an objective"
"Planning is looking ahead"
"Planning is getting ready to do something tomorrow"
"Plan is a trap laid down to capture the future"
PURPOSE OF PLANNING
Needless to say, in the absence of planning, events are left to chance. As a manager, in
such a case, you are depending on luck. You may, as a result, in all probability, end up in
chaos. Organisations often fail not because of lack of resources, but because of poor
planning. The following factors further highlight the importance of planning:
i. To achieve objectives
While developing a plan, you have to ask yourself a few-questions:
- Why am I making this plan?
- What am I trying to accomplish?
- What resources do I need to execute the plan?
These questions, obviously, force you to be clear about the objectives, the time frame
required to achieve them and the resources required. It forces you to visualise the future
in an organised manner.
The saying that "when a man doesn't know what harbour he is making for, no wind is
the right wind" is quite appropriate in the case of planning. Systematic planning, thus,
starts with a clear statement of objectives. All the important inputs necessary to achieve
the objectives are carefully thought of including the uncertainties of the future.
ii. To make the things happen
Effective manager is rather proactive. He takes the initiative to make things happen in
the desired way. In any modern business, the interests of many people are at stake. The
shareholders, employees, creditors, consumers and the government are the major
interest groups in city organisation. Further, the interests and expectations of all these
groups are varied and at times are in conflict. If the management fails to achieve, the
interests of these groups are affected and the whole exercise results in heartburns. As a
result, you will be forced to indulge in fire-fighting activity.
Therefore, your job, as a manager, is to foresee the future and predict the consequences
of actions. In other words, you have to look down the road into future and prepare
yourself to meet the uncertainties and the eventualities ahead. A well thought out plan
solves many of the problems associated with the uncertain future.
iii. To cope with change
Both human beings and organisations are products of environment. The ability to deal
with the environment has enabled many an organisation to survive, despite other
weaknesses. Alert managements continually tune in to the environmental forces. On the
other hand, managements which fail to adapt would eventually fall on the way side.
Therefore, in the managerial job, you have to constantly analyse the impending changes
in the environment and assess their impact on your business.
For instance, business environment in 1990s is totally different from that of 1970s and
1980s. The liberalisation policies pursued by the government have, of late, brought in
too many changes. Markets are shifting due to increased competition, pressure on the
resources is increasing, expectations of the employees as well as the consumers are
changing, and product life-cycles are becoming shorter due to rapid technological
changes. All these changes exert a tremendous pressure on the management.
Certain changes will throw open new opportunities while certain others affect the very
survival. If you are not prepared, you will definitely be in trouble. Since environmental
scanning is an important element in planning, plans are normally formulated on the
basis of a thorough analysis of the environment. Necessary flexibility is built in the plans
to meet the unexpected changes. Effective planning thus shows the preparedness of the
organisation to manage the change. It helps the organisation to keep itself afloat even in
the worst circumstances.
iv. To control the events
Planning and control are often described as the Siamese twins of management. When
you plan the events, you expect them to happen in a particular way. Therefore, it goes
without saying that you need some mechanisms to know whether the events are
happening in the way expected. Planning is important in that it provides the necessary
yardsticks to measure the performance. It ensures the events to conform to plans. Thus,
if you do not plan (no clear objectives), you do not know you are reaching the goal or not
you do not know what to control. Control assumes significance in a dynamic
environment as of today, where several forces push you away from the desired path.
Appropriate control devices help you to check the course from time to time so that you
will be able to keep yourself onto the track.
PRINCIPLES OF PLANNING
Effectiveness in planning depends on the understanding of the following principles.
They are relevant to planning the activities of any organisation whether business or non-
business. A thorough understanding of the principles underlying the planning,
therefore, would enable you to guard yourself against the possible mistakes that are
often committed by many managers.
1. Take time to plan
Any plan is a decision regarding a future course of action. It specifies the sequence of
events to be performed. It involves the commitment of organisational resources in a
particular way. Therefore, if the plan is not conceived well, the resources would be put to
wrong use. It becomes a wasteful exercise resulting in frustration. Hence utmost care
has to be exercised in formulating the plans. Several probing questions have to be asked.
Planning in haste with incorrect information, unsound assumptions and inadequate
analysis of the environment has to be avoided by all means. Otherwise, you may save
some time in quickly developing a plan, but in the event of things going wrong, you are
hard pressed for time and resources to correct yourself.
2. Planning can be top-down and bottom-up
Normally in any organisation overall enterprise plans are developed by the top
management. These plans are wider in scope and provide the direction to the whole
organisation. They spell out what the organisation wants to achieve. The overall plan
thus formulated by the top management is split into departmental plans. Accordingly,
plans for production marketing, finance, personnel and so on, stem from the basic plan
of the organisation. The other operational plans at various levels down the organisation
flow from the departmental plans. This approach is called top-down approach to
planning.
On the other hand, proponents of bottom up approach argue that top management
needs information from lower level, that is, about the realities at the ground level in
terms of strengths and weaknesses. In this approach, the initiative for planning comes
from the lower levels in the organisation. This approach makes use of the rich
experience of the subordinates who are close to the action. It also helps to motivate the
people and elicit commitment from them. The choice of the method depends on the size
of the organisation, the organisational culture, the preferred leadership style of the
executive and the urgency of the plan.
3. Involve and communicate with all those concerned
Operations in modern business organisations are highly interrelated. Organisational
plans affect many departments in the enterprise. For instance, a plan to improve the
quality of the products (quality control plan) may require the cooperation of the people
in the production, finance, marketing departments and so on. It is, therefore, desirable
to involve the concerned people in these departments. Such participation helps in
instilling a sense of commitment among the people. They also in turn gain a sense of
pride for having been a party in deciding the plan. Such an involvement makes possible
the process of sharing information. If plans are not communicated to all those affected
by them, there may be unnecessary gaps in the execution.
4. Plans must be flexible and dynamic
You would be very happy as a manager if there are no unexpected changes in the
environment. Day in and day out, you are confronted with too many problems. Most of
such problems are caused by unexpected events in the environment. A plan is rigid if
there is less scope for a change in its course. In a static environment, of course, there
may not be a problem with a rigid plan. But in a dynamic environment, to meet the
unexpected changes, adequate flexibility has to be built into a plan. Otherwise, the plan
itself becomes a limiting factor.


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5. Evaluate and revise
Evaluation of the plan at regular intervals is necessary to make sure that it is
contributing to the objectives. Like a navigator, who in the high seas checks the course
to make sure that he is sailing in the right direction, the manager has to, from time to
time, look back and evaluate the plan. Such an exercise enables to initiate the corrective
measure at the right time before it is too late. This depends on the accuracy of the
information systems in the organisation through which information reaches the
management.
STEPS IN PLANNING
The process of planning may be understood as having the following steps:
a. Establish goals
Planning begins with decisions about what the organisation wants to achieve over a
period of time. The goals of an organisation and its various subunits have to be decided
and spelt out in clear terms. it is always desirable to express the goals in quantitative
terms for all the key areas of the business like production, profit, productivity, market
share, employee relations, social responsibilities, etc. For instance, instead of saying that
the objective of business is to achieve a fair rate of return or the investment, it may be
given quantitative expression, say, 10 or 15 percent return on the investment. Specific
goals enable the organisations to use the resources effectively.
Since goal setting is the essential first step in planning, managers who fail to set
meaningful goals will be unable to make effective plans. If Bajaj Auto is able to retain its
prominence in the two wheeler industry (scooter segment), it is because all the
employees of the organisation know cleanly that the primary objective is retaining the
leadership in the industry.
An awareness of the opportunities and their evaluation in the light of the organisational
strengths and weaknesses is essential to set the goals in a realistic way. The mission of
the organisation, the corporate values, experience, policies of other enterprises,
observation and data secured from research and experiences provide adequate guidance
to the managers in goal setting.
b. Establish planning premises
Since plans operate in the future, it is imperative to make certain assumptions about the
future. This act is called premising. Planning assumptions or premises provide the basic
framework in which plans operate. Appropriate assumptions have to be made on
various aspects of the environment - both internal and external to the organisation.
i. Internal premises: Important internal premises include sales forecasts,
policies of the organisation, skills, attitudes and beliefs of the people, the resources
of the organisation.
ii. External premises: Important external premises relate to all those factors in
the environment outside the organisation. They include technological changes,
general economic conditions, government policies and attitude towards business,
demographic trends, socio-cultural changes in the society, political stability,
production costs and their behaviour, degree of competition in the market,
availability of various resources and so on.
It is evident that some of these premises are tangible while others are intangible. For
example, resources, availability, etc. are tangible factors which can be stated in
quantitative terms. On the other hand factors like political stability, attitudes of the
people, certain of the sociological factors are intangible in that they cannot be measured
quantitatively.
Effective premising - the making of appropriate assumptions helps the organisation to
identify the favourable and unfavourable elements in the environment. Though accurate
premising is difficult, anticipating future situations, problems and opportunities to the
extent possible is an essential part of planning.
c. Decide the planning period
How far in the future should a plan be made is another pertinent question in the process
of planning. Businesses vary in their planning periods. In some cases plans are made for
a short period, varying from a few months to a year, while in some other cases, they are
made to cover a longer period, to cover a period of more than a year. The period may
extend upto 5-10 years and even beyond. Companies normally plan for a period that can
be reasonably anticipated. The lead time involved in the development and
commercialisation of a product and time required to recover the capital investment
(payback period) influence the choice of the length of the plan.
d. Develop alternatives and select the course of action
The next logical step in planning involves the development of various alternative courses
of action, evaluating these alternatives and choosing the most suitable alternatives.
Objectives may be achieved by different courses of action (alternatives). For example,
technical knowhow may be developed by in-house research, collaboration with a
foreign, company or by tying up with a research laboratory. Technical feasibility,
economic viability and the impact on the society are the general thumb rules to select
the course of action. The alternative courses are evaluated in the light of the premises
and the overall goals of the organisation.
e. Make derivative plans
The plan thus decided after a thorough analysis of various alternatives suggests the
proposed course of action. To make it operational, it has to be split into departmental
plans. Plans for the various operational units within the departments also have to be
formulated. The plans thus developed for the various levels down the organisation are
called derivative plans. For instance, production and marketing of 10,000 units of a
product and thus achieving a return of 10 percent on the investment may be the
enterprise's plan relevant for the whole organisation. Its effective execution is possible
only when specific plans are finalised for the various departments like production,
marketing, finance, personnel and so on with clear-cut objectives to be pursued by these
departments.
f. Review periodically
Success of the plan is measured by the results and the ease with which it is
implemented. Therefore, provision for adequate follow-up to determine compliance
should be included in the planning work. To make sure that the plan is contributing for
the results, its review at regular intervals is essential. Such a review helps in taking
corrective action, if necessary, when the plan is in force.
It is an irony that at times even the best of the plans may flounder in spite of careful
analysis and mental commitment. So as to avoid the 'pitfalls' in planning make sure of
the following:
Set realisation and achievable goals;
Communicate the assumptions on which plans are formulated to all the people
and departments concerned;
Encourage and make people participate in the planning programme so as to
ensure the right commitment;
Ensure proper coordination between the short-term and long-term plans. They
should not be viewed as mutually exclusive;
Encourage creativity in planning. Creativity helps in identifying the best
alternatives; and
Pay attention to the resources position of the organisation so as to ensure the
availability as and when required.


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SUMMARY
Planning is the most fundamental responsibility of a manager. Planning is deciding a
future of action. It helps in setting the objectives, to make the events happen, coping
with the changes and to control the events. Effective planning is a process and involves a
few logical steps. The process includes goal setting, promising, identification of the
alternative courses of action, and selection of a course of action after a vigorous analysis
of the pros and cons. However, successful implementation and achievement of results
depend on the degree of participation and commitment of the people of various levels in
the planning exercise, in the absence of which plans would remain as wishful
statements.
REVIEW QUESTIONS
1. 'In the absence of planning, things are left to change'. What significance does this
statement hold in the present day business context? Discuss.
2. What precautions do you take to make planning a successful event in the
organisation?
3. Describe the important steps in the formal planning process.
4. 'Planning and Control are the twins of management'. Explain the relationship
between planning and control with suitable examples.
5. Explain the significance of participation in formulating the plans. How do you ensure
participation of people in the planning exercise.
CASE ILLUSTRATION - BAJAJ AUTO; CORPORATE MISSION AND
OBJECTIVES
Mission:
Be a relevant and responsible corporate citizen by
serving as a catalyst in the creation and sharing of wealth and prosperity with
every constituent of our business environment;
orienting company policies to be in consonance with national priorities and social
needs;
adopting work ethics inspired by integrity and excellence;
providing the best value for money in our products and services; and
fulfill an ambition to be the biggest and the best in every endeavour undertaken.
Objectives:
1. Productivity and Growth:
Continuously generating new ideas in designing, planning, research and
development and value engineering leading to quantum jumps in productivity.
Optimum utilisation of production capacity by minimising wastage, rejection and
re-work and maximising efficiency of man and equipment.
Sustaining minimum annual growth of 20% in real terms by mechanisation,
automation methods and productivity improvement and better utilisation of
existing manpower.
Developing a long term and fruitful relationship with vendors for:
a) Obtaining raw materials and components of finest quality at competitive cost.
b) Achieving faster development of new features and models.
c) Increasing off-loading of parts and operations.
Adhering to high standards of safety and cleanliness thus ensuring an
environment of beauty and joy.
Research and Development:
Establishing our leadership in the design of two and three wheelers. Where
foreign know how is required, the aim would be early self-reliance.
Continuing product upgradation and aspiring for development of at least one new
model every year.
Human Resource:
Strengthening the sense of belonging in all employees and sustaining their pride
In being associated with the company.
Recognising and rewarding individual merit and contribution while emphasising
team spirit and healthy competition.
Stressing discipline and diligence, innovation and creativity, superior
performance and professional integrity leading to increased job satisfaction.
Creating a corporate culture of dignity, character and competence.
Developing an efficient team of personnel by providing training at various levels
and grooming deserving personnel for higher responsibilities.
Marketing:
Promoting sales aggressively while providing excellent after-sales-service through
a network of trained personnel.
Increasing exports by remaining internationally competitive.
Social Welfare:
Caring for the well being of our employees by providing canteen, medical, sports,
cultural, educational and other facilities.
Encouraging employee education programmes so as to develop respected and
responsible citizens.
Contributing to the national cause by promoting family welfare and community
and rural development schemes.
Adopted from: Chopra, BSKS., 1989. Cases in Corporate Planning, Times Research
Foundation, (Pune).
FURTHER READINGS
1. Dale, Ernest, 1973. Management Theory and Practice, McGraw-Hill, New York.
2. Drucker, Peter F.I974. Management Tasks, Responsibilities, Practices, Harper &
Row, New York.
3. Koontz, Harold and Cyril O'Donnel. 1976. Management: A System and Contingency
Analysis of Managerial Functions, McGraw-Hill New York.
4. Massie, Joseph L.1971. Essentials of Management, Prentice Hall, Englewood cliffs,
N.J.
5. Terry, George R and Franklin, Stephen. G. 1988. Principles of Management. All India
Traveller Bookseller, New Delhi.
6. Steiner, George A. 1969. Top Management Planning, Macmillan, New York.

- End of Chapter -
LESSON -4
TYPES OF PLANS

Objectives
After studying this lesson, you should be able to :
Distinguish between strategic planning and operational planning.
Comprehend how strategic planning is useful for the organisation's long-term
survival; and
The different types of plans that are formulated in organisations.
Outline
Introduction
Strategic Planning
Anticipates future opportunities and threats
Provides clarity of purpose and direction
Operational Planning Types of Plans
Mission or purpose
Policies
Rules
Programmes
Budgets
Summary
Review questions
Self-assessment test
Case - Fairdeal Company vs. Government
Further Readings
INTRODUCTION
Planning is so pervasive in every organisation that it touches every part or segment of
the organisation. One common ingredient of all planning is time - the period in future
that a plan covers. Based on the length of time involved, plans are usually classified as
strategic and operational plans. Strategic plans are designed to meet the broad
objectives of the organisation - to implement the mission that provides justification for
the organisation's existence. Operational plans provide details as to how strategic plans
will be accomplished. We will first discuss strategic planning and then proceed to
operational planning.
STRATEGIC PLANNING
The terms Corporate planning, long-range planning and strategic planning are used
synonymously by many authors. Strategic planning has its origin in military
organisations where such planning envisaged a variety of contingencies that may arise
when large forces move into operation. When viewed in this backdrop, strategic
planning in a business organisation envisages a comprehensive study of the various
external and internal parameters that affect a company in charting a course of action to
achieve the goals.
George Steiner has defined strategic planning as "the process of determining the major
objectives of an organisation and the policies and strategies that will govern the
acquisition, use and disposition of resources to achieve those objectives". Strategic plans
reflect the socio-economic purpose of the organisation and the values and philosophy of
the top management. In simple, they relate the organisation to the environment in
which it operates by providing answers to the basic questions like:
Where are we now?
Where do we want to go?
Why do we want to go?
They help the management in:
coping effectively with future contingencies;
providing an early opportunity to correct mistakes;
making decisions about the right things at the right time; and
understanding what actions to take in order to shape the future as desired.
Strategic planning has been in vogue in the West since long. In India, multinational
corporations made a beginning in this direction. Other Indian companies (private and
public sector) have also realised the importance of strategic planning, thanks to the
changed realities in the last few years. As a result every company has now begun to
speak in terms of corporate mission, strategic planning and organisational vision. These
have almost all become buzz words of the Indian corporate sectors in the 1990s.
Strategic planning serves the following two functions:
1. Anticipates future opportunities and threats
Business environment is changing so fast these days that a deliberate corporate
effort is called for to keep a tab on the broad spectrum over which changes occur.
The changes that occur may be precursors of future threats and opportunities. The
investment in a large business enterprise today runs into hundreds of crores of
rupees. During this period many things may change. Take for instance, the case of
the Tata Power Company. They proposed a 500 MW power station in 1972. The
proposal kept shuttling between officialdom for 5 years before it was approved in
1977, but not before the change of government. The project went through so many
hurdles and was eventually commissioned in 1983, a full 11 years since it was
mooted. In the meantime cost had escalated to nearly 3 times the original
estimate. This case demonstrates the need for close monitoring of the potential
threats in the environment.
Just as threats can be reasonably anticipated, so too can be opportunities. For
instance, when the crude oil prices were hiked in 1973, by the OPEC countries it
created havoc on petro-based industries. Automobile companies as a result were
forced to change to small fuel efficient cars. In this case, the threat was converted
into an excellent opportunity. Small car thus has become the fashion of the day.
Similarly ITC in India, continuously hounded by excise levies and taxes on their
main product cigarettes, had to think of diversification into hotels, paper agro
products and aqua-culture, which ultimately turned out to be a god sent
opportunity.
2. Provide Clarity of Purpose and Direction
With the overall increase in the size of companies, the internal departments
(production, marketing, finance, personnel etc.) have also become quite large.
With growing specialization in each of these areas, these departments are prone to
become watertight compartments giving rise to inter-departmental rifts.
It is not unusual, for instance, for marketing department to ask the production
department to shorten their production runs to cater to demands of various
models which is normally resisted by the latter. Similarly, the design department
may often specify certain change in the product which may raise the cost of
production. The finance department, may try to block any measure that increases
the cost of production.
In such a situation, corporate objectives spelt out clearly help in smoothening out
some of the interdepartmental conflicts. Thus, strategic planning provides unity of
purpose and direction, the much emphasised management principle.
The process of strategic planning in any organisation is similar to the general planning
process which has been discussed in Lesson 3. However, the emphasis on strategic
planning is more on long-term objectives, goals, purpose or mission, rather than the
day-to-day issues of management. The objective is to keep firm afloat in the long-run in
the light of the several unforeseen contingencies that lie ahead in future. The following
are the important steps in the process of strategic planning:
deciding the corporate mission and broad objectives;
gathering and analysing information;
conducting a resource audit (analysis of strength, weaknesses in the light of the
opportunities and threats);
identifying strategic alternatives; and
making the choice (selection of the right strategy)
The manager's success lies in understanding the trends in the environment. The trends
contain signals and give clues about the potential opportunities and impending threats.
Many organisations have paid a heavy price for their failure to draw the right meanings
from the signals. Therefore what is required is "the ability to read the writing on the
wall".
Take the case of the public sector giant, HMT which prided itself, for a long time, on its
dominance in the Indian wrist watch market. The company was in an upbeat mood and
failed to understand the shift in the consumer preference towards the trendier, sleek
quartz watches. In the meantime TITAN had entered the market with a wide array of
products and began to give HMT a run for its money. TITAN with its innovative
marketing strategies has, no doubt, changed the face of the Indian watch market so
much that HMT was in fact struggling hard to face TITAN. This is only one of the several
examples of failures in strategic planning in the contemporary business world.
Technological, economic, sociological and political changes in the environment are so
extensive and affect so many activities of an enterprise that is essential to keep their
effects in mind. Failure to read the changes and complacent attitude on the part of
management costs the firm dearly. There are numerous examples, where yesterday's
leaders have become today's non-entities solely because of their failure to adapt to the
changing realities.
OPERATIONAL PLANNING
Strategic Planning vs. Operational Planning
While strategic planning is the prerogative of the top management which is the highest
policy making body in any organisation, operational planning is done at the lower levels.
Strategic planning is mostly concerned with the "why" of the things whereas operational
planning is concerned with the "how" of the things, that is, the nitty-gritty of achieving
the things.
The focus in strategic planning is on long-term while it is short-term in operational
planning.
Further, planning is less detailed in the former because it is not involved with the day-
to-day operations whereas it is more detailed in the latter. Tactical planning is the other
name used to describe 'operational planning'.
Strategic planning provides guidance and boundaries for operational management.
Effective management, therefore, must have a strategy and must operate on the day-to-
day level to achieve it. At times both may overlap. However, they should not be viewed
as mutually exclusive because operational planning identifies the major activities to
achieve the objectives of strategic planning. For example, if the strategic plan is to face
competition with new and innovative products, major tasks to achieve this goal would
be clarified by operational planning. The possible tasks at the operational level include:
strengthening the research and development department;
motivating the people to work on new products; and
creating a climate in the organisation where people are willing to take risks.
In the implementation of strategic plans, it is common that certain departments have far
more to do than others. In the above example, in order to bring out new products the
operational aspects of the R & D department's work culture, and the incentives systems
to motivate the people need attention.


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TYPES OF PLANS
Planning by definition involves deciding a future course of action. Different types of
plans are developed by an organisation, namely mission, strategies and policies,
procedures, rules, programmes and budgets. All these refer to a future course of action.
However, some variances in respect of the scope and operation are found in the
implementation. Some are single-use plans while some others are standing plans. They
are discussed below:
1. Mission or purpose:
The terms mission or purpose are often used interchangeably. An organisation's mission
statement includes its philosophy and basic purpose for which it exists. It establishes the
values, beliefs, and guidelines that the organisation holds in high esteem. Mission
statement suggests how an organisation is going to conduct its business. It defines the
basic intentions of the firm. A clear definition of mission or purpose is necessary to
formulate meaningful objectives.
Answers to two important questions are provided by the mission statement: a. What is
our business? and b. What should it be? These questions force the management to
define their customers and their needs.
The essence of corporate mission or purpose can be understood from the IBM's
philosophy, as enunciated by Thomas Watson, its founder way back in 1960's.
Respect for the individual;
We want to give the best customer service of any company in the world; and
We believe that an organisation should pursue all tasks with the idea that they
can be accomplished in a superior fashion.
It is interesting to note that almost 30 years after Watson stated these three basis
beliefs, IBM's present Chairman stated: "We have changed our technology, changed our
organisation, changed our marketing and manufacturing techniques many times, and
we expect to go on changing. But through all this change, those three basic beliefs
remain. We steer our course by those stars."


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2. Policies:
Koontz and O'Donnel define policy as "a general statement or understanding which
guides the thinking and action in decision-making. Policy is a one time decision. When
decisions are to be made, managers consult the policy relevant to the decisions. Policy
stipulates how an activity has to be performed. It provides the basic framework within
which managers operate.
Policies exist at all levels in the organisation. Some may be major company policies
affecting the whole organisation while others may be minor or derivative policies
affecting the functioning of departments or sections within the departments.
Policies may be very clear and explicit. Good policies are flexible, easy to interpret and
consistent with overall objectives of the organisation. Policies are laid down by the
management for all the important functional areas. As such, we hear about production
policies, financial policies, marketing policies and personnel policies, to mention a few.
For instance, in the personnel area, specific policies may be formulated for recruitment,
training, compensation, etc. Accordingly, whenever the need for recruitment arises, the
personnel manager consults the existing recruitment policy of the company and initiates
the steps necessary to fill the vacancies. Thus it is evident that the personnel manager
operates within the broad policy of the company in recruiting the people. Thus policy is
a one-time standing decision that helps the manager in making day-to-day decisions, in
their operational areas.
3. Procedures:
Another term that is frequently heard in any organisation is 'procedures'. The term
sounds of some bureaucratic element where issues are finalised only after they undergo
a long drawn scrutiny. But procedures, if simple and clear would ensure order in the
performance of operations. Though procedures exist at all levels in an organisation, they
are more detailed at the lower levels. In common parlance, they are called 'Standard
Operating Procedures' (SOPs).
Procedures for placing orders for material and equipment, for sanctioning different
types of employee leave, for handling grievances at the shop floor level, etc., to mention
a few, suggest how each of these has to be handled. Policies and procedures are closely
interrelated. For instance, a company may follow time-bound promotion policy to
promote people from within. But the operational part of the policy is specified by the
procedure - the formalities to be fulfilled to effect the promotion are dictated by the
procedure.
4. Rules:
A rule is also a plan, but the simplest type of plan. Rules are plans in that they suggest
the required actions. A rule requires that a definite action has to be taken in a particular
way with respect to a situation. Some definiteness is associated with rules. For example,
'no smoking' is a rule. No deviation is normally allowed from the rule. The essence of a
rule is that it reflects a managerial decision that certain actions be taken or not be taken.
Rules vs Policies and Procedures - Rules should not be confused with policies and
procedures. Policies contain some operational way or discretion while rules allow no
discretion in their application. Similarly, procedures though different from rules may
contain rules. For example, there may be a procedure to enable customer grievances in
respect of post-sale service. The procedure may contain a rule that free service is
available only for a period of two years after the sale.
5. Programmes:
Terry and Franklin define programme as "a comprehensive plan that includes future use
different resources in an integrated pattern and establishes a sequence of required
actions and time schedules for each in order to achieve stated objectives". Thus, a
programme includes objectives, policies, procedures, methods, standards and budgets.
For instance, launching 'Prithvi' satellite is a programme; 'Jawahar Rojgar Yojana' is a
programme. The essential ingredients of any programme are time phasing and
budgeting. It implies that specific dates are prescribed for the completion of various
phases of a programme. Adequate budgetary provisions are made for financing the
programme.
Programmes may be major or minor. For instance, a company may embark upon
modernisation programme of the plant and machinery and other manufacturing
systems in a big way. By all means, such an effort is a major programme. Similarly a
large organisation may start computerising all its activities. On the other hand,
modernisation of small equipment in some section of the factory and computerisation of
a particular operation in a certain department may be considered as minor programmes.
6. Budgets:
Budgets are plans in that they contain statements of expected results in numerical
terms. A budget is a quantitative expression of a plan. It specifies the future course of
action as laid down by a plan. In fact budgeting is a planning device. It is the
fundamental planning instrument in many companies.
Organisational budgets vary in scope. Master budget which contains the consolidated
plan of action of the whole enterprise is in a way the translated version of the overall
business plan of the enterprise. Similarly, production budget represents the plan of the
production department. Again, capital expenditure budget, raw material budget, labors
budget, etc. are a few minor budgets in the production department.
One of the advantages of budgets is they facilitate the comparison of actual results with
the planned ones by providing yardsticks for measuring performance. 'Zero-based
budgeting' - a recent innovation in budgeting practices makes planning more complete.
It emphasises the need to examine every commitment afresh in terms of decision
packages.
SUMMARY
Any plan is a future course of action. It facilitates the achievement of goals. Different
types of plans are formulated in any organisation. Though all the plans, by whatever
name they are called, involve a future course of action, they differ in respect of the
length of time, relative importance and the level at which they are more relevant.
Strategic plans provide the direction to the organisation and concerned with the
achievement of organisational mission where as operational plans are concerned with
the day-to-day managerial activities. The various types of plans namely, policies,
procedures, rules, programmes and budgets plans are also discussed.
REVIEW QUESTIONS
1. Distinguish between strategic planning and operational planning. How are they
relevant for the management of an organisation?
2. Present the business strategy of any organisation that you are familiar with. Could
you offer a better strategy?
3. Briefly describe the following types of management plans: a) Policies, b) Procedures,
c) Programmes, d) Budgets.
4. "The importance of strategic planning is now fully realised by the Indian corporate
sector than before". Discuss.
5. 'Environmental scanning is the core of all planning activity'. Elucidate.
SELF-ASSESSMENT TEST
From what you have understood in this lesson, respond to the following by indicating
T/F (True or False) as the case may be:
1. Strategic planning is wasteful exercise because future cannot be predicted
accurately. ( )
2. Strategic planning is another name for long-range planning. ( )
3. Strategic plans and operational plans are independent of each other. ( )
4. The emphasis in operational planning is achievement of corporate mission. ( )
5. Strategic planning is usually done by top management. ( )
6. Operational plans are more concerned with day-to-day managerial operations. ( )
7. A policy is a standing plan. ( )
8. Budget is a plan prepared only by the government. ( )
9. Rules offer great flexibility in the implementation. ( )
10. Success in business depends on luck, no matter how you plan. ( )
CASE: FAIRDEAL COMPANY VS. GOVERNMENT
In line with the Government of India's liberalisation policies, the State Government of
Andhra Pradesh, to woo the NRI investment, a few years back permitted the Fairdeal
Company, promoted by an NRI, to manufacture chemicals. The factory was set up in
1988 at a place 5 kms west of the city of Vijayawada, a fast growing city in Andhra
Pradesh on the banks of river Krishna. The State Government, in return for a guarantee
of year round employment for at least 5000 persons, offered an attractive package of
incentives to the company which include:
* Sale of 50 acres of land to the company at a nominal price of Rs. 1000 an acre;
* Constitution of a building to Fairdeal's specifications with the company repaying the
building cost in equal annual payments over a 20 year period with annual interest of 10
percent on the unpaid balance; and
* No State Government levies for 10 years.
The company with a gestation period of 3 years went on stream in 1991. For two years
1991-92 and 1992-93, the company did not make any profit and it was only in the last
financial year (1993-94), the company posted some profit.
Subsequent to the establishment of the factory in 1988, contrary to the expectations of
the city planners, the city has grown westward during the last 4-5 years. To cope with
the growth needs, the urban development authority (called Vijayawada Urban
Development Authority, VUDA) has undertaken several civic plans in the vast areas on
the western side of the city. One of the plans includes the development of a park
featuring boating and picnic facilities centering around the river Krishna. VUDA has
embarked on a detailed study of the prospects of developing the whole area into a
premier tourist centre. In the study it was found that the chemical plant was discharging
effluents into the river in a big way contaminating the river water.
In the wake of the plan to develop the area into a tourist spot considering the scenic
beauty of the place, VUDA required the company to install special equipment to
neutralise the waste materials now emptied into the river. Company engineers estimated
the cost of waste treatment at Rs. 2 crores for equipment and Rs. 5 lakhs for annual
operating costs. The management of the company contends that the expenditure is well
above the affordable limits. Fairdeal's Chairman states that insistence on such an outlay
by the Government would force the company to abandon the plant and locate it
elsewhere. He further points out that the company has fulfilled every requirement of the
initial agreement reached when the decision was made to set up the plant. For example,
the company has met all the required payments, and since opening the plant, has never
employed fewer than 6000 persons - which accounts for nearly 5 percent of the
employment in the organised sector of the city. The chairman also points out that the
building is specially designed built for the company's particular type of chemical
manufacturing. It is not an all-purpose building and can be utilised only by a firm such
as theirs. The available trends both at the national and international level show that the
company has a bright future.
However, the Government takes the view that the initial deal was offered to help the
company in getting established. With nominal land, cost, favourably financed building
cost, and availability of labour in the area, the company should have volunteered itself.
The company is part of the community and therefore should assume its social
obligations as such. Pouring waste into a public stream is harmful and simply cannot
continue. Also, in the opinion of the government officials, the threat from the company
to abandon its plant is a pure bluff. A suitable land and building elsewhere at today's
prices would cost several times more than the present one, leave alone losing a well
trained work force.
QUESTIONS
1. How does this problem relate to modern management planning?
2. Develop a set of tactical plans for the Fairdeal Company.
3. What solutions do you offer to overcome the present impasse?
FURTHER READINGS
Chopra, BSKS. 1988 Business Policy for Indian Industries, Times Research
Foundations, Pune.
Gleuck, William F. 1980 Business Policy and Strategic Management, McGraw-Hill,
New York.
Koontz, Harold and others, 1984 Management McGraw-Hill, Tokyo.
McCathay, Danil J, and others 1987, Business Policy and Strategy: Concepts and
Readings, Richard D. Irwin Inc. Illinois.
Steiner George, 1969, Top Management Planning, Macmillan, New York.
Terry, George.R. and Franklin, Stephen.G. 1988 All India Traveller Bookseller, New
Delhi.


- End of Chapter -
LESSON-5
POLICY FORMULATION - BASIC ISSUES

Objectives
After studying this lesson, you should be able to:
Understand the importance of policies;
Describe the basic sources of policies in the organisations;
Familiarise with the steps in the policy formulation; and
Identify the key areas where policies are needed.
Outline
Introduction
Importance of policies
Furnish the framework for decisions
Assure consistency in operations
Types of policies
Originated policies
Appealed policies
Implied policies
Externally imposed policies
Principles of policy making
Process of policy formulation
Basic areas of policy making
Production
Marketing
Finance
Personnel
Summary
Review Questions
Case
Further Readings
INTRODUCTION
Decision-making is the primary task of a manager. While making decisions, it is
common that managers consult the existing organisational policies relevant to the
decisions Thus, policies are intended to provide guidance to managers in decision-
making. It has to be remembered that a policy is also a decision. But it is a one-time
standing decision in the light of which so many routine decisions are made.
IMPORTANCE OF POLICIES
-> Furnish the framework for decisions
Policies provide the broad framework within which decisions are to be made. In the
absence of appropriate policies, managerial decision-making may be analogous to
"reinventing the wheel" every time. For example, a policy greatly helps the manager in
filling the vacancies (vacancies caused by the retirement have to be filled only by
internal promotions). Whenever vacancies arise, he simply goes by the existing
promotion policy of the organisation. Sound policies thus save lot of time in decision-
making and avoid confusion.
-> Assure Consistency in Operations
Since policies specify the boundary conditions of decisions, it goes without saying that
when decisions are actually made, they conform to the policy relevant to the decision.
Thus, decisions relating to a particular operational area of the business tend to be
consistent if the policy of an organisations is to face competition with quality products,
the emphasis naturally will be on issues relating to improving the quality of the product.
All the decisions that affect the product quality are normally taken in the light of the
explicit policy. Policies developed carefully and understood perfectly, result in
consistency in planning. As a result, organisational resources would be deployed in
those areas where they find a better use.
TYPES OF POLICIES
Policies come about in any organisation in different ways. Based on their source, Koontz
and O'Donnell have classified policies under the following types.
1. Originated Policies : Originated policies are the result of top management
decisions. To guide the actions of the subordinates, top management formulates policies
for the important functional areas of business such as Production, Marketing, Finance,
Personnel and so on. These policies basically stem from the organisational objectives.
They may be 'broad' or 'specific' depending on the centralisation or decentralisation of
authority. If they are broad, they allow the subordinates some operational freedom. On
the other hand if they are specific, they are implemented as they are.
2. Appealed Policies : At times a manager may be in dilemma whether he has the
authority to take a decision on a particular problem. There may not be precedents to
guide him. In such a case, he appeals the matter to his superiors for their thinking. Thus,
appeals are taken upwards till they reach the appropriate level in the hierarchy for a
decision. The decision taken by the higher-ups, thus becomes a ruling. For example,
during festival seasons, the manager at the branch level may be in a dilemma to offer
discount to the customers. There may not be any explicit policy to guide him. But to
meet competition in a particular market situation where competitors offer discounts,
top management, on the basis of an appeal made by the Branch Manager may allow him
to offer discount. Unless otherwise stated, it becomes an unwritten policy and guides the
manager's decision-making in all such future situations.
3. Implied Policies : As in the above case, there may not be specific policies for all the
contingencies. Managers draw meanings from the actions and behaviour of their
superiors. In a particular situation, a manager may go all out to help a customer who is
in a difficult situation. If customer service is on top of the agenda of the organisation,
there may not be any objection from the top management to the stand taken by the
lower level manager in support of the customer. Though there is no explicit policy,
managers may assume it in a particular way and go about in their day-to-day operations.
4. Externally Imposed Policies : These are the policies imposed by the agencies in
the external environment like government, trade unions, industry associations,
consumer councils, etc. These agencies, to protect the interests of the respective groups
may lay down certain policies to be followed by the business. As the interaction of the
business with external environment is increasing, one can find many policies thus
coming into being in any modern business. For instance, the recruitment policy of the
organisation is influenced by the government's policy towards reservations for weaker
sections. Anti-pollution measures, concern for the quality of the product and customer
service also fall in this category.
PRINCIPLES OF POLICY MAKING
Policies help to ensure that all units of an organisation operate under the same ground
rules. They facilitate coordination and communication between various organisational
units. This is possible because policies make consistency in action possible. In view of
the importance of policies in guiding executive behaviour, they have to be formulated
carefully. In fact, policy formulation is one of the important executive responsibilities.
Effectiveness of policies, therefore, lies in understanding the following principles
underlying policy formulation:
(1) Define the Business: Correct definition of the business provides clarity to
the policies. Two questions have to be asked in this regard - what is our business,
and what kind of business are we in. Many businesses have failed because they did
not attempt to seek answers to these simple and basic questions. Gramophone
record companies for long did not realise that they are in the entertainment
business. Hence they are now here in the corporate history. To define the business,
a company must take a close look at its basic operations and analyse it's major
strengths and weaknesses in all the functional areas like marketing, product
development, finance, and public relations. Such an exercise enables the
enterprise to correct it weaknesses, if any, and to capitalise on its strengths.
(2) Assess Future Environment: Future environment of the business has to
be forecasted. A realistic estimate of the future trends in matters relating to
technology, economic and market conditions, political stability, etc. is essential for
policy formulation. As many people would agree, forecasting is a difficult task.
Instances are not rare, where the best of the forecasts turned out to be just
intentions. It is interesting to note that sometimes products which were predicted
to be instant failures by the so called market surveys proved to be run-away
successes. The Syntax water tank is a classic example where the product defied the
gloom predicted by the market research. However, examples of this sort are few
and far between.
(3) Ensure Availability of Resources: Formulating policies in an ambitious
way without regard to the ground realities may land you in trouble. You would
encounter too many problems while implementing the policies. As a result,
policies do not serve the intended purpose. For example, if the policy of the
organisation is to cash in on the new opportunities, it does not mean that you can
enter any field thrown open by the government. You have to assess yourself as to
how strong you are in terms of resources required. Otherwise it amounts to
overstretching.
(4) Communicate the Policies: The chief objective of many policies is to help
managers in decision-making and to ensure consistency in action. As such, policies
have to be communicated to all those who are to take decisions. The policy of the
organisation towards competition, for instance has to be communicated to the
people in the marketing department. Otherwise there will not be proper
synchronisation between the policy and action.
PROCESS OF POLICY FORMULATION
As mentioned earlier, the basic intention of policies is to help executive thinking in
decision-making. Policies are formulated for all the key functioned areas of business like
production, marketing, finance, personnel and so on. Effectiveness and consistency of
decisions in all these areas depend on how well the policies are formulated and
understood. A policy is a plan. Therefore, the steps involved in policy formulation are
similar to the steps in planning. Though policies vary, in respect of scope, the process of
policy formulation usually involves the following steps:
Step 1 - Corporate Mission : Corporate mission specifies the purpose for which the
organisation exists. It is natural, therefore, that all the activities of the organisation are
geared towards the achievement of the mission. The mission statement provides the
direction to the organisation. As such, thorough understanding of the corporate mission
is the starting point for policy formulation.
Step 2 - Appraisal of the Environment : Integration of the organisation with the
environment is the key function of the management. The nature of environment and the
various forces in it that affect the business have to be analysed. It includes collection of
relevant Information from the environment and interpreting its impact on the future of
organisation.
Step 3 - Corporate Analysis : While the focus of the environmental appraisal is on
the external factors of the business, corporate analysis takes into account the internal
factors. Corporate analysis discloses strengths and weaknesses of the organisation and
points out the areas that have potential.
Step 4 - Identification of Alternatives : The above two steps - environmental
appraisal and corporate analysis popularly known as SWOT (strengths, weaknesses,
opportunities and threats) analysis will help identifying the alternative policies. For
example, the objective of the organisation is expansion. This may be achieved by several
ways - diversification of the activities, acquisition of existing organisations,
establishment of subsidiaries abroad, and so on. Again, if diversification is chosen, it has
to be decided whether it is into related or unrelated business. The alternative policies
thus identified have to be evaluated in the light of the organisational mission and
objectives.
Step 5 - Choice of the Right Policy : This stage involves choosing the right policy
from several policy options that suits the organisational objectives. The corporate
history, personal values and attitude of the management and the compulsions in the
environment, if any, influence the choice of the policy.
Step 6 - Policy Implementation : Once the policy is decided, necessary steps have to
be taken for its implementation. Effective implementation of the policy requires design
of suitable organisational structure, developing and motivating people to contribute
their best, design of effective control and information systems, allocation of resources,
etc. At times, policies may have to be revised in line with the changes in the
environment. To make good, any inadequacy at the time of making the policy, or to
adopt to the changes in the business environment, policies like plans have to be
monitored constantly during the implementation stage.


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BASIC AREAS OF POLICY MAKING
As mentioned earlier, policies are normally formulated for all the key areas of the
business. Some of the important areas for which policies are required are discussed
here:
Production
In the area of production, make or buy decision is an important policy. For instance,
automobile companies buy many accessories and parts from outside rather than making
those parts themselves. This type of policy enables the organisation to concentrate on
the basic product. However, it depends largely on the resources of the organisation and
capabilities.
Another important policy pertains to the production run. The volume of output depends
on the production run. The demand for the product in terms of the orders, costs of
tooling, economics of scale are some of the factors that influence the production run.
Some companies choose to produce to order, while some companies may produce in
anticipation of demand. During slack season, there are companies which produce some
fill-in-products to make good use of the facilities.
Issues relating to innovation, new product development and diversification are other
important aspects which require policy direction.


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Marketing
As the business world has become increasingly competitive, marketing has acquired
tremendous importance in the recent times. Peter Drucker regards innovation and
marketing as the two important functions for every business. The success of any
organisation depends on how strong it is in these two basic functions. In the functional
area of marketing, answers to certain basic questions help in formulating the policies.
The questions include:
Who are our customers and what do they buy?
Why do they buy our product?
What do we offer in relation to our competitors?
What supporting services do we offer?
What is the price to be charged?
Appropriate answers to these questions help in deciding the product, pricing,
distribution and promotional policies of the firm. Among these, pricing policy is of
utmost significance. Issues relating to how to face the competition are resolved with a
sound pricing policy. For instance, whether to indulge in price competition or non-price
competition are the two basic issues in this regard. In the former case, the firm meets
competition by cutting the prices while in the later, competition is met by promotion,
advertising and after sales service, etc. The emphasis is on non-price variables.
Finance
Financial aspects normally set the limits to the expansion of the business. Necessary
steps have to be taken to raise the funds. The required funds for the business may be
furnished by the owners or borrowed from outside sources. The actions of management
with regard to procurement, utilisation and distribution of funds are guided by the
broad policies laid down for the management of funds.
Important policy decision pertains to the proportion of the equity to debt capital. The
relative merits and demerits in raising the funds through equity and debt have to be
examined.
Further, in the case of a going concern, funds may also be raised through retaining a
portion of the profits in the business. This in turn influences the dividend policy of the
organisation.
Working capital management is another area which requires policy direction. Adequate
working capital is essential for any business for maintaining credit and meeting
obligations. Policies regarding working capital vary from company to company
depending on the size and nature of the business. For instance, public utility concerns
with regular cash collection may need less working capital than those engaged In the
manufacture of specialised machines. Similarly, a company operating on strictly cash
basis requires less working capital than one operating on predominantly credit sales.
Policies relating to the distribution of profits of the business are equally important. This
is usually influenced by factors including - the desire of the shareholders, the company's
future plans of expansion, availability of other sources of obtaining capital, the urgency
of the need for additional capital and availability of re-investible profits. If multinational
companies like Hindustan Lever, Brooke Bond, Colgate etc., enjoy tremendous investor
clout and emerged as blue chip companies, it is because of investor friendly policies
relating to dividends and frequent capitalisation of resources.
Personnel
Any organisation can be as effective as the people in it. Many problems in the
organisations are people related in nature. It is, therefore needless to say that sound
personnel polices ensure good employer- employee relations.
Important policies in this area relate to recruitment and training, compensation and
other employee benefits, and the attitude of the management towards labour unions. All
these policies are normally influenced by factors such as skills required at various levels,
the attitude of the people towards work and the philosophy of the management. On the
whole, good employee-oriented personnel policies encompassing the above mentioned
issues would contribute to employee motivation and morale.
SUMMARY
Policy formulation is one of the important responsibilities of the executive. Policies
provide the broad framework within which decisions are made by the managers in
handling various day-to-day problems. They also assure consistency in managerial
decision-making. Based on the source through which policies come into being in the
organisations, they are classified into originated, appealed, implied and externally
imposed policies. Thorough analysis of the strength and weaknesses of the organisation
in the light of the opportunities and threats is a critical step in the formulation of
policies. A few important functional areas such as production, marketing, finance and
personnel, where sound policies are essential have also been discussed.
REVIEW QUESTIONS
1. Discuss the importance of policies and how they assure consistency in decision-
making.
2. What are the important sources of policies in the organisations? Explain with the
help of examples.
3. Discuss the important steps in the policy formulation.
4. Identify a few important areas of the business where policies are necessary and
elaborate with appropriate examples, the important policy decision in any one of the
functional areas.
CASE: HONESTY ENTERPRISES - POLICY DILEMMA
Honesty Enterprises is a medium-size organisation operating in the highly competitive
consumer goods industry. The company which started its operation in 1970s in a
humble way has come a long way and emerged as a force to reckon with in the industry.
The success of the company is mostly attributed to certain core values that the
management cherishes even to date. Important among them are, product quality and
customer service. The company all through made it a policy not to resort to price-cutting
and instead chose to compete on quality and customer service. Even in the most
difficult times the company stuck to the same policy and never yielded to the
provocation of the competitors.
In the early 1990s, the consumer goods industry, because of the recession, had a very
tough time. Unable to withstand the evil effects of the slump, many small and inefficient
firms were almost all relegated to the oblivion. During 1991, one of the regional
marketing managers of the Honesty Enterprises operating in the state of Tamil Nadu, to
meet the targets in the most trying circumstances, authorised the local sales managers
to allow price discounts on the products. The practice of offering discounts continued
for some time till the middle of 1993. In the meantime, though price-cutting has never
been the policy of the company, for all practical purposes an implied policy had
emerged. Regional managers and lower level people in the marketing department
operating in the various other markets also began to compete on price terms by offering
different types of discounts to the customers.
It took some time for this unanticipated development to reach the top management.
Some perceptible changes in the attitude of the customers towards the company
products began to surface. The company was perceived to be compromising on the
quality of the product. All this resulted in an erosion of the image of the company
assiduously built over a period of twenty years.
Added to this, the management is also confronted with another problem relating to the
technological upgradation. All along the company relied on the in-house research and
development capabilities for product innovations. Now that advanced and more
sophisticated technology is easily accessible, thanks to the liberalisation of the economy,
many competitors are firming up collaboration agreements with internationally reputed
companies. The management is at the cross roads. It is exploring the various
possibilities to surmount the present crisis.
Questions
1. Summarise the problems that you have identified in the case and analyse their
genesis.
2. Evaluate the external environment of the business in the case and discuss its impact
on the company.
3. Assuming that you were the consultant, how would you help the management to
overcome the crisis effectively?
FURTHER READINGS
1. Koontz, Harold and others, 1984. Management, McGraw-Hill, Tokyo.
2. Massie. Joseph L. 1971. Essentials of Management, Prentice-Hall, Englewood cliffs.
N.J.
3. Terry. George R and Franklin, Stephen G. 1988, Principles of Management. All India
Traveller Bookseller (Indian Reprint), New Delhi.
4. Drucker, Peter F. 1954. The Practice of Management, Harper & Row, New York.
5. Barnard. Chester I. 1938. The Functions of the Executive, Harvard University Press,
Cambridge.
6. Chandler, Alfred D. 1962. Strategy and Structure, MIT Press, Cambridge.
7. Ghreck, William F. 1972. Business Policy: Strategy Formulation and Management
Action, McGraw-Hill, New York.5. I.Chestner Barnard.

- End of Chapter -
LESSON-6
ORGANISATION THEORY

Objectives
After studying this lesson, you should be able to:
Appraise the different approaches to the study of organisations;
Distinguish between formal and informal organisations; and
Acquire a correct perspective of 'organising' as a managerial function.
Outline
Introduction
Organisational Theories
Classical Organisational Theory
Neoclassical Organisational Theory
Modern Approaches to Organisational Theory
Formal and Informal Organisations
The need for Informal Organisation
Problems and Benefits with Informal Organisation
Managing the Informal Organisation
Summary
Review Questions
Further Readings
INTRODUCTION
Organisations are made up of people. When people work together in groups to achieve
the goals, everyone in the group must know what he is expected to do, with what
resources, and what reporting relationship he has with others. Otherwise, activities of
the people will tend to be directed in different ways resulting in the wastage of scarce
resources. The managerial function of 'organising' aims at designing a structure where
everyone knows who is to do what and who is responsible for what results. It helps in
removing confusion and uncertainty by providing for adequate coordination between
groups of people working in various departments or divisions.
Koontz and O'Donnell define organising as "the grouping of activities necessary to
attain objectives, the assignment of each grouping to a manager with authority
necessary to supervise it, and the provision for coordination horizontally and vertically
in the enterprise structure". Thus organising is the process of creating a structure for the
organisation that will enable its people to work together effectively towards its
objectives. However, the structure of the organisation has undergone considerable
changes over the years in response to changes in the environment. Let us examine, in
brief, the various approaches or theories of organisations.
ORGANISATIONAL THEORIES
There are three approaches to understand the organisational theory: Classical,
Neoclassical and Modern. The assumptions about human beings and other variables
that affect the organisational functioning vary from one approach to the other.
1. The Classical Organisation Theory
As discussed in lesson 2, the early management thinkers viewed the organisation as a
machine and human beings as different parts of that machine. Organisation was viewed
as a closed system. The influence of the external environment was ignored. The
emphasis was more on increasing the output, and human element in the process
received scant attention. Further, early writers' concern was mostly to find the 'one best
way' to design the organisation which would suit all the situations.
Division of Labour, Scalar Principle, and Span of Control are the important principles
on which enterprise activities were organised. Members of the organisation were guided
by a sense of duty to the organisation and by a set of rules and regulations. Mason
Haire has identified the chief characteristics of classical organisation theory as follows:
Human beings were assumed to be relatively homogeneous and unmodifiable;
Organisation was perceived as a closed system with little interaction with the
external environment;
The emphasis was on detection of errors and their correction after they have
happened;
Authority was centralised and the integration of the system was achieved through
exercise of authority and implementation of rules and regulations;
Stability was the central theme in designing the structure.
Classical Organisation Theory, is thus, based on the contributions of scientific
management by Taylor and others, administrative management by Fayol and
bureaucratic system by Max Weber.
Appraisal of Classical Theory
March and Simon, Katz and Khan, Victor Thompson and a host of other writers
have found the classical organisation theory inadequate in dealing with the complexities
of modern organisations. The salient features of the classical theory may be summarised
as follows:
i. Mechanistic structure : Organisations have been treated as closed systems with no
environment and hence no interaction with the outside world. Classical thinkers
assumed two things - there is no impact of the environment on the organisation, and
human beings are inert elements who can be manipulated. Once the structure is created,
it was assumed that it would run smoothly with the rules and regulations.
ii. Organisation as a static concept : Classicists held the view that an organisation
is a static concept. Once the structure is created, it will work forever. The need for
change or structural adjustment was not given due consideration. The emphasis was
more on stability in operations.
iii. Excessive reliance on principles : Principles like division of work, scalar chain,
structural arrangement, order and span of control were taken as articles of faith. Too
much reliance was placed on these classical management principles. Coordination by
hierarchy, unity of command, line and staff relationships, discipline - all resulted in the
creation of command and control structures.
Classical organisation theory has been criticised by many authors on the following
grounds:
- It neglects the human aspects of organisation members, assuming that they are
motivated only by economic considerations. As educational levels, expectations
and aspirations of people have been changing fast, this criticism has become more
severe.
- It does not suit the rapidly changing environments of today. Structures designed
to function effectively in static environments with an emphasis on stability, hardly
suit the changing requirements of modern businesses.
- It assumes that higher-level managers are respected by subordinates because of
their knowledge and skills. These days, young people at lower levels seem to be
fully equipped with latest skills. At times they are found to be even outsmarting
their superiors. As a result, some emotional conflicts between superiors and
subordinates have become quite common.
- As organisational procedures become more formalised and tasks more
specialised, people tend to lose sight of the bigger picture. They develop a narrow
perspective where they are obsessed with their own functional areas.
It should not, however, be construed from the foregoing analysis, that the classical
theory of organisation is completely irrelevant. The contributions of the early thinkers
which ensured proper systems and order in the organisational functioning cannot be
undermined. Classical organisation theory has strengths as well as weaknesses. For
example, classical structure provides much task support. At the same time it is weak in
psychological support. What is needed is an organisational system that provides both
task and psychological support.
2. Neoclassical Organisation Theory
The classical thinkers with their obsession with economic effectiveness neglected
employee satisfaction. They failed to recognise the significance of the impact of human
element. Neoclassical theory, on the other hand, which revolves around the
contributions of behavioural and social scientists, aims at complementing for some of
the deficiencies in classical theory. The initial impetus was provided by Elton Mayo's
Hawthorne studies. Neoclassical theorists did not totally reject the classical model, but
only tried to modify it. Important among them are Douglas McGregor, Chris
Argyris and Rensis Likert, whose contributions to the development of management
thought have already been discussed in detail in lesson 2. The main propositions of
neoclassical theory are as follows:
i. In every organisation, in addition to the technical system, there exists a social system;
ii. Along with the formal organisation structure, there also exists an informal
organisation;
iii. Human beings have diverse motivational patterns and try to fulfill different types of
needs;
iv. Quite often there exists a conflict between individual and organisational objectives.
Hence the need for integration between the two; and
v. Cooperation among people is not automatic but has to be achieved through
appropriate behavioural interventions.
Appraisal of Neoclassical Theory
Neoclassical theory of organisations marked a significant departure from the classical
theory, in that, it raised several new concepts like informal organisation, group norms,
non-economic motivators, irrational behaviour, etc.
Consequent to the findings of Hawthorne studies and the writings of behavioural
scientists, concepts like flat structure, decentralisation and informal organisation have
found increased usage in the design of the organisation structure. In the place of the
traditional tall structures which are bureaucratic in their functioning, flat structures are
emphasised. As against delays in decision-making, hierarchical controls and
communication bottlenecks in the tall structures, flat structures with wide span of
control are found suitable to motivate human beings.
Another postulate of the neoclassical theory is decentralisation closely related to flat
structure. Decentralised structure offers autonomy and freedom to people in decision-
making. It assures operational freedom. The existence of informal organisation in the
formal organisation is by far a significant breakthrough of the neoclassical theory. While
normal organisation is a deliberate creation of the management, informal organisation
is the spontaneous outcome of the people to satisfy their social and psychological needs.
Various aspects relating to informal organisation are discussed in the subsequent
section of this lesson.
The neoclassical theory to organisational design compensates for some limitations in the
traditional classical model. But it too has been criticized on the following grounds:
- The neoclassicists share the classical assumptions that there is "one best way" to
design an organization. They overlook environmental, technological, and other
variables that might affect an organization's design;
- The neoclassicists oversimplify human motivation. Not everyone is motivated by
the non-monetary aspects of work, nor can all work be made intrinsically
challenging and rewarding; and
- The coordination of decentralized, fragmented groups to achieve organizational
goals may be more difficult than the neoclassicists suggest, particularly when the
objectives of lower-level employees are not consistent with the goals of upper-level
managers.
3. Modern Approaches to Organisational Design
As discussed in the preceding sections, hierarchical organisational structures are
centralised. Information flows slowly, so also the decisions. Modern approaches to
organisational design take into account business environment, technology and people.
As such, while designing the structure, an understanding of the environment is
essential.
i. Environment
Business environment may be classified into stable, dynamic and turbulent. Stable
environment is one with no unexpected or sudden change. Changes in technology,
market demand, and socio-economic and political conditions occur infrequently and
modifications can be planned in advance. But these days, stable business environments
are hard to find.
As against stable environment where changes are infrequent, dynamic environment is
characterised by frequent changes. These changes, to a certain extent, can be predicted.
Trends are likely to be apparent and organisations can easily try to adjust. However, the
rate of change in the environment may be high in some industries while it is low in some
other industries. It is also quite possible that the once stable environment may become a
dynamic one. For example, the environment of many businesses in India till a few years
ago was quite stable. But as the economy is opened up, unprecedented changes are
taking place in the Indian economy.
Turbulent environment, on the other hand, is characterised by unexpected changes
and surprises. As Peter Drucker has described the present age as "the age of
discontinuity", managements are taken by surprises. Spectacular breakthroughs in
technology, sudden changes in the market preferences, political uncertainties, etc.,
make the environment very turbulent.
In the light of the changes in the environment, whether they are predictable or
unpredictable, the organisational structure has to be designed in such a way that it
matches with the environment. Burns and Stalker on the basis of their extensive
research classified organisational systems into 'mechanistic' and 'organic' structures. In
a stable environment mechanistic structures would do well because the emphasis in
such systems is on achieving excellence in the routine tasks, whereas organic systems
are preferable in a dynamic or turbulent environment. Some combinations of the two
systems may also be used.
ii. Technology and Structure
Apart from the environment, technology also influences the structure. By technology we
mean the task related. Management researcher Woodward had studied about 100
British manufacturing firms and established relationship between technology and
structure. He classified technology into Unit production, Batch or Mass production and
Process production.
Unit production refers to the production of individual items tailored to customer's
specifications. The technology used is not very complex and output is produced largely
by individual crafts people.
Mass production refers to the manufacture of large quantities of products, mostly on
an assembly line.
Process production refers to the production of materials that are sold by weight or
volume such as chemicals, sugar, cement etc.
The following are the findings of the Woodward's study on the relationship between
technology and organisation structure:
The more complex the technology, the greater is the number of managers
and management levels. In other words, complex technologies require
greater degree of supervision and coordination;
The span of management increases from unit production to mass
production and then decreases from mass production to process
production. Lower level employees in both unit and process production
firms tend to do highly skilled work. As a result, narrow span becomes
inevitable. In mass production, on the other hand, assembly line workers
perform mostly routine tasks. Large number of such workers can be
supervised by one manager;
The greater the technology complexity of the firm, the larger is the clerical
and administrative staff.
The foregoing analysis shows that all these variations in technology will influence the
organisation structure, which in turn will affect the performance. Successful firms are
those that design the structure in accordance with the technological requirements of the
firm.
iii. Aspirations of the People
Along with the environment and technology, the attitudes and aspirations of the people
need due consideration in designing the structure. Unlike in the past, where classical
theorists assumptions about human beings were held good, there has been a sea change
in the attitudes and aspirations of the people in the recent years. Peter Drucker has
rightly described the present day workers as "knowledge workers". They want more
challenging jobs and participation in the decision-making process. They are self-
motivated and direct their activities themselves.
In view of such raising aspirations and expectations, organisational structures have to
be designed in such a way that their aspirations are taken care of. The structure has to
provide an environment where individuals have freedom and autonomy. That is why,
these days there is lot of talk about flexible systems and loose controls in the
organisations. The objective behind all these structural changes is to identify and
encourage creative people. In a competitive environment as of today, in the final
analysis, it is the quality of human resource which makes a difference when all the other
things are equal. In the place of rigid and bureaucratic systems which stifle the
innovative abilities of people, the emphasis at present is towards flexible systems. As
such the structure should facilitate to satisfy the ego needs of the people.
FORMAL AND INFORMAL ORGANISATIONS
Much of what is discussed and understood about organizations in general, relate to the
formal organisation. In many organisation structures, authority-responsibility
relationships among people are clearly visible. Information flows from one level to
another or from one individual to another in a formal way. All the relationships find a
place in the organisation chart. The roles of the people are clearly defined and they are
expected to perform the roles as stipulated to achieve the goals. Thus formal
organisation is a deliberately created entity to achieve certain specific objectives.
Informal organisation, on the other hand, refers to the network of personal and social
relations not established by formal authority but arising spontaneously as people
associate with one another. The emphasis within informal organisation is on people and
their relationships, whereas formal organisation emphasizes official positions in terms
of authority and responsibility. Thus, informal organisation refers to unofficial
relationships that inevitably occur between individuals or groups within the formal
organisation.
As such in any organisation, both formal and informal organisations exist. Both are not
mutually exclusive, but are complementary. The actual organisation structure is the
result of both formal and informal relationships. The existence of informal organisation
within the formal organisation can easily be seen in any formal system, be it a business
enterprise, educational institution, or a voluntary organisation.
The need for Informal Organisation
The inadequacy of the formal organisation to meet certain social and psychological
needs is the basic reason behind the emergence of informal organisation. Because the
formal organisation does not provide for all the social interactions, members try to find
out alternative ways of association. As the Hawthorne experiments revealed,
membership in informal groups give people psychological benefits in every respect as
important as the salary paid to them by the employer. The following are some of the
major reasons for the emergence of informal organisation.
i. The desire to socialise with others - Keith Davis observes that "along with men's
technical imperative, there is also a social imperative to work together. Man is a social
being. He wants to belong, to associate with others rather to work in isolated loneliness.
Out of this basic drive of man, the informal organisation arises". It is, therefore, quite
natural when people work together in groups, they tend to socialise with fellow
employees to satisfy their own social and ego needs. These needs are not normally
satisfied by the formal organisation. Informal organisation, on the other hand, provides
them opportunity to interact with people of their liking based on so many personality
factors. We can easily observe in any formal organisation, like minded people coming
together and forming groups.
ii. Disillusionment with the routine - Excessive specialisation these days in a way
contributes for the employee aloofness. People become bored with the routineness in
tasks and feel psychological fatigue. They don't get the pride or satisfaction, as what they
perform constitutes only a small portion in the total task. People try to overcome this
boredom through interactions with others. Such informal interactions, which
encompass a whole gamut of issues both related to job and personal life, help in
releasing the tension created on the job. Informal organisation thus helps in filling up
the psychological vacuum created by dull, boring and monotonous jobs.
iii. Hierarchical command and control - Commands and controls characterise
formal organisation. Wherever there is hierarchy, it goes without saying that things
happen in a formal way. Reporting relationships are clear. Information flows along the
formal lines of authority and responsibility of the people. There exists a superior-
subordinate relationship where superiors tend to exercise control which may not be
liked by subordinates. While the subordinate cannot defy the superior, to compensate
for the inner conflict, he tries to find out an association where he does not face any such
control. Thus informal organisation provides him the necessary forum where he gets full
psychological relief and solace by sharing his agony with others.
iv. Protection of interest - In addition to the above factors, informal organisation
strives to protect the interests of its members by working as a regulatory device. At times
individual grievances are also redressed in organisations by informal groups. The
opinions and viewpoints of the people are channelised through the informal bodies.
Many limitations which otherwise would be faced by a member as an individual
overcome because the informal organisation takes care of the interests of the members.
v. Need for assistance - Formal organisation provides for subordinates' consultation
with the superior for advice when confronted with work related problems. But many
people hesitate for fear of criticism. Furthermore, every organisation has a large number
of rules governing procedures. Therefore, people often prefer to resolve their needs for
assistance through peers. We often find in organisations employees consulting their
colleagues rather than their superiors for many work-related problems.
vi. Communication - People like to know what is going on around them, especially if
it affects them. It may take some time for people to get information through formal
channels. Sometimes, superiors may deliberately withhold certain information from
subordinates. Therefore, an important reason for joining informal organisation is to get
information through informal channels. It satisfies individual's need for psychological
security and affiliation as well as provide him with much faster access to job-related
information. The informal communication, often called 'grapevine' also carries social
gossip.
Problems and Benefits with Informal Organisations
Though the existence of informal organisation is a natural outcome in any organisation,
many managers perceive them as bad. Some managers even carry an erroneous notion
that informal organisation is a reflection of ineffective management. They therefore try
to either suppress them or ignore their impact. In the process, they fail to take
advantage of the informal organisation by overreacting to the negative aspects and
disregarding the positive aspects.
Problems with informal organisations
It is true that in some cases, informal organisations may function in ways that are
counter-productive. They may stand in the way of organisation's achieving the
objectives. For instance, one of the consequences of informal organisation is the spread
of rumours. All of us are familiar with how the grapevine in organisations spread
rumours that are false and lead to negative attitudes towards management. The
informal groups may set norms for productivity. The work-to-rule and slow-down
techniques often accepted by workers in many instances are the result of the dictates of
the informal organisation. Individuals often tend to conform themselves to the group
standards or pressures which may cause performance to be below the standards set by
management.
Another evil effect of the informal organisation is the tendency to resist change. Such an
attitude often impedes the much needed innovation and adoption of changes as
demanded by the exigencies of the environment. However, such counter-productive
behaviour is often a reaction to the groups perception of how management is treating
them. Group members perceive that they are being treated unfairly and respond as any
individual would in such a situation.
Benefits of informal organisations
Since group membership is contingent on working for the organisation, loyalty to the
group may translate into loyalty to the organisation. For instance, many people refuse
higher paying jobs with other companies because they are reluctant to give up the solid
ties developed at the present company. It is possible for groups' objectives to be
compatible with those of the organisation. At times, the performance norms of informal
organisation may be higher than those of the the formal organisation. For example, the
intense team spirit characteristic of some organisations, which results in a strong drive
to succeed is often an outgrowth of informal relationships. Similarly, the grapevine may
help the formal organisation by supplementing the formal communication network.
By failing to work effectively with them, or engaging in actions to deliberately suppress
informal organisations, managers often become unable to harness these potential
benefits. In any event, whether a particular informal organisation is harmful or
beneficial, one thing is certain that it exists and must be dealt with. Therefore, as a
manager, you must learn to cope effectively with informal organisation.


Please use headphones

Managing the Informal Organisation
Management writers have fully realised the importance of handling informal
organisations to help the formal organisation attain its objectives. Scott and Davis
offer the following suggestions:
Recognize that the informal organisation exists, and nothing can destroy it
completely without also destroying the formal organisation. Therefore,
management should accept it, work with it, and not threaten its existence;
Listen to the opinions of informal leaders and group members;
Consider possible negative effects on the informal organisation before taking any
action;
Decrease resistance to change by allowing the group to participate in decision-
making; and
Control the grapevine by promptly releasing accurate information.
SUMMARY
Different approaches have been developed over the years to explain the process of
organisations. The classical theory which emphasised technical and other operational
aspects of the job; the neo-classical theory which emphasized human element in the
organisations with due recognition to the existence of a social system along with the
technical system; and the modem approach where organisation structure has to be
designed in tune with the environmental demands have been discussed in this lesson.
Besides, the distinction between the formal and informal organisations and how
informal organisations come into being in the formal systems - the reasons thereof, the
problems, and benefits have also been presented in detail.
REVIEW QUESTIONS
1. What are the basic tenets of the classical organisation theory? Is this theory relevant
to the design of the present day organisation structures?
2. Why should the environmental force be taken into account while creating an
organisation structure? Examine a few important variables that affect the structure.
3. Neo-classical theory is just a modification of the classical organisation theory - Do
you accept? Substantiate your answer with appropriate reasons.
4. Discuss some of the problems and benefits of informal organisations.
5. Have you ever been in a situation where informal group norms put you in role
conflict with formal organisation standards? If so, present such situations in detail.
FURTHER READING
Burns, Tom and Stalker.G.M. 1961. The Management of Innovation,Tavistock, London.
Woodward, Joan, 1965. Industrial Organisation, Oxford University Press, London.
Thompson, Victor .A. 1961. Modern Organisation, Alfred A.Knoof. New York.
Lawrence, Paul R and Lorsh, Jay.W. 1967. Organisation and Environment, Richard
D.Irwin, Homewood.
Davis, Reith, 1993. Human Behaviour at Work, Tata McGraw-Hill, New Delhi.
Drucker, Peter.F. 1969. The Age of Discontinuity, Harper & Row, New York.
Stoner, James A.F. and Freeman.E.R.1989. Management, Prentice-Hall of India, New
Delhi.

- End of Chapter -
LESSON - 7
ORGANIZATIONAL DESIGN

Objectives
After studying this lesson, you should be able to:
Understand the process of departmentation;
Familiarise yourself with various methods of departmentation; and
Acquire the necessary skills to design the appropriate structure which serves the
need of the company.
Outline
Introduction
Steps in Designing Organisation Structure
Departmentation
Product / Market Departmentation
Product Departmentation
Customer Departmentation
Territorial Departmentation
Project Organisation
The Matrix Structure
Contingency Organisation Design
Summary
Review Questions
Case: Confusion in Auto Parts Limited
Further Readings
INTRODUCTION
The managerial function 'organising' involves the creation of a structure most
appropriate for the organisation's objectives and other internal and external factors. The
best structure is the one that enables the organisation to interact effectively with its
environment, to efficiently channel the efforts of its people, to make efficient use of its
resources and thereby to meet the needs of its customers and attain its objectives.
STEPS IN DESIGNING ORGANISATION STRUCTURE
Ernest Dale describes organising as a multi-step process. According to him, it
involves:
Detailing all the work that must be done to attain the objectives;
Dividing the total work load into activities that can logically and comfortably be
performed by one person or by a group of persons;
Grouping the related tasks in a logical manner (this activity is known as
departmentation);
Setting up a mechanism to coordinate the work of members into a unified way by
establishing authority-responsibility, relationships and
Monitoring the effectiveness of the organisation and making adjustments to
maintain or increase effectiveness.
It is important to remember that the resulting structure is not a static form like the
structure of a building. Since structure is based on plans, a major revision of plans may
necessitate a corresponding modification of structure. As such, organising and
reorganising are ongoing processes. Successful organisations continuously assess the
appropriateness of their structure and change it in accordance with the dictates of the
environment. It is anybody's knowledge that these days every issue of leading business
magazines widely reports news relating to reorganisation underway in some large
company or the other.
DEPARTMENTATION
Although organisations have much in common with one another, they also differ in
many ways. Some organisations are large, some are small and some operate in only one
product area like Tata Iron and Steel Company (TISCO). Others like Larsen and Toubro
(L&T) and ITC operate in many diversified areas. Some operate in a small geographic
area, whereas others like Coca-Cola, Procter and Gamble, and IBM, for instance, do
business in many countries of the world. To cope with these differences in objectives,
strategies and situations, managers use various systems of departmentation.
Departmentation is the process of dividing the organisation into manageable sub-units.
The sub-units are often referred to as departments, divisions, or sections. By whatever
name the units are called, the process is known as departmentation.
Functional Departmentation
This is perhaps the most logical and basic form of departmentation. Functional
departmentation is the process of dividing the organisation into units on the basis of the
firm's major activities. It involves grouping employees according to broad tasks they
perform. Normally separate departments are created for all the key activities of the
business. For example, in a manufacturing company, the activities essential to the
existence of the company are production, marketing, and finance. However, in non-
manufacturing concerns these functions differ. In a transport company, the key areas
may be operations, sales and finance. Thus, public utility concerns like electricity,
transport, banking, insurance and hospitals have their own distinct key functional areas.
In all these cases, under functional departmentation, major or primary departments are
created along the key functional areas of the respective businesses.
If the organisation or given department is large, or in other words, as the organisation
grows, major departments can be subdivided. These sub-divisions are called derivative
departments. The essential idea is to make increased use of specialisation. A typical
functional organisation with major functions and derivative functions are shown in the
following Exhibit 1.
EXHIBIT - 1
FUNCTIONAL DEPARTMENTATION

The following are the advantages and disadvantages of functional departmentation.
Advantages:
It is the most logical and simplest form of departmentation.
It makes efficient use of specialised resources and skills.
It makes supervision easier, since each manager has to be an expert in only his
functional area of operation;
It fosters development of expertise in specialised areas.
Disadvantages:
Functional departmentation is often found to be inadequate to meet the growing
needs of the business, particularly as the organisation expands or diversifies its
activities;
Further, decision-making becomes slow as the functional managers have to get
the approval of the headquarters;
It is also difficult to determine accountability in a functional structure. If a
product fails, the question as to who is responsible cannot be easily answered;
and
Functional managers tend to develop narrow perspective and lose sight of the
bigger picture. Members of each department feel isolated from those in other
departments. For example, manufacturing department may be obsessed with cost
reduction and meeting the delivery dates, neglecting the quality control. As a
result, marketing department may be flooded with complaints.
PRODUCT / MARKET DEPARTMENTATION:
As the organisation grows, either by broadening its product line, or by expanding
geographically, some of the disadvantages of functional structure begin to be more
apparent. In such a case, management will create semi-autonomous divisions for each
product or market. Three patterns are adopted generally by organisations depending on
the specific requirements to overcome the limitations of functional structure. They are
product, territorial and customer departmentation.
i. Product Departmentation
One of the most common ways in which businesses grow is by increasing the number of
products they make and sell. If the organisation is successful, several product lines may
attain such high sales that they require a separate division. Large organisations like
Shaw Wallace, Kirloskar, Voltas, ITC, Hindustan Lever, have coped with the expansion
of their product lines by creating separate departments or divisions for the various
products they make. Under product departmentation, a single manager often referred to
as the brand or product manager is a delegated authority over all activities required to
produce and market that product. As against functions in the functional
departmentation, basic products or services become the primary or major departments
in the product departmentation, as shown in exhibit-2.
EXHIBIT - 2

Advantages:
Product departmentation places attention and effort on the basic products, the
success of which is critical to the survival of the organisation;
Since all revenues and costs are assigned to a particular product, cost centres can
be established, high profit areas can be encouraged, and unprofitable product
lines can be dropped. Thus responsibility for cost reduction and profits can be
established at the division level;
Proper coordination of all functional areas can be achieved as all the functional
managers work as a team under close supervision of the product manager. Since
the department or division is multifunctional, it often operates like a complete
company.
Enables quick response to changes in environment as compared with functionally
organised firm;
Provides managers a training ground in general management which is useful in
overcoming narrowness of interest;
Expansion and diversification of activities is made easy by creating new
departments for the new products that are added to the existing ones.
Disadvantages:
Requires more persons with general management abilities as more and more
departments are created for the various products;
The product departments may try to become too autonomous, thereby presenting
top management with a control problem;
It is also common to find product departments engaged in the duplication of
efforts. Each product unit has its own functional departments. These may not be
sufficiently large to make maximum use of facilities. Thus product
departmentation becomes an expensive organisational form.
ii. Customer Departmentation
Some organisations sell a wide variety of goods or services that appeal to different
groups of customers, each of which has distinguished needs. In such a case,
departments are created around customer groups. Customers are the key to the way
activities are grouped. For instance, commercial banks organise their activities around
customer groups to cater to their specific needs. As such, we find separate departments
or divisions for agricultural, industrial and merchant banking operations. Similarly, we
find Blue Star Company organising its air-conditioning business around domestic and
industrial air-conditioning units illustrates a typical customer departmentation in a
large bank.

Advantages:
Customer departmentation facilitates concentration on customer needs. This is
almost all in line with the customer orientation professed by many organisations
these days.
Customers feel that they have an understanding supplier. For example, the
manufacturer may sell to wholesalers and industrial buyers; wholesaler requires
a product of dependable quality with assured supplies; the industrial buyer wants
a product of high quality plus a service that includes installation and repair of the
product and the specific training of employees.
Helps the organisation to get the correct feel of the market dynamics in terms of
preferences of the customers, competitor's strategies, etc.
Disadvantages:
Difficult to coordinate operations between competing customer's demands;
Requires considerable expertise on the part of managers in understanding
customer's problems and specific needs;
There is a possibility of under-utilisation of facilities and employees specialised in
terms of customer groups. Small organisations particularly cannot afford the
expenditure involved because some amount of duplication of the facilities is
inevitable.
iii. Territorial Departmentation
When an organisation operates in different geographical areas, each with distinct needs,
it is desirable to create the departments along geographical lines, as illustrated in
Exhibit-4. The process of creating departments along the geographical lines is termed
territorial departmentation. This type of organisation makes it easier for the
organisation to cope with variations in laws, local customs and customer needs. Public
utilities like transport companies, insurance companies, etc. adopt territorial
departmentation. Similarly, a large scale organisation operating both in domestic and
international markets may have separate departments for both the markets. Again,
different departments or divisions may be created for different regions of the world.
Many multinational companies organise their global activities with regional
headquarters in different regions of the world.

Advantages:
Territorial departmentation makes possible concentration on markets and
marketing channels in different geographical areas;
Develops opportunities for more efficient marketing activities because of better
face-to-face communication with local interests; and
Effective utilisation of locally available resources besides being able to cater to
the region-specific variations in terms of preferences and sentiments of the
people is made possible.
Disadvantages:
In this type of departmentation, there are problems in training people to think in
terms of markets rather than products;
Requires more persons with general management abilities; and
Increases problem of top management control because of the distance between
the corporate headquarters and the regional offices.
The three patterns of departmentation discussed above - product, customer and
territorial departmentation - broadly characterise the divisional structure. All the three
patterns have advantages and disadvantages. The variations in the patterns are in
response to the specific factors in the environment. The choice of any of these
structures, therefore, would be based on which of the factors management judges to be
more important and critical in the light of the strategies and objectives.


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PROJECT ORGANISATION
The use of the project organisation has increased in the last few years. It is currently
being employed in numerous undertakings engaged in the execution of construction
activities, turn-key projects and research and development projects. The project
organisation can take various forms, but the important characteristic that distinguishes
it from other forms is that once the project is completed, the organisation is disbanded
or phased out. By definition, project management involves "the gathering of the best
available talent to accomplish a specific and complex undertaking within time, cost and
quality parameters, followed by the disbanding of the team upon completion of the
undertaking". The group members then go on to another project, return to their
permanent home department in the organisation, are given jobs elsewhere in the
organisation, or, in some cases, are phased entirely out of the firm.
THE MATRIX STRUCTURE
The matrix structure is a hybrid organisational form, containing characteristics of both
project and functional structures. In consumer goods industries, it could contain the
characteristics of both product and functional departments. This structure allows
operational responsibilities to be divided into two parts. One part contains all the
responsibilities associated with the management of an independent business and is
given to an individual who is called 'business manager' or 'product manager'. The other
part contains all the responsibilities related to the management of resources needed to
get the job done. The person responsible for these is the usual 'functional manager' or
'resource manager' in charge of the functions like production, marketing, finance,
personnel and so on.
The matrix is built around a cooperative relationship between the project / product
manager and the functional / resource manager. Thus, project staff members in a matrix
structure have a dual responsibility. First, they are responsible to the head of their
functional department, the person who has assigned them to the project. The functional
department head is their line superior and will continue to be so. But the project
manager exercises what is called project authority over the project staff. Exhibit 5
presents these dual responsibilities in a matrix form of organisation.

_______ Functional Authority
---------- Project Authority
When the concepts of functional and project authority are brought together, the result is
an organisation structure that is both vertical and horizontal. The vertical pattern is
brought about by the typical line authority flowing down from superior to subordinate.
The horizontal authority flow is caused by the fact that both the scalar principle and
unity of command principle are violated.
Companies like Larsen & Toubro (L&T), Western India group, U P Construction
Corporation, Afcons-Pauling, etc., adopt this structure for the execution of various
projects. For instance, L&T's construction of Jawaharlal Football Stadium in Madras
and Afcons-Pauling's laying the East Coast Road are big projects by themselves. The
execution of such projects is entrusted to a team drawn from the functional departments
of the headquarters. The overall responsibility for the project lies with the project
manager. The people that work in the project are responsible to the project manager as
well as their functional head from whom they are drawn. Similarly, in the multi-product
consumer goods industries, as in the case of projects, responsibility for different
products may be placed on product managers as could be seen in the exhibit. The matrix
may be temporary or permanent. In construction and turnkey activities, project is
disbanded after the execution, where as it may take a permanent form in the case of a
consumer goods company.
Advantages:
David I. Cleland and William R. King identify the advantages as follows:
Utilisation of manpower can be flexible because a reservoir of specialists is
maintained in functional departments. These specialists can be deployed to the
various projects for optimum use of their services;
Responsibility for the overall execution, management, and profit is with the
project manager who acts like a chief executive;
Specialised knowledge is available to all projects or products on an equal basis.
Knowledge and experience can be transferred from one project to another;
Project people have a functional home when they are no longer needed on a given
project;
A better balance between time, cost and performance can be obtained through
the built-in checks and balances and the continuous negotiations carried on
between the project and the functional organisations.
Disadvantages:
Many of the drawbacks mentioned below of the matrix structure cannot be avoided.
Managers have to learn to deal effectively with them.
The major disadvantage relates to power struggles. Since use of the matrix means
use of dual command, managers often end up in conflicts;
Matrix entails wide use of group decision making because group cooperation is
required for success. The inevitability of group cooperation at times delays
decision making;
If the organisation has too many projects, the result may be severe layering of
matrixes. Uncontrolled growth of matrix structures often results in power
struggles between managers;
Matrix structure may be expensive. The dual chain of command may cause
management costs to double.
When there is an economic crunch and the organisation has to cut back, matrix
structures are the first to go. Despite the drawbacks, the use of matrix structure has
spread to many industries. In addition to construction and engineering, consumer
goods, banking, insurance computer companies are now using it. Variations of matrix
are also used by hospitals and other professional organisations.
CONTINGENCY ORGANISATION DESIGN
The contingency approach to organisational design suggests using whatever approach is
most effective. Accordingly, so many flexible structures are adopted these days to meet
the specific needs of the organisations. The idea is that the internal functioning of
organisations must be consistent with the demands of the organisation's task,
technology, external environment, and the needs of its members if the organisation is to
be effective. This approach basically implies the development of a contingency theory of
organisation. The approach is based on the exigencies of the situation.
William F. Glueck, offers the following guidelines for contingency design:
When low cost and efficiency are the keys to successful goal achievement,
organisations should use functional departmentation;
When the environment is complex, matrix structure is effective;
If the organisation is large and operates in a stable environment, it can afford to
formalise the structure;
The greater the intensity of competition, the greater will be the degree of
decentralisation;
The greater the volatility of the environment, the more decentralised and flexible
the organisation has to be; and
Companies that implement the organisational style appropriate to their strategy
will be more effective than those that use an in appropriate style.
SUMMARY
The managerial function 'organising' is the process of identifying the important
activities to be performed to achieve the objectives, grouping of related activities,
assigning such groups of activities to people and providing for coordination by
establishing authority-responsibility relationships among people. Creation of
departments within the organisation - the process known as departmentation, resulting
in the design of a structure is an important task in organising. Different patterns of
departmentation are used by organisations depending on their specific requirements.
Important among them are functional, product, customer, and territorial
departmentation. Matrix organisation which is a hybrid form of both functional and
project/product departmentation is also being increasingly used by organisations
operating in highly competitive markets. The question of what kind of structure is best,
has no single right answer; it depends on the situation. Some firms need stable systems
while some others need flexible systems. The nature of the task, technology,
environment and the needs of the organisational members are some of the factors that
influence the design of the structure.
REVIEW QUESTIONS
1. What are the basic characteristics of functional departmentation? Analyse its merits
and demerits.
2. Suggest a method of departmentation for a large multi-product organisation with a
huge market spread over the whole country. Explain the reasons for your suggestion
3. Explain the statement: "A matrix structure is a hybrid form of organisation,
containing characteristics of both product and functional structure".
4. Do you agree with the view that there is no one best way of departmentation
applicable to all organisations? Substantiate your answer and explain what factors
influence departmentation.
CASE: CONFUSION IN AUTO PARTS LIMITED
Auto Parts Limited, a medium-size company engaged in the manufacture of automobile
components was started by Mr. Reddy, a technocrat, in 1988. Things went on well for a
couple of years. Problems began to surface in the early nineties because of the recession
in general in the automobile industry. Since the demand for the company's products is a
derived one, the company could not insulate itself from the fluctuating fortunes of the
automobile industry. As the parent industry began to cross the recession, happy days
were once again there for Auto Parts Limited. Because of the quality products that the
company was known for, several internationally reputed automobile companies also
became eager to source their requirements for components from Auto Parts Limited.
All these developments should naturally make Mr. Reddy, a happy man these days. But
he is concerned with certain organisational problems and is wondering as to how to
organise the company in the light of tremendous potential for growth. He is particularly
tired of being the only one in the company responsible for profits. The company, since
inception has been organised on functional lines. He has good managers heading the
functions departments like manufacturing, finance, sales, advertising and product
research, but none of them could be held responsible for profits. He often finds it
difficult even to hold them responsible for the contribution of their respective areas to
company profits. Besides, each manager began to complain against the other. For
instance, sales manager, the other day, complained that he could not be fully
responsible for sales when advertising was ineffective, when the products wanted in the
market were not readily available from manufacturing department. He further
complained that the manufacturing department did not heed to their suggestions
regarding certain modifications in the products. In turn, the manager in charge of
manufacturing argued that financial controls did not allow his department to carry a
large inventory of everything and he was obsessed with cutting down the costs.
Mr. Reddy is really fed-up of these internal squabbles among the functional heads and is
seriously considering the idea of breaking the company down into six or seven product
divisions with a manager for each, with complete responsibility over the product
including the profit. But he feels that this would not be economical since many of the
products are produced with the same equipment and raw materials. Further, a sales
person calling on a customer (the automobile company or the spare parts dealers in the
market) could far more economically handle a number of related products than one or a
few.
Confronted with the above dilemma, Mr. Reddy came to the conclusion that the best
thing to do is to set up six product managers reporting to a product marketing manager.
Each product manager would be given responsibility for one or a few products and
would oversee all aspects of manufacturing, product research, sales and advertising.
Thus, in essence each product manager would be responsible for the performance and
profits of the products assigned to him.
Mr. Reddy is bent on reorganising the company on the lines presented above and hopes
for the best. But he is still not clear about his thoughts and has some confusion about
the new reporting relationships that would emerge after the proposed reorganisation
exercise is over.
Questions
1. What is the exact problem in the case? Do you view the problem very serious, or is Mr.
Reddy over-reacting?
2. What are your comments on the scheme of things that Mr. Reddy proposes in order to
reorganise?
3. What would you do to remove confusion and help the company achieve its ambitious
goal of emerging as a leader in the auto components industry?
FURTHER READINGS
Miner, John B. 1978. The Management Process, Macmillan, New York.
Naisbitt, John. 1982. Megatrends Warner Books. New York, Glueck, William F. 1984.
Management, Dryden Press, Hinsdale. Lorsch, Jay W and Lawrence, P.R. 1970. Studies
in Organisation.
Design, Richard D. Irwin, Homewood. Hodgets, Richard. M. 1986, Management,
Academic Press, New York.

- End of Chapter -
LESSON - 8
SPAN OF MANAGAMENT AND ORGANIZATION STRUCTURE

Objectives
After studying this lesson, you should be able to:
Understand what an organisation chart is and what it explains;
Describe the concept of span of control; and
Appreciate the traditional as well as the current thinking on span of control.
Outline
Introduction
Organisation Chart
Chain of Command
Unity of Command
Span of Control
Classical thinking on span of control
Current thinking on span of control
Factors influencing span of control
Summary
Review Questions
Further Readings
INTRODUCTION
Organisations must continually adopt to meet competition. Consequently, their
structures must be modified periodically. Management expert Tom Peters estimates
that about 50 percent of organisation problems arise from inappropriate organisation
structure. As discussed in the previous lesson, organising is the process of dividing work
among individuals and groups and coordinating their activities to accomplish goals. The
process, obviously, results in the creation of a structure. The different patterns adopted
by organisations to create such structure have also been examined in the previous
lesson.
Whatever an organisation's goal is, its structure should facilitate the most effective and
efficient use of available resources. Because adaptation is a key to competitive survival,
the 'right' structure for an organisation is determined by numerous factors. For this
reason, selecting an organisation structure might best be described as an evolutionary,
trial-and-error process. That is why, we find numerous organisations constantly
modifying their structures to adapt to the needs of the environment.
A look at the organisation chart of any company provides an understanding as to the
pattern used to divide the organisation into manageable units and the corresponding
authority-responsibility relationships among people working in the various
departments.
ORGANISATION CHART
An organisation chart is simply a diagram of all the positions in an organisation and
their formal relationships to one another. The important purpose referred by an
organisation chart is that it illustrates an organisation's overall shape and the levels of
management in a comprehensible manner. The organisation chart of a typical company
organised on functional basis is present in exhibit-1.

As seen in exhibit 1, an organisation chart shows:
- The hierarchical structure that is typical of most organisations;
- The number of management layers or levels;
- Degrees of authority and status of the individuals as indicated by the location of their
positions in relation to other positions;
- How an organisation's activities are divided in terms of departments (whether by
function, by product, by territory and so on);
- The work being done in each position (indicated by the labels in the boxes);
- Interaction of people as indicated by the horizontal and vertical lines connecting
various positions/departments;
- Relations between superiors and subordinates - who reports to whom, i.e., the chain of
command;
- How many subordinates report directly to each manager, that is, the span of control;
- Career progression - routes to the higher levels; and
- Formal channels of communication (indicated by the connecting lines).
However, an organisation chart does not show:
- The ongoing dynamics of workplace behaviour; in a way, organisation charts are static;
- Interactions between people who have no official reporting relationships, i.e., the
informal organisation;
- Personal preferences and coalitions;
- Informal communication channels, i.e., the grapevine; and
- Interference by outsiders.
The organisation chart of any company enables one to understand easily three classical
principles of organising, viz., chain of command, unity of command, and span of control.
1. Chain of Command
As an organisation's activities are divided into departments, co-ordination becomes
necessary for integrating individual and group efforts so as to achieve the goals. Such co-
ordination is achieved through a systematic placement of positions and duties. This type
of arrangement of various positions in an orderly way is termed 'scalar chain' or 'chain
of command'. The chain of command exists whenever one individual is made
subordinate to another. Since ancient times, it has been recognised that the only way to
structure unified systems involving large number of people is through a chain of
command. The resulting hierarchy is found in every company or in any human system
including a family. Exhibit - 2 depicts the chain of command in a typical manufacturing
company.

In addition to defining different degrees of authority on people, the Chain of Command
also suggests the routes through which information flows within an organisation.
2. Unity of Command
The Chain of Command principle implies another feature of organising "one
subordinate - one boss". If the efforts of subordinates are to be effectively coordinated, it
is necessary that they must have a reporting relationship with only one superior. Unity
of Command principle avoids the confusion as to who should report to whom and who
should issue orders to whom. However, the truth of the matter is that unity of command
is violated in varying degrees in almost every organisation. As understood earlier (in
chapter 7), it has been especially undermined by the emergence of matrix organisation
structure.
3. Span of Control
We shall understand Span of Control in detail below.
SPAN OF CONTROL
Whereas chain of command and unity of command relate to the vertical structure of an
organisation, span of control relates to the horizontal structure. Just as a growing
organisation ultimately reaches a point at which it is impossible for one person to
handle all the work, there is a limit to the number of subordinates that a manager can
effectively supervise. But for this limit, organisations would have not taken the pyramid
shape. Span of control refers to the number of subordinates that report directly to a
supervisor.
In the olden days, a great deal of attention was directed to the issue of span of control.
The thinking then was that an effective span of control involved some definite number
of subordinates. Often, one of the first things done by an organisational analyst or
consultant was to count the number of subordinates reporting to each manager. In each
instance, when the number exceeded a definite figure, say - six or eight, there would be a
recommendation to narrow the span. Thus, the thinking of the classical theorists about
the span revolved around a definite number. For example, Lyndall Urwick found the
ideal number of subordinates for all superior positions to be four, and at the lower level
of organisation, the number may be eight to twelve. But empirical research subsequently
found the actual practices among companies regarding span to be widely varying.
The span of control, also called 'span of management', has gained importance as a
principle of organising because of the limitation on the part of a manager to manage an
infinite number of subordinates. This obviously results in the levels in the organisation.
Thus, an inverse relationship generally exists between the span of control and number
of management levels. That is, if an organisation has wide horizontal spans, the
resulting structure will be flat, with few vertical levels of management. Conversely, if an
organisation has narrow horizontal spans, the structure will be tall, with many vertical
management levels. Both the situations of flat as well as narrow spans, and the resulting
flat and tall structures, are shown in exhibits 3 and 4.
DH = Department Head
S = Subordinate
Exhibit 3

As the above exhibit clearly show, in company A, each supervisor's span of control
covers four subordinates, and four department heads report to the chairman. There are
a total of 21 managers, arranged in four management levels.
Exhibit 4

In contrast, in company B, each of the eight supervisors exercise control over eight
subordinates. As a result, there exists only three layers. In this case, by increasing the
span of control from four to eight, one layer of management is eliminated.
Problems with levels
Creation of too many levels has certain problems relating to communication and
managerial control, in addition to the costs involved
i. Communication: Experience shows that the greater the number of management
levels a message must pass through, the longer it will take to reach its destination. More
often, the information also loses clarity. In effect, successive layers of management act
as communication filters distorting the transmission of information. Thus,
communication of organisational objectives, plans, and policies becomes difficult.
Omissions and misinterpretations usually occur as information passes through too
many levels in the scalar chain.
ii. Managerial control: The distance between the top and bottom levels of an
organisation also affects control. For example, even the best of the plans which are
definite and complete at the top level, lose clarity as the plans are sub-divided and
elaborated at lower levels. Consequently, at the implementation stage of the plans,
control becomes difficult.
iii. Costs: Too many levels involve lot of expenditure. Additional facilities in terms of
secretarial staff have to be provided besides the pay differentials in the compensation
package. In many organisations substantial expenditure has been saved by increasing
the span.


Please use headphones

1. Classical Thinking on Span of Control
The traditional theory of management was much concerned with the specific number of
subordinates that could be supervised by a manager. For instance, Lyndall Urwick
suggests that no executive should attempt to supervise directly more than five. Different
thinkers suggested different spans both at the top and lower levels of organisation.
The contribution of U.A. Graicunas was however, significant to the span of
management theory. According to him, in deciding the span, managers should consider
not only the direct one-to-one relationships with their subordinates, but also two other
kinds of relationships, namely, 'direct group relationships' and 'cross-relationships'. As
such, if A has two subordinates B and C, the following relationships would emerge.
i. Direct one-to-one relationships: These relationships relate the superior
directly with his subordinates. A, in this case will have two direct relationships
with B and C, viz. A to B and A to C.
ii. Direct group relationships: This type refers to the superior relationship
with the various possible combinations of subordinates. In the above example, A
may interact with B in the presence of C or with C in the presence of B. Graicunas
argues that though the individuals are same, the two situations have different
implications.
iii. Cross-relationships: These types of relationships are created when
subordinates consult one another. In our example, the two cross-relationships are
B with C and C with B.
Graicunas gave a formula to ascertain the number of all three kinds of relationships:
Number of relationships = n [2
n
/2 + n - 1]
where, n stands for the number of subordinates. One can easily ascertain how the
number of relationships increases as the number of subordinates rises by applying this
formula. With four subordinates (n=4), the total relationships go up to 44 {4 x [2
4
/2 + 4
- 1] = 4 x [16/2 + 4 -1] = 4 x 11 = 44}, with five subordinates to 100, with six
subordinates to 222, and with 10 subordinates to 5,210.
Though Graicunas' formula explains the complexities involved as the number of
subordinates increase, it suffers from the following inadequacies. a) The formula ignores
the frequency and importance of relationships, and b) Several other factors which have a
bearing on the superior-subordinate relationships have not been taken into
consideration while framing the formula.
2. Current Thinking in Span of Control
In contrast to the traditional thinking on the span of control, modern management
theories emphasise that there are too many variables that influence the span. Thus, the
emphasis has shifted to the variables in the situation. While the fact that there is a limit
to the number of subordinates that can be effectively managed cannot be disputed, the
exact number will depend upon various factors...
3. Factors Influencing Span of Control
i. Manager's personality: If managers share a strong need for power, they may prefer
a wider span of control. On the other hand, some managers feel threatened because they
cannot oversee the activities of too many people. Such managers would naturally prefer
a narrow span.
ii. Manager's capability: An experienced, well trained and knowledgeable manager
is normally able to handle a relatively wider span than a lesser capable manager.
iii. Subordinates capabilities: Experienced and well-trained subordinates will be
able to resolve the difficulties themselves. They do not take much of the time of the
superior. The need for frequent contacts is also obviously lesser.
iv. Fatigue tolerance: Physical and mental fatigue may limit a manager's capacity for
control. There are only so many hours in a day, and only so many things can be done at
once. Consequently, the greater the physical or mental demands of a job, the narrower
the span of control.
v. Activity level: The pace and pattern of work in an engineering firm, an investment
firm, and a university differ in many respects. Moreover, there also exist differences
between the various units of an organisation. For example, production compared to
public relations. Thus, the more active the pace and pattern of a manager's work, the
narrower the appropriate span of control.
vi. Non-supervisory activities: If the manager spends more time on non-
supervisory activities like long-range planning and outside assignments, he tends to
have lesser time to supervise the subordinates. This obviously limits the span.
vii. Similarity of activities supervised: If the nature of activities performed by the
subordinates is routine, the superior can manage many subordinates. On the other
hand, if it is unique and non-routine problems, and more frequent, the span should be
limited.
viii. Complexity of work: Simpler job assignments are usually easier to supervise
than more complex ones. The problems that arise are generally less demanding and take
less of the superior's time. Thus, less supervision will be necessary, contributing for a
wider span.
ix. Availability of sophisticated facilities: Availability of more advanced and
sophisticated facilities like high speed telecommunication devices, modern office
equipment, etc. will help the manager in managing a relatively wider span.
x. Location: If subordinates are physically dispersed, a manager will need to spend
more time in traveling and communicating. The span of control in such a case will be
narrower.
To conclude, it has to be remembered that despite the desirability of flat structures, the
span of control may be limited by certain factors. As an enterprise grows, the increase in
organisation levels cannot be completely avoided. What is required is a precise
balancing of all the factors in a given situation. Widening spans and reducing levels may
be the answer in some cases, while the opposite may be true in others. One must balance
all the advantages and disadvantages.
SUMMARY
The organisational chart of a typical company and the important aspects that it explains
such as chain of command, unity of command, and span of control, have been discussed
in this lesson. Span of control, one of the important principles of organising has been
analysed in detail. It refers to the number of subordinates that a superior can effectively
manage. The principle suggests that there is a limit on the number of subordinates that
can be managed by a superior. This limitation gives rise to the levels in the organisation.
If the span is wide, it would result in a flat structure. Conversely, if it is narrow, the
result would be a tall structure. Both the types of structures have merits and demerits.
The classical thinkers' view point regarding the span vis-a-vis the modern view as to
how span is influenced by various factors of the situation, like the capabilities of
superiors and subordinates, nature of the task, environment, etc. have been examined in
detail.
REVIEW QUESTIONS
1. Calling upon your personal experience as a student of management, give a few
examples of chain of command.
2. "Organisation chart provides a broad picture of positions of authority and their
relationships in the organisation structure". Examine this statement.
3. What do you understand by levels in the organisation? Examine the implications of
too few and too many levels.
4. How does a tall organisational structure differ from a flat one? Give an example of
each,
5. What do you mean by span of control? Examine the traditional as well as modern
viewpoints on the span of control.
FURTHER READINGS
Dale, Ernest, 1960. The Great Organisers, McGraw-Hill, New York.
Drucker, Peter. F, 1974. Management: Tasks, Responsibilities, Practices. Harper & Row,
New York.
Cleland, David. I, and William. R. King, 1975. Systems Analysis and Project
Management, McGraw-Hill, New York.
KastF.E., and J.E.Rserizweig, 1973. Organisation and Management: A systems
Approach, Mc-Graw-Hill, New York.
Hodgets, Richard. M, 1988. Management, Academic Press, New York.
Koontz, Harold and Others, 1984. Management, McGraw-Hill, Tokyo.

- End of Chapter -
LESSON - 9
DELEGATION OF AUTHORITY AND DECENTRALIZATION

Objective
After studying this lesson, you should be able to:
Understand the concepts of 'authority' and 'power';
Explain the sources of 'authority' and 'power' in the organisational context;
Describe the process of delegation and the barriers to effective delegation; and
Know the factors influencing decentralisation of authority.
Outline
Introduction
Classical Theory of Authority
Acceptance Theory of Authority
Power
Delegation of Authority
Barriers to Effective Delegation
Overcoming the Barriers
Decentralisation of Authority
Factors Influencing Decentralisation
Summary
Review questions
Case
Further Readings
INTRODUCTION
Authority is the right to command. It is the discretion power vested with a manager to
use the organisational resources. Managers acquire authority by virtue of the rank or
title associated with their positions.
There are two principal views regarding the source of authority. The classical view holds
that authority passes from the "top down". In contrast, the acceptance view contends
that authority flows from the "bottom up" (see exhibit-1)

CLASSICAL THEORY OF AUTHORITY
According to this theory of authority, managers derive their authority from the right of
private property, which is guaranteed by the constitution and the concerned laws of the
country. Thus, the right to own the property and to manage it without violating the
rights of others is conferred on the individuals by the constitution. In most of the large
scale organisations, shareholders who are the real owners of the company transfer their
ownership rights to Board of Directors, which in turn, may, appoint a Chairman (Chief
Executive Officer) to manage the organisation's day-to-day operations. Likewise, the
CEO may appoint a Managing Director who in turn may appoint several managers down
the line. Formal authority thus is transferred from top to the down in the organisation.
The authority thus possessed by the managers by virtue of their position in the
organisation is known as formal authority.
ACCEPTANCE THEORY OF AUTHORITY
The acceptance theory of authority was popularised by management thinker Chester I.
Barnard. According to this theory, authority stems from below because subordinates
can always reject a directive. It is only by accepting an order that a subordinate affirms
the right of a manager to issue the orders or commands.
Barnard contends that subordinates will accept orders given by their superiors provided
that the orders meet four conditions. These conditions define what is acceptable to a
subordinate and, thus, create a zone of acceptance within which authority may be
exercised. A subordinate will accept an order and comply with authority under the
following four conditions:
1. The subordinate understands the order.
2. The subordinate believes the order is consistent with organisation goals.
3. The subordinate believes the order is compatible with his or her personal interests.
4. The subordinate is mentally and physically able to comply with the order.
Effective managers make certain that their orders fall within their subordinates 'zones of
acceptance'.
POWER
The terms authority and power are often confused. Authority as described above is the
right to command or issue orders. Power, on the other hand, is the capacity to influence
others. All managers have power by virtue of the positions they occupy. Power, however,
does not necessarily stem from authority. In other words, people with authority may
have power. But, interestingly in some systems, people may exercise tremendous power
though they have no formal authority. Thus, we find people at lower levels also without
any authority sanctioned to them by the formal system, enjoying captivating power over
the colleagues and at times may influence even the superiors.
John R.P. French and Bertram Ravan have identified five basic types of power. The
first three types - reward, coercive, and legitimate - generally are associated with a
manager's position. The last two - referent and expert - are part of the person, not the
position.
1. Reward power is based on a manager's ability to provide various, kinds of rewards
for complying with orders. The rewards generally include salary increases, promotions,
favourable job assignments, praise and recognition.
2. Coercive power is based on a manager's ability to punish for not complying with
orders. Coercion may take the form of verbal reprimands, disciplinary actions like fines,
demotions and threats of suspension or termination.
3. Legitimate power is based strictly on an individual's position in the organisational
hierarchy. The higher a manager is in the hierarchy, the greater his or her legitimate
power. As such, the manager's legitimate power and formal authority are one and the
same.
4. Referent power refers to the power enjoyed by some people because of their
integrity and charisma. Any individual who wins over the subordinates by his
personality and ability to take them with him, enjoys this power. Subordinates in any
organisation usually like to identify with such an individual. This power is purely
personal. For example, managers who win the admiration of people with whom they
work, may be able to exercise influence over them to behave in a particular way.
5. Expert power is based on possessing valued knowledge or special skills. A manager
who possesses such knowledge or skills has power over others who do not. Managers
who offer the right solutions to subordinate's questions and provide support, yield
expert power. The saying that 'knowledge is power' is thus true.
RESPONSIBILITY
Responsibility, in the organisational context, is obligation to perform the tasks and
account for their satisfactory completion. It is implied that an individual is expected to
fulfill certain job requirements when he or she accepts a position in the organisation. In
other words, the individual enters a contract with the organisation to perform the tasks
of the position in exchange for certain rewards. In other words, the individual is
answerable for the results of the task to be performed. In contrast to authority,
responsibility of an individual in the organisation is always upwards, that is, the
subordinate is responsible to his or her superior.
DELEGATION OF AUTHORITY
Delegation is the process by which authority passes from one organisation level to
another. If not for delegation of authority, organisations would remain small forever.
Delegation is the only solution to cope with the increasing work load of managers as the
organisation grows. Because of the constraints of time and ability, a manager cannot
perform all the tasks himself. Therefore, he delegates certain tasks to the subordinates
and gets them done. The process of delegation has the following steps:
Step 1. Entrustment of duties or Assignment of responsibilities
This is a crucial step in that a few important questions like "what to delegate?", "when to
delegate?", "whom to delegate to?", and "how to delegate?" are answered. The
effectiveness of delegation depends on how clearly these questions are answered. First
of all, the manager has to decide the tasks to be delegated to the subordinates. For this,
he must be able to distinguish between the routine and non-routine tasks. Routine and
single tasks can as well be performed by the subordinates while the non-routine and
very important tasks must be performed by himself.
Step 2. Granting of authority
When the subordinates are assigned certain tasks or responsibilities, it goes without
saying that they need authority also to perform the tasks. Authority is required by them
to make use of the resources of the organisation for executing the tasks. The superior,
therefore, parts with his authority to enable the subordinate to perform the delegated
tasks. Responsibility and authority both go together. One of the important principles of
organising - parity of authority and responsibility - emphasises the need for a proper
balance between the two.
Step 3. Creation of accountability
Delegation does not end with just entrusting of duties and the granting of authority. The
superior has to create an obligation on the part of the subordinate to perform. In other
words, the subordinate is accountable to his superior for the tasks delegated. Thus,
while authority flows downwards, responsibility flows upwards. Normally,
accountability is created by asking the subordinate to submit performance
reports/status reports from time to time.
BARRIERS TO EFFECTIVE DELEGATION
Though delegation is a powerful device whereby managers reduce their workload, unless
adequate care is exercised, the result may be give anxiety for both superiors and
subordinates.
Delegation requires effective communication. The subordinates while accepting
delegation must understand exactly what the superior wants. Delegation also involves
motivation, influence and leadership. To make delegation effective, the spirit and
willingness of both the parties are crucial. Following are some of the reasons why
delegation often fails in organisations, for which both superiors and subordinates are
responsible:
a. Superior's Resistance to Delegation
i. The "I can do it better myself fallacy" - Some managers always suffer from a
feeling that they only can do the job the best. Consequently two things happen. First,
spending time on a task a subordinate could perform would mean that the manager may
not be able to perform other important duties like policy formulation and supervision.
Second, unless the manager allows subordinates to attempt new tasks, they will be
unable to develop their skills. Thus by insisting on doing things themselves, managers
often fail to meet their responsibility for training and growing subordinates for
promotion to higher levels.
ii. Lack of ability to direct - Some managers become so involved in day-to-day
operations that they neglect the broader picture. Unable to understand the long term
perspective of the work flow, they do not fully realise the importance of distributing
work among subordinates. Some managers deliberately do this because of lack of
confidence in their supervisory abilities.
iii. Lack of confidence in subordinates - Lack of trust and confidence on
subordinate's abilities and skills makes the superiors reluctant to delegate work to them.
As a result, subordinates lose initiative and frequently seek the guidance of the bosses to
know whether they are doing the things correctly.
iv. Aversion to risk - Since the superior cannot absolve himself of the final
performance of the task, he may fear that delegating the job will cause problems.
Further, those superiors who see a threat in the subordinates always try to avoid
delegation. This is mostly due to the mindset where the superior fears that he may be
outsmarted by the subordinate, and eventually the latter may become a potential threat
to his position.
v. Absence of selective controls - When certain duties are delegated to
subordinates, the superior has to ensure proper controls in the form of feedback about
performance. It gives the superior the security of knowing the problem before much
damage takes place. If controls are not adequate and effective, manager has good reason
to avoid authority delegation.
b. Subordinate's Resistance to Delegation
It should not be construed from the above discussion that superiors are only responsible
for poor or ineffective delegation. The subordinates role in the whole exercise cannot be
lost sight of. Their attitude and skills play a significant role. Sometimes, subordinates
may avoid responsibility and block the delegation process for the following reasons:
i. The subordinate finds it easier to ask the boss what to do, rather than taking the
initiative himself.
ii. The subordinate fears criticism for his mistakes. Since greater responsibilities
increase the chances of making errors, the subordinate for the sake of security tries to
avoid additional responsibilities.
iii. The subordinate lacks the information and resources needed to do the job
successfully. Some managers with a view to letting down their subordinates may
deliberately make the delegation unclear. As a result the subordinate lands himself in
confusion as to the exact nature of the duties and the authority that he can exercise. The
motive of the superior in such cases may be to make the subordinate fail in the
execution.
iv. The subordinate believes he has more work than he can do. For fear of overburdening
himself he may not show any interest to accept new responsibilities.
v. The subordinate lacks self-confidence. Added to that, the fear that he will get into
trouble in the event of failure puts him in a still worse state of mind.
vi. The subordinate is not offered any incentives or benefits in terms of pay rise,
importance, and status for assuming additional responsibilities.


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OVERCOMING THE BARRIERS
Several barriers to delegation discussed above are deeply rooted in human behaviour.
Insecurity, aversion to risk, lack of self-confidence, inability to trust another to perform
a task are all different types of manifestations of human behaviour. Among the various
barriers, psychological barriers are the most difficult ones to overcome. To overcome
many of these barriers, both superiors and subordinates must take a hard look at
themselves, recognise their own fears and try to come out of the inhibitions.
To start with, superiors have to create effective control systems to feel secure about
delegating a high degree of authority. They have to also realise their inadequacies and
take initiative to improve their leadership skills. They can also help the subordinates
overcome their insecurity feeling by creating an environment of mutual trust and
confidence. Perhaps the most important means to effective delegation are clear
communication, following the parity principle and positive incentives.
i. Communication:
When a subordinate does not perform the tasks as expected by management, the
problem can be faulty communication. In the hurry to get the things done, managers
may skip through what they exactly expect from the subordinate. The subordinate may
also hesitate to ask questions for looking stupid. At times, subordinate too, may be in a
hurry to get on with the job. Consequently, both parties may think they understand what
was assigned and expected. Later, often too late, the work is not done right and both are
disappointed. Thus, effective communication to subordinates of their responsibilities,
tasks, and authority reduces the chances of misunderstandings between the two and
thus paves the way for fruitful accomplishment of the tasks.
ii. Parity Principle:
For delegation to be effective, it is necessary for authority and responsibility to coincide;
that is, management must assign sufficient authority to the subordinate to be able to
accomplish the tasks delegated to him, and for which he has assumed responsibility. For
example, a marketing manager who got the task of increasing sales delegated to him can
accomplish the task only when he is given authority to conduct an advertising campaign
and provide motivational incentives to sales people. Absence of such an authority to use
the organisational resources lands him in frustration.
Unfortunately, the parity principle is often violated in practice. Imagine yourself being,
for a while, in the situation of having responsibility for the tasks without sufficient
authority. In such a case you should let the superior know as soon as possible, the actual
situation and get the situation corrected.
iii. Incentives for additional responsibility:
Additional responsibility usually means additional work and more risk for the person
assuming it. The average person in any system expects to be rewarded for the additional
responsibilities in some way. But unfortunately, many organisations fail to offer positive
rewards. Current research strongly indicates that employees will not be fully motivated
if they feel they are giving the organisation more than what they are getting from it. The
rewards may be in many forms. Additional pay, promotion opportunity, a better job
title, praise, added status, more pleasant working conditions, etc. proved to be very
effective.
Having understood the concept of delegation of authority, the Dos and Don'ts, it is
appropriate to take a look at the different degrees of delegation. Though delegation
broadly involves assignment of duties and the granting of necessary authority to
subordinates, the actual practices vary. Harvey Sherman categorised the following six
typical degrees or levels of delegation:
Degree/Level 1... Look into this problem; give me all facts and I will decide what to do.
Degree/Level 2... Look into this problem; let me know alternative actions available
with pros and cons and recommend one for my approval.
Degree/Level 3... Look into this problem; let me know what you intend to do; delay
action until I give approval.
Degree/Level 4... Look into this problem; let me know what you intend to do; do it
unless I tell you not to.
Degree/Level 5... Take action; let me know what you did.
Degree/Level 6... Take action; no further contact with me is needed.
DECENTRALISATION OF AUTHORITY
The term 'decentralisation' should not be confused with that of delegation. Although the
two are closely related, decentralisation is much wider in scope reflecting management's
philosophy regarding which decisions to be taken at the top as well as down the line in
the organisation. While in delegation, authority is transferred on one-to-one basis from
the superior to the subordinate, decentralisation of authority is broader in scope and
involves the transfer of authority in the organisational context from top to the lower
rungs of management in the hierarchy. Thus, the greater the amount of authority
delegated throughout the organisation, the more decentralised the organisation is.
It must also be understood that both absolute centralisation and absolute
decentralisation are undesirable, for, the former refers to an autocratic structure while
the latter results in a chaotic situation. For this reason, decentralisation must be viewed
as a relative concept, not as an absolute one. Ernest Dale, a well-known management
writer, has described the following conditions where decentralisation is greater:
- the greater the number of decisions made lower down the management hierarchy.
- the more important the decisions made lower down the management hierarchy. For
example, the greater the amount of capital expenditure that can be approved by the
plant manager without consulting anyone else, the greater the degree of decentralisation
in this field.
- the more functions affected by decisions made at lower levels. Thus, companies which
permit only operational decisions to be made at branch/plant levels are less
decentralised than those which permit financial and personnel decisions at
branch/plant level.
- the less checking required on the decision. Decentralisation is greatest when no check
at all must be made; lesser when superiors have to be informed decision after it has been
made, still lesser if superiors have to be consulted before the decision is made. The fewer
people to be consulted, and the lower they are on the management hierarchy, the greater
the degree of decentralisation.
Advantages of Decentralisation
The advantages of decentralisation are similar to the advantages of delegation.
Unburdening of top managers, improved decision making because decisions are made
closer to the scene of action, better training, better morale and better initiative at lower
levels, and more flexibility and faster decision making are some of the advantages of
decentralisation. These advantages are widely acclaimed, so much so that
decentralisation is often regarded as 'good' and centralisation as 'bad'.
But total decentralisation, as mentioned earlier, with no coordination from the top
would be undesirable. That is why, the question before manager is not whether an
organisation should be decentralised, but to what extent it should be decentralised.
On the whole, the appropriate amount of decentralisation for an organisation will vary
with time and circumstances. It will also vary for the different units of the organisation.
For example, production and sales departments, in general, have gained a high degree of
decentralisation in many organisations, whereas financial departments have tended to
remain relatively centralised.
FACTORS INFLUENCING DECENTRALISATION
i. The Cost and Impact of the Decisions: Managers may be skeptical about
decentralisation of decision making authority where the commitment involved in the
decisions is very high in terms of impact on the performance of their own units or the
organisation as a whole. As a rule of thumb, the greater the cost involved, the more
likely it is that the decision will be made at the upper levels. We often find situations in
organisations where managers at a particular level seek the approval of superiors where
the expenditure involved exceeds a certain limit.
ii. Company Size and Rate of Growth: It is very difficult to manage a large
organisation efficiently with decision-making authority concentrated in one or few at the
top. Further, as an organisation grows in size and complexity, the need for
decentralisation is obviously felt. Top management cannot continue to hold a tight grip
over the several aspects of the growing organisation. This is the principal reason why
organisations often engage in reorganising their units and operations as they grew in
size.
The necessary autonomy is given to the units or departments so that top management
can concentrate itself with more important tasks such as strategic planning, policy
formulation and controlling the overall operations of the firm.
iii. Organisation's Environment: Environment in general influences the strategy to
be pursued to gain or retain competitiveness. The type of competition in the market,
technological developments, socio-cultural and political factors play a dominant role in
the company's strategy. Strategy, in turn, influences the type of structure that can cope
with the environmental pressures. In a fast changing environment as of today, one can
easily find companies choosing decentralised structures that facilitate quick response to
the environment.
iv. Philosophy of Top Management: Some firms are highly centralised, whereas
others are highly decentralised because of the character and philosophy of their top
management. The leadership style, the attitudes, values and beliefs of the top
management team have a bearing on the degree of decentralisation. For instance, if Tata
group companies have registered a phenomenal growth over the years, it is partly
because of the operational freedom and autonomy the various units in the group enjoy.
v. Philosophy of Subordinate Manager: The philosophy of subordinate managers
is another important factor that influences the decentralisation because they can both
encourage or discourage decentralization. If subordinates want decentralisation, top
management cannot hold everything in their hands for too long a period. The desire by
subordinates for independence and the willingness to assume increased responsibilities
may make them think of decentralisation. As against this, shortage of lower level
managers who are willing to assume responsibility may encourage top management to
maintain a centralised structure.
Now-a-days, in most large-scale organisations, the trend is towards decentralisation.
This is in line with greater employee empowerment. Pushing authority down the line to
lower levels in an organisation results in an environment of freedom and
experimentation. Employee empowerment helps in foisting an entrepreneurial spirit in
the organisation, by encouraging employees at lower levels to accept responsibility, to
unleash their full potential and most important, to think and innovate. The benefits of
decentralisation are clear. However, the extent of decentralisation depends on the
unique requirements of an organisation. It normally varies from organisation to
organisation.
SUMMARY
Authority is the right to command. Classical theory lays emphasis on formal authority,
that is, the authority that an individual in the organisation enjoys by virtue of his or her
position. The other viewpoint known as 'acceptance theory' suggests that an individual
exercises the authority to the extent it is accepted by his subordinates.
A manager must have both authority and power. While authority is positional in nature,
power, the ability to influence others is earned. There are five sources of power:- reward,
coercive, legitimate, expert and referent.
Delegation of authority facilitates the organisation to grow. It helps an organisation use
its resources efficiently, frees managers for important tasks, improves decision-making,
and encourages initiative. Delegation is closely related to decentralisation in the sense
that the greater the amount of delegation, the more decentralised the organisation. The
appropriate amount of decentralisation for a particular organisation will depend on
factors like costliness and the associated impact of the decisions, company size and
growth, philosophy of top management, changes in the environment and the attitude
and philosophy of subordinates. The current trend, of course, is towards
decentralisation.
REVIEW QUESTIONS
1. What is meant by the terms 'authority' and 'power'? Distinguish between the two.
Where does the authority come from?
2. Explain the process of delegation of authority in an organisation. Discuss the factors
that encourage it and those that discourage it.
3. What are the five types of power? Identify and describe each with suitable examples.
4. How are delegation and decentralisation related? Are they both one and the same?
5. Discuss the important factors that influence the degree of decentralisation in an
organisation.
6. Considering the changes that are taking place in the Indian economic environment in
the post-liberalisation era, do you believe there will be a trend towards centralisation or
decentralisation over the next few years? Give reasons.
CASE: THE FAIR DEAL LIMITED
Fair Deal Limited is a medium-sized company with a turnover of Rs.50 Crores and with
500 workers. You have been in the office of its Factory Manager, Mr. Kumar, for nearly
45 minutes. During this short period you have found that your conversation with him
has been interrupted several times. First, it was the Office Manager who rang him to get
his approval for samples of office stationery. Mr. Kumar sends for the samples. Then
comes the ring from a supplier who informs Mr. Kumar that a particular part of the
machinery, which is otherwise not available in the market, can be had from him. Mr.
Kumar calls up the storekeeper and instructs him to purchase this part immediately
from the supplier and to cancel the order, if any, the purchase officer might have placed
with any other supplier. Then there is a call from a customer requesting Mr. Kumar to
allow a higher percentage of discount than that promised by the company's sales
manager. Mr. Kumar not only turns down the request but also expresses his surprise at
the high percentage already allowed by the sales manager. Finally, a foreman enters and
complains that a certain part of one machine is broken and it not being available in the
stock, the production may suffer. Mr. Kumar asks the foreman to tell the purchase
manager to order the part immediately.
Questions:
a) From what you have understood in this lesson, how do you describe the situation in
the case? What is the exact problem?
b) Is Mr. Kumar performing the job of a manager effectively? Give reasons to your
answer.
c) What are your suggestions to improve Mr. Kumar's style of managing?
FURTHER READINGS
Chester A. Barnard, 1938. The Functions of the Executive, Harvard University Press,
Cambridge.
Claude S. George, Jr. 1968. The History of Management Thought, Prentice-hall, England
Cliffs, N.J.
Harold Koontz and Cyril O'Donnel, 1976, Management: A Systems and Contingency
Analysis of Managerial Functions, McGraw-Hill, New York.
John R.P. French and Bertram Raven, 1959. The Bases of Social Power, in Dorwin
Cartwright (ed). Studies in Social Power, Institute for Social Research, University of
Michigan.
Harey Sherman. 1966. It All Depends: A Pragmatic Approach to Organisations, quoted
in A.F.Stoner and Freeman, Management, 1989, prentice-hall India, New Delhi.
Arthur G. Bedian, 1993. Management, The Dryden Press New York.
Richard M. Hodgets, 1986. Management: Theory, Process and Practice, Academic
press, New York.

- End of Chapter -
LESSON- 1O
LINE AND STAFF RELATIONSHIPS

Objectives
After studying this lesson, you should be able to:
Understand the concepts of line and staff authority;
Describe the major reasons for the conflict between line and staff managers;
Suggest ways and means to achieve proper harmony between the two; and
Familiarise with various aspects related to the committee form of organisation.
Outline
Introduction
Line and Staff Concepts
Line Authority
Staff Authority
Line and Staff Conflict
Achieving harmony between Line and Staff
Committee Form of organisation
Types of committees
Reasons for the use of committees
Disadvantages of committees
Successful operation of committees
Summary
Review questions
Further Readings
INTRODUCTION
Effective functioning of the formal organisation depends on the authority -
responsibility relationships among people working in groups to achieve the objectives.
Different types of relationships are possible throughout the organisation structure. We,
in this lesson, will understand the line and staff authority relationships.
Perhaps no other area of management has created as much confusion as the line and
staff authority. Though the concepts have been present in management literature for
many years, they still remain to be clouded with conflict and confusion. The viewpoints
of different authors widely differ in regard to the line and staff relationships. Let us,
therefore, first understand what the line and staff authority mean.
LINE AND STAFF CONCEPTS
There are two approaches, to understand line and staff concepts. One approach lays
emphasis on the basic functions of the business. Accordingly, functions of an enterprise
are classified into line and staff function. To quote Louis Alien: "Line functions are those
which have direct responsibility for accomplishing the objectives of the enterprise and
staff refers to those elements of the organisation that help the line to work most
effectively in accomplishing the primary objectives of the enterprise."
Thus, organisational objectives are the basic determinant of line and staff functions and
with the change in the objectives, line and staff functions may change. A line function in
one organisation may be staff function in another. For example, personnel function in
an employment agency is line but it is a staff function in a manufacturing organisation.
In a manufacturing organisation whose basic objective is to produce and sell goods,
production and marketing are line functions and others such as finance, personnel,
legal, etc. are staff functions. Further, within a department, there may be line and staff
functions, for example, in marketing department, selling may be line function whereas
market research is a staff function.
The other approach lays emphasis on the authority and views that line and staff are two
kinds of authority. According to this approach, line authority is defined as a direct
authority which a superior exercises over his subordinates to carry out orders and
instructions. The exercise of this authority is always downwards, that is, from a superior
to a subordinate. Staff authority involves giving advice to line managers to carry on the
operation. The flow of this authority may be in any direction depending on the need of
such an advice. Koontz and others have defined line and staff authority as follows.
"Line authority becomes apparent from the scalar principle as being that relationship in
which superior exercises direct supervision over a subordinate - an authority
relationship in direct line or steps. The nature of staff relationship is advisory. The
function of people in a pure staff capacity is to investigate, research, and give advice to
line managers to whom they report."
It is common that in actual practice, some variations may exist. The variations are more
pronounced in the case of staff authority. As presented in exhibit - 1, variations in the
staff authority may be seen in a continuum.
EXHIBIT 1

The distinction between line and staff is important because staff must be provided if the
growing organisation is to accomplish its goals. Line and staff relationships are
established to guide people in the way they work together. But, for practical purposes it
should never be looked upon as an inflexible barrier. The differentiation between line
and staff is necessary for the following reasons:
LINE AUTHORITY
Line authority exists between superior and his subordinate. In the organising process,
authority is delegated to the individuals to perform the activities. These individuals, in
turn, assign some of the activities to persons working below them in the hierarchy and
delegate them authority. This process goes on, creating superior subordinate
relationships in the organisation. The direct relationship between a superior and his
subordinate is created through the enforcement of line relationship. Such a relationship
works as follows:
As a Chain of Command:
A command relationship exists between each superior and subordinate. Line authority
is the heart of this relationship because it entities a superior to direct the work of his
subordinate.
As a Channel of Communication:
Line authority can be treated as a channel of communication between members of the
organisation. Communication up and down in the organisation, flows through the line
relationship. Barnard has emphasised the role of line relationship as a channel of
communication by suggesting that line communication should be established and every
member of the organisation should be tied into the system of communication by having
someone to report to and others to report him. Such a line can be maintained easily
through the chain of command.
As a Carrier of Responsibility:
The line relationship carries ultimate responsibility for the work assigned. Though the
process of assigning activities goes on till the level where actual work is performed by
operatives, each individual in the line is accountable for the proper performance of the
activities assigned to him.
STAFF AUTHORITY
The relationship between a staff manager and the line manager with whom he works
depends in part on the staff duties. A man who only gathers facts or only checks on
performance will have relationship with line manager that are different from those of a
man who has concurring authority. Such variations between line and staff relationships
as discussed earlier, run along a continuum with only advice at one extreme point and
functional authority at other extreme point. In between, two more situations represent
compulsory staff consultation and concurring authority. (See exhibit -1) The different
shades of staff authority are discussed below:
Advisory Staff Authority
This is the type of staff relationship popularly associated with the term staff authority.
An advisory staff manager provides advice, assistance, and information and it depends
on the line manager whether these are put into action or not. Thus, a staff man relies
largely on persuasion to get his ideas put into effect. In the absence of power of
command, he must build confidence in his opinions. Therefore a staff manager has to
depend on his persuasive skills.
Compulsory Staff Consultation
Some organisations prescribe the practice of compulsory staff consultation. Under this
arrangement, a staff man must be consulted before action is taken. However, line
manager is free to take action of his choice after consulting staff. Compulsory
consultation supplements a more general requirement for successful staff work, the
requirement that a staff should have access to any information that relates to his field of
interest.
Concurring Authority
At times, a staff man may be granted authority so that no action can be taken until he
agrees to it. For example, quality control inspector must pass on raw materials or semi
finished products before they move to the next stage of production, or agreement with
employees over the matter of wages, should be entered only after the personnel manager
has agreed to it. The idea of concurring authority is that the staff viewpoint is
incorporated into operating decisions. It is a better arrangement because of which line
manager cannot take needless action. These considerations suggest that concurring
authority is granted only when the viewpoint represented by a staff man is particularly
important when possible delay in action will not be serious. For example, it may be
prescribed that a finance manager cannot withhold capital expenditure simply because
of his disapproval of capital expenditure plan, but he can withhold it because funds are
not available or funds cannot be arranged. In government organisations, normally wide-
ranging concurring authority is granted to staff men.
LINE AND STAFF CONFLICT
Line and staff relationship implies that both support each other harmoniously to achieve
organisational objectives. However, there are frequent instances of conflict between line
and staff in the organisations, resulting in friction and loss of time. The various factors
leading to line-staff conflict can be grouped into three categories: apprehensions of line
managers, apprehensions of staff, and nature of line-staff relationship. Let us examine
how these apprehensions generate conflict.
Apprehensions of Line Managers
Line managers, who are responsible for the final results leading to the achievement of
organisational objectives, feel that staff people work against them in the following ways.
i. Lack of Responsibility: Line managers often allege that staff people do not carry
any responsibility in the organisation, but enjoy authority. Lack of responsibility makes
them complacent and they do not care for the ultimate objectives of the organisation. On
top of all this, line managers contend that they will be criticised if things go wrong, while
the staff will get the rewards if things go well. This disparity between authority and
responsibility and also between contributions and rewards is a source of jealousy
between line and staff.
ii. Encroachment of Line Authority: Line managers perceive that staff people
encroach upon their authority by advising on matters which fall within their
jurisdiction. Whenever there is any such encroachment, the result is resentment,
hostility, and open or hidden reluctance to accept advice and recommendation.
iii. Dilution of Authority: There is also a feeling that staff people dilute line
authority. Line managers fear that their responsibility will be reduced because of the
addition of staff thereby making their job less challenging. Such a feeling of insecurity
makes line managers suspicious of staff managers.
iv. Theoretical Bias: Often the advice and recommendation of staff people suffer
from theoretical bias because of two reasons. First, they tend to think within the context
of their own specialty, and thus lack practical implication. Second, as staff people are
away from the actual operational scene, they are not able to fully appreciate the actual
dimensions of the problems and their recommendations may not be practicable.
APPREHENSIONS OF STAFF MANAGERS
Similar to the contention of line managers, staff people have their own arguments and
try to find fault with line managers. The focus of the staff arguments centres around the
following :
i. Lack of Proper Use of Staff: Staff people feel that line managers do not make
proper use of their services and decisions are made without inputs from staff. They are
informed after the action has been taken. By virtue of his position, a line manager can
accept, amend, or reject the advice of staff irrespective of its quality arid practicability.
Further, when something goes wrong in the area of his operation, staff person from
concerned field is made the scapegoat.
ii. Resistance to New ideas: Line managers often resist new ideas because new ideas
mean that there is something wrong with their present way of working. Thus new ideas
are treated as fault-finding device in their operation. As against this, staff people are
more innovative in the areas of their specialty. Because line people are reluctant to new
ideas, many of the efforts of staff people go waste.
iii. Lack of Proper Authority: Staff people feel that they contribute to the realisation
of organisational objectives without really enjoying any authority. Line managers clearly
hold most of the cards and enjoy enormous authority. It is not necessary to consult staff
before arriving at a decision. Even when staff is consulted, it is not necessary that staff
advice is put into practice. As a result staff specialists feel that if they have the best
solution to a problem, they should have authority over line managers to force the
solution.
Nature of Line-Staff Relationship
In addition to the factors discussed so far, following inherent characteristics of line and
staff relationship also contribute to conflicts and tensions.
i. Divergent Backgrounds: Line and staff-people, often have different backgrounds
and individual characteristics. Staff people in contrast to line, are generally younger,
better educated, more poised in social interaction, more articulate and individualistic.
As a result, they often look down on the less educated line people who must have worked
their way up through the organisation. These differences create an atmosphere of
mistrust and hatred between them. Thus, both of them work in an environment of
hostility.
ii. Lack of Demarcation Between Line and Staff: Though in theory, line and staff
authority is clear, often in practice, demarcation between line and staff is rarely clear.
Many jobs in line and staff defy description and relationship between them is not
clarified. In such cases there is a possibility for overlap and gap in authority and
responsibility which can affect personal relationships.
iii. Lack of proper Understanding of Authority: Assuming that line and staff
authority is made clear in the organisation, in practice, people may fail to understand
the exact nature. This misunderstanding may lead to encroachment of authority either
by line or by staff people.
ACHIEVING HARMONY BETWEEN LINE AND STAFF
The following guidelines, if understood thoroughly may solve many problems.
1. Line people have the ultimate responsibility for the successful operation of the
organisation. Therefore, they should have authority for making operating decisions.
2. Staff people contribute to achieve organisational objectives by making
recommendations and providing advice in their respective fields. In some situation, they
may be granted functional authority through which they can ensure that their
recommendations are put in operation.
3. Since in most cases, solicitation of advice and acceptance of that is usually at the
option of the line people, it becomes imperative for the staff to offer advice and service.
4. Barring few exceptional situations where time factor is of utmost importance for
decision making, line should be impressed upon the need for compulsory consultation.
5. Staff people should sell their ideas to line people. They should rely more on the
authority of knowledge and competence rather than authority of position.


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How to make better use of Staff
Staff people are needed in the organisation because line people may not able to solve the
problems which require special knowledge and expertise. The effectiveness of line
people depends to a large extent on how they make use of staff. For making proper use
of staff, following points are important.
1. There should be encouragement and education to line people as to how to make
maximum use of staff effectively. Line people cannot make use of staff unless they know
what a specialist can do for them. At the same time, staff people also have a
responsibility to let line people know how they can contribute for the better
performance of line activities.
2. In order to make proper use of staff, they should not be kept busy in unimportant
work because it does not serve any meaningful purpose. Instead, they should be
assigned critical work in the area of their specialty.
3. Staff people should be involved at the basic stage of planning of an activity rather than
when the problem becomes critical. When they are involved at the level of planning,
many of the problems may not arise.
4. If line people have taken some actions directly affecting staff activities without
consulting staff people, they should be informed immediately about such actions. The
information will help in removing misunderstanding, if any, created in the minds of staff
people.
COMMITTEE FORM OF ORGANISATION
One of the most misunderstood concepts in management is the committee form of
organisation called variously as board, commission; ask force, team, etc. The essential
nature of all these bodies is the same. The basic distinction that sets apart the committee
from other organisation devices is the group action. In spite of the severe criticism
against the usefulness of committees in organisations, they are very extensively used in
the modern organisations at various levels.
Koontz and O'Donnel define a committee as "a group of persons to whom, as a group,
some matter is committed". Though it implies group action, there are many variations in
the use of committees, particularly, in respect of the authority assigned to them.
TYPES OF COMMITTEES
Committees can be broadly classified into advisory committees and executive
committees. When committees are entrusted with staff authority, they are known as
advisory committees. That is, they play only an advisory role and cannot enforce
implementation of their advice or recommendation. Works committees, finance
committees, new product development committees etc. fall in this category. On the
other hand, whenever, committees are vested with line authority, they are called
executive committees. Unlike the advisory committees, executive committees not only
take decisions, but also have the authority to implement them. The board of directors is
a classic example of executive committee.
Committees may also be permanent or they may be temporary (adhoc). They may also
be formal or informal. A formal committee is one which finds a place in the organization
chart with specific authority and responsibility. Formal committees, in general, are
permanent in nature whereas informal committees may be permanent or temporary.
They may also be classified into adhoc committees and standing committees. The
former is constituted for a specific purpose and then disbanded after it has performed
the assigned task. The latter is more permanent and exists as long as there is need for it
in the organisation.
REASONS FOR THE USE OF COMMITTEES
The use of committees in modern organisations, both business as well as non-business
is so widely prevalent that it is hard to miss them in any organisation. The board of
directors which presides the destiny of the organisation by itself is a committee. The
following are some major factors responsible for the popularity of the committee form of
organisation.
i. Group Participation: Committee facilitates the involvement and participation of
more than one. The concept, in a way, is so close to the adage that "two heads are better
than one". The fact that a group of people with varied experiences and intelligence can
throw a better light on the issues that are deliberated in the meetings cannot be
disputed. Many of the inadequacies or limitations of an individual are compensated by
collective wisdom and thinking. Wide ranging discussions can take place. Committee
meetings undoubtedly become the forum for cross-examination and fertilisation of
ideas. The exchange of information, viewpoints, beliefs and experience, help in
examining the issues involved more thoroughly which may not be possible in an
individual judgment.
ii. Diffusion of Authority: Fear of concentration of authority in one individual is
another contributing factor for the constitution of committees. No single member of the
committee can have absolute authority. Whatever the decision of the committee, it has
to be approved by at least majority members. However, consensus of all the members
may also be required for certain issues. Thus, the possibility of authority being misused
and the exercise of discretion power in a wrong way to a larger extent, be avoided by
entrusting the matters to be decided to a group. For instance, the existence of board of
directors at the top itself amply indicates how shareholders entrust the overall
responsibility of managing the organisation to a larger body instead to a single
individual.
iii.Consolidation of Authority: Usually in any organisation manager at a particular
level, say a department head, or branch/section manager has only a portion of the
authority. In some instances, the authority that a manager has may not be sufficient to
take a decision in a particular way. In the case of a committee, the authority of all the
members will be pooled up. This is what is meant by consolidation of authority. The
authority of different individuals which is otherwise splintered is consolidated in the
committee form. The collective authority thus pooled up enables the committee to
decide on matters which are beyond the scope of individual authority.
iv. Representation of Interested Groups: The activities of modern organisations
are interrelated in such a way that many decisions effect a more than one department or
section. In such a case, for better compliance of the decision, it is desirable to appoint a
committee with representation to all those who are affected by a particular decision.
Such a measure not only offers an opportunity for participation but also satisfies the ego
of the individual members. The members naturally feel that they are also a party to the
decision and therefore they tend to be loyal to the decision.
v. Co-ordination becomes Easy: Coordination of the various plans, programmes
and activities of various departments is an essential task management. Committees are
very useful in that they facilitate inter-departmental coordination. A committee provides
the members first hand information about the overall plans. It facilitates contribution of
suggestions for improvement, if any. The interaction among the members and the way
how the information is shared by them, contribute for better co-ordination of the plans
and thereby inter-departmental activities.
vi. A Tool of Management Development: A committee can also be used as a tool of
management development. While experience of a manager on his job enables him to
sharpen the skills in his particular area of specialisation, committees may widen his
perspective and knowledge about the other related tasks. His participation in the
committee meetings and the exposure thus gained enable him to understand the larger
picture. Valuable learning takes place where individuals can take an integrated view to
solve the problems.
vii. Avoidance of Action: It is interesting to note that more often committees are
used to avoid action on a problem. This tendency, of course is more pronounced in
bureaucracies. At times, a manager may be unwilling to take action, but he cannot afford
to avoid action also. The best option, open to him in such a situation, is, to refer the
matter to a committee. It is this particular phenomenon which often gives raise to so
many jokes on committees in organisations. Thus, a committee can be used to smoothen
the tempers and passions of people. It is also used as a means to overcome resistance,
pressure, or opposition from parties involved in an issue.
DISADVANTAGES OP COMMITTEES
As mentioned earlier, many jokes about bad management revolve around committees.
The committee's notoriety for ineffectiveness often is traceable to misuse. Committees
are subject to mismanagement and misuse. Here are a few definitions of a committee,
pointing the darker side of the use of committees.
"a committee is made up of the unfit, selected by the unwilling, to do the
unnecessary"
"a place where the loneliness of thought is replaced by the togetherness of
nothingness".
Though these definitions seem to be excessively hostile to the committee form of
organisation, if proper care is not taken, there is little wonder that they may prove to be
correct. The following are the problems, in general, with committees.
i. High cost in Time and Money: The constitution of a committee is an expensive
affair. The time and money involved are quite considerable. More so, if the members are
drawn from far off places. Lot of money has to be paid towards various allowances to the
members. That apart executive time has got opportunity cost. After a series of meetings,
if no decision is taken on the outcome is insignificant the expenditure of resources and
the executive time in such as wasteful exercise is meaningless. It will be still ridiculous if
a committee is assigned a problem that could be solved by a simple individual. Thus,
one should not loose sight of the costs involved in appointing committee.
ii. Slow decisions: The very nature of functioning of the committee is not conducive
for quick decisions. If consensus is insisted, the situation becomes still worse. All the
members have to be informed of the agenda in advance. Modifications in the agenda, if
there are any suggested by members have to be again circulated. Deliberations in the
meeting may also take a long time. Valuable opportunities may be lost in the mean time
as committee members are engrossed in the hectic deliberations.
iii. Indecision: Quite often committee meetings end up in no decision Meetings get
adjourned for want of quorum and time for thorough discussions. Besides, many
decisions may be taken on the basis of compromise. The decision thus arrived at, may be
in no way better than the one which would have been taken by an individual who could
see the things as they are and acted upon. The leveling effect in committee deliberations
in which high premium is placed on conformity has gone disastrous affects. The result of
the levelling effect is that the individual's thinking is brought in line with the group
thinking. Consequently the decision thus reached need not be the best decision.
iv. Minority Tyranny: Committees normally tend to seek unanimous or near-
unanimous decisions. Minority members who hold a different view are therefore in a
strong position. More particularly, when the practice is to arrive at a decision through
unanimity. The minority members tend to take advantage of such a situation and try to
exercise tyranny over the majority. The problem becomes more complicated if members
have the vet power. Similarly, majority can also put pressure on minority members to
force them to arrive at the decision.
v. Splitting of Responsibility: In any system, people tend to work more efficiently
when their authority and responsibility are clearly specified. Since many members are
involved in the decision-making process of the committee, no individual member can be
held responsible if the outcome of the decision is adverse. The major drawback is that it
splits the responsibility and no member feels the responsibility for group action.
SUCCESSFUL OPERATION OF COMMITTEES
The available evidence on the practices in the corporate sector shows that the use of
committees in all types of organisations is on the increase. As the emphasis on the group
decision-making and participation increases, so also the use of committees in the
company's affairs. Inadequate care is exercised in respect of the following factors, the
benefit outweigh the disadvantages.
i. Authority and scope must be specified: The terms of reference to the committee
and the authority of it have to be clearly defined. That whether the committee has the
authority to make decisions, or its job is just to make recommendations. If the scope and
authority of the committee are not clearly defined, quite often, members may end up in
deliberating issues that are not referred to the committee at all.
ii. Size of the committee: Though there is no exact number regarding the size of the
committee, the complexity of interrelationships naturally increases with the size of the
group. If the group is too large, it may be difficult for the members to communicate
effectively, on the other hand, if it is too small, the purpose behind the use of committee
may be lost. As a general rule, a committee should be large enough to promote
deliberations and to provide an opportunity for the consolidation of wisdom and
expertise of many members, Research indicates that the ideal committee size is five,
when all the five members possess adequate skills and knowledge to deal with the
subject assigned to the committee.
However, if the committee is to have all interested groups participate in its
deliberations, the number may be large. If all the interested groups are not represented,
the committee's work may be criticised. In such a situation where the need for
representation of the interested parties, makes the committee too large, one option to
constitute sub-committees by breaking down the problems to be studied.
iii. Selection of Members: For the committee to be successful, the members on the
committee must be good at understanding the problems and analysing them. They must
also be good at performing well in a group. Every member must have the right
temperament, verbal and analytical ability and capacity for working with others.
Selection of members requires judgment about the personal characteristics of members,
their functional background and level in the organisation. The basic objective is
meaningful deliberations in committee meetings that result in effective decisions.
Committees are likely to function better if members are friendly, known to each other
and respect each other. Committees which include members drawn from different levels
are unlikely to function effectively because they are from the lower levels and may not
very actively participate in discussions because of the variances in this formal positions
in the organisations. For example, workers representatives, and the boards of
management of many organisations and the teachers representatives on the various
administrative bodies of universities are found to be not very effective purely because of
this factor.
iv. Nature of the subject matter: Careful selection of the subject matter to be
entrusted to the committee is equally important. Certain subjects can be handled
effectively by a committee while others can be handled better by individuals. For
instance, research and development which depend on the individual creativity cannot be
entrusted to a committee. On the other hand, for the establishment of major objectives
and formulation of policies and review and coordination of work, committee may be
preferred.
v. Effectiveness of Chairperson: The chairperson, in fact, is the leader of the
committee. Therefore, the effectiveness of the committee depends on the chairperson's
skills and motivation. His basic functions include planning for the meetings, preparing
the agenda, supplying some preliminary information to the members and conducting
the meetings effectively. The chairman must not act in a prejudicial way and yield to the
pressure of a few members. He has to monitor and coordinate the proceedings such that
effective decisions are taken by the committee. He has to see that the minutes of the
meetings are recorded properly, circulated to all the members. Modifications suggested
and action taken on recommendations should also be communicated.
SUMMARY
Line positions may be defined as those directly responsible for achieving the
organisation's goals. Staff positions provide expert advice and service to the line. Staff
authority ranges from being limited to advising on request, to compulsory consultation,
to concurrent authority, to functional authority. Because of the differences in the nature
of authority between the two, it is not uncommon to hear about the conflicts between
the line and staff managers. Each look at the other with suspicion. As a result, infighting
and always trying for one upmanship are quite natural in organisations. The concepts of
line and staff authority, reasons for the conflicts and the ways and means of achieving
harmony have been discussed in this lesson.
In the second half of the lesson, committee form of organisation and the major issues
related to committees such as types of committees, reasons for the use of committees,
disadvantages of committees and the measures for making committees more effective,
have been dealt with.
REVIEW QUESTIONS
1. Line-staff conflict occurs for many reasons. Examine the following adages; "Staff
should be on tap, not top", and "staff should sell, not tell".
2. Describe the difference between the advisory authority, concurrent authority and
functional authority.
3. What are the important sources of conflict between line and staff managers? How do
you resolve the conflicts?
4. In spite of the serious drawbacks in the functioning of committees, they cannot be
dispensed with? why? give reasons.
5. What measures do you suggest to make a committee function more effectively?
FURTHER READINGS
Arthur G. Berdan. 1993. Management, the Dryden press. New York.
Harold Koontz. Cyril O'donnel and Heinz Weihrich, 1984 Management, McGraw-Hill,
Tokyo.
George R. Terry and Stephen G. Franklin. 1988. Principles of Management,
AITBS, Delhi.
Cawsey, T.F. 1980 "Why Line Managers Don't Listen to Their Personnel Departments",
Personnel, Jan-Febv.
Clark, P.A. 1952. Organisational Design: Theory and Practice, American management
Association, New York.
Drucker, Peter. F. 1974. Management Tasks, Responsibilities practices, Harper &Row,
New York.

- End Of Chapter -
LESSON- 1O
LINE AND STAFF RELATIONSHIPS

Objectives
After studying this lesson, you should be able to:
Understand the concepts of line and staff authority;
Describe the major reasons for the conflict between line and staff managers;
Suggest ways and means to achieve proper harmony between the two; and
Familiarise with various aspects related to the committee form of organisation.
Outline
Introduction
Line and Staff Concepts
Line Authority
Staff Authority
Line and Staff Conflict
Achieving harmony between Line and Staff
Committee Form of organisation
Types of committees
Reasons for the use of committees
Disadvantages of committees
Successful operation of committees
Summary
Review questions
Further Readings
INTRODUCTION
Effective functioning of the formal organisation depends on the authority -
responsibility relationships among people working in groups to achieve the objectives.
Different types of relationships are possible throughout the organisation structure. We,
in this lesson, will understand the line and staff authority relationships.
Perhaps no other area of management has created as much confusion as the line and
staff authority. Though the concepts have been present in management literature for
many years, they still remain to be clouded with conflict and confusion. The viewpoints
of different authors widely differ in regard to the line and staff relationships. Let us,
therefore, first understand what the line and staff authority mean.
LINE AND STAFF CONCEPTS
There are two approaches, to understand line and staff concepts. One approach lays
emphasis on the basic functions of the business. Accordingly, functions of an enterprise
are classified into line and staff function. To quote Louis Alien: "Line functions are those
which have direct responsibility for accomplishing the objectives of the enterprise and
staff refers to those elements of the organisation that help the line to work most
effectively in accomplishing the primary objectives of the enterprise."
Thus, organisational objectives are the basic determinant of line and staff functions and
with the change in the objectives, line and staff functions may change. A line function in
one organisation may be staff function in another. For example, personnel function in
an employment agency is line but it is a staff function in a manufacturing organisation.
In a manufacturing organisation whose basic objective is to produce and sell goods,
production and marketing are line functions and others such as finance, personnel,
legal, etc. are staff functions. Further, within a department, there may be line and staff
functions, for example, in marketing department, selling may be line function whereas
market research is a staff function.
The other approach lays emphasis on the authority and views that line and staff are two
kinds of authority. According to this approach, line authority is defined as a direct
authority which a superior exercises over his subordinates to carry out orders and
instructions. The exercise of this authority is always downwards, that is, from a superior
to a subordinate. Staff authority involves giving advice to line managers to carry on the
operation. The flow of this authority may be in any direction depending on the need of
such an advice. Koontz and others have defined line and staff authority as follows.
"Line authority becomes apparent from the scalar principle as being that relationship in
which superior exercises direct supervision over a subordinate - an authority
relationship in direct line or steps. The nature of staff relationship is advisory. The
function of people in a pure staff capacity is to investigate, research, and give advice to
line managers to whom they report."
It is common that in actual practice, some variations may exist. The variations are more
pronounced in the case of staff authority. As presented in exhibit - 1, variations in the
staff authority may be seen in a continuum.
EXHIBIT 1

The distinction between line and staff is important because staff must be provided if the
growing organisation is to accomplish its goals. Line and staff relationships are
established to guide people in the way they work together. But, for practical purposes it
should never be looked upon as an inflexible barrier. The differentiation between line
and staff is necessary for the following reasons:
LINE AUTHORITY
Line authority exists between superior and his subordinate. In the organising process,
authority is delegated to the individuals to perform the activities. These individuals, in
turn, assign some of the activities to persons working below them in the hierarchy and
delegate them authority. This process goes on, creating superior subordinate
relationships in the organisation. The direct relationship between a superior and his
subordinate is created through the enforcement of line relationship. Such a relationship
works as follows:
As a Chain of Command:
A command relationship exists between each superior and subordinate. Line authority
is the heart of this relationship because it entities a superior to direct the work of his
subordinate.
As a Channel of Communication:
Line authority can be treated as a channel of communication between members of the
organisation. Communication up and down in the organisation, flows through the line
relationship. Barnard has emphasised the role of line relationship as a channel of
communication by suggesting that line communication should be established and every
member of the organisation should be tied into the system of communication by having
someone to report to and others to report him. Such a line can be maintained easily
through the chain of command.
As a Carrier of Responsibility:
The line relationship carries ultimate responsibility for the work assigned. Though the
process of assigning activities goes on till the level where actual work is performed by
operatives, each individual in the line is accountable for the proper performance of the
activities assigned to him.
STAFF AUTHORITY
The relationship between a staff manager and the line manager with whom he works
depends in part on the staff duties. A man who only gathers facts or only checks on
performance will have relationship with line manager that are different from those of a
man who has concurring authority. Such variations between line and staff relationships
as discussed earlier, run along a continuum with only advice at one extreme point and
functional authority at other extreme point. In between, two more situations represent
compulsory staff consultation and concurring authority. (See exhibit -1) The different
shades of staff authority are discussed below:
Advisory Staff Authority
This is the type of staff relationship popularly associated with the term staff authority.
An advisory staff manager provides advice, assistance, and information and it depends
on the line manager whether these are put into action or not. Thus, a staff man relies
largely on persuasion to get his ideas put into effect. In the absence of power of
command, he must build confidence in his opinions. Therefore a staff manager has to
depend on his persuasive skills.
Compulsory Staff Consultation
Some organisations prescribe the practice of compulsory staff consultation. Under this
arrangement, a staff man must be consulted before action is taken. However, line
manager is free to take action of his choice after consulting staff. Compulsory
consultation supplements a more general requirement for successful staff work, the
requirement that a staff should have access to any information that relates to his field of
interest.
Concurring Authority
At times, a staff man may be granted authority so that no action can be taken until he
agrees to it. For example, quality control inspector must pass on raw materials or semi
finished products before they move to the next stage of production, or agreement with
employees over the matter of wages, should be entered only after the personnel manager
has agreed to it. The idea of concurring authority is that the staff viewpoint is
incorporated into operating decisions. It is a better arrangement because of which line
manager cannot take needless action. These considerations suggest that concurring
authority is granted only when the viewpoint represented by a staff man is particularly
important when possible delay in action will not be serious. For example, it may be
prescribed that a finance manager cannot withhold capital expenditure simply because
of his disapproval of capital expenditure plan, but he can withhold it because funds are
not available or funds cannot be arranged. In government organisations, normally wide-
ranging concurring authority is granted to staff men.
LINE AND STAFF CONFLICT
Line and staff relationship implies that both support each other harmoniously to achieve
organisational objectives. However, there are frequent instances of conflict between line
and staff in the organisations, resulting in friction and loss of time. The various factors
leading to line-staff conflict can be grouped into three categories: apprehensions of line
managers, apprehensions of staff, and nature of line-staff relationship. Let us examine
how these apprehensions generate conflict.
Apprehensions of Line Managers
Line managers, who are responsible for the final results leading to the achievement of
organisational objectives, feel that staff people work against them in the following ways.
i. Lack of Responsibility: Line managers often allege that staff people do not carry
any responsibility in the organisation, but enjoy authority. Lack of responsibility makes
them complacent and they do not care for the ultimate objectives of the organisation. On
top of all this, line managers contend that they will be criticised if things go wrong, while
the staff will get the rewards if things go well. This disparity between authority and
responsibility and also between contributions and rewards is a source of jealousy
between line and staff.
ii. Encroachment of Line Authority: Line managers perceive that staff people
encroach upon their authority by advising on matters which fall within their
jurisdiction. Whenever there is any such encroachment, the result is resentment,
hostility, and open or hidden reluctance to accept advice and recommendation.
iii. Dilution of Authority: There is also a feeling that staff people dilute line
authority. Line managers fear that their responsibility will be reduced because of the
addition of staff thereby making their job less challenging. Such a feeling of insecurity
makes line managers suspicious of staff managers.
iv. Theoretical Bias: Often the advice and recommendation of staff people suffer
from theoretical bias because of two reasons. First, they tend to think within the context
of their own specialty, and thus lack practical implication. Second, as staff people are
away from the actual operational scene, they are not able to fully appreciate the actual
dimensions of the problems and their recommendations may not be practicable.
APPREHENSIONS OF STAFF MANAGERS
Similar to the contention of line managers, staff people have their own arguments and
try to find fault with line managers. The focus of the staff arguments centres around the
following :
i. Lack of Proper Use of Staff: Staff people feel that line managers do not make
proper use of their services and decisions are made without inputs from staff. They are
informed after the action has been taken. By virtue of his position, a line manager can
accept, amend, or reject the advice of staff irrespective of its quality arid practicability.
Further, when something goes wrong in the area of his operation, staff person from
concerned field is made the scapegoat.
ii. Resistance to New ideas: Line managers often resist new ideas because new ideas
mean that there is something wrong with their present way of working. Thus new ideas
are treated as fault-finding device in their operation. As against this, staff people are
more innovative in the areas of their specialty. Because line people are reluctant to new
ideas, many of the efforts of staff people go waste.
iii. Lack of Proper Authority: Staff people feel that they contribute to the realisation
of organisational objectives without really enjoying any authority. Line managers clearly
hold most of the cards and enjoy enormous authority. It is not necessary to consult staff
before arriving at a decision. Even when staff is consulted, it is not necessary that staff
advice is put into practice. As a result staff specialists feel that if they have the best
solution to a problem, they should have authority over line managers to force the
solution.
Nature of Line-Staff Relationship
In addition to the factors discussed so far, following inherent characteristics of line and
staff relationship also contribute to conflicts and tensions.
i. Divergent Backgrounds: Line and staff-people, often have different backgrounds
and individual characteristics. Staff people in contrast to line, are generally younger,
better educated, more poised in social interaction, more articulate and individualistic.
As a result, they often look down on the less educated line people who must have worked
their way up through the organisation. These differences create an atmosphere of
mistrust and hatred between them. Thus, both of them work in an environment of
hostility.
ii. Lack of Demarcation Between Line and Staff: Though in theory, line and staff
authority is clear, often in practice, demarcation between line and staff is rarely clear.
Many jobs in line and staff defy description and relationship between them is not
clarified. In such cases there is a possibility for overlap and gap in authority and
responsibility which can affect personal relationships.
iii. Lack of proper Understanding of Authority: Assuming that line and staff
authority is made clear in the organisation, in practice, people may fail to understand
the exact nature. This misunderstanding may lead to encroachment of authority either
by line or by staff people.
ACHIEVING HARMONY BETWEEN LINE AND STAFF
The following guidelines, if understood thoroughly may solve many problems.
1. Line people have the ultimate responsibility for the successful operation of the
organisation. Therefore, they should have authority for making operating decisions.
2. Staff people contribute to achieve organisational objectives by making
recommendations and providing advice in their respective fields. In some situation, they
may be granted functional authority through which they can ensure that their
recommendations are put in operation.
3. Since in most cases, solicitation of advice and acceptance of that is usually at the
option of the line people, it becomes imperative for the staff to offer advice and service.
4. Barring few exceptional situations where time factor is of utmost importance for
decision making, line should be impressed upon the need for compulsory consultation.
5. Staff people should sell their ideas to line people. They should rely more on the
authority of knowledge and competence rather than authority of position.


Please use headphones

How to make better use of Staff
Staff people are needed in the organisation because line people may not able to solve the
problems which require special knowledge and expertise. The effectiveness of line
people depends to a large extent on how they make use of staff. For making proper use
of staff, following points are important.
1. There should be encouragement and education to line people as to how to make
maximum use of staff effectively. Line people cannot make use of staff unless they know
what a specialist can do for them. At the same time, staff people also have a
responsibility to let line people know how they can contribute for the better
performance of line activities.
2. In order to make proper use of staff, they should not be kept busy in unimportant
work because it does not serve any meaningful purpose. Instead, they should be
assigned critical work in the area of their specialty.
3. Staff people should be involved at the basic stage of planning of an activity rather than
when the problem becomes critical. When they are involved at the level of planning,
many of the problems may not arise.
4. If line people have taken some actions directly affecting staff activities without
consulting staff people, they should be informed immediately about such actions. The
information will help in removing misunderstanding, if any, created in the minds of staff
people.
COMMITTEE FORM OF ORGANISATION
One of the most misunderstood concepts in management is the committee form of
organisation called variously as board, commission; ask force, team, etc. The essential
nature of all these bodies is the same. The basic distinction that sets apart the committee
from other organisation devices is the group action. In spite of the severe criticism
against the usefulness of committees in organisations, they are very extensively used in
the modern organisations at various levels.
Koontz and O'Donnel define a committee as "a group of persons to whom, as a group,
some matter is committed". Though it implies group action, there are many variations in
the use of committees, particularly, in respect of the authority assigned to them.
TYPES OF COMMITTEES
Committees can be broadly classified into advisory committees and executive
committees. When committees are entrusted with staff authority, they are known as
advisory committees. That is, they play only an advisory role and cannot enforce
implementation of their advice or recommendation. Works committees, finance
committees, new product development committees etc. fall in this category. On the
other hand, whenever, committees are vested with line authority, they are called
executive committees. Unlike the advisory committees, executive committees not only
take decisions, but also have the authority to implement them. The board of directors is
a classic example of executive committee.
Committees may also be permanent or they may be temporary (adhoc). They may also
be formal or informal. A formal committee is one which finds a place in the organization
chart with specific authority and responsibility. Formal committees, in general, are
permanent in nature whereas informal committees may be permanent or temporary.
They may also be classified into adhoc committees and standing committees. The
former is constituted for a specific purpose and then disbanded after it has performed
the assigned task. The latter is more permanent and exists as long as there is need for it
in the organisation.
REASONS FOR THE USE OF COMMITTEES
The use of committees in modern organisations, both business as well as non-business
is so widely prevalent that it is hard to miss them in any organisation. The board of
directors which presides the destiny of the organisation by itself is a committee. The
following are some major factors responsible for the popularity of the committee form of
organisation.
i. Group Participation: Committee facilitates the involvement and participation of
more than one. The concept, in a way, is so close to the adage that "two heads are better
than one". The fact that a group of people with varied experiences and intelligence can
throw a better light on the issues that are deliberated in the meetings cannot be
disputed. Many of the inadequacies or limitations of an individual are compensated by
collective wisdom and thinking. Wide ranging discussions can take place. Committee
meetings undoubtedly become the forum for cross-examination and fertilisation of
ideas. The exchange of information, viewpoints, beliefs and experience, help in
examining the issues involved more thoroughly which may not be possible in an
individual judgment.
ii. Diffusion of Authority: Fear of concentration of authority in one individual is
another contributing factor for the constitution of committees. No single member of the
committee can have absolute authority. Whatever the decision of the committee, it has
to be approved by at least majority members. However, consensus of all the members
may also be required for certain issues. Thus, the possibility of authority being misused
and the exercise of discretion power in a wrong way to a larger extent, be avoided by
entrusting the matters to be decided to a group. For instance, the existence of board of
directors at the top itself amply indicates how shareholders entrust the overall
responsibility of managing the organisation to a larger body instead to a single
individual.
iii.Consolidation of Authority: Usually in any organisation manager at a particular
level, say a department head, or branch/section manager has only a portion of the
authority. In some instances, the authority that a manager has may not be sufficient to
take a decision in a particular way. In the case of a committee, the authority of all the
members will be pooled up. This is what is meant by consolidation of authority. The
authority of different individuals which is otherwise splintered is consolidated in the
committee form. The collective authority thus pooled up enables the committee to
decide on matters which are beyond the scope of individual authority.
iv. Representation of Interested Groups: The activities of modern organisations
are interrelated in such a way that many decisions effect a more than one department or
section. In such a case, for better compliance of the decision, it is desirable to appoint a
committee with representation to all those who are affected by a particular decision.
Such a measure not only offers an opportunity for participation but also satisfies the ego
of the individual members. The members naturally feel that they are also a party to the
decision and therefore they tend to be loyal to the decision.
v. Co-ordination becomes Easy: Coordination of the various plans, programmes
and activities of various departments is an essential task management. Committees are
very useful in that they facilitate inter-departmental coordination. A committee provides
the members first hand information about the overall plans. It facilitates contribution of
suggestions for improvement, if any. The interaction among the members and the way
how the information is shared by them, contribute for better co-ordination of the plans
and thereby inter-departmental activities.
vi. A Tool of Management Development: A committee can also be used as a tool of
management development. While experience of a manager on his job enables him to
sharpen the skills in his particular area of specialisation, committees may widen his
perspective and knowledge about the other related tasks. His participation in the
committee meetings and the exposure thus gained enable him to understand the larger
picture. Valuable learning takes place where individuals can take an integrated view to
solve the problems.
vii. Avoidance of Action: It is interesting to note that more often committees are
used to avoid action on a problem. This tendency, of course is more pronounced in
bureaucracies. At times, a manager may be unwilling to take action, but he cannot afford
to avoid action also. The best option, open to him in such a situation, is, to refer the
matter to a committee. It is this particular phenomenon which often gives raise to so
many jokes on committees in organisations. Thus, a committee can be used to smoothen
the tempers and passions of people. It is also used as a means to overcome resistance,
pressure, or opposition from parties involved in an issue.
DISADVANTAGES OP COMMITTEES
As mentioned earlier, many jokes about bad management revolve around committees.
The committee's notoriety for ineffectiveness often is traceable to misuse. Committees
are subject to mismanagement and misuse. Here are a few definitions of a committee,
pointing the darker side of the use of committees.
"a committee is made up of the unfit, selected by the unwilling, to do the
unnecessary"
"a place where the loneliness of thought is replaced by the togetherness of
nothingness".
Though these definitions seem to be excessively hostile to the committee form of
organisation, if proper care is not taken, there is little wonder that they may prove to be
correct. The following are the problems, in general, with committees.
i. High cost in Time and Money: The constitution of a committee is an expensive
affair. The time and money involved are quite considerable. More so, if the members are
drawn from far off places. Lot of money has to be paid towards various allowances to the
members. That apart executive time has got opportunity cost. After a series of meetings,
if no decision is taken on the outcome is insignificant the expenditure of resources and
the executive time in such as wasteful exercise is meaningless. It will be still ridiculous if
a committee is assigned a problem that could be solved by a simple individual. Thus,
one should not loose sight of the costs involved in appointing committee.
ii. Slow decisions: The very nature of functioning of the committee is not conducive
for quick decisions. If consensus is insisted, the situation becomes still worse. All the
members have to be informed of the agenda in advance. Modifications in the agenda, if
there are any suggested by members have to be again circulated. Deliberations in the
meeting may also take a long time. Valuable opportunities may be lost in the mean time
as committee members are engrossed in the hectic deliberations.
iii. Indecision: Quite often committee meetings end up in no decision Meetings get
adjourned for want of quorum and time for thorough discussions. Besides, many
decisions may be taken on the basis of compromise. The decision thus arrived at, may be
in no way better than the one which would have been taken by an individual who could
see the things as they are and acted upon. The leveling effect in committee deliberations
in which high premium is placed on conformity has gone disastrous affects. The result of
the levelling effect is that the individual's thinking is brought in line with the group
thinking. Consequently the decision thus reached need not be the best decision.
iv. Minority Tyranny: Committees normally tend to seek unanimous or near-
unanimous decisions. Minority members who hold a different view are therefore in a
strong position. More particularly, when the practice is to arrive at a decision through
unanimity. The minority members tend to take advantage of such a situation and try to
exercise tyranny over the majority. The problem becomes more complicated if members
have the vet power. Similarly, majority can also put pressure on minority members to
force them to arrive at the decision.
v. Splitting of Responsibility: In any system, people tend to work more efficiently
when their authority and responsibility are clearly specified. Since many members are
involved in the decision-making process of the committee, no individual member can be
held responsible if the outcome of the decision is adverse. The major drawback is that it
splits the responsibility and no member feels the responsibility for group action.
SUCCESSFUL OPERATION OF COMMITTEES
The available evidence on the practices in the corporate sector shows that the use of
committees in all types of organisations is on the increase. As the emphasis on the group
decision-making and participation increases, so also the use of committees in the
company's affairs. Inadequate care is exercised in respect of the following factors, the
benefit outweigh the disadvantages.
i. Authority and scope must be specified: The terms of reference to the committee
and the authority of it have to be clearly defined. That whether the committee has the
authority to make decisions, or its job is just to make recommendations. If the scope and
authority of the committee are not clearly defined, quite often, members may end up in
deliberating issues that are not referred to the committee at all.
ii. Size of the committee: Though there is no exact number regarding the size of the
committee, the complexity of interrelationships naturally increases with the size of the
group. If the group is too large, it may be difficult for the members to communicate
effectively, on the other hand, if it is too small, the purpose behind the use of committee
may be lost. As a general rule, a committee should be large enough to promote
deliberations and to provide an opportunity for the consolidation of wisdom and
expertise of many members, Research indicates that the ideal committee size is five,
when all the five members possess adequate skills and knowledge to deal with the
subject assigned to the committee.
However, if the committee is to have all interested groups participate in its
deliberations, the number may be large. If all the interested groups are not represented,
the committee's work may be criticised. In such a situation where the need for
representation of the interested parties, makes the committee too large, one option to
constitute sub-committees by breaking down the problems to be studied.
iii. Selection of Members: For the committee to be successful, the members on the
committee must be good at understanding the problems and analysing them. They must
also be good at performing well in a group. Every member must have the right
temperament, verbal and analytical ability and capacity for working with others.
Selection of members requires judgment about the personal characteristics of members,
their functional background and level in the organisation. The basic objective is
meaningful deliberations in committee meetings that result in effective decisions.
Committees are likely to function better if members are friendly, known to each other
and respect each other. Committees which include members drawn from different levels
are unlikely to function effectively because they are from the lower levels and may not
very actively participate in discussions because of the variances in this formal positions
in the organisations. For example, workers representatives, and the boards of
management of many organisations and the teachers representatives on the various
administrative bodies of universities are found to be not very effective purely because of
this factor.
iv. Nature of the subject matter: Careful selection of the subject matter to be
entrusted to the committee is equally important. Certain subjects can be handled
effectively by a committee while others can be handled better by individuals. For
instance, research and development which depend on the individual creativity cannot be
entrusted to a committee. On the other hand, for the establishment of major objectives
and formulation of policies and review and coordination of work, committee may be
preferred.
v. Effectiveness of Chairperson: The chairperson, in fact, is the leader of the
committee. Therefore, the effectiveness of the committee depends on the chairperson's
skills and motivation. His basic functions include planning for the meetings, preparing
the agenda, supplying some preliminary information to the members and conducting
the meetings effectively. The chairman must not act in a prejudicial way and yield to the
pressure of a few members. He has to monitor and coordinate the proceedings such that
effective decisions are taken by the committee. He has to see that the minutes of the
meetings are recorded properly, circulated to all the members. Modifications suggested
and action taken on recommendations should also be communicated.
SUMMARY
Line positions may be defined as those directly responsible for achieving the
organisation's goals. Staff positions provide expert advice and service to the line. Staff
authority ranges from being limited to advising on request, to compulsory consultation,
to concurrent authority, to functional authority. Because of the differences in the nature
of authority between the two, it is not uncommon to hear about the conflicts between
the line and staff managers. Each look at the other with suspicion. As a result, infighting
and always trying for one upmanship are quite natural in organisations. The concepts of
line and staff authority, reasons for the conflicts and the ways and means of achieving
harmony have been discussed in this lesson.
In the second half of the lesson, committee form of organisation and the major issues
related to committees such as types of committees, reasons for the use of committees,
disadvantages of committees and the measures for making committees more effective,
have been dealt with.
REVIEW QUESTIONS
1. Line-staff conflict occurs for many reasons. Examine the following adages; "Staff
should be on tap, not top", and "staff should sell, not tell".
2. Describe the difference between the advisory authority, concurrent authority and
functional authority.
3. What are the important sources of conflict between line and staff managers? How do
you resolve the conflicts?
4. In spite of the serious drawbacks in the functioning of committees, they cannot be
dispensed with? why? give reasons.
5. What measures do you suggest to make a committee function more effectively?
FURTHER READINGS
Arthur G. Berdan. 1993. Management, the Dryden press. New York.
Harold Koontz. Cyril O'donnel and Heinz Weihrich, 1984 Management, McGraw-Hill,
Tokyo.
George R. Terry and Stephen G. Franklin. 1988. Principles of Management,
AITBS, Delhi.
Cawsey, T.F. 1980 "Why Line Managers Don't Listen to Their Personnel Departments",
Personnel, Jan-Febv.
Clark, P.A. 1952. Organisational Design: Theory and Practice, American management
Association, New York.
Drucker, Peter. F. 1974. Management Tasks, Responsibilities practices, Harper &Row,
New York.

- End Of Chapter -
LESSON- 11
ORGANISATIONAL CULTURE AND CHANGE

Objectives
After studying this lesson, you should be able to:
Understand the importance of environmental impact on business;
Appreciate the need for change in response to the demands of environment;
Analyse the forces that resist change; and
Describe the necessary measures that may be taken to overcome the resistance to
change.
Outline
Introduction
The Indian Scenario
Forces of Change if
Internal Forces
External Forces
Culture and Change
Change as a Process
Resistance to Change
Possible Benefits of Resistance
Questions to be raised when contemplating change
Overcoming Resistance to Change
Summary
Review Questions
Further Readings
INTRODUCTION
Change is a universal and inevitable aspect of all organisations. In a way, the
environment around the organisations thrust change upon them. To stay competitive,
organisations are forced to improve quality, adopt new technology and at times, may
have to redefine the business. It has to be borne in mind, competitors are smarter and
quicker. Added to that, product life cycles are becoming increasingly shorter and
shorter. Markets emerge and disappear in a flash. As a result, the adage that "Survival
of the Fittest" is being replaced by "Survival of the Fastest".
As change is so universal, organisations which can adapt to change only can survive.
Though it is true that change can threaten an organisation's survival, it also offers
unprecedented opportunities for growth. That is why, seeing change as necessary for
survival, and recognising it as and when it occurs is essential for effective management.
THE INDIAN SCENARIO
It is anybody's knowledge that industrial development in India, in retrospect, owes
much to the concessions and protection offered by the government. Constraints in
transforming the traditional subsistence economy into an industrial one necessitated
the government to play a catalytic role. Competition from within and from outside the
country was kept to a minimum. Eventually, over the years, the concessions led to
complacency resulting in high costs, poor quality and slackness in operations. There
have been few compulsions to modernise plant and equipment, update technology, and
innovate new products.
Such a situation has completely changed, of late, consequent upon the enunciation of
the new industrial policy. The withdrawal of permits and licenses has suddenly exposed
the Indian corporate sector to stiff competition. Indian industry is rather forced to wake
up to the new realities and to stand on its own in the wake of so many changes that have
been taking place in the environment.
FORCES OF CHANGE
Forces of Change exist both within the organisation and outside the organisation, that
is, in the internal as well as external environment of the organisation. An organisation
has to respond to the changes swiftly with least inconvenience to the various interest
groups. The organisation's success, therefore, depends on its ability to anticipate change
and to refocus its capabilities to meet new demands.
INTERNAL FORCES
Internal forces for change arise because of the need for modifications in the strategy and
consequently the structure of the organisation. Needless to say that an organisation has
to maintain stability while managing change. Both change without stability and stability
without change are not desirable. Therefore, a sound balance has to be struck between
the two.
For instance, new employees have to be hired while older employees retire, new
products must be introduced while established products are discontinued, and new
markets must be exploited while old ones are abandoned. It is in a way, a continuous
process. All these attempts or actions create internal forces for change. Each of these
must be introduced in a manner that is not only consistent with an organisation's overall
objectives, but acceptable to those affected by the changes.
EXTERNAL FORCES
External forces that lie in the environment, quite often, create the need for change. For
example, in an increasingly dynamic, interdependent and unpredictable world, virtually
all organisations are affected by so many events that happen at the national and
international levels. Technological changes, political turbulence and the socio-cultural
changes of the society in which the business exists exert a profound influence on the
functioning of the business. Similarly, fluctuations in the world's leading economics
have worldwide repercussions.
These developments, both domestic and international in origin continue to outpace the
ability of many organisations to absorb them. Markets may vanish overnight.
Competition for markets is now at the global level. Organisation's work force these days,
cuts across all nationalities and ethnic boundaries. The new realities, in fact, have
created unprecedented opportunities for organisations that are willing to change and
grow.
The way how the ITC has changed its gears, as the anti- smoking campaign all over the
world began to gain momentum is a classic case in the Indian corporate sector
demonstrating fully the company's capabilities to adapt to changes. Quite skillfully, ITC
succeeded in coming out of the cigarette company image by diversifying into various
other core businesses, all of which are doing exceedingly well.
Similarly, the small, Madras based Balaji industry's case also may be mentioned in this
context. The low profile company, for a long time engaged in the liquor business, just in
no time realised the social opposition to the liquor business in general and started
making its presence fell in businesses like steel, power and hotel industry. Many more
diversification plans of the company are in the drawing room stage. Likewise, the
Western India group is also smart enough in identifying tremendous business potential
in areas related to the development of anti-pollution systems, one of the thrust areas,
these days, all over the world.


Please use headphones

CULTURE AND CHANGE
Organisational culture refers to the common set of beliefs and expectations shared by
members of an organisation. The changes in the environment of business may
necessitate a change in the culture of the organisation. An organisation's culture is
determined by several elements. (See exhibit -1) Important among these are its values,
heroes, symbols and legends.

Values
Values are organisation's beliefs about what is good or bad, desirable or undesirable.
The beliefs define the fundamental character of the culture of any organisation. In
outstanding organisations, values are deeply felt and reinforced. The top management's
vision is shared by people down the line alike. Tata group companies are known for their
own culture. The companies still cherish the values passed on by the founders and hold
them very dearly. For instance, Alacrity Foundations Limited, which is engaged in the
housing construction is known for its reliability and concern for the customer. There are
hundreds of companies in the field in Madras, thanks to the general spurt in the demand
for houses in certain areas. But Alacrity is a household name in Madras and enjoys a
high degree of reputation.
Heroes, Champions or Star performers
Organisation's values are primarily reinforced by its lead players - its heroes. Akio
Morito of Sony, Ford's hero Lee Iococca who later turned around Crysler Corporation,
Reliance's Ambani, Arvind Mills Sanjay Lalbhai, BPL's Nair, HCL's Shiv Nadar, etc., are
the corporate heroes, to mention a few. This does not mean that such heroes are found
only in toe founders or the CEOs of the organisations. Such people may be found at
various other levels also in the companies, often referred to as champions and star
performers. By acknowledging the achievements and contributions of such achievers,
organisations create role models for others to follow. As role models, heroes personify
an organisation's values and reinforce its desired culture.
Symbols
Symbols are nothing more than objects or events that convey meanings. They take the
form of prizes, awards, plaques, slogans and includes dress also. They convey what is
important in organisation. Important achievements are celebrated with much gale and
fanfare in many companies. Heroes are rewarded profusely. Symbols stress what an
organisation values. For instance, Essar groups slogan "A positive Attitude", Telco's
emphasis on 'Team work" and Arvind's "Global Endeavours" are only a few examples
that inspire people.
Symbols are the effective media to convey and promote organisations values and thus
reinforce its culture. They create a sense of identity to those working for the
organisation, making them feel something special. They further deepen an
organisation's culture by facilitating individual commitment to collective goals, such as
excellence, team spirit, innovation, customer satisfaction, etc.
Legends
A legend is a story about an actual event or person. Legends help an organisation to
preserve its culture by imparting values to new employees. For example, events like one
sales executive in U.S.A. hiring a plane to supply some spare parts to an important
customer, IBM's Sr.Watson calling on the chief of a public library quite accidentally and
how it turned the fortunes of IBM later, are not few and far between in corporate
history. Leading organisations all over the world have such events in plenty. They form
the company's folklore. In addition to providing guidelines for employees, they tell a
great deal about the core values of the company.
CHANGE AS A PROCESS
Having examined what constitutes an organisation's culture, let us examine the process
of change, psychologist Kurt Lewin suggested that successful change requires moving
through three phases. Unfreezing, changing, and refreezing (see exhibit - 2).

Unfreezing :
This phase involves recognising a need for change. It occurs when a situation is
recognised as being deficient or inadequate in some way. For example, loss of a key
customer, a dramatic drop in market share, unexpected decline in profits, key people
leaving the organization are examples of crisis situations which call for some change.
Changing:
This phase involves modifying old ways so that new behaviour patterns can be
introduced. Changes may be minor or major though it is difficult to adapt new patterns
oversight, there are few options for the companies operating in a competitive markets.
Refreezing:
This phase involves establishing new behaviour patterns. It is made possible through
new training and orientation programmes, revised policies, updated procedures and
other support mechanisms that reinforce new behaviour.
RESISTANCE TO CHANGE
Organisations, like individuals tend to have die-hard altitudes and beliefs. As discussed
in the proceeding paragraphs, behaviour patterns are firmly frozen, in that, people tend
to think and act in a particular way regardless of the exigencies of the situation. They
have to be unfrozen to make change possible. It is because, change is received with some
protest. Infact, resistance to change is a natural human reaction. Managers have to be
familiar with the basic reasons for resistance to change (see exhibit -3). We will now
discuss the important reasons for resistance.

Threatened Self-interest:
Organisation members normally behave in ways that will maximise their goals which
they consider most important. Consequently, individuals are likely to resist proposals
for change if they believe they stand to loose something of value to them. This is
basically, due to the fear of insecurity. In such circumstances, they usually are more
concerned about their own self-interests at the cost of the organisation's larger goals.
Power, money, prestige, convenience, job security and professional competence, to
name a few, matter much to the employees in the organisational set-up. If they perceive
threat to any of these due to the change, they naturally resist such change and always
prefer status quo.
Lack of Understanding and Trust
People also resist when they do not understand the intended purpose of a change. Such
a situation usually occurs when there is a lack of trust between the parties involved in
initiating and those involve in adopting a proposed change. Distrust and suspicion often
result in widespread rumours and distorted information. This makes effective
communication difficult and poses a real problem in instituting change. It is important
to note that people do not resist change per se, only the uncertainties that change can
bring. Such resistance is easier to prevent than to remove once it has developed.
Therefore, it is important to tell employees in advance why a change is being made and
how it will affect them.
Different Assessments
Resistance to change frequently occurs when organisation members differ in their
evaluation of the relative merits and demerits of a proposed change. Such evaluations
obviously depend on what the individuals perceive to be the outcome of the change. In
other words, it depends on what they think a proposed change will mean for themselves
and also for the organisation. For example, we often hear how attempts like automation
of work is resisted and at some places sabotaged by the employees. It happens so
because in the employees assessment the disadvantages outweigh the advantages. They
fear loss of jobs and therefore block such moves where they perceive the change will
affect their careers.
The divergent assessments of the effectiveness of proposed changes often occur when
information concerning a change is not widely disseminated. Consequently individuals
possess different degrees of information and arrive at different assessments. However, it
must also be noted that opposition to change is not always bad. Constructive opposition
should be welcomed and would even prevent the organisation from committing
mistakes.
Pear of the Unknown
People may also resist change because of person concerns about their abilities. They
prefer familiar things and ways of doing things as compared to unfamiliar things. The
unknown consequences of change may present a psychological threat. Research
evidence suggests that some people have a high degree of tolerance for change while the
others have a low degree of tolerance. The latter category is afraid that they will be
unable to develop the skills and behaviour demanded by a new position or by the
unfamiliar circumstances associated with the change. Perhaps, this is the reason why
status - quo tendency in behaviour and decision-making is found to be the biggest block
in the adoption process.
POSSIBLE BENEFITS OF RESISTANCE
Resistance is not all bad. It can bring some benefits. It forces management to reexamine
the change proposals so that it can be more sure that changes are appropriate. This way,
employees act as a check-and-balance to assure that management properly plans and
does not implement change in haste.
Resistance can also help to identify specific problem areas where a change is likely to
cause difficulties, so that management can take corrective action before it is too late. At
the same time, management may also do a better job of communicating the change.
Some amount of resistance also gives management valid information about the intensity
of employee emotions on an issue, provides emotional release for pent-up employee
feelings, and may encourage employees to think and talk more about a change so that
they understand it better.
QUESTIONS TO ASK WHEN CONTEMPLATING CHANGE
Some of the important reasons why change is resisted have been discussed thus far. The
reasons may vary in importance from situation to situation. In view of the possible
resistance, it is highly desirable that managers ask the following few questions while
contemplating the change. The answers themselves provide lot of clarity on the basis of
which appropriate steps may be initiated to cope with the change.
What are the consequences of implementing or not implementing the proposed
change?
Has the process of change and its effect on individuals been clearly explained?
How much resistance will the proposed change generate?
What would be the manifestation of resistance?
What is the level o trust between the parties involved?
Do all parties involved have the information necessary to understand the reasons
for the proposed change and benefits that will result?
Have real incentives been provided for accepting the proposed change?
OVERCOMING RESISTANCE TO CHANGE
Several tactics are available for managers to deal with resistance to change. Four of the
important tactics, as could be seen in exhibit - 4 are discussed here. The selection of a
particular tactic will depend on the factors specific to the situation.

Regarding the choice of the tactic to be used to overcome resistance to change, it may be
helpful to identify the forces at play. Kurt-Lewin describes, in his force-field analysis, an
existing situation (the status-quo) as an equilibrium locked in between two opposing
forces - driving and restraining (See exhibit - 5). Driving forces are those that direct
behaviour away from the status-quo and facilitate change as opposed to Restraining
Forces which direct behaviour towards the status quo and impede the change.
Therefore, it is the task of the manager to identify the two sets of forces and their
intensity. A sound analysis of the forces helps in weakening the restraining forces and
strengthening the driving forces.

Education and Communication: Those who initiate change in the organisation tend
to possess first-hand information about the proposed change, which may not be readily
available to the other members. The easiest way to counter resistance to change is by
sharing the information in a free and fair manner with the other members, at least those
who are to be directly affected by the change. People have to be educated as why change
is necessary by making them realise the problem areas, if that warrant a change.
Further, in many cases, resistance is largely due to misinformation or communication.
Adequate initiative has to be taken to dispel the rumours caused by misinformation.
Relevant facts have to be presented different viewpoints must be discussed to remove
the understandings caused by distortions in communication. This tactic involves -
educational campaign, one-to-one discussions, group presentations and reports.
Participation: Involving all those potential resisters in the decision-making process
and implementation is by far the best strategy to be with resistance. The assistance and
cooperation of organization members have to be sought. Participation involves open
communication of the exchange of view points by all the parties involved. Such a
participation, however is possible and yield results only when all the members are
rational and possess the necessary expertise to contribute meaningfully. Each one has to
act in good faith. Of course, procuring participation may be a time consuming process.
But, lot of time may be saved in the implementation because the proposed change is
already sold.
Negotiation: Negotiation which involves 'bargaining' to reach an agreement is another
equally important tactic to handle resistance to change. This requires political skills
on the part of the managers. The access of this tactic depends on creating a give and
take atmosphere. Since the process involves reciprocation, the change initiator must be
willing to concede certain aspects of the change so as to tailor the change to meet the
interests of the active resisters. This is quite a good tactic where the willingness of
members is procured through discussions based on give and take. It also provides an
opportunity to nurture a continuing relationship.
Coercion: If the stance taken by the members opposing change is rigid and all the
efforts at reaching consensus have failed, the last option open to managers is to compel
acceptance by means of orders, by threats such as firing, transfer, demotion, etc. As
already mentioned, coercion to the extent possible must be avoided. It may be used only
as a last resort only when all the other tactics fail to yield results. It is also possible that
the situation may turn from bad to worse if coercion is used indiscriminately.
Resistance to change can be reduced by helping employees to recognise the need for
each changes to participate in it, and to gain from it. In essence, management's
responsibility for change is fourfold:
Make only useful, necessary change.
Recognise it with adequate attention to human needs.
Share the benefits of change with employees.
Diagnose the problems that exist after a change and solve them.
SUMMARY
Changes in the environment are so universal these days that those organisations which
can adapt to changes only can survive. Forces of change exist both within and outside
the organisation. Internal forces for change arise because of the need for modification in
the strategy and structure of the organisation. An organisation has to maintain stability
while managing change. External forces such as technological, political, socio-cultural
changes may also create the need for change.
An organisation has to change its culture to meet the needs of change. The shared
values, heroes, symbols, and legends constitute the culture of the organisation. Any
change has to be understood as a process which contains three phases: Unfreezing,
changing and refreezing. Change, however important, is often confronted with
resistance from people. Change is normally received with some protest. Threatened self-
interest, lack of understanding and trust, different assessments about the change and
the fear of the unknown are some of the reasons for the resistance to change. Therefore,
manager's primary responsibility while implementing change is to identify the factors
that cause resistance and to weaken them. Necessary steps must be taken to overcome
the resistance. Important among those are education and communication, participation,
negotiation and coercion. This last measure coercion has to be used only when all other
means fail to bring the desired effect.
REVIEW QUESTIONS
1. Recall at least one incident in your organisation where change was resisted. Apply the
Force-Field analysis to the situation and describe the driving as well as restraining
forces for change in that situation.
2. Take a close look at the post-liberalisation era in India, and describe the major
developments that force a change in the Indian business.
3. Why is change resisted in organisations? Analyse
4. As a manager what initiatives would you take to see that change is smooth in the
organisation.
FURTHER READINGS
1. Anjaneya Swamy, G. 1993. "Liberalisation - call for Entrepreneurial Managers", MD1
Management Journal, Jan, 1993 issue.
2. Keith Davis, 1981. Human Behaviour at work, Tata-McGraw- Hill, New Delhi.
3. Kurt Lewin, 1951. Field Theory in Social Science, (ed) Darwin Cartnight, Harper, New
York.
4. Mary kay Ash, 1984. mary Kay an people Management, Warner books. New York.
5. Peter F. Drucker, 1980, managing in Turbulent Times, Allied publications. New
Delhi.
6. Pradip N. Khandwalla, 1988, The Fourt Eye: Excellence through Creativity,,
A.H.Wheeler, Ahmedabad.
7. Thomas. J. Peters and Robert H. Waterman, 1982, In search of Excellence: Lessons
from America's Best run companies,Harper & Row, New York.

- End Of Chapter -
LESSON - 12
HUMAN RESOURCE MANAGEMENT

Objectives
After studying this lesson, you should be able to:
Appreciate the importance of human resources in achieving organisational
objectives;
Understand the important steps in the human resource management process;
and
Describe the human resource planning and development techniques and
practices.
Outline
Introduction
Human Resource Planning
Recruitment
Selection
Compensation
Human Resource Development
Orientation
Training
Performance Appraisal
Management Development
Career Management
Summary
Review Questions
Further Readings
INTRODUCTION
People constitute the key resource for any organisation. Without people there is no
organisation. Among all the resources that an organisation uses, human resource
undoubtedly, occupies a prominent place in achieving the objectives. Unless managers
understand the scope, potential and limitations of human resource, they will not be able
to use this valuable resource effectively. It is, therefore, important for all the managers
to understand and appreciate the techniques of staffing function, which is basically
concerned with management of people.
Human resource management is the term widely used these days in management circles
for the staffing function. Koontz and O'donnel define the staffing function as "filling
positions in the organisation structure through identifying work force requirements,
inventorying the people available, recruitment, selection, placement, promotion,
appraisal, compensation, and training of needed people". Thus, staffing, as a managerial
function involves the following steps:
Human Resource Planning: developing a plan to meet future human
resource requirements.
Recruiting: building a pool of potential job candidates for each job.
Selection: evaluating job candidates and choosing the best from the pool of
applicants created through recruiting.
Compensation and benefits Administration: developing a salary structure
and benefits package to attract, hire and retain employees.
Orientation and Socialization: introducing the selected individuals to their
unit and organization and developing an understanding about the unit's and
organization's expectations and preferred ways of "working there".
Training: developing programs to provide employees with the skills needed to
perform their jobs effectively.
Performance Appraisal: Developing procedures to evaluate employee
performance and communicate this evaluation to the employee.
Promotion, Demotion, Transfer, Termination: developing procedure to
move people to positions of increased or decreased responsibility; widening their
job experience through transfer to different functions or locations, or terminating
their employment.
Management and Career Development: developing programs to increase
abilities and effectiveness of all management resources.

HUMAN RESOURCE PLANNING
When management formulates objectives for the organization, it must also determine
what resources will be required to attain them. The need for money, materials,
equipment and people is obvious. But, unfortunately human resource planning often is
not done formally or given the degree of attention it deserves.
Human Resource planning is basically the application of the planning process to staffing
and personnel-related problems. For convenience, It can be considered as having three
stages.
1. Assessment of present supply,
2. Assessment of future needs, and
3. Development of a human resource programme to meet future needs.
Present Supply:
Human resource planning in an organization logically begins with an assessment of
present supply. Management must determine how many people are involved in the
performance of each task required for each of its specific objectives. Management in
addition, must evaluate the quality of its people. To accomplish this, some organizations
have developed a skills inventory. This is a written record of the skills of all employees
and the number of people possessing those skills.
Future Needs:
This stage of human resource planning involves projection of future requirements to
attain long and short- term objectives. Future environment and expansion plans of the
organisation have to be taken into consideration. Various management science models
have been developed to help organizations forecast their future human resource needs.
Changes in the external environment, especially the economic environment can have a
significant impact on an organization's future human resource needs. For instance, in
India, in the last few years as computerisation of many operations is going on in a big
way in many organisations, there is a spurt in the demand for systems analysts and
other computer professionals. After determining the exact number of people required,
management must develop a programme to ensure proper supply of people as per the
needs of the organization.
Development of a Human Resource Programme:
The human resource programme consists of a specific timetable and the determination
of specific actions required to attract, hire, train, or promote the people required to
attain organizational objectives.
Job Analysis: 'Job analysis' is an important tool through which, manpower
requirements are assessed in organizations. In order to hire appropriate people,
management must know in detail, what tasks must be performed effectively and what
the personal and social characteristics of the work are. These determinations are
accomplished through job analysis.
There are several methods for analyzing jobs. One is to observe the workers and
formally identify and record the tasks and activities performed. Second method, is
obtaining such information by interviewing the worker or supervisor. This of course,
would probably be less accurate due to perceptual distortions. A third method is to have
the worker fill out a questionnaire or write a description of the job, he or she is handling
and its requirements. The information obtained through job analysis is the foundation
for human resource planning, recruiting, and other purposes. Its most immediate use is
to create a job description. This is a summary of the major tasks, skill requirements and
authority of the different types of Jobs in the organization. Each major category of job,
such as secretary, stores clerk, advertising manager, or systems analyst would require a
different description.
RECRUITMENT
Recruitment is the building of a pool of candidates for each job from which the
organization can select the most appropriate. This is done after taking into account such
factors as retirement, turnover, termination, and expansion into new fields.
Organizations usually recruit from both external and internal sources. External means
of recruitment normally include placing ads in newspapers and trade magazines, using
an employment agency or executive search firm, and sending recruiters to college
campuses. Some organizations make an explicit policy that people in their community
are welcome to apply for future vacancies.
Most organizations prefer to recruit from within to the extent possible. Promoting from
within is less costly than an external source and also tends to increase employee loyalty,
morale and motivation. A potential disadvantage of promoting exclusively from within
is that qualified people with fresh viewpoints are not brought into the organization,
which may cause stagnation in thinking.
SELECTION
In the selection phase of human resource planning and development, management
chooses the most appropriate candidates from the pool of applicants created by
recruitment function. In most cases, the person , chosen should be the one who appears
to have the best qualifications to perform the actual job being filled. An objective
selection decision may be based on the candidate's education, skill level, past
experience, and personal characteristics. When the job is one for which technical
knowledge is the primary determinant of performance, such as research scientist,
education and scientific background would probably be most important. For
management positions, particularly those on higher levels, conceptual and interpersonal
skills are critical. Final selection is normally done on the basis of performance of the
candidates in the various tests and interviews. The amount and intensity of testing and
interviewing vary from job to job.
Tests:
Behavioral scientists have developed a variety of tests that attempt to predict how
effectively a candidate will be able to perform a given job. One type of selection test
measures the ability to perform tasks relevant to the job. Example would be a typing and
shorthand test, which aim at demonstrating ability to operate a machine and having the
candidate make an oral or written presentation. Another type of test measures
psychological characteristics such as intelligence, motivation, drive, open-mindedness,
self- confidence, emotional stability and attention to detail.
Interviews:
Interviews are by far the most widely used selection technique. Even non-managerial
employees are not hired without at least one Interview. The selection of a Higher-level
manager may involve many Interviews over the course of several months.
Many of these tools used in the final selection of candidates are not free from errors. For
example, there is a tendency to make a decision about the candidate based on the first
impression and disregard or misinterpret what is said during the rest of the interview.
Another mistake is to evaluate an applicant relative to the person interviewed
immediately before. If the earlier person was particularly poor, a mediocre candidate
may be rated good or very good. There is also a tendency for interviewers to rate more
favorably candidates whose appearance, social attitudes, and mannerisms are most like
their own.
Some general recommendations for effective interviewing are:
Create rapport with the candidate and allow him or her to feel comfortable.
Focus on job requirements throughout the interview.
Don't evaluate on first impressions. Wait until all information is on hand.
Have a set of structured questions that all applicants will be asked. However, be
flexible enough to explore other issues that arise.
Compensation
The type and quantity of rewards offered by the organization are critical to the quality of
work life. Research indicates that rewards influence the decisions that people make
regarding whether they should join the organization, how much they should produce,
absenteeism, and turnover. Many studies have found that absenteeism and turnover are
directly related to satisfaction with extrinsic rewards. When the workplace is pleasant
and provides satisfaction, absenteeism tends to be low. When it is unpleasant,
absenteeism will significantly increase.
The term compensation refers to the monetary reward paid by an organisation to an
employee for the work performed. It is directed towards remunerating employees for
services(work) performed and motivating them to attain desired levels of performance".
An organisation cannot acquire and maintain an effective work-force, if it does not pay
competitive rates and have a graduated pay structure that encourages people not to seek
employment elsewhere.
Development of a wage and salary structure is the responsibility of the personnel or
human resources department. The organization's wage and salary structure is
determined by such factors as results of compensation surveys, conditions in the labor
market, and the productivity and profitability of the organization. Compared to workers,
Compensation structure for executives is more complex to develop because, in addition
to salary, it often includes bonuses, profit-sharing plans, and stock options.
In addition to wages and salaries, organizations provide their employees with a variety
of benefits, typically called fringe benefits. Today, it is virtually taken for granted that
benefits such as vacations, sick leave, health and life insurance, and pension schemes
are part of any permanent job. Other benefits that exist include subsidized cafeterias,
transport and vehicle and housing loans at reduced interest rates prepaid legal services,
physical fitness programmes, and study leave after a certain number of years of
employment.
Research evidence clearly shows that benefits valued by one employee are not
necessarily valued by others. The perceived value of benefits is affected by such factors
as age, marital status, and family size. For example, persons with large families are
usually highly concerned with comprehensive medical benefits and life insurance. Older
people tend to be one more concerned with retirement benefits. Recognizing this, some
organizations have developed what is referred to as a cafeteria system of
compensation. The According to this approach the employee is permitted to select,
within limits, a package most appropriate for him or her personally.
HUMAN RESOURCE DEVELOPMENT
At one time, the focus of staffing function was exclusively on recruitment and selection.
The idea was that once you find the right people, they would be able to get the job done.
Modern well-managed organisations now recognize that acquiring appropriate people is
only the beginning of human resource management. Whereas most of an oganization's
resources are material objects that usually depreciate in value over time, it is only
human resource which appreciates substantially as years pass. Thus, for the good of
both the organisation and its employees as individuals management should undertake a
systematic programme to develop its human resources.
Successful human resource development program will result in a work force better able
and better motivated to perform the tasks of the organisation. Now we will discuss a
number of techniques for developing people's potential: performance appraisal, use of
the reward system, training and development, and career management. The first step in
making the new person as productive as possible, however, is proper orientation.
ORIENTATION
If management wants the new employee to be successful on the job, it must keep in
mind that organizations are social systems and that each person is a unique being.
When the newly hired person arrives, he or she wrings the attitudes and expectations
acquired through past personal and work experiences. These may or may not mesh with
the prevailing social and work characteristics of the new position. For example, the new
person's last boss may have been highly authoritarian and strongly preferred written
communication. He may therefore believe that it is desirable to send memos rather than
pick up the telephone, even though the new superior in fact prefers oral communication.
Commenting on this, Carroll and Tosi state, "more often than not, the typical
organization member has a set of expectations about his job which are somewhat
unrealistic in terms of the organization's expectations. A period of adjustment and
change takes place, and organization's expectations become better known to the
individual and management becomes more aware of the individual's expectations".
During this adjustment period, the individual acquires new work attitudes through
organization socialization. Edgar Schein defines organizational socialization as "the
process of 'learning the ropes', the process of being indoctrinated and trained, the
process of being taught what is important in an organization or some subunit thereof".
Organizations employ a number of devices, both formal and informal, to socialize an
individual. Formally, the organization provides the Individual with information about
itself during recruitment in an effort to ensure that the new candidate's expectations are
realistic. This is often followed by training in specific skills and a discussion about what
is considered effective performance. Rules, procedures, and guidance from superiors are
additional formal ways of socializing people in an organization. From informal work
groups as discussed elsewhere, the new individual learns the unwritten rules of the
organisation.
TRAINING
Organisations have a continuous need to ensure that their employees are able to
perform their jobs effectively. One way of accomplishing this is by recruiting and
selecting more qualified and capable people. This alone, however, will not suffice.
Management should also undertake a systematic programme to build the skills of its
current employees and help them grow to full potential within the organisation. Its
primary means of accomplishing this is through training and development programmes.
Training is teaching employees skills, that will make them more effective in their current
Jobs. The ultimate objective of training is to ensure that the organisation will always
have a sufficient number of people with the skills and abilities needed to attain the
organisation's objectives.
There are three basic situations in which training generally is useful and needed. The
first is when a person first joins the organisation. The second is when an employee is
assigned to a different position or given new tasks to perform. The third is when
appraisal reveals that a person lacks certain skills required to perform the job
effectively.
Requisites for effective training: A detailed discussion of training methods is beyond the
scope of this lesson. The specific techniques are many and must be tailored to the job
and organisation. The following, however, are some general requirements for a training
programme to be effective:
People should be motivated to learn. They should understand the objectives of
training and how it will improve their effectiveness and thereby their own need
and satisfaction.
Management should create a climate conducive to learning. This includes
encouragement, active involvement of the trainees in the process, a supportive
attitude on the part of the trainer, and a willingness to answer questions. The
physical setting may also be important. Some organizations find it desirable to
conduct training in special centres, rather than on the premises of
the organization.
If the skills taught are complex, training should be broken into sequential stages.
The trainee should be given an opportunity to practice the skills acquired at each
step before proceeding to the next phase of the sequence.
Trainees should receive feedback on their performance and positive
reinforcement for learning. This can come in the form of praise and recognition
from the trainer.
PERFORMANCE APPRAISAL
After the individual is adequately socialized and has received the necessary training to
perform the job effectively, the next step in developing human resources is to determine
how effectively people are performing at present. This is the purpose of performance
appraisal. Performance appraisal requires managers to gather information on how
effective each individual is at accomplishing delegated duties. Communicating this
information to subordinates enables them to know how well they are doing and to
correct themselves, if there are any deviations. Performance appraisal also permits
management to identify the outstanding performers and to promote them to more
challenging positions.
In basic terms, performance appraisal serves three general purposes: administrative,
informational, and motivational.
Administrative Functions: Every organization has a continuous need to evaluate its
personnel in order to make administrative decisions regarding promotion, transfer, and
termination. Promotion helps the organisation by enabling it to fill job openings with
employees who demonstrate effective performance in their current positions. It helps
the individual by satisfying needs for achievement, challenge, and self-esteem.
Promotions are also excellent ways to recognise superior performance. However, when
making promotion decisions, managers should only promote those individuals who they
think have the capabilities to perform effectively in the new job.
Transfer may be used to give a person a broader range of experience or because
management feels he/she will be more effective in a different job. Sometimes transfer is
used when a person is not performing effectively. A transfer in such situations is a
demotion and puts the poor performer in a position where he or she can still make a
contribution, but will not block the career progress of a high-performing younger person
or actually impede the attainment of organizational objectives.
In situations where an individual has been given feedback and sufficient opportunity to
improve performance, but is unwilling or unable to meet the organisation's standards,
termination is necessary for organisational objectives to be achieved. Whatever the
administrative situation, a logical decision clearly cannot be made without an effective
means of appraising performance.
Informational Functions: Performance appraisal is also needed to provide people
with information with their relative level of performance. When done correctly, the
individual will learn not only whether his or her performance is acceptable, but also
specifically what strengths and weaknesses he or she has and which areas could be
improved.
Motivational Functions: Performance appraisal is also an important means of
motivating people. By identifying strong performers, management is able to reward
them fairly with praise, pay, and promotion. Consistent, positive reinforcement for
behaviour associated with high performance should lead to similar behaviour in the
future. As you may have already realized, the informational, administrative, and
motivational functions of performance appraisal are interrelated. That is, Information
leading to an administrative decision to promote a person should have a positive effect
on motivating a person to perform well.
MANAGEMENT DEVELOPMENT
Development refers to building skills that employees will need in order to perform
effectively in a future position or job assignment. In practice, systematic development
programmes are most often used to groom managers for promotion. As with training,
considerable analysis and planning are required for management development to be
successful. Many organisations send their employees to the various training
programmes conducted by Indian Institute of Management (IIMS), Administrative Staff
College of India and other professional bodies from time to time.
The organisation must first determine through performance appraisal what the abilities
of its present managers are. Then, through job analysis, management should determine
what skills and abilities are needed to perform each line and staff job in the
organisation. This enables the organization to determine which of its managers are best
qualified to fill each position and which require training and development. After these
determinations, management should construct a time-table for developing specific
individuals who probably will be promoted or transferred.
Development and Motivation:
Managerial development, of course, is primarily undertaken to ensure that managers
have the skills needed to attain organizational objectives. Another consideration, closely
unrelated to this is the need to provide satisfaction of higher-level needs for
achievement, challenge and growth. Unfortunately, some organisations do not provide
sufficient opportunities to satisfy these needs through additional responsibility and
promotion. One study found that recent MBA graduates reported a large discrepancy
between their expectations for personal growth and development opportunities and
what the companies actually provided. When there are such discrepancies, people
usually quit;
Management turnover is, needless to say, very undesirable because of the high cost of
recruiting managers and integrating them into the organisation. Replacing an employee
can cost several times his or her monthly salary.
Techniques for Management development can take place through lectures, small group
discussions, case studies, reading, business games, and role playing. Courses in
management and the many seminars on special topics organised quite often are
basically intended for management development.
Job rotation is also a widely used technique for development. By rotating a junior-level
manager through various departments for periods of three months to a year, the
organisation gives the new manager exposure to a wide range of activities. As a result,
the young manager develops awareness of the problems of different departments, the
need for coordination, the dynamics of informal organisation and the interrelationships
between objectives of different subunit of the organisation. This knowledge is vital to
success in higher-level positions and useful for even lower-level ones. Japanese
organizations utilize job rotation much more extensively than American organisations.
One study found a strong relationship between the amount of challenge new
management trainees received and their subsequent career progress. Those individuals
whose initial tasks were demanding and challenging developed high performance
standards and were better prepared for future assignments than those given less
challenging tasks. The former group was also promoted more rapidly.


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CAREER MANAGEMENT
An extension of management development, career management programmes have been
developed by a variety of companies and consulting firms since the 1970s. Career
management is a formal programme "designed to develop programs or paths by which
employees progress in the organization, that helps them develop themselves to their
fullest capacity, and that makes the best use of their talents from the organisation's
point of view". Career management programmes help the organisation use its people to
full potential and help individuals achieve their capacities to the fullest.
This is important because, studies indicate that people usually have a rather passive
attitude towards their careers. They tend to allow important career decisions to be
initiated by others, rather than basing them on their own-interests, needs, and goals.
According to writers and researchers in the field, career management programmes
result in greater commitment to the organization, increased motivation and
productivity, and less turnover and underutilization of employees.
SUMMARY
Among the resources that an organization uses to achieve the objectives, human
resource, undoubtedly constitutes the key resource. A sound understanding of the
management of people is therefore essential for a manager. The managerial function,
staffing, is precisely concerned with the various aspects of human resource such as
recruitment, selection, training, compensation and development of people to the fullest
extent possible.
The steps involved in human resource planning such as assessment of present supply,
future needs and development of a human resource programme have been discussed in
detail. Recruitment, its purpose and the various techniques used for the final selection
of people to fill the positions in the organization are also examined. The lesson also
focused its attention on human resource development. Socialization of the employees,
performance appraisal, the importance of training and the methods used to update the
skills has also been dealt with.
REVIEW QUESTIONS
1. How is human resource planning necessary? What factors should a manager consider
in human resource planning?
2. What are the important methods of recruitment? Discuss the relative advantages and
disadvantages associated with each method.
3. How is the selection of employees is made in organisations? Do you suggest any
variations in the intensity of selection procedure for the various levels of positions in the
organisation? Why?
4. What do you mean by performance appraisal? How is it useful, for the development of
human resources?
5. What are the significant trends that you have noticed in the human resources
management, of late, in India in regard to the selection, training and compensation.
Give examples.
FURTHER READINGS
John B. Miner and M.G. Miner, 1977, Personnel and Industrial Relations: A Managerial
Approach, Macmillan, New York.
Wendell L. FVench, 1982, The Personnel Management Process, Houghton - Mifflin,
Boston.
Stephen J. Carrol and Henry L.Tasi, 1977, Organisational Behaviour, St. Clair Press,
Chicago.
Leonard R. Sayles and G. Strauss, 1977, Managing Human Resources, Prentice-Hall,
Englewood cliffs, New Jessy.
Arthur G. Bedlian, 1993, Management, The Dryden Press, New York.

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LESSON - 13
THE DIRECTION FUNCTION

LEARNING OBJECTIVES
To discuss the meaning and nature of direction function.
To define the concept of leadership so as to enable the student to understand the
fictions of leadership.
To discuss the various theories of leadership.
While planning, organising arid staffing can be considered as preparatory managerial
functions, controlling is intended for checking the things in a way as we desire. The
connecting link between these functions is directing. It is the live link that establishes
meaningful interaction among superiors and subordinates through proper directions
and guidelines. It is 'Directing' which initiates organised action with the purpose of
fulfilling the corporate objectives. It creates appropriate work environment that
facilitates efficient duties by the human beings. Thus it has become one of the portent
functions of Management to achieve organizational goals through proper instructions
and guidelines.
In order to clearly understand the direction function of Management, the following
definitions are helpful:
Urwick and Brech have defined this concept as "guidance, inspiration, the leadership of
the work force that constitute the real core of the responsibilities of Management".
Theo Haiman defines that "directing consists of processes and techniques useful in
issuing Instructions and making certain that, operations are carried out as originally
planned".
One of the latest definitions is given by Koontz and O' Donnell. They defined that
'Direction' means "the interpersonal aspect of managing by which subordinates are led
to understand, contribute effectively and efficiently to the attainment of enterprises
objectives".
A review of the above definitions reveal that the direction function consists of issuing
instructions, exercising supervision, providing leadership and securing motivation from
the workers. Some of the important features of direction function, to sum up, have been
listed below:
1. It indicates scalar chain. It means that the top management directs the middle
management which in turn influences the operations people.
2. It encourages the Supervisor to act as a guide, interpreter, teacher and
coordinator.
3. The direction function is not a static function but it is a living function. In other
words, it deals with guiding, training and motivating the subordinates in a
desired manner.
4. The most important characteristic of direction function is that it deals with the
human factor.
5. Direction function mainly deals with use and development of human factor.
Failing to understand the role of the human factor in the realisation of organisational
goals, leads to inefficiency and closure of the organisation. Hence, Direction function
makes the executives to think in terms of
(a) issuing instructions
(b) proper supervision
(c) motivation
(d) leadership and
(e) communication.
It is a well-known fact that without paying proper attention to the above points, no
manager can succeed in obtaining the goals.
PRINCIPLES OF DIRECTION
1. There must be harmony among several objectives of the corporation.
2. Conflicting attitudes must be reconciled.
3. Inefficient workers should be removed
4. Appropriate policies and guidelines should be framed freer, time to time in order
to secure efficient operations through the co-ordination of all the efforts.
TECHNIQUES OF DIRECTION
Usually three kinds of techniques are used for carrying out the direction function, such
as:
a) delegation of authority,
b) communication and
c) leadership
'Leadership' is one of the most important functions of the 'Direction' function. It
encourages efficient use of all resources in an optimum manner for the benefit of the
organisation. The following pages centre around the significance of the various facets of
the Direction function.
LEADERSHIP
Management and Leadership are often confused as the same. No doubt, leading is an
essential function of management. But that does not mean that management is just
leading. It involves many things like planning, organising, staffing and controlling
people. All these managerial functions become stale if managers do not know how to
lead people. Particularly in modern organisations, somebody should show the way to
others for attaining the goals. This characteristic feature is termed as 'leadership'. It is
neither mere direction nor motivation. It is a live wire between plan and action. Ability
to lead effectively is one of the keys for successful management. The leader must
basically and clearly understand the attitudes, the values, the flow of authority and the
purpose of organisation. It means that the essence of leadership is followership. Without
followers there cannot be a leader.
The concept of leadership has been defined by many authors in different ways. Koontz
and O' Donnell have defined this concept as "the art of influencing people so that they
will strive willingly and enthusiastically towards the achievement of group goals." It
emphasises the fact that the leaders help the groups in understanding the objectives of
the organisation. Thus leadership is an endless process of influencing people so that
they will strive willingly and enthusiastically towards the achievement of group goals.
FUNCTIONS OF LEADERSHIP
1. Every leader, as a superior, has to delegate a part of his authority to the
subordinates.
2. Once authority is delegated, the leader must try to motivate the people to better
levels of performance.
3. The leader must try to create good climate for achieving maximum operational
efficiency.
4. Promoting and protecting new novel areas.
5. A leader must always try to develop his own people from within.
Hence leadership is not bossing. The functions of a leader includes, apart from ordering,
"teaching, inspiring, guiding, interacting, initiating and solving problems". It is an
endless personal process. This personal ability to lead effectively is one of the keys to
become a successful manager. In other words, people have to follow the manager in
order to make him a leader. Hence, the essence of leadership is followership. Motivation
and leadership are closely related with each other as the leader tries to understand the
reasons for why people act as they do.
INGREDIENTS OF LEADERSHIP
(i) Power : A leader must know the nature and source of
power besides its affective use in a
responsible way.

(ii)Understanding people : A leader must have the ability to comprehend the
needs, feelings, beliefs, values
of subordinates and different motivational forces.

(iii) Inspiring followers : It is a rare ability. A leader must always try to
induce and inspire his
subordinates. He may have all personal qualities
like charm and appeal that
may encourage the people to do what the leader
wants.

(iv) Style of leadership : The manner in which the leader adopts his
capabilities to suit the situation
conducive to goal realisation.
Leadership is an important aspect of managing. This ability varies from individual to
individual that depends upon the leader's explicit and implicit pattern of behaviour of
influencing his subordinates. Considerable amount of research has been done on this
aspect. It is difficult to summarise the whole quantum of theory in this chapter.
However a brief attempt is made to identify some major theories which form the base
for different leadership styles.


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TRAIT THEORY
This theory derives this belief from the philosophy of ancient Greeks and Romans that
leaders are born and not made. But the acknowledged leaders like Napolean, Hitler,
Lincoln, Ceasar, Kennedy, Mahatma Gandhi, Martin Luther King have no uniform
intellectual, social, physical and psychological characteristics. To prove the concept of
trait theory as valid, one has to identify specific characteristics that all leaders possess.
To sum up, Stogdil has identified some of the important traits as follows:
a) Physical traits (appearance, energy, height etc.)
b) Intelligence traits (understanding, comprehending, decision making etc.)
c) Personality traits (adjustability, aggressiveness, enthusiasm, will power, self
confidence etc.)
d) Task related traits (initiative, perseverance, achievement, etc.)
e) Social traits (co-operation, interpersonal relationship, group cohesion etc.)
In addition to the above traits some more characteristics like ambition, honesty,
creativity and charisma have been identified as key traits. It is true that all leaders need
not possess all the traits. And sometimes even non-leaders may possess either most or
all of them. The trait approach to leadership has been blessed with the following
limitations.
1. It neglects the needs of the followers.
2. It fails to recognise the relative importance of various traits under changing
conditions.
3. It does not separate the cause and the effect (whether leaders invariably possess
self-confidence or success makes the leaders to build confidence).
Different authors have propounded different theories explaining the leadership
behaviour and styles. The following section details the various styles of leadership.
STYLES OF LEADERSHIP
For the purpose of easy understanding, leadership styles may be conveniently studied as
follows:
(a) Styles based on the use of authority
(b) Styles based on behaviour
(c) Other miscellaneous styles are explained below:
(A) Styles based on the use of authority
Depending upon how a leader uses his authority one can identify three basic styles:
(i) autocratic,
(ii) democratic/participative, and
(iii) free-rein type.
(i) Autocratic leader believes in power. He passes orders unilaterally and expects ready
compliance. He believes that he is able to control people through rewards and
punishment.
(ii) Democratic leader believes in sharing ideas and opinions. He consults subordinates
in the process of decision making. He encourages two-way communication and
participation of subordinates in all types of decisions.
(iii) Free-rein leadership is no leadership at all. The leader uses no or little power. He
gives complete freedom to subordinates. People are encouraged to set their goals and
means of achieving them. They are given high degree of independence in manning their
operations.
Real time situations vary from company to company and from manager to manager.
There is no single uniform style of managing people in organisations. A manager may be
autocratic at one instance (enforcing the rule regarding safety devices) and democratic
at the other (consulting the followers regarding change of time at work schedule).
(B) Styles based on behaviour
Circumstances change constantly creating new situations and challenges. The behaviour
of the leader is moulded by the changing patterns of group attitudes and experiences.
Different dimensions of a i- rider's behaviour have been thoroughly probed through
Ohio studies.
According to these studies a leader's behaviour is influenced by two aspects- initiating
structure and consideration.
(i) Initiating structure and consideration
Initiating structure refers to the extent to which a leader defines and organises his own
role as well as the roles of his subordinates. It spells out the task behaviour of a leader.
On the other hand, consideration refers to the degree by which the leader's behaviour is
characterised by mutual trust, respect for subordinates and regard for their feeling. It
indicates relationship behaviour. As initiating structure and consideration are two
distinct features, existence of one does not mean the absence of the other.
Actual behaviour of a leader in a given situation may consist of combination of these two
aspects. The following diagram (IV. 1 .a) gives the gist of the findings of the Ohio state
studies on leadership:
The above four quadrants have been representing various combination of task and
relationship behaviour that a leader can exhibit at a particular point of time. Actual
behaviour varies among these four alternative combinations depending upon the
situation.
(ii) Managerial Grid
Robbert R. Black and James S.Mouton have developed five different styles of leadership
through this concept of Managerial Grid. This concept has been exclusively used for
training the managers through enabling them by identifying the various skills of
leadership styles. This concept has been mainly based upon two important factors
(a) Concern for production (Task orientation) and
(b) Concern for people (Relationship orientation). The essence of this theory is
presented in the following diagram No.(IV. l. b).
In the above diagram, concern for production is shown on the horizontal axis and
concern for people is identified on the verticle axis. The scale recorded varies from 1-9.
It indicates that the concern for production/people becomes more important to the
leader as his ranking advances from 1-9 gradually. The five styles of leadership are
briefly explained in the following lines.
(a) Impoverished (1-1) : As the rating indicates, this styles involves little concern for
both people and production. Leaders under this style have minimum involvement in
their jobs and mostly act as messengers, passing information from supervisor to
subordinates.
(b) Country-club (1-9) : A sort of informal environment is .created wherein everyone
can coordinate the effort and accomplish the objectives in a relaxed and friendly
atmosphere which is putting emphasis more on the needs of the people, bothering little
about production.



(c) Task : It is another extreme style of leadership commonly referred to as Autocratic
Style. Here leaders are concerned only with developing efficient operations by arranging
a tight structure and conditions of work. They have little or no concern for people.
(d) Team: It is also an extreme style of leadership. Here, the leaders display a rare
quality or ability inter-woven with the production needs of the enterprise with the needs
of the individuals. In other words, these leaders believe that the highest concern for
production as well as people alone can accomplish the organisational objectives.
(e) Middle of the Road (5-5): In reality, a leader may fall under any one of the above
four styles. Sometimes, he may have a typical style which can be placed somewhere on
the grid. Some leaders may have maximum concern for production as well as for people.
They set the objectives at moderate levels considering the feelings of the people.
Adequate level of production and satisfaction can he reaped through this style.
The Managerial Grid is a useful tool for identifying different leadership styles. The
answer to the question what kind of leader he is depends upon the personality,
characteristics, enterprising ability, environment and other situations.
(iii) Tri-dimensional leadership style
While the managerial grid and Ohio State studies have based upon two factors - Task
oriented and relationship oriented for explaining the styles of leadership,
Prof.W.J.Reddin has suggested effectiveness as the third factor in deciding the style of
leadership. The term 'effectiveness' refers to how the leader's personality interrelated
with the situation to which he is subjected to operate his activities. In this Tri-
dimensional leadership style theory, how effective or ineffective are the leaders in a
given situation can be understood very easily. When one's style is appropriate to a given
situation, he is termed as effective and vice-versa.
The basic styles are integrated with the concept of effectiveness and/or summarised
below:
a) High task and low relationship behaviour is termed as "dedicated" style.
b) High task and high relationship is viewed as "integrated" style.
c) Low task and high relationship behaviour is considered as related style; and
d) Low task and low relationship behaviour is known as "separated style".
Depending upon the effectiveness or ineffectiveness of the leader in a given situation. 3-
D style identifies the following real time challenging situations.
Basic styles Effective styles Ineffective style
a) Dedicated Benevolent Autocrat Autocrat
b) Integrated Executive Compromiser
c) Related Developer Missionary
d) Separated Bureaucrat Deserter
(C) Other styles
None can succeed in explaining the best style of leadership because it depends upon
various factors. No leader can be rigid or free all the time. He has to adopt different
behaviour in different situations. Since all the existing theories have been proved to be
inadequate, the situation is set for the development of contingency theories.
Some of the important contingency theories have been explained in the following
paragraphs.
1) Fielder's Contingency Model:
Fred E. Fielder and his associates of the University of Illinois have suggested a
contingency approach to leadership. According to this approach, people become leaders
not only by virtue of their personality attributes but also by virtue of various situational
factors including leader's ability to interact with group members. This theory holds that
three major situational factors determine the success or otherwise of a given leader.
They are:
(a) Position power
This indicates the degree of power of a position which permits a leader to secure group
members compliance with his direction. In other words, a leader with clear position in
power can obtain good followership more easily.
(b) Task-structure
Here, the leader's success depends upon how clearly he spells and sells assigned tasks
through his people so that subordinates are made more responsible and accountable for
their performance.
(c) Leader-members relationships
This is the most important dimension. While the power of a position and task structure
are largely under the control of an organisation, developing effective relationships
depends upon the liking and willingness on the part of subordinates to a given leader.
To sum up, a particular situation appears to be most favourable to the leader when he is
liked by his followers, when he gives clear-cut direction about the job, and when he is
blessed with appropriate position.
On the other hand, the situation becomes unfavourable to the leader when he is disliked,
faces vague and unstructural jobs and has little power. Fielder's research has proved
that task-oriented leaders would be more effective under "unfavourable" or "favourable"
situations. In contrast, relationships oriented leaders tend to exhibit better performance
under situations that are moderately suitable to leaders.
(2) Path-Goal theory of Leadership
This theory is based upon the findings of various motivational as well as leadership
theories already proposed by various authors. Robbert House, who suggested the "Path
Goal Theory", believes that the main function of a leader is to (a) clarify and set goals;
(b) help subordinates find the best way for achieving the set-goals; and (c) remove
obstacles, if any.
This theory is not suggesting any particular style. On the other hand, it is only
suggesting the applicability of a relevant leadership style under different situations. The
success of a leader depends upon how well, i.e. can set the goals for his subordinates and
help them in attaining the same with minimum difficulty. Well established Path-Goal
relationship leads to high rate of success through greater satisfaction among
subordinates. When jobs are unclear and difficult to achieve, subordinates are
frustrated. They look forward for directions from the leader. The key to this approach is
that the leader can influence the paths via behaviour in goals.
(3) Leadership Continuum
Real time leadership styles vary between the two extreme varieties -Authoritarian and
Democratic. Evolving different styles suitable to different situations has been well
explained by Robbert Tannenbaum and Warren H.Schmidt through "Leadership
Continuum Model". This model suggests a range of styles that can be adopted to
different situations. According to this theory, leadership effectiveness is the function of
the leader, the follower and the situational variables. As per this theory, the following
are the most important elements that may influence a leader's style.
a) Forces operating in the leader's personality such as confidence, judgement, value
systems, feeling of security, preference to a particular style etc.,
b) Forces operating in subordinates including their knowledge, experience, tolerance,
willingness to accept responsibility etc.
c) Forces of a given situation: The work situation is made up of a number of forces like
team spirit, pressure of time behaviour of workers during emergency situations. They
also exert lot of pressures on leaders.
d) Forces of the organisational environment: Elements like planning, organising,
directing and controlling have a definite influence on the organisational environment.
They also influence the subordinate's motives, expectations, rewards and relationships.
(e) Influence of the social environment via Labour Unions. Government Regulations.
Consumer Courts and other outside parties may significantly affect the leader's
behaviour.
Functions of Leadership style
Whatever might be the style, every leader has to perform some functions. Since
leadership is the process of influencing people, it has to perform multi-dimensional
functions in obtaining the willing contributions of the subordinates. Some of the
significant functions of leadership are briefly explained below:
1) Planning and organsing the organisational activities in a desired manner.
2) Influencing the subordinates to accomplish the goals through reward and
punishment.
3) Motivating and directing the subordinates to better levels of performance through
proper guidance from time to time.
4) Understanding the subordinates' expectations and aspirations and obtaining their
willing cooperation in the realisation of organisational goals.
5) Remove ambiguities and issue clarifications in order to make them more responsible
on the job.
6) Creating a favourable organisational climate so as to retain and develop human
resource.
7) Understanding the macro economic influence over the organisation and steer the
Company on the path of success.
CONCLUSION
There is no one best way of leading the people. Various theories propounded by eminent
authors have only suggested the varieties of ways that are available for leaders in
different situations. One has to grasp the knowledge to understand the total theory on
the subject. Every leader has to adopt his own style depending upon the situation. How
the leader influences the people is not important. What is important is how a leader
helps subordinates in accomplishing organisational as well as personal goals.
CASE STUDY 1
Problem of Leadership at the Top
The Board of Directors of Ferrow Alloys Company has been searching for a right person
to become president of its 'Metals Division'. The Board of Directors has appointed a
"Search Committee" to look after this issue. Since the search committee has failed to
locate a proper person for this post, it has asked the Directors to recommend the name
of any known person with suitable background. At last, the Board has received the
nomination of Mr. Stanley, a nephew of Mr. Joseph, the largest shareholder in the
Company. The search Committee has decided to recommend Mr. Stanley's name for
presidentship. They have accepted this proposal and Mr. Stanley was made president. In
his first meeting with his executives, he put his mind like this....
"Let us work together in improving the efficiency of the operations. Each one of you will
be given an opportunity to comment on the standards that will be set for you; it would
be nice, if you could think individually. It would be too nice, if you could think the point
from the group's perspective. Let us stand unitedly and surpass the old records. The
success of this Company will depend upon the ability of leadership, and willingness on
the part of employees in carrying out the decisions.
I solicit your support from all angles".
QUESTIONS
1) What do you think of Mr. Stanley's leadership style?
2) Describe Mr. Stanley's perception of the best leadership styles using the 'Situational
Theory of Leadership'?
CASE STUDY 2
Choice of a Leader
Mr. Rajesh is the Managing Director of a Paints Manufacturing Company. To increase
sales, the Board of Directors wanted to start a full-fledged marketing department. Mr.
Rajesh is entrusted with the task of finding a suitable candidate to head the proposed
marketing department. After considering a number of candidates, he has narrowed
down his choice to two persons: Venkat and Rajesh.
Mr. Venkat has an excellent track record in the company. During his fruitful association
with the company, to be precise, ten years, he has always shown a high degree of
enthusiasm and initiative in his work. He is still young (35 years) dynamic and
aggressive. He is result-oriented and is, naturally, more interested in ends rather than
means. One of the workers, testifying his leadership qualities, remarked thus: "Though
he is harsh at times, you will know where you stand when you work with him. When you
have done a good job, he lets you know it". Mr. Venkat is willing to shoulder additional
responsibilities. He decides things quickly and when action is required, he is 'always on
his toes'.
During his 15 years tenure in the Company, Mr. Rajesh has endeared himself to all his
colleagues by his /superior workmanship and pleasing manners. He always believes in
the principle of employee participation in the decision making process. Unlike Mr.
Venkat, he encourages his subordinates to come out with innovative ideas and useful
suggestions. Before arriving at a decision he always makes it a point to consult his
subordinates. Not surprisingly, all his subordinates are very pleased to work under him
and praise his leadership qualities. Company records also bear evidence for the increase
in the production soon after Rajesh became the head of his department.
1) Analyse the leadership qualities and styles of Mr. Venkat and Mr. Rajesh.
2) Between the two people, whom would you recommend for the position of a marketing
manager.
REVIEW QUESTIONS
1) What is Direction? Explain the scope and role of the direction function in modern
organisations?
2) What are the principles of direction? Comment on the various aspects relating to the
direction function.
3) Define the concept of Leadership. Mention some of the important qualifies of a good
leader.
4) Comment on the five main Leadership positions depicted in 'managerial grid'. Which
one would you advocate?
REFERENCE BOOKS
1) Essentials of Management - Harold Koontz.
2) Management Structures, - Arthus Elkins
Functions & practices
3) Management - James A.F. Stoner Charles Wankel.


- End Of Chapter -
LESSON-14
MOTIVATION


LEARNING OBJECTIVES
To define the concept "Motivation" and enable the student to understand the
process of motivation.
To identify the primary and secondary motives.
To discuss the theories of motivation propounded by Mc Gregor& Maslow,
Vroom, Alderfer and Me Celland.
To explain the importance of financial and non-financial incentives.
INTRODUCTION
Organisations are successful when all the members contribute their performance in an
optimum manner in a desired way. The performance of a group directly depends upon
the ability and willingness of its members together with the technology used. The term
'ability' refers to the individual's capability of handling the job at a certain time in a
given way. While willingness depends upon the level of motivation, technology is
influenced by the level of research. Thus, symbolically.
Performance = Ability x Motivation x Technology
Modern Organisations are recruiting hundreds of people. Some of them may be good
doers and some of them may be bad/poor performers. The Management cannot take the
chance of removing poor performers. The only alternative left before it is to encourage
and stimulate the poor doers in such a way that they are persuaded to contribute to the
organisational objectives. Hence, the problem before the Management is how to
motivate people.
The concept 'Motivation' though looks simple, connotes different meanings in different
situations. For the purpose of our study, it always indicates work motivation.
MEANING
The word "motivation" has been derived from the Latin word "movere". It means "to
move with". The task of the Manager is to guide the people's action in a desired way.
Motivation is a general term. It includes drives, desires, needs, wants, wishes and
similar forces.
The motive is an inner desire. It activates the individual towards a particular goal.
Desires, needs and wishes are inborn impulses which stimulate the action of the
individual. Motivation is the art of understanding these motives and energising and
directing the behaviour towards a particular goal.
According to Scot, motivation means "a process of stimulating people to action and to
accomplish desired goals". Koontz and O' Donnel define the concept of 'motivation' as
"the act of inducing the subordinates to act in a desired manner". In the words of
Encyclopedia of Management, the term 'motivation' refers to "the degree of readiness of
an employee to pursue some organisational goals". Thus, motivation is the act of
stimulating the subordinates to a desired course of action.
A review of the above definitions throws necessary light on the understanding of this
concept. All workers have got one or the other type of energies. Motivation is the art of
energising the human skills in a desired way. The Energisation process is a complex one
since it involves understanding the needs and drives of the people. Hence, it is termed as
a psychological process. Not only that, it is a continuous activity. Even while the
organisation is going good, the Manager has to practise motivation to keep the going
better since motivation varies from individual to individual. Different techniques may be
used by the manager to motivate the people from time to time.
DIAGRAM NO.IV.2.A.

Motivation is a process that starts with a physiological or psychological deficiency which
is called a need. Needs are created whenever there is an imbalance. They activate the
human behaviour in a desired way for the fulfillment of the needs. They are action-
oriented. They provide necessary encouragements to reach a particular goal. That is why
they are at the heart of the motivational process.
Diagram (IV.2.A) exhibits the need - want - satisfaction chain that plays a prominent
role in the motivational process. Feeling of an unsatisfied need gives rise to wants.
Fulfillment of human wants necessitates action which in turn, creates tensions. Actions
of the individual, if properly directed, result in satisfaction. The point to member is that
a fulfilled need ceases to act as a motivator. If one need is satisfied, a higher order need
may emerge in the mind of the individual which further necessitates a higher order level
of effort for fulfilling the same. Some people may get confused with the relationship
between motivation and satisfaction. Motivation refers to the drive and effort to satisfy a
given want. Satisfaction refers to the contentment and feeling experienced by the
individual when his want is satisfied. While 'motivation' implies the drive force for an
outcome, satisfaction refers to the outcome itself. Motivation is important to
management due to many reasons.
(a) Higher Performance
A good motivational system brings out the latent and potent abilities of the employees
for the accomplishment of organisational goals. It encourages them to contribute
enthusiastically for better performance. Poorly motivated people may hinder the goals.
(b) Low absenteeism and Turnover
Motivated employees are highly committed and loyal to the organisation. They come
punctually and stay for longer hours because they are satisfied individuals. It reduces
labour unrest, absenteeism and turnover.
(c) Facilitates change
Motivated employees are receptive and co-operative. Hence, motivation helps in
eliminating the negative attitude of employees in overcoming the resistance.
(d) Team Spirit
A high level of motivation results in harmonious relations between Management and
Workers. It encourages high level of morale and discipline.
(e) Image of the Enterprise
A Company that provides satisfaction through motivation can project better image in
the eyes of the public. It enables the Company either in retaining or attracting talented
work force. It fulfills the creative desires of the people. That is why Rensis Likert has
commented that motivation is the core of Management.


Please use headphones

TYPES OF MOTIVES
A motive is a personal and internal feeling. It is concerned with the intrinsic forces
operating within an individual which impel him to act or not to act in a given way.
Motives are different types. They are grouped into three categories for the purpose of
understanding in an easy way.
i) Primary motives
They are also termed as biological, physiological and unlearned motives. Primary
motives always take precedence over the secondary motives. Primary motives include
hunger, thirst, sleep, avoidance of pain etc.. Since all people are human and their
biological system is common, the make-up of the primary needs is essentially the same
among all the individuals. That is why they are called as "biological and unlearned
motives".
ii) As the society has been transforming, human needs have become complex. Primary
motives are playing less prominent role and learned behaviour is playing a crucial role
in motivating the people. A motive must be learned in order to be placed in the list of
secondary classification. Some of the important secondary motives are power,
achievement, affiliation etc., power motive implies the need to manipulate others or
dominate others. In modern organisations, a person's life style is more characterised by
the need for competence which can be well met by the innate drive for power.
Achievement motive is another important example of secondary motive. It explains the
desire to perform in an excellent manner under competitive situations. The feeling of
belongingness is accepted as an important parameter in determining the positive human
behaviour. Similarly, status and security may also stimulate positive or negative human
behaviour in work situations.
iii) General Motives
Understanding the general motives is important since they are relevant to understand
the basis of human behaviour. These motives are unlearned in the sense that they are
not physiologically based. While the fulfillment of primary needs seek to reduce the
tension, general needs induce the person to increase the stimulation. Motives like
curiosity, manipulation and affection can be cited as best examples of general motives. If
employees are not allowed to express their curiosity, they may not be motivated. Even
general motives are very intense among human beings and play a crucial role in
motivating people through inter-personal relationships and by minimising conflicts.
Thus, motivation has been viewed as a basic psychological process consisting of
primary, secondary and general motives.

- End Of Chapter -
LESSON - 15
THEORIES OF MOTIVATION

Several theories have been propounded by eminent personalities explaining the reasons
and process of motivation. Understanding these theories acts as a foundation for
understanding the work behaviour of the people. Some of the significant theories have
been explained in the following paragraphs.
THEORY 'X' AND THEORY 'Y':
Douglas McGregor proposed two different theories namely Theory X and Theory Y in
1960. Basically, these two theories explain about the human nature. While theory X
deals with the negative aspect, theory Y dealing with positive aspect of the human
behaviour. Theory X involves traditional approach and based upon the following four
assumptions held by the managers about the workers.
a) Workers dislike work and are lazy.
b) Since workers dislike work, they must be controlled with punishment to achieve the
goals.
c) They don't want to take up responsibilities for themselves and seek formal direction
from the boss whenever possible.
d) Workers place security of their job above all other factors associated with work and
display little ambition.
As against these negative views about the human behavior and its nature, McGregor
listed out four different assumptions under theory Y. They are:
a) Workers can view the work as natural as rest or play;
b) Workers can exercise self-direction and self-control, given the proper environment;
c) An average worker can accept responsibility and learn to grow;
d) Workers are creative, imaginative and resourceful;.
Frankly speaking, the above two theories have nothing to do with motivation. They
explain about the nature of human behavior under two sets of different assumptions.
The assumption under theory 'X' that workers must be coerced and regulated for
accomplishing objectives is akin to the characteristic policy which has become obsolete
method in managing people. However, these theories enable us to understand how the
manager should mould under two sets of situations for getting things done.
NEED HIERARCHY THEORY:
The most well-known theory of motivation is Abraham Maslow's hierarchy of needs. He
proposed that in every human being there exists a hierarchy of five needs. They are:
i) Physiological or basic needs (eg. food, water, clothing, shelter etc.);
ii) Safety and Security needs (eg. security of job, protection from harm etc.);
iii) Love needs (eg. affection, friendship, belongingness, etc.);
iv) Esteem needs (eg. Self-respect, status, recognition, achievement etc.);
v) Self actualisation needs (eg. growth, fulfilment of ambition, bringing out the real
potential etc.).
The above needs can be depicted in the following Diagram No. (IV.2.B):
DIAGRAM NO. (IV.2.B)
HIERARCHY OF NEEDS

According to Maslow, if lower need is satisfied, the person moves up the ladder to the
next higher order need. It means that if basic needs are satisfied, workers can be
motivated by fulfilling the next higher order needs i.e. safety needs. This theory implies
that workers are motivated by fulfilling unsatisfied needs rather than by satisfied need.
Maslow separated the five needs into low (basic and safety needs) and higher (love,
status and self actualisation) order needs. While lower order needs are predominantly
satisfied externally, higher order needs are satisfied internally. This theory has received
wide recognition among the practicing managers because of its logical link. This does
not mean that this theory is free from criticism. The first criticism is that this theory has
not specifically mentioned about work related needs.
Secondly, the strength of each need varies from individual to individual. Hence, strict
ordering of human needs in the above hierarchy could not be proved empirically.
Thirdly it is criticised that it only deals with the content of motivation rather than the
process of motivation.
Two - Factor Theory
Frederik Herzberg and his associates conducted a research study and have identified
two sets of factors. According to this study, motivation depends upon satisfaction. The
two sets of factors affect satisfaction or dissatisfaction of workers. The first set of factors
is termed as maintenance factors. They are salary, job security, working conditions,
quality of supervision, interpersonal relationships, company's policy and
administration. These factors are related to job environment. Presence of these factors is
necessary to avoid dissatisfaction among workers. These factors ought to be maintained
as a matter of compulsion in every work situation.
The second set of factors is related to the content of the job. They include growth,
advancement, recognition, achievement, accepting increased responsibility etc.
According to Herzberg, these factors are motivational factors which stimulate the
worker to better levels of families. Hence, these factors are termed as satisfiers. To sum
up, while the first set of factors have to be maintained as a matter of compulsion in
order to remove dissatisfaction the second set of factors alone are responsible for
motivating people.
This theory is also not free from criticism. Firstly, there is too much botheration about
satisfaction, dis-satisfaction and the point of no satisfaction. There is no guarantee that
satisfaction leads to productivity in all cases. Secondly, the concept of satisfaction is
influenced by a good number of off the job and on the job factors. Thirdly, the impact of
situational variables have been ignored in this theory. Fourthly, like need hierarchy
theory, it is also concerned with the content of motivation and not with the process of
motivation.
Vroom's Expectancy theory:
Victor Vroom proposed this theory as an alternative to the content models explained in
the earlier paragraphs. It is the most widely known theory of motivation for the purpose
of understanding the process of motivation. According to this theory, a person's desire
to work at any time can be conditioned by two factors.
a) Existence of one or more personal goals on the part of the employee; and
b) His expectation as to the relative worth of his performance for the attainment of such
goals. When the worker believes that his performance will lead to the fulfillment of
personal goals, he tends to become a high producing worker and vice-versa.
It has been stated by Vroom as given below:
Force (Motivation) = Valence x Expectancy
Here the term "Valence" stands for the strength of an individual's preference for an
outcome and expectancy to the probability that a particular action will lead to a desired
outcome. This theory establishes four important links in the process of motivation.
Efforts ~ Performance Rewards/Awards ~ Goals.
This theory has three important implications to managers. Firstly, it is necessary to
provide appropriate rewards to satisfy the individual needs. Secondly, managers are
required to establish a close link between efforts and performance between performance
and rewards and finally between rewards and personal goals. Thirdly, this theory
recognises the fact that there is no universally acceptable method for motivating people
because of the influence of contingency factors from time to time.
Achievement Theory
David Me Cleland has identified three basic motivating needs such need for power, need
for affiliation, and need for achievement. Though all these three needs are important to
management in understanding the process of motivation, to Me Cleland need for
achievement is of paramount importance. It is concerned with predicting the behavior
of workers who have either high or low needs for achievement.
Need for power has a great concern for exercising control and influence. People with this
need, tend to be forceful, outspoken and demanding in obtaining the work. People with
need for affiliation are likely to be concerned with maintaining pleasant relationships.
People with a high need for achievement have a strong desire for success. They love
challenges.
Achievement motivated people are blessed with some special characteristics. They are
not gamblers and they dislike succeeding by chance. They like job situations. They like
moderately challenging goals. They can influence their efforts through continuous
feedback of their performance. They tend to become task-oriented people since they are
vitally concerned with their personal achievements.
The findings of this theory proved that achievement motivated people mainly come from
middle-class families. This study further reveals that the need for achievement would be
stimulated through class-room instructions and training programmes. This theory urges
people to act on the basis of internally driven stimulus to improve their performance.
This theory has received wide recognition.
ERG Theory
It is an improved model over Maslow's and Herzberg's theory on motivation. Clayton
Alderfer identified three groups of basic needs Existence, Relatedness and Growth.
The existence needs are concerned with physical well-being and survival (food, clothing,
shelter, good-working environment etc). The relatedness needs emphasise the
importance of interpersonal and group relationships. The growth needs are concerned
with individual's inner desire for his personal development. This theory does not see the
needs as a hierarchy as stated by Maslow. It does not contend that a lower level need has
to be fulfilled before satisfying a higher level need. Under this theory, a person's
background may dictate that the relatedness needs will take precedence over unfulfilled
existence needs. It further assumes that the more the growth needs are satisfied, the
more they will increase their intensity. In other words, this theory suggests that one
class of needs might remain strong irrespective of the fact whether the other class of
needs has been satisfied or not.
Having discussed some of the important theories of motivation, a brief attempt is made
to discuss the Management techniques that can be tried to increase motivation in work
situations. Management generally uses financial and non-financial techniques to
motivate employees.
Financial Motivators
The commonly accepted belief is that Motivation is directly or indirectly connected with
money. It is true that money acts as a vehicle through which most of the higher order
needs can be fulfilled. That is the reason why most of the organisations use money
incentive as a means of offering satisfaction among staff. Productivity linked wages,
bonus, profit-sharing, leave with pay, medical reimbursement, leave travel concession
are included under this type of motivation. Experience proved that money is a most
reliable motivator. Money as a reward for accomplishment is now accepted as a base for
designing compensation methods.
Besides money, there are some other motivators which deal either with personal
development or with the environment of the employees. Dale Yoder has identified that
workers who set their own goals are capable of motivating. Therefore, goal
identification and participative management also have a great role to play in motivating
the people.
Motivators
As the heading above states, they are not at all connected with money. In turn, they are
connected with the position, work- culture and psychological mood of the employees.
Some of the most commonly used measures under this heading are:
a) Praise and recognition;
b) Status and pride;
c) Job enlargement;
d) Job enrichment;
e) Job security;
f) Quality of work life.
Recognition of the services of one employee may be shown in the form of praise. It may
be in the form of patting on the back of the employee, recommending him for promotion
or for entrusting confidential work etc. Similarly, provision of costly furniture, wall-
decoration and personal assistance will certainly enable the employees to feel proud
which in turn would stimulate them for better results. Enlarged jobs may be entrusted to
work group so as to make them more responsive from planning phase to
implementation stage. It makes the job less monotonous. Another method of motivating
the people is job enrichment. Through this, job is made more interesting and
challenging. It provides an opportunity for psychological growth of an employee. Job
security is equally important. It implies that the employee will be continued with all
economic and social security measures within the same plant. This kind of arrangement,
no doubt, encourages the worker to deliver better performance.
Another concept gaining currency in modern organisations for motivating people is the
quality of work life. Though this concept connotes different meanings to different
people, it refers to all aspects of worker's life with special reference to his personal and
work environment. It includes fair compensation, good working conditions, security,
growth, protection, identity etc.


Please use headphones

Summary
The concept motivation cannot be studied in isolation. Motivating the work force is a
complex and challenging assignment. A good number of factors influence motivation in
a variety of ways. Hence, it should be viewed from systems analysis. After all motivation
is purely a psychological process. The basic process of motivation involves
understanding about the needs, drives, action, and satisfaction of the people at work.
The above theories propose different approaches to work motivation. While some of
those theories are rigid, some of them are dynamic. Understanding all these theories is
important for effective management of human resource. It is the primary responsibility
of every manager to create favourable climate either by offering financial or non-
financial incentives for motivating the work force in a desired way.
CASE STUDY (1)
You are incharge of a small departmental store and have three subordinates Ram,
Ravi and Gowtham. The key to the success of your departmental store is to keep these
employees as motivated as possible. Here is a brief summary profile on each of these
subordinates.
Ram is the type of employee who is hard to figure out. His absenteeism record is much
higher than average. He greatly loves his family (a wife and three small children) and
thinks they should be central to his life. The best way to describe Ram is to say that he is
kind of a throwback to the hippie generation and believes deeply in the values of that
culture. As a result the things that a Company can offer him really inspire him very little.
He feels that the job is simply a means of financing his family's basic needs and little
else. Overall, Ram does an adequate job and is very conscientious, but all attempts to get
him to do more have failed. He has charm and is friendly, but he is just not "gung - ho"
for the Company. He is pretty much allowed to "do his own thing" as long as he meets
the minimal standards of performance.
Ravi is in many respects opposite to Ram. Ravi is a likable guy, but unlike Ram, Ravi
responds well to the Company's rules and compensation schemes and has a high degree
of personal loyalty to the Company. The problem with Ravi is that he will not do very
much independently. He does well with what is assigned to him, but he is not very
creative or even dependable when he is on his own. He is also a relatively shy person
and not very assertive when dealing with people outside the department. This hurts his
performance to some degree because he cannot immediately sell himself or the
department to other departments in the Company or to top management.
Gowtham, on the other hand, is a very assertive person. He will work for money and
would readily change jobs for more money. He really works hard for the Company but
expects the company also to work for him. In his present job, he feels no qualms about
working a sixty hour week, if the money is there. Even though the company did not give
him a raise on the premise that he was already making too much, he is quite a driver.
A manager at his last place of employment indicated that, while Gowtham did do an
excellent job for the Company, his personality was so strong that they were glad to get
rid of him. His former boss noted that Gowtham just seemed to be pushing all the time.
If it was not for more money, it was for better fringe benefits; he never seemed satisfied.
1) Can you explain Ram's, Ravi's and Gowtham's motivation by one or more of the work
motivation models discussed in this chapter?
REVIEW QUESTIONS
1) Define the concept 'Motivation'? Bring out the significance of motivation in a modern
organisation.
2) Compare and contrast Maslow's Hierarchy of Needs Theory and Herzberg's Two
Factor Theory.
3) Explain the salient features of Vroom's Expectancy Theory of Motivation.
4) What is need for achievement? Explain how Me Clelland was successful in explaining
the process of motivation through his theory.
5) "Theory X and Theory Y" are not theories of motivation, instead they explain the
nature of human behaviour with some basic assumptions - Comment.
6) Explain the role played by financial and non-financial incentives in motivating the
work-force.
REFERENCE BOOKS
1) Principles of Personnel Management - Edwin Flippo.
2) Human Behaviour at work - Keith Davis
3) Organisational Behaviour - Fred Luthans
4) Personnel Management - C.B. Memoria
5) Management - Koontz & Weihrich.

- End Of Chapter -
LESSON-16
COMMUNICATION

LEARNING OBJECTIVES
After reading this lesson, you should be able to:
Understand the meaning & rote of communication function in an organisation;
Describe the basic communication process;
Identify different communication networks;
Explain the reasons for barriers in communication; and
Offer suggestions to maintain effective communication in an organisation.
INTRODUCTION
The word communication has been derived from the Latin word "Communis" which
implies common. Therefore, the term 'Communication' refers to the process of
transferring information from sender to receiver with the sole purpose of creating
common understanding among the parties concerned. It is only the means by which one
person can influence another. That is why it deals primarily with people. It is a basic
need of the modern Management The desire for communication is as strong as the
desire for food. It touches every facet of the managerial activity. Some people view it as a
life line of the modern organisation. It includes telling, advising, directing, ordering and
commanding.
It presupposes shared environment. One need not over emphasise its pervasiveness,
imagine the world without words. It is just like a jungle.
The present rate of economic development in any nation is possible only because of
interaction among people. Hence, we cannot visualise the world without
communication.
Meaning and Definition
Peter Little has defined this concept as "a process by which information is passed
between individuals and organisations by means of previously agreed symbols".
Newman viewed it as "an exchange of facts, ideas, opinions or emotions by two or more
persons". Communication does not simply mean only transmission of information but
also includes interpretation and understanding of the message. It is an exchange of
thoughts and information to create mutual understanding and confidence.
To conclude, Louis. A Alien opines that "Communication is the sum total of all the
things that one person does when he wants to create understanding in the mind of
another". That is why Chester I. Barnard said, "the first executive function of any leader
is to develop and maintain a good system of communication". Because good
communication serves as a linking process by which all parts of an organisational
system are tied-up closely.
DIAGRAM IV III A
Process of Communication

Process of Communication (Diagram IV.3.A)
The above diagram depicts the process of communication. It involves the Sender, the
Message, the Receiver, and the Purpose of communication. Every communication
begins with the sender. The information to be transmitted by the sender is known as the
Message. It may be oral or written. What kind of mode of message is the best depends
upon the situation. The message should reach the receiver in a proper way and that too
in proper time. The receiver should also think in equal wave length for the purpose of
understanding the real meaning of the message. Communication is not complete unless
it creates understanding among the parties concerned. People with closed minds, weak
channels (or, channels with loopholes) and technical barriers will create problems in
communication. Effective steps must be taken from time to time to remove the
bottlenecks that come in the way of creating understanding among people. For which
purpose, proper feedback is a must. It refers to the response given by the receiver for the
purpose of facilitating further communication and greater clarity in understanding.
Good feedback enables the sender to know whether or not the message has been
properly received and interpreted.
Types of Communication
Depending upon the channel, communication may be broadly studied under two types
formal communication and informal communication. The diagram (IV.3.B) below
represents the flow of information and the types of such flows:

(A) FORMAL COMMUNICATION
It refers to the flow of information in the official lines of hierarchy. It strictly adheres to
the chain of command. It is a deliberate effort to inform all the issues to appropriate
officers. It is mainly connected with work-related matters. By virtue of this, it is more
authentic, systematic and dynamic. But at the same time, it is inflexible and slow in
effectiveness. Formal communication flows in three different directions:
i) Downward;
ii) Upward; and
iii) Horizontal.
The discussion relating to these three types of communication is presented in the
following paragraphs.
i) Downward Communication : It refers to the flow of information from superiors
to the subordinates. Here, information flows from top to the bottom. It is most
commonly found in formal settings. It is mainly used for directing and controlling
people in getting things done. Downward communication includes instructions, policy
statements, orders etc.
ii) Upward Communication : It involves transmission of information from
subordinates to superiors. It serves as a feedback. It enables the management in
knowing how far the commands of the superiors have been carried out. It encourages
open door policy of exchanging ideas between superiors and subordinates. Since the
flow of information from bottom to top is non-directive, it is usually found in
participative and democratic organisations. It gives a chance to the subordinates to
release emotions by raising their complaints or grievances. But upward communication
gives better results only when the officer is open minded and receptive.
iii) Horizontal Communication : It refers to the flow of information among people
working at the same level of authority. That is why it is termed as lateral
communication. Since message flows among the same cadre people, status barriers
don't exist. This kind of arrangement encourages greater coordination among different
departments. It may take in one or more of the following forms:
Meetings,
Conferences,
Letters,
Office memos etc..
Sometimes, even horizontal communication is hampered because of specialist
approaches adopted by different officers over a single issue. Modern organisations have
been using all these types of communication in one way or the other. No one is
substitute to the other. Each one is having its own relative merits and demerits, the
management has to use the appropriate type in a judicious manner for obtaining good
results.
(B) informal communication
The term 'informal communication' refers to the flow of messages, opinions and
expectations among people through informal contacts. It grows out of social contacts
between people who work together. It is not bound by any rule or regulation. It is purely
unofficial and unplanned communication. Information circulates like a grapevine
ignoring the lines of authority. The managers can obtain lot of useful information about
the real opinions of the subordinates through this method. Things that cannot be done
through formal communication can be accomplished through grapevine. Since it is
flexible, it can take in any direction without bothering ego or status by the people. It
motivates the people and helps in building team work. But, grapevine communication is
handicapped by the circulation of rumors and half-truths. Another disadvantage
associated with it is lack of complete information and authenticity. Despite these
weaknesses, the role of grapevine communication cannot be ignored. It is an integral
part of any organisation. Both formal and informal types of communication must be
tried in a balancing way.
FORMS/METHODS OF COMMUNICATION
There are many methods at man's command regarding communication. The world is
bombarded by information. The offices of the modern organisation are highly
revolutionised through the use of intercom, telephone, telex, teleprinter and fax
machines. Information is made available on finger tips. In this world of technological
advancement, man remains to be a talking machine, the management has to select one
or more of the available methods for effective communication purpose. The following
diagram (IV.3.C) illustrates different methods of communication:

Basically, there are two forms of communication - verbal and non-verbal. Verbal
communication may take the form of oral or written communication. In oral
communication, parties exchange their ideas through spoken words. That is why it is
also referred to as face-to-face communication. It takes less time and the feedback is
quick. It gives ample scope for adjustment and correction of the original message. But,
its effectiveness is nullified due to lack of documentary evidence regarding such
conversation.
A written communication is always put in the form of written words. All official letters,
circulars, memos, statements and reports are the best examples of written
communication. It provides a permanent record for future reference. It is suitable for
lengthy messages. It offers more authentic information. Despite these advantages, It is
time consuming, and less flexible. Quite often, it is proved to be expensive and tedious.
Non-verbal communication does not use words. It is a language beyond verbal
communication. Transmitting the messages through charts, graphs, maps, sign boards
etc., is now increasingly tried by the organisations. By seeing these visual-aids,
information can be easily grasped or understood. One need not explain how the bar
diagram gives clear clues regarding the performance of an organisation. Meaning can be
quickly received through the visual-aids. Non-verbal communication includes body
language. It helps in understanding the warmth of feelings and emotions. It may take
the form of gestures, facial expressions, feeling of touch etc. The following gestures
exhibit the real feelings as stated opposite to them.
Gesture Feeling
1) Shrugging of shoulders - Fear, Anxiety
2) Raising legs - Enthusiasm
3) Shake-hand - Friendliness
4) Patting - Warmth and affection
5) Shaking-head - Rejection of an Idea
6) Raising eye-brows - Surprise
DIAGRAM: IV: III: D
COMMON COMMUNICATION NETWORK

Each of these methods of communication has to play an important role at one time or
the other. In fact, all these forms of communication are in use in making communication
more effective. While choosing a particular method, the knowledge of the sender, the
importance of the message and the situation must be duly considered.
NETWORK MODELS
Communication networks are usually compared with the nervous system of the human
beings because they also perform the same functions. Both carry signals from one
position to the other. Communication networks are not usually that much effective, as a
nervous system in their functioning because of inbuilt impediments. Communication
becomes effective when it is fully understood, believed and accepted by the receiver.
Every communication network must satisfy the above acid test.
The term network implies the link through which information is flowing from one end to
the other in an organisation. Every organisation can develop its own pattern of flow of
information. A network indicates the path over which communication is transmitted
from one person to the another. In other words, it indicates the route through which
information flow for decision-making. The most commonly used network have been
illustrated in the diagram (IV.3.D).
The above diagram exhibits different forms of networks like chain, wheel, circle and "Y".
The diagram depicts five level hierarchy. The chain network represents a five-level
structure where communication takes place from either top to the bottom or from
bottom to the top. Under this form, there is no scope for horizontal communication.
Here, communication flows directly down the authority line. For example, the clerk
prepares the bills, the supervisor certifies the same and reports the same to the
Accountant, who in turn reports the same to Accounts Officer and he reports the matter
to the Manager. This indicates chain network.
A wheel network indicates two levels of authority only. It indicates a typical example
wherein supervisor establishes direct link with four subordinates. It is clear that there is
no interaction among subordinates. It is best suitable to situations where quick action is
needed. In contrast to this, a circle network allows all members to interact with
adjoining members. It is best suitable to three level positions viz. officer, supervisor and
subordinate. This network is widely used since it produces higher level of satisfaction
among subordinates. The 'Y' network integrates the advantages of wheel network at the
top and chain network at the bottom. In this diagram, we can see two subordinates (D
and E) reporting to the supervisor (C) who in turn reports to two officers (A and B). As
against this, all-channel network allows the subordinate to communicate freely with the
other four. There are no restrictions. All members have equal number of channels and
an opportunity to share equal amount of information. A typical example for this is
"Committee" where all members are treated on par with each other in sharing views.
Each one of the above networks has its own merits arid demerits. There is no single
network that can yield desired results in all situations. The effectiveness of a given
network depends upon the speed, accuracy, need, cost and time factors. Best results can
be obtained by using all these forms of networks, at one time or the other, depending
upon the situation.
Barriers to Effective Communication
Effective Communication is essential for the success of any organisation. One of the
most common problems faced by the modern manager is communication break-downs.
Several obstacles will come in the way of creating perfect understanding. Successful
executives should develop the skills of communicating effectively. It needs minimisation
of misunderstanding and creation of understanding among the parties concerned. Since
modern executives spend 90 percent of their time on telling, listening, reading and
writing; a part of their communication may be misunderstood or misinterpreted or
distorted. Executive needs to understand the reasons for poor communication so as to
become effective in communication. Barriers of communication can exist in the sender.
In the message, in the receiver, in the feedback or in the organisational structure. Some
of the important communication barriers are briefly discussed in the following
paragraphs.
(A) LANGUAGE & SEMANTIC BARRIERS
(i) Absence of Common Language
A single word may give different meanings to different people. The meanings of the
words are not in the words but with the people. In Companies, workers usually come
from diverse backgrounds. Language problem bound to exist between a Hindi speaking
worker and an English speaking boss. For effective communication, they need to
develop a common language. The term "Fat-mouthing" is used by the black people (US)
to represent the meaning of "talking too much". In contrast, the literal meaning is
different.
(ii) Semantic Barriers
In addition to language barriers, semantic barriers also present a problem in making
communication effective. Words like light and cheap give sometimes positive and
sometimes negative meanings. It is because of the fact that the intended meaning is
wrongly interpreted by the receiver. To illustrate this, read the following sentence.
"Shoes are required to eat here". This sentence is written at the entrance of a Cafeteria of
a University. A student wrongly interpreting the message has written with a piece of
chalk like this: "Socks may be eaten outside the Cafeteria".
The above example illustrates how the intended meaning is misinterpreted through
semantic barrier.
(iii) Poor Vocabulary
Poor vocabulary on the part of a manager does not allow him either to write or speak
effectively. Similarly, poor vocabulary does not allow the receiver to understand the
message clearly and completely.
(B) ORGANISATIONAL BARRIERS
(i) Hierarchical Barriers
Modern organisations are characterised by the existence of people belonging to various
levels of hierarchy. For eg: Workers, Supervisors, Shop Floor Managers etc. It is quite
common that equal status people talk to each other without inhibitions. A lower level
employee may find it difficult to communicate freely about his problems with his
superior. Similarly, subordinates are afraid of unpleasant and critical comments from
their superiors. A gap in understanding always exists because of the differences in their
respective positions held in the same organisation.
(ii) Too much specialisation at work spot
Technological advancement leads to highly specialised jobs at work place. Every worker
is doing his specialised task without bothering about the nature of other person's work.
The phase of the work is so tight that it hardly allows the worker to come out of his
compartment and communicate freely with fellow workers. This kind of work situation
separates people and thus creates problems in communication.
(iii) Wrong choice of medium
The success of any communication directly depends upon the medium through which it
is sent. A particular type of medium may be best suitable to a given situation. To
illustrate this point, consider the following examples.
Situation Right Medium Wrong Medium
1) Smuggler Flashing torch Oral instructions
2) Traffic Policemen Hand gestures Oral instructions
3) Business Executive Telephone Oral instructions
on confidential work
Choosing a wrong medium may create problems in communication. Selecting the most
appropriate medium is the primary step in effective communication.
(C) PHYSICAL BARRIERS
(i) Noise
Poor telephone connections, loud noise and unexpected interruptions may create
difficulty either in listening or in understanding the real content of the message. If the
message is written, sometimes, either bad hand writing or smudged type script may
hamper the effective flow of communication.
(ii)Time
Timing of communication is also important in creating proper understanding. If an
employees does not communicate with his boss for undue long time means it creates
misunderstanding. A guest who arrives at mid-night will not be able to be a good
communicator. Similarly, the phone call at mid-night might irritate the receiver and
dampens his communication.
(iii) Distance
Distance can be a strong barrier of communication. Long chain of command or
existence of several layers of supervisor may impede the real message of
communication. Long communication networks and distance between superior and
subordinate may create difficulties in communication. The functioning of mechanical
devices like telephones and telex might be affected by the distance in transmitting the
messages. Communication problems are bound to be there in between wife and husband
if they stay away long time.
(iv) Age
Factors like age, maturity educational background will certainly influence
communication process. Generation gap creates gap in style of speech, standards of
values and judgement. There is some positive relationship between chronological age
and maturity of thought and understanding.
(v) Sex
Usually, men are considered to be more aggressive, self- confident, assertive and
acquisitive than women. By virtue of this fact, they turned to be good communicators. In
contrast to this, women are brought up under the philosophy that the quality of
assertiveness is unfeminine. Women with feminine ideas and closed broughtup try to
avoid eye-to-eye contact with superiors and speak inaudible. Hence, they turned to be
poor communicators.
(D) PSYCHOLOGICAL BARRIERS
More than fifty percent of the communication problems are attributable to psychological
barriers. Psychological aspects like attitudes, perception, interest, belief, prejudices etc.,
may come in the way of proper understanding of a message between the sender and the
receiver.
(i) Attitudes and Values
Our thinking is influenced by our attitudes and values. They tend to be different from
one person to the other. Hence, they create barriers. A message which runs contrary to
the beliefs is not easily acceptable. Emotional attitudes are so strong that they distort
understanding among the people.
(ii) Perceptions
Communication barrier arises as a result of different perceptions of the same
message/object by two people. There is nothing wrong if two friends express different
opinions about a given movie. Similarly, a fifty paise coin appears to be a big money to a
poor man and a small one to a rich man. That all depends upon how one perceives the
idea. Differences in judgements inhibit communication.
(iii) Lack of Interest
Interest creates understanding. Effective Communication requires proper interest
among the parties concerned. It enables them to pay adequate attention to the message.
Lack of interest leads to mistrust which hampers effective communication. There may
be many talkers but few listeners. Lack of interest leads to poor listening. Hence,
effective communication demands interest among the parties concerned.
(iv) Poor Retention
One of the weaknesses of the human being is his inability to retain total quantum of
information received. Poor retention acts as a barrier in effective communication. At
each level from top to the bottom if some information is retained, then, communication
becomes ineffective.
(v) Filtering
Filtering refers to the process of manipulation of information by the sender so that it
will reach the receiver either in a favourable or unfavourable way. A superior may
withhold information thinking that subordinates do not need it. Filtering of information
increases with the levels of hierarchy. If a supervisor comments that "your work can be
improved", the subordinate may filter the meaning and receives the message that "your
work is no good",
(vi)Fear
The feeling of fear undermines communication. People with fear, whether real or
imagine, distort information. Fear is a psychological inhibition that prevents them from
exchange of ideas freely and kills the initiation. Fears are of different types.
a. Fear of misinterpretation: A worker who would like to enquire about his
possibility of getting promotion may not do so because the boss might think that
the worker is not happy with the existing job.
b. Fear of exposing to criticism: Information is held back deliberately by the
worker when he knows very little. Individuals retain information due to fear of
being criticised when they cannot offer explanation.
c. Fear of reprisal: Employees are usually refrained by frank talk or criticism that
is unpleasant to their superiors since they may take action against workers.


Please use headphones

Having discussed some of the important barriers to effective communication, an
attempt is made to discuss the ways and means available to us for removing the same.
Either misunderstanding or no understanding it mars the real meaning of the massage.
To make the communication effective, the following suggestions have been offered.
1) Clarity in message
The sender must be very clear as to the real content of the message. It should be
expressed in simple language so that the receiver can understand it easily and quickly.
Technical vocabulary must be avoided.
2) Completeness of message
Incomplete message delays action, spoils relations and increases costs. The message
should contain all important details. In other words, it must be complete, timely and
adequate.
3) Understand the needs of the receiver
The sender of the message must be aware of the needs, feelings, perceptions and level of
understanding of the receiver. The message should be designed from the receiver's point
of view.
4) Use appropriate channels
Channels of communication are different types. Each type best fits into a given
situation. A judicious combination of formal and informal, oral and written media will
help to improve the effectiveness of communication.
5) Consistency
The message should be consistent with the policies and programmes of the organisation.
No two messages should be mutually conflicting, for it leads to confusion.
6) Feedback
Communication is essentially a two way process. Feedback indicates the return flow of
communication. The sender should know whether the receiver understood the message
or not. Continuous feedback improves future communication.
7) Mutual trust and Confidence
Communication is an interpersonal process. Encouraging mutual trust and confidence
among the employees is a must for making people more personal and intimate. This
type of organisational climate is good for effective communication.
8) Repetition
It calls for repeating an idea or message over and over through different methods. It will
ensure proper understanding and action. This removes doubts, suspicion and confusion.
Repetition, thus, leads to greater clarity and effectiveness.
ESSENTIALS OF EFFECTIVE COMMUNICATION
Effective communication plays a prominent role either in expanding or diversifying the
activities of an organisation. It is a key to success. If the manager has to survive in these
days of stiff competition, he has to develop sound communication skills. The essentials
of effective communication are briefed up and given below:
i) Positive and pleasant approach by the parties concerned.
ii) Good tone with accurate modulation helps in creating proper understanding.
iii) Clarity of purpose and objective behind communication should be known to the
parties.
iv) Adequate knowledge of the problem helps in developing proper understanding about
the message.
v) Greater emphasis to "you" attitude greatly facilitates the flow of information without
interruption.
vi) Follow appropriate courtesy while communicating with different levels of people.
CONCLUSION
Organisations are not existing in vacuum. They are in the midst of people. Problems are
more with people than the world of things. Communication which is a dynamic and
interpersonal process is bound to have some problems. These problems should be
removed in order to minimise bottlenecks and maximise the effectiveness of
communication process.
CASE STUDY (1)
Royal Television Company
Royal Television was established in 1969. It was founded by Mr.Ramana. From its
humble beginning, the Company could able to reach the level of nation's largest
television and allied product Companies. By 1990, its sales figure has reached Rs.300
crores per annum with 300 workers and five manufacturing locations. Through out its
growth, the founder remained very active and knew every worker. When the founder
used to call them by name, workers felt very happy and developed a sense of belonging
and personal loyalty. No union could be established because of perfect understanding
between workers and Management.
As the Company grows from one level to the other, Mr. Ramana was worried that the
Company was losing its "small-Company" spirit and communication becomes difficult.
As a result, he was under the impression that Company's objective were not properly
understood and workers are failing in understanding the other person's work. Due to
this product development and marketing were suffering.
To overcome this communication problem, he appointed a Director-Communication
and tried different communication devices like bulletins in house magazine and "Fact
Books" covering all departments. In addition to this, the Company has appointed
different Committees and sponsored meetings to discuss Company matters. Also, the
Company has encouraged its employees to participate in "Communication work-shops".
After spending considerable time, effort and money, Mr. Ramana was thoroughly
disappointed as the twin problems (problem of communication and small company
feeling) still exist.
QUESTIONS
1) What are the reasons for Mr. Ramana's disappointment?
2) In your opinion, What is the real problem?
3) What are your suggestions for improving communication in the Company?
CASE STUDY (2)
Bombay Fashion House
Bombay Fashion House was established 50 years back as a single store by Mr. Verma. It
is now having 30 branches spread throughout the state of Maharashtra. Mr. Gopal
(eldest son of Mr. Varma) joined his father after graduation in Management Course. The
success of this Fashion House is mainly attributable to Mr.Varma's drive and knowledge
of apparel business. He always keeps his hands in touch with buying, advertising,
designing and sales. He knew all the Managers of chain stores personality. Mr. Varma
used to conduct business meetings with his senior executives once in every month and
visits each store once in every 2 months.
Mr. Varma is worried now-a-days because his policies are not carried out properly.
Many of the employees joined, in unions. He is getting reports that many of his workers
and Branch Managers are doing jobs just like that without showing any real drive and
imagination. He is also vitally concerned about the resignation of some of the best
workers and executives from the Company.
When Mr. Gopal, walked into the office as 'Assistant General Manager', the twin
problems faced by the business are put before him by his father. Mr. Varma believed
that his son who took some courses in Management will surely help him through proper
suggestions.
QUESTIONS
1) If you are Mr. Gopal, What would you say to your father?
2) What problems do you see in this Case?
3) How your theoretical knowledge in motivation are Communication will help in
improving the functioning of the Stores.
REVIEW QUESTIONS
1) Define Communication. Discuss the various steps involved in the process of
Communication.
2) "Communication is sharing of understanding" - Comment.
3) Explain the relative merits and demerits of various types of communication.
4) Why is feedback so important to Communication? Suggest some guidelines for the
effective use of feedback.
5) Explain briefly about the various networks of Communication and state the
conditions under which they will be most effective.
6) What are the barriers of effective Communication? Suggest some measures to
overcome the same.
7) "Effective Communication is the lifeblood of the organisation" Comment.
REFERENCE BOOKS
1) Personnel Administration - Charles A. Brown
2) Human Behaviour at work - Keith Davis
3) Management - Koontz & Weihrich
4) Personnel Management - C.B. Memoria
5) Dynamics of Personnel Administration - Monappa


- End Of Chapter -
LESSON-17
DECISION - MAKING

LEARNING OBJECTIVES
To understand the meaning of decision making process:
To appreciate the various alternatives through which one can make better
decisions;
To understand the implications involved in decision-making process under
certainty, uncertainty and risk conditions;
To evaluate the various approaches to decision-making process; and
To evaluate different models and techniques that help in decision-making
process.
INTRODUCTION
Decision-making is an integral part of most of the top manager's duties. Not even a
single day passes without taking decisions particularly in modern organisations. Hence,
management and decision-making are considered as inseparable. In fact, whatever a
manager does, he can do it only by taking some decisions. All matters relating to
planning, organisation, staffing, directing and controlling are engrossed in decision-
making process. That is why it is aptly pointed out that management is essentially a
decision-making process. The survival and future success of any enterprise is directly
related to the ability to take timely and appropriate decisions by the executives. Thus,
decision-making is said to be the heart of management.
Lot of planning exercise is to be initiated by the manager before taking any viable
decision. Questions like what to do, when to do and how to do are to be examined clearly
before allocating resources on different managerial activities. Unfortunately, these
resources are scarce. So, the manager has to carefully plan and decide what to do or
what not to do. Wrong decisions quite often are proved to be either costly or futile
exercise. To prevent such losses, decision-making process remains to be the core area in
all planned activities of the modern corporations.
MEANING
Koontz and Weinrich have defined this concept as "the selection from among
alternatives of a course of action." According to this definition, picking one course of
action among alternatives available is termed as decision-making. In the words of
George Terry, "decision-making is the selection of a particular course of action, based on
some criteria, from two or more possible alternatives." We may define this concept as
"the process of choosing between various alternatives for achieving a specified goal".
Every decision must take into consideration needs and future uncertainties.
The famous decision theorist, Herbert Simon has identified three major steps in the
decision-making process. The first step involves the recognition and understanding of
the real problem. In the second phase, various alternatives may be developed. The third
step involves careful assessment of alternatives available for taking a better decision.
Characteristics
(1) Decision-making is a continuous process.
(2) The question of decision-making comes into picture only when there are
alternatives.
(3) A decision-making process must always be rational and purposeful.
(4) Decision-making is an intellectual process supported by good reasoning and sound
judgement.
(5) Decision-making is all pervasive in the sense that all levels of managers need to take
decisions of varied nature.
(6) Decision-making is always related to future only.
Types of Decisions
Managerial decisions may be broadly classified under two categories - the first category
includes the typical, routine and unimportant decisions and the second category covers
most important, vital and strategic decisions. Apart from this classification, decisions
are taken at different levels for meeting different problems. The following paragraphs
present a bird's eye view of different type of decisions taken by the executives from time
to time.
(i) Organisational Vs Personal Decisions
Chester. I.Bernad has explained about this classification of decisions. Decisions taken by
the manager in his official capacity are termed as organisational decisions. These
decisions have a direct impact in the functioning of the firm. Also, the authority for
taking such decisions can be delegated to the subordinates. For instance, decisions
relating to reward systems or transfer of workers can be cited as examples under this
category. In contrast to this, sometimes, decisions may be taken by the manager in his
individual capacity. Such decisions are termed as personal decisions. They may partly
affect the personal life and partly affect the organisation. For Instance, decision to quit
the organisation comes under this category.
(ii) Routine Vs Strategic Decision
Routine decisions Involve little risk and uncertainty. Hence, they do not call for
extraordinary judgement and thinking. They are mostly related to day-to-day conduct of
the business. Most of the routine decisions are taken repetitively. That is why they are
Norma taken at lower levels of management. On the other hand, strategic decisions are
taken by the top level management. Either they are concerned with policy matters or
with long-term commitments of the organisation. They require thorough understanding,
analysis and best judgment pertaining to location of the plant, type of technology and
channel of distribution are the best examples of this type.
(iii) Policy Operating Decisions
Policies act as guidelines for future action. Hence, decisions pertaining to policies are
usually taken by the top management. They are considered to be very important since
they affect the total organisation. While operating decisions are administrative in
character, they help in translating policies into action. For instance, decision relating to
a new incentive scheme may be termed as a policy decision. Decisions relating to the
methodology of implementation of such incentive scheme are termed as operating
decisions.
(iv) Programmed Vs Non-programmed Decisions
Programmed decisions usually deal with routine and repetitive problems. For dealing
such problems, systematic policies, procedures and rules are established. Programmed
decisions can be taken with little ease as everything goes according to some set of rules.
As against this, non-programmed decisions cover mainly unexpected events and
challenges. Each of such problems is a special one. In other words, each problem is
unique in nature. For dealing with such special problems, executives usually refer them
to the top management. For tackling such situations, the manager needs expertise,
intuition and creative thinking.
(v) Individual Vs Group Decisions
Decisions taken by the individual in his personal capacity are known as individual
decisions. Organisations which are small in size can accommodate this type of decision-
making process. When organisations grow in size and stature, complex problems do
come into picture. Group decisions are considered to be the best under such situations.
Group decisions represent the thinking of more than one executive. The commonly held
belief is that "two brains can certainly think in a better way than one."
Having discussed some of the important types of decisions in the earlier paragraphs, a
brief attempt is made to identify some common elements in the decision making
process. These elements form as important steps for carrying out decision-making
process systematically. The various steps involved in the decision-making process are
explained below with the help of the following figure.(V. 1 .A)

Step (1) Defining the problem
The first step is to determine what the real problem is. A problem is half-solved when it
is correctly diagnosed.
Money and effort are going to be wasted if problem is not determined correctly. That is
why, accurate diagnosis of the real problem is necessary to find out right solution. One
should look at the real causes and for the remedial measures by touching the inner
details of the problem. Touching only the outer surface of the problem and arriving at
decisions may lead to fallacious conclusions.
Step (2) Analysing the problem
Once the problem is clearly defined, then, it must be analysed in the light of data
pertaining to various factors that surmount the decision. Every situation may have some
advantages and limitations. Necessary emphasis should be laid on locating the
limitations and obstacles in achieving a desired result. Necessary care should be
exercised in avoiding personalised bias in judging certain factors. Analysis of crucial
factors provides a sound basis for making effective decisions.
Step (3) Developing alternatives
The analysis of the problem becomes complete once it throws light on several alternative
solutions. In fact, the success of decision-making process depends upon the ability of an
executive in developing alternative solutions to a given problem. This requires lot of
imagination, experience and judgement. Exploring the positive or negative impact of
such alternatives forms as a solid base for sound decisions.
Step (4) Evaluating Alternatives
Once the alternatives are developed, the next step is to evaluate them in terms of their
cause, time, impact, objectives etc. Many a time, either marginal cost or cost benefit
analysis is used to bring out the tangible benefits of each of such alternatives. Each
alternative solution may have its own merits and demerits. They should be compared
with other alternatives for the purpose of appraising the real impact. Peter F Drucker
has identified risk, economy, time and limitations as important criteria for evaluating
the consequences of different alternatives.
Step (5) Selecting the best possible solution
Selection usually involves choice making. It is the last step in decision-making process.
The manager has to select such an alternative course of action which can make the
maximum contribution to the goal. It is not always possible to select the best alternative
for a given problem. That is why the manager has to rely upon such course of action
which can yield good results under a given set of circumstances and limitations.
Step (6) Implementing the decision
Once the best alternative is selected, it must be implemented. This step mainly deals
with the execution of the decision taken. It involves development of step by step plans,
selling the idea to subordinates and seeking co-operation from the needy people. At this
stage, the decision is converted into action. The decision must be implemented in the
right time and that too in a proper way.
Step (7) Evaluation of Decisions
The final step in decision-making process is evaluation. The actual results of the
decision should be compared with the expected results in order to locate; the reasons for
deviations. This review is a continuous process and it generates information for
necessary feedback for further improving the decision-making process in future.
Rationality in decision-making
The term 'rationality' refers to objective and intelligent action. A decision is said to be
rational if appropriate means are chosen to accomplish desired objectives. It implies
that decision-maker tries to maximise the values in a given situation by choosing the
most suitable course of action. A good decision depends on the maker's being
consciously aware of the factors that set the stage for the decision. Obtaining complete
rationality is not always possible. That is the reason why people prefer to take
satisfactory decisions instead of ideal or optimum decisions. Managers are not always
confronted by the problem of rationality in decision-making. In practice, they confine
themselves to few important alternatives which have limited risks combined with
favourable consequences.
Limits of Rational Decision-making
Managers are not always rational in their decision-making. They cannot always abide by
the demands of rationality in decision-making process. There are some limitations
which are briefly explained in the following lines.
(a) Since decisions are related to future. Managers cannot foresee all the consequences
accurately. Moreover, lack of complete knowledge about the problem also makes it
impossible to choose a good decision.
(b) Because of time and cost constraints, all complex variables that have a bearing on
decision cannot be examined fully. Hence, the decision-maker is forced to strike a
balance between complete rationality and hard realities on the ground. The impact of all
the variables cannot be ascertained because some of them may be intangible.
(c) The consequences of various alternatives cannot be anticipated accurately. Hence,
decisions taken under uncertainty cannot guarantee the success of decision-making
process.
(d) Human factors like value systems, perceptions, social factors, institution etc., are the
main limits on rational decision-making. Managers, being human beings, are greatly
influenced by their personal beliefs, attitudes and biases. Because of this, the capability
of a decision-making process varies from individual to individual and from situation to
situation.
Every manager is vitally concerned with the above limitations in his approach to rational
decision-making. He has to collect all the relevant information and try to overcome the
above limits on rationality and choose the most rational decision for solving any given
problem.
Barriers to effective Decision-making
Apart from the above limitations, decision-making process remains to be ineffective
because of the existence of various barriers in organisation structure. These barriers
impede the process of identification of problems, its analysis and the development of the
solutions. Elbing has identified some of the important barriers that can block
managerial effectiveness in choosing the most suitable decision. Some of them are listed
below.
(i) The tendency of a human-being to evaluate a given problem with pre-conceived
notions, acts as a stumbling block in understanding the real situation.
(ii) Though it is dangerous, managers feel safer if they do not change what is familiar.
Eventually, the ineffective decision of a familiar way becomes accepted rather than
considering new and innovative means.
(iii) Many managers fail to demarcate the symptoms from the main problem.
(iv) Many managers have a tendency to respond to the problem instantaneously without
proper information and thinking. If they gather more information, they become more
aware of their options.
(v) Similarly, the tendency to equate a new challenge with that of old experience is
common with many managers. This often causes managers to look for what is familiar
rather than what is unique in new problem.
The above problems are mainly responsible for either indecision or for half-decisions in
the modern organisations. Knowledge of the above problems will surely help the
managers in arriving at pragmatic decisions. The following suggestions can be offered to
overcome the above barriers so as to make the managers more effective in decision-
making process
(1) Avoid premature evaluation.
(2) Initiate impartial probing by avoiding personal biases on the outcome.
(3) Develop a sound system that can supply adequate information for making decisions.
(4) Encourage group leaders to respond to a given situation and compare the pros and
cons of the solutions offered by the two groups for making an effective decision.
(5) Encourage innovative thinking among the subordinates so as to identify the crux of
the problem without waste of time and money.
(6) When decisions of critical and pivotal in nature are to be taken, encourage group
thinking. For this, the problem is to be presented to the subordinates first and they are
asked to develop as many solutions as possible in a free environment.
TECHNIQUES OF DECISION-MAKING
(1) Brainstorming
Brainstorming is the oldest and widely followed technique form encouraging creative
thinking. It was originally developed by A.F, Osborn. It involves the use of a group. This
is an approach to improve problem discovery and solving by encouraging subordinates
to give their ideas and solutions in a free environment. It starts on the premise that
when people interact in free environment, they will generate creative ideas. Continuous
interaction through free discussions may result in spontaneous and creative thinking.
The larger the number of solutions, the fairer are the chances in locating an acceptable
solution. Established research proves that one hour brainstorming system is likely to
generate 50-150 ideas. It is interesting to note that while most of them are proved to be
impracticable, at least, some of them merit serious consideration. This group process is
not without limitations. It consumes lot of time and therefore, is an expensive exercise.
Secondly, it emphasises only quantity of solutions which more often than not proved to
be superficial. By overcoming the above limitations, a modern manager can use this as
an effective tool.
(2) Synectics
When compared to Brainstorming, synectics is a new concept developed by Williamb
J.J. Gordon. The term 'synetics' is derived from a Greek word which refers to "Fitting
together of diverse elements". It starts on the premise that this concept encourages
novel thinking for the development of alternatives through putting together different
ideas which are distinct from each other. A given problem is presented to a group of
people with different backgrounds and varied experiences.
It is the responsibility of the group leader to present the problem and lead the
discussions in order to stimulate creative solutions. This approach ensures on the spot
evaluation of members suggestions. The leader who is a technical expert is always
assisting the group in evaluating the feasibility of their ideas. Experience shows that
synectics has been less widely used than "Brainstorming". When the problem is real
tough and challenging, this approach is used for effective decision-making. Like
Brainstorming it also suffers from the same range of limitations.
(3) Operations Research
The origin and development of operations research is attributed to military operations
and applications in II
nd
World War. The war put tremendous pressure on the use of
available scarce resources for various strategic and tactical operations. The success of
operations research in developing options of effective and efficient nature was
instrumental in making this approach rather dependable in decision-making process.
Now-a-days, greater emphasis has been laid on the use of mathematical models to
reflect different options and constraints in a situation and their effect on a selected goal.
This quantitative approach to decision-making is usually referred as "Operations
Research". Of late, it has become an invaluable tool in the kit of a decision-maker.
Operations Research employs optimizing models like Linear Programming, Project
Management, Inventory Control, Decision Theory and Waiting Line Theory.
Operations Research is the systematic method of studying the basic structure, functions
and relationships of an organisation as an open system. It always adopts a systems
approach to management in getting things done. It is constantly interested in
developing optimal solution with limited resources in a given situation. It covers six
steps in its approach to problem solving. They are:
(a) Identification of a problem;
(b) Construction of a mathematical model to investigate the problem;
(c) Developing a good solution;
(d) Testing of the model in the light the data available;
(e) Identifying and setting up of control points;
(f) Implementation of the option as a solution to a critical problem (putting a solution to
work).
In essence, Operations Research attempts to develop the best solution that will
contribute to organisational goals.
Limitations of Operation Research:
i. Operations Research technique is not a panacea to all the problems of modern
management. In other words, it is not the end.
ii. Since Operations Research does not take intangible aspects into consideration,
subjective judgement becomes difficult under this model,
iii. As the Operations Research technique directly depends upon the use of
mathematical and statistical tools, it is increasingly becoming complex and costly
exercise,
iv. Since decision making is a human process, it cannot be predicted properly. At the
same time, the impact of such factors cannot, be measurable.
(4) Delphi Technique
It is a technique normally used for forecasting future events. It is a group decision
making technique. Under this method, independent opinions are sought from the
members repeatedly so as to develop a best solution to a given problem. The success of
Delphi technique depends upon a simple technique of understanding the problem from
the other man's perspective. This ensures success. Though it is a useful technique, since
it involves time and cost, it cannot be tried in all situations.


Please use headphones

CASE STUDY (1)
Renuka Tin manufacturing was facing problems in meeting production schedules and
producing quality products. In view of recent trends in globalisation of Indian market,
good number of orders were received from developed nations. The problems of meeting
rush orders from foreign countries is placed before the operations research department.
The OR department has located some weaknesses of the unit like lack of automatic
equipment and poorly designed production process. To overcome these weaknesses, the
management has proposed to invest Rs. 70,00,000 for buying new automatic
equipment and rearranging the production process. It is contemplated to increase the
output by 40 percent by committing Rs.70 lakhs of investment. It is expected that this
increase in output will enable the unit to meet foreign orders without disrupting the
normal business. Further, it is estimated that new facilities and reorganised production
process coming together will generate savings which can pay off Rs.70 lacks in three
years.
QUESTIONS
1) If you are a Manager, would you advocate additional investment based on the
recommendations of OR department?
2) What additional information would you seek before the decision is implemented?
3) What controls do you suggest for getting projected savings as a matter of reality?
CASE STUDY (2)
Women as Chief Executive Officer
The demand for managers with good background is great. Mrs. Vedavathi Malhotra was
one of the most sought after executives in India in 1990s. She was the first women to
head an industrial undertaking ATLAS & Co., in India. This Company is biggest one in
making cycles spare parts. The background of Mrs. Vedavathi Malhotra is really
interesting. After receiving her degree in Economics and Business Administration from
IIM Calcutta, she worked for Rallies India Ltd. When Rallis sold its spare parts division
to BSA cycles, she worked as a marketing Executive for BSA. While ATLAS Company is
in loss, her services as Chief Executive were called on. She helped in achieving "turn
around" and the Company is getting small profits. An International Company like IBM
would like to hire the services of Mrs. Vedavathi Malhotra at a slightly higher pay but
she rejected the offer.
QUESTIONS
1) Why was Mrs. Vedavathi Malhotra a much sought after Executive?
2) What factors might have motivated her to be in ATLAS?
REVIEW QUESTIONS
1) Define decision-making. Describe the different types of decision
2) Describe the planned or step by step approach in decision-making process.
3) Briefly explain about the barriers of decision-making process.
4) How Operations Research is helpful in decision-making? Identify the limitations of
Operations Research?
5) What other techniques can be tried by the management in making effective decisions?
REFERENCES BOOKS:
1) Essentials of Management - Harold Koontz & others.
2) The process of Management - William Newman and others
3) Management - A.G. Bedian.

- End Of Chapter -
LESSON - 18
COORDINATION

LEARNING OBJECTIVES
To define the concept of coordination;
To identify the need and significance of coordination;
To understand different types of interdependency concepts;
To review the principles of coordination;
To explain the various approaches to effective coordination;
To identify the problems in coordination.
Harmonious relationships between the various divisions and departments of an
organisation are a must for its smooth functioning. The activities of the various divisions
have to be blended and unified so as to give them a commonness of the purpose.
Hitherto, the concept coordination was viewed as one of the functions of management.
Now, it is regarded as the essence of the management process. It helps in achieving
harmony among individual efforts towards the accomplishment of group goals. Group
goals cannot be achieved automatically. Individual efforts must be integrated and
synchronised inorder to attain common objectives. It is a dynamic concept. It implies an
orderly arrangement of group efforts to ensure unity of action. According to Henry
Fayol, to co-ordinate is to harmonize all the activities of a concern so as to facilitate its
functioning on the path of success. Probably in smaller organisations, there is no need
for coordination where all activities are performed by one person. With the increasing
growth and complexity of modern organisations, the need for coordination becomes
inevitable. Lack of proper coordination results in inefficient operations, delays,
frustrated feelings and waste of time.
Meaning
According to E. F. L. Brech, "Coordination is balancing and keeping together the team
by ensuring suitable allocation of task to the various members and seeing that tasks are
performed with due harmony among the members themselves."
According to Farland, "Coordination is the process whereby an executive develops an
orderly pattern of group efforts and secures unity of action in the pursuit of common
purpose." This definition views coordination as the task of integrating the individual
needs with that of the organizational goals through proper linking.
Characteristics
The above observations reveal the following features of coordination.
i) Coordination is not a distinct function. But represents the essence of management.
ii) The outcome of the coordination is to attain the common purpose.
iii) Coordination is essential in all work situations where people work together.
iv) Coordination is a continuous and an ongoing process.
v) Coordination does not arise spontaneously or by force. It is the result of concerted
action.
vi) Coordination is required in group efforts but not in individual efforts.
Need for Coordination
Existence of disintegrating forces emphasises the need for greater coordination among
various divisions of an enterprise. These integrating forces may act as barriers to
effective coordination. They are summarised below:
(I) Increasing Specialisation:
Coordination becomes essential when the principle of specialisation has been practised
in work situation. The activities of the unit may be divided on the basis of product,
function, region. The greater the number of units, the larger the number of
specialisations. Every executive is mostly worried about his units performance. It results
in conflicting interests within the same organisation. A good coordination paves the way
for effective integration of efforts of all people for the accomplishment of a common
goal.
(ii) Empire building motive
As stated above, each executive is deeply motivated by the performance of his own unit
in question. This kind of attitude may well fulfil his personal ego but isolates him from
others. Organisational goals cannot be accomplished with this kind of tendency.
Coordination is essential to ease out this situation.
(iii) Personal conflicts between employees
Employees are human beings. Personal rivalries, jealousies and politics in the work
situation are bound to create problems to the management. For example, conflicts
between line and staff and differences between production and sales personnel create
problems in the smooth functioning of an organisation. Coordination helps in
harmonizing group efforts.
(iv) Subordination of individual interest to that of organisational interest
Individual interests are important for developing loyalty, integrity, hard work, initiation
and motivation. Organisational interests are much more important than individual
interests. For achieving this, subordination of individual needs to that of organisational
goals is a must. The purpose of coordination is to attain this desired end.
The importance of coordination need not be over emphasised. The primary task of
management is to coordinate effectively all the activities. It is the end result of
managerial process. It is a creative force through which members of the organisation are
encouraged to contribute to group goals voluntarily, willingly and enthusiastically. It
emphasises system's approach to management. The various functions of management
cannot be viewed in isolation, but has to be viewed in totality. Coordination allows
personal satisfaction on one hand and social satisfaction on the other hand. It, thus,
promotes efficiency and tones up the general level of employee morale.


Please use headphones

Types of Coordination
Depending upon the nature and coverage, coordination may be studied under different
types. On the basis of its coverage, coordination may be divided into two types, such as,
internal and external. Another type of classification is possible on the basis of its flow
under two headings, mainly, vertical and horizontal coordination.
Internal and External Coordination
Coordination between units of the same organisation is termed as internal coordination.
It summarises the activities of different units so as to make the organisation more
effective. Organisations are not free from the influence of external environment Hence,
establishing a close link between organisations and external environment is a must
either to survive or surpass the growing competition. External environment includes
technology, competition, market forces, customers, government policy etc., External co-
ordination tries to coordinate all these forces up to the advantage of an organisation.
Vertical and Horizontal Coordination
Coordination between different levels of hierarchy down the line is termed as "vertical
coordination". It ensures that all levels of people, from top to the bottom, work in
harmony. It is greatly facilitated by a technique like delegation of authority to the lower
levels of hierarchy. Coordination between people of the same cadre and between
different departments at the same level is termed as ''Horizontal Coordination".
Another classification depending upon its content views coordination from a different
angle.
Procedural and Substantive Coordination
Procedural coordination implies the specifications of different units in the same
organisation. On the other hand, substantive coordination is concerned with the content
of organisational activities.
Principles of Coordination
Mary Parker Follet has laid down the following four principles for effective coordination.
These principles help every manager in discharging his functions.
(i) Early Start
Thinking function of the management precedes the doing function. The task of
coordination becomes relatively easy if it starts at the planning stage. Free exchange of
ideas helps in clearing doubts and remove misunderstanding. Hence, plans must be
prepared in consultation with all people. Plans become successful if coordination is
practised at initial stage. Securing coordination becomes impossible at later stages like
execution of work.
(ii) Direct Personal Contact
It stresses the importance of direct contact in removing conflicts and misunderstanding.
Effective coordination is best achieved through direct personal contact. Direct
communication is the most effective way to convey real feelings to facilitate greater
coordination.
(iii) Continuity
Coordination is an unending process. It cannot be left to chance. The management has
to continuously strive hard to maintain perfect balance among different units/people.
Continuous coordination helps the manager in adjusting and re-adjusting the range of
activities so as to minimise wastages, misunderstanding and apathy.
(iv) Integration
The fourth principle of coordination calls for integration of efforts for achieving a
common purpose. For this purpose, coordination demands reciprocal relationship
among all the concerned.
Interdependence and Coordination
Coordination influences all functional activities of management. In a similar way, all
other activities influence coordination. This is termed as "Interdependence". Such an
interdependence is imperative for the success of any organisation. Such
interdependence of work units has been categorically classified under three heads by
James D.Thompson. They
(a) Pooled interdependence;
(b) Sequential interdependence; and
(c) Reciprocal interdependence.
(i) Pooled Interdependence
When departments/units/divisions are not directly dependent on each other, but
indirectly responsible for overall performance of the enterprise, it is termed as "Pooled
interdependence". It represents a situation where failure of one unit/division leads to
the failure of the entire enterprise. Each unit/department makes its own contribution
and supports the main system in its own way.
(ii) Sequential interdependence
It refers to a situation where the output of one department becomes the input of the
other. This type of interdependence usually exists in process industry.
(iii) Reciprocal Interdependence
It refers to two way interdependence. Here, the output of one becomes input of the other
and vice-versa.
Approaches for Achieving Effective Coordination
Different organisations adopt different mechanisms for achieving effective coordination.
There is no single method of coordinating the managerial activities that can be
universally acceptable. J.D. Thomson has identified three important categories of
approaches for achieving effective coordination. All of them are integrative mechanisms.
Each one of them is explained below.
1. Integration through standardisation:
It involves the development of standard rules and procedures through which the job
holders/ departments have to direct their activities in order to ensure consistency in
operations.
2. Plans and Schedules:
Separate plans and schedules may be prepared for each departments or units. At
corporate level, all plans are merged and integrated so as to obtain optimum results.
Coordination becomes easy since departmental plans are flexible than standards.
3. Mutual adjustments: Activities of company are coordinated through mutual
adjustments among the sister units/departments on contingency basis. Here
cooperation is assured between the needy unite for the purpose of getting the things
done.
In traditional organisations coordination is sought to be achieved through
standardisation and planning. The usual methods followed by the traditional and
bureaucratic organisations for achieving effective coordination are listed below.
1. Developing elaborate system of rules and procedure for sorting out recurring
problems.
2. Non-routine problems are to be referred to higher-ups.
3. Where decisions relating to new policy matters have to be taken up, they may be
referred to special committees.
Traditional organisations could able to reap advantages through following the above
mechanisms for obtaining higher degree of coordination among sister units. This
traditional approach is best suitable to normal and predictable conditions. But this kind
of approach is : adequate to meet the requirements of a modern organisation under a
dynamic environment. More sophisticated methods have been developed by the
researchers for the purpose of improving coordination. John Child suggested the
following forms of coordination for improved functioning of the organisations,
1. For understanding business problems and offering solutions, direct contact between
managers and employees facilitates greater coordination.
2. While too much rapport is required between employees and departments, better
coordination may be obtained through the appointment of liaison officers.
3. While there are inter departmental conflicts which cannot be solved immediately,
coordination may be attained through special task forces which would deal special
situations.
4. Special committees may be appointed to deal with the recurring problems of inter
departmental conflicts.
5. An organisation which is too big with several divisions may find it difficult to
coordinate the total range of activities in a systematic manner. To ease out this problem,
a coordinating department may be created within the organisation on par with other
departments to perform this special function.
6. If things are too complicated, matrics type of organisation may be developed for
establishing effective coordination. Under this method, functions of some of the
personnel may be integrated with the functions of other departments. This kind of
arrangement encourages effective understanding between various
divisions/departments. This facilitates higher degree of coordination among the
member units of organisation.
Van de Ven and others proposed three approaches as basis for coordination. They are
summarised below:
a) Impersonal mode: This model envisages designing of rules, procedures and
programmes suitable for smooth functioning of the organisation.
b) Personal mode: Here, human beings are encouraged to find out now things are
going on and to discriminate what to do and what not to do through effective feedback.
Personal involvement surely contributes to effective coordination.
c) Group mode: When operations are large, a single individual cannot coordinate
properly. This model suggests establishment of committees, task forces, meetings etc.
The logic behind this approach is that "two brains can think better than one brain."
As stated earlier, no single approach to coordination is proved to be useful to all
organisations. The suitability of a particular approach to coordination depends upon
factors like size of the organisation, complexity of its work, nature of work force,
certainty and uncertainty conditions delegation of authority etc. The process of
coordination becomes useful and meaningful only with the delegation of appropriate
authority.
In order to minimise the problems of overriding departmental interest for the cause of
the organisational objective effective coordination is needed. For example, a finance
manager may issue a direction that no overtime allowance be paid to workers. At the
same time, production manager is worried about realising production target. He may
issue mother direction that production workers are entitled to overtime allowance. This
might have been done in his anxiety to realise production target. This situation results in
misunderstanding and conflicts. The solution for this type of problem lies with effective
coordination among member departments.
Coordination process is essential to make unified whole out of diversified factions on
smooth lines. It pervades all the managerial activities from planning to controls. Big
organisations are now creating separate departments for coordination among
departments. New rules and procedures may be developed to minimise problems like
red-tapism, overriding goals, blind loyalty and friction.
Co-ordination Vs Co-operation
The term co-operation refers to collective efforts of people who associate themselves
voluntarily to achieve some predetermined objective. It indicates about the willingness
of individual to help each other. It is the result of voluntary attitudes of people in
organisation. However it cannot be a substitute for coordination. While co-operation
facilitates coordination, coordination is all inclusive including cooperation.
Coordination involves deliberate effort on the part of management to bring together the
activities of various individuals / divisions / units in order to provide unity of action.
Coordination does not arise automatically. It requires conscious efforts, whereas
cooperation is the results of voluntary efforts put by the people. Thus this scope of
coordination is wider than co-operation.
Summary
The term coordination refers to orderly arrangement of group efforts for the purpose of
accomplishment of objectives. It is the basic responsibility of every manager. It is a
continuous process. Unlike previously it is not viewed as a distinct activity but
considered as the quint essence of management. The problem of coordination comes
into picture when management is dealing with group efforts but not with individual
efforts. The term coordination should not be confused with cooperation. The
significance of coordination results in efficiency, morale and optimum use of resources.
On the basis of scope and coverage, coordination may be divided into different types.
Namely internal Vs external, vertical Vs horizontal, procedural Vs. substantive. Different
techniques are available for achieving higher degree of coordination. Similarly different
managements deal the problem of coordination through different approaches. Whatever
the approach, it has to clarify the role of manager regarding his authority and
responsibility for the purpose of attaining optimum use of resources to the common
cause of the organisation.
CASE STUDY (1)
Modern Foods
Modern Foods has been facing the twin problems of productivity and morale at Delhi
Plant. A new plant at Kanpur has been set-up by taking all precautions to overcome the
problems of Delhi Plant. The work activities together with pay norms have been
entrusted to a "coach" instead of to a "supervisor" at Kanpur Plant. At new Plant,
workers organised themselves as a 'team' and decided what to do, when to do and how
to do? This approach facilitates wider span of management and greater clarity in goal
pursuit. Costs and labour turnover have come down. In fact, Modern Food accepted the
new plant as a model unit.
After five years, many executives resented this system and they were under the
impression that their authority and expertise were ignored. Competition between teams
and team leaders developed and this has created the problem of coordination. Workers
felt uncomfortable about deciding pay rates of their fellow-workers. Due to pressure of
changing scene, some aspects of the plant system have been changed. Supervision is
made stiff and more management positions are created. This created an impression that
the management is not happy with the experiments of Kanpur Plant.
QUESTIONS
1) Why did Modern Foods try a new way of getting things done fit Kanpur Plant?
2) Identify the Coordination problems witnessed in this case.
3) Suggest ways of maintaining morale through better coordinated efforts.
REVIEW QUESTIONS
1) "Coordination is the very essence of management" Do you agree? Give reasons.
2) What is Coordination? Discuss the essential characteristics.
3) Describe the importance of coordination. Discuss tin techniques of achieving
effective coordination.
4) Write short notes on the following:
a) Types of Coordination
b) Principles of Coordination
c) Approaches to Coordination
REFERENCE BOOKS
1) Essentials of Management - Harold Koontz & others
2) Management - James AE Stoner and Charles Wankle


- End Of Chapter -
LESSON - 19
CONTROL

LEARNING OBJECTIVES
To understand the meaning, steps and the process of control;
To examine the pre-requisites and characteristics of control process;
To illustrate the importance of control system;
To analyse the methods of control;
To describe the role of integrated control system.
INTRODUCTION
Controlling is an important element of management process, it is mainly concerned with
measurement and correction of performance in order to attain pre-determined goals.
Planning and controlling are closely inter-connected with each other. Plans cannot be
carried out automatically. The managers have to regulate the activities, review the,
progress and steer the operations to conform to plan. Hence, control concerned with the
attainment of organisational objectives through regulating individual performance. It is
not an exaggeration to state that the success or failure of any organisation depends upon
the control process. It touches every facet of the managerial activity.
Control process in the organisation can be compared with that of a thermostat which
regulates the room temperature. Controlling is the function of every manager. It is
mainly concerned with the execution of plans in a desired way so as to obtain better
results. In the words of Henry Fayol: "Control consists in verifying whether everything
occurs in conformity with the plans adopted, the instructions received and principles
established". Its object is to point out weaknesses in order to rectify them and prevent
recurrence". In a way, it is acting as a facilitating function.
Definition
According to EFL Brech, "Control is checking performance against pre-determined
standards contained in the plans with a view to ensure adequate progress and
satisfactory performance". As per this definition, control guides actions towards some
pre-determined goals.
In the words of George R. Terry, 'Controlling is determining when is using
accomplished, that is evaluating the performance takes place according to plans'. This
definition emphasized the fact that the managerial activity of controlling compels the
events to conform to put through appropriate corrective measures.
To understand the real meaning of control, the definition given by T. Haiman is useful.
To him, "Control is the process of checking to determine whether or not plans are being
adhered to, whether or not proper progress is being made towards the objectives and
goals and acting, if necessary, to correct any deviations". This definition summarises the
purpose of control. As per this definition, control involves measurement of performance
against standards set for the purpose of initiating corrective action. The above
definitions give rise to the following characteristics for control concept.
(i) Last Function of Management
Control follows other managerial functions like planning, staffing, organisation and
directing. Hence, it is considered as the last function.
(ii) All Pervasive
Control ensures consistency in action in a desired way. Control affects other managerial
functions and, in turn, affected by them. Hence, it is termed as all pervasive.
(iii) Continuous Process
There is a wrong notion that control is needed when something's going wrong. It is a
dynamic process of measuring, checking arm regulating the managerial activities in an
un-interrupted manner. As the process of management is incomplete without
controlling, controlling is considered, as an unending process.
(iv) Forward Looking
Past activities can neither be improved nor controlled. Control does not only deal with
the post-mortem of what has happened but also regulates the activities for improved
performance in the near future. Thus, control is looking at future through the eyes of the
past.
(v) Objectivity
Control is not an end in itself. It is only a means for accomplishing pre-determined
objectives. Control without objective lacks sense and proves to be unworthy of its
existence.
(vi) Delegation
Control becomes meaningless without proper authority. When authority is delegated,
control compels the delegator to discharge his duties in a proper way.
(vii) Feedback
It refers to efficient system of reporting back for effective control. Continuous
monitoring and review of operations are essential for effective control in any
organisation.
(viii) Information
Information is the key to success. Control depends upon the information regarding the
actual performance. Accurate and timely availability of feedback is the basis for the
success of control.
Planning Vs Control
There is a close relationship between planning and control. These two are supplement to
each other. While planning is looking ahead, control makes use of standards for
improving future on the basis of the past experience.
BASIC CONTROL PROCESS
The basic control process Involves three steps:
(i) Establishing standards;
(ii) Measuring performance; and
(iii) Compare the results wetly standards and correcting deviations.
The details of these three steps are given below.
(i) Establishment of standards
The term standard refers to 'norm' or some criteria of performance. Standards are either
qualitative or quantitative goals to be attained. To illustrate some of the standards, we
may consider the following verifiable goals, performance, productivity, profitability, etc.,
are the best examples of quantitative standards. Innovations, social responsibility and
morale are the examples of qualitative standard. The management may establish
standards on the basis of past experience. These standards are helpful to management
either for measuring the performance or Judging the success or failure of the
organization.
(ii) Measurement of Performance
It is essentially a comparison process wherein the actual are measured against standards
for the purpose of detecting the deviations but measurement is not always practicable.
Yet, a forward looking manager has to work it out to prevent reoccurrence of mistake
committed by the management. The purpose of the measurement of performance is to
alert the management about the probable departures from the established path for
taking appropriate actions.
(iii) Correction of Deviation
Control does not end with the measurement of performance and its comparison with
standards. Appropriate corrective action is to be taken on the basis of feedback
obtained. Taking corrective action sevens to be

more appropriate while the work is in progress. When the from that of standards,
reasons for such variances are analysed to identity the root causes.
Once reasons are known, it is easy to take corrective action at an appropriate time. For
this purpose, the management needs control information.
The basic control process is shown in figure V.3.A. It illustrates that the desired
performance in the form of standards are laid down from plans. Actual performance is
the result of management operations like Organizing, Staffing & Directing.
Measurement and comparison of actual performance gives rise to identification of
deviations. Corrective action is initiated on the basis of analysis of causes for the
occurrence of deviations. All appropriate measures must be launched to correct
deviations which form the basis of future desired performance.
That is why effective control system should try to overcome the weaknesses of
traditional feedback system of getting communication to be modified as feed forward
system. The main difference between these two systems lies with the flow of
information, while information is the end product of feedback; it is the Input of the
control system in feed forward tie. It is an innovative way of monitoring real time
information to adopt the functioning of the organization to suit the dynamic conditions.
Feedback Control
The term 'Feedback' refers to the process of adjusting future actions, on the basis of
information about past performance. It is vital to the management because it guides
corrective actions. A good control system always depends upon effective feedback of
information. But, feedback always consumes time. Management control cannot be
instantaneous because of this time lag. The traditional view is that planning is a forward
looking exercise, controlling is a backward looking exercise. But, a good control system
should be futuristic. That is why Harold Koontz observed that: since past cannot be
changed, effective control should be aimed at preventing present and future deviations
from plans. The present age of computerization comes handy in obtaining feedback on a
real time basis. It means that it inculcates "act now" philosophy in control process.


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Importance of Control
The importance of control in an organization need not be over emphasized. Many
benefits accrue out of effective control system. To highlight the importance of control,
the benefits of control are summarized to in the following paragraphs.
1. Facilitates Decision Making
The purpose of control is to take corrective actions. Corrective measures involve right
decisions so as to bring the actual performance to that of a desired level. Majority of the
executive decisions are centering around control points. Hence, control facilitates
decision making process in any organization.
2. Checks on Delegated Authority
No single manager can obtain the total things in the organization. He has to delegate
authority for the purpose of getting things done through his subordinates. Control
enables the manager to check whether or not the delegated authority is being properly
used by the subordinates.
3. Basis for Future Action
Through the evaluation of final results control helps in spotting mistakes and
weaknesses in the process of implementation of plans. Control supplies useful
information for future planning and organizing. A good control system enables the
manager to correct the shortcomings in order to pave a smooth route for future
activities. Such a system of control guides and directs action towards the organizational
objectives.
4. Improves Employees Morale
Effective control system enables the management to identify changes that are effecting
the organization so that subordinates can take advance action to cope-up with threats
and opportunities created by such change. It allows timely feedback of information to
the subordinates for taking appropriate measures to protect their positions. This
ensures a sense of security and comfort among employees which in turn, contributes to
higher degree of motivation and morale.
5. Promotes Efficiency in Operations
Control enables the manager to take note of the activities, to detect deviations and to
make adjustments in operations. It ensures him that the enterprise moves in a way as
planned. It tells the manager whether the objectives are being achieved or not. If not, it
helps the manager to revise the plans for achieving goals. Thus control contributes to
organizational efficiency.
6. Basic of Co-ordination
Control tells the managers what to do and what not to do for the purpose of establishing
harmony among various divisions. Control provides unity of direction and tries to
establish equilibrium between means and ends. Thus control promotes co-ordination
between different of the organization
7. Exerts Psychological Pressures
Control influences the behavior of the employees in a positive way. Workers become
cautious in their duties because their performance is subject to evaluation and control. A
good control system brings necessary pressure on the employees to become good doers.
Not only that, control makes the people to act promptly for minimizing the wastages
and losses.
Establishing a control system itself is not a panacea for all the ills of organization. A
control system may have the following limitations.
1. Absence of Proper Standards
The success of an organization depends upon both tangible and intangible factors. While
tangible factors are easily controllable, intangible aspects like quality of supervision,
inter-personal relationships, public relations, brand loyalty etc., cannot be quantified for
establishing standards.
2. Limitations of Corrective Actions
Operating conditions of a business are highly dynamic and volatile. It is not possible to
take corrective actions all the time. No business enterprise would have incurred losses
had the corrective action been proved to be corrective or productive. It means that there
are several limitations in taking corrective actions.
3. Human Reactions
Controls invite opposition from the subordinates because they interfere in their
freedom. Controls will not work unless people accept them. People oppose controls
when they are biased, unreliable td subjective.
4. Cost of Control
Establishing a good control system is not so easy. It needs elaborate effort, time and
money. In modern organisations where man-machine systems go hand in hand,
establishing a control system is a complicated process. This may result in excessive cost
than the benefits of control.
Pre-requisites of Control
An effective and adequate system of controlling must fulfill the following requisites.
a) Plan: There is a close inter-relationship between planning and controlling. They are
not substitutes but supplement to each other. Plans without control are worthless and
control without plans are meaningless. Controls must be always based on plans.
b) Proper Organisation Structure: Any control process yields good result only
when the responsibility for detecting the deviations and initiating corrective actions is
clearly defined and identified along the liner of hierarchy throughout the
organisation. Controls, to be effective, be supported by a good organisational structure.
c) Suitability: A sound control system must suit the needs of the enterprise. Control
points designed for a manager are inappropriate for a supervisor. Controls must be
tailored to the needs of an organisation.
d) Promptness: A good control system should detect and report the mistakes before
the matter becomes serious. It should allow prompt action by the management at
correct time.
e) Forward Looking: Controls should be forward looking character. They should be
directed towards future. Since past is dead, things can be improved through control
system in future. Control becomes useless if it fails to predict future.
f) Flexibility: Control should not be static. They should remain workable under
dynamic business conditions. Since controlling is a continuous activity, it should be
flexible enough to be adopted to changing conditions of an organisation.
g) Objectivity: As far as possible, control should serve a specific purpose. They should
develop impartial standards for the purpose of minimising friction.
h) Economical: The benefits from control should be greater than cost. Controls are
feasible and desirable when their expected benefits excess costs. Expensive and
inappropriate control should be avoided.
i) Simple: A good control system should be easy to understand and simple to
administer. Too elaborate and complicated control system, quite often, fails to deliver
the goods.
j) Acceptable: Controls will not work unless people accept the same. They should be
acceptable to those to whom they are applicable. Since control is for people, it must be
acceptable to the people.
Integrated Control System
Control touches each and every activity of the organisation. Whether the activities are
strategic or routine, the control should strive to obtain effectiveness. Control covers all
levels of managers from top to bottom. They affect other managerial functions in a great
way. But some controls may be disliked by subordinates on the plea that they are
unreasonable and unacceptable. This type of dislike among employees about control
process should be removed by creating a favourable environment. The effectiveness of
control is destroyed through the resistance of employees.
To overcome the above difficulties and to obtain cooperation and participation of
employees in the matters of control, the management has to develop an integrated
system of control. Any control that is intimately interconnected and intertwined with
other managerial functions is termed as an Integrated Control System. It is of very
importance to modern management in view of their operation in complex environment.
The details of such an integrated system are summarised below:
a) Control and Planning: Since control refers to the use of activity for compelling
events to conform to plans, it is evident that these two functions are interrelated.
Planning, involves setting the activities and controlling keeps them on the right track.
Planning is meaningless without control and control is blind without proper plans. The
planning, function contributes to the smooth discharge of control by way of providing
control standards through programs and budgets. Control function contributes to the
adoption of new and revised plans.
b) Control and Organising: The term organising refers to a forma grouping of
activities for the purpose of achieving organisational objectives. It ensures that
objectives are achieved through optimum utilisation of resources in an orderly manner
and that too in the shortest possible time. Resources like money, material, machinery
and skilled man power are limited. These resources must be effectively used and
controlled. It may no longer be possible for one man to control all the operations. That is
why it is necessary to delegate some responsibility and authority to the subordinates.
Control becomes easy when authority is delegated. Control receives negative response
and becomes ineffective when authority is centralised. Not only that effectiveness of
control directly depends upon the method of grouping of activities and level of
delegation of authority.
c) Control and Directing: It is the heart of administration. Since it tells the people
what to do, how to do, where to do and when to do. Activities like leadership and
communication play an important role in influencing the behaviour of subordinates in
securing desired performance. This aspect is closely related with control function. While
leadership guides action, control compels these actions to adhere plans. Communication
ensures free flow of timely and relevant information. Control uses this information as a
feedback for taking corrective action. Information is backbone for regulating the
activities in any organisation.
CONCLUSION
In order to make the control process as an effective tool in the hands of management, it
should be integrated with other managerial functions. All important and critical/aspects
should be brought under the purview of control process for obtaining better results.
Control should not be isolated from the main stream of managerial functions. Control
function becomes effective when it is integrated with other managerial functions.
Control is not a perfect substitute for sound managerial practices and cannot ensure
business success on its own merit. For obtaining results, the management has to develop
an integrated approach.
CASE STUDY (1)
The Chairman of the Reliance Finance Corporation Mr. Aditya was too critical about the
ongoing things of the company. He invited his Executive Vice-President Mr. George and
Controller of Finance Mr. Merchant for discussions. While all of them were in
deliberations, Mr. Aditya complained that he was not informed about the inner details
of the operations of the company on time and he was getting information only when
small and controllable issues become crises. Mr. Aditya was under the impression that
he was kept in dark by his team of executives and was further Isolated by non-receipt of
important information. He suggested to his senior executives to design a system within
15 days which can inform everything to him in time. But Mr. George is surprised to hear
the comments of his Boss Mr. Aditya. After the closure of the meeting, Mr. George
wondered: "While everything lies in the periodical reports submitted by him to the
Chairman, why still he is craving for a system?"
QUESTIONS
(1) Whether the Chairman was getting needy information or not?
(2) If you are Mr. George, what you would do to keep the Chairman happy through
effective control?
CASE STUDY (2)
Hindustan Corporation
Hindustan Corporation is a leading consumer product manufacturing concern. It is a
multi-product and multi-unit organisation. Though its products are enjoying good
brand loyalty, the entry of competitive products from 'Asian Tigers' (Countries like
Thailand, Taiwan, Singapore etc.) has caused alarming situation. The Chairman and
Managing Director of the Hindustan Corporation-Mr.Abhiman reviewed the situation
and came to the conclusion that the company can withstand the pressures of close
competition only when its scare resources are optimally used with effective cost control.
Mr. Abhiman summoned all of his plant Managers and informed about the precarious
situation. He further ordered each one of them to install an effective control system
within 10 days. The Plant Manager, in turn, called the Asst. Manager and passed on the
order to him. The Asst. Manager then assigned the task to his Foreman to attend the
same.
After 10 days, the Foreman informed to the Asst. Manager that he could not find a
control system suitable to the company's need despite his review of current literature
from reputed journals.
QUESTIONS
(1) Do you think that the Foreman should have worked little hard in tracing a suitable
system of control through books and journals?
(2) Suggest ways and means open for developing effective control system?
REVIEW QUESTIONS
(1) What is control? Discuss the basic steps in the control process.
(2) "Planning is looking ahead and control is looking back" Comment.
(3) Discuss the nature and characteristics of control process.
(4) Examine the 'Pros and Cons' of Controlling.
(5) Briefly explain the basic requirements of a good control system.
(6) Explain the need for integrated control system in modern business organisations.
REFERENCE BOOKS
1) Bedian,A.G. - "Management", Mc.Graw-Hill
2) Fayol, Henry - "General & Industrial Management", Pitman


- End Of Chapter -
LESSON - 20
SPAN OF CONTROL


LEARNING OBJECTIVE
To understand the meaning and nature of the concept of span of controls
To examine Graicuna's Theory together with its advantages and disadvantages.
The term 'span of control' is also known as "span of authority", "spar of supervision" and
"span of management". In modern organizations, the term "span of management" is
gaining currency because span is related to more of management than of control and
supervision. Modern executives believe that control and supervision nearly constitute an
integral part of management process.
No single executive can control and supervise all the activities of a large sized company.
Every executive needs the assistance of several subordinates in sharing the work. The
top executive, irrespective of his education and experience, takes the support of others
since he is incapacited by human limitations. This gives rise to the need for others
assistance in controlling the activities.
Meaning
Span of control implies the limitation on the number of subordinates that one manager
can effectively supervise at a particular time. The quality of supervision becomes poor
and coordination becomes weak when large number of subordinates work under a single
executive. On the other hand, if the number of subordinates is too small, the abilities of
the executives may not be used fully. A balance between these two extremes must be
maintained In order to use full potentialities of the executive. The problem of span of
control arises because an executive has limited time, knowledge and capacity. No one
can effectively supervise an infinite number of subordinates. A manager can pay
attention only on a limited number of subordinates. Deciding the optimum number of
subordinates that a manager can effectively supervise at a particular time is not an easy
job. May be it is varying from manager to manager. Hence, span of control is a person to
person concept.
According to Peter F. Drucker, span of control refers to the limit of number of
subordinates reporting directly to a superior. Koontz and ODonnell used this term to
represent the limit on the number of persons that an individual can effectively manage.
Opinions are divided on what should be the appropriate limit/span. Different
authorities have suggest different levels for effective supervision. For example, Lyndal
F.Urwick suggested that no executive can effectively supervise the work of more than
five or six subordinates. While Hamilton gives this figure as 3-6, J.C.Worthy suggested
the number of 20. These suggestions given by various experts reveal the fact that there is
no one ideal number that can be universally applied. In real life, spans differ from
situation to situation. In a research survey of hundred large companies conducted by the
America Management Association, the number of executives reporting to the top
executives varied from 1 to 24. While 26 top executives had 6 or less than 6
subordinates, in respect of others it was 9. A similar study conducted on 41 smaller
companies reveals some interesting points. Two executives of 25 companies supervised
7 or more subordinates. Similar type of studies revealed comparable results.
Problems of levels (Span)
1. Existence of too many levels is expensive because the organisation has to bear the
burden.
2. Too many levels (span) complicate the free flow of communication. Omissions and
mis-interpretations increase with wide spans. That is why it has been rightly said that
levels are "filters" of communications.
3. Existence of too many levels and numerous departments create problems even in
planning and control process. A well-defined plan loses clarity and coordination as it
passed on to the lower and lower levels. In a similar way, control becomes difficult with
too many managers.
4. Handling of superior - subordinate relationships on smooth lines is a must for the
success of any enterprise. Larger spans and too many managers may complicate the
harmonious relationships between workers and management.
5. Division of activities among various departments and creation of hierarchical levels
are not completely desirable as departmentalisation is not an end for achieving
effectiveness in organisation.
Graicunas Theory
V.A.Graicunas, a French management consultant explains, with the help of
mathematical calculations, that as the number of subordinates increased arithmetically,
the number of relationships among them increased geometrically. Graicunas has
identified three types of superior - subordinate relationships and direct, cross and group
relationships. The direct single relationship arises from the direct contacts of the
superior with his subordinates. The cross relationships refer to the mutual relationships
among subordinates working under a common superior. The direct group relationships
arise between the superior and subordinates in all possible combinations.
Ex:- 'B' is a supervisor and he has two subordinates 'X' and Y. Graicunas calculated
the possible number of relationships as follows:
(i) Direct relationships = B X 2
B Y
(ii) Group relationship = B X&Y 2
B Y&X
When a third subordinate 'Z' reports to 'B', several new relationships arise by taking the
total number of relationship to 18. The number of various relationships in a particular
case can be calculated with the help of the following formula:
Where 'r' refers to the total number of relationships, and 'n' stands for number of
subordinates on the basis of the above formula; the number of possible relationships
with different number of subordinates is summarised below:
____________________________________________________________
_______
No. of subordinates No. of relationships
____________________________________________________________
_______
1 1
2 6
3 18
4 44
5 100
6 222
7 490
8 1,080

9 2,376
10 5,210
11 1,04,86,154
____________________________________________________________
_______
The above table illustrates how arithmetical increase in the number of subordinates
results in increase in the number of relationships in a geometric proportion. Graicunas
has prescribed a maximum of six subordinates as the most desirable span of control. But
in reality, relationships as per Graicunas formula do not occur daily. One thing is clear
that it throws sufficient light on the fact that every subordinate adds pressure on the
superior's work of maintaining relationships at the spot. To summarise the findings and
principles of this theory:
(i) There is a limit to the number of subordinates that an individual manager can
effectively control.
(ii) The exact number of such span depends upon the situation and its underlying
variables like pressure of work-load, energy, knowledge and attention of the superior,
degree of team-work.


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Criticism
(i) The span of control cannot be rigid and universal. The actual span of control is
determined by a number of factors which have not been covered by Graicunas' Theory.
(ii) This theory ignores the frequency and severity of relationships that have not been
dealt within this theory.
(iii) The Graicunas' theory has left out certain possible cross relationships like 'B to XY,
X to YB and Y to XB etc.
(iv) This theory only explains one side of the coin ie., superior relationships with
subordinates. It grossly ignores the superior's sideways and upward relationships.
Span of Control and Levels of organisation
Organisation levels exist because there is a limit to the number of persons a manager
can supervise effectively. Ever growing organisation must add new levels to its structure.
Determination of appropriate span of control to suit the levels of organisation is very
important for two reasons. Firstly, the span of control affects the efficient use of
superior and subordinate relationships for obtaining better performance. Narrow span
results in under-utilisation of manager's services and over-controlling of subordinates.
On the other hand, too wide span may lead to over-straining of a manager and lack of
effective control over subordinates.
Secondly, span of control has an important bearing on the shape of organisation
structure. While a narrow span results in a "tall" organisation, a wide span leads to a
'flat' structure. This can be effectively depicted through diagrams (No.V.4.A and V.4.B)
Diagram V iv A
ORGANIDATION WITH NARROW SPANS

Diagram V iv A
ORGANIDATION WITH WIDESPANS

Narrow span refers to the existence of too many levels in the organisation. The main
advantage of narrow span is that effective leadership and control can be directly
exercised on subordinates. Superior can easily communicate and effectively coordinate
the efforts of his subordinates since their number is small. Direct contact, close
supervision and tight control can help improve the performance pattern. Organisations
with narrow spans suffer from several limitations. Too many levels hinder two way
communication when a message has to pass through different levels. Its effectiveness
may be reduced. Large number of managers is required which results in additional
salaries and high cost of management. Thirdly, a tall structure may have its adverse
impact over morale because of the absence of close link between top executive and
bottom worker.
To overcome these difficulties of narrow span (tall structure), some of the modern
companies have adopted wide span structures. Wide span prevails in flat organisations.
Here, one can find fewer levels of authority. It indicates that the chain of command is
short. Because of this, communication tends to be quicker and more effective.
Employees also develop morale because they feel that they are nearer to the top
executive. This system allows delegation of authority and development of subordinates.
It is common that subordinates feel more autonomous and independent in wide span
organisational structures. Despite these advantages, flat organisations are subject to
many disadvantages. Firstly, supervision and control tend to be loose and less effective
because a single executive may not have enough time and energy to supervise all
subordinates. Secondly, the problem of co-ordination gets magnified with wide spans.
Due to this, the performance of subordinates is likely to be pruned. Flat structure with
wide span is not at all suitable to large manufacturing organisations that have developed
business vertically.
Deciding the best span is not that much easy. The span of control must be arrived at by
proper balancing of two important factors such as organisational levels and supervisory
load. Not only that, this span of control is directly affected by another two important
variables such as capacity of the top executive to manage his work and capacity of
subordinates in carrying out the work. Apart from these factors, there are many other
factors which help us in determining the actual size of span of control. They are
explained briefly in the following paragraphs:
(1) Management Policies
They have a great bearing on span of control. If the policies are clear and
comprehensive, it results in increase in span of control. Clarity in plans, definiteness in
fixing up responsibility and use of standing plans reduce the pressure of decision
making by the top executive. Hence, span of control will increase.
(2) Nature of work
If the nature of work is routine, uniform, typical and mundane, it can be effectively
monitored and regulated through programmed decisions. It leads to increase in the span
of control. In contrast to this, volatile and complex work together with high risk-
decisions is usually found at the top management. That is why at top level, one can find
limited span of control,
(3) Line and staff relationships
If a line manager receives adequate staff help, he can bear high level of work-load and
can have a larger span of control. Existence of good superior and subordinate
relationships based on faith and mutual confidence is an essential pre-requisite to widen
the span of control. On the other hand, if the superior is tactless in handling the
relationships with subordinates, he will have limited span of control.
(4) Quality of subordinates
If subordinates are experienced and well-trained in challenges through self-confidence
and control, they will need minimum supervision from the boss. It will certainly
improve the span of control.
(5) Other Factors
The span of control in practice is affected by a good number of factors. For eg: Time
availability, degree of decentralisation, control practices. They are bound to have impact
over the size of span. We may come across limited span when the work is to be
supervised through personal observation. Similarly, wider span of control may prevail
when the work of the subordinates can be controlled through written reports.
CONCLUSION
Span of control or supervision has assumed unique importance at present. The modern
business has grown in. size, complexity, diversity and coverage. Problems of the top
executives have increased considerably. The biggest task before the chief executive is
how to reduce the work-load of less important nature in order to keep close control over
important and critical activities. The modern managements are trying to obtain between
results through practising different techniques. Span of control comes handy in easing
out his work load.
CASE Study (1)
Planning and Control at Kitplay Ltd.
Kit Jay Ltd. has been very successful since 1977 in selling Toys in India. The success of
this Company is attributable to two person Mr. Dilip - technical expert, Mr. Parimal
the marketing genius. However, the success did not last for a very long time partly
because of the introduction of the LEO Toys and Personal Computers. The Company is
fast losing its market. Kitplay Company thought of exercising tight control and
professional approach in management. Mr.Arjun was lured from Plastics India Ltd to
give Kitplay a new direction.
To bring the Company under control, Mr. Arjun employed cost cutting measuring to
improve its profitability. Spending on Research has been increased so that new products
may be developed to retain its market share. Efforts were made to reduce duplication
and friction among the departments. A new reporting procedure is evolved for
improving effectiveness in communication. All efforts are made to control the inventory
level which was hither to a serious problem. These measures combined with a successful
strategy of launching new products have helped the Company in achieving tremendous
success. As a result, one put is increased by 200 percent and profit by 150 percent within
two years.
QUESTIONS
1) What is relationship between planning and controlling?
2) How coordination is helpful in this case?
REVIEW QUESTIONS
(1) What do you understand by 'span of control'? How would you determine the
optimum span of control in a given situation?
(2) Discuss critically the theory propounded by V.A. Graicunas.
(3) Explain the factors that help to determine the actual span of control in any business.
(4) How does the span of control influence the organisation structure? Discuss in brief
the comparative merits and demerits of narrow and wide spans.
REFERENCE BOOKS
1) Koontz & O' Donnel - "Management - A Book of Readings" Me Graw Hill
2) Keith Davis - Human Behaviour at work
3) American Management - Notes on Theory of organisation.


- End Of Chapter -
LESSON-21
MANAGEMENT BY OBJECTIVES

LEARNING OBJECTIVES:
After reading this chapter, the student must be able to:
understand the concept of Management By Objectives (MBO);
develop an insight about the concept of MBO;
understand the process of MBO;
familiarise you with qualitative and quantitative objectives: and
understand the various benefits and limitations of MBO programme
INTRODUCTION:
A general purpose of control involves a manager and sub-ordinal agreeing on objectives,
recording actual performance and then, review actual with that of standards. The
manager, then has a number of options for correcting any variations. This approach was
original; suggested by Peter Drucker and popularised by George Odiorne. It is termed as
Management by Objectives. It is now practised throughout the world. While some
managers view this technique as a motivational technique, others consider it as a
planning and control device.
Management by Objectives calls for minimizing controls and maximizing motivation
through internally driven superior-subordinate relationships. The key to MBO is the
internal relationships between superior and subordinate in setting realistic objectives
for the subordinates. In simple, MBO is made up of four steps.
a) Joint goal setting;
b) Pragmatic planning,
c) Self-control by all people, and
d) periodic appraisal.
Thus, management by objectives calls for regulating the entire process of managing in
terms of meaningful, specific and identifiable objectives at different levels of the
organisation. Clear objectives serve as juice to action. It is not possible to have
quantifiable objectives every time. Under such circumstances, the management has to
develop qualitative objectives for easy accomplishment of results.
In India, the philosophy of MBO was introduced by GEC of USA in late 960s. Since then,
this concept is gaining currency throughout India. Since the concept MBO directly
influences planning as well as organising directing and controlling, it constitutes a basis
for improving the overall process of management.


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MEANING AND DEFINITION:
Management by objectives (MBO) is both a philosophy and technique of management.
Its main emphasis is on results but not on methods of doing it. As a philosophy,
management by objectives is based on the assumption that the conversion of broad
organisational goals into more specific and personalised objectives which result in
higher level of commitment and improved level of performance. Management by
objectives is also synonymously referred to as "Management by Results" "Goal
Management", "Accountability Management", "Management by Motivation" and
"PRIDE" (Performance, Results and Individual Development Evaluation).
The concept MBO has been defined by different experts in different ways. Some of the
well known definitions are presented below.
George Odiorn defines MBO as "a process whereby the superior and subordinate
managers of an organisation jointly identify its common goals, define each individuals
major areas of responsibility in terms of results expected of him, and use these measures
as guides for operating the unit and assessing the contribution of each of its members".
Another interesting definition was given by J.W. Humble. He defines the MBO as a
dynamic system which seeks to integrate the company's need to clarify and achieve its
profit and growth goals with the manager's to contribute and develop himself. It is a
demanding and rewarding style of managing a business.
Another definition which is more fascinating has been given S.K. Chakraborthy. He
opines that "MBO is a result-centered, non-specialist, operation of managerial process
for the effective utilisation of the resources of the organisation by integrating the
individual with the organisation and the organisation with that of environment.
The above definitions-throw necessary light on the real meaning of the concept, MBO.
To, conclude, we may define this concept as a "comprehensive approach focusing on
objectives, providing guidelines and developing positive motivation among all people for
the attainment of desired results". An insight into the above definitions, reveals some of
the characteristics of MBO. They are briefly explained below:
1) Goal orientation: Management By Objectives focuses on the attainment of
objectives of a firm generally established by the management. It is desirable for each
manager to have his own goal in line with the organisational goals. This kind of
arrangement will enable the management to blend long term objectives like survival and
growth with that of personal objectives like executive job satisfaction.
2) Participation: The key to MBO is the mutual relationship between superior and
subordinate in setting the realistic objectives. It is characterised by a high degree of
participation by all the concerned people. It helps in improving motivation and morale
pattern of the participants. Participative management is a pre-requisite for the success
of MBO programme.
3) Key Result Area (KRAs): Areas which are critical and important to the
organisation as a whole are termed as Key Result Areas (KRAs). It enables the
management to pay greater attention to priority areas which have significant impact on
the success or failure of the organisation.
These Key Result Areas are to be properly co-ordinated so as to make maximum
contribution to the success of the organisation.
4) Systems Approach: Management by Objectives is a systems approach to managing
any organisation, it is true because it is trying to integrate the personal goals with that of
the organisational objectives. MBO approach signifies viewing things in totality rather
than in isolation.
5) Optimum Utilisation: Management By Objectives is proved to be useful and
productive only when it ensures optimum utilisation of men materials, machines,
money and methods. It acts as a mechanism through which each of them contributes
effectively for the success of the organisation.
6) Dynamic Concept: MBO is a simple and dynamic concept. It can be fixed by all
types of managers irrespective of the fact whether they are concerned with commercial
or social organisations. It yields good results in small as well as big organisations.
7) Practical: MBO is a practical, concept which turns the concept into practice. This is
possible through operational process through which performance is measured
periodically by exercising self- control for future results.
8) Multiplicity of Accountability: The results through MBO and their accountability
is not centralised because every manager is made accountable through his individual
goals set by the organisation. Thus, it paves a way for multiple accountability centres
which discourage "buck passing" and "credit grabbing". The technique of MBO is mainly
based upon decentralised planning and centralised control.
9) Total Approach: MBO attaches equal Importance to all economic, technical, social
and human discussions of an organisation. In other words, it represents a totalitarian
approach. It combines micro level advantages with that of macro-level for the purpose of
attaching the best results.
The above characteristics represent the total philosophy of management MBO, in
essence is not representing a single technique, but depicts the whole process of the
management. It is centering around goals, participative decision-making, periodic
reviews, feedback and performance improvement For obtaining these things, it also
covers human behaviour, actions, and motivation.
HIERARCHY OF OBJECTIVES
Objectives state the end results. They determine the shape of future events. The efforts
of an organisation are properly directed when the objectives are clear. That is why
setting proper objectives is the key to success of any management. Different objectives
may be set for different levels of management. These objectives when they are arranged
in a sequential order give rise to a hierarchy of objectives. These objectives may be
general or specific. They may sometimes cover long term and sometimes short term
goals. The objectives at higher level act as ends and that of the lower level as the means.
This is also called means end chain of objectives. For example various sections of a
production department work together to fulfil the main objectives of the production
department. This means that the sectorial goals contribute to the departmental
objectives. Similarly, if all departments try to accomplish their own objectives, it leads to
the attainment of overall corporate objective of mission or purpose.

Figure VI. 1 .A shows the hierarchy of objectives from broad level to the individual or
micro level. It is stated below in clear terms.
Every organisation has a basic mission or purpose of its existence. The machine
indicates long-term commitments reflecting values, beliefs and management
philosophy. It provides grand design or purpose for which the organisation is existing.
Long-term objectives of the corporation reflect the socio-economic purposes. It
indicates that the objective of top management is to render service to society and at the
same time obtain good returns on the investment. Overall corporate objectives can be
well met through well designed medium term objectives which lay emphasis on profit
through service and satisfaction to the consumers.
Every organisation is supported by long-term as well as short-term objectives which are
further supported by divisional or departmental plans. Under systems approach, each
objective is sub-divided into goals and targets which are inter-related with each other.
When these things are inter-woven with each other, they represent a systems approach.
A good management must see that overall objectives missions purposes are fulfilled
along with the accomplishment of individual departmental divisional results.
The overall objectives set at the top level are divided and further sub-divided into goals
and targets and identified with each level of management. A good management must
always keep the sub-ordinates well aware of their common and final objectives to be
attained in the organisational context.
TYPES OF OBJECTIVES
A modern organisation cannot have a single objective such as profit maximisation.
Every organisation may have different objectives at a single point of time. What is
needed is that each of these objectives must be integrated and coordinated for the
fulfillment of overall objective of the organisation. These objectives may be broadly
classified under two types. External and Internal. A brief discussion is presented in the
following lines:
External Objectives
The most important external objective of any enterprise is to serve the needs of a
customer through its product/service. Every organisation must try to maximise the
profits. An organisation is a social institution and service to the society should be an
important external objective. Similarly, an organisation must be a good neighbourer
since it offers active support to government, education and health programmes. It must
aim at minimising the problem of pollution for ensuring good quality of life. In this
manner, an organisation must fulfill its responsibilities to the community, society and
government besides its own customers.
Internal Objectives
The primary internal objective of any organisation is maximisation of profit. Next to
that, fulfillment of employees' needs and desires is another important internal objective.
Employees' cooperation and support can be easily Obtained through providing job
security and satisfaction, Shareholders constitute an important segment of the
organisation. Every organisation must strive hand to get fair return on income. Profit is
the life-blood of an enterprise. It is an indicator of economic efficiency. Profit is needed
both for survival and growth. Unless an organisation fulfills the above objectives, it is
difficult to continue successfully in the near future.
Qualitative Objectives
Every organisation is bounded by some qualitative objectives. These objectives are not
measurable easily. Some of the important of them are briefly explained below:
1) Survival: In these days of growing competition, survival is the first objective of any
enterprise. It enables the unit "to be in the industry as a live unit." Unless the
organisation hits this objective, its future is bleak.
2) Growth: Growth is the second objective. Some organisations may grow fast and
some others being slow. A growing organisation is a living symbol of its successful
activities. Organisations can never be static in future. Moreover, the future of any
organisation depends upon its ability to grow by absorbing all changes in future.
3) Service: Every organisation is created to offer either a product or service to the
customers. The service objective enables the organisation to produce good quality
products at fair price. Obtaining customer satisfaction through after-sale-service is the
paramount consideration for the success of business.
4) Social Objectives: From the point of view of the society, every organisation is
doing in its own way for the development of the society. Some value should be created
by every enterprise through transformation of inputs into useful output. This ensures
welfare to members of the society.
5) Personal Objective: Enterprises cannot be run only with money, material and
machinery. Manpower is required to manage the whole show. Workers being human
beings, their desires, ambitions and aspirations must be taken care of.
The objective of any organisation is to satisfy the economic, social and psychological
interests of the workers.
QUANTITATIVE OBJECTIVES
1) Profit Objective: Many people believe that profit is the primary objective of any
enterprise. Infact, it is not. In a modern society, the primary objective is to render
service. Profit is only a bi-product of this service. Since profits are easily measurable,
quite often, they are accepted as sine-quo-non of business success.
2) Market Share: Modern organisations are striving hard to capture more share in the
market. A higher level of market share is an indication of its leadership in the line of
activity. Even this quantifiable objective of market share is intimately influenced by
qualitative aspects like quality of the product, after sale-service, image etc.
3) Turnover: An organisation, which maintains a low profile, may try to attain higher
level of turnover. It indicates its primary position to earn profits through optimum
utilisation of existing resources.
4) Productivity: Another important objective of the modern organisation is to
maintain the highest level of productivity. It refers to a state of affairs in which
maximum results are obtained through minimum utilization of resources. It is a
commonly accepted notion that higher the productivity level, the greater the changes of
maximum profit.
MANAGEMENT BY EXCEPTION
Network in any organisation must be efficient enough to feed relevant information to
the superiors at appropriate time to act. To keep managers from being bogged down in
communications about how matters are progressing, control communications are often
based on the Management by Exception Principle. A manager will not be disturbed for
routine matters. This principle suggests that the controlling superior should be
informed about an operation's progress only if there is a significant deviation from the
normalcy. This will enable executives to concentrate on problem solving and future
plans.
CASE STUDY (1)
Surya Electric Bulbs is a large multi-product Company. Mr. Jayadev is the chief
architect of the Company in steering the affairs on successful lines. Mr. Lakshman, with
25 years of experience, became the new Chief Executive Officer of the Company. He
pondered over the question. "How to keep long-term profitability intact?" He focused
his attention on new ways of developing strategies.
The new strategy is to increase its market share lest foreign companies may enchroach
its market with higher quality products, faster and cheaper. While Surya's high
technology products exhibited strong performance, its traditional products have been
started dwindling partly because of recession and partly because of foreign products;
The Company's original strategy of long-term profits is slowly given-up to market share.
Mr. Lakshman would like to keep the Company either as No. 1 or No.2 in terms of
market share. In order to achieve this objective, discretion in spending is given to
Divisional Managers. Mr. Lakshman is of the view that innovative way of marketing
products alone can ensure future.
QUESTIONS
(1) Is the Company's new policy of netting more market share to profits appropriate?
(2) How you would advocate the new objective?
REVIEW QUESTIONS
1) What is an objective? What are benefits and limitations of objectives?
2) What is a hierarchy of objectives? Describe the classification of objectives under
quantitative and qualitative headings.
3) What do you understand by "Management by Objectives".
4) Explain the meaning and process of Management by Objectives.
5) Discuss the strengths and weaknesses of Management by Objectives.
REFERENCE BOOKS
1) The Practice of Management - Peter F. Drucker
2) Management by Objectives - John Humble
3) Management by Objectives - Chakravarty S.K.
4) Management by Objectives - George Odiorne
5) Effective Management by - William Reddin Objectives


- End Of Chapter -
LESSON-22
SUPERVISION

LEARNING OBJECTIVES
To understand the meaning and significance of supervision.
To identify the role of supervisors in the day to-day administration of modern
organisations.
To specifically look into the changing profile of supervisor's responsibilities under
dynamic conditions.
To understand the process of selection and training of supervisors.
To identify the factors that contributes to effective supervision.
INTRODUCTION
Modern organisations are doing business in a big way. They are recruiting hundreds of
workers for the purpose of managing the task or mission. In fact, management alone
cannot do the total activity in an organisation. It takes the help of various levels of
executives in transforming the inputs into output. The lower level of managerial
hierarchy is usually termed as supervisors. They act as a link between top management
and workers. The smooth running of organisation much depends upon the constructive
role of supervisors. Hence supervisors form an integral part of management in getting
things done.
MEANING
The word supervision means overseeing the work of the employees. Overseeing can be
done at various levels i.e. from top to bottom. At lower level, the foreman might
supervise the work of a shop floor worker. At higher level, the superior officer might
oversee the activities of his junior officer. For instance, marketing manager may directly
supervise the work done by his assistant marketing manager. However the term
supervision strictly refers to the lower level management which oversees the work of
blue coloured workers. At top and middle levels, managers are busy with giving
guidelines and directions to the other management members in getting things done.
Supervisors alone are directly in touch with the workers in the day-to-day
administration of the organisation. That is why, they are called as first line managers.
The misconception that supervisors exist only in production department is bad.
Supervisors exist in all the departments but they may be identified with different names
in different functional areas, such as foreman, gagman, overseer, chief clerk etc.
Position of Supervisors
Supervisors are blessed with authority and they are termed as first line executives. They
are entrusted with the task of getting things done smoothly with the help of workers in
accordance with the standards dictated by the top management. In discharging their
duties together with their functions, supervisors normally involve with giving orders,
issuing instructions, prescribing methods, determining the procedures, explaining the
company's policy to the workers and inspiring people. For the purpose of obtaining
things, the supervisors must have leadership qualities and communication abilities. At
lower level, authority is delegated and duties are assigned to the workers by the
supervisors. As delegates of authority they are also accountable for performance to the
original delegator of authority. The process of delegation goes down the line of
authority. The process of delegation is stopped with the supervisory level of
management in an organisation. Supervisors are primary responsible for executing jobs
through employees in a best possible manner. They extend all help and assistance
needed by the employees, in extending such help, supervisors draw supportive
assistance from the members of staff services like engineering, accounting, training and
personnel departments.
The role of supervisors cannot be undermined because they act as liaison officers
between executives and operating workers. They should be blessed with lot of human
skill as they are expected to confront with innumerable number of problems in day
today administration. In fact they act as pillars in obtaining needed cooperation from
workers. They create enthusiasm, in realising the targets, among workers. The faulty
supervision may create problems even to the top management in getting needed
performance. An over enthusiastic supervisor may mar the "will to do" of the workers
and may further stand as a bottleneck in accomplishing things. He must have broad
understanding about the expectation of top management and desires of workers. In this
way, he is acting as a live wire between the various levels of people in extracting work in
a desired way.


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SUPERVISORY RESPONSIBILITIES - A CHANGING PROFILE:
(1) STATUS: The status of supervisor is changing from time to time and that too from
organisation to organisation. This is because the responsibilities of a supervisor undergo
rapid change with the passage of time. Till 19th century, supervisor was given wide
authority to dictate and control people working under him. In those days he used to
have lot of power ranging from hiring, placement, training, termination to rewards and
punishments. He used to occupy pivotal position in the organisation because there were
no specialist functional managers. That is why his responsibilities are all pervasive in
olden days.
But in the 20th century, management of an organisation is purely organised on
functional basis. While personnel manager is responsible for hiring and firing,
promotion and demotion, rewards and punishment-production manager dictates the
timing, scheduling and routing of the product. Staff specialist takes care of inspection
and quality control. With this the role and responsibility of a supervisor are undergoing
change from time to time. At present the supervisor's responsibilities are mostly limited
to passing instructions and overseeing the work in a routine way. His services are no
more sought after to inspire the people with his guidance and direction.
(2) POSITION: As supervisors are first line managers, they are accountable for their
deeds. While executing the work with the help of employees, supervisors take lot of
assistance from the staff members who are specialists in their area of operations. For
instance, cost accountant gives advice on different aspects pertaining to cost reduction.
An industrial engineer may lend advice on keeping wastage at minimum. Actually the
supervisor is supposed to take advice and service from the staff members and lead the
operating people efficiently. But in reality the staff members overshadow the role of
supervisor. It is because of the fact that staff are highly qualified, highly paid and well
placed in terms of status. As a result, staff tries to dominate supervisors. At present the
power of supervisors has been seriously eroded by the role of the staff members.
Supervisors are asked to get the things done without proper authority. This is an
organisational anomaly. The position of supervisor is weakened with the increasing role
of super- specialists in modern organisations.
(3) RECOGNITION : Progressive enterprises and realistic managements have started
realising that the role of supervisors cannot be ignored at any cost. It is simply because
of the fact that the supervisors are responsible for better human relations at the work
spot, and good results can be obtained only through effective supervision. Mutual trust
and confidence together with good interpersonal relationships can be developed at the
work spot only through good supervision. The top management has to sanction the
requisite authority, power and recognition to the supervisors to make the supervisors as
effective team leaders at ground level. Failure to recognize the role of supervisor leads to
frustration, indiscipline, lack of orderliness at shop-floor level.


- End Of Chapter -
LESSON - 23
QUALITIES OF A SUPERVISOR

Since supervisor is a live link between top management and operating people, he should
be well-versed in human relations. He needs varied skills. Some of the important
qualifications of supervisor are summarised below: -
(a) Technical knowledge: This quality enables the supervisor to be in touch with on-
going work and issue necessary instructions for obtaining smooth performance.
(b) Human Skill: Understanding the human being in a human way is a pre-requisite
for successful management of work force at shop-floor level.
(c) Communication Skill: A poor communicator cannot be an effective supervisor.
Good communication skill enables the supervisor to become strong in convincing and
commanding the work force.
(d) Emotional Stability: Unlike employees, a good supervisor should not be allowed
by emotions. In turn, he must be stable in thinking and free from biased-feelings.
(e) Judgement: As supervisor is confronted by a good number of unexpected
problems at the work spot, this quality enables him to judge the facts judiciously.
(f) Analytical ability: This quality is required to enable the supervisor to analyse a
given situation in the light of past and present events for the purpose of projecting
future events accurately.


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TRAINING SUPERVISORS
The supervisor is a line manager. He is expected to lead operating people at the lowest
level. This attribute can be acquired through experience and training. There are a good
number of methods that are helpful in training supervisors. Some of the important
methods are briefed up in the following lines.
a) Conference and lectures : Through this method, the supervisor is made to know
his duties, responsibilities, powers, human-relations know-how and management
methods. This method is mainly useful for imparting the practical knowledge relating to
the work.
b) Case studies : This method enables the supervisor to develop broader about the
expected problem and develop insight offering background knowledge of various work
situations together with the possibility of stimulating various alternatives to meet
different contingencies is the sole aim of a case study method.
c) Apprenticeship : It is a type of 'On-the-Job training' given to the supervisor to
acquaint with himself about the realities of work situation. It is an indispensable tool for
training raw candidates into successful supervisors. Under this method, new candidates
are placed before an experienced supervisor who gives instructions, clarifies doubts and
explains the techniques of work.
d) Manual : It is a booklet containing what to do and what not to do type of
instructions on topics of supervisory interests. All supervisors are given a copy of the
manual so as to acquaint them with all the work related aspects. In a way manuals act as
guides and help the supervisor in dealing the challenges of work situation. Having
discussed some of the important methods of training, an attempts made to trace the
factors that are held responsible for EFFECTIVE SUPERVISION in organisations.
1) Human Skill
Human skill is that type of skill which enables the supervisor to understand the human
problems in a human way. It is mainly concerned with feeling, guiding and inspiring
people towards better performance. The supervisor has to develop expertise in handling
various aspects pertaining to interpersonal relations. He has to integrate the personal
needs of the employees with that or organisational goals. He has to act like a counselor
in guiding and advising workers who are emotionally disturbed. In simple, the level of
inter-personal relationship and the quality of human relations directly depend upon the
level of human skill on the part of the supervisor.
2) Technical Skill
Technical skill is that type of skill which enables the supervisor to understand minute
details of work aspects. In fact there is a direct relationship between level of technical
knowledge and supervisory competence. Supervision cannot be complete and through
without technical knowledge.
3) Managerial Knowledge
Apart from the above skills, a supervisor must have knowledge pertaining to managerial
aspects like goal setting, planning, scheduling, directing and controlling. He has to
comprehend the managerial policies and pursue them carefully for obtaining
coordinated efforts. The greater the managerial skill of a supervisor, the more effective
will be the result of supervision.
4) Authority
Supervisors are to be given necessary authority. It enables them to influence the work of
employees. Neither too much nor Inadequate supervision is not congenial for effective
supervision. In other words, authority of a supervisor should commensurate with his
duties.
5) Feed-back
Supervisor should be allowed regularly to present their views and suggestions to
superiors on all matters of work situation. If a supervisor is refused to have any direct
access to superiors, he feels isolated and neglected. Hence the management has to pay
adequate attention to the opinions of supervisors. This kind of two way communication
makes the supervision much more effective.
6) Routine Work
The supervisor must be free from routine and typical work. The number of reports to be
filed must be reduced. Relief from routine and non-supervisory duties will enable the
supervisor to pay greater attention on important aspects for getting more productivity.
7) Attitude
Close supervision is bad. It kills initiation and enthusiasm on the pail of employees.
Experience proves that liberal attitude and loose supervision is made productive. He
should always develop favourable attitude towards, employees. Such an attitude makes
him more dependable and honourable in the eyes of employees.
CONCLUSION
Supervision is a must in all organisations. It is directly connected with guiding blue-
coloured work force. It deals with what to do, how to do, where to do and when to do
aspects of work. Good supervision ensures smooth flow of work. It contributes to good
human relations in the organisation. Every organisation has to strive hard in developing
good supervision so as to reap full benefits out of it. The quality of supervision can be
imparted through training. Out of several methods, on the job training is proved to be
effective. Every management has to take necessary steps that are favourable to effective
supervision.
REVIEW QUESTIONS
(1) Explain the meaning and significance of supervision in an organization
(2) How supervision is unique when compared to other lefts of management?
(3) What are the responsibilities of a good supervisor?
(4) Briefly explain about the supervisory qualifications.
(5) Discuss the factors that contribute to effective supervision.
REFERENCE BOOKS
1) Management - A systems and contingency Analysis - Harold Koontz & Cyril O'
Donnel
2) Management - James A.F.Stoner and Charles Wankel.
CASE STUDY (1)
A small firm had about 12 supervisors reporting to different managers. Working hours
were 9 A.M to 5 P.M. Mr. Ramesh, who is considered to be a tough guy, is a committed
supervisor. On one morning, he noticed that two of his senior workers were about ten
minutes late to work and some of the junior workers were coining late by 15 minutes, He
circulated a memo among all his employees Informing that all of them should be
punctual. The next morning he observed that all employees, were present at the work
spot sharp by 9 A.M. He thought that his decision seems to be effective.
One afternoon, he called on one of his workers at about 4.30 P.M. and discussing the
details of next day's production schedule. At 4.55 P.M., the worker stopped listening and
gently remained the supervisor that the day's work is over by 5 P.M. Most of the workers
started leaving the premises by 5 P.M. even without clearing the job on hand.
QUESTIONS
1) How effective was the supervisor's decision?
2) Had he considered all the alternatives and consequences?
3) If you were be in his position, what would you have been done?
CASE STUDY (2)
Godavari Furniture Company
The Godavari Furniture Company has been manufacturing high quality furniture for the
last 50 years. It has decided to manufacture kitchen cabinets. Mr. Venkat was asked to
handle this new job with the help of new team of workers.
Even without meeting new workers. Mr. Venkat informs to Mr. Raman a furniture
designer, "I am going to have trouble with new workers" When Mr. Raman asks Mr.
Venkat why he expects difficulties. Mr. Venkat repttes that cabinet workers are self-
centred, and they do not want to work regularly. You have to tell them what to do since
they are not creative at all. As expected, workers are not cooperative and they believe
that it is very difficult to work under him since he is impatient.
QUESTIONS
1. What made Mr. Venkat to have such assumptions about the work force?
2. How effective was Mr.Venkat as a team builder?

- End Of Chapter -
LESSON - 24
SOCIAL RESPONSIBILITIES OF A BUSINESS


LEARNING OBJECTIVES
To describe the business as a component of social system in this pluralistic
society.
To understand the meaning of the concept "Social Responsibility".
To explain the arguments of for and against the concept of social responsibility of
business.
To explain the forces influencing the social responsibilities of a business.
To understand the relationship between the business and its environment.
INTRODUCTION
The term "business" means "many things to many people". To some, it refers to the
enterprise doing any economic and commercial activity. Whereas for others, it refers to
the development through adding economic values in a given society. Sometimes, it
refers to private enterprise and sometimes, it indicates public sector undertakings.
Strictly speaking, the term 'business' refers to any type of enterprise that is engaged in
either manufacturing or trading for the purpose of giving satisfaction to the consumer.
Now-a-days, business is being done on large scale basis. In the light of increasing
competition, the modern business has become more complex. It exerts lot of influence
over the socio- economic set up of the society. It affects large number of people in the
community. For instance, it influences the economic and social life styles of the
consumers, investors, workers, shareholders and the general public. The modern
business is regarded as an important and integral part of the socio-economic fabric of
the society. Hence, its success or failure directly depends upon the approval or
disapproval/acceptance or rejections of its activities/goods.
Modern business is operating in a pluralistic society. It indicates that many groups
represent their own interest in a business setting. Each group will exert influence on the
other groups, which in turn affects the business. It implies that there are several
implications for business. Now the question before the managers is how to develop a
socially relevant and profitable business.
MEANING
The term, "Social responsibility" is related with public interest and social welfare. It is
the obligation on the part of the management to initiate actions either to protect or
promote the social interest of a pluralistic society with a sole objective of striving in
future. It is a deliberate and intelligent effort on the part of the business executives to
win the confidence of people representing varied interests.
HISTORICAL PERSPECTIVE
Till 1900, business was viewed as a profit making mechanism. Today, this thinking has
undergone a change. The real question before the managers is - what the social
responsibility of business mostly is?. Though it is not a new question but has received
wide attention with the publication of a book entitled "Social Responsibilities of the
Business" by Howard R. Brown. He suggested that every business should consider the
social implications of its decisions. Every business firm is a social institution. It does not
flourish on its own. When business firm operates its business in a stable and predictable
environment, it need not pay much attention to the influence of society. But modern
corporations have been experiencing ups and downs under dynamic real time
conditions. Changes in attitude of workers, shareholders, supplies, customers etc.,
certainly influence the successful functioning of the modern business. Now, the day has
come to question ourselves whether modern business houses have some responsibility
to improve the conditions of the world or to improve their own profits.
Peter F. Drucker has pointed out that a healthy business unit cannot exist for a long time
in a sick society. In his view, business unit is not only an economic unit but also a social
one. It means that business unit is surrounded by various groups, each having its own
interest. The management of the modern organisations are now charged with the
responsibility to distribute corporate rewards or resources among these interest groups,
in an equitable manner. In other words, the management is expected to provide good
profits and products, fair wages, employment opportunities, local resource development
and community support. The logic behind this argument is that, modern business
organisations cannot escape their obligations to the society, since they are the integral
part of it.
Business houses continue in the long term only when they are accepted by the society.
Hence, they cannot ignore social problems and it might lead to self-destruction. That is
why Keith Devis pointed out that in the long run those units which do not serve the
society in a responsible way are going to lose their own ground. That is why it is
extremely difficult to separate the social, political and ethical environments from that of
the activities of a business. The social environment is comprised of beliefs, desires
attitudes and customs of people. The political environment is made up of government
policies, agencies and their regulations. Ethical environment includes minimum
accepted standards in serving the needs of the people, Hence, the concept of social
responsibility requires the business organisations to consider the impact of their
decisions and actions in society.
PERSPECTIVES OF CORPORATE SOCIAL RESPONSIBILITY
Modern business organisations are integral part of the society. They take resources from
society and transform them into products and offer the same for the benefit of the
members of society. Hence, every business is accountable for its deeds and activities.
Every business organisation is yielding some power and influence. For instance,
implementing reservations to S.C, B.C people in employment is an important social
issue. Since business houses are primary employers, they are responsible for helping the
society in the issue of reservations.
Every business must reveal information about its activities. Similarly it should also
absorb information from society regarding its expectations and needs. A socially
responsible organisation should be willing to work like a open system and monitor its
programmes through social audits. Now, more and more organisations are constrained
to think about the social effect of their activities apart from the factors like profitability
and technical feasibility.
In the words of Keith Devis, every business will receive higher profits, if it pays attention
towards solving social problems. For this purpose, he suggested that social costs must be
included to the total costs and let the user pay for the social effects. For example, if
water is polluted by any business concern, the user of the product should pay an
additional price for developing ways to clean the water. Similarly planting trees,
developing good educational institutions and health clinics, may contribute to
additional costs in the short term. But certainly, they create a favourable impact on
society. It is now increasingly realised that even business houses should act as
responsible citizens. In determining a firm's social responsibility, managers must
identify the groups that are influenced by its activities. The following diagram (VI.3.A)
illustrated how various groups of people are affected by the activities of a business.



Please use headphones
Social Responsibilities of Managers
1. RESPONSIBILITY TO CUSTOMERS
Every business unit has to provide good quality products at reasonable prices in
required quantities, at a time when needed by the customers. Under any circumstances,
it should not involve in hoarding, black marketing, giving false information about the
products etc. While there is nothing wrong in releasing advertisements explaining the
salient features of the product, it should avoid wooing the customers through cheap
gimmicks.
2. RESPONSIBILITY TO SUPPLIERS
Every organisation should provide correct information regarding its financial position to
its suppliers and creditors. Fairness in all transactions should be ensured. It should
make prompt payment of interests on borrowings and other dues.
3. RESPONSIBILITY TO EMPLOYEES
Since employees are the backbone of the organisation, it should pay adequate attention
in satisfying the social and economic needs which affect their life. They should be paid
fair and reasonable remuneration for their work. Every organisation is obligated to
make the work place better and pleasant. Every manager has to realize the fact that any
improvement in the quality of work life will create a healthy work climate.
4. RESPONSIBILITY TO OWNERS
Shareholders are the real owners of the modern corporations. They are large in number
and spread throughout the country. That is why the professional manager, lies a primary
obligation to invest in the best possible manner and see that such investments ensure
good returns. He should be honest and fair in all his dealings. He should report the day
to day activities and the strengths and weaknesses of the organisation to the share
holders
5. RESPONSIBILITY TO SPECIAL INTEREST GROUPS
Every organisation has to provide accurate information and promote constructive
relationships with other interest groups like dealers, suppliers, creditors, welfare
organisations etc. It should view them as partners in a cooperative endeavor. It should
inculcate interest in fulfilling the aspirations of these interest groups of community
6. RESPONSIBILITY TO GOVERNMENT
The primary responsibility of any business unit is to obey the laws of the country. Not
only that it should pay all types of taxes honestly to the government, it should also
follow fair trade policies and practices. In a annular way, every business has to avoid
unhealthy practices like bribing government officials and getting things done through
foul means.
7. RESPONSIBILITY TO SOCIETY
Since organizations are members of the society, they should always strive hard in
improving the physical environment and for developing human resources in a desired
manner. Every business unit has to contribute for wealth creation, which helps in the
elimination of poverty and backwardness among the people. It should pay utmost
attention in preserving and maintaining the environment. It should act as an equal
opportunity for employer in providing jobs. It should follow the ways of minimizing the
impact of pollution.
The concept of corporate social responsibility in gaining currency even in India.
Companies like TISCO, DCM, GODREJ, KIRLOSKAR, Reliance, ITC have accorded top
most place for social responsibilities. Most of these
companies, are socially committed in providing better facilities and amenities to the
members of the society through the provision of better housing, medical, educational,
recreational facilities. Managers have realized that concern for profit is not only the
factor but discharging social obligation is also of vital importance in the modern
business.
ARGUMENTS IN FAVOUR OF SOCIAL RESPONSIBILITY
Throughout the world, business organisations employ majority of the work force and
control 70% of the financial resources. Any decision relating to these human as well as
financial resources bring major consequences in society. It is simply because of this
factor, modern business corporations are gaining power and further more obligated to
the society through their deeds. Because of this, there are a number of arguments
favouring greater involvement of business in social action. They are summarised as
below:
1. Business is basically receiving demand for its products and services from
society. Hence, it has to respond favourably to the changing needs and expectations of
the society. In other words the concept of social responsibility balances corporate
mission with corporate responsibilities.
2. Every business has to operate its activity only in the social system. The creation of a
better and healthy social environment benefits both society and business. Society gains
through fulfillment of its desires, creation of employment opportunities, better facilities
and community development through business development. A good social
environment is a boon to the business flourishment. Business units tend to promote
good will, public interest and corporate trust which in turn contribute to the long term
success of the corporations.
3. Voluntary social involvement discourages creation and implementation of
government regulations and interventions. It results in mutual trust and confidence and
ensure greater freedom and flexibility for business organisation in decision making.
4. Socially responsible acts enhance the image of the business organisation. They can
attract investment as well as talented human resource which in turn may contribute to
the success of the enterprise.
5. Modern business organisation cannot be isolated from the main social system. Its
internal activities are bound to create an impact over the external environment. Some
decisions of the organisation may help in solving the social problems such as air and
water pollution. This kind of action, by any standard, is sure to help in the development
of a healthy society.
6. Business organisations are blessed with all types of resources. Every society has some
problems. It is the business that has to respond in solving these social problems through
creative and novel ideas. It is true that money and enterprise are needed for tackling any
social problem.
7. Business organisations, as members of society, have a normal obligation to use the
resources of society in a meaningful way so as to contribute to the welfare of all. Such a
social involvement immensely benefits the interest of the shareholders in the long term.
ARGUMENTS AGAINST SOCIAL RESPONSIBILITY
1. Business is primarily an economic unit. Since the business of business is business, its
main task is to maximise profits. Social involvement may reduce its profit. Management
cannot invest funds irrationally to satisfy the public expectations. That is why Milton
Friedman pointed out that spending in the name of social responsibility is a theft
because, managers are trying to distribute what is not theirs.
2. Social responsibility is mainly related to the government and other civic
organisations. For various social problems the business has no readymade solutions.
Spending money on social actions may erode the business of its scarce resources. Social
responsibility is clearly anti-business philosophy and intended to mollify public anger.
3. Business people are not trained to pursue social goals. They are not competent to
justify the social goals. Their training and experience is with economic matters and their
skills may not match to solve social problems.
4. Profit is a dynamic concept that motivates the economic forces all around the world
for future progress. Management cannot do anything including philanthrophy and
solving social problems unless profits are sufficient.
5. Managers are not king makers. They are not even magicians. We cannot expect that
they can perform miracles. Nobody can offer a quality product at through away price
and still get profits. Similarly it is not possible to pay high rates of taxes and divert
money on unrelated social projects. The best thing is to strike a balance between these
two.
6. There is no near unanimity of thought on this topic. There is no complete support in
favour of corporate social responsibility. Due to this, there is a disagreement among
groups of people who are related to business as to what constitutes the social
responsibility?
7. Finally, even the business is involved with social involvement through incurring
additional costs. It is the society that has to pay for even these social costs. A business
unit is not a charitable institution. Hence, it has to recover what all it has expended.
Having discussed the pros and cons of the concept, social responsibility of business, one
can conclude that socially responsible people will obey the laws of the land. Every
person in the society has social responsibility to discharge. The same rule applies to
Professors, Doctors and Lawyers and to those who act for and in the name of
corporations.
CONCLUSION
Society creates institutions and they cater to the requirements of members of society. In
fact, no enterprise exists in isolation from its external environment whether social,
economic, technological, political and ethical. Every business man must be responsible
in helping the society while solving several social problems. Though the purpose of a
business house is business yet it has to think about social good. History proved that only
such business house which paid utmost attention to the fulfillment of social values and
expectations could establish lead over others in the long term.
CASE STUDY (1)
Air Pollution
The amount of air pollution to which an average urban man is subjected to is very high.
Factories and automobiles are primarily responsible for air pollution. Though little
attention was paid earlier, it has become a vital concern today. Realising the urgent need
to control air pollution, Government is trying to bring an enactment, Lohia Scooters is a
leading two wheeler manufacturer in India. It has a market share of 40% in the two
wheeler market. Since the Government is contemplating to bring a comprehensive act
with stringent punishments, the Management of Lohia Machines convened a meeting of
all the two wheeler manufacturer and discussed the pros and cons of new enactment.
Prolonged deliberations, no concrete conclusions were arrived because most of the
manufacturers (whose market share is less from 50%) maintained indifferent attitude.
Most of these manufacturers would like to adopt wait and see policy.
But Lohia Scooters cannot adopt such a policy because it is a market leader. It has two
approaches before it. Firstly, it would like to investigate all the parts of scooter, that
contribute to air-pollution. After obtaining needed data, it would like to suggest ways
and means of keeping air-pollution at minimum. This kind of arrangement is inevitable
because it is a market leader and it would like to prevent the government king new act.
It would like to improve its image through its social expensiveness.
Secondly, Lohia Scooters is also contemplating to redesign the total scooter so as to keep
up with the expectations of the Government and public. Manufacturing a new
generation scooter which causes less air pollution may take 2 years. The Management is
expecting that the improved product can still bring good demand for its scooters. With
this, it hopes that it can recover the investment within 5 years.
QUESTIONS
1. In increasing public awareness, which one of the above two approaches do you
advocate?
2. Why in your opinion, other manufacturers maintained indifferent attitude to social
action?
CASE STUDY (2)
To Invest or Not to Invest in India
Many foreign companies face a dilemma involving socio-economic and political issues of
Indian sub-continent. One question that many firms face is whether to invest in India
or not. Arguments are in either way.
Arguments in favour
(1) Foreign companies can bring more money and better technology which may benefit
India in transforming the rural economy into a dynamic industrialised society.
(2) Recent policy initiatives liberalising the Indian economy pave a way for easy entry of
foreign firms.
(3) India is a rich country with poor people. Foreign companies can take the advantage
with little ease for making profits.
Arguments against
(1) India is a multi-religious and multi-lingual society. Problems may come up at any
time due to lack of understanding among various sections of people.
(2) The recent instance of demolition of Babri Masjid has paralysed the economic
functioning of the Indian society and eroded the confidence of foreign investors.
(3) Despite liberalization, many Governmental and Banking regulations still hold good.
(4) Lack of will-power and political sagacity is another handicap for peace and stability
in the Indian sub-continent.
With this kind of debate, top executives of foreign companies are confronted by a
decision whether to invest or not to invest in India.
QUESTIONS
(1) If you are asked to decide, as a representative of foreign company, what would be
your decision?
(2) Do you think other things other than profit also matter in deciding the investment.
How in your opinion, other external factors will influence your decision-making?
REVIEW QUESTIONS
(1) Define the concept 'Social responsibility' and bring out its significance.
(2) What are the major social responsibilities of a business manager?
(3) Explain briefly how external environment affects the successful functioning of a
modern corporation?
(4) Discuss the arguments in favour of and against the concept "Social responsibility"?
REFERENCE BOOKS
1) Management- A Global Perspective - Weihrich and Harold Koontz (McGraw- Hill).
2) Social Responsibilities of Business- Howard. R. Bowen (Harper & Brothers)
3) Management- Structures, Functions and Practice:, Arthurs Elkins (Wesley.
publications).

- End Of Chapter -