Fundamental Of

Management Unit-1

Management

The term management is derived from the italin word ―managgiare‖ which literal meaning is
―to handle‖

Meaning Of Management

The word management refers to all the tasks and activities undertaken by the people in an
organization for the successful achievement of goals and targets. It involves continuous
activities such as planning, organizing, leading and monitoring physical, financial and
information resources.

Definitions

 "Management is the art of getting things done through others and with formally
organised groups." (Harold Koontz (1909-1984)
 ―Management is the art of knowing what you want to do and then seeing that they do it
in the best and the cheapest manner.‖ – F.W. Taylor

 Who first defined management?

Henry Fayol, also known as the 'father of modern management theory' gave a new
perception of the concept of management. He introduced a general theory that can
be applied to all levels of management and every department.

Characteristics /Features of Management:

1. Management is goal oriented process:

Management always aims at achieving the organisational objectives. The functions and activities
of manager lead to the achievement of organisational objectives; for example, if the objective of
a company is to sell 1000 computers then manager will plan the course of action, motivate all
the employees and organise all the resources keeping in mind the main target of selling 1000
computers.
2. Management is Pervasive:
Management is a universal phenomenon. The use of management is not restricted to business
firms only it is applicable in profit-making, non-profit-making, business or non-business
organisations; even a hospital, school, club and house has to be managed properly. Concept of
management is used in the whole world whether it is USA, UK or India.

3. Management is Multidimensional:
Management does not mean one single activity but it includes three main activities:

i. Management of work

ii. Management of people

iii. Management of operations

(a) Management of work:

All organisations are set up to perform some task or goal. Management activities aim at
achieving goals or tasks to be accomplished. The task or work depends upon the nature of
Business for example, work to be accomplished in a school is providing education, in hospital is
to treat patient, in industry to manufacture some product. Management makes sure that work is
accomplished effectively and efficiently.

(b) Management of people:

People refer to Human resources and Human resources are the most important assets of an
organisation. An organisation can win over competitor with efficient employees only because
two organisations can have same physical, technological and financial resources but not human
resources. Management has to get task accomplished through people only.

Managing people has two dimensions:

(i) Taking care of employee‘s individual needs

(ii) Taking care of group of people

(c) Management of operations:

Operations refer to activities of production cycle such as buying inputs, converting them
into semi-finished goods, finished goods.

Management of operations concentrates on mixing management of work with management of

people, i.e., deciding what work has to be done, how it has to be done and who will do it.

4. Management is a continuous process:

Management is a continuous or never ending function. All the functions of management are
performed continuously, for example planning, organising, staffing, directing and controlling are
performed by all the managers all the time. Sometimes, they are doing planning, then staffing or
organising etc. Managers perform ongoing series of functions continuously in the organisation.

5. Management is a group activity:

Management always refers to a group of people involved in managerial activities. The
management functions cannot be performed in isolation. Each individual performs his/her role at
his/her status and department, and then only management function can be executed. Even the
result of management affects every individual and every department of the organisation so it
always refers to a group effort and not the individual effort of one person.

6. Management is a dynamic function:

Management has to make changes in goal, objectives and other activities according to changes
taking place in the environment. The external environment such as social, economical, technical
and political environment has great influence over the management. As changes take place in
these environments, same are implemented in organisation to survive in the competitive world.

7. Intangible:
Management function cannot be physically seen but its presence can be felt. The presence of
management can be felt by seeing the orderliness and coordination in the working environment.
It is easier to feel the presence of mismanagement as it leads to chaos and confusion in
the organisation. For example, if the inventory of finished products is increasing day by
day it clearly indicates mismanagement of marketing and sales.

8. Composite process:
Management consists of series of functions which must be performed in a proper sequence.
These functions are not independent of each other. They are inter-dependent on each other. As
the main functions of management are planning, organising, staffing, directing and controlling;
organising cannot be done without doing planning, similarly, directing function cannot be
executed without staffing and planning and it is difficult to control the activities of employees
without knowing the plan. All the functions inter-dependent on each other that is why
management is considered as a composite process of all these functions.

9. Balancing effectiveness and efficiency:

Effectiveness means achieving targets and objectives on time. Efficiency refers to optimum or
best utilisation of resources. Managements always try to balance both and get the work done
successfully. Only effectiveness and only efficiency is not enough for an organisation: a balance
must be created in both.

For example, if the target of an employee is to produce 100 units in one month time and
achieving the target by wasting resources and mishandling the machinery, will not be in the
interest of organisation. On the other hand, if the employee spends lot of time in handling the
machine carefully and managing the resources carefully and fails to complete the target on time,
it will also not be in the interest of organisation. Manager sees to it that this target is achieved
on time-and with optimum use of resources.

Nature Of Management

Management—as a systematic process—helps identify a group of people who carry out

particular activities, thereby improving an organization‘s efficiency and effectiveness.
Here are the salient features that highlight the nature of management in businesses.
 1. Universality
Management is a universal process and is essential for all organizations. If there is
human activity, there is management. The principles of management are applicable
irrespective of the size and location of a business. The universal principle also
means that managerial skills can be developed over time and they‘re transferrable.

2. Social Process
The nature of management involves organizing people in groups and managing
them. It requires different levels of empathy, understanding and dynamism. In
addition to taking care of social and emotional well-being, the process involves
developing, motivating and retaining employees.

3. Purposeful
Management always has an end goal of achieving an organization‘s targets, mission
and vision. The success of management can be measured by the extent to which an
organization achieves its objectives. There is an underlying purpose of increasing
efficiency and productivity. The objectives should be realistic, attainable and time-
bound.

4. Intangible
There is no physical proof of the management process. Its success can be measured
by the outcomes of its efforts. For example, lower turnover rates indicate there‘s
high employee engagement and job satisfaction. This further shows that managers
or individuals in managerial roles have taken proactive steps toward improving
employee retention.

5. Coordination
Management coordinates all the functions of an organization by bringing together
different teams and departments. Without coordination, there would be ambiguity
and chaos. Therefore, by getting people on the same page, there is
communication and minimized duplication of efforts.

6. Creativity
Management is made up of individual components and is a composite process. Every
independent component contributes in unique ways. For example, group efforts
encourage creative ideas and imagination. The sum of individual efforts creates
synergy and something new is born.

7. Dynamic Function
Management should be dynamic at its core because businesses are often influenced
by economic, social, political and technological factors. With room for flexibility
and adaptability, individuals can perform well even in stressful situations. There
should be adequate training and facilitation within the process.
Significance/Importance of Management:

 Achieving Group Goals: Management encourages collaboration and coordination

amongst workers. A general control must be provided to the organisational and
personal objectives in order to favourably accomplish the aims.
 Increases Efficiency: Management improves productivity by managing resources in
a reliable conceivable way in order to decrease cost upscale potency.
 Creates Dynamic organisation: Management undertakes the conditions by assuring
that these variations are well accepted privately and that objection to change is
controlled.
 Achieving personal objectives: Management promotes leadership and furnishes
motivation to the employees to operate effectively in order to accomplish their
personal aims while working towards the organisational goals.
 Development of Society: Management helps in the enhancement of community by
manufacturing reliable quality commodities, establishing employment chances
and fostering innovative technologies.
Objectives of Management

1. Getting Maximum Results with Minimum Efforts - The main objective of management
is to secure maximum outputs with minimum efforts & resources. Management is
basically concerned with thinking & utilizing human, material & financial resources in
such a manner that would result in best combination. This combination results in
reduction of various costs.
2. Increasing the Efficiency of factors of Production - Through proper utilization of
various factors of production, their efficiency can be increased to a great extent which
can be obtained by reducing spoilage, wastages and breakage of all kinds, this in turn
leads to saving of time, effort and money which is essential for the growth & prosperity
of the enterprise.
3. Maximum Prosperity for Employer & Employees - Management ensures smooth and
coordinated functioning of the enterprise. This in turn helps in providing maximum
benefits to the employee in the shape of good working condition, suitable wage
system, incentive plans on the one hand and higher profits to the employer on the other
hand.
4. Human betterment & Social Justice - Management serves as a tool for the upliftment as
well as betterment of the society. Through increased productivity & employment,
management ensures better standards of living for the society. It provides justice
through its uniform policies.

The Evolution Of Management Through Theories

Management theories help you study an organization, its corporate designs, structures and
behavior of individuals or groups. By studying the impact of internal and external business
environments, these theories provide a lens to address critical questions about how a business
works or operates. Management theories can be grouped under three categories—classical
theory, neoclassical theory and modern management theory. Let‘s take a look at the
individual theories in detail:
 1. Classical Theory Of Management

The theories that emerged under the classical evolution of management thought are:

 Scientific Management

Fredrick Winslow Taylor, an engineer, proposed and developed the Scientific

Management Theory. He is also known as the Father of Scientific Management
and his school of thought came to be known as Taylorism. He introduced a
scientific approach to productivity, which meant that an increase in efficiency can
lead to higher productivity and profits. He believed that research-backed and
standardized procedures were necessary for effective management.

 Administrative Management

Henry Fayol, a French mining engineer, laid down five functions and 14
principles of management under the theory of Fayolism. This gave way to the
school of administrative management. He believed that these functions and
principles can guide managers to fulfill their responsibilities effectively and they
should have the liberty to determine how to use them.

2. Neoclassical Theory Of Management

 The theories that emerged under the neoclassical evolution of management practices are:

 Human Relations Management

Developed by Elton Mayo, an Australian psychologist, the Human Relations

Theory of Management was proposed after a series of experiments, also known
as Hawthorne Studies or Hawthorne Experiments. This theory emerged as a
response to the criticism faced by the classical management theories, where social
factors such as human behavior and attitudes weren‘t considered important.

 Behavioral Management

Behavioral approaches to management set the pace for how modern workplaces
build an employee-friendly culture. Abraham Maslow, an American
psychologist, proposed the hierarchy of need, where employee need and
expectations were prioritized. The theory suggests that human relations and
behavior are essential in driving efficiency in teams and managing the workforce
successfully.

3. Modern Theory Of Management

The theories that emerged with the modern evolution of management needs are:

 Systems Approach

The Systems Theory of organization has its roots in biology and systems science.
This concept broke away from classical management theory that viewed
organizations as machines and moved toward a more holistic view that sees them
as networks of people, procedures and activities. Systems Theory allows for an
understanding of the connections between various parts of the organization and
how they interact with one another.

 Contingency Approach

The Contingency Management Theory suggests that there isn‘t any perfect way to
organize a business or corporation. The optimal solution lies in the situation that
an organization operates in. A business is contingent (depends) upon internal or
external environments.

It‘s evident that in the long history of the evolution of management, the focus has shifted from
the structure and authority to the people behind the scenes. Many of these principles hold
relevance in modern workplaces even if society continues to evolve. Practicing the principles of
various management theories will not only bring success to your organization but also improve
your relationship with your team. Harappa‘s Managing Teamwork course is designed to equip
you with tools to imbibe team culture and collaborate with diverse people. Meet organizational
goals with greater efficiency by learning how to trust your team and progress with them. Try
Harappa and see the change for yourself!
Contributions Of Taylor And Fayol

Fredrick Winslow Taylor :

F. W. Taylor was an American Mechanical Engineer who wanted to improve industrial

efficiency by adopting scientific methods of production . Taylor formulated the Theory
of Scientific Management . He proposed that a logical and rational approach should be
applied to every element of a job , so as to device one best method for each activity .
Taylor was also known as the ―Father of Scientific Management‖ because of his
valuable contribution in the field of management . Scientific Management means ,
knowing exactly what you want a person to do and seeing that they do it in the best and
cheapest way .

Taylor has propounded various principles and techniques which provided the basis for
scientific management in practice . It is important to mention that , the Bethlehem Steel
Company where Taylor himself worked , was able to bring about a three fold increase in
productivity by application of Scientific Management Principles .

Contributions by Taylor :

Taylor pioneered a new and efficient system in order to increase production .

His contributions are well acknowledged in reshaping and making the factory system of
production .

He is known for coinage of the term ―Scientific Management‖ in his article ―The
Principles of Scientific Management‖ which was published in the year 1911 .

He wrote a popular book named , ―Shop Floor‖ after being fired from Bethlehem Steel
Company

Henri Fayol : Henri Fayol was a French Management Theorist , whose theories relating
to scientific organization of labour were far and wide prominent in the beginning of 12th
century. He started working at the mining company , ―Compagnie de Commentary .. He
eventually served as its Managing Director from the year 1888 to 1918 .

Contributions by Fayol :
Henri Fayol is also known as the ―Father of General Management‖ .

Fayol‘s administrative theory focuses on managerial efficiency by controlling the

production costs .

He was the first person to identify four functions of Management – Planning , Organizing
, Directing and Controlling .
 He emphasized on specific activities that the Managers should carry out namely – Plan ,
Organize , Command , Co-ordinate and Control .

He suggested that all the activities of an industrial enterprise should be possibly divided
into various sections , namely – Technical , Commercial , Financial , Security ,
Accounting and Managerial .

Elton Mayo‘s Hawthorne Experiment and It‘s Contributions to Management

The term ―Hawthorne‖ is a term used within several behavioral management theories and is
originally derived from the western electric company‘s large factory complex named Hawthorne
works. Starting in 1905 and operating until 1983, Hawthorne works had 45,000 employees and it
produced a wide variety of consumer products, including telephone equipment, refrigerators and
electric fans. As a result, Hawthorne works is well-known for its enormous output of telephone
equipment and most importantly for its industrial experiments and studies carried out.

Hawthorne Experiment by Elton Mayo

In 1927, a group of researchers led by Elton Mayo and Fritz Roethlisberger of the Harvard
Business School were invited to join in the studies at the Hawthorne Works of Western Electric
Company, Chicago. The experiment lasted up to 1932. The Hawthorne Experiment brought out
that the productivity of the employees is not the function of only physical conditions of work
and money wages paid to them. Productivity of employees depends heavily upon the satisfaction
of the employees in their work situation. Mayo‘s idea was that logical factors were far less
important than emotional factors in determining productivity efficiency. Furthermore, of all
the human factors influencing employee behavior, the most powerful were those emanating from
the worker‘s participation in social groups. Thus, Mayo concluded that work arrangements in
addition to meeting the objective requirements of production must at the same time satisfy the
employee‘s subjective requirement of social satisfaction at his work place.

Elton Mayo
 The Hawthorne experiment consists of four parts. These parts are briefly described below:-

1. Illumination Experiment.
2. Relay Assembly Test Room Experiment.
3. Interviewing Programme.
4. Bank Wiring Test Room Experiment.

1. Illumination Experiment:

This experiment was conducted to establish relationship between output and illumination. When
the intensity of light was increased, the output also increased. The output showed an upward
trend even when the illumination was gradually brought down to the normal level. Therefore, it
was concluded that there is no consistent relationship between output of workers and
illumination in the factory. There must be some other factor which affected productivity.

2. Relay Assembly Test Room Experiment:

This phase aimed at knowing not only the impact of illumination on production but also other
factors like length of the working day, rest hours, and other physical conditions. In this
experiment, a small homogeneous work-group of six girls was constituted. These girls were
friendly to each other and were asked to work in a very informal atmosphere under the
supervision of a researcher. Productivity and morale increased considerably during the period of
the experiment. Productivity went on increasing and stabilized at a high level even when all the
improvements were taken away and the pre-test conditions were reintroduced. The researchers
concluded that socio-psychological factors such as feeling of being important, recognition,
attention, participation, cohesive work-group, and non-directive supervision held the key for
higher productivity.

3. Mass Interview Programme:

The objective of this programme was to make a systematic study of the employees attitudes
which would reveal the meaning which their ―working situation‖ has for them. The researchers
interviewed a large number of workers with regard to their opinions on work, working
conditions and supervision. Initially, a direct approach was used whereby interviews asked
questions considered important by managers and researchers. The researchers observed that the
replies of the workmen were guarded. Therefore, this approach was replaced by an indirect
technique, where the interviewer simply listened to what the workmen had to say. The findings
confirmed the importance of social factors at work in the total work environment.
 4. Bank Wiring Test Room Experiment:

This experiment was conducted by Roethlisberger and Dickson with a view to develop a new
method of observation and obtaining more exact information about social groups within a
company and also finding out the causes which restrict output. The experiment was conducted to
study a group of workers under conditions which were as close as possible to normal. This group
comprised of 14 workers. After the experiment, the production records of this group were
compared with their earlier production records. It was observed that the group evolved its own
production norms for each individual worker, which was made lower than those set by the
management. Because of this, workers would produce only that much, thereby defeating the
incentive system. Those workers who tried to produce more than the group norms were isolated,
harassed or punished by the group. The findings of the study are:-

 Each individual was restricting output.

 The group had its own ―unofficial‖ standards of performance.
 Individual output remained fairly constant over a period of time.
 Informal groups play an important role in the working of an organization.

Effect of Monotony and Fatigue on Productivity

Using a study group other experiments were conducted to examine what effect of monotony
and fatigue on productivity and how to control those using variables such as rest breaks, work
hours and incentives.

At normal conditions the work week was of 48 hours, including Saturdays, with no rest pauses.
On the first experiment workers were put on piece-work salary where they were paid on each
part they produced, as a result the output increased. On the second experiment the workers were
given 2 rest pauses of 5 minutes each for 5 weeks and again output went up. The third
experiment further increased the pauses to 10 min and the output went up sharply. For the fourth
experiments a 6, 5 min breaks were given and output fell slightly as the workers complained that
the work rhythm was broken. On the fifth experiments conditions for experiment three were
repeated but this time a free hot meal was given by the company and output wen up again.at the
sixth experiment, workers were dismissed at 4.30p.m. Instead of 5.00p.m were an output
increase was recorded.

The seventh experiment had the same results as experiments six even though the workers were
dismissed at 4.00 p.m. on the eighth and final experiment, all improvements were taken away
and workers returned to their original working conditions. Surprisingly, results concluded that
output was the highest ever recorded!

Contributions of the Hawthorne Experiment to Management

Elton Mayo and his associates conducted their studies in the Hawthorne plant of the western
electrical company, U.S.A., between 1927 and 1930. According to them, behavioral science
 methods have many areas of application in management. The important features of the
Hawthorne Experiment are:

1. A business organization is basically a social system. It is not just a techno-economic system.

2. The employer can be motivated by psychological and social wants because his behavior is
also influenced by feelings, emotions and attitudes. Thus economic incentives are not the only
method to motivate people.
3. Management must learn to develop co-operative attitudes and not rely merely on command.
4. Participation becomes an important instrument in human relations movement. In order to
achieve participation, effective two-way communication network is essential.
5. Productivity is linked with employee satisfaction in any business organization.
Therefore management must take greater interest in employee satisfaction.
6. Group psychology plays an important role in any business organization. We must therefore
rely more on informal group effort.
7. The neo-classical theory emphasizes that man is a living machine and he is far more important
than the inanimate machine. Hence, the key to higher productivity lies in employee morale.
High morale results in higher output.

A new milestone in organisational behavior was set and Elton Mayo and his team found a way
to improve productivity by creating a healthy team spirit environment between workers and
supervisors labeling it as The Hawthorne Effect.

The Hawthorne effect is a physiological phenomenon that produces an improvement in human

behavior or performance as a result of increased attention of superiors and colleagues. As a
combined effort, the effect can enhance results by creating sense of teamwork and a common
purpose. As in many ways the Hawthorne effect is interpreted, it generates new ideas concerning
importance of work groups and leadership, communication, motivation and job design, which
brought forward emphasis on personnel management and human relations.

Although the Hawthorne effect tends to be an ideal contributor to organizational management, it

contains a few flaws which such a study is criticized upon. Having the experiments being
conducted in controlled environments, lack of validity may exist as the workers knew they were
observed hence produced better performances. The human aspect in the Hawthorne experiments
was given too much importance were it alone cannot improve production as other factors are a
must. Group decision making might also evolve in a flaw as on occasions individual decision
making is vital as it might be the way to prevent failures within a system. Another flaw
contributes to the freedom given to the workers by the Hawthorne effect. The important
constructive role of supervisors may be lost with excess informality within the groups and in fact
such a flaw may result in lowering the performance and productivity.

The Hawthorne experiments marked a significant step forward in human behavior and are
regarded as one of the most important social science investigations and said to be the
foundations of relations approach to management and the development of organizational
behavior. Managers are to be aware of the criticism evolved through years on such a study
before adopting it. In my opinion, the Hawthorne effect is a validated theory and could be
applied within the organisation, though care is to be taken and a limit is to be set. The use of
team groups is acceptable as it creates a caring factor between workers and competitively
amongst other teams. Supervisors are
to keep their role and limit socializing with staff on the shop floor to always keep their role and
hence standards are always kept to the maximum. Team meeting are to be held which allows the
worker to give out his opinion and feel important by contributing his ideas to the organisation.

Whichever management structure an organisation is to adopt, regular reviews are to be carried

out in order to keep a stable output and good standard in quality. Such a strategy will ensure
continuous evolution of the organizational management and a successful organization producing
maximum efficiency in its produce.

Henri Fayol 14 Principles of Management

Henry Fayol, also known as the ‗father of modern management theory‘ gave a new perception of
the concept of management. He introduced a general theory that can be applied to all levels of
management and every department. The Fayol theory is practised by the managers to organize
and regulate the internal activities of an organization. He concentrated on accomplishing
managerial efficiency.

The fourteen principles of management created by Henri Fayol are explained below.
1. Division of Work-
Henri believed that segregating work in the workforce amongst the worker will enhance the
quality of the product. Similarly, he also concluded that the division of work improves the
productivity, efficiency, accuracy and speed of the workers. This principle is appropriate for
both the managerial as well as a technical work level.
2. Authority and Responsibility-
These are the two key aspects of management. Authority facilitates the management to work
efficiently, and responsibility makes them responsible for the work done under their guidance or
leadership.
3. Discipline-
Without discipline, nothing can be accomplished. It is the core value for any project or any
management. Good performance and sensible interrelation make the management job easy and
comprehensive. Employees good behaviour also helps them smoothly build and progress in their
professional careers.
4. Unity of Command-
This means an employee should have only one boss and follow his command. If an employee
has to follow more than one boss, there begins a conflict of interest and can create confusion.
5. Unity of Direction-
Whoever is engaged in the same activity should have a unified goal. This means all the person
working in a company should have one goal and motive which will make the work easier and
achieve the set goal easily.
6. Subordination of Individual Interest-
This indicates a company should work unitedly towards the interest of a company rather than
personal interest. Be subordinate to the purposes of an organization. This refers to the whole
chain of command in a company.
7. Remuneration-
This plays an important role in motivating the workers of a company. Remuneration can be
monetary or non-monetary. However, it should be according to an individual‘s efforts they have
made.
8. Centralization-
In any company, the management or any authority responsible for the decision-making process
should be neutral. However, this depends on the size of an organization. Henri Fayol stressed on
the point that there should be a balance between the hierarchy and division of power.
9. Scalar Chain-
Fayol on this principle highlights that the hierarchy steps should be from the top to the lowest.
This is necessary so that every employee knows their immediate senior also they should be able
to contact any, if needed.
10. Order-
A company should maintain a well-defined work order to have a favourable work culture. The
positive atmosphere in the workplace will boost more positive productivity.
11. Equity-
All employees should be treated equally and respectfully. It‘s the responsibility of a manager
that no employees face discrimination.
12. Stability-
An employee delivers the best if they feel secure in their job. It is the duty of the management to
offer job security to their employees.
13. Initiative-
The management should support and encourage the employees to take initiatives in an
organization. It will help them to increase their interest and make then worth.
14. Esprit de Corps-
It is the responsibility of the management to motivate their employees and be supportive of each
other regularly. Developing trust and mutual understanding will lead to a positive outcome and
work environment.
This 14 principles of management are used to manage an organization and are beneficial for
prediction, planning, decision-making, organization and process management, control and
coordination.
Management as a Profession

Over a large few decades, factors such as growing size of business unit, separation of ownership
from management, growing competition etc have led to an increased demand for professionally
qualified managers. The task of manager has been quite specialized. As a result of these
developments the management has reached a stage where everything is to be managed
professionally.

A profession may be defined as an occupation that requires specialized knowledge and intensive
academic preparations to which entry is regulated by a representative body. The essentials of a
profession are:

1. Specialized Knowledge - A profession must have a systematic body of knowledge that can
be used for development of professionals. Every professional must make deliberate efforts
to acquire expertise in the principles and techniques. Similarly a manager must have
devotion and involvement to acquire expertise in the science of management.
2. Formal Education & Training - There are no. of institutes and universities to impart
education & training for a profession. No one can practice a profession without going
through a prescribed course. Many institutes of management have been set up for
imparting education and training. For example, a CA cannot audit the A/C‘s unless he has
acquired a degree or diploma for the same but no minimum qualifications and a course of
study has been prescribed for managers by law. For example, MBA may be preferred but
not necessary.
3. Social Obligations - Profession is a source of livelihood but professionals are primarily
motivated by the desire to serve the society. Their actions are influenced by social norms
and values. Similarly a manager is responsible not only to its owners but also to the society
and therefore he is expected to provide quality goods at reasonable prices to the society.

4. Code of Conduct - Members of a profession have to abide by a code of conduct which

contains certain rules and regulations, norms of honesty, integrity and special ethics. A code
of conduct is enforced by a representative association to ensure self discipline among its
members. Any member violating the code of conduct can be punished and his membership
can be withdrawn. The AIMA has prescribed a code of conduct for managers but it has no
right to take legal action against any manager who violates it.
5. Representative Association - For the regulation of profession, existance of a
representative body is a must. For example, an institute of Charted Accountants of India
establishes and
 administers standards of competence for the auditors but the AIMA however does not have
any statuary powers to regulate the activities of managers.
From above discussion, it is quite clear that management fulfills several essentials of a
profession, even then it is not a full fledged profession because: -

a. It does not restrict the entry in managerial jobs for account of one standard or other.
b. No minimum qualifications have been prescribed for managers.
c. No management association has the authority to grant a certificate of practice to
various managers.
d. All managers are supposed to abide by the code formulated by AIMA,
e. Competent education and training facilities do not exist.
f. Managers are responsible to many groups such as shareholders, employees and society.
A regulatory code may curtail their freedom.
g. Managers are known by their performance and not mere degrees.
h. The ultimate goal of business is to maximize profit and not social welfare. That is why
Haymes has rightly remarked, ―The slogan for management is becoming - ‘He who
serves best, also profits most‘.‖

Management Vs Administration

Comparison Chart
BASIS FOR
MANAGEMENT ADMINISTRATION
COMPARISON

Meaning An organized way of The process of administering an

managing people and things organization by a group of
of a business organization is people is known as the
called the Management. Administration.

Authority Middle and Lower Level Top level

Role Executive Decisive

Concerned with Policy Implementation Policy Formulation

Area of operation It works under It has full control over the

BASIS FOR
MANAGEMENT ADMINISTRATION
COMPARISON

administration. activities of the organization.

Applicable to Profit making Government offices, military,

organizations, i.e. business clubs, business enterprises,
organizations. hospitals, religious and
educational organizations.

Decides Who will do the work? What should be done? And

And How will it be done? When is should be done?

Work Putting plans and policies Formulation of plans, framing

into actions. policies and setting objectives

Focus on Managing work Making best possible allocation

of limited resources.

Key person Manager Administrator

Represents Employees, who work for Owners, who get a return on

remuneration the capital invested by them.

Function Executive and Governing Legislative and Determinative

LEVELS OF MANAGEMENT

1. Top level / Administrative level

2. Middle level / Executory
3. Low level / Supervisory / Operative / First-line managers

Managers at all these levels perform different functions. The role of managers at all the
three levels is discussed below:
1. Top Level of Management

It consists of board of directors, chief executive or managing director. The top

management is the ultimate source of authority and it manages goals and policies for an
enterprise. It devotes more time on planning and coordinating functions.

The role of the top management can be summarized as follows -

a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets,
procedures, schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world.
g. It provides guidance and direction.
h. The top management is also responsible towards the shareholders for
the performance of the enterprise.
2. Middle Level of Management

The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. They devote
more time to organizational and directional functions. In small organization, there is only
one layer of middle level of management but in big enterprises, there may be senior and
junior middle level management. Their role can be emphasized as -

a. They execute the plans of the organization in accordance with the policies
and directives of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of lower level management.
d. They interpret and explain policies from top level management to lower level.
 e. They are responsible for coordinating the activities within the division
or department.
f. It also sends important reports and other important data to top level management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring lower level managers towards
better performance.

3. Lower Level of Management

Lower level is also known as supervisory / operative level of management. It consists of

supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,
―Supervisory management refers to those executives whose work has to be largely with
personal oversight and direction of operative employees‖. In other words, they are
concerned with direction and controlling function of management. Their activities
include -

a. Assigning of jobs and tasks to various workers.

b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation in
the organization.
e. They communicate workers problems, suggestions, and recommendatory
appeals etc to the higher level and higher level goals and objectives to the
workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct
contact with the workers.

Roles of manager in organization/Managerial Roles

For better understanding, Mintzberg categorized all activities into ten managerial roles
performed over the course of a day. These are as follows:
Interpersonal Roles

 Figurehead – includes symbolic duties which are legal or social in nature.

 Leader – includes all aspects of being a good leader. This involves building a
team, coaching the members, motivating them, and developing strong
relationships.
 Liaison – includes developing and maintaining a network outside the office
for information and assistance.

Informational Roles

 Monitor – includes seeking information regarding the issues that are affecting
the organization. Also, this includes internal as well as external information.
 Disseminator – On receiving any important information from internal or external
sources, the same needs to be disseminated or transmitted within the organization.
 Spokesperson – includes representing the organization and providing information
about the organization to outsiders.

Decisional Roles

 Entrepreneur – involves all aspects associated with acting as an initiator, designer,

and also an encourager of innovation and change.
 Disturbance handler – taking corrective action when the organization
faces unexpected difficulties which are important in nature.
 Resource Allocator – being responsible for the optimum allocation of resources like
time, equipment, funds, and also human resources, etc.
  Negotiator – includes representing the organization in negotiations which affect
the manager‘s scope of responsibility.

Managerial skills
Simply, managerial skills are the knowledge and ability of the individuals in a managerial
position to fulfil some specific management activities or tasks. This knowledge and ability can
be learned and practiced. However, they also can be acquired through practical implementation
of required activities and tasks. Therefore, you can develop each skill through learning and
practical experience as a manager.

When we talk about managerial skills, we talk about the skills of a manager to maintain high
efficiency in the way how his or her employees complete their everyday working tasks. Because
of that, managers will need skills that will help them to manage people and technology to ensure
an effective and efficient realisation of their working duties.

Types of managerial skills

Robert Katz identifies three types of skills that are essential for a successful management
process:
 Technical skills
 Conceptual skills
 Human or interpersonal management skills
 1. Technical skills
As the name of these skills tells us, they give the manager knowledge and ability to use different
techniques to achieve what they want to achieve. Technical skills are not related only for
machines, production tools or other equipment, but also they are skills that will be required to
increase sales, design different types of products and services, market the products and services,
etc.

Technical skills are most important for first-level managers. Whet it comes to the top managers,
these skills are not something with high significance level. As we go through a hierarchy from
the bottom to higher levels, the technical skills lose their importance.

2. Conceptual skills
Conceptual skills present knowledge or ability of a manager for more abstract thinking. That
means he can easily see the whole through analysis and diagnosis of different states. In such a
way they can predict the future of the business or department as a whole.

Conceptual skills are vital for top managers, less critical for mid-level managers and not required
for first-level managers. As we go from the bottom of the managerial hierarchy to the top, the
importance of these skills will rise.
 3.Human or interpersonal managerial skills
Human or interpersonal management skills present a manager‘s knowledge and ability to work
with people. One of the most critical management tasks is to work with people. Without people,
there will not be a need for the existence of management and managers.

Management by Objectives

Management by objectives (MBO) is a strategic management model that aims to

improve the performance of an organization by clearly defining objectives that are
agreed to by both management and employees. According to the theory, having a say in
goal setting and action plans encourages participation and commitment among
employees, as well as aligning objectives across the organization.

 Management by objectives (MBO) is a process in which a manager and an employee

agree on specific performance goals and then develop a plan to reach them.

Features of Management By Objectives (MBO)

The following are the prominent features of MBO;

1. All activities are goal oriented: The first important feature of the MBO is that under it all the
activities happen to be goal-oriented. This means that MBO concentrates on the determination
of unit and individual goals in with organizational goals. These goals set state responsibilities of
different parts of the organization and help to coordinate the organization with its parts and its
environment.

2. MBO views organization as Dynamic Entity: this feature considers the organization as a
dynamic entity. This means that every organization is affected by various external and internal
factors therefore the organization is considered to be a dynamic unit. The dynamic nature affects
the objectives which as a result make it possible that the objectives set today may not be
realized. In such an event the organization might be forced act swiftly to change its objectives

3. MBO is a Participative Attempt: The MBO process is characterized by high level of

participation of the concerned people in goal setting and performance appraisal. Increased
participation provides the opportunity to influence decisions and make clear job relationship
with managers and their subordinates.
4. MBO Matches the Objectives and Resources: The objectives set when the MBO approach is
adopted by organization are based on the resources available so as to avoid having incomplete
tasks or activities because of the lack of resources.

5. MBO is a Philosophy and not a Technique: MBO is not a technique of management but it‘s a
philosophy, because a technique can only be applied or used in a one department and its
effects will only be felt on the particular department. For example an inventory technique can
only be used in relation to stock control and it cannot be used in another department like
HRM.

6. MBO gives more emphasis to Review and Performance Appraisal: regular appraisal of the work
performance of employees form one the important characteristics of MBO. This Philosophy
helps observe whether all the employees are performing at the expected level and also identify
if there is any impediments in their work performance.

7. MBO provides more freedom to Subordinates: With MBO Philosophy the subordinates are not
only associated with the task of coming up with the objectives but they also get complete
freedom in the performance of their work. This philosophy gives them the right to make
decisions related to their designation and as a result this increases their importance which
improves their interest and job satisfaction.

8. MBO gives more emphasis to results and not to work: With the MBO philosophy more focus is
given to results. The subordinates have the freedom to choose which technique to adopt to
achieve the final result. This means that the subordinates are expected to give the best possible
results regardless of the technique used.

Advantages Of MBO

When implemented properly, systematically and consciously, the MBO has the following
advantages:
1. Improved Performance:
MBO is basically a result oriented process. Its main focus is on setting and controlling goals.
Managers are encouraged to do detailed planning. They concentrate on the important task of
improving performance by reducing the costs and harnessing the opportunities. Improved
planning will lead to improved productivity arid more profits.

2. Greater Sense of Identification:

The individual members of the organization have a greater sense of identification with the
company goals. With MBO, the subordinates feel proud of being involved in the organizational
goals. This improves their morale and commitment to the organizational objectives.

3. Maximum Utilization of Human Resources:

Since the goals are set in consultation with the subordinates, these are more difficult to
achieve and more challenging than if the superiors had imposed them. In addition, since these
goals are fixed according to the particular abilities of the subordinates, it obtains maximum
contribution from them and thus it leads to maximum utilization of human resources.

4. No Role Ambiguity:
There is no role ambiguity or confusion in the organization, because specific and clear goals are
set for the organization, for the division for the departments and for the individual members.
Both the managers and the subordinates know what they have to do and what is expected of
them.

5. Improved Communication:
In MBO, there is improved communication between the management and the subordinates.
This continuous two way communication helps in clarifying any ambiguities, refining and
modifying any processes or any aspects of objectives.

6. Improved Organizational Structure:

In MBO, the whole of organizational structure is redesigned because of the revision of job
descriptions of various positions as a result of resetting of the individual goals. All this helps
in
improving the organizational structure as a result of location of the problem and weak areas of
the organization.

7. Device for Organizational Control:

MBO serves as a device for organizational control and integration. If there are any deviations
discovered between the actual performance and the goals, these can be regularly and
systematically identified, evaluated and corrected.

8. Career Development of the Employees:

MBO provides a realistic means of analyzing training needs and opportunities for growth for the
employees. The management takes keen interest in the development of skills and abilities of
subordinates and provides an opportunity for strengthening those areas which need further
refinement, thus, leading to career development of employees.

9. Result Based Performance Evaluation:

The system of periodic performance evaluation lets the subordinates know how well they are
doing. In MBO, strong emphasis is put on measurable and quantifiable objectives. As a result,
the appraisal tends to be more objective specific and equitable. As these appraisal methods are
based on result and not on some intangible characteristics, there are considered to be superior to
the trait evaluation methods of appraisal.

10. Stimulating the Motivation of the Employees:

The system of MBO stimulates the employees motivation. First of all, they feel motivated
because of their participation in goal setting. They take keen interest in the implementation of
the goals which they themselves have set. Secondly the appraisal system, being very objective
and specific can be highly morale boosting.

Limitations of MBO:
A system of MBO has certain weaknesses and limitations. Some of these are inherent in the
system while some arise when introducing and implementing it.

Some of the problems and limitations associated with MBO are as explained below:
1. Lack of Support of Top Management:
In traditional organizations, the authority is vested in the top management and it flow from top to
bottom. In MBO, subordinates are given an equal opportunity of participation, which is resented
by the top management. This system cannot succeed without the full support of top management.

2. Resentful Attitude of Subordinates:

The subordinates can also be resentful towards the system of MBO. Sometimes, while setting
the goals, they may be under pressure to get along with the management and the objectives
which are set may be unrealistically high or far too rigid. The subordinates, generally, feel
suspicious of the management and believe that MBO is another play of the management to make
them work harder and become more dedicated and involved.

3. Difficulties in Quantifying the Goals and Objectives:

The MBO will be successful only if the goals can be set in quantifiable terms. But if the areas
are difficult to quantify and difficult to evaluate, it will not be possible to judge the performance
of the employees. Moreover MBO does not have any subjectivity in performance appraisal. It
rewards only productivity without giving any consideration to the creativity of the employees.

4. Costly and Time Consuming Process:

MBO is quite costly and a time consuming process. There is a lot of paper work involved.
Moreover, there are a lot of meetings and too many reports to be prepared, which add to the
responsibilities and burden of the managers. Because of these reasons managers generally resist
the MBO.

5. Emphasis on Short Term Goals:

Under MBO, goals are set only for a short period, say for six months or one year. This is because
of the reason that goals being quantitative in nature, it is difficult to do long range planning.
Since the performance of the subordinate is to be reviewed after every six months or one
year, they tend to concentrate on their immediate objectives without caring for the long range
objectives of the enterprise. This emphasis on short term goals goes against the organizational
efficiency and effectiveness and is not a healthy sign.
6. Lack of Adequate Skills and Training:
Most of managers lack adequate skills, knowledge and training required in interpersonal
interaction which is required in the MBO. Many managers tend to sit down with the subordinate,
dictate the goals and targets with no input permitted from the subordinates and then demand that
the goals be achieved in a specified time. Whether the goals are realistic or not does not enter the
picture. In this type of environment, two way communication is not there and objectives are
imposed on the subordinates. This destroys their morale, initiative and performance.

7. Poor Integration:
Generally, the integration of the MBO with the other systems such as forecasting and budgeting
is very poor. This lack of integration makes the overall functioning of the system very poor.

8. Lack of Follow Up:

Under the system of MBO, the superior must get in touch with the subordinate at the appropriate
time and at that time, the subordinate will inform the boss exactly what has been accomplished
and how. If the superior delays the meeting, it will create hurdles in the successful
implementation of MBO as the subordinate will also start taking the programme casually.

9. Difficulty in Achievement of Group Goals:

When goals of one department depend upon the goals of another department, cohesion is
difficult to maintain. In such cases, the achievement of goals will also become very
difficult.

10. Inflexibility:
MBO may make the organization rigid. As the goals are set after every six months or one year,
the manager may not like to revise the goals in between, even if the need arises, due to fear of
resistance from the subordinates. The managers must learn to handle this situation, because
sometimes revision of short term goals is necessary for the achievement of long range objectives.

11. Limited Application:

MBO is useful largely for the managerial and professional employees. It is not appropriate for all
levels and for everyone because of the heavy demands made by it. It can be made applicable
only when both the subordinates and manages feel comfortable with it and are willing to
participate in it.
12. Long Gestation Period:
It takes a lot of time, sometimes 3-5 years to implement the MBO programme properly and
fully and some research studies have shown that these programmes can lose their impact and
potency as a motivating force over a long period of time.

Process Of Mbo

The 6 steps of the MBO process are;

1. Define organizational goals

2. Define employees objectives
3. Continuous monitoring performance and progress
4. Performance evaluation
5. Providing feedback
6. Performance appraisal

Let‘s briefly look at each of

these;

1. Define Organizational Goals

Goals are critical issues to organizational effectiveness, and they serve a number of
purposes. Organizations can also have several different kinds of goals, all of which must
be appropriately managed.

And a number of different kinds of managers must be involved in setting goals. The
goals set by the superiors are preliminary, based on an analysis and judgment as to what
can and what should be accomplished by the organization within a certain period.
2. Define Employees Objectives

After making sure that employees‘ managers have informed of pertinent general
objectives, strategies and planning premises, the manager can then proceed to work with
employees in setting their objectives.

The manager asks what goals the employees believe they can accomplish in what time
period, and with what resources. They will then discuss some preliminary thoughts about
what goals seem feasible for the company or department.

3. Continuous Monitoring Performance and Progress

MBO process is not only essential for making line managers in business organizations
more effective but also equally important for monitoring the performance and progress of
employees.

For monitoring performance and progress the followings are required;

 Identifying ineffective programs by comparing performance with pre-

established objectives,
 Using zero-based budgeting,
 Applying MBO concepts for measuring individual and plans,
 Preparing long and short-range objectives and plans,
 Installing effective controls, and
 Designing a sound organizational structure with clear, responsibilities
and decision-making authority at the appropriate level.
4. Performance Evaluation

Under this MBO process performance review is made by the participation of the
concerned managers.
5. Providing Feedback

The filial ingredients in an MBO program are continuous feedback on performance and
goals that allow individuals to monitor and correct their own actions.

This continuous feedback is supplemented by periodic formal appraisal meetings in

which superiors and subordinates can review progress toward goals, which lead to
further feedback.

6. Performance Appraisal

Performance appraisals are a regular review of employee performance within

organizations. It is done at the last stage of the MBO process.
Unit -2

Delegation of Authority
Delegation of Authority means division of authority and powers downwards to the
subordinate.Delegation is about entrusting someone else to do parts of your job. Delegation of
authority can be defined as subdivision and sub-allocation of powers to the subordinates in order
to achieve effective results.

In other words, a delegation of authority involves the sharing of authority downwards to the
subordinates and checking their efficiency by making them accountable for their doings. In an
organization, the manager has several responsibilities and work to do. So, in order to reduce his
burden, certain responsibility and authority are delegated to the lower level, i.e. to the
subordinates, to get the work done on the manager‘s behalf.

Under the delegation of authority, the manager does not surrender his authority completely, but
only shares certain responsibility with the subordinate and delegates that much authority which
is necessary to complete that responsibility.
 Features of Delegation of Authority

1. Delegation means giving power to the subordinate to act independently but within the
limits prescribed by the superior. Also, he must comply with the provisions of the
organizational policy, rules, and regulations.
2. Delegation does not mean that manager give up his authority, but certainly he shares
some authority with the subordinate essential to complete the responsibility entrusted to
him.
3. Authority once delegated can be further expanded, or withdrawn by the superior depending
on the situation.
4. The manager cannot delegate the authority which he himself does not possess. Also, he can
not delegate his full authority to a subordinate.
5. The delegation of authority may be oral or written, and may be specific or general.
6. The delegation is an art and must comply with all the fundamental rules of an organization.

Importance of Delegation
1. Through delegation, a manager is able to divide the work and allocate it to the
subordinates. This helps in reducing his work load so that he can work on important areas
such as - planning, business analysis etc.
2. With the reduction of load on superior, he can concentrate his energy on important and
critical issues of concern. This way he is able to bring effectiveness in his work as well
in the work unit. This effectivity helps a manager to prove his ability and skills in the
best manner.
3. Delegation of authority is the ground on which the superior-subordinate relationship
stands. An organization functions as the authority flows from top level to bottom. This in
fact shows that through delegation, the superior-subordinate relationship become
meaningful. The flow of authority is from top to bottom which is a way of achieving
results.
4. Delegation of authority in a way gives enough room and space to the subordinates to
flourish their abilities and skill. Through delegating powers, the subordinates get a feeling of
importance. They get motivated to work and this motivation provides appropriate results to
a concern. Job satisfaction is an important criterion to bring stability and soundness in the
relationship between superior and subordinates. Delegation also helps in breaking the
monotony of the subordinates so that they can be more creative and efficient.
5. Delegation of authority is not only helpful to the subordinates but it also helps the managers
to develop their talents and skills. Since the manager get enough time through delegation to
concentrate on important issues, their decision-making gets strong and in a way they can
flourish the talents which are required in a manager. Through granting powers and getting
the work done, helps the manager to attain communication skills, supervision and guidance,
effective motivation and the leadership traits are flourished. Therefore it is only through
delegation, a manager can be tested on his traits.
6. Delegation of authority is help to both superior and subordinates. This, in a way, gives
stability to a concern‘s working. With effective results, a concern can think of creating
more
 departments and divisions flow working. This will require creation of more managers
which can be fulfilled by shifting the experienced, skilled managers to these positions. This
helps in both virtual as well as horizontal growth which is very important for a concern‘s
stability.

Elements of Delegation
1. Authority - in context of a business organization, authority can be defined as the power
and right of a person to use and allocate the resources efficiently, to take decisions and to
give orders so as to achieve the organizational objectives.
Authority must be well-defined. All people who have the authority should know what is the
scope of their authority is and they shouldn‘t misutilize it. Authority is the right to give
commands, orders and get the things done. The top level management has greatest authority.
Authority always flows from top to bottom. It explains how a superior gets work done from
his subordinate by clearly explaining what is expected of him and how he should go about it.
Authority should be accompanied with an equal amount of responsibility. Delegating the
authority to someone else doesn‘t imply escaping from accountability. Accountability still
rest with the person having the utmost authority.
2. Responsibility - is the duty of the person to complete the task assigned to him. A person
who is given the responsibility should ensure that he accomplishes the tasks assigned to him.
If the tasks for which he was held responsible are not completed, then he should not give
explanations or excuses. Responsibility without adequate authority leads to discontent and
dissatisfaction among the person.
Responsibility flows from bottom to top. The middle level and lower level management
holds more responsibility. The person held responsible for a job is answerable for it. If he
performs the tasks assigned as expected, he is bound for praises. While if he doesn‘t
accomplish tasks assigned as expected, then also he is answerable for that.
3. Accountability - means giving explanations for any variance in the actual performance from
the expectations set. Accountability can not be delegated. For example, if ‘A‘ is given a task
with sufficient authority, and ‘A‘ delegates this task to B and asks him to ensure that task is
done well, responsibility rest with ‘B‘, but accountability still rest with ‘A‘.
The top level management is most accountable. Being accountable means being innovative
as the person will think beyond his scope of job. Accountability,in short, means being
answerable for the end result. Accountability can‘t be escaped. It arises from responsibility.
For achieving delegation, a manager has to work in a system and has to perform following steps :
-

1. Assignment of tasks and duties

2. Granting of authority
3. Creating responsibility and accountability
Delegation of authority is the base of superior-subordinate relationship, it involves
following steps:-

1. Assignment of Duties - The delegator first tries to define the task and duties to the
subordinate. He also has to define the result expected from the subordinates. Clarity of
duty as well as result expected has to be the first step in delegation.
2. Granting of authority - Subdivision of authority takes place when a superior divides and
shares his authority with the subordinate. It is for this reason, every subordinate should be
given enough independence to carry the task given to him by his superiors. The managers
at all levels delegate authority and power which is attached to their job positions. The
subdivision of powers is very important to get effective results.
3. Creating Responsibility and Accountability - The delegation process does not end once
powers are granted to the subordinates. They at the same time have to be obligatory
towards the duties assigned to them.
Responsibility is said to be the factor or obligation of an individual to carry out his duties in
best of his ability as per the directions of superior. Responsibility is very important.
Therefore, it is that which gives effectiveness to authority. At the same time, responsibility is
absolute and cannot be shifted.
Accountability, on the others hand, is the obligation of the individual to carry out his duties
as per the standards of performance. Therefore, it is said that authority is delegated,
responsibility is created and accountability is imposed.
Accountability arises out of responsibility and responsibility arises out of authority.
Therefore, it becomes important that with every authority position an equal and opposite
responsibility should be attached.
Principles of Delegation
The principles of delegation are as follows: -

1. Principle of result excepted

This principle suggests that every manager before delegating the powers to the subordinate
should be able to clearly define the goals as well as results expected from them. The goals
and targets should be completely and clearly defined and the standards of performance
should also be notified clearly.
For example, a marketing manager explains the salesmen regarding the units of sale to take
place in a particular day, say ten units a day have to be the target sales. While a marketing
manger provides these guidelines of sales, mentioning the target sales is very important so
that the salesman can perform his duty efficiently with a clear set of mind.
2. Principle of Parity of Authority and Responsibility
According to this principle, the manager should keep a balance between authority and
responsibility. Both of them should go hand in hand.
According to this principle, if a subordinate is given a responsibility to perform a task, then
at the same time he should be given enough independence and power to carry out that task
effectively. This principle also does not provide excessive authority to the subordinate
which at times can be misused by him. The authority should be given in such a way which
matches the task given to him. Therefore, there should be no degree of disparity between
the two.
3. Principle of absolute responsibility
This says that the authority can be delegated but responsibility cannot be delegated by
managers to his subordinates which means responsibility is fixed. The manager at every
level, no matter what is his authority, is always responsible to his superior for carrying out
his task by delegating the powers. It does not means that he can escape from his
responsibility. He will always remain responsible till the completion of task.
Every superior is responsible for the acts of their subordinates and are accountable to their
superior therefore the superiors cannot pass the blame to the subordinates even if he has
delegated certain powers to subordinates example if the production manager has been given
 a work and the machine breaks down. If repairmen is not able to get repair work done,
production manager will be responsible to CEO if their production is not completed.
4. Principle of Authority level
This principle suggests that a manager should exercise his authority within the
jurisdiction/framework given.
The manager should be forced to consult their superiors with those matters of which the
authority is not given that means before a manager takes any important decision, he should
make sure that he has the authority to do that on the other hand, subordinate should also not
frequently go with regards to their complaints as well as suggestions to their superior if they
are not asked to do.
This principle emphasizes on the degree of authority and the level upto which it has to be
maintained.
Process of Delegation of Authority

The process of delegation of authority comprises of four steps which are as follows:

1. Assignment of Duties to Subordinates: Before the actual delegation of authority, the delegator
must decide on the duties which he wants the subordinate or the group of subordinates to
perform. Here, the manager lists the activities to be performed along with the targets to be
achieved, and the same is spelled out to the subordinates. Thus, in the first stage, the duties
are assigned to the subordinates as per their job roles.
2. Transfer of Authority to perform the duty: At this stage, an adequate authority is delegated to
the subordinate which is essential to perform the duty assigned to him. A manager must make
sure; that authority is strictly delegated just to perform the responsibility, as more authority may
lead to its misuse by the subordinate.
3. Acceptance of the Assignment: At this stage, the subordinate either accepts or rejects the tasks
assigned to him by his superior. If the subordinate or the delegate, refuses to accept the duty
and the authority to perform it, then the manager looks for the other person who is capable of
and is willing to undertake the assignment. Once the assignment gets accepted by the
subordinate, the delegation process reaches its last stage.
4. Accountability: The process of delegation of authority ends at the creation of an obligation on
the part of the subordinate to perform his responsibility within the powers assigned to him. Once
the assignment is accepted by the subordinate, then he becomes responsible for the completion
of the duty and is accountable to the superior for his performance.
Thus, the process of delegation of authority begins with the duties assigned to the
subordinates and ends when the subordinate is obliged to carry out the operations as intended.

Barriers/Obstacles to Delegation of Authority

Though delegation enhances efficiency of the organisation by dividing work amongst
organisational members (according to their capabilities), it is not free from obstacles.

Various barriers to delegation can be grouped in three main headings.

These are:
I. Barriers related to superiors or delegator,

II. Barriers related to subordinates or delegate, and

III. Barriers related to organisation.

I. Barriers related to Superiors:

Despite knowing how important it is to delegate, superiors sometimes do not delegate work to
subordinates.

This is because of the following reasons:

1. Wanting to do things personally:
Some managers do not delegate because they feel they can do the work better than others. Since
ultimate responsibility is that of the delegator, they prefer doing the work themselves rather
than getting it done through others. This also helps in maintaining control over the activities
assigned
to subordinates. The delegator enjoys doing the work and makes his importance felt in the
organisation by showing his busyness in the office.

2. Insecurity:
If managers feel that subordinates perform better than them, they avoid delegation. The
exposure of their inabilities to take good decisions creates a feeling of insecurity and, therefore,
they fear to delegate. This happens in organisations where work procedures and methods are not
sound. A weak operating system usually stops the managers from revealing their shortcomings
to the subordinates.

3. Retention of power:
Some managers like to take responsibility, make their importance felt by everyone in the
organisation and want the subordinates to come to them to get their problems solved. Their
desire to retain power and dominate is a hindrance to the effective delegation process. Such
managers are usually autocratic in nature. They abstain from delegation and prefer to direct
people personally.

4. Lack of confidence in subordinates:

The reward for risk is return. Unless managers assume the risk of subordinates not performing
well, they cannot contribute to the development of skilled managers in future. A manager who
does not take risk in subordinates and lacks confidence in them will not be able to delegate
effectively. Delegation is based on trust between superior and subordinates. Negative attitude
towards subordinates obstructs delegation as superior lacks confidence in the ability of
subordinates.

5. Unwillingness to set standards of control:

Having delegated the duties, managers remain accountable for overall performance of the work.
They supervise the activities of subordinates to ensure that actual performance is in conformity
with planned performance. A manager who fails to establish standards of control will not be able
to effectively delegate to subordinates.

6. Personal factors:
Autocratic managers usually do not delegate to keep tight control over the activities of
subordinates. Democratic leaders prefer to delegate as they believe in participation of employees
in the decision-making process.
Managers usually follow past precedents in creating an environment friendly to delegation. If
their managers delegate to them, they also trust their subordinates in making delegation
effective. If their managers did not trust them in delegating the tasks, they also do not delegate
the tasks further.

II. Barriers Related to Subordinates:

Subordinates present the following barriers to effective delegation:
1. Lack of confidence:
Some subordinates do not want to take responsibility for the fear of not being able to perform
well. They lack confidence and do not want to take any risk. They prefer to depend on their
bosses to make decisions.

2. Fear of making mistakes:

Some subordinates fear that if they make mistakes in carrying out the delegated responsibilities,
their superiors will criticize them for unfavourable outcomes. This fear dissuades them from
taking added responsibility.

3. Lack of incentives:
Motivation (through financial and non-financial incentives) makes delegation effective.
Subordinates are reluctant to accept delegation in the absence of incentives.

4. Absence of access to resources:

If subordinates do not have access to resources (financial and non-financial) to carry out their
work, they will not accept delegation of responsibilities. This happens when there is delegation
of responsibility without commensurate authority.

5. Convenience:
Sometimes subordinates prefer the work is done by superiors rather than assuming responsibility
for the same, for the sake of convenience. They simply want their bosses to make the decisions.

III. Barriers Related to Organisation:

The barriers related to organisation structure are as follows:
1. Size of the organisation:
A small-sized organisation will not have too many jobs to delegate to subordinates. It is, thus,
not responsive to delegation of tasks.

2. No precedent of delegation:
Merely because organisations have not earlier been following the practice of delegation
sometimes makes them continue with the practice of not delegating the jobs.

3. Degree of centralisation or decentralisation:

Efficient delegation is affected by the degree to which organisation distributes the decision-
making power to various organisational units. A highly centralised organisation is obstructive to
the process of effective delegation.

Ways to Overcome/Suggestions Of Barriers to Delegation:

Barriers to delegation can be overcome through the following measures:
1. Accept the need for delegation:
When superiors are reluctant to delegate because they want to do everything themselves
rather than allowing subordinates to do, they should realise the need for delegation. In fact,
more the delegation, more successful will be an organisation.

Delegation multiplies the capacity of managers. What can be delegated must be delegated.
Managers should do things which subordinates cannot do. This develops their core competence
and also the organisation.

2. Develop confidence in subordinates:

Rather than feeling that subordinates are not capable of accepting responsibilities so that
delegator does not take the risk of delegation, the delegator should understand that a man learns
through mistakes and if he commits mistakes, he shall try to find out solutions to the problem
also. If subordinates make mistakes, superiors should guide them rather than not delegate at all.

Trust towards subordinates develops their commitment towards superiors. Committed

subordinates develop loyalty, dedication and positive contribution towards organisational
growth. Delegation should be a continuous process.

Managers should appreciate the work of subordinates when they perform well. They should
delegate them more tasks and express trust and confidence in them. This will boost their morale
to perform better in future. Delegation will be effective in the system of rewards, not penalties.

3. Communication:
Where delegation becomes ineffective because subordinates do not have the information for
making decisions, an effective system of communication should be developed so that
information flows freely from superiors to subordinates. Well informed subordinates are an asset
for the organisation. They can contribute to effective organisational decisions.

4. Motivation:
Subordinates should be motivated to accept the responsibilities by providing rewards (financial
and non-financial) like recognition, status etc. Assigning the whole job to one person can be
motivating as it reflects confidence in the subordinate. It also gives a sense of pride and
satisfaction to the subordinate who works to earn the credit for successful completion of that
task. Non-commitment towards work has to be converted into commitment through motivation
— creating zeal, enthusiasm, ability and willingness to work.

5. Effective system of control:

Since ultimate responsibility for the work assigned is that of the delegator, he must ensure that
subordinates perform well by setting achievable standards of performance against which actual
performance shall be measured. Delegator should keep check on the activities of delegates rather
than not delegate at all.

Though control helps in monitoring the activities of subordinates, it should not be strict in nature.
Moderately lenient control system helps to achieve standards by control through exceptions.
Major deviations should be spotted by managers and minor deviations should be corrected by the
subordinates themselves. Control helps in avoiding misuse of delegated authority.

6. Choose the right person for the right job:

Lack of confidence in subordinates should be overcome by dividing the workload into sub-units
and assigning each sub-unit to persons most suitable for performing them. The person selected
should be able to perform the task assigned. If required, training facilities can be provided to
increase their understanding of the work. Wrong selection of delegates can put the organisational
operations to halt.

7. Freedom to subordinates:
When managers accept the need for delegation, they must also give freedom to make decisions
with respect to the delegated tasks. Rather than not delegating at all or delegating less
responsibility, for the fear of subordinates making mistakes, managers should give them
authority to find solutions to their problems and learn not to make mistakes in future.
8. Clarity of tasks:
The responsibilities or the tasks delegated must be clearly defined in terms of results expected
out of those tasks. Knowing what is exactly expected of them will enable the subordinates
perform the delegated tasks better. Delegation is not done without purpose. It has to be properly
planned to the objectives desired to be achieved through delegation. Delegation should be done
to achieve specific results.

9. Match job with the abilities of subordinates:

‗Round pegs in the round holes‘ makes delegation effective as the right job will be given to the
right person. The task assigned should match the ability and the capacity of subordinates.

10. Open communication:

Though delegatees are given the authority to solve problems related to the assigned tasks, yet,
they should be allowed to freely discuss the problems with their delegators. Open
communication promotes delegation as both delegator and delegatees can trust each other,
explain their reservations, develop confidence and security and make the need for delegation
felt important for both. Work is delegated and also performed well — to the best of
subordinate‘s ability.

Meaning Of Authority

Authority is all about rights or powers with the managers which the organization empowers them
for achieving a common organizational goal. Thus, it involves the power of assigning duties to
workers and asking them to accept and pursue the assigned work. An organization can never
stand without ethical assignment and detailing Authority.

Definition

According to Henry Fayol, Authority is the power to give orders and garner obedience. Authority
streams downwards as the board of directors provides it to executives and managers at various
management levels.

Characteristics of Authority:
1. Basis of Getting Things Done:
Authority provides the basis of getting things done in the organisation. It refers to the right to
affect the behaviour of others in the organisation with a view to performing certain activities to
accomplish the defined objectives.
2. Legitimacy:
Authority is accepted as it has certain legitimacy about it, that is to say it implies a right to secure
performance from others. Such right may be legal or formal, or it may be supported by tradition.
Custom or accepted standards of authenticity. The right of a manager to affect the behaviour of
his subordinates is given to him by virtue of his position or office in the organisation.

3. Decision-Making:
It is a prerequisite of authority. The manager can command his subordinates to act or
abstain from acting in a particular manner only when he has made decisions as regards the
course of activities to be performed by them.

4. Subjectivity in Implementation:
Though authority has an element of objectivity about it, its exercise is significantly influenced
by subjective factors, such as the personality of the manager who is empowered to use it, as also
of the subordinate or group of subordinates with reference to whom it is to be exercised.

Types of Authority:
Basically the following types of authority are given below:
1. Legal Authority.

2. Traditional or Formal or top-down Authority.

3. Acceptance or Bottom-up Authority.

4. Charismatic Authority.

5. Competence or personal Authority.

1. Legal Authority:
The authority is based upon the rank of the person in the organisation and such authority may be
given by law or by social norms, rules and regulations protected by law. For example, law has
granted a place officer, the authority to arrest anyone who has committed a crime. Similarly, the
president of a company has the right to fire an employee because that is how the rules and
policies of the company have been established.

This type of authority is similar to power, which is the capacity to secure dominance of
one‘s goals and beliefs. This authority has been called formal authority, which has been
legalised
through social institutes, which attain and enforce group goals, objectives and welfare through a
maze of laws, codes, cultures and ethics.

This type of authority is embedded in the bureaucracy where the authority is bestowed upon
contractually hired and appointed officials.

For example, shareholders of an organisation give the authority to Board of Directors, who in
turn pass it on to the Chief Executive and so on The shareholders have this authority, to start
with, because, they bought the shares in the company and society, through its complex structure,
gives them this authority, to start with, because, they bought the shares in the company and
society, through its complex structure, gives them this authority.

While bureaucracy is the purest form of legal authority, other forms of such authority may
comprise of rotating office holders, elected officials or office holders chosen by lot. They have
similar authority since they must follow the same rules and regulations, which govern their
positions and define the limits of their authority.

Some examples are the elected officials, such as the president of a country or a member of
parliament or a community leader.

2. Traditional Authority:
This authority is based upon the belief in traditions and the legitimacy of the status of people
exercising authority through those traditions. Such traditions have evolved from a social order
and communal relationships in the form of the ruling ―Lord‖ and the obedient ―subjects‖.
The obedience results on the promise of traditional ―piety‖ and traditional respect and identity
of the ―Lord‖ or the King or the tribal chief. The traditional chief generally makes rules and
decisions at his own pleasure.
Traditional authority has flowed from the top of the organisation to the bottom, from the owners
or stockholders to the board of directors to the president to the vice-presidents to middle
managers to supervisors to workers. Figure 7.1 illustrates this traditional top-down flow of
legitimate authority, with referent, expert, coercive and reward power also influencing the
acceptance of formal authority.
The bases of power or influence do not constrain the use of authority, but rather affect how the
authority is exerted and accepted.

3. Acceptance Theory of Authority:

The acceptance theory of authority presents a contrast to the traditional formal view of
authority. According to the acceptance theory, authority in the ultimate analysis depends on the
acceptance or consent of the people who are managed (subordinates) rather than legitimacy, or
any legal, social or cultural norms.

If the subordinates don‘t accept the command of their superior, the superior cannot be said to
have any authority with reference to them.

Chester Barnad, in 1938, began writing about organisations being ‗co-operative systems‘ and
proposed the ‗acceptance theory or bottom-up theory of authority‖. He argued that management
has only as much authority or power as subordinates is willing to accept and to the extent they
consent to comply with directives.

Barnard suggested that at least four conditions must be met for subordinates to comply with
authoritative communication.

a. The communication is fully understood.

b. At the time of decision, the employee believes the directive is consistent with the objectives of
the organisation.

c. At the time of decision, the employees believe the command is compatible with
personal interests and objectives.

d. The employees believe he or she is physically and mentally capable of complying with
the communication.

4. Charismatic Authority:
The Charismatic Authority rests on personal charisma of a leader who commands respect of his
followers on the basis of his personality and his personal traits such as intelligence and integrity.
This is especially true of religious and political leaders. The followers become highly attached to
the leader partly because the leader‘s goals seem to be consistent with their own needs.

A charismatic leader is a forceful orator and generally has hypnotic effect on his followers who
accept his command and authority. For example, President John. F. Kennedy of America was
known to have such a Charisma and hold on people that many succeeding presidential
candidates tried to imitate his style.

Some organisational leaders are also known to be charismatic and responsible for the success of
their organisations.

5. Competency Theory of Authority:

This is also known as ―technical authority‖ and is implicit in person‘s special knowledge or
skill. For example, when doctor advises you to rest, you accept his ―order‖ because you respect
his knowledge and his skills as a doctor. Again, this order will not get results unless you accept
and
obey and in that sense it rests on acceptance theory of authority.
Responsibility
Meaning of Responsibility:
Responsibility is the task entrusted by managers to subordinates. It means moral commitment to
do the work assigned. A person who performs some work has the responsibility to do it. It is the
obligation to carry out the assigned task. It is the duty or task that a person is assigned to
accomplish. ―Responsibility is the obligation of an individual to carry out assigned activities to
the best of his or her ability‖.
It is ―the obligation to carry out duties and achieve goals related to a position.‖ The
responsibility ends when the person has accomplished the assigned task. If a person is
responsible for the assigned task, he will be committed to perform it effectively.

Responsibility, therefore, must be fixed. It develops the skill, competence, initiative and ability
of a person to his fullest. ―For any given period, an individual will accomplish most when
responsibility for the completion of a definite task is fixed on that individual.‖

Concept of Responsibility:
The following points help to understand the concept of responsibility:
1. It is the obligation of a person to perform the assigned task.

2. It cannot be delegated. Even where a superior delegates authority to perform certain tasks,
he remains responsible to his superiors for those tasks.

3. It must be commensurate with authority. Lack of parity between authority and

responsibility will not achieve the desired results.

4. It flows from bottom to top. Every subordinate is responsible to his superior for completion
of assigned tasks.

5. It can be qualitative or quantitative in nature. Preferably, responsibility should be fixed in

quantitative terms as it helps to frame standards of performance against which performance
can be measured.

Forms of Responsibility:
Responsibility can take two forms:
1. Operating Responsibility, and

2. Ultimate Responsibility.

Operating responsibility is the obligation of a person to perform the assigned tasks. Ultimate
responsibility is the final obligation of the manager who ensures that the task is done efficiently
by the employees. Ultimate responsibility is the final responsibility of the manager who gets the
work done through employees and operating responsibility is the responsibility or obligation of
the person who actually does the work. A manager (ultimate responsibility) gets the work done
through his employees (operating responsibility).
Accountability

 Accountability is the acceptance of responsibility for one's own actions. It implies a

willingness to be transparent, allowing others to observe and evaluate one's
performance.
 Accountability may help invoke confidence from external investors, loyalty from
employees, and better company returns.

Benefits of Accountability
Accountability will be different at every company. However, there are overarching benefits that
accountability can provide should a business be able to appropriately execute accountability
practices:

 Accountability promotes operational excellence. When employees understand that their

work is being looked at and will be evaluated, they are more likely to put forth stronger
effort as it is understood that what they do matters. This is especially true when
employees are rewarded for strong accountability with raises, promotions, and public
recognition.
 Accountability safeguards company resources. Accountability is not limited to just doing
your job; it is the practice of being honest and responsible for your actions in all
situations. When employees are accountable, they are held to a standard that company
resources are to be respected, and employees are less like to mistreat company assets as
they understand there will be consequences for their actions.
 Accountability yields more accurate results. Companies with a standard of
accountability will have boundaries of acceptable deviation. For example, a company
may allow for a certain dollar threshold of financial misstatement due to immateriality.
If a company holds itself accountable to a low threshold of materiality, it will not accept
larger errors, unexplainable variances, or delays in reporting.
 Accountability builds external investor trust. An investor's confidence in a company is
only driven so far based off of the prospect of financial success. Investors must believe
that a company is well-run, honest, competent, and efficient with its resources. If a
company can demonstrate their accountability, they will be seen more favorable,
especially compared against an untrustworthy adversary.

Span Of Control

Span of Control can be defined as the total number of direct subordinates that a manager can
control or manage. The number of subordinates managed by a manager varies depending on the
complexity of the work.

For example, a manager can manage 4-6 subordinates when the nature of work is complex,
whereas, the number can go up to 15-20 subordinates for repetitive or fixed work.
Factors affecting span of control

The span of control means the total number of employees that a manager or superior can
manage. Several factors are taken into consideration before allocating subordinates to a
supervisor.

1. Type of work to be managed

The most crucial factor that affects the span of control and management skills of a manager is
the type of work. If all the subordinates are doing the same job at the same time, then it is easy
for a manager or superior to manage all employees at the same time.

For example, it is easy for a supervisor to manage 50 call executives at the same time because
they are doing similar work at the same time. On the other hand, a professor can take two or a
maximum of four students pursuing a doctorate.

The reason being is that all students work on different research topics, and the professor
can‘t manage all of his students at the same time.

2. Geographical distribution

If the branches of business are located at far geographic locations, then it becomes difficult for a
manager to manage all the executives working at all the branches. Therefore, areas will be
divided into clusters, and different managers are hired to manage each cluster.

In this way, each manager can effectively manage all employees working in small areas. For
example, if a company has its branches all over the world, then all branches can be divided
country wise and country managers can be hired to manage all people working in that area.

3. Administrative tasks performed by a manager

The span of control of a manager reduces if he is required to complete several administrative

tasks daily. For example, an HR manager is required to conduct Face-to-face meetings with
employees, prepare appraisal development plans, prepare job descriptions, conduct interviews of
employees to be hired, preparing employment contracts, design policies, explaining changes in
policies, discussing remuneration benefits.

All of these tasks require efforts at a manager‘s end. Therefore, an HR manager can manage
employees working in one office. Because of this reason, different HR managers are required in
various branches of a company.
4. The capability of the Manager

An experienced manager with a good understanding of the work and having good relationships
with employees can manage a higher number of employees. Whereas, an inexperienced manager
with limited skills can handle a few employees.

5. Capabilities of employees

The span of control of a manager not only depends on the capabilities of a manager but also
depends on the capabilities of employees to be managed. A manager, no matter how much
experienced he is, can handle only a few inexperienced or new employees at one time.

Since employees are required to be trained to do their work efficiently, the manager is expected
to spend a lot of time with each employee. As a result, it becomes difficult for a manager to
manage many subordinates at one time.

On the other hand, a manager can manage fully-trained and experienced employees at the same
time because he is not required to teach every small task to them.

6. Responsibility for other tasks

The span of control of a manager will reduce if he has duties of different jobs on his shoulders.
That means he will be able to dedicate a limited time to manage his subordinates.

For example, a professor is not only required to handle and help his doctorate students, but it is
also necessary for him to dedicate time to his research work and to take theory classes of other
students.

7. Manager‘s value addition

A manager who is also providing training and skill development classes will need a small span
of control as compared to the manager who is exclusively managing his subordinates.

8. Type of business

The span of control of a manager also depends on the kind of business. Different types of
business processes can reduce the span of control of a manager.
Examples

Let us understand the concept of span of control with the help of an example. A retail company
hired Will as an inventory manager. He found that the employees are not designated in the
organization, due to which it became difficult for him to do his job correctly.

Employees who were responsible for performing inventory control work were also responsible
for doing the work of other departments. Because of this, it became difficult for him to do his
work correctly and on time. Therefore, he took this matter to the upper management and
suggested them to define the job role of each employee clearly and asked for a dedicated team
for himself.

As a result of which he got a team of 3 employees who exclusively took orders for him and do
the work related to the inventory control. By having explicit knowledge, he could do work in a
better way and also on time. In this way, the performance of the whole inventory control
department improved.

Types Of Span of Control

It has two types-

 1. Wide span of control

Wide span of control is common for companies with flat organizational structures. This is
because fewer layers are involved between top to bottom levels. Thus, the chain of command is
short.

For example, a company may have two levels of authority, namely only the director and the
manager as division head. The manager supervises 6 employees. Each employee will be
responsible and report to the manager, who in turn will report to the director.

Characteristics of a wide span of control

 More responsibility. One manager manages many subordinates.
 Short structure. The organizational structure involves a few layers.
 Heavier workload. Managers have to supervise many subordinates.
 More delegates. Managers may seek to reduce workload through delegation.
 Decentralized authority. Managers trust subordinates to make decisions.
 Less level of authority. Decision-making involves a short chain of command to get to the top
level more quickly.
 Common in young companies. They have few employees, and therefore their organization size
is small.

Advantages of wide span of control

Faster communication and coordination.

Information from the lowest level gets to the top-level (or vice versa) faster because fewer layers
are involved. It allows for quick coordination and decision-making.

Higher motivation.

Managers delegate less essential decision-making to employees. It can lead to high job
satisfaction and motivation as employees are more involved in making decisions about their
work.

Work flexibility.

Managers reduce oversight of their subordinates through delegation. And they place high trust in
subordinates and are expected to act according to their expectations.
Lower costs.

Managers supervise more people. So, companies need fewer managers and layers in the
organizational structure.

More delegates.

The span of control is wider, and the manager is responsible for more subordinates. Indeed, it
makes their work heavier. But, on the other hand, it should encourage managers to delegate more
because it is impossible to do all the important work on their own.

Job satisfaction.

With more delegation, employees can make more decisions on their own. It can be more
effective because they understand the problems in their job better than the manager. Combined
with more autonomy, they have the freedom to manage their working life, leading to higher job
satisfaction.

Disadvantages of wide span of control

Decreased productivity.

Managers manage many subordinates, and not all managers have the quality to do so. That can
place a heavier workload, lowering their productivity.

Bad decision.

Delegation allows employees to make decisions. However, they may not be good decision-
makers even though they are experts in their fields. In the end, they may make the wrong
decision.

Losing control.

It is difficult to control all the subordinates. Bad decisions by employees can stress managers
out. In addition, individual decisions may not be well-coordinated and tend to be random and
undirected. Finally, it requires more managerial intervention to guide, increasing the manager‘s
workload.

Less effective communication. Communication messages may arrive faster, but the quality may
be poor. That‘s because managers need to convey it to a lot of people. And not all understand;
each may have its own interpretation.
 2. Narrow span of control
Under a narrow span of control, managers have fewer subordinates to supervise. This is common
in tall structure companies involving more levels or layers.

For example, a company has three levels of authority: directors, division heads, and managers.
The division head oversees three managers. Meanwhile, the manager is responsible for two
subordinates.

Characteristics of narrow span of control

 Less responsibility. One manager manages a few subordinates.
 Long structure. The organizational structure involves many layers.
 Less workload. Managers have to supervise and manage a few subordinates, leading to
tight control.
 Fewer delegates. Managers may try to make decisions independently and delegate less
to employees.
 Centralized authority. Decisions are concentrated at higher levels, where the higher the level,
the higher the decision-making power.
 Longer levels of authority. Decision-making involves a long chain of command, so it can
be slower to get to the top level or vice versa.
 Common in established companies. They have many employees, and therefore the size of
their organization is large.

Advantages of narrow span of control

More control. Managers can supervise better because they supervise fewer subordinates. In
addition, to reduce tighter supervision, they may use a more personal approach, which is more
likely to be done with fewer subordinates.

Better productivity. The manager‘s workload is less due to supervising fewer subordinates. In
addition, decision-making is distributed over more layers. That should lead to higher
performance and productivity.

Better decision. Managers take a more dominant role in making decisions than employees. Thus,
they can make better, more coordinated decisions than delegating them to employees.

More effective communication. Fewer subordinates allow for higher quality communication
and feedback. As a result, managers can more effectively convey messages to or accommodate
their aspirations.
Disadvantages of narrow span of control
Lowers morale. If managers supervise too closely, it can demoralize employees. A personal
approach may be effective in some cases to prevent that. But, not all managers have the quality
to do it.

Greater cost. Companies need more managers to supervise fewer employees. Thus, it consumes
a larger cost.

Slower communication and coordination. Communication quality may be good under a narrow
span of control. But, it can take more time to get from the lowest to the top-level (or vice versa)
because it has to go through many layers. As a result, decision-making at the top level tends to be
slow.

LINE AND STAFF AUTHORITY

Line Authority

Line authority is the type of authority that reflects superior-subordinate relationships. This is
the most fundamental authority in an organization characterized by power of decision making.
Line authority is the predominant component used in companies with a line organizational
structure where direct lines of authority flow from top management, and the lines
of responsibility flow in the opposite direction.

Line authority is a top-down approach to management where the decisions are made by the top
management and communicated to the lower level staff in a hierarchy (a system in which
employees are ranked according to relative status). Line managers are assigned to manage teams
that operate with the intention of achieving an intended result. Organizations with line authority
allow better exertion of unified control.

Line authority is a less complicated way of allocating responsibility since every employee is
clear regarding his or her position and clear lines of authority and responsibility is allocated to
them. However, since this is a top down approach, it often results in one-way communication.
Decisions are taken by the top management and complaints and suggestions of lower level staff
may not be communicated back to the top authority. Lower level staff are closer to the
customers. Thus, their experience and suggestions should be incorporated in decision-making.
Figure 01: Organizational hierarchy is directly linked with line authority

Staff Authority

Staff authority refers to the right to advice on improving the effectiveness for line employees in
performing their duties. Staff personnel are generally independent employees who do not
report to line managers, and they can be external staff who are temporarily employed to
perform a particular task. These are highly specialized individuals, thus are employed for their
expert knowledge and the ability to add value to the company.

Staff personnel may not be employed by all types of organizations. Since they are highly
specialized, the cost of recruiting them is higher. Thus, they may not be affordable for small
organizations. However, the larger the organization, the greater the need and ability to employ
staff personnel since there is a need for expertise in diversified areas. Thus, the size of the
organization is a significant factor in determining whether staff personnel should be employed.

Types of Staff

The staff position established as a measure of support for the line managers may take the
following forms:

Personal Staff: Here the staff official is attached as a personal assistant or adviser to the line
manager. For example, Assistant to managing director.
 Specialized Staff: Such staff acts as the fountainhead of expertise in specialized areas like R &
D, personnel, accounting etc.

General Staff: This category of staff consists of a set of experts in different areas who are
meant to advise and assist the top management on matters called for expertise. For example,
Financial advisor, technical advisor etc.

Difference between Line Authority and Staff Authority

Line Authority vs Staff Authority

Line authority is the type of authority that reflects Staff authority refers to the right to advice on
superior-subordinate relationships characterized by improving the effectiveness for line employees
the power of decision making. in performing their duties.

Main Responsibility

Line managers are responsible for directing, Main responsibility of line staff is to provide
motivating and supervising employees towards expert advice and support to line staff to
achieving organizational goals. allow smooth flow of operations.

Specialization

Level of specialization is low in line authority. High specialization is seen in staff authority.

Adaptation to Environment

Line authority is mostly suitable for small and Staff authority can bring wider benefits for
medium scale organizations. large- scale organizations.

Centralization
Centralization refers to the process in which activities involving planning and decision-making
within an organization are concentrated to a specific leader or location. In a centralized
organization, the decision-making powers are retained in the head office, and all other offices
receive commands from the main office. The executives and specialists who make critical
decisions are based in the head office.

Similarly, in a centralized government structure, the decision-making authority is concentrated at

the top, and all other lower levels follow the directions coming from the top of the organization
structure.
Advantages of Centralization

An effective centralization offers the following advantages:

1. A clear chain of command

A centralized organization benefits from a clear chain of command because every person within
the organization knows who to report to. Junior employees know who to approach whenever
they have concerns about the organization.

On the other hand, senior executives follow a clear plan of delegating authority to employees
who excel in specific functions. The executives also gain the confidence that when they delegate
responsibilities to mid-level managers and other employees, there will be no overlap. A clear
chain of command is beneficial when the organization needs to execute decisions quickly and in
a unified manner.

2. Focused vision

When an organization follows a centralized management structure, it can focus on the fulfillment
of its vision with ease. There are clear lines of communication and the senior executive can
communicate the organization‘s vision to employees and guide them toward the achievement of
the vision.

In the absence of centralized management, there will be inconsistencies in relaying the message
to employees because there are no clear lines of authority. Directing the organization‘s vision
from the top allows for a smooth implementation of its visions and strategies. The
organization‘s stakeholders such as customers, suppliers, and communities also receive a
uniform message.

3. Reduced costs

A centralized organization adheres to standard procedures and methods that guide the
organization, which helps reduce office and administrative costs. The main decision-makers are
housed at the company‘s head office or headquarters, and therefore, there is no need for
deploying more departments and equipment to other branches.

Also, the organization does not need to incur extra costs to hire specialists for its branches since
critical decisions are made at the head office and then communicated to the branches. The clear
chain of command reduces the duplication of responsibilities that may result in additional costs
to the organization.

4. Quick implementation of decisions

In a centralized organization, decisions are made by a small group of people and then
communicated to the lower-level managers. The involvement of only a few people makes the
decision-making process more efficient since they can discuss the details of each decision in one
meeting.

The decisions are then communicated to the lower levels of the organization for implementation.
If lower-level managers are involved in the decision-making process, the process will take
longer and conflicts will arise. That will make the implementation process lengthy and
complicated because some managers may object to the decisions if their input is ignored.

5. Improved quality of work

The standardized procedures and better supervision in a centralized organization result in

improved quality of work. There are supervisors in each department who ensure that the outputs
are uniform and of high quality.

The use of advanced equipment reduces potential wastage from manual work and also helps
guarantee high-quality work. Standardization of work also reduces the replication of tasks that
may result in high labor costs.

Disadvantages of Centralization

The following are the disadvantages of centralization:

1. Bureaucratic leadership

Centralized management resembles a dictatorial form of leadership where employees are only
expected to deliver results according to what the top executives assign them. Employees are
unable to contribute to the decision-making process of the organization, and they are merely
implementers of decisions made at a higher level.

When the employees face difficulties in implementing some of the decisions, the executives will
not understand because they are only decision-makers and not implementers of the decisions.
The result of such actions is a decline in performance because the employees lack the motivation
to implement decisions taken by top-level managers without the input of lower-level employees.

2. Remote control

The organization‘s executives are under tremendous pressure to formulate decisions for the
organization, and they lack control over the implementation process. The failure of executives to
decentralize the decision-making process adds a lot of work to their desks.

The executives suffer from a lack of time to supervise the implementation of the decisions. This
leads to reluctance on the part of employees. Therefore, the executives may end up making too
many decisions that are either poorly implemented or ignored by the employees.
3. Delays in work

Centralization results in delays in work as records are sent to and from the head office.
Employees rely on the information communicated to them from the top, and there will be a loss
in man-hours if there are delays in relaying the records. This means that the employees will be
less productive if they need to wait long periods to get guidance on their next projects.

4. Lack of employee loyalty

Employees become loyal to an organization when they are allowed personal initiatives in the
work they do. They can introduce their creativity and suggest ways of performing certain tasks.
However, in centralization, there is no initiative in work because employees perform tasks
conceptualized by top executives. This limits their creativity and loyalty to the organization due
to the rigidity of the work.

Factors Determining Centralization of Authority:

The management of an undertaking may centralize decision-making for the following reasons:
1. Achieving Uniformity of Action:

Uniformity of action is possible when decision-making authority is centralized. The decisions

taken at the top will be implemented at every level. There may be more than one unit under the
same management and it may be desired to have same types of policies and procedures. If the
units take their independent decisions then uniformity of action will not be achieved. Under such
situations centralized decision-making will enable unity of action.

2. Facilitating Integration:
There may be a need to integrate all operations of the enterprise for achieving common
objectives. Centralized management will facilitate integration of activities by devising common
policies and programmes.

3. Promoting Personal Leadership:

The small enterprises grow on the strength and capability of their manager. Even big concerns
too depend upon the qualities of their managers during initial periods. The whole authority will
be in the hands of the chief executive. This will result in quick decisions and imaginative
actions.
The manager will acquire more and more skill and experience which will promote their personal
leadership.

4. Handling Emergencies:

Under uncertain business conditions there is a need to take emergency decisions. Sometimes the
existence of small- scale units is endangered if timely actions are not taken. Centralized authority
will enable quick and timely decisions from short-term as well long-term perspective.

Decentralization

Decentralization refers to a specific form of organizational structure where the

top management delegates decision-making responsibilities and daily operations to middle and
lower subordinates. The top management can thus concentrate on taking major decisions with
greater time abundance. Business houses often feel the requirement of decentralization to continue
efficiency in their operation. Today, we are going to take a look at the basic advantages and
disadvantages of decentralization from an organizational point of view.

Advantages of Decentralisation

Motivation of Subordinates
Decentralization improves the level of job satisfaction as well as employee morale, especially
amongst the lower level managers.

Furthermore, it strives to satisfy the varying requirements for participation, independence, and
status. Decentralization also promotes a spirit of group cohesiveness and spirit.

Growth and Diversification

Under decentralization, every single product division attains sufficient autonomy to exercise their
creative flair. In this way, the top-level management can create healthy competition amongst
different divisions.

While carrying out a discussion on the advantages and disadvantages of decentralization, it is

imperative to note that it aids subordinates in exercising their own judgment.

They even develop managerial skills and help in solving the succession problem which ultimately
ensures the growth and continuity of an organization.
Quick Decision Making
Another important pointer in the advantages and disadvantages of decentralization is that decisions
are taken and executed by authorized personnel. This, in turn, results in faster and
accurate decisions which are well aware of the real scenario.

Efficient Communication
The wider span of management under decentralization leads to fewer hierarchical level. This makes
the communication system more efficient as intimate relationships develop between superiors and
subordinates.

Ease of Expansion
Decentralization can add inertia to the expansion process of a growing business. This might often
result in the opening of new business units in varying geographical locations.

Decentralization unleashes the fullest potential of the organization and can react easily to area-
specific requirements.

Better Supervision And Control

Lower level managers can alter production schedules and work assignments with adequate
authority. They can even take disciplinary actions and recommend the promotion of their peers.

This, in turn, leads to greater efficiency in supervision. Performance evaluation of each

decentralized unit helps in exercising adequate control.

Satisfaction of Human needs

Decentralization serves as an important tool for satisfying our basic need of independence, power,
prestige, and status. A cadre of satisfied manager is build up by this satisfaction as they feel
responsible towards the company‘s betterment.

Relief to top executives

Top executives can focus more on more on the executive level work like planning and decision
making if the lower level employees take all the responsibilities on their own. This relieves their
workload which eventually is for the greater good of the organisation.
Disadvantages of Decentralization

Difficult To Co-Ordinate
While talking about the advantages and disadvantages of decentralization, it is imperative to note
that substantial autonomy is enjoyed by every single division. This, in turn, makes it difficult to
coordinate the overall activity.

External Factors
The trade union movement, market uncertainties, and government intervention might make it
impossible to benefit the most out of decentralization.

Narrow Product Lines

Decentralized product lines need to be adequately broad so that autonomous units can flourish
within the same. This might not be of much help in small business houses having narrow product
lines. Lower levels in the organization also lack competent managers thus adding to the difficulty
quotient.

Expensive
In decentralisation, every employee takes responsibility for the better of the organisation so they
work harder to achieve all the organisational objective. In return, they have to be paid more which
sometimes proves to be very expensive for the company.

Factors affecting decentralization

Several factors explain why companies prefer decentralization over centralization.

Organizational size. Larger organizations are likely to need more decentralization. Operation is
more complex. Thus, it is impossible to rely solely on top management for decision-making.

Scope of operation. Companies with many different product lines are likely to delegate more
authority. Each line is managed by a separate division. And, each can make decisions about their
work area, which are independent of each other.

A similar case is a company with many business units in different geographic areas, such as a
multinational company. Individual business units in different geographies make relevant
decisions according to their local area.

Each often faces a different business environment, thus requiring a different approach. Thus,
decentralizing allows business units to make informed decisions.
 Control system. Decentralization requires an adequate control system. Thus, top management
can monitor performance and accountability at each level. In addition, it is important to
coordinate every decision. Thus, it is in line with the company‘s goals and strategies.

Manager quality. When management competencies are relatively uniform, and there are no gaps,
decentralization can be an option. Each has the capacity and ability to be an effective decision-
maker.

On the other hand, if lower managers have insufficient competence, upper managers are likely to
take on more roles. Delegating authority can lead to bad decisions, putting the company at risk.

Organization Structure
Organizational structure (OS) is the systematic arrangement of human resources in an
organization so as to achieve common business objectives. It outlines the roles and
responsibilities of every member of the organization so that work and information flow
seamlessly, ensuring the smooth functioning of an organization.Org

Purpose of Organizational Structure:

 Divides work to be done in explicit occupations and dept.

 Assigns undertakings and obligations related with singular employments.

 Coordinates assorted authoritative assignments.

 Establishes relationship people, gatherings and divisions.

 Established formal lines of power.

 Allocates hierarchical assets.

 Clusters occupations into units

anization Structure

Types Of Organisational Structure

1.Functional structures

Functional structures are those in which team members are grouped into departments based on
their shared skill sets, specializations, accountabilities, and goals. Communication and decision
making are improved by both physical proximity and sharing of tools and information. Examples
of functional structure include information technology (IT) and accounting-based organizations.
 Advantages:
 Employees who work in such a structure are well organized and grouped according to tasks
and functions

 Employees focus on specific work or mission

Disadvantages:
 This structure lacks teamwork, communication and discussion

 This structure also lacks creativity and it limits the employees‘ ability to develop and improve

2. Divisional structures

Divisional structure focus their attention and activities around specific groups (e.g., markets,
goods and services, customer demographics, etc.). This type of organizational chart allows teams
to collaborate on broad, shared organizational goals while maintaining a primary focus on their
respective, specific goals. Examples of divisional structure include geographical (e.g., teams
develop similar products with localized customizations for different markets) and product-based
(e.g., different divisions all focus on a specific product within a broader product line).

Advantages:
 It allows employees autonomy

 Each department operates as an independent company that work on its own aspects &
divisions and specify budgets to control its own resources

 It offers flexibility by allowing each employee to operate as if its own company, reporting
to CEO, one or two upper supervisors

Disadvantages:
 Employees working in different departments, but the same function are unable to
communicate well

 Divisional structure may have tax implications by raising issues with accounting practices

3. Matrix structures
 Matrix structures combine functional structures with divisional structures in a grid
arrangement that combines vertical functions (e.g., organizational roles and titles) with
horizontal divisions (e.g., directors of various product lines, projects, etc.). A matrix
organization decentralizes decision-making and provides teams with increased autonomy
while simultaneously
improving cross-functional collaboration to boost overall productivity and encourage innovative
approaches to problem solving.

Advantages:
 Sharing knowledge between the employees across different functional divisions

 Attaining strong communicational skills & understanding roles

 Broadening employees‘ skills & knowledge, thus increasing professional company growth

Disadvantages:
 Creating confusion and conflict between supervisors and bosses about the issue to be reported

 Creating confusion regarding employees‘ job roles if not clearly defined

4. Hybrid structures

Hybrid structures are similar to matrix structures, but eschew the grid-style org chart in favor of
a hierarchical arrangement where business activities can serve either functional or divisional
purposes. This popular approach allows for collaborative sharing of data and resources while
preserving division-specific specializations.

While the ―big four‖ may be the most common, companies around the world also use four
other other types of organizational structure which are more organic in nature: Process,
Circular, Flat, and Network.

5. Process structures

Process structures concentrate on end-to-end workflows for specific processes. Their procedures
and policies seek to optimize the business activities performed by tracking how each different
business activity interacts with the others within the hierarchy, as well as how each specific
process itself is conducted. This improves adaptability and flexibility to meet changing demand
and market conditions.

Forms and Characteristics of an Organizational Structure

Whether small or large, each company must consider the way in which its organization is
designed and structured. To operate effectively and efficiently, a company needs a formal
system of communication, decision-making and task-completion that matches the needs of the
organization.

A small company, for example, may only need a simple organizational design. As a company
grows and becomes more complex, the organizational structure might need to change. As such,
organizational design is often considered a continuous process.

Characteristics of an effective organizational structure including clearly defined roles of

authority, detailed job descriptions, objective benchmarks and effective two-way
communications between departments and between management and staff.

Organizing by Work Specialization

Work specialization, also referred to as the division of labor, is the degree to which specific
tasks within an organization are broken down into individual jobs. When work specialization is
extensive, a company may assign a single task to an individual as part of a larger project.

Often, this type of environment creates repetitive, narrow, smaller tasks. For example,
assembly line factories may designate a single task, such as running a machine or welding a
part, for the completion of an end product. On the other hand, companies may decide to
enlarge jobs for the purpose of challenging employees or giving them additional
responsibilities.

Using Traditional Departmentalization

Departmentalization describes the way in which an organization groups different jobs or

segments of its company together, explains Business Jargons. For example, a functional
organizational structure groups jobs according to function, such as marketing, sales, customer
service and manufacturing.

An organization that uses a divisional approach groups according to geography, such as a

western and eastern region. Other forms of departmentalization include product, customer or
market departmentalization.

Hierarchy of Authority

One of the most common forms of small-business management models use a hierarchical
organizational structure, which uses a top-down approach, according to Accounting Tools.
Hierarchy of authority–or chain of command–refers to an organization's line of authority and
describes who reports to whom. Related to hierarchy of authority is the span of control, which
refers to the number of subordinates over which managers have authority.

Organizational structures can either be flat or tall. Flat structures have fewer levels of authority
and wide spans of control. For example, a small startup company may position the CEO at the
top, who has authority over all other company employees. Tall organizational structures, such
 as larger companies and corporations, have many levels of authority and narrow spans of
control.

Line and Staff Relationships

Line and staff relationships extend throughout the organizational structure and describe the
way people are involved in the organization. Line managers are responsible for achieving
company objectives or goals and include those in the direct line or chain of command.

Staff employees or managers give advice or make recommendations to line managers and
support the overall operations. In retail corporations, for example, line employees may include
department managers, store managers, the vice president and president of operations, and the
board of directors.

In contrast, a scientific research organization may have scientists and researchers as line
managers and administrative employees as staff employees.

Decentralization and Centralization

Decentralized organizational structures spread decision-making responsibilities to lower-level

managers and some non-managerial employees. In contrast, a centralized organization
maintains control and decision-making responsibilities near the top of the company.

For example, companies that have franchise operations may centralize control at company
headquarters. Whether a company is decentralized or centralized, however, may depend on
several factors, such as how many hierarchical levels the organization has or the extent to
which a company is geographically dispersed.

Importance of Organizational Structure:

The following are the importance of organizational structure:

1. Away from of control, obligation relationship workplaces way better comprehension of

the targets and the procedures of the undertaking.

2. Various leveled structure sets down the two channels and the cases of correspondence.
It empowers suitable organization.

3. It helps with arranging works out of the portion parts so as to empower the affirmation of
the goals of the affiliation.

4. It makes a difference in advancement and broadening of the works out of an affiliation.

5. Laborers back in affiliation increase their support and move forward their will to work.
It enlivens graduation and inventive thinking.
6. Utilization of approaches and the achievement of the targets gotten to be less complex. 7. It
thwarts duplication of capacities and makes it conceivable to achieve most extraordinary creation
with the slightest endeavors. In this way to achieve these preferences, an definitive structure
need to be arranged well with care.
 Unit-3

Functions of Management

1. Planning

Planning is the fundamental management function, which involves deciding beforehand, what is
to be done, when is it to be done, how it is to be done and who is going to do it. It is
an intellectual process which lays down an organisation‘s objectives and develops various
courses of action, by which the organisation can achieve those objectives. It chalks out exactly,
how to attain a specific goal.

Thus, planning is deciding in advance what is to be done and how it is to be done to achieve the
desired objectives. It enables managers to achieve great things by envisioning a pathway from
concept to reality. It is essential for every organization to grab opportunities created by the
changing environment to sustain itself in business

Definition
Planning is the process by which managers define goals and take necessary steps to ensure that
these goals are achieved.(According to Richard Steers)
 Characteristics of Planning

1. Managerial function: Planning is a first and foremost managerial function provides the base for
other functions of the management, i.e. organising, staffing, directing and controlling, as they
are performed within the periphery of the plans made.
2. Goal oriented: It focuses on defining the goals of the organisation, identifying alternative
courses of action and deciding the appropriate action plan, which is to be undertaken for
reaching the goals.
3. Pervasive: It is pervasive in the sense that it is present in all the segments and is required at
all the levels of the organisation. Although the scope of planning varies at different levels and
departments.
4. Continuous Process: Plans are made for a specific term, say for a month, quarter, year and so
on. Once that period is over, new plans are drawn, considering the organisation‘s present and
future requirements and conditions. Therefore, it is an ongoing process, as the plans are
framed, executed and followed by another plan.
5. Intellectual Process: It is a mental exercise at it involves the application of mind, to
think, forecast, imagine intelligently and innovate etc.
6. Futuristic: In the process of planning we take a sneak peek of the future. It encompasses
looking into the future, to analyse and predict it so that the organisation can face future
challenges effectively.
7. Decision making: Decisions are made regarding the choice of alternative courses of action
that can be undertaken to reach the goal. The alternative chosen should be best among all, with
the least number of the negative and highest number of positive outcomes.
Importance of Planning

Planning is definitely significant as it directs us where to go, it furnishes direction and decreases
the danger of risk by making predictions. The significant advantages of planning are provided
below:

 Planning provides directions: Planning assures that the objectives are certainly
asserted so that they serve as a model for determining what action should be taken and in
which direction. If objects are well established, employees are informed of what the
company has to do and what they need do to accomplish those purposes.
 Planning decreases the chances of risk: Planning is an activity which permits a
manager to look forward and predict changes. By determining in prior the tasks to
be completed, planning notes the way to deal with changes and unpredictable
effects.
 Planning decreases overlapping and wasteful activities: Planning works as the
foundation of organising the activities and purposes of distinct branches,
departments, and people. It assists in avoiding chaos and confusion. Since planning
guarantees precision in understanding and action, work is conducted on easily
without delays.
 Planning encourages innovative ideas: Since it is the primary function of
management, new approaches can take the form of actual plans. It is the most
challenging project for the management as it leads all planned actions pointing to
growth and of the business.
 Planning aids decision making: It encourages the manager to look into the future
and make a decision from amongst several alternative plans of action. The manager
has to assess each option and pick the most viable plan.
Nature of Planning

Planning is an intellectual activity- to decide the things to be done in future. It involves use of
mental skills for the achievement of group objective Planning involves selection among
alternative. Planning is a choice activity planning process involves mining of alternatives in
selection of the best alternative.

Planning is forward-looking planning –

It means looking ahead it is carried out to achieve some objectives in future. It may involve
forecasting of future event such as customer demand, competition, and government policies.

Planning related to objective-

Every plan that comprised the objective to be attained in the future and these steps necessary to
reach them managerial planning seeks to achieve a consistent coordinator, structure of operation,
focused on desire ends.

Planning is the most basic of all management functions-

Managerial operation and organizing, staffing, leading and controlling are design to support the
accomplishment of organisation objective planning location of all the other managerial function.

Planning is a necessary function of management-

Planning is a function of all managers all the character and planning will play very with their
nature of policy and plan outlined by the superior.

Significance of planning

Focus is on attention on objective: -

All planning is directed towards achieving the Enterprises objective and focuses attention on
these objectives.

Planning ensures economic cooperation –

Planning needs lots of mental exercise, which is directed towards achieving efficient operation in
the Enterprise substitute joint directed efforts for a co-ordinate piecemeal activity this helps in
better utilization of resources and then minimizing costs.

Reduces uncertainty –

Planning helps in reducing uncertainty of future because it involves anticipation of each element
effective planning is a result of deliberate thinking based on forecast and figures.

Facilitate control

Planning helps the manager and performing their function of control planning and control are
inseparable in the sense that unplanned action cannot be completed the predetermined deviations
from plan.

Planning Process
As planning is an activity, there are certain reasonable measures for every manager to follow:
(1) Setting Objectives

 This is the primary step in the process of planning which specifies the objective of
an organisation, i.e. what an organisation wants to achieve.
 The planning process begins with the setting of objectives.
 Objectives are end results which the management wants to achieve by its operations.
 Objectives are specific and are measurable in terms of units.
 Objectives are set for the organisation as a whole for all departments, and then
departments set their own objectives within the framework of organisational
objectives.
Example:
A mobile phone company sets the objective to sell 2,00,000 units next year, which is double
the current sales.
(2) Developing Planning Premises

 Planning is essentially focused on the future, and there are certain events which
are expected to affect the policy formation.
 Such events are external in nature and affect the planning adversely if ignored.
 Their understanding and fair assessment are necessary for effective planning.
 Such events are the assumptions on the basis of which plans are drawn and are known
as planning premises.
Example:
The mobile phone company has set the objective of 2,00,000 units sale on the basis of
forecast done on the premises of favourable Government policies towards digitisation of
transactions.
(3) Identifying Alternative Courses of Action

 Once objectives are set, assumptions are made.

 Then the next step is to act upon them.
 There may be many ways to act and achieve objectives.
 All the alternative courses of action should be identified.
Example:
The mobile company has many alternatives like reducing price, increasing advertising and
promotion, after sale service etc.
(4) Evaluating Alternative Course of Action

 In this step, the positive and negative aspects of each alternative need to be evaluated
in the light of objectives to be achieved.
 Every alternative is evaluated in terms of lower cost, lower risks, and higher
returns, within the planning premises and within the availability of capital.
Example:
The mobile phone company will evaluate all the alternatives and check its pros and cons.
(5) Selecting One Best Alternative

 The best plan, which is the most profitable plan and with minimum negative effects,
is adopted and implemented.
 In such cases, the manager‘s experience and judgement play an important role
in selecting the best alternative.
Example:
Mobile phone company selects more T.V advertisements and online marketing with great
after sales service.
(6) Implementing the Plan

 This is the step where other managerial functions come into the picture.
 This step is concerned with ―DOING WHAT IS REQUIRED‖.
 In this step, managers communicate the plan to the employees clearly to help convert
the plans into action.
 This step involves allocating the resources, organising for labour and purchase of
machinery.
Example:
Mobile phone company hires salesmen on a large scale, creates T.V advertisement, starts
online marketing activities and sets up service workshops.
(7) Follow Up Action

 Monitoring the plan constantly and taking feedback at regular intervals is called
follow- up.
 Monitoring of plans is very important to ensure that the plans are being
implemented according to the schedule.
 Regular checks and comparisons of the results with set standards are done to ensure
that objectives are achieved.
Example:
A proper feedback mechanism was developed by the mobile phone company throughout its
branches so that the actual customer response, revenue collection, employee response, etc. could
be known

Types Of Planning
 1. Strategic Plan: Strategic plan is also called grand plan. It has a strong external
orientation and covers the total organization. It begins by asking question
regarding the purpose or mission and the operation to which an organization is
devoted. Senior executives are responsible for the development of these plans.
2. Tactical plan: Tactical plans translate broad strategic goals and plans into specific
goals and plans. It mainly focuses on functional areas of the organization. Middle
level managers who are responsible for major division or branches in an
organization develop the tactical plan. Tactical plans focus on the major actions
that a unit must take to fulfill its parts of the strategic plan.
3. Operational plan: Operational plans identify the specific procedures and process
required at the lower level of the organization. These plans are prepared by
frontline managers and supervisors. It mainly focuses on daily activities and
routine jobs. They translate the tactical objectives into specific operational activities
to be assigned to individual or groups.

Besides above classification, business plans are also classified according to the time period
for which they are established, they are called, long-range, medium range, and short range
plans. Similarly, plans are further classified according to their frequency of use, they are
known as standing plans (such as, policy, procedure rule), and single use plan, (such as,
program, project, budget etc)

Hierarchy of plans:

The hierarchy of the plans is as follows

1. Vision: An organization’s vision is a non-specified directional and motivational

guidance for the entire organization. Vision has emotional appeal that
encourages people to commit full energies and mind to achieve it.
 2. Mission: An organization’s mission is the purpose and philosophy that will derive
organization over a longer period of time usually fine to ten year. Mission
provide reason for being in the business
3. Goals: Goals provide direction to the activities of an organization. They state
how the mission will be accomplished over the next year or two. They are the
targeted ends that management wants to reach.
4. Objectives: It is a specific statement of what will be done to achieve a goal.
Objectives are more specified and are measurable than goals. Objectives
are expected to be SMART (i.e., specific, measurable, attainable, rewarding
and Timed).
5. Strategies: Strategized are the courses of action which allocate resources in
the effective and efficient way for achieving objectives.

Methods of planning:

Managers operating at different management levels are involved in planning. According to

the nature and size of an organization, method of planning varies. Generally, there are
three method of planning. They are:

1. Top-Down Planning: It is also called centralized planning method. Under this

method, the central office or headquarter of an organization develops and
provide guidelines, which include, business definition, mission statement,
economic and social objectives, etc. to other branches and levels accordingly.
2. Button-Up Planning: It is also called decentralize planning method. Under this
method middle and lower level management drafted the plan and presented to the
higher level management for its final approval. Discussion and meeting are held
to make critical review and final approval of the plan at the top management level.
This method encourages in participation of lower management in plan formation
and ensures their full commitment.
3. Management by Objectives (MBO): MBO is powerful management tool and is
considered as a strong method of planning. Under this method all levels of
management are involve in goal setting process. The value of MBO is that it
communicates the mission, goals, and objectives of the organization to the
lower level managers. Lower level manager’s work out their plans and target in
consultation with their subordinates. These are sent o higher levels for
consideration. This involvement of employees increases their motivation and
commitment to their work.

Organizing

Organizing is the second key management function, after planning, which coordinates human
efforts, arranges resources and incorporates the two in such a way which helps in the
 achievement of objectives. It involves deciding the ways and means with which the plans can be
implemented.

It entails defining jobs and working relationships, assigning different tasks associated with the
plans, arranging and allocating resources, design a structure which distinguishes duties,
responsibilities and authorities, scheduling activities, in order to maintain smoothness and
effectiveness in operations.

Characteristics/Nature of Organizing

Organizing has the following characteristics:

 Division of Labour: Work is assigned to the employee who is specialised in that work.
 Coordination: Different members of the organization are given different tasks to perform when
all the tasks are put together logically and sequentially, it results in the objectives, so
coordination is required.
 Objectives: Objectives need to be specifically defined.
 Authority-Responsibility Structure: For an effective authority responsibility structure,
the position of each manager and executive is specified, as per the degree of the authority
and responsibility assigned to them, while performing the duties.
 Communication: The techniques, flow and importance of communication must be known to
all the members.

Process of Organizing

Organizing is the core function which binds all the activities and resources together in a
systematic and logical sequence. It encompasses a number of steps which are pursued to achieve
organizational goals. Now, we will discuss those steps in detail:

1. Identification and division of work: Organizing process begins with identifying the work
and dividing them as per the plans. Basically, the work is classified into different manageable
activities, to avoid redundancy, and sharing of work is encouraged.
2. Departmentalization: After classifying the work into different activities, the activities having a
similar nature are grouped together. This process is called as departmentalization which
facilitates specialization and forms the basis for creating departments.
3. Assignment of the task: After the formation of departments, employees are placed in different
departments under a manager, called as a departmental manager. Thereafter, employees are
assigned the jobs as per their skills, qualifications and competencies. For the effectiveness of
the performance, the manager must ensure that there is a proper match between the job and the
incumbent, i.e. the right person has to be placed at the right job.
4. Establishment of organizational hierarchy: Deployment of work is not all, the employees
must be aware of whom they have to report and who can give them orders. Hence, work
relationships need to be established clearly, which helps in the creation of a hierarchical
structure of the organization.
5. Provision of resources to the members: Arrangement and deployment of resources such
as money, materials, supplies, and machine, etc. which are important to carry out day to day
operations of the organization.
6. Coordination of efforts and scheduling of activities: The final step to this process is the
coordination of efforts and scheduling the activities in a logical and systematic manner so that
the common objectives can be achieved effectively.
Importance/Significance of Organizing

Organizing is integral to management as it facilitates the smooth functioning of the enterprise.

The importance of organizing is as under:
 Advantage of Specialization: Organizing helps in the classification of jobs systematically
amongst the workforce, which helps in the reduction of workload, as well as improved
productivity. This is because the organization will get the benefit of specialization
wherein workers will perform specific work on a regular basis, according to their
competency.
 Describes work relationships: The definition of work relationships describes the flow of
communication and determine the superior-subordinate relationship. This removes confusion
and chaos, in getting orders and instructions.
 Effective utilization of resources: Organizing function ensures the best possible utilization of
resources whether it is human, material, financial or technical. This is because jobs are
assigned to the employees which avoid overlapping and duplication of work.
 Adaptation to change: Organizing process helps the organization to survive and adapt
the changes, by making substantial changes in the strategies, hierarchy, relationships, etc.
 Development of personnel: Organising encourages creativity in executives. Delegation of
authority reduce their workload and they get time to identify new methods to perform the
work. It also enables them to explore new areas for their growth and development.
In a nutshell, with organizing the manager brings order out of disorder, removes confusion with
respect to work and responsibility, and frames an ideal environment where all the members of
the organization can work in tandem.

Staffing

Staffing can be defined as one of the most important functions of management. It involves the
process of filling the vacant position of the right personnel at the right job, at right time.
Hence, everything will occur in the right manner.

Therefore it is very important that each and every person should get right position in the
organization so as to get the right job, according to their ability, talent, aptitude, and specializations
so that it will help the organization to achieve the pre-set goals in the proper way by the 100%
contribution of manpower. Thus it can be said that it is staffing is an essential function of every
business organization.

Characteristics of Staffing

People-Centered
Staffing can broadly view as people-centered function and therefore it is relevant for all types of
organization. It is concerned with categories of personnel from top to bottom of the organization.

 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 personal.

 Professionals (eg.- Chartered Accountant, Company Secretary)
Responsibility of Manager
Staffing is the basic function of management which involves that the manager is continuously
engaged in performing the staffing function. They are actively associated with the recruitment,
selection, training, and appraisal of his subordinates. Therefore the activities are performed by the
chief executive, departmental managers and foremen in relation to their subordinates.

Human Skills
Staffing function is mainly concerned with different types of training and development of human
resource and therefore the managers should use human relation skill in providing guidance and
training to the subordinates. If the staffing function is performed properly, then the human relations
in the organization will be cordial and mutually performed in an organized manner.

Continuous Function
Staffing function is to be performed continuously which is equally important for a new and well-
established organization. Since in a newly established organization, there has to be recruitment,
selection, and training of personnel. As we compare that, the organization which is already a
running organization, then at that place every manager is engaged in various staffing activities.

Nature Of Staffing:

i. People-oriented – Staffing deals with efficient utilization of human resources in an

organization. It promotes and stimulates every employee to make his full contribution
for achieving desired objective of the organization.

ii. Development-oriented – It is concerned with developing potentialities of personnel in the

organization. It develops their personality, interests, and skills. It enables employees to get
maximum satisfaction from their work. It assists employees to realize their full potential. It
provides opportunities to employees for their advancement through training, job education,
etc.

iii. Pervasive function – Staffing is required in every organization. It is a major sub-system in the
total management system that can be applied to both profit making and non-profit making
organizations. It is required at all levels of organization for all types of employees.

iv. Continuous function – Staffing is a continuous and never-ending process. It requires constant
alertness and awareness of human relations and their importance in every operation.
v. Human objectives – It develops potentialities of employees so that they can derive
maximum satisfaction from their work. It creates an atmosphere where employees willingly
cooperate for the attainment of desired organizational goals.

vi. Individuals as well as group-oriented – Staffing is concerned with employees both as

individuals and as group in attaining goals. It establishes proper organizational structure to
satisfy individual needs and group efforts. It integrates individual and group goals in such
a manner that the employees feel a sense of involvement towards the organization.

vii. Developing cordial working environment – It develops a cordial environment in the

enterprise where each employee contributes his best for the achievement of organizational
goals. It provides a very comfortable physical and psychological working environment.

viii. Interdisciplinary nature – Staffing has its roots in social sciences. It uses concepts drawn
from various disciplines such as psychology, sociology, anthropology, and management. It
has also borrowed principles from behavioural sciences. It is a science of human engineering.

ix. Integral part of general management – Staffing is an integral part of the general management.
It is very much a part of every line manager‘s responsibility. Every member of the management
group (from top to bottom) must be an effective personnel administrator. It renders service to
other functional areas of management.

x. Science as well as art – Staffing is a science of human engineering. It is an organized body of

knowledge consisting of principles and techniques. It is also an art as it involves skills to deal
with people. It is one of the creative arts as it handles employees and solves their problems
systematically. It is a philosophy of management as it believes in the dignity and worth of
human beings.

Importance of Staffing

Efficient Performance of Other Functions

For the efficient performance of other functions of management, staffing is its key. Since, if an
organization does not have the competent personnel, then it cannot perform the functions of
management like planning, organizing and control functions properly.
Effective Use of Technology and Other Resources
What is staffing and technology‘s connection? Well, it is the human factor that is instrumental in
the effective utilization of the latest technology, capital, material, etc. the management can ensure
the right kinds of personnel by performing the staffing function.

Optimum Utilization of Human Resources

The wage bill of big concerns is quite high. Also, a huge amount is spent on recruitment, selection,
training, and development of employees. To get the optimum output, the staffing function should
be performed in an efficient manner.

Development of Human Capital

Another function of staffing is concerned with human capital requirements. Since the management
is required to determine in advance the manpower requirements. Therefore, it has also to train and
develop the existing personnel for career advancement. This will meet the requirements of the
company in the future.

The Motivation of Human Resources

In an organization, the behaviour of individuals is influenced by various factors which are involved
such as education level, needs, socio-cultural factors, etc. Therefore, the human aspects of the
organization have become very important and so that the workers can also be motivated by
financial and non-financial incentives in order to perform their functions properly in achieving the
objectives.

Building Higher Morale

The right type of climate should be created for the workers to contribute to the achievement of the
organizational objectives. Therefore, by performing the staffing function effectively and efficiently,
the management is able to describe the significance and importance which it attaches to the
personnel working in the enterprise.

Staffing Process

1. Manpower Planning

2. Recruitment

3. Selection

4. Placement

5. Training

6. Development
7. Promotion

8. Transfer

9. Appraisal

10. Determination of Remuneration

Now, the process of Staffing can be explained in the following ways as follows-

1. Manpower Planning
Manpower planning can be regarded as the quantitative and qualitative measurement of labour
force required in an enterprise. Therefore, in an overall sense, the planning process involves the
synergy in creating and evaluating the manpower inventory and as well as in developing the
required talents among the employees selected for promotion advancement

2. Recruitment
Recruitment is a process of searching for prospective employees and stimulating them to apply for
jobs in the organization. It stands for finding the source from where potential employees will be
selected.

3. Selection
Selection is a process of eliminating those who appear unpromising. The purpose of this selection
process is to determine whether a candidate is suitable for employment in the organization or not.
Therefore, the main aim of the process of selection is selecting the right candidates to fill various
positions in the organization. A well-planned selection procedure is of utmost importance.

4. Placement
Placement means putting the person on the job for which he is selected. It includes introducing the
employee to his job.

5. Training
After selection of an employee, the important part of the programmed is to provide training to the
new employee. With the various technological changes, the need for training employees is being
increased to keep the employees in touch with the various new developments.

6. Development
A sound staffing policy provides for the introduction of a system of planned promotion in
every organization. If employees are not at all having suitable opportunities for their
development and promotion, they get frustrated which affect their work.
7. Promotions
The process of promotion implies the up-gradation of an employee to a higher post involving
increasing rank, prestige and responsibilities. Generally, the promotion is linked to increment in
wages and incentives but it is not essential that it always relates to that part of an organization.

8. Transfer
Transfer means the movement of an employee from one job to another without increment in pay,
status or responsibilities. Therefore this process of staffing needs to evaluated on a timely basis.

9. Appraisal
Appraisal of employees as to how efficiently the subordinate is performing a job and also to know
his aptitudes and other qualities necessary for performing the job assigned to him.

10. Determination of Remuneration

This is the last process which is very crucial as it involves in determining remuneration which is one
of the most difficult functions of the personnel department because there are no definite or exact
means to determine correct wages.

Benefits of Staffing Process

The benefits of an effective staffing function are as follows-

 Staffing process helps in getting right people for the right job at right time. The function
of staffing helps the management to decide the number of employees needed for the
organization and with what qualifications and experience.

 Staffing process helps to improved organizational productivity. Therefore, through proper

selection of employees in the organization, it can increase the quality of the employees,
and through proper training, the performance level of the employees can also be
improved.

 It helps in providing job satisfaction to the employees and thus keeps their morale high.
With proper training and development programmer, the employees get motivation and their
efficiency improves and they feel assured of their career advancements.

 It maintains harmony in the organization. Therefore with an overall performance of proper

staffing in an organization, the individuals are not only recruited and selected and but as a
result, their performance is regularly appraised and promotions made on merit which
fosters harmony and peace in the organization for the accomplishment of overall
objectives of an organization.
Directing

Directing is the process of instructing and giving orders by a senior official to his
subordinates. It also includes motivating and leading the subordinates by apprehending
their desires, ideologies, and behavioral compositions. Directing integrates employees’
efforts in the organization in such a way that every individual effort contributes to
increasing organizational performance. Every manager has to continuously perform the
directing function in an organization, as it is a never-ending managerial activity.

Definition

According to Koontz and O’Donnel_” Direction is a complex function that includes all those
activities which are designed to encourage subordinates to work effectively and efficiently in
both the short and long-run

Nature and Characteristics of Directing

Directing is characterized by the following distinguishing features:

1. Element of management. Directing is one of the important functions of management. It

is through direction that management initiates action in the organization.

2. Continuing function. Direction is continuous process and it continues throughout the life
of an organization. A manager never ceases to guide, inspire and supervise his subordinates. A
manager can not get things done simply by issuing orders and instruction. He must continually
provide motivation and leadership to get the orders and instructions executed.

3. Pervasive function. Direction initiates at the top and follows right up to the bottom of an
organization. Every manager in the organization gives direction to his subordinates as superior
and receives direction as subordinates from his superior. Direction function is performed at
every level of management and in every department of the organization.

4. Creative function. Direction makes things happen and converts plans into performance it is
the process around which all performance revolves. Without direction, human forces in an
organization become inactive and consequently physical factors become useless. It breathes
life into organization.

5. Linking function. Planning, organizing and staffing are merely preparation for doing the
work and work actually starts when managers perform the directing function. Direction
puts plans into an action and provides performance for measurement and control. In this
way, directing serves as a connecting link between planning and control.
6. Management of human factor. Direction is the interpersonal aspects of management. It
deals with the human aspect of organization. Human behavior is very dynamic and is
conditioned by a complex of forces about which not much is known. Therefore, direction is a
very difficult and challenging function.

Elements Of Direction

Direction has following elements:

• Supervision
• Motivation
• Leadership
• Communication

(i) Supervision- implies overseeing the work of subordinates by their superiors. It is the act
of watching & directing work & workers.

(ii) Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.

(iii) Leadership- may be defined as a process by which manager guides and influences the work
of subordinates in desired direction.

(iv) Communications- is the process of passing information, experience, opinion etc from
one person to another. It is a bridge of understanding.

Principles of Directing

Directing is a complex function as it deals with people whose behaviour is unpredictable.

Effective direction is an art which a manager can learn and perfect through practice. However,
managers can follow the following principles while directing their subordinates.

1. Harmony of objectives. Individuals join the organization to satisfy their physiological and
psychological needs. They are expected to work for the achievement of organizational
objectives. They will perform their tasks better if they feel that it will satisfy their personal
goals. Therefore, mar agreement should reconcile the personal goals of employees with the
organizational goals.

2. Maximum individual contribution. Organizational objectives are achieved at the optimum

level when every individual in the organization makes maximum contribution towards them.
Managers should, therefore, try to elicit maximum possible contribution from each
subordinate.

3. Unity of command. A subordinate should get orders and instruction from one superior
only. If he is made accountable to two bosses simultaneously, there will be confusion, conflict,
disorder and indiscipline in the organization. Therefore, every subordinate should be asked to
 report to only one manager.

4. Appropriate techniques. The manager should use correct direction techniques to ensure
efficiently of direction. The technique used should be suitable to the superior, the
subordinates and the situation.

5. Direct supervision. Direction becomes more effective when there is a direct personal contact
between the superior and his subordinates. Such contact improves the morale and commitment
of the employees. Therefore, whenever possible direct supervision should be used.

6. Managerial communication. A good system of communication between the superior and

his subordinates helps to improve mutual understanding. Upwards communication helps a
manager to understand the subordinates to express their feeling.

Process of Directing
1. Define the Objectives: The first step in the directing process deals with defining the
objectives. Every manager should explain and convey these defined objectives n terms of
performance.
2. Organizing the Efforts: This step focuses on organizational efforts and their organization.
Here, the manager studies the tasks, decisions, and employee relations, to help in imparting
appropriate advice, better control, and effective management based on his elucidations and
definitions.
3. Measure the Work: The next step involves building a standard for measuring the work
performed by the employees. This scale helps the managers in determining the performance
of the employees in terms of efficiency in carrying out the assigned tasks.
4. Developing the people: In the final step of direction, the manager focuses on improving
the performance of his subordinates along with his performance. The manager encourages
his subordinates to work with honesty, and integrity and also boosts their confidence levels.

Importance/Scope Of Directing

Following are some of the points that show the importance of directing in the organisation:
1. Initiates Action: Directing is the starting point of action. It initiates action based on
planning, organising and staffing. Action is initiated when the managers provide direction to
their subordinates for carrying out the task. Therefore, the directing function provides a set
of guidelines to the employees on how to start working towards achieving the goals of the
organisation.
2. Integrates efforts of employees: The activities and works of the employees across an
organisation are integrated towards achieving the objectives set by management. As all
the activities of the organisation are integrated by directing, it leads to efficiency and
effectiveness in the organisation.
 3. Provide motivation: Directing acts as a source of motivation for the employees. It helps
in motivating the employees in contributing their efforts for the realization of organisational
objectives.
4. Accommodates changes: Directing helps in steering the organization towards success
by accommodating the various changes in the business environment that can be brought
about by changes in competitors, changing market conditions.
5. Maintaining balance: Directing brings about stability and balance in the organization
which is essential for long term survival of the business. Balance and stability can be
achieved by following a persuading leadership style coupled with effective
communication, motivating employees and strictly supervising the work of employees and
suggesting improvements.
6. Efficient use of resources: Directing provides individual roles to each employee.
Therefore, the resources are utilised efficiently that leads to less wastage of
resources, reduces duplication of efforts by maintaining a clear set of work for each
employee.
Meaning Of Controlling

Control is a primary goal-oriented function of management in an organisation. It is a process of

comparing the actual performance with the set standards of the company to ensure that
activities are performed according to the plans and if not then taking corrective action.

Features of Controlling

 An effective control system has the following features:

 It helps in achieving organizational goals.
 Facilitates optimum utilization of resources.
 It evaluates the accuracy of the standard.
 It also sets discipline and order.
 Motivates the employees and boosts employee morale.
 Ensures future planning by revising standards.
 Improves overall performance of an organization.
 It also minimises errors.
Controlling and planning are interrelated for controlling gives an important input into the next
planning cycle. Controlling is a backwards-looking function which brings the management
cycle back to the planning function. Planning is a forward-looking process as it deals with the
forecasts about the future conditions.

Process of Controlling

Control process involves the following steps as shown in the figure:

 Establishing standards: This means setting up of the target which needs to be achieved to
meet organisational goals eventually. Standards indicate the criteria of performance.
Control standards are categorized as quantitative and qualitative standards. Quantitative
standards are expressed in terms of money. Qualitative standards, on the other hand, includes
intangible items.

 Measurement of actual performance: The actual performance of the employee is measured

against the target. With the increasing levels of management, the measurement of
performance becomes difficult.
 Comparison of actual performance with the standard: This compares the degree of
difference between the actual performance and the standard.
 Taking corrective actions: It is initiated by the manager who corrects any defects in
actual performance.
Controlling process thus regulates companies‘ activities so that actual performance conforms to
the standard plan. An effective control system enables managers to avoid circumstances which
cause the company‘s loss.

Types of control

There are three types of control viz.,

1. Feedback Control: This process involves collecting information about a finished task,
assessing that information and improvising the same type of tasks in the future.
2. Concurrent control: It is also called real-time control. It checks any problem and examines it
to take action before any loss is incurred. Example: control chart.
3. Predictive/ feedforward control: This type of control helps to foresee problem ahead
of occurrence. Therefore action can be taken before such a circumstance arises.
In an ever-changing and complex environment, controlling forms an integral part of the
organization.
 Advantages of controlling

 Saves time and energy

 Allows managers to concentrate on important tasks. This allows better utilization of
the managerial resource.
 Helps in timely corrective action to be taken by the manager.
 Managers can delegate tasks so routinely chores can be completed by subordinates.

Importance of Controlling

After the meaning of control, let us see its importance. Control is an indispensable function of
management without which the controlling function in an organization cannot be accomplished and
the best of plans which can be executed can go away. A good control system helps an organization
in the following ways:

1. Accomplishing Organizational Goals

The controlling function is an accomplishment of measures that further makes progress towards
the organizational goals & brings to light the deviations, & indicates corrective action. Therefore it
helps in guiding the organizational goals which can be achieved by performing a controlling
function.

2. Judging Accuracy of Standards

A good control system enables management to verify whether the standards set are accurate &
objective. The efficient control system also helps in keeping careful and progress check on the
changes which help in taking the major place in the organization & in the environment and also
helps to review & revise the standards in light of such changes.

3. Making Efficient use of Resources

Another important function of controlling is that in this, each activity is performed in such manner
so an in accordance with predetermined standards & norms so as to ensure that the resources are
used in the most effective & efficient manner for the further availability of resources.

4. Improving Employee Motivation

Another important function is that controlling help in accommodating a good control system which
ensures that each employee knows well in advance what they expect & what are the standards of
performance on the basis of which they will be appraised. Therefore it helps in motivating and
increasing their potential so to make them & helps them to give better performance.
5. Ensuring Order & Discipline
Controlling creates an atmosphere of order & discipline in the organization which helps to
minimize dishonest behavior on the part of the employees. It keeps a close check on the activities
of employees and the company can be able to track and find out the dishonest employees by
using computer monitoring as a part of their control system.

6. Facilitating Coordination in Action

The last important function of controlling is that each department & employee is governed by
such pre-determined standards and goals which are well versed and coordinated with one
another. This ensures that overall organizational objectives are accomplished in an overall
manner.

Techniques of Controlling

There are various techniques available for controlling in the field of management. We can group
them under two broad categories as follows:

1. Traditional Techniques
2. Modern Techniques
Traditional Techniques

As the name suggests, managers have developed and used these techniques for a long period of
time. These techniques are still fruitful and used by the firms till date.

Following are the most commonly used traditional techniques for controlling:

 Personal Observation
 Break-even Analysis
 Statistical Reports
 Budgetary Control

Personal Observation

It is the oldest traditional method available to perform the controlling function. In this, the
manager personally observes the employees/workers at the workplace.

In simple words, we can understand it as On-the-Spot or Direct Observation.

Direct observation pressurizes the employees and motivates them to work with maximum
efficiency. However, this technique involves a huge amount of time during supervision.

The benefit of using it is to get first-hand and authentic information for the analysis. Also, the
managers can correct the operations on the spot in case of non-performance.

Besides the above merits, the employees can share issues or problems simultaneously. In
addition, it boosts the morale of the employees.

Break-even Analysis

This control technique depicts the relationship between Cost and Volume at different output
levels. It is also known as the Cost, Volume and Profit analysis.

It predicts the profits and losses in response to the changes in the output levels. The point where
the cost price equals the selling price is the Break-even point.

Break-even Point Formula:

Total cost involves two costs, i.e. Fixed Costs and Variable Costs. Profits and Losses are affected
by the proportional changes in both.

In the Break-Even Analysis technique, the evaluation is based on:

1. Break-even Point
2. Angle of Incidence
3. Contribution Margin
4. Margin of Safety

Statistical Reports

The manager gathers information to evaluate performance in functional areas. And they use the
collected information for comparison purposes. It involves the analysis of the numeric data in the
form of: –

 Averages
 Percentages
 Co-relation
 Ratios, etc
The organization presents the above information via Charts, Graphs, Tables, etc. These reports
help visualize the data and identify the areas that demand attention. Hence, it is the most used
and helpful technique for data analysis.

Budgetary Control

Budgetary Control is an important traditional control technique used in planning and controlling
functions. It covers the planning of the essential operations followed by its comparisons with
the actual performance.

The budgeting process includes comparing and evaluating the actual and budgeted performances.
The steps in budgeting broadly cover: –

1. Creating standards by bifurcating the overall business goals into departmental targets.
2. Comparison of predefined Budget/Standards with the actual performance.
3. Calculate the logical deviations from the plan and take corrective measures.

Budgetary control facilitates control over day to day activities. Also, assesses the need for
resources and manpower for achieving the objectives.

It might be possible that the formulated budget can be inaccurate and expensive. Following are
the common types of budgets prepared by the organizations:

 Cash Budget
 Sale Budget
 Production Budget
 Capital Budget
 Material Budget

Morden Techniques

Morden control techniques are additions to the management literature. These are of recent
origin and provide innovative methods for organizational evaluation and control.

1. Return on Investment
2. Financial Statement and Ratio Analysis
3. Responsibility Accounting
4. Management Audit
5. PERT & CPM
6. Management Information System

Return on Investment

Return on Investment (ROI) is the profit earned by invested capital. It is analyzed to attain
financial control in the business. It is also known as the Du-Pont System of financial analysis.
To measure the generated return, we calculate the rate of ROI. This rate helps assess the financial
position of the business.

ROI Formula:

As per the technique, we can increase ROI in two ways:

1. By raising sales volume relatively grater than the total investment.

2. Reducing total investment without reducing sale volume.

So, we can understand it as the usage of invested capital in generating returns. Moreover,
organizations must aim to earn a reasonable ROI.

It helps in: –

 Comparing the wealth between the two periods and companies

 Attract investors and improve the goodwill of the company
 Finding areas that adversely impact the ROI
 Interdepartmental comparisons

Financial Statement and Ratio Analysis

It helps in controlling the finances of the organization by calculating different Ratios. For this
purpose, data is accumulated from the firms‘ financial statements.

The most extensively used Ratios are as follows: –

 Profitability Ratios
 Liquidity Ratios
 Solvency Ratios
 Turnover Ratios

Responsibility Accounting

It is an accounting system that depends upon the responsibility assigned to the employee. So
businesses conduct an evaluation of the employee‘s ability to fulfil the assigned responsibility as
per set standards.

This control technique is suitable for large organizations containing many departments.

Generally, responsibility centres are of four types: –

 1. Revenue Centre
2. Cost Centre
3. Profit Centre
4. Investment Centre

Management Audit

Management or Internal Audit is the examination of the utilization of the company’s resources.
The Top-level initiates it to ensure the efficient performance of the management.

Internal Auditing starts as soon as the financial audit ends. During the audit, the overall
management process is critically evaluated.

However, conducting a management audit is not compulsory for the organizations.

PERT & CPM

PERT is Program Evaluation and Review Technique, whereas CPM stands for Critical Path
Method. These control techniques are used explicitly for project management and evaluation.

The activity or project‘s success is largely affected by the time taken and steps involved.
Therefore managers strive to cut the total time and cost involved in completing the activity.

It focuses on the efficient execution of the project. But the execution must be within the
stipulated time and predetermined costs.

Management Information System

Management Information system (MIS) basically provides information for effective decision
making. Managers can retrieve any data as and when needed. It is one of the cost-effective
controlling techniques available for managers.

Moreover, it provides information at the right time and helps manage a huge bundle of data. The
information obtained from MIS is accurate and facilitates decision making.

MIS has two major components:

 Data Collection
 Data Management

Selection of the Techniques of Controlling

Managers must consider the following factors while selecting a suitable technique of controlling:
 1. Area of operation
2. Management policy at a higher level of management
3. Purpose or focus area of control
4. Availability and suitability of techniques
5. Costs involved
6. Industrial trends
7. Staff required in the process
8. Time invested in the complete process
9. Reliability of the results obtained

Meaning Of Decision Making

Decision making may be reviewed as the process of selecting a course of action from a
mong several alternatives in order to accomplish a desired result. The purpose of decision maki
ng is to direct human behaviour and commitment towards a future goal. If there are no alternativ
es, if no choice is to be made, if there is no other wayout, then there would be not need for decis
ion making. It involves committing the organisation and its resources to a particular choice of c
ourse of action thought to be sufficient and capable of achieving some predetermined objective.

Definition

According to George Terry

―Decision making is the selection based on some criteria from two or more alternatives. ―

Features or Characteristics of Decision-Making:

1. Rational Thinking:
It is invariably based on rational thinking. Since the human brain with its ability to learn,
remember and relate many complex factors, makes the rationality possible.

2. Process:
It is the process followed by deliberations and reasoning.

3. Selective:
It is selective, i.e. it is the choice of the best course among alternatives. In other words, decision
involves selection of the best course from among the available alternative courses that are
identified by the decision-maker.
4. Purposive:
It is usually purposive i.e. it relates to the end. The solution to a problem provides an effective
means to the desired goal or end.

5. Positive:
Although every decision is usually positive sometimes certain decisions may be negative and
may just be a decision not to decide. For instance, the manufacturers of VOX Wagan car once
decided not to change the model (body style) and size of the car although the other rival
enterprise (i.e. the Ford Corporation) was planning to introduce a new model every year, in the
USA.

That a negative decision and is equally important was stressed by Chester I. Bernard-one of the
pioneers in Management Thought-who observed, ―The fine art of executive decision consists in
not deciding questions that are not now pertinent, in not deciding prematurely, in not making
decisions that cannot be made effective, and in not making decisions that other should make. ‖

6. Commitment:
Every decision is based on the concept of commitment. In other words, the Management is
committed to every decision it takes for two reasons- viz., (/) it promotes the stability of the
concern and (ii) every decision taken becomes a part of the expectations of the people involved
in the organisation.

Decisions are usually so much inter-related to the organisational life of an enterprise that any
change in one area of activity may change the other areas too. As such, the Manager is
committed to decisions not only from the time that they are taken but upto their successfully
implementation.

7. Evaluation:
Decision-making involves evaluation in two ways, viz., (i) the executive must evaluate the
alternatives, and (ii) he should evaluate the results of the decisions taken by him.
Importance of decision-making
1. Implementation of managerial function: Without decision-making different managerial
function such as planning, organizing, directing, controlling, staffing can‘t be conducted. In
other words, when an employee does, s/he does the work through decision-making function.
Therefore, we can say that decision is important element to implement the managerial function.

2. Pervasiveness of decision-making: the decision is made in all managerial activities and in all
functions of the organization. It must be taken by all staff. Without decision-making any kinds of
function is not possible. So it is pervasive.

3. Evaluation of managerial performance: Decisions can evaluate managerial performance.

When decision is correct it is understood that the manager is qualified, able and efficient.
When the decision is wrong, it is understood that the manager is disqualified. So decision-
making evaluate the managerial performance.

4. Helpful in planning and policies: Any policy or plan is established through decision
making. Without decision making, no plans and policies are performed. In the process of
making plans, appropriate decisions must be made from so many alternatives. Therefore,
decision making is an important process which is helpful in planning.

5. Selecting the best alternatives: Decision making is the process of selecting the best
alternatives. It is necessary in every organization because there are many alternatives. So
decision makers evaluate various advantages and disadvantages of every alternative and
select the best alternative.

6. Successful; operation of business: Every individual, departments and organization make

the decisions. In this competitive world; organization can exist when the correct and
appropriate decisions are made. Therefore, correct decisions help in successful operation of
business.

Decision-Making Process

Though there are many slight variations of the decision-making framework floating around on
the Internet, in business textbooks, and in leadership presentations, professionals most
commonly use these seven steps.

1. Identify the decision

To make a decision, you must first identify the problem you need to solve or the question you
need to answer. Clearly define your decision. If you misidentify the problem to solve, or if the
problem you‘ve chosen is too broad, you‘ll knock the decision train off the track before it
even leaves the station.
If you need to achieve a specific goal from your decision, make it measurable and timely.

2. Gather relevant information

Once you have identified your decision, it‘s time to gather the information relevant to that
choice. Do an internal assessment, seeing where your organization has succeeded and failed in
areas related to your decision. Also, seek information from external sources, including studies,
market research, and, in some cases, evaluation from paid consultants.

Keep in mind, you can become bogged down by too much information and that might only
complicate the process.

3. Identify the alternatives

With relevant information now at your fingertips, identify possible solutions to your
problem. There is usually more than one option to consider when trying to meet a goal. For
example, if your company is trying to gain more engagement on social media, your
alternatives could include paid social advertisements, a change in your organic social media
strategy, or a combination of the two.

4. Weigh the evidence

Once you have identified multiple alternatives, weigh the evidence for or against said
alternatives. See what companies have done in the past to succeed in these areas, and take a good
look at your organization‘s own wins and losses. Identify potential pitfalls for each of your
alternatives, and weigh those against the possible rewards.

5. Choose among alternatives

Here is the part of the decision-making process where you actually make the decision.
Hopefully, you‘ve identified and clarified what decision needs to be made, gathered all relevant
information, and developed and considered the potential paths to take. You should be prepared
to choose.

6. Take action

Once you‘ve made your decision, act on it! Develop a plan to make your decision tangible and
achievable. Develop a project plan related to your decision, and then assign tasks to your team.
7. Review your decision

After a predetermined amount of time—which you defined in step one of the decision-making
process—take an honest look back at your decision. Did you solve the problem? Did you answer
the question? Did you meet your goals?

If so, take note of what worked for future reference. If not, learn from your mistakes as you
begin the decision-making process again.

Techniques Of Decision-Making

Decision-making is a step-wise process. There are certain highly effective as well as systematic
approaches that can help us in taking the right decisions with great consistency. While there is
nothing that can guarantee error-free decision-making, some decision-making methods can
reduce the likelihood of making poor decisions.

Let‘s go ahead and take a look at them:

1. Command Method
In this method, decision-making is an executive power, and the decisions are taken by a central
authority. This is an authoritative or dictatorial method as it doesn‘t necessarily involve the
opinion of other stakeholders. One of the major drawbacks of this method is ignorance about
alternate options or opinions.

At the same time, this is also the fastest and clearest decision-making process as it doesn‘t
involve conflicts and discussions with other people. This decision-making technique is beneficial
in emergencies when there is not enough time to hold discussions or undertake lengthy analysis
or review processes.

2. Consultation
Consultation is the commonest among all the decision-making techniques for taking long-term
decisions. Under this technique, the decision-maker seeks inputs from others and considers them
diligently, but the eventual power of decision remains with her.

It usually takes longer when you apply this technique compared to the time the command
decision-making methods as it involves taking the opinions of multiple people and in-depth
evaluation and discussions. This process makes others feel valuable as it takes into account
their opinions. It can do wonders for employees‘ satisfaction and loyalty as they would feel
involved with the decision-making process even though the final decision is not taken by them.

3. Voting
Voting is considered one of the most democratic techniques of decision-making in management.
During this process the available options are brought to the notice of all group members and each
action is deliberated upon. Once the discussions are complete, the present members vote in favor
of the option they find most suitable. The option selected by the majority of the voters is
regarded as the final decision.

Voting is the preferred decision-making method among committees, boards of directors, or

senior company executives. Voting techniques of decision-making in management are time-
bound which ensures that the process does not drag for too long.

4. Brainstorming
Brainstorming is among the various techniques of decision-making that proves beneficial
when there are no clear options in sight. Under this technique, all group members get together
to find options through discussion and debate.
Decisions related to strategy, policy-making, laying down of rules and procedures and operations
usually involve a lot of brainstorming. This is one of the lengthier processes of decision-making
as there are usually a lot of ideas and differences of opinions that have to be overcome before a
final decision is taken.

5. Multi-Point Analysis
This is easily among the best decision-making methods while going for an acquisition or a major
purchase. Under this technique, businesses undertake a systematic evaluation of all options
available to them. Factors such as cost, return on investment, quality, performance, and skill
required, among other relevant points, get evaluated.

Suppose a company needs to buy a fleet of vehicles for transporting its employees safely.
Various vehicle makers will submit their proposals which will then be evaluated on factors such
as comfort, mileage, safety, number of passengers, and driving ease.

6. Consensus
Among all the decision-making techniques, the consensus method is the most difficult and time-
consuming. In this process, the group holds several rounds of discussions until everyone
unanimously agrees upon a decision.

Since this is one of those decision-making methods that requires everyone to overcome their
differences and decide in favor of one option, it often drags on endlessly without any result.

Barring scenarios where the decision affects all members of the group directly and they are all
equal stakeholders in the decision, this is among the techniques of decision-making in
management that should be rarely used.
Unit –4

Meaning Of Business

Business is an economic activity that involves the exchange, purchase, sale or production of
goods and services with a motive to earn profits and satisfy the needs of customers. Businesses
can be both profit or non-profit organizations that function to gain profits or achieve a social
cause respectively.

Definition

Business may be defined as an activity involving regular production or purchase of goods and
services for sale, transfer and exchange with the object of earning profit.

Characteristics of Business

Following are the characteristics or features of business

(1) An Economic Activity  A business is an economic activity which includes the

purchase & sale of goods or rendering of services to
earn money.
 It is not concerned with the achievement of social
and emotional objectives.
Example: Wholesaler sell goods to the retailers and retailers sell
goods to the customers.

(2)Manufacturing or  Before offering goods to the consumer for consumption

Procurement of Services it should be manufactured or procured by businesses.
and Goods  Business enterprise converts the raw material into
finished goods.
 Organisations also procure finished goods& services from
the producers to meet the needs of the customers in the
market.
 Goods can be a Consumer good like sugar, pen, ghee,
etc. capital goods include machinery, furniture, services
like transportation, banking, etc.
Example: Individual retailer buys the toffees from wholesalers in a
specific quantity and sells it to the ultimate consumer.
(3)Exchange or Sale of Goods  Every business activity includes an exchange or transfer
and Services for the of services and goods to earn value.
Satisfaction of Human Needs  Producing goods for the goal of personal consumption is not
 included in business activity.
 So, there should be the process of sale or exchange of goods
or services exits among the seller and the buyer.
Example: A lady who bakes pastries and cakes at home and sells it to
the pastry shop is a business activity.

(4) Dealings With Goods and  Every business, rendering either services or goods should deal
Services on a Daily Basis on a daily basis.
 A one-time sale is not considered a business activity.
Example: If a person sells his old car through OLX even at a profit
will not be considered as a business activity. But if he is engaged in
regularly trading of cars at his showroom will be considered as
business activity.

(5) Profit Earning  No business can last for long, without making a profit.
 The purpose to conduct the business is to earn profits and
minimise the cost.
Example: A business house tries to reduce the cost of production and
the cost of raw material to earn high profits.

(6) Uncertainty of Return  The possibility of earning profit or loss is very uncertain
and can‘t be anticipated by the entrepreneur.
 Hence, no business can totally do away with risks.

Market Standing
Market standing means position of an the enterprise in relation to its competitors. Every business
enterprise must aim at standing on strong position in market in order to provide best offers to its
customers and serving them to their satisfaction. In this global economy, market standing is
becoming important, that‘s why companies spending huge amount on marketing and
advertisement to acquire new customers.

Objectives of Business

Innovation
Innovation is the introduction of new ideas or methods in the way something is
done or made. There are two types of innovation in every business innovation in
product or services and innovation in various skills that needed to improve quality and quantity
of products and services. Every business enterprise wants to be in race. So, innovation
becomes an important objective.
Productivity
Productivity is an important activity of the business. In order to continuous survival and
progress, every business must aim to increase productivity through the best use of available
resources. When the company increases productivity, it decreases the price of its products.
Which helps the company to increase, its market share.
Physical And Financial Resources
If the business wants to stay for long run, it needs two physical resources and financial
resources. physical resources includes plants, machines, offices, etc., and
financial resources includes funds to be able to produce and supply goods and services to its
customers.

Earning Profits
One of the main objectives of business is to earn profits and growth of the company. Every
business must earn a reasonable profit for its survival and growth. Profit is ultimately aim of
every business, without profit business can not survive for long time. Business should have
proper revenue plan in order to grow.
Social Responsibility
Social responsibility refers to contribute resources for solving social problems and work in a
socially desirable manner. Business uses the natural resources of the society, So the
business should contribute its resources to solve the social issues.

Foreign Capital
A big business can help the developing economies to secure capital from the developed
countries. they facilitate transfer of capital from countries where it s abundant to countries
where it is scare. Thus, Business can help to increase the investment level and thereby the pace
of development of host country.

Professional Management
Business brings managerial revolution in the host countries through professional management
and the employment of sophisticated management techniques and practices.

Create Employment
When the business starts, it creates employment from top executives to lower worker. it satisfied
social needs and help them to upgrade life style of the people.

An Economic Activity
Business is an economic activity with the aim to make a profit and provides products and
services to consumers. It is a process that involves exchanges of goods and services in monetary
terms. That makes business economic activity.

Nature of Business

Profit Earning
The main purpose of business is earn profit. Profit is the main objective of every business,
without earning profit company can not survive in long run. if profit doesn‘t take place in
transaction, then it cannot be considered as business transaction. For example, goods given in
charity is not a business activity.
Uncertainty Of Risk
Business has always uncertainty, There is always a possibility of losses of business. It is not
possible for a businessman to earn adequate profit always, as market conditions may change,
customer‘s taste may change. All these can lead to loss.

Collective Transfer Of Resources

A business facilitates a multilateral transfer of resources. Usually this transfer takes place in the
form of a ―package‖ which includes technical know-how, machinery, and equipment, raw
materials, management expertise, etc.

Buyer And Seller Involvement

Business is a process of exchanging of products and services which involves buyers and sellers.
Without buyers and seller, business can not take place.

Regular Process
Business is a regular process, it provides daily uses products and services. That makes a
business regular Process. People buy products and services daily, which makes the business
process alive.
International Operations
A big business operates in many countries through a parents corporation in the home country. it
runs its operations through a network of branches and subsidiaries in host counties. Production,
marketing and other operations are scattered in different counties to reap the economies of
local operations.

Role of Business Components in the Scope of Business Organization

Following business components play an important role in the scope of business:

Industry

The word ―Industry‖ refers to the business activities which are linked with the extraction and
production or manufacturing of products. The product formed by an industry is either used by
the vital consumers or again by the industry. If the product is used by the consumer it is called
consumers‘ goods such as clothes.

If the product is used again by the industry it is called the producer‘s goods or capital goods. In a
case when a product produced by the industry is further processed into finished products for
other purposes they are called intermediate goods. e.g. plastic.

The industry is further divided into types on the basis of business activity:

 Extractive Industries

The industries which extract, raise and manufacture raw materials from above or under the
Earth‘s surface are known as Extractive Industries and they include mining, fisheries, forestry
and agriculture, etc.
  Genetic Industries

The industries which are involved in reproducing and multiplying certain species of animals and
plants and sell them in the market to earn a profit are named as Genetic Industries. These
industries include cattle breeding farms, poultry farms and plant market, etc.

 Constructive Industries

The industries which are involved in the construction of building, canals, bridges, dams and
roads, etc. are called Constructive Industries.

 Service Industries

The industries which are involved in manufacturing the intangible goods which cannot be seen
but felt such as services of professionals like doctors, lawyers are examples of Service
Industries.

Commerce

The second component of the scope of business is Commerce. It involves the buying and selling
of goods and all the activities which are associated with the transfer of goods from the
production source to the ultimate consumers or destination. The ranges of activities related to
Commerce take place through:

 Trade

The process of buying and selling goods is called Trade. It is the process of exchanging goods
and services amongst the buyers and sellers and both of them earn profits. Trade can be
classified into two types; internal and external.

1. Internal Trade: The process of buying and selling goods within a country is
called internal trade. The internal trade can be either wholesale trade or retail trade.
2. Wholesale Trade: In wholesale trade, the goods are purchased in bulk from the
producers and sell them to the retailers. These retailers then sell these goods to the
final consumers.
3. Retail Trade: In the retail trade, the retailer sells goods and services to the
final consumers.
4. External Trade: The process of buying and selling goods between the two countries
is called external trade. The external trade has two types; import trade and export
trade.

The elements which help in the purchasing of goods and services are called aid to trade. There
are certain constituents that are essential for the progress of the trade and are as follows:

 Transport

By using different ways of transport, the goods are transported from industry to the consumers.
It includes railways, ships, airlines, etc.
  Insurance

Insurance is very important to aid to trade. Insurance reduces the risk of damage to goods due to
fire, flood or earthquake, etc. by paying a good amount in this regard.

 Warehousing

Warehouses are used to keep the goods and are released and are delivered to the market when
demanded. Thus, warehousing plays an important part to overcome the barrier of time and helps
the goods reach the consumers in a short span of time.

 Banking

Commercial banks play an important role in financing trade activities. They provide funds to the
traders for stock holding and transporting the goods. They also support the producers in
purchasing and receiving at both national and international levels. The banks also offer credit
facility in the form of cash credit, overdrafts and loans to the traders.

 Advertisements

Advertisements play an important part in selling the good to the consumers. The advertisement is
either shown on television or printed in newspaper or magazines etc. and help the consumers to
choose their desired product. Thus, advertisements are very important for the seller as well.

Meaning of Business System:

The system helps the business organisations to achieve their goals.

A business system is a combination of policies, personnel, equipment and computer facilities

to co-ordinate the activities of a business organisation.

It establishes the rules and procedures of that organisation, which are to be governed.

Business system decides how data must be handled and is methodically processed. It also
controls the procedures of the processed data and the results to be displayed. For e.g. a system
may automatically order parts for an inventory, monitor future corporate profits or post credit
card sales to the on line customer accounts. The overall nature of the business system will reflect
the efficiency of its designers.

Objectives of Business System:

The objectives of business system are:

1. To meet the user and customer needs.

2. To cut down the operating costs and increase savings.

3. To smooth the flow data through various levels of the organisation.

4. To speed up the execution of results with the reliable data available in a system.

5. To handle data efficiently and provide timely information to the management.

2. To cut down the operating costs and increase savings.

3. To smooth the flow data through various levels of the organisation.

4. To speed up the execution of results with the reliable data available in a system.

5. To handle data efficiently and provide timely information to the management.

2. To cut down the operating costs and increase savings.

3. To smooth the flow data through various levels of the organisation.

4. To speed up the execution of results with the reliable data available in a system.
5. To handle data efficiently and provide timely information to the management.

6. To establish the most desirable distribution of data, services and equipment‘s throughout the
organisation.

7. To define a proper method of handling business activities.

8. To eliminate duplicated, conflicting and unnecessary services.

Types of Business Systems:

There are five major types of business systems

1. Payroll business system

2. Personnel business system

3. Accounts receivable system

4. Accounts payable system

5. Inventory system.

1. Payroll Business System:

A payroll system consists of all forms, procedures, files, equipment‘s, personnel, and computer
support necessary to completely process the payment of employees. A payroll system fully
handles all tax deductions, personal deductions, and the update of payroll data related to each
employee.

It provides for the actual payment of employees, a record of that payment, the modification of all
payroll records, and the preparation of payroll reports. The payroll system must also generate all
tax documents to include pay-cheques, W-2 statements, 941 quarterly reports, and a wide range
of state and municipal employment tax filings.

Another payroll responsibility is the accurate reporting of all personal deductions to include
bonds, medical and life insurance, profit sharing plans, stock options, credit union deductions,
and the garnishing of an employee‘s salary by a creditor.
These accumulated totals must be reported accurately to both the recipient of these movies and
the individuals from whose salaries these amounts were deducted. The computer‘s support
makes it possible to accurately and promptly process a payroll, providing the input data are
properly handled on a timely basis.

2. Personnel Business System:

Personnel system describes varied aspects of an organisation‘s work force. The outputs
generated by personnel systems are frequently used in compiling central & state labor power
reports. Retail organisations are major users of accounts receivable systems, since these systems
detail monies that are owed to an organisation.

Conversely, accounts payable systems focus on the monies that are owed to an
organisation. These two systems parallel to each other, requiring the continued maintenance
of files, their update reporting on movies due and owed, providing customer statements and
invoices, and recording payments made.

3. Accounts Receivable System:

An account receivable systems are monitors the flow of money. An accounts receivable
system monitors the people who owe money to a business. It provides the means to process all
data for credit cards and other kinds of charge accounts.

The files contain the individual customer data, including names, addresses, financial charges
like, payments received and current charges. The information is issued as monthly statements of
each customer and also provides useful information for management‘s use.

4. Accounts Payable System:

Accounts payable system monitors the organisation to which money is owed. The file structures
and input/output (I/O) formats are similar as the accounts receivable system. It contains the
accounts of vendors to whom money is owed. Input will have goods and services received by the
company while outputs include issue of payments and management reports.

5. Inventory System:
Inventory system monitors the status of items held in an inventory. These systems report on the
quantities of goods on hand, as well as when items should be purchased to replenish stock and
what critical items are needed. Inventory systems are crucial to organisations that maintain large
and costly inventories.

BUSINESS AND ITS ENVIRONMENT

ENVIRONMENT – BUSINESS RELATIONS

Business is the product of the technological, political-legal, economic, socio–cultural, global and
natural factors amidst which it functions.

Three features are common to this web of relationship between business and its environment.

1. There is symbolic relationship between business and its environment and among
the environmental factors.

• In other words, business is influenced by its environment and in turn, to certain degree,
it will influence the external forces. Similarly, political-legal environment influences
economic environment and vice versa. The same relationship between other
environment factors too.

2. These environmental forces are dynamic.

• They keep on changing as years roll by, so does business.

3. A particular business firm, by itself, may not be in a position to change its environment.

• But along with other firms, business will be in a position to mould the environment in
its favor.
• ENVIRONMENT Environment is closely related with business.
•There is a constant ‗give and take‘ relationship.
•The business receives inputs from the environment and gives it back in the form
of outputs. •The business-environment interaction is a continuous process.
•It is like a biological organism that keeps environment and management responsive
to each other.
 Business and environment interaction takes place in the following ways:

1. Business is affected by economic conditions of the environment.

• During recessionary conditions, for example, firms reduce the production or pile
their inventories to sell during normal or boom conditions.

• Business, on the other hand, can create artificial scarcity of goods by piling inventories
and force the economic conditions to show signs of adversity while it is not actually so.

• Both business and environment, thus, affect and are affected by each other.

2. The financial environment and the business system

• When financial institutions increase the lending rates, firms may resort to other
sources of funds, like bank loans or internal savings (reserves).
• This may force the financial institutions to lower the interest rates. The
financial environment and the business system, thus, act and interact with each
other.

3. Exchange of information

• Business receives useful information from the environment regarding consumers‘ tastes
and preferences, technological developments, Government policies, competitors‘ policies
etc.
• It provides useful information to the environment regarding its goals, policies
and financial returns.
The basic function of a business enterprise, input-output conversion, is carried through
active interaction with the environment. • It receives inputs from the environment,
converts them into

• This information is transmitted to environment through annual reports as a

requirement of disclosure practices.

4. The basic function of a business enterprise, input-output conversion, is carried through

active interaction with the environment.
• It receives inputs from the environment, converts them into outputs through
productive facilities which are also received from the environment.
• Sends the output back to the environment.
• A constant feedback is received from the environment to improve its performance.
 Difference Between Business, Commerce And Trade

Basis of
Business Commerce Trade
Difference

Commerce refers to all Trade refers to

Business refers to all
activities which facilitates exchange of products
those activities which are
Meaning the exchange of goods or services among
done with the aim of
from producer to end buyers and sellers in
earning profits.
consumer. return for money.

Narrower as is
Wider. It includes both Wider than trade, as it
concerned with only
Scope trade and commerce comprises of
buying and selling of
within its activities. activities which
goods.
supports trade.
Between owner Between producer and Between buyer
Connectivity
and clients. consumer. and seller.

Huge amount of capital More amount of

Capital needed Requires less capital.
is needed. capital needed.

Side Supply side of Both demand

Only demand side.
represented the product. and supply side.

Riskier than trade

Risk level More risky than trade. Low risk
and commerce.

Transactions
Regular Regular Isolated
frequency

More employment
Large number of
opportunities as large
Employment opportunities due
number of people are Very few.
Opportunities to presence of
required for performing
many activities.
different tasks.

Types/Forms Of Business
Sole Proprietorship

A sole proprietorship is an unincorporated business that one person owns and manages. As
the business and the owner are not legally separate, it is the simplest form of business
structure. It is also known as individual entrepreneurship, sole trader, or simply
proprietorship.
The business owner, also known as a proprietor or a trader, conducts business using their legal
name. They may also choose to do business using another name by registering a trade
name with their local authority.

This type of business is the easiest and cheapest form to start. For this reason, it is common
among small businesses, freelancers, and other self-employed individuals.

A sole proprietorship begins and ends when the business owner decides, or upon their death.

A sole proprietorship may transform into another, more complex business structure if the
business grows substantially.

Definition

According to Kimball and Kimball , ― The individual proprietor is the supreme judge of all
matters pertaining to his business subject only to general laws of the land to such special
legislation as may affect his particular business . ―

Features of Sole Proprietorship

 No Separate Entity: A sole tradership concern has no separate legal entity independent
of the owner. The owner and the business concern are one and the same. The owner
owns everything the business owns and he owes everything the business owes .
 Capital: In sole tradership , the capital is employed by the owner himself from
his personal resources . He may also borrow money from his friends and financial
institutions if he cannot depend solely on his personal resources .
 Unlimited Liability: The liability of the proprietor for the debts of the business is
unlimited. The creditors have the right to recover their dues even from the personal
property of the proprietor in case the business assets are not sufficient to cover
their debts.
 Profits and Losses: The surplus arising in the business of the sole trader entirely
belongs to him and similarly all the business losses and risks are to be borne by him
alone.
Advantages of Sole Proprietorships

1. The easiest and cheapest way to start a business

Though the process varies depending on the jurisdiction, establishing a sole proprietorship is
generally an easy and inexpensive process, unlike forming a partnership or a corporation[1 ].

Compared to other business forms, there is very little paperwork a proprietor needs to file with
their local authorities. As a result, proprietors do not have to wait long before they have
permission to carry on a business.

The start-up fees are also low, in line with many government policies that encourage
entrepreneurs to take risks and grow the economy by minimizing the friction of starting new
businesses.
2. Few government rules and laws

There are very few government rules and regulations that are specific to proprietors. Sole
proprietors must keep proper records, file, and pay taxes on the business income and other
personal income sources.

Record keeping and tax filing obligations are generally no more complicated than maintaining
records for individual tax filings. Due to the time and the effort, proprietors may wish to pay for
specialized software and advisors to streamline the time spent on administration.

Government rules for larger enterprises and public companies, such as financial disclosure,
require far more administration and do not apply to sole proprietorships.

3. Full management control

Proprietors control all aspects of their business, including production, sales, finance, personnel,
etc. This degree of freedom is attractive to many entrepreneurs, as the venture‘s success also
means personal success.

To be successful, proprietors must be ―good enough‖ at the various aspects of their business
they have control over.

While some proprietors have employees and delegate some of their authority, they are ultimately
accountable for all the decisions and acts of their business.

4. Flow-through of business profit

There is no legal separation between the owner and the business, so the owner gets 100% of the
profits. Although all profits go to the owner, taxes are paid once, and proprietors pay taxes
individually.

Proprietors must pay individual taxes on the income periodically, for example, as part of the
annual individual tax filing. Tax payments may be more frequent, for example, quarterly,
depending on local tax rules.

Making regular payments can help a proprietor keep their tax burden from becoming
overwhelming and incurring tax penalties. Tax advisors can help proprietors estimate taxes so
they can set aside enough of the profits to make mandatory government payments[2 ].

Disadvantages of Sole Proprietorships

1. Unlimited legal liability

There is no legal separation between the owner and the business. Similar to how all profits flow
to the owner, all debts and obligations rest with the proprietor.
If the business cannot satisfy its obligations, creditors may pursue the proprietor‘s personal assets
in order to be repaid.

This accountability is clearly outlined within legal documents signed with lenders, sometimes
called a promissory note. A proprietor does not need to provide a personal guarantee to their sole
proprietorship, as the two are the same legal entity in the eyes of the law.

2. Limit to available capital

Owners put their own resources to bear when going into business for themselves. There
are limits to their financial resources and the amount of credit they get when they seek out
lending relationships.

Proprietors cannot sell shares, or interest, in their business to raise money.

Putting ideas into reality is risky and can be costly. Keeping a business going can be capital
intensive. Some expenses must be incurred before revenue is generated. Any sales on credit,
and any cash paid towards expenses, must be financed by working capital. Equipment and other
long-use resources required for the business must be rented or financed.

If business requirements exceed the resources and financing available to proprietors, they will
need to closely manage their working capital and potentially curtail the acquisition of fixed
assets.

A fulsome business plan helps proprietors determine the capital necessary to start up, sustain,
and grow the business.

3. Backup and succession

If the owner cannot or does not want to operate the business, it stops. An owner may have a
family member or trusted employee who can briefly work in place of the owner in the case of
illness or any temporary and unforeseen reason.

Business interruption insurance may cover expenses for longer-term issues, but these policies
cannot complete the work that a proprietor has already taken on.

Without a separate legal identity, sole proprietorships cannot readily pass any intangible assets
from one owner to another. Aside from equipment and fixed assets, the value of the business
is inherently tied to the proprietor.

To make any sale attractive, a proprietor must find someone with comparable skills willing to
purchase the goodwill the owner has built up. If they cannot find a buyer, the proprietor may
pass the business on to a family member or a trusted employee if one exists.
4. Skills and experience

The proprietor must make ―good enough‖ decisions in all business areas. If an owner does not
have enough knowledge or skills, their decisions may be flawed. There is a finite amount of time
to do things correctly or learn to do everything adequately.

It can be difficult for individuals to manage all aspects of their business properly. The owner can
hire employees, outside help, or get professional advice on parts of the business process.

The owner‘s ability to use their own time to earn greater profits to offset the cost of hiring help
is a crucial consideration.

Employees, contractors, and other services may be too costly for such sole proprietorships. The
owner‘s time must be productive enough to pay for the cost of hiring others.

Partnership
A partnership is a formal arrangement by two or more parties to manage and operate a business
and share its profits.

There are several types of partnership arrangements. In particular, in a partnership business, all
partners share liabilities and profits equally, while in others, partners may have limited liability.
There also is the so-called "silent partner," in which one party is not involved in the day-to-day
operations of the business.

Features of Partnership:
Following are the few features of a partnership:

1. Agreement between Partners: It is an association of two or more individuals, and a

partnership arises from an agreement or a contract. The agreement (accord) becomes
the basis of the association between the partners. Such an agreement is in the written
form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it
is always good, if the partners have a copy of the written agreement.
2. Two or More Persons: In order to manifest a partnership, there should be at least two
(2) persons possessing a common goal. To put it in other words, the minimal number of
partners in an enterprise can be two (2). However, there is a constraint on their maximum
number of people.
3. Sharing of Profit: Another significant component of the partnership is, the accord
between partners has to share gains and losses of a trading concern. However, the
definition held in the Partnership Act elucidates – partnership as an association between
people who have consented to share the gains of a business, the sharing of loss is
implicit. Hence, sharing of gains and losses is vital.
4. Business Motive: It is important for a firm to carry some kind of business and
should have a profit gaining motive.
5. Mutual Business: The partners are the owners as well as the agent of their firm. Any
 act performed by one partner can affect other partners and the firm. It can be concluded
that this point acts as a test of partnership for all the partners.

Types of Partnerships
A partnership is divided into different types depending on the state and where the business
operates. Here are some general aspects of the three most common types of partnerships.

 General Partnership
A general partnership comprises two or more owners to run a business. In this partnership, each
partner represents the firm with equal right. All partners can participate in management
activities, decision making, and have the right to control the business. Similarly, profits, debts,
and liabilities are equally shared and divided equally.
In other words, the general partnership definition can be stated as those partnerships where rights
and responsibilities are shared equally in terms of management and decision making. Each
partner should take full responsibility for the debts and liability incurred by the other partner. If
one partner is sued, all the other partners are considered accountable. The creditor or court will
hold the partner‘s personal assets. Therefore, most of the partners do not opt for this partnership.

 Limited Partnership
In this partnership, includes both the general and limited partners. The general partner has
unlimited liability, manages the business and the other limited partners. Limited partners have
limited control over the business (limited to his investment). They are not associated with the
everyday operations of the firm.
In most of the cases, the limited partners only invest and take a profit share. They do not
have any interest in participating in management or decision making. This non-involvement
means they do not have the right to compensate the partnership losses from their income tax
return.

 Limited Liability Partnership

In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is
guarded against other partners legal and financial mistakes. A limited liability partnership is
almost similar to a Limited Liability Company (LLC) but different from a limited partnership or
a general partnership.

 Partnership at Will
Partnership at Will can be defined as when there is no clause mentioned about the expiration of a
partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that
have to be fulfilled by a firm to become a Partnership at Will are:

 The partnership agreement should have not any fixed expiration date.
 No particular determination of the partnership should be mentioned.
Therefore, if the duration and determination are mentioned in the agreement, then it is not a
partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the
firm continues beyond the mentioned date that it will be considered as a partnership at will.
Indian Partnership Act 1932
Most of the businesses in India adopt a partnership business, so to monitor and govern such
partnership The Indian Partnership Act was established on the 1st October 1932. Under this
partnership act, an agreement is made between two or more persons who agrees to operate the
business together and distribute the profits they gain from this business.
Students can also refer to Basic Concepts of Accounting for Partnership

Advantages of Partnership:

 Easy Formation – An agreement can be made oral or printed as an agreement to enter

as a partner and establish a firm.
 Large Resources – Unlike sole proprietor where every contribution is made by
one person, in partnership, partners of the firm can contribute more capital and
other resources as required.
 Flexibility – The partners can initiate any changes if they think it is required to meet
the desired result or change circumstances.
 Sharing Risk – All loss incurred by the firm is equally distributed amongst each partner.
 Combination of different skills – The partnership firm has the advantage of
knowledge, skill, experience and talents of different partners.

Partnership Examples:
Few co-branding partnership examples are listed below:

 Red Bull and GoPro

 Spotify and Uber
 Levi‘s & Pinterest
 Maruti Suzuki
 Hindustan Petroleum

Joint Stock Company

A joint stock company is an organisation which is owned jointly by all its shareholders. Here, all
the stakeholders have a specific portion of stock owned, usually displayed as a share.
Each joint stock company share is transferable, and if the company is public, then its shares are
marketed on registered stock exchanges. Private joint stock company shares can be transferred
from one party to another party. However, the transfer is limited by agreement and family
members.

Features of Joint Stock Company

1. Separate Legal Entity – A joint stock company is an individual legal entity, apart from
the persons involved. It can own assets and can because it is an entity it can sue or can
be
 sued. Whereas a partnership or a sole proprietor, it has no such legal existence apart
from the person involved in it. So the members of the joint stock company are not liable
to the company and are not dependent on each other for business activities.
2. Perpetual – Once a firm is born, it can only be dissolved by the functioning of law.
So, company life is not affected even if its member keeps changing.
3. Number of Members – For a public limited company, there can be an unlimited
number of members but minimum being seven. For a private limited company, only two
members. In general, a partnership firm cannot have more than 10 members in one
business.
4. Limited Liability – In this type of company, the liability of the company‘s
shareholders is limited. However, no member can liquidate the personal assets to pay
the debts of a firm.
5. Transferable share – A company‘s shareholder without consulting can transfer his
shares to others. Whereas, in a partnership firm without any approval of other partners,
a partner cannot move his share.
6. Incorporation – For a firm to be accepted as an individual legal entity, it has to be
incorporated. So, it is compulsory to register a firm under a joint stock company.

Types of Joint Stock Company

The joint stock company is divided into three different types.

 Chartered Company – A firm incorporated by the king or the head of the state is known
as a chartered company.
 Statutory Company – A company which is formed by a particular act of parliament
is known as a statutory company. Here, all the power, object, right, and responsibility
are all defined by the act.
 Registered Company – An organisation that is formed by registering under the law of
the company comes under a registered company.

Example of Joint Stock Company

Few examples are mentioned below.

 Indian Oil Corporation Ltd.

 Tata Motors Ltd.
 Reliance Industries Ltd.

Multinational Corporation

A multinational corporation (MNC) is a company that operates in its home country, as well as in
other countries around the world. It maintains a central office located in one country, which
coordinates the management of all its other offices, such as administrative branches or factories.
It isn‘t enough to call a company that exports its products to more than one country a
multinational company. They need to maintain actual business operations in other countries and
must make a foreign direct investment there.

Characteristics of a Multinational Corporation

The following are the common characteristics of multinational corporations:

1. Very high assets and turnover

To become a multinational corporation, the business must be large and must own a huge amount
of assets, both physical and financial. The company‘s targets are high, and they are able to
generate substantial profits.

2. Network of branches

Multinational companies maintain production and marketing operations in different countries. In

each country, the business may oversee multiple offices that function through several branches
and subsidiaries.

3. Control

In relation to the previous point, the management of offices in other countries is controlled by
one head office located in the home country. Therefore, the source of command is found in the
home country.

4. Continued growth

Multinational corporations keep growing. Even as they operate in other countries, they strive to
grow their economic size by constantly upgrading and by conducting mergers and acquisitions.
5. Sophisticated technology

When a company goes global, they need to make sure that their investment will grow
substantially. In order to achieve substantial growth, they need to make use of capital-intensive
technology, especially in their production and marketing activities.

6. Right skills

Multinational companies aim to employ only the best managers, those who are capable of
handling large amounts of funds, using advanced technology, managing workers, and running a
huge business entity.

7. Forceful marketing and advertising

One of the most effective survival strategies of multinational corporations is spending a great
deal of money on marketing and advertising. This is how they are able to sell every product or
brand they make.

8. Good quality products

Because they use capital-intensive technology, they are able to produce top-of-the-line products.

Reasons for Being a Multinational Corporation

There are various reasons why companies want to become multinational corporations. Here are
some of the most common motivations:

1. Access to lower production costs

Setting up production in other countries, especially in developing economies, usually translates

to spending significantly less on production costs. Though outsourcing is a way of achieving the
objective, setting up manufacturing plants in other countries may be even more cost-efficient.

Due to their large size, MNCs can take advantage of economies of scale and grow their global
brand. The growth is done through strategic manufacturing/service placement, which allows the
corporation to take advantage of undervalued services across the globe, more efficient and
inexpensive supply chains, and advanced technological/R&D capacity.

2. Proximity to target international markets

It is beneficial to set up business in countries where the target consumer market of a company is
located. Doing so helps reduce transport costs and gives multinational corporations easier
access to consumer feedback and information, as well as to consumer intelligence.
International brand recognition makes the transition from different countries and their
respective markets easier and decreases per capita marketing costs as the same brand vision can
be applied worldwide.

3. Access to a larger talent pool

Multinational corporations are also known to hire only the best talent from around the world,
which allows management to provide the best technical knowledge and innovative thinking to
their product or service.

4. Avoidance of tariffs

When a company produces or manufactures its products in another country where they also sell
their products, they are exempt from import quotas and tariffs.

Models of MNCs

The following are the different models of multinational corporations:

1. Centralized

In the centralized model, companies put up an executive headquarters in their home country and
then build various manufacturing plants and production facilities in other countries. Its most
important advantage is being able to avoid tariffs and import quotas and take advantage of lower
production costs.

2. Regional

The regionalized model states that a company keeps its headquarters in one country that
supervises a collection of offices that are located in other countries. Unlike the centralized
model, the regionalized model includes subsidiaries and affiliates that all report to the
headquarters.

3. Multinational

In the multinational model, a parent company operates in the home country and puts up
subsidiaries in different countries. The difference is that the subsidiaries and affiliates are more
independent in their operations.
Advantages of Being a Multinational Corporation

There are many benefits of being a multinational corporation including:

1. Efficiency

In terms of efficiency, multinational companies are able to reach their target markets more easily
because they manufacture in the countries where the target markets are. Also, they can easily
access raw materials and cheaper labor costs.

2. Development

In terms of development, multinational corporations pay better than domestic companies,

making them more attractive to the local labor force. They are usually favored by the local
government because of the substantial amount of local taxes they pay, which helps boost the
country‘s economy.

3. Employment

In terms of employment, multinational corporations hire local workers who know the culture of
their place and are thus able to give helpful insider feedback on what the locals want.

4. Innovation

As multinational corporations employ both locals and foreign workers, they are able to come up
with products that are more creative and innovative.

Foreign Direct Investment

Foreign direct investments are prevalent within multinational corporations. The investments
occur when an investor or company from one country makes an investment outside the country
of operation.
Foreign investments most often occur when a foreign business is established or bought outright.
It can be distinguished from the purchase of an international portfolio that only contains
equities of the company, rather than purchasing more direct control.

A multinational corporation (MNC) is a company that operates in its home country, as well as in
other countries around the world. It maintains a central office located in one country, which
coordinates the management of all its other offices, such as administrative branches or factories.

It isn‘t enough to call a company that exports its products to more than one country a
multinational company. They need to maintain actual business operations in other countries and
must make a foreign direct investment there.

Characteristics of a Multinational Corporation

The following are the common characteristics of multinational corporations:

1. Very high assets and turnover

To become a multinational corporation, the business must be large and must own a huge amount
of assets, both physical and financial. The company‘s targets are high, and they are able to
generate substantial profits.

2. Network of branches

Multinational companies maintain production and marketing operations in different countries. In

each country, the business may oversee multiple offices that function through several branches
and subsidiaries.
3. Control

In relation to the previous point, the management of offices in other countries is controlled by
one head office located in the home country. Therefore, the source of command is found in the
home country.

4. Continued growth

Multinational corporations keep growing. Even as they operate in other countries, they strive to
grow their economic size by constantly upgrading and by conducting mergers and acquisitions.

5. Sophisticated technology

When a company goes global, they need to make sure that their investment will grow
substantially. In order to achieve substantial growth, they need to make use of capital-intensive
technology, especially in their production and marketing activities.

6. Right skills

Multinational companies aim to employ only the best managers, those who are capable of
handling large amounts of funds, using advanced technology, managing workers, and running a
huge business entity.

7. Forceful marketing and advertising

One of the most effective survival strategies of multinational corporations is spending a great
deal of money on marketing and advertising. This is how they are able to sell every product or
brand they make.

8. Good quality products

Because they use capital-intensive technology, they are able to produce top-of-the-line products.

Reasons for Being a Multinational Corporation

There are various reasons why companies want to become multinational corporations. Here are
some of the most common motivations:

1. Access to lower production costs

Setting up production in other countries, especially in developing economies, usually translates

to spending significantly less on production costs. Though outsourcing is a way of achieving the
objective, setting up manufacturing plants in other countries may be even more cost-efficient.
Due to their large size, MNCs can take advantage of economies of scale and grow their global
brand. The growth is done through strategic manufacturing/service placement, which allows the
corporation to take advantage of undervalued services across the globe, more efficient and
inexpensive supply chains, and advanced technological/R&D capacity.

2. Proximity to target international markets

It is beneficial to set up business in countries where the target consumer market of a company is
located. Doing so helps reduce transport costs and gives multinational corporations easier
access to consumer feedback and information, as well as to consumer intelligence.

International brand recognition makes the transition from different countries and their
respective markets easier and decreases per capita marketing costs as the same brand vision can
be applied worldwide.

3. Access to a larger talent pool

Multinational corporations are also known to hire only the best talent from around the world,
which allows management to provide the best technical knowledge and innovative thinking to
their product or service.

4. Avoidance of tariffs

When a company produces or manufactures its products in another country where they also
sell their products, they are exempt from import quotas and tariffs.

Models of MNCs

The following are the different models of multinational corporations:

1. Centralized

In the centralized model, companies put up an executive headquarters in their home country and
then build various manufacturing plants and production facilities in other countries. Its most
important advantage is being able to avoid tariffs and import quotas and take advantage of lower
production costs.

2. Regional

The regionalized model states that a company keeps its headquarters in one country that
supervises a collection of offices that are located in other countries. Unlike the centralized
model, the regionalized model includes subsidiaries and affiliates that all report to the
headquarters.
3. Multinational

In the multinational model, a parent company operates in the home country and puts up
subsidiaries in different countries. The difference is that the subsidiaries and affiliates are more
independent in their operations.

Advantages of Being a Multinational Corporation

There are many benefits of being a multinational corporation including:

1. Efficiency

In terms of efficiency, multinational companies are able to reach their target markets more easily
because they manufacture in the countries where the target markets are. Also, they can easily
access raw materials and cheaper labor costs.

2. Development

In terms of development, multinational corporations pay better than domestic companies,

making them more attractive to the local labor force. They are usually favored by the local
government because of the substantial amount of local taxes they pay, which helps boost the
country‘s economy.

3. Employment

In terms of employment, multinational corporations hire local workers who know the culture of
their place and are thus able to give helpful insider feedback on what the locals want.

4. Innovation

As multinational corporations employ both locals and foreign workers, they are able to come up
with products that are more creative and innovative.
Foreign Direct Investment

Foreign direct investments are prevalent within multinational corporations. The investments
occur when an investor or company from one country makes an investment outside the country
of operation.

Foreign investments most often occur when a foreign business is established or bought outright.
It can be distinguished from the purchase of an international portfolio that only contains
equities of the company, rather than purchasing more direct control.

Business Plan
A business plan is a summary document that outlines how and why a new business is being
created. New entrepreneurial ventures must prepare formal written documents to outline their
long-term objectives and the means to be employed to reach said objectives. The business plan
underlines the strategies that need to be adopted in order to reach organizational goals,
identify potential problems, and devise custom solutions for them.

Why Use a Business Plan?

Owing to the following benefits of a well-researched and comprehensive business plan,

preparing one is highly recommended, but not a mandate.

1. Feasibility

Entrepreneurs use a business plan to understand the feasibility of a particular idea. It is important
to contextualize the worth of the proposed product or service in the current market before
committing resources such as time and money. It helps to expand the otherwise limited view of a
passionate innovator-turned-entrepreneur.

2. Focusing device

Formulating a concrete plan of action enables an organized manner of conducting business and
reduces the possibility of losses due to uncalculated risks. Business plans act as reference tools
for management and employees as they solidify the flow of communication, authority, and
task allocation.

3. Foresight

The process of preparing a business plan often creates many unintended yet desired results. It
functions on the principle of foresight as it helps one realize future hurdles and challenges that
aren‘t explicit. It also brings a variety of perspectives on the forefront, eventually leading to a
more comprehensive future plan of action.
4. Raising capital

A business plan is an effective way of communicating with potential investors, and the level of
expertise and time used in preparing a business plan also gives professional credibility
to entrepreneurs. It analyzes and predicts the chances of success for the investor and helps to
raise capital.

Features of a Good Business Plan

1. Executive Summary

The executive summary functions as a reading guide, as it highlights the key aspects of the plan
and gives structure to the document. It must describe ownership and history of formation. It is an
abstract of the entire plan, describes the mission statement of the organization, and presents an
optimistic view about the product/service/concept.

2. Business Description

This section presents the mission and vision of an organization. Business descriptions provide
the concept of one‘s place in the market and its benefits to future customers. It must include key
milestones, tasks, and assumptions, popularly known as MAT. Big ideas are redundant without
specifics that can be tracked. Fundamental questions to be answered include:

 Who are you?

 What is the product or service, and what are its differentiating characteristics?
 Where is the opportunity located?
 When will you start implementing your plan and expects cash flows or profits?
 Why should customers choose your company?
 How do you plan to run the business in terms of structure and regulatory compliance?
3. Market Strategies

The market strategies section presents the target consumer group and the strategies needed to tap
into it. It requires meticulous analysis of all aspects of the market, such as demography, cultural
norms, environmental standards, resource availability, prices, distribution channels, etc.

4. Competitive Analysis

The competitive analysis section aims to understand the entry barriers one could face due to
other companies in the same or complementary sectors. The strengths of existing companies
could be co-opted into one‘s strategy, and the weaknesses of existing product development
cycles could be exploited to gain a distinct advantage.
5. Design and Development Plan

It outlines the technical details of the product and its development cycle within the realm of
production. In the sphere of circulation, it focuses on marketing and the overall budget required
to reach organizational objectives.

6. Operations and Management Plan

The operations and management plan describes the cycle of business functions needed for
survival and growth. It includes management functions such as task division, hierarchy,
employee recruitment, and operational functions such as the logistics of the value chain,
distribution, and other capital and expense requirements. The managers‘ backgrounds must also
be briefly included.

7. Financial Factors

The financials section should include the company‘s balance sheet and cash flow projections.
Financial data is imperative to provide credibility to any assertions or claims made about the
future profitability of the business. The aim is to provide an accurate idea of the company‘s
value and ability to bear operational costs and earn profits.

Common Mistakes to Avoid While Writing a Business Plan

 The plan must not begin by stressing the superiority of one‘s product or service, but
instead by identifying a genuine problem faced by the consumer. The plan should then
be presented as a way of bridging that gap between consumer expectations and industry
offerings.
 A team‘s expertise is displayed not by listing their academic achievements and
employment history, but by stressing how the team‘s experience is best suited for a
particular industry sector or product. Often, teams with members who have failed in
a past venture are successful in attracting capital.
 The most common mistake is to offer an excessively optimistic view of the opportunity.
There is no market without competition and no venture without some degree of risk,
and a business plan must portray the objective truth with sincerity.