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Business Studies, Part I, , Principles and Functions, of Management, Textbook for Class XII, , 2018-19
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ISBN 81-7450-697-7, First Edition , May 2007 Chaitra 1928, Reprinted, December 2007 Agrahayana 1929, March 2009 Chaitra 1930, January 2010 Magha 1931, January 2011 Magha 1932, January 2012 Magha 1933, January 2013 Magha 1934, November 2013 Kartika 1935, December 2014 Pausa 1936, January 2016 Pausa 1937, December 2016 Pausa 1938, January 2018 Magha 1939, PD 300T HK, © National Council of Educational, Research and Training, 2007, , ALL RIGHTS RESERVED, , , No part of this publication may be reproduced, stored in a retrieval, system or transmitted, in any form or by any means, electronic,, mechanical, photocopying, recording or otherwise without the prior, permission of the publisher., , , , This book is sold subject to the condition that it shall not, by way of, trade, be lent, re-sold, hired out or otherwise disposed of without, the publisher’s consent, in any form of binding or cover other than, that in which it is published., , , , The correct price of this publication is the price printed on this page,, Any revised price indicated by a rubber stamp or by a sticker or, by any other means is incorrect and should be unacceptable., , OFFICES OF THE PUBLICATION, DIVISION, NCERT, NCERT Campus, Sri Aurobindo Marg, New Delhi 110 016, , Phone : 011-26562708, , 108, 100 Feet Road, Hosdakere Halli Extension, Banashankari III Stage, Bengaluru 560 085, , Phone : 080-26725740, , Navjivan Trust Building, P.O.Navjivan, Ahmedabad 380 014, , Phone : 079-27541446, , CWC Campus, Opp. Dhankal Bus Stop, Panihati, Kolkata 700 114, , Phone : 033-25530454, , CWC Complex, Maligaon, Guwahati 781 021, 0361-2674869, , ` 95.00, , Phone :, , Publication Team, Head, Publication, Division, , : M. Siraj Anwar, , Chief Editor, , : Shveta Uppal, , Chief Business Manager : Gautam Ganguly, Printed on 80 GSM paper with NCERT, watermark, , Chief Production, Officer (In-charge), , : Arun Chitkara, , Published at the Publication Division, by the Secretary, National Council, of Educational Research and, Training, Sri Aurobindo Marg,, New Delhi 110 016 and printed at, Gopsons Paper Limited, A-2 & 3,, Sector-64, Noida - 201 301 (U.P.), , Assistant Editor, , : Vijay Kumar, , Production Assistant, , : Sunil Kumar, , Cover, Shweta Rao, Layout and Illustrations, Ashwani Tyagi, , 2018-19
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Foreword, The National Curriculum Framework (NCF), 2005, recommends that, children’s life at school must be linked to their life outside the school. This, principle marks a departure from the legacy of bookish learning which, continues to shape our system and causes a gap between the school,, home and community. The syllabi and textbooks developed on the basis of, NCF signify an attempt to implement this basic idea. They also attempt to, discourage rote learning and the maintenance of sharp boundaries between, different subject areas. We hope these measures will take us significantly, further in the direction of a child-centred system of education outlined in, the National Policy on Education (1986)., The success of this effort depends on the steps that school principals, and teachers will take to encourage children to reflect on their own, learning and to pursue imaginative activities and questions. We must, recognise that, given space, time and freedom, children generate new, knowledge by engaging with the information passed on to them by adults., Treating the prescribed textbook as the sole basis of examination is one, of the key reasons why other resources and sites of learning are ignored., Inculcating creativity and initiative is possible if we perceive and treat, children as participants in learning, not as receivers of a fixed body of, knowledge., These aims imply considerable change in school routines and mode, of functioning. Flexibility in the daily time-table is as necessary as rigour, in implementing the annual calendar so that the required number of, teaching days are actually devoted to teaching. The methods used for, teaching and evaluation will also determine how effective this textbook, proves for making children’s life at school a happy experience, rather than, a source of stress or boredom. Syllabus designers have tried to address the, problem of curricular burden by restructuring and reorienting knowledge at, different stages with greater consideration for child psychology and the time, available for teaching. The textbook attempts to enhance this endeavour, by giving higher priority and space to opportunities for contemplation and, wondering, discussion in small groups, and activities requiring hands-on, experience., The National Council of Educational Research and Training (NCERT), appreciates the hard work done by the textbook development committee, , 2018-19
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iv, , responsible for this book. We wish to thank the Chairperson of the advisory, group in Social Sciences Professor Hari Vasudevan and the Chief Advisor, for this book, Professor D.P.S. Verma (Retd.) Delhi School of Economics,, University of Delhi and Dr. G.L. Tayal, Reader, Ramjas College, University of, Delhi for guiding the work of this committee. Several teachers contributed, to the development of this textbook; we are grateful to their principals for, making this possible. We are indebted to the institutions and organisations, which have generously permitted us to draw upon their resources, material, and personnel. We are especially grateful to the members of the National, Monitoring Committee, appointed by the Department of Secondary and, Higher Education, Ministry of Human Resource Development under the, Chairpersonship of Professor Mrinal Miri and Professor G.P. Deshpande,, for their valuable time and contribution. As an organisation committed, to the systemic reform and continuous improvement in the quality of its, products, NCERT welcomes comments and suggestions which will enable, us to undertake further revision and refinement., , Director, New Delhi , National Council of Educational, Research and Training, 20 November 2006, , 2018-19
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Note, , to the, , Teacher, , This textbook is expected to provide a good understanding of the, environment in which a business operates. A manager has to analyse the, complex, dynamic situations in which a business is placed. Therefore,, content enrichment in the form of business news and abstracts of articles, from business journals and magazines has been given as inset material, (boxes). This will encourage students to be observant about all business, activity and discover what is happening in business organisations with, the expectation that they will update their knowledge through the use, of libraries, newspapers, business oriented TV programmes and the, internet. Various types of questions are given and case problems have, been introduced to test the application of subject knowledge to realistic, business situations., , Acknowledgements, The National Council of Educational Research and Training acknowledges, the valuable contributions of the following persons in preparing exercises,, activities and projects for the textbook:, Seema Srivastava, Lecturer, Inservice Department, DIET, Moti, Bagh, New Delhi; Rajni Rawal, Vice–Principal, Rajkiya Pratibha Vikas, Vidyalaya, Paschim Vihar, Delhi; Shruti Bodh Aggarwal, Vice Principal,, Rajkiya Pratibha Vikas Vidyalaya, Kishanganj, Delhi; Manju Chawla,, PGT Commerce, Rajkiya Pratibha Vikas Vidyalaya, Surajmal Vihar, Delhi;, Shivani Nagrath, PGT Commerce, Summer Fields School, Kailash Colony,, New Delhi., Special thanks are due to Savita Sinha, Professor and Head, Department, of Education in Social Sciences and Humanities, NCERT for her support, and guidance, during the development of this book., The Council acknowledges the efforts of Computer Incharge,, Dinesh Kumar; DTP Operator, Uttam Kumar, Archana Gupta and, Sr. Proof Reader, NCERT, Rishi Pal Singh., , 2018-19
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Contents, , , Foreword, , Chapter 1, , Nature, , Chapter 2, , Principles, , Chapter 3, , Business Environment, , 72, , Chapter 4, , Planning, , 95, , iii, , and, , Significance, , of, , of, , Management, , Management, , 1, 31, , Chapter 5 Organising, , 112, , Chapter 6, , 146, , Staffing, , Chapter 7 Directing, , 178, , Chapter 8 Controlling, , 215, , 2018-19
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2018-19
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1, , NATURE AND SIGNIFICANCE, OF MANAGEMENT, Management at HCL, At a time when India had a total of 250 computers, Shiv Nadar, led a young team which passionately believed in the growth, of the indigenous IT industry. That vision in 1976, born out of, a Delhi ‘barsaati’, has resulted three decades later in creating a, US $ 3.5 billion global enterprise. HCL is today a leader in the, IT industry, employing 41,000 professionals and having a global, presence in 16 countries spanning locations in the US, Europe,, Japan, ASEAN and the Pacific Rim. HCL’s business today spans, IT hardware manufacturing and distribution, system integration,, technology and software services, business process outsourcing,, and infrastructure management. HCL Enterprises is a leader in, global technology and IT services., HCL’s basic plan of developing an indigenous microcomputer, bore fruit in 1978 at the same time as Apple and three years, before IBM. This was considered by many industry observers, as the birth of the Indian computer industry. Under the able, direction of its founding fathers it commenced global operations, in the US in 1988. Shiv Nadar’s risk-taking ability is legendary, and he has often made daring forays based on his conviction of, the future. At a time when hardware was the name of the game,, Nadar foresaw the huge potential in the area of IT education and, learning from which NIIT was born. Yet again when software, development was still in the nascent stages, Shiv Nadar took, the lead and today HCL is a force to reckon with in the global, markets. The organisation structure of HCL Enterprises consists, of two listed companies in India – HCL Technologies and HCL, Infosystems., Shiv Nadar, Chairman and CEO, attributes the success of, the group to its management team and their entrepreneurial, spirit, which together have enabled it to handle rapid changes, in environments and technologies, and to transform threats, into opportunities. Fundamental to the process has been the, development of new paradigms for the unprecedented situations, into which the group ventures. These include guidelines for, organisation restructuring, market creation, technology leveraging, , 2018-19, , CHAPTER, L E A R N I N G, OBJECTIVES, , After studying this, chapter, you should, be able to:, n, , n, , n, , n, , Describe the, characteristics of, management and, its importance in, an organisation;, Explain the nature, of management, as an art, science, and profession;, Explain the, functions of, management; and, Appreciate, the nature and, importance of, coordination.
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Business Studies, , 2, , and business up-scaling. Like any other business enterprise profits are, important for the survival and growth of HCL as an enterprise., At HCL the management believes that a satisfied employee creates, a satisfied customer, who in turn creates profits that lead to satisfied, shareholders., HCL has a strong sense of social responsibility. It has set up, educational institutions in the fields of management, engineering and, computer education, in which one-third of the students are girls., According to Shiv Nadar, the future belongs to the global enterprise which, is able to transform itself according to the challenges of global economy., Source: www.hcl.in, , Introduction, , The above case is an example of, a successful organisation which, is amongst the top companies in, India. It has risen to the top because, of its quality of management., Management is required in all kinds, of organisations whether they are, manufacturing computers or handlooms, trading in consumer goods, or providing hairstyling services and, even in non-business organisations., Let us take another example., Suhasini is the branch manager, of Fabmart, an organisation that, promotes the sales of Indian, handloom and handicraft products, while providing equitable employment, to traditional artisans. Fabmart, sources its products from over 7500, craft persons and artisans across, India. Planning the products is a, difficult task that is done by a team, of marketing and design experts to, ensure that whatever is produced is, according to market demand. These, plans are then communicated by, , Suhasini to the rural artisans who, actually implement them., Fabmart is a private limited, company with several branches all, over the country. It has a complex, organisation structure in which, actual production is in the hands of, several skilled artisans and marketing, is done by staff at branches such as, the one managed by Suhasini. This, means constantly providing direction, and motivation to her employees. She, also has to ensure that production, is carried out according to plans in, order to ensure regular sales., A typical day in Suhasini’s life, consists of a series of interrelated, and continuous functions. She has, to plan a special festive collection, for Diwali and Christmas. This, means organising more funds and, recruiting more artisans. She also, has to regularly communicate with, her suppliers to ensure that deadlines, regarding delivery of goods are met., In the course of the day she meets, customers for a general feedback, , 2018-19
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Nature and Significance of Management, , and any suggestions that they, may have., Suhasini is the manager of, Fabmart. So is Nusli Wadia of Bombay, Dyeing, Bill Gates of Microsoft, Shiv, Nadar of HCL Enterprises, Indra, Nooyi of Pepsico and the Principal, of your school. They all manage, organisations. Schools, hospitals,, shops and large corporations are all, organisations with diverse goals that, are aimed at achieving something., No matter what the organisation is or, what its goals might be, they all have, something in common – management, and managers., You have observed that Suhasini’s, work as a manager consists of, a series of different activities or, functions aimed at achieving the, goals of the organisation. These, interconnected and interdependent, functions are part of management., Successful organisations do not, achieve their goals by chance but, by following a deliberate process, called ‘management’., , 3, , Management is essential for all, organisations big or small, profit or, non-profit, services or manufacturing., Management is necessary so that, individuals make their best contribution towards group objectives., Management consists of a series, of interrelated functions that are, performed by all managers. Shiv, Nadar, the CEO of HCL Enterprises, performs all these functions and so, does Suhasini at Fabmart. Later in, this chapter you will understand that, although both of them are managers,, they function at different levels in, the organisation. The time spent, by managers in different functions, however is different. Managers at the, top level spend more time in planning, and organising than managers at, lower levels of the organisation., , Concept, , Management is a very popular term, and has been used extensively for, all types of activities and mainly for, taking charge of different activities in, Definitions of Management, , “Management is the process of designing and maintaining an environment in which, individuals, working together in groups, efficiently accomplish selected aims.”, Harold Koontz and Heinz Weihrich, “Management is defined as t he process of planning, organising, actuating and controlling, an organisation’s operations in order to achieve coordination of the human and material, resources essential in the effective and efficient attainment of objectives.”, Robert L. Trewelly and M. Gene Newport, “Management is the process of working with and through others to effectively achieve, organisational objectives by efficiently using limited resources in the changing environment.”, Kreitner, , 2018-19
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Business Studies, , 4, , any enterprise. As you have seen from, the above example and case study, that management is an activity which, is necessary wherever there is a group, of people working in an organisation., People in organisations are performing, diverse tasks but they are all working, towards the same goal. Management, aims at guiding their efforts towards, achieving a common objective — a, goal. Thus, management has to see, that tasks are completed and goals, are achieved (i.e., effectiveness) with, the least amount of resources at a, minimum cost (i.e., efficiency)., Management, has therefore, been, defined as a process of getting things, done with the aim of achieving goals, effectively and efficiently. We need, to analyse this definition. There, are certain terms which require, elaboration. These are (a) process, (b), effectively, and (c) efficiently., Process in the definition means the, primary functions or activities that, management performs to get things, done. These functions are planning,, organising, staffing, directing and, controlling which we will discuss later, in the chapter and the book., Being effective or doing work, effectively basically means finishing, the given task. Effectiveness in, management is concerned with doing, the right task, completing activities, and achieving goals. In other words, it, is concerned with the end result., But it is not enough to just complete, the tasks. There is another aspect, , also, i.e., being efficient or as we say, doing work efficiently., Efficiency means doing the task, correctly and with minimum cost., There is a kind of cost-benefit, analysis involved and the relationship, between inputs and outputs. If, by using less resources (i.e., the, inputs) more benefits are derived, (i.e., the outputs) then efficiency has, increased. Efficiency is also increased, when for the same benefit or outputs,, fewer resources are used and less, costs are incurred. Input resources, are money, materials, equipment and, persons required to do a particular, task. Obviously, management is, concerned with the efficient use, of these resources, because they, reduce costs and ultimately lead to, higher profits., , Effectiveness versus, Efficiency, These two terms are different but they, are interrelated. For management,, it is important to be both effective, and efficient. Effectiveness and, efficiency are two sides of the same, coin. But these two aspects need, to be balanced and management, at times, has to compromise with, efficiency. For example, it is easier, to be effective and ignore efficiency, i.e., complete the given task but at a, high cost. Suppose, a company’s target, production is 5000 units in a year. To, achieve this target the manager has to, operate on double shifts due to power, , 2018-19
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Nature and Significance of Management, , failure most of the time. The manager, is able to produce 5000 units but at a, higher production cost. In this case,, the manager was effective but not so, efficient, since for the same output,, more inputs (labour cost, electricity, costs) were used., At times, a business may concentrate more on producing goods, with fewer resources i.e., cutting, down cost but not achieving the, target production. Consequently, the, goods do not reach the market and, hence the demand for them declines, and competitors enter the market., This is a case of being efficient but, not effective since the goods did not, reach the market., Therefore, it is important for, management to achieve goals, (effectiveness) with minimum, resources i.e., as efficiently as possible, while maintaining a balance between, effectiveness and efficiency. Usually, high efficiency is associated with, high effectiveness which is the aim of, all managers. But undue emphasis, on high efficiency without being, effective is also not desirable. Poor, management is due to both inefficiency and ineffectiveness., , Characteristics, Management, , of, , After going through some of the, definitions we find some elements, that may be called the basic, characteristics of management:, , 5, , (i) Management is a goal-oriented, process: An organisation has a, set of basic goals which are the, basic reason for its existence., These should be simple and, clearly stated. Different organ, isations have different goals. For, example, the goal of a retail store, may be to increase sales, but the, goal of The Spastics Society of, India is to impart education to, children with special needs., Management unites the efforts, of different individuals in the, organisation towards achieving, these goals., (ii) Management is all pervasive:, The activities involved in managing, an enterprise are common to all, organisations whether economic,, social or political. A petrol pump, needs to be managed as much, as a hospital or a school. What, managers do in India, the USA,, Germany or Japan is the same., How they do it may be quite, different. This difference is due, to the differences in culture,, tradition and history., (iii) Management is multidimensional: Management is a complex, activity that has three main, dimensions. These are:, (a) Management of work: All, organisations exist for the, performance of some work. In, a factory, a product is, manufactured, in a garment, , 2018-19
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Business Studies, , 6, , The Management Mantra from GE, Jack Welch was appointed CEO of GE in 1981. At that time the firm had a market, capitalisation of $13 billion. In 2000 when he stepped down the firm’s turnover had, increased multifold to $500 billion. What was the secret of Welch’s success? He has laid, down the following pointers for managers to be successful:, n Create a vision and then ignite your organisation to make this vision a reality., Get people so passionate about what they are doing that they cannot wait to execute, this plan. Have great energy, competitive spirit and the ability to spark excitement and, achieve results. Search for leaders who have the same qualities., n Focus on strategic issues. Your job is to understand the vital issues within each of your, businesses. Recognise the talent needed to win in those markets., n Focus on the main issue . Your job is to see the big picture. Don’t manage every detail., Don’t get caught up in the minute details, but instead inspire others to execute some, of your vision. Surround yourself with great people and trust them to do their job and, contribute their best to the organisation., n Involve everyone and welcome great ideas from everywhere. Anyone can be a, leader, just so long as they contribute, and the most meaningful way for anyone to, contribute is to come up with a good idea. Business is all about getting the best ideas, from everyone. New ideas are the lifeblood of the organisation, the fuel that makes it, run. “The hero is the person with a new idea.” There is simply nothing more important, to an organisation than expressing ideas and creating a vision., n Lead by example. To spark others to perform, you must lead by example. Jack Welch’s, mastery of the four E’s of leadership – Energy, Energise, Edge, and Execution – was, always in evidence. “He had great energy, sparked others, had incredible competitive, spirit, and had a record of execution that was second to none. This is a key of the, Welch phenomenon. Had he been lacking in any of the traits he espoused, he would, not have commanded such acclaim.”, Source: www.ge.co.in, , store a customer’s need is, satisfied and in a hospital a, patient is treated. Management, translates this work in terms, of goals to be achieved and, assigns the means to achieve, it. This is done in terms of, problems to be solved,, decisions to be made, plans to, be established, budgets to be, prepared, responsibilities to, be assigned and authority to, be delegated., , (b) Management of people: Human, resources or people are an, organisation’s greatest asset., Despite all developments in, technology “getting work done, through people” is still a major, task for the manager. Managing, people has two dimensions, (i) it implies dealing with, employees as individuals with, diverse needs and behavior;, (ii) it also means dealing with, individuals as a group of people., , 2018-19
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Nature and Significance of Management, , The task of management is to, make people work towards, achieving the organisation’s, goals, by making their strengths, effective and their weaknesses, irrelevant., (c) Management of operations: No, matter what the organisation,, it has some basic product or, service to provide in order to, survive. This requires a production process which entails, the flow of input material and, the technology for transforming this input into the desired, output for consumption. This, , 7, , is interlinked with both the, management of work and the, management of people., (iv) Management is a continuous, process: The process of management is a series of continuous,, composite, but separate functions, (planning, organising, directing,, staffing and controlling). These, functions are simultaneously, performed by all managers all the, time. You may have observed that, Suhasini at Fabmart performs, several different tasks in a single, day. Some days she may spend, more time in planning a future, Together Everyone, Achieves More as, a Team, , 2018-19
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Business Studies, , 8, , exhibition and on another day, she may spend time in sorting, out an employee’s problem. The, task of a manager consists of an, ongoing series of functions., (v) Management is a group activity:, An organisation is a collection of, diverse individuals with different, needs. Every member of the group, has a different purpose for joining, the organisation but as members, of the organisation they work, towards fulfilling the common, organisational goal. This requires, team work and coordination of, individual effort in a common, direction. At the same time mana-, , gement should enable all its, members to grow and develop as, needs and opportunities change., (vi) Management is a dynamic, function: Management is a, dynamic function and has to, adapt itself to the changing, environment. An organisation, interacts with its external environment which consists of, various social, economic and, political factors. In order to be, successful, an organisation must, change itself and its goals, according to the needs of the, environment. You probably know, that McDonalds, the fast food, , Management –, a multidimensional activity, , 2018-19
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Nature and Significance of Management, , giant made major changes in its, menu to be able to survive in the, Indian market., (vii) Management is an intangible, force: Management is an intangi, ble force that cannot be seen but, its presence can be felt in the, way the organisation functions., The effect of management is, noticeable in an organisation, where targets are met according to, plans, employees are happy and, satisfied, and there is orderliness, instead of chaos., , Objectives, , of Management, Management seeks to achieve, certain objectives which are the, desired result of any activity. They, must be derived from the basic purpose, of the business. In any organisation, there are different objectives and, management has to achieve all, objectives in an effective and efficient, manner. Objectives can be classified, into organisational objectives, social, objectives and personal or individual, objectives., (i) Organisational Objectives:, Management is responsible for, setting and achieving objectives, for the organisation. It has to, achieve a variety of objectives in, all areas considering the interest, of all stakeholders including,, shareholders, employees, cust, omers and the government. The, main objective of any organisation, should be to utilise human, , 9, , and material resources to the, maximum possible advantage,, i.e., to fulfill the economic, objectives of a business. These, are survival, profit and growth., Survival: The basic objectives, of any business is survival., Management must strive to ensure, the survival of the organisation. In, order to survive, an organisation, must earn enough revenues to, cover costs., Profit: Mere survival is not enough, for business. Management has, to ensure that the organisation, makes a profit. Profit provides a, vital incentive for the continued, successful operation of the, enterprise. Profit is essential for, covering costs and risks of the, business., Growth: A business needs to add, to its prospects in the long run,, for this it is important for the, business to grow. To remain in, the industry, management must, exploit fully the growth potential, of the organisation. Growth of, a business can be measured in, terms of sales volume increase, in the number of employees,, the number of products or the, increase in capital investment,, etc. There can be other indicators, of growth., (ii) Social objectives: It involves, the creation of benefit for, society. As a part of society,, every organisation whether it is, , 2018-19
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Business Studies, , 10, , business or non-business, has, a social obligation to fulfill. This, refers to consistently creating, economic value for various, constituents of society. This, includes using environmental, friendly methods of production,, giving employment opportunities, to the disadvantaged sections, of society and providing basic, , amenities like schools and, crèches to employees. The box, given below illustrates how a, company can fulfill its social, responsibility., (iii) Personal objectives: Organisations are made up of people, who have different personalities,, backgrounds, experiences and, objectives. They all become part, , ITC – Empowering Rural India, A quiet digital revolution is reshaping the lives of farmers in remote Indian villages., In these villages, farmers grow soyabeans, wheat and coffee in small plots of land,, as they have done for thousands of years. A typical village has no reliable electricity, and has antiquated telephone lines. The farmers are largely illiterate and have never, seen a computer. But farmers in these villages are conducting e-business through an, initiative called E-Choupal, created by ITC, one of India’s largest consumer product, and agribusiness companies., ITC’s E-Chaupal initiative is a fine example of a business organisation fulfilling, corporate social responsibility. The basic aim of the programme is to provide, farmers in rural India with the opportunity to make use of a direct marketing, channel eliminating multiple intermediation and wasteful handling and unnecessary, transaction costs. It is the single-largest information technology-based intervention, by a corporate entity in rural India, transforming the Indian farmer into a progressive, knowledge-seeking citizen, enriching him with knowledge and elevating him to a, new order of empowerment., E-Choupal delivers real-time information and customised knowledge to improve, the farmer’s decision-making ability, thereby better aligning farm output to market, demands; securing better quality, productivity and improved price discovery. Given, the low levels of literacy in the rural sector, the role of the Choupal Sanchalak, the, lead farmer of the village, in facilitating physical interface between the computer, terminal and the farmers is central to the project. E-Choupal Smart Cards enable, farmer identification to provide customised information on the E-Choupal website., Online transactions are captured to reward farmers for volume and value of usage., The E-Chaupal initiative has found its way into the Harvard Business School as a, leading case study illustarating the use of modern technology by a leading business, house for the benefit of the rural poor., Source: Mohanbir Sawhney, McCormick Tribune Professor of, Technology, Kellogg School of Management, USA., , 2018-19
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Nature and Significance of Management, , of the organisation to satisfy, their diverse needs. These vary, from financial needs such as, competitive salaries and perks,, social needs such as peer, recognition and higher level, needs such as personal growth, and development. Management, has to reconcile personal goals, with organisational objectives for, harmony in the organisation., , Importance, , of Management, Having understood that management, is a universal activity that is integral, to any organisation we now examine, some of the reasons that have made, management so important:, (i) Management helps in achieving, group goals: Management, is required not for itself but, for achieving the goals of the, organisation. The task of a manager, is to give a common direction to the, individual effort in achieving the, overall goal of the organisation., (ii) Management increases effici, ency: The aim of a manager is, to reduce costs and increase, productivity, through, better, planning, organising, directing,, staffing and controlling the, activities of the organisation., (iii) Management creates a dynamic, organisation: All organisations, have to function in an environment, which is constantly changing. It, is generally seen that individuals, in an organisation resist change, , 11, , as it often means moving from a, familiar, secure environment into, a newer and more challenging, one. Management helps people, adapt to these changes so that the, organisation is able to maintain, its competitive edge., (iv) Management helps in achieving, personal objectives: A manager, motivates and leads his team in, such a manner that individual, members are able to achieve, personal goals while contributing, to the overall organisational, objective. Through motivation and, leadership the management helps, individuals to develop team spirit,, cooperation and commitment to, group success., (v) Management helps in the, development of society: An organisation has multiple objectives, to serve the purpose of the, different groups that constitute it., In the process of fulfilling all, these, management helps in the, development of the organisation, and through that it helps in the, development of society. It helps to, provide good quality products, and services, creates employment, opportunities, adopts new technology for the greater good of the, people and leads the path towards, growth and development., , Nature, , of Management, Management is as old as civilisation., Although modern organisations are, , 2018-19
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Business Studies, , 12, , of recent origin, organised activity has, existed since the time of the ancient, civilisations. In fact, organisations, may be considered the distinguishing, feature that separated civilised society, from uncivilised ones. The earliest, management practices were a set of, rules and regulations that grew out, of the experiences of governmental, and commercial activities. The, development of trade and commerce, gradually led to the development of, management principles and practices., The term ‘management’ today has, several different connotations that, highlight the different aspects of its, nature. The study of management has, evolved over a period of time along, with the modern organisations; based, both on the experience and practice, of managers and a set of theoretical, relationships. Over a period of time,, it has grown into a dynamic subject, with its own special characteristics., However, one question that needs, to be addressed pertaining to the, nature of management is whether, it is a science or an art or both?, In order to answer this let us, examine the features of both science, and art to see how far management, fulfills them., , Management, , as an Art, What is art? Art is the skillful and, personal application of existing, knowledge to achieve desired results., It can be acquired through study,, observation and experience. Since, , art is concerned with personal, application of knowledge some kind, of ingenuity and creativity is required, to practice the basic principles learnt., The basic features of an art are, as follows:, (i) Existence of theoretical, knowledge: Art presupposes the, existence of certain theoretical, knowledge. Experts in their, respective areas have derived, certain basic principles which are, applicable to a particular form of, art. For example, literature on, dancing, public speaking, acting, or music is widely recognised., (ii) Personalised application: The, use of this basic knowledge varies, from individual to individual., Art, therefore, is a very person, alised concept. For example, two, dancers, two speakers, two actors,, or two writers will always differ in, demonstrating their art., (iii) Based, on, practice, and, creativity: All art is practical., Art involves the creative practice, of existing theoretical knowledge., We know that all music is based, on seven basic notes. However,, what makes the composition of, a musician unique or different, is his use of these notes in a, creative manner that is entirely, his own interpretation., Management can be said to be an art, since it satisfies the following criteria:, (i) A successful manager practices, the art of management in the, , 2018-19
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Nature and Significance of Management, , day-to-day job of managing, an enterprise based on study,, observation and experience. There, is a lot of literature available in, various areas of management like, marketing, finance and human, resources which the manager has, to specialise in. There is existence, of theoretical knowledge., (ii) There are various theories of, management, as propounded, by many management thinkers,, which prescribe certain universal, principles. A manager applies, these scientific methods and body, of knowledge to a given situation,, an issue or a problem, in his own, unique manner. A good manager, works through a combination of, practice, creativity, imagination,, initiative and innovation. A, manager achieves perfection, after long practice. Students of, management also apply these, principles differently depending, on how creative they are., (iii) A manager applies this acquired, knowledge in a personalised, and skillful manner in the light, of the realities of a given situation., He is involved in the activities of, the organisation, studies critical, situations and formulates his, own theories for use in a given, situation. This gives rise to, different styles of management, The best managers are committed, and dedicated individuals; highly, trained and educated, with personal, , 13, , qualities such as ambition, selfmotivation, creativity and imagination,, a desire for development of the self, and the organisation they belong to., All management practices are based, on the same set of principles; what, distinguishes a successful manager, from a less successful one is the, ability to put these principles into, practice., , Management, , as a Science, Science is a systematised body of, knowledge that explains certain, general truths or the operation of, general laws. The basic features of, science are as follows:, (i) Systematised body of knowledge:, Science is a systematic body, of knowledge. Its principles are, based on a cause and effect, relationship. For example, the, phenomenon of an apple falling, from a tree towards the ground is, explained by the law of gravity., (ii) Principles based on experimentation: Scientific principles are, first developed through observation, and then tested through repeated, experimentation under controlled, conditions., (iii) Universal validity: Scientific, principles have universal validity, and application., Based on the above features, we, can say that management has some, characteristics of science., (i) Management has a systematised, body of knowledge. It has its, , 2018-19
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Business Studies, , 14, , Some Interesting Cross-disciplinary Perspectives, Anthropology – Anthropology is the study of societies, which helps us learn, about human beings and their activities. Anthropologists’ work on cultures and, environments, for instance, has helped managers to better understand differences, in fundamental values, attitudes, and behavior between people in different, countries and within different organisations., Economics – Economics is concerned with the allocation and distribution of, scarce resources. It provides us with an understanding of the changing economy, as well as the role of competition and free markets in a global context. An, understanding of free trade and protectionist policies is absolutely essential to any, manager operating in the global marketplace, and these topics are addressed by, economists., Philosophy – Philosophy courses inquire into the nature of things, particularly, values and ethics. Ethics are standards that govern human conduct. These ethics, have shaped today’s organisations by providing a basis for legitimate authority,, linking rewards to performance, and justifying the existence of business and the, corporate form., Political Science – Political science is the study of the behavior of individuals and, groups within a political environment. Management is affected by a nation’s form, of government – by whether it allows its citizens to hold property, by its citizens’, ability to engage in and enforce contracts, and by the appeal mechanisms available, to redress grievances. A nation’s stand on property, contracts, and justice, in turn,, shapes the type, form, and policies of its organisations., Psychology – Psychology is the science that seeks to measure, explain, and, sometimes change the behaviour of humans and other animals. Today’s managers, confront both a diverse customer base and a diverse set of employees. Psychologists’, efforts to understand gender and cultural diversity provide managers with a better, perception of the needs of their changing customer and employee populations., Psychology courses are also relevant to managers in terms of gaining a better, understanding of motivation, leadership, trust, employee selection, performance, appraisals, and training techniques., Sociology – Sociology is the study of people in relation to their fellow human, beings. What are some of the sociological issues that have relevance to managers?, Here are a few. How are societal changes such as globalisation, increasing, cultural diversity, changing gender roles, and varying forms of family life affecting, organisational practices? What are the implications of schooling practices and, education trends on future employees’ skills and abilities? Answers to questions, such as these have a major effect on how managers operate their businesses., Source: Fundamentals of Management, Stephen P. Robbins, David A. DeCenzo, , 2018-19
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Nature and Significance of Management, , own theory and principles that, have developed over a period, of time, but it also draws on, other, disciplines, such, as, Economics, Sociology, Psychology, and Mathematics. Like all other, organised activity, management, has its own vocabulary of terms, and concepts. For example, all, of us discuss sports like cricket, and soccer using a common, vocabulary. The players also, use these terms to communicate, with each other. Similarly, managers need to communicate, with one another with the help, of a common vocabulary for a, better understanding of their, work situation., (ii) The principles of management, have evolved over a period, of time based on repeated, experimentation and observation, in different types of organisations., However, since management, deals with human beings and, human behaviour, the outcomes, of these experiments are not, capable of being accurately, predicted, or, replicated., Therefore, management can, be called an inexact science., Despite, these, limitations,, management scholars have been, able to identify general principles, of management. For example,, scientific management principles, by F.W. Taylor and Functional, Management principles by Henri, , 15, , Fayol which you will study in the, next chapter., (iii) Since the principles of management are not as exact as, the principles of science,, their application and use is, not universal. They have to, be modified according to a, given situation. However, they, provide managers with certain, standardised techniques that, can be used in different, situations. These principles, are also used for training and, development of managers., You must have understood from the, foregoing discussion that management has features of both art and, science. The practice of management, is an art. However, managers can, work better if their practice is based on, the principles of management. These, principles constitute the science of, management. Management as an, art and a science are therefore not, mutually exclusive, but complement, each other., , Management as a Profession, You have understood so far that, all forms of organised activity need, to be managed. You would also, have observed that organisations, look for individuals with specific, qualifications and experience to, manage them. It has also been, observed that there has been an, increase in the corporate form of, business on the one hand and, , 2018-19
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Business Studies, , 16, , increasing emphasis on managed, business concerns. Does this imply, that management is a profession? To, answer this question let us examine, the salient features of a profession, and see whether management, satisfies them., A profession has the following, characteristics:, (i) Well-defined body of knowledge: All professions are based on, a well-defined body of knowledge, that can be acquired through, instruction., (ii) Restricted entry: The entry to, a, profession, is, restricted, through an examination or, through acquiring an educational, degree. For example, to become, a chartered accountant in, India a candidate has to clear a, specified examination conducted, by the Institute of Chartered, Accountants of India., (iii) Professional association: All, professions are affiliated to a, professional association which, regulates entry, grants certificate, of practice and formulates and, enforces a code of conduct. To be, able to practice in India lawyers, have to become members of the, Bar Council which regulates and, controls their activities., (iv) Ethical code of conduct: All, professions are bound by a code, of conduct which guides the, behaviour of its members. All, doctors, for example, take the, , oath of ethical practice at the, time they enter the profession., (v) Service motive: The basic motive, of a profession is to serve their, client’s interests by rendering, dedicated and committed service., The task of a lawyer is to ensure, that his client gets justice., Management does not meet the, exact criteria of a profession. However,, it does have some of the features of a, profession:, (i) All over the world there is, marked growth in management, as a discipline. It is based, on a systematic body of, knowledge, comprising, welldefined principles based on a, variety of business situations., This knowledge can be acquired, at different colleges and professional, institutes and through a number, of books and journals. The, subject of management is taught, at different institutions. Some, of these have been set up with, the specific purpose of providing, management education such, as the Indian Institutes of, Management (IIMs) in India., Entry to different institutes is, usually through an examination., (ii) There is no restriction on anyone, being designated or appointed, as manager in any business, enterprise. Anyone can be, called a manager irrespective of, the educational qualifications, possessed., , 2018-19
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Nature and Significance of Management, , , Unlike professions such as, medicine or law which require, a practicing doctor or lawyer to, possess valid degrees, nowhere, in the world is it mandatory, for a manager to possess any, such, specific, degree., But, professional, knowledge, and, training is considered to be a, desirable qualification, since, there is greater demand for those, who possess degrees or diplomas, from, reputed, institutions., Therefore, as such the second, criterion has not been strictly met., (iii) There are several associations, of practising managers in, India, like the AIMA (All India, Management Association) that, has laid down a code of conduct, to regulate the activities of their, members. There is, however,, no compulsion for managers, to be members of such an, association nor does it have any, statutory backing., (iv) The basic purpose of management is to help the organisation, achieve its stated goal. This may, be profit maximisation for a, business enterprise and service, for a hospital. However, profit, maximisation as the objective, of management does not hold, true and is fast changing., Therefore, if an organisation, has a good management team, that is efficient and effective it, automatically serves society by, providing good quality products, at reasonable prices., , 17, , Levels, , of Management, Shiv Nadar and Suhasini are both, managers of an enterprise. Shiv Nadar, is the CEO of HCL and Suhasini is a, branch manager at Fabmart. They, manage their enterprise at different, levels. Management is a universal term, used for certain functions performed, by individuals in an enterprise who, are bound together in a hierarchy of, relationships. Every individual in the, hierarchy is responsible for successful, completion of a particular task. To be, able to fulfill that responsibility he is, assigned a certain amount of authority, or the right to take a decision. This, authority-responsibility relationship, binds individuals as superiors and, subordinates and gives rise to different, levels in an organisation. Generally, speaking there are three levels in the, hierarchy of an organisation., (i) Top Management: They consist, of the senior-most executives of the, organisation by whatever name, they are called. They are usually, referred to as the chairman,, the chief executive officer, chief, operating officer, president and, vice-president. Top management, is a team consisting of managers, from different functional levels,, heading finance, marketing etc., For example chief finance officer,, vice president (marketing). Their, basic task is to integrate diverse, elements and coordinate the, activities of different departments, , 2018-19
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Business Studies, , 18, , according to the overall objectives, of the organisation. These top, level managers are responsible, for the welfare and survival of, the organisation. They analyse, the business environment and, its implications for the survival, of the firm. They formulate, overall organisational goals and, strategies for their achievement., They are responsible for all the, activities of the business and for, its impact on society. The job, of the top manager is complex, and stressful, demanding long, hours and commitment to the, organisation., (ii) Middle Management: is the, link between top and lower level, managers. They are subordinate, to top managers and superior, to the first line managers., They are usually known as, division heads, for example, production manager. Middle, management is responsible for, implementing and controlling, plans and strategies developed, by top management. At the, same time they are responsible, for all the activities of first line, managers. Their main task is to, carry out the plans formulated, by the top managers. For this they, need to: (i) interpret the policies, framed by top management,, (ii) ensure that their department, has the necessary personnel,, (iii) assign necessary duties, and responsibilities to them,, , (iv) motivate them to achieve, desired objectives, and (v) co, operate with other departments, for smooth functioning of the, organisation. At the same time, they are responsible for all the, activities of first line managers., (iii) Supervisory or Operational, Management:, Foremen, and, supervisors comprise the lower, level in the hierarchy of the, organisation. Supervisors directly, oversee the efforts of the workforce., Their authority and responsibility, is limited according to the plans, drawn by the top management., Supervisory management plays, a very important role in the, organisation since they interact, with the actual work force and pass, on instructions of the middle, , 2018-19, , “You don’t learn management, from, books, alone...”
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Nature and Significance of Management, , management to the workers., Through their efforts quality of, output is maintained, wastage, of materials is minimised and, safety standards are maintained., The quality of workmanship and, the quantity of output depends, on the hard work, discipline and, loyalty of the workers., , Functions, , of Management, Management is described as the, process of planning, organising,, directing and controlling the efforts, of organisational members and of, using organisational resources to, achieve specific goals., Planning is the function of, determining in advance what is to, , TOP, MANAGEMENT, , 19, , be done and who is to do it. This, implies setting goals in advance, and developing a way of achieving, them efficiently and effectively. In, Suhasini’s organisation the objective, is procurement and sale of traditional, Indian handloom and handicraft, items. They sell fabrics, furnishings,, readymades and household items, made out of traditional Indian fabrics., Suhasini has to decide quantities,, variety, colour and texture of all the, above and then allocate resources, for their purchase from different, suppliers or for their inhouse, development., Planning, cannot, prevent problems, but it can predict, them and prepare contingency plans, to deal with them if and when they, occur., Organising is the management, function of assigning duties, grouping, tasks, establishing authority and, allocating resources required to carry, out a specific plan. Once a specific, plan has been established for the, accomplishment of an organisational, goal, the organising function examines, , MIDDLE, MANAGEMENT, , OPERATIONAL, MANAGEMENT, Managerial, Levels, , 2018-19
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Business Studies, , 20, , the activities and resources required, to implement the plan. It determines, what activities and resources are, required. It decides who will do a, particular task, where it will be done,, and when it will be done. Organising, involves the grouping of the required, tasks into manageable departments, or work units and the establishment of, authority and reporting relationships, within the organisational hierarchy., Proper organisational techniques, help in the accomplishment of work, and promote both the efficiency of, operations and the effectiveness of, results. Different kinds of business, require different structures according, to the nature of work. You will read, more about this in a later chapter., Staffing simply stated, is finding the, right people for the right job. A very, important aspect of management is, to make sure that the right people, with the right qualifications are, available at the right places and, times to accomplish the goals of the, organisation. This is also known as, the human resource function and it, involves activities such as recruitment,, selection, placement and training of, personnel. Infosys Technologies which, develops software needs systems, analysts and programmers, whereas, Fabmart needs a team of designers, and craftspeople., Directing involves leading, influ, encing and motivating employees, to perform the tasks assigned to, them. This requires establishing, an atmosphere that encourages, , employees to do their best. Motivation, and, leadership, are, two, key, components of direction. Directing, also, involves, communicating, effectively as well as supervising, employees at work. Motivating, workers means simply creating an, environment that makes them want, to work. Leadership is influencing, others to do what the leader wants, them to do. A good manager directs, through praise and criticism in, such a way that it brings out the, best in the employee. Suhasini’s, design team developed some prints, for bedcovers in bright colours on, silk. Although they looked very, impressive, the use of silk made, the product too expensive for the, average customer. Praising their, effort, Suhasini suggested that they, keep the silk bedcovers for special, occasions like Diwali and Christmas, and offer the cotton bedcovers on a, regular basis., Controlling is the management, function of monitoring organisational, performance towards the attainment, of organisational goals. The task, of controlling involves establishing, standards of performance, measuring, current, performance,, comparing, this with established standards and, taking corrective action where any, deviation is found. Here management, must determine what activities and, outputs are critical to success, how, and where they can be measured, and who should have the authority to, take corrective action. When Suhasini, , 2018-19
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Nature and Significance of Management, , discovered that her team of designers, had produced bedcovers that were, more expensive than they had, planned to sell, she decided to change, the fabric to keep costs in check., The various functions of a manager, are usually discussed in the order, given above, suggesting that a, manager first plans, then organises,, puts staff in position, then directs,, and finally controls. In reality,, managers are rarely able to carry, out these functions in isolation., The activities of a manager are, interrelated and it is often difficult, to pinpoint where one ended and the, other began., , Coordination — The, Essence of Management, You have understood by now that, a manager has to perform five, interrelated functions in the process of, managing an organisation which is a, system made up of different interlinked, and interdependent subsystems. A, manager has to link these diverse, groups towards the achievement of a, common goal. The process by which, a manager synchronises the activities, of different departments is known as, coordination., Coordination is the force that, binds all the other functions of, management. It is the common, thread that runs through all activities, such as purchase, production, sales,, and finance to ensure continuity, in the working of the organisation., Coordination is sometimes considered, a separate function of management., , 21, , It is however, the essence of, management, for achieving harmony, among individual efforts towards, the accomplishment of group goals., Each managerial function is an, exercise contributing individually to, coordination. Coordination is implicit, and inherent in all functions of an, organisation., The process of coordinating the, activities of an organisation begins, at the planning stage itself. Top, management plans for the entire, organisation. According to these, plans the organisational structure, is developed and staffed. In order to, ensure that these plans are executed, according to plans directing is, required. Any discrepancies between, actual and realised activities are, then taken care of at the stage of, controlling. It is through the process, of coordination that a manager, ensures the orderly arrangement of, individual and group efforts to ensure, unity of action in the realisation of, common objectives. Coordination, therefore involves synchronisation, of the different actions or efforts of, the various units of an organisation., This provides the requisite amount,, quality, timing and sequence of, efforts which ensures that planned, objectives are achieved with a, minimum of conflict., , Characteristics, Coordination, , of, , The definitions given above, highlight the following features of, coordination:, , 2018-19
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Business Studies, , 22, , (i) Coordination integrates group, efforts: Coordination unifies, unrelated or diverse interests into, purposeful work activity. It gives, a common focus to group effort, to ensure that performance is as, it was planned and scheduled., (ii) Coordination ensures unity, of action: The purpose of, coordination is to secure unity, of action in the realisation of, a common purpose. It acts, as the binding force between, departments and ensures that, all action is aimed at achieving, the goals of the organisation., You have observed that at, Fabmart, the production and, sales, department, have, to, coordinate their work, so that, production takes place according, to the demand in the market., In the absence of, coordination what, results is chaos, , (iii) Coordination is a continuous, process: Coordination is not, a one-time function but a, continuous process. It begins at, the planning stage and continues, till controlling. Suhasini plans, her winter collection in the month, of June itself. She has to then, ensure that there is adequate, workforce and continuously, monitor whether production is, proceeding according to plans., Her marketing department also, has to be briefed in time to, prepare their promotional and, advertising campaigns., (iv) Coordination is an all pervasive, function: Coordination is required, at all levels of management due, to the interdependent nature of, activities of various departments., It integrates the efforts of different, departments and different levels., The purchase, production and, sales departmental efforts have, to be coordinated by Suhasini for, achieving organisational objectives, harmoniously., The purchase, department is responsible for, procuring fabric. This then, becomes the basis of the activities, of the production department, and finally sales can take place. If, fabric purchased is of an inferior, quality or is not according to the, specifications of the production, department, further sales will, also decline. In the absence of, coordination there is overlapping, , 2018-19
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Nature and Significance of Management, , and chaos instead of harmony, and integration of activities., (v) Coordination is the responsibility of all managers: Coordination is the function of every, manager in the organisation. Top, level managers need to coordinate, with their subordinates to ensure, that the overall policies for the, organisation are duly carried, out. Middle level management, coordinates with both the top, level and first line managers., Operational level management, coordinates the activities of its, workers to ensure that work, proceeds according to plans., (vi) Coordination is a deliberate, function: A manager has, to coordinate the efforts of, different people in a conscious, and deliberate manner. Even, where members of a department, willingly cooperate and work,, coordination gives a direction to, that willing spirit. Cooperation, in the absence of coordination, may lead to wasted effort and, , 23, , coordination without cooperation, may lead to dissatisfaction, among employees., Coordination, therefore, is not a, separate function of management,, but its very essence. For an, organisation to effectively and, efficiently achieve its objectives, coordination is required. Like a, thread in a garland, coordination is, a part of all management functions., , Importance of Coordination, Coordination is important as it, integrates the efforts of individuals,, departments and specialists. The, primary reason for coordination is, that departments and individuals in, the organisation are interdependent,, i.e. they depend on each other, for information and resources to, perform their respective activities., Thus, managers need to reconcile, differences in approach, timing, effort, or interest. At the same time, there is, a need to harmonise individual goals, and organisational goals., Definitions of Coordination, , Coordination is balancing and keeping together the team by ensuring suitable allocation of, tasks to the various members and seeing that the tasks are performed with harmony among, the members themselves., E.F.L. Brech, Coordination is the process whereby an executive develops an orderly pattern of, group efforts among his subordinates and secures unity of action in the pursuit of common, purpose., McFarland, Coordination is the orderly synchronising of efforts of subordinates to provide proper, amount, timing and quality of execution so that their united efforts lead to the stated, objectives, namely, the common purpose of the enterprise., Theo Haimann, , 2018-19
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Business Studies, , 24, , (i) Growth in size: As organisations, grow in size, the number of people, employed by the organisation also, increases. At times, it may become, difficult to integrate their efforts and, activities. All individuals differ in, their habits of work, background,, approaches, to, situations, and, relationships with others. It becomes, necessary to ensure that all individuals, work towards the common goals of, the organisation. But employees may, have their own individual goals also., Therefore, for organisational efficiency,, it is important to harmonise individual, , goals and organisational goals, through coordination., (ii) Functional differentiation:, Functions of an organisation are, divided into departments, divisions and, sections. In an organisation there may, be separate departments of finance,, production, marketing or human, resources. All these departments may, have their own objectives, policies, and their own style of working. For, example, the marketing department’s, objective may be to increase sales, by 10 per cent by offering discounts., But, the finance department may, , ‘DABBAWALLAS’ – Excellence through Coordination, The Dabbawallas of Mumbai is the story of a SIX SIGMA business enterprise. The success, of the business lies in the complex yet well coordinated exercise that is carried out on the, streets of Mumbai day after day. What is the secret behind the efficiency with which their, business is conducted?, The story of the dabbawallas begins in the kitchens of Mumbai. After they step out of their, door, someone begins the time-consuming process of preparing the worker a fresh, homecooked lunch. What happens next for demonstrates the coordination of the dabbawallas, system. The first dabbawalla picks up the tiffin from home and takes it to the nearest railway, station.The second dabbawalla sorts out the dabbas at the railway station according to, destination and puts them in the luggage carriage. The third one travels with the dabbas to, the railway stations nearest to the destinations. The fourth one picks up dabbas from the, railway station and drops them off at the offices., By mid-morning, thousands of dabbawallas are bicycling through the streets of Mumbai,, ensuring a hot home cooked lunch for their customers. The whole tiffin distribution requires, negligible technology. The dabbawallas rely on low capital and use cycles, wooden carriages, and local trains to achieve their target.There are several groups that work independently and, network with each other to achieve their goal., Each area is divided into several small distribution sectors and each sector is handled by, a particular person. This person understands the address in that locality very well. Also, this, perfection comes with practice. Many new employees work for months under the guidance, of their seniors., Punctuality and time management are on top of the agenda for dabbawallas. Whatever be, the circumstances, the dabbawallas never get delayed even by a few minutes., , 2018-19
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Nature and Significance of Management, , 25, , not approve of such discounts as it, means loss of revenue. These kinds of, conflict arise in organisations because, each unit/department is performing, activities in isolation from others and, barriers between departments are, becoming more rigid., However, all departments and, individuals are interdependent and, they have to depend on each other for, information to perform their activities., The activity of each department, needs to be focused on attainment, of common organisational goals. The, process of linking the activities of, various departments is accomplished, by coordination., (iii), Specialisation:, Modern, organisations, are, characterised, by a high degree of specialisation., , Specialisation arises out of the, complexities of modern technology, and the diversity of tasks to be, performed. Organisations, therefore,, need to employ a number of, specialists., Specialists, usually, think that they only are qualified to, evaluate, judge and decide according, to their professional criteria. They, do not take advice or suggestions, from others in matters pertaining, to their area of specialisation. This, often leads to conflict amongst, different specialists as well as others, in the organisation. Therefore,, some coordination is required by an, independent person to reconcile the, differences in approach, interest or, opinion of the specialists., , The Challenge of Being a Global Manager, Rajat Lal is the director of a firm that develops software solutions for the travel industry on, a global level. He represents a US software services firm that outsources project work to, its delivery partners in Gurgaon, the software hub of North India. It develops software for, companies in the technology, transportation and leisure sectors, across the world. Rajat is, the interface between his global clients and his domestic technical team. That makes his job, more challenging than that of a manager who functions in a totally domestic environment., This is what Rajat has to say about the challenges of his job:, • In the capacity of the ‘country manager’ – the global manager has to deal with, establishing his company’s legal and business presence in the form of a local office or, business partner, contacting and negotiating with clients, with legal bodies including lawyers, and immigration authorities since the services involve having technical staff from India, to be based in USA/Europe, as also with local companies offering recruitment services., Another key role he plays is establishing a sense of comfort in potential clients by stressing, on the positive effects of cross-cultural and multi-cultural opportunities that outsourcing, and global delivery entail, while addressing any concerns out of these., • In the capacity of the ‘functional manager’ – the global manager has to ensure he, is able to source the right technical skills, build a strong resource base of these skills,, and be able to deliver on software projects with these skill-sets working in a globalised, , 2018-19
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Business Studies, , 26, , work environment – in terms of multiple time-zones, understanding of client’s priorities based, on the business cycles that the client’s business operates in, understanding and adapting to, the processes and methodologies the client is familiar with. Finally this function also includes, customer expectation management, where the functional manager has to coordinate, activities in India and in USA/Europe according to the customer’s priorities, communicate, what is possible and what is not possible, and accordingly also manage the expectations and, satisfaction levels of his own employees., • In the capacity of the ‘business leader’ – the global manager has to be alive to changing, business situations and customer priorities – he has to keep track of the trends in outsourcing –, and have the ability to envision upcoming opportunities as well as potential risks. For example,, having a firm grip on the changing legislations on outsourcing is critical for a business manager to, understand if his current clients are going to continue giving him business. The global manager, also needs to be extremely responsive in what customers may perceive as gaps between the, operating environment in India vis-à-vis their own countries. He has to position the advantages, that outsourcing to India offers – in terms of lowered costs and access to a wide talent-base,, while expertly addressing concerns on weak areas like infrastructure in India., What do all these mean for a global manager today?, To summarise, a global manager today is one who possesses what can be termed as ‘hard’ types, of skills as well as ‘softer’ types of skills. Managers who understand analysis, strategy, engineering,, and technology are still going to be needed, but extremely critical to global success are people who, understand how teams work, how organisations work, how people are motivated., A manager who really understands different cultures should be able to work in a West, European, non-English speaking country, then move to a developing country like Malaysia or, Kenya, and then be transferred to an office based in New York, USA, and be almost immediately, productive in all three places., It can thus be understood that the role of a global manager has evolved in much the same, way that the global industry and economy have evolved. It has changed from being a single, dimensional role in a defined business context, to being a multi-faceted role that calls for a, diverse combination of technical skills, soft management and people skills, and the ability to, imbibe and learn different cultural experiences., Source: Harvard Business School, Working Knowledge, , Management in the, Twenty-first Century, Even as you read this chapter, the, organisation and its management, are changing. As boundaries between, cultures and nations get blurred, and new communication technology, , makes it possible to think of the, world as a ‘global village’, the scope, of international and intercultural, relationships is rapidly expanding., The modern organisation is a, global organisation that has to be, managed in a global perspective., What does this imply?, , 2018-19
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Nature and Significance of Management, , 27, , Key Terms, Management Process Efficiency Effectiveness Art, Science Profession Planning Organising Staffing, Directing Controlling Coordination, , Summary, Concept, Management is the process of planning, organising, staffing,, directing and controlling the enterprise resources efficiently and, effectively for achieving the goals of the organisation. Effectiveness, in management is concerned with doing the right task, completing, activities and achieving goals. Efficiency means doing the task, correctly and with minimum cost., Characteristics, The key features of management are: (i) goal oriented process, (ii) all pervasive (iii) multidimensional (iv) continuous process, (v) group activity (vi) dynamic function (vii) tangible force., Objectives, Management fulfills three basic objectives: organisational, social, and personal., Importance, Management is important because it helps in achieving group goals,, increases efficiency, creates a dynamic organisation, helps achieve, personal objectives and contributes to the development of society., Nature, Management is a combination of an organised body of knowledge, (science) and its skillful application (art). Although it does not, satisfy all the requirements of a profession, it is to a large extent, professional in character., Levels, Management is considered a three-tier activity. The top management, focuses on determination of objectives and policies, middle, management attempts to achieve these objectives through the effort, of other managers and supervisory or operational management, directly oversees the efforts of the workforce., Functions, All managers perform the following interrelated functions: Planning,, Organising, Staffing, Directing and Controlling., Coordination, Coordination is the essence of management. It is the process of, achieving unity of action among interdependent activities and, departments of an organisation., , 2018-19
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Business Studies, , 28, , Exercises, Short, 1., 2., 3., , Answer Type, Define management., Name any two important characteristics of management., Ritu is the manager of the northern division of a large corporate, house. At what level does she work in the organisation? What, are her basic functions?, 4. Why is management considered a multi-faceted concept?, 5. Discuss the basic features of management as a profession., , Long Answer Type, 1. Management is considered to be both an art and science., Explain., 2. Do you think management has the characteristics of a full, fledged profession?, 3. Coordination is the essence of management. Do you agree?, Give reasons., 4. “A successful enterprise has to achieve its goals effectively, and efficiently.” Explain., 5. Management is a series of continuous interrelated functions., Comment., Multiple Choice, 1. Which is not a function of management of the following, (a) planning, (b) staffing, (c) cooperating, (d) controlling, 2. management is, (a) an art, (b) a science, (c) both art and science, (d) neither, 3. the following is not an objective of management, (a) earning profits, (b) growth of the organisation, (c) providing employment, (d) policy making, 4. policy formulation is the function of, (a) top level managers, , 2018-19
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Nature and Significance of Management, , 29, , (b) middle level managers, (c) operational management, (d) all of the above, 5. coordination is, (a) function of management, (b) the essence of management, (c) an objective of management, (d) none of the above, , Case Problems, 1. Company X is facing a lot of problems these days. It, manufactures white goods like washing machines, microwave, ovens, refrigerators and air conditioners. The company’s, margins are under pressure and the profits and market, share are declining. The production department blames, marketing for not meeting sales targets and marketing, blames production department for producing goods, which, are not of good quality meeting customers expectations. The, finance department blames both production and marketing, for declining return on investment and bad marketing., What quality of management do you think the company is, lacking? Explain briefly. What steps should the company, management take to bring the company back on track?, 2. A company wants to modify its existing product in the market, due to decreasing sales. You can imagine any product about, which you are familiar. What decisions/steps should each, level of management take to give effect to this decision?, 3. A firm plans in advance and has a sound organisation, structure with efficient supervisory staff and control system., On several occasion it finds that plans are not being adhered, to. It leads to confusion and duplication of work. Advise, remedy., These activities are meant to reinforce concepts and to make the, learning joyful. They also aim to give pupils simulated experiences of, the managerial activities relevant to their level of understanding., , Activity 1, Make groups of 5 – 6 students each according to the size of class. Let, them run a garment manufacturing company. Assign the following, tasks to each group., , 2018-19
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Business Studies, , 30, , (i), , Let group ‘A’ identify the activities that take place in the, company., (ii) Let group ‘B’ classify these activities into managerial , and non-managerial activities., (iii) Let group ‘C’ identify the planning activities., (iv) Let group ‘D’ identify the organising activities., (v) Let group ‘E’ identify the staffing activities., (vi) Let group ‘F’ identify the directing activities., (vii) Let group ‘G’ identify the controlling activities., (viii) Let group ‘H’ identify the coordinating activities., The teacher can then summarise these activities and derive, appropriate conclusions. The above activity can be done for any, sector such as software export house, or an auto company. The, teacher should do some preparation in finding out the actual, activities with the help of Internet and printed material relevant to, the sector which is selected. The students can also be involved in, the searching exercise by the teacher., , Activity 2, This activity involves classifying the activities identified in, activity 1 into those taking place at higher management level,, middle management level and lower management level. Accordingly, 3 groups A, B and C can be formed for the three levels. If the teacher, so desires she/he can form more groups. Then the findings of the, groups can be summarised by the teacher., Note: The teacher can organise a panel discussion for both these, activities where the group leaders can give their findings and the, students of the class can ask questions which can be answered by, the panel members with the help of the teacher., It should be noted that no expertise is required for the students., This exercise is just to give the feel to the students of the real life, work environment and relate it to what they have learnt., , 2018-19
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2, , PRINCIPLES OF, MANAGEMENT, Business Principles of Toyota Motor Corporation, Toyota follows certain well-defined business principles guiding, its functioning. These are:, 1. Honour the language and spirit of law of every nation and, undertake open and fair corporate activities to be a good, corporate citizen around the world., 2. Respect the culture and customs of every nation and, contribute to economic and social development through, corporate activities in local communities., 3. To provide clean and safe products and to enhance the, quality of life everywhere., 4. Create and develop advanced technologies and provide, outstanding products and services that fulfil the needs of, customers worldwide., 5. Foster a corporate culture that enhances individual creativity, and teamwork value, while honouring mutual trust and, respect between management and labour., 6. Pursue growth and harmony with global community through, innovative management., 7. Work with business partners in research and creativity to, achieve stable, long-term growth and mutual benefits and be, open to new partnerships. These principles, will guide the, company in its global vision 2010. This global vision envisages, continuous innovations in future, use of environment, friendly technologies, respecting and working with different, sections of society and establishing an interactive relationship, with society., , CHAPTER, L E A R N I N G, OBJECTIVES, , After studying this, chapter, you should, be able to:, n, , n, , n, , State the, meaning, nature, and significance, of principles of, management;, Explain Taylor’s, principles and, techniques, of Scientific, Management; and, Explain Fayol’s, principles of, management., , Based on www.toyota.co.jp/en/enviornmental_rep/03, /rinen.html on 17.10.2006, , It is clear from the foregoing case that, managerial pursuits at Toyota Motor, Corporation are driven by principles, that serve as broad guidelines for, , stating the vision as well as the ways, to achieve it. Similarly, many other, business enterprises have followed, various principles in their working, , 2018-19
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Business Studies, , 32, , over a period of time. A number of, management thinkers, and writers, have also studied principles of, management from time-to-time., In fact, there is a long history of, management thought. Management, principles have evolved and are in, the continuous process of evolution., (see box.), You can see that the evolution of, management thought has been very, , fascinating. In this chapter we will, study the contributions of Fredrick, Winslow Taylor and Henri Fayol who, as you have read are associated with, the classical management theory., Both of them contributed immensely, towards the study of management as, a discipline. Whereas F.W. Taylor was, an American mechanical engineer,, Henri Fayol was a French mining, engineer. Taylor gave the concept, , Evolution of Management Principles, In tracing the history of management, one comes across various schools of thought, that have outlined principles to guide management practices. These schools of, thought may be divided into 6 distinctive phases: 1. Early Perspectives; 2. Classical, Management Theory; 3. Neo Classical Theory — Human Relations Approach;, 4. Behavioural Science Approach — Organisational Humanism; 5. Management, Science/Operational Research; 6. Modern Management., EARLY PRESPECTIVES, The first known management ideas were recorded in 3000-4000 B.C. One, Pyramid built by Egyptian ruler Cheops required work to be done by 100,000, men for over twenty years in 2900 B.C. It covered 13 acres of land and measured, 481 meters in height. The stone slabs had to be moved thousands of kilometres, of distance. As folklore goes, even the sound of a hammer was not heard in the, villages in the vicinity of the site of these pyramids. Such monumental work could, not be completed without adherence to principles of sound management., CLASSICAL MANAGEMENT THEORY, Rational economic view, scientific management, administrative principles, and, bureaucratic organisation characterise this phase. While the rational economic, view assumed that people are motivated by economic gains primarily; scientific, management of F.W. Taylor and others emphasised one best way of production, etc; administrative theorists personified by Henri Fayol etc looked at the best, way to combine jobs and people into an efficient organisation; bureaucratic, organisation theorists led by Max Weber looked at ways to eliminate managerial, inconsistencies due to abuse of power which contributed to ineffectiveness., This was the era of the industrial revolution and factory system of production., Large scale production would not have been possible without adherence to, the principles governing organising production based on division of labour and, specialisation, relationship between man and the machine, managing people, and so on., , 2018-19
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Principles of Management, , 33, , NEO CLASSICAL THEORY — HUMAN RELATIONS APPROACH, This school of thought developed between 1920s to 1950s felt that employees, simply do not respond rationally to rules, chains of authority and economic, incentives alone but are also guided by social needs, drives and attitudes., Hawthorne Studies at GEC etc., were conducted then. It was quite natural that, in the early phases of the industrial revolution, the emphasis was on development, of techniques and technology. The attention to the human factor was the salient, aspect of this school of thought. This attention was to serve as a precursor to the, development of behavioural sciences., BEHAVIOURAL SCIENCE APPROACH — ORGANISATIONAL HUMANISM, Organisational behaviourists like Chris Argyris; Douglas McGregor, Abraham, Maslow and Fredrick Herzberg used the knowledge of psychology, sociology, and anthropology to develop this approach. The underlying philosophy of, organisational humanism is that individuals need to use all of their capacities and, creative skills at work as well as at home., MANAGEMENT SCIENCE/OPERATIONAL RESEARCH, It emphasises research on operations and use of quantitative techniques to aid, managers to take decisions., MODERN MANAGEMENT, It sees modern organisations as complex systems and underlies contingency, approach and use of modern techniques to solve organisational and human, problems., Source: Adapted from Internet modern history source book on www.fordham.edu, , of ‘Scientific Management’ whereas, Fayol emphasised ‘Administrative, Principles’., But before we go into the details, of their contributions let us study, the meaning of the principles of, management., , Principles of Management:, The Concept, A managerial principle is a broad, and general guideline for decisionmaking and behaviour. For example, while deciding about promotion of an, employee one manager may consider, , seniority, whereas the other may, follow the principle of merit., One may distinguish principles, of management from those of pure, science. Management principles are, not as rigid as principles of pure, science. They deal with human, behaviour and, thus, are to be, applied creatively given the demands, of the situation. Human behaviour is, never static and so also technology,, which affects business. Hence all, the principles have to keep pace, with these changes. For example,, in the absence of Information and, , 2018-19
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Business Studies, , 34, , Communications Technology (ICT), a, manager could oversee only a small, work force that too within a narrow, geographical space. The advent of, ICT has expanded the capability of, the managers to preside over large, business empires spread across, the globe. Infosys headquarters in, Bangalore boast of the Asia’s largest, flat screen in their conference room, from where their managers can, interact with their employees and, customers in all parts of the world., In developing an understanding, of the meaning of principles of, management, it is also useful to, know what these are not. The, principles of management should, be distinguished from techniques, of management. Techniques are, procedures or methods, which, involve a series of steps to be taken to, accomplish desired goals. Principles, are guidelines to take decisions or, actions while practicing techniques., Likewise, principles should also be, understood as being distinct from, values. Values are something, which, are acceptable or desirable. They, have moral connotations. Principles, are basic truths or guidelines for, behaviour. Values are general rules, for behaviour of individuals in society, formed through common practice, whereas principles of management, are formed after research in work, situations, which are technical in, nature. However, while practicing, principles of management values, , cannot be neglected, as businesses, have to fulfil social and ethical, responsibilities towards society., , Nature of Principles, Management, , of, , By nature is meant qualities and, characteristics of anything. Principles, are general propositions, which are, applicable when certain conditions, are present. These have been, developed on the basis of observation, and experimentation as well as, personal experiences of the managers., Depending upon how they are, derived and how effective they are in, explaining and predicting managerial, behaviour, they contribute towards, the development of management both, as a science and as an art. Derivation, of these principles may be said to be, a matter of science and their creative, application may be regarded as an, art. These principles lend credibility, of a learnable and teachable discipline, to the practice of management. As, such, ascent to managerial position, may not be a matter of birth, but a, matter of requisite qualifications., Clearly, management principles have, gained importance with increasing, professionalisation of management., These principles are guidelines, to action. They denote a cause and, effect relationship. While functions, of management viz., Planning,, Organising, Staffing, Directing and, Controlling are the actions to be, , 2018-19
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Principles of Management, , 35, , taken while practising management,, Principles help managers to take, decisions while performing these, functions. The following points, summarise the nature of principles, of management., (i) Universal applicability: The, principles of management are, intended to apply to all types of, organisations, business as well as, non-business, small as well large,, public sector as well as private, sector, manufacturing as well as, the services sectors. However,, the extent of their applicability, would vary with the nature of the, organisation, business activity,, scale of operations and the like. For, example, for greater productivity,, work should be divided into small, tasks and each employee should, be trained to perform his/her, specialised job. This principle is, applicable to a government office, where there is a diary/despatch, clerk whose job is to receive and, send mail or documents, a data, entry operator whose task is to, input data on the computer, a peon, and an officer etc. This principle, is also applicable to a limited, company where there are separate, departments like Production,, Finance, Marketing and Research, and Development etc. Extent of, division of work, however, may, vary from case to case., (ii) General guidelines: The prin, ciples are guidelines to action, , but do not provide readymade,, straitjacket solutions to all, managerial, problems., This, is so because real business, situations are very complex, and dynamic and are a result, of many factors. However, the, importance of principles cannot, be underestimated because even, a small guideline helps to solve, a given problem. For example,, in dealing with a situation, of, conflict, between, two, departments, a manager may, emphasise the primacy of the, overall goals of the organisation., (iii) Formed by practice and experi, mentation:, The, principles, of management are formed, by experience and collective, wisdom of managers as well as, experimentation. For example, it, is a matter of common experience, that discipline is indispensable, for accomplishing any purpose., This principle finds mention, in management theory. On the, other hand, in order to remedy, the problem of fatigue of workers, in the factory, an experiment, may be conducted to see the, effect of improvement of physical, conditions to reduce stress., (iv) Flexibile: The principles of, management are not rigid, prescriptions, which have to be, followed absolutely. They are, flexible and can be modified by, the manager when the situation, , 2018-19
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Business Studies, , 36, , so demands. They give the, manager enough discretion to, do so. For example, the degree, of concentration of authority, (centralisation) or its dispersal, (decentralisation) will depend, upon the situations and, circumstances of each enterprise., Moreover individual principles, are like different tools serving, different purposes, the manager, has to decide which tool to use, under what circumstances., (v) Mainly behavioural: Manage, ment principles aim at, influencing behaviour of human, beings. Therefore, principles, of management are mainly, behavioural in nature. It is, not that these principles do, not pertain to things and, phenomenon at all, it is just a, matter of emphasis. Moreover,, principles enable a better, understanding of the relationship, between human and material, resources in accomplishing, organisational purposes. For, example, while planning the, layout of a factory, orderliness, would require that workflows are, matched by flow of materials and, movement of men., (vi) Cause and effect relationships:, The principles of management, are, intended, to, establish, relationship between cause and, effect so that they can be used, in similar situations in a large, , number of cases. As such, they, tell us if a particular principle, was applied in a particular, situation, what would be its, likely effect. The principles, of management are less than, perfect since they mainly apply, to human behaviour. In real, life, situations are not identical., So, accurate cause and effect, relationships may be difficult, to establish. However,principles, assist, of, management, managers, in, establishing, these relationships to some, extent and are therefore useful., In situations of emergencies,, it is desirable that someone, takes, charge, and, others, just follow. But in situations, requiring, cross-functional, expertise, such as setting up of, a new factory, more participative, approach to decision-making, would be advisable., (vii) Contingent: The application, of principles of management is, contingent or dependent upon, the prevailing situation at a, particular point of time. The, application of principles has to, be changed as per requirements., For example, employees deserve, fair and just remuneration., But what is just and fair is, determined by multiple factors., They include contribution of the, employee, paying capacity of the, employer and also prevailing, , 2018-19
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Principles of Management, , 37, , wage rate for the occupation, under consideration., Having described the inherent, qualities and characteristics of, management principles, it should, be easy for you to appreciate the, significance of these principles in, managerial decision-making. But, before that you can read the following, case study of ‘Kiran Mazumdar, Shaw’ a highly successful Indian, businesswoman and CEO of ‘Biocon’, , in the accompanying box. You should, be able to see how she was able to, transform a little known sector of, biotechnology into a very profitable, company and earn titles which any, one would dream of., From the foregoing story it is, clear that success of Biocon due to, the efforts of Dr. Kiran Mazumdar, Shaw was not a mere chance. It, was a sincere effort, which involved, application of qualities, which are, , The story of Dr. Kiran Mazumdar Shaw is very inspiring. She foresaw the tremendous, potential of biotechnology when no one dared to think about it. She started her own, company Biocon India in her garage with a meagre capital of Rs 10,000 in collaboration, with Biocon Biochemicals limited of Ireland., When she wanted to take loans no financial institution was willing to help her because of, three reasons: biotechnology was a new area of operation; her company lacked assets and, thirdly women entrepreneurs were a rarity at that time in 1978. She even faced problems, recruiting people. The initial operation of the company consisted of extracting an enzyme, from papaya., Now Biocon limited is an integrated biotechnology enterprise focused on the, development of biopharmaceuticals, custom research, clinical research and enzymes. It, delivers products and solutions to partners and customers in over 50 countries., According to the company’s website, “At Biocon our success has been our ability to, develop innovative technologies and products and to leverage them to adjacent domains., This unique ‘integrated innovation’ approach has yielded a host of patented products and, technologies that have enabled multilevel relationships with our global clientele”. It has two, subsidiary companies. The first one is Syngene International Private limited, which provides, chemistry and molecular based custom research services in early stage drug discovery and, development. The second subsidiary company is Clinigene International Private Limited,, which conducts longitudinal research in diabetes and offers a wide range of comprehensive, services in drug development and clinical trials. Biocon was the first biotechnology company, of India to receive ISO 9001 certification., Biocon Limited is what it is today due to adherence to the principles underlying good, management practices., Adapted from www.biocon.com and other sources, , 2018-19
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Business Studies, , 38, , a part of management principles, directly or indirectly. Now you can see, the significance of these principles., , Significance of Principles, of Management, , The principles of management derive, their significance from their utility. They, provide useful insights to managerial, behaviour and influence managerial, practices. Managers may apply these, principles to fulfil their tasks and, responsibilities. Principles guide, managers in taking and implementing, decisions. It may be appreciated that, everything worthwhile is governed by, an underlying principle. The quest, of the management theorists has, been and should be to unearth the, underlying principles with a view to, using these under repetitive circums, tances as a matter of management, habit. The significance of principles, of management can be discussed in, terms of the following points:, (i) Providing managers with useful, insights into reality: The principles, of management provide the, managers with useful insights, into real world situations., Adherence to these principles will, add to their knowledge, ability, and understanding of managerial, situations and circumstances., It will also enable managers, to learn from past mistakes, and conserve time by solving, recurring problems quickly. As, , such management principles, increase managerial efficiency., For example, a manager can, leave routine decision-making, to his subordinates and deal, with exceptional situations, which require her/his expertise, by following the principles of, delegation., (ii) Optimum utilisation of resources, and effective administration:, Resources both human and, material available with the, company are limited. They have, to be put to optimum use. By, optimum use we mean that the, resources should be put to use, in such a manner that they, should give maximum benefit, with minimum cost. Principles, equip the managers to foresee, the cause and effect relationships, of their decisions and actions., As such the wastages associated, with a trial-and-error approach, can be overcome. Effective, administration, necessitates, impersonalisation of managerial, conduct so that managerial, power is used with due discretion., Principles of management limit, the boundary of managerial, discretion so that their decisions, may be free from personal, prejudices and biases. For, example, in deciding the annual, budgets for different departments,, rather than personal preferences,, , 2018-19
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Principles of Management, , 39, , managerial discretion is bounded, by the principle of contribution, to organisational objectives., (iii) Scientific decisions: Decisions, must be based on facts, thoughtful, and justifiable in terms of the, intended purposes. They must, be timely, realistic and subject, to measurement and evaluation., Management principles help in, thoughtful, decision-making., They emphasise logic rather, than blind faith. Management, decisions taken on the basis of, principles are free from bias and, prejudice. They are based on, the objective assessment of the, situation., (iv) Meeting changing enviornment, requirements: Although the, principles are in the nature, of general guidelines but they, are modified and as such help, managers to meet changing, requirements of the environment., You have already studied that, management, principles, are, flexible to adapt to dynamic, business, environment., For, example, management principles, emphasise division of work and, specialisation. In modern times, this principle has been extended, to the entire business whereby, companies are specialising in, their core competency and, divesting non-core businesses., In this context, one may cite, the decision of Hindustan Lever, , 2018-19, , Limited in divesting non-core, businesses of chemicals and, seeds. Some companies are, outsourcing, their, non-core, activities, like, share-transfer, management and advertising to, outside agencies. So much so, that, even core processes such as R&D,, manufacturing and marketing, are being outsourced today., Haven’t you heard of proliferation, of ‘Business Process Outsourcing’, (BPO) and ‘Knowledge Process, Outsourcing’ (KPO)?, (v) Fulfilling social responsibility:, The increased awareness of, the public, forces businesses, especially limited companies to, fulfill their social responsibilities., Management, theory, and, management principles have, also evolved in response to, these demands. Moreover, the, interpretation of the principles, also, assumes, newer, and, contemporary meanings with, the change in time. So, if one, were to talk of ‘equity’ today, it, does not apply to wages alone., Value to the customer, care for, the environment, dealings with, business associates would all, come under the purview of this, principle. As an application, of this principle, we find that, Public, Sector, Undertakings, have developed entire townships, as, for example, BHEL has, developed Ranipur in Hardwar
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Business Studies, , 40, , (Uttaranchal). One may also cite, the story of Shri Mahila Griha, Udyog Lijjat Papad as can be, seen in the accompanying box, on page 41., (vi) Management training, education, and research: Principles of, management are at the core of, management theory. As such, these are used as a basis for, management training, education, and research. You must be aware, that entrance to management, institutes is preceded by, management aptitude tests. Do, you think that these tests could, have been developed without an, understanding of management, principles and how they may be, applied in different situations?, These principles provide basic, groundwork for the development, of management as a discipline., Professional courses such, as MBA (Master of Business, Administration), BBA (Bachelor, of Business Administration) also, teach these principles as part, of their curriculum at the, beginner’s level., , , These, principles, enable, refinement, of, management, practices as well by facilitating the, development of new management, techniques. Thus, we see that, techniques, like, Operations, Research (OR), cost accounting,, ‘Just in Time’, ‘Kanban’ and ‘Kaizen’, have developed due to further, research on these principles., In conclusion it can be said that, understanding the meaning, nature, and, significance, of, principles, of management will help us to, appreciate their applicability in real, life situations., As stated at the beginning of the, chapter, management principles have, undergone a long history of evolution., And, they continue to evolve. What, follows is a description of the, management principles pertaining to, the classical school; more precisely,, those propounded by F.W. Taylor and, Henri Fayol., , Taylor’s Scientific, Management, Scientific management refers to an, important stream of one of the earlier, , Test Your Understanding, 1. Do you think innovativeness evident from the, examples of Toyota and Kiran Mazumdar Shaw can be, linked to the nature of management principles?, 2. To what aspects of the significance of management, principles would you attribute the endeavours of, BHEL and Shri Mahila Griha Udyog Lijjat Papad?, , 2018-19
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Principles of Management, , 41, , Shri Mahila Griha Udyog Lijjat Papad – Combining, Business with Social Responsibility (An Organisation, Of the Women, By the Women and For the Women), The story of Shri Mahila Griha Udyog lijjat Papad is very inspiring for, would be managers. It shows how an organisation can combine business with, social responsibility and make its stakeholders self-reliant. The stakeholders, are various women who, numbering over 40,000, are given the task of making, lijjat papads, which are famous for their quality throughout the world. The, organisation which started with a modest loan of Rs 80 now has a turnover of, over Rs 301 crores. Its exports exceed Rs 10 crores. The profits are distributed, to the stakeholders in proportion to their contribution. It has struck to its core, values for over 40 years. It has shown how it is possible to combine Gandhian, values with business. The company has at least 61 branches. Any woman, subscribing to these core values can become a member of the organisation., According to the website of the organisation www.lijjat.com, Shri Mahila Griha, Udyog Lijjat Papad is synthesis of three different concepts (core values) namely:, 1. The concept of business, 2. The concept of family, 3. The concept of devotion, All these concepts are completely and uniformly followed in this institution., As a result of this synthesis, a peculiar Lijjat way of thinking has developed, therein., The institution has adopted the concept of business from the very beginning., All its dealings are carried out on a sound and pragmatic footing-production of, quality goods and at reasonable prices. It has never and nor will it in the future, accept any charity, donation, gift or grant from any quarter. On the contrary,, the member-sisters donate collectively for good causes from time-to-time, according to their capacity., Besides the concept of business, the institution along with all its membersisters has adopted the concept of mutual family affection, concern and trust., All the affairs of the institution are dealt with in a manner similar to that of a, family carrying out its own daily household chores., But the most important concept adopted by the institution is the concept of, devotion. For the member-sisters, employees and well-wishers, the institution, is never merely a place to earn one’s livelihood — it is a place of worship to, devote one’s energy not for his or her own benefits but for the benefit of all., In this institution work is worship. The institution is open to everybody who, has faith in its basic concepts., Source: Adapted from http/www.lijjat.com/organisation/core value, , 2018-19
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Business Studies, , 42, , schools of thought of management, referred to as the ‘Classical’ school., The other two streams belonging, to the classical school are Fayol’s, Administrative Theory and Max, Weber’s Bureaucracy. We will not, be describing bureaucracy here., A discussion of Fayol’s principles,, however, will follow the discussion of, scientific management., Fredrick Winslow Taylor (March, 20,1856 – March 21, 1915) was, an American mechanical engineer, , who sought to improve industrial, efficiency. In 1874, he became an, apprentice, mechanist,, learning, factory conditions at the grass, roots level. He earned a degree in, mechanical engineering. He was, one of the intellectual leaders of, the efficiency movement and was, highly influential in reshaping the, factory system of production. You, must appreciate that he belonged to, the era of the industrial revolution, characterised by mass production., , Fredrick Winslow Taylor –, Founder of Scientific Management Movement, LIFE TIME: March 20,1856 to March 21, 1915, PROFESSION: American mechanical engineer, EDUCATION: Degree in Mechanical Engineering from Stevens Institute, of Technology in 1883., POSITIONS HELD—, 1. Apprentice Machinist in 1874., 2. Executive at Midville Steel Company in 1884., 3. At Bethlehem Iron Company in 1898, which later became Bethlehem, Steel Company., 4. Professor at ‘Tuck School of Business’ founded in 1900., 5. President of ‘American Society of Mechanical Engineers’ from 1906 to, 1907., WRITINGS:1. ‘The Principles of Scientific Management’ series of articles, published in ‘The American Magazine’, During march-may 1911, later published in book form., 1. ‘Concrete, Plain and Reinforced’ in 1906., 2. ‘Notes on Belting’ in 1893, 3. ‘On the Art of Cutting Metals’ December 1906., 4. ‘A Piece Rate System’ in June 1895., 5. ‘The making of a putting green’ a series of articles published in 1915., 6. ‘Not for the genius but for the average man’ published in ‘The, American Magazine’ in March 1918., Adapted from www.wikipedia.org and www.stevens.edu/library, , 2018-19
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Principles of Management, , 43, , You must also appreciate that every, new development takes some time to, be perfected. Taylor’s contribution, must be seen in the light of the efforts, made to perfect the factory system of, production., Taylor thought that by scientifically, analysing work, it would be possible, to find ‘one best way’ to do it., He is most remembered for his time, and motion studies. He would break, a job into its component parts and, measure each to the second., Taylor believed that contemporary, management was amateurish and, should be studied as a discipline., He also wanted that workers should, cooperate with the management and, thus there would be no need of trade, unions. The best results would come, from the partnership between a trained, and qualified management and a, cooperative and innovative workforce., Each side needed the other., He is known for coinage of the, term ‘Scientific Management’ in his, article ‘The Principles of Scientific, Management’ published in 1911., After being fired from Bethlehem Steel, Company he wrote a book ‘Shop floor’, which sold well. He was selected to be, the president of the American Society, of Mechanical Engineers (ASME) from, 1906 to 1907. He was a professor at, Tuck School of Business at Dartmouth, College founded in 1900., In 1884 he became an executive, at Midvale Steel Company by, demonstrating, his, leadership, , abilities. He instructed his fellow, workers to work in phases. He joined, the Bethlehem Iron Company in, 1898, which later became Bethlehem, Steel Company. He was originally, employed to introduce piece rate, wage system. After setting up, the wage system, he was given, authority and more responsibilities, in the company. Using his newfound, resources he increased the staff and, made Bethlehem a show place for, inventive work. Unfortunately, the, company was sold to another group, and he was discharged., In 1910 his health started to fall., He died in 1915 due to pneumonia. A, synoptic view of his contribution can, be had from the accompanying box, on the next page., , Principles of Scientific, Management, , In the earlier days of the Industrial, Revolution, in the absence of, an established theory of factory, organisation, factory owners or, managers relied on personal judgment, in attending to the problems they, confronted in the course of managing, their work. This is what is referred to, as ‘rule of thumb’. Managing factories, by rule of thumb enabled them to, handle the situations as they arose, but suffered from the limitation of a, trial and error approach. For their, experiences to be emulated, it was, important to know what works and, why does it work. For this, there was, , 2018-19
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Business Studies, , 44, , Taylor’s Contribution to Scientific Management, The following extracts are taken from Taylor’s testimony before the U.S., House of Representatives Special Committee in 1912 and also from his most, important work “THE PRINCIPLES OF SCIENTIFIC MANAGEMENT”, published in 1911., “Scientific management requires first, a careful investigation of each of the, many modifications of the same implement, developed under rule of thumb;, and second, after time and motion study has been made of the speed attainable, with each of these implements, that the good points of several of them shall be, unified in a single standard implementation, which will enable the workman to, work faster and with greater ease than he could before. This one implement,, then is adopted as standard in place of the many different kinds before in use and, it remains standard for all workmen to use until superseded by an implement, which has been shown, through motion and time study, to be still better.”, (Scientific management, page 119), The main elements of the Scientific Management are: (page 129-130, sci-mgt) “Time Studies”, Functional or specialised supervision, Standardisation of tools and implements, Standardisation of work methods, Separate Planning function, Management by exception principle, The use of ‘slide-rules and similar time-saving devices’, Instruction cards for workmen, Task allocation and large bonus for successful performance, The use of the ‘differential rate’, Mnemonic systems for classifying products and implements, A routing system, A modern costing system etc. etc., Taylor called these elements “merely the elements or details of the, mechanisms of management” He saw them as extensions of the four principles, of management. (Page 130, scientific management), 1. The development of a true science., 2. The scientific selection of the workman., 3. The scientific education and development of the workman., 4. Intimate and friendly cooperation between the management and the, employees., Adapted from Taylorism (F.W. Taylor & Scientific Management) at, http://www.quality.org/TQM-MSI/taylor.html, , 2018-19
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Principles of Management, , 45, , a need to follow an approach that, was based on the method of sciencedefining a problem, developing, alternative solutions, anticipating, consequences, measuring progress, and drawing conclusions., In this scenario, Taylor emerged as, the ‘Father of Scientific Management’., He proposed scientific management, as opposed to rule of thumb. He, broke up human activity into small, parts and found out how it could be, done effectively, in less time and with, increased productivity. It implies, conducting, business, activities, according to standardised tools,, methods and trained personnel in, order to increase the output, improve, its quality and reduce costs and, wastes., In the words of Taylor, “Scientific, management means knowing exactly, what you want men to do and seeing, that they do it in the best and cheapest, way. The Bethlehem Steel company, where Taylor himself worked achieved, three-fold increase in productivity by, application of scientific management, principles. Therefore, it would be in, order to discuss these principles., (i) Science not Rule of Thumb:, Taylor pioneered the introduction, of the method of scientific, inquiry into the domain of, management practice. We have, already referred to the limitations, of the rule of thumb approach, of management. As different, managers would follow their, , indigenous rules of thumb, it is, but a statement of the obvious, that all would not be equally, effective. Taylor believed that, there was only one best method, to maximise efficiency. This, method can be developed through, study and analysis. The method, so developed should substitute, ‘Rule of Thumb’ throughout, the organisation. Scientific, method involved investigation, of traditional methods through, work-study, unifying the best, practices and developing a, standard method, which would, be followed throughout the, organisation. According to, Taylor, even a small production, activity like loading pigs of iron, into boxcars can be scientifically, planned and managed. This can, result in tremendous saving of, human energy as well as wastage, of time and materials. The more, sophisticated the processes,, greater would be the savings., In the present context, the, use of internet has brought, about dramatic improvements, in internal efficiencies and, customer satisfaction., (ii) Harmony, Not Discord: Factory, system of production implied that, managers served as a link between, the owners and the workers., Since as managers they had the, mandate to ‘get work done’ from, the workers, it should not be, , 2018-19
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Business Studies, , 46, , difficult for you to appreciate that, there always existed the possibility, of a kind of class-conflict, the, mangers versus workers. Taylor, recognised that this conflict, helped none, the workers, the, managers or the factory owners., He emphasised that there should, be complete harmony between, the management and workers., Both should realise that each, one is important. To achieve this, , state, Taylor called for complete, mental revolution on the part of, both management and workers., It means that management and, workers should transform their, thinking. In such a situation, even trade unions will not think, of going on strike etc., Management should share the, gains of the company, if any, with, the workers. At the same time, workers should work hard and, , Sharing of gains between management and, workers leading to complete harmony, , 2018-19
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Principles of Management, , 47, , be willing to embrace change for, the good of the company. Both, should be part of the family., According to Taylor, ‘Scientific, management has for its, foundation the firm conviction, that the true interests of the, two are one and the same; that, prosperity for the employer, cannot exist for a long time unless, it is accompanied by prosperity, for the employees and vice, versa’., Japanese work culture is a, classic example of such a, situation. In Japanese companies,, paternalistic style of management, is in practice. There is complete, openness between the manage, ment and workers. If at all, workers go to strike they wear a, black badge but work more than, normal working hours to gain the, sympathy of the management., (iii) Cooperation, Not Individualism:, There should be complete, cooperation between the labour, and the management instead, of individualism. This principle is, an extension of principle of, ‘Harmony not discord’. Competition, should be replaced by cooperation., Both should realise that they need, each other., For this, management should, not close its ears to any, constructive, suggestions, made by the employees., They should be rewarded for, , their suggestions which results, in substantial reduction in, costs. They should be part, of management and, if any, important decisions are taken,, workers should be taken into, confidence., At the same time workers, should desist from going on, strike and making unreasonable, demands on the management., In fact when there will be open, communication system and, goodwill there will be no need for, even a trade union. Paternalistic, style of management, whereby, the employer takes care of the, needs of employees, would, prevail as in the case of Japanese, companies., According to Taylor, there, should be an almost equal division, of work and responsibility between, workers and management. All the, day long the management should, work almost side by side with the, workers helping, encouraging and, smoothing the way for them., (iv) Development of Each and Every, Person to His or Her Greatest, Efficiency, and, Prosperity:, Industrial efficiency depends, to a large extent on personnel, competencies., As, such,, scientific, management, also, stood for worker development., Worker training was essential, also to learn the ‘best method’, developed as a consequence of, , 2018-19
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Business Studies, , 48, , the scientific approach. Taylor, was of the view that the concern, for efficiency could be built, in right from the process of, employee selection. Each person, should be scientifically selected., Then work assigned should, suit her/his physical, mental, and intellectual capabilities. To, increase efficiency, they should, be given the required training., Efficient, employees, would, produce more and earn more., This will ensure their greatest, efficiency and prosperity for both, company and workers., From the foregoing discussion it, is clear that Taylor was an ardent, supporter of use of scientific method, of production in business., , Techniques of Scientific, Management, Let us now discuss techniques as, specified by him. These are based on, the various experiments he conducted, during his career., , Functional Foremanship, In the factory system, the foreman, represents the managerial figure with, whom the workers are in face-to-face, contact on a daily basis. In the first, chapter of the book, you have seen, that the foreman is the lowest ranking, manager and the highest ranking, worker. He is the pivot around, whom revolves the entire production, , planning,, implementation, and, control. Thus, Taylor concentrated, on improving the performance of this, role in the factory set-up. In fact, he, identified a list of qualities of a good, foreman/supervisor and found that no, single person could fit them all. This, prompted him to suggest functional, foremanship through eight persons., Taylor advocated separation of, planning and execution functions., This concept was extended to the, lowest level of the shop floor. It was, known as functional foremanship., Under the factory manager there was, a planning incharge and a production, incharge. Under planning incharge, four personnel namely instruction, card clerk, route clerk, time and cost, clerk and a disciplinarian worked., These four personnel would draft, instructions for the workers, specify, the route of production, prepare, time and cost sheet and ensure, discipline respectively., Under, Production, incharge,, personnel who would work were, speed boss, gang boss, repair boss,, and inspector. These respectively, were responsible for timely and, accurate completion of job, keeping, machines and tools etc., ready for, operation by workers, ensure proper, working condition of machines and, tools and check the quality of work., Functional foremanship is an, extension of the principle of division, of work and specialisation to the, shop floor. Each worker will have to, , 2018-19
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Principles of Management, , 49, , Factory Manager, , Production Incharge, , Planning Incharge, , Instruction, Card Clerk, , Route, Clerk, , Time and, Cost Clerk, , Speed, Boss, , Gang, Boss, , Repairs, Inspector, Boss, , Disciplinarian, , Workman, , take orders from these eight foremen, in the related process or function of, production. Foremen should have, intelligence, education, tact, grit,, judgment, special knowledge, manual, dexterity, and energy, honesty and, good health. Since all these qualities, could not be found in a single person, so Taylor proposed eight specialists., Each specialist is to be assigned, work according to her/his qualities., For example, those with technical, mastery, intelligence and grit may, be given planning work. Those with, energy and good health may be, assigned execution work., , Standardisation and, Simplification of Work, Taylor was an ardent supporter of, standardisation. According to him, scientific method should be used, to analyse methods of production, , prevalent under the rule of thumb., The best practices can be kept and, further refined to develop a standard, which should be followed throughout, the organisation. This can be done, through work-study techniques which, include time study, motion study,, fatigue study and method study, and, which are discussed further in this, chapter. It may be pointed out that, even the contemporary techniques, of, business, process, including, reengineering, kaizen (continuous, improvement) and benchmarking are, aimed at standardising the work., Standardisation refers to the process, of setting standards for every business, activity; it can be standardisation of, process, raw material, time, product,, machinery, methods or working, conditions. These standards are the, benchmarks, which must be adhered, to during production. The objectives of, standardisation are:, , 2018-19
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Business Studies, , 50, , (i) To reduce a given line or, product to fixed types, sizes and, characteristics., (ii) To establish interchange ability, of manufactured parts and, products., (iii) To establish standards of exce, llence and quality in materials., (iv) To establish standards of perfor, mance of men and machines., Simplification aims at eliminating, superfluous varieties, sizes and dim, ensions while standardisation implies, devising new varieties instead of the, existing ones. Simplification aims at, eliminating unnecessary diversity of, products. It results in savings of cost of, labour, machines and tools. It implies, reduced inventories, fuller utilisation of, equipment and increasing turnover., Most large companies like Nokia,, Toyota and Microsoft etc. have, successfully implemented standardi, sation and simplification. This is, evident from their large share in their, respective markets., , Method Study, The objective of method study is to, find out one best way of doing the job., There are various methods of doing, the job. To determine the best way, there are several parameters. Right, from procurement of raw materials, till the final product is delivered to, the customer every activity is part, of method study. Taylor devised, the concept of assembly line by, using method study. Ford Motor, , Company used this concept very, successfully. Even now auto, companies are using it., The objective of the whole exercise is, to minimise the cost of production and, maximise the quality and satisfaction, of the customer. For this purpose, many techniques like process charts, and operations research etc are used., For designing a car, the assembly, line production would entail deciding, the sequence of operations, place for, men, machines and raw materials, etc. All this is part of method study., , Motion Study, Motion study refers to the study of, movements like lifting, putting objects,, sitting and changing positions etc.,, which are undertaken while doing a, typical job. Unnecessary movements, are sought to be eliminated so that, it takes less time to complete the job, efficiently. For example, Taylor and his, associate Frank Gailberth were able to, reduce motions in brick layering from, 18 to just 5. Taylor demonstrated that, productivity increased to about four, times by this process., On close examination of body, motions, for example, it is possible to, find out:, (i) Motions which are productive, (ii) Motions which are incidental, (e.g., going to stores), (iii) Motions which are unproductive., Taylor used stopwatches and various, symbols and colours to identify, different motions. Through motion, , 2018-19
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Principles of Management, , 51, , studies, Taylor was able to design, suitable equipment and tools to, educate workers on their use. The, results achieved by him were truly, remarkable., , Time Study, It determines the standard time taken, to perform a well-defined job. Time, measuring devices are used for each, element of task. The standard time, is fixed for the whole of the task by, taking several readings. The method, of time study will depend upon, volume and frequency of the task, the, cycle time of the operation and time, measurement costs. The objective, of time study is to determine the, number of workers to be employed;, frame suitable incentive schemes, and determine labour costs., For example, on the basis of, several observations it is determined, that standard time taken by the, worker to make one cardboard box is, 20 minutes. So in one hour she/he, will make 3 boxes. Assuming that a, worker has to put in 8 hours of work, in a shift and deducting one hour for, rest and lunch, it is determined that, in 7 hours a worker makes 21 boxes, @ 3 boxes per hour. Now this is the, standard task a worker has to do., Wages can be decided accordingly., , Fatigue Study, A person is bound to feel tired, physically and mentally if she/he, does not rest while working. The, , rest intervals will help one to regain, stamina and work again with the same, capacity. This will result in increased, productivity. Fatigue study seeks to, determine the amount and frequency, of rest intervals in completing a task., For example, normally in a plant,, work takes place in three shifts of, eight hours each. Even in a single, shift a worker has to be given some, rest interval to take her/his lunch, etc. If the work involves heavy manual, labour then small pauses have to be, frequently given to the worker so that, she/he can recharge her/his energy, level for optimum contribution., There can be many causes for, fatigue like long working hours,, doing unsuitable work, having, uncordial relations with the boss or, bad working conditions etc. Such, hindrances in good performance, should be removed., , Differential Piece Wage, System, Taylor was a strong advocate of, piece wage system. He wanted to, differentiate between efficient and, inefficient workers. The standard, time and other parameters should be, determined on the basis of the workstudy discussed above. The workers, can then be classified as efficient, or inefficient on the basis of these, standards. He wanted to reward, efficient workers. So he introduced, different rate of wage payment for, , 2018-19
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Business Studies, , 52, , those who performed above standard, and for those who performed, below standard. For example, it is, determined that standard output per, worker per day is 10 units and those, who made standard or more than, standard will get Rs. 50 per unit and, those below will get Rs. 40 per unit., Now an efficient worker making 11, units will get 11�50= Rs. 550 per day, whereas a worker who makes 9 units, will get 9××�40 = Rs. 360 per day., According to Taylor, the difference, of Rs. 190 should be enough for the, inefficient worker to be motivated, to perform better. From his own, experience, Taylor gives the example of, a worker named Schmidt who was able, to earn 60% more wages from $1.15 to, $1.85 on increasing pig iron loading, from 12.5 tons per man per day to 47, tons per man per day in box cars at, Bethlehem Steel works by following, scientific management techniques., It is important to have a relook at the, techniques of scientific management, as comprising a unified whole of, Taylor’s prescription of efficiency., Search for efficiency requires the, search for one best method and the, chosen method must lead to the, determination of a fair day’s work., There must be a compensation system, that differentiates those who are able, to accomplish/exceed the fair day’s, work. This differential system must be, based on the premise that efficiency, is the result of the joint efforts of the, managers and the workers. Thus,, , rather than quarrelling over the, share in the resultant surplus, the, workers and managers should work, in harmony for maximising the output, rather than restricting it. Clearly the, sum and substance of Taylor’s ideas, lies not in the disjointed description of, principles and techniques of scientific, management, but in the change of, the mindset, which he referred to as, mental revolution. Mental revolution, involves a change in the attitude of, workers and management towards, one another from competition to, cooperation. Both should realise that, they require one another. Both should, aim to increase the size of surplus., This would eliminate the need for any, agitation. Management should share a, part of surplus with workers. Workers, should also contribute their might, so that the company makes profits., This attitude will be good for both of, them and also for the company. In the, long run only worker’s well-being will, ensure prosperity of the business., Now, having studied the elements,, principles and techniques of scientific, management we can consider the, practical applications of the same at the, time of F.W. Taylor and in the present., We can also examine the present, status of scientific management., Today, many new techniques have, been developed as a sequel to scientific, management. Operations research, was developed in the second World, War to optimise the deployment of war, material. Similarly assembly line was, , 2018-19
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Principles of Management, , 53, , also discovered by F.W. Taylor, which, was used very successfully by Ford, motor company for manufacturing, ‘Model T’ car for the masses. This, concept is much used now. The latest, development in scientific management, is ‘LEAN MANUFACTURING’. Now, a days robotics and computers are, being used in production and other, business activities. This is part, of scientific management of these, activities. It has increased productivity, levels. The techniques of operation, research have also been developed, and are being used as a result of, scientific management. The box below, gives meanings of some terms used in, modern manufacturing., , Fayol’s Principles, Management, , of, , In the development of classical school, of management thought, Fayol’s, administrative theory provides, an important link. While Taylor, succeeded in revolutionising the, working of factory shop-floor in terms, of devising the best method, fair day’s, work, differential piece-rate system, and functional foremanship; Henri, Fayol explained what amounts to a, managers work and what principles, should be followed in doing this work., If workers’ efficiency mattered in the, factory system, so does the managerial, efficiency. Fayol’s contribution must, Applications of Scientific Management, by Taylor and his Contemporaries, , 1. Taylor found out the optimum-shovelling load of 21 pounds per shovel per, worker through a series of experiments in work-study at Bethlehem Steel, Company. The implementation saved the company $ 75000 to $80000 per, year., 2. Pig iron handling per person per day was increased from 12.5 tons to, 47 tons. This also resulted in the wages increase to labourers by 60% but, also savings to the company on account of less number of labourers from, 500 to 140., 3. He had published a paper “The Art of cutting metals” which turned it into, a science., 4. He designed a Piece Rate Wage System including incentives for Bethlehem, Steel Company., 5. Taylor’s associate Frank Gilbreth applied scientific management to the art, of ‘brick layering’ and through motion study was able to eliminate certain, motions which were considered by the brick layers to be necessary, (reduced motions from 18 to 5), designed simple apparatus like adjustable, scaffold and its packets to hold the bricks and finally also taught brick, layers to use both the hands at the same time. This is a classic example of, application of Scientific Management to the simple art of brick layering., , 2018-19
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Business Studies, , 54, , be interpreted in terms of the impact, that his writings had and continue, to have improvement in managerial, efficiencies., Henri Fayol (1841-1925) was a, French management theorist whose, , theories concerning scientific, organisation of labour were widely, influential in the beginning of, twentieth century. He graduated from, the mining academy of St. Etienne, in 1860 in mining engineering. The, , Glossary of Some Terms of Modern, Production/Scientific Management, 1. Just In Time Manufacturing: It is an inventory management strategy to, improve return on investment by reducing in process inventory and its, associated costs. The system is implemented by the use of visual signals or, KANBAN, which tells whether the replenishment is required at any level, of production process, or not., 2. Lean Manufacturing: It is a management philosophy focusing on reduction of, seven wastes of overproduction, waiting time, transportation, processing,, motion, inventory and scrap in any type of manufacturing process or any, type of business. By eliminating waste, quality is improved, production, time is reduced and cost is reduced., 3. Kaizen: It is a Japanese word, which means ‘change for better’ or, ‘improvement’. It is an approach to improvement of productivity through, application of works of American experts such as F.W. Taylor by Japanese, after World War II. The goals of kaizen include elimination of waste (which, is defined as those activities which add cost but not value to the product, or service), just in time delivery, production load levelling of amount and, types, standardised work, paced moving lines, right sized equipment and, others. A closer Japanese use of the word means ‘to take apart and put it, in a better way’. What is taken apart is usually a process, system, product, or service. It is a daily activity which humanizes the workplace, eliminates, hard work both physical and mental, teaches people how to do rapid, experiments using scientific method and how to learn to see and eliminate, waste in business processes., 4. Six Sigma: It is a data driven approach that can help any organisationwhatever sector or field it might be operating in, to bring down inefficiencies, and save time and money by reducing ‘quality variations’. It has a strong, customer oriented approach that relies on data to create more efficient, processes or refine existing processes. There should not be more than 3-4, defects per million opportunities according to prescribed norms. It can be, applied to any process but needs unstilted organisational support., , 2018-19
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Principles of Management, , 55, , Test Your Understanding, Suppose you want to set, stationery items. What, scientific management?, management you would, it would give., , 19 year old engineer started at, the mining company ‘Compagnie, de commentary-FourchambeanDecazeville, ultimately acting as its, managing director from 1888 to 1918., His theories deal with organisation, of production in the context of a, competitive enterprise that has to, control its production costs. Fayol was, the first to identify four functions of, management – Planning, Organising,, Directing and Controlling although, his version was a bit different – Plan,, Organise, Command, Coordinate, and Control. According to Fayol, all, activities of an industrial undertaking, could be divided into: Technical;, Commercial; Financial; Security;, Accounting and Managerial. He also, suggested that qualities a manager, must possess should be — Physical,, Moral, Education, Knowledge and, experience. He believed that the, number of management principles, that might help to improve an, organisation’s operation is potentially, limitless., Based largely on his own, experience, he developed his concept, of administration. The 14 principles, of management propounded by him, , up a small-scale industry to manufacture, steps would you take to implement, Identify the elements of scientific, like to implement and list the benefits, , were discussed in detail in his book, published in 1917, ‘Administration, industrielle et generale’. It was, published in English as ‘General and, Industrial Management’ in 1949 and, is widely considered a foundational, work in classical management theory., For his contribution he is also known as, the ‘Father of General Management’, The 14 principles of management, given by him are:, (i) Division of Work: Work is divided, into small tasks/jobs. A trained, specialist who is competent is, required to perform each job., Thus, division of work leads to, specialisation. According to Fayol,, “The intent of division of work is, to produce more and better work, for the same effort. Specialisation, is the most efficient way to use, human effort.”, In business work can be, performed more efficiently if it, is divided into specialised tasks;, each performed by a specialist, or trained employee. This, results in efficient and effective, output. Thus, in a company we, have separate departments, for finance, marketing, production, , 2018-19
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Business Studies, , 56, , Henri Fayol, , 1. Life Time: 1841 TO 1925, 2. Profession: Mining Engineer and Management, Theorist (French national), 3. Education: Graduated from Mining Academy at St., Entinne. in 1880., 4. Positions Held: Founded the mining company, ‘Cmpagnie de Commentry- FourchambeauDecazeville’ and became its Managing Director in, 1888 and remained till 1918., 5. Writings: Administration industrielle et générale. It, was published in English as General and Industrial, Management in 1949 and is widely considered a, foundational work in classical management theory., 6. Contributions: Mainly 14 Management Principles, which are referred to as, administrative in nature in that they have Top-Down approach concerning, top management and other manager’s conduct., Source: www.en.wikipedia.org, Image source: www.image.google.com, , and human resource development, etc. All of them have specialised, persons. Collectively they achieve, production and sales targets of, the company. Fayol applies this, principle of division of work to all, kinds of work – technical as well, as managerial. You can observe, this principle at work in any, organisation like hospital or even, a government office., (ii) Authority and Responsibility:, According to Fayol, “Authority is, the right to give orders and obtain, obedience, and responsibility is, the corollary of authority. The, two types of authority are official, authority, which is the authority, to command, and personal, , authority which is the authority, of the individual manager.”, Authority is both formal and, informal., Managers, require, authority commensurate with their, responsibility. There should be a, balance between authority and, responsibility. An organisation, should build safeguards against, abuse of managerial power. At the, same time a manager should have, necessary authority to carry out his, responsibility. For example, a sales, manager has to negotiate a deal with, a buyer. She finds that if she can offer, credit period of 60 days she is likely, to clinch the deal which is supposed, to fetch the company net margin of, say Rs. 50 crores. Now the company, , 2018-19
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Principles of Management, , 57, , gives power to the manager to offer, a credit period of only 40 days. This, shows that there is an imbalance in, authority and responsibility. In this, case the manager should be granted, authority of offering credit period, of 60 days in the interest of the, company. Similarly, in this example, this manager should not be given a, power to offer a credit period of say, 100 days because it is not required., A manager should have the right to, punish a subordinate for wilfully not, obeying a legitimate order but only, after sufficient opportunity has been, given to a subordinate for presenting, her/his case., (iii) Discipline: Discipline is the, obedience to organisational rules, and employment agreement which, are necessary for the working of, the organisation. According to, Fayol, discipline requires good, superiors at all levels, clear and, fair agreements and judicious, application of penalties., Suppose management and, labour union have entered into, an agreement whereby workers, have agreed to put in extra hours, without any additional payment, to revive the company out of, loss. In return the management, has promised to increase wages, of the workers when this mission, is accomplished. Here discipline, when applied would mean that, the workers and management, both honour their commitments, , 2018-19, , without any prejudice towards, one another., (iv) Unity of Command: According, to Fayol there should be one and, only one boss for every individual, employee. If an employee gets, orders from two superiors at the, same time the principle of unity, of command is violated. The, principle of unity of command, states that each participant in, a formal organisation should, receive orders from and be, responsible to only one superior., Fayol gave a lot of importance to, this principle. He felt that if this, principle is violated “authority, is undermined, discipline is, in jeopardy, order disturbed, and stability threatened”. The, principle resembles military, organisation. Dual subordination, should be avoided. This is to, prevent confusion regarding, tasks to be done. Suppose a, sales person is asked to clinch a, deal with a buyer and is allowed, to give 10% discount by the, marketing manager. But finance, department tells her/him not to, offer more than 5% discount. Now, there is no unity of command., This can be avoided if there is, coordination between various, departments., (v) Unity of Direction: All the, units of an organisation should, be moving towards the same, objectives through coordinated
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Business Studies, , 58, , and focussed efforts. Each group, of activities having the same, objective must have one head, and one plan. This ensures, unity of action and coordination., For example, if a company is, manufacturing motorcycles as, well as cars then it should have, two separate divisions for both, of them. Each division should, have its own incharge, plans, and execution resources. On no, account should the working of, two divisions overlap. Now let, us differentiate between the two, principles of unity of command, and unity of direction., (vi) Subordination of Individual, Interest to General Interest:, The interests of an organisation, should take priority over the, interests of any one individual, employee according to Fayol., Every, worker, has, some, individual interest for working in, a company. The company has got, , its own objectives. For example,, the company would want to, get maximum output from its, employees at a competitive cost, (salary). On the other hand,, an employee may want to get, maximum salary while working, the least. In another situation an, individual employee may demand, some concession, which is not, admissible to any other employee, like working for less time., In all the situations the, interests of the group/company, will supersede the interest of, any one individual. This is, so because larger interests of, the workers and stakeholders, are more important than the, interest of any one person. For, example, interests of various, stakeholders, i.e.,, owners,, shareholders, creditors, debtors,, financers,, tax, authorities,, customers and the society at, large cannot be sacrificed for, , Difference betweeen Unity of Command and Unity of Direction, Basis, , Unity of Command, , Unity of Direction, , 1. Meaning, , One subordinate should, receive orders from and, should be responsible to, only one superior., , Each group of activities, having same objective must, have one head and one, plan., , 2. Aim, , It prevents dual, subordination., , It prevents overlapping of, activities., , 3. Implications, , It affects an individual, employee., , It affects the entire, organisation., , 2018-19
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Principles of Management, , 59, , one individual or a small group, of individuals who want to exert, pressure on the company. A, manager can ensure this by, her/his exemplary behaviour., For example, she/he should not, fall into temptation of misusing, her/his powers for individual/, family benefit at the cost of larger, general interest of the workers/, company. This will raise her/his, stature in the eyes of the workers, and at the same time ensure, same behaviour by them., (vii) Remuneration of Employees:, The overall pay and compensation, should be fair to both employees, and the organisation. The, employees should be paid fair, wages, which should give them, at least a reasonable standard of, living. At the same time it should, be within the paying capacity of, the company. In other words,, remuneration should be just, and equitable. This will ensure, congenial atmosphere and good, relations between workers and, management. Consequently, the, working of the company would, be smooth., (viii)Centralisation and Decentr, alisation: The concentration of, decision-making authority is, called centralisation whereas, its, dispersal, among, more, than one person is known as, decentralisation. According to, Fayol, “There is a need to balance, , subordinate involvement through, decentralisation with managers’, retention of final authority, through centralisation.” The, degree of centralisation will, depend upon the circumstances, in which the company is working., In general large organisations, have more decentralisation than, small organisations. For example,, panchayats in our country have, been given more powers to, decide and spend funds granted, to them by the government, for the welfare of villages., This is decentralisation at the, national level., (ix) Scalar Chain: An organisation, consists, of, superiors, and, subordinates. The formal lines of, authority from highest to lowest, ranks are known as scalar chain., According to Fayol, “Organisations should have a chain of, authority and communication, that runs from top to bottom and, should be followed by managers, and the subordinates.”, Let us consider a situation where, there is one head ‘A’ who has, two lines of authority under her/, him. One line consists of B-CD-E-F. Another line of authority, under ‘A’ is L-M-N-O-P. If ‘E’ has, to communicate with ‘O’ who is, at the same level of authority, then she/he has to traverse the, route E-D-C-B-A-L-M-N-O. This, is due to the principle of scalar, , 2018-19
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Business Studies, , 60, , A, B, , C, D, E, F, , L, M, N, O, P, , Fayol’s Scalar Chain, chain being followed in this, situation. According to Fayol,, this chain should not be violated, in the normal course of formal, communication. However, if there, is an emergency then ‘E’ can, directly contact ‘O’ through ‘Gang, Plank’ as shown in the diagram., This is a shorter route and, has been provided so that, communication is not delayed., In practice you find that a worker, cannot directly contact the CEO, of the company. If at all she/he, has to, then all the formal levels, i.e., foreman, superintendent,, manager, director etc have to, know about the matter. However,, in an emergency it can be possible, that a worker can contact CEO, directly., , (x) Order: According to Fayol,, “People and materials must be, in suitable places at appropriate, time for maximum efficiency.”, The principle of order states that, ‘A place for everything (everyone), and everything (everyone) in its, (her/his) place’. Essentially it, means orderliness. If there is a, fixed place for everything and it, is present there, then there will, be no hindrance in the activities, of business/ factory. This will, lead to increased productivity, and efficiency., (xi) Equity:, Good, sense, and, experience are needed to ensure, fairness to all employees, who, should be treated as fairly as, possible,” according to Fayol. This, principle emphasises kindliness, and justice in the behaviour of, managers towards workers. This, will ensure loyalty and devotion., Fayol does not rule out use of force, sometimes. Rather he says that, lazy personnel should be dealt, with sternly to send the message, that everyone is equal in the, eyes of the management. There, should be no discrimination, against anyone on account of, sex, religion, language, caste,, belief or nationality etc. In, practice we can observe that, now a days in multinational, corporations people of various, nationalities work together in a, discrimination free environment., , 2018-19
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Principles of Management, , 61, , Equal opportunities are available, for everyone in such companies, to rise. Thus, we find Indiaborn CEO’s such as Rajat Gupta, who heads multinational like, Mckinsey Inc. Lately India-born, American Arun Sarin has become, CEO of Vodaphone limited, a, British telecom major., (xii) Stability of Personnel: “Employee, turnover should be minimised, to maintain organisational, efficiency”, according to Fayol., , Personnel should be selected and, appointed after due and rigorous, procedure. But once selected, they should be kept at their post/, position for a minimum fixed, tenure. They should have stability, of tenure. They should be given, reasonable time to show results., Any adhocism in this regard, will create instability/insecurity, among employees. They would, tend to leave the organisation., Recruitment, selection and, , Employee suggestion system: Encourage, initiative among trainee managers, , 2018-19
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Business Studies, , 62, , Fayol: Then and Now, , Now let us see what Fayol’s principles means in the contemporary business situations, especially service based and high tech economies like USA. Carl A. Rodrigues of, Mont Clair State University, Upper Montclair, New Jersey, USA has come out with, the following conclusions in his paper “Fayol’s 14 Principles of Management. Then, and Now- A Framework For Managing Today’s Organisations Effectively” published, in Journal “Management Decision” 39/10(2001) PP 880-889., 1., 2., 3., 4., 5., 6., , 7., 8., 9., 10., , 11., , 12., 13., 14., , Name of Principle THEN, Division of Work, Specialisation in workers, Job design, Authority &, Managers are empowered, Responsibility, Discipline, Formalised Controls, , NOW, Generalisation in workers’, Job design, Employees are, empowered, Informal, Peer pressure, controls, Unity of Command Subordinates report to only Subordinates report to, one boss, multiple bosses, Unity of Direction Functions have only one, Functions have multiple, plan and one boss, plans and multiple bosses, Subordination of, Employees are committed Organisation is committed, individual interest, to the organisation, to the employees and vice, to common good, versa, Remuneration of, Reasonable Pay reward, Performance based reward, personnel, system, system, Centralisation, Trickle down decision, Task relevant ad hoc, making, decision making, Scalar Chain, Hierarchical, formalised, Less formalised, flatter, communication channel, communication structure., Order, Internal information system Internal information, for control purposes, system for coordination, purposes., Equity, Commitment obtained, Commitment obtained, through kindness, through a sense of, ownership, Stability of tenure, Train employees and, On-going employee, of personnel, encourage them to remain training and development, Initiative, Managers conceive and, Workers conceive and, implement new ideas, implement new ideas, Espirit de corps, Maintaining high morale, Maintaining high morale, among employees is, among employees is, imperative, desirable., , 2018-19
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Principles of Management, , 63, , training cost will be high. So, stability in tenure of personnel is, good for the business., (xiii)Initative: Workers should be, encouraged to develop and carry, out their plans for improvements, according to Fayol. Initiative, means taking the first step with, self-motivation. It is thinking out, and executing the plan. It is one of, the traits of an intelligent person., Initiative should be encouraged., But it does not mean going against, the established practices of the, company for the sake of being, different. A good company should, have an employee suggestion, system whereby initiative/, suggestions which result in, substantial cost/time reduction, should be rewarded., (xiv) Espirit De Corps: Management, should promote a team spirit, of unity and harmony among, employees, according to Fayol., Management should promote, teamwork especially in large, organisations because otherwise, objectives would be difficult to, realise. It will also result in a, loss of coordination. A manager, should replace ‘I’ with ‘We’ in all, his conversations with workers, to foster team spirit. This will give, rise to a spirit of mutual trust, and belongingness among team, members. It will also minimise, the need for using penalties., , From the foregoing discussion it, is clear that Fayol’s 14 principles, of management are widely applicable, to managerial problems and have cast, a profound impact on management, thinking today. But with the change, of environment in which business, is done, the interpretation of these, principles has changed. For example,, authority and responsibility meant, empowering of managers but now, it means empowerment of empl, oyees because of flat organisational, structures that are gaining ground., We are now in a position to, understand the current connotations, of Fayol’s principles discussed in, the accompanying box., , Fayol Versus Taylor — A, Comparison, We are now in a position to compare, the contributions of both Fayol and, Taylor. Both of them have contributed, immensely to the knowledge of, management, which has formed a, basis for further practice by managers., It must be pointed out that their, contributions are complementary, to each other. We can make out the, following points of difference between, their contributions., You may also like to have some, knowledge of contributions of, Indians to the growth of management, knowledge which can be seen in the, accompanying box item., , 2018-19
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Business Studies, , 64, , Sl. No., , Basis of difference, , Henri Fayol, , F. W. Taylor, , 1., , Perspective, , Top level of, management, , Shop floor level of a, factory, , 2., , Unity of Command, , Staunch Proponent, , Did not feel that, it is important as, under functional, foremanship a worker, received orders from, eight specialists., , 3., , Applicability, , Applicable, universally, , Applicable to, specialised situations, , 4., , Basis of formation, , Personal experience, , Observations and, experimentation, , 5., , Focus, , Improving overall, administration, , Increasing Productivity, , 6., , Personality, , Practitioner, , Scientist, , 7., , Expression, , General Theory of, Administration, , Scientific Management, , Rise of Indian Management Gurus, While we have been reading about American management gurus like Peter Ducker,, Edward Peter, F.W. Taylor and Henry Fayol, lately Indians have made their mark on, the international management scene., The Top 50 thinkers list for 2005 named as many as four Indians — strategy, guru C K Prahalad, itinerant executive coach Ram Charan, Tuck Business School, professor Vijay Govindrajan and Rakesh Khurana of Harvard Business School (HBS)., London Business School’s Sumantra Ghoshal, who is the author of Managing Across, Borders: The Transnational Solution which made it to Financial Times’ list of the, twentieth century’s 50 most influential books, would also have made it. Not to, mention a marquee of superstars like Nitin Nohria, Tarun Khanna and Krishna Palepu, at HBS, Dipak Jain and Mohanbir Sawhney at Northwestern’s Kellogg School, Jagdish, Bhagwati at Columbia and Raj Reddy at Carnegie Mellon., The list of luminaries is only expected to get longer as the enrolment of Indians, in MBA programmes rises. ‘‘At the top 20 business schools in the US, one in every, four or five is an Indian,’’ says Mohanbir Sawhney. At Kellogg where he teaches, 15%, , 2018-19
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Principles of Management, , 65, , of the faculty is Indian including the dean. But is it just about the numbers — one, billion people so at least 20% have to be smart? ‘‘Of course, we’re talking about a, huge population but it’s also about how driven we are to succeed and the value that, Indians put on education. There is no safety net; all you have is your degree,’’ says, Sawhney, who is often described as the John Maynard Keynes of the Internet age. In, an interview to journal Across The Board, Vijay Govindarajan offered this explanation:, ‘‘Indians have a strong work ethic, speak English and are good at conceptual thinking, and analysis.’’ VG, who went to HBS on a Ford Foundation scholarship, is now one of, the highest-paid executive coaches in the US. Be it boardroom or MBA programmes,, Indians are also bringing in a new perspective on globalisation. ‘‘Most of us have been, in the US for some time but what was till now not used was our knowledge of, India. The unique challenges that emerging markets pose has changed all this,’’ says, Sawhney., With their strong sense of societal obligation, Indians are also tackling issues, neglected by Western thinkers. Take C K Prahalad’s best-selling book The Fortune at, the Bottom of the Pyramid, which stresses the need to take account of micro-markets, among the world’s poor. Marketing guru Kash Rangan’s current research is focused, on what marketing can do for the world’s poor. ‘Solving problems which matter for, people who matter’ is how Sawhney sums up his philosophy. Are we looking at an, Indian ethos of management? ‘‘Yes, and it’s rooted in spiritual wisdom. Not the dogeat-dog management philosophy that’s been popular till now but something more in, sync with businesses of the future,’’ says Sawhney, who often narrates tales from the, Panchatantra and Bhagwad Gita to his students at Kellogg. So will there be a change, in the way tomorrow’s corporations are run? Perhaps, the wind blowing from the, Indian subcontinent will tell., Adapted, based and taken from ‘MANAGEMENT GURU? THINK, INDIAN NOW by NEELAM RAAJ published in http/www.economictimes., indiatimes.com datelined Sunday, August 27, 2006, , Key Terms, Functional Foremanship Standardisation of Work, Time Study Motion Study Fatigue Study Method Study, Differential Piece Wage System Mental Revolution, Unity of Command Unity of Direction, Scalar Chain Gang Plank, , 2018-19, , Espirit De Corps
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Business Studies, , 66, , Summary, Meaning, Principles of management are general guidelines, which can be, used for conduct in work places under certain situations. They help, managers to take and implement decisions., Nature, The nature of management principles can be discussed under the, heads- formed by practice; general guidelines; universal; flexible;, behavioural; contingent; and cause and effect relationship, Significance, Proper understanding of significance of management principles is, essential to make sound decisions by managers. The significance, can be discussed under the following heads- Increase in efficiency;, Optimum utilisation of resources; Scientific decision making;, Adaptation to changing environment; Fulfilling social responsibilities;, Proper research and development; Training managers; and Effective, administration., Scientific Management, Taylor’s principles of scientific management are — Science, not the, rule of thumb; Harmony not discord; Cooperation not individualism;, Maximum not restricted output; Development of each person to her/, his greatest efficiency and prosperity. The techniques of scientific, management as per Taylor were — Functional foremanship;, Standardisation and simplification of work; Fatigue Study; Method, Study; Time Study; Motion Study; and Differential Wage System. We, can also point out differences between the contributions of Taylor, and Fayol but essentially they were complementary in nature., Fayol’s Principles of Management, According to Fayol, the functions of management are to plan, to, organise, to command, to coordinate and to control. The activities, of an industrial undertaking could be divided into; Technical;, Commercial; Financial; Security; Accounting and Managerial. He, also suggested that managers should have the following qualitiesPhysical; Moral; Education; Knowledge; and Experience. Fayol, listed 14 principles of management — Division of work; Authority, and responsibility; Discipline; Unity of command; Unity of, direction; Subordination of individual interest to general interest;, Remuneration of Personnel; Centralisation and decentralisation;, Scalar Chain; Order; Equity; Stability in the tenure of Personnel;, Initiative; and Espirit De corps., We can also point out differences between the contributions of Taylor, and Fayol but essentially they were complementary in nature., , 2018-19
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Principles of Management, , 67, , Exercises, Multiple Choice, 1. Principles of management are NOT, (a) Universal, (b) Flexible, (c) Absolute, (d) Behavioural, 2. How are principles of management formed?, (a) In a laboratory, (b) By experiences of managers, (c) By experiences of customers, (d) By propagation of social scientists, 3. The principles of management are significant because of, (a) Increase in efficiency, (b) Initiative, (c) Optimum utilisation of resources, (d) Adaptation to changing technology, 4. Henri Fayol was a, (a) Social Scientist, (b) Mining Engineer, (c) Accountant, (d) Production engineer, 5. Which of the following statement best describes the principle, of ‘Division of Work’, (a) Work should be divided into small tasks, (b) Labour should be divided, (c) Resources should be divided among jobs, (d) It leads to specialisation, 6. ‘She/he keeps machines, materials, tools etc., ready for, operations by concerned workers’. Whose work is described, by this sentence under functional foremanship, (a) Instruction Card Clerk, (b) Repair Boss, (c) Gang Boss, (d) Route Clerk, 7. Which of the following is NOT a Principle of management, given by Taylor ?, (a) Science, not rule of the Thumb, (b) Functional foremanship, (c) Maximum not restricted output, (d) Harmony not discord, , 2018-19
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Business Studies, , 68, , 8. Management should find ‘One best way’ to perform a task., Which technique of Scientific management is defined in this, sentence?, (a) Time Study , (b) Motion Study, (c) Fatigue Study, (d) Method Study, 9. Which of the following statements best describes ‘Mental, Revolution’?, (a) It implies change of attitude., (b) The management and workers should not play the game, of one upmanship., (c) Both management and workers require each other., (d) Workers should be paid more wages., 10. Which of the following statements is FALSE about Taylor, and Fayol?, (a) Fayol was a mining engineer whereas Taylor was a, mechanical engineer, (b) Fayol’s principles are applicable in specialised situations, whereas Taylor’s principles have universal application, (c) Fayol’s principles were formed through personal, experience whereas Taylor’s principles were formed, through experimentation, (d) Fayol’s principles are applicable at the top level of, management whereas Taylor’s principles are applicable, at the shop floor., Short Answer Type, 1. How is the Principle of ‘Unity of Command’ useful to, management? Explain briefly., 2. Define scientific management. State any three of its principles., 3. If an organisation does not provide the right place for physical, and human resources in an organisation, which principle is, violated? What are the consequences of it?, 4. Explain any four points regarding significance of Principles, of management., 5. Explain the principle of ‘Scalar Chain’ and gang plank., Long Answer Type, 1. Explain the Principles of Scientific management given by, Taylor., 2. Explain the following Principles of management given by, Fayol with examples:, (a) Unity of direction, , 2018-19
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Principles of Management, , 3., 4., , 5., 6., , 69, , (b) Equity, (c) Espirit de corps, (d) Order, (e) Centralisation and decentralisation, (f ) Initiative, Explain the technique of ‘Functional Foremanship’ and the, concept of ‘Mental Revolution’ as enunciated by Taylor., Discuss the following techniques of Scientific Work, Study:, (a) Time Study, (b) Motion Study, (c) Fatigue Study, (d) Method Study, (e) Simplification and standardisation of work, Discuss the differences between the contributions of Taylor, and Fayol., Discuss the relevance of Taylor and Fayol’s contribution in, the contemporary business environment., , Project Work, 1. From business magazines, annual reports, newspapers or, internet find out what changes are taking place in companies, relating to corporate governance, production practices etc., Prepare a scrapbook. Discuss these cases with your teacher, and friends. Prepare a report of the same., 2. Visit a factory. Find about their production system and, method of wage payment. Prepare a report and discuss it in, your class and with your teacher., , Case Problems, Problem 1, ‘F’ limited was engaged in the business of food processing and, selling its products under a popular brand. Lately the business, was expanding due to good quality and reasonable prices. Also with, more people working the market for processed food was increasing., New players were also coming to cash in on the new trend. In order, to keep its market share in the short run the company directed its, existing workforce to work overtime., But this resulted in many problems. Due to increased pressure, of work the efficiency of the workers declined. Sometimes the, , 2018-19
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Business Studies, , 70, , subordinates had to work for more than one superior resulting, in declining efficiency. The divisions that were previously working, on one product were also made to work on two or more products., This resulted in a lot of overlapping and wasteage. The workers, were becoming undisciplined. The spirit of teamwork, which had, characterised the company, previously was beginning to wane., Workers were feeling cheated and initiative was declining. The, quality of the products was beginning to decline and market share, was on the verge of decrease., Actually the company had implemented changes without creating, the required infrastructure., Questions, 1. Identify the Principles of Management (out of 14 given by, Henry Fayol) that were being violated by the company., 2. Explain these principles in brief., 3. What steps should the company management take in relation, to the above principles to restore the company to its past, glory?, Problem 2 (Related to case problem –1), The management of company ‘F’ Limited now realised its folly. In, order to rectify the situation it appointed a management consultant, ‘M’ consultants to recommend a restructure plan to bring the, company back on the rails. ‘M’ consultants undertook a study of, the production process at the plant of the company ‘F’ limited and, recommended the following changes —, 1. The company should introduce scientific management with, regard to production., 2. Production Planning including routing, scheduling,, dispatching and feedback should be implemented., 3. In order to separate planning from operational management, ’Functional foremanship’ should be introduced., 4. ‘Work study’ should be undertaken to optimise the use of, resources., 5. ‘Standardisation’ of all activities should be implemented to, increase efficiency and accountability., 6. To motivate the workers ‘Differential Piece Rate System’, should be implemented., , 2018-19
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Principles of Management, , 71, , 7. The above changes should be introduced apart from the steps, recommended in case problem-1 (as an answer to question, no 3 of that case problem)., It was expected that the changes will bring about a radical, transformation in the working of the company and it will regain its, pristine glory., Questions, 1. Do you think that introduction of scientific management, as recommended by M consultants will result in intended, outcome?, 2. What precautions should the company undertake to, implement the changes?, Give your answer with regard to each technique separately, as enunciated in points 1 through 6 in the case problem., , 2018-19
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BUSINESS ENVIRONMENT, The soft-drinks giants, Pepsico and Coca-Cola,, suffered a decline in sales of colas in India in the, beginning of the year 2006 after an environmental, group, Centre for Science and Environment (CSE), claimed to have found pesticides in their drinks, upto 50 times the permissible health limits. These, companies issued a number of press statements and, conducted many publicity compaigns in India claiming, that their beverages were perfectly safe. The Union, Health Ministry’s expert committee also observes that, Coke and Pepsi were safe. CSE, in turn, criticised the, expert committees findings and said that 11 of Coke, and Pepsi drinks contained average pesticide levels, that were 24 times higher than the limits agreed by, the Indian government. Despite health ministry’s, clean chit to colas, several States continue to ban, or restrict Coke and Pepsi. However, the pesticide, controversy adversely affected the sales of both Coke, and Pespi as consumers started watching their diet, more closely. Organic food products suddenly became, popular as the healthier option. By definition, organic, means fruits, vegetables, foodgrains and processed, products that have been produced with no pesticide, or inorganic fertilisers. Meanwhile the soft drinks, giants have been continuously advertising and trying, to convince the consumers about the safety of their, products., , The Pepsi Cola controversy raises, an interesting question: Why are, soft drinks giants, Coca-Cola and, Pepsico putting in so much effort on, publicity campaigns in India after the, decline in their sales? The answer, lies in the fact that their success, is dependent not merely on their, , 3, , CHAPTER, , L E A R N I N G, O B J E C T I V E S, , After studying this, chapter you will be able, to:, n, , n, , n, , n, , Explain the meaning of, business environment;, Discuss the, importance of, business environment;, Describe the various, elements of business, environment; and, Examine the, economic, environment in India, and the impact of, Government policies, on business and, industry., , internal management, but also on, many external forces as, for example,, decisions and actions of governments,, consumers, other business firms and, even non-government organisations, (NGOs) like CSE. In this chapter,, we shall identify certain important, external forces (or environmental, , 2018-19
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Business Environment, , 73, , conditions) and their impact on the, operations of business enterprises., , Meaning of Business, Environment, , The term ‘business environment’, means the sum total of all individuals,, institutions and other forces that, are outside the control of a business, enterprise but that may affect its, performance. As one writer has put, it– “Just take the universe, subtract, from it the subset that represents, the organisation, and the remainder, is environment”. Thus, the economic,, social, political, technological and, other forces which operate outside, a business enterprise are part of its, environment. So also, the individual, consumers or competing enterprises, as well as the governments, consumer, groups, competitors, courts, media, and other institutions working, outside an enterprise constitute its, environment. The important point is, that these individuals, institutions, and forces are likely to influence the, performance of a business enterprise, although they happen to exist outside, its boundaries. For example, changes, in government’s economic policies,, rapid technological developments,, political uncertainty, changes in, fashions and tastes of consumers, and increased competition in the, market — all influence the working, of a business enterprise in important, ways. Increase in taxes by government, can make things expensive to buy., Technological improvements may, render existing products obsolete., Political uncertainty may create fear, in the minds of investors. Changes, , in fashions and tastes of consumers, may shift demand in the market, from existing products to new ones., Increased competition in the market, may reduce profit margins of firms., On the basis of the foregoing, ussion, it can be said business, disc, environment, has the following, features:, (i) Totality of external forces:, Business environment is the, sum total of all things external, to business firms and, as such,, is aggregative in nature., (ii) Specific and general forces:, Business environment includes, both specific and general forces., Specific forces (such as investors,, customers, competitors and supp, liers) affect individual enterprises, directly and immediately in their, day-to-day, working., General, forces (such as social, political,, legal and technological conditions), have impact on all business, enterprises and thus may affect, an individual firm only indirectly., (iii) Inter-relatedness: Different, elements or parts of business, environment are closely interrelated. For example, increased, life expectancy of people and, increased awareness for health, care have increased the demand, for many health products and, services like diet Coke, fat-free, cooking oil, and health resorts., New health products and, services have, in turn, changed, people’s life styles., (iv) Dynamic nature: Business, environment is dynamic in that, , 2018-19
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Business Studies, , 74, , it keeps on changing whether, in terms of technological imp, rovement, shifts in consumer, preferences or entry of new, competition in the market., (v) Uncertainty: Business envir, onment is largely uncertain as it, is very difficult to predict future, happenings, especially when, environment changes are taking, place too frequently as in the, case of information tech, nology, or fashion industries., (v i ) Complexity: Since business env, ironment consists of numerous, interrelated and dynamic conditions or forces which arise from, different sources, it becomes, difficult to comprehend at once, what exactly constitutes a given, environment. In other words,, environment is a complex, pheno-menon that is relatively, easier to understand in parts but, difficult to grasp in its totality., For example, it may be difficult, to know the extent of the relative, impact of the social, economic,, political, technological or legal, factors on change in demand of, a product in the market., (vii) Relativity: Business environment, is a relative concept since it, differs from country to country, and even region to region., Political conditions in the USA,, for instance, differ from those, in China or Pakistan. Similarly,, demand for sarees may be fairly, high in India whereas it may be, almost non-existent in France., , Importance of Business, Environment, Just like human beings, business, enterprises do not exist in isolation., Each business firm is not an, island unto itself; it exists, survives, and grows within the context, of the element and forces of its, environment. While an individual, firm is able to do little to change, or control these forces, it has, no alternative to responding or, adapting according to them. A good, understanding of environment by, business managers enables them not, only to identify and evaluate, but also, to react to the forces external to their, firms. The importance of business, environment and its understanding, by managers can be appreciated if we, consider the following facts:, (i) It enables the firm to identify, opportunities, and, getting, the first mover advantage:, Opportunities refer to the positive, external trends or changes that, will help a firm to improve its, performance. Environment prov, ides numerous opportunities for, business success. Early identi, fication of opportunities helps an, enterprise to be the first to exploit, them instead of losing them to, competitors. For example, Maruti, Udyog became the leader in the, small car market because it was, the first to recognise the need, for small cars in an environment, of rising petroleum prices and, a large middle class population, in India., , 2018-19
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Business Environment, , 75, , (ii) It helps the firm to identify, threats and early warning, signals: Threats refer to the, external environment trends and, changes that will hinder a firm’s, performance. Besides oppor, tunities, environment happens, to be the source of many threats., Environmental awareness can, help managers to identify various, threats on time and serve as an, early, warning, signal., For, example, if an Indian firm finds, that a foreign multinational is, entering the Indian market with, new substitutes, it should act as, a warning signal. On the basis of, this information, the Indian, firms can prepare themselves to, meet the threat by adopting such, measures as improving the, quality of the product, reducing, cost of the production, engaging, essive advertising, and, in aggr, so on., (iii) It helps in tapping useful, resources: Environment is a, source of various resources for, running a business. To engage, in any type of activity, a business, enterprise assembles various, resources called inputs like, finance, machines, raw materials,, power and water, labour, etc.,, from its environment including, financiers,, government, and, suppliers. They decide to provide, these resources with their own, expectations to get something in, return from the enterprise. The, business enterprise supplies the, environment with its outputs, , 2018-19, , such as goods and services for, customers, payment of taxes to, government, return on financial, investment to investors and so on., Because the enterprise depends, on the environment as a source, of inputs or resources and as an, outlet for outputs, it only makes, sense that the enterprise designs, policies that allow it to get the, resources that it needs so that it, can convert those resources into, outputs that the environment, desires. This can be done better, by understanding what the, environment has to offer., (iv) It helps in coping with rapid, changes: Today’s business envir, onment is getting increasingly, dynamic where changes are, taking place at a fast pace. It is not, the fact of change itself that is so, important as the pace of change., Turbulent market conditions,, less brand loyalty, divisions and, sub-divisions, (fragmentation), of markets, more demanding, customers, rapid changes in, technology and intense global, competition are just a few of the, images used to describe today’s, business environment. All sizes, and all types of enterprises are, facing increasingly dynamic, environment. In order to eff, ectively cope with these signifi, cant changes, managers must, understand and examine the, environment and develop suit, able courses of action., (v) It helps in assisting in planning, and policy formulation: Since
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Business Studies, , 76, , environment is a source of, both opportunities and threats, for a business enterprise, its, understanding and analysis, can be the basis for deciding, the future course of action, (planning) or training guidelines, for decision making (policy). For, instance, entry of new players, in the market, which means, more competition may make an, enterprise think afresh about, how to deal with the situation., (vi) It, helps, in, improving, performance: The final reason, anding, business, for, underst, environment relates to whether or, not it really makes a difference in, the performance of an enterprise., The answer is that it does appear, to make a difference. Many, studies reveal that the future of, an enterprise is closely bound, up with what is happening in, the environment. And, the enter, prises that continuously monitor, their environment and adopt, suitable business practices are, the ones which not only improve, their present performance but, also continue to succeed in the, market for a longer period., , Dimensions of Business, Environment, Dimensions of, or the factors cons, tituting the business environment, include economic, social, techno, logical, political and legal conditions, which are considered relevant for, , decision-making and improving the, performance of an enterprise. In, contrast to the specific environment,, these factors explain the general, environment which mostly influences, many enterprises at the same time., However, management of every, enterprise can benefit from being, aware of these dimensions instead, of being disinterested in them. For, instance, scientific research has, discovered a technology that makes, it possible to produce an energy, efficient light bulb that lasts at least, twenty times as long as a standard, bulb. Senior managers in the lighting, divisions at General Electric and, Phillips recognised that this discovery, had the potential to significantly affect, their unit growth and profitability,, So they have carefully followed, the progress on this research and, profitably used its findings. A brief, discussion of the various factors, constituting the general environment, of business is given below:, (i) Economic Environment: Int, erest rates, inflation rates,, changes in disposable income, of people, stock market indices, and the value of rupee are some, of the economic factors that can, affect management practices, in a business enterprise. Short, and long term interest rates, significantly affect the demand, for product and services. For, example, in case of construction, companies, and, automobile, manufacturers, low longer-term, rates are beneficial because they, result in increased spending by, , 2018-19
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Business Environment, , 77, , Economic, Environment, , Social, Environment, , Business, Environment, , Legal, Environment, , Technological, Environment, , Political, Environment, , Elements of, Business Environment, , consumers for buying homes, and cars on borrowed money., Similarly, a rise in the disposable, income of people due to increase, in the gross domestic product, of a country creates increasing, demand for products. High, , inflation rates generally result, in constraints on business, enterprises as they increase, the various costs of business, such as the purchase of raw, materials or machinery and, payment of wages and salaries, to employees., , Components of Economic Environment, n, n, n, n, n, n, n, n, n, n, , Existing structure of the economy in terms of relative role of private, and public sectors., The rates of growth of GNP and per capita income at current and, constant prices, Rates of saving and investment, Volume of imports and exports of different items, Balance of payments and changes in foreign exchange reserves, Agricultural and industrial production trends, Expansion of transportation and communication facilities, Money supply in the economy, Public debt (internal and external), Planned outlay in private and public sectors, , 2018-19
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Business Studies, , 78, , (ii) Social Environment: The social, environment of business include, the social forces like customs and, traditions, values, social trends,, society’s, expectations, from, business, etc. Traditions define, social practices that have lasted, for decades or even centuries., For example, the celebration of, Diwali, Eid, Christmas, and Guru, Parv in India provides significant, financial opportunities for gree, tings card companies, sweets or, confectionery, manufacturers,, tailoring outlets and many other, related business. Values refer to, concepts that a society holds in, high esteem. In India, individual, freedom, social justice, equality, of opportunity and national, integration are examples of, major values cherished by all, of us. In business terms, these, values translate into freedom of, choice in the market, business’s, responsibility towards the society, and non-discriminatory employ, ment practices. Social trends, present various opportunities and, threats to business enterprises., , For example, the health-andfitness trend has become popular, among large number of urban, dwellers. This has created a, demand for products like organic, food, diet soft drinks, gyms,, bottled (mineral) water and, food supplements. This trend, has, however, harmed business, in other industries like dairy, processing, tobacco and liquor., (iii) Technological Environment:, Technological environment inc, ludes forces relating to scientific, improvements and innovations, which provide new ways of prod, ucing goods and services and, new methods and techniques of, operating a business. For exa, mple, recent technological, adva, nces in computers and electro, nics have modified the ways in, which companies advertise their, products. It is common now to, see CD-ROM’s, computerised, information kiosks, and Internet/, World Wide Web multimedia, pages highlighting the virtues of, products. Similarly, retailers, have direct links with suppliers, who replenish stocks when, , Activity I, ECONOMIC ENVIRONMENT, Read the newspapers of the past fifteen days and note the changes in any five, economic policies made by the government. Analyse their impact on the working, of business enterprises., RBI is a key regulator of the country’s economic environment since it:, n Influences the interest rates, n Controls the flow of money in the economy, n Regulates the working of banks, , 2018-19
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Business Environment, , 79, , try and specific attitudes that, elected government representa, tives hold towards business., The significance of political, conditions in business success, lies in the predictability of, business activities under stable, political conditions. On the other, hand, there may be uncertainty, of business activities due to, political unrest and threats to, law and order. Political stability,, thus, builds up confidence, among business people to, invest in the long term projects, for the growth of the economy., Political instability can shake, that confidence. Similarly, the, attitudes of government officials, towards business may have either, positive or negative impact upon, business. For example, even, after opening up of our economy, in 1991, foreign companies, found it extremely difficult to, cut through the bureaucratic, red tape to get permits for doing, business in India. Sometimes,, , needed. Manufacturers have, ufacturing systems., flexible man, panies have Internet, Airline com, and World Wide Web pages where, customers can look for flight, times, destinations and fares and, book their tickets online. In, addition, continuing innovations, in, different, scientific, and, engineering fields such as lasers,, robotics, biotech, nology, food, preservatives,, medicine,, telecommunication and synthetic, fuels have provided numerous, opportunities and threats for, many different enterprises. Shifts, in demand from vaccum tubes to, transistors,, from, steam, locomotives to dieseland electric, engines, from fou, ntain pens to, ballpoint, from propeller airplanes, to jets, and from typewriters to, computer based word processors,, have all been responsible and, creating new business., (iv) Political Environment: Political, environment includes political conditions such as general, stability and peace in the coun-, , Major Elements of Social Environment, n, n, n, n, n, n, n, n, n, n, , Attitudes towards product innovations, lifestyles, occupational, distribution and consumer preferences, Concern with quality of life, Life expectancy, Expectations from the workforce, Shifts in the presence of women in the workforce, Birth and death rates, Population shifts, Educational system and literacy rates, Consumption habits, Composition of family, , 2018-19
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Business Studies, , 80, , Activity II, SOCIAL ENVIRONMENT, Contact any ten families known to you. Find out the changes in their consumption, habits over the last five years. Analyse the impact of these changes on the working, of business enterprises., , Electronic gadgets, (increase in demand, of these gadgets), , Fashion industry, (shifts towards, formal wear), , Cosmetic industry, (increase in demand), , Food habits, (shift towards packed food), , Impact of shifts with the presence, of women in the workforce, , 2018-19
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Business Environment, , 81, , Indian Railway Catering and Tourism Corporation ltd., n, n, n, n, , n, , (A Government of India Enterprise), E-TICKET BOOKING ON THIS WEBSITE - A GUIDE, Register as an individual. Registration is FREE., Login by entering your user name and password., The ‘Plan my travel and Book tickets’ page appears., Use ‘HELP’ option for any help required to book tickets., , Fill in the details, by following, the guidelines given below., , Because of technological advancement, it has become possible to book, railway tickets through Internet from home, office etc.., , 2018-19
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Business Studies, , 82, , it took months to process even, their application for the purpose., As a result these companies were, discouraged from investing in, our country. The situation has, improved over time., (v) Legal Environment: Legal envi, ronment includes various legis, lations passed by the Government, administrative orders issued, by, government, authorities,, court judgments as well as the, decisions rendered by various, commissions and agencies at, every level of the government—, centre, state or local. It is, imperative for the management, of every enterprise to obey the, law of the land. Therefore, an, adequate knowledge of rules, and regulations framed by the, Government is a pre-requisite, for better business performance., Non-compliance of laws can land, the business enterprise into legal, problems. In India, a working, knowledge of Companies Act, , 1956; Industries (Development, and Regulations) Act 1951;, Foreign Exchange Management, Act and the Imports and Exports, (Control) Act 1947; Factories Act,, 1948; Trade Union Act; 1926;, Workmen’s Compensation Act,, 1923; Industrial Disputes Act,, 1947, Consumer Protection Act,, 1986, Competition Act, 2002, and host of such other legal, enactments as amended from, time to time by the Parliament,, is important for doing business., Impact of legal environment, can be illustrated with the help, of government regulations to, protect consumer’s interests. For, example, the advertisement of, alcoholic beverages is prohibited., Advertisements, including pac, kets of cigarettes carry the, statutory warning ‘Cigarette, smoking is injurious to health’., Similarly, advertisements of, baby food must necessarily, , Major Elements of Political Environment, n, n, n, n, n, n, n, n, n, n, , The Constitution of the country, Prevailing political system, The degree of politicisation of business and economic issues, Dominant ideologies and values of major political parties, The nature and profile of political leadership and thinking of, political personalities, The level of political morality, Political institutions like the government and allied agencies, Political ideology and practices of the ruling party, The extent and nature of government intervention in business, The nature of relationship of our country with foreign countries, , 2018-19
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Business Environment, , 83, , inform the potential buyer that, mothers milk is the best. All, these regulations are required, to be followed by advertisers., , Economic Environment, India, , in, , The, economic, environment, in, India consists of various macrolevel factors related to the means of, production and distribution of wealth, which have an impact on business, and industry. These include:, (a) Stage of economic development of, the country., (b) The economic structure in the, form of mixed economy which, recognises the role of both public, and private sectors., (c) Economic policies of the Govern, ment, including industrial, monetary and fiscal policies., (d) Economic planning, including, five year plans, annual budgets,, and so on., (e) Economic indices, like national, income, distribution of income,, rate and growth of GNP, per, capita income, disposal personal, income, rate of savings and, investments, value of exports and, imports, balance of payments,, and so on., (f) Infrastructural factors, such as,, financial, institutions,, banks,, modes of transportation commu, nication facilities, and so on., Business enterprises in India do, realise the importance and impact, of the economic environment on, , their working. Almost all annual, company reports presented by their, chairpersons devote considerable, attention to the general economic, environment prevailing in the country, and an assessment of its impact on, their companies., The economic environment of, business in India has been steadily, changing mainly due to the, government policies. At the time of, Independence:, (a) The Indian economy was mainly, agricultural and rural in character;, (b) About 70% of the working population, was employed in agriculture;, (c) About 85% of the population was, living in the villages;, (d) Production was carried out, using irrational, low productivity, technology;, (e) Communicable diseases were, widespread, mortality rates were, high. These was no good public, health system., In order to solve economic problems, of our country, the government took, several steps including control by the, State of certain industries, central, planning and reduced importance, of the private sector. The main, objectives of India’s development, plans were:, (a) Initiate rapid economic growth to, raise the standard of living, reduce, unemployment and poverty;, (b) Become self-reliant and set up, a strong industrial base with, emphasis on heavy and basic, industries;, (c) Reduce inequalities of income, and wealth;, , 2018-19
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Business Studies, , 84, , (d) Adopt a socialist pattern of, development — based on equality, and prevent exploitation of man, by man., In accordance with the economic, planning, the government gave a, lead role to the public sector for, infrastructure industries whereas, the private sector was broadly given, the responsibility of developing, consumer goods industry. At the, same time, the government imposed, several restrictions, regulations and, controls on the working of private, sector enterprises. India’s experience, with economic planning has delivered, mixed results. In 1991 the economy, faced a serious foreign exchange, crisis, high government deficit and a, rising trend of prices despite bumper, crops., As a part of economic reforms, the, Government of India announced a, new industrial policy in July 1991., The broad features of this policy, were as follows:, (a) The Government reduced the, number of industries under, compulsory licensing to six., (b) Many of the industries reserved, for the public sector under the, earlier policy, were dereserved., The role of the public sector was, limited only to four industries of, strategic importance., (c) Disinvestment was carried out, in case of many public sector, industrial enterprises., (d) Policy towards foreign capital was, liberalised. The share of foreign, equity participation was increased, and in many activities 100 per, , cent Foreign Direct Investment, (FDI) was permitted., (e) Automatic permission was now, granted for technology agreements, with foreign companies., (f ) Foreign Investment Promotion, Board (FIPB) was set up to, promote and channelise foreign, investment in India., Appropriate measures were taken, to remove obstacles in the way of, growth and expansion of industrial, units of large industrial houses., Small-scale sector was assured all, help and accorded due recognition., In essence, this policy has, sought to liberate industry from the, shackles of the licensing system, (liberalisation), drastically reduce the, role of the public sector (privatisation), and encourage foreign private, participation in India’s industrial, development (globalisation)., Liberalisation: The economic reforms, that were introduced were aimed at, liberalising the Indian business and, industry from all unnecessary controls, and restrictions. They signalled the, end of the licence-pemit-quota raj., Liberalisation of the Indian industry, has taken place with respect to:, (i) abolishing licensing requirement, in most of the industries except, a short list,, (ii) freedom in deciding the scale, of business activities i.e., no, restrictions on expansion or, contraction of business activities,, (iii) removal of restrictions on the, movement of goods and services,, (iv) freedom in fixing the prices of, goods services,, , 2018-19
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Business Environment, , 85, , Crisis of June 1991, Major elements of the crisis situation which led the Government of India to, announce economic reform were:, n A serious fiscal crisis in which the fiscal deficit reached the level of 6.6 per, cent of GDP in 1990-91., n Heavy internal debt which rose to about 50 per cent of GDP with interest, payments draining about 39 per cent of total revenue collections of the, central government., n Low GNP growth rate which fell to 1.4 per cent from the peak level of 10.5, per cent in 1988-89 (at 1980-81 prices)., n Low overall agricultural production, foodgrain production and industrial, production showed negative growth rates of –2.8 per cent, –5.3 per cent, and –0.1 per cent respectively., n Soaring inflation rate based both on wholesale price index and consumer, price index (for industrial workers) at 13-14 per cent., n Shrinkage of foreign trade, imports (in $ terms) fell by 19.4 per cent and, exports by 1.5 per cent., n Depreciation of rupee by 26.7 per cent vis-à-vis US dollars., n Fall of foreign exchange reserves to such a low level that they were, barely adequate to meet the import requirements of a few weeks., Non-resident Indians (NRIs) were withdrawing their deposits at an alarmingly, high rate., n The confidence of the international financial institutions was badly shaken, and in just over a year its creditworthiness rating fell from AAA to BB+, (put on credit watch)., n The country was on the verge of defaulting on international financial, obligations and the situation warranted immediate policy action to save, the situation. In May 1991, the Government had to lease 20 tones of gold, out of its stock to the State Bank of India to enable it to sell the gold with, repurchase option after six months. In addition, Reserve Bank of India was, allowed to pledge 47 tones of gold to the Bank of England to raise a loan of, $600 million., , (v) reduction in tax rates and lifting, of unnecessary controls over the, economy,, (vi) simplifying, procedures, for, imports and experts, and, (vii) making it easier to attract, foreign capital and technology, to India., , Privatisation: The new set of econo, mic reforms aimed at giving greater, role to the private sector in the nation, building process and a reduced role, to the public sector. This was a reversal, of the development strategy pursued, so far by Indian planners. To achieve, this, the government redefined the, , 2018-19
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Business Studies, , 86, , role of the public sector in the New, Industrial Policy of 1991, adopted, the policy of planned disinvestments, of the public sector and decided, to refer the loss making and sick, enterprises to the Board of Industrial, and Financial Reconstruction. The, term disinvestments used here, means transfer in the public sector, enterprises to the private sector., It results in dilution of stake of the, Government in the public enterprise., If there is dilution of Government, ownership beyond 51 percent, it, would result in transfer of ownership, and management of the enterprise to, the private sector., Globalisation: Globalisation means, the integration of the various eco, nomies of the world leading towards, the emergence of a cohesive global, economy. Till 1991, the Government, of India had followed a policy of, strictly regulating imports in value, and volume terms. These regulations, , were with respect to (a) licensing of, imports, (b) tariff restrictions and (c), quantitative restrictions. The new, economic reforms aimed at trade, liberalisation were directed towards, import liberalisation, export promotion, through rationalisation of the tariff, structure and reforms with respect to, foreign exchange so that the country, does not remain isolated from the rest, of the world. Globalisation involves, an increased level of interaction and, interdependence among the various, nations of the global economy., Physical geographical gap or political, boundaries no longer remain barriers, for a business enterprise to serve a, customer in a distant geographical, market. This has been made, possible by the rapid advancement, in technology and liberal trade, policies by Governments. Through, the policy of 1991, the government, of India moved the country to this, globalisation pattern., , A Truly Globalised Economy, A truly global economy implies a boundaryless world where there, is:, (i) Free flow of goods and services across nations;, (ii) Free flow of capital across nations;, (iii) Free flow of information and technology;, (iv) Free movement of people across borders;, (v) A common acceptable mechanism for the settlement of, disputes;, (vi) A global governance perspective., , Activity 3, GLOBALISATION, Make a list of five Indian companies which have global operations today. Find, out the major products they sell and the countries where they operate., , 2018-19
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Business Environment, , 87, , Early Crisis Met : Reform Measures, Some of the early major steps taken to manage the economic crisis were the following:, Fiscal correction aimed at reducing fiscal deficit by about Rs. 7,700 crore in, 1991-92 (compared to 1990-91);, n Announcement of New Industry Policy in July 1991 seeking to deregulate the industry, with the objective of promoting the growth of a more competitive and efficient industrial, economy;, n Abolition of industrial licensing for all industrial projects except 18 industries of high, strategic and environmental importance and with high import content. About 80 per cent, of the industries were delicensed;, n Amendment of the MRTP Act to eliminate the need for prior approval of the Central, Government by large companies for capacity expansion, diversification and merger and, amalgamation., n Nine areas in basic and core industries earlier reserved for the public sector were opened, to the private sector;, n Limit of foreign equity holding raised from 40 per cent to 51 per cent in a wide range of, priority industries;, n Foreign Investment Promotion Board (FIPB) established to negotiate proposals from large, international firms and expedite clearances of the investment proposals;, n Rupee devaluation by 18 per cent during July 1-3, 1991 supported by a standby credit of, $2.3 billion from the IMP over a 20 months period negotiated in October 1991;, n Negotiation of $500 million Structural Adjustment Loan from the World Bank in April, 1992 and a loan totalling SDR 1.3 billion from the International Monetory Fund (IMF), between January-September 1991;, n Introduction of India Development Bond Scheme and Immunity Scheme for repatriation, of funds held abroad in October 1991, under which more than $2 billion were mobilised, during 1991-92;, n Bringing back of gold earlier pledged to the Bank of England and the Bank of Japan;, n Continuance of the measures of import control and credit squeeze;, n Administered licensing of imports replaced by freely tradeable import entitlements (called, Eximscrips) linked to export earnings. The measure was expected to introduce selfbalancing mechanism in India’s foreign trade;, n Introduction of Liberalised Exchange Rate Management System (LERMS) under which, a dual exchange rate system was established, one rate being effectively floated in the, market; and, n Import licensing in most capital goods, raw materials, intermediates and components, eliminated. Advance Licensing System considerably simplified., The initial series of measures set the tone for the future economic reforms. Any of the, measures taken above was continued to form a part of the ongoing reform process., n, , 2018-19
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Business Studies, , 88, , Demonetisation: The Government, of India, made an announcement, on November 8, 2016 with profound, implications for the Indian economy., The two largest denomination notes,, `500 `1,000, were ‘demonetised’, with immediate effect, ceasing to be, legal tender except for a few specified, purposes such as paying utility bills., This led to eighty six per cent of the, money in circulation invalid. The, people of India had to deposit the, invalid currency in the banks which, came along with the restrictions, placed on cash withdrawals. In other, words, restrictions were placed on, the convertibility of domestic money, and bank deposits., The aim of demonetisation was, to curb corruption, counterfeiting, the use of high denomination notes, for illegal activities; and especially, the accumulation of ‘black money’, generated by income that has not, been declared to the tax authorities., Features, 1. Demonetisation is viewed as a tax, administration measure. Cash, holdings arising from declared, income was readily deposited, in banks and exchanged for, new notes. But those with black, money had to declare their, , unaccounted wealth and pay, taxes at a penalty rate., 2. Demonetisation, is, also, interpreted as a shift on the part, of the government indicating, that tax evasion will no longer be, tolerated or accepted., 3. Demonetisation also led to tax, administration, channelizing, savings into the formal financial, system. Though, much of the, cash that has been deposited in, the banking system is bound to, be withdrawn but some of the new, deposits schemes offered by the, banks will continue to provide a, base loans, at lower interest rates., 4. Another feature of demonetisation, is to create a less-cash or, cash-lite economy, i.e., channeling, more savings through the formal, financial system and improving, tax compliance. Though there, are arguments against this as, digital transactions require use, of cell phones for customers and, Point-of-Sale (PoS) machines for, merchants, which will only work if, there is internet connectivity. On, the contrary, these disadvantages, are counterbalanced by an, understanding that it helps, people into the formal economy,, , Digitalisation has broadly impact three sections of society: the, poor, who are largely outside the digital economy; the less largely, outside the digital economy; the less affluent, who are becoming, part of the digital economy who have been covered under Jan Dhan, Accounts and Rupay cards; and the affluent, who are fully conversant, with digital transactions., , 2018-19
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Business Environment, , 89, , Impact of Demonetisation, 1., , Money/Interest, rates, , i. Decline in cash transactions, ii. Bank deposits increased, iii. Increase in financial savings, , 2., , Private wealth, , Declined since some high demonetised notes were not returned, and real estate prices fell, , 3., , Public sector, wealth, , No effect, , 4., , Digitisation, , Digital transactions amongst new users (RuPay/AEPS) increased, , 5., , Real estate, , Prices declined, , 6., , Tax collection, , Rise in income tax collection because of increased disclosure, , Adapted from Economic Survey, 2016–17, , thereby, increasing, financial, saving and reducing tax evasion., , Impact of Government, Policy Changes on, Business and Industry, The policy of liberalisation, privati, sation and globalisation of the, Government has made a significant, impact on the working of enterprises, in business and industry. The Indian, corporate sector has come face-toface with several challenges due to, government policy changes. These, challenges can be explained as, follows:, (i) Increasing competition: As a, result of changes in the rules of, industrial licensing and entry, of foreign firms, competition, for Indian firms has increased, especially in service industries, like telecommunications, airlines,, banking, insurance, etc. which, were earlier in the public sector., , 2018-19, , (ii) More demanding customers:, Customers today have become, more demanding because they, are well-informed. Increased, competition in the market gives, the customers wider choice in, purchasing better quality of, goods and services., (iii) Rapidly changing technological, environment: Increased com, petition forces the firms to develop, new ways to survive and grow in the, market. New technologies make, it possible to improve machines,, process, products and services., The rapidly changing technological, environment creates tough challe, nges before smaller firms., (iv) Necessity for change: In a, regulated environment of pre1991 era, the firms could have, relatively stable policies and, practices. After 1991, the market, forces have become turbulent as, a result of which the enterprises, have to continuously modify, their operations.
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Business Studies, , 90, , (v) Need for developing human, resource: Indian enterprises have, suffered for long with inadequately, trained personnel. The new market, conditions require people with, higher competence and greater, commitment. Hence the need for, developing human resources., (vi) Market orientation: Earlier, firms used to produce first and, go to the market for sale later. In, other words, they had production, oriented marketing operations., In a fast changing world, there is, a shift to market orientation in as, much as the firms have to study, and analyse the market first and, produce goods accordingly., (vii) Loss of budgetary support to, the public sector: The central, government’s budgetary support, , for financing the public sector, outlays has declined over the years., The public sector undertakings, have realised that, in order to, survive and grow, they will have to, be more efficient and generate their, own resources for the purpose., On the whole, the impact of Gove, rnment policy changes particularly in, respect of liberalisation, privatisation, and globa, lisation has been positive, as the Indian business and industry, has shown great resilience in dealing, with the new economic order. Indian, enterprises have developed strategies, and adopted business processes and, procedures to meet the challenge, of competition. They have become, more customer-focused and adopted, measures to improve customer, relationship and satisfaction., , Key Terms, Business environment, Opportunities, Threats, Economic, Environment, Political environment, Social environment, Technological environment Legal environment Liberalisation, Privatisation Globalisation, , Summary, Meaning of business environment: The term business environment, means the totality of all individuals, institutions and other forces that, are outside a business but that potentially affect its performance., Business environment can be characterised in terms of, (a) totality of external forces, (b) specific and general forces, (c) inter-relatedness, (d) dynamic nature, (e) uncertainty, , 2018-19
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Business Environment, , 91, , (f ) complexity, (g) relativity, Importance of business environment: Business environment and, its understanding are important for (i) enabling the identification of, opportunities and getting the first mover advantage, (ii) helping in, the identification of threats and early warning signals, (iii) coping, with the rapid changes, (v) assisting in planning and policy and, (vi) improving the performance., Elements of business environment: Business environment, consists of five important dimensions including economic, social,, technological, political and legal., Economic environment includes such factors as interest rates,, inflation rates, changes in disposable income of people, stock, market indexes and the value of rupee., Social environment includes social forces like traditions, values,, social trends, society’s expectations of business, and so on., Technological environment includes forces relating to scientific, improvements and innovations which provide new ways of producing, goods and services and new methods and techniques of operating, a business., Political environment includes political conditions such as general, stability and peace in the country and specific attitudes that elected, government representatives hold toward business., Legal environment includes various legislations passed by, the government, administrative orders issued by government, authorities, court judgments as well as decisions rendered by, various commissions and agencies at every level of the government—, center, state or local., Economic environment in India: The economic environment in, India consists of various macro-level factors related to the means, of production and distribution of wealth which have an impact on, business and industry. The economic environment of business in, India has been steadily changing since Independence mainly due, to government policies. In order to solve economic problems of, our country at the time of Independence, the government took, several steps including control by the state of key industries,, central planning and reduced importance of the private sector., These steps delivered mixed results until 1991 when Indian, economy happened to face serious foreign exchange crisis, high, government deficit and a rising trend of prices despite bumper, crops., , 2018-19
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Business Studies, , 92, , Liberalisation, privatisation and globalisation: As a part of economic, reforms, the Government of India announced a new industrial policy, in July 1991 which sought to liberate the industry from the shackles, of the licensing system (liberalisation), drastically reduce the role, of the public sector (privatisation) and encourage foreign private, participation in industrial development (globalisation)., Impact of Government policy changes on business and, industry: The government policy of liberalisation, privatisation, and globalisation has made a definite impact on the working of, enterprises in business and industry in terms of, (a) increasing competition, (b) more demanding customers, (c) rapidly changing technological environment, (d) necessity for change, (e) need for developing human resource, (f ) market orientation, (g) loss of budgetary support to the public sector. In the new, economic environment, the Indian enterprises have developed, various strategies to meet the challenge of competition, , Exercises, Multiple Choice, 1. Which of he following does not characterise the business, environment?, (a) Uncertainty, (b) Employees, (c) Relativity, (d) Complexity, 2. Which of the following best indicates the importance of, business environment?, (a) Identification, (b) Improvement in performance, (c) Coping with rapid changes, (d) All of them, 3. Which of the following is an example of social environment?, (a) Money supply in the economy, (b) Consumer Protection Act, (c) The Constitution of the country, (d) Composition of family, , 2018-19
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Business Environment, , 93, , 4. Liberalisation means, (a) Integration among economies, (b) Reduced government controls and restrictions, (c) Policy of planned disinvestments, (d) none of them, 5. Which of the following does not explain the impact of, Government policy changes on business and industry?, (a) More demanding customers, (b) Increasing competition, (c) Change in agricultural prices, (d) Market orientation, Short Answer Type, 1. What do you understand by business environment?, 2. Why it is important for business enterprises to understand, their environment? Explain briefly., 3. Mention the various dimensions of business environment., 4. Briefly explain the following:, (a) Liberalisation, (b) Privatisation, (c) Globlisation, 5. Briefly discuss the impact of Government policy changes on, business and industry., Long Answer Type, 1. How would you characterise business environment? Explain,, with examples, the difference between general and specific, environment., 2. How would you argue that the success of a business, enterprise is significantly influenced by its environment?, 3. Explain, with examples, the various dimensions of business, environment., 4. What economic changes were initiated by the Government, under the Industrial Policy, 1991? What impact have these, changes made on business and industry?, 5. What are the essential features of (a) Liberalisation,, (b) Privatisation and (c) Globalisation?, , 2018-19
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Business Studies, , 94, , Case Problem, Lately many companies have planned for significant investment in, organised retailing in India. Several factors have prompted their, decisions in this regard., Customer income is rising. People have developed a taste for, better quality products even though they may have to pay more., The aspiration levels have increased. The government has also, liberalised its economic policies in this regard and permitted even, cent percent foreign direct investment in some sectors of retailing., Questions, 1. Identify changes in business environment under different, heads — economic, social, technological, political and, legal that have facilitated the companies’ decisions to plan, significant investments in organised retailing., 2. What has been the impact of these changes with regard to, globalisation and privatisation?, , Activities, 1. The Government of India announced ‘demonetisation’ of `500, and `1,000 currency notes with effect from the midnight of, November 8, 2016. As a result, the existing `500 and `1,000, currency notes ceased to be legal tender from that date., New currency notes of the denomination of `500 and `2,000, issued by Reserve Bank of India after the announcement., Discuss ‘demonetisation’ in the light of the legal and, economic environment of business., 2. Select a business enterprise with which you are familiar., From your recollection of current events (events you may, have read about in newspapers or magazines or have heard, about on television or radio) identify some of the important, environmental force, which have had impact on this enterprise., 3. Select a major Indian company for which there is considerable, information available in your school library. Analyse the, impact of changes in the Government policies on the working, of this company., , 2018-19
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4, , Planning, Gas Authority of India (GAIL) – New Plans, GAIL India, which has had a monopoly in the gas transmission, sector is set to see some tough competition in the coming days., While Reliance is poised to get into the trunk pipeline segment,, British Gas is trying to get into the city gas distribution sector., GAIL’s new chairman, shares his thoughts on how he plans to, take the company ahead., What are GAIL’s main priorities?, Going by its business strategy, the focus areas are gas sourcing,, transmission, marketing, processing, petrochemicals, globalisation, and city gas distribution. We are focussing on sourcing of gas from, indigenous finds and through LNG and crossborder pipelines. We, intend to develop the gas market by extending our gas grid from, 5,600 km to 10,000 km. The city gas project is expected to rise, from 6 to 45 by the end of the 11th five year Plan., What are GAIL’s plans for acquiring an exploration and, production (E&P) company abroad?, GAIL has plans to strengthen its exploration and production, activities. To become a formidable company, GAIL is exploring, options - acquiring an E&P company is one such option., What are your Capex plans and how do you plan to fund it?, GAIL’s budgeted Capex plan for FY 06-07 is Rs. 2967.28 crore., This includes capital expenditure of Rs. 2579.58 crore on pipeline, and other projects and Rs. 387.7 crore on petrochemical projects., This will be funded through internal reserves., What are your plans on city gas distribution? Will GAIL, continue with its plans on fuel management?, We have already established the business successfully in Mumbai,, Delhi, Vadodara, Vijaywada, Agra, Lucknow, Kanpur. Till date GAIL, has formed eight joint venture companies to implement city gas, projects. The projects have had an impact on the pollution levels., GAIL is in the process of forming state-wise Joint Ventures with oil, marketing companies to implement city gas projects in Rajasthan., What are GAIL’s plans to diversify into telecom and what is, the current status?, , 2018-19, , CHAPTER, L E A R N I N G, OBJECTIVES, , After studying this, chapter, you will be, able to:, n, , n, , n, , n, , n, , State the meaning, of planning;, Describe the, features and, importance of, planning;, Explain the, limitations of, planning;, Analyse the steps, in the planning, process; and, Identity the, different types of, plans.
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Business Studies, , 96, , Gailtel, the telecom service arm of GAIL, offers telecom services, commercially to lead telecom operators across India. Gailtel, owns and operates approximately 13,000 route km of fibre optic, network, GAIL is evaluating various options to work out its future, growth plans., Source: The Economic Times, October 2006, , Introduction, , You have just read about the plans of, Gas Authority of India Limited (GAIL),, It is one of our leading public sector, companies. The plans discussed by, the Chairperson, GAIL are real plans, of the company and how they, would like to go about achieving, their objectives. Of course, these, are broad statements given by the, company and they have to be broken, down into steps for implementation., This is an example of a company, in the public sector with a nationwide reach striving to be one of the, top companies in India. Further, more, every organisation whether, it is government-owned, a privately, owned business or a company in the, private sector requires planning. The, government makes five year plans, for the country, a small business, has it’s own plans, while other, companies have big plans, sales, plans, production plans. All of them, have some plans., All business firms would like to be, successful, increase their sales and, earn profits. All managers dream, of these and strive to achieve their, goals. But to turn these dreams, into reality managers need to work, , hard in thinking about the future,, in making business predictions and, achieving targets. Dreams can be, turned into reality only if business, managers think in advance on what, to do and how to do it. This is the, essence of planning., , Concept, Planning is deciding in advance what, to do and how to do. It is one of the, basic managerial functions. Before, doing something, the manager must, formulate an idea of how to work on, a particular task. Thus, planning is, closely connected with creativity and, innovation. But the manager would, first have to set objectives, only then, will a manager know where he has, to go. Planning seeks to bridge the, gap between where we are and where, we want to go. Planning is what, managers at all levels do. It requires, taking decisions since it involves, making a choice from alternative, courses of action., Planning, thus, involves setting, objectives and developing appropriate, courses of action to achieve these obj, ectives. Objectives provide direction, for all managerial decisions and, actions. Planning provides a rational, , 2018-19
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Planning, , 97, , of planning? One of the ways to do, so would be to define planning as, setting objectives for a given time, period, formulating various courses, of action to achieve them, and then, selecting the best possible alternative, from among the various courses of, action available., , Importance, Planning: Keeping the, objective in view and, being in action, , approach for achieving predetermined, objectives. All members, therefore,, need to work towards achieving, organisational goals. These goals, set the targets which need to be, achieved and against which actual, performance is measured. Therefore,, planning means setting objectives, and targets and formulating an, action plan to achieve them. It, is concerned with both ends and, means i.e., what is to be done and, how it is to be done., The plan that is developed has to, have a given time frame but time, is a limited resource. It needs to be, utilised judiciously. If time factor, is not taken into consideration,, conditions in the environment may, change and all business plans may, go waste. Planning will be a futile, exercise if it is not acted upon or, implemented., Do you think from the above we can, formulate a comprehensive definition, , of Planning, You must have seen in films and, advertisements how executives, draw up plans and make powerful, presentations in boardrooms. Do, those plans actually work? Does, it improve efficiency? After all why, should we plan? These are numerous, questions to which we would like to, find solutions. Planning is certainly, important as it tells us where to go,, it provides direction and reduces, the risk of uncertainty by preparing, forecasts. The major benefits of, planning are given below:, (i) Planning provides directions:, By stating in advance how work, is to be done planning provides, direction for action. Planning ens, ures that the goals or objectives, are clearly stated so that they, act as a guide for deciding what, action should be taken and in, which direction. If goals are well, defined, employees are aware of, what the organisation has to do, and what they must do to achieve, those goals. Departments and, individuals in the organisation, are able to work in coordination., If there was no planning, empl, oyees would be working in different, , 2018-19
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Business Studies, , 98, , directions and the organisation, would not be able to achieve its, desired goals., (ii) Planning reduces the risks of, uncertainty: Planning is an activity, which enables a manager to look, ahead and anticipate changes., By deciding in advance the tasks, to be performed, planning shows, the way to deal with changes, and uncertain events. Changes, or events cannot be eliminated, but they can be anticipated and, managerial responses to them, can be developed., (iii) Planning reduces overlapping, and wasteful activities: Plan, ning serves as the basis of, coordinating the activities and, efforts of different divisions,, departments and individuals. It, helps in avoiding confusion and, misunderstanding. Since plan, ning ensures clarity in thought, and action, work is carried on, smoothly without interruptions., Useless and redundant activities, are minimised or eliminated. It, is easier to detect inefficiencies, and take corrective measures to, deal with them., (iv) Planning promotes innovative, ideas: Since planning is the, first function of management,, new ideas can take the shape, of concrete plans. It is the most, challenging activity for the, management as it guides all, future actions leading to growth, and prosperity of the business., , (v) Planning facilitates decision, making: Planning helps the, manager to look into the future, and make a choice from amongst, various alternative courses of, action. The manager has to eva, luate each alternative and select, the most viable proposition., Planning involves setting targets, and predicting future conditions,, thus helping in taking rational, decisions., (vi) Planning establishes standards, for controlling: Planning inv, olves setting of goals. The entire, managerial process is concerned, with accomplishing predeter, mined goals through planning,, organising, staffing, directing and, controlling. Planning provides the, goals or standards against which, actual performance is measured., By comparing actual performance, with some standard, managers can, know whether they have actually, been able to attain the goals. If, there is any deviation it can be, corrected. Therefore, we can say, that planning is a prerequisite, for controlling. If there were no, goals and standards, then finding, deviations which are a part of, controlling would not be possible., The nature of corrective action, required depends upon the extent, of deviations from the standard., Therefore, planning provides the, basis of control., , 2018-19
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Planning, , 99, , Features, , of Planning, In the example of Polaris, the company, has plans of expansion. Their, objective is to increase their capacity, so that they can employ 800 more, professionals. Their target time is six, months. The objective of the current, year has also been clearly stated which, is to increase capacity by 1500-2000, more professionals. Since planning is, the primary function of management, they have set their objectives first., Thus, all businesses follow a set, pattern of planning. You will be able, to find some similarities in the features, of planning and what you see in real, life. Try and identify them., The planning function of the, management has certain special, features. These features throw light, on its nature and scope., (i) Planning focuses on achieving, objectives: Organisations are, set up with a general purpose, in view. Specific goals are set, out in the plans along with the, , activities to be undertaken to, achieve the goals. Thus, planning, is purposeful. Planning has no, meaning unless it contributes, to the achievement of predet, ermined organisational goals., (ii) Planning is a primary function, of management: Planning lays, down the base for other func, tions of management. All other, managerial functions are perfor, med within the framework of, the plans drawn. Thus, planning, precedes other functions. This is, also referred to as the primacy of, planning. The various functions, of management are interrelated, and equally important. However,, planning provides the basis of all, other functions., (iii) Planning is pervasive: Planning, is required at all levels of, management as well as in all, departments of the organisation., It is not an exclusive function, of top management nor of any, Polaris Plans New Facility in Mumbai, , IT Company Polaris Software Lab is planning a new facility in Mumbai with a capacity, for 800 professionals., The company currently has 1,200 professionals across its three centers in Mumbai,, and the new facility is expected to come up in the next six months., Polaris chairman and CEO said that the company was well on the track to meet its, earlier announcement to increase the headcount by 1,500-2,000 professionals in the, current year to reach the 9,000 mark by March 2007. We will look at acquisition of, small boutique consulting companies that are focused on banking, financial services, and insurance (BFSI) space. This will strengthen customer service and account, management capabilities., Source: The Economic Times, October 06, , 2018-19
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Business Studies, , 100, , particular department. But the, scope of planning differs at diff, erent levels and among different, departments. For example, the, top management undertakes, planning for the organisation, as a whole. Middle management, does the departmental planning., At the lowest level, day-to-day, operational planning is done by, supervisors., (iv) Planning is continuous: Plans, are prepared for a specific period, of time, may be for a month, a, quarter, or a year. At the end of, that period there is need for a new, plan to be drawn on the basis of, new requirements and future, conditions. Hence, planning is a, continuous process. Continuity, of planning is related with the, planning cycle. It means that a, plan is framed, it is implemented,, and is followed by another plan,, and so on., (v) Planning is futuristic: Planning, essentially involves looking ahead, and preparing for the future., The purpose of planning is to, meet future events effectively, to the best advantage of an, organisation. It implies peeping, into the future, analysing it and, predicting it. Planning is, therefore,, regarded as a forward looking, function based on forecasting., Through forecasting, future events, and conditions are anticipated and, plans are drawn accordingly. Thus,, , for example, sales forecasting is, the basis on which a business, firm prepares its annual plan for, production and sales., (vi) Planning involves decision, making: Planning essentially inv, olves choice from among various, alternatives and activities. If there, is only one possible goal or a, possible course of action, there, is no need for planning because, there is no choice. The need, for planning arises only when, alternatives are available. In actual, practice, planning presupposes, the existence of alternatives., Planning, thus, involves thorough, examination and evaluation of, each alternative and choosing, the most appropriate one., (vii) Planning is a mental exercise:, Planning requires application, of the mind involving foresight,, intelligent imagination and sound, , 2018-19, , Planning: the first, step to management
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Planning, , 101, , judgement. It is basically an, intellectual activity of thinking, rather than doing, because, planning determines the action, to be taken. However, planning, requires logical and systematic, thinking rather than guess work, or wishful thinking. In other, words, thinking for planning, must be orderly and based on the, analysis of facts and forecasts., , Limitations, , of Planning, We have seen how planning is, essential for business organisations., It is difficult to manage operations, without formal planning. It is impo, rtant for an organisation to move, towards achieving goals. But we have, often seen in our daily lives also, that, things do not always go according, to plan. Unforeseen events and, changes, rise in costs and prices,, environmental changes, government, , interventions, legal regulations, all, affect our business plans. Plans then, need to be modified. If we cannot, adhere to our plans, then why do, we plan at all? This is what we need, to analyse. The major limitations of, planning are given below:, (i) Planning leads to rigidity: In, an organisation, a well-defined, plan is drawn up with specific, goals to be achieved within a, specific time frame. These plans, then decide the future course of, action and managers may not be, in a position to change it. This, kind of rigidity in plans may, create difficulty. Managers need, to be given some flexibility to be, able to cope with the changed, circumstances. Following a predecided plan, when circum, stances have changed, may not, turn out to be in the organisations, interest., International Ambitions of Essar, , The Essar group is looking to step up its global operations by entering the riskier but, profitable markets of Africa, eastern Europe and the Middle East., In its core business of steel, the Essar group is also looking at a proposal to acquire, an integrated steel plant in Eastern Europe., The group has also announced its intention of setting up Greenfield steel, manufacturing operations in Sharjah, Qatar and Iran. It has plans to set up a 50-50, joint venture with state-owned Qatar Steel Company for a 1.5 million ton steel plant, along with a 1 million ton steel rolling plant on the outskirts of Sharjah and another, ton per annum steel plant in Iran, according to a recent Essar newsletter. Even the, Indonesia branch of Essar, where the group runs a cold-rolling complex, is expected, to look for merger and acquisitions (M & A) opportunities in the region., Source: Business World, 25th September 06, , 2018-19
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Business Studies, , 102, , (ii) Planning may not work in a, dynamic environment:, The, business environment is dyn, amic, nothing is constant. The, environment consists of a, number of dimensions, economic,, political, physical, legal and social, dimensions. The organisation, has to constantly adapt itself to, changes. It becomes difficult to, accurately assess future trends, in the environment if economic, policies are modified or political, conditions in the country are, not stable or there is a natural, calamity. Competition in the, market can also upset financial, plans, sales targets may have to, be revised and, accordingly, cash, budgets also need to be modified, since they are based on sales, figures. Planning cannot foresee, everything and thus, there may be, obstacles to effective planning., (iii) Planning reduces creativity:, Planning is an activity which is, done by the top management., Usually the rest of the members, just implements these plans. As, a consequence, middle manage, ment and other decision makers, are neither allowed to deviate, from plans nor are they permitted, to act on their own. Thus, much, of the initiative or creativity, inherent in them also gets lost, or reduced. Most of the time,, employees do not even attempt, to formulate plans. They only, , carry out orders. Thus, planning, in a way reduces creativity since, people tend to think along the, same lines as others. There is, nothing new or innovative., (iv) Planning involves huge costs:, When plans are drawn up huge, costs are involved in their, formulation. These may be in, terms of time and money for, example, checking accuracy of, facts may involve lot of time., Detailed plans require scientific, calculations to ascertain facts, and figures. The costs incurred, sometimes may not justify the, benefits derived from the plans., There are a number of incidental, costs as well, like expenses on, boardroom meetings, discussions, with professional experts and, preliminary investigations to find, out the viability of the plan., (v) Planning is a time-consuming, process: Sometimes plans to be, drawn up take so much of time, that there is not much time left, for their implementation., (vi) Planning does not guarantee, success: The success of an, enterprise is possible only when, plans are properly drawn up and, implemented. Any plan needs, to be translated into action or, it becomes meaningless. Mana, gers have a tendency to rely, on previously tried and tested, successful plans. It is not always, true that just because a plan, , 2018-19
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Planning, , 103, , has worked before it will work, again. Besides, there are so, many other unknown factors, to be considered. This kind of, complacency and false sense, of security may act, ually lead, to failure instead of success., However, despite its limitations,, planning is not a useless, exercise. It is a tool to be used, with caution. It provides a base, for analysing future courses of, action. But, it is not a solution, to all problems., , Planning Process, Planning, as we all know is deciding, in advance what to do and how to do., It is a process of decision making., How do we go about making a plan?, Since planning is an activity there, are certain logical steps for every, manager to follow., , (i) Setting Objectives: The first, and foremost step is setting, objectives. Every organisation, must have certain objectives., Objectives may be set for the, entire organisation and each, department or unit within the, organisation. Objectives or goals, specify what the organisation, wants to achieve. It could mean, an increase in sales by 20%, which could be objective of the, entire organisation. How all dep, artments would contribute to, the organisational goals is the, plan that is to be drawn up., Objectives should be stated clearly, for all departments, units and, employees. They give direction to, all departments. Departments/, units then need to set their, own objectives within the broad, framework of the organisation’s, philosophy. Objectives have to, percolate down to each unit, , Ministry Draws up Plan to Turn Around SEB’s by ’08, To give a boost to the financial health of state electricity boards (SEBs), the power, ministry has outlined an 11-point agenda to initiate their financial turnaround by, 2007-08. Suggestions include changes in the way distribution utilities submit tarifffixation petitions to the regulators and introduction of the concept of a proper timebound business plan., The ministry has asked all utilities to adopt a multi-year tariff approach while, filing the next tariff petition for 2007-08 before the state regulator. This must be, undertaken before December 2006. It has also asked utilities to have a stateapproved business plan with identifiable goals for a three, six and 12-month period., Also, approval needs to be sought from the state regulator for automatic tariff, adjustment to recover additional fuel and other unanticipated costs., Source: The Economic Times, September 06, , 2018-19
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Business Studies, , 104, , and employees at all levels. At, the same time, managers must, contribute ideas and participate, in the objective setting process., They must also understand, how their actions contribute to, achieving objectives. If the end, result is clear it becomes easier, to work towards the goal., (ii) Developing Premises: Planning, is concerned with the future, which is uncertain and every, planner is using conjecture about, what might happen in future., Therefore, the manager is required, to make certain assumptions, about the future. These assum, ptions are called premises. Assu, mptions are the base material, upon which plans are to be, drawn. The base material may be, in the form of forecasts, existing, plans or any past information, about policies. The premises, or assumptions must be the, same for all and there should, be total agreement on them. All, managers involved in planning, should be familiar with and, use the same assumptions. For, example, forecasting is important, in developing premises as it is a, technique of gathering inform, ation. Forecasts can be made, about the demand for a particular, product, policy change, interest, rates, prices of capital goods,, tax rates etc. Accurate forecasts,, therefore become essential for, successful plans., (iii) Identifying alternative courses, of action: Once objectives are set,, , assumptions are made. Then the, next step would be to act upon, them. There may be many ways, to act and achieve objectives., All the alternative courses of, action should be identified. The, course of action which may be, taken could be either routine or, innovative. An innovative course, may be adopted by involving, more people and sharing their, ideas. If the project is important,, then more alternatives should, be generated and thoroughly, discussed amongst the members, of the organisation., (iv) Evaluating alternative courses:, The next step is to weigh the pros, and cons of each alternative. Each, course will have many variables, which have to be weighed against, each other. The positive and, negative aspects of each proposal, need to be evaluated in the light, of the objective to be achieved., In financial plans, for example,, the risk-return trade-off is very, common. The more risky the, investment, the higher the returns, it is likely to give. To evaluate such, proposals detailed calculations, of earnings, earnings per share,, interest, taxes, dividends are, made and decisions taken., Accurate forecasts in conditions, of certainty/uncertainty then, become vital assumptions for, these proposals. Alternatives are, evaluated in the light of their, feasibility and consequences., , 2018-19
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Planning, , 105, , (v) Selecting, an, alternative:, This is the real point of decision, making. The best plan has to be, adopted and implemented. The, ideal plan, of course, would be, the most feasible, profitable and, with least negative consequences., Most plans may not always be, subjected to a mathematical, analysis., In, such, cases,, subjectivity and the manager’s, erience, judgement and at, exp, times, intuition play an impor, tant part in selecting the most, viable alternative. Sometimes,, a comb, ination of plans may, be selected instead of one best, course. The manager will have, to apply permutations and, combinations and select the best, possible course of action., (vi) Implementing the plan: This is, the step where other managerial, functions also come into the, picture. The step is concerned, with putting the plan into action,, i.e., doing what is required. For, example, if there is a plan to, increase production then more, labour, more machinery will be, required. This step would also, involve organising for labour and, purchase of machinery., (vii) Follow-up action: To see whether, plans are being implemented and, activities are performed according, to schedule is also part of the, planning process. Monitoring, the plans is equally important, to ensure that objectives are, achieved., , Types, , of, , Plans, , Single-use and standing plans, An organisation has to prepare a plan, before making any decision related to, business operation, or undertaking, any project. Plans can be classified, into several types depending on the, use and the length of the planning, period. Certain plans have a shortterm horizon and help to achieve, operational goals. These plans can be, classified into single-use plans and, standing plans., Single-use Plan: A single-use plan, is developed for a one-time event or, project. Such a course of action is not, likely to be repeated in future, i.e.,, they are for non-recurring situations., The duration of this plan may depend, upon the type of the project. It may, span a week or a month. A project may, sometimes be of only one day, such, as, organising an event or a seminar, or conference. These plans include, budgets, programmes and projects., They consist of details, including, the names of employees who are, responsible for doing the work and, contributing to the single-use plan. For, example, a programme may consist of, identifying steps, procedures required, for opening a new department to deal, with other minor work. Projects are, similar to programmes but differ in, scope and complexity. A budget is a, statement of expenses, revenue and, income for a specified period., Standing Plan: A standing plan is, used for activities that occur regularly, over a period of time. It is designed, , 2018-19
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Business Studies, , 106, , to ensure that internal operations of, an organisation run smoothly. Such, a plan greatly enhances efficiency in, routine decision-making. It is usually, developed once but is modified from, time to time to meet business needs, as required. Standing plans include, policies, procedures, methods and, rules., Policies are general forms of standing, plans that specifies the organisations, response to a certain situation like the, admission policy of an educational, institution., Procedures, describe, steps to be followed in particular, circumstances like the procedure, for reporting progress in production., Methods provide the manner in which, a task has to be performed. Rules are, very clearly stated as to exactly what, has to be done like reporting for work, at a particular time., Single-use and standing plans, are part of the operational planning, process., There are other types of plans which, usually are not classified as singleuse or standing plans. A strategy, for, example, is part of strategic planning, or management. It is a general plan, prepared by top management outlining, resource allocation, priorities and, takes into consideration the business, environment, and, competition., Objectives are usually set by the top, management and serve as a guide, for overall planning. Each unit then, formulates their own objectives keeping, in view the overall organisational goals., Based on what the plans seek to, achieve, plans can be classified as, , Objectives, Strategy, Policy, Procedure,, Method, Rule, Programme, Budget., , Objectives, The first step in planning is setting, objectives. Objectives, therefore, can, be said to be the desired future position, that the management would like to, reach. Objectives are very basic to, the organisation and they are defined, as ends which the management, seeks to achieve by its operations., Therefore, an objective simply stated, is what you would like to achieve,, i.e., the end result of activities. For, example, an organisation may have, an objective of increasing sales by, 10% or earning a reasonable rate of, return on investment, earn a 20%, profit from business. They represent, the end point of planning. All, other managerial activities are also, directed towards achieving these, objectives. They are usually set by, top management of the organisation, and focus on broad, general issues., They define the future state of affairs, which the organisation strives to, realise. They serve as a guide for, overall business planning. Different, departments or units in the organisation may have their own objectives., Objectives need to be expressed, in specific terms i.e., they should be, measurable in quantitative terms,, in the form of a written statement of, desired results to be achieved within, a given time period., , 2018-19
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Planning, , Strategy, , 107, , A strategy provides the broad contours, of an organisation’s business. It will, also refer to future decisions defining, the organisations direction and scope, in the long run. Thus, we can say a, strategy is a comprehensive plan, for accomplishing an organisation, objectives. This comprehensive plan, will include three dimensions,, (i) determining long term objectives,, (ii) adopting a particular course of, action, and (iii) allocating resources, necessary to achieve the objective., Whenever a strategy is formulated,, the business environment needs to, be taken into consideration. The, changes in the economic, political,, social, legal and technological envi, ronment will affect an organisation’s, strategy. Strategies usually take the, course of forming the organisation’s, identity in the business enviro, nment. Major strategic decisions, will include decisions like whether, the organisation will continue to, be in the same line of business, or, combine new lines of activity with the, existing business or seek to acquire, a dominant position in the same, market. For example, a company’s, marketing strategy has to address, certain questions i.e., who are the, customers? what is the demand, for the product? which channel of, distribution to use? what is the pricing, policy? and how do we advertise, the product. These and many more, issues need to be resolved while, formulating a marketing strategy for, any organisation., , Policy, , Policies are general statements that, guide thinking or channelise energies, towards a particular direction. Policies, provide a basis for interpreting strategy, which is usually stated in general terms., They are guides to managerial action, and decisions in the implementation, of strategy. For example, the company, may have a recruitment policy, pricing, policy within which objectives are set, and decisions are made. If there is an, established policy, it becomes easier, to resolve problems or issues. As such,, a policy is the general response to a, particular problem or situation., There are policies for all levels, and departments in the organisation, ranging from major company policies, to minor policies. Major company, policies are for all to know i.e.,, customers,, clients,, competitors, etc., whereas minor polices are, applicable to insiders and contain, minute details of information vital, to the employees of an organisation., But there has to be some basis for, divulging information to others., Policies define the broad param, eters within which a manager may, function. The manager may use, his/her discretion to interpret and, apply a policy. For example, the, decisions taken under a Purchase, Policy would be in the nature of, manufacturing or buying decisions., Should a company make or buy its, requirements of packages, transport, services, printing of stationery, water, and power supply and other items?, How should vendors be selected, , 2018-19
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Business Studies, , 108, , for procuring supplies? How many, suppliers should a company make, purchases from? What is the criteria, for choosing suppliers. All these, queries would be addressed by the, Purchase Policy., , Procedure, Procedures are routine steps on how, to carry out activities. They detail, the exact manner in which any, work is to be performed. They are, specified in a chronological order. For, example, there may be a procedure for, requisi, tioning, supplies, before, production. Procedures are specified, steps to be followed in particular, circumstances. They are generally, meant for insiders to follow. The, sequence of steps or actions to be, taken are generally to enforce a, policy and to attain pre-determined, objectives. Policies and procedures, are interlinked with each other., Procedures are steps to be carried, out within a broad policy framework., , Method, Methods provide the prescribed ways, or manner in which a task has to be, performed considering the objective., It deals with a task comprising one, step of a procedure and specifies, how this step is to be performed. The, method may vary from task to task., Selection of proper method saves, time, money and effort and increases, efficiency. For imparting training to, employees at various level from top, , management to supervisory, different, methods can be adopted. For, example for higher level management, orientation programmes, lectures, and seminars can be organised, whereas at the supervisory level, on, the job training methods and workoriented methods are appropriate., , Rule, Rules are specific statements that, inform what is to be done. They do not, allow for any flexibility or discretion., It reflects a managerial decision that, a certain action must or must not, be taken. They are usually the, simplest type of plans because there, is no compromise or change unless a, policy decision is taken., , Programme, Programmes are detailed statements, about a project which outlines the, objectives, policies, procedures, rules,, tasks, human and physical resources, required and the budget to implement, any course of action. Programmes, will include the entire gamut of, activities as well as the organisation’s, policy and how it will contribute, to the overall business plan. The, minutest details are worked out i.e.,, procedures, rules, budgets, within, the broad policy framework., , Budget, A budget is a statement of expected, results expressed in numerical, terms. It is a plan which quantifies, future facts and figures. For example,, a sales budget may forecast the sales, , 2018-19
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Planning, , 109, , of different products in each area for, a particular month. A budget may, also be prepared to show the number, of workers required in the factory at, peak production times., Since budget represents all items, in numbers, it becomes easier to, compare actual figures with expected, figures and take corrective action, subsequently. Thus, a budget is also, a control device from which deviations, can be taken care of. But making a, budget involves forecasting, therefore,, it clearly comes under planning. It is, a fundamental planning instrument, in many organisations., Let us take an example of Cash, Budget. The cash budget is a basic, tool in the management of cash. It is, a device to help the management to, , plan and control the use of cash. It is, a statement showing the estimated, cash inflows and cash outflows, over a given period. Cash inflows, would generally come from cash, sales and the cash outflows would, generally be the costs and expenses, associated with the operations of the, business. The net cash position is, determined by the cash budget i.e.,, inflows minus (–) outflows = surplus, or deficiency., The management has to hold, adequate cash balances for various, purposes. But at the same time, it, should avoid excess balance of cash, since it gives little or no return., The business has to assess and, plan its need for cash with a degree, of caution., , Key Terms, Planning Objectives Goals Decisions, Standards Controlling Premises Assumptions, Alternatives Strategy Policy Procedure, Rule Programme Budget, , Summary, Planning, Planning is deciding in advance what to do and how to do. It is one, of the basic managerial functions., Planning therefore involves setting objectives and developing an, appropriate course of action to achieve these objectives., Importance of Planning, Planning provides directions, reduces risks of uncertainty, reduces, overlapping and wasteful activities, promotes innovative ideas,, facilitates decision making, establishes standards for controlling., Features of Planning, Planning focuses on achieving objectives; It is a primary function, of management; Planning is pervasive, continuous, futuristic and, involves decision making; It is a mental exercise., , 2018-19
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Business Studies, , 110, , Limitations of Planning, Planning leads to rigidity; reduces creativity; involves huge costs; It, is a time consuming process; Planning does not work in a dynamic, environment; and does not guarantee success., Planning Process, Setting objectives: Objectives may be set for the entire organisation, and each department or unit within the organisation., Developing premises: Planning is concerned with the future which is, uncertain and every planner is using conjucture about what might, happen in future., Identifying alternative courses of action: Once objectives are set,, assumptions are made. Then the next step would be to act upon them., Evaluating alternative courses: The next step is to weigh the pros, and cons of each alternative., Selecting an alternative: This is the real point of decision making., The best plan has to be adopted and implemented., Implement the plan: This is concerned with putting the plan into action., Follow-up action: Monitoring the plans are equally important to, ensure that objectives are achieved., Types of Plans, Objectives: Objectives therefore can be said to be the desired future, position that the management would like to reach., Strategy: A strategy provides the broad contours of an organisation’s, business. It will also refer to future decisions defining the, organisations direction and scope in the long run., Policy: Policies are general statements that guide thinking or, channelise energies towards a particular direction., Procedure: Procedures are routine steps on how to carry out activities., Rule: Rules are specific statements that tell what is to be done., Programme: Programmes are detailed statements about a project which, outlines the objectives, policies, procedures, rules, tasks, human and, physical resources required and the budget to implement any course, of action., Budget: A budget is a statement of expected results expressed in, numerical terms. It is a plan which quantifies future facts and figures., , Exercises, Short Answer Type, 1. What are the main points in the definition of planning., 2. How does planning provide direction?, , 2018-19
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Planning, , 111, , 3. Do you think planning can work in a changing environment?, 4. If planning involves working out details for the future, why, does it not ensure success?, 5. Why are rules considered to be plans?, 6. What kind of strategic decisions are taken by business, organisations., Long Answer Type, 1. Why is it that organisations are not always able to accomplish, all their objectives?, 2. What are the main features to be considered by the manag, ement while planning?, 3. What are the steps taken by management in the planning, process?, 4. Is planning actually worth the huge costs involved? Explain., , Activities, Interview a local small-business manager about how their objectives, are set and the time taken to achieve them. How do their answers, compare with what you have learnt in the chapter., , Case Problem, An auto company C Ltd. is facing a problem of declining market, share due to increased competition from other new and existing, players in the market. Its competitors are introducing lower priced, models for mass consumers who are price sensitive. For quality, conscious consumers, the company is introducing new models with, added features and new technological advancements., Questions, 1. Prepare a model business plan for C Ltd. to meet the existing, challenge. You need not be very specific about quantitative, parameters. You may specify which type of plan you are, preparing., 2. Identify the limitations of such plans., 3. How will you seek to remove these limitations?, , 2018-19
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5, , ORGANISING, Way To Go, Wipro!, It’s not quite there yet, but the goal is certainly within reach. One of, India’s largest IT solutions providers, Wipro Technologies, is taking, on the likes of IBM and Accenture in its effort to be included among, the largest and most successful technology services companies in the, world., Currently Wipro employs 45,000 people at a growth rate, of 30 percent annually over the coming years. “I don’t see, growing to 150,000 or 200,000 people as an insurmountable, challenge,” said Premji, Chairman, Wipro. He believes that if, companies such as Accenture could grow by 20,000 people in, two years, Wipro’s growth projections are not impossible., Restructuring Wipro was considered the most important, step in becoming a global giant, driven by the goal towards, improved customer-orientation., During the past few months, Wipro separated itself into, several subsidiaries by product line: telecommunications,, engineering, financial services, etc. Each subsidiary brings in, about $300 million in annual earnings and is self-sufficient with, their own accounting books, personnel and administrative, functions., Wipro shifted from a centralised to decentralised, management system. All responsibilities for growth lay with, the management of each entity., “We tried to de-layer the organisation and empower, our business leaders with a much higher degree of growth, responsibility,” said Premji. “We removed an entire layer [of, executives]”., Between 2002 and 2003, Wipro acquired two IT consulting, firms to break into the U.S. market. Wipro is also moving, from a service provider to a product developer. Today, it, partners with other companies to develop IT products to gain, experience and achieve name recognition., Adapted from an article by Heide B. Malhotra for, Epoch Times Washington D.C. May 01, 2006, , 2018-19, , CHAPTER, L E A R N I N G, OBJECTIVES, After studying this chapter, you should be able to:, n, n, n, n, , n, , n, , n, , n, , n, , n, , Explain the concept of, organising;, Explain the process of, organising;, Describe the importance, of organising;, Explain the meaning,, advantages and, disadvantages of, functional organisation;, Explain the meaning,, advantages and, disadvantages of, divisional organisation;, Explain the meaning,, advantages and, disadvantages of, formal and informal, organisation;, Distinguish between, formal and informal, organisation;, Explain the concept, of delegation and, decentralisation;, Describe the importance, of delegation and, decentralisation; and, Distinguish between, delegation and, decentralisation.
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Organising, , 113, , Once the plans have been laid down, and objectives specified therein, the, next step is to organise resources, in a manner which leads to the, accomplishment of objectives. A, critical issue in accomplishing the, goals specified in the planning, process is structuring the work of an, organisation to adapt to the dynamic, business environment. The activities, of an enterprise must be organised, in such a manner that plans can be, successfully implemented., For planning to be fruitful a number, of considerations like resources that, will be needed, optimum utilisation, of the same translation of work, into attainable tasks, empowering, the workforce to accomplish these, tasks etc., need to be understood, and dealt with properly., It is evident from the way Wipro, has moved towards reaching for, it’s goal of becoming a globally, successful technology company, that, organising plays a significant role in, implementation of plans., What has Wipro done to become a, contending force among other global, giants? Are there lessons to be learnt, from Wipro’s approach?, Wipro organised itself in a manner that, allowed customer orientation to dominate, over other goals and diversified on the, basis of product lines. It also modified, the relationships within the management, hierarchy to suit the goals., The management function of, organising ensures that efforts are, , directed towards the attainment, of goals laid down in the planning, function in such a manner that, resources are used optimally and, people are able to work collectively, and effectively for a common purpose., Thus, it is in the context of effective, management that the organisation, function earns due importance. It is, a means for translating plans into, action., The organising function leads to the, creation of an organisational structure, which includes the designing of roles, to be filled by suitably skilled people, and defining the inter relationship, between these roles so that ambi, guity in performance of duties can, be eliminated. Not only is this impo, rtant for productive cooperation, between the personnel but also for, clarification of extent of authority, as, well as responsibility for results and, logical grouping of activities., , Meaning, Let us take an example to understand, how organising takes place. Have, you ever paid attention to how, the, school fete which you enjoy so much,, actually takes place? What goes on, behind the scene to make it the, desired reality you want? The whole, activity is divided into task groups, each dealing with a specific area like, the food committee, the decoration, committee, the ticketing committee, and so on. These are under the, overall supervision of the official in, , 2018-19
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Business Studies, , 114, , charge of the event. Coordinating, relationships are established among, the various groups to enable smooth, interaction and clarity about each, group’s contribution towards the, event. All the above activities are a, part of the organising function., Organising essentially implies a, process which coordinates human, efforts, assembles resources and, integrates both into a unified whole, to be utilised for achieving specified, objectives., Organising can be defined as, a process that initiates implementation of plans by clarifying jobs, and working relationships and, effectively deploying resources for, attainment of identified and desired, results (goals)., , Steps in the Process, Organising, , of, , Organising involves a series of steps, that need to be taken in order to, achieve the desired goal. Let us try, and understand how organising, , is carried out with the help of an, example., Suppose twelve students work for, the school library in the summer, vacations. One afternoon they are, told to unload a shipment of new, releases, stock the bookshelves, and, then dispose of all waste (packaging,, paper etc). If all the students decide, to do it in their own way, it will, result in mass confusion. However,, if one student supervises the work, by grouping students, dividing the, work, assigning each group their, quota and developing reporting relat, ionships among them, the job will be, done faster and in a better manner., From the above description, the, following steps emerge in the process, of organising:, (i) Identification and division of, work: The first step in the process, of organising involves identifying, and dividing the work that has, to be done in accordance with, previously determined plans. The, work is divided into manageable, activities so that duplication can, , Definition of Organising, Organising is the process of identifying and grouping the work to, be performed, defining and delegating responsibility and authority,, and establishing relationships for the purpose of enabling people to, work most effectively together in accomplishing objectives., Louis Allen, Organising is the process of defining and grouping the activities of the, enterprise and establishing authority relationships among them., Theo Haimman, , 2018-19
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Organising, , 115, , Think About It, Your school must have various societies for extra-curricular, activities like the dramatics society, the quiz club, the economics, society, the debating society and so on. Observe and list the way, they have organised their activities using division of labour, chain of, communication and the levels they have adopted for reporting on, work. How far is this similar to the process you have read about?, , be avoided and the burden of, work can be shared among the, employees., (ii) Departmentalisation:, Once, work has been divided into small, and manageable activities then, those activities which are similar, in nature are grouped together., Such sets facilitate specialisation. This grouping process, is called departmentalisation., Departments can be created, using several criteria as a basis., Examples of some of the most, popularly used basis are territory, (north, south, west etc.) and, products (appliances, clothes,, cosmetics etc)., (iii) Assignment of duties: It is, necessary to define the work, of different job positions and, accordingly, allocate, work, to various employees. Once, departments have been formed,, each of them is placed under, the charge of an individual., Jobs are then allocated to the, members of each department in, accordance to their skills and, competencies., It is essential, for effective performance that a, proper match is made between, , the nature of a job and the, ability of an individual. The work, must be assigned to those who, are best fitted to perform it well., (iv) Establishing, reporting, relationships: Merely allocating, work is not enough. Each, individual should also know, who he has to take orders from, and to whom he is accountable., The establishment of such clear, relationships helps to create a, hierarchal structure and helps, in coordination amongst various, departments., , Importance, , of Organising, Performance of the organising, function can pave the way for a, smooth transition of the enterprise, in accordance with the dynamic, business environment. The signifi, cance of the organising function, mainly arises from the fact that it, helps in the survival and growth of, an enterprise and equips it to meet, various challenges. In order for, any business enterprise to perform, tasks and successfully meet goals,, the organising function must be, properly performed. The following, points highlight the crucial role that, , 2018-19
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Business Studies, , 116, , organising plays in any business, enterprise:, (i) Benefits, of, specialisation:, Organising leads to a systematic, allocation of jobs amongst the, work force. This reduces the, workload as well as enhances, productivity because of the, specific workers performing a, specific job on a regular basis., Repetitive performance of a, particular task allows a worker, to gain experience in that area, and leads to specialisation., (ii) Clarity in working relation, ships: The establishment of, working relationships clarifies, lines of communication and, specifies who is to report to, whom. This removes ambiguity, in, transfer, of, information, and instructions. It helps in, creating a hierarchical order, thereby enabling the fixation of, responsibility and specification, of the extent of authority to be, exercised by an individual., (iii) Optimum utilization of resou, rces: Organising leads to the, proper usage of all material, fin, ancial and human resources., The proper assignment of jobs, avoids overlapping of work and, also makes possible the best, use of resources. Avoidance, of duplication of work helps, in preventing confusion and, minimising the wastage of, resources and efforts., , (iv) Adaptation to change: The, process of organising allows a, business enterprise to accom, modate changes in the business, environment. It allows the, organisation structure to be, suitably modified and the revision, of inter-relationships amongst, managerial levels to pave the way, for a smooth transition. It also, provides much needed stability, to the enterprise as it can then, continue to survive and grow, inspite of changes., (v) Effe cti ve admi ni strati on:, Organising provides a clear, description of jobs and related, duties. This helps to avoid confusion, and duplication. Clarity in working, relationships enables proper, execution of work. Management, of an enterprise thereby becomes, easy and this brings effectiveness, in administration., (vi) Development of personnel:, Organising stimulates creativity, amongst the managers. Effective, delegation allows the managers, to reduce their workload, by, assigning routine jobs to their, subordinates. The reduction in, workload by delegation is not, just necessary because of limited, capacity of an individual but also, allows the manager to develop new, methods and ways of performing, tasks. It gives them the time to, explore areas for growth and the, opportunity to innovate thereby, , 2018-19
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Organising, , 117, , Think About It, Organising leads to specialisation in work. A pitfall of this is that, repetitive performance of the same job may lead to monotony,, stress, boredom and absenteeism. What can managers do to, improve the scenario?, , strengthening the company’s, competitive position. Delegation, also develops in the subordinate, the ability to deal effectively with, challenges and helps them to, realise their full potential., (vii) Expansion and growth: Organ, ising helps in the growth and, diversification of an enterprise, by enabling it to deviate from, existing norms and taking up, new challenges., It allows a business enterprise to, add more job positions, departments, and even diversify their product lines., New geographical territories can be, added to current areas of operation, and this will help to increase customer, base, sales and profit., Thus, organising is a process by, which the manager brings order out, of chaos, removes conflict among, people over work or responsibility, sharing and creates an environment, suitable for teamwork., , Organisation Structure, Organisation, structure, is, the, outcome of the organising process., An effective structure will result, in increased profitability of the, enterprise. The need for an adequate, organisation structure is felt by, , an enterprise whenever it grows in, size or complexity. It is only those, enterprises which do not focus, on growth that can maintain a, particular structure for a long period, of time. However, it is important to, understand that such stagnancy, may prove to be detrimental to an, enterprise as those companies which, do not change at all will close down, or cease to grow., As an organisation grows, coordi, nation becomes difficult due to the, emergence of new functions and, increase in structural hierarchies., Thus, for an organisation to function, smoothly and face environmental, changes, it becomes necessary to pay, attention to its structure., Peter Drucker emphasises on the, importance of having an appropriate, organisation structure when he, says, “organisation structure is an, indispensable means; and the wrong, structure will seriously impair busi, ness performance and even destroy it.”, The organisation structure can, be defined as the framework within, which managerial and operating, tasks are performed. It specifies the, relationships between people, work, and resources. It allows correlation, , 2018-19
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Business Studies, , 118, , and coordination among human,, physical and financial resources and, this enables a business enterprise, to accomplish desired goals. The, organisation structure of a firm is, shown in an organisation chart., The span of management, to a large, extent gives shape to the organisational structure. Span of management, refers to the number of subordinates, that can be effectively managed by a, superior. This determines the levels of, management in the structure., A proper organisation structure is, essential to ensure a smooth flow of, communication and better control, , over the operations of a business, enterprise., An organisation structure provides, the framework which enables the, enterprise to function as an integrated, unit by regulating and coordinating, the responsibilities of individuals, and departments. Let us try and, understand this through an example., For example: Smita opened her own, travel agency, sometime back. She, assigned work to her three employees, in the following manner ‘Neha, you, are incharge of air plane, train and, bus reservations.’ ‘Karan, you will, take care of accommodation booking’, , Honda to Strengthen Structure of its R&D Operations, Corporate February 21, 2006, TOKYO, Japan, February 21, 2006 – Honda Motor Co. Ltd. announced plans, effective, April 1, 2006, to launch a new organisational structure for Honda R&D Co. Ltd., a wholly, owned subsidiary of Honda responsible for research & development activities. Due to recent, technological advancements and continued business expansion, the variety and complexity, of technological components and the number of vehicles under development at Honda R&D, have increased dramatically. The new structure will be launched both in response to this, situation and to prepare for further expansion of business in the future. The new structure, will enable each associate to demonstrate a high level of initiative, with more clear definition, of roles and responsibilities and bold delegation of authority. Moreover, the new structure is, designed to achieve smoother communication to help accelerate decision making within the, organisation. The key elements of the new structure are as follows:, Outline of the New Structure:, 1. Existing R&D centers including Asaka R&D Center, Wako R&D Center, and Tochigi, R&D Center, which are currently organised based on geographical location and will be, reorganised into five centers based on specific functions. The names of the five centers will, be Motorcycle Development Center, Automobile Development Center, Power Products, Development Center, Aero Engine Development Center, and Basic Technology Research, Center., 2. Each center will have separate offices for planning, product development, technology, development and administration with clearly defined roles., 3. Primary authority to make operational decisions, currently held by the head of each center,, , 2018-19
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Organising, , 119, , Head, , A Board member in charge of the, Development Centre (Board member, of Honda R&D), , Planning, Developing roadmaps of technology, and product, development, , Head, , Head, , Head, , Administration, , Technology Development, , Product Development, , All administrative, roles including, general affairs,, HR, facility, management, etc., , Technology development, for each component of a, product such as engine and, chassis, , Product development, including product, design, , will be delegated to the head of each office within each center to achieve an autonomous, operational structure through which each office can make more decisions., 4. A flat and less-layered organisational structure will be employed to ensure smooth and, direct communications between the head of the office and each associate., 5. The product development function of the Automobile Development Center will be further, separated between the Honda brand and Acura brand., This structural change is a part of Honda’s continuous effort to strengthen the core, characteristics that makes Honda unique, and its purpose is to continue creating advanced, and creative technologies and products that are unique to Honda, which in turn will enable, Honda to continue to be a company that society wants to exist., http://world.honda.com/news/2006/c060221RandDOperations/, , ‘Sahil, you will keep track of online, queries and credit card payments’. I, want regular reports from the three, of you. Thus, in a few sentences an, organisation structure has been, created specifying lines of authority, and areas of responsibility., , Types of Organisation, Structures, The type of structure adopted by an, organisation will vary with the nature, , and types of activities performed by, an organsation. The organisational, structure can be classified under two, categories which are as follows:, (i) Functional structure and, (ii) Divisional structure, , Functional structure, Grouping of jobs of similar nature, under functional and organising, these major functions as separate, departments creates a functional, , 2018-19
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Business Studies, , 120, , Functional Structure, Managing Director, , Human Resources, , Research and, Development, , Marketing, , structure. All departments report to a, coordinating head. For example, in a, manufacturing concern division of work, into key functions will include production,, purchase, marketing, accounts and, personnel. These departments may be, further divided into sections. Thus, a, functional structure is an organisational, design that groups similar or related, jobs together., Advantages: The functional struc, ture has many advantages to offer., Important among them are as follows:, (a) A functional structure leads to, occupational specialisation since, emphasis is placed on specific, functions. This promotes efficiency, in utilisation of manpower as, employees perform similar tasks, within a department and are able, to improve performance., (b) It promotes control and coord, ination within a department, because of similarity in the tasks, being performed., (c) It helps in increasing managerial, and operational efficiency and, this results in increased profit., , Purchasing, , (d) It leads to minimal duplication of, effort which results in economies, of scale and this lowers cost., (e) It makes training of employees, easier as the focus is only on a, limited range of skills., (f) It ensures that different functions, get due attention., Disadvantages:, The, functional, structure has certain disadvantages, which an organisation must take, into consideration before it adopts it., Some of them are as follows:, (a) A functional structure places less, emphasis on overall enterprise, objectives than the objectives, pursued by a functional head., Such practices may lead to, functional, empires, wherein, the importance of a particular, function may be overemphasised., Pursuing departmental interests, at the cost of organisational, interests can also hinder the, interaction between two or more, departments., (b) It may lead to problems in, coordination as information has to, , 2018-19
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Organising, , 121, , Think About It, Read newspapers regularly and try to identify the structures various, business organisations being mentioned in the news have adopted., Have their structures led to improved and desired results in any, way?, , be exchanged across functionally, differentiated departments., (c) A conflict of interests may arise, when the interests of two or more, departments are not compatible., For example, the sales department, insisting on a customer friendly, design may cause difficulties in, production. Such dissension can, prove to be harmful in terms of, fulfillment of organisational interest., Inter-departmental conflicts can, also arise in the absence of clear, separation of responsibility., (d) It may lead to inflexibility as people, with same skills and knowledge, base may develop a narrow pers, pective and thus, have difficulty, in appreciating any other point of, view. Functional heads do not, get training for top management, positions because they are unable, to gather experience in diverse, areas., Suitability: It is most suitable when, the size of the organisation is large, has, a diversified activities and operations, require a high degree of specialisation., , Divisional Structure, Many large organisations with, diversified activities have reorganised, , themselves away from the simpler and, basic functional structure towards, a divisional structure which is more, suited to their activities. This is, particularly true of those enterprises, which have more than one category, of products to offer. This is because, although every organisation performs, a set of homogenous functions, as, it diversifies into varied product, categories, the need for a more evolved, structural design is felt to cope with, the emerging complexity., In a divisional structure, the, organisation structure comprises of, separate business units or divisions., Each unit has a divisional manager, responsible for performance and who, has authority over the unit. Generally,, manpower is grouped on the basis, of different products manufactured., Each division is multifunctional, because within each division func, tions like production, marketing,, finance, purchase etc, are performed, together to achieve a common goal., Each division is self-contained as it, develops expertise in all functions, related to a product line., In order words, within each division,, the functional structure tends to be, adopted. However, functions may vary, across divisions in accordance with a, , 2018-19
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Business Studies, , 122, , Organisation Chart, Showing Divisional and, Functional Structure, , Cosmetics, , Human Resources, , Managing Director, , Garments, , Research and, Development, , Marketing, , particular product line. Further, each, division works as a profit center where, the divisional head is responsible for, the profit or loss of his division. For, example, a large company may have, divisions like cosmetics, clothing etc., Advantages: The divisional structure, offers many benefits. Prominent, among these are as follows:, (a) Product specialisation helps in the, development of varied skills in a, divisional head and this prepares, him for higher positions. This is, because he gains experience in all, functions related to a particular, product., (b) Divisional heads are accountable, for profits, as revenues and costs, related to different departments can, be easily identified and assigned to, them. This provides a proper basis, for performance measurement., It also helps in fixation of responsibility in cases of poor performance, , Footwear, , Skin care, , Purchasing, , of the division and appropriate, remedial action can be taken., (c) It promotes flexibility and initiative, because each division functions as, an autonomous unit which leads, to faster decision making., (d) It facilitates expansion and growth, as new divisions can be added, without interrupting the existing, operations by merely adding, another divisional head and staff, for the new product line., Disadvantages: The divisional stru, cture has certain disadvantages., Some of them are as follows:, (a) Conflict may arise among diffe, rent divisions with reference to, allocation of funds and further, a particular division may seek to, maximise its profits at the cost of, other divisions., (b) It may lead to increase in costs, since there may be a duplication, of activities across products., , 2018-19
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Organising, , 123, , Providing each division with, separate set of similar functions, increases expenditure., (c) It provides managers with the, authority to supervise all activities, related to a particular division. In, course of time, such a manager, may gain power and in a bid, to assert his independence may, ignore organisational interests., Suitability: Divisional structure is, suitable for those business enter, prises where a large variety of pro, ducts are manufactured using diffe, rent productive resources. When an, organisation grows and needs to add, more employees, create more depar, tments and introduce new levels, of management, it will decide to, , adopt a divisional structure. Table 1, provides a comparison of functional, and divisional structure to provide, further clarity on the topic., Thus, it can be said that business, operates in a dynamic environment, and those enterprises which fail, to adapt to change are unable to, survive. Hence, management must, continuously review its plans and, objectives and accordingly the, organisation structure of the enterprise, should also be subjected to periodic, review to determine if modification is, required. An organisation structure,, at all times should contribute towards, the achievement of the enterprise’s, objectives and should provide scope, for initiative so that contribution, , Comparative view: Functional and Divisional Structure, Basis, Formation, , Functional Structure, Formation is based on, functions, , Specialisation, Responsibility, , Functional specialisation., Difficult to fix on a, department., Difficult, as each, functional manager, has to report to the top, management., Functions are not, duplicated hence, economical, Difficult for a multiproduct company., , Managerial, Development, , Cost, , Coordination, , 2018-19, , Divisional Structure, Formation is based on product, lines and is supported by, functions., Product specialisation., Easy to fix responsiblity for, performance., Easier, autonomy as well as, the chance to perform multiple, functions helps in managerial, development., Duplication of resources in, various departments, hence, costly., Easy, because all functions, related to a particular, product are integrated in one, department.
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Organising, , 125, , Structural Transformation at ONGC, Since its inception, ONGC has been instrumental in transforming the country’s limited, upstream sector into a large viable playing field, with its activities spread throughout India and, significantly in overseas territories., The 1990s had begun on a grim note for ONGC. It took almost a decade for the Corporation, to sort things out in most uncertain of times., Among many problems, the Corporation was also suffering from the organisational atrophy., In order to survive ONGC sought help from Mc Kinsey., Mc Kinsey’s mandate was to evolve an organisational structure that was far more, responsive to its business needs than that based on business groups. The ONGC system run, by functional heads often meant delays exceeding a year in matters requiring urgent decisions, on fields. Also, since responsibilities were shared at production platforms between different, business groups, the system degenerated into wrangling over responsibilities. Similarly, group, loyalties often took precedence over the requirements of tasks. But, most importantly, it, was found that the performance evaluation criteria based on business group yardstick were, completely at loggerheads with requirements on fields. Mc Kinsey recommended an assetbased approach with clearly-defined responsibilities in its presentation titled ‘Organisation, Transformation Project’, Though Mc Kinsey recommendations were broadly accepted, coordination issues, concerning commonly-shared services needed to be sorted out., Finally, the first control over all service personnel working with asset teams was vested, in asset managers, on grounds that being responsible for the performance of their strategic, business units they must rightfully exercise control over all personnel working with them., Even procurement powers were devolved. Finally, a new structure made up of 14 assets and, 11 centralised services was rolled out ., , Do It Yourself, You have seen the structure of ONGC as an illustration in this text., Browse the websites of other business organisations and study their, organisational chart. Try to identify the structure they are using., , of personnel can be maximum and, effective., , Formal and Informal, Organisation, In all organisations, employees are, guided by rules and procedures., , To enable smooth functioning of, the enterprise, job description and, rules and procedures related to work, processes have to be laid down. This is, done through the formal organisation., Formal organisation refers to, the organisation structure which, , 2018-19
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Business Studies, , 126, , is designed by the management, to accomplish a particular task. It, specifies clearly the boundaries of, authority and responsibility and, there is a systematic coordination, among the various activities to, achieve organisational goals., The structure in a formal organ, isation can be functional or divis, ional. The formal organisation can, be better understood by a study of its, features which are as follows:, (a) It specifies the relationships, among various job positions, and the nature of their interrelationship. This clarifies who, has to report to whom., (b) It is a means to achieve the, objectives specified in the plans, as, it lays down rules and procedures, essential for their achievement., (c) Efforts of various departments, are coordinated, interlinked and, integrated through the formal, organisation., (d) It is deliberately designed by the, top management to facilitate, the smooth functioning of the, organisation., (e) It places more emphasis on, work to be performed than, , interpersonal relationships amo, ng the employees., Advantages: Formal organisation, offers many advantages. Some of the, important ones are:, (a) It is easier to fix responsibility, since mutual relationships are, clearly defined., (b) There is no ambiguity in the role, that each member has to play, as duties are specified. This also, helps in avoiding duplication of, effort., (c) Unity of command is maintained, through an established chain of, command., (d) It leads to effective accomplish, ment of goals by providing a, framework for the operations to, be performed and ensuring that, each employee knows the role he, has to play., (e) It provides stability to the organ, isation. This is because behaviour, of employees can be fairly pre, dicted since there are specific, rules to guide them., Limitations: The formal organisation, suffers from the following limitations:, (a) The formal communication may, lead to procedural delays as the, , Formal Organisation, The formal organisation is a system of well-defined jobs, each bearing, a definite measure of authority, responsibility and accountability., Louis Allen, Formal organisation is a system of consciously coordinated activities, of two or more persons toward a common objective., Chester Barnand, , 2018-19
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Organising, , 127, , established chain of command has, to be followed which increases the, time taken for decision making., (b) Poor organisation practices may, not provide adequate recognition, to creative talent, since it does not, allow any deviations from rigidly, laid down polices., (c) It is difficult to understand all, human relationships in an enter, prise as it places more emphasis, on structure and work. Hence,, the formal organisation does not, provide a complete picture of how, an organisation works., , Informal Organisation, Interaction among people at work, gives rise to a ‘network of social, relationships among employees’ called, the informal organisation., Informal organisation emerges, from within the formal organisation, when people interact beyond their, officially defined roles. When people, have frequent contacts they cannot, be forced into a rigid formal structure., Rather, based on their interaction and, friendship they tend to form groups, which show conformity in terms of, , interest. Examples of such groups, formed with common interest may be, those who take part in cricket matches, on Sundays, meet in the cafeteria for, coffee, are interested in dramatics, etc. Informal organisation has no, written rules, is fluid in form and, scope and does not have fixed lines of, communication. The Table in the next, page compares informal organisation, with the formal organisation to provide, better understanding of both types., Informal organisation can be, better understood with the help of, the following features:, (a) An informal organisation orig, inates from within the formal orga, nisation as a result of personal, interaction among employees., (b) The standards of behaviour, evolve from group norms rather, than officially laid down rules and, regulations., (c) Independent channels of commu, nication without specified direc, tion of flow of information are, developed by group members., (d) It emerges spontaneously and is, not deliberately created by the, management., Informal Organisation, , An informal organisation is an aggregate of interpersonal relationships without any, conscious purpose but which may contribute to joint results., Chester Barnand, Informal organisation is a network of personal and social relations not established or required, by the formal organisation but arising spontaneously as people associate with one another., Keith Davis, , 2018-19
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Business Studies, , 128, , (e) It has no definite strucure or form, because it is a complex network, of social relationships among, members., Advantages: The informal orga, nisation offers many benefits. Impor, tant among them are given below:, (a) Prescribed lines of commu, nication are not followed. Thus,, the informal organisation leads, to faster spread of information as, well as quick feedback., (b) It helps to fulfill the social needs, of the members and allows them, , to find like minded people. This, enhances their job satisfaction, since it gives them a sense of, belongingness in the organisation., (c) It contributes towards fulfillment, of organisational objectives by, compensating for inadequacies in, the formal organisation. For example,, employees reactions towards plans, and policies can be tested through, the informal network., Disadvantages: The informal orga, nisation has certain disadvantages., Some of them are as follows:, , Formal and informal organisation: A Comparative view, Basis, , Formal organisation, , Informal organisation, Network of social, Structure of authority, relationships arising out, Meaning, relationships created by the, of interaction among, management, employees, Arises as a result of, Arises as a result of social, Origin, company rules and policies interaction, Arises by virtue of position Arises out of personal, Authority, in management, qualities, There is no set behaviour, Behavior, It is directed by rules, pattern, Flow of communication, Communication takes place is not through a planned, Flow of Communication, through the scalar chain, route. It can take place in, any direction, Nature, Rigid, Flexible, Leaders may or may not, Leadership, Managers are leaders., be managers. They are, chosen by the group., , 2018-19
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Organising, , 129, , (a) When an informal organisation, spreads rumours, it becomes, a destructive force and goes, against the interest of the formal, organisation., (b) The management may not be, successful in implementing chan, ges if the informal organisation, opposes them. Such resistance, to change may delay or restrict, growth., (c) It pressurises members to conform, to group expectations. This can, be harmful to the organisation if, the norms set by the group are, against organisational interests., Informal organisation cannot be, altogether eliminated. Thus, it would, be in the best interest of the organi, sation if the existence of such groups, is recognised and the roles that, their members play are identified., The knowledge of such groups can, be used to gather their support, and consequently lead to improved, organisational performance. Such, groups can also provide useful, communication channels. Instead of, , confronting them, the management, should skillfully take advantage of both, the formal and informal organisation, so that work continues smoothly., , Delegation, A manager, no matter how capable he, is, cannot manage to do every task on, his own. The volume of work makes, it impractical for him to handle it all, by himself. As a consequence, if he, desires to meet the organisational, goals, focus on objectives and ensure, that all work is accomplished, he, must delegate authority., Delegation refers to the downward, transfer of authority from a superior, to a subordinate. It is a pre-requisite, to the efficient functioning of an, organisation because it enables, a manager to use his time on high, priority activities. It also satisfies the, subordinate’s need for recognition, and provides them with opportunities, to develop and exercise initiative., Delegation helps a manager to, extend his area of operations as, without it, his activities would be, Delegation, , Delegation is the process a manager follows in dividing the work, assigned to him so that he performs that part which only he because, of his unique organisational placement, can perform effectively and, so that he can get others to help with what remains., Louis Allen, Delegation of authority merely means the granting of authority to, subordinates to operate within prescribed limits., Theo Haimman, , 2018-19
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Business Studies, , 130, , restricted to only what he himself, can do. However, delegation does, not mean abdication. The manager, shall still be accountable for the, performance of the assigned tasks., Moreover, the authority granted to a, subordinate can be taken back and, redelegated to another person. Thus,, irrespective of the extent of delegated, authority ,the manager shall still be, accountable to the same extent as, before delegation., , Elements of Delegation, According to Louis Allen, delegation, is the entrustment of respons-, , ibility and authority to another and, the creation of accountability for, performance., A detailed analysis of Louis Allen’s, definition brings to light the following, essential elements of delegation:, (i) Authority:, Authority, refers, to the right of an individual to, command his subordinates and, to take action within the scope, of his position. The concept, of authority arises from the, established scalar chain which, links the various job positions, and levels of an organisation., , No delegation leads to delays in, decision-making, , 2018-19
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Organising, , 131, , Creation of accountability for, performance, , Authority also refers to the right, to take decisions inherent in a, managerial position to tell people, what to do and expect them to, do it., In the formal organisation authority, originates by virtue of an individual’s, position and the extent of authority, is highest at the top management, levels and reduces successively as we, go down the corporate ladder. Thus,, authority flows from top to bottom,, i.e., the superior has authority over, the subordinate., Authority relationships helps to, maintain order in the organisation, by giving the managers the right to, , exact obedience and give directions, to the workforce under them., Authority determines the superior, subordinate relationship wherein the, superior communicates his decision, to, the, subordinate,, expecting, compliance from him and the, subordinate executes the decision, as per the guidelines of the superior., The extent to which a superior can, exact compliance also depends on, the personality of the superior., It must be noted that authority, is restricted by laws and the rules, and regulation of the organisation,, which limit its scope. However, as, we go higher up in the management, , 2018-19
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Business Studies, , 132, , hierarchy, the scope of authority, increases., (ii) Responsibility: Responsibility, is the obligation of a subordinate to properly perform, the assigned duty. It arises, from a superior–subordinate, relationship because the subordinate is bound to perform the, duty assigned to him by his, superior. Thus, responsibility, flows upwards i.e., a subordinate, will always be responsible to his, superior., An important consideration to, be kept in view with respect to, both authority and responsibility, is that when an employee is given, responsibility for a job he must also, be given the degree of authority, necessary to carry it out. Thus, for, effective delegation the authority, granted must be commensurate, with the assigned responsibility., If authority granted is more than, , responsibility, it may lead to misuse, of authority, and if responsibility, assigned is more than authority it, may make a person ineffective., (iii) Accountability: Delegation of, authority, undoubtedly empowers, an employee to act for his superior, but the superior would still be, accountable for the outcome:, Accountability, implies, being, answerable for the final outcome., Once authority has been delegated, and responsibility accepted, one, cannot deny accountability. It cannot, be delegated and flows upwards i.e., a, subordinate will be accountable to a, superior for satisfactory performance, of work. It indicates that the manager, has to ensure the proper discharge, of duties by his subordinates. It is, generally enforced through regular, feedback on the extent of work, accomplished. The subordinate will be, expected to explain the consequences, of his actions or omissions., , Overview of the elements of delegation, Basis, Meaning, , Authority, Right to command., , Delegation, , Can be delegated., , Origin, , Arises from formal, position ., Flows downward, from superior to, subordinate., , Flow, , Responsibility, Obligation to, perform an assigned, task., Cannot be entirely, delegated., Arises from, delegated authority., Flows upward from, subordinate to, superior., , 2018-19, , Accountability, Answerability for, outcome of the, assigned task., Cannot be delegated, at all., Arises from, responsibility., Flows upward from, subordinate to, superior
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Organising, , 133, , In conclusion, it can be stated that, while authority is delegated, responsi, bility is assumed, accountability is, imposed. Responsibility is derived from, , authority and accountability is derived, from responsibility. The Table in the, previous page provides a summarised, view of the elements of delegation., Interview with Azim Premji, , knowledge.wharton.upenn.edu: April 20, 2006, Azim Premji, owns more than 80 per cent of Bangalore-based Wipro, India’s third largest, software exporter, which had annual revenues of US $ 1.8 billion in 2005. Forbes magazine, reckons that his net worth exceeds US $ 13 billion, and it places him at No. 25 in its most, recent ranking of the world’s richest people. Premji speaks with Ravi Aron, a professor of, operations and information management at Wharton about Wipro’s reorganisation., Aron: After Vivek Paul [Wipro’s former CEO] left the company last year, you made radical, changes in your organisational structure. How did they affect your markets and your vision, for where Wipro is going?, Premji: The most important thing you must appreciate is that, with the reorganisation, we, tried to bring Wipro’s leadership closer to the customer. In the process, we tried to de-layer, the organisation and empower our business leaders. That is why we removed an entire layer, which was there previously. Our executives are seasoned enough in their jobs and they have, performed long enough in their roles to be confident that they can deliver results through, the new structure., Aron: As part of your new structure, have you started redefining the organisation with P&L, responsibility at the level of the vertical? [Editor’s note: Wipro’s vertical structure divides, the company into units such as Telecom Service Providers, Product Engineering Solutions,, Finance Solutions, and Enterprise Solutions. These units further cater to industries such as, banking, insurance, securities, and so on.], Premji: No. Each vertical is like a self-contained business. It is like a mid-sized company even, by U.S. standards, because each vertical generates about $300 million in annual revenues., Though they work under a common structure, with resources such as Finance, HR, Quality, and Marketing, each vertical has people who represent these functions. So, in effect, each, vertical is like a separate company., Aron: Does that mean you intend to delegate more authority and responsibility to these, self-contained companies?, Premji: Absolutely., Aron: What is your thinking behind this?, Premji: It all goes back to leadership. It speeds things up and gets decisions made faster. It, empowers people more, and it allows them to further empower those who report to them,, because their jobs have suddenly become much more responsible., http://www.ibef.org/artdisplay.aspx?cat_id=105&art_id=11158, , 2018-19
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Business Studies, , 134, , Importance, , of Delegation, Delegation ensures that the subordi, nates perform tasks on behalf of, the manager thereby reducing his, workload and providing him with, more time to concentrate on important, matters. Effective delegation leads to, the following benefits:, (i) Effective management: By, empowering the employees, the, managers are able to function, more efficiently as they get more, time to concentrate on important, matters. Freedom from doing, routine work provides them with, opportunities to excel in new, areas., (ii) Employee development: As a, result of delegation, employees, get more opportunities to utilise, their talent and this may give, rise to latent abilities in them., It allows them to develop those, skills which will enable them, to perform complex tasks and, assume those responsibilities, which will improve their career, prospects. It makes them, better leaders and decision, makers. Thus, delegation helps, by preparing better future, managers. Delegation empowers, the employees by providing, them with the chance to use, their skills, gain experience and, develop themselves for higher, positions., (iii) Motivation of employees:, Delegation helps in developing, , the talents of the employees. It, also has psychological benefits., When a superior entrusts a, subordinate with a task, it, is not merely the sharing of, work but involves trust on the, superior’s part and commitment, on the part of the subordinate., Responsibility for work builds, the self-esteem of an employee, and improves his confidence., He feels encouraged and tries, to improve his performance, further., (iv) Facilitation of growth: Delega, tion helps in the expansion of, an organisation by providing, a ready workforce to take up, leading positions in new ventures., Trained and experienced emp, loyees are able to play significant, roles in the launch of new, projects by replicating the work, ethos they have absorbed from, existing units, in the newly set, up branches., (v) Basis of management hier, archy: Delegation of authority, establishes superior-subordinate, relationships, which are the basis, of hierarchy of management. It is, the degree and flow of authority, which determines who has to, report to whom. The extent of, delegated authority also decides, the power that each job position, enjoys in the organisation., (vi) B e t t e r c o o r d i n a t i o n : T h e, elements of delegation, namely, , 2018-19
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Organising, , 135, , authority, responsibility and, accountability help to define the, powers, duties and answerability, related to the various positions, , in an organisation. This helps to, avoid overlapping of duties and, duplication of effort as it gives a, clear picture of the work being, Innovation at hcl, , The world’s most modern management in India; HCL Technologies is empow, ering its employees and pointing the way to the future of business.Fortune,, April 14, 2006., Every employee rates their boss, their boss’ boss, and any three other company, managers they choose, on 18 questions using a 1-5 scale. Such 360-degree, evaluations are not uncommon, but at HCL all results are posted online for every, employee to see. That’s un-heard-of!, And that’s not all. Every HCL employee can at any time create an electronic, ‘ticket’ to flag anything they think requires action in the company. Amazingly,, such tickets can only be ‘closed’ by the employees themselves. And Nayar [Vineet, Nayar is president of India’s 30,000-employee HCL Technologies (Research)] is, vigilant that managers not intimidate employees about creating or closing tickets., Managers are evaluated partly based on how many tickets their departments are, creating - the more the better., In addition, every employee can post a question or comment on any subject in, a public process called ‘U and I.’ About 400 come in each month, and questions, and answers are all posted on the intranet., “I want to be the company that gives superior service to my employees compared, to everybody else,” he explains. He also firmly believes the ideas that will guide, HCL into the future will come not from him, but from below. Early signs suggest, his bold strategy is working. Nayar has only been president for a year, a tumultuous, one in which most of these innovations have been implemented. But in that time the, attrition rate has dropped in half, he says. HCL’s innovations are not only managerial., The company aims to become a strategic partner with customers by working with, them on business process management and by managing infrastructure remotely,, a business it has pioneered in India, says Nayar. The strategy has succeeded with, AMD (Research), a marquee customer for which the company does the above, mentioned business. Another key customer is Cisco (Research), a 10-year customer, with whom HCL is now embracing another form of innovation- shared risk. Since, February, HCL has been completely responsible for engineering one Cisco product., It gets paid based on how well the product sells. In engineering all this innovation,, Nayar’s humility appears to be a potent managerial asset., Adapted from an article by David Kirkpatrick on:, http://www.indianembassy.org/newsite/News/US%20Media/2006/115.asp, , 2018-19
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Business Studies, , 136, , done at various levels. Such clarity, in reporting relationships help, in developing and maintaining, effective coordination amongst, the departments, levels and, functions of management., Thus, delegation is a key element, in effective organising., , Decentralisation, , In many organisations the top, management plays an active role, in taking all decisions while there, are others in which this power is, given to even the lower levels of, management. Those organisations, in which decision making authority, lies with the top management are, termed as centralised organisations, whereas those in which such, authority is shared with lower levels, are decentralised organisations., Decentralisation, explains, the, manner in which decision making, responsibilities are divided among, hierarchical levels. Put simply,, decentralisation refers to delegation, of authority throughout all the levels, of the organisation. Decision making, , authority is shared with lower levels, and is consequently placed nearest to, the points of action. In other words, decision making authority is pushed, down the chain of command., When decisions taken by the, lower levels are numerous as well, as important an organisation can be, regarded as greatly decentralised., , Centralisation and, Decentralisation, Centralisation and decentralisation, are relative terms, as seen from the, existing status of various business, enterprises., An organisation is centralised, when decision-making authority, is retained by higher management, levels whereas it is decentralised, when such authority is delegated., Complete centralisation would, imply concentration of all decision, making functions at the apex of, the management hierarchy. Such a, scenario would obviate the need for a, management hierarchy. On the other, hand, complete decentralisation would, imply the delegation of all decision, , Decentralisation, Decentralisation refers to systematic effort to delegate to the, lowest level all authority except that which can be exercised at, central points., Louis Allen, Everything which goes to increase the importance of a subordinate’s, role is decentralisation, everything that goes to reduce it is, centralisation., Henri Fayol, , 2018-19
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Organising, , 137, , making functions to the lower level of, the hierarchy and this would obviate the, need for higher managerial positions., Both the scenarios are unrealistic., An organisation can never be, completely centralised or decent, ralised. As it grows in size and comp, lexity , there is a tendency to move, towards, decentralised, decision, making. This is because in large, organisations those employees who, are directly and closely involved with, certain operations tend to have more, knowledge about them than the top, management which may only be, indirectly associated with individual, operations., Hence, there is a need for a balance, between these co-existing forces. Thus,, it can be said that every organisation, will be characterised by both, centralisation and decentralisation., , Importance, Decentralisation is much more than a, mere transfer of authority to the lower, levels of management hierarchy. It is, a philosophy that implies selective, dispersal of authority because it, propagates the belief that people are, competent, capable and resourceful., They can assume the responsibility, for the effective implementation of, their decisions .Thus this philosophy, recognises the decision maker’s need, for autonomy. The management,, however, needs to carefully select, those decisions which will be pushed, down to lower levels and those that will, , be retained for higher levels. Table 4, provides a comparative look between, delegation and decentralisation., Decentralisation is a fundamental, step and its importance can be, understood from the following points:, (i) Develops initiative among, subordinates: Decentralisation, helps to promote self-reliance, and confidence amongst the, subordinates. This is because, when lower managerial levels are, given freedom to take their own, decisions they learn to depend on, their own judgment. It also keeps, them in a state wherein they, are constantly challenged and, have to develop solutions for the, various problems they encounter., A decentralisation policy helps, to identify those executives who, have the necessary potential to, become dynamic leaders., (ii) Develops managerial talent, for the future: Formal training, plays an important part in, equipping subordinates with, skills that help them rise in, the organisation but equally, important is the experience, gained by handling assignments, independently. Decentralisation, gives them a chance to prove, their abilities and creates a, reservoir of qualified manpower, who can be considered to fill, up more challenging positions, through promotions. It also helps, to identify those who may not be, , 2018-19
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Business Studies, , 138, , successful in assuming greater, responsibility. Thus, it is a means, of management education as well, as an opportunity for trained, manpower to use its talent in, real life situations., (iii) Quick decision making: The, management hierarchy can, be looked upon as a chain of, communication. In centralised, organisation because every, decision is taken by the top, management the flow of, information is slow as it, has to traverse many levels., Response also takes time. This, reduces the speed of decision, making and makes it difficult, for an enterprise to adapt to, dynamic operating conditions., In a decentralised organisation,, however ,since decisions are, taken at levels which are nearest, to the points of action and there, is no requirement for approval, from many levels, the process is, much faster. There are also less, chances of information getting, distorted because it doesn’t have, to go through long channels., (iv) Relief to top management:, Decentralisation diminishes the, amount of direct supervision, exercised by a superior over the, activities of a subordinate because, they are given the freedom to, act and decide albeit within the, limits set by the superior. Also,, personal supervision is generally, , replaced by other forms of control, such as return on investment, etc. Decentralisation also leaves, the top management with more, time which they can devote to, important policy decisions rather, than occupying their time with, both policy as well as operational, decisions. In fact decentralisation, is greatest when checking required, on decisions taken by lower levels, of management is least., (v) Facilitates growth: Decentrali, sation awards greater autonomy to, the lower levels of management as, well as divisional or departmental, heads. This allows them to, function in a manner best suited, to their department and fosters, a sense of competition amongst, the departments. Consequently,, with each department doing its, best in a bid to outdo the other, the, productivity levels increase and, the organisation is able to generate, more returns which can be used, for expansion purposes., (vi) Better control: Decentralisation, makes it possible to evaluate, performance at each level and the, departments can be individually, held accountable for their results., The extent of achievement of, organisational objectives as, well as the contribution of each, department in meeting the overall, objectives can be ascertained., Feedback from all levels helps to, analyse variances and improve, , 2018-19
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Organising, , 139, , operations. In decentralisation,, one of the challenges is the, accountability of performance., In response to this challenge,, better control systems are being, evolved such as the balance score, card and management infor, mation system. Decentralisation, compels the management to, innovative performance measur, ement systems., , As a conclusion, it must be, noted that in spite of its benefits, decentralisation should be applied, with caution as it can lead to, organisational disintegration if the, departments start to operate on their, own guidelines which may be contrary, to the interest of the organisation., Decentralisation must always be, balanced with centralisation in areas, of major policy decisions., Decentralisation : A Strength, , The McNeil name has been associated with the manufacturing and sale of pharmaceutical, products since 1879, when Robert McNeil opened his first retail drug outlet in Pennsylvania., Growing as a producer of prescription pharmaceuticals, McNeil Laboratories, Inc. was, incorporated in the U.S. in 1933, and became a member of the Johnson & Johnson family, of companies in 1959. McNeil Consumer Healthcare began operations in Canada in an, existing administrative Johnson & Johnson facility in Guelph, Ontario in 1980., McNeil Consumer Healthcare (nonprescription pharmaceutical products) in Guelph,, Ontario is a member of the Johnson & Johnson family of companies in Canada., An important difference between Johnson & Johnson and most other companies — is the, concept of decentralised management. Instead of operating as one large multi-billion dollar, corporation, Johnson & Johnson is operated as 190 smaller companies, each focused on a, specific medical or product franchise and/or geographic area, with each affiliate generating, multiple options for growth. Through decentralisation we combine the advantages of being, big with the agility and focus of smaller firms. Decentralisation enables each company to, stay close to its customer, maintain short lines of communication with customers and, employees, and accelerate the development of talent. The Johnson & Johnson - Merck, Consumer Pharmaceuticals company also operates from our Woodlawn Road facility in, Guelph., http://www.mcneilcanada.com/eng/eco07pg1.shtm, , Think About It, If you were a manager, would you decentralise, knowing that it, would mean dispersal of decision making authority?, , 2018-19
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Business Studies, , 140, , Delegation and Decentralisation: A Comparative view, Basis, Nature, , Freedom of action, , Status, , Scope, , Purpose, , Delegation, Decentralisation, Delegation is a compulsory Decentralisation is an optional, act because no individual can policy decision. It is done, perform all tasks on his own. at the discretion of the top, management., More control by superiors Less control over executives, hence less freedom to take hence greater freedom of, own decisions., action., It is a process followed to It is the result of the, share tasks., policy decision of the top, management., It has narrow scope as it is It has wide scope as it implies, limited to superior and his extension of delegation to the, immediate subordinate., lowest level of management., To lessen the burden of the To increase the role of, manager., the, subordinates, in, the, organisation by giving them, more autonomy., , Key Terms, Organising Organisational structure, Departmentalisation Delegation Authority, Responsibility Accountability Functional structure, Divisional structure Formal organisation, Informal organisation Span of management, Centralisation Decentralisation, , Summary, Organising is the process of defining and grouping activities and, establishing authority relationships among them., Process: the process of organising consists of the following steps:, (a) Identification and division of work, (b) Departmentalisation, , 2018-19
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Organising, , 141, , (c) Assignment of Duties, (d) Establishing reporting relationships, Importance: Organising is considered important because it leads, to division of work, clarity in reporting relationships, optimum, utilization of resources, growth, better administration and greater, creativity., Organisational structure is the framework within which managerial, and operating tasks are performed. It can be functional or divisional., Span of management is the number of subordinates under a, superior., Functional structure groups activities on the basis of functions., The advantages of such a structure are specialisation, better, control, managerial efficiency and ease in training employees., The disadvantages are functional empires, conflict of interest,, inflexibility, and restriction in managerial development., Divisional structure groups activities on the basis of products., The advantages are integration, product specialisation, greater, accountability, flexibility, better coordination and more initiative., The disadvantages are departmental conflicts, costly process,, ignoring of organisational interests, increase in requirements of, general managers., Formal organisation is designed by the management to achieve, organisational goals. Its advantages are fixation of responsibility,, clarity of roles, unity of command and effective accomplishment, of goals. Its disadvantages are procedural delays, inadequate, recognition of creativity, limited in scope., Informal organisation arises out of interaction amongst people, at work. Its advantages are speed, fulfillment of social needs, fills, inadequacies of formal structure. Its disadvantages are: disruptive, force, resistance to change and priority to group interests., Delegation is the transfer of authority from superior to subordinate. It, has three elements: Authority, Responsibility and Accountability., Importance of delegation is that it helps in effective management,, employee development, motivation, growth and coordination, Decentralisation is delegation of authority throughout the, organisation., Importance of decentralisation is that it helps in development of, managerial talent, quick decision making reducing burden on top, management, development of initiative, growth and better control., , 2018-19
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Business Studies, , 142, , Exercises, Multiple Choice, 1. Which of the following is not an element of delegation?, (a) Accountability, (b) Authority, (c) Responsibility, (d) Informal organisation, 2. A network of social relationship that arise spontaneously, due to interaction at work is called:, (a) Formal organisation, (b) Informal organisation, (c) Decentralisation, (d) Delegation, 3. Which of the following does not follow the scalar chain?, (a) Functional structure, (b) Divisional structure, (c) Formal organisation, (d) Informal organisation., 4. A tall structure has a, (a) Narrow span of management, (b) Wide span of management, (c) No span of management, (d) Less levels of management, 5. Centralisation refers to, (a) Retention of decision making authority, (b) Dispersal of decision making authority, (c) Creating divisions as profit centers, (d) Opening new centers or branches, 6. For delegation to be effective it is essential that responsibility, be accompanied with necessary, (a) Authority, (b) Manpower, (c) Incentives, (d) Promotions, 7. Span of management refers to, (a) Number of managers, (b) Length of term for which a manager is appointed, (c) Number of subordinates under a superior, (d) Number of members in top management, , 2018-19
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Organising, , 143, , 8. The form of organisation known for giving rise to rumors is, called, (a) Centralised organisation, (b) Decentralised organisation, (c) Informal organisation, (d) Formal organisation, 9. Grouping of activities on the basis of product lines is a part, of, (a) Delegated organisation, (b) Divisional organisation, (c) Functional organisation, (d) Autonomous organisation, 10. Grouping of activities on the basis of functions is a part of, (a) Decentralised organisation, (b) Divisional organisation, (c) Functional organisation, (d) Centralised organisation, Short, 1., 2., 3., 4., 5., , Answer Type, Define ‘Organising’?, What are the steps in the process of organising?, Discuss the elements of delegation., What does the term ‘Span of management’ refer to?, Under what circumstances would functional structure prove, to be an appropriate choice?, 6. Draw a diagram depicting a divisional structure., 7. Can a large sized organisation be totally centralised of, decentralised? Give your opinion., 8. Decentralisation is extending delegation to the lowest level., Comment., , Long Answer Type, 1. Why is delegation considered essential for effective organising?, 2. What is a divisional structure? Discuss its advantages and, limitations, 3. Decentralisation is an optional policy. Explain why an, organisation would choose to be decentralised., 4. How does informal organisation support the formal, organisation?, 5. Distinguish between centralisation and decentralisation., , 2018-19
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Business Studies, , 144, , 6. How is a functional structure different from a divisional, structure?, Application Type, 1. Neha runs a factory wherein she manufactures shoes. The, business has been doing well and she intends to expand by, diversifying into leather bags as well as western formal wear, thereby making her company a complete provider of corporate, wear. This will enable her to market her business unit as the, one stop for working women. Which type of structure would, you recommend for her expanded organisation and why?, 2. The production manager asked the foreman to achieve a, target production of 200 units per day, but he doesn’t give, him the authority to requisition tools and materials from the, stores department. Can the production manager blame the, foreman if he is not able to achieve the desired target? Give, reasons., 3. A manager enhances the production target from 500 units to, 700 units per month but the authority to draw raw material, was not given by him. The production manager could not, achieve the revised production target. Who is responsible, and which principle was violated?, 4. A company has its registered office in Delhi, manufacturing, unit at Gurgaon and marketing and sales department at, Faridabad. The company manufactures the consumer, products. Which type of organisational structure should it, adopt to achieve its target?, , Case Problem, 1. A company, which manufactures a popular brand of toys,, has been enjoying good market reputation. It has a functional, organisational structure with separate departments for, Production, Marketing, Finance, Human Resources and, Research and Development., Lately to use its brand name and also to cash on to new business, opportunities it is thinking to diversify into manufacture of new, range of electronic toys for which a new market is emerging., Questions, , Prepare a report regarding organisation structure giving, concrete reasons with regard to benefits the company will, derive from the steps it should take., , 2018-19
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Organising, , 145, , 2. A company manufacturing sewing machines set up in 1945, by the British promoters follows formal organisation culture, in totality. It is facing lot of problems in delays in decisionmaking. As the result it is not able to adapt to changing business, environment. The work force is also not motivated since they, cannot vent their grievances except through formal channels,, which involve red tape. Employee turnover is high. Its market, share is also declining due to changed circumstances and, business environment., Questions, You are to advise the company with regard to change it should, bring about in its organisation structure to overcome the, problems faced by it. Give reasons in terms of benefits it will, derive from the changes suggested by you. In which sectors, can the company diversify keeping in mind the declining, market for the product the company is manufacturing?, 3. A company X limited manufacturing cosmetics, which has, enjoyed a pre-eminent position in business, has grown in size. Its, business was very good till 1991. But after that, new liberalised, environment has seen entry of many MNC’s in the sector., With the result the market share of X limited has declined. The, company had followed a very centralised business model with, Directors and divisional heads making even minor decisions., Before 1991 this business model had served the company very, well as consumers had no choice. But now the company is, under pressure to reform., Questions, What organisation structure changes should the company, bring about in order to retain its market share?, How will the changes suggested by you help the firm? Keep, in mind that the sector in which the company is FMCG., , 2018-19
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6, , STAFFING, Management of Human Resources at INFOSYS, “Our assets walk out of the door each evening. We have to, make sure that they come back the next morning” (Narayana, Murthy, CEO, Infosys)., At a time when organisations are debating the strategic, importance of their human resources, Infosys, a consulting and, software services organisation, includes its human resources, on its balance sheet to affirm their asset value. The rationale, for this is as follows: “The long term success of a company, is usually examined on certain financial and non-financial, parameters. Human resources are among these new nonfinancial parameters that challenge the usefulness of evaluating, corporate success solely on traditional measures. Human, resources represent the collective expertise, innovation,, leadership, entrepreneurial and managerial skills endowed in, the employees of an organisation.”, As a knowledge intensive company, Infosys recognises, the value of its human assets in maintaining its competitive, position. It realises that these assets can easily walk away,, as competitors in India and abroad covet its IT talent., Consequently, the challenge facing Infosys is how to attract,, retain and develop its human assets in a highly competitive, and dynamic environment?, Most of the current human resource practices at Infosys, result from the vision of the leaders and the culture that they, have created. Narayana Murthy, known for his leadership and, vision is the public image of Infosys. His leadership style is, humble and straight-forward, quite uncommon in the world, of Indian business. He believes in sharing wealth with his, employees and in leading by example. In a knowledge-based, business like Infosys, he sees the importance of consistency in, rhetoric and action in empowering employees. He is credited, with creating a culture of closeness and empowerment at, Infosys. His management style, rare among Indian business, leaders, is based on western management., Source: Sumita Raghuram, Fordham Graduate, School of Business, , 2018-19, , CHAPTER, L E A R N I N G, OBJECTIVES, After studying this, chapter, you should be, able to:, n, , define staffing;, , n, , establish its, relationship with, Human Resource, Management;, , n, , state the need and, importance of staffing;, , n, , describe the steps in, the staffing process;, , n, , state the meaning, of recruitment and, selection;, , n, , identify important, sources of, recruitment;, , n, , describe the steps in, the selection process;, , n, , appreciate the, need of training and, development; and, , n, , explain various on the, job and off the job, methods of training.
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Staffing, , 147, , Introduction, , The foundation of any organisation is, the talented and hardworking people,, who are the principal assets of any, firm. It is an established fact that the, growth of an organisation requires, the continual infusion of quality, staff. Thus, adequate staffing or the, provision for appropriate human, resources is an essential requirement, for any organisation’s success. It is,, therefore, believed that an organisation, can achieve its objectives only when, it has the right persons in the right, positions., , Meaning, , After planning and selection of the, organisation structure, the next step, in the management process is to fill, the various posts provided in the, organisation. This is termed as the, management of staffing function. In, the simplest terms, staffing is ‘putting, people to jobs’. It begins with workforce, planning and includes different other, function like recruitment, selection,, training, development, promotion,, compensation and performance, appraisal of work force. In other, words, staffing is that part of the, process of management which is, concerned with obtaining, utilising, and maintaining a satisfactory and, satisfied work force. Today, staffing, may involve any combination of, employees including daily wagers,, consultants and contract employees., Staffing recognises the importance, , of every single person employed, by an organisation as it is the, individual worker, who is the ultimate, performer., Staffing has been described as, the managerial function of filling, and keeping filled the positions in, the organisation structure. This is, achieved by, first of all, identifying, requirement of work force, followed, by recruitment, selection, placement,, promotion, appraisal and development, of personnel, to fill the roles designed, into the organisation structure., In a new enterprise, the staffing, function follows the planning and, organising functions. After deciding, what is to be done, how it is to be done, and after creation of the organisation, structure, the management is in a, position to know the human resource, requirements of the enterprise at, different levels. Once the number and, types of personnel to be selected is, determined, management starts with, the activities relating to recruiting,, selecting and training people, to fulfill, the requirements of the enterprise., In an existing enterprise, staffing is, a continuous process because new, jobs may be created and some of the, existing employees may leave the, organisation., , Importance, , of Staffing, In any organisation, there is a need, for people to perform work. The, staffing function of management, , 2018-19
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Business Studies, , 148, , fulfills this requirement and finds, the right people for the right job., Basically, staffing fills the positions as, shown in the organisation structure., Human resources are the foundation, of any business. The right people, can help you take your business to, the top; the wrong people can break, your business. Hence, staffing is the, most fundamental and critical drive, of organisational performance. The, staffing function has assumed greater, importance these days because of, rapid advancement of technology,, increasing size of organisation and, complicated behaviour of human, beings. Human resources are the most, important asset of an organisation., The ability of an organisation to, achieve its goal depends upon the, quality of its human resources., Therefore, staffing is a very important, managerial function. No organisation, can be successful unless it can fill, and keep filled the various positions, provided for in the structure with the, right kind of people., Proper, staffing, ensures the, following benefits to the organisation:, (i) helps in discovering and obtai, ning competent personnel for, various jobs;, (ii) makes for higher performance,, by putting right person on the, right job;, (iii) ensures the continuous survival, and growth of the enterprise, through the succession planning, for managers;, , (iv) helps to ensure optimum utili, sation of the human resources., By avoiding overmanning, it, prevents under-utilisation of, personnel and high labour, costs. At the same time it avoids, disruption of work by indicating, in advance the shortages of, personnel; and, (v) improves job satisfaction and, morale of employees through, objective assessment and fair, reward for their contribution., Staffing function must be performed, efficiently by all organisations. If right, kind of employees are not available,, it will lead to wastage of materials,, time, effort and energy, resulting in, lower productivity and poor quality, of products. The enterprise will not, be able to sell its products profitably., It is, therefore, essential that right, kind of people must be available in, right number at the right time. They, should be given adequate training, so that wastage is minimum. They, must also be induced to show higher, productivity and quality by offering, them proper incentives., , Staffing as part of Human, Resource Management, It is a function which all managers, need to perform. It is a separate and, specialised function and there are, many aspects of human relations, to be considered. It is the job of, managers to fill positions in their, organisation and to make sure that, , 2018-19
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Staffing, , 149, , they remain occupied with qualified, people. Staffing is closely linked to, organising since after the structure, and positions have been decided,, people are required to work in these, positions. Subsequently, they need, to be trained and motivated to work, in harmony with the goals of the, organisation. Thus, staffing is seen as, a generic function of management., The staffing function deals with, the human element of management., Managing the human component of, an organisation is the most important, task because the performance of, an organisation depends upon how, well this function is performed., The success of an organisation in, achieving its goals is determined to, a great extent on the competence,, motivation and performance of its, human resource., It is the responsibility of all managers, to directly deal with and select people, to work for the organisation. When the, manager performs the staffing function, his role is slightly limited. Some of, these responsibilities will include, placing the right person on the right, job, introducing new employees to the, organisation, training employees and, improving their performance, deve, loping their abilities, maintaining their, morale and protecting their health, and physical conditions. In small, organisations, managers may perform, all duties related to employees salaries,, welfare and working conditions., , But as organisations grow and, number of persons employed incr, eases, a separate department called, the human resource department, is formed which has specialists in, managing people. The management, of human resource is a specialised, area which requires the expertise of, many people. The number of human, resource specialists and size of this, department gives an indication of, the size of the business as well. For, a very large company, the Human, Resources Department itself will, contain specialists for each function, of this department., Human Resource Management incl, udes many specialised activities and, duties which the human resource perso, nnel must perform. These duties are:, n, Recruitment i.e., search for, qualified people, n, Analysing jobs, collecting inform, ation about jobs to prepare job, descriptions., n, Developing compensation and, incentive plans., n, Training and development of, employees for efficient perfor, mance and career growth., n, Maintaining labour relations and, union management relations., n, Handling grievances and, complaints., n, Providing for social security and, welfare of employees., n, Defending the company in law suits, and avoiding legal complications., , 2018-19
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Business Studies, , 150, , Evolution of Human, Resource Management, Human resource management has, replaced the traditional concept of, labour welfare and personnel manag, ement. Human Resource Management, (HRM) in its present form has, evolved from a number of significant, inter-related developments, which, date back to the era of industrial, revolution. Emergence of trade union, movement led to the need of a person, who could act as an effective link, between the owners and workers., Thus, the concept of labour welfare, officer came into being. His role was, limited to the bare minimum welfare, activities of employees. In fact, he was, looked down by both the workers and, the owners., With the introduction of factory, system, thousands of persons began, to be employed under one roof. The job, of hiring people for the organisation, was given to one man, who later on, was assigned the responsibility of, recruitment, selection and placement, of personnel. This led to the, emergence of personnel officer in the, first place and personnel manager,, later on., Human relations approach recognises human factor as the most, imprtant instrument of success in, an organisation. Fast changing tech, nological developments, however, nec, essitated new skill development and, , training of employees. People came to, be recognised as a valuable resource,, which can be further developed., Increase in scope of the work led to, replacement of personnel manager, with human resource manager., You may have observed that all, these aspects are concerned with, the human element in industry as, distinct from the mechanical side, of the enterprise. Thus, staffing is, an inherent part of human resource, management as it is the practice of, finding, evaluating and establishing, a working relationship with people,, for a purpose., It is important to understand, that staffing is both a function of, management just like planning,, organising, directing, and controlling, as well as a distinct functional area, of management just as marketing, management and financial manage, ment. Staffing, is therefore, referred, to as both a line as well as a staff, activity i.e., an essential function of, the manager as well as an advisory, role played by the Human Resource, Department., , Staffing Process, As you are now aware, the prime, concern of the staffing function, in the management process is the, timely fulfillment of the manpower, requirements within an organisation., These requirements may arise in, case of starting a new business or, , 2018-19
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Staffing, , 151, , expanding the existing one or they, may arise as a matter of the need, for replacing those who quit, retire, or are transferred or promoted from, or are fired from the job. In any, case, need for ‘the right person for, the right job’ hardly needs an over, emphasis. But just as the phrase, ‘water water everywhere and not a, drop to drink’ amplifies the fact that, despite 2/3rd of the earth being, water, drinkable water is a scarce, commodity, so may also be said, of finding ‘the right person for the, right job.’ As such, it is important, to appreciate staffing as a process, that starts from understanding the, manpower, requirements, within, the organisation and identifying, the potential sources from where, it can be met, either from within, the organisation or from outside., And, given that ‘the right person’, is scarce, there is need to ‘market’, the job and the organisation to the, people. Even in situations where, a single job vacancy might attract, a few hundreds of the applicants,, there is a challenge of selecting, the most appropriate one. Freshly, appointed persons might need, orientation or training to familiarise, them with the way the things are, done in an organisation. And, in, case they have been selected only on, the basis of academic qualifications, and aptitude for learning, they might, need training in specific skills as, , well. For example, if one is selected, by a Business Process Outsourcing, (BPO) unit by virtue of being, extrovert and well-versed in English, speaking, one needs to be trained, in the relevant business processes,, telephone conversation etiquettes, as well as diction adaptation before, actual placement. The employee’s, experiences during orientation and, placement form his/her ‘first impre, ssion’ of the organisation. Even, whilst on the job, the employees need, training for upgradation of knowledge, and skills and for preparing for higher, responsibilities. So staff training and, development is another important, aspect of the staffing process., What follows is a brief description, of the above stages., , 2018-19, , (i) Estimating, the, Manpower, Requirements: You are aware, that while designing the organis, ational structure, we undertake, an analysis of the decisions, and the decision-making levels,, activities as well as relationship, among them with a view to, evolving the horizontal and, vertical dimensions of the, structure. Thus, various job, positions are created. Clearly,, performance of each job necessi, tates the appointment of a, person with a specific set of, educational qualifications, skills,, prior experience and so on.
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Business Studies, , 152, , Thus, understanding manpower, requirements is not merely a, matter of knowing how many, persons we need but also of, what type. Given that we need, to encourage women, persons, from backward communities and, persons with special abilities, (such as physically challenged,, visually and hearing impaired), to assume responsible positions, in our organisations, there is a, need to understand, and if the, need be, to redefine manpower, requirements accordingly. Can, you think why should we, encourage such a diversity in, the workforce?, Operationally, understanding the, manpower requirements would nece, ssitate workload analysis on the, one hand and workforce analysis on, the other. Workload analysis would, enable an assessment of the number, and types of human resources, necessary for the performance of, various jobs and accomplishment of, organisational objectives. Workforce, analysis would reveal the number, and type available. In fact such an, exercise would reveal whether we, are understaffed, overstaffed or, optimally staffed. It may be pointed, out, that, neither, over-staffing, nor under-staffing is a desirable, situation. Can you think why? In fact, this exercise would form the basis of, the subsequent staffing actions. A, , situation of overstaffing somewhere, would necessitate employee removal, or transfer elsewhere. A situation of, understaffing would necessitate the, starting of the recruitment process., However, before that can be done,, it is important to translate the, manpower requirements into specific, job description and the desirable, profile of its occupant — the, desired qualifications, experience,, personality characteristics and so on., This information becomes the base, for looking for potential employees., (ii) Recruitment: Recruitment may be, defined as the process of searching, for prospective employees and, stimulating them to apply for jobs in, the organisation. The information, generated in the process of writing, the job description and, the, candidate profile may be used for, developing the ‘situations vacant’, advertisement. The advertisement, may be displayed on the factory/, office gate or else it may be got, published in print media or, flashed in electronic media. This, step involves locating the potential, candidate or determining the, sources of potential candidates., In fact, there are a large number, of recruitment avenues available, to a firm which would be discussed, latter when we talk about the, various sources of recruitment., The essential objective is to, create a pool of the prospective, , 2018-19
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Staffing, , 153, , job candidates. Both internal and, external sources of recruitment, may be explored. Internal sources, may be used to a limited extent., For fresh talent and wider choice, external sources are used., (iii) Selection: Selection is the pro, cess of choosing from among, the pool of the prospective job, candidates developed at the stage, of recruitment. Even in case of, highly specialised jobs where, the choice space is very narrow,, the rigour of the selection process, serves two important purposes:, (i) it ensures that the organisation, gets the best among the available,, and (ii) it enhances the self-esteem, and prestige of those selected and, conveys to them the seriousness, with which the things are done in the, organisation. The rigour involves, a host of tests and interviews,, described later. Those who are, able to successfully negotiate the, , test and the interviews are offered, an employment contract, a written, document containing the offer, of employment, the terms and, conditions and the date of joining., (iv) Placement and Orientation:, Joining a job marks the beginning, of socialisation of the employee at, the workplace. The employee is, given a brief presentation about, the company and is introduced, to his superiors, subordinates, and the colleagues. He is taken, around the workplace and given, the charge of the job for which he, has been selected. This process, of familiarisation is very crucial, and may have a lasting impact, on his decision to stay and on, his job performance. Orientation, is, thus, introducing the selected, employee to other employees and, familiarising him with the rules, and policies of the organisation., Placement refers to the employee, , Over-staffing:, More play, less work, , 2018-19
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Business Studies, , 154, , occupying the position or post, for which the person has been, selected., (v) Training and Development:, What people seek is not simply, a job but a career. Every one, must have the opportunity to, rise to the top. The best way to, provide such an opportunity is, to facilitate employee learning., Organisations have either inhouse training centers or have, forged alliances with training and, educational institutes to ensure, continuing learning of their, employees. The organisations, too benefit in turn. If employee, motivation, is, high,, their, competencies are strengthened,, they perform better and thus,, contribute more to organisational, effectiveness and efficiency. By, offering the opportunities for, career advancement to their, members, organisations are, not only able to attract but also, retain its talented people., As discussed earlier, in most, organisations there is a separate, Human Resource Department, which, takes care of the staffing function., But in small organisations the line, manager is required to perform, all the functions of management, viz, planning, organising, staffing,, directing, and, controlling., The, process of staffing will then include, three more stages., , (vi) Performance Appraisal, , After, the, employees, have, undergone a period of training, and they have been on the job, for some time, there is a need to, evaluate their performance. All, organisations have some formal, or informal means of appraising, their employee’s performance., Performance appraisal means, evaluating an employee’s current, and/or past performance as, against certain predetermined, standards. The employee is, expected to know what the, standards are and the superior is, to provide the employee feedback, on his/her performance. The, performance appraisal process,, therefore, will include defining, the job, appraising performance, and providing feedback, (vii) Promotion and career planning, It becomes necessary for all, organisations to address career, related issues and promotional, avenues for their employees., Managers, need, to, design, activities to serve employees’, long-term interests also. They, must, encourage, employees, to grow and realise their full, potential., Promotions, are, an integral part of people’s, career. They refer to being, placed in positions of increased, responsibility., They, usually, , 2018-19
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Staffing, , 155, , Managers in Business Process Outsourcing (BPO) Units, , The BPO manager has more often than not been projected as a person who presides, over hundreds of young professionals, with head-phones and attitudes, and whose biggest, challenge is to keep his young wards from joining the competition., A new industry, no experience, a young work force, stringent service-level agreementsthe list is endless. Understanding these equally important facets to the BPO manager’s job, will help reveal that the operation head’s is one of the most challenging jobs., A BPO is often seen as a job and not a career – a mere stop-gap arrangement and stepping, stone for those hoping to get an early start. But the BPO industry offers a challenging, environment for growth and provides ample opportunities, not only at junior positions but, for middle to senior-level executives to work in global teams and gain international and, industry specific exposure. Playing a pivotal role in the BPO environment, a manager is the, critical link between the customer and the delivery team. Putting the client’s business first is, the starting rule to success., Most BPO managers in the industry hail from fields like telecom, insurance, banking,, hospitality, retail and manaufacturing. The challenge lies in extracting best practices from, these diverse disciplines and crafting a unique system that is best suited to the needs of, the outsourcing industry. This calls upon learning the intricacies of the job ‘on the job’., Although BPO companies impart comprehensive training at the entry level, managers, have to use their professional experiences and translate those learnings into the BPO, environment., Source: The Economic Times, Nov. 06, , incentives, commissions and, bonuses and indirect payments, like employer paid insurance, and vacations., , mean more pay, responsibility, and job satisfaction., (viii) Compensation, , All, organisations, need, to, establish wage and salary plans, for their employees. There are, various ways to prepare different, pay plans depending on the worth, of the job. Basically the price of, the job needs to be determined., Compensation, therefore, refers, to all forms of pay or rewards, going to employees. It may be, in the form of direct financial, payments like wages, salaries,, , Direct, financial, payments, are of two types : time based or, performance based. A time based, plan means salary and wages are, paid either daily, weekly or monthly, or annually. Performance based, plans means salary/wages are paid, according to piecework. For example,, a worker may be paid according to, the number of units produced by, him/her. There are many methods, , 2018-19
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Business Studies, , 156, , to calculate the compensation under, various incentive plans to reward, performance. Certain pay plans can, be created which are a combination, of time based pay plus incentives, for higher performance. Various, plans may be formulated for paying, employees time based wage or, salary as well as performance based, financial incentives and bonuses,, and employee benefits., Besides there are some other, factors also which influence the, design of any pay plan, like legal, (labour laws), union, company policy, and equity., Thus, we see that as a process,, staffing includes acquisition, retention,, development, performance appraisal,, promotion and compensation of, the most important resource of an, organisation, that is, its human, capital., It needs to be kept in mind that, several factors such as supply and, demand of specific skills in the labour, market, unemployment rate, labour, market conditions, legal and political, considerations,, company’s, image,, policy, human resource planning cost,, technological developments and general, economic environment etc., will influence, the way recruitment, selection and, training will be actually carried out., , Recruitment, Recruitment refers to the process of, finding possible candidates for a job or, , a function. It has been defined as ‘the, process of searching for prospective, employees and stimulating them to, apply for jobs in an organisation.’, Advertising is commonly part, of, the recruitment process,, and can occur, through several, means,, through, newspapers,, using newspaper dedicated to job, advertisement, through professional, publication, using advertisements, placed in windows, through a job, center, through campus interviews,, etc., , Sources of Recruitment, The object of recruitment is to attract, potential employees with the necessary, characteristics or qualification, in the, adequate number for the jobs, available. It locates available people, for the job and invites them to apply, for the job in the organisation. The, process of recruitment precedes, the process of selection of a right, candidate for the given positions in, the organisation. Recruitment seeks, to attract suitable applicants to, apply for available jobs. The various, activities involved with the process of, recruitment includes (a) identification, of the different sources of labour, supply, (b) assessment of their, validity, (c) choosing the most suitable, source or sources, and (d) inviting, applications from the prospective, candidates, for the vacancies., The requisite positions may be, filled up from within the organisation, , 2018-19
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Staffing, , 157, , Applicant, (Person), , employees, from, overstaffed departments. It is, practically a horizontal, movement of employees., Shortage, of, suitable, personnel in one branch, may be filled through, transfer, from, other, branch or department. Job, transfers are also helpful, in avoiding termination, and in removing individual, problems and grievances., At the time of transfer, it, should be ensured that the, employee to be transferred, to another job is capable of, performing it. Transfers can also, be used for training of employees, for learning different jobs., (ii) Promotions: Business enterprises, generally follow the practice of, filling higher jobs by promoting, employees from lower jobs., Promotion leads to shifting an, employee to a higher position,, carrying higher responsibilities,, facilities, status and pay. Promo, tion is a vertical shifting of em, ployees. This practice helps, to improve the motivation,, loyalty and satisfaction level, of employees. It has a great, psycho, logical impact over the, employees because a promotion, at the higher level may lead to, a chain of promotions at lower, levels in the organisation., , Organisation, (Job), , Recruitment, (identification and attraction), , Selection, (assessment, evaluation and, final match), Training, (Acquainting and skill, development), Aspects of Staffing, , or from outside. Thus, there are two, sources of recruitment – Internal and, External., , Internal Sources, There are two important sources, of internal recruitment, namely,, transfers and promotions, which are, discussed below:, (i) Transfers: It involves shifting, of an employee from one job, to another, one department, to another or from one shift to, another, without a substantive, change in the responsibilities, and status of the employee. It, may lead to changes in duties, and responsibilities, working, condition etc., but not necessarily, salary. Transfer is a good source, of filling the vacancies with, , 2018-19
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Business Studies, , 158, , Merits of Internal Sources, Filling vacancies in higher jobs from, within the organisation or through, internal transfers has the following, merits:, (i) Employees are motivated to, improve their performance. A, promotion at a higher level may, lead to a chain of promotion at, lower levels in the organisation., This motivates the employees, to improve their performance, through learning and practice., Employees work with commitment, and loyalty and remain satisfied, with their jobs. Also peace, prevails in the enterprise because, of promotional avenues;, (ii) Internal recruitment also simpli, fies the process of selection and, placement. The candidates that are, already working in the enterprise, can be evaluated more accurately, and economically. This is a more, reliable way of recruitment since, the candidates are already known, to the organisation;, (iii) Transfer is a tool of training the, employees to prepare them for, higher jobs. Also people recruited, from within the organisation do, not need induction training;, (iv) Transfer has the benefit of, shifting workforce from the, surplus departments to those, where there is shortage of staff;, , (v) Filling of jobs internally is cheaper, as compared to getting candidates, from external sources., , Limitations of Internal, Sources, The limitations of using internal, sources of recruitment are as follows:, (i) When vacancies are filled, through internal promotions, the, scope for induction of fresh talent, is reduced. Hence, complete, reliance on internal recruitment, involves danger of ‘inbreeding’ by, stopping ‘infusion of new blood’, into the organisation;, (ii) The employees may become, lethargic if they are sure of timebound promotions;, (iii) A new enterprise cannot use, internal sources of recruitment., No organisation can fill all its, vacancies from internal sources;, (iv) The spirit of competition among, the employees may be hampered;, and, (v) Frequent transfers of employees, may often reduce the productivity, of the organisation., , External Sources, An enterprise has to tap external, sources, for, various, positions, because all the vacancies cannot be, filled through internal recruitment., The existing staff may be insufficient, or they may not fulfill the eligibility, criteria of the jobs to be filled., , 2018-19
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Staffing, , 159, , External recruitment provides wide, choice and brings new blood in the, organisation. The commonly used, external sources of recruitment are, discussed below:, (i) Direct Recruitment: Under, the direct recruitment, a notice, is placed on the notice-board, of the enterprise specifying the, details of the jobs available. Jobseekers assemble outside the, premises of the organisation on, the specified date and selection, is done on the spot. The practice, of direct recruitment is followed, usually for casual vacancies of, unskilled or semi-skilled jobs., Such workers are known as, casual or ‘badli’ workers and they, are paid remuneration on daily, wage basis. This method of, recruitment is very inexpensive, as it does not involve any cost, of advertising the vacancies., It is suitable for filling casual, vacancies when there is a rush of, work or when some permanent, workers are absent., (ii) Casual Callers: Many reputed, business organisations keep, a, database, of, unsolicited, applicants in their offices. Such, job-seekers can be a valuable, source of man, power. A list, of such job-seekers can be, prepared and can be screened to, fill the vacancies as they arise., The major merit of this source, , of recruitment is that it reduces, the cost of recruiting workforce, in comparison to other sources., (iii) Advertisement: Advertisement, in newspapers or trade and, professional journals is gene, rally used when a wider choice, is required. Most of the senior, positions of industry as well, as commerce are filled by this, method. The advantage of adver, tising vacancies is that more, information about the organisation, and job can be given in the adver, tisement. Advertisement gives, the management a wider range, of candidates from which to, choose. Advertisements may be, placed in leading newspapers. Its, disadvantage is that it may bring, in a flood of response, and many, times, from quite unsuitable, candidates., , 2018-19, , (iv) Employment Exchange: Emp, loyment exchanges run by the, Government are regarded as a, good source of recruitment for, unskilled and skilled operative, jobs. In some cases, compulsory, notification of vacancies to, employment exchange is required, by law. Thus, employment, exchanges, help, to, match, personnel demand and supply, by serving as link between, and, employers., job-seekers, Unfortunately, the records of, employment exchange are often
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Business Studies, , 160, , not uptodate and many of the, candidates referred by them may, not be found suitable., (v) Placement Agencies and Management Consultants: In technical and professional areas,, private agencies and professional, bodies appear to be doing, substantive work. Placement, agencies provide a nationwide, service in matching personnel, demand and supply. These, agencies compile bio-data of, a large number of candidates, and recommend suitable names, to their clients. Such agencies, charge fee for their services and, they are useful where extensive, screening is required. These, professional, recruiters, can, entice the needed top executives, from other companies by making, the right offers., Management, consultancy, firms help the organisations to, recruit technical, professional, and managerial personnel. They, specialise in middle level and, top level executive placements., They maintain data bank of, persons with different qualifica, tions and skills and even, advertise the jobs on behalf of, their clients to recruit right type, of personnel., (vi) Campus Recruitment: Colleges, and institutes of management, and technology have become a, , popular source of recruitment, for technical, professional and, managerial jobs. Many big orga, nisations maintain a close liaison, with the universities, vocational, schools and management institutes to recruit qualified person, nel for various jobs. Recruitment, from educational institutions, is a well-established practice of, businesses. This is referred to as, campus recruitment., (vii) Recommendations of Emp, loyees: Applicants introduced, by present employees, or their, friends and relatives may prove to, be a good source of recruitment., Such applicants are likely to, be good employees because, their background is sufficiently, known. A type of preliminary, screening takes place because, the present employees know, both the company and the, candidates and they would try to, satisfy both., (viii) Labour, Contractors:, Labour, contractors maintain close contacts, with labourers and they can provide, the required number of unskilled, workers at short notice. Workers, are recruited through labour, contractors who are themselves, employees of the organisation. The, disadvantages of this system are, that if the contractor himself decides, to leave the organisation, all the, , 2018-19
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Staffing, , 161, , workers employed through him will, follow suit., (ix) Advertising on Television: The, practice of telecasting of vacant, posts over Television is gaining, importance these days. The, detailed requirements of the job, and the qualities required to do, it are publicised alongwith the, profile of the organisation where, vacancy exists., (x) Web Publishing: Internet is, becoming a common source of, recruitment these days. There, are certain websites specifically, designed and dedicated for the, purpose of providing information, about both job seekers and job, opening. In fact, websites such, as, www.naukri.com,, www., jobstreet.com etc., are very, commonly visited both by the, prospective employees and the, organisations, searching, for, suitable people., , Merits of External Sources, The advantages of using external, sources of recruitment are as follows:, (i) Qualified Personnel: By using, external sources of recruitment,, the management can attract, qualified and trained people, to apply for vacant jobs in the, organisation., (ii) Wider Choice: When vacancies, are advertised widely, a large, number of applicants from, outside the organisation apply., The management has a wider, choice while selecting the people, for employment., (iii) Fresh Talent: The present, employees may be insufficient, or they may not fulfill the, specifications of the jobs to, be filled. External recruitment, provide wider choice and brings, new blood in the organisation., However, it is expensive and timeconsuming., (iv) Competitive Spirit: If a company, taps external sources, the, extisting staff will have to, compete with the outsiders. They, will work harder to show better, performance., , Limitations of External, Sources, 1. Dissatisfaction among existing staff:, External recruitment may lead, to dissatisfaction and frustration, among existing employees. They, , Campus Recruitment, , 2018-19
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Business Studies, , 162, , may feel that their chances of, promotion are reduced., 2. Lengthy process: Recruitment, from external sources takes a, long time. The business has to, notify the vacancies and wait, for applications to initiate the, selection process., 3. Costly process: It is very costly, to recruit staff from external, sources. A lot of money has to, be spent on advertisement and, processing of applications., , Selection, Selection is the process of identifying and, choosing the best person out of a number, of prospective candidates for a job., Towards this purpose, the candidates are, required to take a series of employment, tests and interviews. At every stage, many are eliminated and a few move, on to the next stage until the right type, is found. The process may start right, from the screening of the applications., It may continue even after the offer of, employment, acceptance and joining of, the candidate. It is so because the process, of selection, like any other managerial, , IT Firms Depend upon Employee Referrals – Improves Retention Rate, Staffers across many IT companies have won themselves iPods or Asian holidays, motorbikes, or even a Maruti Swift. Clearly, employee referrals or buddy recruitments are increasingly, becoming big-ticket incentives with staffers enjoying freebies along with hefty bonuses., On its part, the company not only gets the kind of talent it is eyeing, but also manages to, cut recruitment cost considerably, notwithstanding the high payouts. Recruitments through, a consultant would typically cost about 25% more. Referral incentives have risen by about, 20% in the last two years. Companies have realised that they can bring down the recruitment, cost by about 50% through this system., At the $2.4 billion Juniper Networks, the referral system accounted for 50% of the 290, employees recruited this year., Referral bonus helps encourage employees to bring like-minded people to the company., This, in turn, will improve retention rate, said Juniper India MD. Besides monetary benefit,, ‘successful recruiters’ within Juniper also hold a chance to win gifts like motorbikes and flat, screen TVs every quarter., Referral system, corporates say, help minimise risks in a tight job market. Most companies, allow employees to refer another person on the first day of the appointment itself in the, form of a buddy list., Besides lower costs, referrals help companies ensure the new recruit’s sound credentials., Unlike an unknown resume, a referred person is considered to be more reliable as employees, also tend to share a certain responsibility in this case., Source: The Economic Times, 10th December 06, , 2018-19
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Staffing, , 163, , decision, involves judgment about the, performance potential of the candidate., The effectiveness of the selection process, would ultimately be tested in terms of onthe-job of the chosen person., , Process of Selection, The important steps in the process of, selection are as follows:, (i) Preliminary Screening: Preli, minary screening helps the, manager eliminate unqualified, or unfit job seekers based on, the information supplied in the, application forms. Preliminary, interviews help reject misfits for, , reasons, which did not appear in, the application forms., (ii) Selection Tests: An employment, test is a mechanism (either a paper, and pencil test or an exercise) that, attempts to measure certain characteristics of individuals. These, characteristics range from apti, tudes, such as manual dexterity,, to intelligence to personality., Important Tests Used for Selection, of Employees:, (a) Intelligence Tests: This is one of the, important psychological tests used, to measure the level of intelligence, , Intense Competition, Talent Crunch Push Companies, to Hand Out 15-20% Pay Hikes, Indian employees have never had it so good. Intense competition and rising attrition levels, are forcing companies to hand out 15-20% mid-term salary hikes., Reliance Industries, Marico and Dabur have offered mid-term increments and out-of-turn, hikes of 15-20% to top performers in recent months. This is over and above the 15-20%, salary hikes handed out during annual appraisals last year. This comes at a time when India, Inc. is desperately trying to hold back talent, especially in telecom, IT, BPO and retail., A massive recruitment spree in sunrise sectors like BPO, telecom and retail has led to, a demand-supply mismatch and mid-term hikes going up to 40%. Average attrition rates, in IT have moved up to 22% from 18% and those in BPOs to 50% from 46%. In the, manufacturing sector, talent exodus is averaging 8-12%., Several corporates are even offering bonuses and increments on a quarterly basis to top, teams. An HR head said, “Although it is a short-term reaction, we have to react proactively, to the market scenario and retain our performers. If one loses an employee, the average, time taken for a new person to pick up the skills is up to six months, which is critical time, lost for a company. Also, replacement costs like hiring consultants would in any case add up, to a huge expense and a lot of pressure on HR,” said Dabur India HR chief., Company are identifying people who may be tempted to leave and are devising ways of, retaining such talent – offering learning and development facilities for freshers, sending them, abroad on one-year bonds (for six-months postings), etc., Source: The Economic Times, 1st Dec. 06, , 2018-19
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Business Studies, , 164, , quotient of an individual. It is an, indicator of a person’s learning, ability or the ability to make, decisions and judgments., (b) Aptitude Test: It is a measure, of individuals potential for, learning new skills. It indicates, the person’s capacity to develop., Such tests are good indices of a, person’s future success score., (c) Personality Tests: Personality, tests provide clues to a person’s, emotions, her reactions, maturity, and value system etc. These tests, probe the overall personality., Hence, these are difficult to, design and implement., (d) Trade Test: These tests measure, the existing skills of the individual., They measure the level of, knowledge and proficiency in the, area of professions or technical, training. The difference between, aptitude test and trade test is, that the former measures the, , potential to acquire skills and the, later the actual skills possessed., (e) Interest Tests: Every individual, has fascination for some job than, the other. Interest tests are used, to know the pattern of interests, or involvement of a person., (iii) Employment, Interview:, Interview is a formal, in-depth, conversation, conducted, to, evaluate the applicant’s suitability, for the job. The role of the, interviewer is to seek information, and that of the interviewee is to, provide the same. Though, in, present times, the interviewee, also seeks information from, interviewer., (iv) Reference and Background, Checks: Many employers request, names, addresses, and telephone, numbers of references for the, purpose of verifying information, and, gaining additional inform, ation on an applicant. Previous, employers,, known, persons,, teach, ers, and, university, professors can act as references., , Some Definitions, Selection is the process of choosing from among the candidates from within the organisation, or from the outside, the most suitable person for the current position or for the future, position., Dale Yoder, Selection is a managerial decision making process as to predict which job applicants will be, successful if hired., David and Robbins, Selection is the process of differentiating between applicants in order to identify and hire, those with a greater likelihood of success in a job., Stone, , 2018-19
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Staffing, , 165, Start, , Sources of Application, Internal Sources, , External Sources, Preliminary Screening, , Yes, , Selection Tests, , Employment Interview, , Is, Preliminary, Screening, OK, , No …, Reject, , Is, Selection, Test, OK, , No …, Reject, , Yes, Is, Employ, ment Interview, OK, , Reference and Background, Analysis, , Yes, Is, Reference and Background OK, , Selection Decision, , No …, Reject, , No …, Reject, , Yes, Is, Selection, Decision Positive, , No …, Reject, , Yes, Job Offer, , Employment contract, , Evaluation of the, effectiveness of the selection, process, , 2018-19, , Rejected, Applications
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Business Studies, , 166, , (v) Selection Decision: The final, decision has to be made from, among the candidates who, pass the tests, interviews and, reference checks. The views, of the concerned manager will, be generally considered in the, final selection because it is, he/she who is responsible for, the performance of the new, employee., (vi) Medical Examination: After the, selection decision and before the, job offer is made, the candidate, is required to undergo a medical, fitness test. The job offer is given, to the candidate being declared, fit after the medical examination., (vii) Job Offer: The next step in the, selection process is job offer, to those applicants who have, passed all the previous hurdles., Job offer is made through a, letter of appointment/confirm, his acceptance. Such a letter, generally contains a date by, which the appointee must report, on duty. The appointee must, , be given reasonable time for, reporting., (viii)Contract of Employment: After, the job offer has been made, and candidate accepts the offer,, certain documents need to be, executed by the employer and the, candidate. One such document is, the attestation form. This form, contains certain vital details, about the candidate, which are, authenticated and attested by, him or her. Attestation form will be, a valid record for future reference., There is also a need for preparing, a contract of employment. Basic, information that should be, included in a written contract of, employment will vary according, to the level of the job, but the, following checklists sets out, the typical headings: Job Title,, Duties, Responsibilities, Date, when continuous employment, starts and the basis for calculating, service, rates of pay, allowances,, hours of work, leave rules,, sickness, grievance procedure,, , Right/ Wrong Selection Decisions Matter a lot to the Organisations!, Consider, for a moment that any selection decision can result in 4 possible outcomes. A, decision is correct when an applicant was predicted to be successful and proved to be, successful on the job, or when the applicant was predicted to be unsuccessful and would, perform accordingly if hired. In the first case, we have successfully accepted; in the second case, we have successfully rejected. Problems arise when errors are made in rejecting candidates, who would have performed successfully on the job (reject errors) or accepting those who, ultimately perform poorly (accept errors). Don’t you think, these problems can be significant, and can result in costly mistakes?, , 2018-19
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Staffing, , 167, , disciplinary procedure, work rules,, termination of employment., , Training, , and Development, Someone has rightly said:, “If you wish to plan for a year, sow, seeds,, If you wish to plan for 10 years,, plant trees,, If you wish to plan for a lifetime,, develop people.”, Training and Development is an, attempt to improve the current or future, employee performance by increasing, an employee’s ability to perform, through learning, usually by changing, the employee’s attitude or increasing, his or her skills and knowledge., , Importance of Training and, Development, When jobs were simple, easy to learn, and influenced to only a small degree, by technological changes, there was, little need for employees to upgrade, or alter their skills. But the rapid, changes taking place during the, last quarter century in our highly, sophisticated and complex society, have created increased pressures for, organisations to readapt the products, and services produced, the manner, in which products and services are, produced and offered, the types of, jobs required and the types of skills, necessary to complete these jobs., Thus, as jobs have become more, , complex the importance of employee, training has increased., Training and development help, both the organisation and the, individual., , Benefits to the organisation, The benefits of training and develop, ment to an organisation are as follows:, (i) Training is a systematic learning,, always better than hit and trial, methods which lead to wastage, of efforts and money., (ii) It enhances employee produc, tivity both in terms of quantity, and quality, leading to higher, profits., (iii) Training equips the future, manager who can take over in, case of emergency., (iv) Training increases employee, morale and reduces absenteeism, and employee turnover., (v) It helps in obtaining effective, response to fast changing, environment – technological and, economic., , Benef its to the Employee, The benefits of training and develop, ment activity to the employees are as, follows:, (i) Improved skills and knowledge, due to training lead to better, career of the individual., (ii) Increased performance by the, individual help him to earn more., (iii) Training makes the employee, more efficient to handle machines., Thus, less prone to accidents., , 2018-19
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Business Studies, , 168, , (iv) Training increases the satisfaction, and morale of employees., , Training, Development and, Education, The term training is used to indicate, the process by which attitudes,, skills and abilities of employees to, perform specific jobs are increased., But the term development means, growth of individual in all respects., Training is short term process but, development is an on going process., Also, development includes training., It also needs to be understood that, training, education and development, are distinct terms although they, overlap to some extent., Training is any process by which, the aptitudes, skills and abilities, of employees to perform specific, jobs are increased. It is a process of, learning new skills and application, of knowledge. It attempts to, improve their performance on the, current job or prepare them for any, intended job., Education is the process of increa, sing the knowledge and understanding, , of employees. It is the understanding, and interpretation of knowledge. It, does not provide definite answers, but, rather develops a logical and rational, mind that can determine relationships, among pertinent variables and, thereby understand a phenomenon., Education imparts qualities of mind, and character and understanding of, the basic principles and develop the, capacities of analysis, synthesis and, objectivity. Education is broader in, scope than training. Training is tied to, the goals of organisations more than, to the goals of the individual., Development, refers, to, the, learning opportunities designed to, help employees grow. It covers not, only those activities which improve, job performance but also those which, bring about growth of the personality,, help individuals in the progress, towards maturity and actualisation, of their potential capacities so that, they become not only good employees, but better men and women., The field of training and development concerned with improving, deals with the design and delivery, , Difference between Training and Development, Training, It is a process of increasing knowledge, and skills., It is to enable the employee to do the job, better., It is a job oriented process., , Development, It is a process of learning and growth., It is to enable the overall growth of the, employee., It is a career oriented process., , 2018-19
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Staffing, , 169, , of learning to improve performance, within organisations. In some organisations the term Learning and, Development is used instead of, Training and Development in order to, emphasise the importance of learning, for the individual and the organisation., In other organisations, the term, Human Resource Development is, used., , refer to the methods that are applied, to the workplace, while the employee, is actually working. Off-the-Job, methods are used away from the work, place. The former means learning, while doing, while the latter means, learning before doing., , On, , Training Methods, There are various methods of training., These are broadly categorised into, two groups: On-the-Job and Off-theJob methods. On-the-Job methods, , the, , Job Methods, , (i) Apprenticeship Programmes:, Apprenticeship, programmes, put the trainee under the, guidance of a master worker., These are designed to acquire, , Training of Staff at NTBSC (Dabbawalas), Dressed in traditional kurta-payjama and a Gandhi topi, these two swayed HR managers, from across the country., While the presentations made by HR managers from reputed companies on developing, human potential; HR perspective at Ahmedabad Management Association were wellreceived, it were Dabbawalas from Nutan Mumbai Tiffin Box Supply Charity (NTBSC), Trust who stole the show. Both Gangaram Talekar and Raghunath Medge made power-point, presentations from their laptops., From supply-chain management to organisation structure, each slide on the screen gave, audience an insight into how NTBSC has successfully run their organisation for over 115, years., This with error rate of just one in 16 million, six sigma of 99.9999%, without any, technology back-up, standard pricing and no strikes. Above all, they also spoke about the, zero attrition rate at NTBSC. Of the 5,000 people associated with the service, over 3,500, are illiterate. We don’t even known what six sigma means, but we believe in customer, satisfaction, he added. The duo touched upon time management, customer care, valuesystem of the organisation and training., “Our experienced members teach trainees. For them it is very important to understand, the code, as most of the new people who come to us are illiterate. We conduct a training, programme for them. That’s the reason why we have been able to maintain such a low error, rate,” said Medge., Source: The Economic Times, 15th Nov. 06, , 2018-19
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Business Studies, , 170, , a higher level of skill. People, seeking to enter skilled jobs, to, become, for example, plumbers,, electricians or iron-workers,, are often required to undergo, apprenticeship training. These, apprentices are trainees who, spend a prescribed amount, of time working with an, experienced guide, or trainer., A uniform period of training is, offered to trainees, in which both, fast and slow learn here, are, placed together. Slow learners, may require additional training., (ii) Coaching: In this method, the, superior guides and instructs the, trainee as a coach. The coach or, counselor sets mutually agreed, upon goals, suggests how to, achieve these goals, periodically, reviews the trainees progress, and suggests changes required, in behavior and performance., The trainee works directly with a, senior manager and the manager, takes full responsibility for the, trainee’s coaching. Classically, the trainee is being groomed, to replace the senior manager, and relieve him from some of, his duties. This gives a chance, for the trainee to learn the, job also., (iii) Internship Training: It is a, joint programme of training in, which educational institutions, and business firms cooperate., , Selected candidates carry on, regular studies for the prescribed, period. They also work in some, factory or office to acquire, practical knowledge and skills., (iv) Job Rotation: This kind of, training involves shifting the, trainee from one department, to another or from one job to, another. This enables the trainee, to gain a broader understanding, of all parts of the business and, how the organisation as a whole, functions. The trainee gets fully, involved in the departments, operations and also gets a chance, to test her own aptitude and, ability. Job rotation allows trainees, to interact with other employees, facilitating future cooperation, among, departments., When, employees are trained by this, method, the organisation finds it, easier at the time of promotions,, replacements or transfers., , Off, , the Job Methods, (i) Class Room Lectures/Confer, ences: The lecture or conference, approach is well adapted to, conveying specific informationrules, procedures or methods., The use of audio-visuals or, demonstrations can often make, a formal classroom presentation, more interesting while increasing, retention and offering a vehicle, for clarifying more difficult, points., , 2018-19
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Staffing, , 171, , (ii) Films:, They, can, provide, information, and, explicitly, demonstrate skills that are not, easily represented by the other, techniques. Used in conjunction, with conference discussions, it is, a very effective method in certain, cases., (iii) Case Study: Taken from actual, experiences of organisations, cases, represent attempts to describe,, as accurately as possible real, problems that managers have, faced. Trainees study the cases, to determine problems, analyse, causes,, develop, alternative, solutions, select what they believe, to be the best solution, and, implement it., (iv) Computer Modelling: It simul, ates the work environment by, programming a computer to, imitate some of the realities of the, job and allows learning to take, place without the risk or high, costs that would be incurred if, , 2018-19, , a mistake were made in real life, situation., (v) Vestibule Training: Employees, learn their jobs on the equipment, they will be using, but the, training is conducted away from, the actual work floor. Actual, work environments are created, in a class room and employees, use the same materials, files and, equipment. This is usually done, when employees are required to, handle sophisticated machinery, and equipment., (vi) Programmed Instruction: This, method incorporates a prearran, ged and proposed acquisition of, some specific skills or general, knowledge. Information is broken, into meaningful units and these, units are arranged in a proper way, to form a logical and sequential, learning package i.e. from simple, to complex. The trainee goes, through these units by answering, questions or filling the blanks.
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Business Studies, , 172, , Key Terms, Staffing, , Personnel Management, , Human Resource Management, Recruitment, Training, , Selection, , Development, , Performance Appraisal, , Assessment Tests, , Summary, Meaning: Staffing has been described as the managerial function of, filling and keeping filled, the positions in an organisation structure., This is achieved by, first of all, identifying requirement of work force,, followed by recruitment, selection, placement, promotion, appraisal, and development of personnel, to fill the roles designed into the, organisation structure., Need and Importance of Staffing: In any organisation, there, is a need for people to perform work. The staffing function of, management fulfills this requirement and finds the right people for, the right job., The staffing function has assumed greater importance these days, because of rapid advancement of technology, increasing size of, organisation and complicated behaviour of human beings. The, ability of an organisation to achieve its goal depends upon the, quality of its human resources., Staffing as part of Human Resource Management: Staffing is a, function which all managers need to perform. It is a separate and, specialised function and there are many aspects of human relations, to be considered., It is the responsibility of all managers to directly deal and select, people to work for the organisation. When the manager performs the, staffing function his role is slightly limited. In small organisations,, managers may perform all duties related to employees salaries,, welfare and working conditions., But as organisations grow and number of persons employed increases,, a separate department called the human resource department is, formed which has specialists in the field to manage people., Human Resource Management includes many specialised activities, and duties which the human resource personnel must perform., , 2018-19
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Staffing, , 173, , Evolution of HRM: Human resource management has replaced the, traditional concept of labour welfare and personnel management., HRM in its present form has evolved from a number of significant, inter-related developments, which date back to the era of industrial, revolution. Emergence of trade union movement led to the need of, a person who could act as an effective link between the owners and, workers., You may have observed that all these aspects are concerned with, the human element in the industry as distinct from the mechanical, side of the enterprise. Thus, staffing is an inherent part of human, resource management as it is the practice of finding, evaluating and, establishing a working relationship with people, for a purpose., Staffing Process: The prime concern of the staffing function in, the management process is the timely fulfillment of the manpower, requirements within an organisation., Estimating the Manpower Requirements: Performance of each, job necessitates the appointment of a person with a specific set, of educational qualifications, skills, prior experience and so on., Operationally, understanding the manpower requirements would, necessitate workload analysis on the one hand and workforce, analysis on the other., Recruitment: Recruitment may be defined as the process of searching, for prospective employees and stimulating them to apply for jobs in, the organisation., Selection: Selection is the process of choosing from among the, pool of the prospective job candidates developed at the stage of, recruitment., Placement and Orientation: Orientation is introducing the selected, employee to other employees and familiarising him with the rules, and policies of the organisation. Placement refers to the employee, occupying the position or post for which the person has been, selected., Training and Development: What people seek is not simply a job but a, career. Every one must have the opportunity to rise to the top. The best, way to provide such an opportunity is to facilitate employee learning., Recruitment, Recruitment refers to the process of finding possible candidates for, a job or function., Sources of Recruitment: The requisite positions may be filled up, from within the organisation or from outside. Thus, there are two, sources of recruitment – Internal and External., , 2018-19
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Business Studies, , 174, , Internal Sources: Recruitment from within the enterprise. There are, two important sources of internal recruitment, namely, transfers, and promotions., External Sources: An enterprise has to tap external sources for various, positions because all the vacancies cannot be filled through internal, recruitment. The commonly used external sources of recruitment are, Direct Recruitment, Casual Callers, Advertisements, Employment, Exchange, Placement Agencies and Management Consultants,, Campus Recruitment, Recommendations of Employees, Labour, Contractors, Advertising on Television and Web Publishing., Process of Selection: (i) Preliminary Screening: Application Form, (ii) Selection Tests: (a) Intelligence Tests (b) Aptitude Test (c), Personality Tests (d) Trade Test (e) Interest Tests, (iii) Employment (iv) Interview, (v) Reference and Background, Checks, (vi) Selection Decision, (vii) Medical Examination, (viii) Job, Offer (ix) Contract of Employment, Training and Development, Need of Training and Development, The rapid changes taking place in our highly sophisticated and, complex society have created increased pressures for organisations, to readapt the products and services produced, the manner in which, products and services are produced and offered, the types of jobs, required and the types of skills necessary to complete these jobs., Training is any process by which the aptitudes, skills and abilities, of employees to perform specific jobs are increased., Education is the process of increasing the knowledge and, understanding of employees. It is the understanding and, interpretation of knowledge., Development refers to the learning opportunities designed to help, employees grow., Training Methods, There are various methods of training. These are broadly categorised, into two groups: On-the-Job and Off-the-Job methods., On the Job Methods, (i) Apprenticeship Programs (ii) Coaching (iii) Internship Training, (iv) Job Rotation, Off the Job Methods, (i) Class Room Lectures/Conferences (ii) Films (iii) Case Study, (iv) Computer Modelling (v) Vestibule Training (vi) Programmed, Instruction., , 2018-19
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Staffing, , 175, , Exercises, Short Answer Type, 1. Briefly enumerate the important sources of recruitment., 2. What is meant by recruitment? How is it different from, selection?, 3. Define Training. How is it different from education?, 4. Distinguish between training and development., 5. Why are internal sources of recruitment considered to be, more economical?, 6. What is the importance of staffing function in today’s, environment?, Long Answer Type, 1. Define the staffing process and the various steps involved in it?, 2. Explain the procedure for selection of employees., 3. What are the advantages of training to the individual and to, the organisation?, 4. The staffing function is performed by every manager and not, necessarily by a separate department. Explain., Application Type, 1. The workers of a factory are unable to work on new machines, and always demand for help of supervisor. The Supervisor is, overburdened with their frequent calls. Suggest the remedy., 2. The workers of a factory remain idle because of lack of, knowledge of hi-tech machines. Frequent visit of engineer, is made which causes high overhead charges. How can this, problem be removed., 3. The quality of Production is not as per standards. On, investigation it was observed that most of the workers were, not fully aware of the proper operation of the machinery., What could be the way to improve the accuracy?, 4. An organisation provides security services. It requires such, candidates who are reliable and don’t leak out the secrets of, their clients. What step should be incorporated in selection, process?, 5. A company is manufacturing paper plates and bowls. It, produces 100000 plates and bowls each day. Due to local, festival, it got an urgent order of extra 50,000 plates bowls., Advise how the company will fulfill its order and which, method of recruitment would you suggest., , 2018-19
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Business Studies, , 176, , Case Study, (i) A company X limited is setting up a new plant in India for, manufacturing auto components. India is a highly competitive, and cost effective production base in this sector. Many reputed, car manufacturers source their auto components from here., X limited is planning to capture about 40% of the market share, in India and also export to the tune of at least $5 million in, about 2 years of its planned operations. To achieve these targets, it requires a highly trained and motivated work force. You, have been retained by the company to advise it in this matter., While giving answers keep in mind the sector the company is, operating., Questions, 1. Outline the process of staffing the company should follow., 2. Which sources of recruitment the company should rely upon., Give reasons for your recommendation., 3. Outline the process of selection the company should follow, with reasons., 4. Which methods of training and development should be, company initiate? Explain giving reasons., (ii) A major insurance company handled all recruiting, screening, and training processes for data entry/customer service, representatives. Their competitor was attracting most of the, qualified, potential employees in their market. Recruiting was, made even more difficult by the strong economy and the ‘jobseeker’s market.’ This resulted in the client having to choose, from candidates who had the ‘soft’ skills needed for the job, but, lacked the proper ‘hard’ skills and training., Questions, 1. As an HR manager what problems do you see in the, company?, 2. How do you think it can be resolved?, (iii) A Public transport corporation has hired 1000 buses for the, different routes for the passengers of metropolitan city. Most, of the 3000 crewmen (drivers, conductors, helpers etc.) of, these buses have been found to be wanting in satisfactorily, dealing with public and daily commuters. They seem to be little, interested in the job and the job seem to have lost all meaning, to them., , 2018-19
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Staffing, , 177, , Questions, 1. As manager of the public transport company what measures, do you suggest to improve the working of crewman in, question?, 2. Is it possible to modify their behaviour by planning a suitable, type of training? Suggest one., (iv) Ms. Jayshree recently completed her Post Graduate Diploma, in Human Resource Management. A few months from now, a large steel manufacturing company appointed her as its, human resource manager. As of now, the company employs, 800 persons and has an expansion plan in hand which may, require another 200 persons for various types of additional, requirements. Ms. Jayshree has been given complete charge of, the company’s Human Resource Department., Questions, 1. Point out, what functions is she supposed to perform?, 2. What problems do you foresee in her job?, 3. What steps is she going to take to perform her job, efficiently?, 4. How significant is her role in the organisation?, , 2018-19
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DIRECTING, Grassroot Leadership - Ford Motor Co., Ford has always attracted and nurtured, capable managers and technicians, but it, has failed to do the same for change agents, and leaders. So, as part of the automaker’s, cultural overhaul, Ford is embarking on a, sweeping attempt to mass-manufacture, leaders. It wants to build an army of “warriorentrepreneurs” — people who have the, courage and skills to topple old ideas, and, who believe in change passionately enough, to make it happen., Ford will send about 2,500 managers to its, Leadership Development Center for one of, its four programs — Capstone, Experienced, Leader Challenge, Ford Business Associates,, and New Business Leader — instilling in, them not just the mind-set and vocabulary of, a revolutionary but also the tools necessary, to achieve a revolution. At the same time,, through the Business Leaders Initiative, all, 100,000 salaried employees worldwide will, participate in business-leadership “cascades,”, intense exercises that combine trickle-down, communications with substantive team, projects., Ford views grassroot leadership as the best, vehicle for creating a successful business., Adapted from an article on http://, www.fastcompany.com/online/33/, ford.html, , 7, , CHAPTER, , LEARNING OBJECTIVES, After studying this chapter, you, should be able to:, n Explain the concept of directing, and its importance in business, organisations;, n Understand the principles guiding, directing process;, n Explain the meaning of supervision, and its importance;, n Explain the meaning of motivation, and its importance in business, management;, n Understand and explain Maslow’s, theory of hierarchy of needs and, its application to motivation of, employees in an organisation;, n Explain the financial and nonfinancial incentives through which, managers motivate their employees;, n Explain the concept of leadership, and its importance in management;, n Describe the qualities of a good, leader;, n Explain about formal and, informal communications in the, organisations; and, n Identify various barriers to effective, communications and measures to, overcome these barriers in the, organisations., , 2018-19
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Directing, , 179, , Introduction, The above case reveals how important, it is to instill leadership qualities in, all managers. Business organisations, have always given due importance, to its managers who are capable of, leading others. A manager needs to, use various ways to lead, motivate, and inspire the subordinates and to, communicate with them suitably., These ways, discussed in the present, chapter, are collectively called the, directing function of management., , Meaning, In the ordinary sense, directing means, giving instructions and guiding people, in doing work. In our daily life, we, come across many situations like a, hotel owner directing his employees to, complete certain activities for organising, a function, a teacher directing his, student to complete an assignment, a, film director directing the artists about, how they should act in the film etc. In, all these situations, we can observe, that directing is done to achieve some, predetermined objective., In the context of management of, an organisation, directing refers to, the process of instructing, guiding,, counselling, motivating and leading, people in the organisation to achieve, its objectives., You can observe here that directing, is not a mere issue of communication, but encompasses many elements like, supervision, motivation and leadership., It is one of the key managerial functions, , performed by every manager. Directing, is a managerial process which, takes place throughout the life of an, organisation., The, main, characteristics, of, directing are discussed below:, (i) Directing initiates action: Directing, is a key managerial function. A, manager has to perform this, function along with planning,, organising, staffing and controlling, while discharging his duties in, the organisation. While other, functions prepare a setting for, action, directing initiates action, in the organisation., (ii) Directing takes place at every level, of management: Every manager,, from top executive to supervisor, performs the function of directing., The directing takes place wherever, superior – subordinate relations, exist., (iii) Directing is a continuous process:, Directing is a continuous activity., It takes place throughout the life, of the organisation irrespective, of people occupying managerial, positions. We can observe that in, organisations like Infosys, Tata,, BHEL, HLL and the managers may, change but the directing process, continues because without direction, the organisational activities can, not continue further., (iv) Directing flows from top to bottom:, Directing is first initiated at top, level and flows to the bottom, through organisational hierarchy., , 2018-19
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Business Studies, , 180, , It means that every manager can, direct his immediate subordinate, and take instructions from his, immediate boss., , Importance, , of Directing, The importance of directing can be, understood by the fact that every, action in the organisation is initiated, through directing only. Directing, guides towards achievement of, common, objectives., Through, directing, managers not only tell the, people in the organisation as to what, they should do, when they should, do and how they should do but, also see that their instructions are, implemented in proper perspective., Very often, this becomes an important, factor in the efficient and effective, functioning of the organisation., The points which emphasise the, importance of directing are presented, as follows:, (i) Directing helps to initiate action by, people in the organisation towards, attainment of desired objectives., For example, if a supervisor guides, his subordinates and clarifies, their doubts in performing a task,, it will help the worker to achieve, work targets given to him., (ii) Directing integrates employeesefforts in the organisation in such, a way that every individual effort, contributes to the organisational, performance. Thus, it ensures, that the individuals work for, organisational goals. For example,, , a manager with good leadership, abilities will be in a position to, convince the employees working, under him that individual efforts, and team effort will lead to, achievement of organisational, goals., (iii) Directing guides employees to, fully realise their potential and, capabilities by motivating and, providing effective leadership. A, good leader can always identify, the potential of his employees, and motivate them to extract, work up to their full potential., (iv) Directing facilitates introduction, of needed changes in the organi, sation. Generally, people have, a tendency to resist changes, in the organisation. Effective, directing through motivation,, communication and leadership, helps to reduce such resistance, and develop required cooperation, in introducing changes in the, organisation. For example, if, a manager wants to introduce, new system of accounting,, there may be initial resistance, from accounting staff. But, if, manager explains the purpose,, provides training and motivates, with additional rewards, the, employees may accept change, and cooperate with manager., (v) Effective directing helps to, bring stability and balance in, the organisation since it fosters, cooperation and commitment, , 2018-19
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Directing, , 181, , among the people and helps to, achieve balance among various, groups, activities and the, departments., , Principles, , of Directing, Providing good and effective directing, is a challenging task as it involves, many complexities. A manager has, to deal with people with diverse, background, and expectations. This, comp, licates the directing process., Certain guiding principles of directing, may help in directing process. These, principles are briefly explained below:, (i) Maximum individual contribution:, This principle emphasises that, directing techniques must help, every individual in the organisation, to contribute to his maximum, potential for achievement of, organisational objectives. It should, bring out untappted energies of, employees for the efficiency of, organisation. For example, a good, motivation plan with suitable, monetary and non-monetary, rewards can motivate an employee, to contribute his maximum efforts, for the organisation as he or she, may feel that their efforts will bring, them suitable rewards., (ii) Harmony of objectives: Very often,, we find that individual objectives of, employees and the organisational, objectives as understood are, conflicting to each other. For, example, an employee may expect, attractive salary and monetary, , benefits to fulfill his personal, needs. The organisation may, expect employees to improve, productivity to achieve expected, profits. But, good directing should, provide harmony by convincing, that employee rewards and work, efficiency are complimentary to, each other., (iii) Unity of Command: This principle, insists that a person in the, organisation, should, receive, instructions from one superior, only. If instructions are received, from more than one, it creates, confusion, conflict and disorder, in the organisation. Adherence, to this principle ensures effective, direction., (iv) Appropriateness of direction tech, nique: According to this principle,, appropriate motivational and, leadership technique should be, used while directing the people, based on subordinate needs,, capabilities, attitudes and other, situational variables. For example,, for some people money can act as, powerful motivator while for others, promotion may act as effective, motivator., (v) Managerial communication: Effe, ctive managerial communication, across all the levels in the, organisation makes direction, effective. Directing should convey, clear instructions to create total, understanding to subordinates., Through proper feedback, the, , 2018-19
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Business Studies, , 182, , managers should ensure that, subordinate understands his, instructions clearly., (vi) Use of informal organisation:, A manager should realise that, informal groups or organisations, exist within every formal organisation. He should spot and make, use of such organisations for, effective directing., (vii) Leadership: While directing the, subordinates, managers should, exercise good leadership as it, can influence the subordinates, positively without causing dissa, tisfaction among them., (viii)Follow through: Mere giving of, an order is not sufficient. Mana, gers should follow it up by, reviewing continuously whether, orders are being implemented, accordingly or any problems are, being encountered. If necessary,, suitable modifications should be, made in the directions., , Elements, , of Direction, The process of directing involves, guiding, coaching, instructing, moti, vating, leading the people in an, organisation to achieve organisational, objectives. Consider the following, examples: (i) A supervisor explains, a worker about operations to be, carried by him on a lathe machine,, (ii) A mining engineer explains about, safety precautions to be followed while, working in a coal mine, (iii) A Managing, Director declares share in the profits, , to the managers for their contribution, to inhance profits of the company,, and (iv) A manager inspires his/her, employees by playing a lead role in, performing a work., All these examples and many, other activities related to directing, may broadly be grouped into four, categories which are the elements of, directing. These are:, (i) Supervision, (ii) Motivation, (iii) Leadership, (iv) Communication, To know more about directing, these, elements are discussed in detail., , Supervision, , The term supervision can be under, stood in two ways. Firstly, it can be, understood as an element of directing, and secondly, as a function performed, by supervisors in the organisational, hierarchy., Supervision being an element of, directing, every manager in the organi, sation supervises his/her subordinates., In this sense, supervision can be, understood as the process of guiding, the efforts of employees and other, resources to accomplish the desired, objectives. It means overseeing what, is being done by subordinates and, giving instructions to ensure opti, mum utilisation of resources and, achievement of work targets., Secondly, supervision can be, understood as the function to be perf, ormed by supervisor, a managerial, , 2018-19
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Directing, , 183, , position in the organisation hier, archy at the operative level i.e.,, immedia, tely above the worker. The, functions and performance of the, supervisor are vital to any organi, sation because he is directly related, with workers whereas other mangers, have no direct touch with bottom, level workers., , Importance of Supervision, The importance of supervision can, be understood from multiple roles, performed by a supervisor. These are, explained below:, (i) Supervisor maintains day-to-day, contact and maintains friendly, , relations with workers. A good, supervisor acts as a guide, friend, and philosopher to the workers., (ii) Supervisor acts as a link between, workers and management. He, conveys management ideas to, the workers on one hand and, workers problems to the manage, ment on the other. This role, played by supervisor helps to, avoid misunderstandings and, conflicts between management, and workers/employees., (iii) Supervisor plays a key role in, maintaining group unity among, workers placed under his control., He sorts out internal differences, Directing a Dissatisfied Manager, , Rashmi Joshi had been a district sales manager with Fine Productions for ten years. She was, recognised by her peers and supervisors as a person who managed department in a good, way. However, everyone realised that Rashmi was extremely ambitious and was seeking a, higher-level management position. When one of her sales representatives did a good job, she, would attempt to take the credit. However, if a problem arose, she thought it was not her, fault. When the marketing manager retired, Rashmi applied for the position. The company, decided to do a thorough search because of the responsibility and importance associated, with the position. When the search was concluded, the decision was made to fill the position, by a person from outside the company. The consensus of top management was that Rashmi,, although a good district sales manager might have difficulties in working with her new peer, groups. They felt that she might displease the other managers if she tried to take credit for, their work and, as a result, their performance would suffer., Rashmi was heart-broken. She had wanted that particular job for a long time and had, dedicated all her energies towards obtaining it. She became very despondent and her work, deteriorated. The department functioned inspite of her, not because of her. Decisions were, made slowly if at all and she began to be late with her sales reports. Although her sales staff, continued to be productive, Rashmi could not take the credit., When the new marketing manager took over, one of the first major problems that he, confronted was how to motivate and inspire Rashmi to her former level of performance. He, recognised that Rashmi had been with the company for a long time but something had to be, done to motivate her to perform really well., , 2018-19
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Business Studies, , 184, , and maintains harmony among, workers., (iv) Supervisor ensures performance, of work according to the targets, set. He takes responsibility for, task achievement and motivates, his workers effectively., (v) Supervisor provides good onthe-job training to the workers, and employees. A skilled and, knowledgeable supervisor can, build efficient team of workers., (vi) Supervisory leadership plays, a key role in influencing the, workers in the organisation. A, supervisor with good leadership, qualities can build up high, morale among workers., (vii) A good supervisor analyses, the work performed and gives, feedback to the workers. He, suggests ways and means of, developing work skills., , Motivation, The case of Rashmi reveals an, important fact of managerial work;, it is not always possible to get the, best of work from employees merely, by exercising formal authority. What, makes people to behave the way they, do? Why are some people reluctant to, do the work though they have ability, to do? What should be done to make, people work effectively?, For answering these questions,, a manager should try to develop, insights into causes of behaviour of, people. A manager may come across, , highly committed and hardworking, staff or lazy, evasive and superficial, workers. He or she may wonder what, to do with workers not willing to, work to their potential. Psychologists, say it is motivation, which stimulates, people to take up work voluntarily., Let us try to understand something, about motivation., Motivation: Motivation means inci, tement or inducement to act or move. In, the context of an organisation, it means, the process of making subordinates, to act in a desired manner to achieve, certain organisational goals., While discussing about motivation,, we need to understand three inter, related terms — motive, motivation, and motivators. Let us try to know, about these terms., (i) Motive: A motive is an inner state, that energises, activates or moves, and directs behaviour towards, goals. Motives arise out of the, needs of individuals. Realisation of, a motive causes restlessness in the, individual which prompts some, action to reduce such restlessness., For example, the need for food, causes hunger an account of, which a man searches for food., Some such motives are – hunger,, thirst, security, affiliation, need, for comfort, recognition etc.,, (ii) Motivation: Motivation is the, process of stimulating people, to action to accomplish desired, goals. Motivation depends upon, satisfying needs of people., , 2018-19
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Directing, , 185, , (iii) Motivators:, Motivator, is, the, technique, used, to, motivate, people in an organisation. Managers, use diverse motivators like pay,, bonus, promotion, recognition,, praise, responsibility etc., in the, organisation to influence people to, contribute their best., Some of the definitions to explain, the concept of motivation are given in, the above box., Features of Motivation: The analysis of various definitions and, viewpoints on motivation reveals the, following features of motivation:, (i) Motivation is an internal feeling., The urge, drives, desires, aspi, rations, striving or needs of human, being, which are internal, influence, human behaviour. For example,, people may have the urge or, desire for possessing a motorbike,, comfortable house, reputation, in the society. These urges are, internal to an individual., , (ii) Motivation, produces, goal, directed behaviour. For example,, the promotion in the job may, be given to employee with, the objective of improving his, performance. If the employee, is interested in promotion, it, helps to produce a behaviour to, improve performance., (iii) Motivation can be either positive, or negative. Positive motivation, provides positive rewards like, increase in pay, promotion,, recognition etc., Negative moti, vation uses negative means like, punishment, stopping increments,, threatening etc. which also may, induce a person to act in the, desired way., (iv) Motivation is a complex process as, the individuals are heterogeneous, in their expectations, perceptions, and reactions. Any type of, motivation may not have uniform, effect on all the members., Definitions on Motivation, , Motivation means a process of stimulating people to action to accomplish desired goals, William G. Scout, Motivation refers to the way in which urges, drives, desires, aspirations, strivings or needs, direct, control and explain the behaviour of human beings., Mc Farland, Motivation is a complex force starting with keeping a person at work in an organisation., Motivation is something which moves the person to action and continues him in the course, of action already initiated., Dubin, Motivation is a process which begins with a physiological or psychological need or deficiency, which triggers behaviour or a drive that is aimed at a goal or incentive., Fred Luthans, , 2018-19
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Business Studies, , 186, , Motivation Process: Motivation, process is based on human needs. A, simple model to explain motivation, process is presented below., The following example explains, the process of satisfaction of human, needs., Ramu is very hungry since he did, not have breakfast in the morning., By1.00 P.M., he became restless and, started walking on the road in search, of a hotel for snacks or meals. After, , walking for 2 kms, he could find a, hotel where roti and dal was available, for Rs. 10. Since he had only Rs. 15, in his pocket, he paid Rs. 10 and had, a satisfying meal. After taking a meal,, he felt that he had regained energy., An unsatisfied need of an individual, creates tension which stimulates his, or her drives. These drives generate, a search behaviour to satisfy such, need. If such need is satisfied, the, individual is relieved of tension., , Motivating Employees in Tata Steel, In Tata Steel several initiatives have been taken to further improve the motivation levels, and participation in the decision making process of the officers, greater impetus to training, through a formalised system of a personal development programme, talent review and job, rotation systems, compensation linked to the performance management system, formal, rewards and recognition systems, knowledge management systems linked with appraisals,, leadership opportunities in quality circles, continuous improvement and value engineering, programmes and an extremely transparent and credible multi-path communication system, to address queries and concerns of all employees through various dialogues both formal and, online, with such tools as video conferencing, ‘MD Online’, special dialogues with senior, management, meetings, conferences and seminars. These initiatives have helped to build a, homogeneous and focused team in Tata Steel, increasing motivation and binding to the vision, of the company and spurred employees to deliver targets on a participatory management, basis leading to ownership of processes., Tata Steel is a company that actively promotes freedom to work, freedom to innovate, and even the freedom to fail. It is a nimble, fast, modern and forward-looking company on, a strong growth path. The company has undergone a revolutionary change in terms of its, production facilities and the technology in the manufacturing process. These changes have, resulted in creating greater opportunities for taking up newer challenges for young recruits, work and for performance based on IT enabled systems and high levels of automation., These have led to making the company one of the lowest cost producers of steel and the, only Indian company to be recognised by the World Steel Dynamics as one of the top most, ‘World Class’ steel makers. Tata Steel hopes not only to consolidate but better its leadership, by robust leadership development systems that have seen the company create many CEOs, for other companies., http://www.tata.com/tata_steel/releases/20030829.htm, , 2018-19
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Directing, , 187, , Unsatisfied Need, Tension, Drives, Search, Behaviour, Satisfied, Need, Reduction, of Tension, , Importance of Motivation: In, the example of Tata Steel you have, seen how the direction, motivation, and effective leadership has taken, the company forward. Even commu, nication systems in the company, have encouraged employees to, achieve targets., Motivation is considered important, because it helps to identify and, satisfy the needs of human resources, in the organisation and thereby helps, in improving their performance., It is the reason why every major, organisation develops various kinds, of motivational programmes and, spends crores of rupees on these, programmes. The importance of moti, vation can be pointed out by the, following benefits:, (i) Motivation helps to improve, performance levels of employees, , as well as the organisation., Since proper motivation satisfies, the needs of employees, they in, turn devote all their energies, for optimum performance in, their work. A satisfied employee, can always turnout expected, performance. Good motivation in, the organisation helps to achieve, higher levels of performance as, motivated employees contribute, their maximum efforts for, organisational goals., (ii) Motivation helps to change nega, tive or indifferent attitudes of, employee to positive attitudes so, as to achieve organisational, goals. For example, a worker, may have indifferent or negative, attitude towards his work, if he is, not rewarded properly. If suitable, rewards are given and supervisor, gives positive encouragement, and praise for the good work, done, the worker may slowly, develop positive attitude towards, the work., (iii) Motivation helps to reduce emp, loyee turnover and thereby saves, the cost of new recruitment and, training. The main reason for, high rate of employee turnover is, lack of motivation. If managers, identify motivational needs of, employees and provide suitable, incentives, employees may not, think of leaving the organisation., High rate of turnover compels, management to go for new recrui, , 2018-19
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Business Studies, , 188, , tment and training which involve, additional investment of money,, time and effort. Motivation helps, to save such costs. It also helps, to retain talented people in the, organisation., (iv) Motivation helps to reduce abse, nteeism in the organisation., Some important reasons for, absenteeism are–bad working, conditions, inadequate rewards,, lack of recognition, poor relations, with supervisors and colleagues, etc. Through sound motivational, system, all these deficiencies, can be covered. If motivation, is adequately provided, work, becomes a source of pleasure, and workers attend to the work, regularly., (v) Motivation helps managers to, introduce changes smoothly, without much resistance from, people. Normally, for any change, introduced in the organisation,, there may be resistance for, changes. If manager can convince, employees that proposed changes, will bring additional rewards, to employees, they may readily, accept the change., Maslow’s Need Hierarchy Theory, of Motivation: Since motivation is, highly complex, many researchers, have studied about motivation from, several dimensions and developed, some theories. These theories help, to develop understanding about, motivation phenomenon. Among, , these, Maslow’s Need Hierarchy, Theory is considered fundamental to, understanding of motivation. Let us, examine it in detail., Abraham Maslow, a well-known, Psychologist in a classic paper published, in 1943, outlined the elements of an, overall theory of motivation., His theory was based on human, needs. He felt that within every human, being, there exists a hierarchy of five, needs. These are:, (i) Basic Physiological Needs: These, needs are most basic in the, hierarchy and corresponds to, primary needs. Hunger, thirst,, shelter, sleep and sex are some, examples of these needs. In the, organisational context, basic, salary helps to satisfy these, needs., (ii) Safety/Security Needs: These, needs provide security and, protection from physical and, emotional harm. Examples: job, security, stability of income,, Pension plans etc.,, (iii) Affiliation/Belonging Needs: These, needs refer to affection, sense of, belongingness, acceptance and, friendship., (iv) Esteem Needs: These include, factors such as self-respect, auto, nomy status, recognition and, attention., (v) Self Actualisation Needs: It is, the highest level of need in the, hierarchy. It refers to the drive, to become what one is capable of, , 2018-19
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Directing, , 189, , Individual, Example, , Organisational, Example, , Self fulfillment, , Achievement of goals, , Status, Friendship, Stability of Income, , Hunger, , Self, actualisation, needs, Esteem, needs, Affiliation/, Belongingness, needs, Safety/Security, needs, Basic Physiological Needs, , Job title, Cordial relations with, colleagues, Pension plan, , Basic Salary, , Maslow’s Need Hierarchy Theory, , becoming. These needs include, growth, self-fulfillment and achi, evement of goals., Maslow’s theory is based on the, following assumptions:, (i) People’s behaviour is based on, their needs. Satisfaction of such, needs influences their behaviour., (ii) People’s needs are in hierarchical, order, starting from basic needs, to other higher level needs., (iii) A satisfied need can no longer, motivate a person; only next higher, level need can motivate him., (iv) A person moves to the next, higher level of the hierarchy only, when the lower need is satisfied., Maslow’s Theory focuses on the, needs as the basis for motivation., This theory is widely recognised, and appreciated. However, some, , of his propositions are questioned, on his classification of needs and, hierarchy of needs. But, despite such, criticism, the theory is still relevant, because needs, no matter how they, are classified, are important to, understand the behaviour. It helps, managers to realise that need level, of employee should be identified to, provide motivation to them., , Financial and Non-Financial, Incentives, Incentive means all measures which, are used to motivate people to improve, performance. These incentives may, be broadly classified as financial and, non financial. Let us learn about, these incentives in detail., Financial Incentives: In the context, of existing economic system, money, , 2018-19
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Business Studies, , 190, , Profile of Abraham Maslow (1908 – 1970), Abraham H. Maslow was born in Brooklyn, New York, in 1908. He studied, primate behavior at the University of Wisconsin, where he received his, doctorate in psychology in 1934., Early in his career, Maslow was drawn to the study of human motivation and, personality. His work in this area upset strict behaviorists, whose explanations, of motivation and personality failed to account for what Maslow called the, whole person. His theory of the hierarchy of needs, which leads to the ‘selfactualised’ individual, was a strong catalyst for the founding of humanistic, psychology. Maslow successfully bridged motivation and personality in his, theories of needs, self-actualising persons, and peak experiences., Maslow is considered an important figure in contemporary psychology., His career was a formidable one. For 14 years he taught at Brooklyn, College, and then went to Brandeis University as chairman of the Psychology, Department. In 1968 he was elected president of the American Psychological, Association. In 1969 he went to the Laughlin Foundation in Menlo Park,, California. He wrote two important books: Toward a Psychology of Being, (1968) and Motivation and Personality (1970). Abraham Maslow died of a, heart attack in 1970., , has become a means to satisfy the, physical needs of daily life and also of, obtaining social position and power., Since, money has the purchasing, power, it becomes a very important, incentive for every individual., Financial incentives refer to, incentives which are in direct monetary, form or measurable in monetary term, and serve to motivate people for better, performance. These incentives may be, provided on individual or group basis., The financial incentives generally used, in organisations are listed below:, (i) Pay and allowances: For every, employee, salary is the basic, monetary incentive. It includes, basic pay, dearness allowance and, other allowances. Salary system, , consists of regular increments in the, pay every year and enhancement, of allowances from time-to-time., In some business organisations,, pay hike and increments may be, linked to performance., (ii) Productivity linked wage incen, tives: Several wage incentive, plans aims at linking payment of, wages to increase in productivity, at individual or group level., (iii) Bonus: Bonus is an incentive, offered over and above the wages/, salary to the employees., (iv) Profit Sharing: Profit sharing, is meant to provide a share to, employees in the profits of the org, anisation. This serves to motivate, the employees to improve their, , 2018-19
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Directing, , 191, , performance and contribute to, increase in profits., (v) Co-partnership/ Stock option:, Under these incentive schemes,, employees are offered company, shares at a set price which is lower, than market price. Sometimes,, management may allot shares in, line of various incentives payable, in cash. The allotment of shares, creates a feeling of ownership to, the employees and makes them, to contribute for the growth, of the organisation. In Infosys, the scheme of stock option has, been implemented as a part of, managerial compensation., (vi) Retirement Benefits: Several, retirement benefits such as, provident fund, pension, and, gratuity provide financial, security to employees after their, retirement. This acts as an, incentive when they are in service, in the organisation., (vii) Perquisites: In many companies, perquisites and fringe benefits, are offered such as car allowance,, housing, medical aid, and, education to the children etc.,, over and above the salary., These measures help to provide, motivation to the employees/, managers., Non-Financial Incentives: All the, needs of individuals are not satisfied by, money alone. Psychological, social and, emotional factors also play important, role in providing motivation. Non-, , financial incentives mainly focus on, these needs. Some times, monetary, aspect may be involved in non-financial, incentives as well. However, the, emphasis is to provide psychological, and emotional satisfaction rather, than money driven satisfaction. For, example, if an individual gets promo, tion in the organisation, it satisfies, him psychologically more as he gets a, feeling of elevation, increase in status,, increase in authority, challenge in the, job etc., Though promotion involves, payment of extra money, non-monetary, aspects over-ride monetary aspects., Some of the important non-financial, incentives are discussed below:, (i) Status: In the organisational, context, status means ranking, of positions in the organisation., The authority, responsibility,, rewards, recognition, perquisites, and prestige of job indicate, the status given to a person, holding a managerial position., Psychological, social and esteem, needs of an individual are satisfied, by status given to their job., (ii) Organisational Climate: Organi, sational climate indicates the, characteristics which describe, an organisation and distinguish, one organisation from the other., These characteristics influence, the behaviour of individuals in, the organisation. Some of these, characteristics are–individual, autonomy, reward orientation,, consideration to employees,, , 2018-19
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Business Studies, , 192, , risk-tasking etc., If managers, take positive measures regarding, these aspects, it helps to develop, better organisational climate., (iii) Career Advancement Opportunity:, Every individual wants to, grow to the higher level in, the organisation. Managers, should provide opportunity to, employees to improve their skills, and be promoted to the higher, level jobs. Appropriate skill, development programmes, and, sound promotion policy will help, employees to achieve promotions., Promotion works as a tonic and, encourages employees to exhibit, improved performance., (iv) Job Enrichment: Job enrichment, is concerned with designing jobs, that include greater variety of, work content, require higher, level of knowledge and skill;, give workers more autonomy, and responsibility; and provide, the opportunity for personal, growth and a meaningful work, experience. If jobs are enriched, and made interesting, the job itself, becomes a source of motivation to, the individual., (v) Employee Recognition programmes:, Most people have a need for, evaluation of their work and due, recognition. They feel that what, they do should be recognised by, others concerned. Recognition, means acknowledgment with a, show of appreciation. When such, , appreciation is given to the work, performed by employees, they, feel motivated to perform/work, at higher level. Some examples of, employee recognition are:, n Congratulating the employee, for good performance., n Displaying on the notice board, or in the company news letter, about the achievement of, employee., n Installing award or certificate, for best performance., n Distributing mementos, com, plimentaries like T-shirts, in recognition of employee, services., n Rewarding an employee for, giving valuable suggestions., (vi) Job security: Employees want, their job to be secure. They want, certain stability about future, income and work so that they, do not feel worried on these, aspects and work with greater, zeal. In India, this aspect is, more important considering the, inadequate job opportunities and, too many aspirants for these., However, there is one negative, aspect of job security. When, people feel that they are not, likely to lose their jobs, they may, become complacent., (vii) Employee participation: It means, involving employees in decision, making of the issues related to, them. In many companies, these, programmes are in practice in, , 2018-19
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Directing, , 193, , the form of joint management, committees, work committees,, canteen committees etc.,, (viii)Employee Empowerment: Empo, werment means giving more, autonomy and powers to, subordinates. Empowerment, makes people feel that their, jobs are important. This feeling, contributes positively to the use, of skills and talents in the job, performance., , Leadership, , Whenever we hear the success, stories of any organisation, we are, immediately reminded of their leaders., Can you imagine Mircrosoft without, Bill Gates, Reliance Industries without, Ambanis, Infosys without Narayana, Murthy, Tata without J.R.D. Tata, or Wipro without Azim Premji. You, would say it is not possible to achieve, , success without such great leaders., The leaders always play a key role, for the success and excellence of any, organisation., Let us understand the concept, of leadership, its importance and, qualities of good leaders. Leadership, is the process of influencing the, behaviour of people by making, them strive voluntarily towards, achievement of organisational goals., Leadership indicates the ability, of an individual to maintain good, interpersonal relations with followers, and motivate them to contribute for, achieving organisational objectives., , Features of leadership, An examination of the above defi, nition reveals the following important, features of leadership:, (i) Leadership indicates ability of an, individual to influence others., Definitions of Leadership, , Leadership is the activity of influencing people to strive willingly for group objectives., George Terry, Leadership is the art or process of influencing people so that they will strive willingly and, enthusiastically towards the achievement of group goals., Harold Koontz and Heinz Weihrich, Leadership is a set of interpersonal behaviours designed to influence employees to cooperate, in the achievement of objectives., Glueck, Leadership is both a process and property. The process of leadership is the use of noncoercive influence to direct and coordinate the activities of the members of an organised, group towards the accomplishment of group objectivities. As a property, leadership is the set, of qualities or characteristics attributed to those who are perceived to successfully employ, such influence., Gay and Strake, , 2018-19
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Business Studies, , 194, , (ii) Leadership tries to bring change, in the behaviour of others., (iii) Leadership indicates interperso, nal relations between leaders and, followers., (iv) Leadership is exercised to, achieve common goals of the, organisation., (v) Leadership is a continuous, process., The term leader emerges from, leadership. An individual possessing, attributes of leadership is known, as leader. While discussing about, leadership, it is important to undertionship., stand leader–follower rela, Many times, the success of an, organisation is attributed to the, leader, but due credit is not given, to the followers. Many followers, , related factors like – their skills,, knowledge, commitment, willingness, to cooperate, team spirit etc., make a, person an effective leader. It is said, that followers make a person, a good, leader by acceptance of leadership., Therefore, it is to be recognised that, both leader and follower play key role, in leadership process., Importance of Leadership: Lead, ership is a key factor in making any, organisation successful. History, reveals that, many times, difference, between success and failure of an, organisation is leadership. It is aptly, mentioned by Stephen Covey, a, famous management consultant, that, managers are important but leaders, are vital for lasting organisational, success. A leader not only commits, , Effective leadership is getting work, done, tasks completed on time and goals, achieved at minimum cost, , 2018-19
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Directing, , 195, , his followers to organisational goals, but also pools needed resources,, guides and motivates subordinates, to reach the goals., The importance of leadership can, be discussed from the following, benefits to the organisation:, (i) Leadership influences the, behaviour of people and makes, them to positively contribute, their energies for the benefit of, the organisation. Good leaders, , always produce goods results, through their followers., (ii) A leader maintains personal, relations and helps followers, in fulfilling their needs. He, provides needed confidence,, support and encouragement and, thereby creates congenial work, environment., (iii) Leader plays a key role in, introducing required changes in, the organisation. He persuades,, Leadership at Infosys, , It is interesting and inspiring to know about N. R. Narayana Murthy, Ex-Chairman of Infosys, an, IT legend, institution builder, a leader par excellence and embodiment of directing abilities., Born on August 20, 1946 in Karnataka State, Mr. Narayana Murthy graduated (B.E.) from, University of Mysore (1967), and obtained master degree (M.Tech) from IIT, Kanpur in 1969., He started his career as head of the computer centre at IIM, Ahmedabad., He started Infosys, a small software company along with his friends in 1981 and turned it, into a global IT company by 2002. He was the chief mentor, CEO of the company for two, decades. During that time he took the company to unimaginable heights. With an equity, capital of Rs. 10,000 in 1981, Infosys market capitalisation reached Rs. 11 billion by 2001., Infosys became one of the biggest exporter of software from India. It is the first company to, be listed in Nasdaq Stock Market in 1999., Narayana Murthy is remembered as a top leader for many things. He had supreme, confidence on his team members, executives and workers. He nurtured and developed, leadership qualities through coaching and training. He started Infosys Leadership Institute in, early 2001 to help promising infoscians to develop into global leaders., Mr. Murthy leads by example and by trust. Very often he used to say “A true leader is, one who leads by example and sacrifices more than any one else, in his or her pursuit of, excellence”. He truly practiced and proved it in Infosys., Mr. Murthy always motivated his team. He introduced number of motivational schemes, including the novel Stock option scheme for the executives of Infosys., Narayana Murthy was associated with many national and international bodies in different, capacities and extended his services to the wide ranging activities. He received number of, awards and rewards from academic, social and business community. Following the norms, setup by himself, Narayana Murthy handed over reins of Infosys to his friend and co-founder, Nandan Nilekani in 2002., , 2018-19
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Business Studies, , 196, , clarifies and inspires people to, accept changes whole-heartedly., Thus, he overcomes the problem, of resistance to change and, introduces it with minimum, discontentment., (iv) A leader handles conflicts, effectively and does not allow, adverse effects resulting from the, conflicts. A good leader always, allows his followers to ventilate, their feelings and disagreement, but persuades them by giving, suitable clarifications., (v) Leader provides training to their, subordinates. A good leader, always builds up his successor, , and helps in smooth succession, process., , Qualities, , of, , Good, , Leader:, , What are the qualities possessed by, a good leader? Are there any common, traits (qualities) applicable to all, good leaders? How many such, qualities should a leader possess to, be successful?, One approach to leadership, emphasises that a person should, possess certain qualities or traits to, become a successful leader. It assumes, that leaders can be distinguished from, non leaders by certain unique traits, possessed by them. The qualities of, , Qualities of a Good Leader, In all about 18,000 traits were identified by researchers. The qualities of a good leader as, mentioned by some authorities on the subject are given below:, Energy, emotional stability, knowledge of human relations, motivation, communication, skill,, teaching ability, social skill and technical competence., Geroge Terry, Vitality and endurance, decisiveness, persuasiveness, stability in behaviour, intellectual ability, and knowledge., Chester Barnard, Physical and nervous energy, enthusiasm, sense of purpose and direction, technical mastery,, friendliness and affection, decisiveness., Ordway Tead, Courage, will power, judgment, flexibility, knowledge and integrity., Vicout Slim, Supervisory ability, achievement motivation, self-actualising, intelligence, self assurance,, decisiveness., Ghiselli, Courage, self-confidence, moral qualities, self sacrifice, paternalism, fairness., Hill, Physical and constitutional factors, intelligence, self-confidence, sociability, will, dominance., Stodgil, , 2018-19
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Directing, , 197, , good leaders as identified by some, researchers are shown in the box in, previous page., Some of these qualities are, explained below:, (i) Physical features: Physical, features like height, weight,, health, appearance determine, the physical personality of an, individual. It is believed that, good physical features attract, people. Health and endurance, help a leader to work hard which, inspires others to work with same, tempo., (ii) Knowledge: A good leader should, have required knowledge and, competence. Only such person can, instruct subordinates correctly, and influence them., (iii) Integrity: A leader should, posses high level of integrity and, honesty. He should be a role model, to others regarding the ethics, and values., , (iv) Initiative: A leader should have, courage and initiative. He should, not wait for opportunities come, to his way, rather he should grab, the opportunity and use it to the, advantage of organisation., (v) Communication skills: A leader, should be a good communicator., He should have the capacity to, clearly explain his ideas and, make the people to understand, his ideas. He should be not, only good speaker but a good, listener, teacher, counsellor and, persuader., (vi) Motivation skills: A leader should, be an effective motivator. He, should understand the needs, of people and motivate them, through satisfying their needs., (vii) Self Confidence: A leader should, have high level of self confidence., He should not loose his confidence, even in most difficult times., In fact, if the leader lacks self, , Leadership and Team work in HCL Technologies, HCL Technologies has formulated a rather innovative approach to management, where, employees come before customers. Every employee ranks their boss, their boss’s boss, and, at least three other company managers on a 1-to-5 scale. Then the results are posted online, for everyone to see., This company realizes that satisfied and secure employees can best focus on customer, success. HCL has formed new strategic alliances, and is embarking on a rather innovative, approach to shared risk with customers., The point is that Indian companies aren’t just innovating manufacturing methods,techno, logies, and product design. Their leaders are also re-thinking leadership and management to, create energised creative teams of employees focused on customer success., Source: http://www.evolvingexcellence.com/blog/2006/04/the_future_of_m.html, , 2018-19
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Business Studies, , 198, , confidence, he can not provide, confidence to his followers., (viii)Decisiveness: Leader should be, decisive in managing the work., Once he is convinced about, a fact, he should be firm and, should not change opinions, frequently., (ix) Social skills: A leader should be, sociable and friendly with his, colleagues and followers. He, should understand people and, maintain good human relations, with them., However, we should remember that, all good leaders may not necessarily, posses all the qualities of a good, leader. In fact, it is not possible for, any individual to have all the qualities., But an understanding about these, qualities help the managers to acquire, them through training and conscious, efforts., Leadership Style, There are many theories of leadership, behaviour and styles. Research, studies have revealed certain traits, and qualities which a leader might, possess. However, these are not, conclusive since many people may, possess these qualities but may not, be leaders., There are several bases for classifying, leadership styles. The most popular, classification of leadership styles is, based on the use of authority. Depending, on the use of authority, there are three, basic styles of leadership:, (i) Autocratic (ii) Democratic, and, (iii) Laissez-faire, , (i) Autocratic or Authoritarian leader, An autocratic leader gives orders, and expects his subordinates to, obey those orders. If a manager, is following this style, then, communication is only one-way, with the subordinate only acting, according to the command given, by the manager., This leader is dogmatic i.e.,, does not change or wish to be, contradicted. His following is, based on the assumption that, reward or punishment both can be, given depending upon the result., This leadership style is effective, in getting productivity in many, situations like in a factory where, the supervisor is responsible for, production on time and has to, ensure labour productivity. Quick, decision-making is also facilitated., But there are variations also,, they may listen to everyone’s, opinion, consider subordinates, ideas and concerns but the, decision will be their own., (ii) Democratic or Participative, leader, , A democratic leader will develop, action plans and makes, decisions in consultation with his, subordinates. He will encourage, them to participate in decisionmaking. This kind of leadership, style is more common now-adays, since leaders also recognise, that people perform best if they, have set their own objectives. They, also need to respect the other’s, opinion and support subordinates, , 2018-19
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Directing, , 199, , to perform their duties and, accomplish organisational, objectives. They exercise more, control by using forces within the, group., (iii) Laissez faire or Free-rein leader, Such a leader does not believe, in the use of power unless it, is absolutely essential. The, followers are given a high degree, of independence to formulate their, own objectives and ways to achieve, them. The group members work, on their own tasks resolving issues, themselves. The manager is there, only to support them and supply, them the required information to, complete the task assigned. At, the same time, the subordinate, assumes responsibility for the, work to be performed., Depending upon the situation, a leader may choose to exercise a, combination of these styles when, required. Even a laissez faire leader, would have certain rules to be followed, , while doing work and a democratic, leader may have to take his own, decision in an emergency situation., , Communication, Communication plays key role in, the success of a manager. How, much professional knowledge and, intelligence a manager possesses, becomes immaterial if he is not, able to communicate effectively, with his subordinates and create, understanding in them. Directing, abilities of a manager mainly depend, upon his communication skills. That, is why organisation always emphasise, on improving communication skills of, managers as well as employees., The word communication has, been derived from the Latin word, ‘communis’ which means ‘common’, which consequently implies common, understanding. Communication is, defined in different ways. Generally, it, is understood as a process of exchange, of ideas, views, facts, feelings etc.,, , Definitions of Communication, Communication is the sum of all things one person does when he wants to create understanding, in the mind of another. It involves systematic and continuous process of telling, listening and, understanding., Louis Allen, Communication is transfer of information from the sender to the receiver with the information, being understood by the receiver., Harold Koontz and Heniz Weihrich, Communication is a process by which people create and share information with one another, in order to reach common understanding., Rogers, , 2018-19
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Business Studies, , 200, , Effective Communication, increases managerial efficiency, , between or among people to create, common understanding., Some of the definitions given by, management experts are presented, in the box., A close examination of above, definitions reveals that communication, is the process of exchange of infor, mation between two or more persons, to reach common understanding., , Elements of Communication, Process, Communication has been defined, as a process. This process involves, elements like source, encoding,, media/channel, receiver, decoding,, noise and feedback. The process is, represented in the figure., The elements involved in communication process are explained below:, (i) Sender: Sender means person who, conveys his thoughts or ideas to, the receiver. The sender represents, source of communication., , (ii) Message: It is the content of ideas,, feelings, suggestions, order etc.,, intended to be communicated., (iii) Encoding: It is the process of, converting the message into, communication symbols such as, words, pictures, gestures etc.,, (iv) Media: It is the path through which, encoded message is transmitted, to receiver. The channel may be in, written form, face to face, phone, call, internet etc.,, (v) Decoding: It is the process of, converting encoded symbols of, the sender., (vi) Receiver: The, person, who, receives communication of the, sender., (vii) Feedback: It includes all those, actions of receiver indicating that, he has received and understood, message of sender., (viii)Noise: Noise means some, obstruction or hindrance to, communication. This hindrance, may be caused to sender, message, or receiver. Some examples of, noise are:, (a) Ambiguous symbols that lead, to faulty encoding., (b) A poor telephone connection., (c) An inattentive receiver., (d) Faulty decoding (attaching, wrong meanings to message)., (e) Prejudices obstructing the poor, understanding of message., (f ) Gestures and postures that, may distort the message., , 2018-19
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Directing, , 201, , Decoding, , Encoding, , Sender, , Media, , Message, , Receiver, , Noise, , Feedback, Communication Process, , Importance of Communication, Communication is one of the most, central aspects of managerial, activities. It has been estimated that, a manager spends 90 percent of his, time in communicating-reading,, writing, listening, guiding, instructing,, approving, reprimanding, etc. Effect, iveness of a manager depends, significantly on his ability to, communicate effectively with his, superiors, subordinates and external, agencies such as bankers, suppliers,, union and government., An ex-president of American, Management Association once, observed that number one management, problem today is communication., Bernard has called it the foundation, of all group activities. Communication, , serves as the lubricant fostering, for the smooth operations of the, management process. The importance, of communication in management, can be judged from the following:, (i) Acts as basis of coordination:, Communication acts as basis, of coordination. It provides, coordination among departments,, activities and persons in the, organisation. Such coordination, is provided by explaining about, organisational goals, the mode, of their achievement and inter, relationships between different, individuals etc., (ii) Helps in smooth working of, an enterprise: Communication, makes possible for the smooth, , 2018-19
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Business Studies, , 202, , and unrestricted working of the, enterprise. All organisational, interactions depend on comm, unications. The job of a manager, is to coordinate the human, and physical elements of an, organisation into an efficient and, active working unit that achieves, common objectives. It is only, communication which makes, smooth working of an enterprise, possible. Communication is basic, to an organisation’s existenceright from its birth through, its continuing life. When, communication stops, organised, activity ceases to exist., (iii) Acts as basis of decision making:, Communication provides needed, information for decision making., In its absence, it may not be, possible for the managers to take, any meaningful decision. Only, on the basis of communication, of relevant information one can, take right decision., (iv) Increases managerial efficiency:, Communication is essential for, quick and effective performance, of managerial functions. The, management conveys the goals, and targets, issues instructions,, allocates jobs and responsibilities, and looks after the performance, of subordinates. Communication, is involved in all these aspects., Thus, communication lubricates, the entire organisation and keeps, the organisation at work with, efficiency., , (v) Promotes cooperation and indust, rial peace: Efficient operation is the, aim of all prudent management. It, may be possible only when there, is industrial peace in the factory, and mutual cooperation between, management and workers. The, two way communication promotes, cooperation and mutual underst, anding between the management, and workers., (vi) Establishes effective leadership:, Communication is the basis of, leadership. Effective commu, nication helps to influence, subordinates. While influencing, people, leader should possess, good communication skills., (vii) Boosts morale and provides, motivation: An efficient system of, communication enables manage, ment to motivate, influence, and satisfy the subordinates., Good communication assists, the workers in their adjustment, with the physical and social, aspect of work. It improves good, human relations in industry., Communication is the basis of, participative and democratic, pattern of management. Comm, unication helps to boost morale, of employees and managers., , Formal and Informal, Communciation, Communication taking place within, an organisation may be broadly, , 2018-19
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Directing, , 203, , classified as formal and informal, communication., , Formal Communication, Formal communication flows through, official channels designed in the, organisation chart. This communica, tion may take place between a superior, and subordinate, a subordinate and, superior or among same cadre emplo, yees or managers. The communications, may be oral or written but generally, recorded and filed in the office., Formal communication may be, further classified as – Vertical and, Horizontal., Vertical communication flows, vertically i.e., upwards or downwards, through formal channels. Upward, communications refer to flow of, communication from subordinate, to superior whereas downward, communication indicates commu, nication from a superior to, subordinate. The examples of upward, , Chain, , Wheel, , communication are – application, for grant of leave, submission of, progress report, request for grants etc., Similarly, the examples of downward, communication include – sending, notice to employees to attend a meeting,, ordering subordinates to complete an, assigned work, passing on guidelines, framed by top management to the, subordinates etc., Horizontal or lateral communication, takes place between one division and, another. For example, a production, manager may contact marketing, manager to discuss about schedule, of product delivery, product design,, quality etc., The pattern through which, communication flows within the, organisation is generally indicated, through communication network., Different types of communication, networks may operate in formal, organisation. Some of the popular, communication networks are presented, and discussed in given figure., , Circular, , Communication Network, , 2018-19, , Free Flow, , Inverted V
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Business Studies, , 204, , (i) Single chain: This network exists, between a supervisor and his, subordinates. Since many levels, exist in an organisation structure,, communication flows from every, superior to his subordinate through, single chain., (ii) Wheel: In wheel network, all, subordinates under one superior, communicate through him only, as he acts as a hub of the wheel., The subordinates are not allowed, to talk among themselves., (iii) Circular: In circular network, the, communication moves in a circle., Each person can communicate, with his adjoining two persons., In this network, communication, flow is slow., (iv) Free flow: In this network, each, person can communicate with, others freely. The flow of commu, nication is fast in this network., (v) Inverted V: In this network, a, subordinate is allowed to comm, unicate with his immediate, superior as well as his superiors, superior. However, in later case,, only prescribed communication, takes place., , Informal Communication, Communication that takes place, without following the formal lines of, communication is said to be informal, communication. Informal system of, communication is generally referred to, as the ‘grapevine’ because it spreads, throughout the organisation with its, , branches going out in all directions, in utter disregard to the levels of, authority., The informal communication, arises out of needs of employees to, exchange their views, which cannot, be done through formal channels., Workers chit chating in a canteen, about the behaviour of the superior,, discussing about rumours that some, employees are likely to be transferred, are some examples of informal, communications. The grapevine/, informal communication spreads, rapidly and sometimes gets distorted., It is very difficult to detect the source, of such communication. It also leads, to generate rumours which are not, authentic. People’s behaviour is affected, by rumours and informal discussions, and sometimes may hamper work, environment. Sometimes, grapevine, channels may be helpful as they carry, information rapidly and, therefore,, may be useful to the manager at times., Informal channels are used by the, managers to transmit information so, as to know the reactions of his/her, subordinates. An intelligent manager, should make use of positive aspects, of informal channels and minimise, negative aspects of this channel, of communication., , Grapevine Network, Grapevine, communication, may, follow different types of network., Some of these networks are shown in, figure on page 205., , 2018-19
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Directing, , 205, , Single Strand Network, Gossip Network, , Probability Network, , Cluster Network, , Grapevine Communication Networks, , In single strand network, each, person communicates to the other in, sequence. In gossip network, each, person communicates with all on nonselective basis. In probability network,, the individual communicates rando, mly with other individual. In cluster,, the individual communicates with, only those people whom he trusts. Of, these four types of networks, cluster, is the most popular in organisations., , Barriers to Communication, It is generally observed that managers, face several problems due to commu, nication breakdowns or barriers. These, barriers may prevent a communication, or filter part of it or carry incorrect, meaning due to which misunder, standings may be created. Therefore, it, is important for a manager to identity, such barriers and take measures to, overcome them., The barriers to communication in the, organisations can be broadly grouped, , as: semantic barriers, psychological, barriers, organisational barriers, and, personal barriers. These are briefly, discussed below:, Semantic barriers: Semantics is, the branch of linguistics dealing with, the meaning of words and sentences., Semantic barriers are concerned with, problems and obstructions in the, process of encoding and decoding of, message into words or impressions., Normally, such barriers result on, account of use of wrong words, faulty, translations, different interpretations, etc. These are discussed below:, (i) Badly expressed message: Some, times intended meaning may, not be conveyed by a manager, to his subordinates. These, badly expressed messages may, be an account of inadequate, vocabulary, usage of wrong words,, omission of needed words etc., , 2018-19
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Business Studies, , 206, , Communication Grapevine, , (ii) Symbols with different meanings:, A word may have several mean, ings. Receiver has to perceive one, such meaning for the word used, by communicator. For example,, consider these three sentences, where the work ‘value’ is used:, (a) What is the value of this ring?, (b) I value our friendship., (c) What is the value of learning, computer skills?, You will find that the ‘value’, gives different meaning in, different contexts. Wrong, perception leads to comm, unication problems., (iii) Faulty translations: Sometimes, the communications originally, drafted in one language (e.g.,, English) need to be translated, to the language understandable, to workers (e.g., Hindi). If the, translator is not proficient with, both the languages, mistakes, may creep in causing different, meanings to the communication., (iv) Unclarified assumptions: Some, communications may have certain, , assumptions which are subject, to different interpretations. For, example, a boss may instruct, his subordinate, “Take care of, our guest”. Boss may mean that, subordinate should take care of, transport, food, accommodation, of the guest until he leaves the, place. The subordinate may, interpret that guest should, be taken to hotel with care., Actually, the guest suffers due to, these unclarified assumptions., (v) Technical jargon: It is usually, found that specialists use technical, jargon while explaining to persons, who are not specialists in the, concerned field. Therefore, they, may not understand the actual, meaning of many such words., (vi) Body language and gesture, decoding:, Every, movement, of body communicates some, meaning. The body movement, and gestures of communicator, matters so much in conveying, the message. If there is no match, between what is said and what, is expressed in body movements,, communications may be wrongly, perceived., Psychological barriers: Emotional, or psychological factors acts as, barriers to communicators. For, example, a worried person cannot, communicate properly and an angry, receiver cannot understand the real, meaning of message. The state of, mind of both sender and receiver, of communication reflects in the, effective communication. Some of the, psychological barriers are:, , 2018-19
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Directing, , 207, , (i) Premature evaluation:, Some, times people evaluate the, meaning of message before the, sender completes his message., Such, premature, evaluation, may be due to pre-conceived, notions or prejudices against the, communication., (ii) Lack of attention: The preoccupied mind of receiver and, the resultant non-listening of, message acts as a major psy, chological barrier. For instance,, an employee explains about his, problems to the boss who is, pre-occupied with an important, file before him. The boss does, not grasp the message and the, employee is disappointed., (iii) Loss by transmission and poor, retention: When communication, passes through various levels,, successive transmissions of, the message results in loss of,, or transmission of inaccurate, information. This is more so in, case of oral communication., Poor retention is another problem., Usually people cannot retain, the information for a long time, if they are inattentive or not, interested., (iv) Distrust:, Distrust, between, communicator and communicate, acts as a barrier. If the parties, do not believe each other, they, can not understand each others, message in its original sense., Organisational barriers: The factors related to organisation structure, authority relationships, rules, and regulations may, sometimes, act, , as barriers to effective communication. Some of these barriers are:, (i) Organisational policy: If the, organisational policy, explicit, or implicit, is not supportive, to free flow of communication,, it may hamper effectiveness of, communications. For example,, in an organisation with highly, centralised pattern, people may, not be encouraged to have free, communication., (ii) Rules and regulations: Rigid rules, and cumbersome procedures, may be a hurdle to communication. Similarly, communications, through prescribed channel may, result in delays., (iii) Status: Status of superior may, create psychological distance, between him and his subordinates. A status conscious manager also may not allow his, subordinates to express their, feelings freely., (iv) Complexity in organisation struc, ture: In an organisation where, there are number of managerial, levels, communication gets delayed and distorted as number, of filtering points are more., (v) Organisational facilities: If, facilities for smooth, clear and, timely communications are not, provided communications may, be hampered. Facilities like, frequent meetings, suggestion, box, complaint box, social and, cultural gathering, transparency, in operations etc., will encourage, free flow of communication. Lack, of these facilities may create, communication problems., , 2018-19
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Business Studies, , 208, , Personal barriers: The personal, factors of both sender and receiver, may exert influence on effective, communication. Some of the personal, barriers of superiors and subordinates, are mentioned below:, (i) Fear of challenge to authority: If, a superior perceives that a particular communication may adversely affect his authority, he, or she may withhold or suppress, such communication., (ii) Lack of confidence of superior on, his subordinates: If superiors do, not have confidence on the competency of their subordinates,, they may not seek their advice, or opinions., (iii) Unwillingness to communicate:, Sometimes, subordinates may not, be prepared to communicate with, their superiors, if they perceive, that it may adversely affect their, interests., (iv) Lack of proper incentives: If there, is no motivation or incentive for, communication, subordinates may, not take initiative to communicate., For example, if there is no re, ward or appreciation for a good, suggestion, the subordinates, may not be willing to offer useful, suggestions., , Improving Communication, Effectiveness, The barriers to effective communication exists in all organisations to a, greater or lesser degree. Organisations keen on developing effective, communication should adopt suitable measures to overcome the bar-, , riers and improve communication, effectiveness. Some such measures, are indicated below:, (i) Clarify the ideas before com, munication: The problem to be, communicated to subordinates, should be clear in all its perspective to the executive himself. The, entire problem should be studied, in depth, analysed and stated in, such a manner that is clearly, conveyed to subordinates., (ii) Communicate according to the, needs of receiver: The level of, understanding of receiver should be, crystal clear to the communicator., Manager should adjust his, communication according to the, education and understanding, levels of subordinates., (iii) Consult others before communi, cating: Before actually communicating the message, it is better, to involve others in developing a, plan for communication. Participation and involvement of subordinates may help to gain ready, acceptance and willing cooperation of subordinates., (iv) Be aware of languages, tone and, content of message: The contents, of the message, tone, language, used, manner in which the, message is to be communicated, are the important aspects, of, effective, communication., The language used should be, understandable to the receiver, and should not offend the, sentiments of listeners. The, message should be stimulating to, evoke response from the listeners., , 2018-19
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Directing, , 209, , (v) Convey things of help and value, to listeners: While conveying, message to others, it is better to, know the interests and needs of, the people with whom you are, communicating. If the message, relates directly or indirectly, to such interests and needs it, certainly evokes response from, communicatee., (vi) Ensure proper feedback: The, communicator may ensure the, success of communication by, asking questions regarding the, message conveyed. The receiver, of communication may also be, encouraged to respond to communication. The communication process may be improved by, the feedback received to make it, more responsive., , (vii) Communicate for present as well, as future: Generally, commun, ication is needed to meet the, existing commitments to maintain, consistency, the communication, should aim at future goals of the, enterprise also., (viii) Follow up communications: There, should be regular follow up and, review on the instructions given, to subordinates. Such follow, up measures help in removing, hurdles if any in implementing, the instructions., (ix) Be a good listener: Manager, should be a good listener. Patient, and attentive listening solves, half of the problems. Managers, should also give indications of, their interest in listening to their, subordinates., , Key Terms, Directing Supervision Motives Motivation Incentives, Self actualisation Egoistic needs Leadership Trait approach, Communication Encoding Decoding Feedback, Semanticism Formal communication, Informal communication Profit sharing Copartnership, Quality circles Stock options, , Summary, Directing is a complex managerial function consisting of all the, activities that are designed to encourage subordinates to work, effectively. It includes supervision, motivation, communication, and leading. The principles which guide effective directing may, be classified as principles related to the purpose of directing and, principles related to direction process., Supervision: It is an element of direction. It can be understood, as a process as well as the functions performed by supervisor (a, , 2018-19
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Business Studies, , 210, , position at operative level). Supervision is very important as it is, closely linked to overseeing the work, guiding and ensuring that, targets are met by workers and employees., Motivation: Motivation is the process of stimulating people to action, to accomplish desired goals of organisation. It is an internal feeling, of an individual and leads to goal directed behaviour. Motivation, is mainly based on needs of individuals. It helps individuals and, groups in the organisation for improved performance., Managers offer incentives to employees both financial and non, financial. Financial incentives are monetary and may be in the, form of salary, bonus, profit sharing, pension etc. Non financial, incentives provide social and psychological satisfaction. These, include status, promotion, responsibility, job enrichment, job, recognition, job security, employee participation, delegation,, empowerment etc., One important theory of motivation is Maslow’s Need Hierarchy, theory. According to this theory, motivation to be provided depends, on needs which are hierarchical in nature. The needs in this, hierarchy have been classified as physiological needs, safety needs,, social needs, egoistic needs and self-actualisation needs. It assumes, that a satisfied need seldom motivates and only higher level need, can motivate a person. This theory is relevant even today, as it, focuses on needs which are basis for motivation., Leadership: Leadership is most important factor in the success, of an enterprise. It is the process of influencing people to strive, willingly for group objectives. The qualities of a good leader, have been researched by many experts. Some of the qualities, of good leader include–courage, will power, judgement,, knowledge, integrity, physical energy, faith, moral qualities,, fairness, vitality, decisiveness, social skills etc. But all these, qualities cannot be possessed by one individual nor always, help in their success., Communication: Communication refers to process of exchange, of ideas between or among persons and create understanding., Communication process involves the elements of source, encoding,, channel, receiver, decoding and feedback. In organisations, both, formal and informal communications simultaneously takes place., Formal communications refers to all official communications in, the form of orders, memos, appeals, notes, circulars, agenda,, minutes etc. Apart from formal communications, informal or, grapevine communications also exist. Informal communications, , 2018-19
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Directing, , 211, , are usually in the form of rumours, whispers etc. They are, unofficial, spontaneous, unrecorded, spread very fast and usually, distorted. A manager should learn to manage with informal, communication also. In most of the organisations, several barriers, may exist for effective communications. Some of these barriers, include – semantic barriers, organisational barriers, language, barriers, transmission barriers, psychological barriers and, personal barriers. Managers should take appropriate measures, to overcome these barriers and promote effective communication, in the organisation., , Exercises, Multiple Choice, 1. Which one of the following is not an element of direction?, (a) Motivation , (b) Communication, (c) Delegation, , (d) Supervision, 2. The motivation theory which classifies needs in hierarchical, order is developed by, (a) Fred Luthans , (b) Scott, (c) Abraham Maslow, (d) Peter F. Drucker, 3. Which of the following is a financial incentive?, (a) Promotion , (b) Stock Incentive, (c) Job Security , (d) Employee Participation, 4. Which of the following is not an element of communication, process?, (a) Decoding , (b) Communication, (c) Channel , (d) Receiver, 5. Grapevine is, (a) Formal communication, (b) Barrier to communication, (c) Lateral communication, (d) Informal communication, 6. Status comes under the following type of barriers, (a) Semantic barrier , (b) Organisational barrier, (c) Non Semantic barrier, (d) Psychological barrier, 7. The software company promoted by Narayana Murthy is, (a) Wipro , (b) Infosys, (c) Satyam , (d) HCL, , 2018-19
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Business Studies, , 212, , 8. The highest level need in the need Hierarchy of Abraham, Maslow:, (a) Safety need , (b) Belongingness need, (c) Self actualisation need, (d) Prestige need, 9. The process of converting the message into communication, symbols is known as(a) Media , (b) Encoding , (c) Feedback , (d) Decoding, 10. The communication network in which all subordinates under, a supervisor communicate through supervisor only is:, (a) Single chain , (b) Inverted V, (c) Wheel , (d) Free flow, Short, 1., 2., 3., 4., 5., 6., 7., 8., , Answer Type, Distinguish between leaders and managers., Define Motivation, What is informal communication?, What are semantic barriers of communication?, Who is a supervisor?, What are the elements of directing?, Explain the process of motivation?, Explain different networks of grapevine communications?, , Long Answer Type, 1. Explain the principles of Directing?, 2. Explain the qualities of a good leader? Do the qualities alone, ensure leadership success?, 3. Discuss Maslow’s Need Hierarchy theory of motivation., 4. What are the common barriers to effective communication?, Suggest measures to overcome them., 5. Explain different financial and non-financial incentives used, to motivate employees of a company?, Application type, 1. The workers always try to show their inability when any new, work is given to them. They are always unwilling to take up, any kind of work. Due to sudden rise in demand a firm wants, to meet excess orders. The supervisor is finding it difficult to, cope up with the situation. Suggest ways for the supervisor, to handle the problem., , 2018-19
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Directing, , 213, , 2. Workers of a factory often come to the Production Manager, with the grievances. The production manager finds himself, overburdened with so many tasks. Advise a way to relieve the, production manager., 3. In an organisation employees always feel they are under, stress. They take least initiative and fear to express their, problems before the manager. What do you think is wrong, with the manager ?, 4. In an organisation all the employees take things easy and, are free to approach anyone for minor queries and problems., This has resulted in everyone taking to each other and thus, resulting in inefficiency in the office. It has also resulted in, loss of secrecy and confidential information being leaked, out. What system do you think the manager should adopt to, improve communication., , Project Work, Project Work and Assignments, 1. The teacher will select five students as a group and one, student as a judge. Each student in the group prepares a talk, on any topic about ten sentences. Each student shall present, his talk while others listen carefully. Finally, the judge asks, each person five questions from five presentations. Each, successful answer carries two marks. This exercise helps to, identify listening ability., 2. Conduct a survey on your classmates and ask them about, their motives regarding the following:, (i) Joining school, (ii) Choosing course of study, (ii) Buying a brand of pen, (iv) Going to a movie, (v) Viewing a TV channel/Programme, List out the motives common to most students for each of, the above., 3. Identify barriers of communication, (i) Between you and your teacher, (ii) Between you and your friend, (iii) Between you and your brother/sister, Suggest measures to overcome these barriers. Are they, similar to what managers would do., , 2018-19
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Business Studies, , 214, , 4. Meet 10 people for each of the following product they have, recently purchased, (i) Detergent soap, (ii) Fairness cream, (iii) Motor bike, Ask them about their motives in buying the product/ brand., Identify the buying motives for each product and present it, in the classroom., , Case Problem, Y limited is a bank functioning in India. It is planning to diversify, into insurance business. Lately, the government of India has, allowed the private sector to gain entry in the insurance business., Previously, it was the prerogative of LIC and GIC to do insurance, business. But now with liberalisation of the economy and to make, the field competitive other companies have been given licenses, to start insurance business under the regulation of ‘Insurance, Regulatory and Development Authority’., Y limited plans to recruit high quality employees and agents and, exercise effective direction to capture a substantial part of life and, non life insurance business., Questions, 1. Identify how the company can supervise its employees and, agents effectively. What benefits will the company derive, from effective supervision?, 2. What financial and non-financial incentives can the company, use for employees and agents separately to motivate them., What benefits will the company get from them?, 3. How can the company ensure that higher order needs i.e.,, esteem and self-actualisation as specified by Abraham, Maslow are met?, 4. Identify the qualities of leadership in this line of business, that the company managers must possess to motivate, employees and agents., 5. Give a model of formal communication system that the, company can follow. Identify the barriers in this model. How, can they be removed?, 6. How can informal communication help to supplement formal, communication model given by you in answer to question 5?, , 2018-19
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8, , CONTROLLING, Damage Control at Sterling Courier, Sterling Courier Systems based in Hendon, Virginia is a, provider of same-day-delivery services. Although Sterling, may do everything right to meet its delivery commitments,, it relies on commercial airlines to transport its parcels, and, occasionally fails to meet its deadlines. Delays are usually a, result of packages being misplaced in airlines’ tracking systems., Such incidents are beyond Sterling’s control. But from the, customer’s vantage point, the failure is Sterling’s problem., To control the damage created by such delays, Sterling had, to take some corrective measures. For example, for several, months in late 1990 and early 1991 several Sterling deliveries, disappeared in transit. The packages turned up later, but the, customers had already suffered financial losses. Yet because, the packages were eventually recovered, neither insurance, nor the airlines was liable. The decision for president Glenn, Smoak was whether to compensate the customers for their, losses or simply not to charge them for the shipments., Smoak concluded that not charging for the shipment was an, inadequate response, given the suffered downtime. But paying, the $30,000 in losses would push the then-five-year-old $5, million company into a loss for the quarter. Smoak’s decision, was to pay out the $30,000 in gratis service, the customer, stayed, and Sterling continues to grow., Source: Stoner, A.F. James,, R. Edward Freeman and Daniel, R. Gilbert, Jr., Management,, Prentice-Hall of India Pvt. Ltd., 1998, , The example of Sterling Courier, brings out clearly how an adverse, business situation may intelligently, , CHAPTER, L E A R N I N G, OBJECTIVES, , After studying, this chapter, you, should be able to:, n, , n, , n, , n, , n, , Explain the, meaning of, controlling;, State the, importance of, controlling;, Describe the, relationship, between, planning and, controlling;, Explain the steps, in the process of, controlling; and, Describe the, techniques of, controlling., , be controlled by a manager. It is, quite clear from the example that a, manager needs to take some sort of, , 2018-19
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Business Studies, , 216, , corrective action before any major, damage is done to the business., Controlling function of management, comes to the rescue of a manager, here. It not only helps in keeping a, track on the progress of activities but, also ensures that activities conform to, the standards set in advance so that, organisational goals are achieved., , Meaning, , of Controlling, Controlling is one of the important, functions of a manager. In order, to seek planned results from the, subordinates, a manager needs to, exercise effective control over the, activities of the subordinates. In other, words, controlling means ensuring, that activities in an organisation are, performed as per the plans. Controlling, also ensures that an organisation’s, resources are being used effectively, and efficiently for the achievement of, predetermined goals. Controlling is,, thus, a goal-oriented function., Controlling function of a manager, is a pervasive function. It is a primary, function of every manager. Managers, at all levels of management- top,, middle and lower-need to perform, controlling functions to keep a, control over activities in their areas., Moreover, controlling is as much, , required in an educational institution,, military, hospital, and a club as in, any business organisation., Controlling should not be misunde, rstood as the last function of manage, ment. It is a function that brings, back the management cycle back to, the planning function. The controlling, function finds out how far actual, performance deviates from standards,, analyses the causes of such deviations, and attempts to take corrective actions, based on the same. This process, helps in formulation of future plans, in the light of the problems that were, identified and, thus, helps in better, planning in the future periods. Thus,, controlling only completes one cycle, of management process and improves, planning in the next cycle., , Importance of Controlling, Control is an indispensable function, of management. Without control the, best of plans can go awry. A good, control system helps an organisation, in the following ways:, (i) Accomplishing organisational, goals: The controlling function, measures progress towards the, organisational goals and brings, to light the deviations, if any,, and indicates corrective action., , Managerial Control implies the measurement of accomplishment against the standard and, the correction of deviations to assure attainment of objectives according to plans., Koontz and O’ Donnel, , 2018-19
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Controlling, , 217, , It, thus, guides the organisation, and keeps it on the right track so, that organisational goals might, be achieved., (ii) Judging accuracy of standards:, A good control system enables, management to verify whether, the standards set are accurate, and objective. An efficient control, system keeps a careful check, on the changes taking place, in the organisation and in the, environment and helps to review, and revise the standards in light, of such changes., (iii) Making efficient use of, resources: By exercising control, a, manager seeks to reduce wastage, and spoilage of resources. Each, activity is performed in accordance, with predetermined standards, and norms. This ensures that, resources are used in the most, effective and efficient manner., , (iv) Improving employee motivation:, A good control system ensures, that employees know well in, advance what they are expected to, do and what are the standards of, performance on the basis of which, they will be appraised. It, thus,, motivates them and helps them, to give better performance., (v) Ensuring order and discipline:, Controlling creates an atmosphere, of order and discipline in the, organisation. It helps to minimise, dishonest behaviour on the part, of the employees by keeping a, close check on their activities., The box explains how an importexport company was able to track, dishonest employees by using, computer monitoring as a part, of their control system., (vi) Facilitating coordination in, action: Controlling provides, direction to all activities and, , Control Through Computer Monitoring, Managers at a New York City import-export company suspected that two employees were, robbing it. Corporate Defense Strategies (CDS) of Maywood, New Jersey, advised the firm, to install a software program that could secretly log every single stroke of the suspects’, computer keys and send an encrypted e-mail report to CDS. Investigators revealed that, the two employees were deleting orders from the corporate books after processing them,, pocketing the revenues, and building their own company from within. The programme, picked up on their plan to return to the office late one night to steal a large shipment of, electronics. Police hid in the rafters of the firm’s warehouse, and when the suspects entered,, they were arrested. The pair was charged with embezzling $3 million over two and a half, years, a sizable amount of revenue for a $25 million-a-year firm., Source: Hellriegel Don, Susan E. Jackson and John W. Slocum Jr., Management:, A Competency-based Approach, Thompson, 2002, chap.19, p.526, , 2018-19
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Business Studies, , 218, , efforts for achieving organisational, goals. Each department and, employee is governed by pre, determined standards which, are well coordinated with one, another. This ensures that overall, organisational objectives are, accomplished., , Limitations of Controlling, Although controlling is an important, function of management, it suffers, from the following limitations., (i) Difficulty in setting quantitative, standards: Control system loses, some of its effectiveness when, standards cannot be defined in, quantitative terms. This makes, measurement of performance and, , their comparison with standards, a difficult task. Employee morale,, job satisfaction and human, behaviour are such areas where, this problem might arise., (ii) Little control on external factors:, Generally an enterprise cannot, control external factors such as, government policies, technological, changes, competition etc., (iii) Resistance from employees:, Control is often resisted by empl, oyees. They see it as a restriction, on their freedom. For instance,, employees might object when, they are kept under a strict watch, with the help of Closed Circuit, Televisions (CCTVs)., , Remain level headed, even when things go wrong, , 2018-19
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Controlling, , 219, , (iv) Costly affair: Control is a, costly affair as it involves a lot, of expenditure, time and effort., A small enterprise cannot afford, to install an expensive control, system. It cannot justify the, expenses involved. Managers, must ensure that the costs of, installing and operating a control, system should not exceed the, benefits derived from it., The box on Control System at, FedEx gives an overview of the control, system used by FedEx and how it, helped FedEx to increase its profits., , Relationship between Planning, and Controlling, Planning and controlling are, inseparable twins of management., A system of control presupposes the, , existence of certain standards. These, standards of performance which, serve as the basis of controlling are, provided by planning. Once a plan, becomes operational, controlling is, necessary to monitor the progress,, measure it, discover deviations and, initiate corrective measures to ensure, that events conform to plans. Thus,, planning without controlling is, meaningless. Similarly, controlling, is blind without planning. If the, standards are not set in advance,, managers have nothing to control., When there is no plan, there is no, basis of controlling., Planning is clearly a prerequisite, for controlling. It is utterly foolish, to think that controlling could be, accomplished without planning., Without planning there is no, Control System at FedEx, , FedEx operates an $18 billion delivery system from its eight U.S. and seven international, hubs. It operates more than 630 airplanes, 42,500 vehicles, and 44,400 drop-off locations. It, delivers more than three million express packages to customers in more than 200 countries., Effective control was one of the key to FedEx’s increased profits during the past decade., An important part of that control system was the ability to track customers’ parcels at, each stage of collection, shipment and delivery. Also, at FedEx, its controls help identify, which customers generate the greatest profits and which eventually end up costing the, company. FedEx closes accounts that aren’t profitable to serve, such as those in small, widely, scattered locations., The Internet has enabled FedEx to attract and hold new customers by providing them, with crucial information as needed. Customers can log onto the Internet and follow the, progress of their packages. By providing timely information about services and costs, along, with parcel progress to its customers, FedEx has been able to expand rapidly its customer, base. More than 2.5 million customers are connected electronically with FedEx., Source: Hellriegel Don, Susan E. Jackson and John W. Slocum, Jr., Management: A, Competency-based Approach, Thompson, 2002, , 2018-19
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Business Studies, , 220, , predetermined understanding of the, desired performance. Planning seeks, consistent, integrated and articulated, programmes while controlling seeks, to compel events to conform to plans., Planning is basically an intellectual, process involving thinking, articulation, and analysis to discover and prescribe, an appropriate course of action for, achieving objectives. Controlling,, on the other hand, checks whether, decisions have been translated into, desired action. Planning is thus,, prescriptive whereas, controlling is, evaluative., It is often said that planning is, looking ahead while controlling is, looking back. However, the statement, is only partially correct. Plans are, prepared for future and are based, on forecasts about future conditions., Therefore, planning involves looking, ahead and is called a forwardlooking function. On the contrary,, controlling is like a postmortem of, past activities to find out deviations, from the standards. In that sense,, controlling is a backward-looking, function. However, it should be, understood that planning is guided, by past experiences and the corrective, action initiated by control function, aims to improve future performance., Thus, planning and controlling are, both backward-looking as well as a, forward-looking function., Thus, planning and controlling are, interrelated and, in fact, reinforce, each other in the sense that, , 1. Planning based on facts makes, controlling easier and effective;, and, 2. Controlling improves future pla, nning by providing information, derived from past experience., , Controlling Process, Controlling is a systematic process, involving the following steps., 1. Setting performance standards, 2. Measurement of actual perfor, mance, 3. Comparison of actual perfor, mance with standards, 4. Analysing deviations, 5. Taking corrective action, Step 1: Setting Performance Stan, dards: The first step in the controlling, process is setting up of performance, standards. Standards are the criteria, against which actual performance, would be measured. Thus, standards, serve as benchmarks towards which, an organisation strives to work., Standards can be set in both, quantitative as well as qualitative, terms. For instance, standards set, in terms of cost to be incurred,, revenue to be earned, product units, to be produced and sold, time to, be spent in performing a task, all, represents quantitative standards., Sometimes standards may also be, set in qualitative terms. Improving, goodwill and motivation level of, employees are examples of qualitative, standards. The table in the next page, gives a glimpse of standards used in, , 2018-19
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Controlling, , 221, , different functional areas of business, to gauge performance., At the time of setting standards, a, manager should try to set standards, in precise quantitative terms as this, would make their comparison with, actual performance much easier. For, instance, reduction of defects from 10, in every 1,000 pieces produced to 5 in, every 1,000 pieces produced by the, end of the quarter. However, whenever, qualitative standards are set, an, effort must be made to define them, in a manner that would make their, measurement easier. For instance, for, improving customer satisfaction in a, fast food chain having self-service,, standards can be set in terms of time, taken by a customer to wait for a table,, time taken by him to place the order, and time taken to collect the order., It is important that standards, should be flexible enough to be, modified whenever required. Due to, changes taking place in the internal, and external business environment,, , standards may need some modification, to be realistic in the changed business, environment., Step 2: Measurement of Actual, Performance: Once performance, standards are set, the next step is, measurement of actual performance., Performance should be measured in, an objective and reliable manner., There are several techniques for, measurement of performance. These, include personal observation, sample, checking, performance reports, etc. As, far as possible, performance should be, measured in the same units in which, standards are set as this would make, their comparison easier., It is generally believed that meas, urement should be done after the, task is completed. However, wherever, possible, measurement of work should, be done during the performance., For instance, in case of assembling, task, each part produced should be, checked before assembling. Similarly,, in a manufacturing plant, levels, , Standards used in Functional Areas to Gauge Performance, Production, , Marketing, , Human Resource, Management, , Finance and, Accounting, , Quantity, , Sales volume, , Labour relations, , Capital expenditures, , Quality, , Sales expense, , Labour turnover, , Inventories, , Cost, , Advertising, expenditures, , Labour absenteeism, , Flow of capital, , Individual job, , Individual, , Performance, , Sales-person’s, performance, , Liquidity, , 2018-19
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Business Studies, , 222, , of gas particles in the air could be, continuously monitored for safety., Measurement of performance of an, employee may require preparation of, performance report by his superior., Measurement of a company’s, performance may involve calculation, of certain ratios like gross profit ratio,, net profit ratio, return on investment,, etc., at periodic intervals. Progress, of work in certain operating areas, like marketing may be measured, by considering the number of units, sold, increase in market share etc.,, whereas, efficiency of production may, be measured by counting the number, of pieces produced and number of, defective pieces in a batch. In small, organisations, each piece produced, may be checked to ensure that it, conforms to quality specifications, laid down for the product. However,, this might not be possible in a, large organisation. Thus, in large, organisations, certain pieces are, checked at random for quality. This, is known as sample checking., Step 3: Comparing Actual Per, formance with Standards: This, step involves comparison of actual, performance with the standard. Such, comparison will reveal the deviation, between actual and desired results., Comparison becomes easier when, standards are set in quantitative, terms. For instance, performance of a, worker in terms of units produced in a, week can be easily measured against, the standard output for the week., , Step 4: Analysing Deviations:, Some deviation in performance can, be expected in all activities. It is,, therefore, important to determine the, acceptable range of deviations. Also,, deviations in key areas of business, need to be attended more urgently, as compared to deviations in certain, insignificant areas. Critical point, control and management by exception, should be used by a manager in this, regard., 1. Critical Point Control: It is neither, economical nor easy to keep a, check on each and every activity, in an organisation. Control, should, therefore, focus on key, result areas (KRAs) which are, critical to the success of an, organisation. These KRAs are set, as the critical points. If anything, goes wrong at the critical points,, the entire organisation suffers., For instance, in a manufacturing, organisation, an increase of, 5 per cent in the labour cost, may be more troublesome than, a 15 per cent increase in postal, charges., 2. Management by Exception:, Management by exception, which, is often referred to as control, by exception, is an important, principle of management control, based on the belief that an attempt, to control everything results in, controlling nothing. Thus, only, significant deviations which go, beyond the permissible limit, , 2018-19
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Controlling, , 223, , should be brought to the notice, of management. Thus, if the plans, lay down 2 per cent increase in, labour cost as an acceptable range, of deviation in a manufacturing, organisation, only increase in, labour cost beyond 2 per cent, should be brought to the notice, of the management. However, in, case of major deviation from the, standard (say, 5 per cent), the, matter has to receive immediate, action of management on a priority, basis., The box below highlights the, advantages of critical point control, and management by exception., After identifying the deviations that, demand managerial attention, these, deviations need to be analysed for their, causes. Deviations may have multiple, causes for their origin. These include, unrealistic standards, defective, process, inadequacy of resources,, structural drawbacks, organisational, constraints and environmental factors, beyond the control of the organisation., , It is necessary to identify the exact, cause(s) of deviations, failing which,, an appropriate corrective action might, not be possible. The deviations and, their causes are then reported and, corrective action taken at appropriate, level., Step 5: Taking Corrective Action:, The final step in the controlling, process is taking corrective action., No corrective action is required when, the deviations are within acceptable, limits. However, when the deviations, go beyond the acceptable range,, especially in the important areas,, it demands immediate managerial, attention so that deviations do not, occur again and standards are, accomplished., Corrective action might involve, training of employees if the production, target could not be met. Similarly,, if an important project is running, behind schedule, corrective action, might involve assigning of additional, workers and equipment to the project, and permission for overtime work. In, , Advantages of Critical Point Control and Management by Exception, When a manager sets critical points and focuses attention on significant deviations which, cross the permissible limit, the following advantages accrue:, 1. It saves the time and efforts of managers as they deal with only significant deviations., 2. It focuses managerial attention on important areas. Thus, there is better utilisation of, managerial talent., 3. The routine problems are left to the subordinates. Management by exception, thus,, facilitates delegation of authority and increases morale of the employees., 4. It identifies critical problems which need timely action to keep the organisation in right, track., , 2018-19
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Business Studies, , 224, , Remedial Plan of Action:, Analysing deviations, , case the deviation cannot be corrected, through managerial action, the, standards may have to be revised. The, table below cites some of the causes, of deviations and the respective, , corrective action that might be taken, by a manager., The information in the box in next page, gives an account of how Saco Defense, was able to control a crisis situation., , Some examples of Corrective Action, Causes of deviation, 1. Defective material, , Corrective action to be taken, Change the quality specification for the material, used, , 2. Defective machinery, , Repair the existing machine or replace the machine if, it cannot be repaired, Undertake technological upgradation of machinery, Modify the existing process, Improve the physical conditions of work, , 3. Obsolete machinery, 4. Defective process, 5. Defective physical, conditions of work, , 2018-19
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Controlling, , 225, , How Saco Defense Controlled the Situation?, At Saco Defense, lack of quality had created a crisis. When the government shut it down, because it wasn’t meeting quality standards, Saco brought back a TQM programme that, had restored quality, increased production, and decreased costs. Based in Saco, Maine, the, 178-year-old defense company was unable to adhere to the U.S. Navy’s quality standards., Although Saco’s weapons worked well, the government questioned the company’s quality, practices and policies. For example, if an employee discovered a defective bolt near the, completion of an assembly process, the operator would replace the bolt but not document, the problem. The presence of one defective bolt might mean that others from the same, supplier or batch were also bad but were going undetected. Without follow-up, the, underlying materials problem would not be identified and resolved., To solve these problems Saco Defense went through an organisational transformation., The key elements were: (1) empowering employees by giving them the responsibility and, accountability for their performance, including the authority to halt production to correct, problems; (2) forming work cells, that is, small businesses within the company that manage, their production with limited supervision; and (3) reducing the workforce from 760 to, about 450 employees and eliminating several layers of management. In addition, ongoing, improvement projects at the company range from reducing cycle time and product cost, to implementing programmes for skill integration. Productivity has increased, turnover is, down, and the company plans to expand its international business., Source: Stoner, A.F. James, R. Edward Freeman and Daniel R. Gilbert, Jr.,, Management, Prentice-Hall of India Pvt. Ltd., 1998, (Ref: Joyce E. Santora, ‘A Quality Program Transforms Saco Defense’, Personnel, Journal, May 1993), , Techniques, Control, , of, , Managerial, , The various techniques of managerial, control may be classified into two broad, categories: traditional techniques, and, modern techniques., , Traditional Techniques, Traditional techniques are those which, have been used by the companies, for a long time now. However, these, techniques have not become obsolete, and are still being used by companies., These include:, , (a), (b), (c), (d), , Personal observation, Statistical reports, Breakeven analysis, Budgetary control, , Modern Techniques, Modern techniques of controlling are, those which are of recent origin and, are comparatively new in management, literature. These techniques provide, a refreshingly new thinking on the, ways in which various aspects of an, organisation can be controlled. These, include:, , 2018-19
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Business Studies, , 226, , (a), (b), (c), (d), (e), (f ), , Return on investment, Ratio analysis, Responsibility accounting, Management audit, PERT and CPM, Management information system, , Traditional Techniques, Personal Observation, This is the most traditional method, of control. Personal observation, enables the manager to collect first, hand information. It also creates, a psychological pressure on the, employees to perform well as they are, aware that they are being observed, personally on their job. However, it is, a very time-consuming exercise and, cannot effectively be used in all kinds, of jobs., , Statistical Reports, Statistical analysis in the form of, averages, percentages, ratios, correla, tion, etc., present useful information to, the managers regarding performance, of the organisation in various areas., Such information when presented in, the form of charts, graphs, tables, etc.,, enables the managers to read them, more easily and allow a comparison, to be made with performance in, previous periods and also with the, benchmarks., , Breakeven Analysis, Breakeven analysis is a technique, used by managers to study the, relationship between costs, volume, and profits. It determines the probable, profit and losses at different levels of, activity. The sales volume at which, , Breakeven Chart, , Total Revenue, , Cost and Revenue (Rs. Lakhs), , Total Cost, Profit, , Breakeven Point, , Variable Cost, , Loss, , Fixed Cost, , 25, , 50, , 75, , Sales Volume (in thousand units), , 2018-19
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Controlling, , 227, , there is no profit, no loss is known, as breakeven point. It is a useful, technique for the managers as it, helps in estimating profits at different, levels of activities., The figure 1 shows breakeven, chart of a firm. Breakeven point is, determined by the intersection of, Total Revenue and Total Cost curves., The figure shows that the firm will, break even at 50,000 units of output., At this point, there is no profit no, loss. It is beyond this point that the, firm will start earning profits., Breakeven point can be calculated, with the help of the following formula:, Breakeven Point =, , Fixed Costs, , Selling price per, unit – Variable cost, per unit, Breakeven analysis helps a firm in, keeping a close check over its variable, costs and determines the level of, , activity at which the firm can earn its, target profit., , Budgetary Control, Budgetary control is a technique, of managerial control in which all, operations are planned in advance, in the form of budgets and actual, results are compared with budgetary, standards. This comparison reveals, the necessary actions to be taken, so that organisational objectives are, accomplished., A budget is a quantitative statement, for a definite future period of time, for the purpose of obtaining a given, objective. It is also a statement which, reflects the policy of that particular, period. It will contain figures of, forecasts both in terms of time and, quantities. The box shows the most, common types of budgets used by an, organisation., Budgeting offers the following, advantages:, Types of Budgets, , n, n, n, n, n, n, , Sales Budget: A statement of what an organisation expects to sell, in terms of quantity as well as value, Production Budget: A statement of what an organisation plans to, produce in the budgeted period, Material Budget: A statement of estimated quantity and cost of, materials required for production, Cash Budget: Anticipated cash inflows and outflows for the, budgeted period, Capital Budget: Estimated spending on major long-term assets, like new factory or major equipment, Research and Development Budget: Estimated spending for, the development or refinement of products and processes, , 2018-19
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Business Studies, , 228, , 1. Budgeting focuses on specific, and time-bound targets and, thus, helps in attainment of, organisational objectives., 2. Budgeting is a source of motiva, tion to the employees who know, the standards against which their, performance will be appraised, and thus, enables them to perform, better., 3. Budgeting helps in optimum, utilisation of resources by, allocating them according to, the requirements of different, departments., 4. Budgeting is also used for, achieving coordination among, different departments of an, organisation and highlights the, interdependence between them., For instance, sales budget cannot, be prepared without knowing, production programmes and, schedules., 5. It facilitates management by, exception by stressing on, those operations which deviate, from budgeted standards in a, significant way., However, the effectiveness of, budgeting depends on how accurately, estimates have been made about, future. Flexible budgets should be, prepared which can be adopted if, forecasts about future turn out to, be different, especially in the face, of changing environmental forces., Managers must remember that, budgeting should not be viewed, , as an end but a means to achieve, organisational objectives., , Modern Techniques, Return on Investment, Return on Investment (RoI) is a useful, technique which provides the basic, yardstick for measuring whether or, not invested capital has been used, effectively for generating reasonable, amount of return. RoI can be used, to measure overall performance of, an organisation or of its individual, departments or divisions. It can be, calculated as under., RoI=, , Net Income ×, Sales, �, Sales, Total Investment, , Net Income before or after tax may, be used for making comparisons. Total, investment includes both working as, well as fixed capital invested in business., According to this technique, RoI can, be increased either by increasing, sales volume proportionately more, than total investment or by reducing, total investment without having any, reductions in sales volume., RoI provides top management an, effective means of control for measuring, and comparing performance of diff, erent departments. It also permits, departmental managers to find out, the problem which affects RoI in an, adverse manner., , Ratio Analysis, Ratio Analysis refers to analysis, of financial statements through, , 2018-19
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Controlling, , 229, , computation of ratios. The most, commonly used ratios used by, organisations can be classified into, the following categories:, 1. Liquidity Ratios: Liquidity ratios, are calculated to determine, short-term solvency of business., Analysis of current position of, liquid funds determines the, ability of the business to pay the, amount due to its stakeholders., 2. Solvency Ratios: Ratios which, are calculated to determine the, long-term solvency of business, are known as solvency ratios., Thus, these ratios determine the, ability of a business to service its, indebtedness., 3. Profitability Ratios: These ratios, are calculated to analyse the, profitability position of a business., Such ratios involve analysis of, profits in relation to sales or funds, or capital employed., , 4. Turnover Ratios: Turnover ratios, are calculated to determine the, efficiency of operations based on, effective utilisation of resources., Higher turnover means better, utilisation of resources., The table given below gives, examples of some ratios commonly, used by managers., , Responsibility Accounting, Responsibility accounting is a system, of accounting in which different, sections, divisions and departments, of an organisation are set up as, ‘Responsibility Centres’. The head of, the centre is responsible for achieving, the target set for his centre., Responsibility centres may be of, the following types:, 1. Cost Centre: A cost or expense, centre is a segment of an orga, nisation in which managers are, held responsible for the cost, , Examples of Commonly used Ratios, Type of Ratio, Liquidity, Solvency, , Profitability, , Turnover, , Examples, Current Ratio, Quick Ratio, Debt-Equity Ratio, Proprietary Ratio, Interest Coverage Ratio, Gross Profit Ratio, Net Profit Ratio, Return on Capital Employed, Inventory Turnover Ratio, Stock Turnover Ratio, Debtors Turnover Ratio, , 2018-19
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Business Studies, , 230, , incurred in the centre but not, for the revenues. For example, in, a manufacturing organisation,, production department is class, ified as cost centre., 2. Revenue Centre: A revenue centre, is a segment of an organisation, which is primarily responsible for, generating revenue. For example,, marketing department of an, organisation may be classified as, a revenue center., 3. Profit Centre: A profit centre, is a segment of an organisation, whose manager is responsible, for both revenues and costs. For, example, repair and maintenance, department of an organisation, may be treated as a profit center, if it is allowed to bill other produc, tion departments for the services, provided to them., 4. Investment Centre: An inve, stment centre is responsible, not only for profits but also, for investments made in the, centre in the form of assets. The, investment made in each centre, is separately ascertained and, return on investment is used as a, basis for judging the performance, of the centre., , Management Audit, Management audit refers to systematic, appraisal of the overall performance of, the management of an organisation., The purpose is to review the efficiency, and effectiveness of management and, , to improve its performance in future, periods. It is helpful in identifying, the deficiencies in the performance, of management functions. Thus,, management audit may be defined, as evaluation of the functioning,, performance and effectiveness of, management of an organisation., The main advantages of management audit are as follows., 1. It helps to locate present and, potential deficiencies in the, performance of management, functions., 2. It helps to improve the control, system of an organisation by, continuously monitoring the, performance of management., 3. It improves coordination in the, functioning of various departments so that they work together, effectively towards the achievement of organisational objectives., 4. It ensures updating of existing, managerial policies and strategies, in the light of environmental, changes., Conducting management audit may, sometimes pose a problem as there are, no standard techniques of management, audit. Also, management audit is not, compulsory under any law. Enlightened, managers, however, understand, its usefulness in improving overall, performance of the organisation., , PERT, , and CPM, PERT (Programme Evaluation and, Review Technique) and CPM (Critical, , 2018-19
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Controlling, , 231, , Path Method) are important network, techniques useful in planning, and controlling. These techniques, are especially useful for planning,, scheduling and implementing time, bound projects involving performance, of a variety of complex, diverse and, interrelated activities. These techniques, deals with time scheduling and, resource allocation for these activities, and aims at effective execution of, projects within given time schedule, and structure of costs., The steps involved in using PERT/, CPM are as follows:, 1. The project is divided into a, number of clearly identifiable, activities which are then arranged, in a logical sequence., 2. A network diagram is prepared to, show the sequence of activities,, the starting point and the, termination point of the project., 3. Time estimates are prepared, for each activity. PERT requires, the preparation of three time, estimates – optimistic (or shortest, time), pessimistic (or longest, time) and most likely time. In, CPM only one time estimate is, prepared. In addition, CPM also, requires making cost estimates, for completion of project., 4. The longest path in the network, is identified as the critical path. It, represents the sequence of those, activities which are important, for timely completion of the, project and where no delays can, , be allowed without delaying the, entire project., 5. If required, the plan is modified, so that execution and timely, completion of project is under, control., PERT and CPM are used extensively, in areas like ship-building, cons, truction projects, aircraft manu, facture, etc., , Management Information, System, Management Information System, (MIS) is a computer-based informa, tion system that provides information, and support for effective managerial, decision-making. A decision-maker, requires up-to-date, accurate and, timely information. MIS provides the, required information to the managers, by systematically processing a massive, data generated in an organisation., Thus, MIS is an important commun, ication tool for managers., MIS also serves as an important, control technique. It provides data, and information to the managers at, the right time so that appropriate, corrective action may be taken in, case of deviations from standards., MIS offers the following advantages, to the managers:, 1. It facilitates collection, management and dissemination of, information at different levels, of management and across, different departments of the, organisation., , 2018-19
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Business Studies, , 232, , 2. It supports planning, decisionmaking and controlling at all, levels., 3. It improves the quality of infor, mation with which a manager, works., , 4. It ensures cost effectiveness in, managing information., 5. It reduces information overload, on the managers as only, relevant information is provided, to them., , Key Terms, Controlling Critical point control Management by exception, Breakeven analysis Budgetary control Return on investment, Ratio analysis Responsibility accounting Management audit, PERT and CPM Management Information system, , Summary, n, n, , n, , n, , Controlling is the process of ensuring that actual activities, conform to planned activities., The importance of managerial control lies in the fact that it helps, in accomplishing organisational goals. Controlling also helps in, judging accuracy of standards, ensuring efficient utilization of, resources, boosting employee morale, creating an atmosphere of, order and discipline in the organisation and coordinating different, activities so that they all work together in one direction to meet, targets., Controlling suffers from certain limitations also. An organisation, has no control over external factors. The control system of an, organisation may face resistance from its employees. Sometimes, controlling turns out to be a costly affair, especially in case, of small organisations. Moreover, it is not always possible for, the management to set quantitative standards of performance, in the absence of which controlling exercise loses some of its, effectiveness., The process of control involves setting performance standards,, measurement of actual performance, comparison of actual, performance with standards, analysis of deviations and taking, corrective action., , 2018-19
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Controlling, , 233, , n, , n, , n, , Planning and controlling are inseparable twins of management., Planning initiates the process of management and controlling, completes the process. Plans are the basis of control and without, control the best laid plans may go astray., Personal observation, statistical reports, breakeven analysis, and budgetary control are traditional techniques of managerial, control., Return on investment, ratio analysis, responsibility accounting,, management audit, PERT and CPM and Management Information, System are modern techniques of managerial control., , Exercises, Multiple Choice, For the following, choose the right answer., 1. An efficient control system helps to, (a) Accomplishes organisational objectives, (b) Boosts employee morale, (c) Judges accuracy of standards, (d) All of the above, 2. Controlling function of an organisation is, (a) Forward looking, (b) Backward looking, (c) Forward as well as backward looking, (d) None of the above, 3. Management audit is a technique to keep a check on the, performance of, (a) Company, (b) Management of the company, (c) Shareholders, (d) Customers, 4. Budgetary control requires the preparation of, (a) Training schedule, (b) Budgets, (c) Network diagram, (d) Responsibility centres, 5. Which of the following is not applicable to responsibility, accounting, (a) Investment centre, (b) Accounting centre, (c) Profit centre, (d) Cost centre, , 2018-19
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Business Studies, , 234, , Short Answer Type, 1. Explain the meaning of controlling., 2. ‘Planning is looking ahead and controlling is looking back.’, Comment., 3. ‘An effort to control everything may end up in controlling, nothing.’ Explain., 4. Write a short note on budgetary control as a technique of, managerial control., 5. Explain how management audit serves as an effective, technique of controlling., Long Answer Type, 1. Explain the various steps involved in the process of control., 2. Explain the techniques of managerial control., 3. Explain the importance of controlling in an organisation. What, are the problems faced by the organisation in implementing, an effective control system?, 4. Discuss the relationship between planning and controlling., Application Type, Following are some behaviours that you and others might engage in, on the job. For each item, choose the behaviour that management, must keep a check to ensure an efficient control system., 1. Biased performance appraisals, 2. Using company’s supplies for personal use, 3. Asking a person to violate company’s rules, 4. Calling office to take a day off when one is sick, 5. Overlooking boss’s error to prove loyalty, 6. Claiming credit for someone else’s work, 7. Reporting a violation on noticing it, 8. Falsifying quality reports, 9. Taking longer than necessary to do the job, 10. Setting standards in consultation with workers, You are also required to suggest the management how the, undesirable behaviour can be controlled., , Case Problem, A company ‘M’ limited is manufacturing mobile phones both for, domestic Indian market as well as for export. It had enjoyed a, substantial market share and also had a loyal customer following., But lately it has been experiencing problems because its targets have, , 2018-19
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Controlling, , 235, , not been met with regard to sales and customer satisfaction. Also, mobile market in India has grown tremendously and new players, have come with better technology and pricing. This is causing, problems for the company. It is planning to revamp its controlling, system and take other steps necessary to rectify the problems it, is facing., Questions, 1. Identify the benefits the company will derive from a good, control system., 2. How can the company relate its planning with control in, this line of business to ensure that its plans are actually, implemented and targets attained., 3. Give the steps in the control process that the company, should follow to remove the problems it is facing., 4. What techniques of control can the company use?, In all the answers keep in mind the sector of business the, company is in., , 2018-19
