SEBI Management Summary Sheets

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Important Points
1. This Summary Sheet shall only be used for Quick Revision after you have read
the Complete Notes
2. For Building Concepts along with examples/concept checks you should rely
only on Complete Notes
3. It would be useful to go through this Summary sheet just before the exam or
before any Mock Test
4. Conceptual Clarity is especially important for exam and reading only summary
sheets shall not be sufficient to answer all the questions

1 Summary Points
➢ Motivation is what causes us to act, whether it is getting a glass of water to reduce thirst
or reading a book to gain knowledge. For example, if Ram keeps on studying then the
reason might be because Ram is motivated to become a doctor
➢ Motive, Motivators and Motivating
Motive: Motive (also known as need) is the inner state of a person that he is lacking
something which moves him to engage in goal-directed behavior. For example, if you
are thirsty (inner state), you will drink water (goal directed behavior)
Motivators: A motivator is anything which satisfy your need. For example, for a thirsty
person, the motivator would be availability of water
Motivating: Motivating is the process of inducing others to engage in goal-directed

behavior by presenting motivators. In organizational context, managers use a variety of
motivators (incentives) as part of motivating the employees
➢ Motivation Process
1. Need: Arousal of need is starting step of motivation process. Need is inner state of a
person that he is lacking something. For example, if a person is thirsty then he needs
water
2. Tension: Tension is a feeling of being worried which makes it difficult for a person to
relax.
3. Goal-Directed behavior: To overcome this tension, the person engages in goal-
directed behavior through which tension is overcome. For example, if a person is
thirsty then he may drink water
4. Need Satisfaction: Goal-directed behavior may lead to satisfaction (goal fulfillment).
For example, drinking of water by thirsty person would lead to need satisfaction.
Sometimes goal-directed behavior may not lead to need satisfaction

5. Feedback: Feedback involves the analysis whether need satisfaction is proper or not.
For example, if a very thirsty person is given only one glass of water, then his need
satisfaction may not be proper
Consequences of Non-Satisfaction of Need:
If a need is not satisfied even after goal-directed behavior, the person will try to modify
the behavior. He may produce following behaviors
1. Flight: One way is to leave the field. For example, employee quits the job that
becomes frustrating
2. Apathy: He will become indifferent towards the situation. For example, if a person
does not leave the frustrating job then he may not be serious anymore about the
job
3. Aggression: He may become aggressive due to frustration. An employee frustrated
with the job may become aggressive towards his superior, family etc.
4. Rationalization: Rationalization involves justifying the outcome of goal-directed
behavior. For example, a person frustrated with his job might find fault in himself
or his superior who has not given them their due.
➢ Types of Motivation
1. Positive vs. Negative: Positive such as want to become a monitor. Negative such
as want to pass to avoid being thrashed by parents
2. Basic vs. Learned: Basic as instinctive such as thirst, anger, pain etc. Learned
ones are not instinctive such as recognition and achievement
3. Extrinsic motivation and Intrinsic Motivation: Extrinsic motivation occurs when
we are motivated to perform a behavior for external reward, but intrinsic
motivation comes from inside for personal satisfaction
➢ Motivational Theories
1. Content Theories (Traditional Theories): Content Theories look at specific needs
that motivate people. They are also called Need based theories or Humanistic
approach to motivation
2. Process Theories (Contemporary Theories): Process theories attempt to explain
how the process of motivation works in an individual.

➢ Maslow’s Motivation Theory
1. Maslow designated 5 level of needs
2. Needs are to be fulfilled from bottom to top. Individuals must satisfy lower-level
needs before they can satisfy higher order needs. This concept of lower-level needs
being satisfied first before moving higher is called satisfaction progression.
3. A satisfied need does not motivate a person, only a next higher order needs
motivates him
4. Managers must ensure that basic needs of employees are satisfied first and only
then can be motivated to achieve higher.
2. Geert Hofstede criticized this theory because as per him in collectivist society social
belongingness holds more importance than personal achievement.
3. Other Criticisms are about position of sex being in psychological needs rather than in
social belongingness because of emotional connect that sex involves
4. Some people may be deprived of lower order needs but still try for self-actualization.
Mahatma Gandhi is an example of the same.

➢ Alderfer's Hierarchy of Motivational Needs
1. Clayton P. Alderfer's ERG theory from 1969 condenses Maslow's five human needs
into three categories: Existence, Relatedness and Growth.
2. ERG theory demonstrates that more than one need may be operative at the same
time though Maslow’s theory assumes in satisfaction progression that higher level
needs can fulfilled only after lower-level needs are fulfilled
3. According to Maslow an individual would stay at a certain need level until that need
was satisfied. ERG theory counters by noting that when a higher- order need level is
frustrated the individual’s desire to increase a lower- level need takes place. Inability
to satisfy a need for social interaction, for instance, might increase the desire for
more money or better working conditions. So, frustration can lead to a regression to
a lower need. This concept is called frustrated-regression
4. On a work level, Alderfer’s model implies that managers must recognize their
employees’ multiple simultaneous needs. Focusing exclusively on one need at a time
will not motivate your people.
5. The frustration-regression principle impacts workplace motivation. For example, if
growth opportunities are not provided to employees, they may regress to
relatedness needs, and socialize more with co-workers. If you can recognize these
conditions early, steps can be taken to satisfy the frustrated needs until the
employee is able to pursue growth again.
6. Even though you may provide financial incentives, if your person’s other needs are
not being met, according to Alderfer's ERG theory your workers will not be
motivated.

Difference between Alderfer’s Theory and Maslow’s Theory
Basis Maslow’s Theory Alderfer Theory

Hierarchy of Needs 5 different level of needs Only 3 level of Needs
Cause of Motivation At any point of time only one More than one level of needs may
level of need motivates satisfy
Movement People move up the ladder of People may move up or down
Need depending upon time and situation.
➢ McClelland’s Theory of Needs (Achievement theory of Motivation)
1. As per him there are three types of people

✓ Need for Achievement: Wish to take responsibility, like complex problems and
tasks, need regular feedback, avoid substantial risk and minimal risk situations
✓ Need of Affiliation: relationship with people, teamwork, dislike uncertainty,
collaboration over competition
✓ Need for Influence: Drive to Control, highly Disciplined, good for manual and
less skilled group tasks
2. High achievers should be given challenging projects and regular feedback. People
with High need for Affiliation should be given cooperative environment; People with
High need for power should be given opportunity to manage others.
3. McClelland’s achievement motivation theory suggests that a strong n-affil
'affiliation-motivation' undermines a manager's objectivity, because of their need to

be liked, and that this affects a manager's decision-making capability. A strong n-
pow 'authority-motivation' will produce a determined work ethic and commitment
to the organisation, and while n-pow people are attracted to the leadership role,
they may not possess the required flexibility and people-centred skills.
Additional Information
Henry Murray’s Manifest needs Theory:
Manifest needs theory assumes that human behavior is driven by the desire to satisfy
needs.
• Manifest needs theory laid the groundwork for later theories, most notably McClelland’s
learned needs theory.
• Murray identified needs as one of two types:
o Primary needs: Primary needs are basic needs that are based upon biological
demands, such as the need for oxygen, food, and water.
o Secondary needs: Secondary needs are generally psychological, such as the need
for nurturing, independence, and achievement. While these needs might not be
fundamental for basic survival, they are essential for psychological well-being.
➢ Herzberg's Two Factor Theory

Herzberg's Two Factor Theory is also known as the Motivation Hygiene Theory.
1. He differentiates between Not dissatisfied and being satisfied. A person who is not
dissatisfied does not necessarily means that he is satisfied
2. It states there are two different facets of motivation, the first being ‘hygiene’ factors
or job context. The second factor is ‘satisfiers’ or job content, i.e. the intrinsic
qualities of the job. Satisfiers are also known as Motivators.

3. Satisfiers/motivators provides satisfaction or motivation. Hygiene factors just
decides employee being dissatisfied or not dissatisfied. Hygiene Factors cannot
Motivate/Satisfy though they can prevent dissatisfaction
4. Motivational factors include: Achievement, Recognition, Work itself, Responsibility,

Advancement, Growth and Promotion
5. Hygiene factors include: Company policy, Administrative policies, Supervision, Salary,
Interpersonal relations, Working conditions, Job Security
6. Job Enrichment as per Herzberg should be followed for providing Motivation
7. Intrinsic factors, such as work itself, responsibility and achievement seem to be
related to job satisfaction. On the other extrinsic factors such as supervision, pay,
company policies and working condition related to dissatisfaction
8. Factors leading to Job satisfaction are separate and distinct from those that lead to
job dissatisfaction. Therefore, managers who seek to eliminate factors that can
create job dissatisfaction may bring about peace but not necessarily motivation.
They will be placating their workforce rather than motivating them. As a result,
conditions surrounding the job such as quality of supervision, pay, company policies,
physical working conditions relations with others and job security were
characterized by Herzberg as hygiene factors, when they’re adequate, people will
not be dissatisfied; neither will they be satisfied. If we want to motivate people on
their jobs, Herzberg suggested emphasizing factors associated with the work itself
or to outcomes directly derived from it, such as promotional opportunities,
opportunities for personal growth, recognition, responsibility, and achievement.
These are the characteristics that people find intrinsically rewarding.
9. Herzberg often referred to hygiene factors as "KITA" factors, which is an acronym for
"kick in the ass", the process of providing incentives or threat of punishment to make
someone do something. There are three types of KITA’s
✓ Negative Physical KITA: Threatening the employee to do work
✓ Negative Psychological KITA: Playing emotional games to get the work done
✓ Positive KITA: Giving just promotion or status without recognition
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KITA’s will never motivate the employee in the long term
10. Criticism of Herzberg’s theory

I. Herzberg drew conclusions from a limited experiment covering engineers and
accountants. Engineers, accountants, and other professionals like them may like
responsibility and challenging jobs. But the general body of workers are
motivated by pay and other benefits (Hygiene factors)
II. Herzberg put too much importance on job enrichment but did not attach much
importance to pay, status and interpersonal relationships which are also
important for satisfaction
Implication of Herzberg’s theory

• The Two-Factor theory suggests that the managers should focus on ensuring the
acceptability of the hygiene factors to avoid employee dissatisfaction.
• Furthermore, the managers must make certain that the work is motivating and
rewarding so that the employees are motivated to work and perform firmer and better.
➢ Relationship between above Maslow’s and Herzberg’s Theory

There is great similarity between Herzberg and Maslow models. The maintenance/hygiene
and Motivator factors of Herzberg theory can be mapped to lower and higher order needs
of Maslow as shown in figure below
It must be noted that part of esteem need comes under maintenance factors and another
under motivational factors. The esteem needs are divided because esteem can be related
to status or recognition. Status tends to be a function of position one occupies, and status
may be gained through family ties or social pressures and so this may not reflect personal
achievement or earned recognition. Recognition on the other hand is gained through

competence and achievement. So, status is classified with physiological, safety and social
needs as a hygiene factor while recognition is classified with esteem or motivator
➢ Difference between Maslow and Herzberg Model

• BASIS OF THEORY: Maslow’s theory is based on the hierarchy of five set of human
needs while Herzberg refers to hygiene factors and motivating factors in his theory.
Hygiene factors are dissatisfiers while motivating factors motivate subordinate.
Hierarchical arrangement of need is not given.
• NATURE OF THEORY: Maslow’s theory is rather simple and descriptive; the theory is
based long experience about human needs. While Herzberg’s theory is more
prescriptive. It suggests the motivating factors which can be used effectively.
• APPLICABILITY OF THEORY: Maslow’s theory is is mostly applicable to poor and
developing countries where money is still a big motivating factor. While Herzberg’s
on the other hand applicable to rich and developed countries where money is less
important motivating factor.
• MOTIVATORS: According to Maslow’s model, any need can act as a motivator
provided it is not satisfied while Herzberg in his dual factor model, hygiene factors
(lower levels) do not act as motivators, only higher order needs (achievement,
recognition, challenging work) act as motivators.
➢ Relationship between above Maslow’s, Herzberg’s, Alderfer’s and McClelland’s Theory

Although the Content theories are different from each other, but the overall essence
remains the same.
1. There are lower and higher-level needs

2. Higher level needs are intrinsic motivators whereas lower-level needs are extrinsic
motivators most of the times but not always
3. Manager needs to motivate an individual as per his/her needs

➢ McGregor’s Theory X and Theory Y
1. Douglas McGregor developed the theory that there are two basic management
behavior types, Theory X managers and Theory Y managers, each of which has a very
different set of assumptions about others.
2. Theory X Assumptions:
✓ People have an inherent dislike of work and will try to avoid it at all costs
✓ People need to be coerced, controlled and threatened to work hard
✓ People aren’t ambitious and dislike responsibility, preferring to be directed
✓ Above all else, people want security
3. Theory X managers are authoritarian and controlling, using threat and punishment
to coerce people into working hard. They tend not to produce elevated levels of
performance from their teams.
4. Theory X generally proves to be most effective in terms of consistency of work like
producing biscuits of same size again and again. For example, in Assembly line
5. Theory Y Assumptions:
✓ People naturally put as much effort into their work as they do into play or rest
✓ People will exercise self-direction and self-control if they are committed to a goal
✓ People will be committed to an organization if they are satisfied in their job
✓ People relish and seek responsibility
✓ People are good at creative problem-solving
✓ People’s talents and skills are normally underused
6. Theory Y managers are democratic, consultative and empowering, helping people to
develop and encouraging them to take the initiative. These enlightened managers
tend to achieve the best results from their teams.
7. Theory Y is useful where skilled or creative work is being dine but does leave room
for error in terms of consistency and uniformity for repeated tasks such as assembly
line
8. Theory of X assumes Maslow’s lower-level needs dominate in employees. Whereas
Theory of Y, assumes Maslow’s higher-level needs dominate in employees
9. Theory X’s authoritarian style of leadership is occasionally necessary, in crisis
situations but the positive and participative Theory Y style is generally accepted as
more effective for motivating people.
10. People with a strong internal focus of control (personality) believe outcomes in their
life develop primarily from their own actions and abilities; as a result they are task-
oriented and spend little time building relationships among peers (Theory X). People
with strong external focus of control believe outside factors are the primary

influence on the outcomes in their life, therefore, they are relationship-oriented and
focus on building relationships among peers (Theory Y)
Some big businesses like Google and Apple use theory Y to run their companies.
Employees in these companies are given full freedom to plan and execute their work.
Employees exercise self-control and they relish the responsibility given to them. All this
results in employees being creative and creating some unique and innovative products
Theory Y does not always work for most companies (e.g., Car factories) because they are
always creating the same product at the same standard which requires discipline and
control rather than creativity. In such a case theory X is more beneficial
➢ Theory Z by William Ouchi

1. Theory Z focused on increasing employee loyalty to the company by providing a job for
life with a strong focus on the well-being of the employee and his family both on and off
the job. According to Ouchi, Theory Z management tends to promote:
▪ Stable employment
▪ High productivity
▪ High employee morale and satisfaction
2. Theory Z was focussed on Japanese style of Management and it became popular as it
seemed better than American Style of Management
3. The secret to Japanese success, according to Ouchi, is not technology, but a special way
of managing people.
4. Ouchi's Theory Z makes certain assumptions about workers. Some of the assumptions
about workers under this theory include:
I. Strong bond between Company and the Employees:
II. Participation of Employees in decision making
III. Mutual Trust or High degree of confidence:
IV. Human Resource Development: Theory Z stresses the need for the workers to
become generalists, rather than specialists, and to increase their knowledge of
the company and its processes through job rotations and constant training
V. Integrated Structure: No formal structure is recommended in Theory Z. The
organization should be based on teamwork and employees must develop team
spirit
VI. Collective Responsibility: Emphasis is on group responsibility as it removes intra-
group rivalry
VII. Down-up Decision-Making system called Ringi System

VIII. Employment of Quality Circles: A quality circle is a participatory management
technique that enlists the help of employees who are your colleagues in solving
problems related to their own jobs.
IX. No Unions of workers is formed in this style
X. Equality in terms of common uniforms, canteens, parking etc. for all categories
of employees
Today Many companies in U.S. successfully use Theory Z type management principles. A
partial list of these corporations includes Kodak, Union Carbide, P&G, TBM etc.
In India, Maruti Udyog (having collaboration with Suzuki Motors of Japan), has tried to
implement Theory Z.
Critical Analysis of Theory Z

(i) Provision of lifetime employment merely provides job security and may fail to develop
loyalty among employees.
(ii) Participation of employees in the decision-making process is difficult. Managers may
dislike participation, moreover employees may be reluctant to participate due to fear of
criticism and lack of motivation.
(iii) Theory Z suggests organisation without any structure. But without structure there may
be chaos in the organisation as nobody will know who is responsible to whom.
(iv) Theory Z is based on Japanese management practices. Therefore, the theory may not be
applicable in different cultures.
➢ Instinctive Theory of Motivation

1. The Instinct Theory of Motivation views biological or genetic programming as the
cause of motivation. This theory says that the root of all motivations is the
motivation to survive.
2. As we act or behave with this kind of motivation, all our actions are therefore
considered as instincts.
3. Learning or Conditioning does not affect the motivation to behave in certain way
4. A common example used to explain the Instinct Theory is that a human mother will
attempt to provide comfort to a baby who has been crying all night and will not
sleep until she sees that the baby is calm and asleep. According to Instinct theory,
human mothers behave in this way because they were biologically programmed to
do so; it is a mother’s instinct to provide comfort to her child.

5. The motivation in instinctive theory is intrinsic motivation as person is motivated by
internal needs such as hunger, thirst etc.
➢ System view of Motivation

System view of motivation tells a manager that motivation is interplay of following 4 factors
1. Individual
2. Organization
3. Job Characteristics
4. Exogenous variable
1. Individual: Every individual has different needs and interest. So, motivation is also
different for each individual
2. Organization: The climate of the organization has important part to play in workers
motivation. The culture of the organization depends on following 8 values known as
OCTAPACE values
I. Openness & Risk Taking
II. Confrontation
III. Trust
IV. Autonomy
V. Proactivity
VI. Authenticity
VII. Collaboration
VIII. Experimentation
3. Job Characteristics: Job characteristics are another important determination of

motivation. As per Hackman, the job characteristics which impact motivation are
I. Skill Variety: Refers to usage of different skills
II. Task Identity: Refers to extent to which the job is a complete module in itself
III. Task Significance: Refers to importance of task to the pride of the organization
IV. Autonomy: Freedom in executing the task
V. Feedback: Refers to information regarding progress or performance in the task
The above characteristics create psychological states in a worker leading to positive

work motivation

4. Exogenous Variable: Workers professional life is strongly assonated with personal life.
They cannot be separated. Exogenous variable can impact the motivation of a person.
For example, a bad relationship with wife can impact his motivation
➢ Job Satisfaction
Job satisfaction is pleasurable state or feeling in an individual with respect to his work.
There are 3 theories related to Job satisfaction
1. Herzberg’s Motivation Hygiene theory: As per this the presence of satisfiers such as
recognition, achievement will lead to more job satisfaction as compared to presence of
hygiene factors
2. Need-Fulfillment theory: As per this the person is satisfied if he gets what he wants. We
can connect this with Maslow theory of needs where the need of a person would
depend on where he is the pyramid
3. Social Reference group theory: As per this the job which meets the interest, desires,
and requirements of his reference group then he will like it otherwise not. So, job of a
clerk might give satisfaction to the person belonging to economic and weaker section of
the society whereas the same might not give same satisfaction to someone belonging to
higher sections of the society
➢ Factors Impacting Job Satisfaction

The factors impacting job satisfaction can be categorized as
1. Nature of Job: There are 2 variables related to Nature of Job that impact job satisfaction

a. Occupational Level: Higher the level of the job, higher the satisfaction
b. Job Content: The greater the variation in the job content and less the repetitiveness,
the greater the satisfaction
2. Personal Variables: There are 3 personal variables that impact job satisfaction
a. Age: Generally, there is positive correlation between Age and Job Satisfaction. As
age increases people feel more satisfied except in the last some years before
retirement
b. Educational level: There is negative relationship between education and job
satisfaction
c. Sex: Though there is no consistent evidence, but it is seen many a times that women
are more satisfied than men because of their low aspirations as they give more
importance to family
3. Situational Variables: There are 5 situational variables impacting Job satisfaction

a. Considerate Leadership
b. Pay and Promotional Opportunities
c. Interaction and the work group
d. Equitable Reward
e. Working Conditions
➢ Relationship between Job Satisfaction and Productivity

There are 2 views on this
1. Job satisfaction impacts productivity: The logic is happier person will more effort in
Job performance
2. Happier worker is not necessarily a productive worker: The logic is given by set of
reasons listed below
a. It is the Job performance which leads to Job Satisfaction and not that Job
satisfaction leads to Job performance.
b. The expectations of a person form the job may be low. So, by performing less
he is happy, but he is not productive.
➢ Importance of Motivation in an Organization

The importance of motivation in an organization may be summed up as follows:
1) High Performance Level: A motivated employee put higher performance as compared to

other employees because a motivated employee attempts to use their maximum ability.

2) Low Employee Turnover and Absenteeism: Motivated employee stay in the organization
and lower their absenteeism.
3) Acceptance of Organizational changes: if the employees in an organization are properly

motivated, they accept, introduce, and implement changes in organization.
Fodder: Motivation at Reliance Industries Limited
Reliance Industries limited has achieved the fastest growth in Indian Industry. For motivating its
employees, it has based its motivation on the following premises:
1) Growth is betting on people
2) Growth is care for good health (Both physical and psychological Health)
3) Growth is care for Safety.

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Important Points
1. This Summary Sheet shall only be used for Quick Revision after you have read the
Complete Notes.
2. For Building Concepts along with examples/concept checks you should rely only on
Complete Notes
before any Mock Test
4. Questions in the exam are concept based and reading only summary sheets shall
not be sufficient to answer all the questions

1 Summary Points
➢ Process Based Theories view motivation as a rational process. Individuals analyze their
environment, develop thoughts and feelings, and react in certain ways. Process theories
attempt to explain the thought process of individuals who demonstrate motivated
behavior. The various process-based motivation theories are:
➢ Vroom’s Expectancy Theory
It’s a cognitive based theory which states that the motivation to perform a task is
dependent on the assessment of the likelihood that the effort will lead to expected
performance, the belief that the performance will be followed by a definite outcome
and on the appeal of the outcome to the individual. According to this theory,
individuals ask themselves three questions

1. Expectancy (Cognition based attitude): It is the faith that better efforts will result in
better performance. It is influenced by factors such as possession of appropriate skills
for performing the job, availability of right resources, availability of crucial information
and getting the required support for completing the job. The factors affecting
expectancy level of an employee are:
✓ Self-Efficacy: It is a belief which a person has that he has got required skills to
achieve the goals. Can increase expectancy
✓ Goal-Difficulty: This affects when individual thinks that the goals set are too high
to achieve and are difficult to attain as per his capacity. Can lower expectancy
✓ Perceived Control: It is necessary for an individual to feel a sense of control over
the expected outcome so that he can influence them. Can lower expectancy
2. Instrumentality (Cognition based attitude): It is the faith that if you perform well,
then a valid outcome will be there. Instrumentality is affected by factors such as
believe in the people who decide who receives what outcome, the simplicity of the
process deciding who gets what outcome, and clarity of relationship between
performance and outcomes.
3. Valence (Individual’s value-based attitude): It is the significance associated by an

individual about the expected outcome. It is an expected and not the actual
satisfaction that an employee expects to receive after achieving the goals.
✓ The valence refers to the value the individual personally places on the rewards.
✓ -1= avoiding the outcome; 0 = indifferent to the outcome; +1 = welcomes the

outcome

4. Motivational Force (MF) = Expectancy x Instrumentality x Valence
Thus, the expectancy theory concentrates on the following three relationships:
A. Effort-performance relationship: The likelihood that the individual’s effort will be

recognized in his performance appraisal.
B. Performance-reward relationship: It talks about the extent to which the employee
believes that getting a superior performance appraisal leads to organizational
rewards.
C. Rewards-personal goals relationship: It is all about the attractiveness or appeal of
the potential reward to the individual.
5. Sometimes this formula is also written as Force = Valence * Expectancy which states
that motivation is a product of anticipated worth of an outcome to a person and
perceived probability that person would be able to achieve the outcome
Implications of Expectancy Theory

• Managers should make sure that the work assigned to the employees is as per their
skill set.
• Managers should use systems that tie rewards very closely to performance.
• Managers also need to ensure that the rewards provided are deserved and wanted
by the recipients.
Criticism of Expectancy Theory

• Expectancy theory which states motivation equals to multiplication of Expectancy,
instrumentality and Valence is criticized by "Oxford Handbook of Motivation" which
implies that the equation should be additive: Motivation equals Expectancy plus
Instrumentality plus Valance.
• The theory won't work in practice without active participation from managers.
• No guarantee that employer will definitively reward the employee performance.
• making a unified management plan becomes very tough as every individual has
different needs and perception of rewards.

• Theory does not describe the situational and personal differences in a workplace.
➢ Edwin Locke’s Goal Setting Theory
It shows that there is a relationship between difficult and specific goals and people's
performance of a task. Telling someone to "Try hard" or "Do your best" is less effective than
"Try to get more than 80% correct". Likewise, hard goals are more motivating than easy
goals, because it's much more of an accomplishment to achieve something that you must
work for. Five Principles of Goal Setting Theory according to Locke:
1. Clarity: Clear goals are measurable and unambiguous. When a goal is clear and specific,
with a definite time set for completion, there is less misunderstanding about what
behaviors will be rewarded. You know what is expected, and you can use the specific
result as a source of motivation.
2. Challenge: People are often motivated by achievement, and they'll judge a goal based
on the significance of the anticipated accomplishment. When you know that what you
do will be well received, there's a natural motivation to do an excellent job.
3. Commitment: Goals must be understood and agreed upon if they are to be effective.
Employees are more likely to "buy into" a goal if they feel they were part of creating
that goal.
4. Feedback: Feedback provides opportunities to clarify expectations, adjust goal difficulty,
and gain recognition. It's important to provide benchmark opportunities or targets, so
individuals can determine for themselves how they're doing.
5. Task Complexity: People who work in complicated and demanding roles probably have
a prominent level of motivation already. However, they can often push themselves too
hard if measures aren't built into the goal expectations to account for the complexity of
the task. It's therefore important to do the following:
✓ Give the person sufficient time to meet the goal or improve performance.

✓ Provide enough time for the person to practice or learn what is expected
and required for success.
Three personal factors affecting goal performance Relationship are:

1. Goal commitment or Goal Acceptance: Goal setting theory assumes that
the individual is committed to the goal and will not leave the goal.
2. Self-efficacy: Self- Efficacy is the belief or self-confidence, that he/she can
perform the task.
3. National Culture: Goal setting theory is culture bound. It can apply in
countries where the employees are reasonably independent, where both
managers and employees seek challenging goals and where performance is
considered important by both. It will not lead to desired performance in
countries where opposite conditions exist.
Implementing Goal Setting Theory in Management by Objectives (MBO)
✓ MBO emphasizes participatively set goals that are tangible, verifiable, and
measurable.
✓ The organization’s overall objectives are translated into specific cascading
objectives for each level (divisional, departmental, and individual).
✓ MBO works from the bottom up as well as from the top down
✓ The result is a hierarchy that links objectives at one level to those at the next.
✓ For the individual employee, MBO provides specific personal performance
objectives.
➢ Adam’s Equity Theory
1. It is a cognitive based theory
2. As per theory, an individual’s motivation level is correlated to his perception of
equity, fairness and justice practiced by the management.
3. Higher is individual’s perception of fairness, greater is the motivation level and
vice versa
4. While evaluating fairness, employee compares it in 2 ways
a. By comparing the inputs that they contribute to the outputs that they receive
from their job. This concept is also known as Equity Norm
b. Employees determine what their equitable return should be after comparing
their inputs and outcomes with those of their co-workers. This concept is
referred to as "social comparison".
5. Inputs: Encompasses the quality and quantity of the employee’s contributions to
his or her work

6. Output: The positive and negative consequences that an individual perceives a
participant has incurred because of his/her relationship with another
7. Fairness is based on perceived market norms

8. Types of Inequity: When one compares his Input/output ratio with his colleagues
then he/she may realize 3 types of Inequity
a. Overpaid Inequity: When one feels his outcomes are more as compared to
his inputs in relation to others. Person experiences guilt
b. Underpaid Inequity: When one feels his outcomes are less as compared to
his inputs in relation to others. Person Experiences anger or dissonance
c. Equity: When one feels his outcomes as compared to his inputs are equal in
relation to others
9. Referents: The four comparisons an employee can make are termed as “referents”.
These are:
✓ Self-inside: An employee’s experience in a different position inside his present
organization.
✓ Self-outside: An employee’s experience in a situation outside the present
organization.
✓ Other-inside: Another employee or group of employees inside the employee’s
present organization.
✓ Other-outside: Another employee or employees outside the employee’s present
organization
10. The employees who perceive inequity and are under negative tension can make
following six choices:

✓ Change in input
✓ Change their outcome
✓ Choose a different referent
✓ Quit the job
✓ Change self perception
✓ Change perception of others
11. Assumptions in Equity Theory:
✓ Equity Norm: Employees expect a fair return for what they contribute to their
jobs
✓ Social Comparison: Employees determine what their equitable return should be
after comparing their inputs and outcomes with those of their co-workers
✓ Cognitive Distortion: Employees who perceive themselves as being in an
inequitable situation will seek to reduce the inequity either by distorting inputs
and/or outcomes in their own minds
✓ Employees who perceive inequitable situation might also respond by directly
altering inputs and/or outputs, or by leaving the organization
New Perspective on Equity Theory

One important theoretical revision proposes three types of individuals based on preference
for Equity:
• Benevolent, those who prefer their own output/input ratios to be less than those of
their relational partner.
• Equity Sensitives, those who prefer their own output/input ratios to be equal to
those of their relational partner.
• Entitles, those who prefer their own output/input ratios to exceed those of their
relational partner.
Organizational justice refers to employee perceptions of fairness in the workplace. These

perceptions can be classified into four categories: distributive, procedural, and
interactional.
1) Distributive Justice: Distributive justice is conceptualized as the fairness associated with

decision outcomes and distribution of resources.
2) Procedural justice is defined as the fairness of the processes that lead to outcomes.
3) Interactional justice is the standard applied to how employees relate to each other at
work.
• Interpersonal justice if an employee is treated with dignity and respect in an
organization.
• Informational justice if manager provide employee with information for key
decisions and important organization matters.
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1.1.1 Criticism
Adams Equity theory has been criticized for both the assumptions and practical
application of equity theory.
• The theory hasn’t considered the number of demographic and psychological
variables that have affect people’s perceptions of fairness and interactions with
others.
• Critics questioned its Environmental validity.
• Critics argued that people might perceive equity/inequity not only in terms of the
specific inputs and outcomes of a relationship, but also in terms of the overall
system that determines those inputs and outputs.
• Since every organization has some structure, so it is not easy for the managers to
have equity in the whole organization.
➢ Self-Determination Theory (by Edward Deci and Richard Ryan)

1. A theory of motivation that is concerned with the beneficial effects of intrinsic
motivation and the harmful effects of extrinsic motivation
2. A cognitive based theory and macro theory of human motivation and personality
3. Focuses on people’s inherent growth tendencies and innate psychological needs
4. Primarily focuses on internal sources of motivation
5. Assumes that people’s activities are directed towards their growth
6. Concerns with motivation behind choices people make without external influence
and interference
7. Analyses the degree of individual’s self-motivated and self-determined behavior
8. Proposes that people prefer to feel they have control over their actions, so
anything that makes previously enjoyed task feel more like an obligation than a
freely chosen activity will undermine motivation

Three Needs required to be fulfilled in SDT which motivates person intrinsically:
1. Competence: The desire to control and master the environment and outcome.
2. Relatedness: The desire to interact with, be connected to, and experience caring for
other people.
3. Autonomy: It is the universal urge to be causal agents of one's own life and act in
harmony with one's integrated self.
Factors responsible for fulfilling needs:
✓ Social Support
✓ Positive encouragement
✓ Feedback on performance
Factor hindering the needs:
✓ Focus on providing external rewards/incentives rather than internal incentives which

can reduce intrinsic motivation present in an individual and undermine autonomy
➢ Cognitive Evaluation Theory (by Edward Deci)

1. A cognitive based theory and is a sub-theory of Self-Determination Theory

2. Emphasizes that motivation needs to be intrinsic rather than extrinsic
3. Competence and Autonomy play role either in facilitating or undermining intrinsic
motivation
4. Proposes that presence of powerful extrinsic motivators can reduce a person’s
intrinsic motivation, particularly when external motivators are perceived by the
person to be controlled by people
5. Examples of Intrinsic Motivators: Achievement, responsibility and competence —
motivators that come from the actual performance of the task or job — the
intrinsic interest of the work.
6. Examples of Extrinsic Motivators: Pay, promotion, feedback, working conditions
— things that come from a person’s environment, controlled by others.
7. Explains effects of external consequences on internal motivation
➢ Reinforcement Theory (E.L. Thorndike)

1. Behavioristic based theory and states that Reinforcement conditions behavior
2. Ignores internal state of an individual and focuses on what happens when he or
she takes some action
3. It is not exactly a theory of motivation but explains what controls behavior of an
individual
4. In this, a combination of rewards and/or punishments is used to reinforce desired
behavior or extinguish unwanted behavior
5. Any behavior that elicits a consequence is called operant behavior, because the
individual operates on his or her environment
6. It concentrates on the relationship between the operant behavior and the
associated consequences and is therefore called operant conditioning
7. Reinforcement Theory supports Law of Effect. The law of effect states that all
other things being equal, responses to stimuli that are followed by satisfaction will
be strengthened, but responses that are followed by discomfort will be weakened.

8. The managers use the following reinforcement methods for controlling the
behavior of the employees:
✓ Positive Reinforcement: This occurs when a behavior (response) is rewarding or
the behavior is followed by another stimulus that is rewarding, increasing the
frequency of that behavior.
✓ Negative Reinforcement: This means rewarding an employee by removing
negative / undesirable consequences. This can be of two types:
o Escape where people engage into behavior to remove the bad outcome
o Active Avoidance where in people engage into a behavior to avoid bad
outcome
✓ Punishment: It attempts to decrease the probability of specific behaviors being
exhibited. This can be of two types:
o Positive Punishment occurs when a behavior (response) is followed by an
aversive stimulus, such as pain from a spanking, which results in a decrease in
that behavior
o Negative Punishment Occurs when a behavior (response) is followed by the
removal of a stimulus, such as taking away a child's toy following an
undesired behavior, resulting in a decrease in that behavior
✓ Extinction: It implies absence of reinforcements or when a behavior (response)
that had previously been reinforced is no longer effective. For example, a rat is
first given food many times for lever presses. Then, in "extinction", no food is
given. Typically, the rat continues to press more and more slowly and eventually
stops, at which time lever pressing is said to be "extinguished."
➢ Clark Hull’s Drive Reduction Theory (by Clark Hull and Kenneth Spence)
1. Based on behavioristic approach and concept of Homeostasis
2. Homeostasis means the ability of a system or living organism to adjust its internal
environment to maintain a stable equilibrium, such as the ability of warm-blooded
animals to maintain a constant temperature.
3. Proposes that the purpose of biological drives is to correct disturbances
of homeostasis
4. According to Hull, physiological needs result in psychological drive that directs

behavior to meet the needs and, ultimately, bring the system back to homeostasis.

5. Primary drives are innate biological needs (e.g., thirst, hunger, and desire for sex),
whereas secondary drives are associated with—and indirectly satisfy—primary
drives (e.g., the desire for money, which helps pay for food and shelter)
6. The reduction of the drive acts as a reinforcement for that behavior
➢ Self-Efficacy Theory (By Albert Bandura)

1. It is also known as Social Cognitive Theory or Social Learning Theory
2. It refers to an individual’s belief that he or she can perform a task
3. The higher your self-efficacy, the more confidence you have in your ability to
succeed. So, in tricky situations, people with low self-efficacy are more likely to
lessen their effort or give up altogether, while those with high self-efficacy will try
harder to master the challenge
4. Self-efficacy can create a positive spiral in which those with high efficacy become
more engaged in their tasks and that, in turn, increase performance, which
increases efficacy further
5. Feedback influences self-efficacy. Individuals high in self-efficacy respond to
negative feedback with increased effort and motivation, while those low in self-
efficacy are likely to lessen their effort after negative feedback
6. Goal-setting theory and self-efficacy theory don’t compete rather complement
each other. Setting difficult goals for people communicates your confidence in
them
Increasing Self-Efficacy in you:
1. Enactive Mastery: It means gaining relevant experience with the task or job. If
you’ve been able to do the job successfully in the past, you’re more confident you
can do it in the future
2. Vicarious Modeling: It means becoming more confident because you see someone
else doing the task. It is most effective when you see yourself as like the person
you are observing
3. Verbal Persuasion: We become more confident when someone convinces us we
have the skills necessary to be successful. Motivational speakers use this tactic.
4. Physiological factors: In stressful situations, people commonly exhibit signs of
distress: shakes, aches and pains, fatigue, fear, nausea, etc. Perceptions of these
responses in one can markedly alter their self-efficacy.
5. Arousal : Arousal leads to an energized state, so we get “psyched up,” feel up to
the task, and perform better. But if the task requires a steady, lower-key
perspective (say, carefully editing a manuscript), arousal may in fact hurt
performance even as it increases self-efficacy because we might hurry through the
task.
Increasing Self-Efficacy in others:

Through Pygmalion Effect managers can increase self-efficacy in their subordinates.
The Pygmalion effect is a form of self-fulfilling prophecy in which, believing
something can make it true. Here, it is often used to describe “that what one person
expects of another can come to serve a self-fulfilling prophecy.”
➢ Hackman and Oldham Job Characteristics Model
1. It is a theory of work design.

2. Job characteristics theory proposes a model of five “core” job characteristics (i.e.
skill variety, task identity, task significance, autonomy, and feedback) that affect
five work-related outcomes (i.e. motivation, satisfaction, performance,
and absenteeism and turnover) through three psychological states (i.e.
experienced meaningfulness, experienced responsibility, and knowledge of
results)
3. According to the theory, five core job characteristics should prompt three critical
psychological states, which lead to many favorable personal and work outcomes.
4. The moderators Growth Need Strength, Knowledge and Skill, and Context
Satisfaction should moderate the links between the job characteristics and the
psychological states, and the psychological states and the outcomes.
Core Job Characteristics:

1. Skill Variety: The degree to which a job requires various activities, requiring the
worker to develop a variety of skills and talents.
2. Task Identity: The degree to which the job requires the jobholders to identify and
complete a work piece with a visible outcome.
3. Task Significance: The degree to which the job affects other people’s lives. The
influence can be either in the immediate organization or in the external
environment.

4. Autonomy: The degree to which the job provides the employee with significant
freedom, independence, and discretion to plan out the work and determine the
procedures in the job.
5. Feedback: The degree to which the worker has knowledge of results. This is clear,
specific, detailed, actionable information about the effectiveness of his or her job
performance.
Critical Psychological States:

1. Experienced Meaningfulness of the Work: The degree to which the jobholder
experiences the work as intrinsically meaningful and can present his or her value
to other people and/or the external environment.
2. Experienced Responsibility for Outcome of the Work: The degree to which the
worker feels he or she is accountable and responsible for the results of the work.
3. Knowledge of Results of the Work Activities: The degree to which the jobholder
knows how well he or she is performing.
Moderators:
1. Growth Need Strength (GNS): GNS refers to an individual’s desire to be challenged
and to grow on the job or one's need for personal accomplishment, learning, and
development.
2. Knowledge and Skill: The level of knowledge and skill the worker possesses can
moderate the relationship between the mediators and the job characteristics and
outcomes.
3. Context Satisfaction: The context of the job also affects employees’ experience.
Thus, when workers are satisfied with things like their managers, pay, co-workers,
and job security they respond more positively to highly motivating jobs and less
positively when they are not satisfied.
Motivating Potential Score : MPS is an index of the degree to which a job has an overall
high standing on the person's degree of motivation and, therefore, is likely to prompt
favorable personal and work outcomes.
1. MPS can be calculated as follows:
2. To be high on motivating potential, jobs must be high on at least one of the three
factors that lead to experienced meaningfulness and high on both autonomy and
feedback.
3. If jobs score high on motivating potential, the model predicts that motivation,
performance, and satisfaction will improve, while absence and turnover (the rate
at which employees leave the job) will be reduced.
➢ Porter and Lawler Model of Motivation

1. The model is based upon 4 basic assumptions regarding human behavior. They are:
✓ xc
2. Porter and Lawler's theory is an improvement over Vroom's expectancy theory. It says
that motivation does not equal satisfaction or performance. The main point in Porter
and Lawler's model is that effort or motivation does not lead directly to performance.
Various elements of the Model are:
1. Effort: Effort refers to the amount of energy an employee exerts on a given task.
How much effort an employee will put in a task is determined by two factors:
✓ Value of Reward: People try to figure out whether the rewards that is likely to be
received from doing a job will be attractive to them. This is referred to as valence
in Vroom’s theory.
✓ Perception of effort-reward probability: Before people put forth any effort, they
will also try to assess the probability of a certain level of effort leading to a desired
level of performance and the possibility of that performance leading to certain
kinds of rewards. Effort Reward probability is same as Expectancy and
Instrumentality in Vroom’s Expectancy theory of motivation
2. Performance: The expected level of performance will depend upon the amount of
effort, the abilities and traits of the individual and his role perceptions. Abilities
include knowledge, skills and intellectual capacity to perform the job. Traits which
are important for many jobs are endurance and goal directedness.
3. Satisfaction: Performance leads to satisfaction. The level of satisfaction depends
upon the amount of rewards achieved. If the amount of actual rewards meets or

exceed perceived equitable rewards, the employee will feel satisfied. Rewards may
be of two kinds - intrinsic and extrinsic rewards.
Implications of this Model:

1. As per this model, there is departure from traditional model that satisfaction leads
to performance. In this model satisfaction does not depend only on rewards but
indirectly it depends on performance also. Only through indirect feedback loop
satisfaction will impact performance
2. Match the abilities and traits of individuals to the requirements of the job by putting
the right person on the right job
3. Make sure that the rewards dispensed are valued by the employees. Thus, he should
find out what rewards are attractive to the employee and see if such rewards can be
given to him
➢ Hawthorne Effect (Also known as Observer effect)
1. It is a psychological phenomenon that produces an improvement in human behavior
or performance because of increased attention from superiors, clients or
colleagues.
2. The Hawthorne Effect is named after a series of social experiments on the influence
of physical conditions on productivity at Western Electric’s factory at Hawthorne,
Chicago in the 1920s and 30s.
3. The Hawthorne Effect was first described by Henry A. Landsberger in 1950 who
noticed a tendency for some people to work harder and perform better when they
were being observed.
➢ Three-Dimensional Theory of Attribution
1. Bernard Weiner is credited for developing a theoretical framework that is used in

social psychology to help explain that a person seeking to understand another
person's behavior, or their own behavior will attribute one or more causes to that
behavior.
2. Weiner proposes a three-stage process that underlines these attributions:
✓ the person must perceive or observe the behavior,
✓ the person must believe that the behavior was intentionally performed, and
✓ that the behavior is attributed to internal or external causes
3. A key assumption of Weiner's theory is that people strive to maintain a positive self-
image and do so by attributing their successes and failures to causes, factors or
events that protect them from a negative self-perception. That is, people want to
feel good about them.

4. Weiner proposes several key factors that affect attributions: ability, effort, task
difficulty, help from others, and luck.
5. Furthermore, attributions are classified into three dimensions:
✓ locus of control, internal vs. external,
✓ stability and
✓ controllability
6. A person who gives attributions which are internal, stable, uncontrollable for his
failure will certainty find helpless and will certainly be depressed and demotivated.
He will feel he cannot achieve his goal
7. On the other hand, a person which gives attribution as External, Unstable and
Controllable for his failure will certainly be motivated for future (Most people
create this image). He will feel that since reasons for failure are external (so it is his
not fault), Unstable (they will not remain the same) and Controllable (he can control
them)
➢ Argyris’s Theory of Motivation
1. It is also called as Immaturity-Maturity Theory
2. Chris Argyris has postulated a descriptive and multidimensional developmental
process along which individuals in an organization naturally grow towards maturity.
3. He has examined various industrial organizations to determine the effect of
management practices on individual behavior and their personal growth in work
environment.

4. In his view, there are 7 basic changes that take place in the personality of individuals
moving from immaturity to maturity over the years. They are:
According to Argyris, whenever an employee with high maturity level is faced with
highly structured organization, he tends to take one of three attitudes:
✓ Escape: reflects into resignation, absenteeism, etc.

✓ Fight: through structures like unions or even through an informal organization
✓ Adaptation: consists in developing an apathy and indifference attitude, in which the
monthly salary represents compensation for the “punishment” that the work
represents
➢ Contingency Approach to Motivation

✓ Contingency approach to motivation suggests there is no single method of
motivation which can be used to motivate everyone. This is due to individual
difference.
✓ Contingency approach emphasizes linking between micro-motivation and macro-
motivation. Micro-motivation operates at individual level whereas macro motivation
operates at broader social level. Thus, contingency approach emphasizes the
analysis of individual and organizational variables
1. Individual Variables (micro motivation): Since individual differ in terms of their
personality, ability, attitude and values, their need patterns also differ. The
analysis of individuals provides clue about the factors which motivate them
2. Social Variables (Macro Motivation) : An individual’s needs are determined by
his initial needs derived from his socio-cultural background, the society he is
living in. This shall also be used to analyze the needs of the person

Two New Ideas in Motivation
• Ideas of Eustress, Strength and Hope
• Positive Energy and Full Engagement
Managerial Implications of Motivation

• Managers must realize that all motivation theories are not equally good or equally
useful.
• Managers cannot assume that they understand employee’s needs.
• Managers can increase their employee’s motivation by proper training, coaching and
task assignment.
• Managers should be aware that morally mature employees are more likely to be
sensitive to inequities at work.
➢ Morale
1. It is also known as esprit de corps
2. It is the capacity of a group's members to maintain belief in an institution or goal,
particularly in the face of opposition or hardship
3. Morale is the capacity of a group of people to pull together persistently and
consistently in pursuit of a common purpose

4. High Morale: It exists when employee attitudes are favorable to the total situation
of a group and to the attainment of its objectives. Teamwork, organizational
commitment, zeal, enthusiasm, sense of belongingness denotes high morale.
5. Low Morale: It exists when attitudes inhibit the willingness and ability of an
organization to attain its objectives. Lethargy, apathy, absenteeism, turnover,
dissatisfaction, conflicts denotes low morale.
➢ Factors affecting Morale

1. The Organization: This means the work atmosphere and context of working for the
employee
2. The Nature of Work: If the job is monotonous and under-skilled it might affect the
morale of an individual
3. The level of Job Satisfaction: If the employee is satisfied with the opportunities,
rewards, healthy working conditions etc than an individual aspires to feel satisfied
with the job then this will boost his morale
4. The level of Supervision: Continuous feedback, high autonomy and strong
leadership of the supervisor can enhance the employee morale
5. Worker’s perception of reward system: Belief of the employees that their efforts
would be rewarded and that too through fair and equitable reward grading system
can increase their morale
6. The off the job activities of the employee: Physiological needs of individuals if
satisfied can lead to increased morale
➢ Relationship between Morale and Productivity
✓ It is generally assumed that Morale and Productivity have a direct relationship with
each other. But this assumption is wrong. Generally, there is some positive
correlation between morale and productivity, but they are not absolutely related i.e.
an increase of 10% in morale will not always lead to 10% increase in productivity
✓ Relationship between morale and productivity is not so direct because morale is
only one of the few factors influencing productivity. Many other factors like
technology used, training given to employees, style of supervision and nature of
individuals also influence productivity. Therefore, it is possible to find high morale
associated with low productivity and vice-versa also
✓ There are four possible combinations of morale and productivity

✓ High Productivity goes with high morale when workers are highly motivated and
trained.
✓ Low Morale and Low Productivity may happen when workers are highly de-motivated
and under-trained
✓ High Morale is associated with low productivity when employees are merely happy, but
they are not motivated to work. Other reasons of low productivity may be inefficient
supervision, faulty materials, low skills of employees, old technologies etc.
✓ Low Morale is associated with high productivity when management used strict
supervision, better technology, severe punishments for low productivity. But low
morale and high productivity cannot be sustained for longer time.
➢ Measurement of Morale
✓ By Observation: Generally, managers can measure morale by observing the behavior of
the employees, but the problem is that managers do not have much time in observing
the same
✓ Employees’ Attitude Towards Organization: This can be determined by measuring
indicators also known as Morale Indicators. These are absenteeism, Number of
accidents, Grievances, Labor turnover etc.
✓ Morale Survey
➢ Difference between Motivation and Morale
Motivation Morale
Motivation is concerned with needs of an Morale is concerned with overall attitude of
individual. Thus, motivation takes into the group towards the Organization and
consideration the individual differences management
among the employees,
High Motivation is driving force which induces High Moral might not always lead to higher
higher productivity productivity
Higher motivation often leads to higher High morale does not essentially result in
morale of employees greatly motivated employees

Motivation acquires primary concern in every High morale is a secondary phenomenon
organization because high motivation because high morale may not necessarily lead
essentially leads to higher productivity to higher productivity
➢ Financial and Non-financial Incentives

➢ Incentive is an act or promise for greater action. It is also called as a stimulus to
greater action. Incentives are something which are given in addition to wagers. It
means additional remuneration or benefit to an employee in recognition of
achievement or better work.
➢ Monetary incentives- Those incentives which satisfy the subordinates by providing
them rewards in terms of rupees. Money has been recognized as a chief source of
satisfying the needs of people. Money is also helpful to satisfy the social needs by
possessing various material items.
➢ Non-monetary incentives- These can satisfy the ego and self- actualization needs of
employees. It can be done by giving security of service, social gatherings, trainings,
challenging work, job rotation, praise, recognition, promotional opportunities,
increase autonomy, etc.
➢ Role of Money as a Motivator: Money is a motivating factor for all, but it is more of
a motivating factor when physiological and security needs of a worker has not been
fulfilled. For people in higher positions , money might not be that big a motivator.
Money to some extent act a hygiene factor only as per Herzberg theory and cannot
act as a motivator in the longer run
➢ Role of Incentives in Building Up Morale: Management can offer monetary or non-
monetary incentives to employees to achieve their objectives. Incentives can
increase the morale of the employees
Application of Motivation
The motivation of an employee can be increased through various ways depending up on
what is the motivational pattern of employee. The ways are
1. Work Design Options

2. Work Schedule Options
3. Designing Reward System
4. Employee Involvement
5. Empowerment
6. Quality of Life

➢ Work Design Options: Work design theories basically talk about the different design
options considering two aspects of Job – Number of tasks and complexity of task.
Considering these 2 factors taken together, the nature of Job variety varies greatly as
shown in figure. A job with few tasks of similar nature is a routine one and require less
skills, for example, the job of a nurse. On the other hand, a job with a variety of tasks of
different nature requires more skills, for example, job of executive engineer
The aim of a job/work design is to assign jobs in line with the skills of the employees to
improve job satisfaction
With respect to 4 features of Job design, people with higher skills are made to got through
Job Rotation and Job Enrichment whereas people with low skills are made to go through Job
Simplification and Job Enlargement

➢ Work Schedule Options
✓ Compressed Week: Making a 5-day work in a week instead of 6 day in a week but
keeping the number of hours same
✓ Shorter week: A shorter week results in reduction of working hours, for example
from 40 hours to 32 hours
✓ Flextime: Flexible hours for the employees. They can arrive and leave as per their
ease provided; they remain in the company during the core time in which all the
employees are required to be present
✓ Job Sharing: Job sharing is a type of flexible work arrangement in which two people
work part-time schedules to complete the work one person would do in a single full-
time. This is suitable for those employees who cannot work full time
✓ Telecommuting: Telecommuting means employee can work through a computer
linked to their office
➢ Designing Reward System: The reward system should be designed considering the
needs of the person. Some might be motivated by financial incentives whereas others
would be motivated by non-financial incentives. Depending on motivation pattern of
different employees, a suitable reward system can be designed keeping in mind the
following:
1. What to pay: Establishing a pay structure
The process of initially setting pay levels entails balancing internal equity – the worth of
the job to the organization and External equity – the competitiveness of an
organization’s pay relative to pay in its industry.
2. How to Pay: Rewarding Individual Employees through variable-Pay programs.

A pay plan that bases a portion or all of an employee’s pay on some individual and/or
organizational measure of performance.
Different Variable Pay programs are as following:
a) Piece-rate pay Plan: A pay plan in which workers are paid a fixed sum for each unit
of production.
b) Merit based Pay plan: A pay plan based on performance appraisal ratings.
c) Bonus: A pay plan that reward employees for recent performance rather than
historical performance.
d) Profit Sharing Plan: A profit sharing plan distributes compensation based on some
established formula designed around a company’s profit ability.
e) Employee Stock Ownership Plan: A company-established benefits plan in which
employees acquire stock, often at below market prices, as part of their benefits.

➢ Employee Involvement:
✓ Participative Involvement: It is joint decision making in which the superiors and
subordinates participate in decision making
✓ Representative Involvement: Rather participating directly in decisions workers are
represented by a small group of employees who actually participate.
➢ Empowerment: Empowerment is any process that provides greater autonomy through

the sharing of relevant information. Characteristics of empowered Organization
✓ Emphasis on delegation, decentralization, and diffusion of power
✓ Flat Organizational hierarchy
✓ Fewer managers with wider responsibilities
✓ Participative decision making
✓ Self-Managed Teams
✓ Proper Feedback mechanism
✓ Proper Goal setting
➢ Quality of work life: Quality of work-life refers to creating a good environment for the
people working in an organization
➢ Personality and Motivation
1. Personality Traits: These are the types of characteristics that most people have had
for most of their lives. There are 5 major Traits. This is also known as OCEAN model

2. Personality Attributes: As against personality traits, attributes are learned as part of
external experiences. Locus of Control, Machiavellianism, Self-Esteem, and Self-
Monitoring are examples of personality attributes.
3. Linkage between Motivation and Personality: When the characteristics of their jobs
are aligned with their personality traits/attributes, they tend to be more productive
workers.
✓ For example, if a person has characteristics of Openness, Conscientiousness, Self-
esteem then it will be hard for an employer to motivate the person if he or she
works in a repetitive job with no advancement opportunity. Such an employee must
be given a highly challenging and complex task
✓ On the other hand, if an employee is lacking Self-Esteem, Conscientiousness and has
external locus of Control then such person would like to work on a job which is
repetitive and has fixed set of instructions.

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Important Points
1. This Summary Sheet shall only be used for Quick Revision after you have
read the Complete Notes.
2. For Building Concepts along with examples/concept checks you should rely
only on Complete Notes
before any Mock Test.
4. Questions in the exam are concept based and reading only summary sheets
shall not be sufficient to answer all the questions.

1 Summary Points
➢ Communication includes both the transfer and understanding of the meaning of the message
which the sender wants to convey to the receiver.
➢ In perfect communication, a thought would be transmitted so the receiver understood the
same mental picture the sender intended.
➢ Communication is an effective tool to achieve Organizational goals. It is interrelated with
concepts such as motivation, coordination, leadership, structure; and decision making in
organizations.
➢ Communication Process: It refers to steps through which communication takes place between
the sender and the receiver.
Communication process consists of the following eight steps:
1. Developing idea by the sender: Conceptualization of the idea to be sent (also called Planning
stage)
2. Encoding: Translation of the idea into a perceivable form understandable to the receiver
3. Developing the message: The message can be written, oral, symbolic or non-verbal such as
body gestures, silence, signs, sounds, etc. or any other signal that triggers the response of a
receiver
4. Selecting the medium: Medium is the way of transmitting the message to the receiver. Air,
sight, sound are 3 important communication channels
5. Transmission of message: Sending of the message from the chosen medium
6. Receiving the message by receiver: Reception of message by the receiver
7. Decoding: Message is decoded by the receiver to understand its meaning
8. Feedback: Receiver’s response to the sender. But it must be noted that feedback is optional,
sometimes there is no feedback in communication.

➢ Claude Shannon & Warren Weaver Model of Communication
Consists of eight components which are most like the general steps of communication except
Noise:
1. Source: Initiator of conversation

2. Encoder: Transmitter of message into signals (ex. Thought in brain→ Mouth → Voice)
1. Message: Actual physical product which source wants to convey (ex. In speaking, speech is the
message; when written, writing the message; when we gesture the movement of our arms
and the expressions on our faces are the message
3. Channel: Medium of message transmission
4. Decoder: Reception of message. Converts signal into message
5. Receiver: To whom message is sent
6. Feedback: Receiver’s response to the sender in the form of understanding of the message
7. Noise: Present in each of the above stages of communication. Reduces accuracy of the
message.
➢ Study of Communication
It is classified into three main streams:
1. Information Theory: Related to storage and communication of signal processing or data

compression
2. Communication Studies: Related to human communication
3. Bio semiotics: Related to communication between living organisms including plants and
animals
➢ Importance of Feedback in Communication

Two-way communication takes place when receiver provides feedback to the sender. The
communication without feedback is called one-way communication. Two-way communication
is superior because
1. Refinement and Accuracy: Two-way communication through feedback helps sender to refine
his communication so that it becomes more precise and accurate
2. Confidence in Receiver: Receivers confidence in case of two-way communication as they are
permitted to ask questions and seek clarification from the senders
The problem with 2-way communication is

1. Polarization: Two persons may strongly disagree about some items but may not realize it until
they establish 2-way communication. When they discuss, they will become even more
polarized, taking even more extreme position
2. Cognitive Dissonance: Cognitive dissonance is about internal conflict and anxiety that occurs
when people receive information incompatible with their value system. In 2 -way
communication this gets heightened
➢ Functions of Communication
1. Management: Communication helps in dealing with lots of management activities efficiently in

many ways, like:
✓ Information Function
✓ Command or Instructive Function
✓ Influence or Persuasive Function
✓ Integrative Function
✓ Better Planning and Decision making
✓ Facilitation of change
✓ Control and Coordination
✓ Connecting various departments of the organization
✓ Communicating the vision and goals to the employees
✓ Resolving conflicts between the employees
✓ Directing employees to do tasks

✓ Building efficient relationships with customers as well as employees
2. Feedback: Communication helps in giving feedback to the employees regarding their
performance, expectations, guidance etc to motivate them.
3. Emotional Sharing: Employee satisfaction, dissatisfaction or other employee related problems
can be shared through communication
➢ Communication Networks
When 2 people are involved in the Communication, we call it circuit Communication
There are 6 types of formal small group communication networks:
1. Chain Network: Rigidly follows formal chain of command. Chain is best where accuracy is
required.
2. Wheel Network: Relies on a central figure to act as the conduit for all group communication.
Found in teams having a strong leader. It is the most centralized type of formal communication
network. Useful for task-oriented approach to leadership
3. Circle Network: The information is transmitted laterally among all group members. Each
person can communicate with two neighbors only. A disadvantage of Circular network is that
communication is terribly slow. This network is similar to chain network except that
information flows in a circular direction rather than vertical direction
4. All Channel Network: Permits group members to actively communicate with each other.
Characterizes self-managed teams, where no person takes a leadership. It is the most
decentralized type of formal communication
5. Inverted V Network: Subordinate communicates with his immediate superior as well as a
second superior.
6. Y Network: Two subordinates through the hierarchical chain communicate with a superior.
This is similar to chain network, the only difference being that here 2 subordinates will report
to a superior instead of one subordinate reporting to superior in chain network. This network
is less centralized than the star network but more flexible than chain network

➢ Channels of Communication: It is a type of media that is used to transfer a message from one
person to another. It affects the flow of information in the company. There are 2 types:
➢ Formal Communication Channel:

1. Messages in this type of channel follows a chain of command
2. It follows hierarchical structure present in the organization
3. Information like Organization goals, policies, procedures, reports, notes etc. communicate
through this channel
4. Ex. A boss communicating project requirements to his subordinates
➢ Informal Communication Channel:

1. This type of channel does not follow any hierarchy present in the organization
2. It is informal by that it means it does not carry proof of transcripts or communication between
individuals like formal communication gives
3. Ex. Colleagues meeting at cafeteria; Colleagues chatting with each other, etc.
4. It is a type of Grapevine communication
5. It could play a role of distortion as well as constructive role in an organization
➢ Choice Channels of Communication

Channels differ in terms of Richness. By Richness we mean (i) Rapid feedback and (ii) Sense of
Belongingness and (iii) Number of multiple cues

Video conferencing and Face to Face Conversation will provide rapid feedback and give
personal touch the listener. Hence, they would be rich medium of communication. Reports
and letters are kind of one-way communication providing slow or no feedback and no personal
touch at all
➢ Directions in Communication Channels
Depending up on levels of sender and receive in the organization, the communication may be
grouped into 2 types
1. Inter-Scalar Communication: This happens between two parties who are at the different
level in the hierarchy. The communication between them would be upward or downward
2. Intra-Scalar Communication: This happens between two parties who are at the same level in
the hierarchy. . The communication between them would be lateral
➢ Downward Communication
1. Follows hierarchical structure of the organization where manager instructs subordinates
2. Helps in assigning goals, providing job instructions, briefing about policies and procedures,
feedback to subordinates
Disadvantages:

1. Distortion/Dilution: Quite often the communication originating at the highest level
gets distorted or diluted on the way to the lower levels. Sometimes the messages
may get lost.
2. Delay: The more the levels the greater the chances of delay. That is why sometimes
managers choose to send their massages directly to the person concerned.
3. Filtering: Sometimes managers may withhold some valuable information from the
employees.
4. One way: It at times does not ask for advice or opinion of the employees. Lack of
feedback from people on the ground is not good for the organization
5. Deterioration of relationship: Heavy reliance on downward communication also
deteriorates the labor-management relationships. Because it does not provide any
scope of direct communication between them.
6. Creation of frustration: Downward communication is directive in nature and many a
times creates frustration in the mind of the employees.
Advantages:
1. Getting Things Done: Downward Communication helps in delegation of tasks.

Delegation means entrusting the subordinates with some responsibilities along with
due authority.
2. To let the people, feel the pride of being well informed: In an Downward
communication plays a significant role in communicating the plans, policies,
strategies and procedures to the lower levels of the organization. Lower-level
workers feel pride in them being informed about everything
3. Facilitate Changes: Change is part of every organization. But change is resisted.
Though downward communication, people can be explained about importance of
change and how it will benefit them
4. Discourage Misinformation: Timely and accurate downward communication will
help people dispel any rumours and will discourage any information being
misrepresented
5. Increasing efficiency: Downward communication provides necessary guidance, orders,
instructions and explanations of various complex issues to the subordinates that
ultimately increase the efficiency of the employees.
6. Explaining the complex issues: Managers rely on downward communication to
provide necessary explanations and analysis.
7. Avoiding by-passing of hierarchy: Downward communication takes place by following
the established chain of command of the organization.
➢ Upward Communication
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1. The direction of communication followed is upward i.e., when lower-level ‘employees
communicate to their managers
2. Things communicated by lower-level employees can be feedback to higher-ups, progress
towards goals, pass on information regarding any problems faced
Disadvantage:
1. Psychological: Certain problems, primarily of psychological nature, may come up in
upward communication. For example, managers might not accept workers giving
suggestions
2. Hierarchical: Many managers do not accept suggestions by their juniors. They may not
be patient enough to listen to them or may even suppress the message sent to them
from below. In such a situation the employees may feel let down.
3. Unwillingness: Sometimes subordinates don’t send the information to their superior
willingly. So, the communication system may be disrupted.
4. Bypassing: In the process of upward communication, sometimes workers directly
approach the topmost authority with their suggestions or bypassing their immediate
boss. This is harmful to any organization.
5. Flattery: In order to convince the superior bosses, subordinates can take the help of
flattery and for this reason, subordinates may conceal the true and provide incomplete
information to top level.
6. Risk of distortion of messages:
7. Delay
Advantage:
• Development of plan: The information received from subordinate plays important role to
help development of planning of the organization.
• Providing suggestions and opinions: By upward communication system, subordinate takes
necessary suggestions and opinions from superiors about the work-related issues of the
organization.
• Good labor-management relationship: Upward communication I participative in nature.
Here, information is invited from lower-level executives and employees and on the basis of
this information top executive makes a decision. So, good relation between subordinates
and bosses should create for the betterment of the organization.
• Providing feedback:
• Decision making: Top level executives or superiors needed much information before taking
a decision on a particular issue. Subordinates supply this information through the help of
upward communication.

• Developing creative and innovative ideas: Upward communication facilitates easy excess of
the employees or subordinate to the superiors in providing necessary constructive
suggestions and opinions about the work-related issues of the organization.
➢ Lateral Communication
1. Communication occurs between members of the same workgroup, members at the same level
in separate workgroups, or any other horizontally equivalent workers
2. Ex. Managers of two different departments interacting with each other
3. It saves time and facilitates coordination
Advantages:
• Coordination: Horizontal communication facilities coordination of various
departmental activities
• Reducing Misunderstanding helps to reduce possible misunderstanding and conflict
though meeting, discussion, face to face conversation etc.
• Strengthening group efforts
• Performing interdepartmental communication
• Distortion-free communication
• Bringing dynamism in workplace: It creates an environment of cooperation, teamwork,
and team spirit. This brings dynamism in performing organizational activities.
Disadvantages
• Rivalling attitude: Horizontal communication occurs between the people at the same
rank and position. If there exists any hostility or rivalry between them, they will not
exchange information spontaneously. Moreover, they will conceal their information
intentionally to deprive someone from the real news.
• Interdepartmental conflict: The success of horizontal communication depends on good
relationship between sender and receiver. If there is any conflict, distrust or suspicion
between them, horizontal communication will be ineffective.
• Discouraging attitude of top management: In some cases, top managers discourage
horizontal communication thinking that workers may become friendly with one another
and may create threat for the management.
• Ignoring vertical communication:
➢ Diagonal/Crosswise Communication
1. Communication that takes place between a manager and employees of other workgroups
2. It generally does not appear on organizational chart.
3. Ex. To design a training module a training manager interacts with Operations personnel to
enquire about the way they perform their task.
Advantages:

More Practicable way of communication, Boosts Morale, increases coordination and speed of
Communication.
Disadvantages:
Superior might feel infringement of hierarchy, may lead to internal anarchy or animosity and
Superior might show resistance to comply with the suggestions on which he is not consulted
(Ego issues)
➢ Grapevine Communication
1. It is an informal or unofficial channel of communication
2. It has no direction and can take place between people of any level
3. Deals with casual conversation between workers including personal and business matters
4. Leads to generation of rumor
5. Serves to fill gaps in formal communication
6. Satisfies social needs of workers
7. It is classified into four types:
✓ Single Strand: Involves the passing of information through a line of persons to the ultimate
recipient
✓ Gossip: One person seeks and tells the information to everyone

✓ Probability: Random process in which someone transmits the information to others in
accordance with the laws of probability and then these others tell still others in a similar way
✓ Cluster: A person tells the information to the selected persons who may in turn relay (pass)
the information to other selected persons
Grapevine happens mostly in Oral form but sometimes it may happen in written form also.
Informal communication can happen on mobile, emails in a closed group which is called
electronic grapevine
8. Factors causing Grapevine:

✓ Uncertainty in the organization

✓ Bias/Favoritism from the management for few employees
✓ Lack of self-confidence among employees
9. Advantages:
✓ Information is passed speedily
✓ Feedback is quick
✓ Acts as parallel function where formal communication fails
✓ Acts as a support system for employees or acts as a means for psychological satisfaction
✓ Increases group cohesiveness among employees
10. Disadvantages:
✓ Less Credible Information
✓ Selective information passed
✓ Creates trouble and hostile environment
✓ Leakage of sensitive information
✓ Reduces employee productivity
➢ Modes of Communication
➢ Verbal Communication: Takes place through face-to-face conversations, group discussions,

counseling, interview, radio, television, calls, reports, newsletters, etc. It is classified into oral
and written communication.
➢ Oral Communication: Process of communication in which messages or information is exchanged or
Communicated within sender and receiver through the word of mouth.
1. Advantages
✓ Constitutes elevated level of understanding and transparency
✓ Flexibility in decisions made

✓ Quick Feedback
✓ Time and other costs saving
✓ Efficient conflict resolution
✓ Helps in team work
✓ Encourages morale
✓ Helps in transferring confidential information
✓ Facilitates Informal Communication
2. Disadvantages
✓ Not reliable in business work
✓ Less authentic
✓ Long speeches are time consuming
✓ Lead to misunderstanding sometimes
✓ Attention is required
✓ Not much legally valid
✓ No records are maintained
➢ Written Communication: Messages shared between sender and receiver in written form.
Internal form of written communication can be letter, memo, notices, reports, etc. and
external form of written communication can be advertisements, telegram, fax, posts, etc.
1. Advantages:
✓ Helps in laying principles of organization
✓ Record Maintenance
✓ Accountability of roles and responsibilities
✓ Precise and explicit
✓ Helps in legal defense
✓ Formal in nature
✓ Record are maintained properly for reference in future
2. Disadvantages:
✓ Costly and uses lots of resources
✓ Not effective in long distance communication as feedback is not spontaneous
✓ Time-consuming
✓ Requires skills and competencies for efficient communication
✓ Lack of secrecy
✓ Overemphasis on Formalization

Non-Verbal Communication: It refers to the sending and receiving of wordless messages. It
includes gestures, body language, eye contact, posture, tone or facial expressions. Non-Verbal
Communication can take place both in Verbal and Written Communication. Hand gestures,
Body language are part of non-verbal communication in Oral Communication. Even in Written
Communication symbols like smileys exhibit nonverbal communication
➢ Types of Non-Verbal Communication:

1. Facial Expressions
2. Gestures: includes waving, pointing, showing fingers, differs from culture to culture
3. Paralinguistic /Vocalic/Prosodics: tone of voice, loudness, inflection, pitch
4. Body language & Posture(Kinesics): way of standing, sitting, moving
5. Proxemics: personal space, depends on type of relationship and culture
6. Eye Gaze/ Oculesics: looking, staring, blinking
7. Haptics: communication through touch, shows affection, familiarity, sympathy
8. Appearance: way of dressing, color, clothing, hairstyle
9. Artifacts: accessories put on, web image
10. Chronemics: role of time in communication, refers to punctuality, willingness to wait, status
indicator, varies from culture to culture, differs in situation or relationship wise
11. Written text: handwriting style, presentation, use of smileys
12. Genetics: eye color, hair color, height

o Barriers to Communication:
o Semantic Barriers
1. Symbols with Different Meanings (Bypassing): Communicators (sender and the receiver)
do not attach the same symbolic meanings to their words. For example- Rest room is used
for toilets, but somebody might perceive it as a place to rest.
2. Technical Jargons: Technical jargon is a word which is used commonly in a particular field
but not in other fields. For example, KT is jargon used in BPO and IT industry which
basically means Knowledge Transfer which other person might not be able to understand
3. Faulty Translations: Sometimes a message for wide circulation is translated from one
language to another. Fault in Translation will make the communication ineffective
4. Use of Gestures having different meanings: Gestures are interpreted differently by
different people. For example, flashing a victory sign with 2 fingers might be interpreted
as number 2
5. Unclarified Assumptions: Sometimes unclarified assumptions lead to communication gap.
6. Ambiguity of words/phrases- Words sounding the same but having different meaning can
convey a different meaning altogether. For example, the words hear and here sound the
same, but they have different meanings?
o Psychological Barriers
Psychological barriers also known as emotional barriers emerge because of psychological

state of message receiver. They are as follows
1. Distrust in the person communicating the message

2. Inattention:
3. Loss of Transmission and Poor Retention:
4. Premature Evaluation: It means interpreting the message even before its transmission
is complete. This happens due to prejudice against the message.
o Organizational Barriers
Organizational Barriers arise because of the working culture of the organization. These are

1. Organizational Policy/Rules and Regulations: Suppose policy is that all communication
must be strictly in written form then such policies will restrict smooth communication
flow
2. Status Relationships: The hierarchical relationships also stem the flow of communication.
Subordinates feel hesitant to talk to seniors if they are not supportive
3. Organizational Facilities : Organizational can provide facilities for smooth, adequate,
clear, and timely flow of information. These may be in form of Complaint box, suggestion
box, open door policy, social and cultural gatherings
4. Complexity in Organizational Structure:
o Personal Barriers
Personal Barriers can be categorized as barriers related to subordinates or superiors
Superior Related Barriers
1. Negative Attitude of Superiors towards Communication

2. Fear of Challenge to Authority:
3. Insistence on Proper channel: Sometimes superiors insist on formal channels and do
not like any bypassing in communication. Superiors may thwart any attempt at bypassing
4. Lack of Confidence in subordinates: Superiors feel subordinates are not capable and
may not take their advice seriously
5. Lack of time: Superior feels he is busy and its ok for him to ignore the communication by
subordinates
Subordinate Related Barriers
1. Unwillingness to Communicate: For example, a woman who is getting married might

not share this information as this might impact her promotion opportunities
2. Lack of Incentive: Suppose in spite of giving numerous ideas, the employee got nothing
in return. He would not be motivated to share any such information in future
o Other Barriers
1. Physical Barriers: refers to the nature of the environment, ex. Long distance, different
building, sites, non-up gradation of communication technologies
2. Attitudinal: results through problems with staff, poor management, personal attitude of
employee, insufficient training
3. Fear of being criticized

4. Gender Barriers
5. Physiological Barriers: individuals' personal discomfort, caused—for example—by ill health,
poor eyesight or hearing difficulties
6. Rigidity or Dogmatism: People with stubborn views and low listening ability. Attitudes,
opinions, and beliefs possessed by a person prevents him from accepting accurate and
additional information
7. Ideological Barriers: Members of the organization do not share the same ideological
perspectives and orientation. Differences in background education and expectation result in
different social and political views
8. Filtering: Refers to sender's purposeful and deliberate manipulation of information to be
passed on to the receiver
9. Generalization: Few people try to stereotype things based on their experiences and stick to it
10. Halo effect: results from two valued thinking, in this people see things only as dichotomous i.e.
good and bad, right, and wrong, etc. but sometimes this acts as a barrier for effective
communication
o Horn Effect: The horn effect, a type of cognitive bias, happens when you make a snap
judgment about someone on the basis of one negative trait.
11. Stereotyping: In social psychology, a stereotype is any thought widely adopted about specific
types of individuals or certain ways of behaving intended to represent the entire group of
those individuals or behaviors as a whole.
12. Linguistic Barrier: difficulties in communication experienced by people or groups originally
speaking different languages, or even dialects.
o Principles Effective Communication:

1. Clarity- Communication should be clearly and precisely stated
2. Objective: The objective of the communication must be clear before we transmit the
message
3. Consistency- Information in the communication should be consistent with the plans, policies
of the enterprise. This will increase the credibility of the Communication
4. Adequacy or Completeness- Information in the communication should be sufficient, neither
too little nor over burdening
5. Timeliness- communication should be timely, neither early nor too late
6. Uniformity- Communication should not be discriminatory
7. Flexibility- Communication should not be rigid, either in form or character
8. Acceptability- Communication should stimulate acceptance and positive response in the
receiver
9. Feedback: Feedback is must and it must be addressed properly
10. Integrity: Various means in communications should complement each other. Verbal
Communication and Non-verbal gestures should be in line with each other
11. Good Listening: Listen Patiently

12. Communication Audits: In communication audits the information known to managers and
employees is compared with actual information to know the degree of distortion of
information
o Cultural aspects of communication

1. Cultural differences exist within countries (tribal/regional differences, dialects etc.), between
religious groups and in organizations or at an organizational level
2. For example: words, colors and symbols have different meanings in diverse cultures
3. All countries have different languages and to have a better understanding of different culture
it is required to have knowledge of languages of different countries
4. About non-verbal communication, paralinguistic, proxemics, artifacts, chronemics, kinesics,
differ from culture to culture and create problems while communicating
5. Ethnocentrism where one person feels his culture is superior to others also creates problem in
communication
Additional Information: High Context Culture Vs Low Context Culture

• High-context cultures: Cultures that rely heavily on nonverbal and subtle situational cues in
communication. For Example: Japanese, Chinese culture
• Low-context cultures: Cultures that rely heavily on words to convey meaning in
communication. For example: Scandinavian, Swiss, German culture
o Role of IT in communication
1. Advantages:
✓ Money and time can be saved as it is cheap as well as fast to move information around
✓ Video conferencing saves time on flights/accommodation
✓ It removes isolation and provides support systems to people who need it
✓ It is available 24x7
✓ It helps reduce red tapism/delays and corruption in the work processes
2. Disadvantages:
✓ Loss of face-to-face communication often results in loss of personal touch
✓ There is always an element of uncertainty regarding the authenticity of information
✓ Virus, fraud, identity theft are other concerns
o Some Fringe Topics

➢ Reflective Listening
• Reflective listening is a communication strategy involving two key steps: seeking to
understand a speaker's idea, then offering the idea back to the speaker, to confirm the
idea has been understood correctly. It can be characterized as personal, feeling oriented
and responsive.

• Reflective Listening encourages two-way communication.
Two-way Communication: One way Communication:
Two-way communication is a form of One-way communication flows from a
transmission in which both parties involved sender to a receiver, but nothing goes back
transmit information. in return.
E.g., Chat room, Instant messaging etc. E.g., Radio, Television etc.
➢ Five Keys to Effective Supervisory Communication
1) Expressive Speakers
2) Empathetic Listeners
3) Persuasive Leaders
4) Sensitive to feelings
5) Informative Managers
➢ Defensive and Non-Defensive communication
Defensive communication Non-Defensive Communication

is a communicative behavior that occurs We are using non-defensive communication
within relationships, work environments, and when we ask questions, make statements and
social groups when an individual reacts in predict consequences in an open, sincere way
a defensive manner in response to a self- without trying to control how other people
perceived flaw or a threat from outsiders. respond.
➢ Persuasive Communication
Persuasive communication means, persuading others to understand what one is trying

to communicate.
In order to understand Persuasive communication, we need to understand the two
categories of cognitive processing: Automatic and controlled Processing.
• Controlled processes Controlled processing requires us to pay attention and
deliberately put in effort.
• Automatic attention Automatic processing does not require us to pay attention, nor
do we have to deliberately put in effort to control automatic processes.
Factors determining whether people will use an automatic or controlled process for
reacting to a persuasive message are as following. When we use controlled processing, we
will be harder to persuade as compared to Automatic processing because in controlled
processing we are applying our mind in analysing all the aspects

1) Interest Level: When people are extremely interested in the outcome of a decision,
they’re more likely to process information carefully. That’s probably why people look for
so much more information when deciding about something important (like where to
live) than something relatively unimportant (like which soda to drink).
2) Prior Knowledge: People who are very well informed about a subject area are also
more likely to use controlled processing strategies. In other words, a better-informed
audience is likely to be much harder to persuade.
3) Personality: People who are probably high in need for cognition, a personality trait of
individuals who are most likely to be persuaded by evidence and facts. Those who are
lower in need for cognition are more likely to use automatic processing strategies,
relying on intuition and emotion to guide their evaluation of persuasive messages.
4) Message Characteristics: Messages provided through relatively lean communication

channels, with little opportunity for users to interact with the content of the message,
tend to encourage automatic processing. For example, most television advertisements
go by too fast for deliberative thought; we automatically process these. Conversely,
messages provided through richer communication channels, like a long magazine article,
tend to encourage more deliberative processing
o Implications for Managers
“The less is uncertainty, the greater is the satisfaction.” Distortions, ambiguities, and
incongruities between verbal and nonverbal messages all increase uncertainty and reduce
satisfaction.
• Reduce ambiguities and clarify the group’s task.

• Extensive use of vertical, lateral, and informal channels also increases communication
flow, reduces uncertainty, and improves group performance and satisfaction.
• Perfect communication is unattainable. Yet a positive relationship exists between
effective communication and worker productivity.
• The potential for misunderstanding in electronic communication is great despite its
advantages.
• Make sure you use communication strategies appropriate to your audience and the type
of message you’re sending.
• Finally, by keeping in mind communication barriers such as gender and culture, we can
overcome them and increase our communication effectiveness.

➢ Models in Communication
1. Linear Model of Communication
2. Transactional Model of Communication
3. Interactional Model of Communication
➢ Linear Model of Communication: It is a one-way communication model. The message flows

directly from sender to receiver. There is no feedback here. Different models that follow linear
model of communication are:
1. Aristotle’s Model
2. Shannon Weaver Model ((Feedback was not part of this model earlier, so it came to be known
as Linear)
3. Berlo's S-M-C-R Model
➢ Aristotle’s Model:
1. It can be broadly divided into 5 primary elements: Speaker, Speech, Occasion,

Audience and Effect
2. It is a speaker centered model as the speaker has the most important role in it and is the only
one active
3. The role of the audience is passive, influenced by the speech
4. Communication process is one way, from speaker to receiver
5. The speaker must organize the speech beforehand, according to the target audience and
situation (occasion)
6. Highly suited for Public Speaking
➢ Characteristics of a Good Speaker:

1. Ethos: Speaker should have credibility then only the audience will listen to his speech

2. Pathos: Speaker should be able to captivate audience’s mind and create an emotional bond
with them while delivering the speech
3. Logos: Speaker should infuse logic in his delivery so that the audience should fine reason and
practicability in the speech
➢ Berlo’s SMCR Model of Communication
1. Berlo’s model has 4 components: They are, Source, Message, Channel and Receiver
2. All components are affected by many factors
3. Source consists of communication skills, attitude, knowledge, culture of the sender and the
social system from where he is delivering the message
4. Message consists of contents, elements (gestures, postures, body movements), treatment
(tone, empathy), structure and code of the message to be delivered
5. Channel consists of way of delivering the message which could be either by hearing, seeing,
touching, smelling and tasting
6. Receiver consists of the same elements as of the Source
➢ Transactional Model of Communication: Senders and receivers both are known as

communicators and both play equally key role in communication. Their role reverses each time
in the communication process as both processes of sending and receiving occurs at the same
time. Everyday talk and interactions are also a form of transactional model communication.
Mostly used in interpersonal communications. Model that follows transactional model of
communication are:

Factors affecting Transactional model of communication:
✓ These can be environmental noise or communication barriers

✓ Environmental Noises can be Physical noise, physiological noise or psychological noise
✓ Physical barriers can be doors or walls, physiological barriers can be defect in ears or brain and
psychological barriers can be depression, lack of confidence etc
✓ Communication barriers can be cultural systems, social systems and relational situations.
These are also called as Fields of experience.
➢ Interactional Model of Communication (Convergence Model)
1. Communication happens both ways and here feedback is present. Once feedback is achieved
then the next message can be sent by the sender
2. Example Schramm’s Model of Communication

➢ Schramm’s model of communication:
1. Postulated by Wilbur Schramm in 1954
2. It says that communication is a two-way process where both sender and receiver take turns to
send and receive a message.
3. It has different components of communication in it:
✓ Sender (transmitter) is the person who sends the message.

✓ Encoder is the person who converts the message to be sent into codes.
✓ Decoder is the person who gets the encoded message which has been sent by the encoder and
converts it into the language understandable by the person.
✓ Interpreter is the person who tries to understand and analyze the message. Message is
received after interpretation. Interpreter and receiver is the same person.

✓ Receiver is the person who gets the message. He/she decodes and interprets the actual
message.
✓ Message is the data sent by the sender and information that the receiver gets.
✓ Feedback is the process of responding to the received message by the receiver.
✓ Medium or media is the channel used to send the message.
✓ Noise is the interference and interruptions caused during the process.
Field of experience
Field of Experience are the things that influences the understanding and interpretation of
message like culture, social background, beliefs, experiences, values, and rules. People with
various knowledge, experience and cultural practices interpret message in a different way than
other.
For example, a person who always eats with spoon is informed that that he has to eat with
hands in that place; the person will get offended because he will think it is impolite to eat that
way. Socio-cultural gap will change the way a person interprets the message.
➢ Difference between Transactional Model and Interactive Model
➢ Interactive Model is about interaction where receiver receives the message and then sends
the feedback. Sender waits for the feedback from the receiver whereas Transactional Model
is more of a continuous communication between sender and the receiver
➢ Transactional Model is more applicable in social context in our day to day life whereas
Interactive Model is applicable to interaction with machines or soft wares

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Important Points
1. This Summary Sheet shall only be used for Quick Revision after you
have read the Complete Notes.
2. For Building Concepts along with examples/concept checks you
should rely only on Complete Notes
3. It would be useful to go through this Summary sheet just before the
exam or before any Mock Test.
4. Questions in the exam are concept based and reading only summary
sheets shall not be sufficient to answer all the questions.

1 Summary Points
➢ Leadership is a process by which an executive can direct, guide, and influence the behavior
and work of others towards accomplishment of specific goals in a given situation. Leadership
is the ability of a manager to induce the subordinates to work with confidence and zeal. It is
the human factor which binds a group together and motivates them towards goals.
➢ Characteristics of effective leadership includes influencing ability of the leader, adaptability in

different situations, direction ability to achieve organizational objectives, readiness to accept
responsibility, personality, intelligence & maturity to handle group decisions and existence of
followers in the group.
➢ Importance of leadership in an Organization
• Influencing the behaviour of people

• Helps employees in fulfilling their needs.
• Introducing required changes
• Solving conflicts effectively
• Training and Development of Subordinates
• Setting a clear vision
• Motivating, guiding employees, and building morale of employees
➢ Leadership Tasks:
➢ Different between Leadership and Management: A person can be effective manager, an

effective leader, both or neither. Leadership is part of management, but not all of it. All works

performed by leader may not be management work. Outstanding leaders might be poor
managers. Leadership is different from management in following ways
Leadership Management
Derives power from personal characteristics Derives power from authority delegated
Leadership focuses on transformation aspect Management
- focuses on transactional part -
Creating vision and purpose of the organizationDeals with establishing structures and systems
in getting intended results to get those results. Management is about
efficiency, cost-benefit analysis, logistics,
methods, procedures, and policies
Focuses on top line (organizational growth) Focusses on bottom line (profitability)
Leadership is about Motivating, Mentoring, andManagement is about monitoring results
Inspiring against plans and solving problems i.e.
Controlling and Problem Solving
Leader Coaches and advises Manager drives and orders
➢ Formal and Informal Leader: Leadership is exercised in group situation. Since groups may be
either formal or informal. There may be formal leader or informal leader.
Formal leader: Formal leader is the one who is officially appointed to manage a group. He has
authority to exercise the control over the group
Informal Leader: An informal leader has no formal organizational authority to influence others
but possesses special kills and talent to influence and lead other members of organization. He
drives power to influence from his skills such as strong self-motivation, positive attitude,
motivating others. He can satisfy those needs of people which organization is not able t o
➢ Leadership Styles: A leadership style is a leader's style of providing direction, implementing

plans, and motivating people. Kurt Lewin recognized that one of the factors that determine a
leader's choice of leadership style is the need to make decisions. Accordingly, he identified 3
different styles:

Authoritarian Leadership: Under this, all decision-making powers are centralized in the
leader, as with dictators. These leaders determine the actions of the group with little (if
any) discussion. They tend to exercise total control of the team and the decision-making
process. The leader gives the directions and the team follows them and reports back.
While, this style of leadership may save time in the short term, few new ideas are
generated and generally morale is low. Further there are 3 types of autocratic leaders
1. Strict Autocrat: Those who have negative influence on the team because group
members are uniformed and afraid of leader
2. Benevolent Autocrat: Those who may have positive influence on the team by using his
power to disperse rewards to the group. They can get high productivity from the people
3. Manipulative Autocrat: Those who make people believe they are participating in the
process but in reality, the decision has already been taken
Participative/Democratic Leadership/Consultative Style: These leaders encourage their team

to be actively involved in decision making. They delegate authority to suitably skilled team
members and provide opportunities for others to develop their skills. Because there is an
ongoing exchange of information, the team tends to be productive and efficient. This style of
leader uses a variety of approaches to meet the specific skill levels and motivational needs of
the team members.
Laissez Faire/ Delegative Leadership/Free Reign Style/Permissive Style: Decision-making is

passed on to the sub-ordinates. The sub-ordinates are given complete right and power to
make decisions to establish goals and work out the problems or hurdles. This type of leader
tends to adopt a policy of not 'interfering' with the group by letting them run themselves. This
method is generally only effective in highly specialized fields.

➢ Transactional Leadership(also known as Managerial Leadership):
1. Managers are mostly concerned with supervision, organization, and performance
2. Based on rewards (Carrot) and punishments (Stick) approach
3. Managers believe that employees have only extrinsic needs to be satisfied
4. It is a kind of autocratic style or telling style and Theory X style of management
5. This type of leadership focuses on Maslow’s lower level of needs(Physiological, Safety and
Social) to increase the productivity and execution of objectives
6. Focuses on Management by Exception which means managers do not interfere or pay

attention to subordinate’s work until there is some problem
7. Not suitable in case of highly emotional people in the group
8. These are mostly passive managers who do not believe in innovative or creative work but
rather following established routines and procedures
9. Effective in crisis and emergency situations as well as for projects that need to be carried out
in a specific way.
➢ Transformational Leadership
1. It is a more of selling style or democratic style of management
2. Leader works with subordinates to make the needed change and creates a vision to guide the
change through inspiration
3. Believes in innovating and creative work and does not believe in following standard operating
procedures
4. Believes that workers have extrinsic as well as intrinsic needs
5. Believes in inspiring the workforce by setting an example, serves to enhance the motivation
and morale of the workforce
6. Helps to connect self-identity and project’s identity in turn achieving the collective identity of
the organization
7. Transformational Leadership Style was given by James Burns and then extended by Bernard
M. Bass.

8. According to Burns, transformational leadership can be seen when “leaders and followers
make each other advance to a higher level of morality and motivation”. Through the strength
of their vision and personality, transformational leaders are able to inspire followers to change
expectations, perceptions, and motivations to work towards common goals
9. Bernard M. Bass (1985) extended the work of Burns (1978) by explaining

the psychological mechanisms that underlie transforming and transactional leadership.
10. According to Bass, there are four characteristics in the Transformational Leader
✓ Idealized Influence (II) - the leader serves as an ideal role model for followers; the leader
"walks the talk," and is admired for this.
✓ Inspirational Motivation (IM) - Transformational leaders have the ability to inspire and
motivate followers. Combined these first two I's are what constitute the transformational
leader's charisma.
✓ Individualized Consideration (IC) - Transformational leaders demonstrate genuine concern for
the needs and feelings of followers. This personal attention to each follower is a key element
in bringing out their very best efforts.
✓ Intellectual Stimulation (IS) - the leader challenges followers to be innovative and creative. A
common misunderstanding is that transformational leaders are "soft," but the truth is that
they constantly challenge followers to higher levels of performance.

➢ Difference between Transactional and Transformational Leadership
Area Transactional Leadership Transformational

Based on Behavioral Pattern
Basic Based on exchange relation Based on leader’s values, beliefs
between Leader and and needs of followers
followers
Motivation Linked to immediate Inspirational Motivation which
performance through makes them act beyond their scope
rewards and Punishment
Decision Making Use of Structured Process Based on Intellectual Stimulation
Follower Development Through Training and Individualized Mentoring and
Development programs coaching
Influence Process Traditional process of using Influence through idealized
authority Influence by being a role model
Approach Passive and Stable Active and Dynamic
Orientation Leader follows Task Leader follows Goal Orientation
Orientation
Organizational Growth Bottom Line Growth Top Line Growth
Perspective
Tackling Issues Responsive Proactive and Individualized
Consideration
Main Functions of Leaders Determination of Objectives, Providing vision and mission,
clarifying tasks and helping instilling pride, gaining respect and
subordinates in achieving trust, inspiring people
objectives
Time Frame Based on Short term thinking Long term thinking and relations
Based on Outcomes
Organizational Processes Low to moderate High to highly effective
Creativity and innovation Low to moderate High to highly effective
Follower Satisfaction Low to moderate High to highly effective
Performance Level Low to moderate High to highly effective

11. Five major personality traits have been identified as factors contributing to the likelihood of an
individual displaying the characteristics of a transformational leader are as follows:
➢ Servant Leadership (Coined by Robert K. Greenleaf)

1. Believes in sharing power and less control on the group
2. Leader exercising such leadership puts others needs first and help people to develop and
perform in their highest possible ways
3. Power pyramid is upside down for this type of leadership that to say leaders exists to serve
the people
4. This leadership style is mostly associated with Participative style of leadership
5. Mostly seen in NGO’s or Politics
➢ Bureaucratic Leadership (Given by Max Weber)

1. Bureaucratic leaders rely on rules and regulations and clearly defined positions within
organizations.
2. Bureaucratic leadership is based on strict hierarchies and often depends on written job
descriptions and organization charts to explain the hierarchy and their relationships.
3. Weber, a German sociologist, described six tenets that define bureaucratic leadership:
✓ A strict hierarchy that is formalized by the leadership and strictly adhered to

✓ The organization is controlled by immutable rules, regulations, or laws
✓ The organization is structured along the lines of specialties. People with like talents are
grouped together
✓ The organization has one of two missions:
• “Up-focus,” meaning it focuses on the board of directors or stockholders
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• “In-focus,” which means the organization serves a product-oriented goal such as increasing
profits market share
✓ Bureaucratic leadership is impersonal. It is about performance, not the worker
✓ Employment is based on the most technically proficient
➢ Paternalistic Leadership
1. A type of fatherly managerial style typically employed by dominant males where they exert
organizational power and treat employees and partners as part of members of the large
extended family.
2. Used to control and protect subordinate staff that are expected to be loyal & obedient
➢ Narcissistic Leadership
1. These types of leaders are found to have high in self-love
2. They are only interested in their own interests and prioritize their agendas at the expense of
group
3. This is characterized to be mostly unhealthy and destructive kind of leadership found mainly in
individuals with high arrogance, self-absorption, ego, and love for power
➢ Collaborative Leadership
1. This is a type of leadership style that is focused across functional and organizational
boundaries
2. Mostly seen in groups where people are working from different departments, organizations ,
team who have shared goals and values and believing in sharing success
3. General examples where this leadership is applied can be public private partnerships, global
supply chains, on-line collaborations, etc.
➢ Shared Leadership
1. This type of leadership distributes leadership responsibility
2. Commonly thought of as the "serial emergence" of multiple leaders over the life of a team
3. Measurement of Shared Leadership:
✓ Ratings of team’s collective leadership behavior: Measures team member’s perceptions of
leader behavior exhibited by respective team leaders and team members which is done by
distributing leader behavior questionnaires
✓ Social network analysis: Analysis of the relationships that occurs when one team member
perceives another as exerting leadership influence on the team
✓ BARS(Behaviorally anchored rating scales): Used to assess and rate performances
4. Factors affecting Shared leadership:
✓ Internal Environment: This is focused on three dimensions, namely Shared purpose, Voice,
and Social support
✓ External Environment: This is affected through external coaching provide to the team. This
can be done in two ways: Supportive Coaching(through active encouragement and positive
reinforcement of team members by external team managers) and Functional
Coaching(external coaches intervenes only when team lacks shared purpose)
➢ Authentic Leadership Authentic leaders know who they are and what they believe in, and they
act on those values and beliefs openly and candidly.
Characteristics of Authentic Leaders:
• Authentic leaders are self-aware and genuine.
• Authentic leaders are mission driven and focused on results.
• Authentic leaders lead with their heart.
• Authentic leaders focus on the long-term
• They share information and encourage open communication.
• Their followers consider them ethical people and trust them as a result.
➢ Ethical Leadership Ethical leadership is a form of leadership in which individuals demonstrate

conduct for the common good that is acceptable and appropriate in every area of their life. It
is composed of the following three major elements:
• A noble quality of a leader is leading by example.
• Champion the Importance of Ethics
• Successful ethical leaders tend to be good communicators.
➢ Leadership Theories:
We will cover Trait, Functional Approach theory and Behavioral Style Theories in this
document.
Trait Approach Theories

1. Believes that people are born with certain qualities that makes them effective leaders
2. Qualities like intelligence, personality, stability etc. which are stable over time and differs
across individuals
3. What does trait theory say -> Leaders are born, or leaders are made? There is some confusion
whether as per trait theory leaders are born with these traits or these traits can be learned
over time. Different authors have expressed different opinion about this. The opinion
expressed by most authors is that as per trait theory traits can be inborn or they can be
learned over a period of time. Some others are of the opinion that leaders must be born with
these traits and these traits cannot be learned over a period of time. Actually, former view is
more correct but latter view is also not completely wrong. In exam, remember both these
views and answer based on this
4. The major trait theory is given by Gordon Allport
➢ Gordon Allport Trait Theory

1. Traits influenced through childhood experiences, current environment, and their interaction
2. Personality made up of 3 traits: Cardinal, Central and Secondary
✓ Cardinal Traits symbolizes a person’s personality. He is majorly known for such traits
✓ Central Traits are the basic qualities in a person that shape up the whole personality
✓ Secondary Traits of an individual are only visible in certain specific situations
➢ Functional Approach Theories

1. Focuses on how leadership occurs i.e. process of leadership rather who serves as a leader
2. Believes that leadership is a distributed function
3. Not necessary to have a formal leader and organization as a whole can lead
4. Example could be such job positions where an individual has to take leadership responsibility
without any delegated authority
5. John Adair’s Action Centered Theory is a popular theory in Functional Approach theories
➢ John Adair’s Action Centered Theory

1. Divides leadership into 3 areas namely, Tasks, Team and Individual
2. Emphasizes that each of the three elements play significant role for effective leadership
➢ Behavioral Theories
1.Believes that leaders are made and not born(Opposite of Trait Approach Theory)
2.Asserts that people can be taught to become a good leader
3.Divides leaders into 2 categories:
✓ Task Oriented: Mainly concerned with accomplishment of the task as per the standard
operating procedures
✓ People Oriented or Group Maintenance Oriented: Mainly concerned with inner needs of the
people getting satisfied whilst achieving results
One of the drawbacks of behavior theory is that it believes one leader would be effective in all
the situations but there is no appropriate behavior which can be effective in all the situations
➢ Michigan and Ohio University Leadership Studies:

In the studies at University of Michigan, two types of practices influencing employees have
been identified: Employee-Orientation and Production orientation.
a. Employee orientation stresses the relationship and emphasizes that every individual is
important, one must accept their individuality and personal needs
b. Production or Task orientation emphasizes production and technical aspects of the job
and employees are taken as tools for accomplishing the jobs
At the same time when studies were going on Michigan University, a separate study was
going on at Ohio state university. These studies have identified two dimensions: Initiating
structure and Consideration
1. Initiating structure (Task Orientation) refers to leader’s behavior in delineating the
relationship between him and members of work group to establish well defined
patterns of organization., channels of communication, method, and procedures. The
leader who his high on initiating structures specifies the task to be performed by each
member of his group, sets down deadlines, gives directions and put pressure on them
for its fulfillment
2. Consideration (People Orientation): Consideration refers to the extent to which a

leader is likely to have job relationships which are characterized by mutual trust, respect
for subordinates’ ideas and regard for their feelings. He shows concern for his followers’
comfort, well-being, status, and satisfaction.
The 4 quadrants show various combinations of initiating structure and consideration.

Manager can adopt style in any one of the quadrants
➢ Blake and Mouton Managerial Grid

1. System used to group leaders into different categories based on the techniques they use
2. Helpful in knowing an individual’s existing leadership style and guiding to achieve ideal
leadership style required
3. Considers 2 dimensions of the grid namely, Task oriented managers and Relationship
oriented managers
In essence, Managerial grid is very much similar to Ohio state leadership model. However,
there is one basic difference between the two. In managerial grid the ‘concern for’
dimension on X-axis is more about the attitude of managers whereas in Ohio state
leadership model its more about how leader actions are perceived by others. In other
words, managerial grid is attitudinal model whereas Ohio state leadership model is
behavioral model. Both these frameworks can be combined as below
➢ Updated Blake and Mouton Managerial Grid

1. Includes two new style namely, Opportunistic and Paternalistic Styles
2. Opportunistic Style leaders adopt any style that has highest likelihood of achieving their
objectives. It does not have any fixed position on the grid.
3. Paternalistic Style leaders guide and define objectives for their employees and discourage any
initiative contrary to their views
➢ W.J. Reddin 3-Dimensional Grid

Tridimensional Leadership or 3D leadership theory was given by Reddin. It is based on the
Managerial grid theory by Blake and Mouton. Some people say that it is based on Ohio state
leadership theory as Reddin’s model is based on the two basic dimensions (Task and
Relationship) of leadership identified by the Ohio State studies
Reddin identified 4 leadership styles as given below
Reddin also says that apart from task and relationship being two dimensions of leadership,
the third dimension is effectiveness as shown below
Reddin believed that the way leader behaves in a certain situation may not be appropriate
in some other situations and hence leader can become effective only if he changes his style
as per the demand of the situation. One style may be effective in one situation and
ineffective in other situation. Thus, the difference between effective and ineffective styles is
often not the behavior itself but the appropriateness of the behavior to the environment in
which it is used. 3-Dimensional grid integrates the concepts of leadership style with
situational demands of a specific environment
Since each style can be less appropriate or more appropriate for the situation, Reddin also
gave less effective and more effective equivalent of each of these 4 styles that we discussed
above
Basic Style Less Effective Style More Effective Style
Integrated Compromiser Executive
Dedicated Autocrat Benevolent Autocrat
Related Missionary Developer
Separated Deserter Bureaucrat
➢ Lewin’s Leadership Theory is one of the Behavioral Approach theories consisting of
Authoritative, Democratic and Laissez Faire Styles of Leadership as discussed above.
➢ Tannenbaum and Schmidt leadership style continuum

1. Believes that leadership style is a continuum that can be adopted in a real-life scenario
rather than categorizing leadership into different segregates like other theories
2. Extremes marking each end of the continuum:

✓ Manager-oriented leadership: Leader acts more like dictator and asserts autocratic style of
leadership with minimal amount of freedom. This extreme is also called manager power
influence
✓ Team-oriented leadership: Leader gives plenty of flexibility and freedom to the employees
to encourage sharing of collaborative ideas. This extreme is also called non-manager power
influence
3. According to Tannebaum Schmidt, there are 7 points in the continuum:
✓ Tells: Close to the left end of the extreme with least amount of freedom provided to the
subordinates
✓ Sells: Amount of freedom given here is little bit up the scale in the continuum where
subordinates get a chance to give their inputs but ultimate action taken by the leader
✓ Suggests: In this subordinate feel little bit more amount of freedom by suggesting ideas to
the leaders where they feel that their voice is heard
✓ Consults: In this leader consults with the team knowing that the team is experienced
enough
✓ Join: In this leader acts more like a member of the team even if in the end the power to
take action resides with him
✓ Delegates: In this leader delegates activities to the team members and trusts that they will
do their job
✓ Abdicates: In this leader relinquishes any kind of involvement in the task to be done and
trusts that the members of the team will do it. This is present at the extreme end of the
spectrum with maximal freedom given to the subordinates
The left side shows styles where control is maintained by the superior and the right side
shows release of control and more freedom to employees. The question arises at which
point in the continuum should a manager as a superior adopt the leadership style. There is
no answer to this question. The answer depends on 3 factors
1. Forces in the superior: His value system, confidence in his subordinates, feeling of
security
2. Force in subordinates: their need for independence, readiness to assume
responsibility, understanding of organizational goals, ability to participate in decision
making
3. Forces in the situation: type of organization, group effectiveness and nature of
problems
The more superior is confident about subordinates, the more subordinates are mature and
responsible and the more is the team spirit in the group, the higher will be the freedom
given to the employees.
➢ Likert’s Leadership Theory
➢ Comparison of Likert’s and Levin’s theories
1. Likert’s divides Authoritative Style of Levin’s into Exploitative and Benevolent Authoritative
Styles
2. Democratic Style of Levin is similar to Consultative and Democratic(Participative) approach of
Likert
➢ Huneryager and Heckman Four Styles of Management
1. In Dictatorial, 100% centralization in decision making by the managers is present

2. In Autocratic, managers orders subordinates to accept decisions with little consultation
3. In Democratic, managers consult their subordinates in making decisions
4. In Laissez Faire, 100% decentralization of decision making by the managers is there
➢ Comparison of different theories
➢ Emerging Issues in Leadership
Along with the recent developments in theory, some exciting issues have emerged of which
leaders must be aware. These include:
1) Emotional Intelligence (EI)

It has been suggested that effective leaders must possess emotional intelligence, which is
the ability to recognize and manage emotion in oneself and in others.
2) Trust
Effective leaders understand both who to trust and how to trust. At one extreme, leaders
often trust a close circle of advisors and gradually cutting themselves off from dissenting
opinions. At opposite extreme, lone-wolf leaders may trust nobody, leading to preventable
mistakes. Wise leaders carefully evaluate both the competence ad the position of those
they trust, seeking out a variety of opinions and input.
3) Gender and Leadership

Gender is important because of the common perception that male gender roles are more
congruent with the leadership role than are female gender roles. This perception may
contribute to prejudice against women leaders.
4) Abusive Supervision
Abusive supervision refers to sustained displays of nonphysical forms of hostility
perpetrated by supervisors against their direct reports. Examples of behavior that fall within
the abusive supervision content domain include public derogation, undermining, and
explosive outbursts.
Important Points
read the Complete Notes
2. For Building Concepts along with examples/concept checks you should
rely only on Complete Notes
exam or before any Mock Test

1 Summary Points
➢ Leadership Theories
Trait Approach theory, Functional Approach theory and Behavioral Approach Theory have
already been discussed earlier in the course. Here, remaining theories have been
summarized.
➢ Situational/Contingency Theories : Asserts that there is no single effective style of
leadership suitable for every situation. It suggests that leadership effectiveness
depends on leader’s behaviors and situation in which leadership is exercised up on.
Let us discuss these two factors
1. Leader’s behavior: Leader’s behavior is affected by two variables

a. Leaders characteristics: Leaders behavior is influenced by his characteristics
like his ability, personality, attitude, interest, motivation etc. All this factor is
internal to the leader
b. Leaders Hierarchical Position: Leaders hierarchical position in organization is
important because persons at different levels different kind of participation is
involved. Managers at higher level are more concerned with long-run complex
problems which require more participation in decision making. Managers at
lower levels are more concerned with short-run problems involving routine
operations which may not require high level of participation. The degree of
participation affects the leader’s behavior
2. Situational Factors: Besides leader’s characteristics it is the situation that

determines whether the leader will be effective or not. Some leaders may be
successful in certain situations whereas they may not be successful in other
situations. For example, A leader who is a tough task master might be successful in
managing workers in factory whereas he might not be successful in managing white

collar workers in IT industry. The situational factors can be grouped into 4
categories: Subordinate’s characteristics, Leader’s Situation, Group Factors and
Organizational Factors
a. Subordinate Characteristics: The characteristics of subordinates like their
ability, personality, attitude, interest etc. affect their behavior
b. Leaders Situations: Leaders situation in respect to his subordinates depends on

two factors – Leaders position power and leader-subordinate relationship.
i. Leader’s position power helps or hinders in influencing others: high
position power simplifies the leader’s task of influencing others while
low-position power makes the leaders task more difficult.
ii. Leader-subordinate relationship indicates the extent to which leader
will satisfy the subordinates’ needs and the extent to which
subordinates will contribute to leader’s success. If leader subordinate
relationship is good, leader is likely to be effective. In alternative case,
the leader will be ineffective
c. Group Factors: Various group factors like task design, group composition,
group norms, group cohesiveness and peer group relationship affect leadership
effectiveness and performance. If these factors are favorable, the leader will be
effective
d. Organizational Factors: Organizational factors like climate and culture in the

organization affect leadership effectiveness. If these are conducive the leader
will be effective

➢ Fiedler’s Contingency Theory
1. Leadership style is dependent on situation and varies accordingly
2. Individual’s leadership style is fixed, hence for every situation a suitable leader needs to be
chosen based on his style
3. Considers 2 types of leadership styles broadly: Task Oriented (focused on the productivity of
the tasks) and Relationship Oriented Styles (focused on building relationships with people
by addressing their needs and opinions)
4. Measurement for judging leadership style of an individual according to the theory: Least-
Preferred Co-worker Scale (LPC)
5. LPC asks an individual to rate the 16 characteristics on a series of bipolar scales of 1 -8, of a
least preferred co-worker they have come across.
6. Low LPC score → Task Oriented Style and High LPC score → Relationship Oriented Style
7. Situation variable types:
✓ Leader’s Position Power: Based on managerial powers, an individual is classified into a
strong or weak leader
✓ Task Structure: Based on proper instructions and defined layout of the task, it is
categorized into structured and unstructured task
✓ Leader Member Relation: Based on relationship or rapport shard by the leader with
his subordinates, it is classified into good or poor
8. With the use of situation variables, Fiedler designed a matrix to recommend the suitable
leadership style for a particular situation.

9. As per the matrix,
✓ Favorable situation: Good member relations, Highly structured task, and Strong leader
position power
✓ Unfavorable Situation: Poor member relations, Highly unstructured task, and weak
leader position power
10. Low LPC based leader suitable for extremely favorable situation and High LPC based
leader suitable for intermediate favorable situation
11. In stressful situations, experience is more useful than intelligence and vice-versa
12. Selecting the leader based on his style for which the situation is most suitable is termed as
Job Engineering/Restructuring in the organization
➢ Hersey and Blanchard Situational Leadership Theory

This theory is also called life-cycle theory of leadership
1. Based on 4 leadership styles and 4 maturity styles of the subordinates

2. Leadership style is dependent on the maturity level of the person
3. Asserts there is no single “best” style of leadership
4. Effective leadership is dependent on nature of tasks and performance readiness of the
subordinates
5. Four leadership styles:
✓ Telling: Leader directs instructions to the subordinates. More like autocratic style of
leadership
✓ Selling: Leader explains decisions and tries to convince his ideas to the subordinates
✓ Participating: Leader tries to build team relationship by working together and sharing
ideas

✓ Delegating: More independent style of leadership where leader delegates tasks to the
team members. Generally, observed in highly experienced team groups
6. Four Maturity levels:
✓ M-1: Lack of ability and unwillingness in doing the task
✓ M-2: Lack of ability but willing to do so
✓ M-3: Ability to do the task but Unwilling to do task
✓ M-4: Ability to do task and willing also
7. Maturity level is dependent on the task
8. A good leader develops competence (Maturity in task) and commitment (Performance
readiness) in his subordinates to feel self-motivated to do the job. This leads to traversal of an
individual though different developmental levels
➢ Robert House’s Path Goal Theory

1. Leader's behavior is contingent to the satisfaction, motivation and performance of her or his
subordinates
2. Leadership Style is determined through Environmental and Employee factors which all when
combined determines the output of tasks
3. 4 Different leadership Styles according to the theory:

✓ Directive: Leaders directs, guides, and carves out the work schedule for the employees
and concentrate on building task-oriented relationship
✓ Achievement-oriented: Leaders set high expectations and challenging goals from
their employees and generally seen in high end jobs
✓ Participative: Leaders work with their subordinates and involve them in the decision-
making process by taking their views and opinions

✓ Supportive: Leaders are supportive enough to satisfy the needs of their subordinates
and concentrate majorly on relationship-oriented type of relationship
➢ Vroom-Yetton-Jago Decision Making Model (Leader Participation Model)

1. Model suggests decision of leadership style for group decision-making which is
contingent on the situation
2. 3 Factors that influence leadership style:
✓ Decision Quality: This tells how rigorous and thoroughly checked decision is needed to
be made which could be dependent on various factors like sufficient research done,
people involved, etc.
✓ Team Commitment: This is related to those decisions that have considerable impact
on the team members and might affect their morale while accomplishing the task
✓ Time Constraints: This is related to the amount of time that is available with any
leader to decide

3. Vroom and Yetton formulated 7 questions on decision quality, commitment, problem
information and decision acceptance, with which leaders can determine level of
follower’s involvement in decision and type of leadership (A1, A2, C1, C2, or G2) needs
to be employed. Answer to the questions must be either ‘Yes’ or ‘No’ with the current
scenario.
4. Decision Tree is followed until you arrive at a specific leadership code style
➢ Cognitive Resource Theory (by Fred Fiedler and Joe Garcia)
1. Asserts that Intelligence and Experience play a significant role in a person’s reaction to a
stressful situation
2. For Low-stress situation → Intelligence is important and High-stress situation →
Experience is important
3. Takes stress as the situational factor and suggests whether intelligence or experience is
more suitable to the task depending on the stress factor
4. For Directive oriented approach, intelligence is required
5. Intelligence or experience is irrelevant for simple tasks
➢ Leader Member Exchange Theory (LMX or Vertical Dyad Linkage Theory)

1. It is a type of Transactional leadership
2. Focuses on relationship between manager and members of the team
3. Claims that leaders do not treat each subordinate the same which leads to the formation
of In-group and Out-group members
4. Relationship between managers and members of the group is developed through 3
stages:
✓ Role-taking: This happens initially when members join newly, and managers take time
to assess their qualities
✓ Role-making: At this stage managers categorizes his team members into In-group or
Out-group depending on the trust, loyalty and commitment shown by them
✓ Routinization: Routines between team members and mangers are established
➢ Transformational Theories: This has been already discussed in the previous document
of Leadership part 1. Basic essence of this leadership is forming a new vision to
accomplish the task by motivating and selling the vision formed by the leader
Categorization of Leadership theories
Transformational
Traits Approach
Approach
Theory
Theory
Burns Bass Transformational James Kouze and Barry

Transformational Theory Posner - Leadership
Theory Participation Inventory
We have already discussed about views of Burns and Bernard Bass on

Transformational leadership in Leadership Part 1. We are not going to discuss them
again. Now we shall discuss about third theory – leadership participation Inventory
➢ James Kouze and Barry Posner Model (Leadership Participation Inventory)

1. James and Posner conducted a survey that asked people to rate top
characteristics in a leader to which they would follow based on which they
recommended 5 characteristics that make a good leader. They are:
➢ Inspirational Approach to Leadership : There are 3 approaches to Inspirational Leadership:
Charismatic Leadership, Visionary Leadership and Transformational Leadership. These
three are closely related but there is some basic difference among these
We have already discussed about Transformational Leadership. We shall study about the
remaining two: Visionary and Charismatic Leadership
Charismatic Leadership:
1. These types of leaders have particularly good personality and fan following. Narendra
Modi is an example
2. They are dominant, self-confident individuals who hold strong conviction for their beliefs
3. They lead by example and that’s why people like them. This concept of leading by
example where one uses its loyalty, affection, admiration etc. is called usage of
referent power to gain followers
4. The subordinates want to be like leaders in every aspect
5. Key characteristics of Charismatic Leaders are
a. Vision and Articulation: He has a vision for longer term that proposes a better future.
He is able to clarify the importance of vision so that it becomes acceptable to others
b. Personal Risk: He is willing to take high risk, incurs high costs and engages in self-
sacrifice to achieve the vision
c. Sensitivity to Followers needs: He is perceptive of abilities and needs of the
subordinates
d. Unconventional Behavior: He might behave against the established practices and
norms
Robert house was the one who basically emphasized that charismatic leaders have inborn
qualities which makes them great leaders. This view is now being challenged as charismatic
leaders can also be developed. As per Richardson and Thayor view that a person can become
charismatic leader by following these 3 steps
1. First, he needs to develop an aura by maintaining an optimistic view, using passion as
a catalyst for generating enthusiasm and communicating with whole body (non-
verbal) and not just words
2. Second, he draws others in by creating a bond that inspires the to follow
3. Third, he brings out the potential in followers by tapping into their emotions
Types of Charismatic Leaders

Charismatic leaders have been categorized into five types:
a) Socialized charismatic Leaders: Socialized charismatic Leaders use power to benefit others.
b) Personalized charismatic: Personalized charismatic leaders use power to serve primarily
their own interests.
c) Office-holder charismatic: The office-holder charismatic leaders attain their charisma
chiefly from the position they hold rather than of their personal characteristics.
d) Personal (not personalized) charismatic's: Personal (not personalized) charismatic leaders
gain very high esteem through the faith; others have in them.
e) Divine charismatic: A divine charismatic was someone endowed with a gift of divine grace.
For example, Godmen.
Difference between Charismatic Leadership Versus Transformational Leadership

You might be thinking that charismatic leadership is same as Transformational Leadership. In
many ways they are same but there are some differences between the two
1. Charisma is part of Transformational leadership, charisma by itself is not sufficient to
account for transformational process. Transformational leadership is broader than
charismatic leadership
2. Charismatic leader might not encourage followers to challenge his views whereas
transformational leader will encourage their followers to question not only long-
established views but his own views also.
3. Under Charismatic Leadership, People believe charismatic leaders are born and not
made whereas in Transformational Leadership, leaders are adaptive leaders and
mostly are trained to become leaders.
4. Under Charismatic Leadership, leaders may not want to change anything in the
organization whereas in Transformational Leadership, Leaders have a basic focus of
transforming the organization and their followers.
5. Under Charismatic Leadership, leaders tend to work more towards their personal
benefit and image building whereas in Transformational Leadership, leaders
tend to work more for the betterment of the organization and their followers.
6. Under Charismatic Leadership, leaders are hard to replace whereas in
Transformational Leadership, leaders will be replaced by the next in line
commandment officer in the organization if they are trained well.
7. The purely charismatic leadership may want followers to adopt the leader’s world
view and go no further. However, transformational leadership attempts to encourage
followers to question not only established views but those established by the leader.
Visionary Leadership
Visionary leadership is about credible and inspiring vision for the future of the organization
which is shared commonly by all the organizational members and hence becoming a shared
vision.
Characteristic of Visionary Leader

1. He has some charismatic characteristics but those are acquired and not in-born
2. He is willing to take risk to put the organization on right path
3. He is strategic planner and plans ahead to make the best business moves
4. He constantly searches for additional information that might yield an insight and helps
solve a problem
5. He is a persuasive communicator and communicates in way that influences others to
act willingly to convert the vision into reality
Visionary and Charismatic leadership might be sounding like they are same. But there is
important difference between the two
1. The charismatic leaders tend to rely more on in-born qualities whereas visionary
leaders tend to rely on acquired qualities to influence others
2. The source of loyalty for charismatic leaders is loyalty (referent power) of his followers
towards him while source of influence of the visionary leader is follower’s
commitment to shared vision
➢ Systems Approach Theory

Systems theory of leadership suggests that there are two subsystems of an organization –
Technical and Social
1. Technical system is about rules, policies, tasks, organization structure etc.
2. Social subsystem is about the human element, interaction between leaders and
followers
Both these systems interact closely and shape employee behavior. Due to changes in the
environment organization changes its technical system which impacts the social system i.e.
when organization changes its rules and policies then the way leaders and followers interact
also get changed
As per this theory, 4 types of leadership pattern emerge in the organization in stages
1. Formal: Influence in Formal leadership is based on authority of the position held by

the individual
2. Emergent: Influence in Emergent leadership is based on skills and knowledge of an
individual and his acceptance in the group
3. Shared: Influence of shared leadership is based on individual accountability and self-
control
4. Integrative: Influence of Integrative leadership is based on interdependence of group
members and control is through self-regulation
➢ Great Man theory of Leadership:
This is one of the first theory of Leadership. As per this theory ‘leaders are born, not made’.
This theory emphasizes that a person is born with or without necessary traits of leadership.
For example, it was believed that Napoleon was a born leader due to his natural ability to rise
out of any situation. This theory actually emphasizes ‘charismatic’ leadership. As per this
theory, great leaders have inborn characteristics such as commanding personality, charm,
courage, intelligence etc. These qualities cannot be learned but are ingrained
As per this theory
1. Good leaders have in born qualities which are bestowed upon them by God
2. Ordinary people cannot become good leaders
3. Leadership qualities cannot be acquired through formal education
4. The situational factors have little influence on leaders’ qualities. A good leader will be
a good leader in all the situations
Criticism of Great Man Theory
1. Leadership qualities are not just in-born, they can be acquired also. Hitler who was
just a house painter in youth became a dynamic leader later. This shows that
leadership qualities are not just inherited.
2. Another criticism is that this theory ignores the situational variables. A leader with
certain leadership qualities may be effective in one situation and non-effective in
another situation.
3. “A Natural Born Leader “: Does this mean that introverts, persons of average social
intelligence, or those of us who are not particularly empathic will not make good
leaders? Certainly not. A great leader in recent history - the Mayor of New York – has
Leadership thrust on him in the aftermath of the September 11 attacks for which he
was subsequently honored. Remember, most of leadership is made, not born. So, if
you aspire to positions of leadership, then the best course is to embark on a
leadership self-development plan.
4. Doing the Right Thing: To be successful, all leaders – whatever their leadership style,
type and so on - must choose the right action at the right time and “keep a steady eye
on the ball”. They must be courageous, self-aware – and ensure the consistent support
of their team of followers. This is a skill which needs to be practiced.
5. Never Stop Learning: The well-known business coach, Hugo Heij says, “True leaders
ensure they continue to develop their leadership skills throughout their careers,
through learning and development materials and activities.” Fortunately, there is
tremendous interest in leadership and in leader development. Self-motivated Leaders
may consider embarking on their own leadership development programme.
➢ Zenger’s Folkman’s 10 Fatal Leadership Flaws: These defines 10 set of flaws that are
employed by the leaders which result in ineffective leadership
➢ Attribution Theory of Leadership

1. It says that a leader’s judgment about his employee is based on the attribution causes made
by him for his employee’s performance
2. Internal factors attribution is called Dispositional attribution and external
factors attribution is called Situational attribution
3. To conclude whether attribution factor is internal or external, Kelly designed a
model based on 3 factors namely, consistent, distinctive and consensus
➢ French and Raven’s 5 forms of Power

1. This theory describes 5 forms of power available to a leader
2. Reward – This results from one person's ability to compensate another for
compliance
3. Expert – This is based on a person's high levels of skill and knowledge
4. Legitimate/Title – This comes from the belief that a person has the formal right to
make demands, and to expect others to be compliant and obedient
5. Coercive – This comes from the belief that a person can punish others for
noncompliance
6. Referent – This is the result of a person's perceived attractiveness, worthiness and
right to others' respect
7. Later on, Raven added an extra power base called Informational. This results from a
person's ability to control the information that others need to accomplish something
➢ Leadership Style in Indian Organizations

Indian organizations can be classified into following
1. Family Based Organizations: Mostly autocratic in a way, centralized decision making
2. Professionally Managed Organizations: Participative Leadership is prevalent
3. Public sector organizations: Mostly bureaucratic style is prevalent
Additional Information: Nurturant Task Leader
The Nurturant-Task leadership approach is developed by Jai B. P. Sinha.
It is a blend between nurturance (people orientation) and task (task orientation) that was
found to be effective.
A nurturant leader "cares for his subordinates, shows affection, takes a personal interest in
their well-being, and above all is committed to their growth”. In order to be effective,
however, he makes his nurturance contingent on the subordinate's task accomplishment.
➢ Comparison between theories
➢ Successful and Effective leader

A leader who is effective can also be a successful leader but vice-versa is not necessarily true
always.
➢ Contemporary Leadership Roles
A) Providing Team Leadership
• Leadership is increasingly taking place within a team context. The role of team leader is
different from the traditional leadership role performed by first-line supervisors.
• The challenge for most managers is to learn how to become an effective team leader.
• They have to learn skills such as the patience to share information, to trust others, to give
up authority, and understanding when to intervene.
• The team leader’s job is to focus on two priorities: managing the team’s external
boundary and facilitating the team process.
B) Mentoring
A mentor is a senior employee who sponsors and supports a less experienced employee (A
protégés’). The mentoring role includes coaching, counseling, and sponsorship.
C) Self-leadership
Proponents of self-leadership say that there are a set of processes through which individuals
control their own behavior.
How do leaders create self-leaders?
• The following ideas have been suggested:
• Model self-leadership.
• Encourage employees to create self-set goals.
• Encourage the use of self-rewards to strengthen and increase desirable behaviors.
• Create positive thought patterns.
• Create a climate of self-leadership.
• Encourage self-criticism.
D) On-Line Leadership
Leadership research has been directed almost exclusively to face-to-face and verbal
situations. The reality is that today’s managers and their employees are increasingly being
linked by networks rather than geographical proximity.
Obvious examples include managers who regularly use e-mail to communicate with their
staff, managers overseeing virtual projects or teams, and managers whose telecommuting
employees are linked to the office by a computer and modem.
➢ Implication for Managers

• Organizations want managers who can exhibit transformational leadership qualities and
who have vision and the charisma to carry it out.
• Effective managers must develop trusting relationships with followers.
• Managers should also consider investing in leadership training such as formal courses,
workshops, rotating job responsibilities, coaching, and mentoring.
• Effective Managers should hire candidates whom they believe are ethical and
trustworthy.
• For maximum leadership effectiveness, ensure that manager’s preferences on the
initiating structure and consideration dimensions are a match for their work dynamics and
culture.
• Organization should appreciate the unique attributes, predispositions, and talents of each
leader. No two leaders are the same and there is value in diversity.
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Important Points

1. Introduction
The task of getting results through others by coordinating their efforts is known as
management. Just as the mind coordinates and regulates all the activities of a person,
management coordinates and regulates the activities of various members of an organization
2. Functions of Management
Thus, according to Henry Fayol, management consist of 5 functions namely planning,
organizing, commanding, coordinating, and controlling.
However, modern authors do not view coordination as a separate function of management.

As per modern view, management consist of 5 functions -> Planning, Organizing, Staffing,
Directing and Controlling. Koontz and O’Donnell have adopted the same classification.
1. Planning: It means determining the objectives of the organization. It also involves as in

what needs to be done, how and when.
2. Organizing: Organizing: Organizing as a process involves:
• Identification of activities.
• Classification of grouping of activities.
• Assignment of duties.
• Delegation of authority and creation of responsibility.
• Coordinating authority and responsibility relationships.
3. Staffing: It involves manpower planning, recruitment, Training, performance appraisal,

appraisal, remuneration and Promotions etc.
4. Directing: It is concerned with interpersonal relationships. Direction has following

elements: Supervision, Motivation, Leadership and Communication
5. Controlling: It implies measurement of accomplishment against the standards and correction

of deviation if any to ensure achievement of organizational goals.

Nature of Management Functions
1. Interrelated and no sequence of performing functions: Management is an integrated
process consisting of 5 functions. There is no rigid sequence of performance of these
functions. A manager must perform these activities simultaneously
2. Universal: These functions are universal in the sense that a manager must perform all
these functions in the organization irrespective of his level.
3. Iterative Quality: These functions have iterative quality in the sense that they are
contained with in each other. For example, planning, organizing, directing, and controlling
may occur within the staffing function.
4. Equal Importance: Almost all management functions are equally important though the
mix of functions may vary from level to level of management.
3. Concepts of Management
Management has been defined in different ways and different views. Let us discuss some of
them
Management as a Process: Management is considered a process because it involves a series

of interrelated functions to obtain the objectives of the organization. It is a continuous
process consisting of planning, organizing, staffing, directing, and controlling functions.
Management as an Economic Resource: Like land, labor and capital, management is an

important factor of production. Management occupies the central place among productive
factors as it combines and coordinates all other resources.
Management as a Team or Group of Managers: As a group of persons, management consists

of all those who have the responsibility of guiding and coordinating the efforts of other
persons. These persons are called as managers who operate at different levels of authority
(top, middle, operating). As a group manager have become an elite class in society occupying
positions with enormous power and prestige
Management as Discipline : Management has emerged as field of study or specialized branch

of knowledge which is taught in various business schools and universities.

4. Features of Management
1. Management is goal-oriented: Management is not an end in itself. It is a means to achieve
certain goals.
2. Management is universal: Management is an essential element of every organized activity
irrespective of the size or type of activity.
3. Management is an Integrative Force: The essence of management lies in the coordination
of human and other resources to achieve desired objectives. As unifying force,
management creates a whole that is more than the sum of individual parts.
4. System of Authority: Managers at different level process varying degrees of authority. As
we move down in managerial level, the degree of authority decreases gradually
5. Results from others: Managers cannot do everything on their own. They must have
necessary skills and ability to get work accomplished through effort of others.
6. Dynamic process: Managers will have to make changes in their plans as per environmental
changes
7. Group Activity: Management is group activity because it comes into existence only when
there are 2 types of people - managers and workers (operatives)
8. Management is Intangible: It cannot be seen but its presence can be felt everywhere in the
form of results.
5. Objectives of Management
The objectives of Management can be categorized into 3 categories

6. Administration and Management
There has been constant debate whether administration and management are different or
same. Earlier they use to be same but then Oliver Sheldon made the distinction between
management and administration in 1923. As a result, three views have emerged regarding
the same
1. Administration is a higher-level Function and Management is lower level function:

According to this view Administration involves policy formulation and is concerned with
top level management whereas management involves execution and is concerned with
lower levels of management. Thus, administration is above management
Administration Management
It is concerned with formulation of policies, It means getting work done through others
plans and objectives
It relates to decision making. It is a It relates to executions of decisions. It is a doing
determinative or thinking function function
It has extremely broad scope. Administrators It is mainly narrow as they are just concerned
are mainly concerned with planning and control about implementation and execution
It is not directly concerned with directing human It is actively concerned with leading, motivating
resources or just directing middle level of operational workforce at lower level for
managers execution of plans
Concerned with what is to be done and when is Concerned with who shall implement decisions
to be done made by administration
It is a top-level function It is a middle and low-level function
Administration has direct interaction with the Management is mainly concerned with internal
external environment and their decisions are forces i.e. objectives, policies of the
influenced by the external environmental forces organization
This term is usually used in government offices Mainly used in business organizations
2. Administration as part of Management: Some management thinkers believe that

management is broader concept and administration is its part. Administration is that part
of management which is concerned with the carrying out of procedures related to
execution of the plans.
3. Administration and Management are same: According to this view, both management
and administration are same. The difference lies in usage of terms in different countries
and different type of organizations. For example, the term administration is used in
government organizations whereas management is used in business organizations.
Practically, there is no difference between management and administration. Every manager is

concerned with both – administrative management function and operative management
function as shown in the figure. However, the managers who are higher up in the hierarchy
denote more time on administrative function and the lower level denote more time on
directing and controlling worker ‘s performance i.e. operative management.
7. Levels of Management
Top Level Management

The top-level management is generally occupied by board of directors, CEO’s and General
managers etc.
The area of scope is
1. To make a corporate plan and long-term strategies for the entire organisation covering all
areas of operations
2. To decide upon the matters which are vital for the survival, profitability, and growth of
the organisation such as introduction of new product, shifting to new technology and
opening new plant
3. To liaison with outside parties having a stake in business such as government, trade union,
shareholders, and trade associations etc.
4. Provide guidance and direction to Departmental heads, Coordinating the operations of
different departments, Review and Control of organizational Performance through reports
etc.
5. Appointment of key middle level managers in the organization
Middle Level Management

Middle level management consists of departmental managers, divisional managers, deputy
managers, foreman and administrative officers etc. These executives are mainly concerned
with the overall functioning of their respective departments.
1. To establish departmental goals and plans for their respective department

2. Allocating resources to different activities and coordinating them within the
department
3. Recruiting supervisory personnel, providing guidance and direction to supervisory
personnel and Reviewing and Controlling Departmental Functioning
Lower Level Management or Supervisory Management

Lower-level management consists of factory supervisors, superintendents, foremen, sales
supervisors, accounts officers etc. They directly guide and control the performance of rank
and file workers. They issue orders and instructions and guide day to-day activities
Comparison of three Management Levels

Characteristic Top Management Middle Management Supervisory
Management
Number of Person Very few Moderate Many
Role Strategic Tactical Operational
Nature of Functions Broad and Creative Somewhat broad and Routine and detailed
creative
Level of complexity Extremely high Moderate Very Low
Job Measurement Exceedingly difficult Less Difficult Easy
Time dimension Long term Medium Term Day to Day
8. Effective Management (Efficiency Vs. Effectiveness).

Efficiency refers to relationship between input and output. This efficiency denotes how
much inputs have been used to produce a given level of outputs or with a given level of
inputs how much outputs have been produced.
Effectiveness on other hand refers to the extent to which an organization achieves its
objectives. This effectiveness is externally focused because the achievement of organizational
objectives depends on environment in which the organization operates
Basis of Difference Efficiency Effectiveness

Orientation Input-Output Goal achievement orientation
Focus Means Ends
Emphasis Doing things right Doing right things
Determining factors Internal External

McKinney 7-S framework for effective management
The model was developed in the late 1970s by Tom Peters and Robert Waterman, former
consultants at McKinsey & Company. They identified seven internal elements of an
organization that need to align for it to be effective.
The model categorizes the seven elements as either "hard" or "soft":

Hard Elements: The three "hard" elements are strategy, structures (such as organization
charts and reporting lines), and systems (such as formal processes and IT systems.) These are
relatively easy to identify, and management can influence them directly.
Soft Elements: The four "soft" elements – Skills, Staff, Style, and Shared Values, on the other
hand, can be harder to describe, less tangible, and more influenced by your company culture.
But they are just as important as the hard elements if the organization is going to be
successful.
9. Nature of Management
There are conflicting views about whether management is a science or an art. Let us evaluate
these statements through the below discussion
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Management as Science
Science is a body of systemized knowledge generated through logic and experiments. Science
has following features
1. Systematic body of knowledge: Science is systemized body of knowledge. Principles of
science are based on cause-effect relationship. In management there is lack of such cause-
effect relationship. If an employee is not feeling motivated, we cannot explain a single
sure shot reason for the same. So, Management is not true science
2. Universal principles: Scientific principles represent basic facts about a particular field
enquiry. These principles may always be applied in all situations. A management principle
which works well in one country may not work in other country because of the situational
and cultural differences between two countries. This management is not true science
3. Scientific enquiry and experiments: Scientific principles are tested rigorously before
being approved. This is not the case in management principles. In management the
principles are not tested like science. Thus, management is not true science.
In line with above discussion management is not a perfect science. It is called pseudo-
science or inexact science. It is also called soft science
Management as Art
Art implies the application of knowledge and skills to bring about the desired results.
Management is Art because it fulfills the following criteria
1. Practical knowledge: Every art signifies practical knowledge. An artist not only learns the
theory but also its application in practice. Similarly, a person cannot become a successful
manager simply by reading the theory, he must also learn to apply his knowledge in
solving managerial problems in practical life. Thus, management is an art
2. Personal skill or Personalized Application of Knowledge: The success of different artists
differs even when all of them possess the same technical knowledge or qualifications. This
is due to the level of their personal skills. Similarly, the success of a manager depends on
his personality in addition to his technical knowledge. Thus, management is an art
3. Improvement through Continuous Practice: In art, improvement is made through
continuous practice. In this way person engaged in art move towards perfection. This is
also done in management. Thus, management is an art.
4. Creativity: Art is basically creative, and an artist aims at producing something that had not
existed before. A manager effectively combines and coordinates the factors of production
to create goods and services.

5. Situational Approach. Art has situational application. This is true for management too; a
particular management practice may be effective in one organization but may not be
effective in other.
Management is Combination of Art and Science

If we combine the above discussion, we find that management has some features of science
through though not exactly in the same was as science and it has all features of an art. Thus,
management is both science and an art.
Management as Profession
There is controversy whether management is a profession or not. Let us discuss the following
points related to profession and evaluate whether management is a profession or not.
1. Specialized body of knowledge: All professions have well-defined knowledge that can be
acquired by the person who wishes to enter a profession. In management, we have a
systematic body of knowledge that can be used for development for managers.
Management is taught across universities as a discipline
2. Restricted entry (Formal Education): Only those people are eligible to enter a profession
those who have eligible degrees. For example, a doctor must have degree as prescribed
by Medical Council of India. In managements, MBAs are preferred but MBA degree is not
necessary to enter this profession. This there are no standard qualification for managers
3. Professional Body: For regulation of any profession, the existence of professional
representative body is must. For example, ICAI lays down rules and regulations with
respect to chartered accountants. In area of management also, there are professional
bodies such as All India Management association (AIMA), but these are not having
authority to frame rules and regulations or professional qualifications to take up
managerial posts
4. Service motive: A profession is a source of livelihood, but professionals are primarily
motivated by the desire to serve the community. Service motive is also emphasized in
management. A manager of a factory is responsible not only to its owners, but he is also
expected to produce quality goods at a reasonable cost and to contribute to the well-
being of the community
5. Code of conduct: Every profession must have a code of conduct for its members.
Members of one profession must abide by a code of conduct which contains rules and
regulations providing the norms of honesty, integrity and professional. Though All India
Management Association has framed code of conduct for managers, but it has no right to
act against any manager who does not follow this code

From the above discussion, it seems that on some points management fulfills the condition of
profession and on some points it does not. So, the professionalism of management has
started but it is far from complete. However, since it is moving towards professionalism, we
can say management in India is an emerging profession
10.Skills Required by Managers
To perform management functions and assume multiple roles, managers must be skilled.
Robert Katz identified three managerial skills essential to successful management: technical,
human, and conceptual
11.Competencies of Quality Manager

1. Education: Well educated with special education in business management
2. Training: Management skills are not in-born. They are to be acquired through training.
Manager must undergo proper training
3. Good analytical skills and Intelligence: High level of Intelligence is required
4. High on creativity and Leadership qualities
5. Maturity
6. Foresightedness
7. Self-confidence, Human Relations Attitude and Decisive
8. Excellent communication skills, Leading from the front
9. High on integrity and Team based approach
12.Scope of Management
The operational areas of business management may be classified into the following branches
– Production Management, Financial Management, Marketing Management and Human
Resource Management.
1. Production Management:
Production means creation of utilities. This creation of utilities takes place when raw
materials are converted into finished products. Plant location and layout, production
policy, type of production, plant facilities, material handling, production planning and
control, repair and maintenance, research and development, simplification and
standardization, quality control and value analysis, etc., are the main problems involved in
production management
2. Marketing Management:
Some of the area under marketing management are
I. Product decisions: what to produce and how the product should look like?
II. Pricing Decisions: What should be the price of the product in the market
III. Promotion decisions: Brand name, Advertising etc.
IV. Place or Physical Distribution decisions: What all channels such a kirana stores, malls
etc. where the product should be available
V. Others such as after sales service, market research, etc. are the problems of marketing
management.
3. Financial Management:
Financial management is concerned with the managerial activities pertaining to the
procurement and utilization of funds or finance for business purposes. The main functions
of financial management include:
1. Estimation of capital requirements.
2. Ensuring a fair return to investors.
3. Determining the suitable sources of funds.
4. Laying down the optimum and suitable capital
5. Preparation, analysis, and interpretation of financial statements.

6. Laying down a proper dividend policy
7. Negotiating for outside financing.
4. Personnel Management:
Personnel Management is that phase of management which deals with the effective control
and use of manpower. Managerial functions of personnel management include:
a. Personnel planning.
b. Organizing by setting up the structure of relationship among jobs, personnel, and physical
factors to contribute towards organization goals.
c. Procurement of right kind and number of persons.
d. Training and development of employees.
e. Determination of adequate and equitable compensation of employees.
f. Integration of the interests of the personnel with that of the enterprise; and
g. Providing good working conditions and welfare services to the employees.
Apart from Production Management, Human Resource Management, Marketing

Management, and financial management, there are some other areas under Management
1. Materials Management which is mainly concerned with purchase of materials at right
price and in right quantity and at right time
2. Legal Function: Legal function may aid the organization in compliance with the rules and
regulations laid down by the government
3. Public Relations Function: This department organizes publicity campaigns to increase the
image and goodwill of the business in the society
13.Ethics and Management

In this era of globalization and multinational competition, ethical decision taking assumes
importance in today's corporate world
We will discuss three models of Ethics in Management.
1. Joseph son institute Ethical decision-making model: This model is widely used in
taking ethical decisions. It consists of 3 Steps:
I. All decisions must consider and reflect a concern for the interest and wellbeing of
all stakeholders.
II. Ethical values and principles always take precedence over non ethical ones.

III. It is proper to violate an ethical principle only when it is clearly necessary to
advance another true ethical principle, which according to the decision maker's
conscience will produce the greatest balance of good in the long run
2. The Plus Decision –Making Model: To make it easy to understand and apply these
ethics filters, let us adapt to mnemonic word "PLUS"
I. P = Policies (It is consistent with my organizations Policies, Procedures and

Guidelines?)
II. L = Legal (Is it Acceptable under the applicable laws and Regulations?)
III. U = Universal (Does it conform to the universal principles values my
organizations has adopted?)
IV. S = Self (Does it satisfy my personal definition of Right, Good and Fair?)
3. Taylor Four Way test: Herbert J. Taylor was a business executive, civic leader and
sponsor of Christian organizations who belonged to the United States of America. His
Ethical Model was based on these 4 questions
I. Is it the truth?
II. Is it fair to all concerned?
III. Will it build goodwill and better friendships?
IV. Will it be beneficial to all concerned?
In 1940s, when Taylor was an international director of Rotary, he offered the Four
Way Test to the organization, and it was adopted by Rotary for its internal and
promotional use.
14.Schools of Management
Different Schools of Management Thought are as follows
Different schools of management have evolved over a period. Harold Koontz, called this
development as the management theory Jungle because of so many management thoughts .
Below is the list of Management Thoughts which we shall discuss one by one
Management Thoughts or Schools of Management

Classical Theory
1) Scientific Management
2) Management Process or Administrative Management Approach
3) Bureaucratic Organization Approach
Human Relations approach

Social System Approach
System Approach
15.1 Classical Theory

Classical theory is one of the oldest schools of management. It is also called as traditional
theory and can be traced to military organizations. Several authors contributed to this theory.
Features of Classical Theory
1. Emphasis on division of labor and specialization

2. Emphasized on organization hierarchical structure for coordination. They ignored role
human element. For this reason classical theory is also called Structural theory
3. It ignored the impact of external environment on the organization
4. Integration of organization is achieved through authority and control. Thus, it is based on
centralization of authority
5. It assumes no conflict between individual and organization. In case of conflict the interest
of organization shall prevail
6. People at work are rational and they should be motivated by economic rewards
They can be studied under 3 streams
1. Scientific Management (Taylor)

2. Administrative Management (Fayol)
3. Bureaucracy (Weber)
Criticism of Classical Theory
1. Assumption of Closed System. Classical theorists viewed organisation as a closed system

to having no interaction with environment. This assumption is totally unrealistic
2. Assumption about Human Behaviour. The human beings were treated like any other
factor of production. They were supposed to obey their superiors.
3. Economic Rewards as Main Motivators. The assumption that people at work can be
motivated solely through economic rewards is also wrong. Non-monetary factors like
better status and job enrichment can also motivate the workers

15.2Scientific Management Approach
15.2.1 Principles of Scientific Management
1. Science, Not Rule of Thumb: Replace working by "rule of thumb," or simple habit and
common sense, and instead use the scientific method to study work and determine the
most efficient way to perform specific tasks.
2. Harmony, Not Discord (Max Output): The principles involves maintaining harmony
between management and workers in place of conflict.
3. Cooperation, not individualism: Management should encourage constructive suggestion

form workers and management should take workers into confidence before taking
important decisions which affect the worker. There needs to be change of mental
attitude. This is called mental revolution
4. Development of each person (Scientific selection and Training of workers): There should
be scientific selection of workers and work should be assigned to them should suit their
physical, mental, and intellectual capabilities. Workers should be trained as per the needs
of work and they will perform that work only. This is basically called Division of labor and
Specialization

5. Equal division of work and reponsbility: There should also be equal division of work
between workers and management and both should work side by side. Managers should
be responsible for planning and organizing whereas workers should be responsible for
execution
15.2.2 Techniques of Scientific Management

Taylor has devised the following techniques for implementing the principles of scientific
management
1. Functional Foremanship (Specialization): Taylor has proposed functional foremanship

technique for supervising workers. In this technique there is supervision of each worker
by 8 supervisors, four supervisors supervising planning aspect and other 4 supervisors
supervising production work. In other words, there should be specialized person for
supervising each task

2. Standardization and Simplification of work: Taylor advocated standardization of tools and
equipment’s, material to be used in production, methods used in production to increase
the output
3. Work Study: Work study refers to systematic and critical evaluation of a work with the aim
of identifying how the work can be performed in the most desirable way by standardizing
and simplifying it. In a work study, 4 types of studies are undertaken
I. Method study: It refers to identify the most suitable way to do a particular activity
II. Motion study: It refers to conduct the study of motions being performed by
workers and machines while doing the job. The moving camera is used to conduct
this study. The main objective of this study is to eliminate the unnecessary
motions.
III. Time study or measurement: It refers to determine the standard time required to
complete a particular activity. The standard time is determined based on average
time taken by the several experiences of the same work
IV. Fatigue study: It refers to determine the duration and frequency of rest intervals
to complete a particular job. The rest refreshes the workers. They work again with
their full capacity
4. Differential Piece Wage Plan: It is a system of wage payment in which a worker who
achieves or exceeds production target get wage at a higher price while a worker who does
not achieve the target will get wage at lower price.
5. Mental Revolution: The basic idea behind concept of mental revolution is that there
should be change in mindset of managers, owners and workers resulting in understanding
needs of each other. According to Taylor, instead of fighting over division of profits, both
the parties should make efforts for increasing the profits.
15.2.3 Pros and Cons of Taylor’s way of thinking

Pros Cons
Establishment of harmonious relationship Scientific Management was applicable only to
between managers and workers production management but not much applicable in
finance or marketing management
Proper selection and training of workers The principle of Functional foremanship violated
and equal division of work between principle of unity of command as one person must take
managers and workers order from various people
Incentive for higher production to workers Scientific management made the work monotonous
and workers tried to overspeed due to differential
wage rate system

Standardization of tools, equipment’s, Scientific management just thought people as
materials etc. and elimination of wastage resources and their other needs such as social needs
and higher order needs were ignored. This led to lower
morale
15.2.4 Other Thinkers in Scientific Management

1. Henry L Grant
Henry Gantt's legacy to project management is the following:
• The Gantt chart: Still accepted as an important management tool today, it provides a
graphic schedule for the planning and controlling of work and recording progress
towards stages of a project.
2. Frank and Lillian Gilbert

Frank and Lillian Gilbert made following contributions
I. The motion study and fatigue study that we discussed under techniques of
scientific management was developed by these 2 people
II. Humanistic approach: Taylor aimed at standardizing the work timing using a
stopwatch whereas Frank and Lillian aimed at studying motions required for work
and removing unnecessary motions thereby standardizing the work through
innovation. Their fatigue study was also aimed at giving proper rest to workers. So,
they worked for betterment of workers as they believed in human relations
15.2.5 Productivity
It can be defined as ratio of output to input. High productivity means efficient use of
resources.

As per International office – the ratio of output and one of the factors of input is generally
known as productivity of the factor considered. Thus, for different factors of production
productivity can be measured as follows:
Productivity in general Terms Output/Input

Productivity of Labor Output/Number of Man hours
Productivity of Machine Output/Number of machine hours worked
Productivity of Capital Output/Net capital employed
Productivity of Material Output/Weight and Volume of material used
Productivity of Land Output/area of land
Productivity is often misconstrued with production, but there exists a difference, in the sense
that production indicates the volume of output, whereas productivity is the output generated
from the resources employed by the company.
Factors influencing productivity
1. Technological advancement: Use of right technology can help increase productivity

2. Quality of workforce: Able and willing workers can help increase productivity as
compared to lazy and incompetent workers
3. Managerial Talent: The way managers handle their employees also impacts productivity
4. Government Policy: Government policies can also impact productivity. For example,
government should follow taxation policy which encourages the growth and expansion of
business
15.3 Fayol Administrative Management

Fayol is also called the father of modern operational management or administrative
management. Fayol looked at problems of managing an organization form top management
point of view. He was the first one to show concern for efficiency at higher level. This school
is also called Management process school of thought or Universalist school of thought.
15.3.1 Principles of Management as per Fayol

Henri Fayol, a French mining engineer, developed 14 principles of management based on his
management experiences.
1. Division of work: Division of work involves dividing work into relevant number of tasks
and assigning task or unit to single person

2. Authority and responsibility: Authority is the right to give orders and the power to exact
obedience. Responsibility is the duty of the person to complete the work. Authority
creates responsibility.
3. Discipline: Workers must work in discipline. Adoption of this principle leads to systematic
working in the organization and violation leads to chaos
4. Unity of command: An employee should receive orders from only one superior, otherwise
it will lead to conflict as subordinate will never know whom to obey. This principle is
against the Taylor’s functional foremanship where multiple superiors oversee the
subordinate.
5. Unity of direction: Unity of direction means one plan, one boss. Organizational activities
must have one central authority and one plan of action.
Difference between Unity of Command and Unity of Direction
Unity of Command Unity of Direction

It implies that subordinate should receive It means one unit, one plan for the group of
order from one boss only activities having the same objective
This principle is related to functioning of This principle is related to functioning of a
personnel department or organization as a whole
Unity of command is necessary to fix Unity of direction is necessary for sound
responsibility of each subordinate organization
Unity of Command avoids conflicts in the Unity of Direction avoids duplication of
undertaking efforts and wastage of resources
6. Subordination of individual interest to general interest: The interests of one employee or

group of employees are subordinate to the interests and goals of the organization.
7. Remuneration of personnel: Salaries to employees should be fair and provide satisfaction
both to the employee and employer.
8. Centralization and Decentralization: Fayol believed there should be balance between the
two with a little leaning towards decentralization.
9. Scalar chain: A chain of authority exists from the highest organizational authority to the
lowest ranks. Any communication going up or coming down must follow this chain.
However, this system results in delays. Therefore, Fayol suggested gang plank which is
system of direct communication between two employees not in the same chain but
related horizontally

10. Order: The right materials and the right employees are necessary for each organizational
function and activity. The right employees should be there at right place. It basically
indicates orderliness
11. Equity: Equity is a combination of kindliness and justice. Both should be considered when
dealing with employees.
12. Stability of tenure of personnel: Employees need job security. They should be kept at
their positions at least for a minimum fixed period and no employee should be removed
within a short period of time.
13. Initiative: Employees should be encouraged to come forward and give suggestions
regarding new efficient methods of doing work.
14. Esprit de corps: Esprit de corps means ‘union is strength’ or ‘group spirit’. As per this
principle management should promote teamwork and group spirit among employees.
Importance or Advantages of Administrative Management
1. Healthy Financial Situation: Administrative management is a management strategy that

focuses on maintaining all expenses within the decided budget. It supervises all finances
of company and ensures that there is no wastage of money.
2. Higher Productivity: It aims at attaining the better coordination of all resources for
deriving maximum output.
3. Facilitates in Acquiring Goals: This efficient strategy of management assist in
accomplishing the primary goals of company.
4. Data-based Decisions: Administrative management theory avoids the basis of any
assumption or whim in decision-making process of organization. All decisions are taken on
the basis of information.
5. Improve Employees and Customer Satisfaction: It helps in enhancing the satisfaction
level of employees by properly allocating them work as per their skills.
Limitation or Disadvantages of Administrative management
1. Management Oriented- This theory does not give any attention to the issues of workers.
Ignoring the human behaviour will have adverse effects over the performance of
company.
2. Concepts Borrowed from Military Science- This strategy of management has borrowed
concepts from military science such as commanding.
3. Ignores Environmental Changes- Another major limitation of administrative management
strategy is that it does not consider the environment changes which have major impact
over the organization.
4. Mechanical Approach- This theory of management is mechanistic in nature. It cannot be
applied with key aspects of management. Administrative management theory has a

limited utility in a modern management concept such as communication, leadership and
motivation.
5. Deals with Formal Structure- Another major limitation with administrative management
theory is that it completely ignores the informal structure of organization. It does not give
any attention to non-formal groups and organizations.
15.3.2 Comparison between work of Taylor and Fayol

The work of Taylor and Fayol was to an extent but there were some dissimilarities also.
Taylor Fayol
He worked from bottom to top. His study was He worked from top to bottom His study was
related to Shop floor level related to Higher management level laying stress
on unity of command, unity of direction etc.
Narrow perspective. Advocated Efficiency Wider perspective. Advocated Efficiency through
through simplification and standardization observing certain management principles
Production and Engineering Managerial functions
Scientific observation and measurement Personal experiences translated into universal
truth
Basis for accomplishment on the production line Systematic theory of management
He gave stress on increasing productivity than on He showed regard for human element by
human resources advocating principles such as initiative, stability
of service and esprit de corps
15.4 Bureaucracy - Max Weber Contribution

Max weber was the one who contributed to this Bureaucracy school of thought.
Weber believed that All bureaucracies would have following characteristics
• A well‐defined hierarchy. All positions within a bureaucracy are structured in a way

that permits the higher positions to supervise and control the lower positions. This
clear chain of command facilitates control and order throughout the organization.
• Division of work and specialization. All responsibilities in an organization are

specialized so that each employee has the necessary expertise to do a particular task.
• Rules and regulations. Standard operating procedures govern all organizational

activities to provide certainty and facilitate coordination.
• Impersonal relationships between managers and employees. Managers should

maintain an impersonal relationship with employees so that favoritism and personal
prejudice do not influence decisions. Managers and employees must not be emotional
and sentimental towards each other

• Competence. Competence, not “who you know,” should be the basis for all decisions
made in hiring, job assignments, and promotions in order to foster ability and merit as
the primary characteristics of a bureaucratic organization.
• Official Records. A bureaucracy needs to maintain complete files regarding all its
activities. All the decisions and activities are recorded and preserved for future
reference
When a bureaucracy is implemented, it can provide accountability, responsibility, control,

and consistency. The hiring of employees will be an impersonal and equal system.
Reason for Efficiency in bureaucracy
The following factors are reasons for higher efficiency in bureaucratic organizations
1. Extensive rules and regulations give clarity regarding what is expected of employees
2. Decision making is rational and not by personal factors or personal bias
3. There is proper maintenance of official records, so employees refrain from doing anything
wrong
15.4.1 Merits and Demerits of Bureaucracy

Cons of Bureaucracy Pros of Bureaucracy
Rigidity in Operations: The rules which act source of Competence: Competence is given
efficiency can sometimes lead to rigidity killing innovation importance while doing appraisals and
and creativity personal bias not there
Lack of Human Touch: Bureaucratic organizations are Rules and Regulations lead to
inhuman which works like a machine in which there is np efficiency
importance of human beings because of too much
emphasis on rules
Delay and Red Tapism: Rules become source of delays and Rational behaviour: All decisions are
inefficiency as we see in government organizations logic based rather than on emotions
and personal bias
Gola Displacement: The bureaucrats may forget about Predictability: The behaviour of
primary goal and may just focus on rules and regulations employees is predictable; it is known
how they must react
Ineffective Communication No partiality happens as everything is
driven by rules and regulations
Compartmentalization of activities: Jobs are divided into
watertight categories and people are prevented from
performing jobs they are capable of
15.5 Human Relations Approach (Neo-classical Theory)

Elton Mayo is generally considered father of Human Relations school.

The classical writers such as weber and Taylor neglected the human relations aspect. The
neoclassicists focused on the human aspect of industry. They modified the classical theory by
emphasizing the fact that organization is a social system and the human factor is the most
important element within it.
15.5.1 Factors affecting Human Relations.

Four Factors Influencing Human Relations in an Organisations are:
(I) work environment: In general, when employee needs are satisfied, the work environment
is termed positive and when employee needs are not satisfied, the work environment is
termed negative.
(II) workgroup: The Hawthorne studies showed that the informal groups exert tremendous
influence over the Behaviour patterns of workers.
(III) individual: The human being is an important segment of the organization. Behaviour of
an individual is affected by his feeling’s sentiments and attitudes.
(Iv) leader: The leader must ensure full and effective utilization of all organizational resources
to achieve organizational goals.
15.5.2 Hawthorne Studies

A group of researchers led by John Elton Mayo and Fritz J. Roethlisberger were invited to
conducted studies at Hawthrone works of western electric company in USA.
Findings of Hawthorne Experiments:
1. Social Factors in Output (Social System): Organization is a social system where informal
relations exist. Therefore, while motivating workers, social factors shall be considered.
2. Social Environment: The social environment on the job affects the workers and is also
affected by them. Management is not the only variable.
3. Group Influence: Workers create informal social groups, and they behave more by the
norms of informal group to which they are adhered to.
4. Informal Organization: Informal organization does also exist within the framework of
formal organization and it affects and is affected by the formal organization.
5. Leadership: There is an emergence of informal leader and sometimes he becomes
important in directing the behavior of the group. He helps the group function as a social
group and achieve its objectives.
6. Supervision: Supervisors must be friendly to the workers, genuinely concerned about
their needs and such an attitude from supervisor impacts the productivity favorably.

7. Two-way Communication: Two-way communication is necessary as it is not only the
supervisors who need to order but workers must also be given opportunity to express
their feelings to the supervisors.
8. Non-Economic Reward: Money is only one of the motivators, but not the sole motivator
of human behaviour.
Criticism of Human Relation Approach
The human relations approach has been criticized on the following grounds:
1. Lack of Scientific Validity: The human relation drew conclusions from Hawthorne studies.
These conclusions are based on clinical insight rather than on scientific evidence.
2. Over-Emphasis on Group: The human relations approach over-emphasizes the group and
group decision-making. But, in practice, groups may create problems for the management
and collective decision-making may not be possible.
3. Over-Stretching of Human Relations: It is assumed that all organizational problems are

amenable to solutions through human relations. This assumption does not hold good in
practice.
4. Limited Focus on Work: It puts all the emphasis on interpersonal relations and on the
informal group. It tends to overemphasize the psychological aspects at the cost of the
structural and technical aspects.
5. Over-Stress on Socio-Psychological Factors: The human relations approach undermines

the role of economic incentives in motivation and gives excessive stress on social and
psychological factors.
6. Negative View of Conflict between Organizational and Individual Goals: It views conflict
between the goals of the organization and those of individuals as destructive. The positive
aspects of conflicts such as overcoming weaknesses and generation of innovative ideas are
ignored.
Difference between Human Relations Approach and Scientific Management:
Scientific Management Human Relations

Founded by F.W. Taylor Founded by Elton Mayo
It suggested engineering and scientific It suggested human relations as an approach
approach to doing things to achieve higher productivity
It focused on problem of productivity It focused on study of individual, his needs
and behavior
The main concepts are scientific selection and The main concepts are job satisfaction,

training of people, specialization of work motivation, and morale
It originated form experience of Taylor and Originated from Hawthorne studies
others in dealing with problem in factories
Part of classical theory school of thought Part of Human relations school of thought
15.6 Social System Approach

Social System approach has extended the implications of human relations approach further.
There is not much difference between the two. This approach was introduced by Vilfredo
Pareto and his ideas were later developed by Chester Barnard. Chester Barnard is seen as
founding father of this approach. Main Features of this approach are
1. An organization is social system consisting of people and their culture

2. Relationships exist among external as well as internal environment of the organization
3. Cooperation among group members is necessary for the achievement of Organizational
Objectives
4. Efforts should be made to establish harmony between the goals of the organization and
goals of various groups in the organizations.
15.7 Systems Approach

In the 1960, an approach to management appeared which try to unify the prior schools of
thought. This approach is commonly known as ‘Systems Approach’.
Features of Systems Approach
1. Interdependent subsystem: System is composed of interacting and interdependent

parts, called subsystems. These subsystems are related and dependent which when in
interaction make a unitary whole. There are 4 types of subsystems
a. Technical Subsystem: it refers to knowledge required to complete the work.
b. Social Subsystem: It refers to Individuals and groups in the organization.
c. Power Subsystem: Power is one’s ability to influence other into action in an
organization.
d. Managerial Subsystem: It refers to managing organizational activities. It consists of
operation and control.
2. Hierarchy of subsystems: System is composed of hierarchy of sub-systems. For example,
the world can be considered-to be a system in which various national economies are sub-
systems.

3. Synergy: The arrangement of subsystems in a system is more important. The whole
becomes greater than the total of individual parts.
4. Multidisciplinary: This theory of management is enriched by the contributions from
various disciplines like psychology, sociology, economics, anthropology, mathematics,
operations research and so on.
5. Multivariable: It considers so many variables which makes the process complex
6. Dynamic: Management as a system is dynamic. Even after reaching equilibrium there
would changes that would again make in unstable. So, it is a very dynamic system.
7. Organization as an Open Adaptive System: organizations cannot work like closed systems
as they have to constantly monitor the changes in external environment and adapt . This
theory views organization as an open system
Open System View of an Organization
Systems approach consider organization as open system in contract to classical theories

which saw organization as closed concept. Some characteristics of Open system are given
below:
1. Feedback mechanism: Feedback is given by the environment for improvement.
2. Equifinality: Equifinality means system can reach a final state from different initial
conditions. It implies not all organizations may not choose the same course of actions to
attain success.
The system approach has the following merits:

1. System approach provides a holistic view of the organisations and emphasises on their
adaptive nature. It increases organisation’s adaptability to environmental changes.
2. It analyses the system at different levels and inter-relates and integrates it into a unified
set of direction. Starting from individual goals, it focuses on overall organisational goals,
synthesizes the two and converges them into global economy.
3. System approach provides a framework for effective interaction of parts of the

organisation in a specific arrangement for attainment of its goals. It does not focus on one
part of the organisation.
4. It considers the impact of environment on the organisation and vice versa. Interaction of
external environment with the internal environment is the most significant contribution of
systems theory.
5. System approach synthesizes the classical and behavioural theories into a broader
framework to solve managerial problems.
Limitations of System Approach:
1. Abstract Analysis: Critics of this theory claim this as a theoretical approach to

management.
2. Limited View of Organization-Environment Interface: Relationship amongst parts of the

organization is emphasized upon but the exact nature of inter-dependence is not defined.
3. Lack of Unification: Management practices change with changes in environmental

variables. No standard set of principles apply to all types of organizations.
4. Limited Application: It fails to provide concepts that apply to all types of organizations.

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Important Points

1. Management Processes
Functions of management given by KOONTZ and O’DONNEL are Planning,
Organizing, Staffing, Directing and Controlling
In this part we will only discuss on Planning. Organizing, Staffing, Directing and Controlling will be
discussed in later chapters
2. Planning
Planning involves deciding in advance what needs to be done and how to do it
The concept of planning is different from plan. Planning is process of consisting of various
steps whereas plan is a commitment to a particular course of action believed necessary to
achieve the specific results. For example, the five-year plans made by government are plans
but the process used to make those plans is called planning
1.1 Characteristics of Planning

1. Planning is Primary Function:
2. Rational Approach:
3. Open system approach: This approach of planning indicates that the future course of action is
influenced by the environment in which system operates. So, while planning, managers must
consider various features of environment
4. Planning is Result Oriented:
5. Planning is Looking Ahead in future:
6. Planning is a continuous activity:
7. Planning is Pervasive: It is required for all the business activities and by all the managers at all
the levels.
4. Planning is Interdependent activity: One departmental plan is dependent on other
departmental plans.
5. Planning Involves Decision making: While planning one must evaluate various alternatives. A
manager must choose one alternative and hence planning involves decision making
6. Planning is flexible: Planning is done for future and since future is not predictable, planning
must be able to cope with changes in customer preference, competition, and govt. policies etc.
1.2 Steps in Planning

1.3 Types of Planning
Planning can be categorized as per below given criteria
Dimension Types of Planning

Coverage of Activities Corporate Planning and Functional Planning
Importance of content Strategic Planning and Operational Planning
Time Period Involved Long Term Planning and Short-Term Planning
Specificity Directional or specific
1.3.1 Corporate Planning Vs. Functional Planning

Corporate planning is undertaken at top level also known as corporate level. It covers the
entire organizational activities and is done to determine long-term objectives of the
organization. Functional Planning is of segmental nature and is undertaken for each major
function of the organization. Functional planning is derived out of corporate planning and
therefore it should contribute to the latter.
1.3.2 Strategic or Tactical Plans

Strategic planning deals with strategic issues like diversification of business, new products to
be launched. It is done to establish long term objectives and how the resources should be
used to meet these objectives.

Tactical planning also known as operational planning relates to actions taken day-to-day
basis. In tactical planning we will make effective use of resources allocated through strategic
planning and to develop a control mechanism to ensure effective implementation.
Basic differences between strategic planning and tactical planning:
1. Upper management generally develops the strategic plans whereas lower level
managers develop the tactical plans.
2. Strategic planning considers external environment whereas operational planning mainly
focuses on internal environment of the organization
3. Strategic planning is done before tactical planning and tactical planning is based on
strategic planning
4. Facts on which to base strategic plans are usually more difficult to gather than are facts
on which to base tactical plans.
5. Strategic plans are generally less detailed than tactical plans.
6. Strategic plans cover a relatively long period of time whereas tactical plans cover a
relatively short period of time.
1.3.3 Long Term of Short-Term Plans

Short Term Plans are made to execute and produce results within one year whereas longer
term plans to planning and execution which goes beyond 1-year duration, usually from 3 to 5
years
1.3.4 Directional or Specific Plans

Specific plans mean plans that have clearly defined objectives and leave no room for
misinterpretation. Directional plans mean flexible plans that set out general guidelines
1.4 Approaches to Planning

Proactive Planning Approach involve designing suitable courses of action in anticipation of
likely changes whereas Reactive Planning Approach means organizations respond after the
change happens in the environment.
1.5 Types of Planning Premises:

1.5.1 Internal and external:
Internal premises are those which exist within the business enterprise. They are related to
organizational factors. The factors considered in internal premise may be strength or
weakness of the organization. Analysing strength and weakness are also called
organizational analysis
External premises centre round the markets and derived from the external environment
surrounding the business. The factors considered in external premise offers threats and
Opportunities Analysing the threats and weakness is also called environmental analysis
Usually the environmental and organizational environmental is combined to have SWOT.
SWOT is acronym for strength, weakness, opportunity, and threat)
1.5.2 Tangible and Intangible Premises:

Tangible premises are those which can be measured quantitatively. They may be quantified
in terms of money, time, and units of production. Intangible premises are those which cannot
be measured quantitatively.
1.5.3 Controllable, Semi-Controllable and Uncontrollable Premises:

1. Controllable Premises: There are certain factors which are well within the control of the
management to a great extent. Controllable premises are mostly internal premises
2. Semi-controllable premises: These are those assumptions about future which are under
the partial control of a business.
3. Non-controllable premises: These are entirety beyond the scope of business-like
government policy, international trade agreements, wars, natural calamities new
discoveries and inventions etc.
1.6 Barrier to Effective Planning

1. Difficult of accurate premising or predicting the future
2. Difficulty of Rapidly changing environment
3. Time Consuming
4. Costly
5. Generates Rigidity: While carrying on actual performance, managers always focus only
on planned targets. It may be possible that, sometimes higher performance may be
possible. But managers tend to achieve only what has been planned
1.7 Features of Sound Plan

1. Plan must be linked to Long Term Objectives
2. Plan must be consistent with the external and internal factors
3. Plan must be feasible
4. Plan must be flexible so that future unseen circumstances can be incorporated in the
plan. There are 2 principles in this context
a. Principle of flexibility: The flexibility should be incorporated in both short term
and long-term plan
b. Principal of Navigational Change: This is based on the principle of navigator
checking constantly where his slip is going in vast ocean. Similarly, manager
should check his plans and evaluate whether these are proceeding in the right
way

2 Types of Organizational Plans
Based on usage plans are classified as single use plan and standing plans.
Standing Plans: These plans are prepared for repeat use. For example, plan to extinguish fire
Single Use Plans: These plans are prepared to achieve specific objectives. For example, plan to
finance the deficit in 2010-2011 is a plan valid for only one year, it cannot be used again and again
2.1 Hierarchy of Plans
2.1.1 Mission
Mission is the statement which reflects purpose, philosophy, and vision of the organization. For
example, Mission could be to be leading motorcycle manufacturer in the world
2.1.2 Objectives
The end results which organizations seeks to achieve are known as goals or objectives.
Though the term goals and objectives are used interchangeably but they do differ
Factor How Goals and Objective are different

Time Frame Goals are timeless whereas objectives are time bound.
Specificity Goals are generally broad in line with the aspirations whereas objectives are
generally more specific.
Focus Goals are usually stated in terms of external environment whereas objectives
are more internally focused
Measurement Goals are set in qualitative terms whereas objectives are set in quantitative
terms.

Role of Objectives
1. Direction for Action:

2. Performance Standards
3. Basis for Decentralization
Multiplicity of Objectives
Peter Drucker believed that an organization must have multiple objectives. He suggested that
objectives must be set in following 8 key areas
2.1.3 Strategy
Strategy is course of action which an organization tries to relate itself with its environment
to develop competitive advantage which helps in achieving its objectives. For example: to
launch a motorcycle for a rural area which is sturdy and comfortable
2.1.4 Policies
The term “Policy” is defined by koontz and O ‘Donnel as “policies are general statements or
understandings which guide mangers thinking in decision making”. Policies define how an
organization should deal with its stakeholders such as employees, suppliers, customers etc.
For example: Policy could be not to sell motorcycles in credit
Policies may be divided into different types of policies from different approaches.
A. Based on Source:
1. Formulated or Originated Policy: By originated policy they refer to policy which originates
from the top management itself.
2. Appealed Policy: When the current policy is not able to handle any situation, then an
appeal by any subordinate to the manager results appeal being forwarded to higher
authorities

3. Implied Policy: Implied policy is meant policies which emanate from conduct. They are not
clearly stated but actions of managers at higher level provide guidelines to juniors.
4. Externally Imposed Policy: Policies may be imposed externally that is from outside the
organisation on such as by Government control or regulation, trade associations and trade
union etc.
B. Based on different Levels:
Policies are divided into the following types based on levels:
1. General Policies: General Policies are those which are followed in all the departments and
unit of the organization. For example, policy of sick leave will be uniform across all the
departments
2. Specific Policies: Specific Policies are those which are followed by departments of
organization differently. For example, HR department may have different incentive policy and
Marketing department may have different incentive policy
2.1.4.1 Difference between Policy and Strategy

Basics of Strategy Policy
difference
Nature Determine what and what type of How Aspect of actions
actions
Prescription Direction for actions Guidelines for actions
Indication Indicates destination Indicates route to reach destination
Context Mostly environmental factors Mostly organizational factors
Derivation Mission and Vision of Organization Objective of Organization
Number Few Many in number
2.1.5 Procedure
A procedure is chronological sequence in which an activity should be performed to achieve the
objective of the activity.
Difference between Policy and Procedure
Basis of Difference Policy Procedure
Nature It is a general statement It is a specific statement
Role It provides guideline for thinking Itforprovides chronological steps for
a specific direction completing a task
Flexibility It is flexible to some extent It is not flexible
Relevance Its s relevant for higher Management
It is relevant for lower management
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2.1.6 Method
Methods are standardized way or manner of performing a routine activity. For example, there are
different methods of valuation of closing stock in an organization, but organization may choose
one method which is adopted throughout the organization
2.1.7 Rule
Rule is a specific statement that prescribes what is to be done or not done in the organization.
Policy may leave some areas for discretion, but rules are to be strictly followed. Rules does not
allow any deviation from the stated course of action
2.1.8 Programme, Budget, and Schedules

Programme: Programmes are the combination of goals, policies, procedures, and rules. All these
plans together form a program. The programmes create relation between policies, procedures,
and Rules. For example, launching of new product.
Budget: Budget is the statement of expected result expressed in numerical terms. In budgets the
results are always measurable and most of the time these are financial in nature,
Schedules: A schedule is a timetable for activities. It defines start time and completion time of
each activity. It ensures completion of work on time
3 Strategy in Organization
We discussed about strategy in brief in the previous section. Now we shall discuss in detail
about strategy here
3.1 Role of Strategy in Organization:

In an Organization, the strategy plays an especially important role. It helps in following ways
1. Clarity in Direction of Activities:

2. Framework for Operational Planning:
3. Personnel Satisfaction:
3.2 Types of Strategy in Organization: Based on Levels
3.2.1 Corporate Strategy:
The first level of strategy in the business world is corporate strategy, which sits at the ‘top of
the heap’.
Corporate Strategy can be of the following types
1. Stability: Achieving stability in current business

2. Growth: Expansion of same business or Diversification into new business
3. Retrenchment: Closing a business or selling a share business to other company
3.2.2 Business Strategy:

Every large company has certain business units such as Reliance has business units of
Reliance Petroleum, Reliance Energy and Reliance Telecom etc. These business units are SBUs
– Strategic Business Units. Each SBU has its own product, own market, own customers and
therefore its own business strategy. In other words, the strategies that you outline at this
level are slightly more specific and they usually relate to the smaller businesses within the
larger organization.
3.2.3 Functional Strategy:

Functional Strategy basically relates to single business function such as Finance, Marketing,
HR Strategy.
The decisions at this level are called tactical or Operational decisions.
Sometimes below the Functional Strategy, we have operational strategy as each function can
be divided into sub-functions. For example, the marketing department can be divided into
sales, distribution, promotion, pricing etc. So, the Sub-Functional strategy would be made at
Operational Level Strategy
3.3 Types of Strategies – Based on Growth

The strategies based on whether organization wants to grow can be of following 4 types
1. Stability Strategy: Under this strategy, the business will concentrate on utilizing its present
resources to develop its competitive strength within a restricted product -market
configuration
2. Growth Strategy: Growth strategy means company is wants to grow instead of just being
stable. Growth strategy can be of 2 types – Intensive and Diversification
a. Intensive Growth: It is a strategy of aggregation or expansion under which growth is
achieved by expanding the scale of operations. Intensive growth can further be of 3
types
i. Market Penetration: Aim is to increase sale of present products in present
markets though more aggressive promotion and distribution
ii. Market Development: Aim is to increase the sales by selling present products
into new markets. For example, venturing into foreign markets
iii. Product Development: Aim is to grow by developing new variety in current
products or improving current products for the present market.
b. Diversification Strategy: Aim is to increase sales by developing new products for the
new markets.
3. Retrenchment Strategy: A strategy used by corporations to reduce the diversity or the
overall size of the operations of the company. Retrenchment strategy can be of 3 types
a. Turnaround Strategy: It refers to the management measures which turn a sick
company back to a healthy one
b. Divestment Strategy: In Divestment strategy company may decide to close/sell the
business unit or division if it seems it cannot be turned around.
c. Liquidation Strategy: The strategy is used as a last resort where the whole company
is sold to avoid bankruptcy. The main difference between Divestment and Liquidation
is that the Divestment is selling off a division or a unit whereas Liquidation is a
winding-up of the whole company
4. Combination Strategy: A company into many products may use different strategies for
different products
3.4 Types of Global Business Strategies

The companies which operate in many countries must face may challenges. They basically
face two type of pressures
1. Pressure for Cost Minimization: The cost of products must be minimized

2. Pressure for Local Responsiveness: The company must adjust to local customer
preferences and taste
Based on these two factors there are 4 types of global business strategies as shown below
Let us discuss them one by one
3.4.1 Global (Low Cost and Standard Products)

Global Business Strategy assumes that customer needs are similar worldwide. Therefore,
organizations can sell standard products in same way in any country. Organizations compete
based on price. They leverage economy of scale as much as possible to boost their reach and
revenue.
3.4.2 Multi-domestic (High Cost and Customized Products)

In this strategy, the organizations try to achieve high level of local responsiveness though the
cost may be high. Companies modify their offerings and reposition their marketing st rategies
to engage with foreign customs, cultural traits, and traditions. The products may require high
amount of customization and therefore the costs are increased which are passed on to the
customers
3.4.3 International (Moderate cost and Little Customized Products)

Initially when company is new in business and want to expand, it may not be able to either
reduce costs or make the products highly responsive to local market. So, they might not be
able to opt for global or multidomestic strategy. As a result, they follow a balanced path
where neither they reduce the costs too much nor make the products highly responsive to
local market. They sell somewhat customized products at a medium cost. Later once they
gain momentum, they can either shift to Global Strategy or Multidomestic Strategy
depending on what kind of product they are selling
3.4.4 Transnational (Low Cost but Customized Products)

In Transnational Strategy, the products are low cost but still they are customized products for
the customers. This might seem contradictory, but this is possible with innovative techniques
of doing business.
3.5 Portfolio Analysis – BCG Matrix
BCG matrix tries to analyze the business units in a company
The rate of market growth rate is plotted against the relative market share of the business
unit. The business units are classified into 4 types
1. Dogs: Low market share in slow growing market. It is kind of stagnant business
2. Cash Cows: High Marker share in slow growing market. This is seen as profitable business
giving quick cash revenues without much investment
3. Stars: High Market share in high growing market. Company needs to invest here to keep
the market share in rapidly growing market. These can be future stars for the company
4. Question Marks: Low market share in high growth market. It is a question mark for the
company because company needs to invest to keep with the market growth, but its low
market share may be against investing more
4 Management by Objectives
We have earlier studied about objectives under the hierarchy of plans. In line with that we
are going to study about Management by Objectives
Management by objectives (MBO), also known as management by results (MBR), was first
popularized by Peter Drucker in his 1954 book The Practice of Management
The essence of MBO is participative goal setting. The principle behind Management by
Objectives (MBO) is to make sure that everybody within the organization has a clear
understanding of the aims, or objectives, of that organization, as well as awareness of their
own roles and responsibilities in achieving those aims. The goals are agreed by employees
and are not merely imposed on them
4.1 Process of MBO
1. Setting Organizational Objectives: The first step is setting organizational objectives

These objectives are set form long-term view of the organization
2. Identification of Key Result Areas: Organizational objectives and planning premises
together provide the basis for identification of key result areas (KRAs). The key result
areas can be product quality, cost, sales volume, distribution network, cash flows etc.
3. Setting Superior and Subordinate Objectives: The process of objective setting begins
with superior recommending the subordinate’s objectives. Subordinate will also state
his own objectives. Thereafter, the final objectives for the subordinate are set by the
mutual negotiation between superior and subordinate
4. Appraisal: Appraisal is done to gauge whether the subordinate is achieving the
objectives or not. If there is a deviation, then corrective steps may be taken
5. Process continuity: Appraisal is last process but feedback from appraisal goes into
setting next set of objectives. So objective setting leads to action plans and action
plans provide basis for appraisal and feedback from appraisal is used to set the next
set of objectives
Benefits of MBO
1. Clarity of Goals to Employees
2. Focus on key Result Areas
3. Basis for Organizational Change: MBO stimulates the organizational change and
provides a framework and guidelines for planned change. In MBO, Organizational
members accept the change readily because they are actively involved in objective
setting
4. Better communication and coordination – Frequent reviews and interactions
between superiors and subordinates help to maintain harmonious relationships
within the organization and to solve problems
Drawbacks of MBO
1. At times it can be time consuming
2. In some cases, companies introduce MBO, but individual managers are unwilling to
delegate fully to their subordinates
3. Sometime objectives are set from short-term perspective and emphasis on short term
objectives may lead to opposite results as envisioned by long term planning
4. Inflexibility: MBO represents danger of inflexibility in organization when objectives
need to be changed. In dynamic environment, a particular objective may not be valid
for ever.
5 Decision Making in Planning

Decision-making is the process of identifying and choosing alternatives based on
the values, preferences, and beliefs of the decision-maker.
Difference between Decision making and Problem Solving
Decision making is a process of selection of an alternative which may or may not be new
while problem solving is the invention of an alternative that is different from the earlier
decision that has created the problem.
5.1 Decision Making Types

1. Programmed and Non-Programmed Decision Making: Programmed decisions are those
that are based on criteria that are well understood. There are routine and repetitive in
nature. On the other hand, non-programmed decisions are the one which do not have
established rules and problems.
2. Strategic and Tactical Decisions:
Strategic Decisions Tactical Decisions

Strategic Decision affects the whole Tactical Decisions relate t day to day
organization and determine the direction operations of the organization. They are
of Organization mostly repetitive in nature like purchase
of new raw material
They are mostly non-programmed They are mostly programmed
Their outcome is long-term in nature Short term in nature
The authority lies with higher lever in the The authority can be delegated to lower
organization levels in the organization
3. Policy and Operating Decisions: Policy decisions are taken by top management. They
affect the entire enterprise. But operating decisions are taken by lower management to
put the policy into action.
4. Individual and Group Decision Making: In an organization decision can be made
individually or in a group. Group decision making can lead to quality decision but is time
consuming. Let us discuss the Pros and Cons of group decision making in detail
Pros of Group Decision Making Cons of Group Decision Making
Pooling of Knowledge and Information from Time Consuming activity

various sources leading to better quality
decisions
People participate in decision making and hence Domination: Certain people due to their position
they get satisfaction from it or age may dominate in group decision making
and thereby defeating the purpose
People learn from others in group decision Lack of Responsibility in group decision making
making leading to Personnel development
Risk taking of individual is less but in group we Groupthink is a type of thinking when reaching
tend to take more risk agreement is more important rather than
arriving at sound decision. People conform to the
pressure of the group. Groupthink can happen in
group decision making
Satisficing: A combination of the words "satisfy"

and "suffice". Members accept a low-risk, easy
solution instead of searching for the best
solution.
5.2 Steps in Decision making Process
The above decision-making process is based on Simon’s decision-making process who has
proposed phases of decision making: Intelligence (Problem Identification), Design (Alternative
generation) and Choice (Choosing an alternative). As per him the decision-making process is a
rational decision-making process
5.3 Models in Decision Making – Economic Man Model and Administrative Man
Model
There are two models of decision making which differ according to the emphasis they put on
rationality. These two models are
1. Economic man model (Maximization)

a. Economic Model believes that person searches for all the possible alternatives and
selects the best alternative among them
b. For this he might have to collect lot of data and information
c. This believes in perfect rationality
d. The objective is to maximize the return
2. Administrative Man model (Rationalization)

a. Administrative Man model believes that person selects the alternative which is
satisfactory or good enough though it might not be the best alternative.
b. For this he might have to use rules of thumb, intuition etc.
c. This believes decisions cannot be fully rational and these partial rational decisions
are based on ‘bounded rationality’ where rationality has certain limits
d. The objective is to optimize the return
5.4 Decision Making Conditions
Decision Making faces 3 conditions they are.
(1) uncertainty,
(2) certainty
(3) risk.
5.4.1 Certainty
Under conditions of certainty, the manager has enough information to know the outcome of
the decision before it is made.
5.4.2 Risk
Risks exist when the individual has some information regarding the outcome of the decision
but does not know everything when making decisions under conditions of risk, the manager
may find it helpful to use probabilities. To the degree that the probability assignment is
accurate; he or she can make a good decision.
Let us consider the case of a company that has four contract proposals it is interested in
bidding on. If the firm obtains any one of these contracts, it will make a profit on the
undertaking. However, because only a limited number of personnel can devote their time to
putting bids together, the firm has decided to bid on one proposal only—one that offers the
best combination of profit and probability that the bid will be successful. This combinat ion is
known as the expected value.
The profit associated with each of these four contract proposals, as presented in below table,
varies from $100,000 to $400,000. The probability of getting the contract is also given . On
which of the proposals should the firm bid?
As the table shows, the answer is number three. It offers the greatest expected value.
Computation of Expected Values
Contract Profit ($) The probability of Getting the Expected Value ($)
Proposal Contract
(Profit * Probability)
1 100,000 .2 20000
2 200,000 .3 60000
3 300,000 .4 120,000
4 400,000 .1 40000
5.4.3 Uncertainty
Uncertainty exists when the probabilities of the various results are not known. The manager
feels unable to assign estimates to any of the alternatives.
Under such a condition, several different decision criteria have been proposed as possible
bases for decision making.
These are as follows:
1. Maxima Criterion (Optimistic Criterion): In this the best payoff of each alternative is
selected and then maximum among those best payoffs will be selected
2. Maximin Criterion (Pessimistic Criterion): We select the worst payoff of each alternative
and then select the maximum one among those worst payoffs
3. Minimax Regret Criterion. In this we first select the best of each alternative and then
select the minimum among those.
4. Insufficient Reason Criterion. The average of all the possible conditions under each
alternative is taken and the one with best payoff is selected
The average return of large plant would be (0+180000)/2 = 90000

The average return of small plant would be = 60000
The average return of small plant would be = 100000
The best average return is given by third option of doing nothing, so it would be selected.
Earlier we have discussed about functions of management given by KOONTZ and O’DONNEL
i.e. Planning, Organizing, Staffing, Directing and Controlling. In this part we will discuss on Organizing.
1. Organizing
It is a function in which the synchronization and combination of human, physical and financial
resources take place. It basically deals with following activities
• Identification of activities and division of work

• Classification of grouping of activities and assigning them to departments
• Assignment of duties.
• Creating hierarchy and doing delegation of authority and creation of responsibility.
• Coordinating authority and responsibility relationships.
We will discuss about these in later sections
Principles of Organization
1. Orientation towards Goals and Objectives: There should be unity among all the objectives at
organizational, Departmental, and Individual level
2. Specialization: Every department should be given a specific work to be performed.
3. Co-ordination: All the activities of all the individuals and departments should be interlinked
with each other.
4. Delegation of authority and creation of Responsibility: The superior should pass on the
authority to their subordinates. There should be fixation of responsibility after the authority is
delegated
5. Balance: There should be balance between authority and responsibility, centralization and
decentralization, human and material resources etc.
6. Unity of command: This principle suggests that subordinate should get orders only from one
boss at a time.
7. Span of Control: Span of control indicates the number of subordinates under a manager.
Number of subordinates under one superior should be appropriate so that he can manage
them effectively
8. Scalar Chain: Scalar chain is a chain of command or authority which flows from top to bottom.
With a chain of authority available, wastages of resources are minimized, overlapping of work is
avoided
9. Flexibility: The organizing process should be flexible so that any change can be incorporated.
1.1 Benefits of Organization

1. Well Defined Jobs:
2. Specialization:
3. Clarifies Authority:

4. Co-ordination:
5. Optimum use of resources.
6. Facilitates growth and diversification.
7. Humane treatment of employees.
1.2 Process of Organizing
1. The first step in organizing is to identify and enumerate the activities required to achieve the
objectives of the enterprise
2. The various activities are then classified into appropriate departments and divisions based on
functions, products, territories, customers etc.
3. The individual groups of activities are then allotted to different individuals based on their ability
and aptitude. The responsibility of every individual should be defined clearly to avoid duplication of
work and overlapping of effort.
4. Every individual is given the authority necessary to perform the assigned task effectively. Authority
delegated to a person should be commensurate with his responsibility.
5. The activities and efforts of different individuals are then synchronized. Such co-ordination is
necessary to ensure effective performance of specialized functions.
1.3 Organizing Charts

An organizational chart is a diagram that shows the structure of an orga nization as well as the
relationships and relative ranks of its positions. Organization chart can be divided into master
chart and supplementary charts. Master chart shows the entire formal organization structure
whereas supplementary chart shows the detail relationships, authority, and the duties within
the prescribed area of department or major component of the organization
There are 3 types of charts on an organization (i) Vertical or top-down chart (ii) horizontal or left
to right chart and (iii) Circular chart
1. Top-Down Chart: In the top-down chart, highest position is shown at the top level followed by
other positions in the hierarchy
2. Left to Right Chart: In the left to right chart, the highest position is shown at the extreme left
followed by other positions in the hierarchy from left to right as shown in figure below. It not
used very much

3. Circular Chart: In circular chart, center of circle represents the highest position followed by
other positions in the hierarchy on respective circles. This, closer is the position to the center,
the more important it is. Positions of equal importance are in the same circle
1.4 Organizing Manuals

Organization manual is a repository for organization data commonly used by company managers. It
enables him to visualize the company organization as a whole and to see his own responsibilities as
part of the total picture. Manual should contain the following data:
1. Statement of company objectives and policies

2. Responsibilities and authorities at various levels, relationships among various levels
3. Delegation of authority existing in the organization

4. Organization methods, rules, and procedures
5. Span of control at various levels
2 Organization Structures
Organizations structure is a pattern of relationship between people and work within which
organizational activities are performed to achieve the objectives. An organization structure is a
framework through which management works to accomplish its objectives. It is primarily concerned
with the allocation of duties and responsibilities, and delegation of authority
Need for Organizational Structures

1. Communication: Proper Organizational structure is required for good Communication
2. Coordination: Proper Organizational structure helps in Coordination between people at
different level and in different departments
3. Control: Proper Organization structure ensures there is proper control by defining which
position is controlled by which other position
2.1 Formal and Informal Organization

1. Formal Organization: Formal organization refers to structure of well-defined jobs, having definite
authority and responsibility.
Features of Formal organization:
i. It is a structure of well-defined authority and responsibility.
ii. It is established to achieve well defined objectives.

iii.There is superior-subordinate relationship among all the people.
v. Rules and regulations are followed by all the people.
vi. It is stable in nature. It comes to an end only after closure of the organization.

2. Informal Organization: It is a network of personal and social relations existing in a formal
organization. People in the organization do not always follow formal lines. Employees in one
department know those in other departments. In such cases informal organizations get developed
Features of Formal organization:

i. It is a network of personal and social relations existing in a formal organization.
ii. It is established to develop personal and social relations.
iii. There is no question of granting authority and deciding responsibility as relations are social in
nature.
iv. There are no well-defined objectives to be achieved, no rules and regulations to be followed
and no need for coordination
v. It is not stable in nature. Relationship can come to an end at any time.
2.1.1 Pros and Cons of Informal Organizations

Informal Organizations are also important to exist because
I. It provides social satisfaction to the employees
II. It helps the formal organization to get the work done
III. The informal group develops a communication channel or system (i.e., grapevine) to keep its
members informed about what management actions will affect them in various ways. Many
astute managers use the grapevine to "informally" convey certain information about
company actions and rumors.
IV. They provide social control by influencing and regulating behavior inside group.
V. Act as Safety Valve: The informal group provides a means for relieving tension and other
emotional and psychological pressures by allowing a person to discuss them among friends
openly and candidly
VI. Lighten Management Workload: This encourages delegation, decentralization
VII. Fill in Management capabilities: People help each other to fill in the weakness
Informal Organizations have some drawbacks also

I. Resistant to change:
II. Role of Conflict: What is good for and desired by informal group members is not always good
for the organization. Doubling the number of coffee breaks and the length of the lunch period
may be desirable for group members but costly and unprofitable for the firm
III. Rumors: Information Organization leads to lot of rumors which can cause disturbance in the
company

IV. Conformity to Social Control: Social control promotes and encourages conformity among
informal group members, thereby making them reluctant to act too aggressively or perform at
too high a level
3 Forms of Organization Structures

We are going to study the following Organization structures
1. Line Organization
2. Line and Staff Organization
3. Functional Organizational Structure
4. Divisional Organizational Structure
5. Matrix Organizational Structure
6. Team-based Organization
7. Committee
8. Task Force
9. Free Form Organization
10. Virtual Organization
11. Boundaryless Organization
3.1 Line Organization

Line organization is the oldest and simplest form of formal organization. In this organization the
line of authority flows downward from top to bottom level. The line of authority is straight and
vertical. On the other hand, responsibility moves upward from bottom to top level
Characteristics of Line Organization
1. There are direct vertical relationships among superior and subordinates.
2. Principle of scalar chain and unity of command is strictly followed.

3. All departmental managers have equal status.
4. It is mainly suitable to small organizations.
5. It does not have any specialized staff to advice on complex matters
6. Line management has extremely high authority which can be misused
3.2 Line and Staff Organization

This type of organization tries to combine the activities of line and staff executives. Line executives are
“Doers” whereas the specialists are “Thinkers”.
Line managers have total authority over those who report directly to them, but staff workers have
primarily advisory authority. Their function is to create, develop, collect, and analyze shop information,
which flows to line workers in the form of advice.
Characteristics of Line and Staff Organization
1. There are two aspects of administration in this organization i.e. planning and execution.
2. The staff provides guidance and advice to line executives. Such guidance is offered whenever it
is demanded by line. So, we have specialization of staff here which can give expert advice
3. It is mainly suitable for large organizations

4. It involves more cost and can lead of conflict between line and staff.
5. Staff steals the show, and any good performance is dedicated to them. Line may feel dissatisfied
3.3 Functional Organization

Functional organization is a mid-way between line and staff authority. In this entire department is
created for a particular area of work like marketing department, production department etc.
Manager from one department can give advice/order to person from other department but only
related to his/her functional area. This form was introduced by F.W. Taylor to bring about
specialization of management.
Characteristics of Functional Organization
1. All the organizational activities are divided according to specified functions.
2. Each function is performed by specialist.
3. A superior specialist has a right to give orders relating to these specific functions.
4. Suitable for Large organizations
3.4 Divisional Organization Structure

The divisional structure or product structure consists of self-contained divisions. A division is a
collection of functions which produce a product. For example, a company may have a Footwear
division, Medicine division and Juices division. Each of these divisions would have a function such as
Marketing and Finance.
3.5 Matrix Organization Structure

Matrix organization is a combination of two or more structures. It can be combination of project
organization and functional organization. Project organization structure is one in which divisions are
created based on the projects undertaken by the organization. On the completion of the project, the
division is abolished, and its resources are allocated to other projects
In matrix organizational structure, the project manager is appointed for each project to coordinate the
activities of that project. Personnel are drawn from their respective functional departments.

Project Managers and Functional managers work in close co-operation with each other. The authority
of departmental managers flows downwards whereas authority of project manager’s flows across.
Thus, each functional staff has two bosses – his functional superior and his Project Manager.
Characteristics of Matrix Organization
1. It is a hybrid and complex structure. It is a combination of project organization and functional

organization.
2. Offers more specialization as project managers and functional managers specialize in their areas.
3. Subordinates receive orders from two bosses, so unity of command principle is not followed
3.6 Team based Organization Structure

Team-based organizations vary from traditionally hierarchical, directive organizations. Team is
small number of people with complementary skills who are committed to a common purpose,
performance goals and approach for which they hold themselves mutually accountable. Major
characteristics of team-based organization include trust, empowerment, goal setting, autonomy,
team accountability and shared leadership.
There are 4 types of teams which we shall discuss below
1. Problem Solving Team: A problem solving team, also known as corrective action team, is
constituted to solve specific problems which an organizational may be facing.
2. Cross-Functional Team: Cross Functional Team draws its members from different functional
areas, particularly from those which have high interdependence. The basic objective of cross-
functional team is to make decisions and solve problems in those areas which cannot be done
by a particular functional department
3. Self-Managing Team: Self- managing team, also known as empowered or self-directed team
sets Goals and inspects its own work, prescribes work schedules, and review its performance
4. Virtual Team: Virtual team uses information technology to tie together people in different
parts of the world. Members interact among themselves using online communication devices.
3.7 Committee
A committee is a group of people who work collectively, discuss, decide, and recommend
solutions to the problems (of a concern) which possibly cannot be solved by an individual.
Types of Committee:
1. Standing (ad hoc) or Permanent Committee: A standing, or permanent committee is

permanent committee needed for regular problems. A temporary committee or ad hoc is
formed to face and solve problems arising occasionally.
2. Line Committee or Staff Committee: If a committee is vested with authority to decide and
their decisions are implemented for sure then it is a line committee. On the other hand, if a
committee is appointed merely to counsel and advice, it is known as staff committee
3. Executive Committee: It is a committee which has power to administer the affairs of the
business
4. Coordinating Committee: Such a committee is generally formed to coordinate the functioning
of different departments. It consists of the representatives of different departments who
meet periodically to discuss their common problems
Advantages of a Committee: Pooling of knowledge and Experience, Motivation to people,

innovation and brainstorming, Representation of interest groups like backward classes, SC/STs etc.
Limitations of a Committee:
1. High Cost and Slow Decisions
3.8 Task Force

A task force is a small group, usually four to twelve people coming from different parts of an
organization, that brings together a specific set of skills to accomplish a short-term task.
Task force is somewhat like ad-hoc committee but there is a difference.
1. Task has broader powers to take decisions and actions. They can investigate, plan, research
and do lot of analysis
2. Task force may have a longer tenure as compared to ad-hoc committee
3.9 Free- Form Organization
Free form organization is also called naturalistic, organic, or ad-hoc organization. It assumes that
organization is open system, and the basic task of the manager is to facilitate change in the
organization.
Key features of Free-Form Organization are given below
1. There is a small central group at the top which is relatively stable. It consists mainly planners
and centre of control and evaluation
2. Operating divisions are regarded temporary or permanent, depending on the potential to
generate profit. A
3. Therefore, there is no traditional superior-subordinate relationship and hence it puts
emphasis on democratic values of the society such as equality
4. Free Form organisations are generally suitable for those industries which are working in
highly dynamic environment
There are two types of free-form organizations
1. Virtual Organization
2. Boundary less Organization
3.9.1 Virtual Organizations

Virtual organizations are also known as Networked Organization or Modular Organization.
Virtual organization is one temporary network of independent organizations – suppliers,
customers and sometimes even competitors linked by Information technology to undertake a
specified venture or share their skills
A virtual organisation has the following characteristics: Flat and Dynamic organisation, Informal
communication, Multi-disciplinary (virtual) teams with varied strengths, Vague organisational
boundaries, Goal orientation, Sharing of information
The biggest problem with virtual organization is creation of trust. Often clash of interest come to
forefront much sooner than expected
3.9.2 Boundaryless Organizations

Boundary less organization was the term coined by Jack Welch, former chairman of GE.
1. It seeks to eliminate vertical and horizontal boundaries and the boundaries between the
organization and its customers and suppliers.
2. It de-emphasizes the chain of control, span of control and departments within the
company. There is no hierarchy. The span of control is unlimited as one can talk to anyone
3. It is driven by self-managed teams
4. Everyone participates in decision making
5. 360-degree performance appraisal system is used
6. Job rotation is given emphasis to develop multi-skills among employees
Boundaryless organization is a structure that organization may adopt whereas virtual
organization is alliance between two or more organizations to achieve certain specified
objectives
Boundaryless organizations relies heavily on information technology. Therefore, some people

call it T-form (technology based) organization
3.10 Factors Affecting Organization Structure

As per contingency approach to organizing, there is no structure suitable for all the organizations.
Organization structure is impacted by many factors. These are shown below
3.10.1 Environment
The organizational structure depends on the environment of the organization. Burs and Stalker have
suggested mechanistic system for stable environment and organic system for dynamic environment
3.10.2 Strategy
The organization structure needs to be in line with strategy of the organization. The
organizational actions proceed in a sequence: new strategy formulation, emergence of new
problems, a shift to more appropriate structure
3.10.3 Technology
Technology used also impacts the organizational structure. An organization may use following
technologies
1. Unit Production: Unit production means production of individual items as per
customization by customer
2. Mass Production: Large batch and mass production of goods such soaps
3. Process Production: Production of materials that are sold by weight or volume, for
example chemicals
It is generally believed that span of control for higher management is lower in unit and process
production as compared to mass production.
3.10.4 Size
The impact of size on structure is as follows
1. Small organization can work with simple organizational structure whereas large organizations
require complex structure
2. In large organizations we need various supporting functions (staff functions) such as HR, Legal
etc. whereas there is no need of such staff functions in smaller organizations
3. In large organization there is high degree of formalization while making decisions, delegation
of authority etc. whereas there is low degree of formalization in smaller organizations
3.10.5 People
The type of people and perception of people also affects the organizational structure. In
organization there are two kinds of people
1. Framers: Framers means top level management who frames policies.

a. If their perception is towards theory X (emphasis of rigid control), then centralized
structure. On the other had if their philosophy is towards theory Y (emphasis on
individual autonomy), the decentralized structure
b. If they believe in reactive approach to environmental changes then their organization
will be more of mechanistic. On the other hand, if they believe in proactive approach to
environmental changes then their organization will be closer to organic system
2. Participants: Participants means people other than top level management. People can be
grouped based on their needs. Skilled and Professional workers need more autonomy and
participation in decision making. So, for them organic system is more suitable. Unskilled
workers feel uncomfortable when things are not clear, so they will be happy in mechanistic
system
4 Departmentalization
Departmentalization (or departmentalization) refers to the process of grouping activities into
departments. Division of lab our creates specialists who need coordination. This coordination is
facilitated by grouping specialists together in departments.
• Functional departmentalization - Grouping activities by functions performed. Activities can
be grouped into departments for example human resources, IT, accounting, manufacturing,
logistics, and engineering. The functions can be divided into basic and secondary functions
i. Basic Function: These functions are known as organic functions and these are essential for
the organization. For example, in a manufacturing organization, basic functions would be
production and marketing
ii. Secondary Functions: These are the ones which are derived from the basic functions. For
example, marketing department may further contain sections for sale, market research
iii. Staff Functions: Departments are created for performing those functions which provide
support to basic functions. These are known as staff functions. Such functions are related
to finance, human resource, information technology and legal matters etc.
• Product departmentalization - Grouping activities by product line. Tasks can also be grouped
according to a specific product or service, thus placing all activities related to the product or
the service under one manager.
• Customer departmentalization - Grouping activities based on markets served or distribution

channel used. For example, based on distribution channels, pharmaceutical firm can be
broken down into three departments that serve retail, wholesale, and government accounts.
• Geographic departmentalization - Grouping activities based on territory. For example, the

Indian Railways has divided organization into 4 zones – North, East, West, and South.
• Process departmentalization – It involves, grouping activities based on process involved in

production. For example, an organization manufacturing textile creates department for each
process of manufacturing textiles: Spinning, dyeing, Weaving, and finishing.
• Divisional departmentalization - When the firm develops independent lines of business that
operate as separate companies, all contributing to the corporation profitability, the design is call
divisional departmentalization or (M-FORM).
5 Span of Control
Span of control is also called as span of management or span of supervision i.e. number of
subordinates reporting to the senior. This concept was introduced by Sir Ian Hamilton.
Narrow and Wide Span of Management
A small, or narrow, span of control results in each manager supervising a small number of employees,
while a wide span of management occurs when more subordinates report directly to a given manager.
Span of control has 2 implications
1. Wider the span of management, higher is the number of subordinates reporting to a manager and
hence more complex is his job
2. Span of control also determines the organization structure in terms of it being tall or flat . Wider
the span of control, less the number of managers and hence flatter the organizational structure
whereas narrow span of control means more managers in a company and hence taller the
organizational structure
Factors Affecting Span of Control
1. Nature of work: If the work to be performed is of routine nature, then span of control can be large.
2. Experience of subordinates: If subordinates are enough capable and experienced then span can be
large whereas if there are less experienced subordinates then span should be less
3. Capability and experience of superior: More the experience of manager, larger the span can be
4. Extent of delegation of authority or degree of decentralization of authority: If manager delegates
more and clear authority then span of control may be large
5. Use of standing plans: the organization has developed proper standing plans, then subordinates can
follow the same then span of control can be kept large
6. Geographical Dispersion: If the branches of a business are widely dispersed, then the manager will
find it difficult to supervise each of them, as such the span of control will be smaller.
7. Similarity of tasks: If the tasks that the subordinates performing are similar, then the span of
control can be wider
8. Volume of other tasks: If the boss has other responsibilities, such as membership of committees,
involvement in other projects, liaising with stakeholders, the number of direct reports will need to
be smaller
6 Power
Power refers to capacity that A (agent) must influence the behavior of B (target) so that B does
something he or she would not otherwise do. The response to the power of one person by
another (target) can be in the following way
1. Resistance: It involves target thwarting attempt of others to work against his wishes
2. Obedience: Obedience refers to a person’ s (target) acceptance of influence of power
holder unwillingly because target has high dependency on agent
3. Compliance: Compliance refers to a person’ s acceptance of influence of power holder
because he is expected to be rewarded for responding to it
4. Conformity: Conformity refers to a person’ s acceptance of influence of power holder
because of his desire to be in mainstream of social behavior.
5. Commitment: Commitment refers to a person’ s acceptance of influence of power holder
because of his dedication to a cause or activity
6.1 Basis of Power
Raven has identified power bases of two broad categories: Positional and personal.
Positional Power: Positional Power also known as formal power emerges from the position of the
individual.
i. Legitimate Power: In organization, this legitimacy is in form of authority which is delegated

to the positions of organizational members
ii. Reward Power: Reward Power is based on one’s control and allocation of material
resources and rewards.
iii. Coercive Power: In organizational context, it may be in form of action for threat for
dismissal, suspension, demotion, or other method of embarrassment for the people
iv. Information Power: Information power comes from access to and control of sensitive
information.
Personal Power: Personal power is informal and resides with a person, regardless of his position
in the organization.
i. Expert Power: Expert power is that capacity to influence others which is based on one’s
experience, special skill, or knowledge
ii. Referent Power: Referent power is based on identification which involves learning by an
individual through copying the behavior of the other person which he takes as an ideal.
iii. Charismatic Power: It emerges from individual’s charisma, a quality that is unique.
Because of this charisma, the individual can articulate attractive vision.
7 Delegation of Authority
Before we discuss about delegation of authority in detail, lets discuss about 3 elements of
delegation of authority – Authority, Responsibility and Accountability
7.1 Authority
Authority is the legitimate right of a position holder to giver orders to others and get these obeyed.
There are three theories on Authority
1. Formal Theory of Authority: As pet this theory the source of authority to a position holder is
delegation of authority from the next higher level in the organization.
2. Competence Theory of Authority: As per this theory individual derives authority because of
personal competence.
3. Acceptance theory of Authority: According to this theory the subordinate will obey the orders if
it meets certain requirements: he understands the order properly, order is not inconsistent with
the organizational purpose, order is compatible with his personal interest as a whole . Bernard
also defined term Zone of Indifference or Area of Acceptance. It indicates the specific limits that
are set by individuals themselves with in which they will respond willingly to the exercise of
authority over them
When we talk of organizational context, authority is taken as prescribed by the formal theory of
authority
A manager alone cannot perform the entire task assigned to him. To meet the targets, he should
delegate the authority. Delegation of authority means division of authority and powers downwards to
the subordinates. Authority always flows from top to bottom.
Power Authority
Power is much broader as compared to Authority is limited by organizational position
authority because power can be based on
organizational position or personal position
Personal power is legitimized by rules. Authority is legitimized rules, regulations etc.

Regulations etc.
Power reflects the political realties within the Authority is the central element of formal
organization and relates to informal patterns of organization and systematic communication
action
7.2 Responsibility
Responsibility is duty of the person to complete the task assigned to him. Responsibility without
adequate authority leads to discontent and dissatisfaction among the people. Responsibility flows
from bottom to top.
Parity of Authority and Responsibility: Principle of parity of authority and responsibility suggest that
authority of a person should match his responsibility. According to this principle, the manager should
keep a balance between authority and responsibility. Both should go hand in hand.
Difference between Authority and Responsibility
7.3 Accountability
Accountability is the obligation to carry out responsibility and exercise authority in terms of
performance standards. Accountability cannot be delegated. For example, if ’A’ is given a task with
sufficient authority, and ’A’ delegates this task to B and asks him to ensure that task is done well,
responsibility rests with ’B’, but accountability still rests with ’A’. Accountability also flows upwards like
responsibility, but it cannot be delegated.
7.4 Process of Delegation

Delegation of authority is the base of superior-subordinate relationship, it involves following steps: -
1. Assignment of Duties - The delegator first tries to define duties to the subordinate.
2. Granting of authority - Subdivision of authority takes place when a superior divide and shares
his authority with the subordinate.
3. Creating Responsibility and Accountability - The delegation process does not end once powers
are granted to the subordinates. The subordinate becomes responsible and subordinate
becomes accountable for the completion of the task.
Therefore, it is said that authority is delegated, responsibility is created, and accountability is imposed
7.5 Principles of Delegation

1. Principle of result expected- Suggests that every manager before delegating the powers to the
subordinate should be able to clearly define the goals as well as results expected from them.
2. Principle of absolute responsibility- This says that the authority can be delegated but responsibility
cannot be delegated by managers to his subordinates which means responsibility is fixed.
3. Principle of Authority level- Manager should exercise his authority within the jurisdiction /
framework given. No misuse should be done
7.6 Factors affecting Delegation

There are 3 factors affecting delegation
Factors in superior Factors in Subordinate Organizational Factors

Superiors love for authority might Subordinates having better Organization culture also impacts
stop him from delegating it. capability to carry out work delegation. If organizational
Superior’s perception that may get more authority strongly believes in delegation,
subordinates lack capability might then an autocratic leader will also
stop superior from delegating have to delegate
authority
Some superior fear subordinates Delegation of authority is
may perform work better than and formal, but its exercise is
Such superiors refrain from personal. A competent
delegating subordinate may exercise
authority better than others
8 Centralization and Decentralization
Centralization is the process where the activity of an organization, particularly those regarding
planning and decision making gets concentration in few hands. A centralized organization
systematically works to concentrate authority at the upper levels.
Decentralization is a systematic delegation of authority at all levels of management and in all the
organization.
Implications of Decentralization
Advantages Disadvantages
There is less burden on the Chief Executive as in In a decentralization structure, co-ordination to
the case of centralization some extent is difficult to maintain as there are lot
many department divisions and authority is
delegated
Subordinates when take decisions feel motivated and
If not implemented properly then it will lead to
Subordinates develop new skills chaos
Difference between Delegation and Decentralization
Decentralization is not the same as delegation. In fact, decentralization is all extension of delegation.
Area Delegation Decentralization

Meaning Managers delegate some of their f unction and
Right to take decisions is shared by top
authority to their subordinates. management and other level of management
Scope Scope of delegation is limited as superior Scope is wide as the decision making is shared
delegates the powers to the by the subordinates also
subordinates on individual bases.
Responsibility Responsibility remains of the managers and Responsibility is also delegated to subordinates.
cannot be delegated
Freedom of Freedom is not given to the subordinates Freedom to work can be maintained by
Work as they must work as per the instructions of their
subordinates as they are f ree to take decision
superiors and to implement it.
Grant of Authority The authority is granted by one individual to It is a systematic act which takes place at all
another. levels and at all f unctions in a concern.
Degree Degree of delegation varies f rom concern to Decentralization is total by nature.
concern and department to department. It spreads throughout the organization i.e. at
all levels and all f unctions
Withdrawal Delegated authority can be taken back. It is considered as a general policy of top
management and is applicable to all departments.
9 Empowerment
Empowerment is management practice of sharing power, information and rewards with
employee and making them competent so that they can take initiative to make decisions to solve
problems and improve their work performance
There are five elements to empowerment
1. Helping Employees achieve Job mastery – giving training and coaching

2. Allowing More Control – giving employees discretion over job performance
3. Providing successful role models – allowing them to observe peers who are performing successfully
on the job
4. Using Social reinforcement and persuasion – giving praise, encouragement, and verbal feedback to
raise confidence
5. Giving Emotional Support – reduction of stress and anxiety through personal care
10 Authority Relationship
Some managers perform those functions which contribute directly to the achievement of
organizational objectives. For example, Manufacturing and marketing functions. Such functions
are called line functions. On the other hand, some managers are involved in functions which
provide support to line functions, for example, HR and Legal affairs. These functions are called
staff Functions
Line and staff authority are two kinds of authority. Line authority is the type of authority that
reflects superior-subordinate relationships characterized by the power of decision making. Staff
authority refers to the right to advice on improving the effectiveness for line managers in
performing their duties.
10.1 Nature of Line Authority

Line authority established a line authority between a superior and his subordinates. It works as
Chain of Command, Channel of Communication and fixes Responsibility and Accountability
10.2 Nature of Staff Authority

Staff Authority is exercised by personnel in staff function over personnel in line function. The
degree of authority may vary. The staff authority can be in following forms
1. Advisory Staff Authority: An advisory staff manager makes suggestions to the line managers.
Line manager may put it into action or not. So, advisory staff authority is not obligatory on line
manager
2. Concurring Staff Authority: When concurring staff authority is granted, no action can be taken
until the staff person agrees to it.
3. Control Staff Authority: Certain managers with staff authority have authority to control
certain operations in line departments. For example, auditing, quality inspection departments
have staff authority, and they can control certain operations in line departments
4. Functional Staff Authority: Functional Staff authority is max authority a staff personnel can
get over line personnel. Sometimes functional staff authority is also known as Functional
authority to view it separately from Staff authority. It is the legitimate right given to staff
personnel to give instructions to the line personnel in any department with respect to certain
specific processes, procedures etc. related to their function.
10.3 Line and Staff Conflict

Often there is conflict between line and staff which is very harmful to the organization. The
factors responsible for such conflict are
Viewpoint of Line Managers Viewpoint of Staff Managers Nature of Line-Staff Relationship

Lack of Responsibility: Line Lack of Proper use of Staff: Staff Different Backgrounds: Line and
Mangers view that staff people personnel feel that line managers Staff personnel have different
do not carry any responsibility do not always implement their backgrounds which leads to
but enjoy authority. advice and in case of failure staff conflict
is made scapegoat
Encroachment of Authority: Line Resistance of New Ideas: Line Lack of Demarcation between
personnel feel that staff managers often resist new ideas Line and Staff: There is often
personnel unnecessarily interfere given by staff because confusion about exact areas
with working of their department implementing new ideas would where line and staff have
mean change in present way of authority. There are chances of
working overlap which creates conflict
Lack of Practical Understanding: Lack of Proper Authority: Staff Lack of proper understanding of
Line personnel feel staff people Personnel feel that they do not Authority: Even if line and staff
are not able to understand the have proper authority granted to authority is made clear, people
actual problem on ground and them and it is line personnel may fail to understand the exact
their suggestions are not practical enjoying all the authority nature of line and staff authority
and may interfere in other’s
areas leading to conflict
10.4 Service Department

A service department is basically grouping of activities that facilitates the operation of other
departments, contributing to their efficiency, for example lightning department, Maintenance
department, cleaning department etc. Service departments are like staff function but there is
important distinction between them. Staff functions are created for activities which are especially
important or strategic in nature such as HR and Legal Affairs etc. whereas service department is
created for lesser important or routine activities like cleaning, maintenance etc. Staff functions
are higher up in the hierarchy whereas service departments are put a low level in hierarchy
11 Organizational Conflict
Conflict is breakdown in in standard mechanism of decision-making.
11.1 Views on Conflict

Traditionally, the conflict in an organization has been viewed very negatively. Conflicts shall be
avoided
Human relations view of conflict also believed that conflict is harmful. But it believed conflicts
are bound to happen. Conflicts must be resolved amicably
Interactionist View of Conflict is based on the belief that conflict is only a positive force in the
group as it helps in better decision making, creativity and innovation
11.2 Types of Conflict

Conflict is classified into the following four types: Interpersonal, Intrapersonal, Intergroup and
Intragroup
1. Interpersonal conflict refers to a conflict between two individuals. Interpersonal conflict is of

2 types
I. Vertical Conflict or hierarchical conflict arises between superior and subordinates.

II. Horizontal conflicts involve a disagreement between two people at the same level in
the same department or different department.
2. Intrapersonal conflict occurs within an individual. The experience takes place in the person’s
mind involving the individual’s thoughts, values, principles, and emotions. Intrapersonal
conflict arises due to Role Conflict or Goal Conflict
I. Role Conflict: Role conflict occurs when a person in a role is not able to respond
the expectations of other persons. One of common reason for role conflict is role
overload. In role overload, the managers may delegate too much work but the
time to that is less
II. Goal Conflict: Incompatible goals also lead to intrapersonal conflict. Incompatible
goals are of following types
▪ Approach-Approach Conflict: Such a conflict arises when a person must

choose from two or more equally attractive goals.
▪ Avoidance-Avoidance Conflict: Such a conflict occurs when a person must

choose between two alternatives each with negative aspects.
▪ Approach -Avoidance Conflict: In this type of conflict, an individual is faced

with an alternative that has both positive and negative consequences.
3. Intergroup conflict takes place when a misunderstanding arises among different teams or
departments within an organization. Reasons for intergroup conflict are Varied sets of goals
and interests of these different group, Competition and Resource sharing between teams
4. Intragroup conflict is a type of conflict that happens among individuals within a team.
11.3 Conflict Resolution

People deal with conflict in a variety of ways; therefore, you need different conflict resolution
strategies.
Kenneth Thomas and Ralph Kilmann developed five conflict resolution strategies that people use
to handle conflict
1. Avoiding or Repression of Conflicts: Avoiding is when people just ignore or withdraw from
the conflict. When conflict is avoided, nothing is resolved.
2. Competing (Confrontation): Competing is used by people who go into a conflict planning to
win. They are assertive and not cooperative. Competing might work in sports or war
3. Accommodating: Accommodating is a strategy where one party gives in to the wishes or
demands of another. They are being cooperative but not assertive.
4. Collaborating (Smoothing or Defusion of Conflict): Collaborating is the method used when
people are both assertive and cooperative. A group may learn to allow each participant to
contribute with the possibility of co-creating a shared solution that everyone can support.
5. Compromising or Containment of Conflict: The concept is that everyone gives up a little bit of
what they want, and no one gets everything they want. Compromise is reached through
bargaining or through mediation and arbitration.
6. Conflict Stimulation: The strategy of conflict stimulation is based on interactional view of
conflict that conflict is not bad for the organization. In this conflict is encouraged
12 Coordination
Coordination is the process by which manager synchronizes the activities of different
departments or sections.
Coordination is the essence of management as it is inseparable from the following managerial

functions. Coordination is not something which can be ordered by a manager. Instead it is
something which managers attempts to achieve while performing his functions of planning,
organizing, staffing, directing, and controlling.
Difference between Coordination and Cooperation
1. Coordination is related to synchronization of efforts whereas cooperation is motto or a

spirit
2. Cooperation leads to building of institutions such as cooperative society whereas
coordination being a process is required in all such institutions and organizations
3. Cooperation may exist without coordination. In cooperative societies there is cooperation
among people but there may be lack of coordination leading to inefficiency
4. Coordination is deliberate effort, but cooperation is voluntary attitude
12.1 Types of Coordination

Coordination can be of following types
1. Internal Coordination: Internal coordination is all about establishing a relationship between

all the managers, executives, departments, divisions, branches, and employees or workers.
Internal coordination is of 3 types as discussed below
I. Vertical coordination – In vertical coordination, a superior authority coordinates his
work with that of his subordinates and vice versa.
II. Horizontal coordination – In horizontal coordination, employees of the same status in
different departments establish a relationship between them for better performance.
III. Substantive or Procedural Coordination: Substantive Coordination is about how the
work needs to be divided so that is can be performed in synchronized way. Procedural
coordination is about how a task needs to be completed following a certain procedure.
2. External Coordination: As the name suggests, external coordination is all about establishing a
relationship between the employees of the organization and people outside it
like market agencies, public, competitors, customers, government agencies etc.
12.2 Techniques of Coordination

1. Chain of Command: A manager can use vertical coordination by using his authority and
issue orders to subordinate in coordinated way.
2. Leadership: Co-ordination becomes possible through leadership as it provides individual
motivation and persuades the group
3. Committees: A committee is a group of persons and the decisions of the committee are
group decisions which provide co-ordination among various activities
4. Communication: Effective communication regulates the flow of work, co-ordinates the
efforts of the subordinates of an enterprise
5. Staff Meetings: Periodic staff meetings can be extremely helpful in promoting
coordination.
12.3 Principles of Coordination

1. Early Stage Principle: This principle states that coordination must start at an early stage. Thus,
it can be said that this should start at the planning stage.
2. Continuity Principle: The process of coordination should begin at the time the organization
starts. This shall also continue until an organization exists.
3. Direct contact Principle: This principle is based on the theme that coordination is better
achieved through mutual understanding and not by force, order, or coercion. It states that
managers should directly contact their subordinates.
4. Principle of Dynamism: Dynamism is required because of continuous changes in environment

due to which there would be changes required in process of coordination also
5. Reciprocal relation Principle: The actions and decisions of one department or the person will
affect other departments and people in the organization. So, before taking any decision every
manager must find out the effect of that decision on the other departments.
6. Clarity of objective Principle: Coordination in an organization is possible only when there are
clear objectives set in the organization.
7. Principle of Timing: It states that various organizational units and members shall synchronize
the timing of their work performance.
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Important Points
1. This Summary Sheet shall only be used for Quick Revision after you
have read the Complete Notes
2. For Building Concepts along with examples/concept checks you
should rely only on Complete Notes
3. It would be useful to go through this Summary sheet just before
the exam or before any Mock Test
4. Questions in the exam are concept based and reading only
summary sheets shall not be sufficient to answer all the questions
1 Management Processes
We have already discussed there are 5 functions of management given by KOONTZ and O’DONNEL
i.e. Planning, Organizing, Staffing, Directing and Controlling. Planning and Organizing have been
discussed in detail. In this chapter, we shall discuss about Directing, Staffing and Controlling
2 Staffing
Staffing is that part of the process of management which is concerned with acquiring, developing,
employing, appraising, remunerating and retaining people so that right type of people are available
at the right positions and at the right time in the organization
Importance of Staffing
1. Staffing helps in discovering and obtaining competent and personnel for various jobs.
2. It helps to improve the quantity and quality of the output by putting the right person on the
right job.
3. It helps to improve job satisfaction of employees.
4. It facilitates higher productive performance by developing competency through training and
development programs.
5. It facilitates growth and diversification of business.
2.1 Characteristics of Staffing
1. Staffing is an important managerial function- The operations of other four functions depend
upon the manpower which is available through staffing function.
2. Staffing is a pervasive activity- As staffing function is carried out by all mangers
3. Staffing is a continuous activity- Staffing function continues throughout the life of an
organization
2.2 Steps in Staffing
1. Manpower requirements- It involves forecasting and determining the future manpower
needs of the concern.
2. Recruitment- Once the requirements are notified, the concern invites and solicits
applications according to the invitations made to the desirable candidates.
3. Selection- This is the screening step of staffing in which the solicited applications are
screened out and suitable candidates are appointed as per the requirements.
4. Orientation and Placement- The appointed candidates are made familiar to the work units
and work environment through the orientation programs. Placement takes place by putting
right man on the right job
5. Training and Development- Workers are developed by providing them extra benefits of in-
depth knowledge of their functional areas. D
6. Remuneration- It is a kind of compensation provided monetarily to the employees for their
work performances. This is given according to the nature of job- skilled or unskilled, physical,
or mental, etc.
7. Performance Evaluation- Evaluating the performance of employee and working on weak
areas
8. Promotion and transfer-
We will discuss about Manpower Requirements, Recruitment and Selection in detail in the upcoming
part of this document. The rest of the steps – Orientation and Placement, Training and Development,
Remuneration, Performance Evaluation, Promotion and Transfer will be discussed in chapters on
HRD.
2.3 Manpower planning

Manpower Planning which is also called as Human Resource Planning consists of putting right
number of people, right kind of people at the right place, right time, doing the right things for which
they are suited for the achievement of goals of the organization. It is of two types
1. Strategic workforce planning: It usually covers a three to five-year forecast period, aligned
to business needs and outcomes.
2. Operational workforce planning usually covers the next 12–18 months and should align
with the timeframe of the business planning cycle.
Steps in Manpower Planning
1. Analyzing the current manpower inventory-Before a manager makes forecast of future, the
current manpower status must be analyzed.
2. Making future manpower forecasts- Forecasts needs to be done with respect future
requirement of manpower for new projects, in new skills etc.
3. Developing employment programs- Once the current inventory is compared with future
forecasts, the employment programs can be framed and developed accordingly, which will
include recruitment, selection procedures and placement plans.
4. Design training programs- Training programs depend upon the extent of improvement in
technology and advancement to take place.
2.4 Recruitment
Recruitment (hiring) is a core function of human resource management. Recruitment is just about
attracting talent i.e. identification of sources from where the personnel can be employed and
motivating them to offer themselves for employment
Sources of Recruitment
1. Internal sources –Under this policy, if there is any vacancy then the persons already working
in the organization are appointed to fill it by doing their transfers or promotions
.
2. External sources or recruitment from outside – Most of the concerns must look for the
external sources for recruitment the required number of employees with the requisite
qualifications.
The external sources of recruitment include.

I. Direct Recruitment –For that organization may receive direct applications from the
candidate through emails or submitted on website
II. Recruitment through the jobbers or Intermediaries or Placement agencies– In many
cases the companies take help from external agencies for recruitment to save time
III. Recruitment at the factory gate (Direct Recruitment) – Under this system, large
numbers of unemployed workers assemble at the factory gate for employment. The
factory manager, or labor superintendent or some other official may select the
necessary workers.
IV. Recruitment through advertisement –The vacancies are advertised in the popular
daily newspapers and applications are invited from the persons having required
qualifications.
V. Recruitment through the recommendation of the existing employees
VI. Campus Recruitment from colleges or universities or educational institutions
VII. Recruitment through employment exchange
VIII. Social Recruiting: Social recruiting is the use of social media for recruiting including
sites like Facebook and Twitter
IX. Job Fairs: In a job fair, various academic institutions located in large city jointly
organize recruitment program. In this program, candidates of different institutes,
even from non-organizing institutes, come by paying the prescribed fee. Organizations
visit the fair by invitation.
X. Casual Callers: Casual callers or unsolicited candidates are those applicants who offer
themselves for employment in an organization to fill vacancies which will arise in
future. The organization may consider them for employment in case of vacancy
2.5 Selection
The Selection is a process of picking the right candidate with prerequisite qualifications and
capabilities to fill the jobs in the organization. Steps in selection process are given below
1. Preliminary Interviews- It is used to eliminate those candidates who do not meet the minimum
eligibility criteria laid down by the organization.
2. Receiving Applications: Once the individual qualifies the preliminary interview, he is required
to fill in the application form in the prescribed format. This information helps the interviewer
to get the fair idea about the candidate and formulate questions to get more information about
him
3. Screening Applications: Once the applications are received, these are screened by the
screening committee, who then prepare a list of those applicants whom they find suitable for
the Job.
4. Employment Tests: To check the mental ability and skill set of an individual, several tests are
conducted. Such as intelligence tests, aptitude tests, interest tests, psychological tests,
personality tests, etc.
I. Intelligence Tests: These are tests to measure one ‘s intellect or qualities of
understanding. The intelligence is measured as Intelligent Quotient which is calculated as
follows
II. Aptitude Tests: Aptitude refers to one ‘s natural propensity or talent or ability to acquire
a particular skill. It could relate to mechanical dexterity, clerical, linguistic, musical,
academic etc. However, aptitude tests do not measure motivation
III. Interest test: It is used to discover the area of interest for a person. It is assumed that
person interested in a particular type of Job can do much better than the person who is
not interested.
IV. Achievement Tests (Performance Test or Trade Test): These are proficiency tests to
measure one ‘s skill, accomplishment or acquired knowledge. For example, typing test
may be conducted to check the speed, efficiency, and accuracy of the typist.
V. Personality Test: Personality test is administered to predict performance success for jobs
that require dealing with people, or jobs that are essentially supervisory or management
in character.
VI. PIP Tests: PIP tests are those which seek to measure one ‘s personality, interest and
preferences.
VII. Projective Tests: These tests expect the candidates to interpret problems or situations.
Responses to stimuli will be based on the individual ‘s values, beliefs and motives.
Thematic Apperception Test and Rorschach Ink Blot Test are examples of projective
tests.
In Thematic Apperception Test a photograph is shown to, the candidate who is then
asked to interpret it. The test administrator will draw inferences about the candidate ‘s
values, beliefs and motives from an analysis of such interpretation
The Rorschach test is a psychological test in which subjects' perceptions of inkblots are
recorded and then analyzed using psychological interpretation
3. Employment Interview. Here, the interviewer asks questions from the applicant to discover
more about him and to give him the accurate picture of the kind of a job he is required to
perform.
4. Checking References: The firms usually ask for the references from the candidate to cross
check the authenticity of the information provided by him.
5. Medical Examination: Here the physical and mental fitness of the candidate are checked to
ensure that he can perform the job.
6. Final Selection: Based on above steps the candidate is selected for the job.
7. Approval by Authority: The approval is sought from such authority for the appointment of
candidate
8. Employment Contract: Finally, the contract of offer letter is signed
2.5.1 Precautions in Using Selection Tests
Certain precautions need to be taken while administering these tests
1. Test Must be valid: Test validity is the extent to which a test accurately measures what
it is supposed to measure.
2. Test must be reliable: The reliability of test is the consistency with which it yields the
same across throughout the series of measurements.
2.5.2 Difference between Recruitment and Selection

1. While the recruitment refers to the process of attracting good applicants for jobs, selection
identifies the most suitable amongst the applicants.
2. In the recruitment process, the effort is to attract the candidates as many as possible and it
is regarded as a positive process. But selection is a negative process as it involves rejection of
many candidates.
3. Recruitment helps the manager to attract good candidates, the selection leads to making the
right choice
3. Directing
Directing and leading comprise the managerial functions of guiding, overseeing, motivating, and
leading people. Directing is also known as activating sometimes. This function is the executing
function of management. Directing mainly deals with following Elements
1. Effective Communication
2. Supervision
3. Motivation
4. Leadership of Employee
For Communication, Motivation and Leadership please refer the respective units from the syllabus.
In these units these aspects are described in detail. Overview of Supervision is given later in this
document.
Importance of Directing
1. Initiates Action: Directing or Direction function is said to be the heart of management of

process and therefore, is the central point around which accomplishment of goals take place.
A few philosophers call Direction as “Life spark of an enterprise”.
2. It Integrates Efforts - It is through direction the efforts of every department can be related
and integrated with others.
3. Means of Motivation - Direction function helps in achievement of goals. A manager makes
use of the element of motivation here to improve the performances of subordinates
4. Coping up with the changes - It is a human behavior that human beings show resistance to
change. It is directing function which is of use to meet with changes in environment, both
internal as external. Effective communication helps in coping up with the changes
3.1 Nature of Directing

1. It is performed by all levels of management.
2. It is continuous process. If there is work, there is direction required
3. Involves Human Factor
4. Delicate Function - Direction is supposed to be a function dealing with human beings. Human
behavior is unpredictable and therefore, it is termed as having delicacy in it to tackle human
behavior
3.2 Principles of Directing

The principles of directing can be divided into 2 types (i) Principles related to purpose of
directing and (ii) Principles related to directing process
3.2.1 Principles related to Purpose of Directing

1. Principal of Maximum Individual Contribution: Management should adopt that directing
technique which enables subordinates to contribute maximum
2. Principle of Harmony of objectives: - Directing is regarded as essential in personnel management
and directing should help all the members to satisfy their personal goals as well as organizational
goals.
3. Principle of efficiency: The executive should try to motivate sub-ordinates to increase
performance & attain objectives at minimum cost; otherwise direction will be ineffective.
3.2.2 Principles related to Directing Process
1. Principle of unity of command: Command must be come from only one executive or one
superior.
2. Principle of direct supervision: -Direct supervision and advice by the executive will boost the
Morale of the workers. This makes the atmosphere trustworthy in the organization.
3. Principle of communication: - A good system of communication between executives & sub-
ordinates ensures the success.
4. Principle of leadership: Good leadership will lead to cooperation, Co-ordination & confidence in
the working force
5. Principle of Follow Through: Mere giving orders is not sufficient, but management should find
out what difficulties’ subordinates are facing and should help the,
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6. Principle of Comprehension: This principle states that subordinate should know what they must
do, how to do and when to do in a comprehensive manner.
7. Principle of use of Informal Organization: Management should try to understand, spot, and
make use of such informal organizations for making directing more effective
8. Principle of Appropriateness of directing technique: One can use various techniques while
directing such as authoritarian, consultative, and free reign. Manager should use directing
technique as per the demand of the situation.
3.3 Supervision
Supervision means supervising the work of subordinates whether they are doing right things and
in a correct way. Sometimes, directing is confused with supervising. But there is difference
between the two. Supervision has limited scope of overseeing and guiding the workers whereas
Directing has a wider scope which includes motivating and leading employees and engaging in
effective communication with them
A supervisor performs many functions
1. As a Planner - A supervisor must plan the daily work schedules in the factory. At the same
time, he must divide the work to various workers according to their abilities.
2. As a Manager - It is righty said that a supervisor is a part of the management team of an
enterprise. He is, in fact, an operative manager.
3. As a Guide and Leader - A factory supervisor leads the workers by guiding them the way of
performing their daily tasks. In fact, he plays a role of an inspired by telling them.
4. As a Mediator - A Supervisor is called a linking pin between management and workers. He is
the spokesperson of management as well as worker.
5. As an Inspector - An important role of supervisor is to enforce discipline in the factory.
6. As a Counselor - A supervisor plays the role of a counselor to the worker’s problem.
3.4 Directing and Human Behavior

Directing involves dealing with human beings. Human beings differ in various ways. Different
models have been developed to predict human behavior in each situation. There are 4 main
models of man: rational man, social man, self-actualization man and complex man.
3.4.1 Rational Man

Rational man model is based on the premise that an individual tries to match his effort and
reward (financial incentives) which he is likely to get for putting the effort. This model assumes
that individual is motivated by the financial incentives and he is willing to do things which
maximize economic returns. This model is also known as economic man model
3.4.2 Social Man

Social man model is based on the understanding that man as a part of society seeks satisfaction
of his social needs which are in the form of maintaining social relationships. Man is motivated
is more responsive to group pressure rather than control by organization. He will obey superior
orders if they are in conformity with social needs.
3.4.3 Self-Actualization Man

It is based on principle that people have lot of potential which may be used to achieve
something unique. Self-Actualization is the ultimate need of an individual and he makes efforts
to satisfy this needs. He is primarily self-motivated and self-controlled. Management should
give him freedom to work and provide challenging jobs
3.4.4 Complex Man

This model suggests that rational, social, and self-actualizing models of man are simplistic
assumptions of people as they believe that person will behave in a certain manner. According
to this model, human behaviour is quite complex, and it is not easy to predict human behaviour.
As per this model, individuals have diverse type of needs. They differ in terms of intelligence,
personality, attitudes, values, and emotions affecting their behaviour. Therefore, individual
adopt different ways to satisfy the same need
4 Controlling
Controlling is the process of evaluating actual performance and, if necessary, taking
corrective actions so that the performance is in accordance with planned performance.
Controlling has the following features:
1. Controlling is both backward looking as well as forward looking. It is backward looking

because control action is based on the past performance. It is forward looking because one can
control future happenings and not the past.
2. Controlling is relevant at all management levels and is a continuous process
4.1 Relationship between Planning and Controlling

There is reciprocal relationship between planning and controlling.
Planning as the Basis for Controlling: Planning is the basis for controlling. Planning decides
what is to be achieved; controlling measures whether this has been achieved or not.
Controlling as the Feedback for Planning: Controlling provides feedback to planning by

measuring actual results and comparing these with standards. If there is a deviation between
the two, this feedback alerts the planning process and actions are taken based on that.
4.2 Four Steps in Controlling
1. Set Standards: These standards are based on the plans established to initiate the work
2. Measure Performance: Record must be kept of work as it progresses so that performance
can be compared to the applicable standard.
3. Compare Performance: The results accomplished must be evaluated in terms of the
standards by which work is being judged. Interpretation involves not only comparison of
actual against standard but also identification of discrepancies and analysis of why these
variances have occurred. When actual performance is compared with standard performance
and deviation is analyzed then concept of critical point control shall be applied. Application
of critical point control implies that control shall be exercised on critical points only. Critical
points are those points in an organizations performance results which affect a major part of
the organization.
4. Take Corrective Action: When variations from plan occur, it is necessary to bring the work
going on back to the desired course.
4.3 Characteristics of Control

1. Control is a continuous process
2. Control is a management process
3. Control is embedded in each level of organizational hierarchy
4. Control is forward looking
5. Control is linked with planning
6. Control is a tool for achieving organizational activities
7. Control is an end process
8. Control compares actual performance with planned performance*
9. Control point out the error in the execution process
10. Control helps in minimizing cost
11. Control helps in achieving standard
12. Control saves the time
13. Control helps management for monitoring performance
4.4 Elements of Control
The four basic elements in a control system:

1. The first element is the characteristic or condition of the operating system which is to be
measured.
2. The second element of control, the sensor, is a means for measuring the characteristic or
condition.
3. The third element of control, the comparator, determines the need for correction by
comparing what is occurring with what has been planned. Some deviation from the plan is
usual and expected, but when variations are beyond those considered acceptable,
corrective action is required.
4. The fourth element of control, the activator, is the corrective action taken to return the
system to its expected output. In School it would be change in teaching methodologies
4.5 Types of Control
4.5.1 Strategic and Operational Control

Strategic control is concerned with tracking strategy as it is being implemented, detecting
problems or changes in underlying premises, and making necessary adjustments.
Operational control is concerned with action or performance and is aimed at evaluating the
performance of the organization as a whole or its different components-strategic business
units, divisions, and departments.
Difference between Strategic Control and Operational Control
Basis Strategic Control Operational Control

Basis Question Is the Organization moving in right Is the Organization
direction performing well
Aim Continuous questioning about basis Questioning about allocation
direction of strategy and utilization of
Organizational resources
Focus External Environment Internal Environment
Time Horizon Long-Term Short-Term
Exercise of Control By Top Management By all levels of Management
Main Techniques Environmental Scanning Budgets and other
techniques
4.5.2 Forward, Concurrent or Feedback Controls
• Feedforward controls: Feed forward control monitors inputs into a process to

determine whether the inputs are as planned. If inputs are not as planned, corrective
action is taken to adjust the inputs according to the plan.
• Concurrent controls monitor ongoing employee activity to ensure consistency with
quality standards. These controls rely on performance standards, rules, and regulations
for guiding employee tasks and behaviors. Their purpose is to ensure that work activities
produce the desired results.
• Feedback controls involve reviewing information to determine whether performance

meets established standards. If any deviation is found between performance
standards and actual performance, the corrective action is undertaken. In business
organizations, top management control is mostly based on feedback.
4.5.3 Open- and closed-loop control

Suppose there is street Lightening System which makes the lights on every day at 7 in the
evening. If the lights should be needed on a dark, stormy day during daytime itself then the
timing device would not recognize this need and therefore would not activate the lights. So,
someone must manually switch on the lights. This is an example of Open loop Control
If control is exercised because of the operation rather than because of outside or

predetermined arrangements, it is a closed-loop system. The home thermostat is the classic
example of a control device in a closed-loop system. When the room temperature drops below
the desired point, the control mechanism closes the circuit to start the furnace and the
temperature rises
4.5.4 Human and Machine Control

The elements of control are easy to identify in machine systems. For example, the characteristic
to be controlled might be some variable like speed or temperature, and the sensing device
could be a speedometer or a thermometer. In automatic machine systems, inputs of
information are used in a process of continual adjustment to achieve output specifications.
When even a small variation from the standard occurs, the correction process begins.
In human control systems, the relationship between objectives and associated characteristics
is often vague; the measurement of the characteristic may be extremely subjective; the
expected standard is difficult to define; and the amount of new inputs required is impossible
to quantify
4.5.5 What is Cybernetic Control?

Cybernetics, control theory as it is applied to complex systems. This is a type of automatic
control.
The above figure shows Cybernetic robotic hand used for automated manufacturing. So, in way
closed loop control or machine controls are kind of cybernetic controls
4.6 Control Areas

Though control is required in all the areas, but certain areas are more critical. Holden, Fish and
Smith have given 13 key areas which are important. These are
1. Control Over Policies

2. Control over organization structure
3. Control over personnel
4. Control over wages and Salaries
5. Control over costs
6. Control over methods and Manpower
7. Control over capital expenditure
8. Control over service departments
9. Control over line of products
10. Control over research and development
11. Control over foreign operations
12. Control over External relations
13. Overall control through budgeting of operations
4.7 Management by Exception

Concentrating on exceptional deviations from planned performance allows higher level
managers to detect those areas where their attention is required and should be given. This is
done through Management by Exception which focuses exclusively on critical problems to
control them. Management by exception is a system of identification and communication of
that signals to a higher-level manager when his attention is needed.
Management by exception has six basic ingredients: measurement, projection, selection,

observation, comparison, and decision making
4.8 Information Systems

"An information system can be any organized combination of people, hardware, software,
communication network, and data resources that collects, transforms, and disseminates
information in an organization."
4.8.1 Role of Information Systems in Controlling
Every manager in the organization must have adequate information about his performance,
standards, and how he is contributing to the achievement of organizational objectives. In the
light of this phenomenon, role of information systems in controlling is as follows:
1. Management Control: Management control is applicable to higher management levels.

It refers to the task of ensuring that activities are producing the desired results.
Information is supposed to act as guide to management control because control action
is guided by adequate information from the beginning to the end.
2. Operational Control: Operational control is concerned with action completed or

performance achieved and evaluates the performance at the operating level.
Operational control is exercised at two levels of an action-post-action control and
steering control. In post-action control, performance is measured after the action is
completed and corrective actions are taken for the next cycle of the similar action. In
steering control, corrective actions are taken during the process of completing the
action itself. Information systems provide information for exercising both these types
of control.
3. Decision Making Regarding Corrective Actions: Decision making is a process to arrive

at a decision; the process by which an individual or organization selects one position or
action from several alternatives. Information systems provide relevant information to
analyze the causes for deviation and the type of action to be taken.
4.8.2 Types of Information Systems

1. Transaction Processing Systems: Transaction processing system is applied for conversion,
manipulation, and analysis of raw data into a form that is more meaningful to users.
Transaction processing systems' main tasks are data gathering data manipulation, data
classification, data storing, calculation, and summarization.
2. Management Information Systems: Management information systems (MIS) provide
information in the form of reports and displays to managers and other professionals in the
organization. Management information systems provide information in structured form for
making structured and semi-structured decisions at the operating level. Management
information systems put emphasis on internal data.
3. Decision Support Systems: Decision support systems (DSS) are information system
applications that assist in decision making. These combine data, sophisticated analytical
models, and user-friendly software to make semi-structured and unstructured decisions.
The basic use of decision support systems is in the areas of planning, analyzing alternatives,
and search for solutions.
4. Executive Information Systems: Executive information systems (EIS) are information
systems at the strategic management level of an organization designed to address
unstructured decision making. They provide information to top-level managers in
interactive format through their access to critical success factors of an organization. The
use of EIS is primarily in the areas of strategic planning and strategic control.
5. Expert Systems: Expert systems are knowledge intensive computer programs that use
artificial intelligence.
Managers at different hierarchical levels require different types of information systems.
4.9 Control Techniques
4.10 Control Techniques at Operational Level
Operations of an organization are concerned with converting inputs (materials, energy, etc.)
into outputs (goods and services) as efficiently as possible to optimize profit of an organization.
Responsibility for exercising control on operations lies with operations management.
4.10.1 Budgetary Control

The features of budgetary control can be identified as follows:
1. Budgetary control establishes a plan or target of performance which becomes the basis
of measuring progression of activities in the organization.
2. It tries to measure the outcomes of activities in quantified terms so that actual
performance can be compared with budgeted performance.
3. It tries to focus attention of the management on deviation between what is planned
and what is being achieved so that necessary actions are taken to correct the situation
and to achieve the objectives of the activities.
Types of Budgets
1. Master and Functional Budgets: A master budget is prepared for the entire organization
incorporating the budget of different functions whereas functional budget is prepared for a
single functional unit like production marketing etc.
2. Capital and Revenue Budget: Capital and revenue budget correspond to capital and revenue
expenditure, respectively. Capital expenditure is regarding creation of assets such as buying
a land, constructing factory, buying a machine etc. Revenue expenditure on the other hand
is about carrying out day to day expenditures such as paying salaries, paying rent,
maintenance of machines etc
3. Long term and Short-Term Budgets: The budget which is prepared for a year or so is called
a short-term budget. The budget which is prepared for a longer period than a year is called
a long-term budget.
4. Fixed and Flexible Budgets: Hey journey organizations prepare budgets which pertain to
only certain projected fix volume of operations for a year or so, such budgets are known as
fixed or static budgets. A budget which is designed to change in accordance with the
activities of the organization is known as flexible budget. It considers several levels of
activity.
Zero Based Budgeting

The problem with budgeting is that budgets are prepared taking previous year numbers as
base. But in constantly changing world, the activities/factors which were important last year
may not be important currently. This can be solved by using zero based budgeting. In zero
based budgeting the budgets are prepared from scratch without taking data of the past years.
4.10.2 Control through Costing
Control through costing involves the control over costs in the light of certain pre-determined
costs usually known as standard costs. Standard costs are pre-determined operation costs
computed to reflect quantities, prices, and level of operations. Thus, standard costing is a
method of cost accounting in which standard costs are used in recording certain transactions
and the actual costs are compared with the standard costs to find out the amount and reasons
of variations from the standard.
4.10.3 Break Even Analysis

Break-even analysis (an especially important Control Technique) is basically concerned with the
cost-volume-profit relationships. Break-even analysis is made mathematically by applying the
formulae to trace the break-even point, contribution, margin of safety, and profit volume ratio,
or graphically by break-even chart concerning the profitability of the organization.
Mathematically, relationships can be expressed as follows:
Break-even point = Fixed costs/Contribution per unit
Contribution = Sale price per unit - Variable costs per unit
Margin of safety = Total sale proceeds - Sales at B.E.P.
Profit = Sales - Total costs (fixed + variable)
Or =Total contributions - fixed costs
Graphically, relationships can be shown by break-even chart as shown in Figure:
• This is a simple break-even chart showing a single product for the organization.
• The chart shows the level of cost and revenue for each level of sales and indicates that
at 2,500 units, the organization would break even implying that there is neither profit
nor loss.
4.10.4 Responsibility Accounting
The use of responsibility accounting (a control technique) focuses attention on management by
objectives rather than management by domination. Each person is responsible for his area of
operation, and for effective control, he must know what his costs should be and what his costs
have been. A responsibility center is an organizational unit such as division, department, or
section, headed by a responsible person whose responsibility is fixed in respect of results of
that organizational unit. There are three types of responsibility centers: cost centers, profit
centers, and investment centers.
1. In the cost centers, the control-system measures only the costs incurred by
responsibility centers; no attempt is made to measure the value of their outputs.
2. In profit centers, the targets are fixed in terms of profit which is measured by the
amount of input and output.
3. In the investment centers, managers are held responsible for the effective use of assets
as well as for revenue and cost.
In the conventional accounting, the product costing accumulates the cost to ascertain cost of
production, the responsibility accounting emphasizes cost control based on "who is
responsible for costs."
4.10.5 Internal Audit

Internal audit, also called operational audit, is an effective tool of managerial control. Internal
audit is carried out by managers themselves or by special staff appointed for this purpose. In
addition to ensuring that accounts reflect the facts, internal audit, also appraises policies,
procedures, use of authority, quality of management, effectiveness of methods, special
problems, and other phases of operations.
4.10.6 Quality Control

From operational point of view, quality means focussing on the production of increasingly
better products at progressively more competitive prices
Techniques for Quality Control
The first phase of quality control is carried out by statistical quality control while the second
phase is done through inspection control.
A. Statistical Quality Control: Statistical quality control (SQC), also known as statistical process
control (SPC), is a method of measuring and continuously improving work process before
the final inspection of the product. Therefore, it is preventive as well as remedial. In using
SQC, two considerations are important: setting tolerance limit of acceptable quality and
measuring the product quality.
1. Tolerance Limit: Tolerance limit is the variation in quality from the standard
specifications which can be acceptable. For example, a machine is manufacturing
ball bearings of 3.00 centimeters. There is a possibility that some of the bearings are
oversized and some are undersized. The management must decide the extent to
which these oversized or undersized bearings would be accepted. The management
may accept bearings between 3.10 or 2.90 centimeters.
2. Measurement of Quality: Measurement of quality is undertaken during the
operation itself so that if the machine starts producing items beyond the tolerance
limit is stopped immediately to avoid further losses. Thus, in the above case, if
bearing size goes beyond 3.05 or comes below 2.95 centimeters, the machine is
stopped to find out the fault in machine operations.
B. Inspection Control: n the inspection control, quality control in charge seeks to determine
the acceptability of parts or products. This may be done either for the raw materials which
are used in production process or which are in the form of finished products resulting from
the completion of production process. Inspection is made by comparing the quality of the
product to the standard, commonly known as specification, by means of a visual or testing
examination.
4.10.7 Quality Control through Quality Circle

Quality circle is a group of employees that meets regularly to solve problems affecting its
work area. This group carries on control and improvement within the workplace utilizing
quality control techniques with all the members participating. Generally, a QC consists of six to
twelve members from the same work area. QC generally recommends solutions for quality
and productivity problems which may be implemented by management.
QC ensures harmony in the organization, effective teamwork, problem-solving capacity, self-

discipline, better interpersonal and group relations, better communication, participation, job
satisfaction, and finally productivity and consequently organizational effectiveness.
4.10.8 Inventory Control

Inventory consists of raw materials, work-in-progress (semi-finished goods), and finished
goods. Inventory control tries to specify the optimum level of inventory that an organization
should keep. If we keep inventory too high, then it means we are doing high level of
investments in inventory which are not required. We would also be required to spend money
in storing that. On the other hand, if we keep inventory too low, it means we are taking a risk
of stock out
In 1970s, Japanese introduced the concept of just-in-time (JIT) inventory system, known as
Kanban in Japanese language. The basic theme of this system is to have no inventory. Raw
materials are bought more frequently and in small quantity to be used just-in-time, and finished
products are produced and delivered just-in-time to be sold.
Generally, for inventory control, two techniques are applied: ABC analysis and economic order
quantity (EOQ). Both these techniques have different perspectives for inventory control.
a) ABC Analysis:
• ABC analysis is a widely used technique for classifying different items.
• This technique uses the values of different types of inventory for their classification.
• Group A consists of those items which have high value though their number may be
low.
• Group C items have extremely low value, but their number may be more.
• Group B items fall in between with average value and number.
Based on the study of inventory management systems in several companies, Arthur Synder
(Inventory Management Expert) has arrived on the conclusion that the composition of ABC
items in total inventory is roughly as shown in below Table:
• According to ABC analysis, maximum attention should be paid to group A items as these
are critical in terms of value followed by B and C groups.
• Thus, ABC analysis provides clue where attention should be focused in inventory
control.
b) Economic Order Quantity (EOQ):

Economic order quantity (EOQ) indicates the size of order that will result in the lowest total of
order cost and inventory carrying cost for an item of inventory. To estimate EOQ, two types of
costs are calculated: order cost and inventory carrying cost.
1. Order Cost: Order cost includes various items on which an organization must incur cost or
procuring raw materials. These include various types of administrative costs such as
• stock taking, order writing, agents' visit, business journeys, reminders, etc.
• consignment processing such as received notes, checking, recording, etc.
• invoice processing such as checking, approval, book entries, etc.
• and payment procedure such as cheque/draft preparation, mailing, etc.
Each time a purchase order is given, these costs are involved. Thus, this suggests that it is
preferable to purchase in bulk. However, inventory carrying cost must be calculated because if
you buy in bulk then you would have to store them which would mean storage cost for you
2. Inventory Carrying Cost: Inventory carrying cost involves interest on the money locked in
inventory, cost of storage, cost of insurance for stock, and cost of material loss due to spoilage,
quality deterioration, obsolescence, etc. All these costs must be calculated in terms of per unit
of materials.
After identifying ordering cost and inventory carrying cost, economic order quantity is
calculated by using the following formula:
√2𝑆𝑂
EOQ =
𝐶
where S = Total quantity of materials required

O = Ordering cost per order
C = Carrying cost per unit
The above formula can be explained by an example. Suppose that an organization has arrived
at the following figures:
Total quantity required per annum = 5,000 units
Ordering cost per order= Rs 100
Carrying cost per unit= Rs 1
√2∗5000∗100
EOQ for the organization will be as follows: =1,000 units
1
EOQ formula gives figure for ordering materials per order.
Safety Stock (and Inventory Control):

Another issue that is relevant in inventory control is the estimation of safety stock that an
organization should keep regularly to continue its operation uninterruptedly. This is required
to meet unforeseen situations which may interfere with the regularity of material supply.
• For example, sometimes, thermal power plants owned by Government must be shut
because of lack of timely supply of coal which becomes very costly affair.
4.10.9 TIME-EVENT NETWORK ANALYSIS
Time-event network analysis helps to know how the parts of a programme fit together during
the passage of time and occurrence of events.
There are three major techniques for this analysis: Gantt chart, milestone budgeting, and
PERT/CPM though PERT/CPM is the most popular. Let us discuss them one-by-one.
1. Gantt Chart:
Gantt chart has been developed by Henry Gantt in early twentieth century in the form of
bar chart bearing his name. Gantt recognized that total programme goals should be
regarded as a series of interrelated derivative plans that people could comprehend and
follow.
• Based on this recognition, he has identified the relationship among different
activities required to complete a programme.
• Based on this premise, Gantt chart was developed which has been presented in
below Figure:
• Gantt chart shows that two or more activities which have sequential relationship must
be completed in that order.
• However, the chart does not depict the relationship between one group of activities
with another group of activities.
• For example, it shows relationship among two activities in task A but does not show
relationship between task A and task B, or other tasks.
To overcome this problem, milestone budgeting and PERT/CPM network have been
developed.
2. Milestone Budgeting:
Milestone budgeting, also known as milepost budgeting, breaks a project into controllable
pieces and then follows them carefully. For applying milestone budgeting, a project is
broken into sub-projects a that can be completed individually in a time sequence to
complete the project within the stipulated time. The milestone budgeting is an
improvement over Gantt chart in the sense that it establishes relationships between two
or more segments of a project. However, such a relationship is not completely depicted in
milestone budgeting.
To overcome this problem, PERT/CPM has been developed.
4.10.10 PERT/CPM
PERT (Programme Evaluation and Review Technique) was developed by the special project
office of the US Navy in 1958. Almost at the same time, engineers at DuPont Company, USA,
also developed CPM (Critical Path Method)
Process of PERT/CPM:
A programme consists of a several activities and sub-activities. To complete the programme,
these activities and sub-activities should be completed in a proper sequence and in allotted
time. Since some of the activities can be taken simultaneously, a network is developed to show
the sequence, time taken, and time of start of activities. The whole process involved in the
preparation of PERT/CPM is as follows:
1. Identification of Activities. Activities represent jobs that should be performed to complete

a programme or project. Each activity takes some specific time under given conditions.
2. Sequential Arrangement of Activities. There is always a technological sequence in the

various activities of a project. Preceding and succeeding activities are arranged in a sequence.
3. Time Estimates of Activities. Performance of an activity takes time. To ensure that the
project is completed timely, there should be correct estimate of time taken by each activity.
However, the activities are performed in future and it may not be possible to forecast the
future happening correctly, consequently the correct time estimate of activities. To overcome
this problem, three-time estimates are taken:
(i) optimistic time showing the least time of an activity.

(ii) pessimistic time showing the maximum time of activity; and
(iii) most probable time which lies in between the two.
The expected time of an activity is calculated by o+4m+p/6;

where o=optimistic time, m = most probable time, p = pessimistic time
3. Network Construction. All activities of a programme are connected sequentially to form a

network known as PERT/CPM network. Rules for construction of PERT/CPM network are as
follows:
I. In the above figure, it is shown that to go from point 1 to 2, it takes 6 weeks
II. Then from point to we can parallelly start towards point 3 and 4 because these tasks are
not dependent
III. The critical path is the one which takes longest time shown in red above as time for the
path in red is 6+4+2+3+2+4 = 21 weeks
5. Critical Path. Based on analysis, critical activities are determined. These are represented by
a critical path which shows that if activities on this path are not completed in time, the entire
project will be delayed by the time the completion of an activity is delayed.
5 Role of Manager
Henry Mintzberg describes a set of ten roles that a manager fill. These roles fall into three
categories as shown below. Management roles depend upon formal authority and status of
organizational positions
1. Interpersonal: This role involves human interaction.

2. Informational: This role involves the sharing and analyzing of information.
3. Decisional: This role involves decision making.
Interpersonal Roles
Interpersonal roles of managers are concerned with his interaction with others, both within the
organization and outsiders. There are three types of interpersonal roles: figurehead, leader, and
liaison
1. Figurehead Role: It is role of manager which includes those activities which are of
ceremonious and symbolic nature. For example, greeting the visitors, attending social
functions involving employees, making speeches etc.
2. Leader Role: Leader role of manager involves leading his subordinates and motivating them
for willing and enthusiastic contribution.
3. Liaison role: It is a role of manager which serves as a connecting link between organization
outsiders and the organization itself or between his unit and other units of the organization.
Information Roles
Information roles of a manager include communication - giving and receiving information both
within and outside the organization. There are 3 types of information roles
1. Monitor Role: Monitor role of a manager is to constantly collect information about those
factors which affect his activities maybe within the organization and outside it. In addition to
this monitoring must be done throught meetings
2. Disseminator Role: Disseminator role of a manager involves sharing of information with the
subordinates who may otherwise not be able in a position to collect it
3. Spokers Person Role: In the role of spokesperson a manager represents his organization
while interacting with outsiders such as customers suppliers government and other agencies
of the society.
Decision Roles
Decisional roles of manager involve making decisions so as to choose the best alternative which can
help in achieving the organizational objectives. There are 4 decision roles:
1. Entrepreneur: In performing on this role, a manager assumes certain risk which is involved in
terms of outcomes of the action because these are affected by various external factors. He
initiates changes, authorizes actions, sets goals and formulate policies
2. Disturbance handler: As a disturbance handler a manager is required to contain those forces
and events which tend to disturb the organizational equilibrium and normal functioning. He
also handles conflicts and complaints with in the organization
3. Resource Allocator: As a resource allocator, a manager allocates organizational resources of
various types to different organizational units . He approves budgets, schedules and sets
priorties
4. Negotiator: As a negotiator , a manager negotiates and works out agreements with various
interest groups in the organization such as shareholders employees and outsiders
Reconciling Management Functions and Roles

The mapping between management functions and management roles can be reconciled as shown
below
6 Nudge Theory
Nudge theory is a flexible and modern concept for:
• Understanding of how people think, make decisions, and behave,

• Helping people improve their thinking and decisions,
• Managing change of all sorts, and
• Identifying and modifying existing unhelpful influences on people.
Nudge theory was named and popularized by the 2008 book, 'Nudge: Improving Decisions
About Health, Wealth, and Happiness', written by American academics Richard H Thaler and
Cass R Sunstein
6.1 What Nudge Theory is all about?

The meaning of nudge in English dictionary is “prod (someone) gently with one's elbow in
order to attract attention”, another meaning is “a light touch or push”.
Humans, being not-so-rational, often need encouragement or intervention — a nudge — to get

going and do what is best for the country or society at large. The ‘Nudge Theory’ recognizes
this behavioral trait. It says that people, rather than being forced, can be encouraged, and
influenced to pursue or desist from certain actions through nudges. Nudges are not
mandates. So, while there is encouragement, there is no compulsion to comply and people
have the freedom to choose other options.
The use of Nudge theory is based on indirect encouragement and enablement. It avoids direct
instruction or enforcement. Here are some simple examples to illustrate the difference
between traditional enforced change and 'Nudge' techniques:
As per Nudge theory, central to behaviour is decision-making from the choices available.
Nudge theory is mainly concerned with the design of choices, which influences the decisions
we make. Nudge theory operates by designing choices for people which encourage positive
helpful decisions; for the people choosing, and ideally for the wider interests of society and
environment, etc.
6.2 Types of Nudges

There are many techniques through which people can be nudged. The main 3 techniques are
discussed below
1. Defaults: A default option is the option an individual automatically receives if he or she

does nothing.
2. Social Proof: Refers to the tendency for individuals to look at the behavior of other people
to help guide their own behavior.
3. Increasing the Salience of Desired Option: When an individual's attention is drawn
towards a particular option, that option will become more salient to the individual, and he
or she will be more likely to choose that option. As an example, in snack shops at train
stations in the Netherlands, consumers purchased more fruit and healthy snack options
when they were relocated next to the cash register.
6.3 How Nudge Theory Relates to Other Theories

The roots of Nudge theory can be traced back to a wide variety of psychological models which
were introduced much earlier such as Maslow theory, Theory X and Theory Y, Transactional
Analysis etc.
For example, In Maslow theory, Maslow talks about nudging employees by giving them
opportunity to satisfy their need as go up the hierarchy of needs.
In terms of Douglas McGregor's Theory X and Theory Y:
• X-Theory equates to conventional enforcement, and

• Y-Theory equates to 'Nudge'.
6.4 How People Think and Decide

Nudge theory proposes that the designing of choices should be based on how people actually
think and decide (instinctively and rather irrationally), rather than how leaders and authorities
traditionally (and typically incorrectly) believe people think and decide (logically and rationally).
Thaler and Sunstein illustrated the contrast between (irrational 'dumb', common) human
behavior, and (rational 'smart', far less common) logical behavior, by presenting two
(notionally) different types of people, which they called 'human' and 'econ'. Humans are (what
we might consider) 'real' people, who make 'real' human decisions (or fail to decide) as they
are irrational. Econs are an imaginary type of people - imagined to exist (instead of real people)
by economists, politicians, academics, etc. Econs (are imagined) always to think logically and
rationally
A crucial aspect of Nudge theory is recognizing that 'econs' do not really exist in terms of broad
societal behavior, whereas 'humans' definitely do.
According to Thaler-Sunstein Nudge theory
• 'Humans' are characterized as thinking 'automatically'.

• 'Econs' are characterized as thinking 'reflectively'.
Thaler and Sunstein suggest that people use reflective decision-making very rarely, even for
especially important situations, such as in electoral voting, investing, major purchases, life
decisions, etc. The tendency of human decision-making being generally illogical, irrational,
weak, harmful, and often self-destructive is termed as heuristics. The word heuristics basically
means self-discovery, although in the context of Nudge theory, heuristics (which acts as a
plural or singular term) more broadly refers to the various internal references and
responses which people use in assessing things, developing views, and making decisions. By its
internal nature, heuristic thinking tends to be personal, emotional, subjective, and instinctive.
6.5 Heuristics
Following are some of the heuristics that can impact people’s decision and choices. If handles
in proper way, people can be encouraged to make good choices for themselves and society
1. Anchoring and Adjustment (comparison and guessing): an 'anchor' refers to a person's

perceived reference point in relation to a question for which the answer is not known
and is to be deduced.
2. Availability: Availability' in referring to visibility, or how commonly something is
perceived to arise in a general sense, which significantly influences people's assessment
of how likely it is to arise in a personal sense. For example, the visibility ('availability') of
homicides in the media is high as compared to that of suicides. This leads to the
incorrect belief among most people that homicides are more common than suicides,
when the opposite is true, by a considerable margin.
3. Optimism: People tend to under-estimate expenses/costs, timescales, complexity, and
difficulty of unfamiliar challenges. People tend to over-estimate rewards and the ease
of unfamiliar tasks. This tendency leads to complacency, inertia, extravagance, wastage,
delays, failures to make budgets and control spending, setting unreasonable goals and
expectations.
4. Status Quo Bias: People generally fear change, especially of uncertain nature. Inertia
(where people find it easier to do nothing rather than make a change) is a powerful
effect and has been used by leaders and communicators for generations.
5. Temptation: People tend to want short-term more than long-term reward, whether the
values are real or perceived. We see the 'temptation' heuristic being exploited to
extreme degrees in the operation of most gambling products/services.
There are many other heuristics apart from the ones listed above. But we need not go
through each and every point
6.6 Relevance of Nudge Theory

Nudge concept now offers vastly bigger implications and applications.
6.6.1 Government
Through Nudge, government can manage various problems. For example, in India the problem
of population increase can be handled through nudge in following ways
1. By giving incentives to family having two children such as subsidies in the school fee etc.
2. By running campaigns in which social media stars can be subtly shown having smaller
families and instead of having large number of children
6.6.2 Parenting
It can help parents modify the behavior of children through encouragement rather than
enforcement. For example, instead of enforcing the child to clean his/her room, the parents
can play games with the child to clean room. By doing this child will develop a behavior to keep
his room clean
6.6.3 Business
Leading companies are forerunners in applying nudge theory in corporate setting. These
companies are using nudges in various forms to increase productivity and happiness of
employees.
6.6.4 Healthcare
Lately, the nudge theory has also been used in different ways to make health care professionals
make more deliberate decisions in numerous areas. For example, nudging has been used as a
way to improve hand hygiene among health care workers to decrease the number of
healthcare associated infections.
6.6.5 Fundraising
The nudge theory can also be applied to fundraising. Nudge theory can help to increase donor
contributions, increase continuous donations from the same individual and help to entice new
donors to give. There are some simple strategies used when applying nudge theory to this area
1. The first strategy is to make giving easy.

2. The second strategy to increase donors is to make giving more enticing.
3. Another strategy helpful to increasing donors is using social influence.
6.6.6 Investments/Savings
For example, tax breaks under Section 80C are a nudge to encourage people to invest in
financial instruments such as the Public Provident Fund and equity-linked savings schemes, in
place of gold or property.
Mutual fund SIPs, by making regular investing the default option, are also a nudge to investors
to avoid panicking during market falls.
6.6.7 Introducing Change through Compliance and not Confrontation

Nudge theory seeks to minimize resistance and confrontation, which commonly arise from
more forceful 'directing' and autocratic methods of 'changing' people/behavior. The difference
between Enforced change and change through Nudge Techniques is highlighted below
Here is a simple table showing varying characterizations of, and differences between,
traditional 'directed' change and Nudge-oriented interventions, in terms of keywords and
tactical notions.
6.6.8 Leadership and Motivation
Nudge theory is truly relevant to leadership, motivation, and communication. A good leader is
one who facilitates the processes rather than enforcing them. Leader needs to increase
voluntary compliance and therefore nudge theory is very much relevant in context of
leadership.
In terms of motivation also, the rewards (nudges) should be in line with needs of the employee.
The needs are not constant and hence the nudges also need to be kept on changing
Other Areas
Apart from the above-mentioned area, Nudge theory can also be used in
1. Supervision and Team building
2. Self-development
3. Working with minorities, disabilities, and people with difficulties
4. Sports and Fitness Coaching
5. Counseling and Meditating
6. Marketing and Advertising
Closing Comments on Relevance of Nudge Theory
By offering insights into how humans think and act, the Nudge Theory can be used to drive
favorable behavior and avoid unfavorable ones, without resorting to drastic interventions such
as penal action or outright bans.
6.7 Criticism of Nudge Theory
1. Short term Behavioral Change: We need to move away from short-term, politically
motivated initiatives such as the 'nudging people' idea, which are not based on any good
evidence and do not help people make long-term behavior change
2. Psychological Manipulation: Nudging is also seen as euphemism for psychological
manipulation which is not ethical. Nudges diminish autonomy, threaten dignity, violate
liberties, or reduce welfare
3. Small nudges are not enough: There is school of thought that small nudges are not enough.
For example, some argue that higher fuel taxes yield a better result than small nudges
towards better environmental decisions
4. Problem with experiments: A further criticism is that interventions suggested by the results
from controlled lab experiments may not necessarily work as effectively in the real world.
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Important Points
Complete Notes
Complete Notes
3. It would be useful to go through this Summary sheet just before the exam or before
any Mock Test
4. Questions in the exam are concept based and reading only summary sheets shall not
be sufficient to answer all the questions
1 Concept of HRD
HRD is basically concerned with the development of human resources in the organization for
improving the existing capabilities and acquiring new capabilities for achievement of the
corporate and individual goals. HRD should help employees increasing their knowledge, skills,
and capabilities and create positive attitude towards work
Larson and Tubro was the first company in India to set up practices of HRD and T.V. Rao is
considered father of HRD in India
1.1 Evolution of HRD

Evolution of HRD took place in the following stages
1. Commodity Approach: Workers were treated as commodities and their wages were
dependent on demand and supply
2. Factor of Production Approach: Labor was treated as factor of production just like
materials and machinery. There was no emphasis on the welfare and development of
workers
3. Goodwill Approach: At this stage, some welfare measures like safety aids, lunchroom, rest
room were provided
4. Paternalistic Approach: Management adopted fatherly and protective attitude towards
employees.
5. Humanitarian Approach: This approach put emphasis on improving the productivity and
satisfying physical and social needs of the employees. Employees were treated as human
beings and not just another factor of production
6. Human Resource Approach: At this stage, the feeling was developed that human resources
are most important part of the organization. To achieve better productivity, effort should
be made to satisfy the needs of the employees
7. Emerging Concept: Employees are accepted as partners in the progress of a company. They
should have a feeling that the organization is their own.

1.2 Principles of HRD
1. Principle of Development of Organization wide capabilities: HRD function should take care
that there is development of capabilities of all employees and organization as a whole
2. Principle of Potential Maximization: HRD must enable the employees to identify their
hidden potential and realize their potential to the maximum
3. Principle of Autonomy: Employees must be given autonomy at work to discharge their
duties
4. Principle of Proper Delegation: There should be proper delegation of responsibility and
authority on the organization
5. Principle of Participative decision making: Everyone must participate in decision making
6. Principle of change management: HRD must develop competency to adapt in the changing
environment
7. Principle of Periodic Review: There should be periodic review of HRD functions like career
planning, training, and development etc. and necessary changes be made after the review
1.3 Difference between HRD and HRM
HRD and HRM are closely related. HRD is also basically one of the functions of HRM. In the
above figure all the functions (including functions of HRD) are part of HRM but specifically 4
functions listed below are part of HRD - Training and Development, Organization
Development, Career Development and Job Design
HRM is broad term which covers all aspects of the managing human resources such as human
resources acquisition, training and development of human resources, Performance appraisal
and compensation etc., whereas HRD is only concerned with development of human resources.

We will discuss components of HRD in detail. We might touch (not in detail) up on other parts
also which are part of HRM and not of HRD
1.4 Responsibility of HR People and Line People

There is often no clarity on what the exact responsibilities of HR people and Line authority
(Immediate bosses) are in developing the Human resources. The responsibility is shared. HRD
department designs and provides instruments for the use of line managers and it is
responsibility of line managers to make use of that in developing human resources under them
1.5 People Capability Maturity Model

PCMM assumes that people in organization moves through 5 levels known as maturity levels.
1.6 Human Reengineering

Human reengineering is basically a process through which a person who is already good at
something may become even better after redesigning himself through adjusting his values,
beliefs, behavior, and attitudes. It aims at changing the covert (not visible) behavior at
workplace. Organization should design its processes in such a way that it helps them adjust
their values and beliefs in line with the organization
1.7 Learning Culture and HRD

HRD should implement learning culture in the organization.
HRD must put emphasis on generative learning rather than adaptive learning. Adaptive
Learning is single loop learning in which errors are corrected against set norms whereas
Generative learning is double loop learning that allows and encourages people to constantly
question existing norms and belief

1.8 Competency Management and HRD
Competency Management is process that aims at enhancing the ability of individuals on
continuous basis and monitoring the same. It has following aspects
1. Competency Mapping: Competency Mapping is the process of identification of

competencies required to perform a particular job or role.
2. Competency Assessment: Assessment of extent to which individuals possess the
competencies required for performing the job successfully. Based on competency mapping
and assessment, competency gap of individual(s) is identified, and suitable development
programs are planned
3. Monitoring Competency Development Progress: It involves review whether individuals are
progressing satisfactorily or not
1.9 Knowledge Management and HRD

Now a day’s emphasis has been put on knowledge management so that any knowledge
created by any individual is organization is shared with all organizational members. The
organizations which practice knowledge management are called knowledge intensive
organizations. In Knowledge management there are three basic components
1. Knowledge Creation
2. Knowledge Sharing
3. Knowledge Utilization
1.10 HRD Development Process

What is often not given emphasis is the human aspect of non-performance at work. HRD
undertakes to develop this process which is following types
Let us discuss them one by one
1. Existential Process: It operates at individual level. In this process the beliefs and values of
individuals are modified in line with organizational changes
2. Coping Process: It operates at role level of individual. In this process clarity in role is given
and competencies for that role are acquired so that stress can be reduced
3. Emphatic Process: It operates at the interactive role of 2 more individuals. Under this
process communication and cooperation is aspect worked up on so that people become
emphatic towards others
4. Building Process: It is at group level. In this process group formation and how they operate
is worked up on as teamwork is important for success of any organization
5. Collaborative Process: It is at intergroup level so that different teams can work together,
and conflict can be avoided
6. Growth Process: It occurs at system level different departments work towards common
objective to achieve organizational goals
1.11 Goals of HRD

HRD aims at developing
1. The capabilities of each employees as individuals, in relation to his job and his expected role
in future
2. The superior-subordinate (dyadic) relationship
3. Collaboration among different units of an organization
4. The organization’s overall health and self-renewing capabilities
5. To humanize the work in an organization
6. Equal opportunities to all irrespective of cast, color, and creed
2 HRM Processes
We earlier discussed that there is difference between HRD and HRM. To specifically put HRD is
part of HRM. We shall discuss mainly 3 functions on HRM and one of them is HRD
We shall discuss Acquisition of Human Resources in this document

3 Human Resource Planning
HR planning is a process through which organization ensures that it has right kind and number
of people at right time, at right place who are capable of effectively and efficiently performing
functions that help it achieve its objectives.
3.1 Factors Impacting Human Resource Planning

1. Type of Organization: Nature of business impacts the HR planning as different requirement
are there for Manufacturing and Service Organizations.
2. Approach of Organization towards Planning: In reactive approach there is weak HR
planning whereas in proactive planning there is strong HR planning
3. Strategy of Organization: The strategy of business can be stability, growth or retrenchment
and different strategies for business will have different HR strategies
4. Level of Environmental Certainty: In highly uncertain level, HR planning needs to focus on
contingency HR plans otherwise only one HR plan may be sufficient
3.2 Human Resource Planning Process
1. In first step the Organizational objectives, Plans and policies are taken as input to HR
planning process.
2. In next step the forecast of demand of human resources is made and forecast of supply
is made. The gap between future needs and supply is identified. This gap may be in
terms of shortage or excess of human resources.
3. The actions are identified for bridging the gap. If there is excess, then firing or
employees or voluntary retirement etc. may be initiated whereas if there is shortage
then hiring of employees may be initiated
3.2.1 Techniques for Forecasting Demand Human Resources

In Step 2 of human resource planning we discussed that forecasting of demand human
resources to be made. Forecasting Resource Demand can be done using Qualitative
techniques or Quantitative techniques. We shall discuss them
3.2.1.1 Quantitative Techniques for Forecasting Demand Human Resources

1. Employment Trends: Employment trend in the organization for at least last five years to be
traced
to determine the future needs.
2. Replacement Needs: Organization must find out the replacement needs due to retirement,
death, resignation, termination etc.
3. Productivity Changes: The expected increase/decrease in productivity due to better training
of employees or more automated machines etc.
4. Rates of Absenteeism: The number of man-days that would be lost due to employees being
absent

5. Growth and Expansion: The growth and expansion plans of company might facilitate
number of people required with specific skills
6. Statistical and Mathematical Models: Famous Stastical models is Burack-Smith Model.
3.2.1.2 Qualitative Techniques for Forecasting Demand Human Resource

1. Managerial Judgement Method: In this forecasting is done based on experience of
managers.
2. Delphi Technique: The Delphi method is a forecasting process framework based on the
results of multiple rounds of questionnaires sent to a panel of experts. The experts can
adjust their answers in subsequent rounds, based on how they interpret the "group
response" that has been provided to them. The Delphi method seeks to reach the correct
response through consensus.
3. Work Study Technique or Workload Analysis: Suppose we need to make 100 units daily
and productivity of one employee is 10 units per day then we require 10 employees to
complete the work. Let us take one more illustration
4. Ratio-Trend Analysis: In this the ratios are worked for juniors is to seniors. Suppose we
require one manager for every 10 salesmen then the ratio would be 10:1.
3.2.2 Forecasting Supply of Human Resources

Forecasting of Supply of human resources is essential to know the gap between demand and
supply. There are 3 methods for this
1. Human Resource Flow Model: Human Resource Flow model helps us know the supply due
to inflows in different position through transfer and promotions and outflows through
Retirements, Resignations, Demotions, Promotions etc. A famous model used for this
technique is called Markovian Model or Markov Chain analysis
2. Human Resource Inventory/Human Resource Audit: Human Resource Inventory, lists down
the basic information on all the employees, like their education, experience, skills, age,
gender, salary related data, job preference and special achievements. It is a vital tool used
in HR planning and policy making. It is made at two levels managerial and non-managerial
level. At non-managerial level is called skills inventory. Human resource inventory is
prepared through Human resource Audit in which all the required information is collected
3. Replacement charts: Replacement chart indicated when the position will become vacant
and who is likely to fill that position.
3.2.3 Human Resource Utilization and Analysis
3.2.3.1 Human Resource Utilization

Before we take actions to bridge the gap between Demand and supply, Human Resource
Utilization needs to take place. It helps us know how we are utilizing our human resources. It
can be of 3 types
1. Underutilization: Abilities of Human resource are not utilized fully

2. Parity: Abilities of Human resource are utilized fully
3. Overutilization: Abilities of Human resource utilized more than required. In short term this
may seem beneficial but in longer term people will start burning out and efficiency will
decrease
3.2.3.2 Human Resource Analysis

Human Resource Analysis can further help in knowing the causes of resignations or stability of
employees in the organization which shall further help in the resource planning. The following
methods can be used in Human Resource Analysis
1. Labor Turnover Index: It is calculated using the formula given below
2. Labor Stability Index:
3. Length of Service Analysis: Longevity duration of service or employment. Often used to

indicate how long an employee has worked at a company or an individual has belonged to
an organization
3.2.4 Actions to Bridge the Gap
If there is shortage, then recruitment and selection can be done which we shall discuss later in
this document. If there is excess, then following steps can be taken
1. Voluntary Retirement Scheme can be given to employees. It is discussed in detail later

2. Layoffs: Temporary suspension of workers to reduce costs. It is discussed in detail later
3. Termination: Employees are permanently sacked
4. Forced Retirement or Iron Handshake: Employees may be asked to retire before time.
5. Leave without Pay: Some employees are sent on short leaves without pay.
6. Job-Freeze: Some of the Vacant positions are kept as it is, they are not filled for a particular
period
4 Job Analysis and Design and Job Evaluation
4.1 Introduction
In this section we shall discuss Job Design and Analysis which help us know about the Jobs. Let
us discuss few terms which we need to understand
1. Task: Distinct activity with a beginning and end. For example, sorting waste into solid
and liquid waste
2. Duties: Set of tasks such as collecting waste, sorting waste, and disposing the same
3. Job: Collection of aggregation of tasks, duties or responsibilities which is assigned to the
individual; Each job has a title such as salesman, foreman etc.
4. Responsibility: Obligation to carry out assigned job to the best of the ability
5. Position: Collection of tasks, duties, and responsibilities for the job. It is different from
Job as Sales is a Job but there can be 10 positions for salesman
6. Occupation: An occupation refers to a group of jobs that are similar to kind of work or
that possess common characteristics. For example, a nurse, a doctor, a chemist may be
associated with medical profession
4.2 Job Analysis
Job Analysis is a procedure, by which information is obtained about a job, i.e., it gives us
information about the skills, knowledge, abilities, and responsibilities required from the
worker for a successful performance of the Job. Job Analysis comes under qualitative
aspect
Job Analysis helps us in identifying two things

1. Nature of Job (Job Description)
2. Characteristics of People Employed to the Job (Job specifications)
Nature of the Job (Also known as Job Description)
1. Job Identification: Its title, including its code number. For Example -JOB2341:
Special Data Analyst. Here JOB2341 is the code number and Data Analyst is the title
2. Significant Characteristics of a Job: Its physical settings, hazards, and discomforts
3. Actual Work to be performed: What needs to be done in the job? Like job requires
person to analyze the financial data and find the gaps
4. Relationship with other Jobs, Materials, and equipment to be used, Job Location
etc.
Characteristics of people Employed the Job (Job Specification)
1. Skills Required for the Job: Like Analytical skills, proficiency in MS excel etc.
2. Personal attributes required to do the job e.g. education, physical strength etc.
4.2.1 Purpose of Job Analysis

The main purposes of conducting a job analysis process is to use this particular information to
create a right fit between job and employee, to assess the performance of an employee, to
determine the worth of a particular task and to analyze training and development needs of an
employee delivering that specific job
4.2.2 Process of Job Analysis

The job analysis at organizational level must follow a process as follows
1. Organizational Job Analysis: It is critical to know what the performance level organization is
looking forward from the job holder and the contribution of the job in the goal attainment
of organization.
2. Selecting Representative Jobs: It is important to understand that analysis of jobs of
organization is bit time consuming and costly affair. Thus, only some sample jobs are
selected to carry out the detailed job analysis
3. Data Collection: The job analysis tools such as observation, interviews, and questionnaire
are used for the collection of data.
4. Preparing Job Description: Based on the collected data the HR team prepares job
description by defining the tasks, duties and responsibilities which are discharged for the
effective performance.
5. Preparing Job Specification: The job specification is prepared which consist of the personal
traits, skills, qualities, and qualification which are required to perform the job properly
There are 3 types of analyses
1. Job-Oriented: Analysis based on jobs describing tasks required for successful performance
2. Worker-Oriented: Analysis based on worker behavior as in what the worker does is called
worker -oriented analysis
3. Combined: Combination of job-oriented and worker oriented is called combined analysis
4.2.3 Job Analysis Method

1. Sending a questionnaire to the person doing the job.
2. Observing the employee doing the job and recording the analysis. This is appropriate
for employees which do manual jobs such as mechanic, weaver etc.
3. Conducting an interview with the person doing the Job: This is appropriate for Jobs
which are operative or managerial.
4. Log Records: The job incumbents are given a diary and asked to write a brief account of
their job activities they performed at the end of every day.
5. Critical Incidents: Under this method, the supervisor is asked to give instances of on-
the-job behaviors of people which he considers to be important.
6. Checklist: Under this method the worker is required to check the task that he performs
from a long list of possible task statements. However, to prepare the checklist, extensive
preliminary work is demanded in collecting appropriate task statements.
7. Position Analysis Questionnaire: It was developed by Purdue University. In this
questionnaire various job elements have been grouped into 6 categories (shown below)
and with each category there are relevant Job elements
Category Meaning
Information Where do Managers get information to do their Jobs
Input
Mental Process What planning, organizing and decision making is done
Work Output What physical activities, tools and machines are used?
Relationships What contact with people is maintained with and outside organization
Job Contract What is physical and social context in which job is performed
Other Job What are other Job activities, conditions or characteristics not covered by
Characteristics other categories
8. Management Position Questionnaire: There are 208 items divided into 13 categories as
listed below in the questionnaire. It is very time-consuming process
4.2.4 Job Description, Job Specification
Job Analysis is a primary tool to collect job-related data. The process results in collecting and
recording two data sets including job description and job specification
Difference between Job Description and Job Specification
4.2.5 Functional Job Analysis
Functional job analysis (FJA) is a method of job analysis that was developed by the Employment
and Training Administration of the United States Department of Labor. It assumes that each job
involves three broad worker functions: 1) data 2) people 3) things.
The level of difficulty in dealing with data, people and things is documented and arranged on a
scale as shown below. 0 level represents maximum difficulty and 7 the least difficulty. The job
having items higher on the scale will require more competency and vice-versa.
4.2.6 Role Analysis

Role analysis is replacing Job analysis these days. Role analysis is art of finding out what people
are expected to achieve when carrying out their work and competencies and skills they need
to meet their expectation
Difference between Job analysis and Role Analysis
1. Role analysis focusses on results to be achieved and not what the tasks are to be done
2. Job analysis is based on assumption that jobs are static and job description remains the
same whereas role analysis is based on assumption jobs are dynamic and the role profile
needs to handle the changes in a dynamic way
4.2.7 Competency Based Job Analysis
Competency-based job analysis means describing the job in terms of the measurable,
observable, behavioral competencies (Knowledge, skills and/or behaviors) that an employee
doing that job must exhibit to do the job well. Competency based job analysis believes that
Job is not just about duties and responsibilities as in case of traditional job analysis rather it is
defined in terms of competencies require
4.3 Job Design

Job design refers to the way tasks are combined to form a complete job or unit of work. In
simple words Job Design is about how organizations define and structure jobs
Job Design follows Job analysis. While Job analysis gives the description of the job, Job duties at
high level etc., the job design lays out the process of deciding on the contents of a job in terms
of its duties and responsibilities in depth, on the methods to be used in carrying out the job, in
terms of techniques, systems and procedures. It helps in
1. What tasks are required to be done or what tasks are part of the job?
2. How are the tasks performed?
3. What number of tasks are required to be done?
4. What is the sequence of performing these tasks?
The aim of a job design is to improve job satisfaction, to improve through-put, to improve
quality and to reduce employee problems (e.g., grievances, absenteeism).
Techniques of Job Design

There are 4 main aspects of Job Design
4.3.1 Job Simplification
Job simplification is a design method whereby jobs are divided into smaller components and
subsequently assigned to workers as whole jobs. Many fast food restaurants such
as McDonald's, Burger King and KFC use simplification because employees can learn tasks
rapidly.
On the negative side, job simplification results in workers experiencing boredom, frustration,
alienation, lack of motivation and low job satisfaction. This, in turn, leads to lower productivity
and increased cost.
4.3.2 Job Rotation

Job Rotation is a management approach where employees are shifted between two or more
assignments or jobs at regular intervals of time to expose them to all verticals of an
organization. Job rotation is a well-planned practice to reduce the boredom of doing same type
of job every day and explore the hidden potential of an employee.
4.3.3 Job Enrichment

Job enrichment adds new sources of job satisfaction by increasing the level of responsibility of
the employee in organization. Job enrichment is a way to motivate employees by giving them
increased responsibility and variety in their jobs. In Job Enrichment, this increase in
responsibility is often vertical. Vertical means that Employee is given the responsibility of
work earlier done by his superior.
Research studies on job enrichment found out decreased levels of absenteeism among the
employees, reduced employee turnover and a manifold increase in job satisfaction
4.3.4 Job Enlargement

Job enlargement is a job design technique wherein there is an increase in the number of tasks
associated with a certain job. In other words, it means increasing the scope of one’s duties and
responsibilities, but these new duties and responsibilities are the ones which earlier use to be
taken up by your peers and not your boss. It is also known as horizontal loading in that the
responsibilities increase at the same level and not vertically
Job Enlargement helps in increasing flexibility and reducing monotony of the job
Difference between Job Enrichment and Enlargement
1. Job enrichment means a vertical expansion in duties and responsibilities and span of control
whereas in job enlargement the expansion is horizontal in nature.
2. Need for skills: Job enrichment does not need acquisition of higher skills where is job
enrichment needs acquisition of higher skills
3. Nature: The difference between job enrichment and job enlargement is essentially of
quantity and quality. Whereas job enlargement means increasing the scope of job
quantitatively by adding up more tasks, job enrichment means improvement in the quality
of job such that employees are more satisfied and fulfilled.
4.3.5 Approaches to Job Design
Approach Founder Details

Name
Human Approach Theorists It was the outcome of Hawthorne studies which we have already
(Psychological who laid discussed in earlier chapters. According to this approach jobs should
Considerations) down gratify an individual’s need for recognition, respect, growth, and
Motivational responsibility. Employees should feel motivated. Job Enlargement
theories and Job Enrichment are two approaches adopted in this which we
have already discussed
Scientific FW Taylors Work, according to this approach should be scientifically analyzed
Management and fragmented into logical tasks. Due emphasis is then laid on
organizing the tasks in a logical sequence is followed for efficient
execution of the same
Job Hackman
Characteristics and Oldham This puts emphasis on the Job Satisfaction. They laid down five core
Approach dimensions that can be used to describe any job - skill variety, task
identity, task significance, autonomy, and feedback.
▪ Skill variety: The employees must be able to utilize all their

skills and develop new skills while dealing with a job.
▪ Task Identity: The extent to which an identifiable task or
piece or work is required to be done for completion of the
job.
▪ Task Significance: How important is the job to the other
people, what impact does it create on their lives?
▪ Autonomy: Does the job offer freedom and independence
to the individual performing the same.
▪ Feedback: Is feedback necessary for improving performance.
Socio Technical
Systems Socio-technical systems aims on jointly optimizing the operation of
Approach the social and technical system; the good or service would then be
efficiently produced, and psychological needs of the workers
fulfilled. Embedded in Socio-technical Systems are motivational
assumptions, such as intrinsic and extrinsic rewards
4.3.6 Job Redesign

Job Redesign is basically a process of ‘restructuring’ the elements of a job (like tasks,
duties, and responsibilities). It is usually done to the job more interesting, exciting,
encouraging, and inspiring for the employees. Some of the key steps are:
Benefits of Job Redesign

• Enhancing the Quality of Work-Life
• Increasing Organization’s and Employees’ Productivity
• Bringing the Sense of Belongingness in Employees
• Creating a Right Person-Job Fit
4.3.7 Recent Development in Job analysis and Job Design

With the ever-changing work environment, there are some recent developments in this area
1. Autonomous work teams: Many organizations constitute autonomous work teams to

achieve specific goals. Autonomous work team is also called self-directed team. It plans,
organize, influence, and control its own work situation with minimum intervention from top
management.
2. De-jobbed Environment: Dejobbing is the broadening of the responsibilities of the
company’s jobs and encouraging employees not to limit themselves to what is on their job
descriptions.
4.4 Job Evaluation

Every individual in company needs to be paid for the jobs done by him. The basis should be
1. Nature of the Job
2. Present worth of the Job
3. Effectiveness with which that Job is done
The first 2 factors are part Job evaluation and third one is part of Performance appraisal
Job evaluation is basically comparison of job with other jobs in the same organization or same
job in other organization. It helps in the rating of jobs in an organization. This is the process of
establishing the value or worth of jobs in a job hierarchy.
Job evaluation needs to be differentiated from job analysis. Job analysis is a systematic way of
gathering information about a job. Every job evaluation method requires at least some basic job
analysis to provide information about the jobs concerned. Thus, job evaluation begins with job
analysis and ends at that point where the worth of a job is ascertained.
Primary reason for Job evaluation is for developing equitable salary structure in which salary is
paid for a job as much as it deserves.
4.4.1 Process of Job Evaluation
• Gaining acceptance: Before undertaking job evaluation, top management must explain the
aims and uses of the programme to managers, emphasizing the benefits.
• Creating job evaluation committee: Often a job evaluation committee consisting of
experienced employees, union representatives and HR experts is created to set the ball
rolling.
• Finding the jobs to be evaluated: Certain key jobs in each department may be identified.
While picking up the jobs, care must be taken to ensure that they represent the type of
work performed.
• Job Analysis: Data is collected regarding the Job and using this data Job Description and
Job Specification is prepared.
• Selecting the method of evaluation: Selecting a method involves consideration of company
culture, and the capacity of the compensation and benefits function or job evaluation
committee. We shall discuss the methods later
• Job Rating: Using the elected method of job evaluation a relative score is assigned to the
Job
• Money Allocation: Assigning a money rate of pay to each job according to its worth
• Job Classification: Grading Jobs according to scale of pay
4.4.2 Methods of Job Evaluation
1. Ranking Method: Perhaps the simplest method of job evaluation is the ranking method
and is more suitable to organization with smaller size. According to this method, jobs are
arranged from highest to lowest, in order of their value or merit to the organization. Jobs
can also be arranged according to the relative difficulty in performing them. The jobs are
examined rather than based on important factors in the job; the job at the top of the list
has the highest value and obviously the job at the bottom of the list will have the lowest
value. This kind of ranking is highly subjective in nature and may offend many employees.
There are 3 techniques used in Ranking method which are given below
a. Utilizing Job Descriptions: In this Job descriptions of various jobs are studied and
used for comparison. Jobs are ranked as per the study of Job Description
b. Making Group Comparison:
In this method jobs to be compared are compared in pairs. Each job is compared
with other job once and superior job is assigned a point. In the end the job with
maximum points is ranked highest and vice-versa also. In above example. E is
highest rated job whereas C is lowest rated Job
c. Raking along a number line:
Here ranks obtained from job descriptions or paired comparison are spaced along a
number line. For example, job X is the highest rank job and job Y is picked up to find out
its closeness to job X. Based on closeness, it is placed on the number line. The distance
between the jobs or their position on number line can be used to determine the pay
structure of a Job
2. Grading Method (Mostly used in Government Jobs): According to this method, a

predetermined number of job groups or job classes are established, and jobs are assigned
to these classifications. This method places groups of jobs into job classes or job grades.
Separate classes may include office, clerical, managerial, personnel, etc. Following is a brief
description of such a classification in an office
The benefits of the Grading method are

1. The job grading method is less subjective when compared to the earlier ranking
method as we have predetermined scale of comparison in this method.
3. Points Rating or Point Method: Under this method, jobs are broken down based on various
identifiable factors such as skill, effort, training, knowledge, hazards, responsibility, etc.
Weights are given to factors depending on their importance to perform the job.
Thereafter, points are allocated to each of these factors for a particular job. Points so
allocated to numerous factors of a job are then summed. Then, the jobs with similar total of
points are placed in similar pay grades
The major difference between point method and (Ranking or Grading Method) is that Point
method measures jobs with the help of factors used in that job whereas Raking or Grading
method just measures the job as a whole
4. Factor Comparison Method: Thomas E. Hitten was the first to originate factor comparison
method of job evaluation. This method is a combination of both ranking and point
methods in the sense that in this also jobs are broken down based on various identifiable
factors such as skill, effort, training, knowledge, hazards, responsibility, etc. and Weights
are given to factors depending on their importance to perform the job. But instead of
assigning grades to the Job the jobs are ranked as per the points achieved by them.
5 Recruitment and Selection
5.1 Introduction
Next process is to recruit such people from outside if those cannot be arranged internally.
This process is called recruitment and selection.
6 Induction and Placement (Also known as Orientation)
6.1 Introduction
Under Acquisition of Human resources, we have discussed about Human Resource Planning,
Job Design and Analysis and Recruitment and Selection.
In this section we shall discuss about Induction and Placement
6.1.1 Induction
Induction is also known as Orientation or indoctrination. It is the process of introducing a new
employee to the organization and the organization to the employee by providing relevant
information. Generally, Induction programme includes information about the organization such
as objectives, mission, vision, employee benefits provided by the organization, human
resources policies and rules, introduction to the team etc.
6.1.2 Problem areas in Induction

1. Giving too much information in orientation becomes too much of problem as providing
too little information
2. Orientation program may be considered as burden by supervisors
3. Orientation may suffer from Micky Mouse assignment i.e. sometimes the first
assignments are insignificant tasks. Giving information about those tasks during
orientation might discourage the employee
6.1.3 Socialization of Employees

Socialization means adaptation of process that takes place as new employees attempt to learn
and inculcate new norms and values of work roles in an organization.
Socialization Process of Employees
As per Maanen and Schein there are 3 stages in Socialization process
1. Pre-arrival: This stage recognizes that each new employee arrives with a perception of
organizational from what he has heard from outside. A Pre-arrival stage cannot be ignored
because it shapes the perception of employee for the organization such that many times it
reflects the sincerity of employee on work
2. Encounter: Encounter Stage is the part of the stages of socialization where a person joins or
enters an organization. Individuals discover how well their expectations match realities
within the organization. If the realties are in line with the expectations, then he may start
giving high productivity whereas if realities are totally opposite of expectations then he may
resign
3. Metamorphosis: Metamorphosis Stage is the last stage in which a new employee changes
himself/herself to adjust to the job, new groups, or organization. After this stage, the
employee will be more productive and committed to the organization
6.1.4 Placement
After induction is over, the new employees are placed at the jobs. So, placement is essentially a
purpose of matching jobs and individuals. Placement can be in 2 forms
1. Initial Placement after selection and orientation
2. Later Placement due to internal mobility such as promotion, demotion, and transfer
7 Job Changes: Transfer, Promotion, Demotion and Separation

Job changes through transfers, promotions and demotions is called internal mobility whereas
employees leaving or getting separated from the organization due to resignation, retirement or
termination is called external mobility
7.1 Transfer
A transfer may be defined as change in job within the organization where the new job is
substantially equal to old in terms of pay, status, and responsibilities. Transfers are usually done
to move employees to position with higher priority in terms of organizational goals
Transfer Vs. Promotion
Promotion takes place when an employee moves to a position higher than the one for merely
occupied. Transfer is the movement of an employee from one job to another without involving
any change in his status, duties and responsibilities and compensation.
7.1.1 Types of Transfers

1. Production Transfers: Such Transfers are initiated when there is surplus in one
department and need of manpower in another department
2. Shift Transfers: In case of manufacturing concerns, there are normally three shifts.
Usually these shifts are rotating. In case shift assignments are not rotating, an employee
may be transferred from one sift to another shift.
3. Versatility Transfers: Such Transfers are done to make employee skilled in various
departments as part of job rotation. Such Transfers help employees in promotion
4. Remedial Transfers: In case an employee does not feel comfortable on his job, he may
be transferred to some other job. His initial placement might be faulty; his health might
have gone down; he may not be getting along with his supervisor or workers i.e. he
might have developed personal friction with his boss or fellow employees
5. Replacement Transfer: When an old employee is handling pressure since long, he may
be replaced with the new employee to give him some relief
7.2 Promotion and Demotion

Promotion means giving higher position to an employee which carries higher status, more
responsibilities and higher salary. Promotion means advancement of an employee in the same
organization
7.2.1 Types of Promotions

1. Vertical Promotion (Also known as Promotion): In Vertical Promotion employee moves to
higher level or higher grade with increase in salary, status, and responsibility
2. Upgradation: In this the salary is increased but not the level or grade
3. Dry Promotion: In this the level, responsibilities and status are increased but not the salary
7.2.2 Open Vs. Closed Promotional System

A company is said to have an open promotion policy if it considers all employees within the
organization as potential candidates and announces internally such vacancies. When an
organization does not announce vacancies or where the openings are not open to all
employees within the organization for the promotion, the company has a closed promotion
policy
7.2.3 Demotion
Demotion is just an opposite of promotion. It is a downward movement of an employee in the
organization with lower status and salary. It is a punishment for incompetence or mistakes by
employee.
7.3 Separation
Separation means employee leaving the Organization due to one of the following reasons
1. Resignation: Separation initiated by employee themselves is example of resignation.
2. Layoff: It is temporary removal of employees from the payroll of the company to reduce the
financial burden on the organization. Employer and employee relationship do not come to
an end, but this is merely suspended during period of layoff.
3. Discharge or Dismissal: Discharge or Dismissal or Termination means end of relationship

between employee and employer. In this total separation between them.
4. Retirement: When an employee has worked till stipulated age as per the policy of the
company, the person must retire. Retirement can be of following types
5. VRS: VRS is also known as voluntary Retirement Scheme. It basically kind of golden
Handshake between employee and organization and try to create a win-win situation.
Organization gets to reduce cost or higher more skilled people and employee gets some
lumpsum money and full retirement benefits. It differs from premature retirement as
premature retirement is due to problems faced by employee whereas VRS is due to
changing environment in business where organization needs to revamp
8 Human Resource Accounting

Like other physical assets Human Resources is one of the most important assets of the
company. Therefore, the valuations of human resources along with other assets are also
required to find out the total cost of an organization.
American Association of Accountants defines HRA is a process of identifying and measuring

data about human resources and communicating this information to interested parties
HRA basically helps the organization in budgeting for Human Resources
8.1 Methods of HRA

1. Historical or Actual Cost Method: As per this method the actual cost to recruit and train an
employee is considered as value of that employee. But this method has major drawback as
value of an employee is far greater than the cost incurred on his recruitment and training
2. Multiplier Method: As per this method there is no relation between cost incurred on
employee and his value. This method used various factors that are
a. Qualification and technical expertise
b. Experience required for the Jobs
c. Personal Qualities and Attitudes
d. Promotion Capability
e. Replacement Scarcity
f. Loyalty
The weightage given to different levels will be different e.g. senior management would be
giving more weightage and to this weightage in indicated by the multipliers used for a
particular grade
3. Replacement Cost method: This method values human assets as what would be the cost to
replace the existing person
4. Economic Value Method: This method considers the possible future earning from the
employee and adjusting that to the present value resulting in economic value of the
employee
Important Points

Important Points
Complete Notes
Complete Notes
any Mock Test
We have discussed about Acquisition of Human Resources earlier in the course. In this unit we shall
discuss about Training and Development and Career Planning and Development
1 Training and Development

Training and development are vital part of the human resource development. Training and development
are required because
1. Need for additional hands to cope with an increased production of goods and services
2. Employment of inexperienced and unskilled workforce for whom training is mandatory
3. Old employees need refresher training to enable them to keep abreast of the changing methods,
techniques, and use of sophisticated tools and equipment
4. Need for enabling employees to do the work in a more effective way
5. To increase the morale and satisfaction
Training and development encompass three main activities: training, education, and
development
1. Training: As per Edwin Flippo, Training is act of increasing knowledge and skills of an employee
and changing the attitude for performing a particular job
2. Education: Education is meant for development of individual from social, mental, and physical
perspective. It is used in more generic sense and is meant for school and college learning
3. Development: Development is not associated to a particular job, but it is meant for overall
development of the individual which might help in realizing future potentials of the candidate

1.1 Distinction between Training and Development
1.2 Types of Training

1. Induction: Introducing or orienting a new employee to the organization and its procedures and rules
2. Job Training: This training is for the job that worker must handle. It gives information about
machines, process of production etc.
3. Apprenticeship Training: In this both knowledge and skills is imparted for doing a job using
vocational training. The trainees also get salary during this training. This is like earn while you learn
4. Internship Training: In this industry enter arrangement with vocational or educational institutes
where industries impart practical knowledge to the students. For example, engineering students are
required to undergo 6 months internship in the final semester
5. Refresher Training: Also known as retraining, this is for old employees of the organization to
acquaint with latest methods of working and latest technology
6. Training for Promotion: The talented employees might be given training to make them eligible and
competent for promotion to higher job in the organization.

1.3 Aligning Training and Development with Business needs
Every organization will have limited resources but unlimited needs in terms of training. So, they need to
find out where to spend and how to spend on training programs. The process which they can follow is as
follows
1. Discover: In this step it is found out what is the cost of training program and how that training
program will help to achieve the objective of the organization
2. Strategies: In this step the risks are evaluated, alternatives are discussed, key problem area are
foreseen, and other likely challenges are discussed
3. Prioritize: It involves prioritizing the training programs which will give greatest value for money. It is
decided which programs should be funded and how success of training program be measured
4. Optimize: Once the training program starts, they are monitored, and results are observed to further
improve the process in the next cycle
1.4 Steps in Training and Development cycle
1.4.1 Assessment Stage

This step is also called TNA (Training Need Analysis). The aim of the assessment stage is to understand
whether training is required. Assessment is conducted at three stages - at the level of organization,
individual and the job, each of which is called as the organizational, individual and job analysis
I. Organizational Analysis: The organizational analysis is aimed at short listing the focus areas for
training within the organization and the factors that may affect the same.
II. Job Analysis or Task Analysis: Job Analysis helps find out various operations and conditions under
which job is performed. It gives Job description and Job specification. The organization can know
what kind of jobs are performed and what type of people are required.
III. Individual Analysis: As evident from the name itself, the individual analysis is concerned with who
in the organization needs the training and in which area. Here performance is taken out from the

performance appraisal data and the same is compared with the expected level or standard of
performance.
1.4.2 Methodology Stage

Once the training needs analysis is complete, the next stage is that of Design. This stage involves the
development of content and the training material and selecting the methodology to give the training.
For effective designing one must
I. Know the Employees: Know your employees well before you begin designing training programs
for them. Sit with them and try to find out where all they need assistance
II. Interactive Content: The content needs to be informative but interesting. Include diagrams,
graphs, flow charts, pictures to make your training program interesting
III. Selecting the Technique: There are various techniques which can be used for training. These are
divided into Informational and Experiential techniques. Informational techniques are one-way
communication and are more of theoretical. Examples are lectures, Audio/Video etc. Experiential
techniques are based on learning by doing and it is two-way communications. Examples are Role
Play, Games and Case Study etc. Appropriate technique should be selected based on type of
training and the target audience. The techniques are training are discussed later in the document
1.4.2.1 Methods of Training

1. On the Job Training Methods: These are also known as direct instruction. This type of training is
imparted on the job and at the workplace where the employee is expected to perform his duties.
2. Off the Job Training Methods: In these Training Methods Training is provided outside the
workplace
On the Job Training Methods
1. Coaching/Understudy: Coaching also called as Understudy is a one-to-one training. It helps in

quickly identifying the weak areas and tries to focus on them. The subordinate learns through
experience and observation by participating in handling day to day problems. Understudy is for high
end jobs whereas apprentice (discussed later) is for low end jobs
2. Mentoring: The focus in this training is on the development of attitude. It is also one-to- one
interaction, like coaching. Mentoring unlike coaching is usually not related to knowledge base or skill
but with emotional support, counselling, and guidance by mentor
3. Job Rotation: It is the process of training employees by rotating them through a series of related
jobs.
4. Apprenticeship: This method of training is in vogue for those in trades, crafts, and technical fields
such as toolmaker, electrician etc. in which an extended period is required for gaining proficiency.
The trainees serve as apprentices to experts for lengthy periods.
5. Job Instruction Training: Job Instruction Training (JIT), also known as ‘Training through step by step’
involves listing of all necessary steps involved in the job performance with a sequential arrangement
of steps. This method of training is useful at operational level.

Off the Job Training Methods
Job instruction training is included both in on the job and off the job training method depending up on
whether it is used during actual work or during dedicated training period
a. Job-Instruction Training: Job Instruction Training (JIT), also known as ‘Training through step by step’
involves listing of all necessary steps involved in the job performance with a sequential arrangement
of steps.
b. Programmed Instruction: In this there is no instructor and instead there is an instruction booklet or
a teaching machine. The instruction is computer oriented in this case.
c. Lectures and Conferences: Lecture and conference are knowledge-based methods. In these more of
theoretical knowledge is imparted. Lecture method is one-way communication whereas Conference
is more of 2-way communication.
d. Vestibule Training: It is also known as Training-Center training. In vestibule training, the workers are
trained in a prototype environment but not at the actual workplace. It is useful when large
number of people need to be trained for similar kind of work.
e. Simulation is any artificial environment exactly like the actual situation. In simulation a real-life
situation is replicated, and participants are required to react in that situation. There are four basic
simulation techniques used for imparting training: management games, case study, role playing, and
in-basket training
I. Management Games: Professionally designed games help to ingrain thinking habits, analytical,
logical, and reasoning capabilities, importance of teamwork, time management etc.
II. Case studies are complex examples which give an insight into the context of a problem as well
as illustrating the main point. It was developed by Christopher Langdell. Case Studies are
trainee centered activities based on topics that demonstrate theoretical concepts in an applied
setting.
III. Role Play: Role playing was introduced by Moreno. In this each trainee takes different role
corresponding to a situation assigned to them. For example, in role play one trainee may be
assigned a role of sales manager whereas other may assigned a role of Sales head and they are
instructed to interact regarding the monthly sales.
IV. In-Basket Exercise: It is also known as in-tray training or “incoming email” training, consists of
a set of business papers which may include e-mail SMSs, reports, memos, and other items
which one faces in a day. Trainee would be required to act on these items and his reactions are
observed. It is checked whether he can prioritize the decisions to be made immediately and the
ones that can be delayed.
f. Sensitivity training: It is also known as laboratory or T-group training which evolved from the
group dynamics concept of Kurt Lewin. This training is about small group sessions in an
unstructured form which requires people to interact and become sensitive to feeling and behavioral
pattern of others.

g. Syndicate Training: Syndicate refers to group of trainees and involves analysis of problem by
different groups where each group is of 8-10 members. Each group is given a problem and each
group presents their ideas to solve the problem with other groups. This is quite helpful in developing
analytical skills
h. Brainstorming: In brainstorming a problem is given to the group and each of the members in the
group are required to present their ideas. The brainstorming sessions is free and frank and each one
is encouraged to participate.
i. Transactional Analysis: This is already discussed later in the course
Mapping Purpose and Method of Job Training

If we want to map some of the methods we discussed above with the purpose of training and
development, then below mapping can be done
Purpose Method
Job Knowledge On the Job experience
Coaching
Understudy
Apprenticeship
Mentoring
Organizational Knowledge Job Rotation
Decision Making Skills In-Basket
Case Study
Management Games
Inter-Personal Skills Role Play
Sensitivity Training
Case Study
1.4.3 Organizing stage

Every organization must decide whether Training is to be held in-house or by external agencies
1.4.3.1 In-House or External Agencies

Organization will have two alternatives
1. In Company Program: Large companies usually have in-house trainings. It helps them to train large
number of people at less cost.
2. External Agencies: The program run by external agencies are generally standard and not
customized. Companies must consider content quality, cost, and duration before selecting any
external agency
Irrespective of how training is organized, the care must be taken to ensure right learning techniques is
used. There are two different way of learning
1. Pedagogy (Mechanistic Model): This model consider learner is passive. As per this model education
is imparted and learner just gathers the information. This model is not good for training.

2. Andragogy (Organic Learning model): In this model, man is considered as active. It puts emphasis
on experiencing the learning. This model is better for training and development
1.4.4 Evaluation of Training
The various criteria used for measurement of Training and Development are Internal and external
criteria
1.4.4.1 Internal Criteria

Various model used in Internal Criteria for evaluating training and development program are given
below. Let us discuss them one by one
Uirle-Patrick (also known as Kirkpatrick model)
Later a 5th level -> ROI was added to this 4-level evaluation model
CIRO Approach: This focuses on context, input, reaction, and output

CIPP Approach: This focuses on context, input, Process and Product
1.4.4.2 External Criteria

Internal criteria do not consider the effectiveness of training vis-à-vis the costs involved in training. It is
especially important to also take costs into account because you need to train your employees within
certain cost.
1.5 Attitude Development
Attitude is a crucial factor to understand because it helps managers to understand their employees in
a better way. It can be described as a persistent tendency to feel and behave in a way towards some
object. Attitude development is an important part to be developed as part of training and
development
1.5.1 Components of Attitudes

Attitudes can be broken down into three components
1. Emotional: Emotional Component involves person’s feelings or their effect – positive, neutral, or
negative – about an object. They play a key role in behavior of employees.
2. Information Component: It consists of Beliefs and information that an individual has about an
object
3. Behavioral Component: Consists of personal tendency to behave in a certain way
2 Career Planning and Development
2.1 Concept of Career

The meaning of term carrier is advancement in life or profession. It is also called sequence of positions
occupied by person during his lifetime. Career of a person does not mean his stay in single organization,
it may span any number of organizations
Career is more than just the job or sequence of jobs a person holds over a lifetime. Even the activities,
attitudes and behaviors that are associated with job are also part of career
2.1.1 Career Stages

Super has suggested 5 stages of career development cycle or career cycle
1. Exploration: The exploration stage is the pre-employment stage (early adulthood stage), wherein the
individuals are in their mid-twenties and are in transition from their college life to the work
environment. They form certain perceptions about work.
2. Establishment Stage (25 to 35 years of age): Individual searches for work and gets his first
appointment. It is also called as a learning stage. At this stage, the fresher commits many mistakes
and try to learn from these mistakes. The individual is yet to reach peak productivity at this stage and
hence it is also called ‘going uphill’.
3. Mid-Career Stage (35 to 45 years of age): This is marked by continuous improvement in

performance, levelling of performance or beginning of decrease in level of performance. 3
possibilities for different people at this stage
a. High Flying individuals pick up pace and reach greater heights

b. Bed-Rock type individuals may just be able to maintain normal performance
c. Maladjusted type individuals may start to decline in their performance
4. Late Career Stage: For individuals who continue to grow in mid-career late career is all about time to
relax a bit. These individuals become valuable to the organization because of their experience. For
individuals who have stagnated or started declining in mid-career will not be valued that much
5. Declining stage: This is the last stage of career development. At this stage, an individual must step
out of his work or get a retirement from his official commitments.
2.1.2 Career Patterns/Career Concepts
The expected changes emerge as pattern of movements that occur in life related to work. These are
known as Career Concepts. Various Career Concepts are
1. Linear Career Concept: Plan for upward movement within the same profession using organizational
hierarchy. Upward movements of employee are also known as going up the ladder
2. Steady State Career: Individuals choose a profession, acquire higher skills, but do not choose to go
higher up in the hierarchy
3. Transitory Pattern: Individuals shift from one job to another not necessarily related to the previous
one without acquiring any excellence
4. Spiral Career: Individuals take on a new job, work hard, perform well, move up in the status and
rank, then move on to another type of work and follow the same pattern of development and
performance
5. Plateau Career: Reaching a level higher than where one started but then continuing the same level
Author by the name Schein has given comprehensive framework of 3-dimensional model
1. Vertical: Vertical movement is along the hierarchy of the organization

2. Circumferential: Movement by moving in the different divisions of the company
3. Radial: Radial Movement is towards the center of organization where important activities and
decisions are being taken
2.1.3 Career Anchors

Career anchors denote the basic drives that create the urge to take up a certain type of a career. As per
Person by the name Schein there are five such career anchors
1. Managerial Competence: Person having this drive seeks managerial positions that provide
opportunities for higher responsibility, decision making, control and influence over others.
2. Technical or Functional Competence: People having this anchor seek to make career choices based
on the technical or functional content of the work.
3. Security: If one's career anchor is security than he is willing to do what is required to maintain job
security (through compliance with organizational prescriptions), a decent income and a stable
future.
4. Creativity: This drive provides entrepreneurial and innovative opportunities to the people.
5. Autonomy: These people seek a career that provides freedom of action and independence.
2.1.4 Career Roles

We have often seen that Individuals loose interest in the job after certain time. So, managers need to
understand the career planning of the individual. Managers must understand these stages which are
known as career roles. These are
Apprentice: Beginning of the career where he does routine work under the supervision of the mentor
Colleague: Beginning of making independent contribution. Less dependence on superiors for advice and
direction
Mentors: Individual develops ideas, manages others, and must learn to assume responsibility for
subordinates’ work
Sponsors: Needs to broaden perspective and think long term. Needs to define the direction in which the
entire organization or at least a major segment would develop.
2.2 Career Planning or Career Strategy

Career planning has different meaning with respect to Organization and Individual. From an individual
point of view, career planning is process by which he selects his career goals and the path to achieve
these goals. From an organization point of view career planning is identification of individuals and
charting out their career paths and giving the opportunities to grow
Career Planning has benefits both for organization and Employees. Employees get increased
productivity, self-development, higher motivation etc. Organization gets to attract and retain talent
2.2.1 Objectives of Career Planning

To identify positive characteristics of the employees, To develop awareness about each employee’s
uniqueness, To respect feelings of other employees, To attract talented employees to the organization,
To train employees towards team-building skills, To create healthy ways of dealing with conflicts,
emotions, and stress.
2.2.2 What is Career Path?

Career path is a logical sequence of positions in an organization to enable an individual to have
knowledge of all activities of the organization (horizontal movement), experience of various levels of
management (hierarchical)
Career Path has two underline concepts

1. Career Line: It is the area/function of work. The career line can be marketing, finance, HR. A
person in his career path may keep shifting from one line to another
2. Career ladder: Career Ladder is basically vertical movement in the hierarchy in any line
2.2.3 Steps in Career Planning

Career Planning involves these 5 steps
1. Identification of individual needs and Aspirations

2. Identification organizational needs and Opportunities
3. Assessment of Individual Strengths and Weaknesses
4. Placement on Career path: After the first 3 steps the individual is placed on the right career path
as per his needs and strengths and the needs and opportunities of the organization.
5. Review of Career plans
2.3 Career Development
Career plan sets career path for an employee, career development ensures that the employee is well
developed before he moves to the next ladder in hierarchy or makes a horizontal movement from one
line to another. For example, if employee has chosen a career path to move from Sales to HR then
career development would mean giving him proper training and exposure to HR Functions.
Career Development is different from employee development since career development has long-term
orientation covering the entire work-life of an individual, employee development has immediate and
intermediate-term orientation.
2.3.1 Career Development Program

Since both organization and individual make efforts for an individual's development, there are two types
of career development programs
1. Career Development Programs by Organization: These are the programs initiated by the
organization
2. Career Development Programs by Individuals: These are programs initiated by the individuals
themselves and are also known as Self-Development Programs
2.3.2 Career Counselling in Career Development

The basic objective of counselling in organizational context is to bring an employee back to his normal
position from a position in which he is experiencing a problem or to enhance the self-image of the
employee. Career counselling involves advising and guiding employees in their possible career paths and
the direction in which they ought to be heading.
2.3.3 Essentials of Success in Career

A career success can be measured in form of objective or subjective success
Subjective success factors are those which are kind of not materialistic rather intrinsic. Objective success
factors are those which are linked to money, power, position etc.
2.3.4 Career Development for some Special Groups
There are some special groups which require career development programs more than anyone else.
These are
1. Transgenders: Transgenders face difficulty of being accepted by others in the organizations.

Organization should sensitize the workforce regarding Transgenders
2. Differently abled persons: Differently abled personnel should be put on career paths that do not
require high physical exertion
3. Late Career Employees: If late career employees have learned something which is incompatible with
their career, they should be counselled and guided to forget this and learn new things
4. Schedule Caste and Schedule Tribes: The career development program for them can be additional
opportunities and facilities to learn and develop skills which can put them at par with other
employees
5. Women Employees: The women employees must be educated against sexual harassment and given
career paths that do not require high degree of travelling and working late
6. Dual Income Families: Career development programme for these can be related to flexible working
system or timings
2.3.5 Terms related to Career Planning and Development

Term Meaning
Career Career is succession of related jobs, arranged in a hierarchy of prestige,
through which persons move in an ordered (more or less predictable)
sequence
Career Goals Future Position one tries to reach as part of career
Career Cycle The stages through which one goes through as part of career
Career Paths Career path is a logical sequence of positions in an organization to enable
an individual to have knowledge of all activities of the organization
(horizontal movement), experience of various levels of management
(hierarchical)
Career Anchors Career anchors denote the basic drives that create the urge to take up a
certain type of a career
Career Progression Career Progression is making progress in one’s career through right
moves. Progression can be in form of moving the career ladder in a
particular career line or moving through different Career lines to gain
competence
Career Planning Process of selecting goals and path to those goals
Career Development Actions undertaken to achieve the goals
Career Counselling Process of advising employees on setting career goals and assisting them
find suitable career paths
2.4 Self-Development
The career development by individuals is called self-development. Self-Development is also known as
Self-Control or Self-Management. In self-development process following 3 conditions must be met
2.4.1 Concept of Self-Development

Before we understand self-development, it is important to understand the concept of self. Self can be
categorized into two parts
1. Patent -Self: Patent self can also be called external self which normally comprises of individuals
identify and physical features. For example, we recognize a person by saying he is handsome
and has blue eyes
2. Inner – Self: Inner self signifies the behavior patterns, values and other psychological factors
including strengths and weaknesses. For example, if we say person is a very king man then that
is example of inner self
Process of discovering and utilizing the tremendous potential within one’s individual personality is called
self-development. We will discuss about the aspects of self-development at following levels
Individual Level
1. Motivational Pattern
2. Locus of Control
3. Power Bases
Interpersonal Level
1. Interpersonal Needs
2. Transactional Analysis
Group Level
1. Being effective member in the work group
2.4.1.1 Individual Level

Motivational Pattern
Different Individuals work for distinct reasons. Some work for money and benefits whereas some work
for satisfaction, appreciation, and self-growth. HR policy of the company needs to be sensitive towards
various needs of employees
Locus of Control
Locus of Control is belief of an individual about who is responsible for what happens in life
1. External: Believe that events are determined by external forces like other influential persons in
society, luck, destiny and so on
2. Internal: Believe individuals can determine events. If one works hard then he can control is destiny
The beliefs in turn decides how the person needs to be treated. One with external locus of control need
be made realized that it was his efforts which lead to satisfactory results so that he believes in internal
locus of control
Power Bases
Power means a person’s potential to get others to do what he or she wants them to do, as well as avoid
being forced to do what he or she does not want to do. They can be of following types:
Coercive Bases: Organizational position, punishment, charisma, personal relationship, closeness to a

source of power, withholding information on resources
Persuasive Bases: Expertise, competence, and modelling. Modelling means example set by behavior
2.4.1.2 Interpersonal Level

In organizations most of the situations imply interacting with and influencing others. It is therefore
necessary for individuals to be aware of the process of influence through interpersonal interaction. We
will discuss about the concept of Interpersonal Needs and Interpersonal Interactions (through
Transactional Analysis)
Interpersonal Needs
There are three basic interpersonal needs
1. Need for Inclusion: To establish and maintain a satisfactory relationship with people with
respect to interaction and association
2. Need for Control: It means controlling behavior of people
3. Need for Affection: It means need for love from each other
These needs to be examined for an individual and not for a group. They facilitate creating awareness
about one’s tendency to be wanted to be loved, acknowledged, belonged, or controlled
Transactional Analysis
Transactional analysis is given by Berne. Berne defined three ego states in an individual.
1. Parent: The parent ego state is a result of the messages (conditioning) people receive from their
parents, elders, teachers, and others during their childhood. Their messages are recorded in
people’s heads. These messages help in regulating one’s behavior by telling what is right, what is
wrong.
2. Child: The child ego state is associated with behavior that appears when a person is responding
emotionally. A person’s child ego contains natural impulses and attitudes learned from
experiences. The child ego state can be classified into adopted child, Natural Child, and Little
Professor
a. Adopted state is one which adapts to what must be done to others to get along
b. Natural Child tries to enjoy everything and take things as they come
c. Little Professor is thinking part of the child
3. Adult: This state evokes behavior that could be described as logical, reasonable, and rational.
Behavior from adult ego state is characterized by problem solving, analytical and rationale
decision making
Analyzing Transactions
When two people communicate, one person initiates a transaction with the transactional stimulus. The
person at whom the stimulus is directed will respond with the transactional response. Simple
Transactional Analysis involves identifying which ego state directed the stimulus and which ego state in
the other person executed the response.
According to Dr. Berne, the simplest transactions are between Adults ego states. For example, a
surgeon will survey the patient, and based upon the data before him/her, his/her Adult decides that the
scalpel is the next instrument required
But not all transactions proceed in this manner. Some transactions involve ego states other than
the Adult.
This leads us to Parent – Child transactions, which are almost as simple as Adult-Adult transactions. “The
fevered child asks for a glass of water, and the nurturing mother brings it.” In this example, the small
child’s request is the stimuli, and the parent providing the water is the response. This is nearly as simple
as an Adult-Adult transaction.
So far, the two transactions described can be considered complementary transactions. In a

complementary transaction, the response must go back from the receiving ego state to the sending ego
state. According to Dr. Berne, these transactions are healthy and represent normal human interactions
However, not all transactions between humans are healthy or normal. In those cases, the transaction is
classified as a crossed transaction. In a crossed transaction, an ego state different than the ego state
which received the stimuli is the one that responds. An example is as follows:
Agent’s Adult: “Do you know where my cuff links are?” (note that this stimulus is directed at the
Respondents Adult).
Respondent’s Child: “You always blame me for everything!”10
This is one the classic crossed transactions that occurs in marriage. Instead of the Respondent’s Adult
responding with “I think they’re on the desk”, it is the Respondent’s Child that responds back.
According to Dr. Berne, one must look at how the words are being delivered (accents on particular
words, changes in tone, volume, etc.) as the non-verbal signs accompanying those words (body
language, facial expressions, etc.). Transactional Analysts will pay attention to these cues when
analyzing a transaction and identifying which ego states are involved.
Transactional Analysis – Life Positions
People make assumptions about their own worth as well as the worth of the significant people in their
environment. Thomas Harris called these combinations as Life Positions. These life positions are
described in terms of okayness. Thus, the individuals are OK or Not OK. 4 Life positions can be described
as below
1. I am OK you are OK (both have value)

2. I am ok you are Not Ok (I have value, but you do not have value)
3. I am not ok, and you are ok (you have value, but I do not have value)
4. I am not ok you are Not ok (neither person have value)
The self-development of individual should be such that people are always involved in complementary
transactions and not crossed transactions
2.4.1.3 Group Level

Team is defined a group of people with high degree of interdependence geared towards the
achievement of a goal or the completion of task. The term group dynamics refers to
Group Dynamics:
1. Internal nature of groups

2. How they form
3. Their structure and processes
4. how they function and affect individuals and organization
How does one perform in a group is important to understand the concept of self-development? Various
stages in group formation are
1. Forming (Awareness) Members with varied awareness get acquainted, understand the team’s
goal and its role
2. Storming (Conflict) Conflict among the members helps the team in defining itself
3. Norming (Cooperation): Norms laid as in how the task will be accomplished? What would be the
rules and regulations of the team?
4. Conforming (Adjustment): Adjusting one with the team expectations and norms
5. Performing (Productivity): Members behave in mature fashion and focus on accomplishing their
goal. Full energy dedicated to work
The self-development at this level should be such that people behave in mature way and are able to
contribute to group goals
2.4.2 Stages of Self-Development

There are 3 stages of self-development 1) Development of self-awareness 2) Awareness of skills
required by you 3) Adopting right methods of skill development for the skills required by you
2.4.2.1 Development of Self- Awareness

It is always useful to do the SWOT analysis of self to understand the strength. SWOT means strengths,
weaknesses, Opportunities and Threats.
There is also a concept of Johari Window given by Luft and Ingham which explains what is meant by
self-awareness. They refer to two dimensions 1) How much of one’s behavior is known to him/her and
2) How much he feels others know him/her
These give 4 windows are Arena, Blind, Closed, Dark.
The strategy is to move towards Arena
2.4.2.2 Awareness of skills required

After going through the self-awareness exercise, an individual should identify the skills required for the
success in his career. Skills refer to the proficiency required to use the knowledge to do a work. Skills can
be of two types – Job related, or behavior related
2.4.2.3 Adopting right methods to Acquire Skills

After becoming aware about the skills to be developed, an individual can adopt various methods for
developing relevant skills. He can adopt the following methods
1. Self-behavior management
2. Self-study
3. Time Management
4. Continuous practice
2.4.3 Self-Development and Emotional Intelligence

For a good self-development, a person must be able to have good emotional intelligence. One may have
high IQ, but it is not sufficient to succeed in life. Apart from that high Emotional Intelligence is also
require
Five components of emotional intelligence are
1. Self-Awareness: Ability to recognize, understand one’s mood, emotions, and drives, as well as their
effects on others
2. Self-Regulation: Ability to control or redirect disruptive impulses and moods and propensity to
suspend judgement – to think before acting
3. Self-Motivation: Passion to work for reasons that go beyond money or status and propensity to
pursue goals with energy and persistence
4. Empathy: Ability to understand the emotional make up of others and skill to treat people according
to their emotional reactions
5. Social Skills: Proficiency in managing relationships and building networks and ability to find
common ground and build rapport
2.5 Organizational Development

Organizational Development is a long-term strategy which focuses on the whole culture of the
organization to bring about the planned change. It seeks to change the change the attitudes, beliefs,
values, and structure of the organization
2.5.1 Techniques of Organizational Development
1. Sensitivity Training: We have already discussed this earlier

2. MBO: We have discussed this earlier
3. Grid Training and Development: Grid Organizational development is based on blake and mouton
model of leadership called the Managerial Grid which we have already discussed earlier. There are 6
phases of Grid training
a. Grid Training: They learn about managerial grid, learn about different leadership styles on
grid, analyze their own style and work on improving problem solving skills, communication
skills etc.
b. Team Development: Emphasis is placed on improving manager-subordinate relationship and
focus is now on leadership style so that team operates on 9,9 on the managerial grid
c. Inter-Group Development: This phase puts emphasis on improving coordination between
teams
d. Organizational goal setting: Top managers together create an ideal mode of the
organization. They set goals to be tested, evaluated, and refined by managers and
subordinates working together throughout the organization
e. Goal Attainment: Each subunit examines how their activities should be carried out to achieve
excellence and take corrective actions
f. Stabilization: The results of all the phases are evaluated to determine which areas of the
organization still need improvement or alternation. Efforts are made to stabilize positive
changes and identity new opportunities for the organization
4. Organizational Redesign: The structure of the organization can be changed to make it more efficient
by altering the flow of authority and responsibility. Changes ca be made such as moving from
product to organizational structure
5. Work Design: It is the process of defining tasks and jobs to achieve both organizational and
employee goals. In this individual job are designed through job design and job redesign
6. Job Enrichment: Already discussed earlier in the course
7. Survey Feedback: The survey feedback lays importance on making the procedures efficient. The task
can be done only if there are good procedure to complete the task. This method was first used at
Institute of Social Research of University of Michigan.
8. Process consultation: Process Consultation is also like survey in which the consultants make
improvements in the process
9. Team Building: Team building is attempted to assist the workgroup in learning how to identify,
diagnose and solve to problems by themselves
2.6 Succession Planning

Succession planning is a process for identifying and developing new leaders who can replace old leaders
when they leave, retire, or die.
2.6.1 Replacement Planning

Replacement planning is kind of unexpected succession planning. If any executive suddenly leaves the
organization or suddenly dies, then there must be someone 2 replace that individual. This is called
replacement planning.
Replacement Planning is essentially making ready a backup. These backups are sometimes called ‘truck
lists’ because these are readily available in case someone is hit by truck.
2.6.2 Succession Planning Process

Below is the explanation of Succession Planning Process by Carranza who studied various companies of
USA
Succession Planning basically involves two set of factors
1. Human resources factors which helps identify which are good or essential managers
2. Business Activity which helps us identify which are essential positions
The effective succession planning takes place when essential managers are mapped to essential
positions.
Identification of Key or Essential Managers: Key Managers are identified using potential Appraisal. 4
types of resources are identified (also known as stoner’s types)
i. Stars: Person with high Performance and high Potential/Promotability

ii. Solid Citizens: High Performance but low Potential/Promotability
iii. Learners: Low Performance but high Potential/Promotability
iv. Deadwoods: Low Performance and low Potential/Promotability
b. Based on this classification, the ones with high potential are identified as key or essential
managers
3 HR Outsourcing
HR Outsourcing is a process in which the human resource activities of an organization are outsourced to
focus on the organization`s core competencies.HR outsourcing has become a popular solution for
organizations to remain competitive and cut costs. It also provides skilled professionals who are focused
specifically on HR.
4 Edward De Bono Role in Training

Edward De Bono worked on six thinking hats and Lateral thinking as part of training and development.
4.1 Six Thinking Hats

Edward De Bono devised a new thinking technique to solve any problems. You and your team members
can learn how to separate thinking into six distinct categories. Each category is identified with its own
colored metaphorical "thinking hat." By mentally wearing and switching "hats," you can easily focus or
redirect thoughts, the conversation, or the meeting and be more productive
4.2 Lateral Thinking
Lateral thinking is solving problems through an indirect and creative approach, using reasoning that is
not immediately obvious and involving ideas that may not be obtainable by using only traditional step-
by-step logic. The term was promulgated in 1967 by Edward de Bono.
Important Points
Complete Notes
Complete Notes
any Mock Test
In this document, we shall discuss
1. Performance Management and Appraisal

2. Compensation Management
3. Incentives and Benefits
1 Performance Management
Performance Management basically is process of
1. Planning Performance as in what employee is expected to achieve within a certain time frame
2. Appraising the Performance whether the result has been achieved
3. Giving Feedback to Employee regarding where he lacks or what are his strengths
4. Counselling Employee regarding how he can improve his performance.
We shall discuss these steps one by one except the first step which is amazingly simple and there is
nothing to explain further.
Difference b/w Performance Management and Performance Appraisal
1. Performance Management has broader perspective as compared to Performance Appraisal.

Performance Appraisal is one of the steps in Performance management. Performance Management
unlike Performance Appraisal also contains Performance Planning, providing feedback and
counselling to employees
1.1 Performance Appraisal

A performance appraisal (PA), also referred to as a performance review, performance evaluation,
merit rating, merit evaluation, (career) development discussion or employee appraisal is a method
by which the job performance of an employee is documented and evaluated for providing promotion,
incentives or other benefits. It does not only evaluate knowledge but also evaluates behavioral
qualities

Objectives of Performance appraisal
Objectives are divided into 3 categories
1. Judgmental: To determine compensation packages, wage structure, salaries raise, etc.
2. Developmental: To tell the employee how he is doing and suggesting changes in his skills,
attitude, and behaviors
3. Counselling by the Supervisor: for giving feedback and understanding problems for mediocre
performance
1.1.1 Drawback of Performance Appraisal

Sometimes we use the term PA for Performance Appraisal
1. Subjective evaluations: Traditional performance appraisals are often based upon a manager's or
supervisor's perceptions of an employee's performance. The review may be influenced by many
non-performance factors such as employee 'likeability', personal prejudices, ease of
management, and/or previous mistakes or successes.
2. Negative perceptions: "Quite often, individuals have negative perceptions of PAs". Receiving
and/or the anticipation of receiving a PA can be uncomfortable and distressful and potentially
cause "tension between supervisors and subordinates".
1.1.2 Biases/Errors Performance Appraisal

Managers commit mistakes while evaluating employees and their performance. Biases and judgment
errors of various kinds may spoil the performance appraisal process
1. First Impression (primacy effect): Raters form an overall impression about the employee on the
basis some first impression.
2. Halo Effect: The individual’s performance is completely appraised based on one perceived good
or bad quality, feature, or trait. If a worker has few absences, his supervisor might give him a
high rating in all other areas of work.
3. Horn Effect: The individual’s performance is completely appraised based on a negative quality or
feature perceived. “He is not formally dressed up in the office and therefore he cannot be a
good worker.
4. Central Tendency: Appraisers rate all employees as average performers. That is, it is an attitude
to rate people as neither high nor low and follow the middle path.
5. Spillover Effect: The present performance is evaluated much based on past performance.
Example would be employee being given high rating because he has good ratings in the past
too.
6. Recent Effect: Rating is influenced by the most recent behavior ignoring the commonly
demonstrated behaviors during the entire appraisal period. For example, if a person has
performed good in the last one month but was not performing well for the rest of the year then
he might not be an excellent performer but may be rated excellent
7. Stereotyping: This implies forming a mental picture of a person based on his age, sex, caste, or
religion. It results in an over-simplified view and blurs the assessment of job performance.

8. Varying Standards or Personal Bias: When a manager appraises (evaluates) his or her
employees and the manager use different standards and expectations for employees who are
performing similar jobs.
9. Constant Errors: There are easy appraisers and tough appraisers in all phases of life. Some
appraisers habitually rate everyone high; others tend to rate low. In such a situation, the results
of two or more appraisers are hardly comparable
10. Leniency Effect: Rating of all employees are at the high end of the scale. For Example, When the
professor tends to grade all the students on a higher side
11. Strictness: When a manager uses only the lower part of the scale to rate employees. For
Example, When the professor tends to grade all the students on a lower side
12. Contrast: The tendency to rate people relative to other people rather than to the individual
performance he or her is doing. For Example, at school, if you are sitting where all the chatty
people are, and you are silent then the teacher will think you are good student even though you
were not paying attention to what teacher was saying.
13. Similar-to-Me / Different-from-Me: Sometimes, raters are influenced by some of the

characteristics that people show. Depending if those characteristics are similar or different to
ratters' one, they would be evaluated differently.
14. Idiosyncratic rater effect: Sometimes the rates are so biased that rating tells us more about the
rater than the person being rated. Such as phenomenon is called Idiosyncratic rater effect
1.1.3 Steps in Performance Appraisal
1.1.4 Collecting Data for Performance Appraisal

There are three main methods used to collect performance appraisal (PA) data:
1. Objective production
2. Personnel
3. Judgmental evaluation

1.1.4.1 Objective Production
The objective production method consists of direct, but limited, measures such as sales figures,
production numbers, the electronic performance monitoring of data entry workers, etc. Although these
measures deal with unambiguous criteria, they are usually incomplete because of criterion
contamination and criterion deficiency
In criterion deficiency there might be more emphasis on quantity than quality. An example of this is
that of a job of a secretary and not being able to include a criterion that measures the competency of
performing word processing tasks means that there is a criterion deficiency in the evaluation of
performance of the secretary.
The factors which are outside employees control leads to employee Criterion contamination. For
Example, keeping amount of sales in the criteria for evaluation of secretary since secretary does not
pitch for sales and hence sales target should not be part of evaluation of secretary
1.1.4.2 Personnel
The personnel method is the recording of withdrawal behaviors (i.e. absenteeism, accidents). Most
organizations consider unexcused absences to be indicators of poor job performance.
1.1.4.3 Judgmental Evaluation

Judgmental Evaluation basically deals with evaluations in which appraisal is made on personal
judgement of the rater rather than following a specified criterion
1.1.5 Techniques of Performance Appraisal

Numerous methods have been devised to measure the quantity and quality of performance appraisals.
Broadly all methods of appraisals can be divided into two different categories.
Traditional Methods
1. Ranking Method: Here, each employee is compared with all others performing the same job and
then he is given a rank i.e. First Rank, Second Rank etc. It states that A is superior to B. B is
superior to C and so on. This method ranks all employees, but it does not tell us the degree or
extent of superiority i.e. by how much one employee is superior to another.
2. Paired Comparison: In this method, each employee is compared with other employees on
one- on one basis, usually based on one trait only. The number of times this employee is
compared as better with others determines his or her final ranking. This method is not useful
for Large number of employees
3. Grading Method: In this method, certain categories of worth are established in advance and
carefully defined such as outstanding, satisfactory, and unsatisfactory. Employee performance
is compared with grade definitions. The employee is, then, allocated to the grade that best
describes his or her performance.
4. Forced Distribution Method: This method was evolved by Tiffen to eliminate the central
tendency of rating most of the employees at a higher end of the scale. The method assumes
that employees’ performance level confirms to a normal statistical distribution i.e., only 10
percent employees can be higher performer and only 10 percent can be poor performer and
like this for every rating a certain percentage is predefined.
5. Forced Choice Method: Forced-choice method is developed by J. P. Guilford. It contains a

series of groups of statements, and rater is forced to select a statement which describes
everyone being evaluated. Common method of forced-choice method contains two
statements, both positive and negative.
Each statement carries a score or weight, which is not made known to the rater. The human
resource section does rating for all sets of statements— both positive and negative. The final
rating is done based on all sets of statement.
6. Checklist: Under this method, checklist of statements of traits of employee in the form of Yes
or No based questions is prepared. Here the rater only does the reporting or checking, and HR
department does the actual evaluation.

7. Critical Incidents Method: In this method, the rater focuses his or her attention on those key or
critical behaviors that make the difference between performing a job in a noteworthy manner
(effectively or ineffectively). The basic idea behind this rating is to apprise the workers who can
perform their jobs effectively in critical situations.
8. Graphic Rating Scale Method of Performance: This method is also known as linear rating
scale. Under this method, scales are established for a number of fairly specific factors. Normally
these factors are employee characteristics and contribution of an employee in terms of quality
and quantity.
9. Essay Method: In this method, the rater writes a narrative description on an employee’s
strengths, weaknesses, past performance, potential and suggestions for improvement. Its
positive point is that it is simple in use. Since the essays are descriptive, the method provides
only qualitative information about the employee. In the absence of quantitative data, the
evaluation suffers from subjectivity problem
10. Field Review Method: In field review method employee is not reviewed by the superior but by
another person who is usually from the HR department. The basic idea is that such a person may
take more objective view in appraisal and may not be influenced by various types of errors.
11. Confidential Report: It is the traditional way of appraising employees mainly in the Government
Departments. Evaluation is made by the immediate boss or supervisor for giving effect to
promotion and transfer. Usually a structured format is devised to collect information on
employee’s strength weakness, intelligence, attitude, character, attendance, discipline, etc.
report
12. Group Appraisal Method: This is a method in which employees are rated by group of appraisers
consisting of immediate supervisor and three or four other members. The advantage is that it is
thorough method with least bias as it involves multiple raters
13. Self-Appraisal: Self-Appraisal involves appraising the employee himself in terms of hoe he views
his performance himself. The major advantage of this method is that employees become more
involved, improves communication between superior and subordinate and improves motivation
of employee.
Modern Methods
1. MBO: MBO is Management by Objectives. This method is also known as Appraisal by Results .
The concept of “Management by Objectives‟ (MBO) was first given by Peter Drucker in 1954. It
can be defined as a process whereby the employees and the superiors come together to identify
common goals which are in line with Organizational objectives. The set goals are to be taken as
the criteria for measurement of their performance and contribution
2. Behaviorally Anchored Rating Scales (BARS): It was developed by Smith and Kendall to provide a
better method of rating employees. BARS are descriptions of various degrees of critical behavior
about a specific performance dimension. It differs from "standard" rating scales in one central
respect, in that it focuses on behaviors that are determined to be important for completing a job
task or doing the job properly, rather than looking at more general employee characteristics (e.g.
personality, vague work habits
For example, the below BARS is to gauge the behavior-involvement in the job. The performance
dimension here is ‘involvement in job’

Steps in BARS
To construct BARS, several basic steps, outlined below, are followed.
I. Gathering of Data
II. Identification of Performance Measures: In this step we basically find out the performance
dimensions that we need to measure. The data collected in first step is used to find these
performance dimensions
III. Identification of Critical Behavior: Critical behaviors are those behaviors which are essential
for the performance of the job. Critical behaviors are based on critical incidents of the job
IV. Retranslation of Critical behaviors: The critical behaviors are then retranslated usually by
different set of people so that we get right language of that critical behavior
V. Scaling of Critical behavior: Then scale is defined for each critical behavior like from 1 to 7
and each point in scale defines a level of performance
VI. Development of BARS instrument: Once the scales are defined for all the critical behavior ,
we arrange them to get the BARS instrument
3. Assessment Centers: This concept was first applied to military situations by Simoniet in the
German Army in the 1930s and then selection of British Army in 1960s. In India companies like
HUL, Eicher, Crompton Greaves, Xerox and Modicorp have adopted this technique. The basic idea
was to assess candidate in social situation using variety of assessors and methods. An assessment
center is a central location where managers come together to participate in well-designed
simulated exercises. Assesse is asked to participate in basket exercises, interviews, work groups,
simulations, presentations, and role playing which are essential for successful performance of
actual job. At the end of the process, feedback in terms of strengths and weaknesses is also
provided to the assesse’ s.
4. 360-degree Feedback: Another method used to appraise the employee’s performance is 360 –
degree appraisal. This method was first developed and formally used by General Electric Company
of USA in 1992. In India companies like Reliance, Wipro, Infosys, Thermax, Thomas cook etc. are
using this method
Under 360 – degree appraisal, performance information such as employee’s skills, abilities and
behaviors, is collected “all around” for an employee, i.e., from his/her supervisors, subordinates,
peers, self-appraisal and even customers and clients. 360-degree feedback, also known as multi-
rater feedback, multi-source feedback, or multi source assessment
5. Peer and Self-Assessment: While assessment can be performed along reporting relationships
(usually top-down), net assessment can include peer and self-assessment.
I. Peer assessment is when assessment is performed by colleagues along both horizontal
(similar function) and vertical (different function) relationship.
II. Self-assessments are when individuals evaluate themselves. Graphic rating scale is used
for self-assessments
6. Cost Accounting Method: This method evaluates an employee’s performance from the monetary
benefits the employee yields to his/her organization. This is ascertained by establishing a
relationship between the costs involved in retaining the employee, and the benefits an organization
derives from Him/her
7. Human Asset Accounting Method: In this method the employees of the organization are treated as
Human Capital and money estimates are attached to the value of the organization’s personnel and
its external goodwill. The principle behind this system is that like any other asset, human asset is
also valuable to the organization.
8. Negotiated Performance Appraisal: The negotiated performance appraisal (NPA) is an emerging

approach for improving communication between supervisors and subordinates and for increasing
employee productivity and may also be adapted to an alternate mediation model for supervisor-
subordinate conflicts. A facilitator meets separately with the supervisor and with the subordinate to
prepare three lists. What employees do well, where the employee has improved in recently, and
areas where the employee still needs to improve. The role of the facilitator is that of a coach in the
pre-caucuses, and in the joint sessions the supervisor and subordinate mostly speak to each other
with little facilitator interference
1.1.6 Development Appraisal

The focus is on development and growth of employees rather than data for decision making relating
to rewards and promotions. Development appraisal is done through workshops like assessment centers
and the appraisal is done against critical success factors for the job
1.1.7 Potential Appraisal

The potential appraisal refers to the appraisal i.e. identification of the hidden talents and skills of a
person. Potential appraisal is a future – oriented appraisal whose main objective is to identify and
evaluate the potential of the employees to assume higher positions and responsibilities in the
organizational hierarchy.
Psychological appraisal is one of the types of Potential Appraisal. This method assesses the
employee's potential for future performance rather than the past one. It focuses on the employee's
emotional, intellectual, and motivational and other personal characteristics affecting his/her
performance.
1.1.7.1 Requirements for Potential Appraisal

1. Role Description: A good potential appraisal system would be based on clarity of roles and functions
associated with the different roles in an organization.
2. Qualities Required: Besides job descriptions, it is necessary to have a detailed list of qualities
required to perform each of these functions.
3. Indicators of Qualities: A good potential appraisal system besides listing down the functions and
qualities would also have various mechanisms for judging these qualities in a given individual. Some
of the mechanisms for judging these qualities are:
I. Rating by Others
II. Psychological tests
III. Simulation games and exercises
IV. Performance appraisal records
4. Organizing the System: After covering the above preliminaries, we must set up a system that will
allow the introduction of the scheme smoothly giving answers to some puzzling questions:
i. How much weightage to merit in place of seniority in promotions?

ii. How much weightage to each of the performance dimensions – technical, managerial,
behavioral qualities?
5. Feedback: If the organization believes in the development of human resources it should attempt to
generate a climate of openness. Such a climate is required for helping the employees to understand
their strengths and weaknesses and to create opportunities for development
1.1.7.2 Techniques for Potential Appraisal
1. Self – appraisals: Already discussed

2. Peer appraisals: Already discussed
3. MBO: Already discussed
4. Management games like role playing (Discussed in Assessment Centers)
5. Leadership exercises etc. (Discussed in Assessment Centers)
6. Rating by Superior: The potential of candidate could be rated by immediate supervisor who is
acquainted with his work
7. Psychological Tests: Managerial and behavioral dimensions can be measured through a
battery of psychological tests
8. Performance Records: Performance records and ratings of candidates in the previous job
could be examined carefully on various dimensions
1.2 Appraisal Feedback

Appraisal feedback is especially important part of Performance Management. It helps employees to
know where he stands in terms of performance efficiency and What are his strengths and weakness?
Generally, Appraisal feedback is given through an interview. There are 3 types of interview
1. Tell and Sell Interview: In this the basic idea is to tell the deficiencies to the employee and convince
him regarding those deficiencies. The appraiser also gives suggestions to overcome the deficiencies.
2. Tell and Listen Interview: The basic idea is to communicate the feedback to the employees and then
listen to his reaction. Therefore, interviewer acts as an indirect counsellor rather than dominating
the discussion.
3. Problem Solving Interview: In this interview, the basic objective is not just to communicate the
appraisal results to the employee but to invite him how he perceives the problems and what are the
possible solutions as per him.
1.2.1 Nature of Feedback

Feedback can be oral comments, written reports like performance appraisal etc. Feedback
should be
• Feedback should be descriptive and non- evaluative. Rather than putting the employee in a
defensive position by telling him” Your coming in late convinces me that you are not serious
about your work”, a manager may say, “I notice that you have been regularly coming late and
I am deeply concerned about this”.
• It should be two-way process where employee is also given a chance to express his/her
views on the performance
• It should be focused on the behavior of the person rather than on the person himself. The
intent is not to condemn the employee as an individual
• When conveying feedback, it is generally desirable to back it up with few examples of actual
events.
• Feedback should be given timely, continuous, checked, and verified.
1.3 Performance Counselling
Performance Counselling is interactive process between the employee and his counsellor, mentor,
coach etc. to anticipate the likely problems in the job performance and defining proactive actions
to overcome those problems
Mostly counseling is done for work performance issues, but counseling can also be done if a person
has some personal problems like alcohol abuse or death of dear one. So, counseling should be done
when we have issues like excessive workload, lack of awareness of policies, performance issues,
lack of team spirit, family problems etc.
Conditions for Effective Counselling
1. Climate of trust, confidence and openness is essential for effective counseling

2. It is necessary that the subordinate should feel free to participate without fear or inhibition as
1.3.1 Types of Counseling
1. Directive Counselling:
a. This is Counselor Centered. In this approach Counselor directs the client to take certain
steps to resolve the conflict. This assumes that client cannot solve the problems by himself
b. It gives more importance to intellectual aspects than emotional aspect
c. “Put that cigarette out now as this is a nonsmoking area” is a form of directive counseling
2. Non-Directive Counselling
a. It is client Centered. The idea is to create an atmosphere in which client can resolve the
problem by himself
b. Also known as Permissive Counselling
c. Gives more importance to emotional aspects than intellectual aspect
d. Example would be: So, the reason you are not effective is that you stayed up late last night.
What are you going to do to ensure that this does not affect your performance again?
3. Eclectic Counselling or Cooperative Counselling

a. This is neither Counselor Centered nor client Centered but in between both
b. Here both the client and Counselor tries to resolve the problem
1.3.2 Steps of Counselling
1. Identify the Need: One should be clear why counseling is needed. Is it due to unruly behavior or
not coming to office on time or due to substandard performance etc.?
2. Preparation for Counselling: During the preparation phase one must

a. Select the place for Counseling. It should be private not public place
b. Notify in advance to the employee so that he can also prepare
c. List the points you want to discuss
3. Conduction the session
I. Rapport Building: In the rapport building phase, a good counselor attempts to establish
a climate of acceptance, warmth, support, openness, and mutuality.
II. Exploration: In this phase, the counselor should attempt to help the employee
understand and appreciate his strengths and weaknesses. Questions should be asked
which help the employee focus on his problem. Problem identification is a critical step in
planning for improvement.
III. Action Planning: The main contribution of the superior in this phase is in helping the
employee think of alternative ways of dealing with a problem.
Finally, the superior may render some assistance in helping the employee implement
the agreed upon action plan.
4. Follow Up: Counselor should provide support to the employee and should review his
performance on regular basis. If required there might be change in action plan
1.3.3 Barriers to Effective Performance Counselling

The barriers to Effective counselling are basically
1. Faulty Assumptions: There are some faulty assumptions such as managers think opinion is better
than formal operational process
2. Psychological Blocks: The psychological blocks such as managers feeling on appraisal as extra
burden, disliking or resentment of subordinates, disliking of communicating poor performance to
subordinates
3. Criterion Problem: Criterion problem is that it is very difficult to define the criteria for performance.
Most of the times criteria is vague or ambiguous or not measurable easily
2 Compensation Management
2.1 Meaning of Compensation
Compensation include direct cash payments, indirect payments in form of employee benefits and
incentives to motivate employees to strive higher levels of productivity
2.2 Components of Compensations

Compensation is expressed in terms of money. It would thus include
1. Wages or salary - Guaranteed Pay

2. Incentives or Variable Pay: Bonus or cash allowances besides salary which is often linked with
performance
3. Fringe Benefits such as accident, health insurance cover, employer's contribution to the retirement
funds, provision of accommodation, uniforms, canteen, recreational activities etc.
4. Prerequisites such as Equity Compensation: Normally provided to higher management such as club
membership, free residential accommodation, stock options etc.
The above categories are sometime treated differently. Some may see Fringe benefits as part of
Incentives, some may see stock options as part of incentives rather that pre-requisites, some may see
club membership as Fringe benefit rather than prerequisite. So do not worry in case these gets mixed up
2.2.1 Pay Aggregates

Various combinations of the above four categories are referred to as pay aggregates. Common
aggregates are explained below.
Together, guaranteed, and variable pay comprise total cash compensation
Total guaranteed package or fixed cost to company are aggregates that include guaranteed pay and
benefits.
Total direct pay refers to total cash compensation plus equity compensation. Benefits are excluded from
this aggregate.
Total Compensation would include all four categories: guaranteed pay (salary and allowances), variable
pay, benefits, and equity compensation.
Remuneration is a term often used to refer to total cash compensation or total compensation.
As noted above, total rewards would include total compensation as well as intangible benefits such as
culture, leadership, recognition, workplace flexibility, development, and career opportunity.
2.3 Compensation Theories
2.3.1 Traditional Theories

1. Subsistence Theory: According to this theory wages would be equal to the amount just sufficient for
subsistence (minimum amount required for food, clothing, and shelter). Lassale, a German economist
developed this theory. According to this theory, wages are determined by subsistence level. The
wages so determined will remain fixed. Since there is a tendency for the wages to remain fixed at the
subsistence level, it is called as Iron Law of Wages or Brazen Law of Wages.
2. Wages Fund Theory: This theory was developed by J.S.Mill. According to him, the employers set apart
a certain amount of capital to pay wages for labourers. This is fixed and constant. This is called as
wages fund. So, if number of laborer’s increase the wages will decrease since the wages fund is
constant
3. Residual Claimant Theory: This theory was propounded by Walker. According to this theory, rent and
interest are contractual payments. After deducting rent and interest from total product, the employer
will deduct his profits. What remains after deducting rent, interest and profits is wages. It is possible
to increase wages by increasing the total product by improving the efficiency of the workers
2.3.2 Contemporary Theories

1. Reinforcement Theory: Already discusses earlier in course under motivational theories
2. Expectancy Theory: Already discussed earlier in course under motivational theories
3. Equity Theory: Already discussed earlier in course under motivational theories
4. Agency Theory: As per agency theory an agency is relationship between two parties in which one is
a principal and other is an agent who acts on behalf of the principal. Employer is the principal and
employee in the agent. For performing agency work, the principal pays remuneration to the agent
which is called remuneration. In this process the employer tries to minimize the agency cost
whereas employee tries to maximize it. Ultimately it is through negotiations that balanced state is
reached
2.4 Factors for Compensation
What is the basis or factors on which compensation gets decided? These factors are also called
contingent factors and they are of two types – External and Internal Factors
Internal Factors
1. Company objectives: Company Objective plays a key role in compensation structure. If company
wants to recruit best talent from best colleges then obviously the compensation would be high.
2. Ability to pay: If company is making higher profits then it can pay higher salaries
3. Nature of Jobs: Highly skilled jobs will command higher salary.
4. Potential for Performance: On the same job two people might get different salary due to different
performance
External Factors
1. Market situation or prevailing market rate: For a particular talent, there is always a rate prevailing
in the market which most of the companies are ready to give.
2. Demand and Supply: Certain kind of resources are scarce in the market. So, such people are always
given higher salaries by the company
3. Trade Unions: If trade union has high bargaining power then it may negotiate better resulting in
higher salaries
4. Legal framework such as government regulations on minimum wages, regulation on provident fund
and gratuity
5. Cost of Living: If cost of living is high then workers shall demand high salaries
2.4.1 Job-based vs. Skill Based Pay

There is always a debate whether the pay should be based on the job that is being performed or the skill
of individual who is performing the job. In job based pay all the employees performing a particular job
are paid same salary. Job based pay method is also called membership-based pay.
Skill based pay is based on skills of the individual and is different for different individuals. This is also
called competency-based pay.
2.4.2 Graded Pay Structure and Broadband Pay Structure

In graded pay structure there are different level of jobs such as unskilled, semi-skilled, workmen, for
men, supervisor, middle level managers, senior level managers etc. All jobs at particular level are of
same worth to the organization
Broad banding (or 'broad grades') is the consolidation of traditional pay structures, consisting of many,
narrow pay ranges into a few, wider ranges or bands.In a broadband pay structure, the numbers
of salary grades are consolidated into fewer, but broader, pay ranges. Broad banding was first used by
IBM and general electric in 1990’s.
Broad banding helps in reducing time to analyze jobs and evaluating jobs, enables employees to focus
on content of job, its challenges, and its developmental opportunities rather than worrying about grade
level.
2.5 Wage Policy in India

Government of India had set up Fair wages in 1948 which has defined various concepts of wages that
govern the wage structure. These concepts of wages are minimum wage, living wage and fair wage
Minimum Wage: A minimum wage is a compensation to be paid by an employer to his workers

irrespective of his ability to pay. Minimum wage must provide some measures of education, medical
requirements, and amenities”.
Living Wage: A living wage is one which should enable the earner to provide for himself and his family
not only the bare essentials of food, clothing and shelter but a measure of frugal comfort including
education for his children, protection against ill-health, requirement of essential social’ needs and a
measure of insurance against the more important misfortunes, including old-age.
Fair Wage: Fair wage, according to the committee on Fair Wage, is the wage which is above the
minimum wage but below the living wage. The lower limit of the fair wage is obviously the minimum
wage; the upper limit is set by the capacity of the industry to pay.
2.5.1 Methods of Wage payment

Two famous methods of Wage payment are – Time wage method, Piece Wage method and Balance
method
Time Wage Method: In this method the worker is paid for the time he has worked on hourly, weekly or
monthly basis
Piece Wage Method: In this method workers are paid on the basis of quantity of output irrespective of
the time taken
Balance Method:
Suppose the time wage is Rs. 500 per week and the piece wage rate is Rs. 10 per unit. As per his
production, his wages during the 4 weeks in a month will be as shown
3 Incentives (Rewards) and Benefits
3.1 Meaning and Types of Incentives

Generally, when term incentive is used it is used in monetary term. But incentive can be financial
incentive or non-financial incentive.
1. Financial Incentives include all those payments in monetary terms that provided to employees to
motivate them for better performance.
2. Non-financial incentives are the one those which do not impact employees in monetary terms, but
they are still important as they help in providing motivation to employees.
3.2 Financial Incentives and its Types

1. Output Linked Incentive: The output linked incentive can be for individual output or group output
a. Individual Output Linked Incentive: The individual gets paid more based on higher output.
The more he produced, more will be his Incentive
b. Group Output Linked Incentive: Some companies have introduced group-output linked
performance incentives. In this all members share equal incentives irrespective of their
output. By providing fair treatment to team members through team-based compensation,
group cohesiveness is increased. However, there is drawback of this called social loafing in
which some members in group do not provide required effort because they think that anyway
whole group will be rewarded the same.
2. Bonus: Based on Payment Bonus Act, 1965 gives govt. of India the power to prescribe minimum
bonus of 8.33 percent of the basic pay up to basic salary of 3500 per month. As per this act bonus
is treated as deferred pay to be given later.
3. Scanlon Plan: This was introduced by Joseph Scanlon at United Steel Works of USA. In this
employee can participate by giving suggestions to cut costs. Any resultant cost savings from these
suggestions is distributed among the employees.
4. Profit Sharing: It is the distribution of Profit of the company with employees. The percentage of
profit to be distributed is determined in advance. Profit sharing is different from other incentive
schemes as here profit is shared after long interval of efforts whereas in other schemes incentives
follows efforts immediately.
5. Co-Partnership: In co-partnership the employees participate in equity capital of the company i.e.
when shares of company are floated, they buy them on the market prices. The shares may be
allotted to them and hence employees become shareholder of the company. They not only share
profits but also participate in decision making of the company
6. Employees stock option: Employees are given shares of company in such a way that they enjoy
long-term benefits due to appreciation is share prices.
7. Cafeteria Compensation Plan: A cafeteria plan is an employee benefit plan that allows staff to
choose from a variety of pre-tax benefits. This arrangement is also known as smorgasboard,
menus or cafeteria plan. The basic idea is that many employees attach different values to various
incentives and rewards and hence let them choose their rewards by themselves.
8. Fringe Benefits: Discussed later
3.3 Non-Financial Incentives and its Types

1. Interesting and Challenging Job
2. Social Importance of the Job
3. Status
4. Opportunity for Personal Growth
5. Opportunity for Promotion
6. Other benefits such as calling employees by first names
3.4 Intrinsic and Extrinsic Rewards

Another way to categorize rewards is to label them ad Intrinsic or Extrinsic Rewards
a. Intrinsic rewards: Intrinsic rewards are the satisfactions that an individual obtains from the job itself.
It means, they are the factors of esteem and self-actualization needs of the employees.
b. Extrinsic Rewards: Extrinsic rewards are the benefits provided externally. These rewards are
provided in term of money, promotions, and fringe benefits.
4 Fringe Benefits
Employees are provided various types of benefits which are not linked to productivity of the employee
but rather they are given to all employees depending on their seniority level in the organization. They
are basically payment to employees directly or indirectly either in cash or in-kind excluding
wage/salary and incentives linked to productivity.
4.1 Types of Fringe Benefits

Fringe benefits are of two types
1. Employee Welfare
2. Social Security
4.1.1 Employee Welfare
As per Arthur James – “Welfare includes anything that is done for the comfort and improvement of
employees and is provided over and above the wages”.
Employee welfare is not only about monetary benefits, but it is understood to include such services,
facilities and amenities which enable the persons employed to perform their work in healthy, congenial
surroundings and to provide them with amenities conducive to good health and high morale.
4.1.1.1 Types of Employee Welfare Schemes
4.1.1.1.1 Economic, Recreational and Facilitative Services

Overall, employee welfare services may be categorized as
1. Economic Services: These provide additional economic security over and above the wages and
salaries. For example, credit facilities for borrowing money in times of need
2. Recreational Services: Jon often becomes bored by their daily life. For this they need recreational
facilities such as indoor games, library, reading rooms, radios, T.V etc.
3. Facilitative services: These are conveniences which employees usually require such as canteen
facilities, housing facilities, medical facilities, washing facilities, educational facilities, leave travel
reimbursement facilities
4.1.1.1.2 Statutory or Non-Statutory Schemes

The employee welfare schemes can be classified into two categories based on compulsory or mandatory
viz. statutory and non-statutory welfare schemes. The statutory schemes are those schemes that are
compulsory to be provided by an organization, the non-statutory schemes are voluntary schemes
implemented by the industry.
1. The statutory welfare schemes include such as Drinking water, Latrines and Urinals, Lighting,
Canteen facilities, Lighting, washing places, changing room, rest rooms, maternity leave etc.
2. The non-statutory welfare schemes are the following: Personal Health Care facilities like
Doctors on duty, Flexible timing for the workers, Employee Assistance Programs like counseling
for stress, Harassment Policy to protect employees from harassment especially sexual
harassment to Women, Medi-claim Insurance Scheme etc.
4.1.1.1.3 Intramural or Extramural Activities
Another way to categorize is based on internal or external facilities. Facilities provided inside the
organization are called Intra-mural facilities such as latrines and Urinals, Canteens etc.
Those provided outside the organization are called extra-mural facilities lie housing accommodations,
maternity benefits, holiday homes, club membership etc.
4.1.1.2 Types of Employee Welfare Theories

1. Policing Theory: According to this view, the factory and other industrial workplaces provide
ample opportunities for owners and managers of capital to exploit workers in an unfair manner.
But government under this condition takes some steps and enacts laws for employee welfare.
So, government acts as a policeman
2. Religion Theory: Religion theory implies that the fruits of today's deeds will be reaped
tomorrow. Inspired by this belief, some employers plan and organize canteens and crèches.
3. Philanthropic Theory: The philanthropic theory of labor welfare refers to the provision of good
working conditions, crèches and canteens out of pity on the part of the employers
4. Paternalistic Theory: According to the paternalistic theory, also called the trusteeship theory, of
labor welfare, the industrialist or the employer holds the total industrial estate, properties and
the profits accruing from them, in trust. In paternalistic theory the employer acts as a parent to
them and takes care of their needs.
5. Placating Theory: This theory assumes that appeasement pays when the workers are on strikes
or angry. Workers are like children who are intelligent, but not fully so. As crying children are
pacified by sweets, workers should be pleased by welfare works.
6. Public Relations Theory: According to this theory, welfare activities are provided to create a
good impression on the minds of the workers and the public, particularly the latter.
7. Functional Theory: Also known as the efficiency theory of labor welfare, the functional theory
implies that welfare facilities are provided to make the workers more efficient. If workers are
fed properly, clothed adequately, and treated kindly, they will work efficiently.
8. Social Theory: The social theory implies that a factory is morally bound to improve the
conditions of the society in addition to improving the condition of its employees.
4.1.2 Social Security

Social security is essentially a measure for the employees against economic and social distress
such as old age, sickness, maternity, employment injury etc. They are of the following types
1. Payment for time not worked: Weekly offs, national holidays, sick leave, casual leave,
maternity leave come under this
2. Retirement benefits such as provident fund scheme, pension scheme, gratuity
3. Insurance benefits such as health insurance, life insurance etc.
SUMMARY SHEET: MANAGEMENT
FRINGE TOPIC OF ORGANISATIONAL
BEHAVIOUR PEOPLE MANAGEMENT
ORGANISATIONAL CULTURE
CHANGE MANAGEMENT
27 Final Selections in RBI Grade B 2017

72 Selections in RBI Grade B 2018
41 Selections in SEBI Grade A 2018
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Contents
1 Organization Culture ................................................................................................................................... 4
What is Organization Culture? ............................................................................................................. 4
Types of Organization Culture:............................................................................................................. 4
Open Door Policy - Meaning and its Advantages ................................................................................. 4
What is Open Door Policy? ........................................................................................................... 5
Advantages of an Open-Door Policy: ............................................................................................ 5
Edgar Schein Model of Organization Culture ....................................................................................... 5
Robert A Cooke Model of Organization Culture .................................................................................. 5
Hofstede Model of Organization Culture ............................................................................................. 6
Charles Handy Model of Organization Culture .................................................................................... 7
2 CHANGE MANAGEMENT ............................................................................................................................. 8
Resistance to Change ........................................................................................................................... 8
Techniques for Overcoming Resistance to Change and Selection of Appropriate Technique ............ 8
Strategic Change - Meaning and its Theories ...................................................................................... 9
Age of Discontinuity: ..................................................................................................................... 9
Future Shock:................................................................................................................................. 9
Tipping Points: ............................................................................................................................... 9
Strategic Decay:............................................................................................................................. 9
Interventions/Approaches to Implement Change Management Programme .................................... 9
Change Interventions: can be subdivided into three broad categories: ..................................... 9
Approaches to Implement Change Management Programme: ................................................... 9
MODELS/theory OF CHANGE MANAGEMENT ................................................................................... 10
Organization Centric:................................................................................................................................. 10
Employee (Individual) Centric: .................................................................................................................. 10
Organization(wide) Centric Change Management Model ................................................................. 10
Kurt Lewin’s Change Management Model: The Planned Approach to Organizational Change . 10
McKinsey 7S Change Model ........................................................................................................ 12
Kotter’s 8 step Model of Change ................................................................................................ 13
Contingency Model of Change Management: Dunphy and Stace’s Model of Change .............. 14
Anderson & Anderson’s Change Model ...................................................................................... 15
Employee (Individual) Centric Change Management Model ............................................................. 16
ADKAR model .............................................................................................................................. 16
Bridges’ Transition Model ........................................................................................................... 16
Kübler-Ross Five Stage Model (The Kubler Ross Change Curve) ................................................ 17
Scott and Jaffe Change Model .................................................................................................... 18
The Satir Change Model .............................................................................................................. 19
Transformational Change & Change Management ........................................................................... 20
Practitioner Models of Transformational Change ...................................................................... 20
Theoretical Models of Transformational Change ....................................................................... 20
Organizational Change and Transition Management ........................................................................ 20
Perpetual Transition Management: ............................................................................................ 20
The Three Components of Transition as per Ogilvie................................................................... 21
Systems Model of Change Management and Continuous Change Process Model ....................... 21
Systems Model of Change ........................................................................................................... 21
The Continuous Change Process Model of Organizational Change ............................................ 22
Characteristics and Capabilities of Successful Change Agents ....................................................... 22
What Change Agents are Capable of Changing: ......................................................................... 22

1 Organization Culture
What is Organization Culture?
Organization culture refers to the beliefs and principles of a particular organization. Broadly there are two
types of organization culture:
• Strong Organization Culture: Strong organizational culture refers to a situation where the employees
adjust well, respect the organization’s policies and adhere to the guidelines.
• Weak Organization Culture: In such a culture, individuals accept their responsibilities out of fear of
superiors and harsh policies.
Types of Organization Culture:

Let us understand the various types of organization culture:
1. Normative Culture: In such a culture, the norms and procedures of the organization are predefined and
the rules and regulations are set as per the existing guidelines.
2. Pragmatic Culture: In a pragmatic culture, more emphasis is placed on the clients and the external parties.
Customer satisfaction is the main motive of the employees in a pragmatic culture.
3. Academy Culture: Organizations following academy culture hire skilled individuals and provides training
to hone skills. Educational institutions, universities, hospitals practice such a culture.
4. Baseball team Culture: Such culture considers the employees as the most treasured possession.
Advertising agencies, event management companies, financial institutions follow such culture.
5. Club Culture: Organizations following a club culture are very particular about the employees they recruit.
6. Fortress Culture: The employees are terminated if the organization is not performing well. Individuals
suffer the most when the organization is at a loss. Stock broking industries follow such a culture.
7. Tough Guy Culture: In a tough guy culture, feedbacks are essential. The employees are under constant
watch in such a culture.
8. Bet your company Culture: Organizations which follow bet your company culture take decisions which
involve a huge amount of risk and the consequences are also unforeseen.
9. Process Culture: As the name suggests the employees in such a culture adhere to the processes and
procedures (rules and regulations) of the organization.
Open Door Policy - Meaning and its Advantages

What is Open Door Policy?
According to open door policy, the doors of the offices of superiors (CEO/Executives) must remain open
for the employees to have an easy access in cases of queries. The team members should have the liberty
to walk up to their team leaders and discuss issues with them on an open forum.
Advantages of an Open-Door Policy:

Open door policy encourages effective communication between the employee and the management.
There is no room for confusion when the employees directly interact with their superiors.
Edgar Schein Model of Organization Culture

According to Edgar Henry Schein, Organizations culture is formed in due course of time as the employees go
through various changes, adapt to the external environment and solve problems. Schein believed that there
are 3 levels in an organization culture: 1. Artifacts 2. Values 3. Assumed(Espoused) Values
1. Artifacts: The dress code of the employees, office furniture, facilities, behavior of the employees,
mission and vision of the organization all come under artifacts.
2. Values: The thought process and attitude of employees have deep impact on the culture of any
particular organization.
3. Assumed Values: The third level is the assumed values (certain beliefs and facts) which stay hidden
but do affect the culture of the organization.
.
Robert A Cooke Model of Organization Culture

According to Robert A Cooke, the culture of an organization is the way employees behave at the workplace
to ensure stable future and growth.

Cooke proposed three types of culture in the organization:
1. Constructive Culture: encourages healthy interaction amongst the employees. The key features of a
constructive culture are: Achievement, Self-Actualizing, Encouragement, Affiliative
2. Passive Culture: In a passive culture, the employees behave contrary to correct/ideal way.
The characteristics of a passive culture are: Approval, Conventional, Dependent, Avoidance
3. Aggressive Culture: The key features of such a culture are: Opposition, Power, Perfectionist,
Competitive. In the above culture, employees are aggressive, compete against each other and try to
become perfectionist by identifying their mistakes and eventually minimizing them.
Hofstede Model of Organization Culture

Geert Hofstede proposed that national and regional factors contribute to the culture of the organization.
According to Hofsteide there are majorly SIX dimensions (In 2010 Hofstede added a sixth dimension,
indulgence versus self- restraint) which influence the culture of the workplace:
1. Power Distance Index (PDI), 2. Individualism vs. Collectivism (IDV), 3. Uncertainty Avoidance Index
(UAI), 4. Masculinity vs. Femininity (MAS), 5. Long-term Orientation vs. Short-term Orientation (LTO),
6. Indulgence vs. Restraint (IND)

Charles Handy Model of Organization Culture
According to Charles Handy’s model, there are four types of culture which the organizations follow:
1. Power: Organizations where the power remains in the hands of only few people.
2. Task Culture: Organizations where individuals with common interests and specializations come
together to form a team to achieve the targets.
3. Person Culture: Organizations where the employees feel that they are more important than their
organization follow person culture.
4. Role culture: Role culture is a culture where every employee is delegated roles and responsibilities
according to his specialization, educational qualification and interest.

2 CHANGE MANAGEMENT
Change management (CM) is a collective term for all approaches to prepare, support, and help individuals,
teams, and organizations in making organizational change. The most common change drivers include:
technological evolution, process reviews, crisis, and consumer habit changes; pressure from new business
entrants, acquisitions, mergers, and organizational restructuring.
Resistance to Change
A mild degree of resistance to change is considered to be positive as it provides a great extent of
behavioural stability as well as predictability. It is believed to have a favourable influence on the decision
making, evaluation of the available alternative critically and leads to a healthy brainstorming on the viability
of various ideas and strategic alternatives.
Individual Resistance to Change can be classified into the following categories as below:
▪ Rational vs. Irrational Resistance

▪ Justified vs. Unjustified Resistance
▪ Covert vs. Overt Resistance
Techniques for Overcoming Resistance to Change and Selection of Appropriate

Technique
Kotter and Schlesinger (1979) proposed six crucial techniques for overcoming the resistance to change:
1. Education and Effective Communication

2. Facilitating Participation and Involvement
3. Support and Facilitation
4. Agreement & Negotiation.
5. Co-optation & Manipulation
6. Coercion (Explicit & Implicit)

Strategic Change - Meaning and its Theories
Strategic Change aims at establishing robust systems and processes for facing the competitive challenges
and growing environmental pressures. In response to the fast changing and fluid marketplace and
industry landscapes, many management thinkers came with theories of strategic change. Followings are
main theories related to Strategic Change:
Age of Discontinuity:
Legendary Peter Drucker has coined the term Age of Discontinuity to describe the way in which
disruptive change affects us. In Drucker’s model, the four sources of discontinuity are: 1. Globalization,
2. Cultural-pluralism, 3. Knowledge-capital, 4. New-technologies.
Future Shock:
Alvin Toffler, came up with an idea about the intersection of different paradigms and the accelerating
rates of change and their impact on businesses.
Tipping Points:
Malcolm Gladwell, used the term Tipping Points, to describe the phenomenon of trends acquiring critical
mass and then taking off to impact business and society in the process.
Strategic Decay:
Gary Hamel postulated the concept of Strategic Decay to explain how the value of each strategy decays
over time irrespective of how brilliant the strategy was in the first place.
In above 4 theories, thinkers were attempting is to explain how change is the only constant and hence,
businesses ought to be prepared for anything to happen and hence must strategize and build their
business models accordingly.
Interventions/Approaches to Implement Change Management Programme

The models of change lay the framework for formulation and implementation of strategies.
Change Interventions: can be subdivided into three broad categories:
1. Top Down Change Management: This kind of intervention relies on the fact that the organizational
change cascades from the top level of the management to the bottom most level in an organization.
2. Transformational Change Management: This intervention relies on the influencing capabilities of
a transformational leader who can set constructive.
3. Strategic Change Management: This intervention introduces new ways of doing work.
All these interventions lay stress on the role of leadership, strategic planning, involving employees in the
overall process and proper communication.
Approaches to Implement Change Management Programme:
Malara (1998) has identified 3 approaches to change management:

1. The Diagnostic method: This method involves a critical analysis of the existing conditions, specifying
the purpose and the objective of the research.
2. The Prognostic method: This method involves making projections or forecasts about the future trends
by using scientific applications.
3. The third approach is a combination of both the techniques.
MODELS/theory OF CHANGE MANAGEMENT

Organization Centric:
1. Kurt Lewin’s Change Management Model
2. McKinsey 7S Change Model
3. Kotter’s 8 step Model of Change
4. Contingency Model of Change Management: Dunphy and Stace’s Model of Change
5. Mintzberg and Quinn’s Model of Change
6. Anderson & Anderson’s Change Model
Employee (Individual) Centric:

7. ADKAR model
8. Bridges’ Transition Model
9. Kübler-Ross Five Stage Model (The Kubler Ross Change Curve)
10. Scott and Jaffe Change Model
11. The Satir Change Model
NOTE: Model 1,2,3 AND 7,8,9 are important for RBI Grade-B exam
Organization(wide) Centric Change Management Model
Kurt Lewin’s Change Management Model: The Planned Approach to Organizational

Change
Kurt Lewin’s Three Stages model or the Planned Approach to Organizational Change is one of the
cornerstone models which is relevant in the present scenario.
According to Lewin, Change for any individual or an organization is a complicated journey which involves
several stages of transitions before attaining the stage of equilibrium or stability. For explaining the process
of organizational change, he used the analogy of how an ice block changes its shape to transform into a
cone of ice through the process of unfreezing.
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:
Stage 1 - Unfreezing: This is the first stage of transition and one of the most critical stages in the entire
process of change management.
Stage 2 - Change: This stage can also be regarded as the stage of Transition or the stage of actual
implementation of change. It involves the acceptance of the new ways of doing things.
Stage 3 - Freeze (Refreezing): During this stage, the people move from the stage of transition (change) to a
much more stable state which we can regard as the state of equilibrium.
2.6.1.1 Lewin’s Force Field Analysis:

Kurt Lewin’s Force Field Analysis explain how the process of change works by diagnosing the driving and the
restraining forces that lead to organizational change. One side of the model represents the driving forces,
and the other side represents the restraining forces. The driving forces push the organizations towards the
new state, and the restraining forces provide resistance to change (regarded as the behaviors of the
employees that block the process of change). Stability can be achieved when both the driving and restraining
forces reach a stage of equilibrium, after balancing each-other.
During the stage of Unfreezing, the driving forces should be made stronger to motivate a change in the
behavior or ways of working, while the restraining forces should be made weaker or removed. The driving
forces from the external environment could be Globalization, Technological Development and IT revolution.

McKinsey 7S Change Model
McKinsey 7S model was developed by Robert Waterman and Tom Peters. The model is a powerful tool for
assessing and analysing the changes in the internal situation of an organization. The McKinsey 7 S model
refers to the seven key interrelated or integrated elements of an organization which are subdivided into
hard and soft elements:
The Hard elements are within the direct control of the management: 1. Strategy. 2. Structure 3. Systems.
The Soft elements are less tangible and are difficult to be defined and identified: 4. Shared Values 5. Style
6. Staff 7. Skills
As per the below diagram, the shared values located at the centre of the model influence all the other
elements of the model which are interconnected and interrelated.

Advantages of 7S Model:
• This model offers ways and methods to understand an organization and get a deep insight into the
way it works.
• This model integrates both the emotional as well as the practical components of change to create
ways to enable employees deal with transition easily.
Disadvantages of 7S Model:
• Since all the factors are interrelated and interdependent on one another, the failing of one-part means
failing of all and this is the greatest disadvantage of this model.
Kotter’s 8 step Model of Change
John Kotter (1996), in his book “Leading Change”, introduced 8 Step Model of Change on the basis of research
of 100 organizations which were going through a process of change. 8 Stages of Change are as follow:
1. Create urgency – This step involves creating a sense of urgency among the people
2. Form a powerful coalition –Getting right people on the team by selecting a mix of skills, knowledge.
3. Create a vision for change – This stage is related to creating the correct vision
4. Communicate the vision – Communication with people regarding change and its need.
5. Get things moving (Empower Action) – In order to get things moving or empower action, one needs to get
support, remove the roadblocks and implement feedback in a constructive way.
6. Create Quick Wins (Focus on short term goals) – Focusing on short term goals .
7. Build on the Change (Don’t give up) –not to give up while the process of change management is going on.
8. Make it Stick (Incorporate change) – Besides managing change effectively, it is important to reinforce it.

Advantages of Kotter’s Model:
• It is an easy step by step model which provides a clear description and guidance on the entire process
of change and is relatively easy for being implemented.
Disadvantages of Kotter’s Model:

• Since it is a step by step model, skipping even a single step might result in serious problems. The
process is quite time consuming.
Contingency Model of Change Management: Dunphy and Stace’s Model of Change

The contingency model is an extended version of Lewin’s three step in which Dunphy and Stace (1988, 1992
and 1993), explained the process of change from the transformational organization perspective.
Dunphy and Stace (1993), put forth a situational or contingency model of change, which emphasized on the
fact that organizations should vary their change strategies in accordance with the environmental changes for
arriving at an ‘optimum fit’.
Dexter Dunphy and Doug Stace has categorised CHANGE into four types of scale: 1. Fine-tuning 2. Modular-
transformation 3. Incremental-adjustment 4. Corporate-transformation.
Dunphy and Stace Described 4 Styles of Leadership
1. Collaborative Style: The collaborative leadership style attracts large scale participation
2. Consultative Style: The Consultative Style of Leaders consult the employees before implementing
organizational change
3. Directive Style: The Directive Style of Leadership involves least participation from the employees.
4. Coercive Style: This form of leadership exercises coercion for implementing organizational change.
Based on the interaction between the Scale of Change and Style of Management/Leadership style, Dunphy
and Stace propounded a model of 5 different types of Change:
1. Taylorism: This is the kind of change in which the change is usually avoided, and small adjustments are
made.
2. Developmental Transition: This kind of change is facilitating in nature
3. Task-Focused Transition: This technique focuses on new techniques and new procedures.
4. Charismatic Transitions: through effective communication and development of trust or faith, the change
can be implemented smoothly.
5. Turnarounds: This kind of change is path breaking in nature using authority.
Limitations of the Model

This model has been criticized due to its excess of dependency on the change drivers and the
leadership style which they adopt for implementation of organizational change instead of analysing
the organizational factors.

Anderson & Anderson’s Change Model
Anderson & Anderson’s model of change provides a comprehensive coverage and explanation of the whole
change as a cyclical process This model briefly views change from three perspectives:
1. Content: It analyses the technical as well as the organizational factors which require change;
2. People: This analyses the subjective factors such as the mindset, changes in the behavioural patterns
of people as well as the cultural changes;
3. Process: This stage is related with the possible action plans or strategies that can be crafted and
implemented for driving the change
All the three processes are integrated and interdependent on each other. The model is illustrated through
nine phases as demonstrated in the diagram below:
Phase I - Preparing to Lead the Change Initiative

Phase II - Defining Organizational Vision, Commitment and strengthening the Capabilities
Phase III - Determine the Design Requirements by Assessing the Situation
Phase IV - Enabling achievement of the Vision by Creating the Desired Design State
Phase V - Analysis of the Impact
Phase VI- Masterminding the implementation plans
Phase VII - Implementing the Change Plans
Phase VIII - Celebrating as well as Integrating the New State
Phase IX - Learning & Correct Course

Employee (Individual) Centric Change Management Model
ADKAR model
Former engineer and change manager, Jeff Hiatt developed the ADKAR Model. The primary purpose
of this model is not to focus on a set of steps, instead a group of goals that leaders should try to hit.
ADKAR is an acronym for:
• Awareness: Awareness of the need to change.

• Desire: Desire to participate in and support the change.
• Knowledge: Knowledge of how to change
• Ability: Ability to implement the change
• Reinforcement: Reinforcement to sustain the change
Limitations of ADKAR Model: This model is built for incremental change and has a narrow focus. If
leaders wanted to make a macro-level change or were not exactly sure of how deep they needed to go
with transitions, this method would probably not get the job done.
Advantages of ADKAR Model

• The model offers the capability of Identification and evaluation of the reasons why changes made
are not working and why desired results are not being obtained. The model makes it possible for
one to break the changes into different parts and then figure out the point where change may not
be as effective as planned.
Bridges’ Transition Model

Bridges‘ Transition Model was developed by William Bridges and published in his book “Managing
transitions”. This model focusses upon transition and not change as such.
Change is situational; it is the external event that is taking place, a new strategy, a change in
leadership, a merger or a new product. It can happen very quickly. Transition is the inner psychological
process that people go through as they internalize and come to terms with the new situation that the
change brings about. The model focuses on three main stages that are given as follows:

1. Ending, Losing, and Letting Go – When people are first introduced to change, they may enter this first
stage that is marked with resistance and emotional discomfort.
2. The Neutral Zone – This is the stage of uncertainty, impatience, and confusion. This stage can be
considered as the bridge between the old and the new.
3. The New Beginning – When the neutral phase is passed through support and guidance, the stage of
acceptance and energy enters the picture.
Kübler-Ross Five Stage Model (The Kubler Ross Change Curve)

The framework was initially created by psychiatrist, Elisabeth Kubler-Ross and was originally known
as the five stages of grief. Presently, the Kubler-Ross change curve can be use as reliable change
management strategy.
The five stages: Denial, Anger, Bargaining, Depression, Acceptance DABDA
1. Denial – Denial is the first stage of the model and is a stage when one is unable to accept the news.
2. Anger – When the news actually gets absorbed, then the first reaction is usually that of anger

3. Bargaining – The next step or stage involves bargaining so as to avail the best possible solution out of
the situation.
4. Depression – When one realizes that bargaining isn’t working, he/she may end up getting depressed.
5. Acceptance – When one realizes that there is no point in being depressed or fighting change, he/she
may finally accept what is happening and may begin to resign to it.
Advantages: This model is all about employee resistance and helping them to ease bad feelings can have
on the team. It helps managers prepare for how to deal with every emotion which workers will feel about
the change, and they can even connect this process to effects on productivity.
Scott and Jaffe Change Model

was developed by Cynthia Scott and Dennis Jaffe, and introduced in their article, “Survive and Thrive in Times
of Change“. This Model is based on the grief curve developed by Kubler-Ross. The Scott and Jaffe Change
Model doesn’t deal with how to manage the change itself. Instead, it focuses on the people impacted by the
change. Who undergoes following 4 phases:
1. Denial: This is the stage in which the feeling of change does not easily sink in and we ignore the change
completely as if nothing has happened.
2. Resist: During this stage, we understand that the change has taken place and it cannot be ignored,
but the acceptability is resisted.
3. Explore: This is the stage of exploration during which the organization builds up its coping or adaptive
mechanisms to tackle the resistance.
4. Commit: This is the stage during which the individuals are re-empowered and they accept the new
methods or processes.
Implication: The model can be considered as a vital framework for understanding the process of change
and it provides crucial insights on how one can manage change successfully by minimizing the resistance.
The Satir Change Model
Rooted in behavioural psychology, this model more people-centric than many management frameworks. The
purpose of this model is to focus on understanding the thoughts and feelings behind behavioural change. The
Satir Change Model theorizes that when unexpected or significant change happens, individuals go through a
series of predictable stages: Late Status-Quo, Resistance, Chaos, Integration, New Status-Quo
Stage 1: Late Status-Quo: The group is at a familiar place. The performance pattern is consistent.
Stage 2: Resistance: The group confronts a foreign element that requires a response. Often imported by a
small minority seeking change.
Stage 3: Chaos: The group enters the unknown. Relationships shatter. The loss of belonging and identity
triggers anxiousness and vulnerability.
Stage 4: Integration: The members discover a transforming idea that shows how the foreign element can
benefit them. The group becomes excited.
Stage 5: New Status Quo: If the change is well conceived and assimilated, the group and its environment are
in better accord and performance stabilizes at a higher level than in the Late Status-Quo.
Coping with Change: Virginia Satir’s Change Model suggestions:
Stage Description How to Help
1 Late Status Quo Encourage people to seek improvement information and concepts
from outside the group.
2 Resistance Help people to open up, become aware, and overcome the reaction
to deny, avoid or blame.

3 Chaos Help build a safe environment that enables people to focus on their
feelings, acknowledge their fear, and use their support systems. Help
management avoid any attempt to short circuit this stage
4 Integration Offer reassurance and help finding new methods for coping with
difficulties.
5 New Status Quo Help people feel safe so they can practice.
Transformational Change & Change Management

Transformational change means alterations in certain areas which is caused due to an interaction with the
environmental factors and creates a need for new behaviours or changes in the behaviours of the
organizational employees.
Practitioner Models of Transformational Change

The Practitioner Models focus on senior management in an organization. These models rely on opinions and
also on illustrative anecdotes and offer recommendations or concrete solutions to the managers..
Theoretical Models of Transformational Change

The Theoretical Models are developed on the basis of an extensive review of the research literature which
analyse the key areas of transformational change.
Organizational Change and Transition Management

Even after change has happened, transition continues to happen as transition takes longer time than change.
The process of Transition Management involves the implementation of change through systematic planning,
organizing and implementation of change to reach the desirable future.
Perpetual Transition Management:

Buchanan & Mc Calman (1989) proposed a framework on ‘Perpetual Transition Management’, which
proposes four key layers and the interlocking management processes which bring change in an organization.
These are:
1. Trigger Layer: This layer is concerned with the need identification and also the avenues for change
2. Vision Layer: This layer involves articulation of the futuristic vision of the organization
3. Conversion Layer: Mobilising support for the realization of vision
4. Maintenance & Renewal: This involves bringing reforms or change in the values, attitudes and
behaviours.

The Three Components of Transition as per Ogilvie
1. Endings: Letting go off the past or accepting the changed processes or behaviours.
2. Transitions: The in-between stage which involves a lot of confusion, ambiguities or a state of
neutrality.
3. New Beginnings: Moving forward once again and focusing the energies on constructively dealing with
the change.
1. Ending (3 D’s): Disengagement, Dis-Identification, Disenchantment

2. Transition (3 D’s): Disorientation, Disintegration, Discovery
3. Beginning (3 I’s): Inner Realignment, Investment, Internal Equilibrium
Systems Model of Change Management and Continuous Change Process Model
Systems Model of Change

The Systems Model of Change or Organization-Wide Change lays more emphasis on the fact that a change
must be implemented organization-wide instead of implementing it in piecemeal.
This model provides a whole new dimension to the concept of organizational change and describes the role
played by six interconnected or interdependent variables like people, task, strategy, culture, technology and
design. All these 6 variables are the key focus of planned change. The model has been represented in the
diagram below:

All the six variables as per the Systems Model of Organizational Change are interrelated and interdependent.
The Continuous Change Process Model of Organizational Change

The Continuous Change Process Model of Change views the entire process of change from the top
management perspective and considers change to be a continuous process. This model is a more complex
and a refined model than the Kurt Lewin’s Model of Change. This model equally covers Lewin’s concept of
change during the Implementation stage.
Characteristics and Capabilities of Successful Change Agents
Change agents act as the champions or change catalysts. The change agents may play the role of a
consultant who assists the client in strategically identifying and implementing solutions for overcoming
organizational problems.
Havelock and Shaskin identified some important characteristics of change abbreviated by HELP Scores:
Homophily.Empathy. Linkage. Proximity. Structuring. Capacity. Openness. Reward. Energy. Synergy
What Change Agents are Capable of Changing:
Change agents bring changes broadly in four areas: Structure, Physical Setting, Technology, and People.
1. Structural change is all about making changes in the organizational structure, authority and
hierarchical framework, job redesign, and various other structural variables.
2. Change in technology implies a change in the techniques, methods, processes or best practices
or the way of working itself.
3. Change in the physical setting involves a change in the layout and also the spatial
arrangements.
4. Change agents also facilitate a change in the attitudes of people, skills, behaviour and also their
perceptions.

SUMMARY SHEET:MANAGEMENT: FRINGE
TOPICS OF ORGANIZATIONAL BEHAVIOUR
DECISION-MAKING | INTERPERSONAL-RELATIONSHIP
TEAM BUILDING | CONFLICT-MANAGEMENT
NEGOTIATION | PUBLIC-RELATIONS

Contents
1 Decision Making .......................................................................................................................................... 4
What is Decision Making ...................................................................................................................... 4
Conflict Resolution and Decision Making............................................................................................. 4
OODA Loop and Decision Making ........................................................................................................ 4
VUCA Paradigm & Decision Making ..................................................................................................... 5
Models of decision making .................................................................................................................. 5
DECIDE Model: .............................................................................................................................. 5
Herbert Simon Model on Decision Making ................................................................................... 6
2 Interpersonal Relationship .......................................................................................................................... 6
Stages in Interpersonal Relationships .................................................................................................. 6
Different Types of Interpersonal Relationships ................................................................................... 7
Interpersonal Relationship Development Model ................................................................................ 7
Knapp’s Relationship Escalation Model ........................................................................................ 7
Duck’s Relationship Filtering Model ............................................................................................. 8
Theories of Interpersonal Relationship ................................................................................................ 8
Social Exchange Theory ................................................................................................................. 8
Uncertainty Reductions Theory .................................................................................................... 9
Interpersonal Relationship Model ....................................................................................................... 9
3 TEAM BUILDING .......................................................................................................................................... 9
What is a team?.................................................................................................................................... 9
Team Development .............................................................................................................................. 9
Tuckman’s stages of team development .................................................................................... 10
Team Models - Different types of teams ........................................................................................... 10
The Traditional Model ................................................................................................................. 10
The Team Spirit Model ................................................................................................................ 10
The Cutting Edge Model .............................................................................................................. 10
The Task Force Model ................................................................................................................. 10
The Cyber Team .......................................................................................................................... 11
Types of Teams ................................................................................................................................... 11
Important Characteristics of Work Teams with High-Performance .................................................. 11
Four-Dimensional Model of Virtual Teams ........................................................................................ 11
4 Conflict Management ................................................................................................................................ 12
Conflict process: ................................................................................................................................. 12
Phases of conflict................................................................................................................................ 12
5 Negotiation ................................................................................................................................................ 13
Elements of Negotiation: ................................................................................................................... 13
Models of Negotiation ....................................................................................................................... 13
Bargaining Strategies.......................................................................................................................... 14
The Negotiation Process .................................................................................................................... 14
Third-Party Negotiations .................................................................................................................... 14
RADPAC Model of Negotiation ........................................................................................................... 14
6 Public Relations ......................................................................................................................................... 15
Public Relation Activities .................................................................................................................... 15
Spin ..................................................................................................................................................... 15
Negative PR ........................................................................................................................................ 16
Effective Public Relations ................................................................................................................... 16
Models of Public Relations ................................................................................................................. 16
Press Agentry/Publicity ............................................................................................................... 16
Public Information Model ........................................................................................................... 16
Two Way Asymmetrical Model ................................................................................................... 17
Two-way Symmetrical Model ..................................................................................................... 17

1 Decision Making
What is Decision Making
Trewatha & Newport defines decision making process as: “Decision-making involves the selection of a
course of action from among two or more possible alternatives in order to arrive at a solution for a given
problem”.
In a management setting, decision cannot be taken abruptly. It should follow the steps such as:
1. Defining the problem

2. Gathering information and collecting data
3. Developing and weighing the options
4. Choosing best possible option
5. Plan and execute
6. Take follow up action
Conflict Resolution and Decision Making

Any decisions taken at any level have to take into account the conflicting needs of the individuals who are
affected by the decisions and hence conflict resolution is a part of the decision-making process.
OODA Loop and Decision Making

The theory underlying the OODA loop is that decision making within our minds happens in the recurring
loops of observation, orientation, decision and action in response to a situation. The basic premise is that
decision makers must be agile and alert to the situations with clear head and cool mind to take a decision

Observe: At first stage, inputs from the environment are taken by means of information, interaction with the
environment and the circumstances that unfold with the interaction.
Orient: After Observe stage, orientation to the situation happens by means of the individual’s internal
processes and the perceived expectations along with his or her own conditioning.
Decide: Next to Orient is Decide stage, where the information from the situation meets the individual’s
thought processes leading to decision making capabilities, which results in decision-making.
Act: Finally, the decision leads to the action where the decision is actualized and made operational.
(Once an action has been taken, it leads to change in environment variables thus new interaction with
environment starts occurring leading the process to the first stage of Loop i.e. OBSERVE, which triggers
another OODA loop…)
The important thing to remember about the OODA loop is that feedback is an integral component of all
stages with information flowing back and forth between the individual and the situation.
VUCA Paradigm & Decision Making

The landscape that confronts the multinational firms of today is characterized by VUCA or the Volatility,
Uncertainty, Complexity, and Ambiguity environment. VUCA is explained below one by one:
1. Volatility: The global macro environment is highly volatile due to the intersection of global and local
events. What happens in an isolated corner of the world is no longer restricted to that place in terms
of impact, but, has cascading effects on all regions worldwide.
2. Uncertainty: Apart from volatility, the present global environment is also highly uncertain. This is
mainly due to the convergence of different forces all coalescing around the same time leading to
systemic vulnerabilities that bring with them uncertainty.
3. Complexity: The current macroeconomic environment is hyper complex as well as multi-layered and
complexity is the norm rather than the exception. For instance, global corporations operate in
multiple jurisdictions which means that they are subject to the specific laws and regulations of each
country in addition to the rules governing bilateral and multilateral trade agreements.
4. Ambiguity: Another characteristic of the global economy is the many layers of ambiguity that present
themselves to decision makers in multinational firms. The intersection of the various forces means
that decision makers have to first understand the situation by digging in deep and peeling through
the layers of complexity and confusion.
Models of decision making
DECIDE Model:
The DECIDE model is related to rational decision making, proposed by Guo (2008).
D.E.C.I.D.E. model suggests going through the following stages:
D = define the problem:

E = establish the criteria:
C = consider all the alternatives:
I = identify the best alternative:

D = develop and implement a plan of action:
E = evaluate and monitor the solution:
DECIDE model help managers in taking rational decision.
Herbert Simon Model on Decision Making

This model is showed that humans went through three essential phases (Intelligence, Design, and Choice) in
the act of problem solving.
2 Interpersonal Relationship
A strong bond between two or more people refers to interpersonal relationship. An interpersonal
relationship can develop between any of the following:
1. Individuals working together in the same organization.

2. People working in the same team.
3. Relationship between a man and a woman (Love, Marriage).
4. Relationship with immediate family members and relatives.
5. Relationship of a child with his parents.
6. Relationship between friends.
Stages in Interpersonal Relationships

According to famous psychologist George Levinger, every relationship goes through following five stages:
1. First Stage – Acquaintance: Acquaintance refers to knowing each other.

2. Second Stage – The Build-up Stage: This is the stage when the relationship actually grows.
3. Third Stage – Continuation Stage: This is the stage when relationship blossoms.
4. Fourth Stage – Deterioration: Lack of compatibility, trust, love and care often lead to
misunderstandings and serious troubles in relationship.
5. Fifth Stage – The Termination Stage: The fifth and the last stage is the end of a relationship.
Different Types of Interpersonal Relationships

Various types of interpersonal relationship are: Friendship, Love Platonic Relationship, Family Relationship,
Professional Relationship (Work Relationship)
Interpersonal Relationship Development Model
Knapp’s Relationship Escalation Model

According to Knapp’s relationship escalation model, every relationship goes through the following phases
and stages:
1. Phase of coming together

1.1 Initiation
1.2 Experimentation
1.3 Intensifying
2. Phase of coming together and Relational Maintenance
2.1 Integration

2.2 Bonding
3. Phase of coming apart and Relational Maintenance
3.1 Differentiating
3.2 Circumscribing
4. Phase of coming apart
4.1 Stagnation
4.2 Avoidance
4.3 Termination
Duck’s Relationship Filtering Model

Duck’s relationship filtering model consists of many filters, a relationship has to pass through:
1. Distance
2. Perception
3. Physical appearance
Theories of Interpersonal Relationship

Interpersonal relationship refers to a strong association amongst individuals with similar tastes, aspirations
and interests in life. Let us now go through the theories of interpersonal relationship development in detail:
Social Exchange Theory

Social Exchange Theory was proposed by George Casper Homans in the year 1958.
According to Social Exchange Theory “give and take” forms the basis of almost all relationships though
their proportions might vary as per the intensity of the relationship.
Social exchange theory says that if the costs of the relationship are higher than the rewards, such as a lot
of effort or money put into a relationship and not reciprocated, this could lead to issues.

Uncertainty Reductions Theory
Both Charles R. Berger and Richard J. Calabrese proposed Uncertainty Reductions Theory to explain the
relationship between individuals who do not know each other much or are complete strangers. Following are
the stages individuals go through to reduce the level of uncertainty in relationships.
1. Entry Stage: The entry stage is characterized by two individuals trying to know each other better.
2. Personal Stage: In the second stage or the personal stage, Individuals try to know more about the
other person’s ethics, values, behaviour.
3. The Exit Stage: The Personal Stage decides the fate of the relationship.
Interpersonal Relationship Model

According to interpersonal relationship model, two directional components go a long way in creating an
individual’s perception about relationships. They are as follows:
1. Other to Self
2. Self to Other
Interpersonal Relationship Model’s describes ABOVE Discussed directional components in accordance with
following criteria:
1. Assistive Polarity
2. Level of Intentionality
3 TEAM BUILDING
What is a team?
A team is a group of individuals, all working together for a common purpose.
Difference between Group and Team: A group can have individuals with varied interests, attitude as well as
thought processes. A team must have individuals with a common objective to achieve.
Team Development
Team development creates a captivating atmosphere by encouraging co-operation, teamwork,
interdependence and by building trust among team members.

Tuckman’s stages of team development
The five stages of team development are:
1. Stage 1: Forming During this stage, group members may be anxious and adopt wait-and-see attitude.
They will be formal towards each other
2. Stage 2: Storming During this stage, team members are eager to get going. Conflict can arise as people
tend to bring different ideas of how to accomplish goals
3. Stage 3: Norming This stage is when people begin to recognize ways in which they are alike. They
realize that they are in this together.
4. Stage 4: Performing This stage is when team members are trained, competent, as well as able to do
their own problem-solving.
5. Stage 5: Adjourning Many teams will reach this stage eventually. For example, some teams exist only
for one project, and even permanent teams may be re-allocated through organizational restructuring
Team Models - Different types of teams

There are various types of Team Model. Here we will discuss the five most common ones:
The Traditional Model

This is a group of people with a traditional boss. The boss also shares some of his/her responsibility as
well as authority.
The Team Spirit Model

This is a group of people who are working for one boss. The team members are very happy and everything
seems to be going well.
The Cutting Edge Model

This is a group of people who are managing themselves.
The Task Force Model

This refers to a group that comes together for a specific time only.

The Cyber Team
In such a team model, members see one another rarely or even, not at all.
Types of Teams
1. Permanent teams- These teams perform on a permanent basis and are not dissolved once the task is
accomplished.
2. Temporary teams - Unlike permanent teams, temporary teams lose their importance, once the task
is accomplished.
3. Task Force - Such teams are formed for a special purpose of working on any specific project.
4. Committee - Committees are generally formed to work on a particular assignment either
permanently or on a temporary basis.
5. Organization/Work Force - Such groups are formed in organizations where team members work
together under the expert guidance of leader.
6. Self-Managed Teams - Self Managed Teams consist of individuals who work together again for a
common purpose but without the supervision of any leaders.
7. Cross Functional Team - Individuals from different areas come and work together for a common
objective to form a cross functional team.
8. Virtual Teams - Virtual teams consist of individuals who are separated by distances and connected
through computer.
Important Characteristics of Work Teams with High-Performance

For easy remembrance, the characteristics of the High-Performance teams can be explained with the help of the acronym
“PERFORM”:
P implies Purpose of Existence and Strong Value Orientation;

E implies Empowerment of the Team Members;
R suggests Relationship & Open Communication resting on the pillars of Trust & Cooperation;
F means Flexibility & Adaptability;
O means Optimum Outcomes & Productivity which can be measured by using specific measures;
R suggests Recognition, Rewards & Appreciation of Outstanding Performance;
M implies Morale.
Four-Dimensional Model of Virtual Teams
Jessica Lipnack and Jeffrey Stamps have presented a four-dimensional model of virtual teams. This model
illustrates the four aspects of – purpose, people, link and time, which govern the dynamics of virtual teams.

Above Figure demonstrates the Four-Dimensional Model of Virtual Teams. This model represents that in
virtual teams, people are linked through a common purpose over time. The success, failure and challenges
of any virtual team precipitate from the interaction among these four dimensions.
4 Conflict Management
Conflict arises whenever individuals have different values, opinions, needs, interests and are unable to
find a middle way. Conflicts can be of following types:
1. The Traditional View of Conflict: The belief that all conflict is harmful and must be avoided.
2. The Interactionist View of Conflict: The belief that conflict is not only a positive force in a group but
also an absolute necessity for a group to perform effectively.
3. Functional conflict: minimal level of conflict can help keep a group viable, self-critical, and creative
thus supports the goals of the group and improves its performance
4. Dysfunctional conflict: A conflict that hinders group performance is a destructive or dysfunctional
conflict.
5. Task conflict: Task Conflict relates to the content and goals of the work.
6. Relationship conflict: Conflict based on interpersonal relationships.
7. Process conflict: Process Conflict relates to how the work gets done
Conflict process:
A conflict process deals with five steps that help alleviate friction, disagreement, problems or fighting.
The five steps are:
1. Potential opposition or Incompatibility: In this stage, there are potential areas of conflict that
could develop, and they consist of communication, structure and personal variables
2. Cognition and Personalization: When one of the factors mentioned in the potential opposition
stage actually materializes as a conflict, then stage two occurs based on cognition and
personalization
3. Intentions: The third stage is regarding intentions, or decisions to take action in a certain way.
4. Behaviour: At this stage, conflicts become visible
5. Outcomes: The action–reaction interplay between the conflicting parties results in
consequences…
Phases of conflict
Another simplified view of conflict can be described below in has five phases:
1. Prelude to conflict - It involves all the factors which possibly arise a conflict among individuals.
2. Triggering Event - No conflict can arise on its own. There has to be an event which triggers the conflict.
3. Initiation Phase - Initiation phase is actually the phase when the conflict has already begun.
4. Differentiation Phase - It is the phase when the individuals voice out their differences.
5. Resolution Phase - The resolution phase explores the various options to resolve the conflict.

5 Negotiation
Negotiation is a process in which two or more parties exchange goods or services and attempt to agree on
the exchange rate for them.
Elements of Negotiation:
Process + Behaviour + Substance (Agenda)
1. Process- The way individuals negotiate with each other is called the process of negotiation. The
process includes the various techniques and strategies employed to negotiate and reach to a
solution.
2. Behaviour- How two parties behave with each other during the process of negotiation is referred
to as behaviour. The way they interact with each other, the way they communicate with each other
to make their points clear all come under behaviour.
3. Substance- There has to be an agenda on which individuals negotiate. A topic is important for
negotiation. In the first situation, going for the late-night movie was the agenda on which you
wanted to negotiate with your parents as well as your friends.
To conclude, negotiation is simply a technique, a discussion among individuals to reach to a mutual

agreement where everyone gains something or the other and conflicts are avoided.
Models of Negotiation
Negotiation is defined as a discussion among individuals to reach to a conclusion acceptable to one and all.
Let us go through various models of negotiation:
1. Win-Win Model - In this model, each and every individual involved in negotiation wins. Nobody is at
loss in this model and every-one is benefited out of the negotiation. This is the most accepted model
of negotiation.
2. Win-Lose Model - In this model one-party wins and the other party loses. In such a model, after
several rounds of discussions and negotiations, one party benefits while the party remains
dissatisfied.

3. Lose-Lose Model - As the name suggests, in this model, the outcome of negotiation is zero. No party
is benefited out of this model. In this model, generally the two parties are not willing to accept each
other’s views and are reluctant to compromise. No discussions help.
Bargaining Strategies
1. Distributive bargaining: Negotiation that seeks to divide up a fixed amount of resources; a win–lose
situation.
2. Integrative bargaining: Negotiation that seeks one or more settlements that can create a win–win
solution.
The Negotiation Process

Negotiation is made up of five steps:
1. Preparation and planning: Before you start negotiating, you need to do your homework. What’s the
nature of the conflict? What’s the history leading up to this negotiation? Who’s involved and what
are their perceptions of the conflict? What do you want from the negotiation? What are your goals?
2. Definition of ground rules: Once you’ve done your planning and developed a strategy, you’re ready
to begin defining with the other party the ground rules and procedures of the negotiation itself.
3. Clarification and justification: When you have exchanged initial positions, both you and the other party
will explain, amplify, clarify, bolster, and justify your original demands.
4. Bargaining and problem: The essence of the negotiation process is the actual give-and-take in trying to
hash out an agreement.
5. Closure and implementation: The final step in the negotiation process is formalizing the agreement
you have worked.
Third-Party Negotiations
There are three basic third-party roles: mediator, arbitrator, and conciliator.
Mediator: A mediator is a neutral third party who facilitates a negotiated solution by using reasoning and
persuasion, suggesting alternatives, and the like.
Arbitrator: An arbitrator is a third party with the authority to dictate an agreement. Arbitration can be
voluntary (requested by the parties) or compulsory (forced on the parties by law or contract).
Conciliator: A conciliator is a trusted third party who provides an informal communication link between the
negotiator and the opponent.
RADPAC Model of Negotiation

RADPAC Model of Negotiation is a widely used model of negotiation in corporates.

Every alphabet in this model signifies something:
R-Rapport A-Analysis D-Debate P-Propose A-Agreement C - Close
R - Rapport: As the name suggests, it signifies the relation between parties involved in negotiation.
A - Analysis: One party must understand the second party well. It is important that the individual understand
each other’s needs and interest.
D - Debate: Nothing can be achieved without discussions. This round includes discussing issues among the
parties involved in negotiation.
P - Propose: Each individual proposes his best idea in this round.
A - Agreement: Individuals come to a conclusion at this stage and agree to the best possible alternative.
C - Close: The negotiation is complete and individuals return back satisfied.
6 Public Relations
PR or public relations is nothing but the practice of protecting as well as enhancing the reputation of any
particular organization/firm or for that matter any individual.
Public Relation Activities

Here are some ways of enhancing an organization’s brand image:
1. Addressing the media
2. Speaking at various press conferences, seminars.
3. Advertisements to correctly position the brand, Pamphlets, Brochures, magazines notices,
newsletters and so on.
4. Corporate Social responsibility (CSR Activities)
5. Introducing various loyalty schemes for customers like membership cards, premium clubs so as to
retain the customers.
6. Various events, shows and activities.
Spin
Public relation experts sometimes turn a bad situation into the organization’s favour. Such a situation is called
as spin. Spin refers to a situation where public relation experts tactfully utilize an unfavourable situation for
company’s benefits and publicity.

Negative PR
In cases of negative PR, public relation experts instead of focussing on enhancing their organization’s image,
concentrate on tarnishing the reputation of business rivals. Negative PR also called as dirty tricks involves
extensive research and information gathering.
Effective Public Relations

Public Relations is said to be effective under all the below circumstances:
▪ Awareness: To create a positive image of an organization, the message must reach the public.
Information must reach in its desired form for effective public relation.
▪ Acceptance: The audience must understand what the message intends to communicate. They ought
to agree with the message.
▪ Action: The audience ought to give feedback to the organization accordingly.
Models of Public Relations

James E. Grunig, a noted public relations theorist, proposed FOUR Models of public relations and discussed
below.
Press Agentry/Publicity
Press Agentry Publicity model is also called P.T Barnum model. Press Agentry Publicity model follows one-
way communication where the flow of information is only from the sender to the receiver. The sender is not
much concerned about the second party’s feedback, reviews and so on.
Flow of information takes place only from the public relations experts to the target audiences. (One-way
communication)
Public Information Model

As the names suggests public information model, emphasizes on maintaining and enhancing the image of an
organization simply by circulating relevant and meaningful information among the target audience/public.
Newsletters, brochures, magazines with information about the organization, its key people, products,
benefits of the products, testimonials, success stories are distributed at regular intervals among target
audiences for brand positioning.
Two Way Asymmetrical Model

Two-way asymmetrical model of public relations revolves around two-way communication between both
the parties but the communication is somewhat not balanced.
Two-way Symmetrical Model

Two-way symmetrical model of public relations is an ideal way of enhancing an organization’s reputation
among the target audience. According to two-way symmetrical model, public relations experts depend on
two-way communication to position their brand among end-users.

SUMMARY-SHEET: MANAGEMENT:
FRINGE TOPIC OF ORGANIZATIONAL BEHAVIOUR
RISK MANAGEMENT | CRISIS MANAGEMENT
PUBLIC-PRIVATE ADMINISTATION
PSYCHOLOGY&PERSONALITY

Important Point:
• This document covers fringe topics related to Organizational Behavior. NAMELY:
RISK MANAGEMENT & CRISIS MANAGEMENT, PUBLIC-PRIVATE ADMINISTATION
and PSYCHOLOGY&PERSONALITY
• Many of the concepts, Model, Theory can suitably be associated with some
topics of
• Give emphasis on key works for every theory/concept/fact as Exam Setter is
playing with words when setting up the questions
• Do not leave any theory/concept/fact assuming that it is not important as RBI is
putting questions from lot of lesser important theories
Contents
1 RISK MANAGEMENT .................................................................................................................................... 4
Principles of Risk Management ............................................................................................................ 4
Risk Management Process ................................................................................................................... 5
Risk Treatment and Risk Response Planning ....................................................................................... 6
Risk Response Planning ................................................................................................................. 6
Enterprise Risk Management (ERM) .................................................................................................... 7
2 Crisis Management ...................................................................................................................................... 7
Types of crisis: ...................................................................................................................................... 8
Crisis Management Model ................................................................................................................... 8
Gonzalez-Herrero and Pratt Crisis Management Model .............................................................. 8
Structural Functions Systems Theory ............................................................................................ 9
Diffusion of innovation Theory ..................................................................................................... 9
Unequal Human Capital Theory .................................................................................................... 9
Crisis Management Plan ....................................................................................................................... 9
3 Public and Private Administration............................................................................................................... 9
New Public Management Model........................................................................................................ 10
Personnel Administration .................................................................................................................. 11
Process of Personnel Administration/ Management.................................................................. 11
Problems in Personnel Administration ....................................................................................... 12
4 Psychology ................................................................................................................................................. 12
Modern Approaches to Psychology ............................................................................................ 12
Branches of Psychology ...................................................................................................................... 13
Psychodynamic Approach .................................................................................................................. 14
The Important Role of Unconscious............................................................................................ 14
The Id, Ego and Superego............................................................................................................ 14
Carl Jung’s Psychodynamics ........................................................................................................ 14
Humanistic Perspective of Psychology ............................................................................................... 15
Humanistic Perspective and Management ................................................................................. 15
5 Psychology and Personality Development ................................................................................................ 15
Personality .......................................................................................................................................... 15
Determinants of Personality .............................................................................................................. 16
What is Personality Development? .................................................................................................... 16
Freud’s Psychoanalytic theory of Personality Development ............................................................. 16
Freud’s Structural Model of Personality ..................................................................................... 17
Erikson’s Stages of Psychosocial Development ................................................................................. 17
Piaget’s Stages of Cognitive Development ........................................................................................ 18
Personality Traits - Meaning and Different Types of Traits ............................................................... 20
Personality Types - Different Types of Personality ............................................................................ 22
Personality Disorders - Meaning and Different Types of Disorders .................................................. 23
Myers–Briggs Type Indicator .......................................................................................................... 24

1 RISK MANAGEMENT
Risk management is the process of minimizing or mitigating the risk. It starts with the identification and
evaluation of risk followed by optimal use of resources to monitor and minimize the same.
Ideally in risk management, a risk prioritization process is followed in which those risks that pose the threat
of great loss and have great probability of occurrence are dealt with first. Refer to table below:
IMPACT ACTIONS
Considerable Must Manage and Extensive Management

SIGNIFICANT
Management Required Monitor Risks essential
Risk are bearable to Management effort Management effort

MODERATE
certain extent worthwhile required
Accept but monitor Manage and Monitor

MINOR Accept Risks
Risks Risks
LOW MEDIUM HIGH
LIKELIHOOD
The above chart can be used to strategize in various situations. The two factors that govern the action
required are the probability of occurrence and the impact of the risk.
Principles of Risk Management

The Project management body of knowledge (PMBOK) has laid down 12 principles. Here we shall discuss an
amalgamation of both PMBOK and International Organization for Standardization (ISO) principles. The
various principles are:
1. Organizational Context: Every organization is affected to varying degrees by various factors in its
environment (Political, Social, Legal, and Technological, Societal etc).
2. Involvement of Stakeholders: The risk management process should involve the stakeholders at each
and every step of decision making.
3. Organizational Objectives: When dealing with a risk it is important to keep the organizational
objectives in mind.
4. Reporting: In risk management communication is the key.

5. Roles and Responsibilities: Risk Management has to be transparent and inclusive. It should take into
account the human factors and ensure that each one knows it roles at each stage of the risk
management process.
6. Support Structure: Support structure underlines the importance of the risk management team.
7. Early Warning Indicators: Keep track of early signs of a risk translating into an active problem.
8. Review Cycle: Keep evaluating inputs at each step of the risk management process - Identify, assess,
respond and review.
9. Supportive Culture: Brainstorm and enable a culture of questioning, discussing. This will motivate
people to participate more.
10. Continual Improvement: Be capable of improving and enhancing your risk management strategies
and tactics.
Risk Management Process

As per ISO 31000 (Risk Management - Principles and Guidelines on Implementation), risk management
process consists of the following steps and sub-steps:
▪ Establishing the Context
▪ Identification
▪ Assessment
1. Establishing the Context: Establishing the context means all the possible risks are identified and the
possible ramifications are analysed thoroughly. Various strategies are discussed and decisions are
made for dealing with the risk.
2. Identification: Once the context has been established successfully, the next step is identification of
threats or potential risks. This identification can be at the level of the source or the problem level
itself.
3. Assessment: Once the risks have been identified, they are then assessed on their likelihood of
occurrence and the impact.
Apart from this, typically most of the organizations follow a risk management cycle.
According to this cycle there are four steps in the process of risk management. The first step is the
assessment of risk, followed by evaluation and management of the same. The last step is measuring the
impact
Risk Treatment and Risk Response Planning

Risk treatment also known as risk control, is that part of the risk management where decisions are made
about how to deal with risks either in the external or internal environment.
Risk Response Planning

Risk response planning is an integral aspect of risk treatment.The following four different strategies are
discussed upon:
1. Avoiding Risk - Risk avoidance requires identification of the risks first and foremost.
2. Transferring Risk - Risk transfer is one of the better means to dilute the impact of the risk.
3. Mitigating Risk - Risk mitigation is a control process that essentially stops a risk before it starts making
an impact.
4. Accepting Risk - Finally, there are certain risks that are unavoidable. A risk that is acceptable can be
considered passive since no action at all is taken upon the same.
Till now we have discussed how Risk is managed at organisational level. Next section discusses a similar
concept famously termed as Enterprise Risk Management (ERM).

Enterprise Risk Management (ERM)
Enterprise risk management is ‘the discipline by which any organization in any industry assesses, controls,
exploits, finances and monitors risk from all the sources for the purpose of increasing organizations short-
term and long-term value to its stakeholders’.
It is an approach where in risk is looked upon as an opportunity and at the same time is monitored such
that it may not affect an organization to a large extent.
Typically, the following four strategies, called as ‘risk response strategy’ are adopted by organizations while
facing a risk. Similar approach is also discussed in previous section, under RISK RESPONSE Planning.
▪ Exit strategy: Avoiding the activities that lead to risk.

▪ Reduction strategy: Taking certain actions that decrease the impact of the risk.
▪ Share or Insure strategy: Transferring a certain component of risk so that impact is reduced.
▪ Accept strategy: No step is taken to mitigate risk. This is taken due to cost/benefit considerations.
2 Crisis Management

“The art of dealing with sudden and unexpected events which disturbs the employees, organization as well
as external clients refers to Crisis Management.”
Types of crisis:
1. Natural Crisis
▪ Disturbances in the environment and nature lead to natural crisis.
2. Technological Crisis
▪ Technological crisis arises as a result of failure in technology.
3. Confrontation Crisis
▪ Confrontation crises arise when employees fight amongst themselves.
4. Crisis of Malevolence
▪ Organizations face crisis of malevolence when some notorious employees take the help of
criminal activities and extreme steps to fulfil their demands.
5. Crisis of Organizational Misdeeds
▪ Crises of organizational misdeeds arise when management takes certain decisions knowing the
harmful consequences
6. Crisis due to Workplace Violence
▪ Such a type of crisis arises when employees are indulged in violent acts
7. Crisis Due to Rumours

▪ Spreading false rumours about the organization and brand lead to crisis.
8. Bankruptcy
▪ A crisis also arises when organizations fail to pay its creditors and other parties.
9. Crisis Due to Natural Factors
▪ Disturbances in environment and nature such as hurricanes, volcanoes, storms, flood;
droughts, earthquakes etc result in crisis.
10. Sudden Crisis

▪ As the name suggests, such situations arise all of a sudden and on an extremely short notice.
11. Smouldering Crisis
▪ Neglecting minor issues in the beginning lead to smouldering crisis later.
Crisis Management Model
Gonzalez-Herrero and Pratt Crisis Management Model

Gonzalez-Herrero and Pratt proposed a Crisis Management Model which identified three different stages of
crisis management. THREE stages of crisis management are as follows:

1. Diagnosis of Crisis: The first stage involves detecting the early indicators of crisis.
2. Planning: Once a crisis is being detected, crisis management team devise relevant strategies to avoid
an emergency situation.
3. Adjusting to Changes: And finally, employees must adjust well to new situations and changes, for
effective functioning of organization in near future.
Structural Functions Systems Theory

According to structural functions systems theory, communication plays a pivotal role in crisis
management. Correct flow of information across all hierarchies is essential. Transparency must be
maintained at all levels. Management must effectively communicate with employees and provide
them the necessary information at the times of crisis.
Diffusion of innovation Theory

Diffusion of innovation theory proposed by Everett Rogers, supports the sharing of information
during emergency situations. As the name suggests during crisis each employee should think out of
the box and come out with something innovative to overcome tough times.
Unequal Human Capital Theory

Unequal human capital theory was proposed by James. According to unequal human capital theory,
inequality amongst employees leads to crisis at the workplace. Discrimination on the grounds of
caste, job profile as well as salary lead to frustrated employees.
Crisis Management Plan

Crisis Management Plan refers to a detailed plan which describes the various actions which need to be
taken during critical situations or crisis.
▪ Crisis management plan helps the employees to adopt a focused approach during emergency
situations.
▪ Crisis management Plan elaborates the actions to be taken by the management as well as the
employees to save organization’s reputation and standing in the industry. It gives a detailed overview
of the roles and responsibilities of employees during crisis.
3 Public and Private Administration

According to Paul H. Appleby the public administration is different from private administration in three
important aspects, the first is the political character, secondly the breadth of scope, impact and
consideration and public accountability.
Herbert Simon cited very practical and easy to understand differences based on popular beliefs and
imagination and therefore might seem more appealing. He said that public administration is bureaucratic
while private administration is business like. Public administration is political while private administration

is apolitical. And finally; the aspect most of us would swear by that public administration is characterized
by red tape while the private administration is free of it.
Similarities between the Public and Private Administration:

1. The managerial aspects of planning, organizing, coordinating and controlling are the same for public
and private administration
2. The accounting aspects like maintenance of accounts, filing, statistics and stocking are the same
3. Both of them have a hierarchical chain of command or reporting as the organizational structure
4. Both get influenced, adopt and reform their own practices in the light of best practices of the other.
They also share the same pool of manpower
5. And lastly, they share similar kinds of personnel and financial problems
New Public Management Model
The term New Public Management was coined by scholars from UK and Australia (Hood 1991 and Hood and
Jackson 1991), who were working in the in the areas of public administration which proposes a new point of
view towards the organizational design in the public sector.
The new public management which emerged in the 1980s represented an attempt to make the public sector
more business-like and to improve the efficiency of the Government borrowed ideas and management
models from the private sector. It emphasized the centrality of citizens who were the recipient of the
services or customers to the public sector.
The core themes for the New Public Management were:

1. A strong focus on financial control, value for money and increasing efficiency
2. A command and control mode of functioning, identifying and setting targets and continuance
monitoring of performance, handing over the power to the senior management
3. Introducing audits at both financial and professional levels, using transparent means to review
performances, setting benchmarks, using protocols to ameliorate professional behaviour
4. Greater customer orientation and responsiveness and increasing the scope of roles played by non-
public-sector providers
5. Deregulating the labour market, replacing collective agreements to individual rewards packages at
senior levels combined with short term contracts
So, basically the new public management was a radical movement to change not just the way a public
sector functions but also the entire perception about it.
Personnel Administration
Personnel administration is another term for a human resources (HR) job. Employees form the core and the
backbone of any organization and public organizations are no different. According to authors William
Mosher and J. Donald Kingsley, the key to better governance lies in effective personnel management.
For effective personnel administration there are certain criteria that need to be fulfilled like:
1. Highly qualified workforce of civil servants
2. Fair and equitable wages
3. Rights of representation
4. Work conditions to be decided taking the employee choices and needs in consideration
5. Establishing the prestige of civil service employment
Process of Personnel Administration/ Management
1. Classification is the first step in personnel management wherein similar kinds of posts are grouped
together based on their duties and responsibilities.
2. The second step becomes position classification which explains the individual position of that role
within the public administration machinery.
3. The third step is the process of recruitment. Recruitment in government organization is all about
finding the right people for the right job.
4. The next step is the training. Training develops skills and habits and also develops the requisite
mental attitude and morale of the civil servants.
5. Next comes, the promotion or the increase in rank or status. It is essential that the employees are
provided with timely promotion to develop their talent and increase their morale and motivation
levels.
6. The last step is the pay and service of the civil servants. .

Problems in Personnel Administration
One of the oldest problems that plague the personnel administration in all countries is the liberal
seepage of politics in all its aspects. Despite of the attempts of the scholars to separate politics and
administration, the divorce exists only in textbooks and on paper. The personnel administration of
the public organization has emerged as a triumph of technique over purpose. While the civil
servants are selected through rigorous methods of written examination, personal interviews, scores,
the rule of three, split-digit ranking etc, but the question remains whether they actually serve the
objectives of the organization.
4 Psychology
The term ’Psychology’ has been derived from two Greek words ’Psyche’ which means life and ’logos’ which
means explanation. As per Seyidov (2000), Psychology analysis is a pertinent area of concern for the HR or
Management professionals, as it addresses the four crucial problem areas: Employee Motivation,
Interpersonal Relations, Leadership and Selection of the talent pool.
Modern Approaches to Psychology

1. Biological Approach: The chief proponents of this approach were Olds, Sperry. As per Biological
approach, the brain and the body are the key influencers of human behaviour.
2. Evolutionary Approach: Charles Darwin propounded his ‘Theory of Evolution’ in his book ‘Origin of
Species’, 1859. According to him, organisms evolve or change over a period of time due to changes in
the behavioural traits or heritable characteristics.
3. Psychodynamic Approach: Sigmund Freud focused on the power of our unconscious memories,
feelings and thoughts in influencing people’s behaviour.
4. Behavioural Approach: Watson and Skinner reckoned that the behaviour is influenced by both
negative and positive reinforcement in the form of reward or punishments.
5. Cognitive Approach: Chomsky, Piaget revealed in their studies that human brain stores, processes
and interprets the information very much like a computer.
6. Humanistic Approach: Propounded by Maslow and Rogers, stressed on the influence of

environmental factors on our day to day behaviour.
7. Socio-Cultural Approach: Human behaviour and thoughts are different and differ because of the
cultural differences.
Branches of Psychology
Let’s analyse the vast field of psychology by understanding the various branches of this field and their areas
of concentration
▪ Psychometrics: Studies attitudes, abilities and traits

▪ Biological Psychology: Studies the relationship between the mind, brain and nervous system.
▪ Developmental Psychology: Attempts to study the changes which occur during birth till death.
▪ Educational Psychology: Study of psychological factors associated with teaching and various learning
processes.
▪ Personality Psychology: Study of personality traits
▪ Social Psychology: Attempts to study our behaviour in a social set up or how we interact with each
other
▪ Industrial or Organizational Psychology: Is about assessing the behaviour of workers and their
thought processes, for evolving strategies which will enhance their efficiency at work and overall
productivity too.
▪ Counselling Psychology and Clinical Psychology: Counselling helps people to deal with the issues of
their personal and professional life. Clinical psychology helps in treating disorders.
Let us now discuss some important Modern Approaches to Psychology in Detail such as:
Psychodynamic Approach & Humanistic Approach

Psychodynamic Approach
The Psychodynamic Perspective: As per the Psychodynamic approach, human behaviour is an outcome of
the role played by various psychological forces and early childhood experiences. The theory lays a lot of stress
on the dynamics of relationship between the unconscious or conscious mind and also asserts that behaviour
is an outcome of internal conflicts regarding which people have least awareness. The theory was propounded
by Sigmund Freud in the year 1874. Later, during the mid-1940s and 1950s, the theory of psychoanalysis was
well established with contributions from eminent psychologists and researchers like Carl Jung, A. Adler and
others.
The Important Role of Unconscious

Freud’s Psychoanalysis theory is based on two prominent assumptions:
▪ Mental faculty of humans to a large extent is unconscious or beyond the awareness.
▪ Past experiences or early childhood experiences, govern our lifetime behaviour or how we relate to
each other and manage our feelings.
The theory which was postulated by Freud was based on his research findings and observation of the
behaviour of his patients suffering from hysteria. According to him, our unconscious mind or repressed
thoughts, affect our day to day behaviour and what we feel about ourselves as well as others.
The Id, Ego and Superego

An adult personality generally has three determinants: Id, Ego and Super-Ego. The outcome of the
combination of all the three determinants shapes an adult personality. Freud believed than an individual’s
personality has three parts and thus is often called as tripartite personality.
According to Freud, an individual is expected to be in a state of mentally stable when all the 3 elements are
in a stage of equilibrium.
Carl Jung’s Psychodynamics

Swiss Psychotherapist expanded the theory of Psychodynamics which was postulated by Freud in 20th
century. He attempted to integrate the opposites, while still maintaining their individual entities. His version

of Psychodynamics gave less attention to the conflict between the Id and the Superego; instead his focus
was more on integrating different parts or shades of the personality.
Humanistic Perspective of Psychology

Humanistic Psychology looks at the individual from a holistic perspective and lays a lot of stress on the
concepts like self-actualization, free-will and self-efficacy. Instead of focusing on individual limitations, the
objective of this school of thought is to facilitate people realize their potential to the fullest and improve their
lives.
Humanistic Perspective and Management

Humanistic perspective attempts to address the employee-centric issues and recommends solutions for
grooming employees and develops high-performance teams.
According to Daft, the three crucial components of Humanistic perspective in the organizational context are:
1. Employee’s job performance will increase when they are treated with respect and dignity by their
managers.
2. The theorist analysed the relationship between employee motivation and the nature of task.
3. Focus has been given on analysing the complex relationship and interactions within the
organizational setting.
5 Psychology and Personality Development

Personality
Personality is nothing but the aggregate conglomeration of memories and incidents in an individual’s
entire life span. Environmental factors, family background, financial conditions, genetic factors, situations
and circumstances also contribute to an individual’s personality.

Determinants of Personality
An individual’s appearance, character, intelligence, attractiveness, efficiency, style determine his/her
personality. Following are the factors which help in shaping one’s personality:
1. Heredity - Heredity refers to factors that are determined once an individual is born. An individual’s
physique, attractiveness, body type, complexion, body weight depends on his/her parents’ biological
makeup.
2. Environment - The environment (social, cultural, family, natural, political) to which an individual is
subjected to during his growing years plays an important role in determining his/her personality. The
varied cultures in which we are brought up and our family backgrounds have a crucial role in shaping
our personalities.
3. Situation - An individual’s personality also changes with current circumstances and situations. An
individual would behave in a different way when he has enough savings with him and his behaviour
would automatically change when he is bankrupt.
What is Personality Development?

Personality development is defined as a process of developing and enhancing one’s personality. Personality
development helps an individual to gain confidence and high self-esteem.
Personality development also is said to have a positive impact on one’s communication skills and the way he
sees the world. Individuals tend to develop a positive attitude as a result of personality development.
Freud’s Psychoanalytic theory of Personality Development

According to Freud, love and aggression have a direct control on our minds and thoughts. Freud referred
to Love and Aggression as “Eros” and “Thanatos” respectively.

“Eros” refers to intimate and passionate love between two partners. It is often defined as a kind of madness
which one experiences for his/her partner.
“Thanatos” was a figure in Greek mythology, though he never really existed as a person. Thanatos symbolizes
death.
Freud’s Structural Model of Personality

According to Freud, the basic driving force of personality and behaviour is known as the libido. This libidinal
energy fuels the three components that make up personality: the id, the ego, and the superego.
1. The id is the aspect of personality present at birth. It is the most primal part of the personality and
drives people to fulfil their most basic needs and urges.
2. The ego is the aspect of personality charged with controlling the urges of the id and forcing it to
behave in realistic ways.
3. The superego is the final aspect of personality to develop and contains all of the ideals, morals, and
value imbued by our parents and culture. This part of personality attempts to make the ego behave
according to these ideals.
The ego must moderate b/w the primal needs of the id, the idealistic standards of the superego and reality.
For Example: After seeing a delicious dish we immediately want to eat it, this tendency is driven by Id, while
Superego says that you are not hungry so no need to eat it; and Ego mediates between ID & SUPEREGO, and
allows to taste a small bite.
Freud's concept of the id, ego, and superego has gained prominence in popular culture, despite a lack of
support and considerable scepticism from many researchers. According to Freud, it is the three elements of
personality that work together to create complex human behaviours.
Erikson’s Stages of Psychosocial Development

Erik Erikson’s eight-stage theory focus on how social relationships impact personality development. The
theory also extends beyond childhood to look at development across the entire lifespan.

At each stage of psychosocial development, people face a crisis in which a task must be mastered. Those who
successfully complete each stage emerge with a sense of mastery and well-being. Those who do not resolve
the crisis at each stage may struggle with those skills for the remainder of their lives.
NOTE: We have covered this theory in detail in HRD Topic. Kindly Refer to the HRD Notes/video lecture.
Piaget’s Stages of Cognitive Development

Jean Piaget's theory of cognitive development suggests that children move through four different stages of
mental development. Piaget's stages are:
• Sensorimotor stage: birth to 2 years

• Preoperational stage: ages 2 to 7
• Concrete operational stage: ages 7 to 11
• Formal operational stage: ages 12 and up
Through his observations of his children, Piaget developed a stage theory of intellectual development that
included four distinct stages:
1. The Sensorimotor Stage: Ages: Birth to 2 Years
Major Characteristics and Developmental Changes:
• The infant knows the world through their movements and sensations
• Children learn about the world through basic actions such as sucking, grasping, looking, and listening
• Infants learn that things continue to exist even though they cannot be seen (object permanence)
• They are separate beings from the people and objects around them
• They realize that their actions can cause things to happen in the world around them
Piaget believed that developing object permanence or object constancy, the understanding that objects
continue to exist even when they cannot be seen, was an important element at this point of development.
2. The Preoperational Stage: Ages: 2 to 7 Years
• Children begin to think symbolically and learn to use words and pictures to represent objects.
• Children at this stage tend to be egocentric and struggle to see things from the perspective of others.
• While they are getting better with language and thinking, they still tend to think about things in very
concrete terms.
Children become much more skilled at pretend play during this stage of development, yet continue to think
very concretely about the world around them.
3.The Concrete Operational Stage: Ages: 7 to 11 Years
Major Characteristics and Developmental Changes
• During this stage, children begin to thinking logically about concrete events

• They begin to understand the concept of conservation; for example: that the amount of liquid in a
short, wide cup is equal to that in a tall, skinny glass,
• Their thinking becomes more logical and organized, but still very concrete
• Children begin using inductive logic, or reasoning from specific information to a general principle
While thinking becomes much more logical during the concrete operational state, it can also be very rigid.
Kids at this point in development tend to struggle with abstract and hypothetical concepts.
4.The Formal Operational Stage: Ages: 12 and Up
• At this stage, the adolescent or young adult begins to think abstractly and reason about hypothetical
problems
• Abstract (existing in thought or as an idea but not having a physical or concrete existence)
thought emerges.
• Teens begin to think more about moral, philosophical, ethical, social, and political issues that require
theoretical and abstract reasoning
• Begin to use deductive logic, or reasoning from a general principle to specific information
The ability to think about abstract ideas and situations is the key hallmark of the formal operational stage of
cognitive development. The ability to systematically plan for the future and reason about hypothetical
situations are also critical abilities that emerge during this stage.
Personality Traits - Meaning and Different Types of Traits

Broadly there are five parameters which describe an individual’s personality. These five dimensions are
also called as “Big Five” Factors, and the model is referred to as Five Factor Model also abbreviated as FFM.
The Five Factor Model was initially proposed by Costa & McCrae in the year 1992 and famously known as
OCEAN Model.

1. Openness to experience: Individuals with openness to experience are generally very active, have a
tremendous inclination towards creativity and aesthetics and listen to their heart i.e. follow their inner
feelings.
2. Conscientiousness: As the name suggests, individuals with a Conscientiousness personality trait listen to
their conscience and act accordingly. Such individuals are extremely cautious and self-disciplined. They
never perform any task in haste but think twice before acting.
3. Extraversion and Introversion: Carl Jung popularized both the terms - “Extraversion” and “Introversion”.
Extraversion: Extraversion refers to a state where individuals show more concern towards what is
happening outside. Such individuals love interacting with people around and are generally talkative.
Introversion: Introversion, on the other hand refers to a state when an individual is concerned only
with his own life and nothing else. Such individuals do not bother about others and are seldom
interested in what is happening around.
3. Agreeableness: Agreeableness is a personality trait which teaches individuals to be adjusting in almost

all situations. Such individuals do not crib and face changes with a smile.
4. Neuroticism: Neuroticism is a trait where individuals are prone to negative thoughts such as anxiety,
anger, envy, guilt and so on. Such individuals are often in a state of depression and do not how to enjoy
life. They always look at the negative sides of life and find extremely difficult to cope up with stress.

Personality Types - Different Types of Personality
1. The Duty Fulfiller:
Such individuals take their roles and responsibilities seriously and perform whatever tasks are
assigned to them, and are extremely loyal and faithful.
2. The Mechanic:
As the name suggests such individuals are inclined towards machinery like aeroplane, motorcycling,
cars, races and so on. They are interested to know why and how certain things function. Theories do
not interest them. Such individuals are extremely adventurous and have a strong power of logical
reasoning.
3. The Nurturer:
Nurturers are individuals with a large heart. For them, the happiness of others is more important
than their own interests. Such individuals actually live for others.
4. The Artist:
Artists have an eye for natural beauty and creativity. They do not blindly copy others and aspire to
create a style of their own.
5. The Protector:
You would find such a personality type in very few people, making it a very rare personality type.
Protectors are systematic individuals who want the best system to get things done. They often think
irrationally. They are pessimists who find a problem in every situation.
6. The Idealist:
Such people have strong set of values and ethics. They find happiness in helping others. They consider
themselves lucky if they get an opportunity to help others.
7. The Scientist:
Such individuals believe in careful and strategic planning. They are good observers who believe in
constantly gathering information and upgrade their existing knowledge.
8. The Doer:
Individuals with such a personality type are the ones who believe in quick actions and immediate
results. They enjoy taking risks in life and fulfil tasks assigned to them in the shortest span possible.
9. The Guardian:
Such individuals are perfectionists who ensure that everything everywhere is going on smoothly. They
are mature individuals who have a clear set of standards.
10. The Performer:

Performers strive hard to grab attention of others and love being the centre of attention. They are
fun loving individuals who enjoy fun and excitement in life.

11. The Inspirer:
Inspirers are talented individuals and often act as a role model for others with great people skills.
12. The Giver:

“The Giver” personality type enjoys the company of others and do not prefer staying alone.
13. The Executive:

Such individuals are born to lead and make very good leaders. They love taking charge and are good
decision makers.
Personality Disorders - Meaning and Different Types of Disorders
Personality disorders refer to certain abnormalities in the behaviour of individuals.
Personality disorders can arise due to genetic factors (hereditary factors), environmental problems,
cultural issues and so on.
Types of Personality Disorders
1. Paranoid Personality Disorder - Individuals with a “Paranoid Personality Disorder” mistrust others for
no reason. They adopt a suspicious attitude towards almost every individual around them.
2. Schizoid Personality Disorder - Individuals with a “Schizoid Personality Disorder” find socializing with
others irrelevant and a mere waste of time and energy. Such individuals do not believe in social
relationships and prefer isolation.

3. Schizotypal Personality Disorder - Schizotypal personality disorder refers to a condition where
individuals generally think what is not practically possible. Such individuals have an odd behaviour
and often get nervous in social gatherings, hence prefer staying alone.
4. Antisocial Personality Disorder - As the name suggests individuals suffering from antisocial
personality disorder do not value the rights of other individuals. They often disrespect people around
and have absolutely no feelings or sentiments for others.
5. Borderline Personality Disorder - Individuals with Borderline Personality disorder often suffer from
extreme mood fluctuations. Such individuals always think in extremes and there is never a middle way
for them.
6. Histrionic Personality Disorder - Histrionic personality disorder refers to a condition where individuals
can actually go to any limit to seek attention of people around.
7. Narcissistic Personality Disorder - Such individuals are only concerned about their own image, pride,
social status and are often self-obsessed. Individuals with narcissistic personality disorder think that
they are the most special people on earth and no one else really exists.
8. Avoidant Personality Disorder - Such individuals feel ignored by others and fear being ridiculed by
the society. Individuals with this disorder fear interacting with others and feel that the other individual
is making fun of him/her.
9. Dependent Personality Disorder - Such individuals are extremely dependent on others and often lack
self-confidence. They are often dependent on others for their emotional needs.
10. Obsessive Compulsive Personality Disorder - Individuals with obsessive compulsive personality
disorder are obsessed with discipline, perfectionism, orderliness and so on.
Myers–Briggs Type Indicator

MBTI four categories of psychological functions are:
Introversion/Extraversion, Sensing/Intuition, Thinking/Feeling, Judging/Perception.

Each person is said to have one preferred quality from each category thus producing 16 unique types.

Summary Sheet
-
Business Organisation and
Business Environment
Important Points
Complete Notes
Complete Notes
3. It would be useful to go through this Summary sheet just before the exam or before any
Mock Test
1 Introduction
The term business organization describes how businesses are structured and how their
structure helps them meet their goals.
In general, businesses are designed to focus on either generating profit or improving society.
When a business focuses on generating profits, it is known as a for-profit organization.
These organizations are based on some form of ownership. This choice affects several managerial
and financial issues, including the amount of taxes the entrepreneur would have to pay, whether
the entrepreneur may be personally sued for unpaid business bills, and whether the venture will
die automatically with the demise of the entrepreneur.
When an organization focuses on improving the social good through the arts, education, health
care, or some other area, it is known as a non-profit (or not-for-profit) organization and is not
typically referred to as a business.
We shall discus various types of business organizations in this chapter
2 Forms of Business Organizations
2.1 Single and Joint Ownership

Our business may be owned by one person or by a group of persons. When it is owned by one
person, it is known as sole proprietorship
Except this form of business organisation, all other forms of business organisation come under
the category of group ownership or joint ownership.
Group ownership may take the form of -

1. Joint Hindu business family,
2. Partnership firm,
3. Joint stock company,
4. Limited liability partnership, or
5. Cooperative organisation.
We will briefly discuss different types of organization later in this document.
2.2 Proprietary and Corporate Enterprises
1. Proprietary Enterprise: Proprietary enterprises are owned by owners. In this case the
business does not exist independent of its owners who have the right to manage and run
the enterprise on daily basis.
2. Corporate Enterprises: In case of corporate enterprises, there is separation of ownership,

that is, a corporate enterprise enjoys a separate legal entity which is not affected by the
life of its shareholders or its members.
Corporate Entity Non-Corporate Entity

Joint stock company, limited liability partnership, Sole proprietorship, Joint Hindu Family and
cooperative society are categorised as corporate Partnership Firm are categorized as Non-corporate
entities entity
Separate legal entity Not a separate legal entity
Limited liability Unlimited liability
Separation of ownership from management Owners are the managers of the business
Perpetual succession Life is affected by the death of owners
can be launched and run only after fulfilling lot of can be launched and run without much legal
legal formalities formalities
3 Non-Corporate Entities
3.1 Sole Proprietorship

Sole proprietorship or individual entrepreneurship is a business concern owned and operated
by one person. The sole proprietor is a person who carries on business exclusively by and for
himself. Following are the features of Sole Proprietorship
1. One Man Ownership: In proprietorship, only one man is the owner of the enterprise
2. No Separate Business Entity: No distinction is made between the business concern and the
proprietor. Both are one and the same.
3. No Separation between Ownership and Management: In proprietorship, management rests
with the proprietor himself/herself. The proprietor is an owner also
4. Unlimited Liability: Unlimited liability means that in case the enterprise incurs losses, the
private property of the proprietor can also be utilized for meeting the business obligations
to outside parties
5. All Profits or Losses to the Proprietor: Being the sole owner of the enterprise, the proprietor
enjoys all the profits earned and bears the full brunt of all losses incurred by the enterprise
6. Less Formalities: A proprietorship business can be started without completing much legal
formalities. There are some businesses that too can be started simply after obtaining
necessary manufacturing license and permits
7. Capital: The capital is employed by the owner himself from his personal resources. He may
also borrow money from his friends and financial institutions if he cannot depend solely on
his personal resources
8. Limited resources: In case of sole proprietorship the owner is an individual. Resources of an
individual are always small and limited as compared to the resources of the group.
9. One person control: It is a one person show. He provides management to the business. He
takes all the decisions, procures resources, employee’s personnel, and direct and control the
affairs of the enterprise. He is not required to consult anyone else in taking any decision.
3.1.1 Merits - Sole Proprietorship

1. Easy to Form and Wind up:
2. Direct Motivation: The profits earned belong to the sole proprietor alone, and he bears
the risk of losses as well. Thus, there is a direct link between effort and rewards
3. Quick Decision and Prompt Action:
3.1.2 Demerits - Sole Proprietorship

1. Limited Capital: In sole proprietorship business, it is the owner who arranges the
required capital of the business.
2. Unlimited Liability: In case the sole proprietor fails to pay the business, obligations and
debts arising out of business activities, his personal properties may have to be used to
meet those liabilities.
3.2 Joint Hindu Business Family

Hindu Undivided Family business is a precise kind of business structure found only in India. This
is one of the classical methods of business structure in the nation. It is administered by the Hindu
Law. It is also known as HUF. It refers to a form of business organization which is owned and
carried on jointly by the members of the Hindu Undivided Family (HUF)
Important Terms in HUF

1. HUF: The family who runs or carry on the business organization. Hindu Undivided Family
includes an eldest male member ‘Karta’ and the other male members called co-parceners.
2. Karta: He is the person who is the head and eldest member of the family. Karta is the
person who has full control over business activities
3. Ancestral Property: It is the property of forefather or an ancestor and over which the
members have equal right
4. Co-Parceners: The male members related to three successive generations. They have equal
ownership right over the property of an ancestor
3.2.1 Features of Joint Hindu Family

1. Formation:
a. There should be at least two male members in the family to form a HUF
b. Ancestral property should have been inherited by members of HUF
c. All the members enjoy this property and have an equal share in that property.
d. Thus, any child taking birth in that family becomes a member of the HUF.
e. There is no requirement for an agreement to become a member
2. Liability
a. There is limited liability of all the members or co-parceners in the Hindu Undivided
Family business
b. The Karta has unlimited liability.
3. Registration: It is not compulsory for joint Hindu family business to get registration
certificate as it is governed by Hindu law act
4. Rights: All the members of HUF have the rights to inspect the accounts. The members can
also claim their share in the family property at the time of partition of the family
5. Control: Karta is the person who has full control over the Hindu Undivided Family
business. Karta can take advice from all the members, but he is not bound to accept their
decisions.
6. Continuity: Continuity is not affected by the death of a family member will stop next
generation control the business after the first generation and thus, business goes forever.
7. Minor Members: A child becomes a member by birth only, so there is no restriction for a
minor to become a member of the business
3.2.2 Merits of Joint Hindu Family

1. Easy Formation
2. Quick decision making
3. Continuity
4. Secrecy: All the decisions are taken by Karta and he only knows their business secrets. There
are no chances of leaking out of business secrets
5. Limited liability: The liability of all the members is limited to the extent of their shares. It
gives them a relief. The liability of Karta is though unlimited
3.2.3 Demerits of Joint Hindu Family

1. Limited resources: The Karta has limited scope of raising capital. His own funds may be
insufficient for expansion
2. Unlimited liability: Karta is personally liable for all the business obligations. His personal
property can be sold if the business assets are insufficient
3. Powerful Karta: Karta is all in all in the business. An incompetent Karta may ruin the
business since all the business decisions are taken by him only
3.3 Partnership
Partnership is an association of persons who agree to combine their financial resources and
managerial capabilities to run a business and share profits in an agreed ratio. The persons who
join hands are individually known as ‘Partner’ and collectively a Firm. The partners provide the
necessary capital, run the business jointly, and share the responsibility
3.3.1 Features of Partnership

1. Two or more Members: At least two persons are required to form a partnership. In any
partnership, where the number of partners is less than two, partnership is dissolved. The
maximum permissible number of partners has been prescribed under the Companies Act
2013. Section 464 of the act provides that number of persons in any partnership shall not
exceed 100 subject to the limit prescribed in the rules. In this regard, rule 10 of the
companies (miscellaneous) rules, 2014 provides that no partnership shall be formed,
consisting of more than 50 persons. Therefore, the limit as of now is 50 partners
2. Agreement: Whenever you think of joining hands with others to start a partnership business,
first of all, there must be an agreement between all of you. This agreement is called
Partnership Deed
• The amount of capital contributed by each partner
• Profit or loss sharing ratio
• Salary or commission payable to the partner if any
• Duration of business if any
• Name and address of the partners and the firm
• Duties and powers of each partner
• Nature and place of business; and
• Any other terms and conditions to run the business
3. Lawful Business: The partners should always join hands to carry on any kind of lawful
business.
4. Competence of Partners: Since individuals join hands to become partners, they must be
competent to enter into a partnership contract.
5. Sharing of Profit: The main objective of every partnership firm is to share of profits of the
business amongst the partners in the agreed proportion.
6. Unlimited Liability: That means if the assets of the firm are insufficient to meet the
liabilities, the personal properties of the partners, if any, can also be utilized to meet the
business liabilities.
7. No Separate Legal Existence: Just like a sole proprietorship, a partnership firm also has
no separate legal existence from that of its owners
8. Principal Agent Relationship: All the partners of the firm are the joint owners of the
business. They all have an equal right to participate in their management actively.
9. Restriction on Transfer of Interest: No partner can sell or transfer his interest to anyone
without the consent of other partners.
10. Continuity of Business: A partnership firm comes to an end in the event of death, lunacy,
or bankruptcy of any partner.
3.3.2 Merits of Partnership

1. Pooling of Skills of different partners enhances the overall skill of the company
2. Flexibility in operations: The partnership firm is a flexible organization. At any time,
the partners can decide to change the size or nature of the business or area of its
operation.
3. Secrecy: A partnership firm is not legally required to publish it accounts and submits its
reports. Hence, it is able to maintain confidentiality of information related to its
operations
3.3.3 Demerits of Partnership

1. Unlimited Liability: The partners are jointly as well as separately liable for the debt of the
firm to an unlimited extent.
2. Uncertain Life: The partnership firm has no legal entity separate from its partners. It
comes to an end with the death, insolvency, incapacity, or the retirement of any partner.
3. Lack of Harmony: Every partner can place his or her opinion or viewpoint before the
management regarding any matter at any time.
3.3.4 Types of Partnership based on Duration

Partnerships can be classified on the basis of duration..
1. Partnership at will: Such types of partnerships are neither for an affixed period not for a
particular purpose. This type of partnership exists at the will of the partners.
2. Particular Partnership: When a partnership is formed for a certain undertaking or for a
certain period, it is called a particular partnership.
3.3.5 Types of Partners based on Participation

1. Active Partner: An active partner is also known as Ostensible Partner. As the name suggests
he takes active participation in the firm and the running of the business.
2. Sleeping or Dormant Partner: This is a partner that does not participate in the daily
functioning of the partnership firm, i.e., he does not take an active part in the daily activities
of the firm.
3. Nominal Partner: This is a partner that does not have any real or significant interest in the
partnership.
4. Partner by Estoppel: If a person holds out to another that he is a partner of the firm, either
by his words, actions or conduct then such a partner cannot deny that he is not a partner.
This basically means that even though such a person is not a partner he has represented
himself as such, and so he becomes partner by estoppel or partner by holding out
a. Secret Partner: A secret partner is one whose association with the firm is unknown
to the general public. Other than this feature, in all other respects he is like the
rest of the partners. He contributes to the capital of the firm, takes part in the
management, shares his profits and losses, and has unlimited liability towards the
creditors.
3.3.6 Partnership Vs. Sole Tradership
Area Partnership Sole Tradership

Number of Members As per partnership act, the A sole trading concern is owned
minimum number of members is by one person
two and maximum twenty in
ordinary business and 20 in case of
banking business
As per company law, the max

number of partners is limited to 50
Agreement a partnership arises only because there is no question of
of agreement between the agreement here
partners
Capital it is an economically more strong it is economically weak. The
as partners can raise more capital ability of sole trader to provide
capital is limited
3.3.7 Partnership Vs. Joint Hindu Family

Basis Partnership Joint Hindu Family
Formation It arises as a result of an It arises from the status i.e. by
agreement between two or birth in the family
more persons
Number of persons As per partnership act, the there is no maximum limit on
minimum number of members is members
two and maximum twenty in
ordinary business and 20 in case
of banking business
As per company law, the max

number of partners is limited to
50
Minor a minor cannot be a partner but a male minor becomes a
can be admitted into the member merely by birth in the
benefits of partnership family
4 Corporate Entities
Let us discuss the Corporate Entities now one by one
4.1 Joint Stock Company

A company is an association of many persons who contribute money to a common stock and employ it
for a common purpose. The common stock so contributed is denoted in money and is the capital of the
company. The persons who contribute it are the members of the company. The capital of company is
divided into shares or stock of fixed amount and every member purchases several shares in the company.
Thus, the capital of company is jointly held by the shareholders. Therefore, it is known as joint stock
company.
Its shares are transferable, and its life is not affected by the incoming and outgoing of its members
4.1.1 Features of Company

1. Incorporated Association:
2. Artificial Person:
3. Separate Legal Entity
4. Limited Liability: The company being a separate person, its members are not as such liable
for its debts. Hence, in the case of a company limited by shares, the liability of members is
limited to the nominal value of shares held by them.
5. Separate Property: A company being a legal person is capable of owning, using, and
disposing of the property in its name.
6. Transferability of Shares: The shares of companies are transferable except in case of private
companies.
7. Common Seal: A company is an artificial person is not bestowed with a body of natural being.
4.1.2 Merits of Company
1. Large Financial Resources:
2. Limited Liability
3. Professional Management: Management of a company is vested in the hands of
directors, who are elected democratically by the members or shareholders.
4.1.3 Demerits of Company

1. Difficult to Form
2. Lack of Secrecy:
3. Delay in decision making:
4. Conflict among various groups: A company has various groups of stakeholders such as
shareholders, debenture holders, employees, directors etc. Each group has different
interests.
4.1.4 Types of Companies – Private and Public
Difference between Public Company Vs. Private Companies
Basis Private Company Public Company

Number of Shareholder Min – 2 Min – 7
Max - 200 Max – No Condition
Issue of Prospectus it cannot issue a prospectus it can issue prospects for
to invite the general public for inviting public for
purchase of its securities. It subscription of its shares. It
can issue securities, through can also issue securities
private placement only through private placement
Transfer of shares there is restriction on the shares of public company can
transfer of shares of the be transferred to any third
private company party
4.1.5 One Person Company

In many countries, law allows the registration of one person company having only one member
who subscribes to the entire share capital. According to Section 2 (62) of the Companies Act,
“One person company is a company which has only one person as a member”. It shall be
incorporated as a private company, that is, one person company is a special case of private
company. The words “one person company” shall be mentioned in the brackets below the name
of the company
1. No person shall be eligible to incorporate more than one “One Person Company”
2. it would be compulsory for a one-person company to convert itself into public or private
company in certain cases.
4.1.5.1 Features of One Person Company
1. An OPC may be registered as private company with one member only
2. An OPC will have a separate entity of its own
3. In India, concept of One Person Company was mooted by J.J. Irani committee
4.2 Limited Liability Partnership

Limited Liability Partnership enterprise, the worldwide recognised form of business organisation,
has now been introduced in India by enacting the limited liability partnership act, 2008.
LLP also offers the advantage of company form of organisation such as separate legal entity
though it does not have to follow the strict regulation of company law.
4.2.1 Features of LLP

1.Separate Legal Entity and Perpetual Succession:
2.Regulating Act: an LLP is governed by the Limited Liability Partnership Act,2008.
3.Number of Partners: Every LLP shall have at least two partners.
4.Designated Partners: Every LLP shall have at least two designated partners who are
individuals and at least one of them shall be a resident in India.
5. Limited liability: Unlike traditional partnership, in LLP the liability of partners is limited to
the extent of the capital contributed by each to the LLP.
4.2.2 Merits of LLP

1.Simple Formation
3.Perpetual Succession
4.Flexibility to the LLP to manage its own affairs: Partners can decide the way they want
to run and manage the LLP, as per LLP agreement. The act does not regulate the LLP to
large extent rather it allows partners the Liberty to manage it as per their agreement
5. Easy to transfer the ownership
6. Not agent of other partners
7. Limited liability
4.2.3 Limitations of LLP

1. An LLP cannot raise funds from public by issuing shares and debentures
2. There is no separation of management from owners as in case of company
3. This form of organisation cannot engage in certain businesses like banking, insurance,
telecom etc.
4.2.4 Distinction between Company, Partnership and LLP

Features Company Partnership LLP
Firm
Registration Compulsory registration with Registration Compulsory
the ROC is not registration required
compulsory with ROC
Name at the end of the name word no name to end with
“Limited” needs to be used in guidelines “LLP”
case of public company and
the word “Private Limited
“with a private company
Legal entity separate legal entity not a separate legal entity
separate
legal entity
Liability limited to the extent of unpaid unlimited limited to the extent
capital of contribution to
the LLP
Number of Public Company Min -7 Min – 2 Min – 2
shareholders/partners Public Company Max – No Max – 50 Max – No condition
Condition
Private Company Min – 2

Private Company Max - 200
4.3 Cooperative Society

A cooperative organisation is a voluntary Association of individuals who associate together to
promote their common economic and social interests. It is based on the principles of collective
effort, mutual self-help, equality, and freedom. It is generally formed and registered under the
Indian cooperative societies act, 1912.
4.3.1 Features of Cooperative Society

The essential characteristics of cooperative society are a follow
1. Voluntary Association
2. Equal Voting Rights-
4. Service Motive
5. Distribution of Surplus- Members are paid dividend and bonus out of the profits of the
co-operative society.
6. Elimination of Middlemen- The main object of the cooperative societies is to eliminate
middlemen and to establish direct contact between members and customers.
7. Democratic Management
8. Limited Liability: The liability of members is limited to the extent of amount contributed
by them as capital
4.3.2 Types of Cooperative Society

1. Consumer Cooperative Society: These societies are primarily for consumers who wish to
buy household goods at lower prices. Some of the best examples of a consumer co-
operative society are Super Bazar and Apna Bazar.
2. Producer Cooperative Society: Also known as industrial co-operatives, these types of
societies look out for the small-scale producers in a cut-throat market scenario.. Best
examples are dairy, fish farmers, weavers and artisans and tribal co-operatives.
3. Co-operative Credit Societies: These are urban and rural financial societies that provide
loans to members at low rates of interest, protecting the members from massive debts
to traditional moneylending agencies. Some examples are Teachers Co-op Credit society,
State Electric Board Employee Co-op Credit Society.
4. Marketing Cooperative Society: Mostly for the benefit of farmers, these societies
function to market the produce profitably at the best possible prices, increase the
bargaining strength of the farmers and protect them from the trials of individual selling
and market exploitation. Some good examples are Milk Co-operatives in Gujarat.
5. Housing Cooperative Society: Housing co-ops are a type of society that provides
affordable housing to the middle and low-income groups. One becomes a member by
purchasing shares in the co-operative.
6. Co-operative Farming Societies: The financially challenged farmer may not be able to
maximiser his agricultural output individually and earn optimum profits.
4.3.3 Merits of Cooperatives

1. Easy to Form-
2. Open Membership
3. Democratic Management- A cooperative society is managed in a democratic manner. It
is based on the principle of ‘one man one vote’. All members have equal rights and can
have a voice in its management
4. Limited Liability
4.3.4 Limitations of Cooperatives

1. Limited Capital
2. Inefficient Management- The management of a co-operative society is generally
inefficient because the managing committee consists of part-time and inexperienced
people.
3. Absence of Motivation- A cooperative society is formed for mutual benefit and the
interest of individual members is not fully satisfied. There is no direct link between effort
and reward. Hence, members are not inclined to put their best efforts in a cooperative
society
4. Conflict among Members- Once the initial enthusiasm about the co-operative ideal is
exhausted, differences and group conflicts arise among members.
5. Government Control: A cooperative society gets various concessions and benefits from
the government. In return there is excessive government regulation and control by the
government.
5 Choice of Form of Business Organizations

Till now we have discussed various forms of business organisations. You might be confused at
which kind of business organisation is useful in which scenario. The impact of various factors on
the choice of suitable form of organisation is discussed below
1. Ease information: It implies an organisation which involves least expenses information
and minimum legal formalities is the best. From this point of view sole trader ship and
partnership are preferable
2. Liability: Limited liability implies that in case of insolvency or winding up, the owners will
be responsible only up to the amount of capital contributed by them. From this point of
view, the company and the LLP form of organisation are preferable
3. Nature of business: Business activity may be trading, manufacturing, or rendering
services. Trading business generally requires small capital and limited managerial ability.
Thus, it can be easily managed by sole proprietorship organisation. Service activities are
usually undertaken by the proprietorship firms. For a manufacturing business,
partnership or company or LLP form of organisation may be a better choice
4. Ease of raising finance: When a large amount of capital is needed, company may be the
right form of organisation. If small finance is required, then sole trader ship or partnership
may be the desired forms of organisation
5. Control: If one wants to have a direct control over his business then sole proprietorship
would be the preferable form. If partnership is created, the sole proprietor must share
control with partners. In a private company, promoters may be able to retain effective
control over the business of the company but in case of public company, the owners will
have indirect control over the management of the company
6. Business secrecy: Sole tradership is the best to maintain secrecy. In partnership the
secrets must be shared with the partners. In company form of organisation, the secrets
become public in case of public company though in case of private company, the secrets
will remain with the private members
7. Stability or Continuity: From the point of view of stability, company form is idle form of
organisation because it remains unaffected by the continuance or discontinuance of its
members, whereas sole proprietorship and partnership get affected immediately if the
partner or sole proprietor ceases to exist
8. Government Regulations: If one wishes to avoid too much government controls and
regulations of business, he will prefer sole proprietorship or partnership. Business
undertaken through company and cooperative forms of organisation are subject to lot of
government controls and regulations through the Company Act and Cooperative Societies
Act.
6 Concept and Nature of Business Environment

Business environment is the aggregate of all conditions, events, and influences that surround and
affect the business. It implies that business environment refers to all conditions and forces
external or internal to business under which it operates. These external or internal forces include
customers, creditor’s, competitors, suppliers, government, employees, owners, managers, and
political parties etc.
The business environment can be of 2 types

1. Internal Environment: The internal environment consists of conditions and forces within the
organisation that affect its operations and management.
2. External Environment: The external environment consists of all forces that affect an organ
organisation from its outside. These include customers, competitors, creditor's, suppliers,
social and political forces, technological and international forces etc.
6.1 Characteristics of Environment

1. Totality of External Forces: Business Environment is the sum total of all the external factors
that influence the functioning of the business.
2. Specific and General Forces: Business Environment is made up of both specific and general
forces.
3. Inter-relatedness: Various elements of business environment are very closely related to each
other.
4. Dynamic Nature: Business environment is dynamic in nature i.e., it keeps on changing. For
exampl
5. Uncertainty: Business environment is very uncertain as one cannot predict as to what will
happen in future.
6. Relativity: Different countries and different regions have different business environment.
Thus, business environment is a relative concept.
7 Layers of Business Environment

A business form is surrounded by three layers of environment
1. Micro: Microenvironment is the immediate environment of the firm including its mission,
policies, resources, culture, organisation structure etc.
2. Meso: Meso environment includes all external forces operating on the firm at the industry level
such as customers, competitors, suppliers, distribution partners, regulators etc. Meso
environment is the setting between the microenvironment and the microenvironment of the firm
3. Macro: Macroenvironment consists of external forces that are remote and have no direct
influence on a firm. The examples include economic, social, political, technological, international
factors, etc. These factors may be clubbed together as domestic external environment
7.1 Microenvironment
Micro environment includes all forces or factors that shape the internal environment of a business
enterprise. It includes its mission, policies, resources, culture, organisation structure etc.
The components of microenvironment are as follows
1. Mission and objectives of the firm

2. Policies of the firm
3. Financial, human, physical and technological resources of the firm
4. Organisation structure of the form
5. Organisation culture of the firm
7.2 Meso Environment

Meso environments consist of all external forces operating on a business at the industry level. The
examples would be customers, competitors, supplier’s, distribution partners, regulators etc. The forces in
the Meso environment have direct impact on the business of the firm and therefore these are also called
direct action elements. Miso environment must be watched closely because of its direct influence on the
business
Meso forces include the following
1. Competitors
2. Customers of Suppliers
3. Creditors
4. Investors
5. Intermediaries like wholesalers
6. Regulators like SEBI, RBI etc.
Since these forces operate between micro and macro environment, these are also called intermediate
environment.
7.2.1 Tool to Analyze Meso Environment – Porter’s Framework

Porter’s Framework is a tool analyze the Meso Environment.
Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged
them to look beyond the actions of their competitors and examine what other factors could
impact the business environment. He identified five forces that make up the competitive
environment, and which can erode your profitability. These are:
1. Threat of New Entrants: New entrants in an industry bring new capacity and the desire
to gain market share. The seriousness of the threat depends on the barriers to enter a
certain industry.
2. Bargaining Power of Suppliers: This force analyzes how much power and control a
company’s supplier (also known as the market of inputs) has over the potential to raise
its prices or to reduce the quality of purchased goods or services, which in turn would
lower an industry’s profitability potential
3. Bargaining Power of Buyers: The bargaining power of buyers is also described as the
market of outputs. This force analyzes to what extent the customers are able to put the
company under pressure, which also affects the customer’s sensitivity to price changes.
4. Threat of Substitute Products: The existence of products outside of the realm of the
common product boundaries increases the propensity of customers to switch to
alternatives
5. Competitive Rivalry. This last force of the Porter’s Five Forces examines how intense the
current competition is in the marketplace, which is determined by the number of existing
competitors and what each competitor is capable of doing.
7.3 Macro Environment

Macroenvironment consists of external forces that are remote and have no direct influence on a firm.
The examples include economic, social, political, technological, international factors , etc. In other
words, they are beyond the control of the business firm. Macro environmental forces have the
potential to influence a specific firm by influencing the meso environmental forces. Therefore, they
are also known as indirect action elements or remote environment.
The components of microenvironment are following. These are also called components of PESTEL
analysis which is done to analyse the Macro Environment. It is called PESTEL analysis due to each letter
in PESTEL denoting a particular type of force
1. P - Political Forces
2. E - Economic Forces
3. S - Social cultural Forces
4. T - Technological Forces
5. E - Environment Forces
6. L - Legal Forces
7.3.1 Tool to Analyze Macro Environment – PESTEL Analysis

PESTEL Analysis is a strategic framework used to evaluate the external environment of a business
by breaking down the opportunities and risks
into Political, Economic, Social, Technological, Environmental, and Legal factors.
Let us discuss these factors one by one
1. Political Factors: These include factors that affect the extent and the impact of the government
on the economy of a country. For example, the laws, taxation policies, monetary policies, etc. are
all a part of the political environment.
2. Economic Factors: Economic factors have a huge effect on the firm and its success. Some of
the factors to consider when monitoring the economic environment are Economic growth,
current phase of business cycle and inflation rates.
3. Social Factors: Everything that goes on in a society greatly affects the organization. Therefore, it
is important to analyze social factors while studying the social environment.
4. Technological Factors: Technological factors are linked to innovation in the industry, as well
as innovation in the overall economy. Not being up to date to the latest trends of a particular
industry can be extremely harmful to operations.
5. Environmental Factors: Environmental factors concern the ecological impacts on business. As
weather extremes become more common, businesses need to plan how to adapt to these
changes.
6. Legal Factors: Legal factors pertain to any legal forces that define what a business can or cannot
do. Many a times legal factors are impacted by the political forces and it is political forces that
define the laws
8 Managerial Response to Business Environment

The management of a business may choose from the following strategies to deal with changing
environment:
(i) Anticipating and Adapting
(ii) Smoothing or Leveling
(iii) Competitive Advertising: In order to meet competition in the market, business firms may
resort to competitive advertising.
(iv) Brand Building: Often, multinational companies have invested huge amounts on building
brands, such as LG, Samsung etc.
(v) Strengthening of Distribution Network: Several companies like Hindustan Lever, Coca
Cola, Pepsi, Titan, ITC, etc. have strengthened their distribution network in India.
(vi) Upgradation of Technology: Use of latest technology can provide a competitive edge to
their users.
(vii) Diversification Strategy: Many companies have undertaken diversification programmers
to strengthen their position in the market.
(viii) Joint Venture and Merger and Acquisition:
9 What is Organizational Culture?
Organizational culture refers to a system of shared meaning held by members that distinguishes
the organization from other organizations. Seven primary characteristics seem to capture the
essence of an organization’s culture
1. Innovation and risk taking. The degree to which employees are encouraged to be
innovative and take risks.
2. Attention to detail. The degree to which employees are expected to exhibit precision,
analysis, and attention to detail.
3. Outcome orientation. The degree to which management focuses on results or outcomes
rather than on the techniques and processes used to achieve them.
4. People orientation. The degree to which management decisions take into consideration
the effect of outcomes on people within the organization.
5. Team orientation. The degree to which work activities are organized around teams rather
than individuals.
6. Aggressiveness. The degree to which people are aggressive and competitive rather than
easygoing.
7. Stability. The degree to which organizational activities emphasize maintaining the status
quo in contrast to growth..
9.1 Do Organizations have Uniform Culture?

Organizational culture represents a perception the organization’s member hold in common. The
dominant culture expresses the core values a majority of members share and that give the
organization its distinct personality. For example, in Amazon the dominant culture is to help the
customer by understanding his needs rather than simply selling to the customer
Each organization will have a culture of its own. For example, let us try to understand this from
an example of organization A and organization B
Organization A
This organization is a manufacturing firm. Managers are expected to fully document all
decisions, and “good managers” are those who can provide detailed data to support their
recommendations. Creative decisions that incur significant change or risk are not encouraged.
Because managers of failed projects are openly criticized and penalized, managers try not to
implement ideas that deviate much from the status quo. One lower-level manager quoted an
often-used phrase in the company: “If it ain’t broke, don’t fix it.” There are extensive rules and
regulations in this firm that employees are required to follow. Managers supervise employees
closely to ensure there are no deviations. Management is concerned with high productivity,
regardless of the impact on employee morale or turnover. Work activities are designed around
individuals. There are distinct departments and lines of authority, and employees are expected
to minimize formal contact with other employees outside their functional area or line of
command. Performance evaluations and rewards emphasize individual effort, although
seniority tends to be the primary factor in the determination of pay raises and promotions
Organization B
This organization is also a manufacturing firm. Here, however, management encourages and
rewards risk taking and change. Decisions based on intuition are valued as much as those that
are well rationalized. Management prides itself on its history of experimenting with new
technologies and its success in regularly introducing innovative products. Managers or
employees who have a good idea are encouraged to “run with it.” And failures are treated as
“learning experiences.” The company prides itself on being market driven and rapidly
responsive to the changing needs of its customers. There are few rules and regulations for
employees to follow, and supervision is loose because management believes that its
employees are hardworking and trustworthy. Management is concerned with high productivity
but believes that this comes through treating its people right. The company is proud of its
reputation as being a good place to work. Job activities are designed around work teams, and
team members are encouraged to interact with people across functions and authority levels.
Employees talk positively about the competition between teams. Individuals and teams have
goals, and bonuses are based on achievement of these outcomes. Employees are given
considerable autonomy in choosing the means by which the goals are attained
9.2 What are subcultures?

Apart from a dominant culture there can be some subcultures in the company. For example, in
the same company, the sales department might have aggressive subculture whereas R&D
department might have subculture of innovation and risk taking. Subcultures tend to develop in
an organization to reflect specific problems, situations or experiences that organizational
members face.
Generally, the subcultures emerge among two dimensions: functional and geographical.
Functional subcultures emerge because people who work in a particular functional department
tend to have specialized knowledge and training relevant to the function.
Geographical subcultures emerge because of impact of location features. In a large country like
india, there are numerous subcultures based on geographical locations.
9.3 Strong Vs Weak Culture?

It is possible to differentiate between strong and weak cultures. If most employees (responding
to surveys) have the same opinions about the organization’s mission and values, the culture is
strong; if opinions vary widely, the culture is weak
In a strong culture, the organization’s core values are both intensely held and widely shared. The
more members who accept the core values and the greater their commitment, the stronger the
culture and the greater its influence on member behavior.
9.4 Culture Vs. Formalization?
The stronger an organization’s culture, the less management needs to be concerned with
developing formal rules and regulations to guide employee behavior. Those guides will be
internalized in employees when they adopt the organization’s culture
10 Impact of Organizational Culture

Organizational culture being unique and distinctive, prescribes some specific modes of behavior
for its members. These modes of behavior then affect the entire behavioral process. Though such
behavioral processes may have different dimensions, they ultimately create impact on the
objective setting, work ethic, motivational pattern, and organizational processes
1. Objective Setting: Culture moulds people, and people are the building blocks of the
organisation.
2. Work Ethic: Work ethic in an organisation is derived from its culture. Thus, an organisational
culture determines the ethical standards for an organisation as a whole and its individual
members
3. Motivational pattern: Culture interacts to develop in each person a motivational pattern.
Culture determines the way people approach their jobs and even life in general. If
organisational culture is geared towards the achievement, people will find it quite
motivating, and they will put their outmost energies for the work.
4. Organizational Processes: Various organisational processes like planning, decision making,
and controlling are determined by organisational culture because these processes are
carried out by the people in the organisation. The table below presents practices adopted
by two types of organization having high-performing and low-performing organization
cultures
10.1 Culture as a Liability

Though the concept of organizational culture is used in normative way as it is used to develop
commitment on the part of employees. In actual practice, sometimes, it becomes dysfunctional.
It starts to have bad impact on the employees and performance of the organization.
Culture becomes a liability when it is low performing. A low-performing culture is characterized
by rigid organizational processes and rules, centralized decision making etc. When an
organization works in such a culture for a long time, its acts a barrier in many situations as
discussed below
1. Barriers to change: Culture is a liability when shared values don’t agree with those that
further the organization’s effectiveness.
2. Barriers to Diversity: Hiring new employees who differ from the majority in race, age,
gender, disability, or other characteristics creates a paradox. Management wants to
demonstrate support for the differences these employees bring to the workplace, but
newcomers who wish to fit in must accept the organization’s core culture
3. Barriers to acquisitions and mergers: Historically, when management looked at
acquisition or merger decisions, the key decision factors were potential financial
advantage and product synergy. In recent years, cultural compatibility has become the
primary concern.
11 Creating and Maintaining Organizational Culture

For creating an organization culture, there may be two options to an organization.
1. First, let the cultural characteristics of the founders of the organization percolate among
the members. Most of the organizations which are not large enough adapt this approach.
However, this approach is not highly effective for an organization which start as large.
2. In second approach there is explicit attempt to prescribe what the culture of an

organization is. Where this approach is followed, creation of organizational culture
proceeds as a process with distinct steps as shown below
Lets us discuss these 4 steps one by one
11.1 Establishing Values

Values define what is right and what is wrong. Values of an organisation are created by those
who establish the organisation. These values decide, to a very great extent, what business the
organization should be in.
11.2 Creating Vision

Vision implies the imagination of future events and prepares the organisation for the same. It
tells where the organization should be in future and what are the challenges that it will face.
11.3 Operationalizing Values and Vision

Till values and vision are not put into practise, these remain just the thinking of those who have
created these. For putting values and vision in action, the organisation can undertake following
activities
1. The organisation should prepare a written statement containing its values and vision and
communicate the same to its organisational members
2. The organisation should design its structure that help employees to take those actions
that have been envisaged by values and vision.
3. In selection of employees, care should be taken that their values match the
organisational values.
4. Reward system should be such which encourages employees to engage in behaviours
that are compatible with organisational values and vision.
11.4 Socialization of Employees

No matter how good a job the organization does in recruiting and selection, new employees need
help adapting to the prevailing culture. That help is socialization.
Socialization Process
The prearrival stage recognizes that each individual arrives with a set of values, attitudes, and
expectations about both the work and the organization. One major purpose of a business school,
Encounter Stage: The selection process can help inform prospective employees about the
organization as a whole.
Metamorphosis Stage: This is the completion phase of socialization process in which the new
employee works out any problem discovered during the encounter stage. He reconciles with the
values and norms of the organization and brings necessary changes in his role behavior to suit
them. He tries to internalize these values and norms. The completion of socialization is indicated
by the following features
1. High Productivity of Employees
2. High Commitment of employees
3. Low turnover among employees
12 Creating a Customer Responsive Culture

In the present environment almost, every organisation is taking actions to win customers. One
of these actions is creating customer responsive structure. Customer responsive culture is that
whose employees can understand customers and respond them quickly. Main features of
customer responsive culture are as follows
1. Employees of the organisation are outgoing and friendly
2. Employees need to have freedom to meet changing customer service requirements.
Therefore, there should not be rigid rules, procedures, and regulations.
3. employees should be empowered so that they can make decisions quickly
4. employees should have good communication skills including patience for listening.
13 Spirituality and Organization Culture
What is Spirituality? Workplace spirituality is not about organized religious practices. It’s not
about God or theology. Workplace spirituality recognizes that people have an inner life that
nourishes and is nourished by meaningful work in the context of community
Characteristics of Spiritual Organizations
1. Benevolence. Spiritual organizations value kindness toward others and the happiness of
employees and other organizational stakeholders.
2. Strong sense of purpose. Spiritual organizations build their cultures around a meaningful
purpose. Although profits may be important, they are not the primary value.
3. Trust and respect. Spiritual organizations are characterized by mutual trust, honesty, and
openness. Employees are treated with esteem and value, consistent with the dignity of
each individual.
4. Open-mindedness. Spiritual organizations value flexible thinking and creativity among
employees.
14 Socio-Cultural Features of India and their Impact

We have seen earlier that organisation is connectivity of individuals. When individuals join the
organisation, they not only bring with themselves their ability, intelligence, and personality but
also their sociocultural features too. Following are some of the major characteristics of Indian
society relevant to managerial application
14.1 Joint Family

In India there is a joint family system. In a joint family system, the head of the family has authority
over its members. The children are taught obedience to their elders. Female members are
subjected to discipline. There is a discrimination between male and female members. However,
joint family is not built around a central authority. In a joint family, it is a good deal of
consultativeness. The major decisions are taken through consultation. On the same lines the
superior in the organisation is expected to consult more frequently and informally.
The elders in the joint family think the younger people to be incapable to taking any decision. On
the same lines, the superiors may think themselves as the protectors of the subordinates and the
later cannot decide anything on their own
14.2 Caste System

Caste system is prevalent in India since ages. It is the caste that decides the status in the society.
People of lower caste have become quite conscious to protect and develop their status. Thus, to
protect the status, people will work hard. In an organisation many people may be interested in
the status though without additional tangible benefits
The caste system affects interpersonal relationship between the superior and the subordinate.
Generally, the higher status persons have more power and influence than those with low status.
Thus, hypothetically, a person with a lower caste as superior is unlikely to manage the affairs of
persons of higher caste as subordinate .
14.3 Social Class

The society is divided into many classes – elite class, middle class, lower-middle class etc.
Generally, a large number of managers come from families having elite professionals such as
business executives, landlords, lawyers etc. This is so because these groups have distinct
advantages in regard to academic achievement.
Such a division in classes impacts the organizational culture also. The people from elite class
believe they only have the true right to be in manager’s role and others are just there to obey
them. The do not accept people form middle class excelling as a manager

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➢ Motive, Motivators and Motivating

Motivating: Motivating is the process of inducing others to engage in goal-directed

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Consequences of Non-Satisfaction of Need:

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Basis Maslow’s Theory Alderfer Theory

➢ McClelland’s Theory of Needs (Achievement theory of Motivation)

1. As per him there are three types of people

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➢ Herzberg's Two Factor Theory

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4. Motivational factors include: Achievement, Recognition, Work itself, Responsibility,

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10. Criticism of Herzberg’s theory

Implication of Herzberg’s theory

➢ Relationship between above Maslow’s and Herzberg’s Theory

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➢ Difference between Maslow and Herzberg Model

➢ Relationship between above Maslow’s, Herzberg’s, Alderfer’s and McClelland’s Theory

1. There are lower and higher-level needs

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➢ Theory Z by William Ouchi

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Critical Analysis of Theory Z

➢ Instinctive Theory of Motivation

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➢ System view of Motivation

3. Job Characteristics: Job characteristics are another important determination of

The above characteristics create psychological states in a worker leading to positive

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➢ Factors Impacting Job Satisfaction

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3. Situational Variables: There are 5 situational variables impacting Job satisfaction

➢ Relationship between Job Satisfaction and Productivity

➢ Importance of Motivation in an Organization

1) High Performance Level: A motivated employee put higher performance as compared to

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3) Acceptance of Organizational changes: if the employees in an organization are properly

Fodder: Motivation at Reliance Industries Limited

1) Growth is betting on people

3) Growth is care for Safety.

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➢ Vroom’s Expectancy Theory

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3. Valence (Individual’s value-based attitude): It is the significance associated by an

✓ -1= avoiding the outcome; 0 = indifferent to the outcome; +1 = welcomes the

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Thus, the expectancy theory concentrates on the following three relationships:

A. Effort-performance relationship: The likelihood that the individual’s effort will be

Implications of Expectancy Theory

Criticism of Expectancy Theory

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➢ Edwin Locke’s Goal Setting Theory

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Three personal factors affecting goal performance Relationship are:

Implementing Goal Setting Theory in Management by Objectives (MBO)

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7. Fairness is based on perceived market norms