MANAGEMENT PRINCIPLES AND APPLICATIONS (UNIT 1: INTRODUCTION TO MANAGEMENT)

PART 1: MANAGEMENT CONCEPT

Concept of Management

According to George R. Terry, management is a “distinct process consisting of planning, organizing, actuating
and controlling, performed to determine and accomplish stated objectives by the use of human beings and
other resources”.

Thus, management can be defined as a dynamic process of utilizing the organizational resources to achieve
organizational goals in an effective and efficient manner. There are certain terms which require elaboration.
These are (a) process, (b) effectively, and (c) efficiently.

The organizational resources that act as inputs in the process of management are: Men, Money, Materials,
Machines, Methods and Markets. These are the six Ms of management.

The management process is effective when the desired goal is achieved within the time. It is efficient if the
desired goal is completed by using minimum resources or minimum cost. Management is said to be poor if
it is effective but inefficient. Management is said to successful if it is effective as well as efficient. Management
should be efficient otherwise it is useless.

Features of Management

 Goal-oriented process: Every organisation has formed for some specific purpose. The goal of
management should be to achieve these purposes. These should be simple and clearly stated.
 All-pervasive: The activities involved in managing an organisation are common to all whether it is
performed economic, social or political activity. A petrol pump needs to be managed as much as a
hospital or a school. Management is not only required for
 Multidimensional: Management is a complex activity that has three main dimensions. These are
management of work, management of people, and management of operations.
 Continuous process: The process of management is a series of continuous, composite, but separate
functions (planning, organising, directing, staffing and controlling).
 Group activity: An organisation is a group of diverse individuals with different needs. Every member of
the group has a different purpose for joining the organisation but as members of the organisation they
work towards fulfilling the common organisational goal. This requires team work and coordination of
individual effort in a common direction.

Significance of Management

 Optimum utilization of resources: Management helps to utilize the resources in best possible manner
thereby reducing the wastage ensuring maximum possible profitability. This gives business a competitive
edge in the market and also helps in growth and expansion of business.
 Cordial industrial relations: It motivates employees to perform the assigned job to their potential level.
This increases productivity and results in higher satisfaction level among the employees. The employee
turnover and absenteeism is also reduced. Thus, management and workers have cordial relationship.
 Adapting to changed environment: Management keeps a track of the changes in business environment.
This helps organization to adapt to the changed situations of the market. Bringing about changes in the
organization, including introduction of new technology, becomes easier with the efforts of the managers.
 Develops team spirit: Management brings about unity of direction in the organization as it guides all the
efforts towards the achievement of a common objective. This helps develop team-spirit in the
organization.
 Effective communication: Management brings about an effective communication – both upwards and
downwards. This helps in smooth functioning of the organization.

Managerial Functions

Gullick and Urwick framed an acronym representing the functions of management as PODSCORB. The
functions according to the acronym are: Planning (P), Organising (O), Directing (D), Staffing (S), Coordinating
(CO), Reporting (R) and Budgeting (B). Management is defined as the procedure of organising, directing,
planning and controlling the efforts of organisational members and of managing organisational sources to
accomplish particular goals.

For theoretical purposes, it may be convenient to separate the function of management but practically these
functions are overlapping in nature i.e., they are highly inseparable. Each function blends into the other &
each affects the performance of others.

 Planning: It is the basic function of management. It deals with chalking out a future course of action
& deciding in advance the most appropriate course of actions for achievement of pre-determined
goals. According to KOONTZ, “Planning is deciding in advance - what to do, when to do & how to do.
It bridges the gap from where we are & where we want to be”. A plan is a future course of actions. It is
an exercise in problem solving & decision making. Planning is determination of courses of action to
achieve desired goals. Thus, planning is a systematic thinking about ways & means for
accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human
& non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding
confusion, uncertainties, risks, wastages etc.
 Organizing: It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational goals. According
to Henry Fayol, “To organize a business is to provide it with everything useful for its functioning i.e.,
raw material, tools, capital and personnel’s”. To organize a business involves determining & providing
human and non-human resources to the organizational structure. 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.
 Staffing: It is the function of manning the organization structure and keeping it manned. Staffing has
assumed greater importance in the recent years due to advancement of technology, increase in size
of business, complexity of human behavior etc. The main purpose of staffing is to put right man on
right job i.e., square pegs in square holes and round pegs in round holes. According to Koontz &
O’Donnell, “Managerial function of staffing involves manning the organization structure through
proper and effective selection, appraisal & development of personnel to fill the roles designed un the
structure”. Staffing involves:
→ Manpower Planning (estimating man power in terms of searching, choose the person and
giving the right place).
→ Recruitment, Selection & Placement.
→ Training & Development.
→ Remuneration.
→ Performance Appraisal.
→ Promotions & Transfer.
 Directing: It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the enterprise
which sets it in motion the action of people because planning, organizing and staffing are the mere
preparations for doing the work. Direction is that inert-personnel aspect of management which deals
directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:
→ Supervision: It implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.
→ Motivation: It means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.
→ Leadership: It may be defined as a process by which manager guides and influences the work
of subordinates in desired direction.
→ Communication: It is the process of passing information, experience, opinion etc. from one
person to another. It is a bridge of understanding.
 Controlling: It implies measurement of accomplishment against the standards and correction of
deviation if any to ensure achievement of organizational goals. The purpose of controlling is to ensure
that everything occurs in conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann, “Controlling is the process
of checking whether or not proper progress is being made towards the objectives and goals and
acting, if necessary, to correct any deviation”. According to Koontz & O’Donnell “Controlling is the
measurement & correction of performance activities of subordinates in order to make sure that the
enterprise objectives and plans desired to obtain them as being accomplished”. Therefore,
controlling has following steps:
→ Establishment of standard performance.
→ Measurement of actual performance.
→ Comparison of actual performance with the standards and finding out deviation if any.
→ Corrective action.
Concept of Coordination

Coordination is the unification, integration, synchronization of the efforts of group members so as to provide
unity of action in the pursuit of common goals. It is a hidden force which binds all the other functions of
management. According to Mooney and Reelay, coordination is the “orderly arrangement of group efforts to
provide unity of action in the pursuit of common goals”.

Types of Coordination

Broadly, coordination in management can be divided into two types- internal and external coordination.

 Internal Coordination: Internal coordination involves managers, executives, and workers. They can be
from different departments coming together to coordinate their activities. Vertical & horizontal types can
be both found in Types of Internal coordination. Its where one business unit regulates another by
managing it. Or coordinating its output with other similar departments within its own company.
 External Coordination: Business success depends on how well it establishes relationships. It includes
establishing cordial and open lines of communication. It is for a variety of internal stakeholders. For
example, the customers and competitors, among the others. It’s besides creating a good public campaign
to talk about what goes in your business. External coordination means building connections between
employees. Those are in different departments within the same company and may also have friendly ties
outside. It includes especially those who represent market agencies. Like advertisers; financial institutions
which provide loans & investments; etc.
 Horizontal Coordination: Co-workers are not just colleagues but also friends. They work together to
achieve common goals. And play a role in keeping each other company on the tough days, making them
better at their jobs than if they were alone or working in silos! Horizontal coordination is necessary for
success. That is because it creates relationships between employees that will improve performance. It’s
no accident. The workers who know one another from different departments often do well when reporting
back up through the chain of command. Also, horizontally towards those equals directly beneath
themselves (i e., supervisors).
 Vertical Coordination: Vertical coordination in the planning and implementation of work at various
organization levels. A manager plans policies with their superior, as well as controlling those under him.
All to make sure that everyone’s on-point for success! For example: When you’re running a business
meeting. Say from CEO down through executive assistants you want someone taking notes. It is about
what was said by each person, so there are fewer chances (or any) confusion later. Vertical coordination
involves delegating authority. And at the same time, also a regular checkup throughout the
implementation period.

Techniques of Coordination

 Well-defined goals: The first means or technique of coordination is well-defined goals. The goals of the
organization should be clear and well-defined. Each individual in the organization should understand the
overall goals. When the goals are not well-defined the coordination may not effective.
 Sound organization structure: Coordination is the essence of management. It is not possible without
sound organization structure. The authority and responsibility for each and every position and employees
should be clearly defined.
 Effective communication: Coordination helps in creating proper understanding among persons.
Without effective communication, coordination may be effective. The ideas, opinions should be
interchanged freely. It is only through effective communication that even individual understand his/her
 limitations, positions and responsibility in the organization. Effective communication helps in
coordination. Therefore, it is also an important means of coordination.
 Proper leadership: Proper leadership leads the subordinates effectively and efficiently. A good
managerial leader uses the motivational tools to coordinate the employees with effective communication
system. In short, coordination is made possible through proper leadership.
 Proper supervision: Supervisors coordinate the subordinates and their activities. Top level management
cannot coordinate all employees. In short, proper supervision helps in effective coordination.

Coordination as the Essence of Management

Coordination is considered as the essence of management because of the following reasons:

1. Coordination is needed to perform all the functions of management:

a. In planning, coordination is required between the objectives and available resources.
b. Organising is ineffective if there is a lack of coordination between different departments and
divisions.
c. In staffing, coordination is required between the required skills and abilities of an individual
who is selected to perform a job.
d. Directing is impossible and of no worth, if there is a lack of coordination between superiors
and subordinates.
e. In controlling, coordination helps in ensuring that actual results are fruitful.
2. Coordination is needed at all levels of management:
a. Top level: The top level coordinates the activities of the whole organisation keeping in view
the desired goals.
b. Middle level: The middle-level managers coordinate the activities of different departments.
c. Lower level: The lower level coordinates the activities of the workers for achieving goals.

Thus, we can say, coordination is not a separate function of management. It is the essence of management.

PART 2: EVOLUTION OF MANAGEMENT THOUGHT

Classical Approach of Management

The classical organizational theory views an organization as a machine and employees as the various parts of
that machine. The classical approach to management focuses on centralized authority, labor specialization
and incentives to optimize productivity in an organization and, in turn, drive profits. Workplaces are
segregated into three levels of authority: business leaders or top-level management, middle management
and supervisors. Work is divided among individual workers who specialize in their own distinctive fields.

The classical theory prioritizes employees’ physical and economical requirements over job satisfaction and
social needs. It advocates financial rewards, wage hikes and incentives to encourage employees to be more
productive. When employees work hard and function to their full potential, organizational efficiency
increases.

SCIENTIFIC MANAGEMENT (FREDERICK WINSLOW TAYLOR)

F.W. Taylor or Fredrick Winslow Taylor, also known as the ‘Father of scientific management’ proved with his
practical theories that a scientific method can be implemented to management. Taylor gave much
concentration on the supervisory level of management and performance of managers and workers at an
operational level. The five principles of scientific management by F.W Taylor are discussed below:
  Science, not the Rule of Thumb: This rule focuses on increasing the efficiency of an organisation
through scientific analysis of work and not with the ‘Rule of Thumb’ method. Taylor believed that even
a small activity like loading paper sheets into boxcars can be planned scientifically. This will save time
and also human energy. This decision should be based on scientific analysis and cause and effect
relationships rather than ‘Rule of Thumb’ where the decision is taken according to the manager’s
personal judgement.
 Harmony, Not Discord: Taylor indicated and believed that the relationship between the workers and
management should be cordial and completely harmonious. Difference between the two will never
be beneficial to either side. Management and workers should acknowledge and understand each
other’s importance. Taylor also suggested the mental revolution for both management and workers
to achieve total harmony.
 Mental Revolution: This technique involves a shift of attitude of management and workers towards
each other. Both should understand the value of each other and work with full participation and
cooperation. The aim of both should be to improve and boost the profits of the organisation. Mental
Revolution demands a complete change in the outlook of both the workers and management; both
should have a sense of togetherness.
 Cooperation, not Individualism: It is similar to ‘Harmony, not discord’ and believes in mutual
collaboration between workers and the management. Managers and workers should have mutual
cooperation and confidence and a sense of goodwill. The main purpose is to substitute internal
competition with cooperation.
 Development of Every Person to his Greatest Efficiency: The effectiveness of a company also relies
on the abilities and skills of its employees. Thus, implementing training, learning best practices and
technology, is the scientific approach to brush up the employee skill. To assure that the training is
given to the right employee, the right steps should be taken at the time of selection and recruiting
candidates based on a scientific selection.

The techniques of scientific management are discussed below:

 Method Study: The purpose of the outlined study is to find out one vigorous way of performing the
job. There are different ways of performing the job. To ascertain the best way, there are diverse
parameters. Right from the obtainment of raw materials until the ultimate product is presented to the
consumer, every pursuit is part of method research. Taylor devised the idea of the assembly line by
applying the method study.
 Motion Study: Motion study pertains to the study of movements like putting objects, lifting, changing
positions and sitting etc., which are moved while doing a conventional job. Random movements are
solicited to be reduced so that it takes less time to perform the job effectively.
 Time Study: It circumscribes the conventional time taken to complete a well-defined job. Time
regulating devices are used for each part of the task. The standard time is set for the entirety of the
task by taking different readings. The course of time study will rely upon the frequency and volume of
the task, the cycle time of the process and time measurement costs.
 Fatigue Study: A person is obliged to feel tired mentally and physically if she or he does not relax
while working. The rest periods will assist one to recover vitality and work again with the same capacity.
This will result in improved potency. Fatigue study tries to define the amount and regularity of rest
intervals in accomplishing a task.
 Functional Foremanship: Functional foremanship is a factory administration system that supports for
possessing numerous foremen in separate, functional roles. Classically, factories had just 1 manager
who would manage operations. This manager or the foreman was the only contact for factory
employees. When Taylor recorded all of the features a successful supervisor would require, he
discerned that no one person could probably have every single one. Therefore, the idea of working
foremanship was born.
ADMINISTRATIVE MANAGEMENT/ PROCESS OR FUNCTIONAL APPROACH (HENRY FAYOL)

The main proponent of the administrative management branch of classical theory was Henri Fayol, a French
industrialist. Administrative management aims to improve organizational productivity by focusing on
methods that managers can use to synchronize internal processes. Fayol believed managerial practices are
key to driving efficiency in organizations. Therefore, this branch seeks to heighten managerial performance
instead of individual worker efficiency.

According to Fayol, the business operations of an organization could be divided into six broad activities.

 Technical: Producing and manufacturing products

 Commercial: Buying, selling and exchange
 Financial: Search for optimal use of capital
 Security: Protecting employees and property
 Accounting: Recording and taking stock of costs, profits, liabilities, maintaining balance sheets and
compiling statistics
 Managerial: Planning, organizing, commanding, coordinating and controlling

Fayol’s principles are still relevant in the modern workplace. Fayol believed that managerial practices were
the key component to predictability and efficiency in organizations. Fayol’s five management functions are
clearly similar to modern management functions - planning, organizing, staffing, and controlling. Fayol's
concept of management forms the cornerstone of contemporary management theory. Many of Fayol's
practices are still alive in today's workplace. These elements can be found in modern organizations in several
ways: as for accepted practices in some industries, as revamped versions of the original principles or
elements, or as remnants of the organization's history to which alternative practices and philosophies are
being offered. The new manager in the digital age must acquire the latest leadership skills and management
skills to succeed in today’s competitive world.

Henry Fayol’s 14 principles of management look at an organization from a top-down approach to help
managers get the best from employees and run the business with ease. They are discussed below:

 Division of Work: The first principle of management is based on the theory that if an employee is
given a specific task to do, they will become more efficient and skilled in it. This is opposed to a multi-
tasking culture where an employee is given so many tasks to do at once. In order to implement this
principle effectively, look at the current skill sets of each employee and assign them a task that they
can become proficient at. This will help them to become more productive, skilled, and efficient in the
long run.
 Authority: This principle of management states that a manager needs to have the necessary authority
in order to ensure that his instructions are carried out by the employees. If managers did not have any
authority, then they would lack the ability to get any work done. However, this authority should come
along with responsibility. According to Henri Fayol, there should be a balance between authority and
responsibility. If there is more authority than responsibility, the employees will get frustrated. If there
is more responsibility than authority, the manager will feel frustrated.
 Discipline: This principle states that discipline is required for any organization to run effectively. In
order to have disciplined employees, managers need to build a culture of mutual respect. There
should be a set of organizational rules, philosophies, and structures in place that should be met by
everyone. Bending rules or slacking should not be allowed in any organization. In order to achieve
this, there is a need for good supervision and impartial judgment.
 Unity of Command: This principle states that that should be a clear chain of command in the
organization. The employees should be clear on whose instructions to follow. According to Fayol, an
employee should receive orders from only one manager. If an employee works under two or more
 managers, then authority, discipline, and stability are threatened. Moreover, this will cause a
breakdown in management structure and cause employees to burn out.
 Unity of Direction: This principle of management states that the work to be done should be
organized in such a way that employees work in harmony towards the same objective, using one plan,
under the direction of one manager. For example, if you have a range of marketing activities such as
advertising, budgeting, sales promotion, etc., there should be one manager using one plan for all the
marketing activities. The different activities can be broken down for different sub-managers, but they
should all work towards a common goal under the direction of one main person in charge of the whole
thing.
 Collective Interest Over Individual Interest: This principle states that the overall interest of the team
should take precedence over personal ones. The interest of the organization should not be sabotaged
by the interest of an individual. If anyone goes rogue, the organization will collapse.
 Remuneration: This principle of management states that employees should be paid fair wages for
the work that they carry out. Any organization that underpays its workers will struggle to motivate and
keep quality workers. This remuneration should include both financial and non-financial incentives.
Also, there should be a structure in place to reward good performance to motivate employees.
 Centralization: It refers to the concentration of power in the hands of the authority and following a
top-bottom approach to management. In decentralization, this authority is distributed to all levels of
management. In a modern context, no organization can be completely centralized or decentralized.
Complete centralization means that people at the bottom have no authority over their responsibilities.
Similarly, complete decentralization means that there will be no superior authority to control the
organization. To use this effectively today, there should be a balance of centralization and
decentralization. The degree to which this balance is achieved will differ from organization to
organization.
 Scalar Chain: It refers to a clear chain of communication between employees and their superiors.
Employees should know where they stand in the hierarchy of the organization and who to go to in a
chain of command. To implement this in the workplace, Fayol suggests that there should be an
organizational chart drawn out for employees to see this structure clearly.
 Order: This principle states that there should be an orderly placement of resources (manpower,
money, materials, etc.) in the right place at the right time. This ensures the proper use of resources in
a structured fashion. Misplacement of any of these resources will lead to misuse and disorder in the
organization.
 Equity: Equity is a combination of kindness and justice. This principle states that managers should use
kindliness and justice towards everyone they manage. This creates loyalty and devotion among the
employees towards the organization they work for.
 Stability of Tenure of Personnel: This principle states that an organization should work to minimize
staff turnover and maximize efficiency. Any new employee cannot be expected to get used to the
culture of an organization right away. They need to be given enough time to settle into their jobs to
become efficient. Both old and new employees should also be ensured job security because instability
can lead to inefficiency. There should also be a clear and effective method to handle vacancies when
they arise because it takes time and expense to train new ones.
 Initiative: This principle states that all employees should be encouraged to show initiative. When
employees have a say as to how best they can do their job, they feel motivated and respected.
Organizations should listen to the concerns of their employees and encourage them to develop and
carry out plans for improvement.
 Esprit de Corps: Esprit de Corps means “Team Spirit”. This principle of management states that the
management should strive to create unity, morale, and co-operation among the employees. Team
spirit is a great source of strength in the organization. Happy and motivated employees are more likely
to be productive and efficient.
BUREAUCRATIC MANAGEMENT (MAX WEBER)

The father of modern sociology, Max Weber, developed the branch called bureaucratic management.
According to this branch of classical theory, an ideal organization, or bureaucracy, has a hierarchical structure
of management with clearly defined rules and regulations. Labor is divided and relationships are impersonal.
This ensures order and uniformity throughout an organization, producing a specialized workforce.

Some of the features of Bureaucratic Organization are noted as under:

 The high degree of division of labor and specialization

 There is a well-defined chain of command
 It follows the principle of rationality, objectively and consistency
 The relationship among the member of the organization is formal and impersonal relations
 Rules and regulations are well defined and it indicates the duties and rights of the employees
 Selection and promotion are based on technical qualifications.
 Only Bureaucratic or legal power is given importance.

The features of bureaucratic management are discussed as follows:

 Proper Division of Labor: Division of labor specialization should be fixed and there should be a balance
between power and responsibilities.
 Chain of Command: The chain of command or organizational hierarchy should be constructed in a way
that information related to decisions and works can flow effectively from top to bottom.
 Separation of personal and official property: Owners and organization’s assets are separate and can
to be treated as same by the owner or the organization.
 Application of Consistent and Complete Rules: There should be proper rules and regulations in the
organization for running the organization. These rules should be followed in every step of the organization
and they are equally applicable to every member of the organization.
 Selection and Promotion Based on Qualifications: The selection and promotion of workers should be
based on equalization like; skills, experience, age. It should not be influenced by personal relations and
benefits.
 Training in job requirements and skills: There is a difference between management and other parts of
organization and training and improving skills of management is important.

However, there exists several criticisms of the Bureaucratic Management Approach, as discussed below:

 The emphasis only on rules and regulations

 There will be unnecessary delays in decision-making due to formalities and rules of a bureaucratic
organization
 Coordination and communication hampered because of too much formality and rules
 Bureaucracy involves a lot of paperwork and has just too much level of authority which results in a lot
of wastage of time, effort and money
 Because of its excessive formality, a Bureaucratic approach is not suitable for business organizations

MANAGEMENT THEORY (MARY PARKER FOLLETT)

Follett, known as the “mother of modern management,” believed management was “the art of getting things
done through people.” Though she never managed a for-profit enterprise, she offered valuable insight on
the importance of managers and supervisors “powering with” employers rather than “powering over” them,
and collaborating with workers to solve conflicts.
“Leadership is not defined by the exercise of power but by the capacity to increase the sense of power among
those led,” Follett famously said. “The most essential work of the leader is to create more leaders.”

Follett practiced these principles of coordination that helped develop her theory of management, as
discussed below:

 Direct contact: Direct contact between employees and managers helps organizations avoid conflict
and misunderstandings. Holding regular meetings or discussing assignments in person is a simple
way to practice this principle. [See our top tips for more productive meetings.]
 Early stages: Managers should learn and master coordination straightaway. No employee should feel
less important than the next; each has a significant role that complements others.
 Reciprocal relationship: Every worker, regardless of their level in the hierarchy, is responsible for
pulling their weight and integrating with the rest of the organization. No one person should be trying
less or more than another – it’s a team effort.
 Continuous process: Managers must maintain coordination. Don’t just learn these principles and
forget about them; channel them in everything you do.

Neo-Classical & Human Relations Approach of Management

The Behavioral Theory of Management, often referred to as Neo-Classical Management Theory, focuses upon
individual behavior, motivations, and social interactions. Specifically, it incorporates the study of human
behavior through psychology, sociology, and anthropology.

The Neoclassical theory of management is an extended version of the classical management theory. It arose
out of the critique of classical theory. Theorists worked on a new approach by using classical theory as the
bedrock by focusing more on human relations and behavioral science. People also refer to neoclassical
theory as ‘behavioral theory of organization ‘or ‘human relations’ or ‘new classical theory of management.’

Due to its new approach, neoclassical organizational theory is the working principle behind most modern
theories of organizations.

The Human Relations Theory focuses specifically on the individuals needs and resultant behaviors of
individuals and groups. It takes an interpersonal approach to managing human beings. It presents the
organization is made up of formal and informal elements. The formal elements of an organization are its
structure. The informal aspects of the organization include the interactions between individuals. In this way,
the organization is a type of social system.

CONTRIBUTION OF ELTON MAYO

In 1927, the Western Electric Company invited a group of researchers led by Elton Mayo to join their
Hawthorne plant in Chicago. The researchers carried out experiments at the plant that later became popular
as the ‘Hawthorne Experiment.’ The objective of the experiment was to study if workers would be more
productive depending upon different levels of illumination in the factory. Based on the findings in the initial
three years of this experiment, researchers saw increased worker productivity when lighting conditions
improved. They claimed that workers’ motivation increased due to interest shown by the company in them
and their well-being. It indicates the importance of using a neoclassical approach of management.

Also, the solidarity among workers increased satisfaction in the work. Mayo and his team revealed that
managers should also focus on social factors such as employee relationships. Else, they would have to deal
with resistance and lower performance.

 The Hawthorne Experiment: Background

 o The Human Relations Movement began with the Hawthorne Experiments. They were
conducted at Western Electrical Works, the manufacturing arm of AT&T, in Chicago, USA,
between 1924 and 1932.
o It should be noted that these studies were conducted in the 1920s, a time when American
businesses were utilizing Scientific Management, a theory pioneered by Frederick Taylor, who,
by virtue of his work in the steel industry, believed that workers would purposely work below
their capacity. This was based on the workers’ belief that if they became too productive, jobs
would be reduced, as fewer of them would be needed. Taylor wanted to improve worker
productivity and believed that in applying the scientific method to the management of workers
this goal would be achieved. The scientific method took away the autonomy of skilled
craftsmen and created simpler jobs that could be performed by unskilled labourers who could
be trained quicker. Henry Ford applied this practice successfully in his automobile factories.
o The initial experiment at the plant from 1924 to 1927 was on the effect of light on productivity.
This experiment showed no connection between the amount of production and illumination;
however, it became the conduit for future studies on what could influence worker output. In
1927 Harvard Business School professors Elton Mayo and Fritz J. Roethlisberger continued the
Hawthorne experiments by examining the effects of the physical and environmental influences
in the workplace.
o The Hawthorne Experiments brought out that the productivity of the employees is not the
function of only physical conditions of work and money wages paid to them. Furthermore, of
all the human factors influencing employee behaviour, the most powerful were those
emanating from the worker’s participation in social groups.
 The Hawthorne Experiment: Phases
The Hawthorne experiment consists of four parts as described below:
o Part I - Illumination Experiments (November 1924-1927): These experiments were
performed to find out the effect of different levels of illumination (lighting) on productivity of
labour. The brightness of the light was increased and decreased to find out the effect on the
productivity of the test group. Surprisingly, the productivity increased even when the level of
illumination was decreased. It was concluded that factors other than light were also relevant.
o Part II - Relay Assembly Test Room Study (1927-1929): Under this test, two small groups of
six female telephone relay assemblers were selected. Each group was kept in separate rooms.
From time to time, changes were made in working hours, rest periods, lunch breaks, etc. They
were allowed to choose their own rest periods and to give suggestions. Output increased in
both the control rooms. It was concluded that social relationship among workers, participation
in decision-making, etc. had a greater effect on productivity than working conditions.
o Part III - Mass Interviewing Programme (1928-1930): 21,000 employees were interviewed
over a period of three years to find out reasons for increased productivity. It was concluded
that productivity can be increased if workers are allowed to talk freely about matters that are
important to them.
o Part IV - Bank Wiring Observation Room Experiment (November 1931-May 1932): A
group of 14 male workers in the bank wiring room were placed under observation for six
months. A worker's pay depended on the performance of the group as a whole. The
researchers thought that the efficient workers would put pressure on the less efficient workers
to complete the work. However, it was found that the group established its own standards of
output, and social pressure was used to achieve the standards of output.
 The Hawthorne Experiment: Conclusion
According to Donald Clark there are four general conclusions that were drawn from the Hawthorne
studies:
 o The Aptitudes of Individuals are imperfect predictors of Job Performance: Although they
give some indication of the physical and mental potential of the individual, the amount
produced is strongly influenced by social factors.
o Informal Organization affects Productivity: The Hawthorne researchers discovered a group
life among the workers. The studies also showed that the relations that supervisors develop
with workers tend to influence the manner in which the workers carry out directives.
o Work-group Norms affect Productivity: The Hawthorne researchers were not the first to
recognize that work groups tend to arrive at norms of what is "a fair day's work," however, they
provided the best systematic description and interpretation of this phenomenon.
o The Workplace is a Social System: The Hawthorne researchers came to view the workplace
as a social system made up of interdependent parts.
o Respect and dignity to workers: When employees are treated with respect and dignity, their
performance will improve.
o Socio-Psychological Need Gratification of Workers: Financial incentives alone cannot
increase the performance. Social and psychological needs must also be satisfied in order to
increase productivity.
o Effective Communication: Good communication between the superiors and subordinates
can improve the relations and the productivity of the subordinates. Special attention and
freedom to express their views will improve the performance of the workers.

These studies have created what is known as the HAWTHORNE EFFECT. This is a phenomenon that is thought
to have production increasing, not because there was a change in the working conditions, but because
management showed interest in having improvements. This is the feeling that the worker is part of a team
and that they have a sense of belonging.

 The Hawthorne Experiment: Criticisms

The Hawthorne Experiments are mainly criticised on the following grounds:
o Lacks Validity: The Hawthorne experiments were conducted under controlled situations.
These findings will not work in real setting. The workers under observation knew about the
experiments. Therefore, they may have improved their performance only for the experiments.
o More Importance to Human Aspects: The Hawthorne experiments gives too much
importance to human aspects. Human aspects alone cannot improve production. Production
also depends on technological and other factors.
o More Emphasis on Group Decision-making: The Hawthorne experiments placed too much
emphasis on group decision-making. In real situation, individual decision-making cannot be
totally neglected especially when quick decisions are required and there is no time to consult
others.
o Over Importance to Freedom of Workers: The Hawthorne experiments gives a lot of
importance to freedom of the workers. It does not give importance to the constructive role of
the supervisors. In reality too much of freedom to the workers can lower down their
performance or productivity.

Modern Approaches of Management

SYSTEMS APPROACH

The Systems Approach to management theory, commonly viewed as the foundation of organizational
development, views the organization as an open system made up of interrelated and inter-dependent parts
that interact as sub-systems.
Thus, the organization comprises a unified singular system made up of these subsystems. For example, a firm
is a system that may be composed of sub-systems such as production, marketing, finance, accounting and so
on. As such, the various sub-systems should be studied in their inter- relationships rather, than in isolation
from each other.

The following are the chief characteristics of the System Approach to Management:

 Sub-Systems: Each organization is a system made up of a combination of many sub-systems. These

sub-systems are inter-related.
 Holism: Each sub-system works together to make up a single whole system. Decisions made in any
subsystem affect the entire system.
 Synergy: The collective output of the whole system is greater than the sum of output of its sub-
systems.
 Closed and Open Systems: The whole organization is an open system made up of a combination of
open and closed sub-systems.
 System Boundary: The organization is separate from the external environment made up of other
systems.

The system approach envisions the organization as made up five components:

 Inputs: Raw Materials, Human Resources, Capital, Information, Technology

 A Transformational Process: Employee Work Activities, Management Activities, Operations Methods
 Outputs: Products or Services, Financial Results, Information, Human Results
 Feedback: Results from outputs influence inputs.
 The Environment: These components make up internal and external factors that affect the system.

The advantages of the systems approach include:

 It assists in studying the functions of complex organizations

 It is probabilistic rather than deterministic.
 It has been utilized as the base for the new kinds of organizations like project management
organization.
 It is possible to bring out the inter-relations in various functions like planning, organizing, directing
and controlling.

The drawbacks of the systems approach include:

  This approach is somewhat abstract and vague.
 It can be difficult to apply to large and complex organizations.
 It does not provide any tool and technique for managers.
 It is not a prescriptive management theory, as it does not specify tools and techniques for practicing
managers
 It does not address power and social inequalities and their causes.

CONTINGENCY APPROACH TO MANAGEMENT

The contingency approach, often called the Situational Approach is based upon the premise that all
management is essentially situational in nature. All decisions by managers will be affected (if not controlled)
by the contingencies of a given situation.

There is no one good way to address any decision. Contingencies arise from various environmental factors.
As such, managers must take into account these contingencies when making decisions that affect the
organization. Contingency theory builds upon accepted elements of System Theory. It recognized that an
organization is an open system made up of interrelated sub-units. It adds, however, that the behavior of
individual sub-units is contingent upon internal and external environmental contingencies. These might
include the relationship between two other sub-units or external systems. This is particularly true when these
internal or external units/systems have an effect on the desired outcome of a sub-unit.

The primary characteristics of contingency theory include:

 Non-universality of management theory: There is no one best way of doing things.

 Contingency: Management decision making is contingent upon the situation.
 Environment: Managerial policies and practices to be effective, must adjust to changes in the
environment.
 Diagnostics: Managers must possess and continue to improve diagnostic skills so as to anticipate and
ready for environmental changes.
 Human Relations: Managers should have sufficient human relations skills to accommodate and
stabilize change.
 Information and Communication: Managers must develop a communication system adequate to
deal with environmental changes.

The primary advantages of contingency theory include:

 It provides a realistic view of management and organization.

 It discards the universal validity of principles.
 Managers are situation-oriented and not stereotyped.
 Lends itself to an innovative and creative management style.

The drawbacks of contingency theory include:

 It does not have a theoretical base.

 Executive is expected to know all the alternative courses of action before taking action in a situation
that is not always feasible.
 It does not prescribe a course of action.
 A situation can be influenced by many factors. It is difficult to analyze all these factors.
PART 3: DEVELOPMENT OF MANAGEMENT THOUGHT

Concept of MBO by Peter Drucker

Management by Objectives (MBO) was first used by Peter Drucker in 1954, and has been further developed
by many management theoreticians, such as Douglas McGregor, George Odiorne, and John Humble.
According to Thomas M. Thomson, MBO is a process or system designed for supervisory managers in which
a manager and his or her subordinate sit down and jointly set specific objectives to be accomplished within
a set time frame and for which the subordinate is then held directly responsible. It is the systematic application
of goal setting and planning to help individuals and firms to be more productive.

Process of MBO

 The organization’s overall objectives and strategies are formulated.

 Major objectives are allotted among divisional and departmental units.
 Unit managers collaboratively set specific objectives for their units with their managers.
 Specific objectives are collaboratively set with all departmental members.
 Action plans, defining how objectives are to be achieved are specified and agreed upon by managers
and employees.
 The action plans are implemented.
 Progress toward objectives is periodically reviewed and feedback is provided.
 Successful achievement of objectives is reinforced by performance-based rewards.

Requirements for Implementation of MBO

 Support from All: No MBO programme can succeed unless it is fully accepted by the managers. The
subordinates should also clearly understand that MBO is the policy of the organisation and they have
to offer cooperation to make it successful.
 Acceptance of MBO Programme by Managers: In order to make MBO programme successful, it is
fundamentally important that the managers themselves must mentally accept it as a good or
promising programme. Since the employees will be at the receiving-end, they would mostly accept
the lines of action initiated by the managers.
 Training of Managers: Before the introduction of MBO programme, the managers should be given
adequate training in MBO philosophy. They must be in a position to integrate the technique with the
basic philosophy of the company. It is but important to arrange practice sessions where performance
objectives are evaluated and deviations are checked. The managers and subordinates are taught to
set realistic goals, because they are going to be held responsible for the results.
 Organizational Commitment: It should be based on active support, involvement and commitment
of managers. Koontz rightly observed that an effective programme of managing by objective must be
woven into an entire pattern and style of managing.
 Allocation of Adequate Time and Resources: A well-conceived MBO programme requires three to
five years of operation before it provides fruitful results. Proper time and resources should be
allocated and persons are properly trained in the philosophy of MBO.
 Provision of Uninterrupted Information Feedback: Superiors and subordinates should have
regular information available with them as to how effectively the goal performance of their
subordinates are progressing. Further, regular performance appraisal sessions, counselling and
encouragement to subordinates should be provided.

Benefits & Drawbacks of MBO

Advantages/ Benefits Disadvantages/ Drawbacks

 Employees take pride in their work and are  As MBO is focused on goals and targets, it often
assigned goals they know they can achieve that ignores other parts of a company, such as the
 match their strengths, skills, and educational culture of conduct, a healthy work ethos, and
experiences. areas for involvement and contribution.
 Assigning tailored goals brings a sense of  Strain is increased on employees to meet the
importance to employees, boosting their output goals in a specified time frame.
and loyalty to the company.  Employees are encouraged to meet targets by
 Communication between management and any means necessary, meaning that shortcuts
employees is increased. could be taken and the quality of work
 Management can create goals that lead to the compromised.
success of the company.  If management solely relies on MBO for all
management responsibilities, it can be
problematic for areas that don’t fit under MBO.

Concept of Five-Force Analysis by Michael Porter

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry
and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently used to
identify an industry's structure to determine corporate strategy. Porter's model can be applied to any
segment of the economy to understand the level of competition within the industry and enhance a company's
long-term profitability.

The five forces are discussed as under:

 Supplier power: An assessment of how easy it is for suppliers to drive up prices. This is driven by the:
number of suppliers of each essential input; uniqueness of their product or service; relative size and
strength of the supplier; and cost of switching from one supplier to another.
 Buyer power: An assessment of how easy it is for buyers to drive prices down. This is driven by the:
number of buyers in the market; importance of each individual buyer to the organisation; and cost to
the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they
are often able to dictate terms.
 Competitive rivalry: The main driver is the number and capability of competitors in the market. Many
competitors, offering undifferentiated products and services, will reduce market attractiveness.
  Threat of substitution: Where close substitute products exist in a market, it increases the likelihood
of customers switching to alternatives in response to price increases. This reduces both the power of
suppliers and the attractiveness of the market.
 Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless
incumbents have strong and durable barriers to entry, for example, patents, economies of scale,
capital requirements or government policies, then profitability will decline to a competitive rate.
Arguably, regulation, taxation and trade policies make government a sixth force for many industries.

Concept of Three Generic Competitive Strategies by Michael Porter

A firm's relative position within its industry determines whether a firm's profitability is above or below the
industry average. The fundamental basis of above average profitability in the long run is sustainable
competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage combined with the scope of activities for which
a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an
industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and
differentiation focus.

 Cost Leadership: In cost leadership, a firm sets out to become the low-cost producer in its industry.
The sources of cost advantage are varied and depend on the structure of the industry. They may
include the pursuit of economies of scale, proprietary technology, preferential access to raw materials
and other factors. A low-cost producer must find and exploit all sources of cost advantage. if a firm
can achieve and sustain overall cost leadership, then it will be an above average performer in its
industry, provided it can command prices at or near the industry average.
 Differentiation: In a differentiation strategy a firm seeks to be unique in its industry along some
dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its
uniqueness with a premium price.
 Focus: The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to
serving them to the exclusion of others. The focus strategy has two variants:
o In cost focus a firm seeks a cost advantage in its target segment
o In differentiation focus a firm seeks differentiation in its target segment. Both variants of the
focus strategy rest on differences between a focuser's target segment and other segments in
the industry.
 The target segments must either have buyers with unusual needs or else the production and delivery
system that best serves the target segment must differ from that of other industry segments. Cost focus
exploits differences in cost behaviour in some segments, while differentiation focus exploits the
special needs of buyers in certain segments.

Concept of Value Chain Analysis by Michael Porter

The idea of the value chain is based on the process view of organisations, the idea of seeing a manufacturing
(or service) organisation as a system, made up of subsystems each with inputs, transformation processes and
outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources
- money, labour, materials, equipment, buildings, land, administration and management. How value chain
activities are carried out determines costs and affects profits.

Most organisations engage in hundreds, even thousands, of activities in the process of converting inputs to
outputs. These activities can be classified generally as either primary or support activities that all businesses
must undertake in some form.

According to Porter (1985), the primary activities are:

 Inbound Logistics: They involve relationships with suppliers and include all the activities required to
receive, store, and disseminate inputs.
 Operations: They are all the activities required to transform inputs into outputs (products and
services).
 Outbound Logistics: They include all the activities required to collect, store, and distribute the
output.
 Marketing and Sales: These activities inform buyers about products and services, induce buyers to
purchase them, and facilitate their purchase.
 Service: It includes all the activities required to keep the product or service working effectively for the
buyer after it is sold and delivered.

The secondary activities are:

 Procurement: It is the acquisition of inputs, or resources, for the firm.

  Human Resource management: It consists of all activities involved in recruiting, hiring, training,
developing, compensating and (if necessary) dismissing or laying off personnel.
 Technological Development: It pertains to the equipment, hardware, software, procedures and
technical knowledge brought to bear in the firm's transformation of inputs into outputs.
 Infrastructure: It serves the company's needs and ties its various parts together, it consists of functions
or departments such as accounting, legal, finance, planning, public affairs, government relations,
quality assurance and general management.

Concept of Learning Organization by Peter Senge

According to Peter Senge, one-third of 500 companies will disappear within 15 years, and the average
lifetime for the largest enterprises is approximately 40 years. It addresses the question how today’s
organizations can experience continuous growth to perform better than its competitors. Instead of visualizing
a traditional hierarchy, today’s companies can survive when it succeeds in creating a learning organization.
An organization where people continually expand their capacity to create the results, they truly desire, where
new and expansive patterns of thinking are nurtured, where collective aspiration is set free and where people
are continually learning how to learn together.

The Senge’s five disciplines of learning organizations or Senge’s learning organization describes how to
manage the success and development of an organization and how employees give the extra mile that goes
beyond the expectations of the company.

The five disciplines of learning organizations (features) are discussed as follows:

 Building a Shared vision: In learning organizations, the vision should be created through interaction
with the employees in the enterprise. Many leaders have personal visions that lack transferring them
to a shared vision. The only way to create a shared vision is by compromising the organizations and
individual’s visions. People who do not share the same vision might not contribute as much to the
organization. The effect of sharing the same vision is that employees do tasks because they want to
do so instead of, they are told to do so. It changes the relationship with the company, and it turns its
performances in a learning mechanism.
 Systems Thinking: Instead of focusing on individual issues, systems thinking reflects the
observational process of an entire system. Managers have to understand that every action and
 consequence is correlated with another. Many times, it happens that managers focus on individual
actions, and therefore, forget about seeing the big picture. When the correlation is understood, it
enables us to see interrelationships and patterns of change in particular situations. Managers will be
able to determine cause and effect.
 Mental Models: According to Peter Senge, the employees must identify the values of the company
and what the business is all about. A correct understanding of who we are will enable us to visualize
where to go and how to develop further. The organization has to be flexible in accepting changes to
new mental models and a new image of the company. The most successful companies are those who
can learn and adapt to new models to become faster than its competitors.
 Team Learning: To accomplish excellent functional team dynamics, team-learning is a primary
importance. It is the discipline by which personal mastery and shared vision are brought together. It
is crucial for the workforce to consider its colleagues as team members instead of rivals. It is the first
step to set up dialogues wherein people dare to be vulnerable and express their real personality. The
working environment should be safe where honest mistakes are forgiven. Otherwise, no learning can
be experienced.
 Personal Mastery: Personal mastery occurs when an individual has a clear vision of a goal, combined
with an accurate perception of reality. The gap between the vision and reality drives the employee to
practice all necessary related activities to realize the vision. This creative tension depends on a clear
understanding of current reality. For this reason, for personal mastery and the related discipline of a
shared vision, looking at, and sharing the truth is a crucial fundamental. However, employees could
believe they lack the competencies to achieve their goals. A vicious circle might have established and
could be difficult to remove. According to Peter Senge, we should train our subconscious mind
because it can handle more complex problems quicker than what our consciousness can.