MANAGEMENT PROCESS AND ORGANIZATIONAL BEHAVIOUR

UNIT-II

PLANNING

CONCEPT OF PLANNING

Planning means to look ahead and chalking out future courses of action to be followed. It is a
preparatory step. It is a systematic activity which determines when, how and who is going to
perform a specific job. Planning is a detailed programme regarding future courses of action.

It is rightly said “Well plan is half done”. Therefore planning takes into consideration available
& prospective human and physical resources of the organization so as to get effective co-
ordination, contribution & perfect adjustment. It is the basic management function which
includes formulation of one or more detailed plans to achieve optimum balance of needs or
demands with the available resources.

Planning is determination of courses of action to achieve the desired results. It involves

anticipation of future courses of events and choosing best course of action.

According to Urwick, “Planning is a mental predisposition to do things in orderly way, to think

before acting and to act in the light of facts rather than guesses”. Planning is deciding best
alternative among others to perform different managerial functions in order to achieve
predetermined goals.

According to Koontz & O’Donell, “Planning is deciding in advance what to do, how to do and
who is to do it. Planning bridges the gap between where we are to, where we want to go. It
makes possible things to occur which would not otherwise occur”.
NATURE OF PLANNING

The nature of planning can be better understood by emphasizing the following characteristics of
planning:-

1. Based on objectives- Planning is closely associated with the objectives of the

organization. It lays down the actions that will lead towards the ultimate objectives.
2. Forward looking- It involves forecasting of future environment in which the
organization is expected to function.
3. Primacy of planning- Planning is the first of the managerial functions to be performed.
Planning is based upon the organizational objectives. Other managerial operations in
organizing, staffing and controlling are designed to support the accomplishment of organizational
objectives.
4. Selection of Alternatives- Planning is concerned with selecting the best course of action
among all the alternatives. Decision making is an integral part of the planning function of
management.
5. Effectiveness of planning- The efficiency and effectiveness of planning is measured by
its contribution in reaching organizational objectives versus its corresponding costs. In
other words, plans should be developed after due consideration of potential benefits to be
received versus costs incurred.
6. Intellectual activity: Planning involves vision and foresightedness to decide the things to
be done in future. It bridges the gap between where we are and where we want to go. It is
not a simple process. It involves use of mental skills for the achievement of
organizational objectives.
7. Pervasive function: Planning is a function of all managers, although the nature and
breadth of planning will vary with authority and with the nature of policies and plans
outlined by their superiors. It is done at all levels of the organization and in all types of
organization.
SCOPE AND OBJECTIVES OF PLANNING

1. To provide unity of direction: Planning is intended to give a sense of direction to all

organizational activities by focusing on well-defined goals of the enterprise. The conflict
of interest among different departments would be avoided.
2. To reduce uncertainty: Business enterprises operate in an uncertain environment and
face several types of risks. Planning enables the enterprises to predict future events and
prepare for the same. Thus, with the help of planning, managers can identify potential
dangers and take steps to overcome them.
3. To check overlapping and wasteful activities: Planning is done to ensure clarity in
thought and action. There would be no confusion and misunderstanding. This would
reduce overlapping of activities. Moreover, wasteful activities will also be checked.
4. To promote new ideas: Planning is thinking in advance and, therefore, there is scope of
finding better ideas, methods and procedures to reach the goals of the enterprise.
5. To establish standards for controlling: Planning is intended to provide standards or
benchmarks against which the actual performance of different units and sub-units could
be measured and evaluated. A comparison of actual performance with the standards
would help to find out deviations and take corrective actions in time.
SIGNIFICANCE/IMPORTANCE OF PLANNING

1. Focuses attention on objectives: Since all planning is directed towards achieving

enterprise objectives, the very act of planning focuses attention on these objectives.
Laying down the objectives is the first step in planning. If the objectives are clearly laid
down, the execution of plans will also be directed towards these objectives.
2. Ensures economical operations: Planning involves a lot of mental exercise which is
directed towards achieving efficient operation in the enterprise. It helps in optimum
utilization of resources and thus minimizing costs.
3. Reduces uncertainty: Planning helps to reduce uncertainties of future because it
involves anticipation of future events. Effective planning is the result of deliberate
thinking based on facts and figures. It involves forecasting also. Planning gives
opportunity to a business manager to foresee various uncertainties which may be cause
by changes in external environment of the business such as changes in technology, taste
and fashion of people etc.
4. Facilitates control: Planning and control are inseparable in the sense that unplanned
action cannot be controlled because control involves keeping activities on the
predetermined course by rectifying deviations from plan. Planning helps control by
furnishing standards of control.
5. Encourages innovation and creativity: Planning is basically the deciding function of
management which helps to bring innovation and creative thinking among the managers
because many new ideas come to the mind of the manager when he is planning.
6. Improves motivation: A good planning system ensures participation of all managers
which improves their motivation. It improves the motivation of workers also because
they know clearly what is expected of them. Moreover, planning serves as a good training
device for future managers.
7. Improves competitive strength: Effective planning gives a competitive edge to the
enterprise over other enterprises that do not have planning or have ineffective planning.
This is because planning may involve expansion of capacity, changes in work methods,
changes in quality, anticipation tastes and fashion of people and technological changes
etc.
8. Facilitates coordination: Planning secures unity of direction towards the organizational
objectives or common goals. There is an integrated effort throughout the enterprise. Thus,
there will be better coordination in the organization.
TYPES OF PLANNING

We can classify planning on the basis of the following dimensions:-

1. Organizational level: Corporate, Divisional and Functional planning

2. Focus: Strategic, Operational and Tactical planning.
3. Time period: Long-range, Medium-range and Short-range.

I. LEVELS OF PLANNING

Based on organizational levels, planning exercise may take the form of following:

1. Corporate Planning: Corporate planning may be defined as a systematic and

comprehensive process of planning taking account of the resources and capability of the
organization and the environment within which it has to operate and viewing the
organization as a total corporate unit. Corporate planning provides for the future
contingencies and attempts to match the organizational resources with the opportunities
and threats in the external environment.
2. Divisional Planning: This relates to a particular division or department. Thus, it sets the
objectives, policies for a particular department in tune with the corporate plans of an
enterprise. Divisional had and middle level managers are responsible for this.
3. Sectional or Unit Planning: Unit planning is highly specific as it is done to achieve the
divisional objectives. Its focus is to lay down detailed plans for a particular unit for day-
to-day guidance of personal working there. First line managers are responsible for its
planning.

II. FOCUS OF PLANNING

The focus of managerial planning may be on developing:

1. Strategic planning: Strategic planning is the process of deciding the objectives of the
organization and determining the manner in which the resources of the enterprise are to
 be deployed to realize the objectives in the uncertain environment.
2. Operational planning: Operational planning is concerned with the efficient use of the
already allocated and with the development of a control mechanism to ensure efficient
operation so that organizational objectives are achieved.
3. Tactical planning: These plans are made for short term moves necessary for supporting
to the strategic plans and achieving firm’s objectives. They are required to meet the
challenges of sudden changes in the environmental forces. For example: Tactical
planning may be made to handle a sudden fall in the demand of firm’s products due to
unexpected move by a competitor. The nature of tactical plan is directed by the threats
posed by the environment.
III. RANGE OR TIME SPAN OF PLANNING

Basis Long-range Planning Medium-range Planning Short-range Planning

Time Span Time horizon is generally Time horizon is more than Time span is restricted
more than five years. one year, but less than five up to one year.
years.
Focus It is focused on the It is focused on the long Its main focus is on
external environment of range plans and internal internal environment of
the business. environment of the business. Linkage
business. between various
elements of business is
greatly emphasized.
Uncertainty It is very high. It is moderate. It is low.
Specificity The actions are less The actions are specified The actions are highly
specified. but there is lack of details specified and detailed.
available.
Linkage It is linked with the It is linked with the long- It is instrumental in
corporate objectives. range planning. implementing medium
and long-range
planning.
Means Strategies and long-term Policies, procedures, Methods, rules,
policies are formulated. programmes and projects budgets, schedules etc
are quite often used. are used.
PLANNING PROCESS

It is not easy to specify the steps in the planning process for all organizations because of their
differences in size and complexity. The suggested steps are:

1. Establishing Objectives: Objectives provide direction to various activities in the

enterprise. The establishment of objectives is than objectives themselves since their
establishment emphasizes how various people and units fit into the overall organization’s
framework. Objectives clarify the tasks to be accomplished. The derivatives objectives
focus on more details, that is, what is to be accomplished, where action is to take place,
who is to perform it, how it is to be undertaken, and when it is to be accomplished.
2. Collection of Information and Forecasting: Sufficient information must be collected
in order to make the plans and sub plans. Necessary information includes the critical
assessment of the current status of the organization together with a forward look at the
environment that is anticipated. Collection of information and making forecasts serve as
an important basis of planning.

3. Development of planning premises: This step involves making assumptions concerning

the behavior of internal and external factors. Assumptions denote the expected
environment in the future and are known as ‘Planning Premises’. It is advisable to limit
premising to those factors which are critical or strategic to the planning process.
4. Search of Alternatives: The planner must try to find out all the possible alternatives.
Without resorting to such a search, manager is likely to be guided by his limited
imagination. It should be noted that determination of alternative plans can be a time
consuming task because objectives which have been established initially may be found to
be flexible.
5. Evaluation of Alternatives: Once alternative action plans have been determined, they
must be evaluated with references to considerations like costs, long-range objectives,
limited resources, risk and many intangible factors to select the satisfactory course of
action. The best possible alternatives may be chosen by the manager after detailed
analysis.
6. Selection of plan and development of Derivative plans: The final step in planning
process is to select the most feasible plan to develop derivative plans. The plans must also
include the feedback mechanism. The derivative plans are required to support the basic or
overall plans because the master plans cannot be executed effectively unless they are
supported by them.
ESSENTIAL REQUIREMENTS OF AN EFFECTIVE PLAN:
An effective plan is one which helps in the better management of the enterprise. In order to be
effective, a plan should possess the following characteristics:

1. The plan should be specific: The more specific it is, the less chance there is for it to be
misinterpreted. Objectives should be clearly defined. The means for carrying out the plan
should also be indicated in unambiguous terms.
2. The plan should be logical: The more facts it is based on, the better it is. If facts are not
available, reasonable assumptions must be made about the future.
3. The plan should be complete and integrated: A plan is said to be complete when it is
comprehensive enough to cover all actions expected from the individuals and sections of the
undertaking as a whole. It is said to be an integrated one when various administrative plans
are so welded into one another that the whole undertaking operates at the peak of its
efficiency.
4. The plan should be flexible: No plan is infallible nor it can cover all possible contingencies.
Conditions under which a plan will be most effective change as do the variables and factors
on which the plan is formulated. Therefore, it is essential to introduce some flexibility in
every plan.

5. The plan should be capable of being controlled: Effective planning of business activities
depends upon the ability to foresee with utmost accuracy the nature and requirements of
future events relating to industry in general and the business undertaking in particular.
Therefore, the plan must distinguish between controllable and uncontrollable future
environment for better administrative control.
RELATIONSHIP BETWEEN PLANNING AND CONTROLLING
Planning and controlling are two separate functions of management, yet they are closely related.
The scopes of both activities are overlapping to each other. Without the basis of planning,
controlling activities becomes baseless and without controlling, planning becomes a meaningless
exercise. In absence of controlling, no purpose can be served by. Therefore, planning and
controlling reinforce each other. According to Billy Goetz, "Relationship between the two can be
summarized in the following points:

1. Planning precedes controlling and controlling succeeds planning.

2. Planning and controlling are inseparable functions of management.
3. Activities are put on rails by planning and they are kept at right place through controlling.
4. The process of planning and controlling works on Systems Approach which is as follows:

Planning → Results → Corrective Action

5. Planning and controlling are integral parts of an organization as both are important for
smooth running of an enterprise.
6. Planning and controlling reinforce each other. Each drives the other function of
management.

In the present dynamic environment which affects the organization, the strong relationship
between the two is very critical and important. In the present day environment, it is quite likely
that planning fails due to some unforeseen events. There controlling comes to the rescue. Once
controlling is done effectively, it gives us stimulus to make better plans. Therefore, planning and
controlling are inter-dependent and inter-related functions of a business enterprise.
DECISION MAKING

Decision-making is an integral part of modern management. Essentially, Rational or sound

decision making is taken as primary function of management. Every manager takes hundreds and
hundreds of decisions subconsciously or consciously making it as the key component in the role
of a manager. Decisions play important roles as they determine both organizational and
managerial activities. Decisions are made at every level of management to ensure organizational
or business goals are achieved. Further, the decisions make up one of core functional values that
every organization adopts and implements to ensure optimum growth and drivability in terms of
services and or products offered.

“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”

According to Peter Drucker, "Whatever a manager does, he does through decision-making".

6 C’s in decision making

1. Construct : clear picture of what must be

2. Compile: list of requirement that must be met
3. Collect: information on alternatives that meet the requirement
4. Compare the alternatives that meet the requirement
5. Consider: factors that might go wrong
6. Commit: to a decision and follow through with it
CHARACTERISTICS/NATURE OF DECISION MAKING

Decision making implies choice: Decision making is choosing from among two or more alternative
courses of action. Thus, it is the process of selection of one solution out of many available. For any
business problem, alternative solutions are available. Managers have to consider these alternatives and
select the best one for actual execution.

1. Continuous activity/process: Decision-making is a continuous and dynamic process. It

pervades all organizational activity. Managers have to take decisions on various policy
and administrative matters. It is a never ending activity in business management.
2. Mental/intellectual activity: Decision-making is a mental as well as intellectual
activity/process and requires knowledge, skills, experience and maturity on the part of
decision-maker. It is essentially a human activity.
3. Based on reliable information/feedback: Good decisions are always based on reliable
information. The quality of decision-making at all levels of the Organisation can be
improved with the support of an effective and efficient management information system
(MIS).
4. Goal oriented process: Decision-making aims at providing a solution to a given
problem/ difficulty before a business enterprise. It is a goal-oriented process and provides
solutions to problems faced by a business unit.
5. Means and not the end: Decision-making is a means for solving a problem or for
achieving a target/objective and not the end in itself.
6. Relates to specific problem: Decision-making is not identical with problem solving but
it has its roots in a problem itself.
7. Time-consuming activity: Decision-making is a time-consuming activity as various
aspects need careful consideration before taking final decision. For decision makers,
various steps are required to be completed. This makes decision-making a time
consuming activity.
8. Needs effective communication: Decision-taken needs to be communicated to all
concerned parties for suitable follow-up actions. Decisions taken will remain on paper if
they are not communicated to concerned persons. Following actions will not be possible
in the absence of effective communication.
9. Pervasive process: Decision-making process is all pervasive. This means managers
working at all levels have to take decisions on matters within their jurisdiction.
10. Responsible job: Decision-making is a responsible job as wrong decisions prove to be
too costly to the organization. Decision-makers should be matured, experienced,
knowledgeable and rational in their approach. Decision-making need not be treated as
routing and casual activity. It is a delicate and responsible job.
ADVANTAGES OF DECISION MAKING

1. Decision making is the primary function of management: The functions of

management starts only when the top-level management takes strategic decisions.
Without decisions, actions will not be possible and the resources will not be put to use.
Thus decision-making is the primary function of management.
2. Decision-making facilitates the entire management process: Decision-making creates
proper background for the first management activity called planning. Planning gives
concrete shape to broad decisions about business objectives taken by the top-level
management. In addition, decision-making is necessary while conducting other
management functions such as organizing, staffing, coordinating and communicating.
3. Decision-making is a continuous managerial function: Managers working at all levels
will have to take decisions as regards the functions assigned to them. Continuous decision
making is a must in the case of all managers/executives. Follow-up actions are not
possible unless decisions are taken.
4. Decision-making is essential to face new problems and challenges: Decisions are
required to be taken regularly as new problems, difficulties and challenges develop
before a business enterprise. This may be due to changes in the external environment.
New products may come in the market, new competitors may enter the market and
government policies may change. All this leads to change in the environment around the
business unit. Such change leads to new problems and new decisions are needed.
5. Decision-making is a delicate and responsible job: Managers have to take quick and
correct decisions while discharging their duties. In fact, they are paid for their skill,
maturity and capacity of decision-making. Management activities are possible only when
suitable decisions are taken. Correct decisions provide opportunities of growth while
wrong decisions lead to loss and instability to a business unit.
TYPES OF DECISIONS
Decisions may be classified according to different bases such as:

a) Routine and Strategic Decisions: Tactical or routine decisions are made repetitively
following certain established rules, procedures and policies. They neither require
collection of new data nor conferring with people. Thus, they can be taken without much
deliberation. They may be complicated but are always one-dimensional. They do not
require any special effort by the manager. Such decisions are generally taken by the
managers at the middle and lower management level. Strategic or basic decisions, on
the other hand, are more important and so they are taken generally by the top
management and middle management. The highest the level of a manager, the more
strategic decisions he is required to take. These include decisions regarding policy
matters and so require thorough fact finding and analysis of the possible alternatives.
b) Policy and Operating Decisions: Policy decisions are of vital importance and are taken
by the top management. They affect the entire enterprise. But Operating decisions are
taken by the lower management in order to put into action the policy decisions. For
instance, the bonus issue is a policy matter which is to be decided by the top
management, and calculation of bonus is an operating decision which is taken at the
lower levels to execute the policy decision.
c) Organizational and Personal Decisions: Organizational decisions are those which a
manager takes in his official capacity. Such decisions can be delegated. But Personal
decisions, which relate to the manager as an individual and not as a member of the
organization, cannot be delegated.
d) Programmed and Non-Programmed Decisions: The programmed decisions are of
routine and repetitive in natures which are to be dealt with according to specific
procedures. But non-programmed decisions arise because of unstructured problems and
there are no standard procedures for handling such problems. Eg: single employee absent
for longer time without any information, supervisor may decision may take decision like
suspension etc. But is a large no. of employees are absent without any information, it has
to be dealt with as an unstructured problem and decision should be taken be the head of
the organization.

Programmed Decisions Non- Programmed Decisions

These are made for solving routine and
repetitive problems.
Decisions are made by using predetermined
procedures and rules.
These involve less use of judgement.
There is often consistency for longer period
of time over many situations.
Such decisions are made for solving both
simple and complex problems.
These are made for solving unique and
non-repetitive problems.
Decisions are made by using experience,
creativity and innovativeness.
These involve more use of experience and
judgement.
There is consistency in the long-run.
Such decisions are made generally for
solving complex problems.
 Techniques used for programmed decisions Techniques used for non-programmed
include procedures and rules organizational decisions include linear programming,
structure etc. queuing theory, break-even analysis,
simulation, replacement theory etc.

e) Individual and Group Decisions: When a decision is taken by an individual in the

organization, it is known as Individual decision. Such decisions are generally taken in
small organizations and in those organizations where autocratic style of management
prevails. Groups or collective decisions refer to the decisions which are taken by a
group of organizational members say Board of Directors or a Committee.
STEPS INVOLVED IN DECISION MAKING PROCESS

Decision-making involves a number of steps which need to be taken in a logical manner

1. Defining / Identifying the managerial problem,

2. Analyzing the problem,
3. Developing alternative solutions,
4. Selecting the best solution out of the available alternatives,
5. Converting the decision into action, and
6. Ensuring feedback for follow-up.

1. Identifying the Problem: Identification of the real problem before a business enterprise is
the first step in the process of decision-making. It is rightly said that a problem well-defined
is a problem half-solved. Information relevant to the problem should be gathered so that
critical analysis of the problem is possible. This is how the problem can be diagnosed. Clear
distinction should be made between the problem and the symptoms which may cloud the real
issue. In brief, the manager should search the 'critical factor' at work. It is the point at which
the choice applies. Similarly, while diagnosing the real problem the manager should consider
causes and find out whether they are controllable or uncontrollable.

2. Analyzing the Problem: After defining the problem, the next step in the decision-making
process is to analyze the problem in depth. This is necessary to classify the problem in order
to know who must take the decision and who must be informed about the decision taken.
 Here, the following four factors should be kept in mind:

a) Futurity of the decision,

b) The scope of its impact,
c) Number of qualitative considerations involved, and
d) Uniqueness of the decision.

3. Collecting Relevant Data: After defining the problem and analyzing its nature, the next step
is to obtain the relevant information/ data about it. There is information flood in the business
world due to new developments in the field of information technology. All available information
should be utilized fully for analysis of the problem. This brings clarity to all aspects of the problem.
4. Developing Alternative Solutions: After the problem has been defined, diagnosed on the
basis of relevant information, the manager has to determine available alternative courses of
action that could be used to solve the problem at hand. Only realistic alternatives should be
considered. It is equally important to take into account time and cost constraints and
psychological barriers that will restrict that number of alternatives. If necessary, group
participation techniques may be used while developing alternative solutions as depending on
one solution is undesirable.

5. Review of Key Factors: While developing alternatives, the principle of limiting factor has to
be taken care of. A limiting factor is one which stands in the way of accomplishing the
desired goal. It is a key factor in decision-making. If such factors are properly identified,
manager can confine his search for alternatives to those which will overcome the limiting
factors. Depending upon the situation faced, the limiting factor may be inadequate funds,
shortage of human resources, old machines or lack of marketing skills.

6. Selecting the Best Alternative: After preparing alternative solutions, the next step in the
decision-making process is to select an alternative that seems to be most rational for solving
the problem. Peter Drucker has laid down four criteria in order to weigh the consequences of
various alternatives. They are:
a) Risk: A manager should weigh the risks of each course of action against the expected
gains. As a matter of fact, risks are involved in all the solutions. What matters is the
intensity of different types of risks in various solutions.
b) Economy of effort: The best manager is one who can mobilize the resources for the
achievement of results with the minimum of efforts. The decisions to be chosen
should ensure the maximum possible economy of efforts, money and time.
c) Situation or Timing: The choice of course of action will depend upon the situation
prevailing at a particular point of time. If the situation has great urgency, the
preferable course of action is one that alarms the organization that something
important is happening, If a long and consistent effort is needed , a ‘slow start gathers
momentum’ approach may be preferable.
d) Limitation of Resources: In choosing among the alternatives, primary attention must
be given to those factors that are limiting or strategic to the decision involved. The
search of limiting factors in decision-making should be a never ending process.
Discovery of the limiting factor lies at the basis of selection from the alternatives and
hence of planning and decision-making.
7. Implementing the Decision: The choice of an alternative will not serve any purpose if it is
not put into practice. The manager is not only concerned with taking a decision, but also with
its implementation. The alternative thus selected must be communicated to those who are
likely to be affected by it. Acceptance of the decision by group members is always desirable
and useful for its effective implementation. He should try to ensure that systematic steps are
taken to implement the decision. The main problem which the manager may face at this stage
is the resistance by the subordinates who are affected by the decision. If the manager is
unable to overcome this resistance, the energy and efforts consumed in decision-making will
go waste. In order to make the decision acceptable, it is necessary for the manager to make
the people understand what the decision involves, what is expected of them and what they
should expect from the management. The principle of slow and steady progress should be
followed to bring about a change in the behaviour of the subordinates.

8. Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the
manager has to make built-in arrangements to ensure feedback for continuously testing actual
developments against the expectations. It is like checking the effectiveness of follow-up
measures. Feedback is possible in the form of organized information, reports and personal
observations. Feed back is necessary to decide whether the decision already taken should be
continued or be modified in the light of changed conditions.
TECHNIQUES OF DECISION MAKING

Every step in the decision-making process is important and needs proper consideration by
managers. In order to evaluate the alternatives, certain quantitative techniques have been
developed which facilitate making objective decisions. Some of these techniques are:

1. Marginal Cost Analysis: The technique is also known as marginal costing as under it the
additional revenues from additional costs are compared. The profits are maximum at the level
where marginal revenues and marginal costs are equal. Marginal analysis can also be used in
comparing factors other than costs and revenues. For example: In order to find the optimum
output of a machine, one can vary inputs against outputs until the additional inputs equal the
additional output. This would be the point of maximum efficiency.
2. Cost-Benefit Analysis: It is technique of weighing alternatives where the optimum solution
cannot be conveniently reduced to monetary terms as in the case of marginal cost analysis. It
is used for choosing among alternatives to identify a preferred choice when objectives are far
less specific than those expressed by such clear quantities as sales, costs or profits.
3. Operations Research: Operations research has been defined as the scientific method of
analysis of organizational problems to provide the executive the needed quantitative
information in making suitable decisions. The object of operations research is to provide the
managers with a scientific basis for solving organizational problems involving the interaction
of components of the organization. In days gone by, executive decisions used to be taken on the basis
of intuition, subjectively or past experience but operations research seeks to replace this process by an
analytic, objective and quantitative basis. It uses techniques like inventory control, sequencing theory
etc.
4. Linear Programming: It is devised for determining the optimum combination of limiting
resources to achieve a given objective. It is based on the assumption that there exists a linear
relationship between variables and that the limits of variations could be ascertained. It is
applicable in such problem areas as production planning, transportation, warehouse location,
warehouse facilities at an overall minimum cost. It uses functions like maximization and
minimization subject to a set of some real or assumed restrictions known as constraints.
5. Delphi Method: In Delphi decision groups, a series of questionnaires, surveys, etc. are sent
to selected respondents (the Delphi group) through a facilitator who oversees responses of
their panel of experts. The group does not meet face-to-face. All communication is normally
in writing (letters or email). Members of the groups are selected because they are experts or
they have relevant information. The responses are collected and analyzed to determine
conflicting viewpoints on each point. The process continues in order to work towards
synthesis and building consensus. The process works as follows:
1. Members are selected for the Delphi panel due to their expertise.
2. They are kept separated and answer through an open-ended questionnaires, surveys,
etc. in order to solicit specific information about a subject or content area. Keeping
them separated avoids the negative effects of face-to-face discussions and avoids
problems associated with group dynamics.
3. Members are asked to share their assessment and explanation of a problem or predict
a future state of affairs.
4. The facilitator (panel director) controls the interactions among the participants by
processing the information and filtering out irrelevant content.
5. Replies are gathered, summarized, and then fed back to all the group members.
6. Members then make another decision based upon the new information.
7. The process is repeated until the the responses converge satisfactory, that is, it yields
consensus.

The success of this process depends upon the member's expertise and communication skill. Also,
each response requires adequate time for reflection and analysis. The major merits of the Delphi
process are:

 Elimination of interpersonal problems.

 Efficient use of expert's time.
 Diversity of ideals.
 Accuracy of solutions and predictions.
6. Decision Tree

A decision tree is a graphic method by which a decision-maker can readily visualize alternatives
tighter with risks, possible outcomes and information needs involved in each chance. Decision
tree is a graphical method for illustrating the chances available at various stages in multi stage
decision process and the consequences of each choice.

A Decision Tree Analysis is a scientific model and is often used in the decision making process
of organizations.

When making a decision, the management already envisages alternative ideas and solutions. By
using a decision tree, the alternative solutions and possible choices are illustrated graphically as a
result of which it becomes easier to make a well-informed choice.

This graphic representation is characterized by a tree-like structure in which the problems in

decision making can be seen in the form of a flowchart, each with branches for alternative
choices.

The representation of the decision tree can be created in four steps:

 Describe the decision that needs to be made in the square.

 Draw various lines from the square and write possible solutions on each of the lines.
 Put the outcome of the solution at the end of the line. Uncertain or unclear decisions are
put in a circle. When a solution leads to a new decision, the latter can be put in a new
square.
 Each of the squares and circles are reviewed critically so that a final choice can be made.
RATIONAL DECISION MAKING:

Rationality is the ability to follow a systematical, logical, thorough approach in decision-making.

Thus, if a decision is taken after thorough analysis and reasoning and weighing the consequences
of various alternatives such a decision will be called an objective or rational decision.
The classical management thinkers stressed that managerial decision must be rational. They
argued that the decision-maker is an ‘economic man’ and is guided by economic considerations
in choosing solutions to problem.
The classical approach is based on following assumptions:
1. The decision-maker intends to maximize economic gains.
2. He is fully objective and rational uninfluenced by emotions.
3. He can identify the problem clearly and precisely.
4. He has full information about various alternatives & is able to evaluate them intelligently
to find out which alternative is the best.
5. He has complete freedom to choose the best alternative.

The rational economic model is prescriptive and explains how decision-maker should behave.
But perfect rationally is a norm which can be aimed at but not attained. In real life, the decision-
maker cannot be completely rational due to several constraints such as personal and
environmental factors.

BOUNDED RATIONALITY MODEL OR ADMINISTRATIVE MAN

MODEL
Decision-making involve the achievement of a goal. Rationality demands that the decision-
maker should properly understand the alternative courses of action for reaching the goals. He
should also have full information and the ability to analyze properly various alternative courses
of action in the light of goals sought. There should also be a desire to select the best solutions by
selecting the alternative which will satisfy the goal achievement.
Herbert A. Simon defines rationality in terms of objective and intelligent action. It is
characterized by behavioral nexus between ends and means. If appropriate means are chosen to
reach desired ends the decision is rational.
Bounded Rationality model is based on the concept developed by Herbert Simon. This
model does not assume individual rationality in the decision process. Instead, it assumes that
people, while they may seek the best solution, normally settle for much less, because the
decisions they confront typically demand greater information, time, processing capabilities than
they possess. They settle for “bounded rationality or limited rationality in decisions.
Managers take decisions which involve different combination of intuition and rational thinking.
A manager who depends much upon intuition is more subjective and a person who depends
much upon logical thinking is more objective. This is what Herbert has called the “principle of
bounded rationality”. Simon emphasized that a person makes decision not only on absolutely
logical analysis of facts but also on his intuition, value system and way of thinking which are
subjective in nature.

Causes of Bounded Rationality: Herbert Simon of administrative man describes the decision-
making behaviour of individuals in actual practice. It recognizes that managers are unable to
make perfectly rational decisions due to the following constraints or limitations:
1. The individual does not study and analyze the problem fully because of personal bias,
indifferent attitude etc.
2. The individual dies not have the full knowledge of the alternatives and/or their
consequences.
3. The individual interprets the organizational goals in his own way. He may adopt course
of action which according to him will meet the goals effectively.
4. The individual does not search for the best solution, but for ‘good enough solutions’. In
other words, he aims at ‘satisfactory’ rather than ‘optimum decision’.
5. The decision-making situation may involve multiple goals all of which can’t be
maximized simultaneously. Further, these goals may be of conflicting nature.
6. The effectiveness of a decision is dependent upon environmental factors which are
beyond the control of decision-makers. Thus, the consequences of various alternatives
cannot be anticipated perfectly because of uncertain environment.

The concept of bounded rationality explains the behaviour of people in practice. The
administrative man seeks satisficing and not optimal decisions which are satisfactory for his
practical purposes.
 ORGANIZING

CONCEPT

Organization is an essential part of human life. We are born in organizations, educated in

organizations and spend most of our lives working for the organizations. It is therefore, natural
that everyone wants to know what is an organization, how it is designed and what roles does it
plays in management.

“Organization is the process of identifying and grouping work to be performed defining and
delegating responsibility and authority and establishing relationship for the purpose of enabling
people to work most effectively together in accomplishing objectives”

According to Louis A. Allen, “Organization involves identification and grouping the activities
to be performed and dividing them among the individuals and creating authority and
responsibility relationships among them for the accomplishment of organizational objectives.”

Concept of Organizing: The term ‘Organization’ is used in management literature in two

different ways:

1. Organization as a structure: Organization structure refers to the network of relationships

among individuals and positions in an organization. According to McFarland,
organization is “an identifiable group of people contributing their efforts towards the
attainment of goals”. Thus, as a structure organization is the structural framework within
which the efforts of different people are coordinated and related to each other. It is a blue-
print of how the management will work like; various activities and functions are to be
performed.
2. Organization as a process: As a process, organization refers to one of the important
functions of management. It is the process of determining, arranging, grouping and
assigning the activities to be performed for the attainment of the objectives. According to
Haimann, “Organizing is the process of defining and grouping the activities of the
enterprise and establishing the authority relationships among them”.
Organizing process involves differentiation and integration of activities. Differentiation is
the segmentation of structure into sub-systems while integration involves creating unity
of efforts among the various sub-systems. This is the dynamic and humanistic meaning of
the term organization.
Significance of Organization:

Sound organization structure can contribute to the success of an enterprise in many ways. It is in
fact the backbone of management. It helps in achieving the following advantages:

 Clear cut Authority relationships: It specifies who is to direct whom and who is
accountable for what results. The clearly defined authority-responsibility structure gives
role and goal clarity to all the employees.
 Efficient Management: Organizing is necessary for performing other functions of
management like; planning, staffing, directing and controlling.
 Coordination & communication: It brings coordination among various departments and
also provides for the activities of different departments.
 Growth & diversification: It helps in the growth by facilitating its efficient
management. Sound organization structure helps in keeping the various activities under
control and increases the capacity of the enterprise to undertake more activities.
 Optimum use of Human Resources: Sound organization matches the job with the
individual and vice-versa. Right person at the right place.
 Optimum use of technological Innovations: Sound organization structure is not rigid
but flexible in nature and provides adequate scope for the improvement in technology.
 Stimulating Creativity: Sound organization structure stimulates creative thinking and
initiative among organizational members by providing well-defined patterns of authority.
Formal and Informal organization structure:

Formal Organization: The formal organization refers to the structure of jobs and positions with
clearly-defined functions and relationships as prescribed by the top management. This type of
organization is bound by rules, systems, and procedures and is deliberately built by the
management to accomplish organizational goals. The formal organizational is built around the
key pillars of division of labor, scalar process, structure, and span of control. These may also be
called the principles of formal organization. According to Chester Barnard, “Formal organization
is a system of consciously coordinated activities or forces of two or more persons”.

A formal organization is deliberately designed to achieve some particular objectives. It refers to

the structure of well defined jobs, each bearing a definite measure of authority, responsibility and
accountability.

The formal organization structure is built around four key pillars:

1. Division of labor
2. Scalar & functional processes
3. Structure
4. Span of control

These may also be called the principles of formal organization.

Significance of formal organization: Formal organization is the basis of effective management

of any enterprise. It can help in achieving following benefits;-

1. It helps in determining the objectives of various departments and units. It facilitates the
process of fulfillment of objectives.
2. It facilitates optimum use of resources and new technological developments.
3. It clarifies authority & responsibility relationships which lead to better communication.
4. There is a clear-cut division of work among the developments and individuals. As s result
there is no overlapping of efforts.
5. Creation of chain of command from top to bottom indicates avenues for promotion and
 the qualifications needed to hold a higher level post.
6. Formal organization brings about stability in the enterprise through procedures, policies,
rules and regulations.

Informal organization: Informal organization refers to relationship between people in the

organization based on personal attitudes, emotions, prejudices, likes, dislikes.

These relations are not developed according to procedures and regulations laid down in the
formal organization structure, generally large formal groups give rise to small informal or social
groups. These groups may be based upon common taste, language, culture, etc. Theses groups
are not planned but are automatically formed through continuous interaction between people.

Keith Davis has described informal organization as, “network of personal and social relations
not established or required by formal organization, but arising spontaneously as people
associate with one another. It is also known as ‘Shadow Organization’, as it exists along with
the formal organization”.

Both formal and informal organizations are necessary for any group action just as two blades are
essential to make a pair of scissors workable. It may be noted that formal organization is unable
to meet all the needs like affection, esteem, affiliation of its members.

Significance of Informal organization: The importance of informal organization arises from

the functions performed by informal groups, these are:-

1. It serves as a very useful channel of communication as it is very fast.

2. It blends with the formal organization to make it more effective.
3. It gives psychological satisfaction to the members. They get a platform to express their
feelings.
4. The presence of informal organization encourages the managers to plan and act carefully.
Thus, it supports and supplements the formal organization.
 Basis Formal Organization
Purpose It is created to achieve predetermined
objectives.
Structure It is an official hierarchy of relations.
It refers to well-defined authority-
responsibility structure.
Formation Formal relations are well –planned
and created deliberately.
Chain of Formal organization follows the
command and official chain of command which
communication can’t be changed. Communication
has to follow formal channels.
Formal organization is usually stable. Informal organization may not last long.
Human Formal organization reflects
Relations technological aspect of the
organization. It does not take care of
human sentiments.
Flexibility It follows a rigid structure.
Leadership Managers provide leadership to
workers.
Informal Organization
It has no determined objectives.
Its structure is based on human emotions
and sentiments. It refers to personal
relationships which develop
automatically when people work
together.
Informal relations are unplanned and they
originate automatically.
Informal organization does not have a
fixed chain of command. There are no
fixed patterns of communication.
Informal organizations reflect human
aspect. It is based on the attitudes, likes
and dislikes, tastes, language etc. of
people.
It is loosely structured. It is highly
flexible.
Informal leaders are chosen by the group
members.
PROCESS OF ORGANIZING

It involves following steps:

1) Determination of Objectives: An organization is always related to certain clear-cut

objectives. It is therefore, necessary for the management to identify the objectives in
definite and clear terms prior to the commencement of any activity.
2) Identification and Grouping of Activities: If the members of the group are to pool their
efforts effectively, there must be proper division of the major activities like production,
marketing, purchase finance etc. Each job should be properly classified and grouped as
this will enable the people to know what is expected of them and will help in avoiding
duplication of efforts.
3) Assignment of Duties: After classifying and grouping the activities into various jobs,
they should be allotted to the individuals so that there are round pegs in round holes.
Each individual should be given a specific job to do according to his ability and made
responsible for that. He should also be given the adequate authority to do the job assigned
to him.
4) Developing Authority-Responsibility Relationships: Since so many individuals work
in the same organization, it is the responsibility of management to lay down structure of
relationships in the organization. Everybody should clearly know to whom he is
accountable. This will help in the smooth working of the enterprise by facilitating
delegation of authority and responsibility.
SPAN OF CONTROL

The term ‘span of management’ is also known as ‘span of control’ and ‘span of supervision’.
But span of management is a better term because control and supervision are elements of
management. Span of management refers to the number of subordinates that report directly to a
single manager or supervisor.

Graicuna’s Theory of Span of Control:

V.A. Graicunas was a French management consultant. He developed mathematical formula by

analysing superior-subordinate relationships. He suggests that as the n umber of subordinates
increase arithmetically there is a exponential increase in the number of possible relationships.
V.A. Graicunas has identified three types of superior-subordinate relationship:-

Direct single relationship: The direct single relationship arises from the direct and individual
contact of the superior with his subordinates. For example, if a manager A has two subordinates
X and Y there would be two direct single relationships : (a) A with X and (b) A with Y.

Direct group relationships. These relationships arise between the manager and group of his
subordinates in all possible combinations. Thus, in the above example there would be two direct
group relationships: (a) A with X, Y in attendance, and (b) A with Y, X in attendance.

Cross relationships. These relationships arise among the subordinates working under a common
superior. In the above example, there would be two cross relationships: (a) X with Y and (b) Y
with X.

Thus, Direct single relationship = n

Direct group relationships = n {2n/2 - 1}

Cross relationships = n (n-1)
Total relationships = n {2n/2 + n-1}
Where n = number of subordinates.
Factors determining Span of Control

In actual practice, a large number of variables determine the span of management. Some of these
factors are as follows:

 Nature of work: When the work performed by subordinates is simple and repetitive, they
do not require frequent guidance. As a result, the manager can supervise a large number
of subordinates. But, if the work is different or non identical span has to be narrow.
 Type of technology: Firms using mass production and assembly line technology can
have wider spans than those employing batch or process production system.
 Ability of the manager: Managers possessing qualities, like leadership, communication,
decision making and control can manage more subordinates.
 Capacity of subordinates: Efficient and trained subordinates may perform their jobs
efficiently without much help from the manager. They need only broad guidance. In such
a case, less time is needed in managing and the span can be larger.
 Degree of decentralization: When a manager does not delegate adequate authority to
subordinates, they require frequent consultation and the manager has to take many
decisions himself.
 Staff assistance: Use of staff assistants, like private secretary, can reduce the workload
of the manager. Thereby permitting him to handle more subordinates.
 Communication techniques: Where everything is communicated by face to face contact,
it takes much of a manager’s time and span has to be small. Use of electronic and other
devices speeds up communication thereby increasing the span of management.
 Time available for supervision: At higher levels top managers have less time of
supervision. They have to devote the major portion of their time in planning and
organizing. Therefore span has to be narrow.
 Geographical dispersion of subordinates: When the employees are physically
depressed at different places their supervision from the headquarters is difficult.
Therefore span of management is relatively smaller.
DEPARTMENTATION

Departmentalization is the grouping of related functions into manageable units to achieve the
objectives of the enterprise in the most efficient and effective manner. The following patterns
may be used for grouping activities into departments.

1) Departmentation by functions:

Under functional Departmentation each major or basic function is organized as a separate

department. Basic or organic functions are the function performance of which is organization.
For Example: Production, Sales, Marketing, Financing and Personnel are basic function in a
manufacturing enterprise. On the other hand in a retail store buying, selling and finance are the
major functions. It necessary, a major function may be divided; activities in the production
department may be classified into quality control, processing of materials and repairs
maintenance.
 2) Product Departmentation:

In product or service departmentation, every major product is organized as a separate division.

Each department looks after the production, sales and finance of one product. Product
departmentation is useful when product expansion and diversification, manufacturing and
marketing characteristics of the product are of primary significance.

3) Territorial Departmentation

Territorial departmentation is very useful to large-sale enterprises whose activities are

geographically spread over a wide area. Banks insurance companies, transport companies,
distribution agencies are examples of such enterprises. Under Territorial or geographical
departmentation, activities are divided into zones, divisions and branches.
 4) Customer Departmentation

Under this basis of departmentation, activities are grouped according to the type customer. For
instance, a large cloth store may be divided into whole sales, retail and export divisions. This
type of departmentation is useful for banks, departmentation is useful for banks, departmental
stores etc. Which sell a product or service to a number of distinct and clearly defined customer
groups?

5) Departmentation by time and numbers

Under this basis, activities are grouped on the basis of the time of their performance. For
example: a factory operating twenty four hours may have their departments, one each for
morning day and night shifts. The idea is to obtain the advantages of people specialized to work
in a particular shift. In case of departmentation by simple numbers, activities are grouped on the
basis of their Performance by a certain numbers of persons.
ORGANIZATIONAL STRUCTURE

The framework for organizing formal relationships is known as the organizational structure. It
provides the means for clarifying and communicating the lines of responsibility, authority, and
accountability. An organization structure denotes the authority and responsibility relationships
between the various positions in the organization by showing who reports to whom. The
structure of an organization is generally shown in the organization chart. It shows the authority &
responsibility relationship between various positions in the organization. Organization structure
helps in the efficient functioning of concerns on account of the following reasons:

1. It allocates authority & responsibility.

2. It lays down the pattern of communication and coordination.
3. It creates proper balancing of activities.
4. It facilitates growth of the enterprise.
5. It is adaptable to changes.
Types of Organization Structure:

I. Line Organization

The line organization is the simplest organizational structure. It is the "doing" organization, in
that the work of all organizational units is directly involved in producing and marketing the
organization's goods and services. There are direct vertical links between the different levels
of the scalar chain. Since there is a clear authority structure, this form of organization
promotes greater decision making and is simple in form to understand.

General

Manager

Production Finance Manager Marketing

Manager Manager

Superintendent Asst. Finance Asst. Marketing

Manager Manager

Foremen Accountant Sales Supervisor

Merits of Line Organization:

 Simplest- It is the most simple and oldest method of administration.

 Unity of Command- In these organizations, superior-subordinate relationship is
maintained and scalar chain of command flows from top to bottom.
 Better discipline- The control is unified and concentrates on one person and therefore, he
can independently make decisions of his own. Unified control ensures better discipline.
  Fixed responsibility- In this type of organization, every line executive has got fixed
authority, power and fixed responsibility attached to every authority.
 Flexibility- There is a co-ordination between the top most authority and bottom line
authority. Since the authority relationships are clear, line officials are independent and
can flexibly take the decision. This flexibility gives satisfaction of line executives.

 Prompt decision- Due to the factors of fixed responsibility and unity of command, the
officials can take prompt decision.
 Economical- It is very economical because no staff specialists are required.

Demerits of Line Organization:

 Over reliance
 Lack of specialization
 Inadequate communication
 Lack of Co-ordination
 Authority leadership
 Overburdened
 Instability
II. Line and Staff Organization

Most large organizations belong to this type of organizational structure. These organizations
have direct, vertical relationships between different levels and also specialists responsible for
advising and assisting line managers. Such organizations have both line and staff departments.
Staff departments provide line people with advice and assistance in specialized areas (for
example, quality control advising production department).

Merits of line and staff organization:

 Expert advice- Line managers receive specialized assistance from staff experts.
They are enabled to discharge their responsibilities more efficiently.
  Relief to top executives– Staff carries out detailed investigation and supply
information to line executives. Therefore, the burden of line executives is reduced.
They get ample chance for creative thinking to generate new ideas.
 Quality Decisions– Staff specialists provide adequate information and expert advice. As
a result, line executives can take better decisions.
 Training of Personnel– As every executive concentrates in one field, he acquires
valuable experience. Young staff executive get opportunity of acquiring expertise in their
respective fields of activity.
 Flexibility– Line and staff organization is comparatively more flexible. As the
organization expands, staff can be added to help the line managers. There is more
opportunity for advancement because a greater variety of responsible jobs is available.

Demerits line and staff organization:

 Line-staff conflicts- The main problem of line and staff organization is that conflicts
often arise between line managers and staff specialists.
 Confusion- Different managers may not be clear as to what is the actual area
of operations and what is expected of them
 Ineffective staff- Staff personnel are not accountable for the results. Therefore, they
may not take their tasks seriously.
Despite these limitations, line and staff organization is very suitable for large organizations. It
provides ample scope for specialization without violating the unity of command. Its success
depends upon the degree of harmony that is maintained among line and staff.
III. Functional Organization

Functional organizations are hierarchical organizations where each employee has one clear
superior, and staff are grouped by areas of specialization and managed by a person with expertise
in that area.

Merits:

 Specialization- Functional organization promotes logical division of work. Every

function head is an expert in his area and all workers get the benefits of his experience.

 Reduction of work load- Every functional heads looks after one function only and
therefore burden on top executives is reduced.
 Better control- Our man control is done away with and there is joint supervision of
work. As a result, control becomes more effective.
 Easier staffing- Recruitment, selection and training of managers are simplified because
each individual is required to have knowledge of one functional area only.
 Scope for expansion- The success and growth of the organization is not limited to the
capabilities of a few line managers.
Demerits:

 Double command- A person is accountable to several superiors. As a result, his

responsibility and loyalty get divided.
 Complexity– There are many cross relationships which create confusion. A worker may
receive conflicting orders.
 Delay in decision making– A decision problem requires the involvement of several
specialize. Therefore, decision making process in functional organization is slow.
 Problem of succession– Executive at the lower level do not get opportunity of all round
experience. This may create problem in succession to top executive positions.
 Lack of coordination- Functional managers tends to have a limited perspective. He
thinks only in terms of his own department rather them of the whole enterprise.

IV. Divisional Organizational Structure

Divisional structure divides, shown above, the employees based on the product/customer
segment/geographical location. For example, each division is responsible for certain product and
has its own resources such as finance, marketing, warehouse, maintenance etc. Accordingly, this
structure is a decentralized structure and thus allows for flexibility and quick response to
environmental changes. It also enhances innovation and differentiation strategies. On the other
hand, this structure results in duplication of resources because, for ex., we need to have
warehouse for each division. But it does not support the exchange of knowledge between people
working in the same profession because parts of them are working in one division and the others
are working in other divisions.
V. Project Organization

A team of specialists from different areas is created for each project. The size of the project team
varies from one project manager to another. Project organization is employed in IT, aero-space,
aircraft manufacture, construction and professional areas like management consulting. In such
organization, projects are subject to high standards of performance and there is a strong
emphasis on horizontal relations among specialists. A project team is a temporary set-up. Once
the project is complete the team is disbanded and the functioning specialists are assigned some
other project.

Merits:

 Project org. provides concentrated attention that a complex project demands. It permits
the timely completion of a project without disturbing the normal routine of rest of the
org.
 It can be tailored to a particular mission or project to consolidate diverse actions towards
the completion of the project while retaining the advantages of functional specialists.
Demerits:

 There is organizational uncertainty because a project manager has to deal with

professionals drawn from diverse fields. Often they differ in approach and interest.
 There is lack of clearly defined responsibility, clear communication lines and
measurement yardsticks. Lack of prescribed organizational processes makes the job of a
project manager very frustrating.
 In addition, lack of awareness of project problems and personal prejudices on the part of
top people may jeopardize a project.
VI. MATRIX ORGANISATION:

Matrix structure combines product and functional organizational structures. For example, there is a
functional structure and then assign a manager for each product. Some employees will have two
managers: functional manager and product manager. This type of structure tries to get the benefits of
functional structure and also of divisional structure; however, it is not easy to implement because of
the dual authority. This structure is very useful for multinational companies.

MERITS:

 It effectively focuses attention & resource on a single project. This leads to better
planning & control which in turn, helps in completion of project in time.
 It is more flexible than the traditional functional organization. It can more easily adapt to
changes in technology.
 It stresses authority of knowledge rather than status. Therefore, services of professionals
can be better utilized.
 They can test their professional competence and widen their scope to contribute
maximum towards the achievement of objectives.
  Matrix structure provides motivation to personnel engaged in a project. It also improves
communication by encouraging direct contact between project manger & functional
groups.

DEMERITS:

 It violates the principle of unity of command as functional groups receive orders from
both functional bosses & project manager. This may give rise to power, struggle &
jurisdictional conflicts in the organization.
 The organizational relationships become very complex & there is great confusion among
personnel. They fail to identify their respective superiors as there are both formal &
informal relationships.

 Coordination of people drawn temporarily from different functional departments

becomes very difficult. It is not a homogeneous group & in the absence of line
authority, the project manager cannot control its functioning. Morale of such a
heterogeneous group is likely to be low.
 Joint decision making & sharing of resources are required. In the absence of spirit of
understanding & accommodation vital decisions get delayed. Each executive may
emphasis his own area at the cost of the success of the organization. This will result
into conflict and projects might not be completed in time.
 Matrix structure can be successful only there is an agreement amongst the key
executives regarding the sharing of authority & resources. There should be common
willingness among both functional managers & project managers to resolve the
conflicts that may arise due to sharing of resources.
VII. Virtual organization

A virtual organization or company is one whose members are geographically apart, usually
working by computer e-mail and groupware while appearing to others to be a single, unified
organization with a real physical location.

The positives associated with a virtual organization include reduce d real-estate expenses,
increased productivity, higher profits, improved customer service, access to global markets,
environmental benefits, a wider pool of potential employees, and not needing to have all or
some of the relevant employees in the same place at the same time for meetings or
delivering services.

The negatives include setup costs; some loss of cost efficiencies; cultural issues (particularly
when working in the global arena); traditional managers not feeling secure when their employees
are working remotely, particularly in a crisis; feelings of isolation because of the loss of the
camaraderie of the traditional office environment; and a lack of trust.
DELEGATION AND DECENTRALIZATION

According to Douglas C Basil, “Delegation consists of granting authority or the right to

decision-making in certain defined areas and charging the subordinate with responsibility for
carrying through the assigned task.”

Delegation refers to the assignment of work to others and granting them requisite authority to
accomplish the job assigned. It enables the managers to distribute their load of work to others
and concentrate on more important functions which they can perform netter because of their
position in the organization.

Elements in the process of Delegation: It involves three elements:-

1. Assignment of responsibility: Superior entrust some responsibility or duty to a

subordinate for performance.

2. Granting of Authority: The superiors grant authority to the subordinate to carry out the
duty assigned. This may include right to use resources, spend money, engage people etc.
3. Accountability for Performance: The last step is concerned with creating an obligation
to carry out duty or responsibility and render an account of results achieved through the
use of delegated authority. By accepting the duties and authority, a subordinate becomes
responsible to his superior.
Centralization of Authority

Centralization of authority means the concentration of the decision-making power at the top level
of management. Thus, under centralization, all important decisions are taken by the top
executives and operative decisions and actions at lower levels in the organization are subject to
the close supervision of top executives.

Advantages of centralization: The advantages of centralization are limitations of

decentralization. They are:

1. Centralization helps in fuller utilization of talents of outstanding executives, beneficial

for the organization as a whole.
2. In centralization, since decisions control are largely centralization, uniformity of policy
and procedures can be strictly enforced.
3. It helps to eliminate overlapping of activities.
4. It ensures uniformity of decisions.

Both centralization and decentralization have their relative merits and limitations. It is therefore,
necessary to consider each in balance with the other.
Decentralization of Authority

According to McFarland, “Decentralization is a situation in which ultimate authority to

command and ultimate responsibility for results is localized as far down in the organization as
efficient management of the organization permits.”

Decentralization is an extension of delegation which means to assign responsibility and

authority from one individual to another. It is the diffusion of authority within the entire
enterprise. Delegation can take place from one person to another and be a complete process. But
decentralization is completed only when the fullest possible delegation is made to all or most of
the people.

Decentralization is not a type of organization. Some people believe that a company can
decentralize by changing its organization structure, this is not true. Decentralization may be
achieved even without changing the organization structure as it refers to the systematic
delegation of authority throughout the organization.

Factors leading to decentralization:

1. Decentralization of authority is facilitated when it is released to take quick and appropriate

decisions at a level at which they are really required with a view to cash on the opportunity
present.
2. When the top management wants to reduce communication work, decentralization of
authority is preferred.
3. Nature of company’s products or markets may require decentralization of decision-making
to provide special emphasis to a product line or a market. Technological changes may also
create conditions favorable to decentralization.
4. Physical dispersion of activities of the company may require decentralization of authority
for better results.
 AUTHORITY:

Authority is seen as the legitimate right of a person to exercise influence or the legitimate right to
make decisions, to carry out actions, and to direct others. For example, managers expect to have
the authority to assign work, hire employees, or order merchandise and supplies.

As part of their structure, organizations have a formal authority system that depicts the authority
relationships between people and their work. Different types of authority are found in this
structure: line, staff, and functional authority.

Line authority is represented by the chain of command; an individual positioned above another
in the hierarchy has the right to make decisions, issue directives, and expect compliance from
lower-level employees.

 In organizations, having what managers call line authority traditionally gives managers
the right to issue orders to other managers or employees. Line authority therefore creates
a superior (order giver) - subordinate (order receiver) relationship. When the vice
president of sales tell her sales director to ‘‘get the sales presentation ready by Tuesday,’’
she is exercising her line authority

Staff authority is advisory authority; it takes the form of counsel, advice, and recommendation.
People with staff authority derive their power from their expert knowledge and the legitimacy
established in their relationships with line managers.

 Staff authority gives a manager the right to advise other managers or employees. It
creates an advisory relationship. When the human resource manager suggests that the
plant manager use a particular selection test, he or she is exercising staff authority.

On the organization chart, managers with line authority are line managers. Those with staff
(advisory) authority are staff managers.

In popular usage, the people tend to associate line managers with managing departments (like sales
or production) that are crucial for the company’s survival.

Staff managers generally run departments that are advisory or supportive, like purchasing and
human resource management. Human resource managers are usually staff managers. They assist
and advise line managers in areas like recruiting, hiring and compensation

Functional authority allows managers to direct specific processes, practices, or policies

affecting people in other departments; functional authority cuts across the hierarchical structure.
For example, the human resources department may create policies and procedures related to
promoting and hiring employees throughout the entire organization.

Authority can also be viewed as arising from interpersonal relationships rather than a formal
hierarchy. Authority is sometimes equated with legitimate power. Authority and power and how
these elements are interrelated can explain the elements of managing and their effectiveness.
RESPONSIBILITY

Responsibility is the obligation to accomplish the goals related to the position and the
organization. Managers, at no matter what level of the organization, typically have the
same basic responsibilities when it comes to managing the work force: Direct employees
toward objectives, oversee the work effort of employees, deal with immediate problems,
and report on the progress of work to their superiors. Managers' primary responsibilities
are to examine tasks, problems, or opportunities in relationship to the company's short-and
long-range goals. They must be quick to identify areas of potential problems, continually
search for solutions, and be alert to new opportunities and ways to take advantage of the
best ones. How effectively goals and objectives are accomplished depends on how well
the company goals are broken down into jobs and assignments and how well these are
identified and communicated throughout theorganization.

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 STAFFING
MEANING
Staffing is the managerial function of recruitment, selection, training, developing, promotion and
compensation of personnel. Staffing may be defined as the process of hiring and developing the
required personnel to fill in the various positions in the organization. It involves estimating the
number and type of personnel required. It involves estimating the number and type of personnel
required, recruiting and developing them, maintaining and improving their competence and
performance. Staffing is the process of identifying, assessing, placing, developing and evaluating
individuals at work.
According to Koontz and O’Donnell: “The managerial function of staffing involves managing the
organizational structure through proper and effective selection, appraisal and development of
personnel to fill the roles designed into the structure.” Staffing is defined as, “Filling and keeping
filled, positions in the organizational structure. This is done by identifying work-force
requirements, inventorying the people available, recruiting, selecting, placing, promotion,
appraising, planning the careers, compensating, training, developing existing staff or new recruits,
so that they can accomplish their tasks effectively and efficiently.”

NATURE OF STAFFING
Staffing is an integral part of human resource management. It facilitates procurement and
placement of right people on the right jobs.
1. People Centred: Staffing is people centred and is relevant in all types of organizations. It is
concerned with all categories of personnel from top to bottom of the organization.
The broad classification of personnel may be as follows:
 Blue collar workers (i.e., those working on the machines and engaged in loading, unloading
etc.) and white collar workers (i.e., clerical employees).

 Managerial and non-managerial personnel.

 Professionals (such as Chartered Accountant, Company Secretary, Lawyer, etc).

2. Responsibility of Every Manager: Staffing is a basic function of management. Every manager

is continuously engaged in performing the staffing function. He is actively associated with
recruitment, selection, training and appraisal of his subordinates. These activities are performed
by the chief executive, departmental managers and foremen in relation to their subordinates.

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 Thus, staffing is a pervasive function of management and is performed by the managers at all
levels. It is the duty of every manager to perform the staffing activities such as selection,
training, performance appraisal and counseling of employees. In many enterprises, personnel
Department is created to perform these activities. But it does not mean that the managers at
different levels are relieved of the responsibility concerned with staffing. The Personnel
Department is established to provide assistance to the managers in performing their staffing
function. Thus, every manager has to share the responsibility of staffing.

3. Human Skills: Staffing function is concerned with training and development of human
resources. Every manager should use human relations skill in providing guidance and training
to the subordinates. Human relations skills are also required in performance appraisal, transfer
and promotion of subordinates. If the staffing function is performed properly, the human
relations in the organisation will be cordial.

4. Continuous Function: Staffing function is to be performed continuously. It is equally

important in the established organizations and the new organizations. In a new organization,
there has to be recruitment, selection and training of personnel. In a running organization, every
manager is engaged in various staffing activities. He is to guide and train the workers and also
evaluate their performance on a continuous basis.

IMPORTANCE OF STAFFING
It is of utmost importance for the organization that right kinds of people are employed. In fact,
effective performance of the staff function is necessary to realize the following benefits:

1. Efficient Performance of Other Functions: Staffing is the key to the efficient performance of
other functions of management. If an organization does not have competent personnel, it can’t
perform planning, organization and control functions properly.
2. Effective Use of Technology and Other Resources: It is the human factor that is instrumental
in the effective utilization of latest technology, capital, material, etc. the management can ensure
right kinds of personnel by performing the staffing function.
3. Optimum Utilization of Human Resources: The wage bill of big concerns is quite high. They
also spend money on recruitment, selection, training and development of employees. In order to get
the optimum output from the personnel, the staffing function should be performed in an efficient
manner.

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4. Development of Human Capital: The management is required to determine the manpower
requirements well in advance. It has also to train and develop the existing personnel for career
advancement. This will meet the requirements of the company in future.
5. Motivation of Human Resources: The behavior of individuals is shaped by many factors such
as education level, needs, socio-cultural factors, etc. that is why, the human aspect of organisation
has become very important. The workers can be motivated through financial and non-financial
incentives.
6. Building Higher Morale: Right type of climate should be created for the workers to contribute
to the achievement of the organizational objectives. By performing the staffing function effectively,
management can show the significance it attaches to the personnel working in the enterprise. This
will increase the morale of the employees.

RECRUITMENT AND SELECTION

Recruiting involves attracting candidate to fill the positions in the organization structure. Before
recruiting, the requirement of positions must be cleared identified. It makes easier to recruit the
candidates from the outside. Enterprises with a favorable public image find it easier to attract
qualified candidates.
Definitions:
McFarland, “The term recruitment applies to the process of attracting potential employees of the
company.”
Flippo, “Recruitment is the process of searching prospective employees and stimulating them to
apply for the jobs in the organization.” Thus recruitment may be considered as a positive action as
it involves attracting the people towards organization.
Need of recruitment
The need of recruitment may arise due to following situations:
 Vacancies due to transfer, promotion, retirement, permanent disability or death of worker.
 Creation of vacancies due to expansion, diversification or growth.

SOURCES OF RECRUITMENT
The various sources of recruitment may be classified as
1. Internal sources – Many organizations in India give preference to people within the company
because the best employees can be found from within the organization itself. Under this policy,
if there is any vacancy the persons already working in the organization are appointed to fill it.

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 This method is followed mostly in Government organizations. The internal sources of
recruitment include:

a) Transfers: Transfer involves shifting of persons from present jobs to other similar jobs.
These do not involve any change in rank, responsibility or prestige. The numbers of
persons do not increase with transfers.
b) Promotions: Promotions refer to shifting of persons to positions carrying better prestige,
higher responsibilities and more pay. The higher positions falling vacant may be filled up
from within the organization. A promotion does not increase the number of persons in the
organization. A person going to get a higher position will vacate his present position.
Promotion will motivate employees to improve their performance so that they can also get
promotion.
c) Re-employment of Ex-employees: It refers to employing the employees who have left the
organization because of some reason. It may be on a temporary or permanent basis.

2. External sources or recruitment from outside – Internal sources may not always fulfill the
needs of an organization. Naturally, most of the concerns have to look for the external sources
for recruitment the required number of employees with the requisite qualifications. The
external sources of recruitment include:
a) Direct Recruitment – Many organizations having one separate department called personnel
department to select right employees. For that organization may receive direct applications
from the candidate. The technical and clerical staff is appointed in this way.
b) Recruitment through the jobbers or Intermediaries – In India mostly unskilled or
illiterate workers are recruited through this method. Under this system the intermediary
keeps a vital link between workers and employers. They are always willing to supply the
required number of workers.
c) Recruitment at the factory gate – Mostly unskilled workers are appointed through this
method. 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.
d) Recruitment through advertisement – This is most common method for recruiting skilled
workers, clerical staff, managerial personnel, technical personnel. The vacancies are
advertised in the popular daily newspapers and applications are invited from the persons
having required qualifications.

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e) Recruitment through the recommendation of the existing employees – The existing
employees recommend the suitable names for the employment.
f) Recruitment from colleges or universities or educational institutions/Campus
Recruitment – This method is used in some enterprises or Government department, when
the recruitment of persons required for administration and technical personnel.
g) Recruitment through employment exchange – The workers who want help in finding jobs
make their registration in the nearest employment office where details are recorded.
Employment exchanges are the special offices for bringing together those workers who are
in need of employment.
h) Contract labor – Under this method contractor supplies labors to the industrial enterprises
according to their requirement.

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SELECTION:
Selection is the process of choosing the most suitable person for the current position or for future
position from within the organization or from outside the organization. The selection of managers is
one of the most critical steps in the entire process of managing.
Selection means the taking up the different workers by various acts from the application forms
invited through different sources of internal and externals. According to Dale Yoder, “Selection is
the process in which candidates by employment are divided into two classes those who are to be
offered employment and those who are not.”

SELECTION PROCESS:
Selection of workers is regarded as a policy matter. Every enterprise has its own policy for
recruitment. The following procedure is adopted.
1. Receiving and screening the application: After receiving the applications have to be
screened. In this process the applications of candidates without the requisite qualification
are rejected.
2. Sending the Blank application form: After preparing the list of candidates suitable for job,
blank application forms will be sent to the candidates. In this application form information
should be given about the name and address of the candidate, educational qualification,
experience, salary expected etc.
3. Preliminary Interview: The interviewer has to decide whether the applicant is fit for job or
not. By this interview the appearance, attitudes, behavior of the candidate can be known
easily.
4. Selection Tests: Different types of test may be undertaken. Tests are conducted for the
knowledge of personal behavior, efficiency of work and interest. Generally, following types
of tests are conducted:

a) Aptitude Tests: These tests measure whether an individual has the capacity or latent
ability to learn a given job if given adequate training. Aptitudes can be divided into
general and mental ability or intelligence and specific aptitude such as mechanical,
clerical, manipulative capacity etc.

b) Intelligence Tests: These tests in general measure intelligence quotient of a

candidates. In detail these tests measure capacity for comprehension, reasoning, word
fluency, verbal comprehension, numbers, memory and space.
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c) Achievement Tests: These tests are conducted when applicant claims to know
something as these tests are concerned with what one has accomplished These tests are
more useful to measure the value of specific achievement when an organization wishes
to employ experienced candidates. These tests are classified into following:

 Job Knowledge Test: Under this test a candidate is tested in the knowledge of
a particular job. For example, if a junior lecturer applies for the job of a senior
lecturer in commerce, he may be tested in job knowledge where he is asked
questions about Accountancy principle, Banking, Law, Business Management
etc.

 Work Sample Test: Under this test a portion of the actual work is given to the
candidates as a test and the candidate is asked to do it. If a candidate applies for
a post of lecturer in Management he may be asked to deliver a lecture on
Management Information System as work sample test.

d) Situational Test: This test evaluates a candidate in a similar real life situation. In this
test the candidates is asked either to cope with the situation or solve critical situations
of the job.

e) Interest Test: These tests are inventories of the likes and dislikes of candidates in
relation to work, job, occupations, hobbies and recreational activities. The purposes of
this test is to find out whether a candidate is interested or disinterested in the job for
which he is a candidate and to find out in which area of the job range/occupation the
candidate is interested. The assumption of this test is that there is a high correlation
between the interest of a candidate in a job and job success. Interest inventories are less
faked and they may not fluctuate after the age of 30.

f) Personality Tests: These tests prove deeply to discover clues to an individual’s value
system, his emotional reactions and maturity and characteristic mood. They are
expressed in such traits like self-confidence, tact, emotional control, optimism,
decisiveness, sociability, conformity, objectivity, patience, fear, distrust, initiative,
judgment dominance or submission, impulsiveness, sympathy, integrity, stability and
self-confidence.
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5. Interviewing: Interview is the most important step in the selection procedure. In interview,
the intimation given in the application form is checked. Interview helps in finding out the
physical appearance and mental alertness of the candidate and whether he possesses the
required qualities. Interviews may be of various kinds these are
 Direct Interview
 Indirect Interview
 Patterned Interview
 Stress interview
 Systematic in – depth interview
 Panel interview

6. Checking References: Applicants are generally asked to give names of at least two persons
to whom the firm may make a reference.
7. Final Selection: On the basic of results of previous interview the candidate is informed
whether he/she is selected for the said post or not.

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 DIRECTING

Directing is the managerial function of guiding, inspiring, instructing, and harnessing

people towards the accomplishment of the desired results. Directing includes issuing
orders and instructions that are clear and complete; continuing guidance and supervision to
ensure that the assigned tasks are carried out effectively and efficiently; maintaining
discipline and rewarding subordinates; inspiring subordinates to work hard for the
achievement of goals.

Principles of Directing
Effective directing is an art, that a superior can learn through practice. However, managers
or superiors can follow some principles while directing.
 Maximum Individual Contribution: This principle says that the directing function
should create self-confidence amongst the subordinates and motivate them so that
they give their best to the organisation. Objectives of an organisation are achieved at
the optimum level only when every individual in the organisation makes a maximum
contribution. Therefore managers should try to elicit the maximum possible
contribution from each subordinate. It is the duty of the managers to explore and find
out the hidden talents of the subordinates. For example, timely rewarding the workers
can motivate them to contribute maximum towards the organisation’s goals.
 Harmony of Objectives: This principle says that management should harmonise the
individuals’ objectives with organisational objectives. Every individual joins the
organisation to satisfy their needs both their physiological and psychological needs.
They are expected to work for the achievement of organisational goals. They will
perform their tasks better if they feel that it will satisfy their personal goals too.
Therefore managers should harmonise or reconcile the personal goals of employees
with the organisational goals.
 Unity of Command: According to this principle, each subordinate should receive
orders and instructions from one superior only. If a subordinate is made accountable
to two bosses simultaneously, there will be confusion, conflict, disorder and
indiscipline in the organisation. Therefore, every subordinate should report to one
manager only.
 Appropriateness of Direction Techniques: According to this the manager should

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 use correct direction techniques to ensure the efficiency of direction. The techniques
used should be suitable for subordinates, organisation and the situation. Goals can be
accomplished only when an efficient direction is given.
 Managerial Communication: According to this, there should be a systematic flow
of communication between the superiors and subordinates to achieve the goals of the
organisation. A good system of communication between the superior and
subordinates helps to achieve mutual understanding. Upward communication, i.e.,
taking feedback from the subordinates helps a manager to understand the
subordinates and allows the subordinates to express their feelings. So proper
feedback is needed from the subordinates.
 Strategic Use of Informal Organisation: Management should try to identify,
understand and use informal groups to strengthen formal and official relationships to
improve the effectiveness of direction.
 Effective Leadership: According to this principle, managers should exercise good
leadership while directing the subordinates. They should act as leaders so that they
can influence the activities of subordinates to achieve the goals of the organisation.
As leaders, they should guide and council subordinates in their personal problems too
to win the confidence and trust of their subordinates.
 Direct Supervision: Direction becomes more effective when there is a direct
personal contact between the superior and his subordinates. Morale and commitment
of employees are improved through direct contact. Therefore, direct supervision
should be used wherever possible.
 Principle of Follow through: After issuing orders and instructions, the subordinates
must be monitored. A manager should find out whether the subordinates are working
properly and the problems they are facing regularly because directing is a continuous
process. He should act accordingly after following through with the activities of the
subordinates.

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Elements of Directing
There are four elements of directing:
 Supervision: ‘Supervision’ is made from two words: Super and Vision. Super means
over or above, and vision means overseeing employees at work. Instructing, guiding
and observing the subordinates at work to ensure that they are working as per the
plans and to help them in solving their problem is known as supervision. It serves as
a link between workers and management and helps in improving performance.
 Motivation: The term ‘Motivation’ is derived from the Latin word ‘movere’, which
means to move. The process of stimulating and inspiring people at work to contribute
to the best of their capabilities for the achievement of organisational goals is known
as Motivation. Because of Motivation, the efforts of an individual or group are
energised.
 Leadership: The process of influencing the behaviour of people towards the
achievement of organisational goals is known as Leadership. The ability to maintain
good interpersonal relations with the followers and motivate them to contribute to
achieving organisational objectives is leadership.
 Communication: The term ‘communication’ is derived from the Latin word
‘communis’, which means common, which implies common understanding. The
process of exchange of ideas, views, facts, feeling, etc., between two or more persons
is known as communication. Communication acts as a basis of coordination and
helps in the smooth functioning of an enterprise.

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