CLASS XII / BUSINESS STUDIES

Chapter-2 Notes (Part-3)

*FAYOL’S PRINCIPLES OF MANAGEMENT*

Henri Fayol Father of Management Studies and

Thoughts:

Henri Fayol a French mining engineer had developed

Management theories for scientific organization of

labour to control production cost in an enterprise.

He was the first to identify the functions of

Management as Plan, Organise, Command,

Coordinate and Control. For effective functions of an organization Fayol

categorized the business activities as technical, commercial, financial, security,
accounting and managerial. Fayol suggested that for managerial efficiency, a
manager must have appropriate education, knowledge and experience along with
physical and moral qualities.

Based on his ON-THE-JOB experiences, Fayol developed the concept of

administration through 14 principles of management. His principles of
management were published as a book ‘Administration Industrielle et Generale’ in
1917. The English version of the book was published in 1949 as ‘General and
Industrial Management’.

Fayol’s 14 Principles of Management:

1. Division of work:
According to this principle the whole work must be divided into small
tasks or units and instead of assigning the whole work to one person,
one task or unit of work must be assigned to one person according to the
capability, qualification and experience of the person. When a person is

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 performing a part of work again and again he will become perfect and
specialized in doing that work and his efficiency will improve.
Fayol said not only the factory work but technical, managerial and skill jobs
should also be divided into small segments for specialization.
Example: you might have seen in bank one person is receiving cash, one is
giving cash, one is making entry in the pass-book, one is handling the loan
department, etc. So in this manner the whole work is divided among the
employees and thus the bank operates efficiently.
Positive effects:
a) Specialization: whenever work is divided according to qualification and
capability then it leads to specialization.
b) Improves efficiency: when a person is performing only one part of work
again and again then he becomes expert in that work which results in less
wastage of resources which leads to efficiency.

Consequences of violation:

a) Lack of efficiency
b) There will be no specialization.
c) Chances of duplication of work.(same task repeated by more than
one person which leads to wastage of resources i.e., time raw
material and energy)
2. Authority and Responsibility:
Authority means power to take decision .Responsibility means
obligation to complete the job assigned on time. According to this
principle, there must be balance between the authority and
responsibility. Excess of authority without matching responsibility
may bring negative results and excess of responsibility without
matching authority will not allow the worker to complete his work on
time.
An organization must build safeguards against the misuse of managerial
power.
Example: if a person is given responsibility to produce 100 units in one
week time but he is not given authority to purchase the raw materials. If
there is no raw material available in the store as a result he could not
complete the target of producing 100 units on time. The worker cannot be
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 blamed for not completing the work on time because he was given only the
responsibility and not the matching authority to carry on the work. Excess of
responsibility with less authority results in no completion of work.
Positive effect:
a) No misuse of authority.
b) Helps in meeting responsibilities on time without any delay.

Consequences of violation:

a) Delay in work
b) Misuse of authority due to excess authority.
c) Overburden with work with excess responsibility.
3. Discipline:
Discipline refers to:
i) Following code of conduct, rules and regulations of employment
agreement.
ii) Good superior at all levels.
iii) Clear and fair agreement among subordinate and superior.
iv) Meeting commitments at all levels.
v) Judicious application of penalties.
Fayol insists that discipline is required at all the levels of
management and they should be given importance in the
organization.
Example: the employees must honour their commitments towards the
organization by working effectively and efficiently. On the other
hand, superiors must also meet their commitments by meeting their
promises of increments, promotions, wage revisions, etc.

Positive effects:

a) Systematic working in the organization.

b) Improves efficiency.

Consequences of violation:

a) Disorder, confusion and chaos.

b) Wastage of resources.

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 c) Delay in work.

4. Unity of Command:
According to this principle an employee should receive orders from one
superior and should be answerable to one superior only because if he is
receiving orders from more than one boss then he will get confused and
will not be able to understand that whose orders must be executed first.
Example: if employee of production department is asked to go slow in
production to maintain quality standard by the production incharge and sales
incharge instructs the employee to fasten the production to meet the pending
orders. In such situation the employee will get confused as to whose
instructions must be followed by him.
Positive effects:
a) No confusion in the mind of subordinate or among employees.
b) No ego clashes.
c) Improves effectiveness in working.

Consequences of violation:

a) Confusion among employees.

b) Subordinate/employees will get chance to escape from his
responsibilities by giving excuses.
c) Ego clashes among different superiors.
d) Difficulty in maintaining discipline in the organization.
5. Unity of Direction:
According to this principle “one unit means one plan”, the efforts of all
members and of all employees of organization must be directed towards
one direction that is the achievement of common goal. If this principle is
applied it leads to coordination. Each department and a group having
common objective must have “one head and one plan”.
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 both the divisions overlap.
Positive effects:
a) Achievement of organizational goals.
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 b) Efforts of all employees get unified in one direction only.

Consequences of violation:
a) Lack of coordination.
b) Wastage of efforts and resources by working in different
directions.
c) Difficulty in achieving in organizational goal.

Difference between Unity of Command and Unity of Direction

6. Subordination of Individual Interest to General Interest:

According to this principle the interest of organization must supersede the
interest of individuals or employees. In the organization all the employees
are working with some objective and there is always an objective of
organization. If the objectives of individual and objective of the organization
both are in the same direction then there is no problem but if the objectives
of both are in opposite direction than manager must try to reconcile
individual interest with organizational goal/interest and if it is not possible
then individual goal/objectives must be sacrificed for achieving
organizational goal. Managers must give priority to organizational
interest and not his personal interest. The manager can ensure this by

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 his exemplary behavior by not misusing his authority for personal
favours.
Example: before buying raw materials the manager must compare the prices
and qualities of all the supplier and give order to best rather than giving
order to his own relative by misusing his power.
Positive effects:
a) Achievement of organizational goals.
b) Coordination between individual and organizational goal.

Consequences of violation:
a) No achievement of organizational goal.
b) Even employees will also suffer in long run.
7. Remuneration of persons:
According to this principle employees in the organization must be paid
fair wages and salaries, which would give at least a reasonable standard
of living. At the same time it should be within the paying capacity of the
company and according to the minimum wage act of government and the
wages and salaries paid by the competitors.
Example: if in a particular year the organization has earned more profit than
apart from giving extra profit to shareholders and owners, some part of profit
must be given to employees also in the form of bonus. This will encourage
and motivate employees to put extra efforts for the benefit of the company.
Positive effects:
a) Employees get motivated.
b) Devotion and commitment of employees improves.

Consequences of violation:

a) Increase in employee’s turnover.

b) Dissatisfaction and demotivation of employees.
8. Centralization and Decentralization:
Centralization refers to concentration of authority or power in few
hands at the top level while Decentralization means evenly distribution
of power at every level of management.
According to Fayol a company must not be completely centralized or
completely decentralized but there must be combination of both
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depending upon the nature and size of the organization. A small
organization can be well organized and managed with centralized
technique but in large organizations there is a need of decentralization.
Secondly if employees are efficient and competent then they can be
trusted by having decentralization but if the employees are not fully
developed and are less in number then there must be centralization.
Example: Panchayat in our country have been given more power to decide
and spend funds granted to them by the government for the welfare of the
villagers. This is decentralization at National level.
Positive effects:
a) Benefits of both centralization and decentralization.
b) Fast decision at operational level and strict control by top level.

Consequences of violation:

a) Complete centralization will result in delay in decision making.

b) Complete decentralization will result in misuse of authority.

**Difference between Centralization and Decentralization

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 9. Principle of Scalar Chain:
Scalar Chain means line of authority or chain of superiors from highest
to lowest rank. Fayol insists that this chain must be followed strictly in the
organization. Every information must pass through every key of this chain,
no skipping of any one key should be allowed.
Fig. explains the principle:

According to the scalar chain principle if E wants to

contact O he has to move through E-D-C-B-A-L-M-N

and then O. If this chain is broken then there are chances

of communication gap in the organization but sometimes

following scalar chain becomes a long process and if

some important information has to be passed, it gets delayed so in case of

emergency and urgent information, Fayol permitted a short cut in the chain
which is called “Gang Plank”. Gang plank permits direct communication
between the employees working in different positions without following scalar
chain.

Positive effects:

a) Systematic flow of information.

b) No communication gap in the organization.

Consequences of violation:

a) There may be communication gap.

b) No clarity in authority responsibility relationship.

10. Principle of Order:

In this principle order does not mean command but it refers to orderly
arrangement of men and material that is a fixed place for everything
and everyone in the organization. Fayol insists that there must be a fixed
place to keep every material and things used in the organization and fixed

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 place for every employee of the organization so that no time and energy is
wasted in search of any material or any person.
Example: the finance director of a company has his office on the second
floor of the office building. Therefore anyone who wishes to meet him will
expect him to be available in his office. If he does not have fixed
office/place or he does not sit in his office then people will waste time
looking for him all over the office.
Positive effects:
a) No wastage of time in search of men or material.
b) Smooth and systematic working of organization.

Consequences of violation:

a) Wastage of time and energy in search of men and material.

b) Not able to contact the people at the right time which may lead to
delay in work.
11. Principle of Equity:
Equity means no discrimination on account of sex, religion, language,
caste, belief or nationality. Employees will put their maximum efforts only
when they are treated with kindness and justice. If a manager is biased in
dealing with employees then employees will get dissatisfied and will not
contribute to their maximum capacity. Equity does not mean equal salary
to a peon and supervisor but equity means application of same
disciplinary rules, leave rules in the same way irrespective of their
grade, position and gender.
Positive effects:
a) Employees get satisfied.
b) Motivate the employees and boost up the morale of the employees.
Consequences of violation:
a) Dissatisfaction among employees.
b) Increase in turnover of employees.
c) Unhealthy relation between superior and subordinates.
12. Stability of tenure of personnel:
It refers to no frequent terminations and transfers. According to this
principle the management must provide the feeling of job security
among the employees because with the feeling of insecurity for the job,
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 employees cannot contribute their maximum. Frequent turnover of
employees is bad for organization such decision must be taken when
they are almost unavoidable. Not only turnover but frequent transfers
should also be avoided.
Positive effects:
a) Improves efficiency level of employees.
b) No wastage of time and resources.

Consequences of violation:

a) Wastage of resources in learning new job.

b) Frustration and dissatisfaction among employees.
13. Initiative:
Initiative refers to taking the first step with self-motivation. Fayol
suggested that employees in the organization must be given an
opportunity to take some initiative in making and executing a plan. It
gives immense satisfaction to employees. So managers must welcome the
suggestions and ideas of employees before framing the plan. Employees
must be given opportunities to develop and execute plans but it must be
within the established practices of the company.
Example: A sales manager may give suggestions to make marketing
strategies more customer-oriented, but he should not change the pricing
policy of the company to receive bigger orders or favour specific customers.
Positive effects:
a) Develops feeling of belongingness in employees.
b) Employees achieve the target on time if they are set up with their
consultation.

Consequences of violation:

a) Employees will not work to the best of their ability.

b) Employees will get demotivated.

14. Spirit De Corps:

According to Fayol management should promote a team spirit of unity
and harmony among employees. Teamwork should be promoted for

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 effective coordination and realization of organizational goals. ‘I’ must
be replaced by ‘WE’ to give workers the sense of belongingness and
mutual trust.
Example: if the production manager assigned a target of manufacturing 100
units to a group of 10 members, divided the target among themselves to
produce 10 units each, principle of team spirit says that each member of the
group should not concentrate only on achieving his individual target of 10
units but they must concentrate on achieving group target of 100 units so if
two workers of that group fall sick, then the other eight members must
divide their individual target among themselves and try to achieve the target
of their group.
Positive effects:
a) Develops team spirit.
b) Achievement of group goals.

Consequences of violation:

a) Team goal may not be achieved.

b) No team spirit and more stress on individualism.

**Fayol versus Taylor – A Comparison

Henri Fayol and Taylor are associated with the classical management theory.
Both of them contributed immensely towards the study of management as a
discipline. It must be pointed out that their contributions are complementary to
each other.

• Taylor gave the concept of scientific management whereas Fayol

emphasized administrative principles of management.
• Taylor’s principles and techniques are suggested with bottom-upward
approach whereas Fayol’s principles are based on top-downward
approach.
• Taylor’s principles and techniques are relevant mainly with respect to
production activities whereas Fayol’s principles have wider relevance in
all functional areas.
• Taylor’s principles and techniques are more specific whereas Fayol’s
principles are more general in nature and are flexible.
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• Taylor’s principles and techniques are focused on workers efficiency
while Fayol’s principles are focused on managerial efficiency. If workers’
efficiency matter in the factory system, so does the managerial efficiency.

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