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SECTION-II
DOMAIN SPECIFIC SUBJECT

Business Studies
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 EXAMINATION STRUCTURE

SECTION-II: DOMAIN SPECIFIC SUBJECTS

No. of Questions Subject Time

40 Questions  Input text can be used for
to be MCQ Based Questions 45 minutes for
attempted out  MCQs based on NCERT Class XII each Domain
of 50 Syllabus only Specific Subjects

 Mode of the Test : Computer Based Test (CBT)

 Test Pattern : Objective type with Multiple Choice Questions
 Medium of Exam : 13 Languages (Tam il, Telugu, Kannada,
Malayalam, Marathi, Gujarati, Odiya, Bengali,
Assamese, Punjabi, English, Hindi and Urdu)

(iii)
 CONTENTS

SAMPLE PAPER

CUET (UG) – Business Studies ......................................................................................... 1-8

BUSINESS STUDIES (1-116)

 Principles and Functions of Management—Nature and Significance of

Management; Principles of Management; Business Environment; Planning;
Organising; Staffing; Directing; Controlling.

 Business Finance and Marketing—Business Finance; Financial Markets;

Marketing; Consumer Protection; Entrepreneurship Development.

 Multiple Choice Questions

    

(iv)
 SAMPLE PAPER (SOLVED) Sample Paper 1

CUET-UG

BUSINESS STUDIES*

SECTION-II : DOMAIN SPECIFIC SUBJECT

1. Gabbar is a wholesaler of food grains. He categorises A. Time study B. Method study

his stock into different groups on the basis of their C. Motion study D. None of the above
quality and also fixes up the prices accordingly.
5. ‘Twinkle Stars’ is a well-known resort for organising
Identify the type of marketing function being parties, especially for children. However, in past
mentioned in the given line. 6 months its popularity has reduced considerably as
A. Physical distribution a new resort with better ambience and facilities has
B. Transportation opened within its vicinity.
C. Warehousing
Name the related feature of business environment
D. Standardisation and grading which has influenced the business of ‘Twinkle Stars’
2. According to the modern marketing concept, which adversely.
of the following statements is true? A. Totality of external forces
A. It refers to the group of people who do not have B. Dynamic nature
the ability but willingness to buy a particular C. Interrelatedness
product. D. Uncertainty
B. It refers to only the set of people who have the
6. Agile Limited has launched a new range of air
purchasing power to buy a particular product. conditioners in order to add value to the usability of
C. It refers to the set of actual and potential buyers
the product. The new range of air conditioners have
for a product.
an inbuilt air purifier and are available in attractive
D. It refers only to the people who show interest in colours.
a particular product.
Identify the type of marketing philosophy being
3. According to Taylor, “even a small production activity
described in the above lines.
like loading figures of iron into boxes can be
A. Product concept
scientifically planned and managed. This can result B. Production concept
in tremendous savings of human energy as well as
C. Marketing concept
wastage of time and materials.”
D. Societal marketing concept
Identify the related principle of scientific manage-
7. Which of the following is the correct matching
ment. pair?
A. Harmony, not discord
A. Helps in product protection — Branding
B. Science, not rule of thumb
B. Helps in product designing — Packaging
C. Development of each and every person to get his/ C. Helps in identifying the — Product
her greatest efficiency and prosperity
product Development
D. None of the above
D. Helps in providing information — Labelling
4. This technique of scientific management aims to to the customer Packaging
determine the amount and frequency of rest intervals 8. Which principle of general management advocates
that should be provided to the employees during
that, “Employee turnover should be minimised to
working hours.
maintain organisational efficiency”?

*40 Questions to be attempted out of 50 1 4000 (SP)—1

 2 Sample Paper
A. Stability of personnel
B. Remuneration of employees
C. Equity
D. Esprit De Corps
9. Make the correct order of following marketing
functions:
I. Market planning
II. Gathering and analysing marketing information
III. Standardisation and grading
IV. Product designing and development
A. I, II, IV, III
B. I, IV, II, III
C. II, I, IV, III
D. IV, I, II, III
10. DigiLocker is the country’s first secured cloud-based
platform for the storage, issuance and verification of
documents with the Driving Licence & Vehicle
Registration System of the Road Transport Ministry.
The integration of a government department with
DigiLocker since its launch last year is one of the
biggest of its kind. It will spare 1 people the trouble
of carrying licences & vehicle papers, which can be
accessed on phones using the DigiLocker app.
Identify the related dim ension of business
environment.
A. Economic dimension
B. Technological dimension
C. Social dimension
D. Political dimension
11. Management is equally important to run a political
organisation as it is to run an economic organisation.
Which feature of management is being reflected in
the given statement?
A. Management is goal oriented
B. Management is multidimensional
C. Management is all pervasive
D. Management is a group activity
12. I. Delegation of authority is inevitable and decentra-
lisation is voluntary.
II. Scope of delegation of authority is limited and
the scope of decentralisation is broad.
Both the above statements are:
A. True
B. False
C. Statement (I) is True and Statement (II) is False
D. Statement (I) is False and Statement (II) is True
13. India continues to be a lower-middle-income country
along with 46 others, while Sri Lanka has climbed to
the upper-middle-income group for the fiscal year
(FY ) 2020, according to the World Bank’s
classification of countries by income levels, released
on July 1, 2019.
Identify the related dim ensions of business
environment.
A. Social dimension
B. Technological dimension
C. Economic dimension
D. Political dimension
14. Which of the following is not a designation related to
top level management?
A. President
B. Vice-President
C. Chairman
D. Production Manager
15. Two friends—Ramesh Singh and Krishan Gopal—are
working as managers in different companies. One
Sunday, both of them together set off on travelling.
Both of them began talking about the activities going
on in their respective companies. Mr Ramesh said
that during those days he was busy with the job of
planning function of management. Also he told that
he was planning in such a way that the other
managerial functions should be completed under the
framework of plans prepared by him.
Identify the feature of planning described in the above
discussion.
A. Planning focuses on achieving objectives
B. Planning is a primary function of management
C. Planning is pervasive
D. Planning is continuous
16. Which of the following is not an element of
delegation?
A. Responsibilty
B. Authority
C. Accountability
D. Decentralisation
Directions (Qs. No. 17-19): Read the following information
carefully and answer these questions.
Anil is a Managing director in a toy manufacturing
company. He decided to set up a new manufacturing unit
of his company in a rural area of Bihar where job oppor-
tunities are very less. He believes in using environmental
friendly methods of production and aims at giving
employment opportunities to the disadvantaged section of
the community. As a manager he aims at reducing costs
and increasing productivity through better planning,
organizing, directing staffing and controlling the activities
of the organization. Anil considers human resources as the
greatest asset of any organization. Getting work done
through others is a major task of a manager as per the views

of Anil. As a manager Anil believes that his task is to
make workers work towards achieving the organizations’
goals.
17. Identify the level of management at which Anil is
working.
A. Top level management
B. Middle level management
C. Lower level management
D. Supervisory level management
18. Identify the objective of management discussed in
the given case (Choose the correct alternative)
A. Economic objective
B. Organizational objective
C. Social objective
D. Personal objective
19. “As a manager, he aims at reducing costs and
increasing productivity”.
Name the importance of management highlighted in
the given statement.
A. Management helps in achieving group goals
B. Management creates a dynamic organization
C. Management increases efficiency
D. M anagem ent helps in achieving personal
objectives
20. Mr Sanjiv Gupta decided to double the production of
his company. Now he is going to translate his decision
into reality. Here, he is also thinking how many
additional/extra machines and workers will be required
to achieve the production target. His dream will be
possible to be realised only after the arrangement for
these extra sources is done.
Which stage of ‘Planning Process’ is being completed
by Mr Gupta in the above event?
A. Evaluating alternative courses
B. Selecting an alternative
C. Implementing the plan
D. Follow-up action
21. Indigo Limited has a staff of 300 people which is
grouped into different departments. The organisational
structure depicts that 100 people work in Production
department, 150 in Finance department, 20 in
Technology department and 30 in Human Resource
department.
Identify the type of organisational structure being
followed by the company.
A. Functional structure
B. Divisional structure
C. Informal structure
D. None of the above
Sample Paper 3
22. Shaukeen Ahmed is working as a leading employee
at the low level management in ‘Balaji Udyog Ltd.’
According to one plan, he has to prepare 100 units of
high quality of one item in a day, and every unit
should not cost more than ` 500. When the work
actually started, it was learnt that the desired goods
could be prepared within a day, but due to the sudden
inflation in the raw material, every unit was to cost
` 550. Now Mr Shaukeen is in a fix what to do and
what not to do.
Identify the ‘limitation of planning’ in the event given
above.
A. Planning leads to rigidity
B. Planning may not work in a dynamic environment
C. Planning reduces creativity
D. Planning involves huge costs
23. Making assumptions for future is called:
A. Making derivative plans
B. Making policy
C. Setting planning premises
D. All of the above
24. Span of management refers to:
A. Number of managers
B. Length of term for which a manager is appointed
C. Number of subordinates under a superior
D. Number of members in top management
Directions (Qs. No. 25-27): Read the following information
carefully and answer these questions.
After completing her Bachelors in Fashion Designing
from a well-known college in France, Aditi has opened a
boutique in a posh market in Kolkata. She has divided the
work in smaller units and each employee is well trained to
perform his/her task efficiently. The sales persons are
allowed to close a deal with a buyer by giving a maximum
of 5 per cent discount, whereas the decision to give any
further discount rests with Aditi as the final authority. In
the earlier period of her business venture, employees were
asked to put in extra hours of work. In return she had
promised to give them a special incentive within a year.
Therefore, when the business was doing well, she honoured
her commitment by giving bonus to her employees. She
also instructed her employees that communication from
top to bottom should follow the official lines of command.
However, she tends to be more biased towards her female
employees, when it comes to solving the conflicts among
employees.
25. Aditi has divided the work in smaller units and each
employee is well trained to perform his/ her task
efficiently.
 4 Sample Paper
Which principle of management is being followed
here?
A. Centralization and Decentralization
B. Division of work
C. Discipline
D. Order
26. “The sales persons are allowed to close a deal with a
buyer by giving a maximum of 5 per cent discount,
whereas the decision to give any further discount
rests with Aditi as the final authority”.
Identify the Principle of Management being followed
here:
A. Centralization and Decentralisation
B. Authority and Responsibility
C. Unity of Command
D. Unity of Direction
27. “Therefore, when the business was doing well, she
honoured her commitment by giving bonus to her
employees.”
Which principle of management is being highlighted
here?
A. Discipline
B. Order
C. Remuneration to Employees
D. Unity of Direction
Directions (Qs. No. 28-30): There are two statements marked
as Assertion (A) and Reason (R). Read the statements and
choose the appropriate option from the options given
below:
A. Both (A) and (R) are true and (R) is the correct
explanation of (A)
B. Both (A) and (R) are true, but (R) is not the
correct explanation of (A)
C. (A) is true, but (R) is false
D. (A) is false, but (R) is true
28. Assertion (A) : Planning involves huge costs.
Reason (R) : Plans require scientific calculations
to ascertain facts, figures and a
number of incidental costs as well,
like expenses on boardroom meet-
ings, discussions with professional
experts etc.
29. Assertion (A) : M arketing Planning helps in
collecting inform ations about
consumers, their requirements and
expectations.
Reason (R) : These planning are m ade for
increasing the level of production,
sales and promotion of products etc.
30. Assertion (A) : Coordination ensures unity of action.
Reason (R) : It gives a common focus to the effort
of people with diverse interest.
31. Which of the following function is performed by the
middle-level management?
A. A nalysis of business environment and its
implication for survival of organisation
B. Maintenance of quality output and minimisation
of wastage
C. Formulation of organisational goals and strategies
D. Interpretation of the policies framed by the top
management
32. Assertion (A) : Branding is the most important
technique in the m odern days
globalized business.
Reason (R) : Companies are decided to sell its
products with name of the company
or a special brand name to cover a
major share in the market.
A. Both (A) and (R) are true and (R) is the correct
explanation of (A)
B. Both (A) and (R) are true, but (R) is not the
correct explanation of (A)
C. (A) is correct, but (R) is incorrect
D. (A) is incorrect, but (R) is correct
33. The responsibility flows:
A. In all directions B. Downwards
C. Upwards D. None of the above
34. The form of organisation known for giving rise to
rumours is called:
A. Centralised organisation
B. Decentralised organization
C. Informal organisation
D. Formal organisation
35. Prem Kamboj is working as the top level manager in
a business organisation. He has been given the job
of preparing the plans for the whole company.
Mr Kamboj is an expert in making a correct forecast.
At first, he looks for the different options to complete
every job, and then on the basis of their evaluation
selects the most suitable option. In this way, by taking
correct decision and beating his competitors, he is
moving forward.
To which particular point of the ‘importance of
planning’ is the above event related?
A. Planning provides direction
B. Planning promotes innovative ideas
C. Planning establishes standards for controlling
D. Planning facilitates decision making
2715 (SP)—3-II

36. Assertion (A) : Packaging ensures safety of the
products.
Reason (R) : It helps in promoting the product in
the market.
Codes:
A. Both (A) and (R) are true and (R) is the correct
explanation of (A)
B. Both (A) and (R) are true, but (R) is not the
correct explanation of (A)
C. (A) is correct, but (R) is incorrect
D. (A) is incorrect, but (R) is correct
37. Identify the correct sequence of steps to be followed
in an organising process.
A. Departmentalisation, Establishing reporting
relationships, Assignment of duties, Identification
and division of work
B. Identification and division of work, Depart-
mentalisation, Assignment of duties, Establishing
reporting relationships
C. Identification and division of work, Assignment
of duties, Departmentalisation, Establishing
reporting relationships
D. Identification and division of work, Establishing
reporting relationships, Departmentalisation,
Assignment of duties.
38. Which of the following is not a demerit of functional
structure?
A. It places more emphasis on the objectives pursued
by a functional head than on overall enterprise
objectives
B. It may lead to conflict of interests among
departments due to varied interests
C. It leads to occupational specialisation
D. It may lead to difficulty in co-ordination among
functionally differentiated departments
39. Make the correct order of following marketing
functions:
I. Market planning
II. Gathering and analysing marketing information
III. Standardisation and grading
IV. Product designing and development
A. I, II, IV, III
B. I, IV, II, III
C. II, I, IV, III
D. IV, I, II, III
40. Assertion (A) : Packaging is know n as a silent
salesman.
Reason (R) : Attractive and innovative package can
attract a lot of customers to purchase
the product.
Sample Paper 5
Codes:
A. Both (A) and (R) are true and (R) is the correct
explanation of (A)
B. Both (A) and (R) are true, but (R) is not the
correct explanation of (A)
C. (A) is correct, but (R) is incorrect
D. (A) is incorrect, but (R) is correct
41. The process of grouping activities into units for the
purpose of administration may be referred to as
A. Departmentalisation
B. Decentralisation
C. Co-ordination
D. Specialisation
42. Span of control means that
A. an organisation consists of various departments
B. each person’s authority is clearly defined
C. every subordinate has one superior
D. a manager can supervise only a limited number of
subordinates
43. If a general manager asks the sales manager to
recruit some sales men on his behalf, it is an instance
of:
A. division of authority
B. decentralisation of authority.
C. delegation of authority
D. delegation of responsibility
44. Which one of the following principles states that
recurring decisions should be handled in a routine
manner by lower level managers whereas problems
involving unusal matters only should be referred to
higher levels?
A. Principle of unity of command
B. Scalar principle
C. Principle of exception
D. Principle of commitment
45. MBO is a technique which requires that the objectives
of the enterprise:
A. be written and defined in board terms
B. lay down the time period for achieving the results
C. include a plan of action for achieving the desired
results
D. be defined in terms of measurable results
46. In the field of management some of the important
techniques, relate to budgeting, cost accounting,
planning and control are through
A. Operational research
B. PERT & CPM
C. Budgetary control
D. Financial Administration
 6 Sample Paper

47. Which of the following management functions are 49. The famous book “The Philosophy of Management”
closely related? was written by:
A. Planning and organising A. Henery Fayol
B. Staffing and control B. Oliver Sheldon
C. Planning and control C. F. W. Taylor
D. Planning and staffing D. Urwick
48. “Human Relating Approach” to management was 50. Policy making is an important part of the process
origined by: of:
A. Henery Fayol A. Planning
B. Winslow Taylor B. Co-ordinating
C. Elton Mayo C. Organising
D. Peter F. Drucker D. Motivating

ANSWERS
1 2 3 4 5 6 7 8 9 10
D C B D B A D A C B
11 12 13 14 15 16 17 18 19 20
C A C D B D A C C C
21 22 23 24 25 26 27 28 29 30
A A C C B A A A D B
31 32 33 34 35 36 37 38 39 40
D A C C D B B C C A
41 42 43 44 45 46 47 48 49 50
A D C C D B C C B A
 7 Sample Paper 7

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1 (2715) Business Studies—1
2 Business Studies

Nature and Significance of Management
DEFINITIONS OF MANAGEMENT
“Management is the process of designing and maintaining
an environment in which individuals, working together in
groups, efficiently accomplish selected aims.”
—Harold Koontz and Heinz Weihrich
“Management is defined as the process of planning,
organising, actuating and controlling an organisation’s
operations in order to achieve coordination of the human
and material resources essential in the effective and efficient
attainment of objectives.”
—Robert L. Trewelly and M. Gene Newport
“Management is the process of working with and
through others to effectively achieve organisational
objectives by efficiently using limited resources in the
changing environment.” —Kreitner
CONCEPT
Management is a very popular term and has been used
extensively for all types of activities and mainly for taking
charge of different activities in any enterprise. Management
aims at guiding their efforts towards achieving a common
objective—a goal. Thus, management has to see that tasks
are completed and goals are achieved (i.e., effectiveness)
with the least amount of resources at a minimum cost (i.e.,
efficiency).
Management, has therefore, been defined as a process
of getting things done with the aim of achieving goals
effectively and efficiently. We need to analyse this
definition. There are certain terms which require elaboration.
These are (a) process, (b) effectively, and (c) efficiently.
Being effective or doing work effectively basically
means finishing the given task. Effectiveness in management
is concerned with doing the right task, completing activities
and achieving goals. In other words, it is concerned with the
end result.
But it is not enough to just complete the tasks. There
is another aspect also, i.e., being efficient or as we say doing
work efficiently.
Efficiency means doing the task correctly and with
minimum cost. There is a kind of cost-benefit analysis
involved and the relationship between inputs and outputs.
3
Business Studies 3
If by using less resources (i.e., the inputs) more benefits are
derived (i.e., the outputs) then efficiency has increased.
Efficiency is also increased when for the same benefit or
outputs, fewer resources are used and less costs are incurred.
Input resources are money, materials, equipment and persons
required to do a particular task. Obviously, management is
concerned with the efficient use of these resources, because
they reduce costs and ultimately lead to higher profits.
CHARACTERISTICS OF MANAGEMENT
The Characteristics of Management are:
(i) Management is a goal-oriented process: An
organisation has a set of basic goals which are the
basic reason for its existence. These should be simple
and clearly stated. Different organisations have
different goals. For example, the goal of a retail
store may be to increase sales, but the goal of The
Spastics Society of India is to impart education to
children with special needs. Management unites the
efforts of different individuals in the organisation
towards achieving these goals.
(ii) Management is all pervasive: The activities
involved in managing an enterprise are common to
all organisations whether economic, social or
political. A petrol pump needs to be managed as
much as a hospital or a school. What managers do
in India, the USA, Germany or Japan is the same.
How they do it may be quite different. This difference
is due to the differences in culture, tradition and
history.
(iii) Management is multidimensional: Management is
a complex activity that has three main dimensions.
These are:
(a) Management of work: All organisations exist
for the performance of some work. In a factory,
a product is manufactured, in a garment store a
customer’s need is satisfied and in a hospital a
patient is treated. Management translates this
work in terms of goals to be achieved and
assigns the means to achieve it. This is done in
terms of problems to be solved, decisions to be
made, plans to be established, budgets to be
prepared, responsibilities to be assigned and
authority to be delegated.
4 Business Studies
(b) Management of people: Human resources or
people are an organisation’s greatest asset.
Despite all developments in technology “getting
work done through people” is still a major task
for the manager. Managing people has two
dimensions:
(i) it implies dealing with employees as indi-
viduals with diverse needs and behaviour;
(ii) it also means dealing with individuals as a
group of people.
The task of management is to make people
work towards achieving the organisation’s goals,
by making their strengths effective and their
weaknesses irrelevant.
(c) Management of operations: No matter what
the organisation, it has some basic product or
service to provide in order to survive. This
requires a production process which entails the
flow of input material and the technology for
transforming this input into the desired output
for consumption. This is interlinked with both
the management of work and the management
of people.
(iv) Management is a continuous process: The process
of management is a series of continuous, composite,
but separate functions (planning, organising,
directing, staffing and controlling). These functions
are simultaneously performed by all managers all
the time. We may have observed that Smita at
Namchi Designer Candles performs several different
tasks in a single day. Some days she may spend
more time in planning a future exhibition and on
another day, she may spend time in sorting out an
employee’s problem. The task of a manager consists
of an ongoing series of functions.
(v) Management is a group activity: An organisation
is a collection of diverse individuals with different
needs. Every member of the group has a different
purpose for joining the organisation but as members
of the organisation they work towards fulfilling the
common organisational goal. This requires team work
and coordination of individual effort in a common
direction. At the same time management should
enable all its members to grow and develop as needs
and opportunities change.
(vi) Management is a dynamic function: Management
is a dynamic function and has to adapt itself to the
changing environment. An organisation interacts
with its external environment which consists of
various social, economic and political factors. In
order to be successful, an organisation must change
itself and its goals according to the needs of the
environment. We probably know that McDonalds,
the fast food giant made major changes in its menu
to be able to survive in the Indian market.
(vii) Management is an intangible force: Management
is an intangible force that cannot be seen but its
presence can be felt in the way the organisation
functions. The effect of management is noticeable
in an organisation where targets are met according
to plans, employees are happy and satisfied, and
there is orderliness instead of chaos.
IMPORTANCE OF MANAGEMENT
The follow ing points highlight the importance of
management in an organisation:
(i) Management helps in achieving group goals:
Management is required not for itself but for
achieving the goals of the organisation. The task of
a manager is to give a common direction to the
individual effort in achieving the overall goal of the
organisation.
(ii) Management increases efficiency: The aim of a
manager is to reduce costs and increase productivity
through better planning, organising, directing,
staffing and controlling the activities of the
organisation.
(iii) Management creates a dynamic organisation: All
organisations have to function in an environment
which is constantly changing. It is generally seen
that individuals in an organisation resist change as
it often means moving from a familiar, secure
environment into a newer and more challenging
one. Management helps people adapt to these
changes so that the organisation is able to maintain
its competitive edge.
(iv) Management helps in achieving personal
objectives: A manager motivates and leads his team
in such a manner that individual members are able
to achieve personal goals while contributing to the
overall organisational objective. Through motivation
and leadership the management helps individuals to
develop team spirit, cooperation and commitment
to group success.
(v) Management helps in the development of society:
An organisation has multiple objectives to serve the
purpose of the different groups that constitute it. In
the process of fulfilling all these, management helps
in the development of the organisation and through
that it helps in the development of society. It helps
to provide good quality products and services,
creates employment opportunities, adopts new
technology for the greater good of the people and
leads the path towards growth and development.

NATURE OF MANAGEMENT
Management is as old as civilisation. Although modern
organisations are of recent origin, organised activity has
existed since the time of the ancient civilisations. In fact,
organisations may be considered the distinguishing feature
that separated civilised society from uncivilised ones. The
earliest management practices were a set of rules and
regulations that grew out of the experiences of governmental
and commercial activities. The development of trade and
commerce gradually led to the development of management
principles and practices.
The term ‘management’ today has several different
connotations that highlight the different aspects of its nature.
The study of management has evolved over a period of time
along with the modern organisations; based both on the
experience and practice of managers and a set of theoretical
relationships. Over a period of time, it has grown into a
dynamic subject with its own special characteristics.
However, one question that needs to be addressed pertaining
to the nature of management is whether it is a science or an
art or both? In order to answer this let us examine the
features of both science and art to see how far management
fulfills them.
MANAGEMENT AS AN ART
What is art? Art is the skillful and personal application of
existing knowledge to achieve desired results. It can be
acquired through study, observation and experience. Since
art is concerned with personal application of knowledge
some kind of ingenuity and creativity is required to practice
the basic principles learnt.
The basic features of an art are as follows:
(i) Existence of theoretical knowledge: Art presupposes
the existence of certain theoretical knowledge.
Experts in their respective areas have derived certain
basic principles which are applicable to a particular
form of art. For example, literature on dancing, public
speaking, acting or music is widely recognised.
(ii) Personalised application: The use of this basic
knowledge varies from individual to individual. Art,
therefore, is a very personalised concept. For
example, two dancers, two speakers, two actors, or
two writers will always differ in demonstrating their
art.
(iii) Based on practice and creativity: All art is practical.
Art involves the creative practice of existing
theoretical knowledge. We know that all music is
based on seven basic notes. However, what makes
the composition of a musician unique or different is
his use of these notes in a creative manner that is
entirely his own interpretation.
Business Studies 5
Management can be said to be an art since it satisfies
the following criteria:
(i) A successful manager practices the art of management
in the day-to-day job of managing an enterprise
based on study, observation and experience. There
is a lot of literature available in various areas of
management like marketing, finance and human
resources which the manager has to specialise in.
There is existence of theoretical knowledge.
(ii) There are various theories of management, as
propounded by many management thinkers, which
prescribe certain universal principles. A manager
applies these scientific methods and body of
knowledge to a given situation, an issue or a
problem, in his own unique manner. A good manager
works through a combination of practice, creativity,
imagination, initiative and innovation. A manager
achieves perfection after long practice. Students of
management also apply these principles differently
depending on how creative they are.
(iii) A manager applies this acquired knowledge in a
personalised and skillful manner in the light of the
realities of a given situation. He is involved in the
activities of the organisation, studies critical
situations and formulates his own theories for use in
a given situation. This gives rise to different styles
of management.
The best managers are committed and dedicated
individuals; highly trained and educated, with personal
qualities such as ambition, self-motivation, creativity and
imagination, a desire for development of the self and the
organisation they belong to. All management practices are
based on the same set of principles; what distinguishes a
successful manager from a less successful one is the ability
to put these principles into practice.
MANAGEMENT AS A SCIENCE
Science is a systematised body of knowledge that explains
certain general truths or the operation of general laws. The
basic features of science are as follows:
(i) Systematised body of knowledge: Science is a syste-
matic body of knowledge. Its principles are based
on a cause and effect relationship. For example, the
phenomenon of an apple falling from a tree towards
the ground is explained by the law of gravity.
(ii) Principles based on experimentation: Scientific
principles are first developed through observation
and then tested through repeated experimentation
under controlled conditions.
(iii) Universal validity: Scientific principles have
universal validity and application.
 6 Business Studies
Based on the above features, we can say that
management has some characteristics of science.
(i) Management has a systematised body of knowledge.
It has its own theory and principles that have
developed over a period of time, but it also draws
on other disciplines such as Economics, Sociology,
Psychology and Mathematics. Like all other
organised activity, management has its own
vocabulary of terms and concepts. For example, all
of us discuss sports like cricket and soccer using a
common vocabulary. The players also use these
terms to communicate with each other. Similarly
managers need to communicate with one another
with the help of a common vocabulary for a better
understanding of their work situation.
(ii) The principles of management have evolved over a
period of time based on repeated experimentation
and observation in different types of organisations.
However, since management deals with human
beings and human behaviour, the outcomes of these
experiments are not capable of being accurately
profession. However, it does have some of the features of a
predicted or replicated. Therefore, management can
profession:
be called an inexact science. Despite these
limitations, management scholars have been able to
identify general principles of management. For
example, scientific management principles by F.W.
Taylor and Functional Management principles by
Henri Fayol which you will study in the next chapter.
(iii) Since the principles of management are not as exact
as the principles of science, their application and
use is not universal. They have to be modified
according to a given situation. However, they provide
managers with certain standardised techniques that
can be used in different situations. These principles
are also used for training and development of
managers.
We must have understood from the foregoing discussion
that management has features of both art and science. The
practice of management is an art. However, managers can
work better if their practice is based on the principles of
management. These principles constitute the science of
management. Management as an art and a science are
therefore not mutually exclusive, but complement each other.
MANAGEMENT AS A PROFESSION
A profession has the following characteristics:
(i) Well-defined body of knowledge: All professions
are based on a well-defined body of knowledge that
can be acquired through instruction.
(ii) Restricted entry: The entry to a profession is restricted
through an examination or through acquiring an
educational degree. For example, to become a
chartered accountant in India a candidate has to
clear a specified examination conducted by the
Institute of Chartered Accountants of India.
(iii) Professional association: All professions are
affiliated to a professional association which regulates
entry, grants certificate of practice and formulates
and enforces a code of conduct. To be able to practice
in India lawyers have to become members of the Bar
Council which regulates and controls their activities.
(iv) Ethical code of conduct: All professions are bound
by a code of conduct which guides the behaviour of
its members. All doctors, for example, take the oath
of ethical practice at the time they enter the
profession.
(v) Service motive: The basic motive of a profession is
to serve their client’s interests by rendering dedicated
and committed service. The task of a lawyer is to
ensure that his client gets justice.
Management does not meet the exact criteria of a
(i) All over the world there is marked growth in
management as a discipline. It is based on a
systematic body of knowledge comprising well-
defined principles based on a variety of business
situations. This knowledge can be acquired at
different colleges and professional institutes and
through a number of books and journals. The subject
of management is taught at different institutions.
Some of these have been set up with the specific
purpose of providing management education such
as the Indian Institutes of Management (IIMs) in
India. Entry to different institutes is usually through
an examination.
(ii) There is no restriction on anyone being designated
or appointed as manager in any business enterprise.
Anyone can be called a manager irrespective of the
educational qualifications possessed.
Unlike professions such as medicine or law which
require a practicing doctor or lawyer to possess valid
degrees, nowhere in the world is it mandatory for a
manager to possess any such specific degree. But
professional knowledge and training is considered
to be a desirable qualification, since there is greater
demand for those who possess degrees or diplomas
from reputed institutions. Therefore, as such the
second criterion has not been strictly met.
(iii) There are several associations of practising managers
in India, like the AIMA (All India Management
Association) that has laid down a code of conduct

to regulate the activities of their members. There is,
however, no compulsion for managers to be members
of such an association nor does it have any statutory
backing.
(iv) The basic purpose of management is to help the
organisation achieve its stated goal. This may be
profit maximisation for a business enterprise and
service for a hospital. However, profit maximisation
as the objective of management does not hold true
and is fast changing. Therefore, if an organisation
has a good management team that is efficient and
effective it automatically serves society by providing
good quality products at reasonable prices.
LEVELS OF MANAGEMENT
Management is a universal term used for certain functions
performed by individuals in an enterprise who are bound
together in a hierarchy of relationships. Every individual in
the hierarchy is responsible for successful completion of a
particular task. To be able to fulfill that responsibility he is
assigned a certain amount of authority or the right to take
a decision. This authority-responsibility relationship binds
individuals as superiors and subordinates and gives rise to
different levels in an organisation. Generally speaking there
are three levels in the hierarchy of an organisation.
Top Management
They consist of the senior-most executives of the
organisation by whatever name they are called. They are
usually referred to as the chairman, the chief executive
officer, chief operating officer, president and vice-president.
Top management is a team consisting of managers from
different functional levels, heading finance, marketing etc.
For example chief finance officer, vice president (marketing).
Their basic task is to integrate diverse elements and
coordinate the activities of different departments according
to the overall objectives of the organisation. These top
level managers are responsible for the welfare and survival
of the organisation. They analyse the business environment
and its implications for the survival of the firm. They
  
Business Studies 7
formulate overall organisational goals and strategies for
their achievement. They are responsible for all the activities
of the business and for its impact on society. The job of the
top manager is complex and stressful, demanding long hours
and commitment to the organisation.
Middle Management
Middle Management is the link between top and lower
level managers. They are subordinate to top managers and
superior to the first line managers. They are usually known
as division heads, for example production manager. Middle
management is responsible for implementing and controlling
plans and strategies developed by top management. At the
same time they are responsible for all the activities of first
line managers. Their main task is to carry out the plans
formulated by the top managers. For this they need to:
(i) interpret the policies framed by top management,
(ii) ensure that their department has the necessary
personnel,
(iii) assign necessary duties and responsibilities to them,
(iv) motivate them to achieve desired objectives, and
(v) cooperate with other departments for smooth
functioning of the organisation. At the same time
they are responsible for all the activities of first line
managers.
Supervisory or Operational Management
Foremen and supervisors comprise the lower level in the
hierarchy of the organisation. Supervisors directly oversee
the efforts of the workforce. Their authority and
responsibility is limited according to the plans drawn by
the top management. Supervisory management plays a very
important role in the organisation since they interact with
the actual work force and pass on instructions of the middle
management to the workers. Through their efforts quality of
output is maintained, wastage of materials is minimised and
safety standards are maintained. The quality of workmanship
and the quantity of output depends on the hard work,
discipline and loyalty of the workers.
 8 Business Studies
Business Environment
CONCEPT & ELEMENTS OF BUSINESS
ENVIRONMENT
Business Environment means a collection of all individuals,
entities and other factors, which may or may not be under
the control of the organisation, but can affect its perfor-
mance, profitability, growth and even survival.
Every business organisation operates in a distinctive
environment, as it cannot exist in isolation. Such an
environment influence business and also gets affected by its
activities.
Features of Business Environment
(i) Totality of External Forces: Business environment
is the sum total of all things external to business
firms and, as such, is aggregative in nature.
(ii) Specific and General Forces: Business environment
includes both specific and general forces. Specific
forces (such as investors, customers, competitors and
suppliers) affect individual enterprises directly and
immediately in their day-to-day working. General
forces (such as social, political, legal and
technological conditions) have impact on all business
enterprises and thus may affect an individual firm
indirectly only.
(iii) Dynamic Nature: Business environment is dynamic
in nature. It keeps on changing whether in terms of
technological improvement, shifts in consumer
preferences or entry of new competition in the
market.
(iv) Uncertainty: Business environment is largely
uncertain as it is very difficult to predict future
happenings, especially when environment changes
are taking place too frequently as in the case of
information technology or fashion industries.
(iv) Relativity: Business environment is a relative
concept since it differs from country to country and
even region to region. Political conditions in the
USA, for instance, differ from those in China or
Pakistan. Similarly, demand for sarees may be fairly
high in India whereas it may be almost non-existent
in France.
8
(v) Multi-faceted: Business environment changes are
frequent and depend on knowledge and existence of
business person. Changes may be viewed differently
by different individuals. It may be an opportunity
for some or a threat for others.
Importance of Business Environment
(i) First Mover Advantage: Early identification of
opportunities helps an enterprise to be the first to
exploit them instead of losing them to competitors.
For example, Maruti Udyog became the leader in
the small car market because it was the first to
recognize the need of small cars in India.
(ii) Identification of Threats: Identification of possible
threats helps in taking corrective and improving
measures to survive the competition. For instance;
if an Indian firm finds that a foreign multinational
is entering the Indian market, it can meet the threat
by adopting measures like, by improving the quality
of the product, reducing cost of the production,
engaging in aggressive advertising, and so on.
(iii) Coping with Rapid Changes: All types of enterprises
are facing increasingly dynamic environment. In
order to effectively cope with these significant
changes, firms must understand and examine the
environment and develop suitable course of action.
(iv) Improving Performance: The enterprises that
continuously monitor their environment and adopt
suitable business practices are the ones which not
only improve their present performance but also
continue to succeed in the market for a longer period.
(v) Giving Direction for Growth: The interaction with
the environment leads to opening up new frontiers
of growth for the business firms. It enables the
business to identify the areas for growth and
expansion of their activities.
TYPES OF BUSINESS ENVIRONMENT
There are mainly two types of business environment, internal
and external. A business has absolute control in the internal
environment, whereas it has no control on the external
environment. It is therefore, required by businesses, to
modify their internal environment on the basis of pressures
from external.

Internal Environment
The internal environment has received considerable attention
by firms. Internal environment contains the owner of the
business, the shareholders, the managing director, the non-
managers, employees, the customers, the infrastructure of
the business organization, and the culture of the
organization.
It includes ‘6 M’ i.e.
 Man (Human Resource)
 Money (Financial Factors)
 Marketing Resources
 Machinery (Physical Assets)
 Management Structure and Nature
 Miscellaneous Factors (Research and Development,
Company Image and Brand Equity, Value System,
Competitive Advantage)
Human Resource (MAN)
The human resource is the important factor for any
organization as it contributes to the strength and weakness
of any organization. The human resource in any organization
must have characteristics like skills, quality, high morale,
commitment towards the work, attitude, etc. The involvement
and initiative of the people in an organization at different
levels may vary from organization to organization. The
organizational culture and over all environment have bearing
on them. It is an internal factor and an organisation has
absolute control on changing this factor as per the needs of
the enterprise and other forces.
Financial Factors (MONEY)
Factors like financial policies, financial positions and capital
structure are another important internal factor which has a
substantial impact on business functioning and performance.
Financial facilities are required to start and operate the
organisation. The sources of finance are share capital,
banking and other financial institutions and unorganised
capital markets. The recent changes in the Indian capital
market indicate the availability of plenty of finance, both
from the financial institutions as well as from the general
public. The availability of finance coupled with various
incentives attached is a facilitating internal factor.
Marketing Resources
Resources like the organization for marketing, quality of
the marketing men, brand equity and distribution network
have direct impact on marketing efficiency of the company
and thereby, affecting the decision making component of
the management. This, in lieu has great impact on the
internal environment of business.
Business Studies 9
Physical Assets and Facilities
Facilities like production capacity, technology are among
the factors which influences the competitiveness of the firm.
The proper acquisition and working of the assets is indeed
essential for efficient working of the organization. An
organisation invests money in plant and machinery because
it expects a positive rate of return over cost in future. The
revenue from the use of plant and machinery should be
sufficient so as to cover the invested money, operating
costs, and generate enough profit to satisfy the organisation.
The availability of plant and machinery is dependent on
technological development of the country and the
government’s approach tow ards foreign technical
collaboration.
Management Structure and Nature
The structure of the organization also influences the business
decisions. Being internal forces, the organizational structure
like the composition of board of directors influences the
decisions of business. The structure and style of the
organization directly has an impact on the decision making
decisions of a firm. These needs to be appropriately managed
for smooth functioning and operations. The strategies
available to an organisation are determined by its structure.
Different strategies are better suited to different environments.
Thus, if an organisation has to thrive, its structure must fit
its business environment in which it develops. Some markets
and environments change faster than others. A firm working
in high technological environment, for example, needs to
have a fast reaction time because its competitors are
introducing new products all the time. In rapidly changing
environments, organizations may find it difficult to stay up
to date on all the changes and implications of their own
operations and activities. Organizations in slow markets
tend to have rigid, hierarchical structures, while those in
changing markets are more adaptive. They can create new
divisions in their management structure, to deal with
emerging issues.
Miscellaneous Factors
The other internal factors that contribute to the business
environment are as follows:
(i) Research and Development: Though Research and
Development needs are mostly outsourced from the
external environment but it has a direct impact on
working, operations and decision making of the
organization. This aspect mainly determines the
company’s ability to innovate and compete. R&D
mainly results in technological improvements of
the Business environment. The technological
environment refers to the sum total of knowledge
(2715) Business Studies—2
 10 Business Studies
providing ways of doing things. It may include
inventions and techniques which affect the way of
doing things that is, designing, producing and
distributing products. A given technology affects an
organisation, in the manner it is organised and faces
competition.
(ii) Company Image and Brand Equity: The image of
the company in the outside market has the impact
on the internal environment of the company. It helps
in raising the finance, making joint ventures, other
alliances, expansions and acquisitions, entering sale
and purchase contracts, launching new products, etc.
Brand equity also helps the company in similar
manner.
(iii) Value System: The principles of right and wrong
that are accepted by an individual or organisation
are what comprise value system. The value system
of the founders and those at the helm of affairs has
important bearing on the choice of business, the
mission and the objectives of the organization,
business policies and practices. These values helps
guide the basic principles of business for a period
of time which moulds an impression of positivism
among people dealing with the business. The values
are independent of business purposes and are integral
part for success of business.
(iv) Competitive Advantage: Competitor analysis is a
critical aspect of analyzing the internal business
environment. Competitor’s actions affect the ability
of the business to make profits, because competitors
will continually seek to gain an advantage over
each other, by differentiating their product and
service, and by seeking to provide better value for
money. It involves: – identifying the actual
competitors – assessing competitors’ objectives,
strategies, strengths & weaknesses, and reaction
patterns – selecting the strategies to deal with
competitors.
The internal analysis of strengths and weaknesses
focuses on internal factors that give an organization certain
advantages and disadvantages in meeting the needs of its
target market thereby gaining the competitive edge over the
competitors.
Technological Environment
Rapid developments in technology exert a powerful
influence on all the organisations and not just on those
operating in a high-tech environment, say, microprocessor
manufacture, pharmaceuticals, fibre-optic technology and
so on. The combined impact of computer, digital technology
and telecommunications affects most of private and public
sector undertakings.
As rightly called by none other as Mr. J. Schumpeter “a
perennial gate of creative destruction.” Change of technology
is both creative and destructive process in that it is
responsible for building new by destroying the old. Thus,
the heart of any progress is destruction.
External Environment
The external environment of an organisation comprises of
all entities that exists outside its boundaries, but have
significant influence over its growth and survival. An
organisation has little or no control over its external
environment but needs to constantly monitor and adapt to
these external changes. A proactive or reactive response
leads to significantly different outcomes. There are two
types of external environment
(a) Micro/Operating Environment
(b) Macro/General Environment
(a) Micro Environment
The micro environment is also known as the task
environment and operating environment because the micro
environmental forces, though are external factors, still have
a direct bearing on the operations of the firm. The micro
environment consists of the factors in the company’s
immediate environment that affects the performance and
working of the company. The micro environmental factors
are more intimately linked with the company than the macro
factors. The micro forces need not necessarily affect all the
firms in a particular industry in the similar ways. Some of
the micro factors may be particular to any given type of
organisation.
Micro environmental factors, internal factors close to a
business that have a direct impact on its strategy includes:
 Customers  Employees
 Suppliers  Shareholders
 Media  Competitors
Customers and Consumers: Customers are people who
buy an organization’s products/services. In simple words,
an organization cannot survive without customers. A
consumer, on the other hand, is the ultimate user of the
product/service. For example, a husband might purchase a
product for his wife. In this case, the husband is the customer
and the wife is the consumer.
Competitors: Every business has com petition.
Competitors are other organizations that compete with each
other for both resources and markets. Hence, it is important
that an organization is aware of its competitors and in a
position to analyze threats from its competition. A business
must be aware of its competitors, their strengths and
weaknesses, and the most aggressive and powerful
competitors at all times.

Organization: One of the most important aspects of the
micro environment of an organization is the self-analysis of
the organization itself. It must understand its own strengths
and weaknesses, objectives and goals of the business, and
resource availability. The following non-specific elements
of an organization can affect its performance:
 Owners: People who have a major shareholding in
the organization and have vested interests in the
well-being of the company.
 Board of Directors: The board of directors is elected
by the shareholders for overseeing the general
management of the business and ensuring that the
shareholder’s interests are met.
 Employees: People who work in the organization
are major contributors to its success. It is important
that all employees embrace the organization’s goals
and objectives.
Market: The market is much more than the sum of all
the customers. The organization must study the market in
terms of its actual size, the potential for growth, and its
attractiveness. Some important issues are:
 The cost structure of the market
 Price Sensitivity of the market
 Technological structure of the market
 The existing distribution system of the market
 The maturity of the market
Suppliers: Suppliers are another important component
of the micro environment. Organizations depend on many
suppliers for equipment, raw material, etc. to maintain their
production. Suppliers can influence the cost structure of the
industry and are hence a major force.
Intermediaries: Intermediaries are also a major
determining force in business. Most customers are unaware
of the manufacturer of the products they buy since they
approach retailers, departmental store, chain stores or online
stores for their purchase.
(b) Macro Environment
Macro environment is also known as general environment
and remote environment. Macro factors are generally more
uncontrollable than micro environment factors. When the
macro factors become uncontrollable, the success of
company depends upon its adaptability to the environment.
This environment has a bearing on the strategies adopted
by the firms and any changes in the areas of the macro
environment are likely to have a far-reaching impact on
their operations.
The macro environment is primarily concerned with
major issues and upcoming changes in the environment.
The acronym for the macro analysis is “STEEP.” The five
areas of interest are:
Business Studies 11
 Socio-Cultural and Demographics
 Technology
 Economic Conditions
 Ecology and Physical Environment
 Political and Legal
ECONOMIC ENVIRONMENT
The economic environment is the sum total of the economic
conditions and the nature of the economy in which the
business has to operate and compete.
This will include the nature of the economy, the direction
in which it is progressing, the availability:
(i) Socio Cultural and Demographics: Societal values
and lifestyles change over time, and the most
important of these; directly or indirectly leave an
impact on the business environment. For example,
over the past generation, it has become acceptable
for women to work; people are not retiring at 65;
and people are more aware of the environment etc.
The changes in culture and lifestyle may come from
many sources: medical (smoking, healthy eating,
exercises); science (global warming, going ‘green’);
economic (people working longer, women in the
workforce); cultural diversity (music preferences,
foods, living accommodations, medicine); and
technologies (biodegradable plastic) are just a few
examples.
These changes will be important to the industry and
to the business. The social environment of business
includes social factors like customs, traditions,
values, beliefs, poverty, literacy, life expectancy rate
etc. The social structure and the values that a society
cherishes have a considerable influence on the
functioning of business firms. For example, during
festive seasons, there is an increase in the demand
for new clothes, sweets, fruits, flower, etc. Due to
increase in literacy rate, the consumers are becoming
more conscious of the quality of the products. Due
to change in family composition, more nuclear
families with single child concepts have come up.
This increases the demand for the different types of
household goods. It may be noted that the
consumption patterns, the dressing and living styles
of people belonging to different social structures
and culture vary significantly.
Demographics refer to the size, density, distribution
and growth rate of population. All these factors have
a bearing on the demand for various goods and
services. For example, a country where population
rate is high and children constitute a large section
of population, and then, there will be more demand
12 Business Studies
for such products. Similarly, the demand of the
people of cities and towns are different than that of
people of rural areas. The high rise of population
indicates the easy availability of labour. These
encourage the business enterprises to use labour
intensive techniques of production. Moreover,
availability of skilled labour in certain areas
motivates the firms to set up their units in such area.
For example, the business units from America,
Canada, Australia, Germany, UK, are coming to India
due to easy availability of skilled manpower. Thus,
a firm that keeps a watch on the changes on the
demographic front and reads them accurately will
find opportunities knocking at its doorsteps.
(ii) Technology: Technology is understood as the
systematic application of scientific or other organised
knowledge to practical tasks. Technology changes
fast and to keep the pace with the dynamics of
business environment; organisation must be on its
toes to adapt to the changed technology in their
system. The business in a country is greatly
influenced by the technological development. The
technology adopted by the industries determines
the type and quality of goods and services produced.
Technological environment influences the business
in terms of investment in technology, consistent
application of technology and the effects of
technology on markets. Technological environment
include the methods, techniques and approaches
adopted for production of goods and services and
its distribution. The varying technological
environments affect the designing of products in
different countries. Technology encompasses
something more than computers. Technology comes
in many forms such as medical devices, new plastics,
and production techniques.
(iii) Economic Conditions: The economic conditions of
a country refer to a set of economic factors that have
great influence on business organizations and their
operations. These include gross domestic product,
per capita income, markets for goods and services,
availability of capital, foreign exchange reserve,
growth of foreign trade, strength of capital market
etc. All these help in improving the pace of economic
growth.
(iv) Ecology and Physical Environment: The ecology
and physical environment plays a large part in many
businesses – especially for those which carry out
production and manufacturing activities. Infact,
business are affected on daily basis due to
  
enviornmental and ecological changes. For example,
the impact of climate change must be considered:
water and fuel costs could change dramatically, if
the world warms by only a couple of degrees. The
natural environment includes geographical and
ecological factors that influence the business
operations. These factors include the availability of
natural resources, weather and climatic condition,
location aspect, topographical factors, etc. For
example, sugar factories are set up only at those
places where sugarcane can be grown. It is always
considered better to establish manu-facturing unit
near the sources of input. Further, government’s
policies to maintain ecological balance, conservation
of natural resources etc. put additional responsibility
on the business sector.
(v) Political and Legal: Political environment refers to
three political institutions viz. legislature, executive
and the judiciary in shaping, directing, developing
and controlling business activities. The political
environment of a country is influenced by the
political organisations such as philosophy of
political parties, ideology of government or party in
power, nature and extent of bureaucracy influence
of primary groups. The political environment of the
country influences the business to a great extent.
The political environment includes the political
system, the government policies and their attitude
towards the business community. All these aspects
have a bearing on the strategies adopted by the
business firms. The stability of the government also
influences business and related activities to a great
extent. It sends a signal of strength, confidence to
various interest groups and investors. Further,
ideology of the political party also influences the
business organisation and its operations. Political
changes are closely tied up with legal changes. Legal
environment includes flexibility and adaptability of
law and other legal rules governing the business. It
may include the exact rulings and decision of the
courts. These affect the business and its managers to
a great extent. This refers to set of laws, regulations,
which influence the business organisations and their
operations. Every business organisation has to obey,
and work within the framework of law. Additionally,
an industry may have specific laws and regulations.
For example, a pet store would deal with federal
animal welfare and prohibited pet laws as wells as
state laws concerning animal cruelty, housing,
veterinary care and so on.

Principles of Management
PRINCIPLES AND PRACTICES OF MANAGEMENT
PRINCIPLES OF MANAGEMENT
A principle can be defined as a fundamental statement or
truth providing a guide to thought or action. The
fundamental statement tells what results are expected when
the principle is applied. Principles of management are to the
manager as a table of materials’ strengths and weaknesses
is to a civil engineer. The table gives fundamental truths,
expressed as quantitative data based on years of experience
and testing. The engineer can predetermine the safe,
allowable load for a steel girder of a building simply by
using the table and analyzing the design drawings and
specifications. Similarly, management principles also have
been developed from years of experience and testing, in
public and private, in big and small organizations.
The principles emerge based on certain qualities/
characteristics that have relevance to management theory
and practice. Good management principles should be:
(i) practical, which means they can be applied almost
anytime in the organization’s life and be appropriate;
(ii) relevant to the broad forms of organizational
structure;
(iii) consistent in the sense that for similar sets of
circumstances, similar results will occur; and
(iv) flexible in that their application should take into
account particular differences or changes in the
conditions that affect the organization. For example,
consider the statement: “For maximum managerial
efficiency, total costs should be kept to a minimum”.
Although this is usually a valid principle for most
organizations, it might be reassessed or abandoned in cases
of emergency such as defending our country against a nuclear
attack. The use of management principles is intended to
simplify, guide and facilitate management work.
Therefore, the management principles act as keys to
what actions should be taken in what contexts and in what
manner. They provide the benchmarks from which one can
further one’s understanding of the subject and they can be
viewed as capsules of what is believed to be major
considerations in current management thought.
13
Business Studies 13
Given below are the im portant principles of
management that will help you in using them as the keys
for your better understanding of the management (Kumar,
1982).
1. Management is purposeful: Management deals with
the achievement of something specific, expressed as
an objective or goal. Managerial success is
commonly measured by the extent to which
objectives are achieved. Management exists because
it is an effective means of getting needed work
accomplished. The fact that some executives have
subordinates reporting to them does not ipso facto
make them managers.
2. Management makes things happen: Managers,
focus their attention and efforts on bringing about
successful action. They know where to start, what to
do to keep things moving, and how to follow
through. Successful manager has an urge for
accomplishment and the members of the group
respect the manager and get along with people firmly
expecting the best.
3. Management is an activity, not a person or group
of persons: Management is not people; it is an
activity like walking, reading, swimming, running
or doing any specific activity. People involved in
management can be designated as managers, members
of management, or executive, leaders who actually
manage a distinct activity/activities. It can be studied,
and the knowledge about an activity is obtained,
and skill in its application acquired.
4. Management is accomplished by, with and through
the efforts of others: To participate in management
necessitates relinquishing the normal tendency to
perform all things oneself and get tasks accomplished
by, with and through the efforts of group members.
This is far more difficult than it sounds.
Normally a person acquires ability in a specialized
type of work and wins Concept and Theories of
promotions through increasing knowledge and skill
in that field of Management: Their Relevance to
Extension specialization. However, the time comes
14 Business Studies
when further promotion requires shifting from the
role of a specialist to that of a management member.
The prime measure of success becomes setting or
securing agreement on the proper goals and getting
all others to accomplish these goals. How successfully
this deliberate shift is made determines the potential
of the new manager. This characteristic merits
recognition by the ambitious specialist when he
turns to be a manager. Likewise, the employee with
expertise in training when advanced to assistant
personnel manager may continue to be a training
expert, thus not succeeding in the new managerial
post.
5. Management is usual & associated with the efforts
of a group: It is common to associate management
with a group. However, management is also
applicable to an individuals’ efforts as members of
the group. For example, a person manages many
personal affairs. However, the group emphasis stems
from the fact that an enterprise comes into existence
to attain goals, and these are achieved more readily
by a group than by one person alone. People become
members of an enterprise to satisfy their needs and
because they feel their gains will outweigh their
losses or burdens as members of a group.
6. Management is intangible: It has been called the
unseen force, its presence evidenced by the results
of its efforts - orderliness, enthusiastic employees,
buoyant spirit, and adequate work output. Strange
as it may seem, in some instances the identity of
management is brought into focus by its absence or
by the presence of its direct opposite, mismanage-
ment. The result of mismanagement also becomes
clear.
7. Management is an idea, not replaced by the
computer: The computer is an extremely powerful
tool of management. It can widen a manager’s vision
and sharpen insight by supplying more and faster
information for making key decisions. The computer
has enabled the manager to conduct analyses for
beyond the normal human’s analytical capacities. It
has forced managers to reexamine their analytical
processes and judgement in view of the almost
unbelievable data processing and feedback facilities
of the modern computer.
However, a manager must supply judgement and
imagination as well as interpret and evaluate what
the data mean in each individual case. For example,
it is doubtful that General George Washington would
have crossed the Delaware River if he had relied on
a computer to help him decide. The data of using
leaky boats at night during a snowstorm to face a
numerically superior enemy would have indicated a
low probability of success. However, despite such
rationale, Washington believed he could succeed,
seized the initiative, assumed the large risk, and
won his objective.
8. Management is an outstanding means for exerting
real impact on human life: A manager can do much
to improve the work-environment, to stimulate
people to do things better, and to make favourable
actions to take place. Personal frustrations and
disappointments need not be accepted and may be
viewed passively as inevitable. A manager can
achieve progress, bring hope, and help group
members acquire the better things in life.
DEVELOPMENT OF MANAGEMENT
THOUGHT
The earliest contribution to the management theories can be
traced back to the periods of the Greeks, the Romans and
the Egyptians. The use of the principle of specialisation and
division of labour was evident in China as early as 1650
B.C. The Roman Catholic Church with its hierarchy of
management has greatly contributed to the management
thoughts. The development of management thought has
been evolutionary in nature. The present status and position
of management can, therefore, be best appreciated and
understood in the light of its evolution over the years.
Much of the development in this field has taken place
during the last 100 years. The time periods in which different
management concepts have evolved and developed can be
divided into the following five segments:
1. Pre-Scientific Management Era (Before 1880)
2. Scientific Management (1880-1930)
3. Human Relations Era (1930-50)
4. Management Science Era (1950-1960)
5. Systems approach (1960-1970).
6. Contingency approach (1970 onwards).
The above time periods are only suggestive. They only
signify the dominance of a management thought during a
particular time period.
The main schools of management thoughts are:
1. Management process school: The Management
Process School has developed during the scientific
management era. Frederick Taylor and Henry Fayol
were the founders of this school of thought. They
perceived the management theory as a process of
getting things done through and with people
operating in organised groups. The process was
considered to be universal regardless of the type of
enterprise or the level in a given enterprise.

2. Human behaviour school: Human behaviour
approach is the outcom e of the Haw thorne
Experiments in the early 1930 conducted by Elton
Mayo and his associates. Abraham Maslow, Douglas
McGregor, Keith Davis, Chester Barnard and Kurt
Lewin are the other who made a significant
contribution to the school. The advocates of human
behaviour school view ed an organisation
collectively as a social system of inter-personal and
inter-group relationships.
3. Empirical school: The Empirical School started
around 1952, i.e. in the social science era. Earnest
Dale, the founder of this school identified
management as a study of experience rather than the
general principles as believed by the founders of the
management process school. This approach was
adopted by the Graduate School of Business
Administration at the Harvard University for
imparting management instruction and education to
its students.
4. Social science school: Chester Barnard is considered
to the father of the Social Science School. According
to him, management is a social system, a system of
co-operative relationships, and co-operation and team
work among the organisational system is necessary
for the achievement of organisational objectives.
This approach seeks to identify the nature of cultural
relationships of various social groups and attempts
to integrate them into a social system.
5. Decision theory school: Decision theory approach
revolves round the basic problem of management,
i.e. decision-making, the selection of a suitable course
of action out of the given alternatives. The major
contribution to this approach was made by Herbert
A. Simon. According to him, the manager is a
decision-maker and the organisation is a decision-
making unit. Therefore, the basic problem in
managing is to make rational decisions.
6. Quantitative school: The Quantitative School of
management thoughts is just an extension of the
Decision Making Approach. This approach is also
known as Operations Research School as it envisages
the use of mathematical relationships, theories and
models for making logical and rational decisions.
The main contributors to this school of thoughts are
Richard Cyert, Russel Ackoff, William Churchman
and Forrester.
7. Systems school: Systems Approach to management
views an organization as a single, unified and
purposeful system which is composed of many inter-
related sub-systems. It studies the organisational
system as a whole and inter-relation between its
Business Studies 15
various sub-systems and external environment.
Kenneth Boulding, R.A. Johnson, F.E. Cast and Trist
were the major contributors to the Systems Approach
of Management.
8. Contingency school: Joan Woodward, P.R. Lawrence,
Hickson and Fiedler are the major contributors to
the Contingency Approach. According to them, there
is no universal technique of management. The
management action is contingent upon the situation.
Thus, a manager’s task is to identify which technique
will, in a particular situation, under particular
circumstances and at a particular time, best contribute
to the attainment of the organisational goals.
CONTRIBUTION OF F.W. TAYLOR
The concept of scientific management was introduced by
Frederick Winslow Taylor in the USA in the beginning of
20th century. This concept was further carried on by Frank
and Lillian Gilbreth, Henry Gantt, George Berth Edward
Felen and others.
Scientific management was concerned essentially with
improving the operational efficiency at the shop floor level.
“Scientific management is the art of knowing exactly
what you want your men to do and then seeing that they
do it in the best and cheapest way.”—F.W. Taylor
Taylor joined Midvale Steel Company in the U.S.A as
a worker and later on became a supervisor. During this
period, he continued his studies and eventually completed
his Master of Engineering (M.E.). Subsequently, he joined
Bethlehem Steel Company. At both these places, he
undertook several experiments in order to improve the
efficiency of people at work. On the basis of his experiments,
he published a book entitled as ‘Scientific Management’.
Some of the major contributions of Taylor under
scientific management are as follows:
1. Time and motion study: Time study is the art of
observing and recording the time required to do
each detailed element of an industrial operator.
Motion study refers to the study and analysis of the
movements of an operator in performing a job so that
attempts can be made to remove useless movements
from the process. Time and motion study together
help in determining the best method of performing
a job and the standard time allowed for it.
2. Functional foremanship: Taylor evolved the concept
of functional foremanship based on the specialisation
of functions. He identified eight types of foreman to
direct the activities of workers. Of these, the
following four foremen are concerned with planning:
(a) Route clerk.
 16 Business Studies
(b) Instruction card clerk.
(c) Time and cost clerk.
(d) Disciplinarian.
The remaining four foremen are concerned with the
execution of work. These are:
(a) Speed boss.
(b) Inspector.
(c) Maintenance foreman.
(d) Gang boss.
3. Differential payment: Taylor introduced a new
payment scheme called differential piece wage plan.
Under this scheme, a worker received low price rate
if he produced the standard number of pieces. On
the other hand, the worker received high rate if he
surpassed the standard. Workers were motivated to
work hard and earn more.
4. Reorganization of supervision: Taylor introduced
the concept of functional foremenship. Taylor
suggested that the work should be planned by a
foreman and not the workers. Under functional
foremanship, he suggested employing four, six or
eight foremen who would give orders to an
individual worker depending on their specialization.
5. Scientific selection and training: The selection of
workers by scientific methods would not alone serve
the purpose, unless their placement on right jobs is
earned. Appropriate training would prepare the
workers to accept challenging job, and avail of
promotion opportunities arising in the organisation.
Taylor thought of entrusting the task of selection
and training to a central personnel department.
6. Cordial relations between management and
workers: In its essence, scientific management is a
complete ‘mental revolution’ on the part of workers
as well as management. According to Taylor, it
involves an immense change in the attitude of both
the sides. Both the parties must realize that their
prosperity is dependent on each other and none
should try to prosper at the cost of the other.
Taylor’s concept of scientific management developed
into a movement and dominated the industrial management
science for several decades after him.
CONTRIBUTION OF HENRY FAYOL
Henry Fayol was a French mining engineer who later turned
a leading industrialist and a successful manager. His life-
long experience, in the field of managing, was produced
in the form of a monograph titled ‘Administration
Industrielleet-Generale’ in 1916 in the French language.
This monograph was reprinted in French several times but
was never translated in English until 1929. Henry Fayol has
been rightly called the ‘father of administrative management’
for his practical approach to management theory. He has
identified fourteen fundamental principles of management.
These fourteen principles are:
1. Division of labour and specialisation: Division of
labour is a famous principle of economics, put forth
by the classical economists like Adam Smith. Fayol
applied this principle to management theory.
Division of labour leads to specialisation, which in
turn improves the efficiency of the employees.
2. Authority and responsibility: According to Fayol,
authority and responsibility must flow in the same
direction. Responsibility is the natural outcome of
authority. A proper balance between authority and
responsibility helps to prevent the misuse of
authority and promotes a fair fixation of
responsibility.
3. Discipline: Discipline means observation of certain
rules and regulations. People in the organisation
should be bound to accept certain code of conduct.
The three basic requisites of discipline are
disciplined supervisors at all the levels, clear and
fair agreement on goals and judicious application of
penalties.
4. Unity of command: According to this principle, an
employee should receive orders only from one
superior. If more than one superior exercise their
authority over the same employee then the latter
will always be in a state of confusion and a confused
employee will never be able to perform to the best
of his ability.
5. Unity of direction: Unity of direction is essential
for achieving unity in action, in the pursuit of
common goals by a group of persons. For this Fayol
advocates ‘one head and one plan’. Unity of
direction (one head, one plan) is not same as unity
of command (one employee receives orders from
one superior).
6. Subordination of individual interest to general
interest: According to this principle, the fulfilment
of individual objectives in the long run is contingent
upon the attainment of common objectives in the
short run. Thus, in case the need arises, an individual
must sacrifice, in favour of larger group objectives.
7. Remuneration: Remuneration is the price paid to
people, managers and workers, for the services
rendered by them. According to Fayol, the system of
rem unerating personnel should be fair and
satisfactory to both the employees and employer. It
should be attractive in order to employ and retain
the best personnel.
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