Deepika Mampdf

Business
Studies
Notes
Chapter 1
CHAPTER - 1
Nature and Significance of Management
❖ Management is a process of getting work done with the aim of achieving the goals of an
organisation in an efficient and effective manner.
❖ Key terms in the definition of management
• Process: Process means the interrelationship among the basic functions of management
such as planning, organising, staffing, directing and controlling. None of the functions
can be performed in isolation.
• Effectiveness: Completing a given work in the required time with a focus on the end
results.
•Efficiency: Completing a task with the minimum possible cost and resources.
Greater benefits with less resources  Efficiency
Same benefits with less resources  Efficiency
Less benefits even with more resources  Inefficiency
❖ Interrelationship between Effectiveness and Efficiency
Both effectiveness and efficiency are two prime inputs for achieving an organisation’s goals.
However, a trade-off has to be often made between them. This means that if an organisation
aims at achieving efficiency, then it may have to compromise on effectiveness and vice
versa.
Compiled
Compiled By:-
By:- CS
CS Deepika Guwalani
Deepika Guwalani
For example, if, to complete a task:

More workers are hired  Task gets completed on time  Effective , but if
More workers are hired  Cost increases in form of increased salary  Not efficient
On the other hand,
Task is carried out with the same number of workers  Less cost  Efficiency , but if
Task is carried out with the same number of workers  Delay in completion of work
 Not effective
Thus, a balance must be maintained so as to complete the task (effectively) employing

minimum resources with a focus on cost minimisation (efficiently).
❖ Features / Characteristics of Management
Compiled By:- CS Deepika Guwalani

The following are the various features of management.
1) All-pervasive: ‘Pervasive’ implies practised and followed by one and all. Management is
practised and needed by all organisations irrespective of their geographical location and
whether they are large or small, whether they work for economic, social or political
interest and whether they are located in rural or urban areas.
2) Goal-oriented: Management consolidates the efforts of various individuals in an
organisation for the achievement of the common goals of the organisation.
3) Continuous: Various functions of management (such as planning, organising, directing,
staffing and controlling) are performed simultaneously and continuously by the managers
at all levels.
4) Dynamic: Every organisation operates in a dynamic environment. Factors such as
government policies, competitors’ policies, consumers’ tastes and preferences vary
widely. Such factors are collectively termed external forces. Thus, management must aim
at adapting to various changes in the external forces for the pursuit of the organisation’s
goals.
5) Multidimensional: Management involves multiple dimensions, namely, managing the
work, managing the people and managing the operations.
6) Intangible: ‘Intangible’ refers to something that ‘cannot be seen and cannot be touched’.
Management as a process cannot be seen, but its presence can be felt by the success of an
organisation. For instance, a high degree of harmony and orderliness in an organisation
confirms the effectiveness of its management.
7) Group activity: Every Individuals in an organisation work together as a part of the same
group for the fulfillment of the common goals of the organisation. But management must
ensure the individual growth and development of each member of the organisation.
❖ Management - A Multi-Faceted Concept
The following are the three main dimensions of management.
1) Managing the work: With management, the work of an organisation is interpreted in
terms of the objectives and goals achieved owing to the work. Management also specifies
the guidelines regarding how these objectives can be achieved.

2) Managing the people: Managing the people implies dealing with the employees both as
individuals and as a group such that their strengths are utilised and their weaknesses are
identified.
3) Managing the operations- The production process where the inputs are transformed into
a product or a service requires continuous management in order to ensure the utilisation
of the resources efficiently and effectively.
❖ Objectives of Management
1) Organisational/economic objectives: Organisational or economic activity involves
optimal utilisation of the material and human resources available. The following are the
objectives involved.
a. Survival: The overall revenue must be adequate to cover the costs.
b. Profit: Profits must be earned such that the risks and costs are covered.
c. Growth: To continue in the long run, an organisation should focus on growth in terms
of sales, production, number of employees, etc.
2) Social objectives: Social obligations such as adoption of environment-friendly production
methods, contribution to social causes such as imparting education to children and
providing employment to the unemployed, etc., should be considered.
3) Personal objectives: The personal objectives of the individuals (financial objectives as
well as social objectives) must be accommodated.

❖ Importance of Management
1) Achievement of goals: The efforts of all the individuals must be organised and directed
towards the common goals of the organisation.
2) Increases efficiency: An increase in efficiency implies minimising the costs and
increasing the productivity through the optimum utilisation of resources.
3) Creates dynamic organisation: Management helps an organisation to adapt to the
changes in external factors such as political, social, environmental and economical
changes.
4) Development of society: Management must contribute to the development of society by
producing good quality products at fair prices, using honest selling practices, etc.
❖ Management as a Science
1) Systematic body of knowledge: Management has its own body of theories and principles
that were developed over the years. In addition, it has its own vocabulary.
2) Theories based on experimentation: The principles of management have developed over
the years based on repeated observations and experiments. However, as management
deals with human behavior, no exact cause-and-effect relationship can be established.
3) Universal validity: Theories and principles of management are valid universally to a great
extent. They can be used to impart basic knowledge and managerial skills to budding
managers.

❖ Management as an Art
1) Existing literature: Management has its own literature for theoretical knowledge and
learning, such as Henry Fayol’s principles of management and Frederick Taylor’s
scientific management theory.
2) Dynamic application: Managers mould the theories and principles of management as per
situations and the need of the hour.
3) Practice and creativity: Managers use creativity and imagination to apply the theories
and principles of management to different situations. Just like each artist specialises in
one form of art, different managers distinguish themselves in terms of their creativity and
application of their managerial skills. For instance, the acting skills of Mr. Amitabh
Bachchan differ from those of Mr. Robert Downey Jr; similarly, the managerial skills of
two managers differ in some way.
❖ Management as a Profession
As a profession, management fulfils the following criteria.
1) Systemised knowledge: Knowledge of management can be attained by studying in
various management colleges and institutes and by reading management books.
2) Freedom to be a manager: No specific qualification or degree is required to be a
manager.
3) Professional association: Managers are affiliated to professional associations, such as the
All India Management Association (AIMA), which regulate the functions of their members.
4) Code of conduct: Managers have a specific code of conduct. But it is not obligatory for
them to abide by the code.

❖ Levels of Management / Level of Hierarchy in Organisation

Three levels of hierarchy can be identified in an organisation.
Level of Management Main Task Example

• Coordinates different activities of the Chief executive
organisation for the accomplishment of officer, president
the common goals
Top Level • Works towards the survival of the
organisation
• Drafts various plans and policies
• Takes responsibility for all the activities
• Acts as a link between the top Departmental heads,
management and the workers at the executive officers
lower level
Middle Level • Interprets and implements policies and
plans
• Assigns responsibilities to the workers
• Acts as a link between the middle Supervisor, foreman
management and the workforce
Operational Level • Supervises the tasks of the workers
• Ensures that the task are carried out as
per the plans and policies

❖ Functions of Management
The five basic functions of management are presented diagrammatically below.
1) Planning: Deciding what is to be done, who is to do it and how it is to be done—that is,

setting the goals and devising the means for achieving them.
2) Organising: Identifying the tasks and the resources required for the execution of the
plans—that is, grouping and assigning the tasks to different departments and defining the
hierarchical structure.
3) Staffing/human resource function: Hiring the right kind of people as per the job
profiles. The function includes hiring new people and training and developing the
employees.
4) Directing: Guiding and motivating the personnel so as to help them put in their best.
5) Controlling: Measuring and comparing the actual work done against the set standards
and the plans. This function of management ensures that there is no diversion or errors
from the set targets, and that if any deviations or errors exist, then necessary timely steps
are taken to rectify them.
❖ Meaning of Coordination
• It is a process through which the activities of various departments and units are
synchronised for the achievement of the organisation’s goals.
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• It is a binding force that unites the individuals’ efforts for the accomplishment of the
common organisational goals.
• It acts as a link between the various functions of management.

• It is found at every level of management.
❖ Elements of Coordination
Coordination consists of the following three elements.
1) Integrating individuals’ work and efforts towards the attainment of the common goals of
an organisation.
2) Achieving a balance among the activities of the organisation so as to ensure harmony and
a cordial environment.
3) Properly scheduling the activities in such a way as to ensure that there are no
interruptions or delays and there is no duplication of work.
❖ Features of Coordination
1) Unifies individuals’ efforts: Coordination integrates the efforts of the individuals towards
the set targets or goals of the organisation.
2) Ensures unity: It unifies the actions of the individuals and departments to achieve the
organisational goals.
3) Goes on continuously: Coordination is a never-ending and continuous process that
ensures that work is performed as per the planned targets.
4) Pervades all levels: It is performed at all the levels of management.
5) Involves managers: Coordination is an activity that involves the managers at all levels.
The top-level managers perform it to ensure the overall welfare of the organisation. The
middle-level managers practise it to ensure that the top-level and lower level managers
work together in harmony. The operational level managers perform it to ensure that work
goes on according to the planned targets.
6) Implies deliberate action: Managers practice coordination deliberately so as to give a
direction to the efforts of the individuals of the organisation.
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❖ Coordination as the Essence of Management
OR
Importance of Coordination
1) Harmonized goals: Coordination synchronises the personal goals of the individuals and
the overall goals of the organisation.
2) Allotted work: Coordination integrates the opinions and thoughts of various specialists
and departments of an organisation so as to avoid diversion and conflict among them.
3) Interdependence of divisions: As an organisation has various independent departments
such as production, sales and finance, coordination is needed to synchronise their
activities for the achievement of the common goals.
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Chapter 2
Principles of Management
CHAPTER - 2
❖ The principles of management are guidelines for taking management decisions. They are the
general premises that are applicable in different situations and may vary in terms of applicability
and creativity of different managers.
❖ Management Principles vs. Principles of Pure Science

Management principles are not as rigid as the principles of pure science. Management principles
are based on human behaviour, and therefore, their applicability varies from manager to manager
(depending on the creativity of the manager) and from situation to situation. In contrast, the
principles of pure science are based on cause-and-effect relation and always have a specific result.
❖ Values vs. Management Principles

Values are general beliefs that govern and influence the behaviour of individuals in society.
Management principles are the basic truths that govern the managerial behaviour of managers.
❖ Techniques of Management vs. Management Principles

Techniques of management are procedures consisting of a series of steps to be followed in order to
accomplish a given task. Management principles are guidelines that are followed while making
decisions and practising management techniques.
❖ Nature of Principles of Management

• Universally applicable: Management principles can be applied anywhere and everywhere by all
types of organisations irrespective of their size, nature and region.
• Guidelines: Management principles act as guidelines and are considered to be the general
premises for decision making. However, they do not provide straitjacket solutions to problems.
• Formed by experimentation: Management principles have been developed over years of
research and experimentation and are technical. They pertain to different working situations and
can be modified by the manager as per the situations and the requirements.

• Flexible: Management principles are not rigid. They are flexible enough to be used and
moulded by the manager as per the need of the hour.
• Behavioural in nature: Management principles aim at influencing the behaviour of individuals,
and their applicability vary as per human nature.
• Indicative of cause-effect relationship: As management principles are based on years of
experimentation conducted in similar situations, they provide a definite relationship between
cause and effect.
• Contingent: Management principles are contingent as they can be used in different situations
depending upon the nature of the manager and the requirement of the situation.
❖ Importance of Principles of Management

• Insights to reality: As management principles are based on years of experimentation and
experience, they guide the managers in facing real-world problems in a more effective manner.
• Optimum utilisation of resources: Management principles provide an exact cause-and-effect
relationship of the manager’s decisions, thereby minimising the risk of wastages of resources
that may be associated with the trail-and-error method.

• Logical decisions: Management decisions should be based on reason and proof rather than
beliefs and intuitions. As the principles of management were developed from experiments on
real-life problems, they stand the test of logic and reasoning.
• Suitability to dynamic environments: The application of management principles depends on the
situation and the manager’s creativity. These principles can be moulded as per the requirements
and are, thus, flexible.
• Social responsibility: By taking care of customers’ values and business dealings, management
principles help the managers and the entire organisation in fulfilling their social responsibilities.
• Assistance in management training: By acting as the crux of business theory and management,
management principles provide the basis for management training and development.
❖ Fredrick Winslow Taylor: Fredrick Winslow Taylor, a mechanical engineer and scientist from the
US, is known as ‘the father of scientific management’. He introduced the term scientific
management or Taylorism in 1911. His principles are based on improving the conditions of the
floor-level workers.
❖ Scientific Management: Scientific management refers to the classical outlook of management

which focuses on devising the best way of completing a task, to increase effectiveness and
efficiency. It implies working according to standardised techniques and tools to improve the
product quantity and quality at reduced costs.
❖ Principles of Scientific Management:

• Science, not rule of thumb: Instead of rule-of-thumb methods, scientific management practices
should be followed. Under rule-of-thumb, a manager uses the trial-and-error method to find
solutions to a problem. Instead, Taylor suggested that a study of traditional methods should be
made and the best method/solution among them adopted by all managers.
• Harmony, not discord: Both managers and workers should contribute to maintaining a
harmonious working environment. Taylor emphasised a complete mental revolution—that is,
the management of an organisation should take care of the needs of the workers, and the
workers, on the other hand, should work to the best of their efficiency.

• Cooperation, not individualism: Cooperation among the managers and the workers is stressed,
rather than their individual interests. The managers should take care of the workers and,
similarly, the workers should work willingly, making their best contribution to the company.
• Personnel development: Personnel development aims at improving the capabilities of the
employees to the maximum. This will in turn enhance the overall efficiency of the organisation
as it depends on the individual competencies.
❖ Important Terms Related to Scientific Management

• Foreman: The foreman who is in-charge of the operational level workers.
• Functional foremanship: Functional foremanship refers to the technique in which eight persons are
employed to perform the functions of a foreman. Taylor introduced this technique to improve the
efficiency of the foreman. In this technique, the manager has two subordinates, namely, planning in
charge and production in charge, and each of them has four personnel under his or her supervision.
(i) Under planning in charge:
1. Instruction card clerk: To give instructions to the workers
2. Route clerk: To show the route of production
3. Time and cost clerk: To take care of the time taken and costs involved in production
4. Disciplinarian: To ensure that discipline is maintained
(ii) Under production in charge:
5. Speed boss: To ensure the timely completion of tasks
6. Gang boss: To keep the machines and tools ready for use by the workers

7. Repair boss: To ensure that the machines work properly
8. Inspector: To control the quality of work done
• Standardisation of work: Standardisation of work implies setting milestones or benchmarks for

any work or activity. It aims at establishing standards of excellence against which actual
performance can be measured.
• Simplification of work: Simplification of work involves eliminating unnecessary diversifications
in the product. It aims at fuller utilisation of the resources, reducing the inventories and increasing
the turnover. It also helps in reducing the costs of labour and machines.
• Method study: Method study focuses on finding out the best possible method for completing a
task. It takes into account every activity involved in the task with a view to reducing the costs
and maximising customer satisfaction.
• Motion study: Motion study refers to the study of motion (or movements) of a worker involved
in a given task. The study aims at identifying the unwanted actions or motions and eliminating
them so that the work can be completed in less time.
• Time study: Time study emphasises setting a standard time limit for completing a particular job.
The time taken for completing the job is measured for setting the standard time limit. This helps
decide the number of workers to be employed for a particular task, determine their wages, etc.

• Fatigue study: Fatigue study studies the requirement of rest or a break while performing a task.
The study identifies the intervals required while completing a task and suggests standard break
timings for improving the workers’performance.
• Differential piece wage system: Under this technique, wages are decided according to a set
standard. The workers who perform better than the set standards get higher wages than the
workers who perform below the standards. Taylor introduced this system to differentiate the
efficient workers from the inefficient ones and reward them accordingly.
• Mental revolution: Mental revolution implies changing the attitude of the workers and the
managers. According to the concept, the workers and the managers should improve their
thinking, and each should realise the others’ importance while working for the accomplishment
of the common organisational goals.
❖ Henri Fayol: Henri Fayol was a French mining engineer and practitioner who is also known as ‘the
father of general management’. He introduced the ‘general theory of administration’ or
‘Fayolism’ in 1916. His principles were based on improving the functions of the higher level
managers.
❖ Fayol’s Principles of Management

• Division of work: Division of work means that a given task is divided into small groups or units
in order to perform the task in a competent manner. This principle leads to specialisation of
work.
• Authority and responsibility: ‘Authority’ means the power to give orders and assign duties,
whereas ‘responsibility’ refers to someone’s obligation to perform the assigned duties.
According to this principle, managers should strike a balance between power and obligation.
• Discipline: Discipline implies that an organisation should follow the rules and regulations and
ensure conformity to the set rules and policies. It is important for both the management as well
as the workers that they honour their commitments and clear and fair agreements.
• Unity of command: According to the concept of unity of command, any employee should be
answerable to only one boss. If an individual receives commands and directions from two or
more superiors, then this principle is violated, and there will be chaos and conflicts.
• Unity of direction: Unity of direction means that each unit of an organisation works towards the
accomplishment of one common organisational objective. According to this principle, different
units having common goals should have a single head and should frame plans and carry out
tasks accordingly. This system ensures elimination of overlapping and duplication of work.
• Subordination of individual interest to general interest: Organisational goals should have
priority over personal interests of any individual. The individuals of an organisation should
make sure that their personal interests do not affect the organisational interests in any manner.
• Remuneration of employees: Compensation should be fair and just to both the employees and
the management. This implies that the employees should get fair wages and salaries, which will
help them to enjoy a reasonable and decent standard of living.
• Centralisation and decentralisation: Centralisation refers to the consolidation of power and
authority in one or a few hands. Here, the power of decision making and other subsidiary
powers remain exclusive to the top management of an organisation. On the other hand,
decentralisation refers to the delegation of authority to more than one level. Here, the vital
powers remain with the centre and the subsidiary powers are managed by the middle-level and
lower level of management. As per this principle, management must strike a balance between
what areas to decentralise and what responsibilities can be retained with the top management.
• Scalar chain: Scalar chain refers to a pre-defined, formal path of authority and communication
in the order of the highest to the lowest. Every individual in an organisation follows this chain
of authority for communication.
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• Order: ‘Order’ focuses on the right arrangement of things at their respective places, i.e., ‘the
right people at the right place and at the right time’. Order helps in carrying out tasks smoothly,
and violation of this principle leads to chaos and delays in work.
• Equity: Equity focuses on treating each employee fairly and all employees equally. According
to the principle, all employees should be equal in the eyes of the management. All workers
should be regarded as equal in term religion, language, caste, etc.
• Stability of personnel: ‘Stability’means that the management should follow a rigorous
procedure for the selection of potential candidates and should work towards retaining
employees for the maximum period. This principle ensures stability of personnel over a longer
period.
• Initiative: ‘Initiative’ implies that the workers should be given enough motivation and incentive
to work. They should be inspired to come up with suggestions regarding their work, which
should be in line with the practices and rules of the organisation.
• Espirit de corps: Espirit de corps is a concept that recommends that all employees should work
in unity with one another. In other words, team spirit should be promoted by the managers, and
each employee should have a sense of his or her belongingness in the organisation.
❖ Difference between Unity of Command and Unity of Direction
Basis of
Unity of command Unity of direction
difference
Meaning This principle suggests that a This principle suggests that all
subordinate should receive orders organisational activities that have the
from only one superior. same objectives should be grouped
together and carried out as per one
common plan under the supervision of
one supervisor.
Objective The main objective is to avoid The main objective is to avoid
dual subordination. overlapping and duplication of work.
Focus The focus is on the individual. The focus is on the organisation as a
whole.
Aim The aim is to prevent confusion in The aim is to unify the efforts of the
the functioning of the individual individual employees towards the
employees. achievement of departmental goals.
Result Following this principle results in Following this principle results in better
systemised functioning of the coordination among different individuals
organisation. to carry out tasks.

Example Suppose Mr. A (sales manager) Suppose an organisation deals in two

assigns Mr. B (subordinate) a task product lines—cosmetics and
that has to be completed in five accessories. In this scenario, the principle
working days. At the same time, of unity of direction suggests that the
Mr. C (finance manager) asks Mr. organisation should have two separate
B to complete the same task in departments, and each will focus
three working days. This will lead primarily on its respective product.
to confusion in terms of target, and
the principle of unity of command
gets violated.
❖ Difference between the Contributions of F. W. Taylor and Henri Fayol

Contributions by Contributions by
Basis of difference
Taylor Fayol
Contributions The scientific management The general theory of
theory, or ‘Taylorism’, was administration, or ‘Fayolism’,
evolved by Taylor in 1911. was propounded by Fayol in
1916.
Personality Taylor was a mechanical Fayol was a mining engineer and
engineer and scientist. practitioner.
Principles and techniques Taylor introduced the principles Fayol introduced 14 principles of
of scientific management and management that include order,
functional foremanship along equity and espirit de corps.
with various techniques such as
method study and motion study.
Application of principles Taylor’s principles are applicable Fayol’s principles are accepted
to specialised and particular everywhere and have universal
situations. applicability.
Perspective Taylor’s principles are aimed at Fayol’s principles are based on
improving the conditions of the functions of the higher level
floor-level workers first. managers.
Emphasis and focus The focus is on improving the The focus is on increasing the
overall administration of an productivity and the workers’
organisation. efficiency.
Title Taylor is popularly known as Fayol is regarded as ‘the father
‘the father of scientific of general management’.
management’.

Chapter 3
CHAPTER - 3
Business Environment
❖ Meaning of Business Environment
• Business environment refers to all the external forces— including
economic, social, political, technological and legal—that affect the
performance of a business organisation.
• These forces can affect the performance of the organisation either in a
positive or in a negative manner. For example, a change in consumer’s
tastes and preferences in favour of a firm’s product increases the demand
for its product. On the other hand, political instability can have an adverse
impact on its performance.
• External forces are outside the purview or control of an organisation but affect
its performance.
❖ Features / Characteristics of Business Environment

The following diagram depicts the various features of a business environment.

1) Aggregate of external forces: A business environment is the aggregate of all the
external forces such as individuals, consumers, government and legal matters
that affect the performance of an organisation either positively or negatively.
2) Interrelated: The different forces of a business environment are
interrelated with one another. For example,
 in income of the consumers   in demand for consumer
durables
3) Ever-changing: A business environment is dynamic. For example, the
consumer’s tastes and preferences, technology, political conditions, etc.,
change continuously.
4) Uncertain: The dynamism in the forces of a business environment implies that
they are highly uncertain and cannot be predicted easily.
5) Complex: As a business environment is the aggregate of different
interrelated forces, understanding it is quite difficult.
6) Relative: A business environment is relative in nature and differs from
one region to another depending on various factors. For example, political
conditions, religious beliefs, etc., are different in different regions.
❖ Specific and General Business Environment

➢ Specific environment: A specific business environment refers to a business
environment in which an organisation is acted upon by external forces specific to
the particular organisation and its performance is affected directly by these
forces. For example, a change in consumer tastes and preferences for the
products of a business enterprise directly affects the demand.
➢ General environment: A general business environment refers to a business

environment in which general external forces affect the performance of all the
organisations simultaneously. These forces affect a particular organisation only
indirectly. For example, a change in political conditions affects the performance
of all the organisations in the region simultaneously.

❖ Importance of Business Environment
The following diagram highlights the importance of a business environment.
As an organisation is constantly affected by various external forces, an

understanding of these forces is necessary for its successful functioning. The following
points highlight the importance of studying the business environment.
1) Identification of opportunities: An analysis of a business environment

enables an enterprise to identify various positive opportunities and thereby take
first advantage in its competition with other companies.
2) Identification of threats: A study of a business environment can help a

company analyse positive opportunities, but this study can also help it identify
various threats or negative signals and take preventive measures timely and
appropriately.

3) Accumulation of useful resources: A business environment, on the
one hand, provides an organisation various inputs required for its functioning,
and on the other hand, acts a source of demand for the goods and services
produced by it. Thus, it is important for an organisation to understand its
environment and use those resources from it that are required for the
production of the goods and services in demand.
4) Adjustment to changes: A careful study of a business environment

helps an organisation in dealing with various changes in the external forces
better.
5) Formulation of plans and policies: Through a study of a business

environment, an organisation can identify various threats and
opportunities to it, and accordingly frame suitable plans and policies.
6) Improvement in performance: Organisations that carefully study their

business environments and accordingly adopt suitable plans and policies are
better able to improve their performance in the long run.
❖ Dimensions of Business Environment / Components of Business Environment /

Factors Affecting Business
The term ‘dimensions’ refers to the various external forces that make up a
business environment. There are six broad dimensions of business.

The following are the dimensions of a business environment.
Dimension Consists of Example
Changes in economic Interest rate, income, stock
Economic
variables market indices
Social forces Customs, traditions,
Social
religious celebrations
Technological changes and Technology used in the
Technological improvements production of a product
becoming obsolete
Laws passed by the Laws such as Companies
Legal
government Act and Trade Union Act
Changes in political A change in the
Political conditions and situations government bringing a
change in rules and policies
❖ Macro-economic Factors that affect the functioning of Business

1) Phase of economic development: Business organisations are directly
influenced by the phase of development of the economy in which they operate. The
policies followed by business organisations in developed countries are different from
the policies followed by companies in developing countries.
2) Economic policies of the government: Economic policies such as fiscal

policies and monetary policies directly affect the functioning of business
organisations. For instance, liberal monetary policies (such as a reduction in
interest rates) have a positive impact on business organisations.
3) Structure of the economy: The type of structure, namely, capitalist,
socialist or mixed economic structure, governs the business opportunities in a
country.
4) Infrastructure: The availability (or lack) of infrastructure facilities has a positive
(or negative) impact on the functioning of a business enterprise.
5) Economic indicators: Economic indicators such as national income and

rate of saving and investment depict the level of economic activity and,
thereby, the availability of various business opportunities.
❖ Economic Environment in India at the Time of Independence

At the time of Independence, the economic environment in India can be rightly said to
have been stagnant. The following are the characteristics of the economic environment
in India at the time of Independence.
1) Agriculture was the dominant economic activity.

2) Nearly 70% of the total population was employed in agriculture.
3) More than 85% of the total population lived in villages.
4) Obsolete and backward technology was used in production (in both
agriculture and manufacturing).
5) There was a lack of a good public health care system.

6) Communicable diseases were widespread.

❖ Major Objectives of Development Plans in India
Development plans in India were formulated with the following four broad
objectives.
i. Rapid economic growth

ii. Self-reliance
iii. Equity
iv. Development of socialist pattern
Objective Meaning
Increase in the GDP i.e., over time a
Rapid economic continuous increase in the market value of
growth the goods and services produced in the
economy during an accounting year
Discouraging imports of those goods that
Self-reliance
could be produced domestically
Equitable distribution of GDP such that
Equity the benefits of higher growth are shared by all
sections of society
Socialist pattern Focus on equality and overall welfare
Note: In accordance with these objectives, a major step taken by the government was
to increase the role of the public sector while restricting the private sector. A large number of
industries were reserved for the public sector. On the other hand, the operations of the
private sector were highly restricted through regulations and controls such as licences and
permits. However, the system did not yield a positive effect, and India faced a severe
economic crisis in1991.

❖ Major Features of the Economic Crisis in 1991
1) High fiscal deficit amounting to 7% of the GDP.
2) Increasing internal debt (approximately 50% of the GDP). In addition, the
interest payments accounted for more than 39% of the total revenue collections
of the central government.
3) Low production in the agriculture and industrialsectors.

4) High inflation rates(13-14%).
5) Depreciation in the value of the rupee against the US dollar.

6) Fall in the foreign exchange reserves to an extremely low level.
7) Failure to meet international financial obligations, thereby forcing
the Reserve Bank of India (RBI) and the State Bank of India (SBI) to pledge
nearly 47 tonnes of gold in the international market.
8) Considerable fall in the country’s credit-worthiness rating, making it
difficult for the country to go in for fresh borrowings.
9) Low gross national product (GNP) growth rate (1.4%).
To overcome the crisis, the Union Government introduced a host of reform measures. The
most important was the introduction of the New Economic Policy, 1991.
❖ New Economic Policy (NEP), 1991

As a part of the reforms, the government introduced the New Economic Policy (NEP)
in July 1991. The following are the broad features of the policy.
1) Delicensing: The number of industries under compulsory licensing was reduced to only
six. That is, a licence was required for the establishment of a new business in only six
industries.

2) Dereservation: The number of industries exclusively reserved for the public sector
was reduced to only four (strategic industries).

3) Disinvestment: To further minimise the role of the public sector, disinvestment
was taken up in many public sector units.
4) Increase in foreign equity participation: Foreign equity participation was increased,
and 100% foreign direct investment (FDI) was allowed.

5) Liberalisation of the import of technology: Automatic permission was
granted to import foreign technology as well as to enter into technological
collaborations with foreign companies.
6) Promotion of small-scale industries: Various efforts were made to increase the
importance of small-scale industries.

7) Establishment of the Foreign Investment Promotion Board (FIPB): To
further promote FDI in India, the FIPB was set up.
8) Abolition of the Monopolies and Restrictive Trade Practices (MRTP) Act: The MRTP Act
was abolished, and companies were able to freely expand their area of operation or
establish new units without licence.
❖ Impact of NEP/ Essence of NEP

The essence of NEP is seen in the form of liberalisation, privatisation and
globalisation.
➢ Liberalisation: Liberalisation refers to the removal of controls and

restrictions imposed by the government. Liberalisation in India took the
following form.

1) Abolition of licences: On the whole, the system of obtaining a licence
for the establishment of a new unit was abolished. However, the system was
retained for six industries, namely, liquor, cigarettes, defence equipment,
dangerous chemicals, industrial explosives, and drugs and pharmaceuticals.
2) Augmentation of production: Augmentation of production implies

freedom to decide the scale and size of production as well as the price of
products. The MRTP companies (companies having assets worth more than
Rs. 100 crore) became free to expand the scale of their business according to
the market conditions.
3) Removal of trade restrictions: Restrictions regarding trade, such as customs,
duties and tariff, were removed.

4) Encouragement to foreign direct investment: Emphasis was laid on
increasing competition in the domestic market and attracting FDI.
➢ Privatisation: Privatisation refers to assigning a greater role to theprivate

sector and a gradual transfer of ownership or management of state-owned
enterprises to private sector enterprises. In India, privatisation took the
following form.
1) Disinvestment: Disinvestment implies sale of equity and strategic sale of
public sector units (PSUs) to the private sector.

2) Establishment of the Board of Industrial and Financial
Reconstruction (BIFR): The BIFR was established for the revival of
the sick and loss-making public sector enterprises.

3) Reduction in the Role of Public Sector: The number of
industries exclusively reserved for the public sector was reduced to
eight and then further to three (namely, railways, atomic mineral and
atomic energy).
4) Navratna policy: Under the Navratna policy, nine high-

performing PSUs were awarded the status of ‘Navratnas’. This
recognition encouraged these PSUs to improve their efficiency and
performance.
➢ Globalisation: Globalisation refers to opening up and integrating the

economy with the world economy. Globalisation in India took the
following form.
1) Removal of trade restrictions: Various trade restrictions such as tariffs,
custom duties and quotas were reducedconsiderably.
2) Reduction in export duty and import duty: Export duty and import
duty were reduced to promote free trade.
3) Encouragement to foreign capital investment: In accordancewith
the objective of encouraging foreign capital investment, various steps, such as
increasing the equity limit of foreign capital, setting up of special economic zones
and introducing the Foreign Exchange Management Act
(FEMA), were taken.
❖ Demonetisation
• On Nov 8, 2016 notes of Rs. 500 & Rs. 1,000 were ‘demonetised’- ceasing to be
legal tender
- Made 86% of money in circulation invalid
- People deposited the invalid currency in banks along with facing certain
restrictions on cash withdrawals and the convertibility of domestic money and
bank deposits.

- Aim: To curb corruption, illegal activities, unfair trade practices and
accumulation of ‘black money’
• Features
i.Measure of tax administration- black money holders had to declare the
unaccounted wealth and pay taxes at penalty rates
ii. Measure to avoid tax evasion- indicating govt. will not tolerate tax evasion
iii.Measure of channelizing savings into financial system- by depositing money in
banks
iv. Create ‘cash-less’ or ‘cash-lite’ economy- for increasing financial savings and
reducing tax evasion
• Impact of Demonetisation
i.Money/Interest Rates: Decrease in Cash Transactions, Increase in Bank Deposits &
Increase in Financial Savings
ii. Private Wealth: Decrease in Some high demonetised notes not returned
iii. Public Sector Wealth: No Effect
iv. Digitisation: Increase in Digital transactions
v. Real Estate: Decrease in Prices
vi. Tax Collection: Increase in Income tax collection
*As per Economic Survey, 2016–17
❖ Impact of NEP/Impact of LPG/Impact of Government Policy Changes

The following points highlight the impact of NEP on business and industry.
i. Increased competition: Policies such as abolition of the licensing policy

and dereservation increased the competition faced by domestic companies.
ii. Benefit to consumers: To survive in the environment of increased
competition, producers increasingly focussed on improving the quality of their
products. This benefited the consumers.

iii. Change in business policies: Business organisations altered their
policies and operations as per the New Industrial Policy.

iv. Technological changes: The increase in competition made firms
increasingly adopt new technology to survive in the market.
v. Need for trained personnel: The adoption of new and improved
technology by business organisations further increased their requirement for
skilled and trained personnel.
vi. Greater market orientation: To survive in the market, enterprises

increasingly paid attention to the market demand and produced goods as per
the needs and requirements of the consumers.
vii. Less reliance on budgetary support among public sector enterprises: In order to
improve efficiency and productivity, public sector enterprises realised the need
to reduce their reliance on budgetary support.

Chapter 4
Planning
CHAPTER – 4
Planning
❖ Meaning: Planning involves ‘thinking and deciding in advance’ about ‘what is to be done’ and
‘how it is to be done’.
❖ Definition: Planning is the process of setting goals and objectives, formulating alternative courses
of action and, finally, deciding an appropriate action from the various available alternatives. All this
is done for a specific period of time.
❖ Key terms in planning

• Setting objectives: Planning must pertain to a particular objective.
• Deciding the time period: Planning must pertain to a specific period. That is, the goals and
objectives as stated in the plans are to be achieved in a specific period.
• Formulating alternative courses of action: For the achievement of any objective, there can be
various alternative courses of action. These alternatives must be appropriately identified.
• Deciding a course of action: From the various available alternatives, the best suitable one must
be decided.
❖ Importance of Planning

Planning
1) Renders direction: Planning clearly states the goals and objectives to be achieved, and guides
the managers about what tasks are to be done and how they are to be done.
2) Subdued risk: Planning helps foresee the future. Various plans are formulated keeping in
consideration the expected future events. Thus, planning reduces the uncertainty of unforeseen
events.
3) Minimised overlapping: As the managers are familiar with the policies and plans, they
coordinate the activities together to achieve the set objectives. This helps in reducing the
overlapping of work.
4) Helps in decision making: By appropriately analysing future events and identifying and
evaluating the various courses of action, planning helps in taking rational decisions.
5) Essential for controlling: By clearly stating the objectives that are to be achieved, planning sets
the standards against which performance is to be evaluated, thereby helping in effective
controlling.
6) Promotes innovation: The formulation of plans and policies is an intellectual process that
requires creativity and innovation on the part of the managers.
❖ Features or Characteristics of Planning

1) Focus on objective: Plans must be formulated keeping in view the specific goals and
objectives. In this regard, it must be ensured that the plans are purposeful.
2) Stepping stone: Planning forms the base for all other functions of management such as
organising, directing and staffing. The functions of management are performed as per the set
goals and objectives as stated under planning.
3) Pervasiveness: Planning must be done at all levels of the organisation. However, its scope
differs along the various dimensions of the business concerned.
4) Continuity: Planning is a continuous process in the sense that after the implementation of a
plan, the need arises for the formulation of the next plan, keeping in view the new objectives
and goals.
5) Choice making: Planning involves identifying and choosing the best alternative course of
action for the attainment of the desired objectives.
6) Futuristic: Planning is futuristic in the sense that it foresees the future, thereby helping to
prepare for uncertain future events.

Planning
❖ Limitations of Planning
1) Rigidity: Once a plan is formulated, the manager may not be able to change it. This rigidity
creates hurdles when unforeseen changes come about.
2) Lack of flexibility to deal with a dynamic environment: Planning cannot help foresee the
changes in the business environment and fails in times of changes and uncertainties.
3) Reduced creativity: Plans are made by only the top management, and the lower levels of
management are not allowed to deviate from the pre-defined course. Thus, in the process, lower
level managers tend to lose their creativity.
4) Gigantic costs: As planning is based on future predictions, it requires much thought, analysis,
scientific calculations, etc., which are to be used for formulating a course of action. This
involves high costs.
5) False security: Mangers tend to rely on pretested plans. However, there is no guarantee that a
plan that worked well in the past will be successful in the future. The plan may fail because of
unforeseen changes.
6) Time-consuming process: Formulating a plan involves much research and evaluation, which
requires time. As the planning process is time-consuming, actions may get delayed.
❖ Planning Process
The process of planning in an organisation involves the following steps.
1) Setting the objectives: The first step is to set specific goals and objectives for the organisation.
2) Developing the premises: Premises means assumptions regarding the future. For successful
planning, the correct premises should be developed and proposed.
3) Identification of the alternatives: The next step is to carefully identify the various available
alternative courses of action for the achievement of the objectives.
4) Evaluation of the alternatives: Evaluating the alternatives involves examining the pros and
cons of each alternative based on their utility and the consequences.
5) Selecting the best: The best suitable option as per the objectives must be selected. Here, instead
of opting for a single course of action, a combination of different routes may also be chosen.
6) Implementation: This step involves organising and directing the work according to the chosen
path and policies.
7) Follow-up Action: Once the plans are implemented, a follow-up action is required to ensure the
successful achievement of the objectives.

Planning
❖ Types of Plans
1) Strategy: A strategy is a comprehensive plan that includes determining the long-term objectives,
adopting the required course of action and allocating the necessary resources.
2) Policy: A policy is a general statement that aims at channelling the efforts of the organisation in
a particular direction. It forms the general response or a course of action to be followed in a
particular situation.
3) Procedure: A procedure is a set of routine steps defined in a chronological order that are to be
followed for the enforcement of a policy.
4) Method: A method defines the way or manner in which a particular task can be performed. It
considers one step of an entire procedure and defines the step to be taken for the completion of
the given task.
5) Programme: A programme is a detailed statement which includes the entire gamut of activities
of a project and provides the broad framework of the business plans of the organisation.
6) Objective: An objective is the goal that a management desires to achieve. By stating the
objective, the management broadly defines what is to be done.

Planning
7) Rule: A rule refers to a standard or specific statement that gives information about what is to be
done and what is not to be done. Rules are the simplest type of plans.
8) Budget: A budget refers to a numerically expressed financial statement that defines the targets
to be achieved and the policies to be followed in a specific period.
❖ Differences between the Different Types of Plans

Basis Policies Strategies Procedures Methods
Meaning They are general They are They are routine They consider one
statements that comprehensive plans steps defined in a step of a procedure
channel the efforts of that provide broad chronological order and define the step
individuals in order contours of a that are to be to be taken for the
to achieve the business to followed for the completion of the
defined objectives. accomplish the enforcement a given task.
desired goals. policy.
Nature Less flexible Flexible and Rigid Flexible

temporary
Focus Carrying out the Defining the long- Enforcing a policy Completing the
routine functions in a term scope of to attain given task efficiently
prescribed manner business and solving organisational
challenging problems objectives

Planning
Basis Rule Objectives Programme Budget
Meaning They are specific These are goals that a They are detailed They are financial
statements that management desires statements that statements that
define what all is to to achieve. include the entire define the targets
be done. gamut of activities. and policies to be
achieved within a
specified period.
Nature Rigid and permanent More or less rigid Less flexible Rigid
Focus Specifying what is to Spelling out general Giving the plan Quantifying future
be done and what not and broad issues details to attain the facts so as to
objectives compare deviations

Chapter 5
Organising
CHAPTER – 5
Organising
❖ Organising refers to the procedure of aligning various activities in an organisation in a certain

specific order. It involves designing the roles of the personnel such that the efforts by the
employees along with the resources are coordinated towards the accomplishment of the
❖ Steps in the Organising Process
The following steps are involved in the process of organising:

1) Identifying and dividing the work: As a first step, various activities in the organisation are
identified and divided as per the pre-defined plans and objectives.
2) Creating departments: Next, the activities of a similar nature are grouped together in
different departments. This is done to promote specialisation.
3) Assigning duties: Once, the departments are created, the next step is to assign the roles
and responsibilities to the personnel as per their skills and abilities.
4) Establishing relationships: In this step, a clear hierarchical structure is established such
that every individual clearly knows the various superior-subordinate relationships in the
organisation.
❖ Importance of Organising
The following points highlight the importance of organising:
1) Clear definition of working relationships: Under organising, the hierarchical structure in
the organisation is clearly established, thereby avoiding any ambiguity in the transfer of
instructions.

Organising
2) Less duplication of work: As various activities are properly assigned to different

personnel, duplication of work is minimised.
3) Better coordination: Under organising, activities of a similar nature are grouped together
in different departments. This ensures better coordination and harmony.
4) Increased growth and expansion: Through proper organising, an enterprise can expand its
business operations and deviate from the traditional norms in a smooth and better manner.
5) Optimum utilisation of resources: By ensuring that various activities in the organisation
are properly aligned, overlapping of work is avoided. This in turn ensures that the
resources are efficiently utilised and there is minimum wastage of effort.
6) Improved specialisation: Under organising, activities of a similar nature are grouped
together and tasks are assigned to various individuals as per their skills and capabilities.
This allows the organisation to take advantage of specialisation.
7) Easy accommodation of change: With proper organising of activities in the organisation in
different departments and groups, the organisation can easily adapt to various changes in its
business environment. This is because the changes can be accommodated in only that
department that is directly affected by it, while the rest of the organisation can just be
communicated about the change. In this way, organising provides stability to the enterprise.
8) Efficient development of employees: The process of delegation and decentralisation
under organising helps in the development of both the managers and the employees.
While, on the one hand, organising allows the managers to focus on high priority areas
and provides them the opportunity to explore new areas; on the other hand, it provides the
subordinates a chance to prove their abilities and gain experience.
❖ Organisation Structure
➢ Meaning: It refers to the broad framework within which the working relationships (in
terms of positions, roles, responsibilities and authority) are defined in an organisation.
➢ Importance: The following points highlight the importance of a proper organisational
structure:
• Clearly defines the working relationships (superior-subordinate relationships)
• Enables coordination and integration of human efforts as well as physical resources
• Enables effective control over various activities in the organisation

Organising
• Facilitates smooth flow of communication

• Aids the growth and development of the organisation
➢ Points To Be Kept in Mind while Forming an Organisation Structure
• Job design: The organisational structure should clearly state the job design in terms
of division of tasks and activities. This design should clearly define the tasks to be
performed for the completion of particular jobs.
• Departmentalisation: After the division of tasks and activities, activities of a similar
nature must be carefully grouped together in different departments.
• Span of management: The type of organisation structure to be adopted depends on
the span of management in the organisation. Span of management refers to the
number of subordinates that a manager can efficiently handle. Span can be sub-
divided into the following two categories:
i. Narrow span of management: A narrow span implies that a small number of
subordinates report to a particular manager. It results in tall organisational
structures having multiple levels of management.
ii. Wide span of management: A wide span implies that a large number of
subordinates report to a manager. It results in flatter organisational structures with
only a few levels of management.
• Delegation: The organisational structure should specify the level or degree of
delegation to be followed. That is, it must specify the level of authority to be shared
between the superiors and the subordinates.
❖ Types of Organisational Structure

There are mainly two types of organisational structure- Functional structure and Divisional
structure.

Organising
❖ Functional Organisational Structure

• Activities or work of a similar nature are grouped together in different departments.
• Each department specialises in its own particular task.
• There is one coordinating head that controls the activities of each of the departments.
The following diagram depicts a functional structure:
➢ Advantages of a Functional Structure

1) Specialisation: Various departments formed under a functional structure specialise in
their specific activities. This promotes efficiency and improves the overall
performance in the organisation.
2) Better coordination: As activities of a similar nature are grouped together, there
exists better coordination in the tasks performed.
3) Reduced overlapping of work: As work is clearly divided in different departments,
the chances of overlapping or duplication of work is minimised.
4) Better managerial efficiency: A functional structure enables controlling and
monitoring in a better manner, thereby enhancing managerial efficiency.
5) Better training of employees: The focus of the employees in each department is only
on a limited set of skills and specialties. This makes their training process much
easier.
6) Appropriate attention to various functions: Under a functional structure, various
functions are grouped in different departments, and each of the departments
specialises in its own specific functions. This ensures that every function gets
adequate attention.

Organising
➢ Disadvantages of a Functional Structure

1) Less emphasis on organisational objectives: Under a functional structure, every
department lays emphasis on its own specific objectives. As a result, the overall
organisational objectives fail to receive due attention.
2) Problems in coordination: With the growth of the organisation, an increasing number
of departments are formed. This makes coordination among them quite difficult,
which in turn results in delay in decision making.
3) Conflict: Sometimes, it so happens that the interests of one department are not
compatible with those of another. This might lead to conflict between the
departments.
4) Inflexibility: The employees working in each of the departments specialise in only
one particular function. This results in inflexibility as they develop only a narrow
perspective and fail to gain experience in diverse activities.
➢ Suitability of a Functional Structure

A functional organisational structure proves suitable in the following conditions.
1) Large size: In a large organisation, departmentalisation helps in improving the overall
managerial efficiency and the degree of control over various activities. This results in
the smooth completion of various tasks in the organisation.
2) Varying functions: Organisations that deal with diverse functions simultaneously
require a higher degree of coordination. This can be achieved in a better manner by a
clear division of activities in various departments as done under a functional
structure.
3) Requirement of specialisation: Diverse functions in an organisation can be
performed better if specialisation is facilitated. This specialisation is promoted by a
functional structure through departmentalisation.
❖ Divisional Organisation Structure

• In a divisional organisation structure, different activities are grouped in various divisions
on the basis of the product line. That is, all the activities pertaining to a particular product
line are grouped in one division.

Organising
• Each of the divisions specialises in its respective product lines.

• Further, within each division there exists a functional structure. That is, each division has
various departments under it.
The following diagram depicts a divisional structure.
➢ Advantages of a Divisional Structure

1) Managerial efficiency: A divisional structure provides numerous opportunities
for the development of skills and knowledge of the managers. The head of each
division gains experience as he or she deals with a variety of functions
simultaneously. This enables the division head to grow professionally and
improve proficiency.
2) Measurement of performance: In a divisional structure, the performance of each
of the divisions is judged on the basis of its profit and loss during a particular
period. This type of assessment of performance is easier and helps in taking
appropriate and timely corrective action in case of poor performance.
3) Flexibility and initiative: As the heads of the divisions have the authority to
make their own decisions, a divisional structure promotes initiative and flexibility
in decision making.
4) Growth: An organisation following a divisional structure can easily add new
divisions under it, without disturbing the functioning of other divisions. This
makes the process of growth and expansion easy for the organisation.

Organising
➢ Disadvantages of a Divisional Structure

1) Departmental conflicts: Sometimes conflicts may arise among different divisions
with regard to various decisions and actions of the organisation such as those
relating to allocation of funds and resources.
2) Increase in cost: As there exists a similar functional structure under each
division, the same set of functions are performed under each department. Thus,
there is high probability of overlapping of activities, which results in a rise in cost
for the organisation.
3) Ignorance of overall objectives: Each of the divisions may function as a separate
unit with its own set of goals and objectives. As a result, the organisational goals
may be ignored.
➢ Suitability of a Divisional Structure

A divisional structure proves suitable for organisations that introduce, or plan to
introduce, different product lines.
❖ Differences between a Functional Structure and a Divisional Structure

Basis of difference Functional structure Divisional structure
Created on the basis of varying Created on the basis of varying

Creation functions product lines along with
functions
Less costly/economical as Costly, as there is a higher rate

duplication of work is minimised of duplication of work and use of
Costs
resources for the same functions
in various departments
Centralised decision making, as Decentralised decision making,

decisions are taken by a single as each division has its own
Decision making
coordinating head for various decision-making authority
departments

Organising
Basis of difference Functional structure Divisional structure
Minimum overlapping and High degree of overlapping of

Duplication of work duplication of work work, as each division has the
same set of functions
More suitable for organisations More suitable for organisations

Suitability that focus on ‘operational that focus on ‘multiple products’
specialisation’
Functional hierarchy Horizontal functional hierarchy Vertical functional hierarchy
❖ Formal Organisation Structure

A formal organisation structure is a well-defined structure of authority and hierarchy that
clearly specifies the boundaries of authority and responsibility in an organisation. The rules
and policies to be followed are clearly stated. A formal organisation structure is deliberately
created by the managers of an organisation to ensure its smooth and systematic functioning.
➢ Features of a Formal Organisation
The following are the important features of a formal organisation.
1) Specification of authority: In a formal organisation, the boundaries of authorities and
responsibilities are clearly defined. That is, it is clearly specified who is to report to
whom.
2) Achievement of organisational objectives: By clearly stating the procedures and rules
to be followed, a formal organisation enables the achievement of organisational
objectives in a far better manner.
3) Deliberate creation: A formal organisation is deliberately created by the managers in
order to achieve the systematic and efficient functioning of the organisation.
4) Coordination: A formal organisation facilitates the coordination of the efforts of
various departments and individuals in the pursuit of the common goals of the
organisation.
5) Emphasis on work: A formal organisational system lays more emphasis on the work
to be done rather than on interpersonal relationships.

Organising
➢ Advantages of a Formal Organisation

1) Reduced confusion: A formal organisation clearly defines the working relationships
and the hierarchy. That is, it clearly specifies who should report to whom. In this way,
it facilitates unity of command, thereby reducing confusion in the working operations.
2) High stability: By defining the procedures and rules clearly, a formal organisation
makes the behavior of the employees more predictable, bringing stability to the
organisation.
3) Reduced duplication of work: Since the responsibilities are clearly defined, there is
no room for ambiguity in the roles of various employees. This helps in avoiding
duplication of work and efforts.
4) Better coordination: A systematic division of activities in various departments results
in better coordination in the organisation.
5) Accomplishment of organisational objectives: A formal organisational structure lays
more stress on work, thereby assisting in achieving organisational objectives in a
better manner.
➢ Disadvantages of a Formal Organisation
1) Delay in decision making: Each member in a formal organisation has to follow the
established chain of working relationships for each and every task. Sometimes
(particularly in exigencies), such a system may result in delay in decision making.
2) Limited creativity: A formal organisational structure restricts creativity as it does not
allow for new practices and ways of doing the tasks. The tasks have to be performed
as per the pre-defined procedures and rules.
3) Portrays an incomplete picture: As a formal organisation lays emphasis on the
working relationships only, it fails to bring out the interpersonal relationships existing
in the organisation, thereby giving an incomplete picture of the organisation.
❖ Informal Structure
An informal structure is a network of social relationships that arises out of personal
interactions among the employees of an organisation beyond their officially defined roles. In
this regard, it can be said that an informal structure originates from within a formal
organisation.

Organising
➢ Features of an Informal Organisation

The following are the features of an informal organisation:
1) Originates from a formal organisation: An informal organisation arises from within
a formal organisation through personal interaction among the employees beyond their
officially defined roles.
2) Moulds behaviour: The behaviour of the employees in an informal organisation is
moulded by the norms of the groups, rather than by the officially defined rules.
3) Facilitates independent communication channels: In an informal organisation,
information flows freely without following any specified path or channel.
4) Forms spontaneously: An informal organisation structure emerges spontaneously out
of personal interactions among the employees and is not deliberately created either by
the employees or by the managers.
5) Remains complex: As informal organisations do not have a definite structure, they
are quite complex.
➢ Advantages of an Informal Organisation
The following are the advantages of an informal organisation:
1) Faster flow of communication: As no definite path or channel of communication is
followed in an informal organisation, information spreads faster.
2) Fulfilment of social needs: An informal organisation allows for personal
communication beyond the officially defined roles. This enables the employees to
interact with like-minded colleagues. This unofficial interaction provides a sense of
belongingness among the employees towards one another and towards the
organisation.
3) Fulfilment of organisational objectives: An informal organisation supports the
working of a formal organisation and thereby helps in the fulfilment of the
organisational objectives in a better manner. For instance, the managers can interact
with the workers informally and assess their views on various matters.
➢ Disadvantages of an Informal Organisation
The following are the disadvantages of an informal organisation:
1) Spread of rumours: An informal organisation often leads to the spread of rumours
that may mislead the employees.

Organising
2) Emphasis on personal interest over organisational interest: An informal

organisation tends to lay undue emphasis on individual interests over the
organisational interests. This may obstruct the achievement of the organisational
goals.
3) Negative results: An informal structure may lead to negative results if the norms and
interest of the various departments are not in conformity with the interest of the
organisation.
4) Resistance to change: The members of an informal organisation may resist and
oppose in unison the policies and changes of the managers, making their
implementation difficult.
➢ Strategic Importance of the Informal Sector

OR
➢ How an Informal Organisation Structure Supports the Formal Organisation
The following points highlight the strategic importance of an informal organisation
structure for a formal organisation:
1) Free flow of communication: An informal organisation structure allows the
employees to interact freely outside boundaries of the organisation. This facilitates
faster spread of information, thereby assisting the formal organisation.
2) Coordination: Through informal relations, people develop mutual trust and
understanding among them. This promotes coordination between them.
3) Organisational objectives: Along with the personal goals, informal relations help in
strategically fulfilling the organisational objectives as well. For instance, the
managers can interact with the workers informally and assess their views on various
matters as well as ask for their suggestions and ideas.
4) Harmonious environment: By developing healthy relationships, an informal
structure builds a harmonious working environment.
5) Efficiency and productivity: An informal organisation structure supports the
fulfilment of the social and psychological needs of the employees. This in turn helps
them to improve their productivity and efficiency.

Organising
❖ Difference between a Formal Organisation and an Informal Organisation

Basis of difference Formal organisation Informal organisation
Arises from formal rules and Arises from social interactions

Origin policies of the organisation among the employees beyond the
official boundaries of authority
Communication flows through Communication does not follow

the scalar chain, i.e., formal any fixed path and flows freely.
Communication flow
channels of communication are
followed.
The purpose is to achieve The purpose is to derive

Purpose
systematic working. psychological satisfaction.
More stable, as it is based on a Less stable, as it is based on the

Stability predefined structure of personal preferences of the
relationships employees, which may change
It is independent of the existence It arises out of the formal

Interdependence of the informal organisation. organisation, so is dependent on
it.
❖ Delegation
Delegation refers to the transfer of authority and responsibility by the superior to his or her
subordinates.
➢ Elements of Delegation
Delegation consists of the following three elements:
1. Authority: Authority refers to the power given to an individual to command and
direct the subordinates and take various decisions.
• In a formal organisation, the scalar chain gives rise to authority.
• It is a downward flowing channel, i.e., the superior commands authority over the
subordinates.
• Scope of authority delegated depends on the rules and regulations of the
organisation.

Organising
2. Responsibility: Responsibility refers to the adherence of the subordinate to complete

a given task and his or her answerability.
• Once a duty has been assigned to a subordinate, it is his or her responsibility to
perform and complete the task.
• Responsibility arises out of the superior-subordinate relationships.
• It is a channel that runs upward, i.e., the subordinate is responsible to his or her
superior.
• Responsibility must be accompanied by a fair degree of authority.
3. Accountability: Accountability refers to the answerability of the superior for the final
outcome of the work he or she has been assigned.
• Though the superior delegates the work to a subordinate, he or she will continue
to be responsible for the final outcome.
• As the superior is accountable for the final outcome of a task, he or she
undertakes regular supervision and collects feedback to ensure that the
subordinate performs the tasks properly.
• Accountability arises out of responsibility
➢ Relationship between Authority and Responsibility

Responsibility and authority must each be accompanied by the other. While responsibility
is assigned to a subordinate, he or she must also be given a certain degree of authority.
On the other hand, an individual who is given authority must also have some
responsibility.
Authority Responsibility
Authority without responsibility  Misapplication of power
Responsibility without authority  Inefficiency

Organising
➢ Relationship between Accountability, Authority and Responsibility
Basis of Accountability Responsibility Authority

difference
Responsibility gives The superior-subordinate Formal relations in an

Emergence rise to accountability. relationship gives rise to organisation give rise to
responsibility. authority.
Cannot be delegated Can be delegated but only to Can be delegated.

Delegation
some extent
Runs upward, i.e., from Runs upward, i.e., the Flows downwards, i.e.,
the subordinate to the subordinate is responsible to the superior commands
Flow
superior. his or her superior. authority over the
subordinates.
➢ Importance of Delegation
The following points highlight the importance of delegation in effective organising.
1) Managerial efficiency: By delegating work to the subordinates, the managers can
concentrate on priority areas and also venture into new areas. This freedom from the
routine tasks enhances the efficiency of the managers.
2) Employee proficiency: As the subordinates are entrusted with the responsibility of
completing a task, they get an opportunity to prove their abilities and apply their
skills. This helps them to gain experience and improve their proficiency.
3) Motivation: Delegation provides the employees with psychological benefits, which
motivate and encourage them to give their best to the organisation.
4) Growth: Delegation helps in the preparation of efficient and experienced managers
who can take up leading positions during the growth phase of the organisation. This
facilitates easy growth and expansion of the organisation.
5) Hierarchical structure: Delegation forms the basis of the hierarchical structure of an
organisation. It decides the reporting relationships and determines who has to report
to whom.
6) Coordination: By clearly defining the working relationships, delegation minimises
overlapping of work, thereby improving coordination and efficiency in the
organisation.

Organising
❖ Decentralisation
Decentralisation refers to the dispersal of the decision-making power among the middle-level
and lower level managers. The extent of decentralisation varies from one organisation to
another.
➢ Decentralisation - An Extension of Delegation
Both decentralisation and delegation relate to downward delegation of authority and
responsibility. While authority is shared just between the superior and the immediate
subordinate, under delegation, this concept is extended further under decentralisation, and
the authority is distributed to multiple levels. In other words, while delegation involves
just two persons, i.e., the superior and the subordinate, decentralisation is a wider concept
of delegation where power is transferred to numerous levels.
➢ Delegation v/s Decentralisation
Basis of differences Delegation Decentralisation
Delegation is compulsory because Decentralisation is optional; the

no individual can handle all the top-level management may or
Compulsory v/s optional
tasks by himself or herself. may not opt for this policy
decision.
Power is transferred within one Power can be transferred to

level of hierarchy, i.e., from a multiple levels, i.e., from the
Levels of transfer of power
superior to his or her immediate top-level to middle-level to
subordinate. lower level management.
The main objective is to reduce The main objective is to

the burden of the superior. empower all the levels of
Aim
management by giving them
greater autonomy.
Delegation is a routine function to Decentralisation is a policy

Policy matter v/s routine delegate the work and the matter of the organisation; it can
function authority by the managers to the decide whether to opt for
subordinates. decentralisation or not.

Organising
➢ Decentralisation v/s Centralisation

Basis of difference Centralisation Decentralisation
Authority remains concentrated only Authority is delegated to lower

Authority
in the higher level of management. levels of management.
Restricts creativity of middle-level Promotes creativity and

Creativity
and lower level managers innovation at all the levels
Higher workload on the top-level Less workload, as authority and

Workload
managers responsibility are shared
Scope of delegation is limited as Wider scope of delegation as

Scope of delegation power is concentrated in a few authority can be transferred.
hands.
Limits the scope of initiatives by Encourages the subordinates to

subordinates as the workers have to come forward and take initiative
Subordinate Initiative
work as per the pre-decided path as they are given the freedom
required for functioning
Decision making is slowed down as Decision making is quick as the

power lies only with the top-level authority to take action lies with
Decision making management. A problem has to pass the official who actually takes
through different levels before action the action required.
is taken.
➢ An Organisation Can Neither Be Completely Centralised Nor Completely

Decentralised
As an organisation grows in size, it cannot maintain complete centralisation. Rather, a
need arises to move towards decentralisation. The employees must be given some
authority and responsibility to ensure the smooth and efficient functioning of the
organisation. Moreover, as the organisation grows in size, decentralisation would
facilitate quick decision making, thereby avoiding delays.
However, an organisation cannot adopt extreme decentralisation. Delegation of all the
decision-making power to the lower level managers may harm the harmony of the

Organising
organisation. This is because it is possible that lower level managers in each department
would mould the rules and policies according to their own convenience, thereby
diverging from the overall organisational goals. Thus, a certain degree of authority and
control must be retained at the top-level management to maintain the integrity of the
organisation.
Thus, we can say that an organisation cannot function smoothly either with extreme
centralisation or with extreme decentralisation.
➢ Importance of Decentralisation
1) Initiative: Decentralisation gives some freedom to the lower level managers and
imparts them a higher degree of autonomy to take initiatives. In the process, the lower
level managers learn to face new challenges and find solutions for problems
themselves.
2) Managerial competence: Delegation of authority to lower level managers provides
them the opportunity to gain experience and thereby develop the skills and knowledge
to face new challenges. This improves their competence and level of maturity, which
in turn helps them to get ready for higher positions.
3) Control: Decentralisation assists in analysing and evaluating the performances of
each department separately. The extent of achievement of each department and its
contribution to the overall objectives of the organisation can be easily evaluated in a
decentralised system.
4) Active decision making: Since the authority to make decisions is passed on to the
lower levels of management through decentralisation, decisions are taken quickly and
in a timely manner. This is useful in finding solutions to problems easily.
5) Growth: Decentralisation calls for greater authority to the lower level managers. This
helps them develop their competence and gain experience. Decentralisation enables
an organisation to prepare future managers, which is useful during the growth and
expansion process.
6) Reduced workload of top managers: Through delegation, the top-level managers
shift their workload to their subordinates, allowing them to concentrate on higher
priority areas.

Chapter 6
Staffing
CHAPTER – 6
Staffing
❖ Staffing is the process of filling job vacancies and retaining the employees recruited. The primary
objective of staffing in an organisation is to fulfil its human resource requirements.
❖ Benefits of Staffing
1) Finding competent personnel- Staffing helps find and choose the right personnel required for
various job positions in an organisation.
2) Improves efficiency: Staffing ensures that that the right people are placed in the right jobs. This
improves the overall efficiency and performance of an organisation.
3) Facilitates organisational growth: By ensuring the appointment of efficient and competent
personnel for various jobs, staffing ensures the survival and growth of an organisation in the
long run.
4) Ensures the optimum utilisation of human resources: Through proper manpower planning,
staffing helps avoid situations of over-utilisation or under-utilisation of manpower.

Staffing
5) Provides job satisfaction to individuals: Compensation and fair rewards given to the
individuals recruited provide them job satisfaction, thereby helping to retain them in the
organisation for a long period.
❖ Human Resource Management

• Human resource management deals with the human element in an organisation by focussing on
the knowledge, skill and potential of individuals.
• It involves such functions as determining the requirement of personnel, recruiting personnel,
training and developing them, working towards the overall welfare of the employees and
handling their complaints and grievances.
• It is looked after, these days, by a separate department known as the human resource
department.
• Human resource management also looks after staffing.
❖ Staffing - A Line Activity as well as a Staff Activity
• A line activity: Along with all other functions of management such as planning, organising,
directing and controlling, the managers in an organisation also perform the function of staffing.
Staffing is, therefore, a generic function of management to be performed by all managers.
• A staff activity: Staffing is a distinct functional area managed in an organisation by a separate
department that deals with human resources.
❖ Staffing Process: It is the procedure of filling job vacancies in an organisation as well as taking
measures to retain the recruited employees. Thus, it focuses on timely fulfilment of the human
resource requirements of an organisation.
➢ Steps in the Staffing Process
The following steps are involved in the staffing process:

Staffing
1) Estimation of the manpower required: The first step is to estimate the number and kind
of personnel required in the organisation. This is done through workload analysis and
workforce analysis.
2) Recruitment/searching: The next step is recruitment, which involves looking for suitable
candidates to fill the job vacancies and persuading them to apply for the vacancies.
3) Selection: The third step involves choosing the right candidates from among the
applicants through a rigorous process involving a series of tests, interviews, etc.
4) Induction and placement: In this step, the selected employees are made familiar and
comfortable with the working environment. They are introduced to their colleagues—
seniors, peers and subordinates.
5) Training and development: The next step includes training the new employees to improve
their competence. Training helps the employees to upgrade their skills as per the
requirements of their jobs and increase their efficiency.
6) Appraisal: Appraisal implies assessing the performance of the employees against certain
pre-determined standards. It also involves the employees’ superiors providing proper
feedback to them about their performance.
7) Promotions: Promotions refer to placing the employees who are doing well in their jobs at
higher positions in the hierarchy by giving them higher responsibility and more functions.

Staffing
Promotions provide a psychological boost to the employees and motivate them to work to
the best of their capabilities and efficiency.
8) Compensation: This refers to the worth of a job. It entails the price of a job along with the
rewards that the employee deserves in return of his services.
➢ Some Important Terms Involved in the Staffing Process

1) Workload analysis: A workload analysis implies an estimation of the number and kind of
personnel required for various job positions.
2) Workforce analysis: A workforce analysis refers to an estimation of the existing personnel
in the organisation.
3) Induction: Induction involves familiarising the selected employees with the working
environment of the organisation and introducing them to their colleagues—seniors, peers
and subordinates.
4) Placement: Placement refers to deploying the selected employees in the positions for
which they have been selected.
5) Training: Training refers to the process of increasing the employees’ capabilities and
skills required for performing their jobs.
6) Development: Development of employees refers to the measures for their overall growth
which include enhancing their level of thinking and understanding.
❖ Recruitment
➢ Recruiting Process
The following steps are involved in the recruitment process;

1) Identifying the different sources of recruitment.
4

Staffing
2) Checking the validity of each source and assessing its authenticity and efficacy.
3) Choosing the most viable source of recruitment.
4) Inviting applications from the prospective candidates.
❖ Sources of Recruitment
The sources of recruitment can be bifurcated into the following categories:
1) Internal sources: Internal sources refer to the sources that are endogenous to the organisation,
that is within the organisation. In other words, when job vacancies are filled from within the
organisation, ‘internal sources’ of recruitment are said to have been used.
2) External sources: External sources refer to the sources that are exogenous to the organisation,
that is, outside the organisation. In other words, when job vacancies are filled from sources
outside the organisation, ‘external sources’ of recruitment are said to have been used.
➢ Internal Sources of Recruitment
Internal sources can be used in the following two ways.

1) Transfers: Through transfers, job vacancies are filled by shifting suitable individuals
working in another department of the organisation to the department where the vacancies
exist. Transfers can be said to be a horizontal process in which the employees transferred are
generally not given any higher responsibilities or job positions.

Staffing
2) Promotions: Through promotions, job vacancies in higher positions are filled by promoting
selected lower level employees. It is a vertical process in which the employees who are
promoted are given greater responsibilities.
➢ Merits of Internal Sources

1) Motivation: Filling job vacancies through internal sources (particularly promotion)
motivates the existing employees of the organisation and encourages them to improve their
efficiency and capabilities.
2) Low cost: Filling job vacancies through internal sources is effective in terms of both time
and costs. The costs involved in the whole recruitment and selection process are reduced to
a large extent, and the process is completed faster.
3) Simple and reliable process: Recruitment using internal sources is a simple and reliable
process. This is because the organisation is already familiar with the candidates who would
be filling the job positions.
4) No requirement for training: As the employees who are promoted or transferred are
familiar with the working pattern of the organisation, the managers need not spend time or
effort on their training and induction.
➢ Demerits of Internal Sources

1) Restricts new talent: As the job positions are filled from within the organisation, the scope
of infusing new and fresh talent gets restricted.
2) Limits choice: By opting for internal sources, an organisation restricts its choices of
candidates for its job positions.
3) Reduces efficiency: As the employees know that they will be promoted, they may become
lethargic and their efficiency may decrease.
4) Discourages competition: Recruitment through internal sources restricts new talent and
thereby discourages competition among the existing employees.

Staffing
➢ External Sources of Recruitment
External sources can take the following forms:

1) Direct recruitment: An organisation that opts for direct recruitment places a notice outside
its premises, giving details about job vacancies, including the number of vacancies,
qualifications of candidates and date of interview. Interested candidates collect the
information and attend the interviews, and the selection is done on the spot.
2) Casual callers: An organisation maintains a list of probable applicants along with their
contact information. As and when vacancies arise, it contacts them and persuades them to
apply for the jobs available.
3) Advertisement: Organisations give advertisements in periodicals regarding their job
vacancies. Through advertisements, they can reach a wider range of potential candidates,
thereby opening up their choices.
4) Employment exchange: Employment exchanges serve as a link between job seekers and
employers. Candidates submit their resumés to these exchanges, along with other necessary
details. When organisations with job vacancies contact the employment exchanges, the
exchanges suggest probable candidates to them. Employment exchanges are generally run
by the government.

Staffing
5) Private placement agencies: Placement agencies, just like employment exchanges, provide
a nationwide service of matching the demand for personnel with the available supply of
candidates. These agencies are generally run by private organisations.
6) Campus recruitment: Companies hire fresh graduates directly from colleges. This method
of recruitment from college campuses is called campus recruitment.
7) Recommendations by employees: Organisations request their employees to suggest
candidates from among their friends or relatives, and consider those suitable for recruitment.
8) Labour contractors: Organisations approach labour contractors for engaging low-skilled
workers or labourers. Labour contractors maintain a close contact with labourers and other
workers and call them for work when the need arises.
9) Advertising on television: Companies also telecast advertisements about job openings on
various television channels.
10) Web publishing: Companies use the Internet both to provide information about their
vacancies and to get information about potential candidates. On the other hand, candidates
register their names with websites and publish their resumés, along with other details, on
these websites.
➢ Merits of External Sources
• Infusion of new talent: Recruitment through external sources helps infuse new talent into
organisations. It enables the organisations to remove their inefficiencies.
• Wide choice: As job openings are advertised widely, a large number of applicants apply for
them, and the choice of suitable candidates for the organisations widens.
• Specialised personnel: In case the existing employees are not efficient enough, hiring new,
more qualified and proficient talent from external sources can benefit for the organisation.
• Spirit of competition: New talent that is hired promotes the spirit of competition. The
existing employees are motivated to work harder and more efficiently in order to prove
themselves.
➢ Demerits of External Sources
1) Dissatisfaction within the staff: As new talent is hired from outside the organisation,
dissatisfaction and frustration may arise among the existing employees as their chances of
promotion are reduced.

Staffing
2) Lengthy process: Recruitment through external sources is a lengthy in the sense that there
exists a long time period between notifying the candidates to apply and when the actual
selection takes place.
3) Costly procedure: Recruitment through external process is a costly option because of the
expenses involved in advertising vacancies and processing applications.
❖ Selection
The selection process
The following steps are involved in the process of selection.

1) Screening: As a first step, candidates who do not fulfil the basic criteria and qualifications
required for the job are eliminated through a preliminary screening or preliminary interview.
2) Test: The next step is to further judge the candidate on different criteria. Organisations conduct
various tests such as intelligence test, aptitude test, personality test, trade test and interest test.
3) Personal interview: A personal interview involves a direct conversation between the candidate
and a manager. An in-depth conversation is conducted with the candidate to judge the
individual’s overall suitability for the job position.

Staffing
4) Background checks: The information given by the candidate is verified by asking for
references from persons known to the candidate and from previous employers. These references
act as a source of additional information about the candidate.
5) Selection decision: This step involves the final selection by choosing the appropriate candidates
by the managers of the departments where the vacancies exist.
6) Medical examination: Some organisations conduct medical examinations to check the health of
the candidates. The job offer is given to them only after they are declared fit by a medical
practitioner.
7) Job offer: A job offer refers to the appointment letter issued by an organisation confirming that
the individual has been selected. It mentions such information as job profile, terms and
conditions, date of joining and time of reporting.
8) Employment contract: -Finally, at the completion of the selection process, the selected
candidate is given the employment contract, which mentions the terms and conditions of
employment. The new employee also fills in various forms such as an attestation form which
can be used by the organisation for future references.
➢ Selection Tests
The following tests are conducted as part of the selection process to evaluate the candidate:
• Intelligence tests: To judge the intelligence quotient of a candidate
• Aptitude test: To examine the potential of the individual to develop new skills
• Personality test: To test the overall personality of the individual and get some
information about his or her nature, state of mind, etc.
• Trade test: To measure and analyse the existing skills of the candidate
• Interest test: To find out the particular interests of the individual
❖ Training, Development and Education

Training: Training refers to the process of enhancing the skills and competence of an employee that
are required to perform a specific job. The focus of training is on developing just the right skills
required for performing particular tasks and is, therefore, job-oriented.
Development: Development refers to the process of developing the overall learning and maturity of
the employee. It boosts the overall career prospects of the employee and is said to be career-oriented.
Education: Education implies increasing the knowledge and understanding of the employee. The
focus is on developing the logical and rational mind of the individual and is, therefore, mind-oriented.
10

Staffing
➢ Benefits of Training to Organisation
1) Less wastage: As training involves systematic learning of tasks, it helps reduce wastage of
time and money, thereby ensuring the optimum utilisation of resources.
2) Higher profits: Training enhances the productivity and efficiency of the employees, thereby
raising the profits of their company.
3) Improved managerial efficiency: Training prepares the employees to face new challenges
and enables them to respond to various situations effectively. Thus, training helps an
organisation prepare future managers.
4) Reduced absenteeism: Effective training serves to boost the morale of the employees and
thereby reduce the rate of absenteeism and employee turnover.
➢ Benefits of Training to Employees
1) Better career opportunities: Training enhances the skill and knowledge of the employees,
enabling them to improve their career prospects.
2) Higher earnings: By imparting more knowledge and skills to the individual, training
enables them to earn more.
3) Reduced probability of accidents: Training attempts to make the employees more adept and
efficient in handling machines and thus makes them less prone to accidents.
4) Self-confidence: With proper training, the employees are able to work more efficiently. This
in turn gives them greater job satisfaction and self-confidence.
❖ Training Methods
Training can be conducted for the employees either on-the-job or off-the-job. In the former, the
employees learn about the skills while working (that is, even as their work proceeds), and in the
latter, they learn the skills required before they are deployed.
11

Staffing
➢ On-the-job training methods
1) Apprenticeship training: The trainees are put under master workers who guide them in
acquiring the level of skills required for their jobs. These trainees or apprentices work under
the trainers for a pre-defined amount of time. In the initial period, they observe the master
worker performing a task and then gradually do the task themselves under the supervision of
the master worker.
2) Induction training: As part of induction training, the selected employees are made familiar
with the working environment of the organisation. They are given a brief overview about
the workplace and are introduced to their colleagues—seniors, peers and subordinates.
3) Coaching: In this method, the trainees are put under the guidance of a coach or a
counsellor, and they work towards achieving the goals that are set on the basis of a mutual
understanding. Typically, coaching aims at training the employee such that he or she can
reach a higher position at work.
4) Job training: The trainee is shifted from one department to another or from one job to
another. This is done in order to provide the trainee an overview and understanding of all
the departments of the organisation.
5) Internship training: Educational institutions enter into collaborations with business
corporations, and some students are selected to work as interns with the corporations for a
specific period.
12

Staffing
➢ Off-the-job training methods
1) Lectures: Audio-visual demonstrations or teacher presentations are used to address the
trainees in classrooms.
2) Films: Short films or documentaries are shown to the trainees to provide useful information
or to demonstrate the skills that are difficult to convey through classroom lectures or any
other techniques.
3) Case studies: Case studies that are closely related to real-life problems are presented to the
trainees to analyse the causes of the problems, determine the probable alternative solutions
and find out the best possible solutions.
4) Computer modelling: Real-life situations are imitated through computer programmes so as
to help the trainees learn various situations in a risk-free environment at minimum cost.
5) Vestibule training: Dummy models of real working environment are created in classrooms
outside the workplace. The trainees are made to work on the dummy machines and
equipment, and only when they acquire adequate expertise in their use are they shifted to the
actual workplace.
6) Programmed instructions: Information is divided into smaller, meaningful units and
arranged in a sequence such that the trainee can answer questions one by one.
13

Staffing
❖ Some Important Differences
• Difference between training, education and development
Basis Training Education Development

Meaning Training implies improving Education implies Development implies the
the skills and abilities increasing the overall process of facilitating the
required to perform a knowledge and overall growth of an
specific job. understanding of the employee.
employees.
Scope It has a narrow scope and It has a wider scope and It is wider in scope and
relates to the development relates to the overall aims at the overall
of only the skills related to development of the personality development
a specific job. employees’ level of of the employee.
understanding and Training is a part of
maturity. development.
Focus It focuses on the goals of It focuses on the goals of The focus of
the organisation. the individual. development is on
overall growth and is,
thereby, career-oriented.
• Difference between recruitment and selection
Basis Recruitment Selection

Meaning Recruitment refers to the process Selection refers to the process of
of finding and persuading choosing the right candidate from a
suitable candidates to apply for gathered pool developed at the time
job vacancies. of recruitment.
Sequence In the staffing process, In the staffing process, selection is at
recruitment is at the second stage. the third stage and succeeds
recruitment.
Employment contract The candidates invited to take The candidates who successfully
part in the recruitment process are complete the selection process are
not offered any employment offered employment contracts by the
contract by the organisation. organisation, and the contract
includes such information as the date
of joining and the terms and
conditions.
Characteristic The recruitment process involves The selection process involves
persuading as many persons as choosing only the appropriate
possible to apply for a job. candidate and rejecting the unsuitable
ones.
14

Chapter 7
Directing
CHAPTER – 7
Directing
❖ Directing is the process of instructing, motivating, guiding and leading people to work to the
best of their capabilities in order to achieve predetermined goals and objectives. This
function is performed by every manager at every level of organisation.
❖ Features of Directing
The main features of directing are given below:
i. Initiates action: Directing initiates the actual action or work in the organisation. While
other functions of management (i.e., planning, organising and staffing) set the base for
work in the organisation, it is directing that actually initiates the work.
ii. Continuous process: It is a continuous process and flows throughout the life of an
organisation. This is because a manager must not only issue instructions, but also
continuously supervise and motivate the subordinates so that the tasks are carried out in a
smooth manner.
iii. Downward flow: This function flows downward––that is, from top to bottom. It begins
from top executives of a firm and flows down along the organisational hierarchy.
iv. Pervasive process: Directing takes place wherever there exists a superior-subordinate
relationship. Thus, it is performed at all the levels of management. The top level
managers direct the middle level managers, who in turn direct their subordinates.
❖ Importance of Directing
It is through directing that the operation of an organisation actually begins. As a function of
management, directing is useful in many ways as discussed below:

Directing
i. Achieving objectives: The function of directing initiates the actual action in an

organisation. An individual cannot start working without proper instructions and
directions. Directing helps individuals to complete the assigned task properly and on
time. In addition, directing in the form of supervision and motivation helps the employees
to achieve their targets more efficiently.
ii. Integration of efforts: Every organisation comprises of a number of employees who have
different jobs assigned to them and work at different levels. It is only through directing
that their individual efforts are integrated and channelised towards the common
iii. Employee development: Proper directing guides employees in the right direction.
Elements of directing such as motivation and leadership encourage the employees to
work to the best of their capabilities.
iv. Facilitates changes: It is human behaviour to resist changes. Employees must realise that
adaptability with the changing environment helps in individual growth. Effective
directing through proper motivation and communication helps in reducing the resistance
of employees towards the changes that take place in the working environment. This eases
the transition process for an organisation.
v. Stability: Stability is crucial for long-term business survival. Every organisation
comprises different individuals with different behavioural patterns and attitudes. At times,
this may result in a clash or conflict between the individual goals and organisational
goals, or even between the goals of two different individuals. Proper directing helps in
not only maintaining stability and balance but also avoids such conflicts.
❖ Principles of Directing
Directing is a challenging and complex task where a manager has to deal with people from
diverse backgrounds with different expectations. Principles of directing guide a manager to
provide good and effective directions.

Directing
Principles of Directing Meaning

The manger should follow such directing techniques that
Maximum Individual encourage the workers to perform to the best of their capabilities
Contribution and offer maximum contribution towards the organisational
goals and objectives.
Directing should work towards providing harmony between the

Harmony of Objectives
individual goals and organisational goals.
An individual should receive commands and instructions from
Unity of Command only one superior at a time. This would help in avoiding
confusion, conflicts and disorder in the organisation.
Appropriateness of Appropriate direction techniques should be selected while
Direction Technique directing employees based on their individual needs and attitude.
The instructions and commands given by the superior must be
Managerial clear and easily understandable by the subordinates. There must
Communication be a healthy and free flow of communication between the
superior and the subordinates.
Use of Informal The manager should strategically utilise the informal

Directing
Organisation organisational structure for the betterment of the organisation as

a whole.
A manager must be able to influence the behaviour of employees
and bring out the best in them. In addition, he must also be able
Leadership to work effectively towards the satisfaction of individual goals of

the employees. In this way, he should work towards converting
the individual goals into organisational goals.
Merely passing instructions is not sufficient. The manager
should continuously review the implementation of the
Follow Through
instructions and ensure that commands are properly followed
and implemented.
❖ Elements of Directing
There are basically four elements of directing, namely Supervision, Motivation, Leadership
and Communication. Each of them has been discussed below.
❖ Supervision
➢ Supervision is the process of guiding and instructing the subordinates towards the
achievement of desired goals and objectives of the organisation. A supervisor is a

Directing
person who lies immediately above the worker in the organisational hierarchy and
directly oversees the activities of the subordinates.
➢ Role of a Supervisor/Importance of Supervision
1) A supervisor acts as a link between the managers and the workers. It is through the
supervisor that the management communicates the ideas and policies to the workers
and the workers communicate their problems and grievances to the management.
2) He is in direct contact with the employees and thereby guides and supports them. In
this way, he helps in maintaining harmony and unity among the employees.
3) He ensures that the personnel work efficiently and as per the set targets.
4) He provides the required knowledge and skills to the workers.
5) A supervisor is constantly in touch with the employees and thereby acts as a friend
and guide to them.
6) A supervisor is endowed with the required leadership skills that help in boosting the
morale of the employees and instills a feeling of belongingness in them towards
the organisation.
7) He properly analyses the performance of employees and provides them with regular
feedbacks and suggestions. This helps in further improving their efficiency and
capabilities.
➢ Span of Supervision/Management and Factors Affecting it
The span of supervision refers to the number of subordinates reporting to a manager.
The span of supervision that can be followed depends on the following factors:
1) Competency of the supervisor: Greater is the competency of the supervisor in terms
of his leadership skills, communication skills, decision-making ability, self-
confidence, etc., wider is the span of supervision that can be followed.
2) Availability of time: Lesser the time available for supervision, narrower is the span
of supervision and vice versa.
3) Nature of work: In case the task to be performed is complex or is such that a direct
contact is required between the manager and the subordinates, the span of
supervision becomes narrow.
4) The control system used: If the control system used by the organisation is such that
deviations in performance are easily detected, then the requirement of a close and

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constant supervision is obviated. This implies that the performance of a large

number of subordinates can be supervised simultaneously, thereby widening the
span of supervision.
5) Capability of subordinates: In case the subordinates are competent and efficient,
then a close supervision of their work is not required. In this case, supervision has a
wider span.
6) Extent of decentralisation: Higher the extent of decentralisation followed in the
organisation, wider is the span of supervision and vice versa.
❖ Motivation
Motivation refers to a process of inducing and stimulating an individual to act/behave in a
certain manner. That is, it refers to encouraging and urging the employees to perform to the
best of their capabilities to achieve the desired organisational goals. Motivation varies as per
the desires and expectations of the employees and can take various forms such as promotion,
appraisal and recognition.
➢ Some Terms Related to Motivation
• Motive: Motive refers to the inner state of an individual that directs his behaviour
towards a goal. It implies the realisation of energy that guides the actions of the
individual.
• Motivator: Motivator refers to the technique used to motivate individuals in an
organisation. It can be in the form of appreciation, promotion, rewards or recognition.
➢ Features of Motivation
1) Is an inherent feeling: Motivation is a feeling that is inherent to an employee. For
instance, needs, desires, wants and ambitions are internal to individuals and directly
influence their behaviour to work in a certain manner.
2) Leads to goal-oriented behaviour: Motivation influences the behaviour of the
employees and induces them to work efficiently towards the achievement of the goals
of the organisation.
3) Can be both positive and negative: Positive motivations can take the form of
rewards, incentives or promotions. On the other hand, negative motivation can be in

Directing
the form of warning or demotion. The kind of motivations to be followed depends on

the needs and attitudes of the employee.
4) Is a complicated process: Human behaviour is complex. An organisation comprises
numerous individuals who have different desires, expectations and attitudes. This
implies that motivation also varies from one individual to another, making the process
highly complicated.
5) Is a continuous process: Human wants are unlimited and these wants change
continuously. Accordingly, the function of motivation as performed by managers
must also change continuously.
➢ Motivation Process
The following points explain the process of motivation:

1) Unsatisfied want: First, there arises an unsatisfied need of an individual.
2) Frustration: As the want remains unsatisfied, frustration builds up in the mind of the
individual.
3) Drives: The unsatisfied want along with the frustration drives the individual to look
out for alternatives to satisfy his need.

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4) Behaviour: Among the various alternatives, he chooses one that closely fulfils his
want and starts behaving according to it.
5) Satisfaction: After following a particular alternative for some time, he assesses if his
need is satisfied.
6) Reduced frustration: Once the need is satisfied, the frustration and tension of the
individual finally get reduced.
➢ Importance of Motivation
Motivation is crucial in increasing individual efficiency and as a result organisational
efficiency. The following points justify the importance of motivation:
i. Improves performance: Motivation works towards identifying and fulfilling the
needs and desires of the employees. Therefore, it encourages them to work to the best
of their capabilities and improve their performance.
ii. Develops a positive attitude: Proper motivation in the form of appreciation, rewards,
etc., helps in changing the negative attitude of employees to a positive one so that
they work efficiently towards the achievement of organisational objectives.
iii. Reduces employee turnover: If the motivation techniques followed succeed in
satisfying the needs of the employees, they would have less urge of leaving the
organisation. In this way, motivation helps to retain people in the organisation.
iv. Creates a healthy work environment: Motivation helps in creating a conducive and
healthy work environment. Motivated employees view work as a source of joy and
therefore increase their presence at workplace.
v. Facilitates changes: By convincing employees regarding the proposed changes and
encouraging them to willingly accept the change, motivation facilitates changes in the
organisation in a smooth manner.
❖ Maslow’s Need Hierarchy Theory of Motivation

Abraham Maslow’s Need Hierarchy Theory of Motivation helps in understanding the
phenomenon of motivation through the concept of human needs. According to Maslow,
within each individual there exists a set of five needs that can be arranged in a hierarchy, the
knowledge of which helps the manager in understanding the behaviour of employees and
thereby choose an appropriate motivation technique.

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Assumptions
Maslow’s theory is based on the following assumptions:
i) People’s needs influence their behaviour.
ii) Needs of individuals can be arranged in a hierarchical order.
iii) An individual can move to a higher level need only when the need at lower level in the
hierarchy is satisfied.
iv) Once a need is satisfied, an individual can be motivated only through the satisfaction of
the next higher level need.
Theory
According to Maslow, the needs of an individual can be arranged in the following hierarchy:

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Examples Examples Pertaining

Need Meaning Pertaining to to Organisational
Individual Needs Needs
Essential Food, clothing, Certain basic salary
Physiological
requirements for shelter
Needs
sustenance of life
Physical and Constant and Job, security, pension
Security Needs economic security stable income
and well- being
Social needs Affection, Acceptance and
Belongingness
friendship companionship of
Needs
colleagues
Includes such Status and Respect and
elements as recognition in the acknowledgment in
Esteem Needs
respect, dignity, society the peer group.
recognition
Self-Actualisation Achieving what Achieving self- Growth, work
Needs one aims or aspires fulfillment satisfaction
❖ Incentives
Incentives refer to the various measures that are used by organisations to motivate employees
and boost their performance.
➢ Financial Incentives
These are direct monetary incentives that are offered to the employees to motivate or
reward them for better performance. The following are some of the financial incentives
used in an organisation:

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Financial Incentive Meaning

Basic salary and allowance provided to employees
Salary and Allowance
along with regular periodic raise
Performance-based Incentive Monetary reward for good performance
Additional reward over and above the salary such
Bonus
as gifts, festival bonus, etc.
Offering the employees shares of the company at a
Stock Option
price lower than the market price
Profit Sharing Sharing a portion of the profit with the employees
Offering retirement benefits to employees such as
Retirement Benefits
pensions, gratuity, provident fund, etc.
Offering additional advantages such as housing
Fringe Benefits
allowance, medical allowance, etc.
➢ Non-Financial Incentives
These are those incentives that focus on non-monetary needs of employees such as the
social and psychological needs. The following are some of the non-financial incentives
used in an organisation:
Non-Financial Incentive Meaning

Position Rise in status in terms of power, authority,
responsibility, etc.
Organisational Characteristics Refers to characteristics such as employee
freedom, recognition of performance,
incentives and rewards that influence the
behaviour of the employees.
Work Enrichment Endowing the employee with a challenging
work and greater responsibility that requires
higher knowledge and skill.
Career Opportunities Offering career and growth opportunities to the
employees
Job Security Ensuring a certain degree of security to the
employee regarding his association with the
organisation.
Involvement Allowing participation of employees in policy
and decision-making matters.

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❖ Leadership
Leadership implies influencing the behaviour of the employees in such a manner that they
willingly work towards achieving the objectives of the organisation. Good leadership brings
out the capabilities and talents of the workers.
➢ Features of Leadership
• It is the ability of an individual to influence the behaviour of others.
• It shows the interpersonal relationship between the leader and other individuals who
follow him/her.
• It is exercised to move towards the organisational goals in a better manner
• It is a continuous process
➢ Styles of Leadership
The following table summarises the different styles of leadership:
Leadership Style Features Suitability
Authoritative • Here, the leader exercises complete • Where there is little time for
Leadership control over the subordinates. discussion in the decision-
• He takes all the decisions making process.
independently without consulting • Where leader is solely the
subordinates. most knowledgeable and
• He just gives orders and instructions educated individual in the
to the subordinates and expects them group.
to follow the instructions as it is.
Democrative • Leader takes decisions in consultation • Where the leader is willing to
Leadership with the subordinates. involve the subordinates in the
• The subordinates are also encouraged decision-making process.
to participate in the decision-making • Where subordinates have also
process and give their inputs and accepted the goals of the
suggestions. organisation.
• Although subordinates actively • Where job satisfaction and
participate in the decision-making independence of the
process, the final decision rests with employees is one of the
the leader. important objectives of the
organisation.
Laissez-Faire • Involves complete decentralisation of • Where the subordinates are
Leadership the authority to the subordinates adequately educated and
• Subordinates are provided maximum knowledgeable
freedom and are encouraged to take • Where subordinates have the
decisions independently. required confidence to carry
out tasks independently

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➢ Importance of Leadership
Leadership is an essential function of management and its importance cannot be
understated. The following points justify the importance of leadership in the success of an
organisation:
i. Positive contribution: Leaders motivate their followers and influence their behaviour
such that the followers positively contribute towards the goals and objectives of the
organisation.
ii. Cordial environment: A leader maintains a good relationship with his followers and
supports them whenever needed. He motivates them to work in coordination and
provides with the required confidence and encouragement. This results in a cordial
and harmonious working environment.
iii. Introduce changes: It has generally been observed that when new policies or changes
are introduced in any organisation, people tend to resist such changes. In this regard, a
leader can play an important role. He can persuade and clarify the discontentment of
his employees and encourage them to willingly accept the changes.
iv. Handles conflicts: A good leader always handles conflicts effectively and ensures
that this does not hamper working efficiency.
v. Training and succession: A leader always provides the relevant training to his
followers. By doing so he aims at developing his successors.
➢ Difference between Managers and Leaders
Basis of Difference Manager Leader
Can exist only in a formal Can exist in both formal

Existence
organisation. and informal organisations.
Focuses on influencing the Focuses towards the
behaviour of employees satisfaction of the
Objective
towards achievement of the individual and group goals
goals of the organisation. of his followers.
Holds formal authority and Does not command formal
Power and Authority
can exercise power. authority and power.
A manager can be a leader as A leader cannot be a
Interrelationship
well. manager.
The functions of the manager Functions of a leader are
are widespread and include limited to directing.
Functional Spread
planning, organising, staffing
and directing

Directing
➢ Qualities of a Good Leader

1) Physical attributes: People with good physical features such as height, good
appearance, etc. are attractive and are often looked up to. A healthy and active person
can himself work hard and efficiently, thereby inducing his subordinates to work and
perform better.
2) Honesty: A good leader should maintain a high degree of honesty and sincerity. He
should be an idol for others in terms of values such as honesty, integrity and values.
3) Intelligence: A leader must have a good presence of mind and knowledge. In
addition, he should be competent enough to effectively examine and solve the
problems based on logic and facts.
4) Inspiration: He should be a source of inspiration and motivation to others in terms of
work, performance and values. He must be able to develop willingness among the
subordinates to work to the best of their capabilities.
5) Confidence: A leader should be high in confidence, even in difficult situations. A
leader can boost the confidence of his subordinates only when he is confident about
himself.
6) Responsibility: A leader should command responsibility for the work and tasks of his
group. He should hold the responsibility of being answerable for the mistakes of his
subordinates. As a mark of encouragement, he must also share the credit of success
with his subordinates.
7) Effective communication skills: A leader should be able to express his ideas and
instructions clearly to the subordinates. Moreover, as a leader forms a link between
the higher authorities and the subordinates, he should be able to effectively
communicate the problems and suggestions of the subordinates to the seniors.
8) Ability to take decisions: A leader should be able to take appropriate decisions based
on logic, facts and figures. Moreover, he should be confident enough to hold on to his
decisions and not get confused.
9) Social behaviour: He should maintain a friendly and cordial behaviour with his
subordinates, while maintaining good social relations with them.
10) Dynamic: A leader must be dynamic and outgoing. He must be able to take up new
initiatives and break the old paradigms for the overall benefit of the organisation.

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Note: Although the above mentioned qualities are necessary for being a good leader, the
mere presence of these qualities does not ensure successful leadership. In fact, no single
individual can possess all the qualities. However, a conscious effort must be made by the
managers to acquire them.
❖ Communication
Communication refers to the process wherein people exchange ideas, feelings, facts, etc.,
among themselves. It forms the basis of management and fosters coordination among various
departments and individuals in the organisation.
➢ Elements of the Communication Process
i. Sender: Refers to the person who initiates the process of communication and sends
his thoughts or views to the receiver.
ii. Message: It is the content or the matter that contains the ideas or suggestions to be
communicated.
iii. Encoding: It is the process of converting the message to be sent into symbols that are
generally used in communication. This involves developing words, gestures, pictures,
etc., that form the message.
iv. Media: It is the path used for transmitting the encoded message. These can be in the
form of e-mail, SMS, internet chatting through Facebook, etc.
v. Decoding: Refers to the process of converting the encoded symbols that are used in
the message.
vi. Receiver: Receiver is the person who is at the end side of the communication and
receives the messages from the sender.
vii. Feedback: Feedback refers to the actions performed by the receiver to deliver the fact
that he/she has received and understood the message of the sender.
viii. Noise: Refers to the obstruction or hindrance in the communication process (either
on the part of the sender, the receiver or in the message). It can be in the form of a
poor telephone connection, inattentive receiver, ambiguous symbols, etc.

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➢ Importance of Communication
Communication occupies an important place in an organisation. Without communication,
the different functions of management cannot be carried out. The following points
highlight the importance of communication:
1) Helps in achieving coordination: Good communication is highly essential to
coordinate the activities of various departments and individuals in the organisation. It
is only through good communication that the goals and objectives of the organisation
can be explained and clarified to the employees. Such interaction promotes
coordination and integration of activities towards the common organisational goals.
2) Enables smooth functioning: Effective and continuous communication ensures that
various tasks are carried out in a smooth manner without any hindrances and
interruptions. Communication is the essence to carry out various activities in an
organisation. Without proper communication, the organisation would not be able to
continue operations in a smooth manner.
3) Base for decision making: Through communication, managers get the vital
information that is required for proper decision making.
4) Improves managerial efficiency: Communication is required for effectively
performing the various functions of management. For instance, it is only through
proper communication that the manager can instruct and order his subordinates and
supervise their work.
5) Promotes cooperation: Effective and healthy communication helps in maintaining
cooperation and understanding among the employees. It also helps in maintaining a
cordial working environment. This helps in smooth and efficient progress of work in
the organisation.
6) Encourages leadership: Leadership cannot be exercised without good
communication. A leader can influence others effectively only through good and
impactful communication.

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❖ Formal Communication
Formal communication refers to the process where the messages, facts, information, etc. are
exchanged through the officially designed channels of communication. The following
diagram summarises formal communication:
i. Vertical communication: In this process, the communication flows either upwards or

downwards (within the same department/division) in the organisational hierarchy.
• Upward flow: Here, the communication flows from the subordinate to the immediate
superior. For example, seeking approval for leave, submitting work report, etc.
• Downward flow: Here, the communication flows from the superior to his subordinate.
For example, instructing the subordinates and providing feedback to the subordinates.
ii. Horizontal communication: In this process, the communication flows across departments
or divisions. The following are the various types of horizontal communication:
• Single chain: Here, the communication link between the supervisor and the
subordinate is extended to all levels of management. That is, an individual can

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communicate with his subordinate, who in turn can communicate with his subordinate
and so on. In this way, the communication takes place through a single link chain.
• Wheel: Here, all the subordinates reporting to a superior are allowed to communicate
only through the superior. That is, the subordinates are not allowed to talk among
themselves. Rather the information flows only through the superior.
• Circular: In such a network, the communication flows in a circular chain among the
members in a group. That is, each individual can communicate only with the
adjoining two persons in the group. None of them is allowed to break the circular
chain.

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• Free flow: Here, the communication flows freely and any person can talk to anyone
in the organisation. That is, there are no barriers or definite channels for
communication.
• Inverted- V: In such kind of network, the subordinates are allowed to communicate

with their immediate superiors as well as with their superior's superior, thus making
this network an inverted V.
➢ Advantages of formal communication

1) Information flows systematically and in a proper order.
2) The original source that initiates the communication can easily be located.
3) When the communication flows following formal networks, the proof of
communication is automatically maintained.
4) Such communication helps in improving control over tasks and activities.
➢ Disadvantages of formal communication
1) As the information flows only through scalar chains, it may lead to unnecessary delay
in the flow of information.

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❖ Informal /Grapevine Communication

Informal communication is communication that flows without following the formal
defined path. Herein, a piece of information flows in all directions and spreads
throughout without paying any heed to the level or authority. The following are the types
of the grapevine communication network.
1) Single strand network: In this network, the information spreads from one person to
other in a sequence. That is, one person communicates to another person who in turn
communicates to some other person and so on.
2) Gossip network: In gossip network, one person shares the information with many
other people. In this way, the information spreads among a large number of people.
3) Probability network: Here, an individual shares the information randomly with other
people. That is, the person is indifferent about who he shares the information with.
4) Cluster network: In this kind of network, the information is first shared between two
individuals who trust each other. One of them then passes the information to some
other person who in turn shares it with another and in this way the information
spreads.
➢ Advantages of informal communication
1) The information flows faster.
2) The employees develop interpersonal and social relations among themselves, which
in turn induces a feeling of belongingness towards the organisation.
3) Sometimes, it helps in divulging the true response of employees on certain matters
such as a policy change.
➢ Disadvantages of informal communication
1) It can take the form of gossip or rumours and thereby result in spread of false
information.
2) Through informal communication, the confidential information may also get leaked.
3) Here, it is difficult to identify the original source of communication.
4) No proof of communication can be maintained in such a system

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❖ Difference between Formal Communication and Informal Communication.

Basis of Difference Formal Communication Informal Communication
Refers to the communication Refers to the communication
that flows through the that flows without following
Meaning
officially designed channels the formal defined path.
of communication.
Arises from the defined Arises out of social
Arises from authority and hierarchy in interactions among the
the organisation. employees.
Establishes formal and Establishes informal and
impersonal relationships personal relationships
Nature of Relationships
between the subordinates among the employees.
and the superiors.
Information flows slowly as Information flows quickly as
Speed of Flow of
it has to pass through formal no formal channels are
Information
communication channels. followed.
Rigid and cannot be More flexible and dynamic.
Nature
changed.
Are recorded for future No records are maintained.
Maintenance of Record
purposes.
❖ Communication Barriers
Communication barriers refer to the hindrances or breakdowns in the effective flow of
communication. Such barriers can be classified in four categories as shown below:

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❖ Organisational Barriers
These are those barriers in the communication that are related to the structure, hierarchical
relationships, rules and policies of the organisation. The following are some of the
orgnisational barriers:
1) Policy of the organisation: If the organisation’s policy (such as following a centralised
organisational structure) does not support free flow of communication, then it hampers
the flow of communication. For instance, in a centralised organisational structure, free
flow of communication is restricted.
2) Rules and regulations: Rigid rules and regulations hamper effective communication.
Such rules as following strict channels of communication (through scalar chain) make the
communication process cumbersome and lead to delays in the flow of information.
3) Difference in status: In an organisation, there exists a difference in the status of the
superior and the subordinate in terms of their job profile and the level of authority. Such a
difference may sometime create psychological barriers between them and restrict free
flow of communication.
4) Complex structure of organisation: A complex organisation structure characterised by a
large number of managerial levels acts as a barrier for effective communication. This is
because in such an organisation, the information flows through numerous levels and
thereby, in the process gets filtered or delayed.
5) Absence of organisational facilities: A free and effective flow of communication
requires the presence of certain organisational facilities such as social gatherings,
complaint box, etc. The absence of such facilities hinders the flow of information.
❖ Semantic Barriers
Semantic barriers of communication relate to the barriers pertaining to the use or
understanding of language. Such barriers in communication arise out of ambiguity or
difficulty in understanding of words and sentences. The following are some of the causes of
semantic barriers:
1) Inappropriate vocabulary: Sometimes due to poor vocabulary or wrong use of words by
the communicator, the information may not be clearly expressed.

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2) Use of words that have multiple meanings: Sometimes, a word may have more than one
meaning; or two or more words may have the same pronunciation (such as idle and idol).
In such cases, the correct interpretation of the word remains ambiguous.
3) Lack of proficiency: In certain cases, the proficiency of a language differs among the
workers and the mangers. In such cases, a translation of the information into another
language may be required to make it understandable to the workers. However, in the
process of translation some of the words or sentences may get misinterpreted. For
example, in a translation of an instruction from English to Hindi, the meaning of certain
words might change.
4) Use of technical vocabulary: At times, while giving out instructions the senior or
specialist uses technical vocabulary that might be difficult for the subordinates to
understand. This results in poor communication.
5) Inappropriate body language: The body language or body movements of the
communicator are also equally important in conveying the information. Sometimes it
may happen that the body language may not match with what the communicator
actually wants to communicate. In such cases, the information may be misunderstood.
❖ Psychological Barriers
Sometimes psychological factor such as frustration, anger, fright may also obstruct effective
communication. The following are some of the psychological barriers in communication:
1) Preconcieved notions: Sometimes, due to preconceived notions regarding a conversation,
an individual might derive conclusions even before the information is completed.
2) Lack of attention: At times the individual is preoccupied with something else and
therefore remains inattentive. As a result, he is not able to effectively grasp the
information provided to him.
3) Poor retention: When communication passes through multiple stages, there may occur
loss of information in the process. Moreover, in cases where the information is
communicated orally, it might happen that the commute (recipient) may not be able to
retain the information.
4) Lack of trust: In case where the communicator and the commute (recipient) do not trust
each other, the message may not be perceived in the original sense by either of the two.

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❖ Personal Barriers
There are certain personal factors related to the sender or the receiver that act as a hurdle in
communication. The following are some of the personal barriers of communication:
1) Fear: At times, due to difference in status and authority, the subordinates fear their
superior and often hesitate to communicate freely with them. In such cases, the
communication is suppressed.
2) Low confidence on subordinates by the superior: When the superior does not have
confidence on the subordinates, he is unwilling to involve them in discussions and other
matters. This leads to a communication gap between the two.
3) Lack of incentive: Lack of incentives (such as appreciation, praise, etc.) discourages the
initiative to communicate.
❖ Measures to Overcome Barriers in Communication

The following are some of the measures that can be adopted to overcome the various barriers
in communication:
1) The communication should take place as per the understanding level and capabilities of
the receiver. That is, it must be ensured that the receiver is clearly able to understand the
information.
2) The language, tone and content of the information should be appropriately chosen so that
it is easily understood and does not harm anybody’s sentiments.
3) Appropriate feedback regarding the communication must be taken from the receiver by
encouraging him to respond during the conversation.
4) It must be ensured that the information is complete in all respect and nothing is left
ambiguous.
5) The core idea of communication must be clear between the sender and the receiver. That
is, it is important that accurate information is conveyed with regards to what the
communication is all about.
6) The sender of the information should also be a patient listener. He should be open to
communication from the other end (receiver) as well.

Chapter 8
Controlling
CHAPTER – 8
Controlling
❖ Controlling as a Function of Management

Controlling refers to the function of management that involves evaluating, assessing and
monitoring the progress of the work done. It is a rigorous process involving setting up standards for
performance, comparing the actual performance with the set standards, analysing deviations and
taking the required corrective measures.
❖ Controlling: A Forward-Looking as well as a Backward-Looking Process

• Controlling is a backward-looking function in the sense that it assesses the past performance
and analyses deviations from the pre-defined set of standards.
• It is also forward-looking in the sense that the corrective actions taken under controlling form
the basis of future plans and policies. In this way, it guides the future course of action and aims
at improving both performance and efficiency in the long run.

Controlling
❖ Controlling and Planning are Interlinked
Both planning and controlling are important functions of management. While planning is the first
step in the management process, controlling is the final step. They are interdependent; one cannot
function properly without the other. The following points highlight the relationship between these
two functions of management:
• Planning provides the base for controlling. It lays down standards for working against which the
performance can be measured. In this way, it helps in making controlling a much easier and
effective process.
• Controlling provides useful information based on the evaluation of past performance and takes
corrective measures in case of any deviations. These assessments and corrective actions form
the base for future planning.
• Controlling without planning is meaningless. Without standards or objectives, there is nothing
to control.
• Without controlling, planning cannot be accomplished. Controlling is a requisite for analysing
whether the plans are being properly implemented.
In this regard, we can say that both planning and controlling are interlinked with each other and
incomplete without each other.
❖ Features of Controlling
1) Pervasive-Controlling is a pervasive function. It is exercised by all managers irrespective of
their level, department or division.

Controlling
2) Backward-looking as well as forward-looking- Controlling is backward-looking in the sense
that it evaluates the past performance against the pre-defined set of standards and takes the
required corrective actions in case of any deviations. This assessment and corrective actions
form the base for future planning. That is, it is on the basis of corrective actions taken under
controlling that future plans are formed. In this way, it is said to be a forward-looking function.
3) Positive process- Controlling is a positive process as it aims at achieving the organisational
goals despite of working constraints.
4) Continuous process- Controlling is an on-going process as it involves a constant assessment
and evaluation of the progress of current tasks and activities as against the set standards.
5) Goal-oriented function- Controlling keeps a close watch on the work in progress and
constantly works towards the accomplishment of organisational goals.
❖ Dimensions of Controlling
1) Strategic control- It involves managing the overall work of the organisation. It includes
assessing the strategies and policies of the organisation and ensuring that these are implemented
as intended, while correcting any deviations. Strategic control involves long time frames and is
primarily the responsibility of top-level managers.
2) Operational control- It involves monitoring the activities and operations of an organisation on a
day-to-day basis. This mainly includes examining the actions involved in the process of
transforming the raw materials and resources into final products and services. This control is
usually exercised by lower-level managers.

Controlling
❖ Importance of Controlling
1) Accomplishing organisational goals- Controlling indicates the deviations in performance and
takes the required corrective measures. In this way, it helps in the accomplishment of
organisational goals in a better manner.
2) Evaluating the standards- It helps in assessing and reviewing the accuracy and feasibility of
the set standards according to the changing business environment.
3) Optimum utilisation of resources- Controlling ensures that each task is performed as per the set
standards, thereby helping in minimising the wastage of resources.
4) Employee motivation- The employees know well in advance as to what is expected from them
and the standards against which their performance will be judged. This encourages them to
work to the best of their capabilities and achieve the assigned targets.
5) Order and discipline- The employees are aware of the fact that they are being continuously
observed. Thus, dishonesty and inefficiency in behaviour is minimised.
6) Promoting coordination-Proper controlling ensures that every department is aware of its
respective activities and tasks and coordinates with one another.
❖ Limitations of Controlling
1) Difficulty in setting standards- Controlling becomes less effective when the standards are
defined in qualitative terms. It is difficult to assess the performance of a task in qualitative
terms rather than in quantitative terms.
2) No control on external factors- The continuously changing business environment in the form
of government policies, environmental changes, competition, etc., often create obstacles for
effective controlling.
3) Resistance from employees- If the measures taken under controlling go against the comfort
zone of the employees, they may oppose and resist it.
4) Expensive affair- Effective controlling is a costly affair in terms of time, money and effort.
Thus, managers should ensure that the costs incurred in operating the controlling systems do not
exceed the benefits derived from it.

Controlling
❖ Controlling Process
The process of controlling involves the following steps:
1) Setting standards- This forms the first step in controlling and involves developing both the
qualitative and quantitative benchmarks against which the actual performance would be
measured.
2) Measuring actual performance- The actual performance is measured through various
techniques such as personal observation, checking the sample, performance reports, etc. It must
be ensured that the evaluation is done in an objective and reliable manner.
3) Comparing performances- Once the performances are measured, they are then compared with
the pre-defined standards. Such a comparison helps in assessing the deviations in the
performance.
4) Analysing deviations- The deviations are then properly analysed using two methods namely,
‘Critical Point Control’ and ‘Management by Exception’. Once the deviations are recognised,
the cause for these deviations is identified.
5) Corrective measures- When deviations go beyond the admissible limits, corrective actions are
taken to ensure the errors do not occur again.

Controlling
❖ Important Standards Involved in the Controlling Process
• Qualitative standards- Qualitative standards are those that cannot be quantified in numeric
terms. For example, level of coordination in work, goodwill of the organisation, motivation
level of employees, etc.
• Quantitative standards- These standards can be quantified in numeric terms. They can be in the
form of sales targets, production units to be produced, time to be spent on a particular action,
etc.
❖ Techniques of Controlling
The following are the two techniques of controlling used by managers:
• Critical Point Control- This technique is based on the belief that a manager cannot control each
and every activity of the organisation. Thus, focus should solely be on the key result areas
(KRAs) that are critical to the success of the organisation.
• Management by Exception- According to this technique ‘an effort to control everything may
end up in controlling nothing’. Thus, only significant deviations which are beyond the
permissible limit should be acknowledged.
➢ Significance of Critical Point Control and Management by Exception
1) Saves time and efforts- As managers have to deal only with the significant deviations, this
saves the time, effort and cost involved to a large extent.
2) Facilitates delegation- While managers need to focus only on the important or the key areas
of success, routine problems can be delegated to the subordinates.
3) Facilitates growth- By focusing on the key areas of success, the management ensures that
work proceeds in the right direction and the organisational goals and objectives are met
appropriately.

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Business

For example, if, to complete a task:

Thus, a balance must be maintained so as to complete the task (effectively) employing

Compiled By:- CS Deepika Guwalani

Compiled By:- CS Deepika Guwalani

Compiled By:- CS Deepika Guwalani

Compiled By:- CS Deepika Guwalani

Compiled By:- CS Deepika Guwalani

❖ Levels of Management / Level of Hierarchy in Organisation

Level of Management Main Task Example

Compiled By:- CS Deepika Guwalani

1) Planning: Deciding what is to be done, who is to do it and how it is to be done—that is,

Compiled By:- CS Deepika Guwalani

• It acts as a link between the various functions of management.

Compiled By:- CS Deepika Guwalani

Compiled By:- CS Deepika Guwalani

❖ Management Principles vs. Principles of Pure Science

❖ Values vs. Management Principles

❖ Techniques of Management vs. Management Principles

❖ Nature of Principles of Management

Compiled By:- CS Deepika Guwalani

❖ Importance of Principles of Management

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❖ Scientific Management: Scientific management refers to the classical outlook of management

❖ Principles of Scientific Management:

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❖ Important Terms Related to Scientific Management

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• Standardisation of work: Standardisation of work implies setting milestones or benchmarks for

Compiled By:- CS Deepika Guwalani

❖ Fayol’s Principles of Management

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Compiled By:- CS Deepika Guwalani

❖ Difference between Unity of Command and Unity of Direction

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Example Suppose Mr. A (sales manager) Suppose an organisation deals in two

❖ Difference between the Contributions of F. W. Taylor and Henri Fayol

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❖ Features / Characteristics of Business Environment

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❖ Specific and General Business Environment

➢ General environment: A general business environment refers to a business

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As an organisation is constantly affected by various external forces, an

1) Identification of opportunities: An analysis of a business environment

2) Identification of threats: A study of a business environment can help a

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4) Adjustment to changes: A careful study of a business environment

5) Formulation of plans and policies: Through a study of a business

6) Improvement in performance: Organisations that carefully study their

❖ Dimensions of Business Environment / Components of Business Environment /

Compiled By:- CS Deepika Guwalani

❖ Macro-economic Factors that affect the functioning of Business

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2) Economic policies of the government: Economic policies such as fiscal

4) Infrastructure: The availability (or lack) of infrastructure facilities has a positive

(or negative) impact on the functioning of a business enterprise.

5) Economic indicators: Economic indicators such as national income and

❖ Economic Environment in India at the Time of Independence

1) Agriculture was the dominant economic activity.

5) There was a lack of a good public health care system.

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i. Rapid economic growth