ABF 101


Amity University

According to Wheeler, Business is an institution organised and operated to provide goods and services to society under the incentive of private gain. It is an economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth.

With the rapidly changing socio-economic and political environment and trend towards globalization of economies, management in modern organizations has become a very challenging job. The people in organizations differ in terms of their attitudes, beliefs, values, background, knowledge etc.and a thorough understanding of these concepts and processes can be of great value to the modern managers. The present study material synthesizes the study of the individual, the group and the organization system and elaborates the applied behavioral science concepts, principles and techniques. It also provides an integrated view of modern management. The subject matter has been presented in a simple and lucid manner, keeping the unique requirements of students in mind. A critical and balanced coverage is given to all the important topics in BUSINESS ORGANISATION AND MANAGEMENT. At the end of each chapter, multiple choice questions are given to enable the students to have self-appraisal of their understanding of the concepts in the chapter. I am grateful to all those who have directly or indirectly helped me in preparing this course material. I sincerely believe that there is always scope for improvement. Therefore, I invite suggestions for further enriching the study material.

By- Geeta Mishra

Table of Contents
Preface .......................................................................................................................................................... 2 CHAPTER – I: INTRODUCTION TO BUSINESS ................................................................................................. 7 1.1 MEANING OF BUSINESS ...................................................................................................................... 7 1.2 OBJECTIVES OF A BUSINESS ................................................................................................................ 8 1.2.1 ECONOMIC OBJECTIVES ............................................................................................................... 8 1.2.2 SOCIAL OBJECTIVES .................................................................................................................... 10 1.2.3 HUMAN OBJECTIVES .................................................................................................................. 11 1.2.4 NATIONAL OBJECTIVES .............................................................................................................. 12 1.2.5 GLOBAL OBJECTIVES .................................................................................................................. 13 1.3 FORMS OF BUSINESS ORGANISATION .............................................................................................. 13 1.3.1 SOLE PROPRIETORSHIP .............................................................................................................. 13 1.3.2 PARTNERSHIP ............................................................................................................................. 16 1.3.3 JOINT HINDU FAMILY ................................................................................................................. 20 1.3.4 JOINT STOCK COMPANY............................................................................................................. 22 CHAPTER – I:-End Chapter Quizzes ............................................................................................................. 27 CHAPTER – II:- MANAGEMENT CONTENTS: ................................................................................................ 29 2.1 MEANING OF MANAGEMENT ........................................................................................................... 29 2.1.1 Management as an Economic Resource .................................................................................... 29 2.1.2 Management as a group of people ............................................................................................ 30 2.1.4 Management as a Process ......................................................................................................... 31 2.2 DEFINITIONS OF MANAGEMENT .......................................................................................................... 31 2.2.1 Production or Efficiency-oriented Definitions: .............................................................................. 31 2.2.2 Decision –oriented Definitions: ......................................................................................................... 32 2.2.3 People-oriented Definitions: .............................................................................................................. 32 2.2.4 Function-oriented Definitions: ....................................................................................................... 32 2.3 NATURE OF MANAGEMENT .................................................................................................................. 33 2.4 SIGNIFICANCE OF MANAGEMENT ........................................................................................................ 35 2.5 FUNCTIONS OF MANAGEMENT ............................................................................................................ 37 2.6 MANAGERIAL SKILLS ............................................................................................................................. 41 2.7 MANAGERIAL LEVELS ............................................................................................................................ 42 2.8 MANAGERIAL ROLES ............................................................................................................................. 43

CHAPTER-II:- End Chapter Quizzes .............................................................................................................. 47 CHAPTER-III:- PLANNING CONTENTS ......................................................................................................... 50 3.1 MEANING OF PLANNING....................................................................................................................... 50 3.2 CHARACTERISTICS OF PLANNING .......................................................................................................... 50 3.3 SIGNIFICANCE OF PLANNING ................................................................................................................ 52 3.4 LIMITATIONS OF PLANNING.................................................................................................................. 53 3.5 REQUIREMENTS OF A GOOD PLAN ....................................................................................................... 53 3.6 PLANNING PROCESS .............................................................................................................................. 54 3.7 TYPES OF PLANS .................................................................................................................................... 56 3.8 DECISION MAKING ................................................................................................................................ 57 3.8.1 Process ............................................................................................................................................... 57 CHAPTER-III: End Chapter Quizzes ............................................................................................................. 59 CHAPTER-IV:- ORGANISING and STAFFING CONTENTS: ............................................................................. 61 4.1 CONCEPT OF ORGANISING .................................................................................................................... 61 4.1.1 ORGANISATION AS A STRUCTURE.................................................................................................. 62 4.1.2 ORGANISATION AS A PROCESS ...................................................................................................... 62 4.2 NATURE OF ORGANISING...................................................................................................................... 62 4.3 SIGNIFICANCE OF ORGANISING ............................................................................................................ 63 4.4 PRINCIPLES OF ORGANISING ................................................................................................................. 65 4.5 FORMS OF ORGANISATION ................................................................................................................... 66 4.6 CONCEPT OF DELEGATION OF AUTHORITY........................................................................................... 72 4.6.1 CONCEPTS OF CENTRALISATION AND DECENTRALISATION .......................................................... 72 4.6.2 DISTINCTION BETWEEN DELEGATION AND DECENTRALISATION .................................................. 73 4.7 STAFFING............................................................................................................................................... 74 4.8 IMPORTANCE OF STAFFING .................................................................................................................. 74 4.9 STEPS IN STAFFING PROCESS ................................................................................................................ 75 CHAPTER-IV:- End Chapter Quizzes ............................................................................................................ 81 CHAPTER-V: DIRECTING CONTENTS: ........................................................................................................... 83 5.1 MEANING OF DIRECTING ...................................................................................................................... 83 5.2 NATURE OF DIRECTING ......................................................................................................................... 83 5.5.1 MASLOW’S NEED HIERARCHY ............................................................................................................ 89 5.5.2 HERZBERG’S MOTIVATION-HYGIENE THEORY ........................................................................... 93

5.5.3 THEORY X AND THEORY Y .......................................................................................................... 96 5.6 COORDINATION .................................................................................................................................... 98 5.7 SIGNIFICANCE OR IMPORTANCE OF COORDINATION........................................................................... 99 CHAPTER-V: END CHAPTER QUIZZES ........................................................................................................ 101 CHAPTER-VI:- CONTROLLING CONTENTS .................................................................................................. 103 6.1 MEANING OF CONTROL ...................................................................................................................... 103 6.2 RELATIONSHIP BETWEEN PLANNING AND CONTROLLING ................................................................. 103 6.4 TYPES OF CONTROL ............................................................................................................................. 106 6.5 ESSENTIALS OF SOUND CONTROL SYSTEM ......................................................................................... 107 CHAPTER-VI: END CHAPTER QUIZZES ....................................................................................................... 108 CHAPTER-VII: MANAGEMENT IN PERSPECTIVE CONTENTS ...................................................................... 110 7.1 MANAGING DIVERSITY ........................................................................................................................ 110 7.1.1 DIVERSITY DEFINED ...................................................................................................................... 110 7.1.2 MANAGING DIVERSITY IN ORGANIZATION .............................................................................. 111 7.2 CORPORATE GOVERNANCE................................................................................................................. 112 7.2.1 PRINCIPLES OF CORPORATE GOVERNANCE ................................................................................. 112 7.2.2 MECHANISMS AND CONTROLS .................................................................................................... 114 7.2.3 PROBLEMS OF CORPORATE GOVERNANCE ................................................................................. 115 7.3 LEARNING ORGANIZATION ................................................................................................................. 115 7.3.1 HOW TO CREATE LEARNING ORGANISATION .................................................................................. 116 7.4 MEANING OF KNOWLEDGE MANAGEMENT ....................................................................................... 117 7.4.1 IMPORTANCE OF KNOWLEDGE MANAGEMENT .............................................................................. 118 7.4.2 TYPES OF KNOWLEDGE ............................................................................................................ 119 7.5 CORPORATE SOCIAL RESPONSIBILITY ................................................................................................. 119 7.6 BUSINESS PROCESS OUTSOURCING .................................................................................................... 121 7.6.1 ADVANTAGES OF BPO ...................................................................................................................... 121 7.6.2 DISADVANTAGES OF BPO............................................................................................................. 122 7.7 E-COMMERCE.................................................................................................................................. 122 7.7.1 ADVANTAGES OF E-COMMERCE .................................................................................................. 123 7.7.2 DISADVANTAGES OF E-COMMERCE............................................................................................. 124 7.8 M-COMMERCE .................................................................................................................................... 125 7.8.1 ADVANTAGES OF M-COMMERCE ................................................................................................ 126

7.8.2 LIMITATIONS OF M-COMMERCE ................................................................................................. 126 7.9 CHANGE MANAGEMENT ..................................................................................................................... 127 7.9.1 PHASES IN CHANGE PROCESSES .................................................................................................. 128 7.9.2 PRINCIPLES OF CHANGE MANAGEMENT ..................................................................................... 130 CHAPTER-VII:- END CHAPTER QUIZZES ..................................................................................................... 133 Bibliography .............................................................................................................................................. 135

Literally the term business implies busyness or the state of being busy. Business is an economic activity as it is concerned with earning money and acquiring wealth. It is the human activity directed towards the acquisition of wealth through the production and exchange of goods and services. A business enterprise is an economic institution as it is engaged in the production and exchange of goods and services in order to earn profits and acquire wealth. According to Wheeler, Business is an institution organised and operated to provide goods and services to society under the incentive of private gain. It is an economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment and a sufficient number of customers to whom its output can be sold at profit on a consistent basis. A business can be defined as an organization that provides goods and services to others who want or need them. When many people think of business careers, they often think of jobs in large wealthy corporations. Many business-related careers, however, exist in small businesses, non-profit organizations, government agencies, and educational settings. Furthermore, you don't need a degree in business to obtain many of these positions. In short, every sector of our economy needs people with strong overall skills that can be applied to business-type careers. There are a wide variety of career areas that exist in business settings. Some of these include: • • • • • • • • • • • Accounting Administrative management Business management Finance Human resources Information systems Insurance Marketing Operations management Public relations Purchasing/merchandising

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Retail management Sales

It is generally believed that a business has a single objective, that is, to make profit. But it cannot be the only objective of business. While pursuing the objective of earning profit, business units do keep the interest of their owners in view. However, any business unit cannot ignore the interests of its employees, customers, the community, as well as the interests of society as a whole. For instance, no business can prosper in the long run unless fair wages are paid to the employees and customer satisfaction is given due importance. Again a business unit can prosper only if it enjoys the support and goodwill of people in general. Business objectives also need to be aimed at contributing to national goals and aspirations as well as towards international well-being.

Thus, the objectives of business may be classified as a. Economic Objectives b. Social Objectives c. Human Objectives d. National Objectives e. Global Objectives Now we shall discuss all these objectives in detail:


Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes creation of customers, regular innovations and best possible use of available resources. Let us learn about these.

1. Profit earning Profit is the lifeblood of business, without which no business can survive in a competitive market. In fact profit making is the primary objective for which a business unit is brought into existence. Profits must be earned to ensure the survival of business, its growth and expansion over time. Profits help businessmen not only to earn their living but also to expand their business activities by reinvesting a part of the profits. In order to achieve this primary objective, certain other objectives are also necessary to be pursued by business, which are as follows:

a) Creation of customers. A business unit cannot survive unless there are customers to buy the products and services. Again a businessman can earn profits only when he/she provides quality goods and services at a reasonable price. For this it needs to attract more customers for its existing as well as new products. This is achieved with the help of various marketing activities.

b) Regular innovations. Innovation means changes,which bring about improvement in products, process of production and distribution of goods. Business units, through innovation, are able to reduce cost by adopting better methods of production and also increase their sales by attracting more customers because of improved products. Reduction in cost and increase in sales gives more profit to the businessman. Use of powerlooms in place of handlooms, use of tractors in place of hand implements in farms etc. are all the results of innovation.

c) Best possible use of resources. As you know, to run any business you must have sufficient capital or funds. The amount of capital may be used to buy machinery, raw materials, employ men and have cash to meet day-to-day expenses. Thus, business activities require various resources like men, materials, money and machines. The availability of these resources is usually limited. Thus, every business should try to make the best possible use of these resources. This objective can be achieved by employing efficient workers, making full use of machines and minimizing wastage of raw materials.

1.2.2 SOCIAL OBJECTIVES Social objectives are those objectives of business, which are desired to be achieved for the benefit of the society. Since business operates in a society by utilizing its scarce resources, the society expects something in return for its welfare. No activity of the business should be aimed at giving any kind of trouble to the society. If business activities lead to socially harmful effects, there is bound to be public reaction against the business sooner or later. Social objectives of business include production and supply of quality goods and services, adoption of fair trade practices and contribution to the general welfare of society and provision of welfare amenities. i. Production and supply of quality goods and services. Since the business utilizes the various resources of the society, the society expects to get quality goods and services from the business. The objective of business should be to produce better quality goods and supply them at the right time and at a right price. It is not desirable on the part of the businessman to supply adulterated or inferior goods which cause injuries to the customers. They should charge the price according to the quality of the goods and services provided to the society. Again, the customers also expect timely supply of all their requirements. So it is important for every business to supply those goods and services on a regular basis. ii. Adoption of fair trade practices. In every society, activities such as hoarding, black-marketing and over-charging are considered undesirable. Besides, misleading advertisements often give a false impression about the quality of products. Such advertisements deceive the customers and the businessmen use them for the sake of making large profits. This is an unfair trade practice. The business unit must not create artificial scarcity of essential goods or raise prices for the sake of earning more profits. All these activities earn a bad name and sometimes make the businessmen liable for penalty and even imprisonment under the law. Therefore, the objective of business should be to adopt fair trade practices for the welfare of the consumers as well as the society. iii. Contribution to the general welfare of the society. Business units should work for the general welfare and upliftment of the society. This is possible through running of schools and colleges for better education, opening of vocational training centres to train the people to earn their livelihood, establishing hospitals for medical facilities and providing recreational facilities for the general public like parks, sports complexes etc.

1.2.3 HUMAN OBJECTIVES Human objectives refer to the objectives aimed at the well-being as well as fulfillment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training. The human objectives of business may thus include economic well-being of the employees, social and psychological satisfaction of employees and development of human resources. i. Economic well being of the employees. In business employees must be provided with fair remuneration and incentives for performance, benefits of provident fund, pension and other amenities like medical facilities, housing facilities etc. By this they feel more satisfied at work and contribute more for the business.

ii. Social and psychological satisfaction of employees. It is the duty of business units to provide social and psychological satisfaction to their employees. This is possible by making the job interesting and challenging, putting the right person in the right job and reducing the monotony of work. Opportunities for promotion and advancement in career should also be provided to the employees. Further, grievances of employees should be given prompt attention and their suggestions should be considered seriously when decisions are made. If employees are happy and satisfied they can put their best efforts in work.

iii. Development of human resources. Employees as human beings always want to grow. Their growth requires proper training as well as development. Business can prosper if the people employed can improve their skills and develop their abilities and competencies in course of time. Thus, it is important that business should arrange training and development programmes for its employees.

iv. Well being of socially and economically backward people. Business units being inseparable parts of society should help backward classes and also people those are physically and mentally challenged. This can be done in many ways. For instance, vocational training programme may be arranged to improve the earning capacity of backward people in the community. While recruiting it staff, business should give preference to physically and mentally challenged persons. Business units can also help and encourage meritorious students by awarding scholarships for higher studies.

1.2.4 NATIONAL OBJECTIVES Being an important part of the country, every business must have the objective of fulfilling national goals and aspirations. The goal of the country may be to provide employment opportunity to its citizen, earn revenue for its exchequer, become self-sufficient in production of goods and services, promote social justice, etc. Business activities should be conducted keeping these goals of the country in mind, which may be called national objectives of business. The following are the national objectives of business. i. Creation of employment. One of the important national objectives of business is to create opportunities for gainful employment of people. This can be achieved by establishing new business units, expanding markets, widening distribution channels, etc.

ii. Promotion of social justice. As a responsible citizen, a businessman is expected to provide equal opportunities to all persons with whom he/she deals. He/She is also expected to provide equal opportunities to all the employees to work and progress. Towards this objective special attention must be paid to weaker and backward sections of the society.

iii. Production according to national priority. Business units should produce and supply goods in accordance with the priorities laid down in the plans and policies of the Government. One of the national objectives of business in our country should be to increase the production and supply of essential goods at reasonable prices.

iv. Contribute to the revenue of the country. The business owners should pay their taxes and dues honestly and regularly. This will increase the revenue of the government, which can be used for the development of the nation.

v. Self-sufficiency and Export Promotion. To help the country to become self-reliant, business units have the added responsibility of restricting import of goods. Besides, every business units should aim at increasing exports and adding to the foreign exchange reserves of the country.

1.2.5 GLOBAL OBJECTIVES Earlier India had a very restricted business relationship with other nations. There was a very rigid policy for import and export of goods and services. But, now-a-days due to liberal economic and export–import policy, restrictions on foreign investments have been largely abolished and duties on imported goods have been substantially reduced. This change has brought about increased competition in the market. Today because of globalization the entire world has become a big market. Goods produced in one country are readily available i. Raise general standard of living. Growth of business activities across national borders makes available quality goods at reasonable prices all over the world. The people of one country get to use similar types of goods that people in other countries are using. This improves the standard of living of people.

ii. Reduce disparities among nations. Business should help to reduce disparities among the rich and poor nations of the world by expanding its operation. By way of capital investment in developing as well as underdeveloped countries it can foster their industrial and economic growth.

iii. Make available globally competitive goods and services. Business should produce goods and services which are globally competitive and have huge demand in foreign markets. This will improve the image of the exporting country and also earn more foreign exchange for the country.

Following are some main types of business organisations discussed in detail: 1.3.1 SOLE PROPRIETORSHIP A sole proprietorship or one man’s business is a form of business organization owned and managed by a single person. He is entitled to receive all the profits and bears all risk of ownership. It is a business owned by an individual and is not treated as a separate legal entity to its owner. The individual receives all profits or losses and is liable to the obligations of the business. Sole proprietorships represent the largest number of businesses in most countries, but typically they are the smallest in size. A sole proprietorship is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability

partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. The person who sets up the company has sole responsibility for the company's debts. It is a "sole" proprietorship in the sense that the owner has no partners. A sole proprietorship essentially refers to a natural person (individual) doing business in his or her own name and in which there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship does not have to be concerned with double taxation, as a corporate entity would have to. ADVANTAGES OF SOLE PROPRIETORSHIP • Low set up cost. There are no legal complications in setting up a sole proprietorship. There are no minimum or maximum limits for capital. The business is flexible in its operations as it can engage in any other operations without any restriction as it may be the case with the limited companies. • Reduced operating costs.

As much of the running of the business is done by the owner, the business saves on labour costs as will not be required to hire expert help. Being run by the owner ensures prompt decision making and is able to capture business opportunities as they arise. • The business avoids corporation tax.

Sole proprietorship is not required to pay corporation tax because it is not a separate legal entity from its owner so the profit made by the business will be taxed in the hands of its owner. Personal tax is slightly lower than corporation tax. Example here in Malawi the first K36,000 is tax free for a sole trader, next K18,000 is at 10% , next K18,000 at 20% and the K1,128,000 at 30% and the excess over 40%. While for the incorporated companies the rate is 30% regardless of the level of profit made. • Easy to form and wind up.

A sole proprietorship form of business is very easy to form. With a very small amount of capital you can start the business. There is no need for any legal formalities. (Except for those businesses which require a license from local authorities or health department of government etc.) It is also very easy to wind up the business. It is the owners’ decision to form or wind up the business at any time. • Direct motivation.

The profits earned belong to the sole proprietor alone and he bears the risk of losses as well. Thus, there is a direct link between the effort and the reward. If he works hard, then there is a possibility of getting more profit and he will be the sole beneficiary of this profit. Nobody will share this reward with him. This provides strong motivation for the sole proprietor to work hard. • Quick decisions.

In a sole proprietorship business the sole proprietor alone is responsible for all decisions. He is free to take any decision on his own. Since no one else is involved in decision making it becomes quick and prompt action can be taken on the basis of the decision. • Better control.

In sole proprietorship business the proprietor has full control over each and every activity of the business. Since the proprietor has all authority with him, it is possible to exercise better control over business. • Maintenance of business secrets.

Business secrecy is an important factor for every business. It refers to keeping the future plans, business strategies, etc., secret from outsiders or competitors. In the case of sole proprietorship business, the proprietor is in a very good position to keep his plans to himself since management and control are in his hands. • Close personal relations.

The sole proprietor is always in a position to maintain good personal contact with the customers and employees. Direct contact helps the sole proprietor to know the individual likes, dislikes and tastes of the customers. It also helps in maintaining close and friendly relations with the employees and thus, the business can run smoothly. • Encourages self employment.

Sole proprietorship form of business organization leads to creation of employment opportunities for people. Not only is the owner self-employed, sometimes he also creates job opportunities for others. Thus, it helps in reducing poverty and unemployment in our country. DISADVANTAGES OF SOLE PROPRIETORSHIP • Failure to raise funds. Many financial institutions consider sole proprietorship as risky ventures and are not willing to extend finance to these entities. Sole proprietor may not able to raise capital on his own unlike in partnership where they are able to share the financial burden of raising funds. In a sole proprietorship business, the owner arranges for the required capital for the business. It is difficult for a single individual to raise a huge amount of capital. The owner’s own funds as well as borrowed funds sometimes become insufficient to meet the requirement of the business’s growth and expansion. Venture capitalists and banks generally do not lend money to sole proprietorships. • The proprietor has unlimited liability.

As the business is not treated as a separate legal entity from its owners any unpaid debt by the enterprise can be recovered from the personal wealth of the owner even if it was generated from other sources not related to the business. In case the sole proprietor fails to pay the expenses arising out of

business activities, his personal properties may have to be used to pay for those. This generally discourages the sole proprietor from taking risks. He thinks cautiously while deciding to start or expand the business activities. • Short life of business.

The existence of a sole proprietorship business is dependent on the life of the proprietor. Illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain. • Lack of business skills.

There is no division of responsibilities in most sole proprietorships as management and running of the business is done by a single individual. This affects the daily operations of the business because if the owner is sick or engaged in other personal activities then usually the business is incapacitated. • Limited size

There is a limit beyond which it becomes difficult for a sole proprietor to expand the business activities. It is not possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit.


A partnership is a strategic alliance or relationship between two or more people in common view of sharing the profits or losses of the business.. The partners share the profits and losses of the partnership according to an agreed percentage of profits in the partnership deed. Generally, any partner can bind the partnership to another party, and if necessary, the personal resources of each partner can be called on to pay obligations of the partnership. A partnership, just like as sole proprietorship, is not a separate legal entity from its owners hence the need to call on private assets when partnership fails to settle any obligation. A partnership must be dissolved if the ownership changes, as when a partner leaves or dies. If the business is to continue as a partnership after this occurs, a new partnership must be created and new partnership agreement be signed. CHARACTERISTICS OF PARTNERSHIP FIRM: • Two or more members: At least two members are required to start a partnership business. But the number of members should not exceed 10 in case of “banking business” and 20 in case of “other business”. • Partnership agreement:

In a partnership business, there must be an agreement between all the partners. This agreement must contain• • • • • • • • • The amount of initial capital contributed by each partner Profit or loss sharing ratio for each partner Salary or commission payable to the partners, if any Duration of business, if any Name and address of the partners and the firm Duties and powers of each partner; Nature and place of business; and Any other terms and conditions to run the business Competence of partners:

Since individuals join hands to become partners, it is necessary that they must be “competent” to enter into a partnership. Thus, minors, lunatics and insolvent people are not eligible to become partners. However, a minor can be admitted to the benefits of partnership i.e., he can have a share in the profits only. • Lawful business:

The partners should always carry on any kind of lawful business. To start a business in smuggling, black marketing, etc., is not termed as a partnership business in the eye of the law. Again, doing social work is not termed as a partnership business.

Sharing of profits:

The main objective of every partnership firm is to make and share the profits of the business. In the absence of any “agreement” for profit sharing, it should be shared “equally” among the partners. Suppose, there are two partners in the business and they earn a profit of Rs.20,000. They may share the profits equally i.e., Rs.10,000 each or in any other agreed proportion, say one forth and three fourth i.e. Rs.5,000/- and Rs.15,000/• Unlimited liability:

Just like a sole proprietorship, the liability of partners in a partnership is also unlimited. This means, if the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can be utilized to meet the business liabilities. Suppose, the firm has to make payment of Rs.25,000/- to the suppliers for some goods. The partners are able to arrange for only Rs.19,000/- from

the business. The balance amount, of Rs.6,000/- will have to be arranged from the personal properties and assets of the partners. • Voluntary registration:

It is not compulsory to register the partnership firm. However, if the partnership firm is not registered, it will be deprived of certain legal benefits; therefore it is desirable to register. The effects of non-registration are: • Partnership firm cannot take any action in a court of law against any other parties for settlement of claims. In case there is any dispute among partners, it is not possible to settle the disputes through a court of law. • No separate legal existence: Just like sole proprietorships, partnership firms also has no separate legal existence from its owners. The partnership firm is just a name for the business as a whole. If someone sues the firm, it is as good as someone suing all the partners. • Restriction on transfer of interest:

No partner can sell or transfer his share or part or partnership of the firm to any one without the consent of the other partners. For example, A, B, and C are three partners. If “A” wants to sell his share to “D” as his health problems prevent him from working, he can not do so until B and C both agree. • Continuity of business:

A partnership firm comes to an end on death, lunacy or bankruptcy of any partner. Even otherwise, it can stop its business at the will of the partners. At any time, they may take a decision to end their partnership. ADVANTAGES OF PARTNERSHIP • Easy to form: Like sole proprietorships, partnership businesses can be formed easily without any compulsory legal formalities. It is not necessary to get the firm registered. A simple agreement or partnership deed, either oral or in writing, is sufficient to create a partnership. • Availability of large resources:

Since two or more partners join hands to start a partnership business, it may be possible to pool together more resources as compared to a sole proprietorship. The partners can contribute more capital, more effort and more time for the business. • Better decisions:

The partners are the owners of the business. Each of them has equal right to participate in the management of the business. In case of any conflict, they can sit together to solve the problem. Since all partners participate in the decision-making process, there is less scope for reckless and hasty decisions. • Flexibility in operations:

A partnership firm is a flexible organization. At any time, the partners can decide to change the size or nature of the business or area of it’s operation. There is no need to follow any legal procedure. Only the consent of all the partners is required. • Sharing risks:

In a partnership firm all the partners “share” the business risks. For example, if there are three partners and the firm makes a loss of Rs.12,000 in a particular period, then all partners may share it and the individual burden will be Rs.4000 only. Because of this, the partners may be encouraged to take up more risk and hence expand their business more. • Protection of interest of each partner:

In a partnership firm, every partner has an equal say in decision making and the management of the business. If any decision goes against the interest of any partner, he can prevent the decision from being taken. In extreme cases an unsatisfied partner may withdraw from the business and can dissolve it. In such extreme cases the “partnership deed” is required. In absence of the partnership deed, no legal protection is given to the partners. • Benefits of specialization:

Since all the partners are owners of the business, they can actively participate in every aspect of business as per their specialization, knowledge and experience. If you want to start a firm to provide legal consultancy to people, then one partner may deal with civil cases, one in criminal cases, and another in labour cases and so on as per the individual specialization. Similarly, two or more doctors of different specialization may start a clinic in partnership. DISADVANTAGES OF PARTNERSHIP • Unlimited liability: All the partners are jointly liable for the debt of the firm. They can share the liability among themselves or any one can be asked to pay all the debts even from his personal properties depending on the arrangement made between the partners.



The partnership firm has no legal existence separate from it’s partners. It comes to an end with death, insolvency, incapacity or the retirement of a partner. Further, any unsatisfied or discontent partner can also give notice at any time for the dissolution of the partnership. • Lack of harmony:

In a partnership firm every partner has an equal right to participate in the management. Also, every partner can place his or her opinion or viewpoint before the management regarding any matter at any time. Because of this, sometimes there is a possibility of friction and discontent among the partners. Difference of opinion may lead to the end of the partnership and the business. • Limited capital:

Since the total number of partners cannot exceed 20, the capital to be raised is always limited. It may not be possible to start a very large business in partnership form. • No transferability of share:

If you are a partner in any firm, you cannot transfer your share or part of the company to outsiders, without the consent of other partners. This creates inconvenience for the partner who wants to leave the firm or sell part of his share to others. 1.3.3 JOINT HINDU FAMILY

Joint Hindu Family Business is a form of organization in existence only in India. It is one of the oldest form of organizations and in existence only in some parts of the country. This form of organization has ownership in the hands of members of a Hindu undivided family. The business is under the control of the head of the family known as the 'Karta'. The members of the family business are known as 'Co-parceners' In Hindu Law, there are two schools of thought viz Dayabhaga which is applicable in Bengal and Assam, and Mitakshara which is applicable in the rest of India. According to Mitakshara School, the property of the Joint Hindu Family is inherited by a Hindu Family from his father, grandfather and great grandfather, thus three successive generations in male line (son, grandson and great grandson) can simultaneously inherit the ancestral propriety. They are called coparceners in interest and the senior most member of the Family is called karta. The Hindu succession act 1956 has extended to the line of co-parceners interest to female relatives of the deceased co-parcener or male relative climbing through such female relatives. Under the Dayabagha law the male heirs become members only on the death of the father. FEATURES • Organization Existence: A joint Hindu family business exists due to the operation of Hindu law and not out of contract. The rights and liabilities of co-parceners are determined by the general rules applicable in the Hindu law. • Membership: A person born in the family gets an automatic membership of the business and legality is not affected by the minority of the member. There is no limit to the maximum number of members in this type of organization. • Registration of Organization: It is not necessary to get the business registered

• Management: The business is managed and controlled by the head or the 'Karta'. He has the power to obtain loans against the family property etc. The Co-parceners do not have the power to raise loans or enter into contracts. • Unlimited Liability: 'Karta ' has unlimited liability and the co-parceners the extent of their individual investment in the family business. have limited liability to ADVANTAGES OF JOINT HINDU FAMILY 1. Stability: The existence of the HUF does not come to an end with the death of any co-parcener, hence there is stability.

2. Knowledge and experience: There is scope for younger members of the family to get the benefit of the knowledge and experience of the elder members of the family.

3. No Interference: The Karta has full freedom to take decisions without any interference by any member of the family.

4. Maximum Interest: As the Karta’s liability is unlimited, he takes maximum interest in running the business.

5. Specialization: By assigning work to the members as per their knowledge and experience, the benefits of specialization and division of work may be secured.

6. Discipline: The firm provides an opportunity to its members to develop the virtues of discipline, self-sacrifice and co-operation.


Credit Worthiness: Has more credit worthiness when compared to that of a sole proprietorship. DISADVANTAGES OF JOINT HINDU FAMILY

1. No Encouragement: As the benefit of hard work of some members is shared by all the members of the family, there is any encouragement to work hard.

2. Lazy and Inactive: The Karta takes the responsibility to manage the firm. This may result in the other members becoming lazy.

3. Members Initiative: The Karta alone has full control over the business and the other members cannot interfere with the management of the firm. This may hamper members’ initiative.

4. Duration: The life of the business is shortened if family quarrels take precedence over business interest. 5. Abuse of Freedom: There is scope for the Karta to misuse his full freedom in managing the business for his personal benefit.

1.3.4 JOINT STOCK COMPANY A joint stock company (JSC) is a type of business entity: it is a type of corporation or partnership between two. Certificates of ownership (or stocks) are issued by the company in return for each contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others. In contrast, a public company (sometimes known as a "listed" company) offers its shares for sale upon the open market—they are "listed" upon the stock exchange. In Britain, they are usually distinguished by the letters "PLC" after their name. The public company can raise part of its capital by a share issue, but the directors have no control over the sale or purchase of its shares. Thus, a public company can be "taken over" by another through the act of purchasing a controlling interest in the shareholding. Although not, strictly speaking, a joint stock company, a third kind of company is found in Britain. This is known as a guarantee company, and is only formed by societies and organisations for charitable purposes (e.g. sports clubs, hobby groups etc.), as there is no way that a profit can be distributed. No

shares are issued, but a number of named directors "guarantee" a specified amount of debt for which they agree to be liable. FEATURES OF JOINT STOCK COMPANY: • Legal formation: No single individual or a group of individuals can start a business and call it a joint stock company. A joint stock company can come into existence only when it has been registered after completion of all the legal formalities required by the Indian Companies Act, 1956. • Artificial person:

Just like an individual takes birth, grows, enters into relationships and dies, a joint stock company takes birth, grows, enters into relationships and dies. However, it is called an artificial person as it’s birth, existence and death are regulated by law. • Separate legal entity:

Being an artificial person, a joint stock company has its own separate existence independent of it’s investors. This means that a joint stock company can own property, enter into contracts and conduct any lawful business in it’s “own” name. It can sue and can be sued by others in the court of law. The shareholders are “not” the owners of the property owned by the company. Also, the shareholders cannot be held responsible for any of the acts of the company. • Common seal:

A joint stock company has a “seal”, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company. Any document, on which the company's seal is put and is duly signed by any official of the company, becomes binding on the company. For example, a purchase manager may enter into a contract for buying raw materials from a supplier. Once the contract paper is sealed and signed by the purchase manager, it becomes valid. The purchase manager may leave the company or may be removed from his job or may have taken a wrong decision, yet, the contract is valid till a new contract is made or the existing contract expires. • Perpetual existence:

A joint stock company continues to exist as long as it fulfils the requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of it’s investors. For example, in case of a private limited company having four members, if all of them die in an accident, the company will “not” be closed. It will continue to exist. The shares of the company will be transferred to the legal heirs of the members.

Limited liability:

In a joint stock company, the liability of a member is limited to the amount he has invested. While repaying debts, for example, if a person has invested only Rs.10,000 then only this amount that he has invested can be used for the payment of debts. That is, even if there is liquidation of the company, the personal property of the investor can not be used to pay the debts and he will lose his investment worth Rs.10,000. • Democratic management:

Joint stock companies have democratic management and control. Since in joint stock companies there are thousands and thousands of investors, all of them cannot participate in the affairs of management of the company. Normally, the investors elect representatives from among themselves known as ‘Directors’ to manage the affairs of the company. ADVANTAGES OF JOINT STOCK COMPANY • Legal formation: No single individual or a group of individuals can start a business and call it a joint stock company. A joint stock company can come into existence only when it has been registered after completion of all the legal formalities required by the Indian Companies Act, 1956. • Artificial person:

Just like an individual takes birth, grows, enters into relationships and dies, a joint stock company takes birth, grows, enters into relationships and dies. However, it is called an artificial person as it’s birth, existence and death are regulated by law. • Separate legal entity:

Being an artificial person, a joint stock company has its own separate existence independent of it’s investors. This means that a joint stock company can own property, enter into contracts and conduct any lawful business in it’s “own” name. It can sue and can be sued by others in the court of law. The shareholders are “not” the owners of the property owned by the company. Also, the shareholders cannot be held responsible for any of the acts of the company. • Common seal:

A joint stock company has a “seal”, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company. Any document, on which the company's seal is put and is duly signed by any official of the company, becomes binding on the company.

For example, a purchase manager may enter into a contract for buying raw materials from a supplier. Once the contract paper is sealed and signed by the purchase manager, it becomes valid. The purchase manager may leave the company or may be removed from his job or may have taken a wrong decision, yet, the contract is valid till a new contract is made or the existing contract expires. • Perpetual existence:

A joint stock company continues to exist as long as it fulfills the requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of it’s investors. For example, in case of a private limited company having four members, if all of them die in an accident, the company will “not” be closed. It will continue to exist. The shares of the company will be transferred to the legal heirs of the members. • Limited liability:

In a joint stock company, the liability of a member is limited to the amount he has invested. While repaying debts, for example, if a person has invested only Rs.10,000 then only this amount that he has invested can be used for the payment of debts. That is, even if there is liquidation of the company, the personal property of the investor can not be used to pay the debts and he will lose his investment worth Rs.10,000. • Democratic management:

Joint stock companies have democratic management and control. Since in joint stock companies there are thousands and thousands of investors, all of them cannot participate in the affairs of management of the company. Normally, the investors elect representatives from among themselves known as ‘Directors’ to manage the affairs of the company. DISADVANTAGES OF JOINT STOCK COMPANY

Difficult to form:

The formation & registration of Joint Stock Company involves a long and complicated procedure. A number of legal documents and formalities have to be completed before a company can start business. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. Because of all this, the cost of formation of a company is very high. • Excessive government control:

Joint stock companies are regulated by government through the Companies Act and other economic legislations. Especially, public limited companies are required to complete various legal formalities as provided in the Companies Act and other legislations. Non-compliance with these causes a heavy penalty. This affects the smooth functioning of the companies.

Delay in policy decisions:

Generally policy decisions are taken at the “Board of Directors” meetings of the company. Further, the company has to fulfil certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions.

CHAPTER – I:-End Chapter Quizzes
Q1.Business is an institution organized and operated to provide goods & services to society under the incentive of private gain.This definition is given by: (a)Wheeler (b)Fayol (c)VSP Rao Q2.Business is aimed at earning profits through the satisfaction of: (a)Human Wants (b)Employees Wants (c)Producer’s Wants Q3.Business comprises : (a)Industry and Commerce (b)Manufacturing &Construction (c)None of the above Q4.The liability of a Sole Proprietor is (a)Limited (b)Unlimited (c)No liability at all. Q5.Perpetual Existence is the characteristic of (a)Joint Stock Company (b)Partnership (c)Sole Proprietorship Q6.Minimum Number of members required to form a Partnership is

(a)One (b)Two (c)Three Q7.Registration in case of Partnership is: (a)Compulsory (b)Optional (c)Voluntary Q8.Separate Legal Entity is the characteristic of which form of business organization: (a)Sole Proprietorship (b)Joint Stock Company (c)Partnership Q9.Minimum number of members required in case of Public Company is: (a)Two (b)Seven (c)Ten Q10.Joint Stock Company is governed by: (a)Company’s Act 1956 (b)Company’s Act 1952 (c) Company’s Act 1958

The term ‘management’ conveys different meanings depending upon the context in which it is used. Some of the important concepts of management are given here.

2.1.1 Management as an Economic Resource
Like land, labour, capital and entrepreneurship, management is a vital factor of production. An entrepreneur establishes the organization as its owner. But it is the management that transforms the various resources into a productive entity. The inputs of labour, capital and materials do not by themselves ensure growth. They require the catalyst of management to produce results. It is management that coordinates various factors of production. Therefore, management occupies a central place among all the factors of production. The other factors- money, manpower, materials, machinery and methods- are known as the five M’s of management. These are analyzed below: 1. Money:

Money is the most critical and all-purpose resource because it is used to acquire or hire other resources. In organizations, money is employed to generate more money in the form of profits or surplus. 2. Manpower:

Manpower refers to the managerial and non-managerial personnel employed in an organization. The survival and success of an organization depends to a great extent upon the skills, efforts and contributions of its managers. The human resources mobilize, allocate and utilize the physical and financial resources of an organization. 3. Materials:

Materials represent the physical raw-materials and intermediate products (semi-finished goods) which are converted and/or assembled into finished products with the help of certain processes and technology. 4. Machinery:

Machines are the equipment used to process the materials into finished or semi-finished products. Employment of modern machinery helps to reduce costs and to improve the quality of output. 5. Methods:

Methods refer to the normal and prescribed ways of doing things. Various operations are performed according to certain systems and procedures. Managerial, technical and clerical tasks all can be carried out in various alternative ways. Use of right methods help to increase efficiency of operations and contribute to effective management.

Man power

Money Managemen t




Fig. 2.1. Five M’s of Management

Each of the five M’s has its own dynamics. It is the job of management to understand the basic nature and functioning of each M and the source of its availability. Managers must clearly know the purpose for which the M’s are employed and coordinate them in such a way as to optimize their productivity. 2.1.2 Management as a group of people We refer to management as a group of people in which we include all those personnel who perform managerial functions in an organisation. For example, when we talk about relationship between management and labour in an organisation, we refer to two distinct classes or groups of personnel in the organisation. In the first category, we include all those persons who are responsible for managerial functions and in the second category, we include non-managerial personnel. Managers occupy positions at different levels of authority but perform the same basic functions. Top-level managers have greater authority than middle-level managers who in turn have greater authority than operating managers .In this way a system of authority (called chain of command) is created in every organization 2.1.3 Management as a Discipline

Discipline refers to field of study having well-defined concepts and principles. When we refer to management as a discipline, we include in it the various relevant concepts and principles, the knowledge of which aids in managing. From this view-point, management can be treated either as an art or science, the two basic and broad principles. However, since management prescribes various principles and how these principles can be applied in managing an organisation, it has the orientation of both, science as well as art.

2.1.4 Management as a Process Perhaps the best way to describe management is in terms of what managers do. It involves organizing, directing and controlling human efforts to accomplish pre-determined goals. As a process management refers to a series of interrelated elements or functions. These are: a) defining the aims or objectives of the organization;

b) formulating policies, procedures, programmes, etc., to attain these objectives efficiently and economically; c) d) e) f) bringing together men, money, materials, machinery and other factors of production; assigning work or duties to people and defining their authority and responsibility; guiding and inspiring people to perform the assigned tasks as planned and Exercising control over the performance of people.

This concept of management is the simplest and the most pragmatic. It also highlights the universal nature of management. However; it does not take into account the social and human aspects of management.

2.2.1 Production or Efficiency-oriented Definitions:
Those who have put forward the concept of management as a source of efficiency in organization have viewed that management is concerned with generating efficiency in organizational settings. Taylor has defined management as follows:

“Management is the art of knowing what you want to do and then seeing that it is done in the best and cheapest way”

In a similar way, John Mee has defined management in terms of securing maximum results when he views that:

“Management is the art of securing maximum results with minimum effort so as to secure maximum prosperity and happiness for both employer and employee and give the public the best possible service”

2.2.2 Decision –oriented Definitions:
Decision-oriented definitions of management have been provided by decision theorists who have seen management process in terms of decision making. A decision –oriented definition of management has been provided by Stanley Vance as follows: “Management is simply the process of decision making and control over the action of human beings for the expressed purpose of attaining pre-determined goals” The decision-oriented definition of management indicates that the basic activity of a manager is to make decisions and enforce these decisions.

2.2.3 People-oriented Definitions:
Lawrence Appley has called management as personnel management and has defined it as follows: “Management is the accomplishment of results through the efforts of other people”. Koontz has defined management in similar way when he says that: “Management is the art of getting things done through and with people in formally organized groups”

2.2.4 Function-oriented Definitions:
These definitions put emphasis on the various functions performed by managers in organizations. McFarland states that

“Management is defined for conceptual, theoretical, and analytical purposes as that process by which managers create, direct, maintain and operate purposive organizations through systematic, coordinated, cooperative human efforts”. Henry Fayol, an early management thinker, has elaborated these functions more precisely when he defined management as follows: “To manage is to forecast and to plan, to organize, to coordinate and to control.”

The following are the important features or characteristics of management:

1. Management is getting things done. A manager does not do any operating work himself but gets it done through others. He must motivate the subordinates for the accomplishment of the task assigned to them.

2. Management is an activity. Management is a process of organized activity. It is concerned with the efficient use of resources like men, money and materials in the organization.

3. Management is a group activity. Management cannot exist independent of the group or organization it manages. It is a cardinal part of any group activity and inspires workers to put forth their best efforts.

4. Management is a universal activity. Management is a universal phenomenon. However, management principles are not universally applicable but are modified to suit the given situation and the type of organization.

5. Management is purposeful.

Management is a goal-oriented activity. It is concerned with the accomplishment of goal through its various functions like planning, organizing, staffing, directing, and controlling.

6. Management is a process of accomplishment of certain goals. Management is a process which involves planning, organizing, directing and controlling the efforts of human resources in the use of material resources. These are the basic functions which every manager performs for the accomplishment of certain goals.

7. Management is an integrating process. Management integrates men, machines and materials for performing various operations and accomplishing the stated goals. Thus, management acts as a catalytic agent in getting maximum productivity from all the resources.

8. Management is intangible. Management is abstract and cannot be seen with the eyes. It is evidenced by the quality of the organization and the results. Thus, feeling of management is result-oriented.

9. Management is a profession. Management is a profession because some of its established principles are being applied in practice.

10. Management is interdisciplinary. This implies that, even though management has been developed as a separate discipline, it draws knowledge and concepts from other social sciences like psychology, sociology, anthropology, economics, and so on. Management integrates the ideas and concepts taken from these disciplines and presents newer concepts. These new concepts can be put into practice for managing the organizations.

11. Management is a science and an art. Management has developed certain principles and laws which have wide applications. So it is treated as a science. It is also an art, because it is concerned with the application of knowledge for the solution of organizational problems.

12. Management is dynamic. Management is dynamic because it adapts itself to the social changes and introduces innovation in methodology.

13. Management involves decision-making. Management process involves decision-making at various levels for getting things done by others. It involves selecting the most appropriate alternative out of the several.

14. Management applies economic principles. Management is the art of applying the economic principles that underline the control of men and materials in the organization.

15. Management is concerned with direction and control. Management is concerned with the direction and control of the various activities. It deals particularly with the active direction of the human effort.

“Good Management is the art of making problem so interesting and their solutions so constructive that everyone wants to get to work and deal with them” -Paul H awken. Management plays a unique role in modern society. It regulates our productive activities by organizing factors of production. A business which has all the resources like men, money, material and machinery cannot satisfy customers unless they are efficiently managed. Thus, every business needs repeated stimulus which can only be provided by management. The following points further highlight the significance of management:

1. Determination of objectives:

The success of various operations of an organization mainly depends on the identification of its objectives. Objectives are identified and laid down by the management. They should be in writing and communicated to all others in the organization.

2. Achieving of objectives. It is the management which directs the group effort towards the achievement of various objectives. It brings the human and non-human resources together.

3. Optimum utilization of resources. It is the management which makes optimum utilization of various resources such as land, labour, capital and enterprise. “No ideology, no ism, no political theory can win greater output with less efforts, only sound management”, say Urwick and Brech.

4. Meeting challenges. All the policy decisions of an enterprise are taken by the management. It keeps in touch with the current environment and predicts what is going to happen in future. Through better planning and control, management steers concern to meet the demands of the changing environment.

5. Provides innovation. Management infuses an enterprise with new ideals, imagination and vision.

6. Smooth running of business. Management helps in smooth running of business through better planning and control.

7. Social benefits. Management is beneficial to the society as well. It raises the standard of living of the people by providing good quality products at the lowest prices. It also promotes peace and prosperity in the society through optimum use of scarce resources.

8. Role in national economic development. “Management is the crucial factor in economic and social development”, says Peter F. Drucker. The development of a nation mainly depends on the quality of management of its resources. It is all the more true in a developing country like India, where productivity is low and the resources are limited.

The basic functions of Management are as follows:

Table 1 :Managerial Functions and Sub-functions __________________________________________________________________________________ Functions Planning Sub-functions Forecasting,decision-making,strategy formulation,policymaking,programming, scheduling,budgeting,problem-solving, innovation,investigation and research ___________________________________________________________________________________ Organising Functionalisation,divisionalisation, departmentalization,delegation, decentralisation,activity analysis, task-allocation. _____________________________________________________________________________________ Staffing Manpower planning,recruitment selection,training,placement, compensation,promotion,appraisal,etc _____________________________________________________________________________________ Directing Supervision, motivation, communication,

leadership, activating. _____________________________________________________________________________________ Controlling Fixation of standards, recording measurement,reporting,corrective action. _____________________________________________________________________________________ According to Koontz and O’Donnell, “The most useful method of classifying managerial functions is to group them around the activities of planning, organizing, staffing, directing and controlling.” The job of a manager is to coordinate and utilize various inputs(resources)to achieve the desired output (objectives).In order to convert inputs into outputs managers perform several functions. This interrelationship between inputs, functions and outputs of management is depicted in Figure below :

INPUTS Men Money Materials Machinery Methods Staffing Planning


OUTPUTS Goods & Services


Productivity Growth Taxes

Process of Management


Controlling Employment

Fig: The Management Process

The work of a manager can be compared with the job of an orchestra conductor. The conductor of an orchestra harmonises and blends together the efforts of different members of the orchestra team so that the team produces good music and entertainment. Similarly, a manager synchronises and integrates the efforts of his subordinates so that they work co-operatively and achieve their goals efficiently. A brief description of different functions of management is given below: PLANNING: Planning is the most basic or primary function of management. It precedes other functions because a manager plans before he acts. Planning involves determining the objectives and selecting a course of action to achieve them. It implies looking ahead and deciding in advance what is to be done, when and

where it is to be done and by whom it is to be done. Planning is a mental process requiring the use of intellectual faculties, foresight, imagination and sound judgement. It consists of forecasting, decisionmaking and problem –solving. A plan is a predetermined future course of action. The process of planning consists of: (a) (b) (c) (d) determination of objectives, forecasting and choice of a course of action, formulation of policies, programmes, budgets, schedules, etc, to achieve the objectives, and laying down of procedures and standards of performance.

Planning enables us to do things in an orderly and efficient manner. It is helpful in more effective achievement of goals. Planning enables an organisation to face uncertainty and change. ORGANISING: Once plans are formulated, the next step is that of organizing. Organising is the process of establishing harmonious authority-responsibility relationships among the members of the enterprise. It is the function of creating a structure of duties and responsibilities. The network of authority-responsibility relationships is known as organization structure. Such a structure serves as the framework within which people can work together effectively for the accomplishment of common objectives. According to Fayol, “To organize a business is to provide it with everything useful to its functioning-raw materials, tools, capital and personnel”. A sound organisation helps to avoid duplication of work and overlapping of effort. The process of organizing consists of the following steps: (a) (b) (c) (d) (e) determining and defining the activities required for the achievement of planned goals; grouping the activities into logical and convenient units; assigning the duties and activities to specific positions and people; delegating authority to these positions and people; defining and fixing responsibility for performance; and

(f) establishing horizontal and vertical authority-responsibility relationship throughout the organization.

STAFFING: Staffing is the process of filling all positions in the organisation with adequate and qualified personnel. According to Koontz and O’Donnell, “The managerial function of staffing involves manning the organizational structure through proper and effective selection, appraisal and development of personnel to fill the roles designed into the structure”. Staffing consists of manpower planning, recruitment, selection, training, compensation, integration and maintenance of employees .Lawrence Appley remarked, “…managers would be more skilled and more competent if they were carefully selected, specifically trained, continually kept up –to- date in their field of activity, guided in their development for the assumption of greater responsibility and adequately rewarded. DIRECTING: Directing is the managerial function of guiding, supervising, motivating and leading people towards the attainment of planned targets of performance. In the process of directing his subordinates, a manager takes active steps to ensure that the employees accomplish their tasks according to the established plans. Direction initiates organized action and sets the whole organizational machinery into action .It is therefore, the life spark of an organization. Directing function of management embraces the following activities: (a) (b) (c) (d) issuing orders and instructions, supervising people at work, motivation, i.e., creating the willingness to work for certain objectives, communication, i.e., establishing understanding with employees regarding plans and their implementation, and (e) leadership or influencing the behaviour of employees.


Controlling is the process of ensuring that the organization is moving in the desired direction and that progress is being made towards the achievement of goals. The process of controlling involves the following steps: (a) (b) (c) establishing standards for measuring work performance; measurement of actual performance and comparing it with the standards; finding variances between the two and the reasons thereof; and


taking remedial action for correcting deviations so as to ensure attainment of objectives.

A manager’s job is highly crucial to the success of any organization. The more complex the organisation, the more crucial the manager’s role in it. It is the manager’s job to achieve the organizational objectives through the proper utilization of its human and material resources. However, since the material resources of equipment, capital, facilities, information etc can only be used by humans, the human resources are the most valuable assets of any organisation. Accordingly a manager must be highly skilled in the art of optimally utilizing the human resources. This art is universal in nature. While the field of management can be specialized to suit the needs of a particular environment, some of the characteristics are common to all managers and are universally applicable. Some of the essential skills are as follows: 1. Technical skills: Technical skills basically involve the knowledge, methods and techniques and the ability to use these techniques in performing a job effectively. For example, engineers, accountants, computer programmers etc., have technical skills in their areas acquired through education and training. This is a specialized knowledge and expertise which is used in day to day problems and activities. 2. Human skills: Human skill is the ability to work with other people amicably. It involves patience, trust, and genuine involvement in interpersonal relationships. This skill is necessary at all levels of management. The manager must create an environment of in which the workers work together as a team with a sense of belonging and dedication. This skill helps the manager in effectively interacting with others, which is truly conducive to high morale and necessary for organizational success. 3. Analytical skills: Effective and right decision making is the most important function of management. A wrong but crucial decision could make the difference between success and failure. The right decision basically depends upon the correct analysis of the problem and situation. Hence a successful manager must possess the analytical skill, involving the ability to logically, objectively, and scientifically analyze the problems and opportunities and use scientific approaches to arrive at feasible and optimal solutions. 4. Conceptual skills: The conceptual skill is the ability to view the organization as a whole, and as a system comprised of various parts and sub-parts, integrated into a single unit. The conceptual skills usually depend upon the

organized thinking process which deals with understanding of various functions of an organisation, their interdependence, the relationship of the organization with the external environment and recognizing the opportunities and challenges. This is an extremely crucial skill necessary for successful operations of the top management. The top management must formulate objectives, policies and strategies and must know how each part of the organization contributes towards the achievement of primary goals and how each part is interrelated to each other.

There are basically three levels of management with relative standing in an organization’s hierarchy of authority. These levels are: 1. Top management:

The top level of management includes top executives such as chief executive officer, chief operating officer, president, executive vice-president’s and various vice-presidents. These managers are primarily involved in broad organizational matters such as policy formulation, long range planning, goal setting and development of organizational strategies. In general, the top management effectively deals with all elements and forces that affect the survival, stability, and growth of an organization. In the words of B.Yuill: It is the function of top management to watch, interpret, exploit or, where necessary, counter external influences with appropriate decisions and plans and to initiate the appropriate adjustment in the functional authority and status structures of the organization. It is the top management’s duty to protect the integrity of the organization, so that it can survive for its own employees’, the shareholders’, suppliers’, and the customers’ interests and for the general good of the social and economic system within which it operates. 2. Middle management:

The middle management level generally consists of divisional and developmental heads such as plant manager, production manager, marketing manager, personnel manager, etc. Their job is to interpret policies and directions set by the top level management into specific plans and guidelines for action. Their responsibility is to coordinate the working of their departments so that the set objectives can be accomplished .They are concerned with short term goals and specific results. They spend more time on operational planning, information processing and day to day monitoring of their divisional activities. 3. First level supervisory management:

This level of management consists of supervisors, superintendents, unit heads, foremen, chief clerks etc. Their primary concern is with the mechanics of the job and they are responsible for coordinating the work of their employees. They must possess technical skills so that they can assist their subordinates when necessary. They plan day to day operations, assign personnel to specific jobs, oversee their

activities, evaluate their performances, and become a link between the workers and middle level management.

Henry Mintzberg has studied the work roles of the chief executive and has categorized these roles into three areas. These areas are interpersonal relationships, information processing and disseminating and decision making. Each of these areas are further sub divided into various roles. These roles are: (A) Interpersonal Relationships

1. Manager’s role as a figurehead: Manager’s act as symbolic figurehead performing social or legal obligations. These duties include greeting visitors, signing legal documents, taking important customer’s to lunch etc.

2. Manager’s leadership role: Since a manager is responsible for the activities of his subordinates he must motivate them to perform better. He must be an exemplary leader so that his subordinates follow his directions and guidelines with respect and dedication.

3. Manager’s role as a liaison officer: In addition to their constant contact with their own subordinates and peers ,the manager’s must maintain a network of outside contacts in order to assess the external environment of competition, social changes or changes in government rules and regulations.. An auto assembly plant supervisor may telephone a tire supplier to determine the amount of inventory available for next week; a prosecuting attorney may meet with the presiding judge and defence attorney to discuss the use of motions and evidence in a libel trial; or a college professor may meet with professors in a separate department on campus to obtain information on a prospective doctoral student. Ultimately, the liaison role enables a manager to develop a network for obtaining external information which can be useful for completing current and future work activities.. (B) Information Processing

4. Manager’s role as a monitor: A manager assumes the monitor role by continually scanning the environment for information or activities and events that may identify opportunities or threats to the functioning of the work unit. Much of the manager's gathering of information is achieved through the network of contacts that has been established through the interpersonal roles. Hearing small talk at a banquet about a competitor's planned marketing program, learning through casual conversation at a ball game about the negative medical evaluation of an unsigned ball player, or daily reading of a business periodical are all examples of the kinds of information gathering involved in the monitor role.

5. Manager’s role as a disseminator of information: The information a manager gathers as a monitor must be evaluated and transmitted as appropriate to members of the organization. The transmittal of information by a manager activates the disseminator role. Privileged information may be disseminated to subordinates, peers, or superiors in the organization. The manager may inform the marketing vice-president about the specific marketing strategy a competitor is planning to implement. A baseball manager may inform the team owner that an impending trade should be cancelled because of the unfavourable medical report on one of the players. Or reading The Wall Street Journal may inform the manager that a shipping strike is looming and thus enable her to inform subordinates that temporary layoffs may occur next month.

6. Manager’s role as a spokesman: Occasionally, a manager assumes the role of a spokesperson by speaking on behalf of the work unit to people inside or outside the organization. This might involve lobbying for critical resources or appealing to individuals who have influence on activities that affect the work unit. A top manager asking the board of directors to keep the work unit together during a reorganization period or a corporate president speaking to a college audience on the role the company plays in education would both constitute engaging in the spokesperson role. (C) Decision Making

7. Manager’s role as an entrepreneur: The entrepreneur role comes into action when the manager seeks to improve the work unit. This can be accomplished by adapting new techniques to fit a particular situation or modifying old techniques to improve individual or group activity. Managers usually learn of new or innovative methods through information gathered in the monitor role. As a result, a supervisor purchases a new kiln which will shorten the drying process for ceramic tiles; a director of a youth club trains staff in the use of personal

computers to increase file access; or a president establishes a new pension plan to improve employee morale. 8. Manager’s role as a conflict handler: Whereas the entrepreneur role establishes the manager as the initiator of change, the disturbance handler role establishes the manager as a responder to change. Organizations, unfortunately, do not run so smoothly that managers are never called upon to respond to unwelcome pressures. In these cases, the manager is required to act quickly to bring stability back to the organization. A law partner must settle a disagreement among associates in the firm on who will present a case before a judge; a personnel director must negotiate with striking employees dissatisfied with the procedures for laying off employees; or a cannery first-line manager must respond to a sudden shortage of cans used to package perishable fruit because the supplier has reneged on a contract.

9. Manager’s role as resource allocator: When a manager is placed in the position of having to decide to whom and in what quantity resources will be dispensed, the resource allocator role is assumed. Resources may include money, time, power, equipment, or people. During periods of resource abundance, this role can be easily performed by a manager. In most cases, however, organizations operate under conditions of resource scarcity; thus, decisions on the allocation of resources can be critical for the success of the work unit, division, or organization. As a decision maker, the manager must strive not only to appropriately match resources with subordinates but also to ensure that the distribution of resources is coordinated to effectively complete the task to be performed. An office manager must provide secretaries with appropriate equipment to generate and duplicate documents. A manager of a fast-food restaurant must coordinate work shifts to have the maximum number of employees working during the lunch hour. Corporate presidents may provide their administrative assistants with decision-making responsibility for day-to-day matters. 10. Manager’s role as negotiator: In addition to decisions concerning organizational changes, disturbances, and resources, the manager also enacts as a negotiator .The process of negotiation is possible only when an individual has the authority to commit organizational resources. Hence, as managers move up the managerial hierarchy and obtain control over more resources, they become more involved in the negotiator role. For example, the president of a record company may be called in to discuss terms of a possible contract with a major rock group; a production manager must negotiate with the personnel department to obtain employees with specialized skills; or a college dean must negotiate with department heads over course offerings and the number of faculty to be hired. The relative emphasis a manager places on these ten roles is highly dependent on the manager's authority and status in the organization. Length of time on the job, position in the management

hierarchy, goals of the subunit to be achieved, and skills the manager possesses all play a part in determining which roles are more prominent than others at any given time. For instance, a marketing manager is more likely to emphasize the interpersonal roles because of the importance of personal contact in the marketing process. A financial manager, charged with responsibility for the economic efficiency of the organization, will probably focus on the decisional roles. A staff manager, or a manager who performs in an advisory capacity, is likely to be more heavily involved in the informational roles. Regardless of the differences that may occur, however, all managers enact interpersonal, informational, and decisional roles while performing their tasks. Effectively managing an organization is a demanding task. Managers not only must develop skills related to the functional areas of management but also must learn how to integrate these activities. What makes this process demanding is that events and activities external and internal to an organization can radically change the techniques and methods managers must use in order to arrive at successful outcomes. Managers cannot afford to be limited in their view of management, nor can they simply rely on how things were done in the past. Even the most seasoned and successful managers are prone to mistakes. However, a more complete knowledge of the managerial process can reduce the chances of mistakes that will have dire consequences for an organization. Such knowledge may help managers to better plan, organize and staff, direct, and control organization activities within the context of their organization.

CHAPTER-II:- End Chapter Quizzes
Q-1- Which of the following is a middle level function? a) b) c) d) Reviewing daily and weekly production or sales report. Selecting board members. Supervising day-to-day operations. Evaluating the all-round performance of various department.

Q-2- The process of designing and maintaining an environment in which individuals working together in groups, efficiently accomplish specific aims is termed as_______. a) b) c) d) Administration. Management. Organization. Staffing.

Q-3- The analysis and measurement of actual operations against the established standards developed during the planning process is called__________. a) b) c) d) Controlling. Monitoring. Leading. Organizing.

Q-4- __________ Managers deals with the actual operation of an organization’s units. a) b) c) First-level. Top-level. Middle-level.



Q-5- Which of the following skills is important at all levels of an organization? a) b) c) d) Conceptual. Design. Human. Technical.

Q-6- Which of the following theories ignored the concepts of leadership, motivation, power, and informal relations? a) b) c) d) Pre-Classical. Classical. Behavioral. Modern.

Q-7- Under which system does a worker’s wage increases in proportion to the output produced? a) b) c) d) Time-and-motion study. Piece-rate incentive system. Micromotion study. Gantt chart.

Q-8- Decreasing the role of subordinates in decision-making is known as__________. a) b) c) d) Decentralization. Stabilization. Centralization. Organization.

Q-9- The two major managerial practices that are emerged from Taylor’s approach to management are the piece-rate incentive system and __________________ a) b) c) d) Time and motion study Work study Fatigue study Organization study

Q-10- Weber coined the term ________ to identify large organizations tat operated on a rational basis . a) b) c) d) Autocracy Dictatorship Bureaucracy Diplomacy

In the words of Theo Haimann, “Planning is the function that determines in advance what should be done. It consists of selecting the enterprise objectives, policies, programmes, procedures and other means of achieving these objectives”. According to Koontz and O’Donnell, “Planning is deciding in advance what to do, how to do it, when to do it and who is to do it”. McFarland has defined planning in terms of actions of anticipating, influencing, and controlling the nature and direction of change as he believes that the environment in which planning process is undertaken is too dynamic and changing. He defines planning as follows: “Planning may be broadly defined as a concept of executive action that embodies the skills of anticipating, influencing and controlling the nature and direction of change”. Therefore planning may be viewed as the process of deciding the objectives to be achieved and selecting the ways and means of achieving the pre decided objectives.

The salient features of planning are as follows: 1. Planning is goal-oriented: Planning is not an end in itself. Rather it is a means towards the accomplishment of objectives. Planning has no meaning unless it contributes in some positive way to the achievement of desired goals. All plans emanate from objectives. Thus, planning is goal-oriented. 2. Planning is a primary function: Planning is the basis or foundation of the management process. All other functions of management are designed o attain the goals set under planning. Planning provides the basis for efficient organizing, staffing, directing and controlling. It precedes the execution of all other functions. Without planning there is nothing to organize, no one to actuate and no need to control.

3. Planning is all pervasive: Planning is the function of each and every manager irrespective of the level and area of his/her operation. It is the job of all managers in all types of organisations. Planning is an essential ingredient in management at all executive levels. 4. Planning is an intellectual or rational process: Planning is a mental exercise involving imagination, foresight and sound judgement. It is not guesswork or wishful thinking. It requires a mental disposition of thinking before doing and acting in the lights of facts, rather than guess. 5. Planning is a continuous process: Planning is an on-going and dynamic exercise. As the assumptions and events on which plans are based change, old plans have to be revised or new ones have to be prepared. As a manager carries out his functions, he continues to plan, revising his old plans and choosing alternative plans as the need arises. 6. Planning is forward-looking: All planning is done with an eye on the future. Planning involves anticipating the future course of events. Therefore, forecasting is the essence of planning. Forecasting involves assessing the uncertain future and making provisions for it. 7. Planning involves choice: Planning is essentially decision-making or choosing among alternative courses of action. Planning presupposes the existence of alternatives. There is no need for planning if there is only one way of doing something. Plans are decisions made after evaluation of alternative courses of action. 8. Planning is an integrated process: Planning does not just happen, it has to be initiated. Planning is a structured process and different plans constitute a hierarchy. Different plans are interdependent and interrelated. Every lower-level plan serves as a means towards the end of higher plans. 9. Planning is directed towards efficiency: Planning has no relevance if it does not facilitate the achievement of objectives economically and efficiently. It is a deliberate and conscious process. The efficiency of plans is measured by how much they contribute to the objectives.


According to G.R. Terry, “Planning is the foundation of most successful actions of all enterprises.” An enterprise can achieve its objectives only through systematic planning on account of the increasing complexities of modern business. The importance and usefulness of planning can be understood with reference to the following benefits. 1. Minimizes uncertainty. The future is generally uncertain and things are likely to change with the passage of time. Planning helps in minimizing the uncertainties of the future as it anticipates future events. 2. Emphasis on objectives. The first step in planning is to fix the objectives. When the objectives are clearly fixed, the execution of plans will be facilitated towards these objectives. 3. Promotes coordination. Planning helps to promote the coordinated effort on account of pre-determined goals. 4. Facilitates control. Planning and control are inseparable in the sense that unplanned actions cannot be controlled. Control is nothing but making sure that activities conform to the plans. 5. Improves competitive strength. Planning enables an enterprise to discover new opportunities, which give it a competitive edge. 6. Economical operation. Since planning involves a lot of mental exercise, it helps in proper utilization of resources and elimination of unnecessary activities. This, in turn, leads to economy in operation. 7. Encourages innovation. Planning is basically the deciding function of management. Many new ideas come to the mind of a manager when he is planning. This creates an innovative and foresighted attitude among the managers. 8. Tackling complexities of modern business. With modern business becoming more and more complex, planning helps in getting a clear idea about what is to be done, when it is to be done, where it is to be done and how it is to be done.

Although planning is a primary function of management and facilitates various other management functions, it has many barriers and limitations. Some of them are explained below: (a) Costly process. Planning is a costly process as time; energy and money are involved in gathering of facts and testing of various alternatives. (b) Rigidity. Planning restricts the individual’s freedom, initiative and desire for creativity as it strictly adheres to predetermined policies and programmes. (c) Limited scope. The scope of planning is said to be limited in the case of organizations with rapidly changing situations. (d)Influence of external factors. The effectiveness of planning is sometimes limited because of the external social, political, economical and technological factors which are beyond the control of the planners. (e) Non-availability of data. Planning needs reliable facts and figures. Planning loses its value unless reliable information is available. (f) People’s resistance. Resistance to change hinders planning. Planners often feel frustrated in instituting new plans, because of the inability of people to accept them.

An effective and sound plan should have the following features: (a) Clear objective. The purpose of plans and their components is to develop and facilitate the realisation of organizational objectives. The statement on objectives should be clear, concise, definite and accurate. It should not be coloured by bias resulting from emphasis on personal objectives. (b) Proper understanding.

A good plan is one which is well understood by those who have to execute it. It must be based on sound assumptions and sound; reasoning. (c) Flexible. The principle of flexibility states that management should be able to change an existing plan because of change in environment without undue extra cost or delay so that activities keep moving towards the established goals. Thus, a good plan should be flexible to accommodate future uncertainties. (d) Consistent. A plan must be consistent in terms of external and internal factors which are considered at the time of plan formulation. External consistency involves alignment of plan to the external environmental factors because the successful implementation of the plan depends on the behaviour of these factors. Similarly, the plan should also be consistent in terms of the various organizational factors which may be in the form of organizational resources both human and physical, organisation structure, and various other organizational plans. (e) Comprehensive. A plan is said to be comprehensive when it covers each and every aspect of business. It should integrate the various administrative plans so that the whole organization operates at peak efficiency. (f) Economical. A plan is said to be good, if it is as economical as possible, depending upon the resources available with the organization.

Organisations differ in terms of their size and complexity. Therefore, there is no single planning procedure applicable to all organisations. However, the main steps in planning process are as follows: 1. Identify Goals:

Plans are formulated to achieve certain objectives. Therefore the first step in the planning process is to identify the goals of the organisation. The objectives fixed must clearly indicate what is to be achieved, where action should take place and who is to perform it and when it is to be accomplished. Objectives set must be stated clearly and in measurable terms. Objectives should be established in all key areas where performance affects the health of the organisation. Objectives should be laid down after an analysis of the external and internal environment of the organisation. 2. Develop Planning Premises:

Planning is done for future which is uncertain. Therefore, certain assumptions are made about the future environment. These assumptions are known as planning premises. Planning premises lay down

the boundary or limitations within which plans are to be implemented. In order to develop good planning premises, it is necessary to collect data on the current status of the organisation and to forecast future changes. 3. Determine Alternative Courses of Action:

Generally, there are alternative ways of achieving the same goal. For example, in order to increase sales, an enterprise may launch advertising campaign or reduce prices or improve the quality of products. Therefore alternative courses of action should be determined. This requires imagination, foresight and ingenuity. In determining alternatives the critical or limiting factors must be kept in view. 4. Evaluate the alternatives:

Once alternative courses of action have been determined, they must be evaluated. Alternative course of action can be evaluated against the criteria of cost, risks, benefit and organizational facilities. The strong and weak points of every alternative should be analyzed carefully. 5. Select a course of action: The most appropriate alternative is selected as the plan. This is the point of decision where a plan is adopted for accomplishing the identified goals. 6. Formulate derivative plans:

The final step in planning process is to develop sub-plans. In order to give effect to and support the basic plan, several sub-plans are required. Once a choice is made and master plan is adopted, functional and tactical plans and action programmes are decided. 7. Establishing sequence of activities: After formulating basic and derivative plans, the sequence of activities is determined so that the plans are put into action. Based on plans at various levels, it can be decided who will do what and at what time. Budgets for various periods can be prepared to give plans more concrete meaning for implementation.

Nature of Plan Definition Nature Example

Objective Policy

Goal or target to be Basis of all plans achieved

Increase 10%



General statement Boundary within Employees are to be or understanding to which decisions are promoted on the guide thinking to be made basis of seniority Action plan to face Relates the Combative environmental organization to its advertising to face uncertainties environment price cuts by competitors Manner in which Sequence of steps activities are to be performed Purchase procedure




State what should Rigid plan, no scope No smoking in the and should not be for discretion factory done in a situation Combination for achievement Time-table activities plan States activities and Installation goal resources to be computer undertaken of a



for Specifies priority of Complete work and time for installation of each activity computer within 3 months w.e.f March 2009


Statement of Quantitative and Produce 10,000 expected results and time bound plan of tonnes of sugar next resources to be used action year Cluster of Scheme interrelated deployment activities-a separate for Construction of a of flyover




Decision –making is the process of choosing a course of action from among alternatives to achieve a desired goal. It consists of activities a manager performs to come to a conclusion. According to Haynes and Massie,

―Decision making is a process of selection from a set of alternative courses of action which is thought to fulfill the objective of the decision problem more satisfactorily than others”.

Decision –making is a process of selection and the aim is to select the best alternative. The process consists of four interrelated phases, explorative (searching for decision occasion), speculative (identifying the factors affecting the decision problem), evaluative (analyzing and weighing alternative courses of action), and selective (choice of the best course of action).

3.8.1 Process
Rational decision making is a systematic process consisting of the following steps: 1. Identify the problem: The decision making process begins with the recognition of a problem that requires a decision. The problem may arise due to gap between present and future state of affairs. The threats and opportunities created by the environmental changes may also create decision problems. A problem well defined is half solved. In order to recognize the problem quickly, a manager must continuously monitor the decision-making environment. Imagination; experience and judgment are required for detection of problems that require managerial decisions. 2. Diagnose the Problem: Diagnosing the real problem implies analyzing it in terms of its elements, its magnitude, its urgency its causes, and its relation with other problems. In order to diagnose the problem correctly, a manager must obtain all pertinent facts and analyze them carefully. The most important part of diagnosing the problem is finding out the real causes or sources of the problem. Symptoms must not be mistaken for real problems. For example, management may see a

problem of manufacturing costs and may start a cost reduction drive when the real problem is poor engineering design. 3. Discover Alternatives: The next step is to search for the various possible alternatives. An executive should not jump on the first feasible alternative to solve the problem quickly. Time and cost constraints should be kept in mind. Management must ensure that the best alternatives are considered before a course of action is selected. Relevant information must be collected and analyzed for this purpose. 4. Evaluate Alternatives: Once the alternatives are discovered, the next stage is to evaluate or screen each feasible alternative. Evaluation is the process of measuring the positive and negative consequences o f each alternative. Management must balance the costs against possible benefits .Management must set some criteria against which the alternatives can be evaluated. Peter Drucker has suggested the following criteria to weigh the alternative courses of action: Risk: Degree of risk involved in each alternative. Economy of effort: Cost, time and effort involved in each alternative. Timing: Whether the problem is urgent Limitation of resources: Physical, financial and human resources available with the organization. 5. Select the best Alternative: After evaluation, the optimum alternative is selected. Optimum alternative is the alternative that will maximize the results under given conditions. Choice of the best alternative is the most critical point in decision making. The ability to select the best course of action from several possible alternatives separates the successful managers from the unsuccessful ones. Past experience, experimentation research and analysis are useful in selecting the best alternative. 6. Implementation and follow-up: Once a decision is made it needs to be implemented. Implementation involves several steps. First, the decision should be communicated to those responsible for its implementation. Secondly, acceptance of the decision should be obtained. Thirdly, procedures and time sequence should be established for implementation. Necessary resources should be allocated and responsibility for specific tasks should be assigned to individuals. The implementation of the decision should be constantly monitored. The effects of the decision should be judged through periodic progress reports. In case the feedback indicates that the decision is not yielding the desired results, necessary change should be made in the decision or in its implementation.

CHAPTER-III: End Chapter Quizzes
Q-1- Which one of the following is not a type of single-out plan? a) b) c) d) Programs. Policies. Budgets Projects.

Q-2- Which one of the following is the first step in the planning process? a) b) c) d) Establishing objectives. Analyzing opportunities. Determining planning premises. Identifying alternatives.

Q-3- Which of the following is not the limitations of planning? a) b) c) d) Time consuming process. Expensive. Flexible. Lack of accurate information.

Q-4- When developing a contingency plan, manager should not try to_____________. a) b) c) d) Increase interruption to the operations of the business. Speed up the restoration of services. Reduce financial losses. Resume critical operation within a specified time after a disaster.

Q-5- Te open systems approach to planning is effective as it leads to____________ in planning. a) b) c) d) Rigidity. Flexibility. Inelasticity. Invariability.

Q-6- Te management function tat involves setting goals and deciding how best to achieve tem is known as___________. a) Planning.

b) Organizing c) Leading. d) Controlling. Q-7- generally `strategic plan` is an important aspect of the jobs of________ managers. a) b) c) d) Operation-level. Middle- Level. Top-level. At all levels

Q8.Planning and Control are the ……..twins of Management. (a)Inseparable (b)Separable (c)None of the above.

Q9.Companies which plan are …….as compared to those companies which do not. (a)Better off (b)Not better off (c)Suitable

Q10.Planning……Controlling. (a)Precedes (b)Succeeds (c)Exceeds


Organizing is the process of integrating the physical, financial & human resources & establishing the productive relationship between them to establish pre- determined goals. It is concerned with the building up a stable framework or structure of various inter-related parts of the enterprise; each part having its own function & being centrally regulated. In the words of William Scott; “Organizations are collectivities of people that have been established for the pursuit of relatively specific objectives on a more or less continuous basis.” According to Louis A Allen: “Organisation is the process of identifying and grouping of the work to be performed, defining and delegating responsibility and authority and establishing relationship for the purpose of achieving organizational goals.” In the words of F.J Wright: “Organisation is the arranging or combining of resources to achieve an economic betterment with the resources available to achieve the maximum result or profit with the best least possible resources.” The term organizing refers to the process of making orderly determination and arrangement of the tasks, functions, relations and roles necessary for achievement of certain goals. It involves the identification of activities to be done, grouping these activities into work units, assignment of tasks among job positions, defining their activity roles and establishing authority. The term organisation is used in management in two different ways: 1) As a structure 2) As a process

As a structure, organization is a network of horizontal and vertical relationships among the members of a group designed to accomplish some common objectives. It is a system or pattern of formal relationships that govern the activities of people. Organization structure consists of social group of persons, a structural framework in which people interact to achieve common goals. As a systematic combination of people, functions and facilities, organisation structure provides the mechanism within which people work together for accomplishment of desired objectives. The formal structure of an organization is two- dimensional- horizontal & vertical. The horizontal dimension depicts differentiation of jobs into departments or divisions. The vertical dimension reflects the hierarchy of authority relationships with a number of levels top to bottom. It is a structure of duties & responsibilities which are necessary for the achievement of objectives. According to James D Mooney, “Organization is the form of every human association for the attainment of some common purpose. Thus organisation is the skeleton framework of business.”

As a basic function of management organizing is the continuous and dynamic process of creating harmonious authority – responsibility relationships between specialized units. In the words of Allen,‖ organizing is the process of identifying & grouping the work to be performed defining and delegating the responsibility and authority and establishing a pattern of relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.

The main characteristics of organisation as a structure are as follows:1) Common purpose: - an organization is goal oriented or purposeful. Every organization exists to accomplish some common goals. The structure must reflect these objectives as enterprise activities are derived from them. It is bound by common purpose 2) Division of labor: - the total work of an organization is divided into functions and sub – functions. This is necessary to avoid the waste of resources, time & energy which arise when people have to constantly change from one work to another. It also provides benefits of specialization. 3) Authority structure: - there is an arrangement of positions into graded series. The authority of every relation is defined. It is subordinate to the position above it and

superior to the one below it. This change of superior subordinate relationships is known as chain of command. 4) People: - an organization is basically a group of persons. Therefore, activity groupings and authority provisions must take into account the limitation and customs of people. People constitute the dynamic human element of an organization. They have their own needs, goals, sentiments and values. 5) Communication: - every organization has its own channels of communication. Such channels are necessary for mutual understanding and co- operation among the members of an organization. 6) Co-ordination:- there is a mechanism for coordinating different activities and parts of the organization so that it functions as an integrated whole. Co-operative effort is a basic feature of organization. 7) Resources: - an organization makes use of various resources, technology and skills. Its activities and processes can not take place without resources. 8) Man-made:- an organization is man- made. It is composed of people who have their own interactions and relationships. But it has an identity of its own. It has its own form and functions. 9) Environment: - an organization functions in an environment comprising economic, social, political and legal factors. Therefore, the structure must be designed to work efficiently in a changing environment. It can not be static or mechanistic. 10) Rules and regulation: - every organization has some rules and regulations for orderly functioning of people. These rules and regulations may be in writing or implied for customary behavior.

Organisation is the foundation upon which the whole structure the whole structure of management is built. It is the backbone of sound management. A sound organisation structure contributes to the success of the enterprise in the following ways:1) Facilitates administration: - a properly designed organization facilitates both management and operation of the enterprise. It provides proper division of labor, consistent delegation of authority, and clear authority – relationships. Organization is the mechanism through which manager‘s direct, co-ordinate and controls the business. If the

organization is ill- designed or it is making – shift arrangement the management is rendered difficult and ineffective. If on the other hand, it is logical and clear out then the first requisite of sound management has been achieved. 2) Facilitates growth and diversification: - the organization structure is the framework within which an enterprise grows. Management can anticipate the need for change to facilitate growth and may suitably adjust the organization structure when the size of business increases. 3) Permits optimum use of technological improvements: - sound organization structure provides for optimum use of technical and human resources. The cost of installation, operation and maintenance of expensive equipment calls for proper organization. Similarly, sound organization structure helps in optimum use of human efforts through specialization. 4) Encourages use of human beings: - proper organization provides psychological satisfaction to employees. An individual contributes his best when he gets satisfaction from job, his working environment and his relationships. In this way organization structure facilitates intensive use of human capital. It also creates training and promotional avenues for people. 5) Stimulates creativity: - sound organization stimulates creative thinking and initiative by providing well defined areas of work with provisions for development of new and improved ways of doing things. It enables managers to turnover routine and repetitive jobs to supporting positions. A good organization enhances capacity of individuals and enables them to take advantage of the accumulated knowledge and experience of preceding generations. 6) Encourages good human relations:- in a sound organization every individual is assigned a job for which he is best suited. The assignment of right jobs to right persons improves job satisfaction and inter-personal relations.
7) Fosters co-ordination:- sound organizations facilitate order and cohesiveness in the

enterprise. Division of labor, better utilization of technologies and human talent etc. help to improve the efficiency and quality of work.

The basic principles of an organization are as follows:1) Specialization and division of work: - the activities of every member of the organization are confined as far as possible to the performance of a single function. 2) Scalar principle: - there should be a clear chain of command extending from top to the bottom of the organization. Every subordinate should know who his superior is and who his subordinates are. 3) Span of control: - every manager should have a limited number of subordinates reporting to him directly. Generally, the span should be narrow for complex work and wide for simple and routine work. Span should neither be too wide nor too narrow. 4) Exception principle: - only exceptional matters which are beyond the authority of lowerlevel persons should be referred to higher levels. Routine matters should be dealt with by executives at lower levels. This is also known as authority level principle. 5) Unity of command: - each subordinate should have only one superior whose command he has to obey. This is necessary to ensure discipline and to fix responsibility for results. 6) Efficiency: - the organization structure should facilitate the achievement of objectives at minimum possible cost. It should permit the optimum use of resources. 7) Continuity: - proper arrangement should be made for the training and developments of executives. 8) Facilitation of leadership: - organization structure should be so devised that there is enough opportunity for the management to give effective leadership to the enterprise. 9) Co-ordination:- the organizational structure should facilitate unity of effort and coordination among different individuals and groups. Channels of communication should be open and clear.
10) Balance: - a proper balance between centralization and de-centralization should be kept. Each function in the organization should be developed to the point at which the value received is at least equal to the cost.


APPROACHES TO DEPARTMENTATION Whereas major departments of an organization are established by top-level managers, supervisors primarily are concerned with activities within their own areas. Nevertheless, from time to time supervisors will be confronted with the need to departmentalize within their areas, and they should be familiar with the alternatives available for grouping activities. These are the same options available to top-level managers when they define the major departments. Departmentation is usually done according to function, products or services, territory, customer, process and equipment, time, or matrix design. FUNCTIONAL DEPARTMENTATION The most widely used form of departmentation is to group activities by function—the jobs to be done. Consistent with the idea of specialization and division of work, activities that are alike or similar are placed together in one department and under a single chain of command. For example, word processing, data-entry, and duplicating services may be grouped together into a clerical department or information processing center; sales and promotional activities into a marketing department; manufacturing assembly work into a production department; inspection and monitoring activities into a quality control department; and so on. As an enterprise undertakes additional activities, these new activities—for the most part—are simply added to the already existing departments. Functional departmentation is a method that has been and still is successful in most organizations. It makes sense since it is a natural and logical way of arranging activities. Grouping departments along functional lines takes advantage of occupational specialization by placing together jobs and tasks that are performed by people with the same kinds of training, experience, equipment, and facilities. Each supervisor is responsible primarily for an area of operation upon which his or her energy and expertise can be concentrated. Functional departmentation also facilitates coordination since a supervisor is in charge of one major area of activity. It is easier to achieve coordination this way than to have the same functions performed in different departments under different supervisors. In recent years, many companies have utilized extensive cross-training and multiskilling of employees in order to develop more flexibility in operations. A flexible workforce is one that has employees trained to handle a variety of skills needed to perform multiple tasks in production, customer-service departments, or processes. This is in contrast to the more traditional functional arrangement where each worker is responsible for only one job, or where each worker performs narrowly defined tasks in the operation. Although developing a flexible workforce can be costly and time consuming, the advantages can be well worth the effort. Supervisors can more easily

delegate work to employees who better understand the total departmental functions, and the employees also can assume additional responsibilities and tasks in a more collaborative fashion aimed at getting the departmental work done.

PRODUCT OR SERVICE DEPARTMENTATION Many companies utilize product or service departmentation. To departmentalize on a product basis means to establish each major product (or group of closely related products) in a product line as a relatively independent unit within the overall framework of the enterprise. For example, a food products company may choose to divide its operations into a frozen food department, a dairy products department, a produce department, and the like. Product departmentation can also be a useful guide for grouping activities in service businesses. For example, most banks have separate departments for commercial loans, installment loans, savings accounts, and checking accounts. Many home maintenance firms have separate departments for carpentry, heating, and air conditioning services. GEOGRAPHIC (TERRITORIAL, LOCATIONAL) DEPARTMENTATION Another way to departmentalize is by geographical considerations. This approach to departmentation is important for organizations with physically dispersed activities. Large-scale enterprises often have divisions by territories, provinces, and cities. Increasingly, many companies also have international divisions. Where units of an organization are physically dispersed or where functions are to be performed in different locations—even different buildings—geographic departmentation may be desirable. Locational considerations may be significant even if all activities are performed in one building but on different floors. An advantage of territorial departmentation is that decision-making authority can be placed close to where the work is being done. CUSTOMER DEPARTMENTATION Many organizations find it advisable to group activities based on customer considerations. The paramount concern here is to service the differing needs and characteristics of different customers. For example, a university that offers evening programs in addition to day programs attempts to comply with the requests and special needs of part-time and full-time students. Companies may have special departments to handle the particular requirements of wholesale and retail customers. Major department stores may attempt to reach different segments of the buying public, such as customers for a ―bargain basement‖ or lower-priced division at the one extreme and an exclusive high-priced fashion division at the other extreme. Most hospitals have separate units for outpatient services. The importance of maintaining close customer relationships in today‘s competitive climate is well recognized by most organizations. Supervisors often are the

key representatives in the effort to build strong interpersonal relationships with customers. Coordinated efforts to communicate and build trust with customers have been referred to as customer relationship management (CRM). This type of effort may be spearheaded by the marketing/sales department, but supervisors from other departments with customer linkages are usually expected to be part of whatever processes are appropriate and helpful to build customer goodwill and loyalty. PROCESS AND EQUIPMENT DEPARTMENTATION Activities also can be grouped according to the process involved or equipment used. Since a certain amount of training and expertise are required to handle complicated processes and operate complex equipment, activities that involve the use of specialized equipment may be grouped into a separate department. This form of departmentation often is similar to functional departmentation. For example, in a machine shop department, specialized equipment is used but only certain functions are performed; function and equipment become closely allied. A data processing department utilizing a mainframe computer may serve the processing requirements of a number of operations and departmental needs throughout an organization. TIME DEPARTMENTATION Another way to departmentalize is to group activities according to the period of time during which work is performed. Many organizations are engaged in round-the-clock operations and departmentalize on the basis of time by having work shifts. Activities are departmentalized by time (day, afternoon, night shift), although the work operations of all the shifts for the most part may be the same. Here, too, there may be an overlap in the departmentation process. Where time is a partial basis for departmentation, it is likely that other factors will be involved. For example, a maintenance division—based on function and services—may be further departmentalized by shifts, such as the maintenance night shift. Shift departmentation can create organizational questions of how self-contained each shift should be and what relationships should exist between regular day-shift supervisors and the off-shift supervisors. Shift work also can contribute to numerous other employee problems and concerns, including personal safety, sleep deprivation, childcare, and work/family conflicts. Night-shift workers often perceive that they are viewed as ―second-class citizens‖ who have limited access to the training and development opportunities afforded to day-shift personnel. Supervisors of all shifts need to be cognizant of and sensitive to these types of shift workers‘ concerns. It may be possible for supervisors to coordinate certain types of scheduling rotation, training opportunities, and other efforts (perhaps with the assistance of the human resources department) designed to raise and maintain shift worker morale and job performance to acceptable levels. MIXED DEPARTMENTATION In order to achieve an effective structure, a supervisor may have to apply several types of departmentation at the same time. This is referred to as ―mixed‖ departmentation. For example,

there may be an inventory control clerk (functional) on the third floor (geographic) during the night shift (time). In practice, many organizations have a composite departmental structure involving functional departmentation, geographic departmentation, and other forms. All of these alternatives may be available to supervisors to facilitate the grouping of activities in their departments. There are some departments in which additional sub groupings are not needed. However, supervisors of departments of considerable size may find it necessary to divide various jobs and skills into different groups under a lead person or foreman, who in turn will report to the supervisor. Whatever structure is chosen, the purpose of departmentation is not to have a beautiful, well-drawn organization chart. The purpose is to have a sound structure that will best achieve the objectives of the department and the entire organization. PROJECT ORGANISATION The project structure consists of a number of horizontal organisational units to complete projects of a long duration. Each project is vitally important to the organization. Therefore, a team of specialists from different areas is created for each project. The size of the project team varies from one project to another. The activities of the project team are coordinated by the project manager who has the authority to obtain advice and assistance of experts both inside and outside the organization. The core of the concept of project organization is to gather a team of specialists to work on and complete a particular project. The following fig. presents a simple project structure.

Project organization is employed in aerospace, aircraft manufacture, construction and professional areas like management consulting. In such organizations, projects are subject to high standards of performance and there is a strong emphasis on horizontal relations among specialists. A project team is a temporary set-up. Once the organization is complete, the team is disbanded and the functioning specialists are assigned some other project. Merits:

1. It provides concentrated attention that a complex project demands. It permits the timely completion of project without disturbing the normal routine of rest of the organization. 2. It provides a logical approach to any challenge in the form of a large project with definite beginning, end and clearly defined result. 3. It often requires highly talented professionals who find it difficult to work creatively in any structured set up. Hence, it encourages initiative and creativity on the part of project staff by giving them a free hand to accomplish work. 4. It has been found to fit a number of widely-varying situations from building contractors and advertising agencies to accounting and consulting firms. Demerits: 1. There is an organisational uncertainty because a project manager has to deal with professionals drawn from diverse fields. Often they differ in approach and interest. There is lack of clearly defined responsibility, clear communication lines and measurement yardsticks. 2. A project manager is responsible for project outcomes. But the ongoing conventional organization does not give him unlimited authority. Therefore, budgets, manpower and control are serious problems. 3. Organisational uncertainties may lead to interdepartmental conflicts. There may be role conflicts, poor loyalty and under-utilization of resources. 4. There is considerable fear among employees that the completion of a project may result in loss of job. The feeling of insecurity and varying status creates considerable worry about career progress. MATRIX ORGANISATION Matrix organization or grid organization is a hybrid structure combining two complementary structures- functional departmentation with pure project structure. Functional structure is a permanent feature of the matrix organization and retains authority for the overall operation of the functional units. Product departments or project teams are created

whenever specific projects require a high degree of technical skill and other resources for a temporary period. Functional department create a vertical chain of command while the project teams form the horizontal chain. The functional or vertical line of authority intersects product or horizontal lines, thereby forming a matrix or a grid. Thus, a matrix organization is a two dimensional structure, a combination of pure project structure and the traditional functional departments. The matrix organization had originated in the defence and aero-space industries in USA. It differs sharply from one boss command structure based on the principle of unity of command. Matrix organization has been defined as ―any organization that employs a multiple command system that includes not only the multiple command structure but also related mechanisms and an associated organisational structure and behaviour pattern‖. Sometimes, matrix and project organizations are considered as one and the same. However, there is a distinction between the two. In the project organization, separate identifiable units are created for executing large projects. Every project manager has complete responsibility for the project and complete authority for the use of resources required for its accomplishment. On the other hand, in matrix organization, the project manager shares resources with the functional managers. He does not have the complete authority over the use of resources. Matrix organization has been developed to meet the needs of large and complex organizations which require a structure more flexible and technically oriented rather than the functional structure. Merits:

1. It helps to focus attention, talent and resources on a single project which facilitates better planning and control. 2. It is more flexible than the traditional functional structure. Effective information system enables the organization to respond quickly to project needs and customer desires. 3. It provides an environment in which professionals can test their competence and make maximum contributions. 4. It provides motivation to the project staff as they can focus directly on the completion of a particular project. 5. Each project is assigned the physical resources and personnel it requires. Thus, unnecessary duplication is avoided. Demerits:

1. It violates the principle of unity of command. Each employee has two bosses – the functional boss and the project manager. 2. The scalar principle is also avoided as there is no definite hierarchy. Working relationships are not very clear. 3. Conflicts may arise due to the heterogeneity of team members. People are drawn from different departments. Project manager does not have line authority over his heterogeneous group of personnel. 4. Organisational relationships become very complex. Apart from the formal relationships, informal ones also arise creating problems of coordination. 5. The success or failure of the functional group depends upon its performance in the project. 6. Matrix organization is not a homogeneous and compact group. The multiplicity of vertical and horizontal relationships may impair organisational efficiency. Switching over to a matrix organization is a time-consuming process. It requires major organisational changes which may give rise to numerous problems.

Delegation of authority is ― the process a manager follows in dividing the work assigned to him so that he performs that part which only he , because of his unique organizational placement , ca perform effectively and so that he can get others t help with what remains.‖

Centralization implies the concentration of authority at the top level of the organization while decentralization means dispersal of authority throughout the organization. According to Allen, ―centralization is systematic and consistent reservation of authority at central points within an organization. Decentralization implies systematic delegation of authority in an organization wide context‖. Decentralization refers to the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at central points. It is the distribution of authority throughout organization. Centralization and decentralization are relative terms because every organization structure contains both the features. There cannot be complete centralization or decentralization in practice. Centralization and decentralization are thus two sides of the same coin. Decentralization should not be confused with dispersion of physical facilities and operations. For example, the plants and branches of a company may be located at different places in the country but authority may be centralized at the top level of organization. On the other hand a company

may be highly decentralized even though all physical facilities and operations are located in a single building. Therefore, geographical dispersion of activities should be differentiated from decentralization of authority. 4.6.2 DISTINCTION BETWEEN DELEGATION AND DECENTRALISATION Decentralization is much more than delegation. Delegation means transfer of authority from one individual to another. But decentralization implies diffusion of authority throughout the organization. Delegation and Decentralization- A Comparison

Sr. No. 1.



It is the process of devolution of It is the end result which is achieved authority. when delegation is systematically repeated up to the lowest level. It denotes relationship between a It denotes relationship between the top superior and a subordinate. management and various departments or divisions. It is essential for management process. It is optional as top management may or may not disperse authority.




It can take place from one individual Decentralization is completed only when to another and be a complete process. the fullest possible delegation is made at all levels of organization.


It is a technique of management

It is a philosophy of management.


The delegator exercises control over The control may the subordinates. departmental heads.





Delegation of authority can take place There cannot be decentralization without

without decentralization.


An organization would be able to achieve its objectives only when it places right people in right positions. It goes without saying that the most important resources of an organization are the ‗people‘ or human resources. The human resources are responsible for making the non human resources productive and effective. Without competent people at the operational as well as the managerial levels it would be difficult for the organizations to achieve the goals effectively. Staffing is the process of acquiring, developing, employing appraising, remunerating and retaining people so that right type of people are available at right positions and at right time in the organization. McFarland has defined staffing as follows: “Staffing is the function by which managers build an organization through the recruitment, selection and development of individuals as capable employees.” Koontz and O’Donnell has defined staffing as follows “The managerial function of staffing is defined as filling positions in the organizations structure through identifying workforce requirements, inventorying the people available, recruitment, selection, placement, promotion appraisal, compensation, and training of needed people.” Thus, staffing covers wide-ranging activities through which organisational positions are created through organizing processes are kept filled.

Human resources of an organization are considered the most vital assets because it is the people who make other resources moving. Looking at the role of human resources in organisational effectiveness and increasing competition inhuman resource market, more and more companies are strengthening their staffing function. The importance of staffing can be gauged in the following context: 1. Filling organisational positions: A basic problem faced by organizations throughout the world is the acute competition for good quality human resources. With increasing

competition for human resources, the cost of acquiring them has increased manifold. Hence, there is a need for systematic staffing so that the organization can fill its various positions with good quality of personnel. 2. Developing competencies: It is not sufficient that various organisational positions are filled but there should be development of competencies among personnel because of changing nature of job profile. 3. Retaining personnel: Apart from acquiring and developing personnel, retaining them in the organization is equally important. In order to retain their employees, organizations are adopting many methods having long term implications besides persuading the employees to remain with them. 4. Enhances productivity: Staffing facilitates discovery of competent and qualified people to take up various positions in the organizations. Hence, it enhances productivity by placing the right people on the right jobs. 5. Development of workforce: Staffing is concerned with the placement, growth and development of all those members of the organization whose function is to get the things done through the efforts of other individuals. It helps development of people through the programmes of training and development.


1) MANPOWER PLANNING: The first step in staffing process is to do manpower planning. Understaffing loses the business economies of scale and specialization, orders, customers and profits. Overstaffing is wasteful and expensive, if sustained, and it is costly to eliminate because of modern legislation in respect of redundancy payments, consultation, minimum periods of notice, etc. Very importantly, overstaffing reduces the competitive efficiency of the business. Advantages of manpower planning: Manpower planning ensures optimum use of available human resources. 1. It is useful both for organization and nation. 2. It generates facilities to educate people in the organization. 3. It brings about fast economic developments.

4. It boosts the geographical mobility of labor. 5. It provides smooth working even after expansion of the organization. 6. It opens possibility for workers for future promotions, thus providing incentive. 7. It creates healthy atmosphere of encouragement and motivation in the organization. 8. Training becomes effective. 9. It provides help for career development of the employees. 2) RECRUITMENT AND SELECTION :According to Edwin B. Flippo, “Recruitment is the process of searching the candidates for employment and stimulating them to apply for jobs in the organisation”. Recruitment is the activity that links the employers and the job seekers. A few definitions of recruitment are: “A process of finding and attracting capable applicants for employment. The process begins when new recruits are sought and ends when their applications are submitted. The result is a pool of applications from which new employees are selected.” “It is the process to discover sources of manpower to meet the requirement of staffing schedule and to employ effective measures for attracting that manpower in adequate numbers to facilitate effective selection of an efficient working force.” Recruiting and selecting the right people is paramount to the success of any organisation and its ability to retain a workforce of the highest quality is a big challenge. The Recruitment and Selection Procedure sets out how to ensure as far as possible, that the best people are recruited on merit and that the recruitment process is free from bias and discrimination. DIFFERENCE BETWEEN RECRUITMENT AND SELECTION Both recruitment and selection are the two phases of the employment process. The differences between the two are: 1. Recruitment is the process of searching the candidates for employment and stimulating them to apply for jobs in the organisation WHEREAS Selection involves the series of steps by which the candidates are screened for choosing the most suitable persons for vacant posts.

2. The basic purpose of recruitments is to create a talent pool of candidates to enable the selection of best candidates for the organisation, by attracting more and more employees to apply in the organisation WHEREAS The basic purpose of selection process is to choose the right candidate to fill the various positions in the organisation. 3. Recruitment is a positive process i.e. encouraging more and more employees to apply WHEREAS Selection is a negative process as it involves rejection of the unsuitable candidates. 4. Recruitment is concerned with tapping the sources of human resources WHEREAS Selection is concerned with selecting the most suitable candidate through various interviews and tests. 5. There is no contract of recruitment established in recruitment WHEREAS Selection results in a contract of service between the employer and the selected employee. SOURCES OF RECRUITMENT The main sources of recruitment are: 1. 2. 3. 4. 5. Internal promotion and internal introductions (at times desirable for morale purposes) Careers officers (and careers masters at schools) University appointment boards Agencies for the unemployed Advertising (often via agents for specialist posts) or the use of other local media (e.g. commercial radio)




3) INTERVIEWING:The third step in the staffing process is to interview the short listed candidates in the recruitment and selection process. Interviewing can be carried out by individuals (e.g. supervisor or departmental manager), by panels of interviewers or in the form of sequential interviews by different experts and can vary from a five minute 'chat' to a process of several days. Ultimately personal skills in judgment are probably the most important, but techniques to aid judgment include selection testing for: 1. Aptitudes (particularly useful for school leavers) 2. Attainments 3. General intelligence (All of these need skilled testing and assessment.) In more senior posts other techniques are: 1. Leaderless groups 2. Command exercises 3. Group problem solving 4) APPOINTMENT:The results of an interview are thus declared and communicated to the prospective candidates. Those who have been selected are given appointment letters and joining letters whereas those who have not been selected are also informed.

5) INDUCTION:The process of welcoming new employee in a company is known as induction process. The assimilation of a new person within the work ethos and culture is essential to fully utilize human potential. When you take on a new employee, it is important that you give them the right induction that will benefit themselves and your business. This induction period can be considered as the foundations for getting the most out of the employee and to determine their long term success in your business. An induction should be given at the beginning of employment and may stretch for several weeks, or even months. During this time, the quality of the induction will have an effect on how the employee visualizes your business and how well they will integrate into it. Some companies often make the mistake of ignoring induction periods. Instead, they leave the new employee to pick things up themselves, and from existing employees, which costs time and money. This defeats the idea of induction which is to integrate the employee so that they reach their full potential as soon as possible. 6) ORIENTATION:New employee orientation effectively integrates the new employee into your organization and assists with retention, motivation, job satisfaction, and quickly enabling each individual to become contributing members of the work team. The orientation towards philosophy of the organisation and its business must be made clear to each member of the organisation. This can be done by including in the manual such an orientation and then making people read and understand the provisions made in the organization manual. The purpose of orientation is: 1. To Reduce Start-up Costs Proper orientation can help the employee get "up to speed" much more quickly, thereby reducing the costs associated with learning the job. 2. To Reduce Anxiety Any employee, when put into a new, strange situation, will experience anxiety that can impede his or her ability to learn to do the job. Proper orientation helps to reduce anxiety that results from entering into an unknown situation, and helps provide guidelines for behaviour and conduct, so the employee doesn't have to experience the stress of guessing.

3. To Reduce Employee Turnover Employee turnover increases as employees feel they are not valued, or are put in positions where they can't possibly do their jobs. Orientation shows that the organization values the employee, and helps provide tools necessary for succeeding in the job. 4. To Save Time for Supervisor & Co-Workers Simply put, the better the initial orientation, the less likely supervisors and co-workers will have to spend time teaching the employee. 5. To Develop Realistic Job Expectations, Positive Attitudes and Job Satisfaction It is important that employees learn early on what is expected of them, and what to expect from others, in addition to learning about the values and attitudes of the organization. While people can learn from experience, they will make many mistakes that are unnecessary and potentially damaging.

CHAPTER-IV:- End Chapter Quizzes
Q-1- Organisation means_________________. a) b) c) d) Generating Work. Fixing responsibility. Granting authority. All of the above.

Q-2-Organisation process involves__________ a) b) c) d) Division of work. Grouping of identical work. Assigning work All of the above.

Q-3- ___________ is the result of the business policies. a) b) c) d) Formal organization. Informal organization. Line organization. Staff organization.

Q-4- ___________ depends upon the sweet will of employees. a) b) c) d) Formal organization. Informal organization. Line organization. Staff organization.

Q-5- ___________ follows unity of command. a) b) c) d) Formal organization. Informal organization. Line organization. Staff organization.

Q-6- There is strict discipline in_____________ organization. a) Line b) Informal

c) Formal d) Staff Q-7- In case of line organization authorities are_____________. a) b) c) d) Centralised. Decentralised. Equally distributed. None of the above.

Q-8- ____________ oraganisation suffers from favouritism. a) b) c) d) Line Informal Formal Staff

Q-9- ____________ Organization is the easiest. a) b) c) d) Line Informal Formal Staff

Q-10- ____________concerns both planning and production department. a) b) c) d) Speed boss. Route clerk. Shop disciplinarian. Gang boss.

Directing involves issuing orders to subordinates and supervise how these orders are carried out by them, and if necessary, motivate the employees for higher performance and hence to the accomplishment of the organizational objectives effectively. In the words of Theo Haimann, directing consists of ―the processes and techniques utilized in issuing instructions and making certain that operations are carried on as originally as planned.‖ According to Keith Davis, 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. Directing is just telling people what to do and seeing that they do it to the best of their ability. Direction is also known as activating (as contented by Charles E.Redfield from Chicago University) and deals with the steps a manager takes to get subordinates and others to carry out plans. Direction is an indispensable managerial function because it deals with human resources. Most importantly it deals with human relations and suggests ways of improving the performance by the employees in an enterprise. Direction is aimed at maintaining harmony among employees and groups in an organization. It is the process around which all other management functions revolve. Direction is a kin to ‗nucleus‘ of an organization. The individual goals and organizational objectives are integrated only through directing function. This integration is achieved through the elements of direction such as communication, motivation, leadership, and supervision.

The main characteristics of directing function are as follows: 1. Pervasive function: directing is a managerial function performed by all the managers at all levels of the organization. Every manager provides guidance and inspiration to his subordinates. 2. Continuing function: directing is an on-going process as it continues throughout the life of an organization. A manager never ceases to guide and inspire his subordinates. 3. Linking function: directing serves as a connecting link between preparatory functions (planning, organizing, and staffing) and controlling. It provides the material for comparison with the plans.

4. Creative function: Directing converts plans into performance. It is the process around which performance revolves. Without direction human factors in the organization become inactive and physical factors remain unutilized. Directing is management in action. It breathes life into the organization. 5. Human factor: directing is the interpersonal aspect of managing by which subordinates are led to understand and contribute effectively and efficiently to the attainment of enterprise objectives. Human factor is very dynamic and is conditioned by a complex of forces about which not much is known and over which management has little control. 6. Chain of command: directing initiates at the top level in the organization and follows to bottom
through the hierarchy. It emphasizes that subordinate is to be directed by his own superior only.


Managers or supervisors at all levels act as leaders because they have under them subordinates whose efforts have to be organized and harmonized. Leadership as an activity is common to all organisations whether business or non- business. Leadership is the art of influencing others to direct their will, abilities and efforts to the achievement of leader‘s goals. In other words, leadership refers to the quality of the behaviour of the individuals whereby they guide people or their activities in organized effort. Leadership, in another sense, means the capacity of an individual to influence the thought and actions of others in some useful direction. Following are some definitions of leadership: According to Davis, ―Leadership is the ability to persuade others to seek defined objectives enthusiastically. It is the human factor which binds a group together and motivates it towards goals.‖ According to Haimann, ―Leadership is the process by which an executive imaginatively directs, guides and influences the work of others in choosing and attaining specified goals by mediating between the individuals and the organization in such a manner that both will obtain maximum satisfaction.‖ In short, leadership may be defined in terms of totality of functions by managers as individuals and as a group. Leadership may be defined simply as influence, the art or the process of influencing people so that they will strive willingly towards the realization of common goals. The essence of leadership is followership. Thus, leadership process consists of three elementsthe leader, the follower and other variables.

Leadership style refers to a leader‘s behaviour. Behavioural pattern which the leader reflects in his role as a leader is often described as the style of leadership. Different leadership patterns exist among leaders in different times and in different situations. Leadership style is the result of leader‘s philosophy, personality, experience, and value system. It also depends upon the types of followers and the organizational atmosphere prevailing in the enterprise. Different types of leadership styles are: 1. Autocratic or Authoritarian Leadership 2. Participative or Consultative or Democratic Leadership 3. Free Rein or Laissez Faire Leadership 4. Let them discuss in detail: 1. Autocratic or Authoritarian Leader An autocratic leader exercises complete control over the subordinates. He centralizes power in himself and takes all decisions without consulting the subordinates. He dominates and drives his group through coercion and command. He loves power and never delegates authority. The leader gives orders and expects the subordinates to follow them ungrudgingly and unquestioningly. He uses rewards and holds threat of penalties to direct the subordinates. He does not delegate authority.

There are various types of autocratic leadership. Firstly, it may be negative because followers are uninformed, insecure and afraid of leader‘s authority. Such a leader may be called strict autocrat who relies on negative influences and gives orders which the subordinates must accept. Secondly, it can be positive also because the leader may use his power to disperse rewards to his group. When his motivational style is positive, he is often called a benevolent autocrat. The benevolent autocrat is effective in getting high productivity in many situations and he can develop effective human relationships. Lastly, there is another type of autocratic leader, known as manipulative autocrat, who makes the subordinates feel that they are participating in decision-making process even though he has already taken the decision.


Autocratic leadership style permits quick decision making. It provides strong motivation and satisfaction to the leader who dictates terms. Less competent subordinates are needed at lower levels. The style may yield positive results when great speed is required.


Autocratic style leads to frustration, low morale and conflict among subordinates. Subordinates tend to shirk responsibility and initiative. Full potential of subordinates and their creative ideas are not utilized. Organizational continuity is threatened in the absence of the leader because subordinates get no opportunity for development. Autocratic leadership style may be appropriate when subordinates are uneducated, unskilled and submissive. Lack of knowledge and experience on the part of subordinates make it necessary that the leader takes decisions himself. This style may also be desirable when the company endorses fear and punishment as accepted disciplinary techniques.

2. Participative or Consultative or Democratic Leadership

A Participative or Consultative or Democratic Leader takes decisions in consultation and participation with the subordinates. He decentralizes authority and allows the subordinates to share his power. The leader does what the group wants and follows the majority opinion. He keeps the followers informed about matters affecting them. A democratic leader provides freedom of the thinking and expression. He listens to the suggestions, grievances and opinions of the subordinates.


Consultative leadership improves the job satisfaction and morale of subordinates.

It cultivates the decision-making ability of subordinates. The leader multiplies his abilities through the contribution of his followers. It develops positive attitudes and reduces resistance to change. The quality of decisions is improved. Labour turnover and labour absenteeism are reduced. Disadvantages:

Democratic style is time-consuming and may result in delays in decision-making. It may not yield positive results when subordinates prefer minimum interaction with the leader. Over a period of time subordinates may develop the habit of expecting to be consulted. Consultation may be interpreted as a sign of incompetence on the part of the leader to deal with problems It may be used as a means of passing the buck to others and of abdicating responsibility. It requires considerable communicating and persuasive skills on the part of the leader. Consultative leadership is considered to be more effective than autocratic style though there is no empirical-proof for this. Consultative style is more compatible with the prevailing value system which favours freedom of expression and independent thinking the choice of leadership style depends upon the immediate goal and on the subordinates.

3. Free Rein or Laissez Faire Leadership

Free Rein leadership involves complete delegation of authority so that subordinates themselves take decisions. The free rein leader avoids power and relinquishes the leadership position. He serves only as a contact to bring the information and resources needed by the subordinates. He depends largely upon the group to establish its own goals and works out its own problems.

There are two types of free rein leadership style. First, this is known as permissive style of leadership, where there is least intervention by the leader, abdication of authority and letting the group to operate entirely on its own. Second, this is known as paternalistic leadership. Under this, the leader assumes that his function is paternal or fatherly. His attitude is that of treating the relationship between the leader and his group as that of his family with the leader as the head of the family.


Positive effect on job satisfaction and morale of subordinates. Maximum possible scope for development of subordinates. Full utilization of the potential of subordinates Disadvantages:

Subordinates do not get the guidance and support of the leader. It ignores the leader‘s contribution just as autocratic style ignores the contribution of the subordinates. Subordinates may move in different directions and may work at cross purposes which may degenerate into chaos. Free Rein style may be appropriate when the subordinates are well trained, highly knowledgeable, self motivated and ready to assume responsibility.


From the very beginning, when human organisations were established, people had tried to find out the answer of what motivates people in the organization most. The starting was made by Frederic W. Taylor and his followers Frank Gilbreth, Lillian Gilbreth, and Henry Gantt, in the form of scientific management and more particularly ‗differential piece rate system.‘ This system was concerned with using financial incentives to motivate people in the organizational context. Then the findings of human relations come which emphasized security and working conditions at the job besides financial incentives for work motivation. In early 1960s, those concerned with work motivation started to search for a new theoretical foundation and to attempt to devise new techniques for application. The earlier part of these approaches was based on the types of needs that people had and the way these needs could be satisfied so that people would be motivated. These theories are known as ‗content theories of motivation‘. Maslow gave the theory of need hierarchy; Herzberg proposed two-factor theory. Because of lack of uniform findings in various researches based on the content

approaches, scholars tried to find out the process involved in motivation which led to the emergence of ‗process theories of motivation‘. These theories are more concerned with the cognitive antecedents that go into motivation or effort and with the way they affect each other. Some scholars tried to relate the nature of human beings with the work motivation. Though these propositions are not confined to work motivation, they offer some insights in understanding work motivation. Prominent theories in this group are McGregor‘s theories X and Y. A caution for grouping various theories into categories is that there may be overlapping in this grouping. Various theories of motivation approach the problems of motivation from different perspectives, but they all emphasize similar set of relationships. These relationships are the individual, his needs, his perception of how he will be able to satisfy his needs, and whether his need satisfaction is equitable. All these theories have their relevance only in particular context, and when the context changes, they may not work because they are not unified theories which can be applied in all situations. Therefore, contingency theory of motivation is required. However, contingency theory has not been fully developed as yet. Now let us go through various theories of motivation to find out what they propose and offer implications for motivating people in Organisations.

The behaviour of an individual at a particular moment is usually determined by his strongest need. Psychologists‘ claimed that needs have a certain priority. As the more basic needs are satisfied, an individual seeks to satisfy the higher needs. If his basic needs are not met, efforts to satisfy the higher needs should be postponed. A.H. Maslow, a famous social scientist, has given a framework that helps to explain the strength of certain needs. According to him, there seems to be a hierarchy into which human needs are arranged. 1. Physiological Needs: The physiological needs are at the top of the hierarchy because they tend to have the highest strength until they are reasonably satisfied. Until these needs are satisfied to the degree needed for the efficient operation of the body, the majority of a person‘s activities will probably be at this level, and the other levels will provide him with little motivation. A famous saying ‗man can live on bread alone if there is no bread‘ suggests that human beings first try to acquire necessities for their survival. 2. Safety Needs: Once the physiological needs are satisfied to a reasonable level-it is not necessary that they are fully satisfied and degree of reasonableness is subjective – other levels of needs become important. In this hierarchy comes the need for safety, which is need for being free of physical danger or self-preservation. In the industrial society, safety needs may take considerable importance in the context of the dependent relationship of employees to employers.

As pointed out by McGregor, the safety needs may serve as motivators in such circumstances as arbitrary management actions, behaviour which arouses uncertainty with respect to continued unemployment and unpredictable administration of policy. Peter F. Drucker has suggested that one‘s attitude towards security is an important consideration in choosing a job. Organization can influence these security needs either positively through pension plan, insurance plan, etc. – or negatively by arousing fears of being fired or laid off, or demoted. 3. Social Needs: After the first two needs are satisfied, social needs become important in the need hierarchy. Since man is a social being, he has a need to belong and to be accepted by various groups. When social needs become dominant, a person will strive for meaningful relations with others. If the opportunity for association with other people is reduced, men often take vigorous action against the obstacles to social intercourse. In the organization, workers form informal group environment. Such environment develops where the work is routine, tedious or over-simplified. This situation is made worse when workers are closely supervised and controlled, but have no clear channel of communication with management. In this type of environment, workers depend on informal groups for support of unfulfilled social needs such as affiliation. 4. Esteem Needs: The esteem needs are concerned with self respect, self-confidence, a feeling of personal worth, feeling of being unique and recognition. Satisfaction of these needs produces feelings of selfconfidence, prestige, power and control. The satisfaction of esteem needs is not always obtained through mature or adaptive behaviour. It is sometimes generated by disruptive and irresponsible actions. Some of the social problems have their roots in the frustration of the esteem needs. 5. Self-actualization Needs: Self-actualization is the need to maximize one‘s potential, whatever it may be. This is related with the development of intrinsic capabilities which lead people to seek situations that can utilize their potential. This includes competence which implies control over environmental factors, both physical and social, and achievement. A man with high intensity of achievement needs will be restless unless he can find fulfilment in doing what he is fit to do. As Maslow has put it, ―this need might be phrased as the desire to become more and more what one is, to become everything that one is capable of becoming.‖ Maslow suggests that the various levels are interdependent and overlapping, each higher-level need emerging before the lower-level need has been completely satisfied. Since one need does not disappear when another emerges, all needs tend to be partially satisfied in each area. When the peak of a need is passed, that need ceases to be the primary motivator. The next level need

then begins to dominate. Even though a need is satisfied, it still influences behaviour because of interdependent and overlapping characteristics of needs.

Critical Analysis of Maslow’s Theory

Maslow‘s theory has reasonable support for the hypothesis that human needs have some hierarchical order. The theory is based on the assumption, it is true also, and that man is continuously wanting. All his needs are never fully satisfied. As soon as one need is reasonably satisfied, its prepotency diminishes and another need emerges to replace it. Thus, at last, some needs remain unsatisfied which serve the man to strive to satisfy. Thus, it presents a very simple solution of managerial problems, that is, managers can try to satisfy the needs of people in this particular order. But this raises a basic question: Is need hierarchy rigid? Does every person try to satisfy his needs according to this model? If the answers are in positive, there is no problem in motivating people. However, it is not so. The hierarchy is not so rigid for all the individuals and all the times. Identified below are few problems which are not adequately solved by this theory:

1. There is lack of hierarchical structure of needs as suggested by Maslow, though every individual has some ordering for his need satisfaction. This is based on the assumption that man has limited resources which he can use alternatively. Resources, here, cannot be taken only in a physical way; rather it is used in more comprehensive way. Naturally, every person has to satisfy his needs in some order. However, this order may not follow Maslow‘s need hierarchy. This has been demonstrated by a large number of researches both in foreign countries as well as in India. Following generalizations can be drawn on the basis of these studies both in foreign countries and in India:

i. Some people may be deprived of their lower order needs but may try for selfactualizing needs. The example of Mahatma Gandhi is one of the most important. This does not require any further explanation.

ii. There are certain persons for whom self-esteem needs are more important than social needs. Such people may be those who seek self-assertion as a means to an end, that is, love need.

iii. There is considerable disordering among physiological needs, safety needs, social needs, and esteem needs, particularly in organizational context. For example, many people do not care for job security (security need) but care ‗for social need, similarly, many people may not care for social need but for self-esteem need.

iv. For certain people, many of the needs may not form part of their own need hierarchy. Thus, there is not only question for reversal of hierarchy but also discontinuity of hierarchy. For example, there may be people who might be deprived of social need from their childhood. They may develop apathy towards such needs, though it is just possible that they may develop high order for such need.

2. There is another problem, which is common with many other theories also, that there is often a lack of direct cause-effect relationship between need and behaviour. Thus, a particular need may cause behaviour in different ways in different persons. Similarly, one particular behaviour may be the result of different needs. For example, if a person is thirsty, he may take water, or some soft drink, or some juice. Similarly, people may earn money to satisfy several types of needs, not only physiological needs. Thus, need hierarchy is not as simple as it seems to be.

3. There is another problem in applying the theory into practice. A person tries for his higherlevel need when his lower-order need is reasonably satisfied. What is this reasonable level is a question of subjective matter. Thus, the level of satisfaction for particular need may differ from person to person. In fact, needs and their satisfaction are mental feeling. Sometimes, even the person concerned may not be aware about his own needs. The question is: how can a manager know the needs of others?

These are some basic problems involved in the application of Maslow‘s need hierarchy model. At every level of needs, it can be seen that the role of individual is very important. Since individuals differ, it may not be quite possible to prescribe one standard action for solving motivational problems of all persons; rather, a contingency approach has to be applied.

Need priority, to a great extent, characterizes the types of behaviour. It will be either directed towards achieving certain desirable positive goals, or conversely, towards avoiding other undesirable, negative consequences. Thus, a question may arise as to what variables are perceived to be desirable goals to achieve, and conversely, undesirable conditions to avoid. In this connection, a research study was conducted by Frederick Herzberg and associates of CaseWestern Reserve University. This study consisted of an intensive analysis of the experiences and, feelings of 200 engineers and accountants in nine different companies in Pittsburg area, U.S.A. During the structured interview, they were asked to describe a few previous job experiences-in which they felt‘ exceptionally good‘ or ‗exceptionally bad‘ about jobs. They were also asked to rate the degree to which their feelings were influenced-for better or worse‘-by each experience which they described. On analyzing the information from the interview, Herzberg concluded that there were two categories of needs essentially independent of each other affecting behaviour in different ways. His findings are that there are some job conditions which operate primarily to dissatisfy employees when the conditions are absent, however, their presence does not motivate them in a strong way. Another set of job conditions operates primarily to build strong motivation and high job satisfaction, but their absence rarely proves strongly dissatisfying. The first set of job conditions has been referred to as maintenance or hygiene factors and second set of job conditions as motivational factors. Hygiene Factors

According to Herzberg, there are ten maintenance or hygiene factors. These are company policy and administration, technical supervision, interpersonal relationship with supervisors, interpersonal relationship with peers, interpersonal relationship with subordinates, salary, job security, personal life, working conditions and status. These are not intrinsic parts of a job, but they are related to conditions under which a job is performed. They produce no growth in a worker‘s output; they only prevent losses in worker‘s performance due to work restrictions. These maintenance factors are necessary to maintain at a reasonable level of satisfaction in employees. Any increase beyond this level will not provide any satisfaction to the employees; however, any cut below this level will dissatisfy them. As such, these are also called as dissatisfiers. Since any increase in these factors will not affect employee‘s level of satisfaction, these are of no use for motivating them. Motivational factors These factors are capable of having a positive effect on job satisfaction often resulting in an increase in one‘s total output. Herzberg includes six factors that motivate employees. These are: achievements, recognition, advancement, work itself, possibility of growth, and responsibility. Most of these factors are related with job contents. An increase in these factors will satisfy the employees; however, any decrease will not affect their level of satisfaction. Since, these increase level of satisfaction in the employees; these can be used in motivating them for higher output. Herzberg maintains that potency of various factors is not entirely a function of the factors themselves. It is also influenced by the personality characteristics of the individuals. From this point of view, individuals may be classified into two groups – motivation seekers and maintenance seekers. The motivation seekers generally are individuals who are primarily motivated by the ‗satisfiers‘ such as advancement, achievement and other factors associated with work itself. On the other hand, the maintenance seekers tend to be more concerned with factors surrounding the job such as supervision, working conditions, pay, etc.

Critical Analysis of the Theory Herzberg‘s model is based on the fact that most of the people are able to satisfy their lower-order needs considerably. As such, they are not motivated by any further addition of satisfaction of these needs. This is true which has been supported by many studies, both in India and foreign countries. Herzberg‘s model has been applied in the industry and has given several new insights. One of these insights is job enrichment. This job enrichment applies to improvement of jobs in such a way, that they have more motivators than before. The idea behind job enrichment is to keep maintenance factors constant or higher while increasing motivational factors. Job enrichment is different from job enlargement practiced earlier to make job more attractive. In job enlargement, the basic idea is to change the job to become more complicated and varied so that monotony goes off, while job enrichment seeks to bring more motivators to the job by attaching more responsibility, more intrinsically satisfying work conditions and more power over the environment. Thus, Herzberg‘s model has solved the problems of managers who were wondering why their fancy personnel policies failed to motivate their employees adequately. However, Herzberg‘s model is not applied in all conditions. This has been amply suggested by various research studies, again both in India and in-foreign countries.

For example, there is considerable amount of mixing of maintenance and motivating factors. Therefore, these findings suggest that various factors relating to jobs, whether intrinsic or extrinsic, may not be classified into maintenance and motivating factors. This classification can only be made on the basis of level of person‘s need satisfaction and relative strength of various needs. Besides, the research studies confronting the two factors – satisfiers and dissatisfiers – many writers and thinkers on the subject have argued against the theory as follows:

1. In fact, job satisfaction and dissatisfaction are two opposite points on a single continuum. Individuals on the job are affected by any change either in the job environment or in the job content.

2. Herzberg‘s model is ‗method bound‘, and a number of other methods used for similar study have shown different results not supporting his contentions. Thus the theory has limitations in general acceptability.

3. This theory does not attach much importance to pay, status, or interpersonal relationships which are held generally as important contents of satisfaction.


In his 1960 book, The Human Side of Enterprise, Douglas McGregor proposed two theories by which to view employee motivation. He avoided descriptive labels and simply called the theories Theory X and Theory Y. Both of these theories begin with the premise that management's role is to assemble the factors of production, including people, for the economic benefit of the firm. Beyond this point, the two theories of management diverge. Theory X Theory X assumes that the average person: Dislikes work and attempts to avoid it. Has no ambition, wants no responsibility, and would rather follow than lead. Is self-centred and therefore does not care about organizational goals. Resists change. Is gullible and not particularly intelligent. Essentially, Theory X assumes that people work only for money and security. Theory X - The Hard Approach and Soft Approach Under Theory X, management approaches can range from a hard approach to a soft approach. The hard approach relies on coercion, implicit threats, close supervision, and tight controls, essentially an environment of command and control. The soft approach is to be permissive and seek harmony with the hope that in return employees will cooperate when asked to do so. However, neither of these extremes is optimal. The hard approach results in hostility, purposely low-output, and hard-line union demands. The soft approach results in ever-increasing requests for more rewards in exchange for ever-decreasing work output. The optimal management approach under Theory X probably would be somewhere between these extremes. However, McGregor asserts that neither approach is appropriate because the assumptions of Theory X are not correct. The Problem with Theory X Drawing on Maslow's hierarchy, McGregor argues that a satisfied need no longer motivates. Under Theory X the firm relies on money and benefits to satisfy employees' lower needs, and once those needs are satisfied the source of motivation is lost. Theory X management styles in fact hinder the satisfaction of higher-level needs. Consequently, the only way that employees can attempt to satisfy their higher level needs in their work is by seeking more compensation, so it is quite predictable that they will focus on monetary rewards. While money may not be the most effective way to self-fulfillment, in a Theory X environment it may be the only way. Under

Theory X, people use work to satisfy their lower needs, and seek to satisfy their higher needs in their leisure time. But it is in satisfying their higher needs that employees can be most productive. McGregor makes the point that a command and control environment is not effective because it relies on lower needs as levers of motivation, but in modern society those needs already are satisfied and thus no longer are motivators. In this situation, one would expect employees to dislike their work, avoid responsibility, have no interest in organizational goals, resist change, etc., thus making Theory X a self-fulfilling prophecy. From this reasoning, McGregor proposed an alternative: Theory Y. Theory Y The higher-level needs of esteem and self-actualization are continuing needs in that they are never completely satisfied. As such, it is these higher-level needs through which employees can best be motivated. Theory Y makes the following general assumptions: Work can be as natural as play and rest. People will be self-directed to meet their work objectives if they are committed to them. People will be committed to their objectives if rewards are in place that addresses higher needs such as self-fulfillment. Under these conditions, people will seek responsibility. Most people can handle responsibility because creativity and ingenuity are common in the population. Under these assumptions, there is an opportunity to align personal goals with organizational goals by using the employee's own quest for fulfillment as the motivator. McGregor stressed that Theory Y management does not imply a soft approach. McGregor recognized that some people may not have reached the level of maturity assumed by Theory Y and therefore, may need tighter controls that can be relaxed as the employee develops. Theory Y Management Implications If Theory Y holds, the firm can do many things to harness the motivational energy of its employees: Decentralization and Delegation - If firms decentralize control and reduce the number of levels of management; each manager will have more subordinates and consequently will be forced to delegate some responsibility and decision making to them.

Job Enlargement - Broadening the scope of an employee's job adds variety and opportunities to satisfy ego needs. Participative Management - Consulting employees in the decision making process taps their creative capacity and provides them with some control over their work environment. Performance Appraisals - Having the employee set objectives and participate in the process of evaluating how well they were met. If properly implemented, such an environment would result in a high level of motivation as employees work to satisfy their higher level personal needs through their jobs.

Coordination is a conscious and rational process of pulling together the different parts of an organization and unifying them into a team to achieve predetermined goals in an effective manner. According to Henri Fayol, ―To coordinate is to harmonize all the activities of a concern so as to facilitate its working and its success. In a well-coordinated enterprise, each department or

division works in harmony with others and is fully informed of its role in the organization. The working schedules of various departments are constantly tuned to circumstances.‖ Coordination consists of three major elements, namely, balancing, timing, and integrating. Balancing means ensuring that enough of one thing is available to support or counter-balance the other. Timing involves bringing together different activities under a common time schedule so that they support and reinforce each other. Integrating refers to the unification of diverse interests under a common purpose.

1. Unity in diversity: effective coordination is the sine qua non of good management. It is the only method by which a manager can avoid potential sources of conflict among the members of the organization. In the words of C.I. Barnard, ―the quality of coordination is the crucial factor in the survival of organization.‖ 2. Team work: without coordination, members of a group will pull in different directions and may work at cross-purposes. The efforts, energies and skills of various persons must be integrated to achieve group effort and team work. 3. Conflicting goals: each department or division has its own goals. Similarly, each individual has his own goals. In practice, every department and individual becomes so committed to its goals that it may overlook the goals of the organization. Coordination becomes essential to harmonize departmental/personal goals with the goals of the organization. 4. Growth in size: in a large organization, the number of jobs and employees is also large. Communication becomes difficult due to complex organization structure. Personal contacts between executives are few. All this makes coordination more essential. 5. Specialization: specialization leads to a narrow outlook. Specialists performing the various tasks know very little of other jobs and differences in outlook lead to frequent disputes. Coordination among the activities of specialists is very difficult. 6. Human nature: people in general are preoccupied with the work of the own departments or units and fail to appreciate the role of other departments‘ units. Deliberate efforts are required to maintain coordination between different departments and units.

7. Differentiation and integration: the activities of an organization are classified into specialized and different units. Similarly, authority is delegated among the various levels in a graded manner. Differentiated work units and authority centers must be fused together to achieve synergetic efforts. Coordination ensures unity and synergy in differentiation.

Q-1- Direction is effective__________ of employees. a) b) c) d) Motivation Leadership. Supervision. All the above.

Q-2- More direction is required at _________ level. a) b) c) d) Top Middle Lower Directors.

Q-3- Direction is related to _________ employees. a) b) c) d) All. Higher level. Middle level Low level.

Q-4- Directors are _________ of the company also. a) b) c) d) Share-holders. Paid executives. Both (a) and (b) None of the above.

Q-5- Direction___________ a) b) c) d) Converts plan into practice. Is practical aspect of management. Is inter-personal aspect of management. All the above

Q6. Who proposed that human needs develop in a hierarchical manner? (a)Elton Mayo (b)Abraham Maslow

(c) Chris Argyris Q7. ……….,proposed by Douglas McGregor,has a positive,dynamic,flexible And optimistic view of employees. (a) Theory X (b) Theory Y (c) Theory Z Q8. According to Herzberg,……….are job content factors which lead to job satisfaction. (a)Motivators (b)Hygiene factors (c)Context factors Q9. The force that energises behavior,gives direction to behavior and underlies the tendency to persist is known as……………… (a)Motivation (b)Morale (c) Drive Q10 In Maslow‘s hierarchy of needs,………..refer to the desire to become what one is capable of becoming. (a)Esteem needs (b)Self –actualisation needs (c)Social needs

Controlling may be defined as the process of ensuring that activities are producing the desired results. It involves guiding and regulating operations towards some pre-determined goals. Controlling is ensuring that actions confirm to the expected results by appropriate feedback system and correcting any deviation in time to see that results are ensured within proper time and costs as per planned standards. To control means to focus attention on moving ahead and on shaping the pace and pattern of future events, to make things happen, to secure results, to remove obstacles and to gain command over the forces of uncertainty and complexity. According to Koontz and O‘Donnell,‖ Managerial control implies the measurement of accomplishment against the standard and the correction of deviations to assure attainment of objectives according to plans.” It is the continuous process of measuring the actual results of operations of the organization in relation to the planned results and minimizing the gap between the two.

There is a close inter-relationship between planning and control functions of management. Planning is the basis of control. Control implies the existence of certain standards against which actual results may be evaluated. Planning provides such standards. Where there is no plan there is no basis for control. Planning initiates the process of management and controlling completes the process. Without plans control is blind for when one does not know where to go, one cannot judge whether one is on the right track or not. H.G Hicks has rightly stated that ―planning is clearly a prerequisite for controlling. It is utterly foolish to think that controlling could be accomplished without planning. Without planning there is no predetermined understanding of the desired performance.‖ According to Billy E. Goetz: ―Management planning seeks consistent, integrated and articulated programmes while management control seeks to compel events to conform to plans” At the same time, planning without control is merely a pipe dream or wishful thinking. Without an adequate control system, the best laid plans may go astray. Control ensures that the operations

proceed according to plans and the planned targets are achieved. It also indicates need for revision of plans. The information collected for control is also useful for planning in future. Control, therefore, makes planning a meaningful exercise just as planning provides the guidelines for control. Planning is an intellectual or thinking exercise whereas control is an action and result oriented function. Thus planning is meaningless without control and control is aimless without planning. In fact planning and control are the inseparable twins of management. Comparison of planning and control Planning Control on

Emphasis on impersonal,abstract,long range More emphasis problems personal,concrete,immediate problems Less structured Uses ranges, estimates Often highly structured

More reliance on measured data from specific cases Operative and lower level personnel involved

Top executive spend much of time

Evaluation of results difficult, and takes longer Results are often visible relatively soon, and time to determine. are easier to assess in simple situations but may be difficult to evaluate in complex cases.

The process of managerial control consists of the following main steps:

The steps are explained as follows: 1) Establishment of standards:-The first step in control process is to establish control standards. Standards represent the criteria against which actual performance is measured. Standards serve as benchmarks because they reflect the desired results or acceptable level of performance. Control standards are of two types: a) Quantitative Standards: These standards are set in physical or monetary terms. Such standards are set in production, sales, finance, and other areas where results can be measured in precise quantitative terms.

b) Qualitative Standards: There are certain areas in which it is not possible to set standards in quantitative terms. Goodwill, employee morale, motivation industrial relation etc, are such areas. In these areas standards are laid down in intangible terms.

2) Measurement of performance: After performance standards are established, the next step is the measurement of actual performance. Measurement of performance should be accurate and reliable. It should be clear, simple and objective. Where quantitative standards are established performance should be measured in quantitative terms. This will make evaluation easy and reliable. 3) Comparing performance with standards: The third major step in the control process involves the comparison of actual performance with standard performance. Such comparison will reveal the deviation between actual and desired results. Comparison is

easy when standards are established in quantitative terms. In other cases where results are intangible direct personal observation and reports may be used to identify defects. 4) Analysis of deviation: All deviation need not be brought to the notice of top management. A range of deviations should be established and only cases beyond range should be reported. This is known as control by exception. When the deviations between standard and actual performance is beyond the prescribed limit, an analysis of deviations should be made to identify the causes of deviations. 5) Taking corrective action: The final step in the control process is taking corrective actions. Corrective action may be a) revision of standards, b) change in the assignment of task, c) training of employees, d) improvement in the techniques. At this stage the manager should avoid two types of mistakes. First, taking corrective action when no action is required and secondly, not taking action when action is required.

Depending on the time at which corrective action is taken, controls are of three kinds:

1) Post control or Feedback control: Traditionally, control was viewed as historical or post action control. Under it results are measured after the performance. Such measurement provides information about how goals have been achieved. This information is known as feedback and on this basis corrective action is taken. Therefore, correction occurs after the event. Feedback control is the process of adjusting future actions on the basis of information about past performance. Accounting records, disciplinary action, performance appraisal interview, budgetary control, and quality inspection are examples of feedback control. It is also called historical control. 2) Concurrent control: It is also known as real time or steering control. It involves the adjustment of performance before any serious damage is done. Concurrent control occurs while an activity is still taking place. As an activity goes on, it is monitored and wherever necessary corrective action is taken to achieve desired results. In industry quality control chart is an example of concurrent control. 3) Feed forward or pre – control: This control system anticipates the problems that the management is likely to encounter in future and identifies the steps to be taken to overcome them. It attempts to anticipate deviations in advance of their occurrence and allows corrective actions to be taken in advance of the problem. Therefore, it is known as ―predictive control ―, preventive control and pre- control. It is more aggressive approach

to control because correction can be made before the system output is affected. Preventive maintenance programme is an example of feed forward control.

Any control system should meet certain requirements in order to be effective which are indicated below:1) Focus on objectives and needs: The control system should aim at accomplishing the organizational goals. It should be tailored to fit the needs of the organization. 2) Prompt:-An effective control system should detect and report deviations promptly so that necessary corrective action may be taken in time. A good appraisal and management information system is required for this purpose. 3) Flexible: The control system should keep pace with the changing conditions of the business world. It should be adaptable to new developments including the failure of the control system itself. Flexibility in control system can be introduced by preparing alternative plans for various probable situations. 4) Critical point control:-The control system should focus on strategic and key activity areas or points which are critical to overall performance. 5) Co ordination: There should be a match between the type of function and the system of control at all levels of the organization 6) Objective: Standards of performance should as far as possible, be objective and specific. . 7) Economical: An effective control system must be worth its cost. It must justify the expenses involved. In other words, the savings anticipated from it should be greater than the expected costs on its working. 8) Simple: A good control system must be simple and understandable so that all managers can use it effectively.

Q-1- Controlling is the __________ function of the management. a) b) c) d) First Last Both (a) and (b) Neither (a) nor (b).

Q-2- Controlling is required for effective___________. a) b) c) d) Planning Organizing Directing All the above.

Q-3- In business enterprises controlling is required __________ a) b) c) d) While establishing business. In the beginning of the year. At the end of the year. Continuously.

Q-4- Effective controlling is _________. a) b) c) d) Dynamic Static Predetermined All the above.

Q-5- Controlling is ___________ function of the management. a) b) c) d) Optional Compulsory Essential All the above.

Q-6-Controlling is required at ________ levels. a) Higher b) Lower

c) Middle d) All Q-7- controlling is related to a) b) c) d) Efforts Results Functions. All the above.

Q-8- Controlling is required at _________ levels. a) b) c) d) Mental Theoretical Practical Al the above.

Q-9- If there is fall in the actual performance due to mechanical defect, there should be improvement in _________ situations a) b) c) d) Physical Human Economic All the above

Q-10- Uncontrollable cause for the loss of production ma y be ___________ a) b) c) d) Inefficiency of workers Irregularity of workers Mechanical defects Fire

Fred Luthans has defined diversity as the presence of members of different ages, genders, ethnic groups, and/or educational backgrounds in an organization. There is diversity in both culture and workforce in international business. Better management of diversity reduces costs, improves staffing, improves marketing, promotes creativity, facilitates problem solving and increases flexibility. Management of diversity requires managing cultural diversity, individual diversity and workforce diversity. Since the composition of the workforce has been changing over the past few years, managing diversity has become a challenge to organisations.

Changing workforce demographics

Competitive pressures

Increasing diversity in today’s organization

Legislation and law

Globalization Of firms

REASONS OF DIVERSITY The reasons for diversity are as follows: 1. Changing demographics structure of the workforce: the composition of the workforce in the past was very different from the composition of the present day workforce. The modern workforce includes women, minorities, older employees and highly educated people in large numbers. The increase in skills and education levels across the entire population combined with the legal provision of equal opportunity for all have led to an increase in the number of people from diverse backgrounds occupying managerial positions. 2. Government legislation: legislation is also responsible for bringing diversity in modern organizations. Legislation has made it binding on organizations to provide equal opportunity for all employees. 3. Enhances competitiveness of firms: the firms that adopt an affirmative approach to recruiting people from diverse backgrounds generally have a talented and capable workforce. Moreover organizations which hire people from diverse backgrounds are likely to gain a reputation as fair employers and are more likely to attract competent employees. 4. Increasing globalization of firms: an organization faces the challenges of blending different cultures when it expands its operations beyond its national boundaries. Managers and technical personnel who go to a foreign country to put an organizational system in place will have to change their leadership styles, communication patterns and other practices to suit the culture of the foreign country. By so doing, they assist in bringing about a fusion of cultures and increasing employee productivity for the benefit of both the organization and the country. Those organizations which value diversity are in a better position to work with people from different cultures, customs, and social norms when they go global.

A well designed programme for management of diversity will consist of the following: a) Strong and visible support from top management. b) Continuous effort to assess the diversity management programme c) Flexibility programmes for the recruitment, training, retention and upward mobility of a diverse workforce. d) Programmes to accommodate family needs, such as day-care and care for elderly. e) Alternative work schedules, including part time work, jobs sharing, compressed work weeks, flexi-time, etc.

f) Telecommuting opportunities for non-conventional workers and foreign workers who do not wish to immigrate. g) Diversity and language training. h) Mentoring or the use of high level managers to guide high-potential women, minorities, and other diverse employees. i) Support groups that can help build minority networks for the support and guidance of applicable employees. j) Career development and promotions to maximize the upward mobility of diverse employees to overcome the glass ceilings that tend to hold them back.

A corporate governance system is its embedded configuration of values, ethics and appropriate and expected behavior which provide the coordinates for the organization‘s performance of its role as a social entity, in all its aspects. A code of corporate governance makes explicit both the auditable and the desirable aspects of such a configuration. The Cadbury Committee (U.K) has defined corporate governance as ―the system by which companies are directed and controlled.‖ Thus corporate governance is a broad and somewhat vague term which is used to refer to a range of corporate controls and accountability mechanisms designed to meet the aims of all the stakeholders. It is the process of direction, supervision and accountability of corporations. It concerns the theories and practices of the board of directors and its relationships with the stakeholders of the company. Corporate governance relates to laws, procedures, practices and implicit rules that determine a company‘s ability to take improved managerial decisions.

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. Commonly accepted principles of corporate governance include: Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is

understandable and accessible and encouraging shareholders to participate in general meetings. Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person. Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information. Issues involving corporate governance principles include: internal controls and the independence of the entity's auditors oversight and management of risk oversight of the preparation of the entity's financial statements review of the compensation arrangements for the chief executive officer and other senior executives the resources made available to directors in carrying out their duties the way in which individuals are nominated for positions on the board dividend policy Nevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements

within the corporate sector. In India, a strident demand for evolving a code of good practices by the corporation, written by each corporation management, is emerging.

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability.

Internal corporate governance controls
Internal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include: Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst nonexecutive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria. Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.

External corporate governance controls
External corporate governance controls encompass the controls external stakeholders exercise over the organization. Examples include: competition

debt covenants demand for and assessment of performance information (especially financial statements) government regulations managerial labour market media pressure takeovers

Demand for information: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the shareholder will free ride on the judgments of larger professional investors. Monitoring costs: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting. Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

The Learning Organization is a concept that is becoming an increasingly widespread philosophy in modern companies, from the largest multinationals to the smallest ventures. What is achieved by this philosophy depends considerably on one's interpretation of it and commitment to it. The quote below gives a simple definition that we felt was the true ideology behind the Learning Organization. "A Learning Organization is one in which people at all levels, individuals and collectively, is continually increasing their capacity to produce results they really care about." The learning organization has its origins in companies like Shell, where Arie de Geus described learning as the only sustainable competitive advantage using the 1973 oil crisis as a framework. The Learning Organization is seen as a response to an increasingly unpredictable and dynamic business environment. Here are some definitions by key writers: "The essence of organizational learning is the organization's ability to use the amazing mental capacity of all its members to create the kind of processes that will improve its own" (Nancy Dixon 1994) "A Learning Company is an organization that facilitates the learning of all its members and continually transforms itself" (M. Pedler, J. Burgoyne and Tom Boydell, 1991)

"Organizations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to learn together" (Peter Senge, 1990) The main features of a learning organization are as follows: It nurtures creative thinking and innovative ideas. It encourages its members to learn continuously and enjoy sense of achievement. It develops new capabilities and renews itself from time to time. Learning is an on-going process for it. It employs learnings as a competitive advantage. Its outlook is futuristic. The main advantages of a learning organization are as follows: It can achieve excellence in both quantity and quality of performance. It enjoys a sustainable advantage over its competitors. It can successfully face environmental challenges and changes. It does not face obsolescence of management practices.
It can maintain good relations with different stakeholder groups.

Peter Senge has identified the following five methods of creating a learning organization: 1. Personal mastery. ‗Organizations learn only through individuals who learn. Individual learning does not guarantee organizational learning. But without it no organizational learning occurs‘. Personal mastery is the discipline of continually clarifying and deepening our personal vision, of focusing our energies, of developing patience, and of seeing reality objectively‘. It goes beyond competence and skills, although it involves them. It goes beyond spiritual opening, although it involves spiritual growth. Mastery is seen as a special kind of proficiency. It is not about dominance, but rather about calling. Vision is vocation rather than simply just a good idea. 2. Mental models. These are ‗deeply ingrained assumptions, generalizations, or even pictures and images that influence how we understand the world and how we take action‘. As such they resemble what Donald A Schön talked about as a professional‘s ‗repertoire‘. We are often not that aware of the impact of such assumptions etc. on our behaviour – and, thus, a fundamental part of our task is to develop the ability to reflectin- and –on-action. Peter Senge is also influenced here by Schön‘s collaborator on a number of projects, Chris Argyris.

3. Building shared vision. Peter Senge starts from the position that if any one idea about leadership has inspired organizations for thousands of years, ‗it‘s the capacity to hold a share picture of the future we seek to create‘. Such a vision has the power to be uplifting – and to encourage experimentation and innovation. Crucially, it is argued, it can also foster a sense of the long-term, something that is fundamental to the ‗fifth discipline‘. 4. Team learning. Such learning is viewed as ‗the process of aligning and developing the capacities of a team to create the results its members truly desire‘. It builds on personal mastery and shared vision – but these are not enough. People need to be able to act together. When teams learn together, Peter Senge suggests, not only can there be good results for the organization; members will grow more rapidly than could have occurred otherwise. 5. Systems thinking. A great virtue of Peter Senge‘s work is the way in which he puts systems theory to work. The Fifth Discipline provides a good introduction to the basics and uses of such theory – and the way in which it can be brought together with other theoretical devices in order to make sense of organizational questions and issues. Systemic thinking is the conceptual cornerstone (‗The Fifth Discipline‘) of his approach. It is the discipline that integrates the others, fusing them into a coherent body of theory and practice. Systems theory‘s ability to comprehend and address the whole and to examine the interrelationship between the parts provides, for Peter Senge, both the incentive and the means to integrate the disciplines.

Knowledge Management (KM) comprises a range of practices used in an organization to identify, create, represent, distribute and enable adoption of insights and experiences. Such insights and experiences comprise knowledge, either embodied in individuals or embedded in organizational processes or practice. An established discipline since 1995, KM includes courses taught in the fields of business administration, information systems, management, and library and information sciences. More recently, other fields, to include those focused on information and media, computer science, public health, and public policy, also have started contributing to KM research. Many large companies and non-profit organisations have resources dedicated to internal KM efforts, often as a part of their 'Business Strategy', 'Information Technology', or 'Human Resource Management' departments. Several consulting companies also exist that provide strategy and advice regarding KM to these organisations. KM efforts typically focus on organizational objectives such as improved performance, competitive advantage, innovation, the sharing of lessons learned, and continuous improvement of the organization. KM efforts overlap with Organizational Learning, and may be distinguished from by a greater focus on the management of knowledge as a strategic asset and a focus on encouraging the exchange of knowledge. KM efforts can help individuals and groups to share valuable organizational insights, to reduce redundant work, to avoid reinventing the wheel per se,

to reduce training time for new employees, to retain intellectual capital as employees turnover in an organization, and to adapt to changing environments and markets.

Knowledge Management has been recognized as an essential component of a proactively managed organization. The key concepts include converting data, organizational insight, experience and expertise into reusable and useful knowledge that is distributed and shared with the people who need it. Knowledge Management addresses business challenges and enhances customer responsiveness by creating and delivering innovative products or services; managing or enhancing relationships with existing and new customers, partners and suppliers; and administering or improving more efficient and effective work practices and processes. Effective solutions are aligned with the organization's business strategy and result in enhanced individual and organizational performance. Several factors that contribute to the importance of managing knowledge are referenced below: Competitive Advantage - Knowledge can be an organization's most competitive advantage. Wealth results when an organization uses its knowledge to create customer value by addressing business problems. "A firm's competitive advantage depends more than anything on its knowledge, or to be slightly more specific, on what it knows - - how it uses what it knows - and how fast it can know something new." Technology - Because of the tremendous advances in technology, enormous amounts of information can be disseminated to people regardless of their geographic location or time zone. The speed of transmission and frequency in which this information is received requires an adaptable, skilled and educated workforce. From a knowledge management perspective, the complexities associated with these technological changes will cause us to think differently about the manner in which people learn whether it is inside or outside of the classroom. Competitive Advantage - Knowledge can be an organization's most competitive advantage. Wealth results when an organization uses its knowledge to create customer value by addressing business problems. "A firm's competitive advantage depends more than anything on its knowledge, or to be slightly more specific, on what it knows -- how it uses what it knows - and how fast it can know something new." Organizational Change - Due to organizational changes, restructuring, mergers and acquisitions, companies have lost some of their valued history and cultural norms. An organization's ability to create, acquire, process, maintain and retain old and new knowledge in the face of complexity, uncertainty and rapid change is critical. Enhanced Decision-Making - Learning from and applying past experiences can accelerate the completion of future work and enhance the decision-making process. Workforce Demographics - An aging workforce, coupled with retiring baby boomers and the loss of intellectual capital or institutional memory are creating a new sense of urgency for organizations. Although predicting employee separations is at times challenging, knowledge transfer is vital to sustaining critical business functions. While

many employees may continue employment beyond retirement eligibility, these employees will inevitably leave the workforce.

Donald R. Tobin, author of The Knowledge-Enabled Organization, stated that "individual employees must develop three types of knowledge: 1. Knowledge about the company 2. Knowledge about customers 3. Knowledge about the company's business processes." Explicit - knowledge that can be more easily attained and is often expressed or documented in a formal, systematic manner - frequently in words and numbers. Examples include Management Directives, Executive Orders, policy manuals, and reference guides. Tacit - knowledge that can also be attained, but is not as easily transferred. Tacit knowledge can be attained through dialogue, job shadowing, storytelling, and sharing of best practices and lessons learned. It usually is rooted in an individual's experiences, intuition, insight, judgment, and knowledge of organizational values. Individuals with tacit knowledge are usually considered to be experts within their organizations and frequently sought out for guidance and input.

The term Social Responsibility refers to the idea that companies and corporations should contribute wealth or resources solely dedicated to the improvement of society as a whole. The principal of social responsibility dictates that these entities should contribute at least a small amount of resources to the general well being of humanity. These actions should not, in any way, be profit-generating. The idea that businesses should not function amorally, but instead should contribute to the welfare of their communities. Corporate social responsibility is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.

Companies can display social responsibility by: 1. decreasing their pollution, 2. agreeing to purchase imported goods from humane factories abroad, 3. Or by increasing efforts to reforest or promote environmentally sustainable solutions in ecologically sensitive areas in which they do business. Any of these are considered socially responsible, whether a company actively supports a community or refrains from doing it any harm. Typically, the larger the company, the more socially responsible it should be. For example, consumers might expect a small business to recycle its own waste, but would expect larger corporations to not only recycle their own waste but also help facilitate larger recycling programs in the vicinity. There is no law forcing companies to participate in social responsibility, but consumers are more likely to support organizations that practice ethical treatment of their workers and support the communities in which they perform their business. Part of the belief of social responsibility is assuming all responsibility for company actions and inactions. This covers business practices associated with human rights, environmental concerns, and ethics. A few steps that can be taken to make social responsibility work: 1. Set goals. What do you want to achieve? What do you want your company to achieve? Do you want to enter a new market? Introduce a new product? Enhance your business's image? 2. Decide what cause you want to align yourself with. This may be your toughest decision, considering all the option out there: children, the environment, senior citizens, homeless people, people with disabilities--the list goes on. You might want to consider a cause that fits in with your products or services. For example, a manufacturer of women's clothing could get involved in funding breast cancer research. Another way to narrow the field is by considering not only causes you feel strongly about, but also those that your customers consider significant. 3. Choose a non-profit or other organization to partner with. Get to know the group, and make sure it's sound, upstanding, geographically convenient and willing to cooperate with you in developing a partnership. 4. Design a program, and propose it to the non-profit group. Besides laying out what you plan to accomplish, also include indicators that will measure the program's success in tangible terms. 5. Negotiate an agreement with the organization. Know what they want before you sit down, and try to address their concerns upfront. 6. Involve employees. Unless you get employees involved from the beginning, they won't be able to communicate the real caring involved in the campaign to customers. 7. Involve customers. Don't just do something good and tell your customers about it later. Get customers involved, too. A sporting goods store could have customers bring in used equipment for a children's shelter, then give them a 15 percent discount on new purchases. Make it easy for customer to do well; then reward them for doing it.

Corporate social responsibility offers manifold benefits both internally and externally to the companies involved in various projects. Externally, it creates a positive image amongst the people for its company and earns a special respect amongst its peers. It creates short term employment opportunities by taking various projects like construction of parks, schools, etc. Working with keeping in view the interests of local community bring a wide range of business benefits. For example, for many businesses, local customers are an important source of sales. By improving the reputation, one may find it easier to recruit employees and retain them. Businesses have a wider impact on the environment also. Plantation and cultivation activities taken up by Intel India are a step towards the same. Recycling used products also acts as a step towards minimizing wastes. Internally, it cultivates a sense of loyalty and trust amongst the employees in the organizational ethics. It improves operational efficiency of the company and is often accompanied by increases in quality and productivity. More importantly, it serves as a soothing diversion from the routine workplace practices and gives a feeling of satisfaction and a meaning to their lives. Employees feel more motivated and thus, are more productive. Apart from this, CSR helps ensure that the organization comply with regulatory requirements.

Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain. In the contemporary context, it is primarily used to refer to the outsourcing of services. BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing which includes customer-related services such as contact center services. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called near shore outsourcing.

An important aspect of business process outsourcing is its ability to free corporate executives from some of their day-to-day process management responsibilities. Once a process is

successfully outsourced, they get more time to, explore new revenue streams, accelerate other projects, and focus on their customers. By outsourcing their back office operations to third world countries, companies have the following advantages: Achieve cost reductions – this is made possible through process improvements, reengineering, and use of technologies that reduce and bring administrative and other costs under control. Key in on company's main business – with the day-to-day back office operations taken care of, the management is free to impart more time to building the company's core businesses Obtain outside expertise – Rather than recruiting and training personnel, BPO ensures that domain experts from another company provide the needed guidance and skills. Meet constantly changing customer demands – many BPO vendors provide the management with flexible and scalable services to meet the customers‘ changing requirements, and to support company acquisitions, consolidations, and joint ventures Achieving revenue increases – by outsourcing non-core processes, companies can focus on increasing their sales and market share, develop new products, expand into new markets, and enhance customer service and satisfactions.

Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximizing positive outcome, and minimizing risks and avoiding any threats, a Business Continuity Management (BCM) model is setup. BCM consists of a set of steps, to successfully identify, manage and control that business processes that are, or can be outsourced.

'Electronic Commerce (EC) is the paperless exchange of business information using Electronic Data Interchange (EDI) and related technologies. If you are familiar with Electronic Mail (E-Mail), computer bulletin boards, facsimile machines (faxes), Electronic Funds Transfer (EFT). You can very well understand what is e-commerce. These are all forms of EC. All EC systems replace all or key parts of paper-based work flow with faster, cheaper, more

efficient, and more reliable communications between machines. In today's Defence Department procurement arena, however the most important EC technology to know about is Electronic Data Interchange, or EDI.
B2C - business to consumer

In the Australian context B2C (business to consumer) trading activity has been slow to take off as at first consumers had doubts about the security of credit card transactions. Initial B2C trading focused on music CDs, software and books - items which were compact and easily shipped and where prices could be slashed once the retailer's cut was taken out of the margin. The Amazon book store would be a good example of this. These products pushed the perimeters of the market out for goods bought on-line. Books and CDs are relatively generic products. A CD bought in the US will have the same music and quality as one bought locally (the exception is the cover art) and so there is no doubt in the consumers mind exactly what the product is. This is not the case with clothing, where sizes can confuse the purchase decision... and where tactile senses figure strongly in the purchasing decision. EBay has really transformed purchasing behaviour on the web. Many people have made their first ecommerce transaction on EBay. Many people sell on EBay too, given raise to the work-from-home/drop shipping model of ecommerce. Interestingly though B2C transactions of previously localised or hard to find products can be extremely strong. If you have a unique product that is highly relevant to a niche audience, you are likely to do very well on the web. Although sales are increasing rapidly on the Internet, the volumes of turnover figures continue to fail short of industry estimates. But as retail web sites become more navigable and privacy policies are displayed, more people will be drawn to Net-based purchasing by lower prices and convenience.
B2B - business to business

On the Internet, B2B (business to business) is the exchange of products or services between businesses rather than between businesses and consumers. Although early interest centred on the growth of retailing on the Internet, forecasts are that B2B revenue will far exceed B2C revenue in the near future. According to studies published in early 2000, the money volume of B2B exceeds that of B2C by 10 to 1. Over the next five years, B2B is expected to have a compound annual growth of 41%.

Reduced costs by reducing labour, reduced paper work, reduced errors in keying in data, reduce post costs Reduced time. Shorter lead times for payment and return on investment in advertising, faster delivery of product Flexibility with efficiency. The ability to handle complex situations, product ranges and customer profiles without the situation becoming unmanageable.

Improve relationships with trading partners. Improved communication between trading partners leads to enhanced long-term relationships. Lock in Customers. The closer you are to your customer and the more you work with them to change from normal business practices to best practice e-commerce the harder it is for a competitor to upset your customer relationship. New Markets. The Internet has the potential to expand your business into wider geographical locations

Time for delivery of physical products. It is possible to visit a local music store and walk out with a compact disc or a bookstore and leave with a book. E-commerce is often used to buy goods that are not available locally from businesses all over the world, meaning that physical goods need to be delivered, which takes time and costs money. In some cases there are ways around this, for example, with electronic files of the music or books being accessed across the Internet, but then these are not physical goods. Physical product, supplier & delivery uncertainty. When you walk out of a shop with an item, it's yours. You have it; you know what it is, where it is and how it looks. In some respects e-commerce purchases are made on trust. This is because, firstly, not having had physical access to the product, a purchase is made on an expectation of what that product is and its condition. Secondly, because supplying businesses can be conducted across the world, it can be uncertain whether or not they are legitimate businesses and are not just going to take your money. It's pretty hard to knock on their door to complain or seek legal recourse! Thirdly, even if the item is sent, it is easy to start wondering whether or not it will ever arrive. Perishable goods. Forget about ordering a single gelato ice cream from a shop in Rome! Though specialised or refrigerated transport can be used, goods bought and sold via the Internet tend to be durable and non-perishable: they need to survive the trip from the supplier to the purchasing business or consumer. This shifts the bias for perishable and/or non-durable goods back towards traditional supply chain arrangements, or towards relatively more local e-commerce-based purchases, sales and distribution. In contrast, durable goods can be traded from almost anyone to almost anyone else, sparking competition for lower prices. In some cases this leads to disintermediation in which intermediary people and businesses are bypassed by consumers and by other businesses that are seeking to purchase more directly from manufacturers. Limited and selected sensory information. The Internet is an effective conduit for visual and auditory information: seeing pictures, hearing sounds and reading text. However it does not allow full scope for our senses: we can see pictures of the flowers, but not smell their fragrance; we can see pictures of a hammer, but not feel its weight or balance. Further, when we pick up and inspect something, we choose what we look at and how we look at it. This is not the case on the Internet. If we were looking at buying a car on the Internet, we would see the pictures the seller had chosen for us to see but not the things we might look for if we were able to see it in person. And, taking into account our other senses, we can't test the car to hear the sound of the engine as it changes gears or sense the smell and feel of the leather seats. There are many ways in which the Internet does not convey the richness of experiences of the world. This lack of sensory

information means that people are often much more comfortable buying via the Internet generic goods - things that they have seen or experienced before and about which there is little ambiguity, rather than unique or complex things. Returning goods. Returning goods online can be an area of difficulty. The uncertainties surrounding the initial payment and delivery of goods can be exacerbated in this process. Will the goods get back to their source? Who pays for the return postage? Will the refund be paid? Will I be left with nothing? How long will it take? Contrast this with the offline experience of returning goods to a shop. Privacy, security, payment, identity, contract. Many issues arise - privacy of information, security of that information and payment details, whether or not payment details (e.g. credit card details) will be misused, identity theft, contract, and, whether we have one or not, what laws and legal jurisdiction apply. Defined services & the unexpected. E-commerce is an effective means for managing the transaction of known and established services, that is, things that are everyday. It is not suitable for dealing with the new or unexpected. For example, a transport company used to dealing with simple packages being asked if it can transport a hippopotamus, or a customer asking for a book order to be wrapped in blue and white polka dot paper with a bow. Such requests need human intervention to investigate and resolve. Personal service. Although some human interaction can be facilitated via the web, ecommerce can not provide the richness of interaction provided by personal service. For most businesses, e-commerce methods provide the equivalent of an information-rich counter attendant rather than a salesperson. This also means that feedback about how people react to product and service offerings also tends to be more granular or perhaps lost using e-commerce approaches. If your only feedback is that people are (or are not) buying your products or services online, this is inadequate for evaluating how to change or improve your e-commerce strategies and/or product and service offerings. Successful business use of e-commerce typically involves strategies for gaining and applying customer feedback. This helps businesses to understand, anticipate and meet changing online customer needs and preferences, which is critical because of the comparatively rapid rate of ongoing Internet-based change. Size and number of transactions. E-commerce is most often conducted using credit card facilities for payments, and as a result very small and very large transactions tend not to be conducted online. The size of transactions is also impacted by the economics of transporting physical goods. For example, any benefits or conveniences of buying a box of pens online from a US-based business tend to be eclipsed by the cost of having to pay for them to be delivered to you in Australia. The delivery costs also mean that buying individual items from a range of different overseas businesses is significantly more expensive than buying all of the goods from one overseas business because the goods can be packaged and shipped together.

Mobile Commerce, or M-Commerce, is about the explosion of applications and services that are becoming accessible from Internet-enabled mobile devices. It involves new technologies,

services and business models. It is quite different from traditional e-Commerce. Mobile phones impose very different constraints than desktop computers. But they also open the door to a slew of new applications and services. They follow you wherever you go, making it possible to look for a nearby restaurant, stay in touch with colleagues, or pay for items at a store. As the Internet finds its way into our purses or shirt pockets, the devices we use to access it are becoming more personal too. Already today, mobile phones know the phone numbers of our friends and colleagues. They are starting to track our location. Tomorrow, they will replace our wallets and credit cards. One day, they may very well turn into intelligent assistants capable of anticipating many of our wishes and needs, such as automatically arranging for taxis to come and pick us up after business meetings or providing us with summaries of relevant news and messages left by colleagues. But, for all these changes to happen, key issues of interoperability, usability, security, and privacy still need to be addressed. In particular, our Laboratory is researching new technologies and applying user-centred design principles in the development of solutions to reconcile context-awareness and privacy in mobile and pervasive computing environments.

Completely Customization: the service provider has access to data about the user‘s preferences and status which facilitates better, personalized service. In addition, the service provider can be constantly updated about the current status and location of the customer so that the service can be customized; for instance, a request for a certain product can be met with the nearest possible source. More Convenience: the small size and ease of use of mobile receivers, coupled with freedom from problems caused by infrastructure, makes for a higher degree of user convenience. Expanded reach: the presence of a wireless link between the customer and the service provider eliminates the need for a fixed interface such as a computer for communication. Providers of e-commerce services can therefore reach customers over a longer range, creating the opportunity for new value added services. Quicker access: connecting through a mobile is faster than dial-up connections using wire line modems. Electronic wallet: Analysts believe that easy mobile payment is one of the main prerequisites for the success of m-commerce, when the mobile phone can function as an electronic wallet for mobile payments, including micro payments, application developers and service providers will find it attractive to introduce new mobile communication services to the market.


Lack of Standards: With a host of device operating systems and platforms, middleware solutions and networks, make application development for the wireless Internet a formidable task, versus the level operating environment of the wired Web. Even though efforts are underway to standardize the operating environment, especially in North America, where standardization is most lacking, companies will have to work within this scattered environment, at least in the short –term. Device Constraints: o Weak processors o Limited memory o Tiny screens, poor resolutions o Poor data entry WAP: While WAP has been a very important in the evolution of the wireless Internet and in turn m-commerce, there are problems/difficulties with the standard, such as the lack of WAP-enabled devices and security issues. Networks: Current data speeds between 9.6 and 14.4 kbps are too, expensive and fixed. Services: M-commerce has flopped in the consumer arena -- or at least has failed to live up to the hype. There may be compelling reasons for business users to adopt transactionbased services offered on wireless devices, though -- but the mobile commerce tools used by enterprises are nothing like the services pitched to consumers. The Unlike Promises: Proponents have been promising a mobile-commerce surge for years, yet consumers show little if any interest. That could be because development of the concept has not budged since its so-called early stages. Until buying something on a wireless device progresses from being different to being better, the "m" will likely stand for "maybe not."

Change management is a systematic approach to dealing with change, both from the perspective of an organization and on the individual level. A somewhat ambiguous term, change management has at least three different aspects, including: adapting to change, controlling change, and effecting change. A proactive approach to dealing with change is at the core of all three aspects. For an organization, change management means defining and implementing procedures and/or technologies to deal with changes in the business environment and to profit from changing opportunities. Successful adaptation to change is as crucial within an organization as it is in the natural world. Just like plants and animals, organizations and the individuals in them inevitably encounter changing conditions that they are powerless to control. The more effectively you deal with change, the more likely you are to thrive. Adaptation might involve establishing a structured methodology for responding to changes in the business environment (such as a fluctuation in the

economy, or a threat from a competitor) or establishing coping mechanisms for responding to changes in the workplace (such as new policies, or technologies).

In order to successfully manage change processes, it is necessary to analyze the phases of this process. Managers need to know in which phase they have to expect what types of situations and problems. Most successful organizations are those that are able to adjust themselves to new conditions quickly. This requires planned learning processes that lead to improved organizational effectiveness. Ideally, employees are able to reflect their own behaviour in relation to the organizational context (e.g. processes, products, resources, customers. Normally, people perceive change processes in seven typical stages.

The seven phases of change can be described as follows: The seven phases of change can be described as follows:

Phase Shock Surprise

Description and Confrontation with unexpected situations. This can happen ‗by accident‘ (e.g. losses in particular business units) or planned events (e.g. workshops for personal development and team performance improvement). These situations make people realize that their own patterns of doing things are

not suitable for new conditions any more. Thus, their perceived own competence decreases. Denial Refusal and People activate values as support for their conviction that change is not necessary. Hence, they believe there is no need for change; their perceived competency increases again. People realize the need for change. According to this insight, their perceived competence decreases again. People focus on finding short term solutions, thus they only cure symptoms. There is no willingness to change own patterns of behaviour. This phase, which is also called ‗crisis‘ is the most important one. Only if management succeeds to create willingness for changing values, beliefs, and behaviours, the organization will be able to exploit their real potentials. In the worst case, however, change processes will be stopped or slowed down here. and The new acceptance of change creates a new willingness for learning. People start to try new behaviours and processes. They will experience success and failure during this phase. It is the change managers‘ task to create some early wins (e.g. by starting with easier projects). This will lead to an increase in peoples perceived own competence. People gather more information by learning and exercising. This knowledge has a feedback-effect. People understand which behaviour is effective in which situation. This, in turn, opens up their minds for new experiences. These extended patterns of behaviour increase organizational flexibility. Perceived competency has reached a higher level than prior to change. People totally integrate their newly acquired patterns of thinking and acting. The new behaviours become routine.

Rational Understanding

Emotional Acceptance

Exercising Learning



Only if change managers understand these phases of change, and only if they act accordingly, they will be able to successfully manage change processes without destroying people‘s motivation and commitment.

No single methodology fits every company, but there is a set of practices, tools, and techniques that can be adapted to a variety of situations. What follows is a ―Top 10‖ list of guiding principles for change management. Using these as a systematic, comprehensive framework, executives can understand what to expect, how to manage their own personal change, and how to engage the entire organization in the process.

1. Address the “human side” systematically. Any significant transformation creates ―people issues.‖ New leaders will be asked to step up, jobs will be changed, new skills and capabilities must be developed, and employees will be uncertain and resistant. Dealing with these issues on a reactive, case-by-case basis puts speed, morale, and results at risk. A formal approach for managing change — beginning with the leadership team and then engaging key stakeholders and leaders — should be developed early, and adapted often as change moves through the organization. This demands as much data collection and analysis, planning, and implementation discipline as does a redesign of strategy, systems, or processes. The change-management approach should be fully integrated into program design and decision making, both informing and enabling strategic direction. It should be based on a realistic assessment of the organization‘s history, readiness, and capacity to change. 2. Start at the top. Because change is inherently unsettling for people at all levels of an organization, when it is on the horizon, all eyes will turn to the CEO and the leadership team for strength, support, and direction. The leaders themselves must embrace the new approaches first, both to challenge and to motivate the rest of the institution. They must speak with one voice and model the desired behaviors. The executive team also needs to understand that, although its public face may be one of unity, it, too, is composed of individuals who are going through stressful times and need to be supported. Executive teams that work well together are best positioned for success. They are aligned and committed to the direction of change, understand the culture and behaviors the changes intend to introduce, and can model those changes themselves. 3. Involve every layer. As transformation programs progress from defining strategy and setting targets to design and implementation, they affect different levels of the organization. Change efforts must include plans for identifying leaders throughout the company and pushing responsibility for design and implementation down, so that change ―cascades‖ through the organization. At each layer of the organization, the leaders who are identified and trained must be aligned to the company‘s vision, equipped to execute their specific mission, and motivated to make change happen. 4. Make the formal case. Individuals are inherently rational and will question to what extent change is needed, whether the company is headed in the right direction, and whether they want to

commit personally to making change happen. They will look to the leadership for answers. The articulation of a formal case for change and the creation of a written vision statement are invaluable opportunities to create or compel leadership-team alignment. Three steps should be followed in developing the case: First, confront reality and articulate a convincing need for change. Second, demonstrate faith that the company has a viable future and the leadership to get there. Finally, provide a road map to guide behavior and decision making. Leaders must then customize this message for various internal audiences, describing the pending change in terms that matter to the individuals. 5. Create ownership. Leaders of large change programs must over perform during the transformation and be the zealots who create a critical mass among the work force in favor of change. This requires more than mere buy-in or passive agreement that the direction of change is acceptable. It demands ownership by leaders willing to accept responsibility for making change happen in all of the areas they influence or control. Ownership is often best created by involving people in identifying problems and crafting solutions. It is reinforced by incentives and rewards. These can be tangible (for example, financial compensation) or psychological (for example, camaraderie and a sense of shared destiny). 6. Communicate the message. Too often, change leaders make the mistake of believing that others understand the issues, feel the need to change, and see the new direction as clearly as they do. The best change programs reinforce core messages through regular, timely advice that is both inspirational and practicable. Communications flow in from the bottom and out from the top, and are targeted to provide employees the right information at the right time and to solicit their input and feedback. Often this will require over communication through multiple, redundant channels. 7. Assess the cultural landscape. Successful change programs pick up speed and intensity as they cascade down, making it critically important that leaders understand and account for culture and behaviors at each level of the organization. Companies often make the mistake of assessing culture either too late or not at all. Thorough cultural diagnostics can assess organizational readiness to change, bring major problems to the surface, identify conflicts, and define factors that can recognize and influence sources of leadership and resistance. These diagnostics identify the core values, beliefs, behaviors, and perceptions that must be taken into account for successful change to occur. They serve as the common baseline for designing essential change elements, such as the new corporate vision, and building the infrastructure and programs needed to drive change.

8. Address culture explicitly. Once the culture is understood, it should be addressed as thoroughly as any other area in a change program. Leaders should be explicit about the culture and underlying behaviors that will best support the new way of doing business, and find

opportunities to model and reward those behaviors. This requires developing a baseline, defining an explicit end-state or desired culture, and devising detailed plans to make the transition. Company culture is an amalgam of shared history, explicit values and beliefs, and common attitudes and behaviors. Change programs can involve creating a culture (in new companies or those built through multiple acquisitions), combining cultures (in mergers or acquisitions of large companies), or reinforcing cultures (in, say, long-established consumer goods or manufacturing companies). Understanding that all companies have a cultural center — the locus of thought, activity, influence, or personal identification — is often an effective way to jump-start culture change. 9. Prepare for the unexpected. No change program goes completely according to plan. People react in unexpected ways; areas of anticipated resistance fall away; and the external environment shifts. Effectively managing change requires continual reassessment of its impact and the organization‘s willingness and ability to adopt the next wave of transformation. Fed by real data from the field and supported by information and solid decision-making processes, change leaders can then make the adjustments necessary to maintain momentum and drive results 10. Speak to the individual. Change is both an institutional journey and a very personal one. People spend many hours each week at work; many think of their colleagues as a second family. Individuals (or teams of individuals) need to know how their work will change, what is expected of them during and after the change program, how they will be measured, and what success or failure will mean for them and those around them. Team leaders should be as honest and explicit as possible. People will react to what they see and hear around them, and need to be involved in the change process. Highly visible rewards, such as promotion, recognition, and bonuses, should be provided as dramatic reinforcement for embracing change. Sanction or removal of people standing in the way of change will reinforce the institution‘s commitment. Most leaders contemplating change know that people matter. It is all too tempting, however, to dwell on the plans and processes, which don‘t talk back and don‘t respond emotionally, rather than face up to the more difficult and more critical human issues. But mastering the ―soft‖ side of change management needn‘t be a mystery

Q1.Individual Intelligence is a form of……….knowledge. (a)Tacit (b)Explicit (c)None of the two. Q2.A Report is a form of……….Knowledge. (a)Tacit (b)Explicit (c)None of the two. Q3. Knowledge Management can provide a sustainable ……… to an organization. (a)Competitive Advantage (b)Competitive Disadvantage (c)Competence Q4. Knowledge Management is the process of generating,accumulating, Sharing and using knowledge for improving……….. (a)Organisational Performance (b)Individual Performance (c)Group Performance Q5.The characteristic of a learning organization is…….. (a)Vision provided by Top Management (b)Shared Vision (c)Vision provided by employees Q6.Formulation and Implementation of ideas takes place at

all levels of the organization is the trait of a: (a)Traditional Organisation (b)Learning Organisation (c)Modern Organization Q7.Business Process Outsourcing means contracting out …….. Business process to outside members. (a)Core (b)Non-Core (c)Non –Competitive Q8.BPO aims at: (a)Reducing Costs (b)Increasing Investment (c)Increasing Costs Q9.Change Management implies adapting to the external ……….. (a)Environment (b)Competition (c)Government Q10.E-Commerce means: (a)Electronic Commerce (b)External Commerce (c)Engineering Commerce

1. 2. 3. Gupta C.B, 2004,Business Organisation and Management,Mayur Paperbacks. Siddiqui S.A.2000,Business Studies,Laxmi Publication(P)Ltd. Singh B.P.,Chhabra T.N,2004,Organisation Theory and Behavior, Dhanpat Rai & Co. (Pvt.) Ltd. 4. Shukla M,2006,Understanding Organisations:Organisational Theory

and Practices in India.PHI 5. 6. Robbins S.,Coulter M,2005,Management,Prentice Hall of India Pvt.Ltd. Barat,N.1998,Emerging Issues in Management,Excel Books,India

Key to End Chapter Quizzes
Chapter 1 Q1.(a)Q2.(a)Q3(a)Q4(b)Q5(a)Q6(b)Q7(b)Q8(b)Q9(b)Q10(a) Chapter 2 Q1.(a)Q2(b)Q3(a)Q4(c)Q5(c)Q6(b)Q7(b)Q8(a)Q9(c)Q10(c) Chapter 3 Q1(b)Q2(b)Q3(c)Q4(a)Q5(b)Q6(a)Q7(c) Q8(a)Q9(a)Q10(a) Chapter 4 Q1(d)Q2(d)Q3(a)Q4(b)Q5(a)Q6(a)Q7(a)Q8(a)Q9(a)Q10(c) Chapter 5 Q1.(d)Q2(c)Q3(a)Q4(c)Q5(d)Q6(b)Q7(b)Q8(b)Q9(a)Q10(b) Chapter 6 Q1(b)Q2(d)Q3(d)Q4(a)Q5(b)Q6(d)Q7(b)Q8(c)Q9(a)Q10(d) Chapter 7 Q1.(a)Q2(b)Q3(a)Q4(a)Q5(b)Q6(b)Q7(b)Q8(a)Q9(a)Q10(a)

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