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U�IT-I

LESSON - 1

�ATURE A�D PROCESS OF MA�AGEME�T

Introduction:

Management is universal in the modern industrial world. Modern societies are often described as ‘Societies of organisations. In the modern day living each of us isthe associated with some kind of organisations like colleges, hospitals. business enterprises religious and social organization banks, insurance corporations, transport corporation etc., All these organisations affect our lives in many ways. Despites the his difference in their functioning and approaches, all the organisations are trying to achieve their own objectives. Organisations cannot achieve the objectives effortlessly Several activities iave to be performed in cogesive way.

Organisations require the making of decisions, the co-ordinating of activities, the handling of people, and the evaluation of performance directed toward group objectives. Numerous managerial activities have their own particular approach to specific types of problems and are discussed under different heading as business management, bank management, transport management, tourism management. Financial management, Production management, Marketing management, Personal and management etc., All have some common Principles or elements. The management functions facilitate the performance of activities of organisation in a systematic fashion to accomplish the objectives.

Meaning and Definition of Management:

Management means many things to many people. Economist regard it as a factor of production. Socialist view it as a class or group of persons. While Management practioners treat it as a process. The trade unionist consider Management as an exploiting set of people. In simple term. ‘Management is what a manager does’ Mary Parker Follet says Management in its true sense, a process by which an organisation realises its objectives in a planned way.

Management is a set of activities (Inluding planning and decision making, organizing, leading and controlling) directored at an organization resources

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(human, financial, physical and information) with the aim of achieving organizational goals in efficient and effective manner.

Management is basically concerned with ideas, things and people, It is very difficult to define the term Management precisely. In fact, there are various definitions on Management. But none has been universally accepted. Nor can any one definition covers all the facet of Management, given its dynamic nature. The following are few definitions of Management given by eminent authors on the subject.

According to James A.F. Stoner, “Management is the process of planning, organising, leading and controlling efforts of organisation members and of using all other organisationsal resources to achieve stated organisational goals”

According to Dr.Jarnes Lundy, “Management is a task of planning, coordinating, motivating and controlling the efforts of others towards specific objectives”

According to Henry Fayol, to manage is to forecast and plan, to organise, command, to coordinate and control.

Peter F. Drucker defines Management as, “an economic industrial society”. !t means taking action to making the desired results to pass.

Inputs from the environment � Human

resources � Financial

resources � Physical

resources � Information

resources

Planning & Decision Making

Controlling

Organising

Leading

Goals attained

� Efficiently

� Effectively

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E.F.L. Breach defines as. “Management is concerned with seeing that the job gets done, its tasks are centred on planning, and guiding the operations that are going on the enterprise”

According to George R. Terry. Management is a distinct process consisting of planning, organising, actuating. and controlling, performed to determine and accomplish the objectives by the use of people and resources. Almost all the above definitions suggest the following

� Management is a process because all managers irrespective of their levels in the organization engage in certain interrelated activities in order to achieve the desired goals.

� Managers use all the resources of the organisation, both physical as well as human.

� Management aims at achieving the organisation goals. To achieve the objectives, every organisation uses certain inputs like materials, machinery, money and the service of men. These inputs are drawn from the environment in which the organisation exists. Whether an organisation is engaged in business or not the various inputs are judiciously used to produce the outputs. This process which involve conversion of inputs into outputs is common to all organisations and it is shown in the following exhibit.

I�PUT -OUTPUT MODEL

INPUT TRANSFORMATION OUTPUT PROCESS

EXTERNAL ENVIRONMENT

This output of the firm may be a physical product or service. Since a business organization is an economic entity, the justification for its existence lies in producing goods and services that satisfy the needs of the people. Here arises the question of effectiveness in transforming the inputs into outputs. How

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effectively the goods and services are produced is a matter of concern for any society, given the scarcity of resources. Effective management plays a crucial rote in this context.

�ature of Management :

Inspite of the growing importance of management as an academic discipline immensely contributing to the quality of human life, the concept is still clouded by certain misconceptions.

No doubt, management as an academic body of knowledge has come a long way in the last few years. It has grown in saturate and gained acceptance all over the world. Yet, it is a paradox that the term Management’ continues to be the most misunderstood and misused.

A study of the process of management reveals the following points about the nature of management.

Management is a Universal process

Where there is human activity, whether individual or joint, there is management. The process of management can be noticed in all spheres of life. The basic nature, of management activity are the same whether the organisation to be managed is a family, a club, a trade union, a trust, a municipality, a business concern or the government. slight variations in approach and style may be there from organisation to organisation, but the management activity is basically the same every where.

Management is a factor of production:

Management is regarded as a factor of production. Just as land, labour and capital have to be brought together and put to effective use for the production and distribution of goods and services. Similarly managerial skills have also to be acquired and effectively used for the purpose.

In the modern industrial setup, where the pattern of production has become capital- intensive, qualified and efficient managers are essential to reap the fruits of huge investment, in business. Infact, the more important would be the role of management.

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Management is goal oriented:

The most important goals of all management activity is to accomplish the objectives of an enterprise. These objectives may be economic, socio-economic, social and human, and management at different levels seeks to achieve these in different ways. But at all times management has definite objectives to pursue and it employs all the resource as it command – men, money, materials, machines and methods in the pursuit of the objectives.

Management is supreme in thought and action :

Determination of the objectives of an enterprise tests the collective wisdom and sense of imagination of its management. The objectives should be neither too hjgh sounding or difficult to achieve, nor too low-pitched to rob workers of their sense of, achievement. But mere setting of objectives will be of no avail of there is no vigorous action to achieve them.

Management scores over other activities the respect. It sets realisable objectives and then masterminds action on all fronts to accomplish them. Managers belong to that rare breed of men who are not only aware of what to be achieved and how, but also possess the capability and courage to accept the challenges of doing it.

Management is a group activity:

The basic requirement of successful management is replacement of with “we”. An enterprise will not be able to achieve its objectives if only one or a few individuals or departments thereof are efficient, the rest being indifferent. For example, even the best performance by the production department will become meaningless if the sales department does not make efforts to sell the products or if finance department does not ensure adequate availability of funds.

For the success of an enterprise, it is necessary that all the human and physical resources at its disposal men money, materials, machines etc. - are efficiently coordinated to attain the maximum levels of productivity. It is well known that the combined productivity of different resources will always be much higher than the total of individual productivity of each resources. The test of managerial ability lies in coordinating the various resources and to achieve maximum combined productivity. With proper management, one plus one does not mean two, but eleven. This is also called the multiplier effect of management activity.

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Management is a dynamic function:

Management is a dynamic function of a collective enterprise which is constantly engaged in casting and recasting the enterprise in the world of an ever-changing business environment. Not only this, it also sometimes initiates moves that reforms and alter the business environment. If an enterprise is well-equipped to face the changes in business environment brought about by economic, social, political, technological or human factors, it can soon adapt itself to a changed environment, or make innovation to attune itself to it. For example; in the fact of fall in the demand for a particular product, the enterprise can be kept in readiness to explore new markets or switch over to production of new goods with ready demand.

Management is a social science

Management Consists in getting things done by others, This involves dealing with individuals each one of who has a different level of sensitivity, understanding and dynamism. In fact no definite principles or rules can be laid down in respect of human behaviour, These change from individual to individual and from situation to situation. No doubt, a manager may seek guidelines from the established principles ‘and rules but he cannot base his decisions on them.

Management is an important organ of society:

Management as an activity has carved for itself and important place in society. In fact, there is an interaction between management and society. While the society influences the managerial actions, managerial actions influence the society. By their decisions, management of large undertakings influence the economic, social political, religious, moral and institutional behaviour of the members of society. This has created an impact on the social and moral obligations of business management which cannot 5e easily ignored.

Management is a system of authority:

It is the job of management to bring about a harmonious arrangement and pattern among the different resources employed in an undertaking. In fact, its role s a factor of production puts an obligation on it to be methodical in plans and procedures, and systematic and regular in their implementation. For this it is necessary that the authority vested in the management is to be exercised properly and correctly. This call for well-defined lines of command, delegation of suitable authority and responsibility at all levels of decision-making. Unless there is

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proper balance between authority and responsibility at each level of decision making, the organisation might not succeed in the task of accomplishment of its objective.

Management is a profession:

Management makes a judicious use of available means (various factors of production) to accomplish certain pre4etermined ends (organisational aims and objectives). To achieve this successfully, managers need to possess managerial knowledge, and training. Moreover, they have to conform to a recognizes code conduct and remain conscious of their social and human obligations. And for this they are amply rewards are well paid and well provided y the organisation for which they work. Moreover they enjoy considerable social prestige too.

MA�AGEME�T PROCESS

Management is an activity consisting of a distinct process the management process - which is primarily concerned with the important task of goal achievement. No business enterprise can achieve its objectives until and unless all the members of the unit make an integrated and planned effort under the directions of central coordination agency. In management terminology, this central co-ordinating agency is technically known as “MANAGEMENT” and the methodology of getting things done is known as ‘Management process’ The process, in general, is defined as a series of actions or operations conducting to an end. The logic of the management process is that particular functions are performed in a sequence through time. In other words whatever functions are performed by a manager and the sequence in which they are performed is called ‘Management process’.

Ordinarily there are two main functions of each manager, Viz. ,i) Decisions making and ii) Implementation of the decisions; and collectively these two fall under the’ expression ‘Management process! Planning, Organising, Actuating and involved in the achievement of business goals are known as ‘Management process

Planning:

The first essential function to be performed by a manager is to determine what must be done by the member in order to accomplish the work. The broad

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aspects of the workload must be determined. In addition, when how the work will be done are indicative of the manager’s work in this phase. Planning involves the formulation of what is to be done; how, when and where it is to be done; who is to do it and how results are to be evaluated. It is the most important step in the prop of getting results. It enables the management to be a step ahead of each activity. Take initiative to make use of any opportunity .and anticipate problems before they actually arise. The process of Planning involves:

1. Crystallisation of determination of the corporate objective - It means that first of all the target to be achieved should be well defined. The top management must lay down the objectives of the company as far as possible in quantified terms;

2. Collection and classification of information — It means that relevant information relating to the objectives should be properly collected and classified.

3. Development of the alternative courses of action;

4. Evaluation of the alternatives interms of objectives, feasibility and consequences;

5. Selection of the optimum course of action - The manager is often faced with alternative course of action. He must adopt the one which has the highest probability of yielding the maximum benefit or gain for himself and the company.. This selection from alternative courses of action is sometimes referred to as the ‘principle of alternative planning ‘

6. Establishment of policies, procedures, methods, schedules programmes, systems, standards and budgets. It means that the plans must be detai1ec flexible so that they are capable of being re-adjusted in case there is any change in the working conditions and/or objectives.

Planning is intellectual in nature, it is a mental work. It is looking ahead and preparing for the futures Planning is, of course, decision-making, since it involves selection among many choices. Planning emphasises the fact that if we known where we are going, we are more likely to get there. Good mangers always to draft plan which will make things happen in the desired way. This is also stressed by the saying —“ Good managers make things happen.”

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Organising :

The course and make-up of action having been determined, the next step, in order to accomplish the work, is to distribute or allocate the necessary component activities among the members of the group. This distribution, executed by the manager, is guided considerations of such things as the nature of the component the people of the group and the physical facilities available. Normally these component activities are grouped and assigned so that accomplishment with minimum efforts time and cost will be realised. Grouping activities and resources in a logical fashion is known as organizing. It involves determining how activities and resources are to be grouped.

a. Division of work into component activities;

b. Assigning people to task,

c. Defining responsibilities;

d. Delegation of authority; and

e. Establishment of structural relationships to secure coordination.

Authority is the key to the managerial job, and the delegation of authority is the key to the organisation. We cannot speak of manager unless he has authority and we cannot speak of creating an organisation unless authority is delegated.

Actuating

To carryout physically the activities from the planning and organizing, it is necessary for the manager to take initiatives to start and continue the action as long as they are needed in order to accomplish the task by the members of the group. This process of actuating involves:

1. Providing effective leadership;

2. Integrating people and task and convincing them to assist in the achievement of the overall objectives;

3. Effective communication; and

4. Providing climate for subordinates’ development.

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This function is known as ‘Actuating’. The word’ actuate ‘ means literally, ‘move to action’,and its use is thus appropriate for this managerial function that deals with the supplying of stimulative power to the group.

Controlling:

Managers have always found it desirable to check up or follow up what is being done in order to make sure that the work delegated to other is progressing satisfactorily toward the predetermined objectives. The establishing of a sound plan, the allotting of component activities required by this plan and the successful actuating of each member do not assure that the undertaking will be a success. Discrepancies, imponderables, misunderstanding and unexpected hindrances may arise. Such contingencies must be known quickly to the manager so that corrective action may be this function by the Controlling involves a series activities. They are:

1. Continuous observation and study of periodic results performance in order to identify potential problems;

2. Pinpointing significant deviations;

3. Ascertain their exact causes; and

4. Initiation and implementation of the corrective action.

Controlling thus tends to complete the full cycle of the process of management through which mangers accomplish results.

�EED FOR MA�AGEME�T:

Management is an essential accompaniment of all social organisations and it is to be found everywhere as a distinct, separate and dominant activity. The importance of management cannot be over emphasized. The significance of’ Management’ may be outlined in the following paragraphs:

To Meet the challenges of change:

In recent years the challenge of change has become intense and critical. The complexities of modern business can be overcome only by scientific management.

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For effective utilization of the Seven M’s:

There are seven M’s in business, viz., men, materials, money, machines, methods markets and management. Management stands at top of all these Ms. It determines and controls all other factors of business.

For the Development of resources:

Good management procures good business by creating vital dynamic and life- giving force in the organisation.

Management directs the Organisation:

Just as the mind directs and controls the body to fullfil its desire, similarly management directs and control the organisations to achieve the desired goal.

Integrate various interest:

In the group efforts, there are various interest group and they put pressure over other groups for maximum share in the total output. Management balance these pressure and integrate the various interests.

Management provides stability:

In the modern society the management provides stability by changing and modifying the resources in accordance with the changing environment of the society.

Management Provides Innovation:

Management provides new ideas, imaginations and visions to the organization and necessary life for better and greater performance:

Management Provide co-ordination and establish team-spirit:

Management co-ordinates the activities of the different departments in an enterprise and establishes team-sprit amongst the personnel.

To Tackle business Problems:

Goods management serves as a friend, philosopher and guide in tackling business problems. It provides a tool for the best way of doing a task.

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A Tool of Personality Development:

Management is necessary not only for direct things, but also for the development of men. It makes the personality of the people and attempts to raise their efficiency and productivity.

MA�AGERIAL FU�CTIO�S

Management is widely regarded as a process. A manager irrespective of his level in the organisation performs a series of functions. Surprisingly there is no consensus among the management thinkers on the classification of managerial functions. The number of functions and all the terminology used to describe them or not alike, Henry Fayol identifies five function Viz., planning, organising, commanding, coordinating and controlling. For instance, Newman and Summer recognise only four functions namely organising, planning, leading and controlling. Luther Gulick’s popular catch word POSDCORB suggests seven functions planning, organising, staffing, directing, coordinating, reporting, and budgeting and Koontz and O’ Donel classify the functions in to planning, organising, staffing, directing and controlling.

In general, managerial functions may be divided into two categories. They are

A. Main functioning, and

B. Subsidiary Functions.

Main Functions:

Planning:

Planning is the process of thinking before doing. It determines what is to be done, how and where it is to be done, who is to do it and how results are to be evaluated. It is important for the attainment of business objectives with limited use of resources. It helps in critical appraisal of the relative merits and demerits of alternative policies. It provides the way to select the best methods for achieving predetermined targets.

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Organising:

It is the process of dividing work into convenient tasks of duties, or grouping of such duties in the form of posts, delegating authority to each so that work is carried out as planned. Organisation contributes to the efficiency of the enterprise. Through this process the activities necessary for goal achievement are performed and repetitions duplication of activities are avoided, thereby reducing the operating cost in the organisation.

Staffing:

It means manning the position created by organisation process. This process includes the selection of the candidates for position, fixing financial compensation, training and development, promotion, transfer etc. Staffing assists in the section of the right man for the right job. The manager can conveniently perform the duties of the analysis, job description, appraisal of efficiency, etc., which come under staffing function.

Direction :

Once subordinates are oriented the superior has a continuous responsibility of guiding and leading them for better work performance and motivating them to work with zeal, confidence, and enthusiasm Direction assists in this tasks. Direction is the key to the achievement of desired result.

Co-ordination:

Coordination means integration. It ensures a proper tempo for all activities and avoids duplication of efforts. It provides for an optimum use of resources. It leads to completion of production. It develops team spirit and atmosphere of cooperation among staff

Motivation:

It is the act of stimulating a person to get a desired course of action. It is concerned with the will to work. It seeks to know the incentives for work and tries to find out the means whereby the realization can be helped an encouraged. It is a constructive force in management by objectives and direction.

Control :

Control means reviewing of the employees in the light of target of the plan. It is exercised by agreeing upon a time and following up to ensure that the

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timing is observed. It is also established by setting target and by comparing results with what is expected. It assists the management in making the necessary changes in the policies when there are deviations.

SUBSIDIARY FU�CTIO�S

Communication:

Communication can be viewed as a transfer of message from one individual to another. If communication is to be effective, the message transferred should be understood by the receiver properly, communication stands for sharing of ideas in common. It refers to the various means of transmitting information from one individual to another and from one place to another.

Decision Making:

Decision making is a process of arriving at the best possible choice for a solution within a reasonable period of time. It is an important function of management. Management without decision is like a man without backbone. It helps to set definite objectives, prepare personnel and introduce innovations.

Innovation:

This function relates to research and development, which is essential in this age of competition. All big business houses have started Research and Development (R & D) department to keep pace with modern techniques and up to date demand.

Relevance of Management

Management is a universal activity practiced by all. It is as common as walking, reading or playing. The basic characteristics of efficient management are common whether the unit to be managed is as small as a family or large enough as a business social, political or religious organization. Irrespective of the nature, size and the type, management has its relevance to all type of organizations like insurance, hospitals, educational institutions like schools, colleges and universities, hostels, hotels, social service organization like service clubs etc.

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Management in profit – seeking organization:

Most of what we know about management comes from large profit – seeking organization because their survival has long depended on efficiency and effectiveness. Examples of large business include industrial firms, commercial banks, insurance companies, retailers, transport companies, public utilities, communication companies and service organizations.

All though many people associate management primarily large businesses, effective management is also essential for small business, which play an important role n the country’s economy. In recent years, the importance of international management has increased dramatically. International management is not, however, confined to profit-seeking organizations.

Management in non-profit organization:

Intangible goals such as education, social services, public protection and recreation are often the primary aim of non profit organization. Although these organization may not have to be profitable to attract investors, they must still employ sound management principles and practices if they are to survive and work towards their goals.

MA�AGEME�T – A SCIE�CE OR A� ART:

Generally, a controversy arises whether the management is a science or an art. It is said the management is the oldest of arts and the youngest of science’. This explains the changing nature of management. But to have an exact answer to the question it is necessary to understand the meaning of the terms ‘science’ and ‘art’.

Management as a Science:

Before trying to examine whether the management is a science or not, we have to understand the nature of science. Science may be a described as a systematized body of knowledge pertaining to an act of study and contains some general truths explaining past events or phenomena. It is systematized in the sense that relationships between variables and limit have been ascertained and underlying principal discovered. Three important characteristics of science’ are;

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1. It is a systematised body of knowledge and uses scientific methods for observation;

2. Its principles are evolved on the basis of continued observation and experiment; and

3. Its principles are exact and have universal applicability without any limitations

Further, science may be classified into two groups. (a) positive science - which deals with ‘what ought to be’ aspect. Examples of scientific principles are that two atoms of hydrogen and one atom of oxygen form one molecule of water; anything is thrown towards the sky, according to the law of gravitation, it will come down to the earth; if water is boiled, it turns into vapour and so on.

Judging from these criteria, it may be observed that management too is a systematized.. body of knowledge and its principles have evolved on the basis of observation not necessarily through the use of scientific methods. How ever, if we consider science a discipline in the sense of our natural science one is able to experiment by keeping all factor and varying one at a time. In the natural science it is not only possible to repeat the same conditions over and over again, which enables the scientist to experiment and to obtain a proof. This kind of experimentation-cannot be accompanied in the art of management since we are dealing with the human element. This puts a limitation on management as a science. It may be designated as ‘inexact’ or ‘soft science’.

Management as an art:

Art refers to the ‘know-how to accomplish a desired result. The focus is one way of doing things As the saying goes ‘practice makes a man perfect’, constant practice of the theoretical concepts (knowledge base) contributes for the formation of skills. The skills can be acquired only through practice. In a way the attributes of science and art are the two sides of a coin. Medicine, engineering, accountancy and the like require skills on the part of the practitioners and can only be acquired through practice. Management is no exception. As an university gold medalist in surgery may not necessarily turn out to be a good surgeon, similarly a management graduate from the best of the institute may not be very effective in practices. In both the case the application of knowledge acquired through formal education, required ingenuity, correct

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understanding of the variables in the situation, pragmatism and creativity in finding solutions to problems.

Effective practice of any art requires a thorough understanding of the science underlying it. Thus science and art are not mutually exclusive, but are comp1ementary. Executives who attempt to manage without the conceptual understanding of the management principles and techniques have to depend on luck and intuition. With organized knowledge and the necessary skill to use such knowledge, they have a better chance to succeed. Therefore, it may be concluded that management is both a science and an art.

SUMMARY

Organisations engaged in business or non-business using the inputs to produce the output (may be products or service). The conversion of inputs into outputs depends on the effectiveness of management. Management is an activity consisting of a distinct process say management process. Which is primarily concerned with the important task of goal achievement. Management as a discipline has both the elements of science components and the arts, while skills and talent required for the use of the principles constitute the art. The process of management is understood under the two groups of functions namely main functions and subsidiary functions. The main functions of management includes planning, organising, directing, staffing, coordinating, motivating and controlling. The subsidiary functions include communication, decision-making and innovation.

Review Questions

1. ‘Management is getting things done through people’ - comment.

2. Discuss the importance of management as an input of economic growth.

3. Describe whether management is a science or an art.

4. Discuss the important functions of management.

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CASE

Traditional Manager or Professional Manager

Mr.Ravi. a brilliant young man obtained his MBA degree from an Indian University in 1991 with specialisation in the area of finance. His basic degree Is B.E. in Chemical Engineering. The engineer background coupled with the management education aroused in him new spirits to strike on his own. Careful and systematic analysis of the various opportunities enabled him finally to zero in on the production and marketing of polythene bags that are increasingly used by fertilizer and cement industries. The location of a fairly good number of units of these two industries in the South influenced his decision of the product choice. The fact that technology involved is not complicated or volatile further reinforced his belief about the market potential.

To reap certain locational advantages, he preferred to set up the unit in a fast growing district headquarters town in Tamilnadu connected with a good network of transport and communication facilities. But the cost of land as well as its availability became a problem. With the limited funds at his disposal he could not afford to buy land and construct the unit which involved the commitment of substantial portion of his meager funds. On enquiry he came to know of certain sick units in the industrial estate in the as outskirts of the town, which had ceased to function for sometime in the 4th past. The machinery in a few such units having been already auctioned, ills the sheds were available for sale/lease. This opportunity came in handy art for Mr. Ravi. He took on lease one such shed and spent about one lakh to effect a few changes to suit his requirements.

He started contacting the suppliers for the plant and machinery. He is confident of obtaining financial assistance to meet the fixed as well as working capital requirements of the business. But at the same time, he is are also confused of the multiplicity of organisations/agencies that have come up to cater to the needs of small-scale entrepreneurs. He doesn’t have hat adequate knowledge of the assistance available and the incentives offered by all these agencies.

Further eventhough he doesn’t foresee any problems In the technical aspects relating to production, he is rather apprehensive of marketing the product. The demand for his product, being a derived one, Is 1nfluenced two factors one, the demand for fertilizers, cement and other bulk commodities and

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two, the extent of the success made in replacing the gunny bags which are still in wider use. To add to his bother, Government of India of late has made use of gunny bags mandatory to protect the Jute Industry which has been languishing and is likely to vanish. However, all these problems could not deter the spirit of Mr. Ravi who Is fully determined and bent on going ahead.

Please Answer:

1. Is Mr. Ravi, a professional manager? Substantiate your answer with the characteristics of a professional manager.

2. Does Mr. Ravi face any problem? If so, analyse the problem.

3. Has he acted in a professional way in analysing the environment before taking a decision? How could he have averted the problem?

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U�IT - 1

LESSON - 2

EVALUATI� OF MA�AGEME�T THOUGHT

Introduction

The practice of management is as old as human civilization, In fact, much of the progress of mankind over the centuries may be attributed to the effective management of resources. The irrigation systems, existence of public utilities, the construction of various monuments like Taj Mahal, and the Egyptian pyramids of the bygone era amply demonstrate the practice of management in the olden days. The ancient civilizations of Mesopotomia, Greece, Rome and Indus-valley displayed the marvelous results of good management practices. However, the study of management in a systematic way as a distinct body of knowledge is only of recent origin. That is why, management is often described as ‘oldest of an arts and youngest of the sciences’. Thus the practice of management is not new. It has been practiced for thousands of years. But the science part of it ‘the systematic body of knowledge’ is, no doubt, a phenomenon of the present century.

The traditional management practices remained quite stable through the centuries until the birth of Industrial revolution in the mid 18th century. The industrial revolution brought about the substitution of machine power for man power through several scientific inventions. As a result, within a few decades, the picture of industrial activity had undergone a metamorphic change. Man’s quest for new ways of doing things, coupled with his ingenuity in adopting the scientific and technological inventions in the production of various goods and services resulted in:

1. Mass production in anticipation of demand;

2. Advent of corporate form of organisation which facilitated such large scale production;

3. Spectacular improvements in the transport and communication facilities;

4. Increase in competition for markets,

5. The establishment of the new employer-employee relationship and so on.

Industrial revolution which sowed the seeds of modern management.

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Early contributions:

The development of a systematic management thought is attributed to the 20th century. But this should not create the impression that it is the phenomenon of this century alone. Attempts at solving management problems date back to antiquity. For example, the importance of organisation and administration in the bureaucratic state of antiquity is evident on the interpretation of the early Egyptian papyri dating back as early as 1300 B.C. The parables of confucious gave practical suggestions for adequate public administration and advise to the selection of unselfish, honest and capable officers.

There are many examples in Greek, Roman and other civilizations which used scientific principles of management and administration. The military leaders also used many such principles. The Roman catholic church had the most formal organisation in the history of western civilization. Striking examples of these techniques are the development of the hierarchy of authority with its scalar territorial organisation, the specialisation of activities along functional lines, and the early, intelligent use of the staff device. The cameralists were a group of German and Austrian public administrators from 16th to 18th century.

The Scientific management stage:

The first identifiable stage of management thought in the United States was the scientific management which started with Taylor. But there were some precursors to Taylor who made some significant contributions.

James Watt. Jr., and Mathew Rabinson Boulton, sons of the pioneers who invented and developed the steem engine, were the earliest users of scientific approach to management. They managed the Soho Engineering Foundry in Great Britain from 1876 and developed quite a number of management systems. They developed market research and forecasting, planning machine layout and standardisation of components. They also developed some important casting systems, training and development programmes, welfare programmes, productivity based payments and so on.

Robert Owen was another pioneer of the early nineteenth century. He concentrated on the personnel side and carried out many experiments. He is rightly referred to as “the father of modern personnel management”. He improved working conditions and benefits as he thought that these would improve productivity.

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Charles Babbage, “the father of the computer” invented the mechanical calculator. He wrote a book entitled “On the Economy of Machinery and Manufacturers” published in 1832. He was more interested in the economics of division of labour and developed scientific principles regarding this.

Another important personality was Henry Varnum Poor who as the editor of the American Railroad Journel emphasised the need for a managerial ‘system’ and clear organisation structure.

It was only with the advent of Frederick W. Taylor and his work, ‘The principles of Scientific Management’ published in 1911 that greater attention has been paid to scientific management as a separate discipline.

Industrial problems have been increased due to the advent of large scale factory system, mass production and mechanization. People needed some specific principles and methods for solving the problems. The initial impetus in the scientific management movement was Taylor. He was more concerned with engineering aspect and the problems of workers and productivity oriented wages.

Then came Henry Fayol ‘Father of Modern Operation Management Theory’. He, as a Frenchman who developed management theory and principles and published his book. in Frennch and it was translated in English later.

While some compare and contrast Fayol, Taylor & Uwick generously praises their contributions and places them in the prospective. The work of Taylor and Fayol was of course, essentially complementary. They both realized that the problems of personnel and its management at all levels is the “Key” to industrial success. Both applied scientific methods to this problems. That worked primarily on the operative level from the industrial hierarchy upwards, while Fayol concentrated on the Managing Director and worked downwards, was merely a reflection of their very different careers. But Fayol’s capacity to see and acknowledge this publicly was an example of his intellectual integrity and generosity of sprit. They gave France a unified management body more than twenty years before the same ideal began to be realised in Great Britain “.

There were also some important figures in the followers of Taylor. Some of them were Carl George Barth who developed mathematical techniques. Henry L. Gantt who is best known for development of graphic methods of depicting plans and making possible better managerial control. Frank and Lillian Gilbreth

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who concentrated on lessening motions involved in doing work, and finally Edward A. Filene who hired Gilbreth to help him apply scientific management methods to his family’s Boston department store.

Major Schools of Management Thought:

The various approaches to the study of management as propounded by specialists from different disciplines have come to be called the Schools of Management Thought’. The major schools of management theory are:

1. Management process schools;

2. Empirical School;

3. Human Behaviours or Human relations school;

4. Social School;

5. Decisions Theory school;

6. Mathematical or Quantitative Management School;

7. Systems Management school;

8. Contingency School.

Management process school or the Operational approach:

This school regards management as a process of getting things done through and with people operating in organised groups. Henry Fayol is known as the ‘Father of this school’. According to this school management can best be studied in terms of the process that it involves. Those subscribing to this school are of the view that management principles are of universal application. This approach is also designated as ‘The Traditional Approach’ the Universal Approach or the ‘Classical Approach’. The contributors and thinkers belongs school are William Newman, Summers, McFarland, Henry, J.D. Mooney, A.C. Railey, Lyndall Urwick and Harold Komtz.

The empirical school or the management by customs school:

This approach to management is taken by scholars who identify management as the study of experience, followed by efforts to generalise from the experience and transfer the knowledge to practitioners and students. Typically, this is done through a ‘Case Study’ approach or through the study of ‘Decision Making’. This school of thought believes that by analysing the

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experience of successful managers or the mistakes of poor managers, we somehow learn about applying the most effective management techniques. The main contributors of this approach are Earnest Dale, Mooney and Raliey, Urwick and many other management practitioners and Association like the American Management Association.

The main features of this approach are

1. Management is the study of managerial experiences,

2. The managerial experience can be passed over to the practitioner and students.

3. The techniques used in successful cases can be used by future managers,

4. Theoretical research can be combined with practical experiences.

The human relations approach (or) the human behaviours school

This school takes particular note of psychological factors underlying the human behaviours in organised groups under the given situation. It is based upon the fact that managing involves getting things done with and through people; therefore management must centred on inter-personal relations. This approach has been called the ‘Human Relations’, ‘Leadership’ or ‘Behavioural Science’ approach. Exponents of this schools of thought seek to apply existing and newly developed theories, methods and techniques of the relevant social science to the study of intra and inter personal relations from ‘personality dynamics’ to ‘relations of cultures’. The stress is on the ‘people’ part of management and the ‘understanding’ aspects of this the motivation of the individual and adherents of this school are heavily oriented towards psychology and sociology. The range of thought in this school are (a) the human relations and how manager can understand and use this relations (b) the manager as a leader and how he should lead others (c) a study of group dynamics and inter-personal relationships.

From the early 1930’s and the Hawthorne experiments there has been a great interest in the human behaviours school. Human behaviour must be recognized as a key and certainly it is one of the most important factors in executive development. There is great agreement on the point that human beings have goals and value for certain need satisfying behaviours highly. We do find people exercising their material instincts, valuing job security, striving for organisational and social acceptance and working for monetary rewards which of course, can be used to satisfy many needs. The human behaviour school of

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thought sometimes goes too far in insisting that people need to made happy so that organization can function effectively. Managers have to take a middle-of-the road position in their approach to the human behaviour aspects of management. If they do a poor job they should be ensured demoted or disciplined in some manner. Without recognition and reward employees lack motivation to do a job.

The social systems school

This school of thought is closely related to the human behaviour or the human relations school of thought. It looks upon management as a social system i.e., as a system of cultural inter-relation These can be formal organisational relationships or any kind of a system of human relationships. Heavily sociological in nature, this approach to management. does what the study of sociology does; it identifies the nature of the cultural relationships or various social groups and attempts to show them as a related and usually integrated system. The spiritual father of this school was the late Chester Barnard who developed a theory of co-operation. The focus of this school of thought is on the study of the organisation as a co-operative or collaparative system. A social system is a unit or entity consisting of various social sub-systems called the groups.

Decision theory school

Decision theory approach concentrates on rational decisions - the selection of a suitable course of action from various possible alternatives. This approach may deal with the decisions itself or with the persons or organizational group who make the decision, or with an analysis of the decision process. By expanding the view-point well beyond the process of evaluating alternatives, many use the theory to examine the nature of organisation structure; the psychological and social reactions of individuals and groups, the development of basic information for decisions and the analysis of value considerations with respect to goals, communication networks and incentives. The scientific approach to decision-making involves some of these factors

1. Define the problem;

2. Collect all relevant information;

3. Develop alternatives;

4. Examine all the alternatives and the solutions;

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5. Test the solutions, (if you can make this possible);

6. Select a course of action

7. Implement the action;

8. Evaluate the results of the action.

The Mathematical school

In this group, we have those theorists who see management as a system of mathematical models and process. We have the operations researchers or operations management, or organisation, or planning or decision-making is a logical process it can be expressed in terms of mathematical symbols and relationship. This approach forces the analyst to define a problem and allows for the insertion of symbols for unknown data through logical methodology which provides a powerful tool for solving complex phenomena.

The modern managers may normally face some of the following problems.

(a) Increase in the size and the complexity of organization structures,

(b) Increase in paperwork which stifle the ability to produce,

(c) Communication problems created by (a) and (b);

(d) The need for instantaneous management response in the decision-making areas (which requires up-to- date, accurate, comprehensive information),

(e) increase in demands on management with less budget, and

(f) increase in sheer number of people to be dealt with by government and business structures, particularly in India.

In United States, executives have turned increasingly to use computer applications to solve these problems. Some of these computer applications include airline reservation systems, processing census reports, compiling technical information into data banks, banking operations, machine processed accounting and addressing for magazine subscriptions, total systems approaches to organizational needs logistics applications, issuance of payroll checks to large numbers of employees (i.e., Treasury department or large corporate applications) etc. Where a volume of paper reports or data is involved, computer applications can make the work more manageable. It is important for executives to think about certain very flat basic statements that are made about automation.

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The systems approach school

This school is of recent origin having developed in later 1960’s. It is an integrated approach which considers the management in its totality based on empirical data. According to this approach, attention must be paid to the overall effectiveness of a sub-system in isolation from the sub-system. The main emphasis is on the interdependence and inter-relatedness of the various sub-systems, from the point of view of the effectiveness of a large system. Its essential features are as follows:

� A system has a number of sub-systems, parts and sub-parts,

� All the sub-systems, part and sub-parts are mutually related to each other. This relationship is in the context of the whole and is very complex. A change in one part will effect changes in others;

� The systems approach emphasises the study of the various parts in their inter relationships rather than in isolation from each other;

� The systems approach to management brings out the complexity of a real life management problem much more sharply than any of the other approaches.

� It can be utilised by any other school of management thought.

� The boundary of a system may be classified into two parts:

o closed system that has no environment, that is no outside systems which impinge on it or for which no outside systems are to be considered, and

o open system that has an environment, that is, it possesses systems with which it relates, exchanges and communicates.

The main contributors to this school of thought are Kenneth, Boulding, Johnson, Cast, Rosen Zweig and C.W. Churchman. Another important contributor is Martin particularly in the area of management audit system.

The contingency approach school of management

The contingency approach to management emphasises the fact that management is a highly practice-oriented and action-packed discipline. Managerial decisions and actions initiatives are to be matters of pragmatism and not of principles. The environment of organisations and managers is very complex, uncertain, ever changing and diverse. It is the basic function of

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managers to analyse and understand the environments in which they function before adopting their techniques, processes and practices. The choice of approaches as also their effectiveness is contingent on the behaviour and dynamics of situational variables, there is no universally valid one best way of doing things. Management theory and principles tend to be deterministic, while the pace, pattern and behaviour of events defy and deterministic or dogmatic approaches. What is valid and good in a particular situation need not be so in some other situation.

Contingent thinking helps managers in several ways in performing their function of planning, organising, direction and control. It widens their horizons beyond the theory of management, its concepts, principles, techniques and methods. It helps them to broad base their approach from mere technique orientation to problem- situation orientation. It leads them to be sensitive, alert and adaptive to situation behavioural variables, while tailoring their approaches and styles. It guides them to adopt open system view points, to look at things and situations in an integrated and multi-dimensional manner and to get away from s contingency thinking enlarges the art of freedom of operation of managers. They are not handicapped by having to apply same methods, practices and processes to diverse situations, they can think of innovating new approaches or a blend of known approaches on the basis of their compatibility and context. For example, different structural designs are valid for different strategic and tactical needs of organisations on the one hand and realities of the situations, one the other. This was demonstrated by Joan Woodward in her research-studies. Another example, close supervision and control may be appropriate for some categories of employees and work situations, while general supervision will work better in some other situations.

Contribution by F.W. Taylor - Scientific management

Frederic Winslow Taylor gave up going and started his career shopfloor as a machinist in 1875. He studied engineering in a evening college and rose to the position of chief engineer in his organisation. He invented high speed steel cutting tools and spent most of his life as a consulting - engineer.

Taylor is called “the father of Scientific management”. His experience from the bottom-most level in the organisation gave him an opportunity to know at first problems of the workers. Taylor’s principal concern was that of increasing efficiency in production, not only to lower costs and raise profits but

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also to make possible increased pay for workers through their higher productivity.

Taylor saw productivity as the answer to both higher wages and higher profits and he believed that the application of scientific method, instead of custom and rule of thumb could yield this productivity without the expenditure of more human energy or effort.

F.W. Taylor’s principles

Taylor published a book entitled “The principles of Scientific Management” in 1911. But his ideas about scientific management are best expressed in his testimony before a committee of the house of Representatives in 1912. He said as follows:

“Scientific management is not any efficiency device, not a device of any kind for securing efficiency; nor is it may bunch or group of efficiency devices. It is not a new system of figuring costs; it is not a new scheme of paying men; it is not a piece work system; it is not a bonus system; it is not a premium system; it is no scheme for paying men; it is not holding a stop watch on a man and writing things down about him; it is not time study; it is not motion study, not an analysis of the movements of men; it is not the printing and loading & unloading of a ton or two of blanks on a set of men and saying “Here’s your system; go and use it”. It is not divided foremanship or functional foremanship; it is not any of the devices which the average man calls to mind when scientific management is spoken of ...”

Now, in its essence, Scientific management involves a complete mental revolution of the part of the working man engaged in any particular establishment or industry a complete mental revolution on the as to their duties toward their work, toward their fe!lowmen, and toward their employees and it involves the equally complete mental revolution on the part of those on the management’s side - the foreman, the superintendent, the owner of the business, the board of directors - a complete mental revolution on their part as to their duties towards their fellow workers in the management, toward their workmen and toward all of their daily problems.

The great mental revolution that takes place in the mental attitude of the two parties under scientific management is that both sides take their eyes off the division of the surplus as the all important matter, and together turn their

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attention toward increasing the size of the surplus which becomes so large that it is unnecessary to quarrel over how it should be divided. They come to see that when they stop pulling against one another, and instead both turn and push shoulder to shoulder in the same direction, the size of the surplus created by their joint efforts is truly appreciable. They both realize that when they substitute friendly co-operation and mutual helpfulness of antagonism and strife they are together able to make this surplus so enormously greater than it was in the past that there is ample room for a large increase in wages for the workmen and an equally great increase in profits for the manufacturer”.

The fundamental principles that Taylor saw underlying the scientific approach to management may be summarised as follows :

� Replacing rules of thumb with science (organised knowledge);

� Obtaining harmony in group action, rather than discord;

� Achieving co-operation of human beings, rather than chaotic individualism;

� Working for maximum output, rather than restricted output;

� Developing all workers to the fullest extent possible for their own and their company’s highest prosperity.

Taylor concentrated more on productivity and productivity based wages He stressed on time and motion study and other techniques for measuring work. Apart from this in Taylor’s work there also runs a strongly humanistic theme. He had an idealist’s notion that the interests of workers, managers and owners should be harmonized,

Contribution by Henry Fayol - Principles of Management

Henry Fayol is claimed to be the real “father of modern management”. He was a Frenchman born in 1841 and was an engineer with a mining company. He improved the company from a virtual bankrupt condition to high success. From his practical experience he developed some techniques. He brought out some basic principles which he felt could be used in all management situations irrespective of the organisational framework.

He wrote a book entitled ‘General and Industrial management’ in French which was later on translated into English. It is now considered as one of the classics of management literature. The book mainly covers the aspects of the

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immutable and repetitive character of the management process and the concept that management can be taught in the class room or the work place. He also laid down the principles of management which he deemed important for any organisation. The principles are as follows.

I. Division of Work

This is the principle of specialisation which is so well expressed by economists as being necessary to efficiency in the utilization of labour. Fayol goes beyond shop labour to apply the principles to all kinds of work, managerial as well as technical.

2. Authority and responsibility

In this principle Fayol finds authority and responsibility to be related with the latter, the corollary of the former and arising from the latter. He conceives of authority as combination of official authority deriving from a manager’s official position, and personal authority, “compounded of intelligence, experience, moral worth, past services etc.”.

3. Discipline

Holding that discipline is “respect for agreements which are directed as achieving obedience, application, energy and the outward marks of respect”, Fayol declares that discipline requires good superiors at all levels, clear and fair agreements and judicious application of penalties.

4. Unit of command

This is the principle that an employee should receive orders from one superior only.

5. Unity of direction

According to Fayol, unity of direction is the principle that each group of activities having the same objective must have one hand and one plan. As distinguished from the principle of unity of command, Fayol perceives unity of direction as related to the functioning of personnel.

6. Subordination of individual interest to general interest

In any group the interest of the group should supersede that of the individual; when these are around to differ, it is the function of management to reconcile them.

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7. Remuneration of personnel

Fayol perceives that remuneration and methods of payment should be fair and afford the maximum satisfaction to employee and employer.

8. Centralization

Although Fayol does not use the term ‘Centralization of Authority’ his principle definitely refers to the extent to which authority is concentrated or dispersed in an enterprise. Individual circumstances will determine the degree of centralization that will give the best over all yield.

9. Scalar Chain

Fayol thinks of the scalar chain as a line of authority, a ‘chain of’ superiors’ from the highest to the lowest ranks and held that, while it is an error of subordinate to depart ‘needlessly’ from lines of authority, the chain should be short-circuited when scrupulous following of it would detrimental.

10. Order

Breaking this principle into ‘material order’ and social order’, Fayol thinks of it as the simple edge of” a place for everything (everyone), and everything (everyone) in its (his) place”. This is essentially a principle of organization in the arrangement of things and persons.

11. Equity

Fayol perceives this principle as one of eliciting loyalty and devotion from personnel by a combination of kindliness and justice in managers dealing with subordinates.

12. Stability of tenure of Personnel

Finding that such instability is both the cause and effect of bad management. Fayol points out the dangers and costs of unnecessary turnover.

13. Initiative

Initiative is conceived as the thinking out and execution of a plan. Since it is one of the “keenest satisfactions for an intelligent man to experience,” Fayol exhorts managers to “sacrifice personal vanity” in order to permit subordinates to exercise it.

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14. Esprit de corps

This is the principle that ‘union is strength’ an extension of the principle of unity of command. Fayol here emphasizes the need for team-work and the importance of communication in obtaining it.

Contribution by Peter F. Drucker - MBO

Drucker is a highly respected management thinker. He is a prolific writer and has published several books and articles on the management practices. He is so versatile that there is hardly any area in management which is not touched by him. He has drawn heavily from his consultancy experience spread over the last four to five decades. Drucker perhaps is the only western management thinker who is admired by even the socialist black countries also. His views on management may be summarised as follows

1. Management as a practice

According to Drucker, management has two important functions; say innovation and Marketing. He has treated management as a discipline as well as a profession. For him, management is more a practice. It is always goal oriented His comment on the purpose of business as the creation of customer if understood and in the right way helps any organisation to achieve success.

Drucker’s view on innovation are equally important for the emphasis they place on new product development. He argues that “new products should drive out the existing products”, rather than the other way round. As such, he is against bureaucratic management for it stifles the innovative spirit and the initiative among the people in the organisation. He contents that modern organisations are knowledge based organisation and describes the modern workers as knowledge workers considering their skills, and innovative abilities.

2. Functions of management

Drucker points out three basic functions of management. The actions of management should contribute to:

1. The achievement of purpose and mission of the institution;

2. Make the work productive and the worker achieving; and

3. Effective management of social responsibilities.

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3. Objective setting

Drucker has attached great importance to objective setting. He has specified that objectives should be set for all the key result areas of business. To make the objective setting and their achievement more meaningful, he has given a new tool, what is popularly known as ‘Management by Objectives (MBO)’. MBO is regarded as one of his most important contributions to the discipline of management. He has discussed the concept in great detail in his book “The practice of Management” (1954). MBO is a process whereby superiors and subordinates jointly identify the common objective, set the results that should be achieved by subordinates and assess the contribution of each individual. It is viewed more as a philosophy than as a tool or technique to achieve the objectives.

4. Orientation towards justice

Drucker is a great visionary and futureologist. He was ahead of others in visualising the future trends that affect the society. He visualised the concept of modern organisation and its impact on the society several years ago. His views on the many facets of the modern corporations have almost all become reality now. To put is in his own words, he describes the present age as the ‘age of discontinuity’.

5. Federalism

Drucker has advocated the concept of federalism, Federalism according to him, involves centralised control in a decentralised structure. Federalism has certain positive values over other methods of organising. These are as follows:

� It sets the top management free to devote itself to major policy formulation and strategy development.

� It defines the functions and responsibilities of the operating people,

� It creates yardsticks to measure twin success and effectiveness in operating jobs; and

� It helps to resolve the problem of continuity through giving education to the managers of various units while in an operating position.

Drucker’s realistic way of looking at the organisations and society has earned him the status of ‘a management guru’. His contributions have made tremendous impact on the management practices all over the world. He is one of the few

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contemporary management thinkers who is highly admired in Japan. Similarly, the contributions of Peter’s and Waterman who extensively studies a few American companies known for their excellence in modern management practices in so less significant. Mckingsly consultancy firm’s contribution of the “7S” model for the management of the firm and Edward Deming’s preachings on ‘Quality Control’ created tremendous impact on modern management all over the world in the recent past. Michael Porter’s work on competitive strategy turned a new leaf in the strategic management area. His book on competitive strategy suggest the ways and means that help organisations and nations to gain competitive edge.

Summary

Though management has been in practice in some form or other since time immemorial, the development of a systematic body of knowledge dates back to the last few decades. Industrial revolution has immensely contributed for the development of management thought. Over the years, it has drawn heavily from various disciplines like economics, psychology, sociology, operations research and so on. The contribution of prominent thinkers who have created an everlasting impact on management have been discussed in this lesson in detail. An attempt is made to expose the learner to the historical development of management over the years.

Review Questions

1. Analyse the contribution of F.W. Taylor and Henry Fayol to the Modern Management Thought and discuss how they differ in their approach.

2. Give a brief account of evolution of management thought from the early pioneers to the modern times.

3. Assess the role of Peter F. Drucker in the development of management thought.

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CASE:

Incentive Maintenance

You are an industrial engineer in a manufacturing plant. There is an incentive plan for production employees in which the various therbligs have been timed and the necessary allowances added to produce standard times for each of the rank-and-file production jobs.

Now your boss asks you to develop a work measurement plan – and perhaps an incentive plan later – for the maintenance employees. But maintenance jobs are different. Repair of a machine or correction of malfunction may be a simple matter of replacing an easily changed part, or it may necessitate a number of jobs – and the work of several different crafts. Also, the extent of the work to be performed cannot be known – some cases, until the machine is completely dismantled.

How would you go about developing the plan that your boss has asked for?

The Inefficient Cleaners

In the Biltmore factory, each department has one or two clean-up men who clean around the machines and also take care of the washroorns, hallways, and other areas. The cleaning job has the lowest status of an in the plant, although the pay is fairly good because the plant has found it difficult to get enough cleaners.

There are twenty cleaners in all. They report to the foremen of the departments in which they work, but the foremen are very dissatisfied with them. A common complaint is that as soon as a man knows what is expected of him and learns to do it right, he quits. Moreover, the cleaners re frequently absent and often come late.

Mayo and Taylor are engaged as consultants to work on this problem. Each works independently, and each makes a separate set of recommendations.

Questions

1. What do you think their recommendations would be?

2. Can you think of any new problems that acceptance of ‘either solution, or of both solutions, might cause?

3. What would you yourself do?

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U�IT – I

LESSON – 3

RELEVA�CE OF MA�AGEME�T

I�TRODUCTIO�

Management s the integrating force or agency, consisting of some basic functions, for accomplishing the objectives of an organisation. Ever since his creation, man has been aware that in most endeavours he can accomplish relatively little alone. It is due to this reason that he has found it expedient and even necessary to join hands with others in order to attain his goals. The co-ordination of human effort is an essential part of all group action. Wherever and whenever objectives are to be achieved through organised and co-operative endeavour, management becomes essential for directing and unifying the group efforts towards a common purpose. MANAGEMENT’ is like a pipeline ; the inputs are feeded at the one end and they are processed through management functions like planning, organising, directing and controlling and ultimately we get the end results or outputs in the form of goods and services, productivity, satisfaction, information, etc.

Fig. Management’ is the integrating force in all organised activity.

In essence, management is a social function ; it can take us from some condition we do not want to one that we want—by proper planning, organising, directing and controlling the human and material resources to achieve the

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desired goals. Let us first discuss the different concepts of this essential, distinct and leading social institution—’Management’.

THE HAIMA��’S CO�CEPT OF MA�AGEME�T

Theo Habnann, in his popular book ‘Professional Management—Theory and Practice has used the word ‘Management’ in three different senses : (i) as noun, (ii) as a process, and (iii) as a discipline.

Management as a �oun

Firstly, as a noun, ‘Management’ is often used in ref to the group c managerial personnel of an enterprise. The managerial group includes all those which have supervisory responsibility over others and the chief executives of the nterprise. Thus, all persons in an industrial enterprise from the Managing Director the General Manager to the first line of supervisor, fall under the category ‘Management’.

Management as a Process

Secondly, the term ‘Management’ is also used as way of referring to the process of managing; the process of planning, organising, staffing, guiding, supervising and controlling. George R. Terry too has described management as distinct process consisting of planning, organizing, actuating and controlling applied towards the efforts of the members of the group to utilise efficiently the group’s human efforts, materials, machines, methods and money in order to achieve the predetermined objective. The following figure illustrates in elaboration of this definition in diagrammatic form:

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Starting at the top and reading downward, the entity of management can’t identified as a distinct process consisting of the fundamental functions of planning organizing, actuating and controlling. These functions are applied to the efforts of the members of the groups in order to utilize efficiently available resources of the group human efforts, materials, machines, methods and money for the purpose achieving pre-determined objectives.

Management as a Discipline

Thirdly, sometimes the word ‘Management’ is used to connote neither t activity nor the personnel who exercise it, but as a substantive describing the subject the body of knowledge and practice as a whole, the discipline. Strictly speaking, management is a functional concept and does not include the persons who practice management. Persons assuming management functions are usually designated a ‘Managers’, ‘Executives’ or Administrators’.

MA�AGEME�T IS WHAT MA�AGEME�T DOES

Just as an authority on ‘Money’ has defined it by saying that ‘Money is what money does’ and that ‘Money is a matter of functions four—medium, measure, standard and store;’ on the same lines, it may be said that ‘Management’ is the sum of the three different steps involved in it. viz.,

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(1) Formation of policy and its translation into, plans, (2) Execution and implementation of plans, and (3) Exercising administrative control over the plans. These three tasks of management may be titled as ‘Planning’s ‘Implementing’ and ‘Controlling’.

Dr. James Lundy’ in the opening of his famous book, Effective Industrial Management, has observed that: “Management is principally a task of planning; coordinating, motivating and controlling the efforts of others towards a specific objective. It involves the combining of the traditional factors of production (land, labour and capital) in an optimum manner, paying due attention, of course, to the particular goals of the organization”. This definition broadens the scope of management and includes within its orbit, three major management activities, viz., (a) Planning, (b) Implementing, and (c) Controlling. Planning is the determination of the course or objectives of a business, division or department to achieve maximum profit effectiveness, the establishment of policies, and the continuous seeking and finding of new and better ways to do things. Implementing applies to the ‘doing’ phases. After plans have been prepared, personnel must be selected and assigned to their jobs ; they must be trained and motivated to perform properly. Activities must be implemented in terms of the plans initially developed; subordinates must be supervised and directed and the efforts of groups doing different kinds of work must be co-ordinated. This may include (i) selecting personnel, (ii) training personnel, (iii) motivating personnel, (iv) delegation, (v) direction, and (vi) co-ordinating. Controlling refers to the evaluation of the performance of those who are responsible for executing the plans agreed upon. This may include : (i) controlling adherence to plans, and (ii) appraising performance. According to a well-known authority on management, Henry Fayol, “To manage is, to forecast and to plan, to organise, to command, to co-ordinate and to control. To foresee and provide means examining the future and drawing up the plan of action. To organise means building up the dual

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structure, material and human of the undertaking. To command means maintaining activity among the personnel. To co-ordinate means binding together, unifying and harnessing all activity and effort. To control means seeing that everything occurs in conformity with established rules and expressed command.”

According to Peter Drucker, the primary job of management is ‘economic’. Management must always, in every decision and action, put economic performance is first. It can only justify its existence and its authority by the economic results it produces. There may be great non-economic results ; the happiness of the members of the enterprise, the contribution to the welfare or culture of the community etc. Yet management has failed lilt fails to produce economic results. It has failed if it does not supply goods and services desired by the consumer at a price, the consumer is producing capacity of the e resources entrusted to it. The first definition of management is, therefore, that it is an economic organ, indeed the specifically economic organ clan industrial society. Every act, every decision, every deliberation of management has its dimension as an economic dimension.

MA�AGEME�T IS THE ART OF GETTI�G THI�GS DO�E THROUGH A�D

WITH PEOPLE

This definition of management emphasises the accomplishment of tasks through the efforts of people. It also distinguishes between management and non- managers. The former category consists of those who have to guide, direct and coordinate the efforts of others towards certain specific objectives and the later comprises of workers, operatives or non-managers who actually perform the different tasks. In short, management is getting things done through others (people). It may be inducted from this statement that non-managers have responsibility for their own work while the managers are responsible for their own work as also for the work of their subordinates.

Getting things done means to get tasks and activities carried out. It implies that management is not a mere philosophy but a highly performance-oriented- function. Management gets things done through people, viz., members of the organisation, comprising of both managers and non-managers. A manager, whatever t be his level in the organisation, has to get things done through his subordinates. At higher levels, the subordinates are themselves mostly managers.

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It means ‘management of managers’. At supervisory levels, subordinates are non-managerial ‘white collar’ or ‘blue collar’ workers. Organisations are man-made units ; management is the chief organ entrusted with the task of making them purposeful and productive entities by securing the co-operation of people who occupy various positions and are assigned different roles, Management gets things done through people both as individuals and as members of work groups.

Getting things done through the people is really an art, which consists of a range of skills acquired and refined in the course of practice. The skills which are required to get things done through people include conceptual skills, technical skills, administrative skills, social skills and so on. In order to get things done through people, management has to plan the things which are to be done. This ‘planning’ entails formulation of objectives, strategies, policies and programmes at the higher level of management. These are all to be operationalised into concrete action plans. The tasks to be carried out to achieve the goals are to be determined and assigned to individuals and work units. It is called ‘organisation’. Then the roles of various job- holders and their inter-relationships are to be designed and defined. Thus, the management has to get things done in an organised and disciplined manner. Besides planning and organising tasks, management of people involves creation of appropriate work climate of goodwill, trust and challenge of people to do the assigned tasks and to comply with the requirements of organisational performance, Management has, thus, to devise the techniques and methods of getting things done. It has to be aware of and sensitive to the needs, aspirations, feelings, goals and values of people at work. Management has to provide effective leadership, foster team spirit, activate bilateral and multilateral communication channels, enlist peoples’ participation, commitment and contribution through an appropriate system of cash and non-cash incentives. Further, the obstacles, problems and distortions in the work environment are to be removed or minimised. There should be a proper system to monitor the performance of people, to detect deficiencies and deviations, and n feed back information them for rectification of deficiencies and so on. This art of management is increasingly to be based on the science of management. Management researchers and students are engaged in systematic and scientific studies on how to effectively get things done through people so that the job rises above the level of mere art. Professor Harold Koontz agrees with this concept of management. He has defined it as “The art of getting things done through and with people in formally organised groups.. It is the art of

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creating an environment in which people an perform as individuals and yet co-operate towards attainment of group’s goals. It is the art of removing blocks to such performance, a way of optimising efficiency in reaching goals.”

However, there is a danger in defining management in terms of getting things done through people. This gives the misleading impression that the only purpose of management is the accomplishment of tasks and that management consists in getting people to perform the tasks by hook or by crook, by threat or by persuation and so forth. In yester years, management was regarded as getting things done by others But today, such a notion is strongly condemned as it is against the canons of humanity. Management is not slave-driving nor is it a set of clever tricks whereby you can get people to do your job. These techniques of getting things done through and by the people may work for sometime but you cannot oppress or befool people all the time. Hence, according to the modem concept of management, it is the art of getting things done through and with the people in formally organised groups.

MA�AGEME�T IS PRIMARILY DIRECTIO�

An important concept about ‘Management’ is that it is primarily DIREC TION. Just as in cinematograph it is observed that on the screen the lips are moved by ‘X’, song is actually given by ‘Y, and direction by ‘Z’. Out of al these persons, the most important is Mr. ‘Z’, the Director, because all the three persons act according to the wire-pulling done and signals given by him. In an orchestra too, the Director is the most important person because each member of the group of instrumentalists acts as per his signals and indications. Similarly, in each industry, the important departments are: finance, purchase, production and sales. All these departments play their respective role, but the force that co-ordinates these departments is the Management’. Management is primarily an executive function to determine what you want people to accomplish, check periodically on how well they are accomplishing it and to develop methods by which they will perform more effectively. Mobilising the physical, human and financial resources and planning their utilisation for business operations in such a manner as to reach the defined goals can be referred to as ‘management’

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MA�AGEME�T IS THE DEVELOPME�T OF PEOPLE

It is cent percent correct that business is not the management of things. It is, in the words of Applev Lawrence, “The development of people and not the direction of things.” It is the selection, the training, the supervision and the development of people The following words from the statement of a head of an American Corporation are quite Illuminating in this connection

“We do not build automo6lles, refrigerators, shoesirings: we bulk! men. The men build products.”

“Management is the attainment of pre-established goal by the direction of human performance along pre-established lines. Managers do not wait for the future, they make the future” Truly speaking, the basic objective of ‘management’ is to assist the entire organisation from top to bottom in bringing about an improvement in knowledge, skill, habits and attitudes that will ultimately express itself productively in work and constructively in human relations. Man-management involves the instituting of an improvement in behaviour or potential behaviour. According to this definition, it can be said truthfully that management is nothing but the development of (i) people and (ii) the over-all tone under which they work.

Management is the development of people and not the direction of things The following discussion is quite illuminating in this connection Well there are two important elements which make up the ‘art of management’ : (i) Human and (ii) Physical resources. The term hi resources includes personnel administration,

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training, development of human environments, development of the natural talents of the people, development of human personality, etc. similarly the term physical resources includes finance or money, raw materials, buildings, plant machinery and other equipments. The task of ‘Management’ is to manage administer both these resources; but the management of human resources is comparatively more important. Most of the under-developed and developing countries of the world are rich in physical resources, but due to poor human element. they could not prosper. For example, India is popularly known as ‘A rich country inhabited by the poor’.

The following chart also indicates that ‘MANAGEMENT’ directs the Human Resources and the men or the human resources make the best and intensive utilisation of the physical resources, which ultimately accelerate the ‘Productivity’. In this age of science and electronics the computers too are fed and operated by human beings, they do not minimise the importance of human factor. If the people are efficient, the computers too will work precisely and accurately. The personality of a man is just like flower-in-a budding-stage; which can be improved by ‘Management’. Just as the gardener, by providing light, manure and water, protects

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the plants which ultimately provide flowers and fruits, similarly in the garden-like industry the ‘Management-Gardener’ develops and improves the human resources and its personality that ultimately results in improved productivity In short, the development of any factory or industry depends upon the development of its people who handle the physical resources. It shall not be out of place to give the example of U.S.A. to cement this concept. The Americans have made the best utilisation of the available physical r and by increasing productivity they have made their life richer and happier.

SCOPE OF MA�AGEME�T

Although it is difficult to precisely define the scope of management, yet the following may be included in it:

1. Subject-matter of Management. Planning, Organisation, Direction, Co ordination and Control form the subject-matter of management.

2. Functional Areas of Management. Functional areas of management include

(i) Financial Management; which includes forecasting c control, management accounting, budgetary control, statistical control, financial planning and. management of earnings.

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(ii) Personal Management; which includes recruitment, training, transfer promotion, demotion, retirement, termination, labour-welfare and social security industrial relations, etc.

(iii) Purchasing Management; which includes inviting tenders for raw materials, placing orders, entering into contracts, materials control, etc.

(iv) Production Management; which includes production planning, production control techniques, quality control and inspection, time and motion studies, etc.

(v) Maintenance Management; which relates to the proper care and maintenance of the buildings, plant and machinery, etc.

(vi) Transport Management; which includes packing, warehousing, transportation by rail, road air, etc.

(vii) Distribution Management; which includes marketing, market-research, price-determination, market-risk and their avoidance, advertisement, publicity, sales promotion, etc.

(viii) Office Management; which includes the proper layout, staffing and equipment of the office.

(ix) Development Management; which relates to experimentation, research, etc.

3. Management is an inter-disciplinary approach. For the correct application of the management principles study of commerce, economics, sociology, psychology and mathematics is very essential.

4. The principles of management are of universal application.

5. Three essentials of management are:

(i) Scientific method,

(ii) Human relations, and

(iii) Quantitative technique.

6. Modern management is an agent of change. The techniques of management can be improved by proper research and development

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THE MA�AGER A�D HIS JOB

More often than not it is said that a particular person is a ‘Manager’ if he has an independent well-furnished room in the business establishment, number of telephone on his big aristocratic table, a tip-top female secretary and so on. Certain Oil In persons go to the extent of saying that a Manager is a person who does not do anything himself. These notions are false and baseless. As a matter of fact, a Manager is a person who gets things done through and with the people in formally organised groups. The Manager is the, key-man in the organisation pyramid. The Manager essentially deals with the people and resources. His job is to co-ordinate activities of people and optimise the use of resources so as to reach the defined goals. According to Haimann, a Manager plans, organises, staffs, directs and controls. Usually, the chief executive in an organisation is designated as Managing Director if he is a member of the Board of Directors or a General Manager when he is not member of that body. But in both the cases, the primary esponsibi1ity is to implement the policies and the decisions of the board and to carry to it the those matters which are necessary. As observed by Peter Drucker, the Manager performs three types of work simultaneously: (i) managing a business; (ii) on Co- managing managers; and (iii) managing workers and work.

The dual role of the Manager is apparent from the figure given below. He occupies a prominent place in between the Board of Directors and the Subordinate Managers. Since the Manager is a member of the group next above and at the same time the leader of the group reporting to him, he is best placed to bring to his group interpretation of the goals, decisions, attitude and actions of the higher group. The Manager, thus, becomes the interlocking tie between higher and lower levels of the organisation and the natural and most effective channel for communication.

The duties of the Manager can be defined in a nut-shell as “to decide what has to be done, to tell somebody to do it, to listen to reasons and get the work done.”

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Ordinarily, he is responsible for : (1) Carrying on to effect the policy laid down by the Board of Directors; (2) Communication and interpretation of policy for information and instructions of subordinate executives; (3) Keeping the operations of the company under constant review and presenting to the board periodically the accounts and statistics showing the progress and current position of company’s affairs; (4) Maintaining definitions and structure of responsibilities of executive and supervisory positions in the organisation upto date in requirements: (5) Approving the manufacturing, distributing, development plans submitted by the senior executives concerned; (6) Giving decisions and interpretation of policies when for good reasons a departure from agreed policy arises; (7) Ensuring adequate arrangements to safe guard the continuity of supplies to the customers: (8) Having periodical meetings with the senior executives to review performances against budget standard: (9) Ensuring adequate coordination of activities throughout the organisation; and (10) Ensuring adequate facilities for development of executive and supervisory staff.

The special duties of a Manager may be as follows : (1) To consider suggestions from subordinate executives in regard to company’s policy and submit them objectively to the Board of Directors; (2) to review the reports received from specialist executives in relation to their own fields; (3) To ensure that all executives understand the nature and importance of budgetary control principles and application of such principles to the activities carried out within their own jurisdiction; (4) To give adequate attention and promoting high level of morale among the executive staff and throughout the organisation.

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From a review of the above duties and responsibilities it may be inducted that the job of a Manager requires an inter-disciplinary approach—an approach which is based on many subjects like psychology, sociology, economics and mathematics. He has to deal with a variety of persons with varying temperaments and levels of intelligence. Hence, he should be an expert of human relations. A Chartered Accountant, howsoever well-up he may be in his subject, may not be a success as a Manager, if he does not know how people behave individually and in groups in different situations. It shall not be out of place to mention that accountant is also a Manager as he produces information for the use of other Managers through his department. He should know to create an environment where people are motivated to work hard. He must know how to make the optimum use of scarce resources. This purpose can be achieved by using quantitative techniques, known as ‘operational research’. He should also be conversant with the basic concepts of the decision- making theory and decision models. Besides, he should also be able to quickly grasp the significance of all, i.e., happening in the organisation and around it, in the industry, in the country and the world over.

MA�AGEME�T A�D ADMI�ISTRATIO�

The two teams ‘management’ and ‘administration’ are often used synonymously. In this title we shall focus on management but most of what is said is also applicable to administration.

The distinction between management and administration is also related to the level of organization. As Dalton E. McFarland put it, “In business firms, administration refers to higher, policy-determining level. One seldom regards the first – line supervisor as an administrator; he is a manager. In the health care fields and in many service organization, problems (such as individual’s chronic disease) are managed but programmes (such as flu vaccine distribution) are administered”.

Administration may be defined as “the guidance, leadership and control of the efforts of a group of individuals towards some common goals”. Other often prefer the synthetic term ‘administrative management’ (which nization, to distinguish it from ‘operative management’ which, as the name implies, is concerned with the operational aspects of the business. Some experts like Oliver

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Sheldon draw a distinction between administration and management by suggesting definition of their own.

The Definition

The former is defined as that function in the industry which is concerned with policy – determination, the co-ordination of finance, production, distribution as also the establishment of organization and ultimate control of the executives. Contrarily, the latter is the process concerned with execution of the policies within certain limits set by the administration and employment of the organization for the purpose of accomplishing objectives laid down by the former.

The Essence of Administation

In fact it was Ordway Tead who has made an interesting analysis of the essence of administration. He, in fact, analysed the process of administration into ten distinct elements concerned with establishment of objectives of the organization, laying down of broad policies for structuring, and stimulation of the organization, evaluation of the total outcome and, above all, looking ahead. Contrarily, management endeavours to attain aims and objectives as laid down by administration and within the organization.

It is, therefore, clear that administration is more important at higher levels whereas management is more important at lower levels in the firm’s organizational pyramid. This is shown in the figure below:

Top Management

Administration (Chief Executive President)

Management

Bottom Management

( Foreman, Supervisor )

Managem

ent Ladder

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Thus administration is a top-level function while management is a bottom level one. The fundamental point of distinction between these two aspects is that whereas the former is the process of laying down broad policies and goals of the organization, the latter directs and guides the operational or functional aspects of the organization towards realizing the objectives set forth by the former.

A closer look reveals that the scope of management is broader than that of administration. In so far as management comprises both the process of planning and policy-making as also their execution, management embraces both administrative management of administration and operative management.

However, the cardinal point is that the distinction drawn above between the two aspects of organization serves no real purpose. In fact, the process of management is the same in all enterprises and at all levels in the organization. In truth, management is as much responsible for planning of personnel are supposed to discharge both the above functions. Of course, it is true that planning is more important and broader at higher levels of organization. Yet it is equally valid that every management, irrespective of its hierarchy in the organizational set up, has to do some sort of planning and the process of planning is essentially the same at all levels.

The Importance of Management

Earlier in this chapter we noted that ‘management is effective utilisation of human and material resources to achieve the enterprise’s objectives. The implication of this statement (or definition) is simple enough. In general, management tasks include whatever is necessary to make the best possible utilization of an enterprise’s resource. Mary Parker Follett defined management as ‘getting thing done through people’. The implication is that managers do not do the same things as other employees – at least not regularly. The manager’s task includes ‘making good use of the enterprise’s employees. Thus managers communicate, help motivate and develop the potential of employees.

The other managerial tasks are ‘those designed to make the most of effective use of the enterprise’s financial, material and human resources”. These tasks, as we have already noted, include “planning and decision making, building and developing the organization, and creating and monitoring control systems’.

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In order to survive, business enterprises must achieve their objectives. All enterprises are responsible to certain groups such as shareholders for their performance. The manager’s role is to take correct decisions in times of crisis and guide the enterprise in times of trouble. In truth, good management makes all the difference between the success and failure of enterprises. Some financial analysts attribute differences n share prices to shareholder’s evaluation of managers. J.A. Schumpeter, the great economist, referred to management and entrepreneurship as ‘the management, says that ‘management is the life giving organ of the enterprise’s tween success and failure by performing four key tasks: achieving economic performance, creating productive work, discharging the social responsibilities of a business, and managing the time dimension. Finally, U.S. multinationals have overwhelmed European because of the superior skills of American management.

To conclude, with W.F. Glueck, ‘without managers it is difficult to get management tasks performed effectively. Management contributes to the success of an enterprise in a crucial way’.

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REVIEW QUESTIO�S

1. Define ‘Management’ and discuss in this connection the three notions enunciated by Theo Haimann.

2. ‘Management is what Management does.’ In the light of this statement carefully discuss the essential steps involved in management.

3. ‘Management is getting things done through people.’ Comment.

4. ‘Management is development of people and not the direction of things.’ (Appley Lawrence). Explain.

5. How far do you agree with the view that management is a process for the utilisation of growth-inputs?

6. ‘Management is he force which leads, guides and directs an organisation in the accomplishment of the pre-determined objects.’ Discuss and give a suitable definition of management.

7. ‘Management is known by the contribution it makes.’ Discuss.

8. ‘Management is the driving force that inspires an undertaking, knits it into an entity and creates the conditions and relat4onship which bring about a full use of all its powers and resources.’ Amplify this statement.

9. a. Distinguish between management processes, principles, and practices,

b. What do you understand by universality of concept of Management?

10. a. “Management contains both elements, those of a science and those of an Art” – Comment.

b. What are the attributes of a profession? Is management a perfession?

11. Write notes on

a. Contingency approach to management.

b. Systems approach to management

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CASE :

The Boeing Co. was formed in Seattle in 1916. The firm was first called Pacific Aero Products Company, but was later re named United Aircraft & Transport Corporation. The company grew rapidly and soon had several divisions. In 1934, concerned about lack of competition in the aircraft industry, the U.S. government decreed that firms could not simultaneously manufacture aircraft and provide aircraft services or operations. The firm’s owners were thus forced to sell everything but their aircraft manufacturing business, which was renamed The Boeing Co.

From the beginning, Boeing managers made a commitment to keep in close contact with customers to ensure that the firm was making a product that its customers wanted. Through the years, this approach has served the firm well.

Boeing’s original focus was on military aircraft. Its primary bomber, the B-47, was popular with pilots be cause of its speed and maneuverability. Because it used so much fuel, however, its range was somewhat limited. After conversations with the Air Force, Boeing developed a new bomber, the 8-52. This eight-jet bomber became a centerpiece in the Air Force’s long- range bombing arsenal.

When World War II was over, Boeing began to develop plans for its first commercial plane, the Boeing 707, During that era, another U.S. firm, the Douglas Aircraft Company, had become the dominant supplier of commercial aircraft in the United States. Just as Boeing was introducing its 707, Douglas brought out the DC-8.

Recognizing that the appeal of the DC-8 was its longer range and wider body, Boeing responded by making the 707 one inch wider than the DC-8 and changing to a larger wing to expand its range arid capacity. Those moves began to win new orders for the 707. Boeing also offered the 707 in a variety of customized versions and, as a result, the plane caught up with and eventually outsold the DC-8.

Soon Boeing developed the 727 and then the 737 to fill other market niches. The 747, 757, and 767 expanded seating and flight range even more. Boeing. worked with a single customer, Pan American World Airways, to develop the 747 as a large-capacity plane that would fly higher and faster and carry less fuel per passenger than any existing plane. By carefully meeting the

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needs of one customer, Boeing developed a product that was attractive to several customers; the 747 was a resounding success.

Boeing’s domination of the commercial airline manufacturing market was challenged in the late 1 980s and early 1 990s by Airbus, a manufacturing consortium formed in France with British, German, and Spanish partners and associate members from Belgium and the Netherlands. Airbus has become the second-largest manufacturer of commercial jets in the world. But Boeing appears to have withstood the attack so far, still controlling 60 percent of the world wide market for commercial planes.

Repeating and recycling its history of customer responsiveness, then, has enabled Boeing to maintain its number-one position in commercial aircraft manufacturing and to point out with pride that Boeing has built more than half the jets ever flown.

Questions

1. What have been major components to Boeing’s success?

2. How does an understanding of Boeing’s history aid you in understanding its approach to management to- day?

3. Is Boeing likely to be able to continue to be as successful in the future? Why or why not?

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U�IT – II

LESSON – 4

PLA��I�G

Meaning, �ature and Importance of Planning

Planning is ‘task number one’ of management. It is the determination of a course of action to achieve a desired result. Planning concentrates on setting and achieving objectives of an organisation. It is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are to where we want to go. Planning makes it possible to occur which would not otherwise happen. It is an intellectual process ; it is characterised as the process of thinking before doing. It is cent per cent mental work. It requires a mental predisposition to - think before acting, to act in the light of facts rather than of guesses, and generally speaking, to do things in an orderly way. Planning function of management precedes all other managerial functions. Without setting the goals to be reached and line of actions to be followed, there is nothing to organise, to direct, or to control in the organisation. Only after having made his plans can the Manager organise, staff, direct and control. Planning actually is the foundation of management. The vital supporting columns of’organising’, ‘actuating’ and ‘controlling’ upon ‘planning’ ; and all these combined together make up the bridge or ‘Process of Management’.

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Planning governs the survival, progress and prosperity of any organisation in a competitive and ever-changing environment. Further, the planning function is performed by managers at every level of management. However one should not induct from this view that planning is an isolated activity required in the beginning only. It is really a continuous and unending process to keep the organisation as a going concern and other functions are also performed simultaneously.

DEFI�ITIO�S:

Planning is deciding in advance what is to be done. It involves the selection of objective policies, procedures and programmes from among alternatives. A plan is a pre-determined course of action to achieve a specified goal. It is a statement of objectives to be achieved by certain means in the future. In short, it is a blue-print for action. The following definitions of planning are quite illuminating

• David Cleland and William King: “Planning is the process of thinking through and making explicit the strategy, actions and relationships necessary to accomplish an overall objective or purpose.”

• George R. Terry: “Planning is the selecting and relating of facts and the making and using of assumptions regarding the future in the visualization and formulation of proposed activities believed necessary to achieve desired results.”

• Louis A. Allen : “Management planning involves the development of forecasts, objectives, policies, programmes, procedures, schedules and budgets.”

• Billy E. Goetz : “Planning is fundamentally choosing and a planning problem arises only when an alternative course of action is discovered.”

• Theo Haimann: “Planning is deciding in advance what is to be done. When a manager plans, he projects a course of action for the future, attempting to achieve a consistent, coordinated structure of operations aimed at the desired results.”

• Koontz 0’ Donnell : “Planning is an intellectual process, the conscious determination of courses of action, the basing of decisions on purpose, acts and considered estimates.”

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• George B. Galloway : “Planning is the opposite of improvising. In simple words, it is organised foresight plus corrective hindsight Conceived as a process, planning embraces a series of steps : (i) the determination of objectives to be sought, (ii) research to understand the problem, (iii) the discovery of alternative solutions, (iv) policy-making choosing between alternatives, including the frequent choice of doing nothing, (v) the detailed execution of the chosen alternative known in physical planning as layout or design.”

• A (ford and Beatty: “Planning is the thinking process, the organised foresight, the vision based on fact and experience that is required for intelligent action.”

CHARACTERISTICS OF PLA��I�G

On the basis of the above definitions, the following characteristics of planning can easily be identified:

• Planning is very closely associated with the goals or objectives of the organisation. The goals may be express or implied ; however, well-defined goals lead to efficiency in planning.

• Planning is mainly concerned with looking ahead in the future. Forecasting provides the necessary raw material for correct planning.

• Planning involves the selection of the best alternative.

• Planning is required at all levels of management. However, its scope and importance increase at successively higher levels.

• Planning is an inter-dependent process ; it co-ordinates the activities of various departments, sections and sub-sections.

• Planning is flexible as it is based on future conditions which too are dynamic.

• Planning is a continuous and unending process.

• Planning governs the survival, growth and prosperity of any organisation.

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�ATURE OF PLA��I�G

Certain important elements which describe the nature of planning may be enumerated as below:

• Planning is goal-oriented. Every plan must contribute in some positive way towards the accomplishment of group objectives. Planning has no meaning without being related to goals ; it becomes an empty mental exercise if it does not keep the objectives of the organisation in view.

• Primacy of Planning. Planning pervades all managerial activity ; it is the function of every manager. It facilitates organising, staffing, directing, motivating and controlling.

• Pervasiveness of Planning: Planning has been described as the most basic of all managerial functions. It is found at all levels of management—top management looks after strategic planning ; middle management is in charge of administrative planning and lower management has to concentrate on operation planning.

• Planning is directed towards efficient economy and accuracy. In planning, the manager evaluates the alternatives on the basis of efficiency, economy and accuracy. A good plan should not only attain optimal relationship between output but should also bring the greatest deal of satisfaction to those implementing it..

• Planning aims at Co-ordination. Planning co-ordinates the what, who, how, where and why of planning ; without the co-ordination of different activities, one cannot have united and synchronised efforts.

• A planner cannot overlook the critical factors like money, manpower, materials, machinery and management. These limiting factors must be taken into account while formulating a plan.

• Elasticity in planning. The process of planning should be adaptable to changing environmental conditions.

• Planning is an intellectual process and the quality of planning will vary according to the quality of the mind of the manager.

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• Planning involves continuous collection, evaluation and selection of data. It involves scientific investigation and analysis of the possible alternative courses of action and the best alternative becomes the ‘plan’.

• Planning is looking ahead and control is looking back but both are inseparable—the Siamese twins of management. Unplanned action cannot be controlled. Any attempt to control without plans would be meaningless.

• Problems of planning. The basic questions that are to be answered in framing a plan are seven. (i) Why is the particular action necessary ? It relates to the purpose of choosing a particular course of action. (ii) What is to be done? It indicates the different stages of the activity, their detailed analysis, the sequential arrangements and so on. (iii) Where will it be done ? (iv) When will it be done ? (v) Who will do it ? (vi) With which will it be done? and (vii) How will it be done?

IMPORTA�CE OF PLA��I�G

Planning is an orderly approach to the task of management. In the absence of planning, business decisions would become random, ad hoc choices, like a pilot who has started without knowing whether he wished to fly to Bombay, Calcutta, Madras or Delhi. As a managerial function planning is important due to the following reasons

• To manage by objectives. All the activities of an organisation are designed to achieve certain specified objectives. However, planning makes these objectives more concrete and tangible by focussing attention on them.

• To offset uncertainty and change. Future is always full of uncertainties and changes, However, some of the uncertainties and changes can be predicted on the basis of forecast. Thus, planning foresees the future and makes the necessary provision for it. Even where the future is certain for sometime, planning is necessary to evaluate the alternate courses of action and determine the ones leading to the continuous growth and prosperity of the organisation.

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• To secure economy in operation. Planning involves the selection of most profitable course of action that would lead to the best result at the minimum costs.

• To help in co-ordination. Co-ordination is, indeed, the essence of manage ment, the planning is the base for it. Without planning it is not possible to co-ordinate the different activities of an organisation.

• To make control effective. The controlling function of management relates to the comparison of the planned performance with the actual performance. In the absence of plans, a manager will have no standards for controlling other’s performance. In short, planning without control would be a fruitless exercise and control without planning is an impossibility.

• To increase organisational effectiveness. Mere efficiency in the organisation is not important ; it should also lead to productivity and effectiveness. Planning enables the manager to measure the organisational effectiveness in the context of the stated objectives and take further actions in this direction.

FEATURES OF A GOOD PLA�

According to L.F. Urwick, ‘Good Plan’ is that which (i) is based on a clearly defined Objective, (ii) is simple, (iii) provides for a proper analysis and classification of actions, i.e., which establishes standards, (v) is flexible, (v) is balanced, and (vi) uses available resources to the utmost before creating new authorities and new resources. The best test of effective planning is its realistic and viable nature. A good plan must be pragmatic and must lead the organisation forward on the path of progress and prosperity. A good plan opens up new avenues, new ways of doing things and reveals specific opportunities previously unknown to the planner.

ADVA�TAGES OF PLA��I�G

The advantages of planning may be summarised below:

1. The business objectives can be easily secured through plans because planning enables a purposeful and orderly set of activities instead of

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random action. It provides co-ordinated efforts and reduces risks and uncertainties.

2. Planning facilitates the process of decision-making.

3. Planning helps the management to implement future programmes in a systematic manner so that the management may get the maximum benefit out of the programmes chalked out. It enables all the activities to be conducted in an orderly and coordinated manner to achieve the common goals of the organisation.

4. With the rapid growth of technological development, it is essential for a manager to keep abreast of the latest technology, otherwise the products are likely to get obsolete. Planning helps in this process.

5. Planning indirectly leads to large-scale economies by avoiding waste of men, money, materials and machinery.

6. Planning leads to budgeting and budgeting leads to budgetary control; thus the success of budgetary control depends considerably on effective planning. It is at the planning stage that the future prospects of an undertaking are taken care of.

7. Planning encourages the sense of involvement and team spirit. Planned targets provide a basis upon which good performances can be rewarded and poor performances can be taken care of.

8. Planning is the essence of all management activities: once planning is done well, other activities automatically follow.

9. A greater utilisation of the resources and available facilities can be made because of planning. This reduces costs and results in higher profitability.

The managerial process will go through many cycles before the desired objectives are realized. Hence, it is advisable to look at the p1ann function as a continuous function of the manager.

LIMITATIO�S OF PLA��I�G

Some of the limitations of business planning are as following: (1) it has been considered as a time-consuming and expensive device. Further, the framing of plans involves money, energy and also risk without giving any guarantee as to

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the realization of assured goals. (2) due to the heavy cost of planning and the risk involved in it, similar business concerns which are short of capital and which expect quick results cannot afford to have a planning programme. (3) Planning makes the entire organizational setup extremely rigid. (4) Planning leads to probable results and not assured goals. (5) Last, but not the least, machinery of planning cannot be free from bias, forecasting methods, statistical data supplied, etc., are all inaccurate and the results of operation research cannot be applied to all cases that-come under planning. (6) In the planning process, the quality of the output is only as good as the quality of input. (7) Tendency towards inflexibility or reluctance to change, once the plans are framed, is another limitation of planning. (8) Planning encourages a false sense of security against risk or uncertainty. (9) Emergencies demand on-the-spot decision, but planning delays it. (10) Standing plans demand repetitive operations, but in the absence of such operations, plans lose their significance.

In order to avoid the failure of planning, the following suggestions should be kept in mind: (1) avoid serial planning if possible : (2) do not wait to start the second range of planning until the first stage is finished ; (3) try to have parallel planning with lots of cross-checking ; and (4) see that all plans move forward at the same time.

PLA��I�G IS ECO�OMIC

Planning is economic in the sense that it minimizes costs. Planning leads to systematic, orderly and purposeful working of an enterprise. All efforts are directed towards a desired result, haphazard approaches are minimized, activities are coordinated and duplications are avoided. Minimum time is necessary for the completion of all planned activities because only the necessary work is done. Facilities are used to their best advantage and guesswork is eliminated. In this connection, it shall not be out of place to quote F. G. Moore who said:”.. . When we say planning is economic we do not mean to overlook its costs. Too much and too detailed planning is wasteful. You can’t afford to put every minor detail down on paper. When you plan your vocation, you probably decide where you will go and when you will be at certain places, but you don’t plan what you will eat for breakfast every day. And so it is with business plans. They need to cover the ‘big specifics’ but every minor detail. Nor can you afford to have middle and lower level men spending all their time in planning. They would never get their

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day’s work done. And even top men never have enough time to plans as thoroughly as they would like. You have to get on with less than perfect plans and less than complete plans.”

It should also be noted that a manager should plan in good times as well as in bad times. More often than not, managers do not pay any heed towards planning during periods of prosperity. Due to their successful operations in good times, they are lulled into the belief that they have a sixth sense and intuitive perception with which they can always succeed. And when the business falls on bad times, they attribute their poor results to circumstances beyond their control. According to Haimannn, “Realistically speaking, it is true that under such circumstances both success and failure are the result of conditions beyond the manager’s control. However, these consequences could be mitigated if the manager had developed plans enabling the enterprise to capitalize fully on good times and to minimize the efforts of bad times.” Moreover, it is also essential that both long-range and short-range planning should be Integrated and coordinated.

PLA��I�G LEVELS

The planning function has to be performed at all the three levels of management right from apex or top management down to the first line managers, viz., foremen or supervisors. In participative management even the operatives take keen interest in planning their work. Of course, the higher one goes in the management structure, the more time will be spent on the planning functions. The planning functions of the different managers in the hierarchy of management may be outlined as below:

TOP MA�AGEME�T

Apex or top management has to devote much more time to planning and policy making. It normally undertakes strategic planning covering a time span of one to five or even ten years. Strategic planning mostly relates to resource mobilisation. It is also concerned with the strategies or courses of action, programmes, policies, procedures and standards that will determine the procurement, use and disposition of these resources. In short, top management is concerned with strategic plans which are long-range plans.

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MIDDLE MA�AGEME�T

Middle management has to formulate short-term and/or tactical plans and devotes relatively less time to planning and more time to coordination an communication. It is concerned with administrative or tactical planning that supports the strategic planning. Specific plans for the different areas of management discipline, such as, personnel, production and marketing are implemented by middle management. Examples of administrative or tactical planning are: Research and Development, Marketing, Manufacturing, Finance etc. Administrative plans are mostly medium-range plans.

Fig. Planning Fun in Management Hierarchy: time interval of planning Decision

LOWER MA�AGEME�T

Lower management is directly concerned with operational planning. At this level, the first-line managers such as the heads of departments and sections concentrate on planning of daily, weekly and monthly operations. In short, it relates to short-range plans. Typical examples of operational planning are : plans for finished goods inventories to meet current market demands, plans to accelerate research project which are behind schedule, plans of routing, scheduling and dispatch in production, cash – flow budget, etc. All operational plans are concerned with the planning structures and repetitive activities in the different department of the organization.

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REVIEW QUESTIO�S

1. What is Planning? Assess its role in management.

2. “Planning is looking ahead and control is looking back.” Comment.

3. “Planning should be defined as the selection from alternative policies, procedures and programmes.” Explain.

4. Briefly discuss the nature of planning.

5. Evaluate the importance of planning in modern business.

6. Evaluate the importance of planning in modern business.

7. Is planning economic? Also point out the limitations of planning.

8. Comment upon the planning activities at different levels of management.

9. Define ‘Planning’. Discuss the essential character of Planning.

9. Briefly explain the future of a good plan.

CASE :

The Shelley Company has been purchasing one of the main ingredients in its product from outside vendors, but it has been plagued with shortages and difficulties in getting deliveries within a reasonable space of time. The top executives have therefore decided to consider producing the ingredients in a company-owned facility.

Now the company has two possibilities: It may purchase an existing plant and convert it to its own use, or it may acquire land and build a plant of its own. Instead of appointing a single committee to consider each course of action and make a recommendation, the president decides to appoint two committees. One of these is to determine the reasons why purchase of an existing plant is the better alternative, and the other is to take the opposite viewpoint and advocate building a plant. Both commit tees, of course, must do a considerable amount of research in order to support their viewpoints.

You are a member of one of these committees (choose which one), and the head of it asks you to suggest some of the things the committee should do and some of the facts it should ascertain.

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Write a report for him, listing the steps you would suggest. Do you think this is a good way of deciding the issue? Why or why not?

American Colonial period, the lamp makes an impressive addition to window, mantelpiece, and end table displays. It has been well received by the public and provided a steady reliable income for Modern Medallion.

Up until 1976, the lamp was sold through specialty and gift shops at a price of $25.95, which meant a sizable profit for the retailers. Then the company decided to offer the lamp as a Bicentennial item and sell it throughout the country through department stores, hardware stores, and furniture stores as well as through the gift shops and specialty outlets. In keeping with the Bicentennial theme, it set a retail price of $17.76 and planned magazine and TV exposure of the product stressing the Bicen tennial theme. Any retailer who attempted to sell the lamp for a higher or lower price would lose the benefit of this advertising since the price was directly connected to the Bicentennial celebration.

The lamp was only one of hundreds of items manufactured by Medallion. Other major categories included bronze statuary; commemorative coins and medals; metal baskets and containers for homes and offices; door latches; drawer handles; and miscellaneous functional and decorative hardware.

Questions :

1. Was this good planning? Why or why not?

2. What do you suppose happened?

3. If the company decided to use another product as its Bicentennial specialty, which should it choose?

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U�IT – II

LESSON – 5

COMPO�E�TS OF PLA��I�G

CLASSIFICATIO� OF PLA�S

In the process of planning several specific plans are prepared which may broadly be classified into two categories: Standing and Single-Use Plans.

Examples of ‘Standing Plans’ are Mission, Objectives, Policies, Procedures, Rules, Strategies etc. The Standing or Repeated-Use Plans are formulated by the Managers at different levels and are meant for repeated use as and when the occasion demands. Programmes, Projects, Schedules, Budgets and Standards are examples of ‘Single-Use Plans’. The basic difference between Standing and Single-Use plans lies in the fact that Standing Plans are used over a long period of time whereas the Single-Use Plans are used only for specific periods. The components of both these types of plans are explained in the following paragraphs.

STA�DI�G OR REPEATED-USE PLA�S

These include the following

1. Mission

Every organisation must have a mission ; then only it becomes meaningful or purposive. The ‘mission’ of a business organisation may be two-

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fold : (i) production and distribution of goods and services in order to satisfy the basic needs of the consumers, and (ii) provision of employment and a source of income to the people whereby they might be in a position to purchase their desired goods and services; The mission is the central guiding concept describing the fundamental reason for the existence of an organisation, It indicates the line of business and reflects upon philosophy of management. lii short, the mission gives a clear-cut idea about basic long-run commitment of an organization.

2. Objectives

Definition. Objectives may be defined as the goals which an organisation tries to achieve. Objectives are also described as the end-points of planning. In the words of Koontz and O’ Donnell ‘Objective is a term commonly used to indicate thee- t (i) ii point of a management programme.” According to Dalton E, McFarland, “Objectives are the goals, aims or purposes that organisations wish to achieve over varying periods of times” ‘Objectives’ is a wider term and ‘Mission’ is part a and the parcel of it Objectives decide where we want to go, what we want to achieve and next what is our destination. Objectives constitute the purpose of the enterprise and ends re without them no intelligent planning can take place.

Characteristics. Important characteristics or features of objectives are as below : (i) The objectives must be pre-determined. (ii) The objectives must be reduced to black and white A clearly defined objective provides the clear direction for managerial efforts (iii) Objectives must be realistic, i e they must be within the reach of the organisation. (iv) Objectives must be measurable. (v) Objectives must : have social sanction. Restrictions on organisational objectives are put through social rules, norms or customs. (vi) Objectives are usually plural. As Drucker puts it, “The search for one objective is essentially a search for a magic formula that will make judgment unnecessary. Objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity of the business.” Peter Drucker has recommended eight key areas in which business firms have to set their objectives Market standing, innovation, physical and financial resources, manager performance and development, worker performance and attitude, productivity, profitability and public accountability. (vii) All objectives are interconnected and mutually supportive. (viii) Objectives may be short-range, medium-range and long- range.

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(ix) Objectives may be constructed into a heirarchy, e.g., overall, major, divisional, departmental, etc.

Advantages. Good management is management by objectives. According to L.Gulick, “In administration God helps those administrators who have a clearly defined objective.” An organisation can grow and prosper in an orderly and progressive manner only if well-defined goals have been established to guide its progress Certain specific benefits of sound and carefully chosen objectives are as follows : (1) Clear definition of objectives encourages unified planning. The unifying effect arises when the plans prepared by different departmental heads are adjusted to a common objective. (2) Objectives provide motivation to people in the organisation. Objectives help in providing the sense of unity, harmony and accomplishment to cooperative efforts. (3) When the work is gdal-oriented, unproductive tasks can be avoided. (4) Objectives provide standards which aid in the control of human efforts the in an organisation. (5) Objectives serve to identify the organisation and to link it to hem the groups upon which its existence depends. (6) Objectives act as a sound basis for the developing administrative controls. (7) Objectives contribute to the management and process ; they influence the purpose of the organisation, policies, personnel, and leadership as well as managerial control. (8) Objectives indicate, the contribution to be made by each unit and thus it is the basis for decentralisation. (9) MB (Management by Objectives) programme cent per cent depends upon clear cut objectives.

Types of Objectives. Mere maximisation of profit cannot be the sole objective of an enterprise. Objectives may be external as well as intenwi. ‘Service of the customer’ is the primary external objective of an enterprise. Consumerism may develop when business forgets its primary responsibility towards the consumers. As a social institution business must maintain and develop the quality of life ; it should prevent all type of pollution. Moreover, in addition to its social obligation towards the consumers, business must fulfil the expected responsibilities towards the society, community and the government. The internal objectives of an organi relate to (i) maximum profitability, (ii) maximum service and satisfaction to employees, and (iii) fair return on the shareholder’s investments.

Hierarchy of Objectives. Objectives set up by top management act as the ends and the middle managements plan to achieve those objectives (or ends).

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Thus at the next lower level the objectives act as the means. Each level of objectives stands as ends relative to the level below it and as means relative to the level above it ; this is known as what we call ‘Means-ends Chain of Objectives The following diagram beautifully illuminates this point•

HIERARCHY OF OBJECTIVES

Setting of objectives. The following considerations play an important role n the setting of ob : (1) Organisational objectives are of multiple character; hence pressing and dominant objectives should be given priority over others through the constant adjustment of short-run emphasis on such objectives. (2) Co-ordination and balance should be maintained between the overall objectives of the organisation and the departmental goals; (3) Translation of major objectives into operating objectives should be in tangible and meaningful terms. (4) Objectives should be realist rather than idealistic. (5) Objectives may be (a)major or minor, (b) short-term or long-term, and (c) economic or social. Major objectives relate to the chief purpose of the Organisation and minor objectives are subordinate to but consistent with the major objectives. In the short term an enterprise may concentrate more on satisfying customers with

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good products at cheap price, keeping in view the long-term objective of maximum profit. Short-term objectives should be treated as steps towards long- term objectives. Economic objectives are goals with respect to the market place. Social objectives refer to the company’s intentions towards its employees, shareholdei1 and the public at large. (6) Objectives have to be set up for each person and for each responsibility centre. For example, the foreman on the shop floor as well as the departmental manager should know what exactly they live to achieve and how? Setting up detailed quantitative objectives is an essential task of planning.

2. Policies

Meaning and Definition. Policy-making is another most important component of business planning. Policies are guides to action. They provide abroad guideline as to how the objectives of an organisation are to be achieved. In the words of Joseph L. Massie, “Policies include that body of understanding (generally known by members of the group), which makes the action of each member of the group in a given set of circumstances more pr to other members.” According to Koontz and Q’ Donnell, “Policies are general statements or understandings which guide or channel thinking in decision-making of subordinates.”

Features of sound policy. The following features of a policy emerge from the above definitions: (i) The policy tries to contribute to the organisational objectives. (ii) Policy is formulated through the various steps in the decision-making process. (iii) Policy can be interpreted from the behaviour of the top management. (iv) Policy provides guidelines to the members of the organisation for choosing a particular course of action. (v) Policy-making is the task of all managers ; however, the higher manager is in the organisation, the more important is his role in policy-making. (vi) A sound policy must be flexible in its implementation. (vii ) A policy should be uniform in its application ; it must be fair to all, offering equity and justice to those who are affected by it.

Relationship and distinction between Policies and Objectives. Objectives are end-points of planning, while policies prescribe the broad ways in which the objectives can be realised. Objectives and policies may be distinguished along the following lines : (i) Objectives are basic to the existence and functioning of air organisation but policies are not. While we cannot visualise an organisation without a mission or objective, it is possible for an organisation to function

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without policies (ii) Objectives are ends ; policies are means to ends ; they throw light on the question of how objectives are to be achieved. Objectives and policies are related to each other in an ends-means chain or hierarchy. (iii) Objectives are stated in broad ideological terms and tend to take the shape of vague, abstract aspirations expectations and intents of an organisation. Policies, on the other hand, give meaning and content to objectives, clarify the intents of top management and express its aims in more specific terms. (iv) Objectives are often branded as official or stated goals which in many cases remain on paper. In contrast, policies indicate the real intents of the organisation and reflect its true character. (v) Objectives are meant to be achieved but policies are meant to be observed by managers. Policies clarify the perspectives of managers for handling the managerial problems in a disciplined manner.

Importance. The importance of policies can be judged from the following points—(i) Policies lead to a uniform pattern of action in respect of various matters relating to an organisation. (ii) Policies speed up decision-making since they provide a framework within which the decisions can be taken. (iii) Policies help both men and boss to work for a better performance. (iv) Policies help in securing effective Co ordination of efforts and activities in the organisation.

Classification of Policies. Alford and Beatty have classified the industrial policies as follows:

1. Top management policies are those derived from top management planning. They include policies concerned with long-range product selection, sales forecasting, sizing the enterprise, process selection, machine selection, determining plant needed, and budget.

2. Upper middle management policies are those which are special to a function, such as sales, production, research, finance accounting and are made by the vice-president or other executive responsible for these functions. They should he in harmony with the major policies of the enterprise.

3. Middle management policies are those which grow out of the planning of junior executives, superintendents of departments or divisions and others in like positions. These men are functional, product or area specialists within the sales, production, research, finance, or accounting sub-division of the enterprise.

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4. Foremen policies are those directly related to the accomplishment of the set for his small sub-division or the whole enterprise. They include the policies concerned with the assignment of the jobs to the best suited men, the provision for adequate tools by which to do the job, and so forth.

5. Operating force policies are those found in little notebooks in the possession of each worker. These state his rule or code for doing each job that he is called upon to do. From it, the worker knows how long each job should take, what, tricks of the trade are required, and what quality features are emphasized. He does not trust to his memory to complete a respective job satisfactorily, for he has an established policy to follow for this recurring situation.

6. Sales policies may be concerned with determining location of markets, selecting channels of distribution, dividing the total market Into branch or dealer areas, pricing the product, determining sales incentives, establishing advertising policies, setting up sales control policies, and establishing sales volume and expense budgets.

7. Production Policies may be concerned with the making of a production budget, selection of junior executives, the organization and co-ordination of their activities, factory layout, inventory control, collective bargaining and labour relations, selection of system for quality, cost and production control, and the like.

8. Research policies may be concerned with the selection of projects for investigation, the choice of personnel and mechanisms for carrying out these activities, the determination of research budgets, the measurement of results and similar matters.

9. Financial Policies. In the area of finance a number of policies would be required, such as: (i) The method of raising funds and the ratio between the various types of sources of funds. How much risk the company can undertake ? What return does it expect on the funds procured and how much of the control aspect management is willing to give? (ii) Policy for the use of the funds and the ratio between different types of assets. (iii) The credit policy and the distribution policy towards customers. (iv) The dividend policy, i.e., how much dividends are to be declared out of the profit earned. (v) Provision for working capital requirements and other matters of this type.

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10. Costing Policy. It may include the policy for selecting the method of costing, the method of allocating, apportioning, re-apportioning and absorbing overheads, etc. .

11. Accounting Policy. This may include the following: (i) The basis of valuation of stock of finished goods. It is a matter of policy whether the finished goods are valued at total cost or at direct cost or at works cost; (ii) The issue price of raw materials, whether to follow FILO or LIFO or average cost or any other method of pricing (iii) Depreciation policy. i.e., which method of depreciation be followed:

12. The treatment of deferred revenue expenditure, intangible assets, fictitious assets and preliminary expenses ; (v) Capitalisation of expenditure during construction period ; (vi) Policy for provision of doubtful debts, investment losses, etc.

13. Marketing Policy. Here a number of policies in market analysis, business law, display and salesmanship may be followed.

14. Promotion Policies. The objectives of the promotion policy may be: (i) to utilise fully the managerial resources of the organisation ; (ii) to provide a fair opportunity to all for advancement and promotion ; and (iii) to base the promotion on an objective assessment of merit and not merely seniority.

In order to achieve the above objectives, the following policy guidelines may be laid down : (a) Promotions will be based on merit. A vacancy can be filled by promotion where the individual concerned fulfils the requirements of the job for its most effective performance, in terms of education, professional qualifications, experience, knowledge of the job, background, personality and personal qualities, etc. Factors like age, health and effect on morale or other aspirants will be considered. (b) All appointments in senior management cadres will be made by the Board of Directors as a whole, through recruitment, promotion or rotation. (c) In case of promotions to vacancies below the senior management level, these will be recommended to the Board by the line director in consultation with the personnel director. (d) High-fliers will be identified through annual appraisal system at as early a stage as possible. A list of such persons be maintained by the personnel director.

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15. Product Policies. These may include the following : (1) The company will deal in the whole range of engineering products for construction projects. (ii) The products of the company will be meant mainly for government and industrial customers. (iii) The company will purchase as many of the components as possible from small-scale industrial units and will concentrate largely on assembling. (iv) The company will try to differentiate its products from those of the rival manufacturing units in terms of shape, design and other specifications. (v) The company will book bulk orders and make its products available according to the specifications provided by the clients.

Policies are also classified according to their origin as originated, appealed, implied and imposed policy. An Originated Policy is that which is formulated by the managers in the organisation for their subordinates’ action as well as their own action. The broad policy laid down by the top management becomes a guide for the managers at the lower levels of the organisation who formulate policies for the benefit of their subordinates. Appealed Policy arises from the appeal made by a subordinate to his superior for deciding an important case. Appealed policy decisions are mostly to solve current problems or issue. An Implied Policy is one that is inducted from the action and behaviour of the top management. An Imposed Policy is a policy that is imposed by some external force like the government, trade union or a trade association. Labour policies formulated to comply with labour laws or meet the terms of a collective agreement belong to this category.

Essentials of the Policy Formation. According to Alford and Beatty, the essentials of policy formation may be listed as below

1. A policy should be definite, positive and clear. It should be understood by everyone in the organisation.

2. A policy should be translatable into the practices and peculiarities of every department and division of the organisation.

3. A policy should be flexible and at the same time have a high degree of permanency.

4. A policy should be formulated to cover all reasonably anticipatable conditions.

5. A policy should be founded upon facts and sound judgment.

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6. A policy should conform to economic principles, statutes and regulations and should be compatible with the public interest.

7. A policy should be a general statement of the established rule to follow in recurring situations ; rather than one prescribing detailed procedure.

Policy Manual. When the policies are reduced to black and white and compiled into a book or manual, that may be designated as a ‘Policy Manual’. The organization is considerably strengthened by having a Policy Manual, because the statement of policy, then becomes readily available for reference and guidance. Some of the advantages of a policy manual may be enumerated as follows (1) Lessen misinterpretation, misunderstanding, and resulting friction because the policies are stated in writing. (2) Provide a check list of current policies which can be used to determine whether or not they are being adhered to. (3) Constitute useful instructional device for acquainting the personnel with the principles and procedures required to make the policies effective in the operation of the enterprise.

4. Procedure

Meaning. A ‘Procedure’ is a standing plan describing a customary method of handling a future activity. The term ‘Procedure’ refers to a specific administrative directive prescribing the sequential manner in which a repetitive activity is to be initiated, carried forward and completed in a goal-oriented manner. Procedures are meant to standardize and routinise the pattern and, pace, of work flow at the operational level. They provide the framework for doing routine things in a rational and expeditious fashion so that there is little duplication of effort, waste motion and confusion. They help the process of streamlining and simplifying administrative activity. In the words of George R. Terry, “A Procedure is a series of related tasks that make up the chronological sequence and the established way of performing the work to be accomplished.” For example, the procedure of scientific selection of employees may have the following steps : (i) Preliminary interview, (ii) Application blank, (iii) Reference check, (iv) Employment tests, (v) Final interview, (vi) Supervisor’s approval, (vii) Medical checkup, (viii) Appointment, and (ix) Induction or Orientation.

Importance and Benefits. Procedures help to standardize and streamline the day-to-day activity in organisations. Whether for procuring funds, for manpower recruitment, for receiving and inspecting materials and stores, for

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sanctioning expenditures or for granting leave, certain standard operating procedures are laid down as a basis for the operators to know how to process the matter in a systematic manner without leaving loose ends, in the best interest of the organisation as reflected from the management’s approval of the procedures. A procedure has the following ad vantages : (i) It ensures uniformity of action ; (ii) It decreases the need for further decision-making laying down a standard path to follow; (iii) It increases co-ordin tion among the personnel in the organisation and its departments : and (iv) It provides a good standard for the manager to appraise his employees. Procedures serve as tools of managerial direction, co-ordination and control of specific activities within the organisation. Managers formulate procedures for observance by people in work situations so that ‘Management by System’ takes hold ; well-laid down procedures tend to become working habits of people to the extent that they structure, smoothen and simplify the patterns of their work performance. Any intentional deviation from well-established procedures without adequate reason is bound to be frowned upon by those who have laid them and/or who are affected by them.

Policies and Procedures distinguished. (i) Procedures are guides to action while policies are guides to decision-making. (ii) Policies are determined by top management in general, after considering a wide range of important variables ; procedures are formulated at relatively lower managerial levels. (iii) In the ends-means chain policies occupy a higher position than procedures ; in fact the latter are derived from the former; policies form the basis for determination of procedures. (iv) Policies form part of the organisations strategic postures in combination with objectives and long range plans, to enhance the capability of the organisation to cope with complex external environment. Procedures are more tactical; they are operational devices for the efficient guidance of routine or ‘steady state’ organisational activity. Their scope is limited. (v) Policies are relatively flexible and they allow managers a measure of discretion and latitude in deciding upon relevant issues. Procedures are more deterministic and are meant to be observed as faithfully as possible. (vi) Policies serve as bridges between organisational purpose and performance while procedures serve as bridges between activities and outcomes. (vii) A policy-centred thinking on the part of managers is considered a healthy sign and is encouraged in organisations, but in the case of procedures, a single minded focus on them is regarded as inimical to organisational goals.

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Setting a Procedure. The following points should be kept in view while setting a procedure: (i) The basic principle of procedures is that they should be kept to the minimum possible. (ii) Procedures should be based on adequate facts of the particular situation, not guesses or wishes. (iii) Procedures to be effective must be recognised as a system of interrelated activities in a network. (iv) While designing a procedure proper balance should be kept between stability and flexibility. (v) Procedures should be reviewed at intervals and necessary changes should be made as per research and development programmes.

5. Rules and Methods

Rules and Methods are Standing Plans in a formal organisatlon, in association with policies and procedures. They are meant for repeated reference, ready guidance and strict adherence by people in work situations.

Meaning of Rule. The term ‘RULE’ is defined as a prescriptive directive to people on their conduct and action. Rules are almost in the nature of ‘commandments’ seeking to discipline, structure and restrain behaviour and task performance of people in formal organisational settings. A rule is in the nature of a decision made by the management regarding what is to be done and what is not to be done in a given situation. A rule is definite and rigid ; it allows no deviation or discretion to subordinates. Generally the breach of rules carries a penalty. Illuminating examples of rules are : (i) Employees are to retire once they attain the age of 58 years ; (ii) Smoking is prohibited inside the factory; (iii) Officers are not entitled for over-ti allowance ; (iv) All purchases are to be made only through calling tenders.

Rule and Procedure Differentiated. More often than not, a rule is confused with policy because both provide guidelines for action, However, there is a difference between these two. A ‘Policy ‘provides guidelines for managerial action by defined areas of discretion, whereas in a ‘Rule’ there is no such discretion. Rules are impersonal and are meant for observance irrespective of the personalities involved. Rule is a rule allowing no liberty or leniency. For example, a rule like ‘No Smoking’ is applicable to each and every person working in the concern or passing through the prohibited area. Even the chief executive is bound by such a rule.

Rule and Procedure Differentiated. A rule is also different from a procedure. As a matter of fact, a procedure may be looked upon as a sequence of

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rules; however, a rule may or may not be a part of a procedure. For example, ‘Smoking is prohibited’ is unrelated to any procedure, but if somebody violate it, he may be penalised according to a certain set of procedures. Rule does not prescribe a time sequence for an action whereas procedure does so.

Meaning of Method. A Method’ is a prescribed process in which a particular operation of a task is to be performed. It specifies the ‘one best way’ of performing each step in a task. It defines the technology of individual operations in a work situation. As compared to procedure, ‘Method’ describes how one particular step of a procedure is to be performed. Method involved only one department and one person, while a procedure may involve many departments and many persons in an organisation. A method is meant to be a complete guidance to individuals in their performance of tasks. The most important advantage of Taylor’s scientific management movement was the determination of standardized, simplified and efficient methods of performing physical task by operatives. In the modern 0 & M (Organisation and Methods) area of activity, much attention is devoted to develop and refine methods of carrying out clerical, administrative and managerial tasks. In modern computer systems also, standard methods are generated to instruct the computer what operations it has to perform in processing data.

Methods and Rules Distinguished. It is clear from the above discussion that there are important differences between methods and rules. The main points of difference may be outlined as below:

(1) Methods are meant for efficient and Consistent performance of tasks ; they link inputs and outputs in operational situations. Rules, on the other hand, are in the nature of cautions, taboos and norms. They state in clear terms what must and must not be done. They have very little to do with efficiency of performance.

(2) Standardization of methods also calls for standardization of the related working conditions within which tasks are performed ; otherwise observance and application of methods become difficult on the part of individuals. In case of rules. no such standardization of conditions is needed.

(3) Much research and analysis goes into formulation of methods. It is not a simple or routine task. But rules are formulated by management, on the

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basis of its conmon-sense, applicable legal requirements and judgment n the light of personal values and corporate objectives.

(4) In general, violation of or deviation from methods, though rare, by individual employees does not attract penalty whereas the violation or by-passing of rules is viewed seriously by management and some penalty is attached to such lapses.

(5) Rules are often regarded as official, formal, authoritative and bureaucratic. They are also associated with control, order, coercion and conformism. Methods are generally free from such associations. They are more viewed as scientific, objective, rational, logical means of ensuring standardization, simplification and systematisation of work. Rules are ‘enforced’ by management whereas there is little appearance of enforcement in case of methods.

(6) Methods relate to physical and other tasks and define the way how thcy . to be performed. Rules relate to individuals and groups and define the way how they have to behave in particular situations.

6. Strategies

Literally speaking, the term Strategy’ stands for the war-art of the military general, compelling the enemy to fight as per our chosen terms and conditions. A strategy is a special kind of plan formulated in order to meet the challenge of the policies of the competitors. In another way Edmund P. Learned has defined ‘strategy’ as “the pattern of objectives, purposes or goals and major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be and the kind of company it is or is to be.” Koontz and 0’ Donnell have called the former as ‘Competitive Strategy’ and the latter as ‘Grand Strategy’. The purpose of grand strategy is to determine and communicate through a system of major objectives and policies, the probable shape which the organization is likely to take in future. David I. Cleland and William R. King, in their popular work, ‘A System Approach’ have beautifully pointed out that “Strategy is the complex plans for bringing the organisation from a given post* to a desired position in a further period of time.” The principal purpose of ‘Competitive Strategy’ is to encounter the forces of competitors so that competition is faced boldly and scientifically. Keeping this purpose in view, Haynes and Massier have defined strategy as “the planning for

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unpredictable contingencies about which fragmentary information is available.” According to C. T. Hardwick and B.F. Landuyt, “The word strategy is used to signify the general concept and salient aspect of gamesmanship as an administrative course designed to bring success.” Strategy may also be designed by the general forces operating in an industry and the economy. For example, if the management anticipates an economic recession, it may decide upon a strategy of reduced stocks, fewer staff, reduced expenses, etc. According to force Haimann, “Strategy is an interpretative policy. It is a policy that has been formulated by the top management for the purpose of interpreting and shaping the meaning of other policies.

Characteristics of Strategy. The following characteristics emerge from the above definitions of ‘Strategy’ : (1) It is the right combination of different factors. (2) It relates the business organisation to its environment. (3) It is an action to meet a particular challenge, to solve particular problems or to attain a desired objective. (4) Strategy may need contradictory action. For example, today a manager may adopt a particular course of action but tomorrow he may revise the same due to changes in situations. (5) Strategy is forward looking. (6) It is a means to an end and not an end in itself. (7) It is a means of coping with or managing the events and changes in the external environment. (8) It is formulated at the top management level. (9) It is generally long-range in nature but short-range moves are also specified in it. (10) It is and flexible and dynamic. (11) It involves assumption of certain calculated risks. (12) It is action-oriented and more specific than objective. (13) It is generally meant to cope with a competitive setting, in which the behaviour of competitors and other adversaries of the enterprise affects its own functioning and performance.

Strategy and Policy Distinguished. Policy is a guide to the thinking and action of those who make decisions, while Strategy relates to the direction in which human and physical resources are to be used in order to maximise the change of achieving a selected mission in the face of competition and other hurdles. Secondly, policy is a contingent decision, whereas strategy is a rule for making decision. Thirdly, the implementation of policy can be delegated downward in the organisation whereas the strategy cannot, since it requires a last-minute executive decision.

Strategy Formulation. A perfect strategy can be built only on perfect knowledge of the plans of others in the industry, This may be done by the

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management putting itself in the position of a rival and then trying to estimate their plans. There are three phases in strategy formation, viz. Determination of objectives, (‘2) Ascertaining the specific areas of strengths and weaknesses in the total environment, and (3) Preparing the Action Plan to achieve the objectives in the light of environmental forces. The following factors will determine the right strategic decisions (i) It must be appropriate in the light of available resources ; (ii) It must be workable ; (iii) It must involve acceptable risks ; (iv) The timing of the action plan must be appropriate ; (v) The action plan must be based on reliable anticipations of (vi) future trends and conditions ; (vi) There should be a perfect co-ordination between and the objectives and strategies ; and (vii) Strategy must fulfil ethical and social responsibilities.

Appropriateness of a business strategy and its evaluation. Since a business strategy is a pragmatic plan of action to achieve desired goals, there is an ever- present need to measure its appropriateness. Seymour Tiles offers six criteria for evaluating the appropriateness of a business strategy

1. Internal Consistency. The strategy of an organisation must be consistent with its other strategies and also its goals, policies and plans. Serious internal inconsistency in business strategy is bound to give birth to problems in the course of its implementation.

2. Consistency with the environment. The strategy must be consistent with the external environment. It has both static and dynamic aspects. In a static sense, it implies judging the strategy with its suitability to the existing environment. in a dynamic sense, it implies judging the efficacy of strategy with the changing environment. The strategy selected should enhance the confidence and capability of the enterprise to manage and adapt with or gain command over the environmental forces.

3. Appropriation in the light of available resources. Strategy needs a realistic assessment of the resources of the enterprise—men, money and materials— both existing resources as also the resources, the enterpirse can command. The resources of an enterprise also include the skills of management and other manpower, command over sources of scarce raw materials, production facilities, technology, marketing capabilities, and image, and so on. It is advisable that the individual enterprise formulates its strategy within the limitations imposed by its resources. The objective is to ensure that the enterprise’s resources are not over stretched or over-strained on the one hand and

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to utilise the existing/commandable resources in the best possible manner, on the other

4. Acceptable degree of risk. Any major strategy carries with it certain elements of risk and uncertainty because it covers a relatively longer future horizon and because it seeks to cope with a complex environment. The amount of risk inherent in a strategy should be within the bearable capability of the enterprise. Resources should not be committed irrevocably, nor should they be concentrated on a single or narrow range of ventures. Also, there should be much between risk and returns, financial and otherwise.

5. Appropriate time horizon. Time is the essence of any strategy. A good strategy not only provides what objectives would be achieved, it also indicates when those objectives would be achieved, in selecting an appropriate time horizon, the organisation must pay careful attention to the goals being pursued. An optimal time span cannot be mathematically determined ; it is a matter of environmental conditions, the objectives to be sought and the judgment of management.

6. Workability. Last, but not the least, the strategy must have enough degree of workability. It must be feasible and should produce the desired results within the constraints and parameters known to management. It must be realistic and relatively simple and intelligible at the level of interpretation and implementation.

ADVA�TAGES OF STA�DI�G PLA�S

The advantages of standing plans may briefly be summarised as below: (i) Managerial effort and time can be minimised. (ii) It facilitates the delegation of authority. (iii) Effective control can be enforced. (iv) Standard operating procedures and methods evolve considerable use of the ‘one best way’ under scientific management. (v) it helps in co-ordinating the different activities of an organisation. (vi) Standing plans enable the performance of work by persons with less experience and ability. (vii) it is easy to train people under recognised policies and procedures. Job rotation is also feasible.

The only disadvantage is that the manager’s discretion is reduced. It is apparent from the following diagram:

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SI�GLE – USE PLA�S

Single-use plans are devised to meet the demands of a particular situation and are not meant to serve as standing guides to thinking and action. These include the following.

Meaning. A ‘Programme’ may be defined as single-use comprehensive plan designed to implement the policies and accomplish the objectives. It gives a step by- step approach to guide the action necessary to reach a pre-determined goal. It is really a combination of policies, procedures, rules, budgets, task assignments etc. for the specific purpose of carrying out a particular course of action. It is designated as ‘single-use plan’ because a programme cannot be used in the same form again, once its objective is achieved. The expansion programme of a cotton mill is a case in point. A programme may be a major or a minor one ; along-term, medium-term or a short- term one. Generally, a programme is supported by the required capital and operating budgets.

Essential features of a programme. (1) It is a single-use but comprehensive plan. (2) It lays down the principal steps for accomplishing a mission. (3) It gives a • step-by-step approach to guide the action plan. (4) It is guided by the objectives and strategies and covers many other types of plans. (5) It is a time-table of the future action. (6)It ensures smooth, efficient and integrated functioning of an organisation. (7) Programmes involve an integrated and coordinated planning approach.

Basic steps in programming. (i) The various activities needed to achieve the objective are first to be divided into clear-cut steps. (ii) The steps are then to be arranged in a proper sequence. (iii) Then the programme team should be decided, i.e., who will do what, where, when and how? (iv) Determine the

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various resources required for each step. (v) The time required for each step should also be ascertained. (vi) Assign definite dates for each part of a programme. (vii) Overall or Master Schedule for the Programme should also be prepared.

2. Projects

Meaning. A single step in a programme is known as a ‘Project’. A project is a single-use plan which is part of a general programme. It may be defined as any scheme or a part of a scheme for investing resources, which can be analysed and evaluated as an independent unit. It is actually a proposal of investment which can be separately appraised through cost-benefit analysis.

Essential features’. (i) It is a non-recurring plan. (ii) The activity is definable in terms of specific objective. (iii) It involves time-bound activities. (iv) Project approach is needed when (a) the work to be done is special requiring expertise from different departments; (b) the work is very complex; (c) high cost is involved; (d) errors and omissions are to be minimised; and (e) ‘one-shot’ and time-bound activities are needed. It is a one-time crash programme. A project has a distinct mission and a clear termination point. Advantages. When the programme is set up in projects, the task of management becomes easier. There is a precise allocation of duties with a clear sense of responsibility and, due to easy control, the implementation of the plan too becomes easier.

3. Schedules

Scheduling is a process of establishing a time sequence for the work to be done. It is an essential part of an action plan. It prescribes the exact time when each step would begin and when it would terminate. When the tasks to be done and the persons who must do them are ascertained, the only important thing attracting the attention of the management is ‘scheduling’.

4. Budgets

Meaning. A budget is a single-use plan expressed in quantitative terms. It is always expressed in numerical terms ; hence it is also known as what we call ‘Numerised Plan’. According to Koontz and O’Donnell, “A budget as a plan is a statement of expected results expressed in numerical terms.” Budgets may be prepared in terms of time, money, materials or other units required to perform work and accomplish specified results. Since most values are ultimately

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convertible to monetary units, money budgets are commonly used. The preparation of budget is planning. It calls for the compilation of all relevant facts and figures like any other plan.

Essential features of a Budget. (1) Budget plays a dual role ; it is a planning instrument on the one hand and a control device on the other. Budgeting actually provides a means for controlling operations. (2) Usually there is a separate budget for each unit and a master budget for the entire organisation. (3) Usually budgets are prepared for the financial year, but there may be monthly or quarterly budgets also. (4) Budgets can set standards of performance so very necessary for the control process.

The budgets may be prepared for various groups of activities. Examples of certain important budgets are : (i) Materials budget, (ii) Production budget, (iii) Personnel budget, (iv) Sales budget, (v) Cash flow budget, and (v) Profit budget. Budgets are most widely used instruments for planning and control. As a type of plan, budget has the advantage that the departmental and organisational goals are expressed in exact numerical terms. This makes the co-ordination or departmental plans easier.

5. Standards

Generally speaking, all plans are considered as standards. from a specific point of view, a ‘Standard’ is a norm or criteria against which performance is compared and evaluated. In short, a ‘Standard’ is a guide for performance evaluation.

A company may set up a variety of standards expressing the anticipated results of the plans. Qualitative and quantitative standards are established in each area of business, e.g., physical standards, quality standards, personnel standards, performance standards, standards of service and conduct, etc. Financial ratios (such as liquidity ratios, current ratio etc.) are very popular in financial management as standards of ‘ economic performance.

KI�DS OF E�TERPRISE PLA�S

An enterprise may have the following types of plans:

• Business or Divisional Plans. If an enteprise has separate divisions for different products like radios, television sets, electric computers and spare

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parts; divisional plans can be prepared for each one of these divisions separately.

• Functional Plans. These relate to the various functions of the enterprise. For example, a marketing plan may be prepared for the enterprise as a whole as also for each of the divisions of the enterprise.

• Geographic or Regional Plans. If an organisation has got regional divisions, it may have plans for each division or zone. They are also Known as territorial plans.

• Corporate Plan. It relates to the complete plan for the entire organisation.

• Long, medium and short-range plans. Long-range plans extend to 10 or 20 years ; medium-range plans extend to 5 years and short-range plans generally extend to one year.

REVIEW QUESTIO�S

1. Policies are guide for managerial action.’ Discuss this statement and give at least two examples of policy in any area of business management.

2. Policies establish the framework upon which planning procedures and programmes are constructed.’ Discuss and show the area of policy formation.

3. Define Policy. Is it related to objectives ? What is its role in management?

4. What characteristics do policies have? Discuss the major policies set by top management group. - Also discuss how the upper middle management policies are developed from the top management policies?

5. What are the features of a sound policy? How are the policies formulated and communicated?

6. What policies are determined by the operating force? Discuss the part that the lines of communication within a plant play in policy formation.

7. Indicate the effect of external factors on policy formation. Also describe the advantage to be derived from a policy manual.

8. Policies are the guiding principles established by the company to govern actions, usually under repetitive conditions.’ Discuss showing the area of policy formula%.jon.

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9. What is a Procedure? Distinguish between policy and procedure. )

CASE :

Commercial brewing has long been an important business in the Netherlands. Indeed, two breweries there date back to the thirteenth century Currently there are twenty breweries in the Netherlands, and Heineken N. V. owns four of them—Heineken, Amstel, Brand, and De Ridder.

Heineken is the number-one imported beer in terms of sales revenue in the U.S. market, and it is sold in more countries than any other beer. It recently moved from third to second place in terms of beer sales in the world (behind Anheuser-Busch Companies but now ahead of Miller Brewing Company). Although Europe and the Americas comprise a large proportion of its sales, it exports to more than 160 countries, and it is expanding its international operations.

The typical Heineken expansion move involves first exporting its brands to a particular country to establish a brand image and to test the market. Then, if the market appears promising, it licenses its brands to a local brewer. Finally, as that relationship develops and if sales continue to be strong, it will obtain partial ownership or enter into a joint venture with the local firm. This keeps the local brands relatively low priced while allowing the Heineken brand to be a higher-priced, premium brand.

Heineken maintains the quality of its brands by carefully controlling the use of its special yeast, Heineken-A. Twice a month shipments of that yeast are sent to each of the breweries that make Heineken around the world. Careful quality control and premium pricing have been Heineken’s strategy for success in the global marketplace.

Despite its success, international competition remains fierce and is increasing. Anheuser-Busch began negotiations with the Czechoslovakian government-owned brewery, Budvar (the brewer the original Budweiser beer). Heineken countered by opening negotiations with Pilsner Urquell, another major Czechoslovakian brewery. Miller obtained a 20 percent interest in Canada’s Molson Breweries and Miller’s parent company, Philip Morris, bought into Femsa, the Mexican brewery that makes Dos Equis.

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Heineken, on the other hand, bought a controlling interest in Komaromi Sorgyar, a Hungarian brewer, to strengthen its position in Eastern Europe. In addition. it acquired breweries in France, Greece, Italy, Spain, and Ireland. By 1994 numerous plans were under way to strengthen its U.S. position through a new advertising campaign, an expansion of Amstel Light, and the possibility of a new brand.

Rumors that Heineken was to be a takeover tar get for Philip Morris in late 1992 proved false as Heineken had no interest in selling. It trimmed its workforce, closed or sold out-of-date breweries, and installed a new computerized system so that whole salers in the Netherlands could use personal computers to place orders directly with the company. By doing all of these things, Heineken has been able to maintain the premium image for its products without incurring premium costs in their manufacture. Heineken has also expanded its beverage line. It acquired several distilleries to establish a presence in the wine and spirits business. And it entered the soft-drink market including becoming the distributor for Pepsi-Cola in the Netherlands.

Questions

1. Why is Heineken not afraid of a company several times its size like Anheuser-Busch or Philip Morris?

2. Do you think Heineken should continue to control the yeast used by its breweries from the Nether lands? Why or why not? What are the advantages and disadvantages of doing so?

3. What pressures are likely to affect the long-term sales of Heineken’s products? HRw might it prepare for or counter those pressures? -

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U�IT – II

LESSON – 6

PLA��I�G PROCESS

It is very difficult to prescribe a fixed process of planning for the organisations for all types of plans ; however, the major steps involved in planning may be lines of enumerated as below:

STEPS I� PLA��I�G PROCESS

1. Analysis of External Environment

2. Analysis of Internal Environment

3. Define the Enterprise Mission

4. Determination of Objectives

5. Forecasting Planning Premises

6. Determining Alternative Course of Action

7. Evaluating Alternative Courses

8. Selecting the Best Course OR Developing Strategies

9. Establishing the Sequence of Activities

10. Formulation of Strategic or Long-Range Plan

11. Formulation of Functional or Tactical Plan

12. Formulation of Action Programme.

13. Reviewing and Re-cycling the Planning Process.

Step �o. 1

A�ALYSIS OF EXTER�AL E�VIRO�ME�T

Before doing the actual planning, the management must carefully analyse the external environment prevailing in the region/country. The term ‘external environment’ covers a wide field. Socio-economic-cuin-political conditions prevailing in the country can be included in it, e.g., social and economic status of the different classes of the society (such as upper class, middle class and lower class), social aspirations and expectations of the people, prevailing wage rate, development of science and technology, psychology of the customers, market

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conditions, nature of competition, p trade-cycle, political conditions, etc. Although these factors are uncontrollable and unpredictable, yet the enterprise has to adapt its plans, policies, strategies and programmes according to changing trends in the external environment. It is actually a preceding process of actual planning and, therefore, it cannot strictly be called as a part of the planning process. However, awareness of such factors is very important for subsequent planning process.

Step �o. 2

A�ALYSIS OF I�TER�AL E�VIRO�ME�T

Searching and objective self-analysis of the resources of the organisation is also an important pre-condition before actual planning. It is technically known as ‘Re source Audit’. Plans, policies, strategies, budgets etc. are to be adjusted according to the internal resources of the organisation relating to men, machines, materials, know- how, finance, etc. The following questions may be asked while analysing the internal environment: (i) Do we have enough resources of men, money, materials, machines, managerial man-power etc. ? (ii) Do we have aggressive or defensive competition ? (iii) Do we have upto date plant, equipment and work environment? (iv) Do we have effective system of communication ? (v) Is the employee morale high? (vi) Is our profitability O. Kay ? (vii) Is our managerial leadership effective and so on. Such an analysis will give an exact idea about the strengths a weaknesses of the enterprise. Resource audit is the real starting point of planning.

Step �o. 3.

DEFI�E THE E�TERPRISE MISSIO�

After analysing the external and the internal environment, the top managent should define the corporate mission. The statement relating to the ‘Mission’ should describe the fundamental reason for the existence of an organisation. It may cover up answers to the following basic questions: (i) What is our business ? (ii) What will our business be? (iii) What should our business be ? (iv) Who are our customers? What do they buy and why? (vi) What are our social obligations? and so Statement of the ‘mission’ provides the best climate for successful business planning.

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Step �o. 4

DETERMI�ATIO� OF OBJECTIVES

The next step in planning is a statement of the objectives to be achieved by enterprise. The organisational objectives must be spelled out in key areas a. operations and should be divided according to various departments and section. The objectives must be clearly specified and measurable as far as possible. Every member of the organisation should be familiar with its objectives indicate what basically is to be done, where the primary emphasis is to be placed and what is to be accomplished by the network of policies, procedures, rules, budget programmes and strategies.

Step �o. 5

FORECASTI�G PLA��I�G PREMISES

In preparing plans for the future, the management has to make some prediction about the future shape of things. According to Henri Fayol, the entire plan of enterprise is made up of a series of separate plans called ‘Forecasts’. Although management has to prepare forecasts for each of the major areas of its operation there are three forecasts which would be of fundamental importance to the viz., (i) General business forecasts, (ii) Sales forecast, (iii) Capital f Whenever the management plans its business operations and its organisational set up for the years ahead, it has to take into account the past, the present and prevailing socio-economic-cum-political environment. Forecasting is a systems attempt to probe into the future by inference from known facts relating to the r the present. Intelligent forecasting is essential for variable planning premises assumptions. Planning premises are actually assumptions and predictions about future. They act as environment of plans in operation and are thus the basis of planning. The management should have no stone unturned in reducing the element of guesswork in preparing forecasts by collecting relevant data using the scientific techniques of analysis and inference. The process of forecasting generally involves the following steps (i) Developing the basis through systematic investigation of the economy, products and industry ; (ii) Estimation of future business operations ; (iii) Regulation of forecasts, i.e., comparing the actual operations with the forecasts prepared in order to find out the reasons for any deviations from the forecasts ; iv) Review of the forecasting process.

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Step �o. 6

DETERMI�I�G ALTER�ATIVE COURSE OF ACTIO�

It is a common experience of all thinkers that an action can be performed in several ways, but there is a particular way which is the most suitable for the organisation. The management should try to find out these alternatives and examine them carefully in the light of planning premises.

Step �o. 7

EVALUATI�G ALTER�ATIVE COURSES

Having sought out alternative courses and examined their strong and weak points, the next step is to evaluate them by weighing the various factors in the light of planning premises and goals. A number of methods in Operations Research have been developed to evaluate the various alternatives.

Step �o. 8

SELECTI�G THE BEST COURSE OR DEVELOPI�G STRATEGIES

The next step—selecting the course of action—is the point at which the plan is adopted. It is the real point of decision-making. After evaluating the various alternatives, the best and the fittest alternative is selected. Finding the best way to go there, where we want to be, is called ‘Strategy Deve1opment Sometimes, the evaluation discloses that more than one alternative is equally good. In such a case, the manager should select several rather than one and combine them in action. Strategy determination adopts the rational decision-making process (i) Alternative opportunities to achieve the objectives are listed ; (ii) These are compared and evaluated on the basis of marginal analysis and/or on the basis of cost-benefit analysis ; (iii) Top management then picks up two or three strategies in order of priority. This is how the corporate strategies can be developed.

Step �o. 9

ESTABLISHI�G THE SEQUE�CE OF ACTIVITIES

After the best programme is decided upon, the next task is to work out its details, formulate the steps in full sequence, to break it down for each section or department, for each product and component of product and for each month,

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quarter, week etc. Ultimately, the manager will get the final plan of action in concrete terms.

Step �o. 10

FORMULATIO� OF STRATEGIC OR LO�G-RA�GE PLA�

According to Steiner, “Strategic planning is the process of determining the fundamental or central concept of the corporation describing the mission or creed, major corporate objectives, policies and strategies that will govern the acquisition, use and disposition of resources (human and non-human both) to achieve the over all corporate objectives and goals. Objectives include mission or purposes, as well as specific objective at each level of management desired by an organisation. Policies are broad guidelines to action and Strategies are the preferred means to allocate resources to achieve the desired objectives (ends). In strategic or long-range planning, we cover all important areas of business activities, such as, profits, capital expenditure for growth or diversification, organisation structure, managerial philosophy, pricing, leadership in the market, finance, personnel, advertising, industrial relations, know-how capabilities, product planning and development, research and development, management development, social responsibilities and similar other topics.

Step �o. 11

FORMULATIO� OF FU�CTIO�AL OR TACTICAL PLA�

Tactical plans relate to each area of operation, e.g., purchase, production finance, personnel, marketing, research and development, etc. These departments will formulate their goals in conformity with the major corporate objectives.

Step �o. 12

FORMULATIO� OF ACTIO� PROGRAMMES

There are three important constituents of an action plan : (1) the time-limit of performance, (ii) the allocation of tasks to individual employees, and (iii) the timetable or schedule of work so that the functional objectives are achieved within the pre-determined period.

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Step �o. 13

REVIEWI�G A�D RECYCLI�G THE PLA��I�G PROCESS

‘Planning’ (Deciding what to do), ‘Action ‘(Doing it) and ‘Control the actual with the planned) are closely related managerial functions. These phases of the management process cannot be completely separated in practice. The systems approach emphasizes that through control mechanism these phases should be properly integrated. Through feedback mechanism an attempt is made to secure that which was originally planned. To do this we have to compare the actual performance with the performance predicted from the plan and then we have to take necessary corrective actions to ensure that actual performance as per planned goals.

George R. Terry has discussed the following eight major steps in planning:

1. Clarify the problem. According to Terry, the following questions will help in this step : (i) What is the real aim or purpose of the plan to be formulated ? (ii) Does this aim or purpose require a brand new plan or will a modified existent plan suffice? (iii) What will the accomplishment of this aim mean to the enterprise ? (iv) Is the contemplated aim in conflict with any existent goals of the enterprise so that adjustments or eliminations of any present plans will be in order?

2. Obtain complete information about the activities involved. To assist in this step, the following questions may be asked : (i) Have all pertinent data been collected? (ii) Are the data sufficiently broad to cover all activities which may be affected ? (iii) Have any possible sources of data been overlooked? (iv) Have operating personnel been solicited for suggesti6ns?

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3. Analyse and classify the information. As a guide in this step, ask: (1) Are apparent relationships among data real and confirmed by key operating personnel? (ii) Has information been tabulated or charted to facilitate analysis ?(iii) Are all usable data being included? (iv) With further study can any steps in the present flow work probably be eliminated?

4. Establish planning premises. Helpful in this step are the following questions : (i) What important assumptions regarding the future are being made in her order to evolve the plan? (ii) Are the premises inclusive and do they cover all important contingencies ? (iii) Has all reasonably available information concerning the planning premises been obtained and evaluated ? (iv) What premises must be carefully watched in order to detect changes which bring about a serious effect upon any plan based upon these premises?

5. Determine alternate plans. Here the following questions may be considered (i) Are these possible plans in keeping with top-management members’ basic objectives and methods of operation? (ii) Will mechanisation expedite the work? (iii) For each plan, how much adjustment will be needed in the event it is adopted? (iv) Are cost, speed and quality requirements satisfied?

6. Choose proposed plan. At this stage, considerations contributing to the proper solution include : (i) Is the proposed plan simple or complex ? (ii) Will it be readily accepted by the operating personnel ? (iii) Does it process flexibility to adjust to varying conditions ? (iv) What new equipment, space, personnel, training and supervising will be needed?

7. Arrange detailed sequence and timing of proposed plan. The translation of the plan and its relation to all activities affected by it are now worked out. Here these questions might be asked : (i) Has a carefully worked out time schedule been established ? (ii) Are detailed instructions written to cover the plan ? (iii) Are all persons concerned adequately informed of the plan and given the major reasons for it? (iv) Are the required paper forms and supplies available?

8. Provide progress checkup to proposed plan. For this step, ask : (1) Are records and reports included to keep operating personnel hands advised of progress ? (ii) Will sufficient data over a reasonable period lie collected to measure the results ? (iii) In what range or within what limits will results be considered satisfactory ? (iv) What remedial action is proposed if results indicate weaknesses?

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EFFECTIVE COMMU�ICATIO� OF PLA�S

It is essential that the plans are properly and effectively communicated to all the managers concerned. This, of course, is not necessary if they have participated planning. But, wherever such participation in planning is not possible, it is the duty of top management to have the plans properly communicated to all the manager. An uniformed manager is an ineffective manager. The better informed a manager is a to the plans, the better will he be able to do his job and the more he will contribute to the objectives of the enterprise.

ESTABLISHI�G A CLIMATE FOR PLA��I�G

The following points should be borne in mind for establishing a proper climate for planning

1. Planning should not be left to chance. Every senior manager should remove the obstacles to planning and try to establish a climate in which his subordinates may plan. 2. Planning must start at the top. 3. Planning must be organised. A good organisation structure, through appropriate grouping of activities and clear delegation of authority, establishes an environment for planned performance. A Long-range planning must be integrated with short range. 5. Welcome the changes : It must be an objective of the manager to build in his organisation an awareness of change and an ability to forecast it, and also construct an attitude of welcoming change.

EXECUTIO� OF PLA�S

The basic step involved in the execution of plans may be summarised as below:

1. Divide the total operations necessary to achieve the objective into parts: the kind of work, the quality and the quantity should also be indicated.

2. Note the necessary and the relationship between each of these parts.

3. Decide who is to be responsible for doing each part.

4. Estimate the time required for each part.

5. Assign definite date when each part is to take place.

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REVIEW QUESTIO�S

1. Enumerate the principal steps in the process of planning. Describe them briefly.

2. What do you mean by planning premises? Describe important planning premises.

3. Distinguish between: (i) Forecasting and Planning (ii) Strategic and Tactical Planning..

4. Which of the following statements are correct? —

(i) A plan must rigidly lay down the standards of performance.

(ii) Planning is a mental process which determines the course of an uncertain future.

(iii) Master strategy must be fixed once for all; it should be determined only by the Board d Directors.

(iv) In formulating the strategy the impact of synergy should never be under-emphasised ; synergy means that the combined effect of two or more co-operative acts is greater than the effect if the actions were taken independently.

(v) It is no use planning for too long in the future since the future is always uncertain. (vi) The functional plan relates to the particular function.

Hints : Correct statements are (ii), (iv) and (vi)

5. If all decisions involve commitments and if the future is always uncertain, how can a manager guard against costly mistakes?

6. How should a Production Manager of a big firm, say, the Hindustan Lever, plan his operations?

7. If you are asked to take steps to make sure that adequate planning has been accomplished In a company, what would you do ?

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CASE :

The Combination Walk Stick

Ella Mentrie and Noah Payne worked together to develop a combination cane, night stick, and alpenstock. This versatile but sturdy stick can be used for a variety of purposes: (I) for assistance in walking, (2) as a preventive aid in case of threatened street assault or mugging, and (3) as a valuable support when climbing over rocks or hilly terrain.

Ella and Noah computed their fixed costs to be $3,000 a month if they were to go ahead and manufacture their patented stick. The variable costs for each cane come to $10. Several high-quality stores (e.g. Abercrombie and Fitch) have expressed strong interest and are willing to pay $20 for each cane.

Ella and Noah have access to tools and equipment that can produce up to 1,000 canes a month. Fashionable retailers such as the aforementioned A & F have promised in total to buy 400 cane-sticks a month. Considering the above data:

Questions

1. How many canes must be made each month in order for Ella and Noah to cover all costs?

2. Will they make any money if only 400 canes a month are produced? Flimm and Flamm Advertising Agency has proposed a $1,000-per- month promotion campaign, which they assure Ella and Noah will stimulate the market and easily sell all the canes that can be made. This advertising expenditure would increase fixed costs to a total of $4,000 a month. Assuming that $20 each continues as the selling price and that variable costs remain at $10:

3. What will the new breakeven point be (i.e., number of canes)?

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U�IT – II

LESSON – 7

DECISIO� MAKI�G

The life of a manager is a perpetual choice-making activity. Executives at all levels work on decisions constantly. Hundreds of decisions are consciously or unconsciously made in a company every day. “Whatever a manager does,” wrote Peter F. Drucker, “he does through making decisions.” The business executive,” observed John McDonald, “is by profession a decision-maker. Uncertainty is his opponent, overcoming it is his mission. Whether the outcome is a consequence of luck or of wisdom, the moment of decision is without doubt the most creative event in the life of the executive.” Decision-thanking permeates all management activities; hence, it is sometimes described as “The total task of Manager’ or ‘The Heart of Managing’.

WHAT IS DECISIO�-MAKI�G?

To come to a decision means to cut off deliberations and to come to a conclusion. Decision-making is a process of selection and the aim Is to select the best alternative. A decision is an act of choice wherein an executive forms a conclusion about what must and must not be done in a given situation. It is a conclusion that the manager has reached as to what he or others should do at some later time. It is a solution selected after examining several alternatives. Various authors have defined decision-making as follows

1. D.E. McFarland. “A decision is an act of choice wherein executive forms a conclusion about what must be done In a given situation. a decision represents a course of behaviour chosen from a number of possible alternatives.”

2. George R. Terry. “Decision-making is the selection based on some criteria from two or more possible alternative.”

3. R.S. Davar. “Decision-making m be defined as the selection based on some criteria of one behaviour alternative from two or more possible alternatives. To decide means ‘to cut off’ or in practical content, ‘to come to a conclusion.”

Decision-making involves two or more alternatives because if there is only one alternative, there is no decision to be made. Frequently, not more than

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two alternatives are present, as exemplified by the ‘yes’ or ‘no’ type or the ‘do’ or ‘not to do’ type of situation. The following figure shows a situation for which there are five possible behaviour alternatives, A1, A2, A3, A4 and A5. Moving to the right on the figure, of these five alternatives, three are available for choice. A2 for example, is outside the sphere of discretion and hence is eliminated, the decision-maker is unaware of A. The possible outcomes for each available alternative are A3, O1, A3, O2 and A3, O3. Comparing the outcomes of the various available alternatives, A3 O1, A3 O2 and A3 O

3 are considered most favourable, and hence, A3

is the decision followed. The decision is based on the criterion or basis believed important in the particular situation.

CHARACTERISTICS OF A DECISIO�

The definition of decision involves following characteristics:

1. Decision is the choice of the best course among alternatives.

2. Decision is the end process preceded by deliberation and reasoning.

3. Decision-making is a mental process because the final selection is made after thoughtful consideration.

4. Decision involves rationality because through decisions an endeavour is made to better one’s happiness.

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5. Decision is aimed at achieving the objectives of the organisation.

6. It also involves the evaluation of the available alternatives because only through critical appraisal one can know the best alternative.

7. It may also be negative and may just be a decision not to decide.

8. Decision making involves a certain commitment. This commitment may be for short run or long run depending upon the type of decision.

9. Decision relates the means to the ends

IMPORTA�CE OF DECISIO�-MAKI�G

The importance of decision-making cannot be over-emphasized. According to Melvin T. Copeland, “Administration essentially is a decision-making process and authority is responsibility for making decisions and for ascertaining that the decisions made are carried out. In business, whether the enterprise be large or small, changes in condition occur, shifts in personnel take place, unforeseen contingencies arise. Moreover, just to get wheels started and to keep them turning, decisions must be made.”

At the heart of planning is decision-making—the selection of a suitable course of action. It is an important function of management. Management without decisions is like a man without backbone. Nothing can be performed without taking decisions.

Every aspect o functions, such as, planning, organization, motivation and control is determined by decisions, the result of which is the performance in the organization. The days of ‘hit-and-miss’ methods in management are over, and have been replaced by new concepts and scientific techniques. Decision-making is, therefore, vital to all management activities. It helps set definite objectives, prepare plans of action, determine organizational structure, motivate personnel and introduce innovations.

TYPES OF DECISIO�S

Decisions may be of different types ; some of the important types of managerial decisions are as below:

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1. Programmed and �on-programmed Decisions

Simon has classified all decisions into two classes : (i) Programmed decisions, and (ii) Non-programmed decisions. Such classification of decisions is made on the basis of the use of operations research.

1. Programmed decisions are normally of repetitive nature and are taken within the broad policy structure. An organisation can develop specific processes for handling these decisions, e.g., standing operating procedures and policies. Programmed decisions have short-run impact and are taken by lower level managers, such as, granting leave to an employee, purchase of materials in normal routine, etc. For example, if there is a habitual absentee in absentee have a set procedure to deal with him and you need not refer the problem to the Personnel Manager or to the Board of Directors in order to arrive at a solution. If a manager spends applicable time in dealing with programmed decision, he is wasting time which he could more profitably spend in dealing with non-programmed decisions.

2. Non-programmed decisions are of non-repetitive nature. Their need arises because of some specific circumstances, such as, opening of a new branch, introducing a new product in the market etc. They involve judgement, intuition and creativity. Such decisions are taken by top management. For example, if a large number of employees suddenly started absenting themselves without information it would constitute a problem involving the non-programmed decision. No routine decision can be taken in such a case merely by issuing a charge-sheet to all the workers and taking disciplinary action against each one of them. The management should thoroughly probe into the causes and consequences of such a problem.

2. Major and Minor Decisions

Decisions may be classified as Major and Minor. For example, if it relates to the purchase of a big machine worth, say a lakh of rupees, it is a major decision. On the other hand, purchase of fountain pen ink or a few reams of paper are minor matters and may be decided by the Office Superintendent.

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3. Routine and Strategic Decisions

Routine decisions are also known as tactical decisions. They are taken in the context of day-to-day operations of the organisation. They are not very important. Mostly they are of repetitive nature and do not require much analysis and evaluation and can be made quickly. Authority for taking such decisions is generally delegated to middle and first-line managers. They do not involve any high risk or uncertainty. For instance, sending samples of a product to the Government investigation centre is a routine decision.

Strategic or Basic decisions relate to policy matters and usually involve large investments or expenditure of funds. These decisions are mostly non-repetitive in nature. These decisions are taken by higher level of management after careful analysis and evaluation of various alternatives. A slight mistake in these decisions is bound to injure the entire organisation. Examples of strategic decisions are : major capital expenditure decisions, all decisions affecting organisation, productivity, pricing, location and size of the business, change in product line etc.

4. Policy and Operative decisions

Policy decisions are taken by top management and they mostly relate to basic policies. Such decisions are very important and they have a long-term impact. Big’ concerns generally publish their policy decisions in the form of a ‘Policy Manual’ which becomes the basis for other operative decisions.

Operative decisions relate to the day-to-day operations of the enterprise. They are generally taken by middle and lower level management who are more closely related with the supervision of actual operations. Whether to give profit bonus to employees or not is a matter of policy to be decided by top management ; but calculating the bonus in respect of each employee is an operating decision which can be taken at a much lower level.

5. Organisational and Personal decisions

The executive makes organisational decisions, when he acts formally as a company officer. Such decisions reflect the basic policy of the company. They can be delegated to others.

Personal decisions relate to the executive as an individual and not as member of an organisation. Such decisions cannot be delegated.

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6. Individual and Group decisions

As is apparent, individual decisions are taken by a single individual in the context of routine or programmed decisions where the analysis of variables is simple and for which broad policies are already provided.

Group decisions are taken by a group or a standing committee constituted for this specific purpose. Such decisions are very important for the organisation, because they involve the participation of a large number of persons.

7. Long-term, Departmental and �on-economic decisions

Decisions may also be classified as long-term, departmental and non economic. In the case of long-term decisions, the period covered is long and the risk involved is more. Departmental decisions are taken by the departmental heads and relate to the department only. Decisions relating to non-economic factors (such as technical values, moral behvaiour, etc.) may be termed as non-economic decisions. While taking decisions on these factors, care should be taken to see that justice is done to all and as a result of this decision, no new problem is created for the organization.

THEORIES OF DECISIO�-MAKI�G

Three major theories of decision-making are : (1) The Intuition or the Traditional Theory, (ii) The ‘Classical Theory, and (iii) The Administrative Man or the behavioural Theory.

More-often-than-not, decisions are taken by intuition, i.e., without really considering carefully all the alternatives. Actually, many of the decisions taken b most of us are on ‘intuition’ or ‘hunch’ ; in other words, a person just decides upon course of action because he feels that the particular course is the best one. This Traditional or the Intuition Theory. Scientifically speaking, this kind of feeling has no rationale behind it nor can anybody explain why he is feeling that way. The person who makes decision on the basis of intuition or feeling represents one extreme form of decision-making process.

On the other extreme is the totally rational man who takes all his decisions after a careful probing into all the alternatives. The Classical Theory implies that decisions are made rationally and are goal-directed. It is essentially a theory of decision-making under conditions of certainty. This theory is subject

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to the following criticism (1) It is a normative rather than a descriptive theory. (2) It is based on the assumptions of a rational-economic man. (3-) It is based on conditions of certainty, which is a rare phenomenon. (4) It implies that managerial goals are stable but in actual practice theory are subject to revision due to environmental changes. (5) Organisations have plural goals and these goals are often conflicting with one another.

According to the Administrative Man or Behavioural theory, decisions are made on the basis of a limited, approximate model of the real situation.

Herbert A. Simon designates it as the ‘Principle of Bounded Rationality According to Simon a person makes decisions not only on an absolutely logical analysis of facts, but also on his intuition, habit, way of thinking and value system. A decision involves both questions of fact and of value ; questions of fact relate to ‘what is’ and questions value relate to ‘what ought to be’. In short, usually a person takes decision based on this thinking of ‘what out to be’. It is because (i) The man does not have full knowledge of alternatives nor does he have full knowledge of the consequences of each alternative. (ii) The future is uncertain and one has to necessarily imagine it. In doing so he is mostly affected by his value system, i.e., how he looks at things. (iii) A decision-maker just takes up a course of action which satisfies and meets his requirements.

RATIO�AL TECH�IQUE OF DECISIO�-MAKI�G

In making a decision, the manager should observe certain steps and follow them in the proper sequence. The decision-making process can be divided into the following important stages

1. Diagnosing the problem or defining it

Sound diagnosis is the crucial first phase of decision-making. A manager should proceed just like a doctor who first takes into account all the symptoms before prescribing the medicine. It is not an easy task. As Peter Drucker points out, the books and articles on leadership are full of advice on how to make fast, forceful and useful decisions, but there is no more foolish and n more time-wasting advice than to decide quickly what a problem really is. Defining the problem in most instances is a time-consuming task, but it is time well spent. In defining the problem the manager should find the critical or strategic factor or factors, and he would be wise to restrict himself to these. As Chester I. Barnard

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has pointed out, the theory of the strategic factor is necessary to an appreciation of the process of decision-making. There are three basic elements of sound diagnosis (i) Identify the gap between the results desired and the existing or predicted state of affairs ; (ii) Find out the direct root cause of the gap between the actual situation and the desired situation ; and (iii) Analyse the over-all situation and see whether it places any limits within which a satisfactory solution may be found out.

2. Secure and analyse pertinent facts

After defining the problem, the manager can then set about to analyse it. The first step in analysis of the problem is to assemble the facts. There are three important principles of analysis and classification (i) the futurity of the decision (i.e., to what length of the time does the decision commit the business to a course of action) ; (ii) the impact of the decision on other areas and functions ; (iii) the qualitative considerations which come into the picture. The purpose of classification is to ensure that the decision made takes a comprehensive view of the business as a whole rather than the immediate or the local problem.

3. Develop alternative solutions or courses of action

The next step for the manager, after having defined and analysed the problem is to develop alternative solutions. The purpose of finding alternative solutions is to make the best decision, after a careful consideration of the most desirable courses of action in the circumstances of the case. According to Peter F. Drucker, “Of course, searching for and considering alternatives does not provide a man with an imagination he lacks. But most of us have infinitely more imagination than we ever use. A blind man, to be sure, cannot learn to see. But it is amazing how much a person with normal eyesight does not see, and how much he can perceive through systematic training of the vision. Similarly, the mind’s vision can be trained, disciplined and developed. And the method for this is the systematic development of the alternative solutions to a problem.”

The Creative Process. The more a person can think of the alternative solutions, the better is the chance of choosing the best solution after weighing the pros and cons of each alternative. The capacity to think in a creative manner is a great asset to decision-maker. The organisation should try to stimulate an atmosphere of creativity. The following guidelines provided by Frederic D. Randall may be of some use to the decision-maker

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1. Creative thinking demands a genuinely free exchange of information among men at different levels of authority. Formal communication programmes are not enough.

2. The ‘crash’ or emergency approach discourages creativity and should not be applied any more than necessary to problems, in need of solution, especially those of a vital and long-run effect.

3. In planning and control the conditions that stimulate imagination should be taken into account.

4. A group’s understanding about the consequences of failure is an exceedingly powerful force. in determining creative potential.

5. Conditioned thinking, such as, may stem from a strict policy of promotion from within, blocks the creative process, unless management takes counter measures.

There are five principal stages of the creative process;

1. Saturation. It means that familiarising one self thoroughly with a problem together with its context is an important process of creativity; unless one thoroughly acquaints himself with the problem and its setting, no creative result is likely to emerge.

2. Deliberation. Second. a perfect knowledge about the problem and assembling of the relevant data is an essential element of creativity.

3. Incubation. This term refers to the sub-conscious activity which precedes hitting up a fresh and proper solution. It is a simple psychological phenomenon that a creative mind spends a great deal of time in becoming familiar with the problem, in gathering the relevant data and in co-relating the various elements and pattern them into possible combinations. The conscious mind gets tired and frustrated in this exercise. Hence, it is advisable that at this stage the conscious mind be switched off from the problem and the sub-conscious mind be allowed to take over. It may be noted that the conscious mind is the centre of logical thinking and the sub-conscious mind directs itself to problems which are of interest to the conscious mind. When the conscious mind is relaxed, the sub-conscious works and often gives birth to excellent ideas.

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4. Illumination. This is the stage when an idea actually springs in the mind of the decision-maker. More-often-than-not, ideas illuminate while taking a walk, driving home from work or during some other period of mental relaxation.

5. Accommodation. This stage consists of modifying the original idea, reframing or polishing it and making it practical for use.

How to increase creativity in groups ? Well, the simple answer to this question is that opportunities be provided to the members of the group for some sort of exchange of ideas. The schemes of management-get-together and brain-storming may help in making a group more creative. Brain-storming encourages the group members to give all sorts of ideas without bothering whether the particular idea is workable or not. It has been experienced that an hour or so of brain-storming produces a large number of ideas which could be scrutinised and combined to produce a workable original solution.

4. Decide upon the Best Solution or Optimum Course of Action

After developing the alternatives the manager should test each of them by imagining that he has already put each into effect. He should try to foresee the probable, desirable and under consequences of adopting each alternative. It would be useful to list down all the advantages and disadvantages of all possible courses of action. In classifying the alternatives and in listing the advantages of each alternative, distinction between tangible factors and intangible factors must be made. It is always good to try to measure all the tangible advantages and disadvantages in terms of a common denominator, i.e., money. Once the merits and demerits of various alternatives have been listed, the next stage would be to

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concentrate only on differences, because then only it would be possible for a person to take an immediate decision.

5. Convert the Decision into Effective Action

After having defined the problem, analysed the problem and having developed and evaluated alternative solutions, the manager can select from these alternatives the best possible solution. The knowledge gained by past experience is generally a helpful guide in arriving at the final decision. But it must always be viewed with the future in mind, and the underlying circumstances of the past and present must be considered. Once the final choice is made, the next stage is to implement the decision. This is not a part of choice activity, but is a post-choice activity clustering around implementation of the selected course of action.

6. Implementing and Verifying the Decision

Effectiveness of decision in achieving the desired goals depends on its implementation. Best decisions are futile if they are not effectively implemented. It is just possible that a good decision may be hurt by poor implementation. In this sense, implementation is more important than the actual activity of choosing the alternative. Further, follow-up system is essential to modify decisions, if necessary. In management cycle we have planning – action – control – replanning – action - control This is an on-going process Such a follow-up system will ensure the achievement of objectives. It is exercised through effective control.

Simon’s Approach to Decision-making

Ordinarily, there are three different stages in the process of decision-making. What is the problem ? What are the alternatives ?Which alternative is best ?Herbert Simon has presented them into : (i) Intelligence Activity: This is a basic or foundation stage during which problems are discovered or diagnosed and objectives are clearly defined. (ii) Decision Activity: In this stage, specific authority and responsibility to pursue the new idea further is entrusted to either a particular manager or a team of managers who possess the necessary skill and aptitude in this regard. (iii) Choice Activity: En this stage, the team has to appraise and evaluate the alternative ideas within the framework of the decision criteria.

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It is a common experience of all top management people that every major business decision involves several sub-decisions at every stage ; several problems crop up during the major decision-making process. Certain problems lead to solutions while others create more problems. ‘Thus, decision-making process is less a neat, streamlined and smooth activity and more a complex alternative and heuristic venture requiring patience, perseverance, creativity and judgment.’

ADMI�ISTRATIVE PROBLEMS I� DECISIO� -MAKI�G

SQC in administration for decision-making. In modern industrial organizations, there are variety of managerial and administrative problems, some of which are quite complex and are required to be tackled properly and judiciously if an organization has to thrive efficiently. A good number of higher managerial control techniques are, therefore, now available to management for smooth and efficient operation of an organization, viz., Operations Research (modern quantitative approach to problems) ; Management Accounting including Inter-firm Comparison Ratio Analysis and Breakeven Analysis ; Cost Analysis and Cost Control ; Industrial Engineering ; Market Research ; Managerial Economics, Behavioural Science to Management problems, etc. To the modern managerial tools and techniques, statistical methodology and technique (SQC) is a must since it is vital aid to business managers to make systematic analysis and interpretation of data for quick and effective decisions in different functional areas of management and administration. Whether SQC is applied in administration or production or in any other technical branches of an organization it is an important aid to management for its decision making process, for it indicates the facts and figures to management which enable it to arrive at some kind of decisions in different problem areas of administration. Moreover, maintenance and presentation of the required information and data in the forms of charts, graphs and diagrams help management to a considerable degree for general information of decision.

Although there are various areas even in the administrative branches of an organization on which decisions are required to be taken by management, here are a few administrative areas specifically related to the personnel element which SQC is of immense help in study and analysis of problems and in providing relevant data and facts with logical conclusions for management

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decisions : (a) Executives’ Time- spent analysis; (b) Training for improving personnel efficiency ; (c) Control of clerical operations; (d) Control of employee absenteeism; (e) Control of overtime work for employees ; and (I) Scientific merit-rating of employees, etc.

Correctness of decisions. Correctness of decisions is a very important problem of management. For arriving at correct decisions, the executive should analyse the situation and must have confidence about his capacity to solve the problem. If an analysis of the information is correct and systematic, the decisions too are bound to be accurate.

Decision environment. The effectiveness of a decision very much depends upon the organizational and physical environments. If the general environment is satisfactory there will be mutual cooperation, proper understanding and it will provide better scope of research, analysis and thinking.

Timing of decisions. Timing too plays an important role in the decision- making. Decisions without any purpose, timing and event are not business decisions. Decisions would be vain, if they are not taken at the right time.

Effective communication of decisions. Besides timing, effective communication of the decisions is also an important administrative problem of management. Decisions taken must be communicated to those for whom they are meant and in the language that might be understood by all. The decisions to be communicated must be clear, simple, logical and free from any ambiguity.

Participation in decision-making. The philosophy behind participation in decision-making is that all the members of an enterprise should be encouraged to take an active part in arriving at definite conclusions. The extent of participation should depend upon the willingness of the top executive. More often than not, the top executives feel that decision-making is their monopoly and it is below their dignity to invite suggestions from the subordinates. Organization in which participation is at a minimum are said to be ‘Authoritarian’ in nature whereas where there is great participation are called ‘Democratic’ organisation. In the case of an authoritarian organization, direction and control are lodged at the top and decisions are taken by one or a few at the top level. On the other hand, in the case of democratic organization, people at the lowest rung of the ladder will have a greater say in decision-making.

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Implementation of decisions. Once the decision is- finally made, it is the primary duty of the manager and his subordinates to carry it out with all energy and zeal at their command. In the course of making the decision, the manager may have consulted hired specialists or intra-organizational staff agencies, but the final decision is his and he has to accept full responsibility for the choice. The higher up the ladder he climbs, the lonelier is he in respect Of his decisions. The kudos may not so readily be acknowledged, but any setback will have accusing fingers pointing at him. He may lose of his so-called friends for, in the jungle of management politics, the friend is a friend for acts of favour. He demands his pound when it comes to the plums. If he does not get it, he will sulk, he will conspire and make any unholy alliance, with the where object of topping the one with whom he has never lost favour. This often temps every manager, howsoever, efficient and forthright he may be, into taking decisions with a subjective slant and with a view of favouring an individual rather than benefiting the enterprise. The higher up this happens, the greater is the danger to the enterprise. And if it happens once too often, neither the manager nor the management can survive in this fast developing industrial area.

GUIDELI�ES FOR EFFECTIVE DECISIO� MAKI�G

The following guidelines may be suggested as an aid to effective decision making:(l) Define the goals, (2) Ensure that the decision contribute to the goal. (3) Adopt a diagnostic approach to decision-making, (4) Involve subordinates in decision-making process, (5) Ensure successful implementation of the decision, (6) Evaluate the results and (7) Be flexible and revise the decision which do not yield the desired results.

DECISIO� TREE

Meaning

Where a series of decision reaching some way into the future have to be made, it is possible to draw a ‘decision tree’ showing the decision to be reached. Where choices of decisions have to be made at various stages, the possible outcome of each choice is shown s ‘branch’, thereby aiding management in making the choice. Decision tree is actually a graphic method by which a decision-maker can see alternative solutions to him, their respective outcome as

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probabilities associated with each of them and evaluate the comparative outcome to find out the optimum one.

Uses of Decision Tree

A manager may make use of decision tree for making decisions which otherwise are not easy to make. A basic value of decision tree lies in expressing all outcomes or events in quantitative forms which provide precision in decision-making. Since a large number of techniques have .been developed to take into account the impact of large number of variables, the use of decision tree even increased.

Limitations of Decision Tree

Although decision tree is simple in essence, yet it may get complex in application. The main difficulty in analysing decision tree is that even with simple two or three branch forks, the tree can be quite complex; it may turn into a bush. Secondly, there is often inconsistency in assigning probabilities for different events. Notwithstanding these limitations, a decision tree offers a solution of the decision situation better than any other technique.

REVIEW QUESTIO�S

1. “Administration essentially is a decision-making process....” Amplify this statement and discuss its nature. What types of decisions are business executives generally called upon to take?

2. Discuss the importance of decision-making in business administration and management

3. What is the significance of decision-making? What procedure should be followed in arriving at a correct decision?

4. Briefly describe the technique of decision-making.

5. Carefully examine the different administrative problems in decision-making.

6. “Decision-making is the primary task of manager.” Discuss and explain the process of scientific decision-making.

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7. “Good decision-making must be evaluated against future events. Experiences and facts are matters of history and belong to the past.” Comment.

8. Discuss the essential steps in decision-making. How can you make quick and Correct decisions in a big commercial unit?

9. Discuss the distinguishing features of modern decision-making in management.

10. What are the various stages in the process of rational decision-making? Discuss with reference to a business decision.

CASE :

Sitting in a simple of fice, he personally negotiates the severance pay contract for an employee. Later he reviews an editor- al in a company newspaper, discusses sports programming in Asia, and considers a proposal dealing with a local part of his business. This description sounds like an executive in a relatively small company handling fairly routine day-to-day decisions, right?

Now consider your reaction when a few details are added: the employee’s severance pay contract was that of Chevy Chase after his aborted TV talk show; the newspaper was the New York Post; the sports programming was in regard to Star TV, an expanding Asian satellite network: the proposal was from Ticket-Master and was in regard to tile possibility of exchanging guns for sports tickets at a local Fox TV station; arid the “he” was Rupert Murdoch— the billionaire head of The News Corp., which owned all of those various companies in early 1994.

Keeping up with the exact holdings of The News Corp. is difficult because Murdoch is constantly buying, selling, and reorganizing those companies to achieve his vision of an electronic future. In addition, Murdoch tends to step in and make decisions for al most all of his companies at one time or another.

Murdoch decided to buy the rights to broadcast National Football League (NFL) games over his Fox network and planned to carry those broadcasts over many of his worldwide television stations, too. He did riot have enough

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programming for many of those stations, so this decision was to prove effective both domestically for Fox and internationally for News Corporation as well.

Less than a year after he decided to purchase Star TV, Murdoch moved to totally change its strategy. Star TV is based in Hong Kong and operated five channels at the time of the purchase. Critics had suggested that Murdoch would not be able to transfer the success he had obtained with Britain’s British Sky Broadcasting television and America’s Fox net work to the Asian market because of the cultural, political, and geographical problems facing such a move. After all Asians are segmented by a variety of different languages, religions, and social systems. The critics appeared to be right when Murdoch made a speech in London suggesting that satellite television would end totalitarianism. The Chinese government promptly banned satellite dishes for all but a select few government officials and their friends. But it anyone could do it, Murdoch might be the one.

Murdoch’s decision-making style has been de scribed as more instinctive than analytical. He tends to make quick decisions and has frequently been wrong, although he argues that speed is necessary to pursue many opportunities. Critics believe, how ever, that he has simply been rash on occasion. Nevertheless, his success is indisputable and serves to answer most of his critics.

But one element of his decision-making style may lead to considerable concern. He does it all himself. No one has been groomed to take over should any thing happen to him. Further, the organization’s cul ture is so strongly built around his style that it would be very difficult for anyone else to manage a smooth transition in the event of an emergency. The future of The News Corp. without Rupert Murdoch may be the biggest concern in the next few years.

Questions

1. How would you describe Murdoch’s decision- making style? How would you rate its effect

2. Why might someone noted for making quick, tough decisions be an appropriate executive for a rapidly growing global organization? Why might such a person not be appropriate?

3. What might be done to avoid disaster in the event of an unexpected and sudden transfer of power at News Corporation?

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U�IT - II

Lesson - 8

DECISIO� - MAKI�G

I�TRODUCTIO�

Decision-making is an integral part of most of the top managers' duties. Not even a single day passes without taking decisions particularly in modern organisations. Hence, management and decision-making are considered as inseparable. Infact, whatever a manager does, he can do it only by taking some decisions. All matters relating to planning, organisation, staffing, directing and controlling are engrossed in decision-making process. That is why it is aptly pointed out that management is essentially a decision-making process. The survival and future success of any enterprise is directly related to the ability to take timely and appropriate decisions by the executives. Thus, decision-making is said to be the heart of management.

Lot of planning exercise is to be initiated by the manager before taking

any viable decision. Questions like what to do, when to do and how to do are to be examined clearly before allocating resources on different mananagerial activities. Unfortunately, these resources are scarce. So, the manager has to carefully plan and decide what to do or what not to do. Wrong decisions quite often are proved to be either costly or futile exercise. To prevent such losses, decision-making process remains to be the core area in all planned activities of the modem corporations.

Meaning

Koontz and Weihrich have defined this concept are "the selection from among alternatives of a course of action." According to this definition, picking one course of action among alternatives available is termed as decision-making. In the words of George Terry, "decision-making is the selection of a particular course of action, based on some criteria, from two or more possible alternatives." We may define this concept as "the process of choosing between various alternatives for achieving a specified goal. Every decision must take into consideration needs and future uncertainties. The famous decision theorist, Herbert Simon has identified three major steps in the decision-making process.

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The first step involves he recognition and understanding of the real problem. In the second phase, various alternatives may be developed. The third step involves careful assessment of alternatives available for taking a better decision. :

Characteristics

� Decision-making is a continuous process. � The question of decision-making comes into picture only when, there are

alternatives. � A decision-making process must always be rational and purposeful. � Decision-making is an Intellectual process supported by good reasoning

and sound judgement. � Decision-making is all pervasive in the sense that all levels of managers

need to take decisions of varied nature. � Decision-making is always related to future only.

Types of Decisions

Managerial decisions may be broadly classified under two categories- the first category includes the typical, routine and unimportant decisions and the second category covers most Important, vital and strategic decisions. Apart from this classification, decisions are taken at different levels for meeting different problems. The following paragraphs present a bird's eye view of different type of decisions taken by the executives from time to time.

(i) Organisational Vs Personal Decisions

Chester. I. Bernad has explained about this classification of decisions. Decisions taken by the manager in his official capacity are termed as organisational decisions. These decisions have a direct bearing on the functioning of the firm. Also, the authority for taking such decisions can be delegated to the subordinates. For instance, decisions relating to reward systems or transfer of workers can be cited as examples under this category. In contrast, to this, sometimes, decisions may be taken by the manager in his Individual capacity. Such decisions are termed as personal decisions. They may partly

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affect the personal life and partly affect the organisation. For instance, decision to quit the organisation comes under this category.

(ii) Routine Vs Strategic Decision

Routine decisions Involve little risk and uncertainty. Hence, they do not call for extraordinary Judgement and thinking. They are mostly related to day-to-day conduct of the business. Most of the routine decisions are taken repetitively. That is why they are normally taken at lower levels of management. On the otherhand, strategic decisions are taken by the top-level management. Either they are concerned with policy matters or with long-term commitments of the organisation. They require thorough understanding, analyses and best judgement pertaining to location of the plant, type of technology and channel of distribution are the best examples of this type.

(iii) Policy Vs Operating Decisions

Policies act as guidelines for future action. Hence, decisions pertaining to policies are usually taken by the top management. They are considered to be very important since they affect the total organisation. While operating decisions are administrative in character, they help in translating policies into action. For Instance, decision relating to a new incentive scheme may be termed as a policy decision. Decisions relating to the methodology of implementation of such incentive scheme are termed as operating decisions.

(iv) Programmed Vs �on-programmed Decision

Programmed decisions usually deal with routine and repetitive problems. For dealing such problems, systematic policies, procedures and rules are established. Programmed decisions can be taken with little ease as everything goes according to some set of rules. As against this, non-programmed decisions cover mainly unexpected events and challenges. Each of such problems is a special one. In otherwords, each problem is unique in nature. For dealing with such special problems, executives usually refer them to the top management. For tackling such situations, the manager needs expertise, intuition and creative thinking.

(v) Individual Vs Group Decisions

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Decisions taken by the Individual in his personal capacity are known as individual decisions. Organisations which are small in size can accommodate this type of decision-making process. When organisations grow in size and stature, complex problems do come into picture. Group decisions are considered to be the best under such situations. Group decisions represent the thinking of more than one executive. The commonly held belief is that "two brains can certainly think in a better way than one."

Having discussed some of the important types of decisions in the earlier

paragraphs, a brief attempt is made to identify some common elements in the decision making process. These elements form as important steps for carrying out decision-making process systematically. The various steps Involved in the decision-making process are explained with the help of the following figure.

FIGURE

DECISIO� MAKI�G PROCESS

Step (1) Defining the problem

The first step is to determine what the real problem is. A problem is half-solved when it is correctly diagnosed.

Defining

Problem

Developing

Alternatives

Analysing

Problem

Follow up

Action Selection of

Action

Implementing

Decision

Feed

Back

Evaluation of

Alternatives

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Money and effort are going to be wasted it problem is not determined correctly. That is why, accurate diagnosis of the real problem is necessary to find out right solution. One should look at the real causes and for the remedial measures by touching the inner details of the problem. Touching only the outer surface of the problem and arriving at decisions may lead to fallacious conclusions.

Step (2) Analysing the Problem

Once the problem is dearly defined, men, it must be analysed in the light of data pertaining to various factors that the surmount the decision. Every situation may have some advantages and limitations. Necessary emphasis should be laid on locating the limitations and obstacles in achieving a desired result. Necessary care should be exercised in avoiding personalized bias in judging certain factors. Analysis of crucial factors provides a sound basis for making effective decisions.

Step (3) Developing Alternatives

The analysis off the problem becomes complete once it throws light on several alternatives solutions. In fact the success of decision- making process much depends upon the ability to an executive In developing alternative solutions to a given problem. This requires lot of imagination, experience and judgement exploring the positive or negative impact of such alternatives forms as a solid base for sound decisions.

Step (4) Evaluating Alternatives

Once the alternatives are developed, the next step is to evaluate them in terms of their cause, time, impact, objectives etc. Many a time, either marginal cost or cost -benefit analysis is used to bring out the tangible benefits of each of such alternatives. Each alternative solution may have its own merits and de-merits. They should be compared with other alternatives for the purpose appraising the real impact. Peter F Drucker has identified, risk, economy, time and limitations as important criteria for evaluating the consequences of different alternatives.

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Step (5) Selecting the beat possible solution

Selection usually involves choice making. It is the last step in decision-making process. The manager has m select such an alternative course of action which can make the maximum contribution to the goal. It is not always possible to select the best alternative, for a given problem. That is why the manager has to rely upon such course of action which can yield good results under a given set of circumstances and limitations.

Step (6) Implementing the decision

Once the best alternative is selected, it must be implemented. This step mainly deals with the execution of the decision taken. It involves development of step by step plans, selling the idea to subordinates and seeking co-operation from the needy people. At this stage, the decision is converted into action. The decision must be implemented in the right time and that too in a proper way.

Step (7) Evaluation of Decisions

The final step in decision-making process is evaluation. The actual results of the decision should be compared with the expected results in order to locate the reasons for deviations. This review is a continuous process and it generates information for necessary feedback for further improving the decision-making process in future.

Rationality In decision-making

The term 'rationality' refers to objective and intelligent action decision is said to be rational if appropriate means are chosen to accomplish desired objectives. It implies that decision-maker tries to maximise the values in a given situation by choosing the most suitable course of action. A good decision depends on the maker's being consciously aware of the factors that set the stage for the decision. Obtaining complete rationality is not always possible. That is the reason why people prefer to take satisfactory decisions instead of ideal or optimum decisions. Managers are not always confronted by the problem of rationality in decision-making. In practice, they confine themselves to few

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important alternatives which have limited risks combined with favourable consequences.

Limits of Rational Decision-making

Managers are not always rational in their decision-making. They cannot always abide by the demands of rationality in decision- making process. There are some limitations which are briefly explained in the following lines.

(a) Since decisions are related to future, Managers cannot foresee all the consequences accurately. Moreover, lack of complete knowledge about the problem also makes it impossible to choose a good decision.

(b) Because of time and cost constraints, all complex variables that have a bearing on decision cannot be examined fully. Hence, the decision-maker is forced to strike a balance between complete rationality and hard realities on the ground. The Impact of all the variables cannot be ascertained because some of them may be Intangible.

(c) The consequences of various alternatives cannot be anticipated accurately. Hence, decisions taken under uncertainty cannot guarantee the success of decision-making process.

(d) Human factors like value systems, perceptions, social factors, institution etc., are the main limits on rational decision-making. Managers, being-human beings, are greatly influenced by their personal beliefs, attitudes and biases. Because of this, the capability of a decision-making process varies from individual to Individual and from situation to situation.

Every manager is vitally concerned with the above limitations in his approach to rational decision-making. He has to collect all the relevant Information and try to overcome the above limits on rationality and choose the most rational decision for solving any given problem.

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Barriers to effective Decision-making

Apart from the above limitations, decision-making process remains to be ineffective because of the existence of various barriers in organisation structure. These barriers impede the process of identification of problems, its analysis and the development of the solutions. Elbing has identified some of the important barriers that can block managerial effectiveness in choosing the most suitable decision. Some of them are listed below.

� The tendency of a human being to evaluate a given problem with pre-conceived notions, acts as a stumbling block in understanding the real situation.

� Though it is dangerous, managers feel safer if they do not change what is familiar. Eventually, the ineffective decision of a familiar way becomes accepted rather than considering new and innovative means.

� Many managers fall to demarcate the symptoms from the main problem. � Many managers have a tendency to respond to the problem

instantaneously without proper information and thinking. If they gather more Information, they become more aware of their options.

� Similarly, the tendency to equate a new challenge with that of old experience is common with many managers. This often causes managers to look for what is familiar rather than what is unique in new problem. The above problems are mainly responsible for either indecision or for

half-decisions in the modem organisations. Knowledge of the above problems will surely help the managers in arriving at pragmatic decisions. The following suggestions can be offered to overcome the above barriers so as to make the managers more effective in decision-making process.

� Avoid premature evaluation. � Initiate impartial probing by avoiding personal biases on the

outcome. � Develop a sound system that can supply adequate information for

making decisions.

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� Encourage group leaders to respond to a given situation and compare the pros and cons of the solutions offered by the two groups for making an effective decision.

� Encourage innovative thinking among the sub-ordinates so as to identify the crux of Ac problem without waste of time and money.

� When decisions of critical and pivotal in nature are to be taken, encourage group thinking. For this, the problem is to be presented to the subordinates first and they are asked to develop as many solutions as possible in a free environment

TECH�IQUES OP DECISIO�-MAKI�G

(1) Brainstorming

Brainstorming is the oldest and widely followed technique for encouraging creative thinking. It was originally developed by A.F. Osborn. It Involves the use of a group. This is an approach to improve problem discovery and solving by encouraging subordinates to give their ideas and solutions in a free environment- It starts on the premise that when people interact in free environment, they will generate creative ideas. Continuous interaction through free discussions may result in spontaneous and creative thinking. The larger the number of solutions, the fairer are the chances in locating an acceptable solution. Established research proves that one hour brainstorming system Is likely to generate 50-150 ideas. It is interesting to note that while most of them are proved to be impracticable, at least, some of them merit serious consideration. This group process is not without limitations. It consumes lot of time and therefore, is an expensive exercise. Secondly, it emphasises only quantity of solutions which more often than not proved to be superficial. By overcoming the above limitations, a modern manager can use this as an effective tool.

(2) Synectics

When compared to Brainstorming. synectics is a new concept developed by Williamb J.J. Gordon, The term 'synetics' is derived from a Greek word which refers to "Fitting together of diverse elements". It starts on the premise that this concept encourages novel thinking for the development of alternatives through putting together different ideas whjch are distinct from each other. A

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given problem is presented to a group of people with different backgrounds and varied experiences.

It is the responsibility of the group leader to present the problem and lead

the discussions in order to stimulate creative solutions. This approach ensures on the spot evaluation of members suggestions. The leader who is a technical expert is always assisting the group in evaluating the feasibility of their ideas. Experience shows that synetics has been less widely used than "Brainstorming". When the problem is real tough and challenging, this approach is used for effective decision-making. Like Brainstorming it also suffers from the same range of limitations

(3) Operations Research

The origin and development of operations research is attributed to military operations and applications in Und World War. The war put tremendous pressure on the use of available scarce resources for various strategic and tactical operations. The success of operations research in developing options of effective and efficient nature was instrumental in making this approach rather dependable in decision-making process. Now-a-days, greater emphasis has been laid on the use of mathematical models to reflect different options and constraints in a situation and their effect on a selected goal. This quantitative approach to decision-making is usually referred as "Operations Research". Of late, it has become an Invaluable tool in the kit of a decision-maker. Operations Research employs optimizing models like Linear Programming, Project Management, Inventory Control, Decision Theory and Waiting Line Theory. Operations Research is the systematic method of studying the basic structure, functions and relationships of an organisation as an open system. It always adopts a systems approach to management in getting things done. It is constantly interested in developing optimal solution with limited resources in a given situation. It covers six steps in its approach to problem solving. They are:(a) Identification of a problem; (b) construction of a mathematical model to investigate the problem;(c) developing a good so1utlon:(d) testing of the model in the light the data available; (e) identifying and setting up of control points (f) Implementation of the option as a solution to a critical problem (putting a

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solution to work). In essence, Operations Research attempts to develop the best solution that will contribute to organisational goals.

Limitations of Operation Research

(i) Operations Research technique is not a panacea to all the problems of modem management. In other words, it is not the end. (ii) Since Operations Research does not take intangible aspects into consideration, subjective judgement becomes difficult under this model.(iii) As the Operations Research technique directly depends upon the use of mathematical and statistical tools, it is increasingly becoming complex and costly exercise, (iv) Since decision making is a human process, it cannot be predicted properly. At the same time, the impact of such factors cannot be measurable.

(4) Delphi Technique

It is a technique normally used for forecasting future events. It is a group decision-making technique. Under this method, independent opinions are sought from the members repeatedly so as to develop a best solution to a given problem. The success of Delphi technique depends upon a simple technique of understanding the problem from the other man’s perspective. This ensures success. Though it is a useful technique, since it Involves time and cost, it can not be tried in all situations.

REVIEW QUESTIO�S

1. Describe the nature of decision-making. 2. What are the main features of the classical model of the decision-making

process? 3. What are the steps in rational decision-making? Which step do you think

is the most difficult to carryout? Why? 4. How do quantitative tools and techniques improve the decision-making

process?

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CASE STUDY (1)

Renuka Tin manufacturing was facing problems in meeting production schedules and producing quality products. In view of recent trends in globalization of Indian market, good number of orders were received from developed nations. The problems of meeting rush orders from foreign countries is placed before the operations research department. The OR department has located some weaknesses of the unit like lack of automatic equipment and poorly designed production process. To overcome these weaknesses, the management has proposed to invest Rs. 70,00.000 for buying new automatic equipment and rearranging the production process. It is contemplated to increase the output by 40 per cent by committing Rs.70 lakhs of Investment. It is expected that this Increase in output will enable the unit to meet foreign orders without disrupting the normal business. Further, It Is estimated that new facilities and reorganised production process coming together will generate savings which can pay off Rs.70 lacks in three years. QUESTIO�S

1. If you are a Manager, would you advocate additional investment based on the recommendations of OR department?

2. What additional information would you seek before the decision is implemented?

3. What controls do you suggest for getting projected saving as a matter of reality?

��

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U�IT - III

Lesson - 9

ORGA�ISATIO�

I�TRODUCTIO�

Organisation is a mechanism or structure, which helps the activities to be performed effectively. The organisation is established for the purpose of achieving the business objectives. The business objectives may differ from one business to another. Whatever may be the business objectives there is a need of an organisation. The word "Organisation" is derived from the word “Organism” which means an organised body with connected interdependent parts sharing common life. When a group of persons working together to achieve a common goal, the problems, such as who decides what issues, who does what works and what action should be taken on the basis of certain conditions may arise.

Meaning

Organisation is the detailed arrangement of work and work conditions in order to perform the assigned activities in an effective manner. Organisation can be compared to a human body. The human body consists of hands, feet, eyes, ears, nose, fingers, mouth etc. These parts are performing their work independently and at the same time one part cannot be a substitute to another. The same principles can be identified in the organisation also. The organisation consists of different departments. Each department performs work independently and cannot be a substitute to another.

Definition

Haney, “Organisation is a harmonious adjustment of specialised parts for the accomplishment of some common purpose or purposes.”

McFarland, “An identified group of people contributing their efforts towards the attainment of goals is called organisation.”

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

Mooney and Reily, “Organisation is the form of every human association for the attainment of a common purpose.”

Chester Bernard, “A system of co-operative activities of two or more

persons is called organisation.” R.C. Davis, “Any group of people, large or small, which has been

implemented adequately and is co-operating willingly under the direction of competent executive leadership in an effective, economical accomplishment of certain common objective.”

G.R. Terry, “Organising is the establishing of effective behavioural relationships among persons so that they may work together effectively and gain personal satisfaction in doing selected tasks under given environmental conditions for the purpose of achieving some goal or objective.”

Koontz O’Donnel, “Organising involves the establishment of an international structure of roles through determination and enumeration of the activities required to achieve the goals of an enterprise and each part of it; the grouping of these activities, the assignment of such groups of activities to the manager, the delegation of authority to carry them out and provision for co-ordination of authority and information relationship, horizontally and vertically, in the organisation structure.”

Louis Al Alien, “Organisation is that process of identifying and grouping the work to be performed, defining and delegating responsibility and authority and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.”

Oliver Sheldon, “Organisation is the process of so combining the work which individual or groups have to perform with the facilities necessary for its

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creation that the duties so performed provide the best channels for the efficient, systematic, positive and co-ordinated application of the available efforts.”

Spriegel, “In its broadest sense, organisation refers to the relationship between the various factors present in a given endeavour.... Factory organisation concerns itself primarily with the internal relationships within the factory such as responsibilities of personnel arrangement and grouping of machines and material control. From the stand-point of the enterprise as a whole, organisation is the structural relationship between the various factors in an enterprise.”

Wheeler, “Internal organisation is the structural framework of duties and responsibilities required to personnel in performing various functions within the company.... It is essentially a blue print for action resulting in a mechanism for carrying out function to achieve the goals set up by company management.” FU�CTIO�S OF ORGA�ISATIO�

From the above definitions, it is understood that the functions of organisation include determination of activities, grouping of activities, allotment of duties to specified persons, delegation of authority, defining relationships and co-ordination of various activities.

♦ Determination of activities

It includes the deciding and division of various activities required to

achieve the objectives of the organisation. The entire work is divided into various parts and again each part is sub-divided into various sub-parts. For example, the purchase work may be divided into requisition of items, placing of an order, storage and so on.

♦ Grouping of activities

The next function of organisation is that the identical activities are

grouped under one individual or a department. The activities of sales such as canvassing, advertisements and debt collection activities are grouped under one department i.e., sales department.

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♦ Allotment of duties to specified persons

In order to ensure effective performance, the grouped activities are

allotted to specified persons. In other words the purchasing activities are assigned to the Purchase Manager; the production activities are assigned to Production Manager; the sales activities are assigned to Sales Manager and the like. Besides, adequate staff members are appointed under the specified persons. The specified persons are specialised in their respective fields. If there is any need, appropriate training would be provided to such persons.

♦ Delegation of authority

Assignment of duties or allotment of duties to specified persons is followed by delegation of authority. It will be very difficult to a person to perform the duties effectively, if there is no authority to do it. While delegating a authority, responsibilities are also fixed. Thus, the Production Manager may be delegated with the authority to produce the goods and fixed with the responsibility of producing quality goods.

♦ Defining relationship

When a group of persons is working together for a common goal, it

becomes necessary to define the relationship among them in clear terms. If it is done, each person will know who is his boss, from whom he has to receive orders and to whom he is answerable. In another sense, each boss should know what authority he has and over which persons.

♦ Co-ordination of various activities

The delegated authority and responsibility should be co-ordinated by

Chief Managerial Staff. The reason is that there must be a separate and responsible person to see whether all the activities are going on to accomplish the objectives of organisation or not.

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PRI�CIPLES OF ORGA�ISATIO�

The work can be completed in time whenever a technique or a principle is adopted. So, the success or failure of an organisation depends upon the principles to be followed in the organisation. The principles of organisation may be termed as a tool used by the organisation. Some experts like Taylor, Fayol and Urwick have given the principles of organisation. They are briefly discussed below.

� Principle of definition

It is necessary to define and fix the duties, responsibilities and authority

of each worker. In addition to that the organisational relationship of each worker with others should be clearly defined in the organisational set up.

� Principle of objective

The activities at all levels of organisation structure should be geared to

achieve the main objectives of the organisation. The activities of the different departments or sections may be different in nature and in approach, but these should be concentrated only for achieving the main objectives.

� Principle of specialisation or division of work

Division of work means that the entire activities of the organisation are

suitably grouped into departments or sections. The departments or sections may be further divided into several such units so as to ensure maximum efficiency. This will help to fix up the right man to the right job and reduce the waste of time and the resources.

The work is assigned to each person according to his educational qualification, experience, skill and interest. He should be mentally and physically fit for performing the work assigned to him. The required training may be provided to the needy persons. It will result in attaining specialisation in a particular work or area.

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� Principle of co-ordination

The objectives of the organisation may be achieved quickly whenever co-

ordination exists among the workers. At the same time each work can be done effectively by having the co-ordination. The final objective of all organisations is to get smooth and effective co-ordination.

� Principle of authority

When many persons are working together in one place, there will be a difference of power and authority. Of these persons, some will rule and others will be ruled. Normally maximum powers are vested with the top executives of the organisation. These senior members should delegate their authorities to their subordinates on the basis of their ability. In certain cases, the subordinates are motivated through the delegation of authority and they perform the work efficiently with responsibility.

� Principle of responsibility

Each person is responsible for the work completed by him. Authority is

delegated from the top level to the bottom level of organisation. But, the responsibility can be delegated to some extent. While delegating the authority, there is no need of delegation of responsibility. So, the responsibility of the Junior staff members, should be clearly denned.

� Principle of explanation

While allocating the duties to the persons, the extent of liabilities of the

person would be clearly explained to concerned person. It will enable the person to accept the authority and discharge his duties.

� Principle of efficiency

Each work can be complete d efficiently wherever the climate or the

organisational structure facilitates the completion of work. The work should be completed with minimum members, in less time, with minimum resources and within the right time.

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� Principle of uniformity

The organisation should make the work distribution in such a manner that

there should be an equal status and equal authority and powers among the same line officers. It will avoid the problems of dual subordination or conflicts in the organisational set up. Besides, it increases co-ordination among the officers.

� Principle of correspondence

Authority and responsibility should be on parity with each other. If it is

not so, the work cannot be effectively discharged by any officers whatever his ability may be. At the same time, if authority alone is delegated without responsibility, the authority may be misused. In another sense, if responsibility is delegated without the authority, it is a dangerous one.

� Principle of unity of command

This is also sometimes called the principle of responsibility. The

organisational set up should be arranged in such a way that a subordinate should receive the instruction or direction from one authority or boss. If there is no unity of command in any organisational set up, the subordinate may neglect his duties. It will result in the non-completion of any work. In the absence of unity of command, there is no guidance available to the subordinates and there is no controlling power for the top executives of the organisation. Further, some subordinates will have to do more work and some others will not do any work at all.

� Principle of balance

There are several units functioning separately under one organisational set

up. The work of one unit might have been commenced after the completion of the work by another unit. So, it is essential that the sequence of work should be arranged scientifically.

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� Principle of equilibrium balance

The expansion of business activities requires some changes in the

organisation. In certain periods, some sections or departments are overloaded and some departments are underloaded. During this period due weightage should be given on the basis of the new work load. The overloaded sections or departments can be further divided into sub-sections or sub-departments. It would entail in the effective control over all the organisational activities.

� Principle of continuity

It is essential that there should be a re-operation of objectives, re-

adjustment of plants and provision of opportunities for the development of future management. This process is taken over by every organisation periodically.

� Principle of span of control

This is also called span of management or span of supervision or levels of

organisation. This principle is based on the principle of relationship.

Span of control refers to the maximum number of members effectively supervised by a single individual. The number of members may be increased or decreased according to the nature of work done by the subordinate or ability of the supervisor. In the administration area, under one executive nearly four or five subordinates may work. In the lower level or the factory level, under one supervision the twenty or twenty five number of workers may work. The span of control enables the smooth functioning of the organisation.

� Principle of leadership facilitation

The organisational set up may be arranged in such a way that the persons

with leadership qualities are appointed in key positions. The leadership qualities are honesty, devotion, enthusiasm and inspiration.

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� Principle of exception

The junior officers are disturbed by the seniors only when the work is not

done according to the plans laid down. It automatically reduces the work of middle level officers and top level officers. So, the top level officers may use the time gained by reduction in workload for framing the policies and chalking out the plans of organisation.

� Principle of flexibility

The organisational set up should be flexible to adjust to the changing

environment of business. The organisation should avoid the complicated procedures and permit an expansion or contraction of business activities.

� The scalar principle

This is also called chain of command or line of authority. Normally, the

line of authority flows from top level to bottom level. It also establishes the line of communication. Each and every person should know who is his superior and to whom he is answerable.

� Principle of simplicity and homogeneity

The organisation structure should be simple. It is necessary to understand

a person who is working in the same organisation. If the organisation structure becomes a complex one, junior officers do not understand the level and the extent of responsibility for a particular activity. The simplicity of the organisational structure enables the staff members to maintain equality and homogeneity. If equality and homogeneity are maintained in one organisation, it is possible to determine whether the staff members discharge their duties to realise the objective of organisation.

� Principle of unity of direction

This is also called the principle of co-ordination. The major plan is

divided into the sub plans in a good organisational set up. Each sub plan is taken up by a particular group or department. All the groups or departments are

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requested to co-operate to attain the main objectives or in implementing major plan of the organisation.

� Principle of joint decisions

In the business organisation, there are number of decisions taken by the

officers to run the business. If a complicated problem arises more than one member examines the problems and takes the decisions. Whenever the decision is taken jointly, the decision gives the benefit for a long period and the decision is based on various aspects of the organisational set up.

SPECIAL FEATURES OF ORGA�ISATIO�

Organisation is the pioneer step of the management. The functions of management are sitting over the strong organisational set up. A Palace may be constructed only when a very strong foundation is laid. The same principle is followed here. Organisation is the foundation of management. Without organisation, the functions of management such as planning, organising, staffing, directing, co-ordinating and controlling cannot succeed.

Organisation supplied the human and material resources and helps to achieve the objectives of business. The organisation provides the means or techniques with strong efforts for more production and effective completion of the work. Organisation increases the certainty and promptness in the completion of work by assigning fixed duties to every person. Whenever the duties are fixed, it automatically develops team spirit towards the realisation of common goals. Initially the total work of the enterprise can be divided into various parts and then linked with all the parts as and when the need arises to achieve main objectives. The connection of various parts of the organisation is given by the authority relationship of organisational structure. The relationship may operate upward, downward, and sidewise of the organisation.

� Division of labour

The total work can be divided into many parts for effective performance

of the work. Each part of work may be completed by one person or a group of persons. But, all the parts of the work are done with the aim to achieve main

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objective of the organisation. The work is assigned to a person who is specialised in that particular work.

If there is a paper division of labour, no person will be allowed to do anything according to his own way unless and otherwise he is not well equipped. The division of labour results in the creation of specialised persons because a person does the same work again and again. No waste of time, energy and resources are some of the advantages of division of labour. In addition to this, the division of labour results in the increase of quality output and quantity of product without any additional capital.

� Co-ordination

Different persons are assigned different works in one organisation. But,

all the works are performed to achieve the objectives. It implies that there is a need of co-ordination among the workers in an organisation. Each and every department or section of the organisation should have relationship with each other, to get mutual co-operation.

� Objectives

The objectives of the organisation should be denned clearly. The

objectives cannot be achieved without the existence of a good organisation structure. In turn, the organisation cannot exist without objectives for a long period.

� Authority-responsibility structure

An organisation means an arrangement of position of executives by

adopting a rank system. In other words, a subordinate has one boss and a superior has control over the subordinate specifically. The position of each of the executives is defined with regard to the extent of authority and responsibility vested in him to discharge the duties.

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� Communication

Every organisation has its own communication system and the methods.

The success of management depends upon the effective system of communication. The reason is that each and every person working in an organisation should know the techniques and the importance of communication. The channels of communication may be divided into formal, informal, downward and upward or horizontal.

IMPORTA�CE OF ORGA�ISATIO�

Organisation creates the relationship between top level executives and lower level staff members. The top level executives perform the functions, like planning, organising, staffing, directing, controlling the lower level people. The actual work is completed at lower level of the organisation. In this way the organisation maintains the relationship with each other in an enterprise.

� Facilitates Administration

Administration aims at earning the highest profit by utilizing the available

resources properly. There is a planning, policy making, direction and co-ordination in the administration level to achieve the objectives. Besides, the administration classifies the activities of the business department-wise and appoints the officers, assistant, supervisors, executives to facilitate the achievement of objectives.

There should be an effective administration to achieve the objectives of the business. Duplication of work, wrong planning, inefficient personnel, lack of motivation, improper allocation of duties and responsibilities absence of co-ordination, communication gap, improper instructions are the ingredients of ineffective administration. This ineffective administration can be removed by having a sound organisation. Alien observes “A properly designed and balanced organisation facilitates both management and operation of the enterprise. Inadequate organisation may not only discourage but also actually preclude effective administration.”

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� Increase the efficiency of management

Under good organisation, there is a chance of exhausting the workers’

ability in full and utilisation of resources effectively. Confusion, delays and duplication of work are avoided in good organisation. It automatically motives the employees who are working in an organisation and increases the efficiency of management.

� Facilitates growth and diversification

The structure of the company depends upon the structure of the

organisation. The structure of the company can be changed whenever the growth and expansion activities are earned out. The growth of business means an increase in the scale of operation and diversification means starting of production of a new type of products. Changes in the organisation may result in the appointment of additional staff members, de-centralisation of authority and responsibility, raising of additional capital, identification of the consumers’ satisfaction and preferences, expansion of sales promotion activities and the like.

� Ensures optimum utilisation of material resources and human efforts

Division of work and specialisation are the tools used to achieve the

objective of optimum utilisation of material, resources and human efforts. Right man, right time and the right job can also be applied to them. Good organisation increases the efforts of the employees and the working facilities.

� Adoption of new technology

The effectiveness of an enterprise is measured by the reaction of staff

members to the adopting of a new technology. In the scientific world, there is a lot of innovations and invention identified in the area of production, distribution and personnel management. If the new technology is adopted by the enterprise, the maximum Benefit can be obtained in any field or activity. A flexible organisational structure is needed to adopt a new technology.

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� Places proportionate importance to the various activities of the

enterprise

Organisation classifies the entire business activities into departments.

Each department is receiving attention according to its importance it has in the achievement of business objectives. Money and efforts are spent in proportion to the contribution made by each and every department. It does not mean that less important department activities are neglected. It means that due importance is given to each department according to its contribution towards the achievement of the objectives.

� Encourages creativity and initiative

A sound organisational structure will give an opportunity for the staff to

show their hidden which will help the enterprise to achieve the business goals and earn higher profit. Clear distribution of authority and responsibility, incentives offered for specialised work and freedom given to personal work, increases the spirit of constructive and creative approach in management.

� Facilitates co-ordination

The activities of different departments are grouped together to achieve the

business objectives. Each department performs its own function in a closely related manner and not as competitors.

� Facilitates training and development of managerial personnel

A sound organisation provides training to new staff members before

placement and gives refresher training to the existing staff members to improve their efficiency. The training may be given within the company or outside the company according to the training facilities available. Nowadays training institute give training to the needy persons with the help of the different experts from various fields. These training institutes are collecting data directly from the field used in the training.

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� Prevents the growth of secret, influence and corruption

Sound organisation develops the morale, honesty, devotion to duty and

loyalty of business, organisation. Normally these help remove the corruption, secret and influence. Only the unsound organisation develops the secret, influence and corruption. CLASSIFICATIO� OF ORGA�ISATIO�

The organisation can be classified on the basis of authority and responsibility assigned to the personnel and the relationship with each other. In this way, an organisation can be either formal organisation or informal organisation. FORMAL ORGA�ISATIO�

The formal organisation represents the classification of activities within the enterprise, indicates who reports to whom and explains the vertical journal of communication which connects the chief executive to the ordinary workers. In other words, an organisational structure clearly defines, the duties, responsibilities, authority and relationships as prescribed by the top management.

In an organisation, each and every person is assigned the duties and given

the required amount of authority and responsibility to carry out this job. It creates the co-ordination of activities of every person to achieve the common objectives. It indirectly induces the worker to work most efficiently. The inter relationship of staff members can be shown in the organisation chart and manuals under formal organisation.

CHARACTERISTICS OF FORMAL ORGA�ISATIO�

The important characteristics of a formal organisation are given below:

1. It is properly planned. 2. It is based on delegated authority. 3. It is deliberately impersonal.

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4. The responsibility and accountability at all levels of organisation should be clearly defined.

5. Organisational charts are usually drawn. 6. Unity of command is normally maintained. 7. It improves for division of labour.

ADVA�TAGES OF FORMAL ORGA�ISATIO�

1. The definite boundaries of each worker is clearly fixed. It automatically reduces conflict among the workers. The entire building is kept under control.

2. Overlapping of responsibility is easily avoided. The gaps between the responsibilities of the employees are filled up.

3. Buck passing is very difficult under the formal organisation. Normally exact standards of performance are established under formal organisation. It results in the motivating of the employees.

4. A sense of security arises from classification of the task.

5. There is no chance for favouritism in evaluation and placement of the employee.

6. It makes the organisation less dependent on one man.

Keith Davis observes that formal organisation is and should be our paramount organisation type as a general rule. It is the pinnacle of man's achievement in a disorganised society. It is man's orderly, conscious and intelligent creation for human benefit. ARGUME�TS AGAI�ST FORMAL ORGA�ISATIO�

1. In certain cases the formal organisation may reduce the spirit of initiative.

2. Sometimes authority is used for the sake of convenience of the employee without considering the need for using the authority.

3. It does not consider the sentiments and values of the employees in the social organisation.

4. The formal organisation may reduce the speed of informal communication.

5. It creates the problems of co-ordination.

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I�FORMAL ORGA�ISATIO�

Informal organisation is an organisational structure which establishes the relationship on the basis of the likes and dislikes of officers without considering the rules, regulations and procedures. These types of relationship are not recognised by officers but only felt. The friendship, mutual understanding and confidence are some of the reasons for existing informal organisation. For example, a salesman receives orders or instructions directly from the sales manager instead of his supervisors.

The informal organisation relationship exists under the formal

organisation also. The informal organisation relationship or informal relations give a greater job satisfaction and result in maximum production.

According to C.J. Bernard, “Informal organisation brings cohesiveness to formal organisation. It brings to the members of a formal organisation a feeling of belonging, status of self respect and gregarious satisfaction. Informal organisations are important means of maintaining the personality of the individual against certain effects of formal organisation which tend to disintegrate personality.” CHARACTERISTICS OF I�FORMAL ORGA�ISATIO�

1. Informal organisation arises without any external cause, i.e., voluntarily.

2. It is a social structure formed to meet personal needs.

3. Informal organisation has no place in the organisation chart.

4. It acts as agency of social control.

5. Informal organisation can be found on all levels of organisation within the managerial hierarchy.

6. The rules and traditions of informal organisation are not written but are commonly followed.

7. Informal organisation develops from habits, conduct, customs and behaviour of social groups.

8. Informal organisation is one of the parts of total organisation.

9. There is no structure and definiteness to the informal organisation.

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ADVA�TAGES OF I�FORMAL ORGA�ISATIO�

The advantages of informal organisations are briefly explained below:

1. It fills up the gaps and deficiency of the formal organisation.

2. Informal organisation gives satisfaction to the workers and maintains the stability of the work.

3. It is a useful channel of communication,

4. The presence of informal organisation encourages the executives to plan the work correctly and act accordingly.

5. The informal organisation also fills up the gaps among the abilities of the managers.

DISADVA�TAGES OF I�FORMAL ORGA�ISATIO�

The disadvantages of Informal Organisation are summarized below:

1. It has the nature of upsetting the morality of the workers.

2. It acts according to mob psychology.

3. Informal organisation indirectly reduces the efforts of management to promote greater productivity.

4. It spreads rumour among the workers regarding the functioning of the organisation unnecessarily.

DIFFERE�CE BETWEE� FORMAL ORGA�ISATIO� A�D I�FORMAL

ORGA�ISATIO�

Some of the differences between Formal Organisation and Informal Organisation are discussed below:

Formal Organisation Informal Organisation

1. It arises due to delegation of authority.

It arises due to social interaction of people.

2. It gives importance to terms of authority and functions.

It gives importance to people and their relationships.

3. It is created deliberately. It is spontaneous and natural.

4. The formal authority is attached to a position.

The informal authority is attached to a person.

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5. Rules, duties and responsibilities of workers are given in writing.

No such written rules and duties followed in informal organisation.

6. Formal organisation comes from outsiders who are superior in the line of organisation.

Informal organisation comes from those persons who are objects of its control.

7. Formal authority flows from upwards to downwards.

Informal authority flows from upwards to downwards or horizontally.

8. Formal organisation may grow to maximum size.

Informal organisation tends to remain smaller.

9. It is created for technological purposes.

It arises from man’s quest for social satisfaction.

10. Formal organisation is permanent and stable.

There is no such permanent nature and stability.

THEORIES OF ORGA�ISATIO�

Organisation theory means the study of the structure, functioning and performance of organisation and the behaviour of individual and groups within it.

The various theories of organisation are given below:

1. Classical theory 2. Neo-classical theory 3. Modem theory 4. Motivation theory 5. Decision theory

The explanation of the above theories are given below: 1. CLASSICAL THEORY

The classical theory mainly deals with each and every part of a formal organisation. The classical theory was found by the father of scientific management, Frederick W. Taylor. Next a systematic approach to the organisation was made by Monney and Reicey.

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The classical theory is based on the following four principles:

• Division of labour

• Scalar and functional processes

• Structure and

• Span of control

• Division of labour

This theory fully depends upon the principle of division of labour. Under the

division of labour, the production of a commodity is divided into the maximum number of different divisions. The work of each division is looked after by different persons. Each person is specialised in a particular work. In other words, the work is assigned to a person according to his specialisation and the interest he has in the work. The division of labour results in the maximum production or output with minimum expenses incurred and minimum capital employed.

• Scalar and functional processes

The Scalar process deals with growth of organisation vertically. The

functional process deals with the growth of organisation horizontally. The scalar principles refer to the existence of relationship between superior and subordinate. In this way, the superior gives instructions or orders to the subordinates (various levels of management) and gets back the information from the subordinate regarding the operations carried down at different levels or stages. This information is used for the purpose of taking decision or remedial action to achieve the main objectives of the business.

The Scalar chain means the success of domination by the superior on

subordinate from the top to the bottom of organisation. The line of authority is based on the principle of unity of command which means that each subordinate does work under one superior only.

• Structure

The organisational structure may be denned as the prescribed patterns of

work related behaviour of workers which result in the accomplishment of

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organisational objectives. The organisational structure is used as a tool for creating a relationship among the various functions which make up the organisation.

Specialisation and co-ordination are the main issues in the design of an

organisational structure. The term specialisation includes the division of labour and the usage of special machines, tools and equipments- Specialisation is obtained when a person is requested to do a single work and it results in the increase in productivity. The facilities or advantages of suitable training, easy allocation of work, job scheduling and effective control are also obtained from specialisation. Co-ordination means an orderly performance in operations to achieve organisational objectives. Normally the business units are organised on a functional basis. The functions are performed by different persons of different nature. It is also necessary to co-ordinate the various functions to achieve the main objectives and at the same time a function does not conflict with any other function.

• Span of control

Span of control means an effective supervision of maximum number of

persons by a supervisor. According to Brech, “Span refers to the number of persons, themselves carrying managerial and supervisory responsibilities, for whom the senior manager retains his over-embrassing responsibility of direction and planning, co-ordination, motivation and control.”

From the above discussion, we can know that the classical theory emphasised unity of command and principle of co-ordination. Most of the managers’ time is wasted in the co-ordination and control of the subordinates. In many organisations a single supervisor supervises the work of 15-20 workers and does not follow the principle of span of control. Some of the experts hold that a manager can supervise 4-8 members at higher levels and between 8-20 members at the lower levels of the organisation. But according to Lyndall Urwick, a maximum of 4 members at higher levels and between 8-12 members at lower levels can be supervised by the superior to constitute an ideal span of control.

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CHARACTERISTICS OF CLASSICAL THEORY

1. It is based on division of labour.

2. It is based on objectives and tasks of organisation.

3. It is concerned with formal organisation.

4. It believes in human behaviour of the employees.

5. It is based on co-ordination of efforts.

6. Division of labour has to be balanced by unity of command.

7. It fixes a responsibility and accountability for work completion.

8. It is centralised.

CRITICISM OF CLASSICAL THEORY

1. This theory is based on authoritarian approach.

2. It does not care about the human element in an organisation.

3. It does not give two way communication.

4. It underestimates the influence of outside factors on individual behaviour.

5. This theory neglected the importance of informal groups.

6. The individual is getting importance at the expense of the group.

7. It also ignores the influence of outside factors on individual behaviour.

8. The generalisation of the classical theories have not been tested by strict scientific methods.

9. The motivational assumptions underlying the theories are incomplete and consequently inaccurate.

2. �EO-CLASSICAL THEORY

This theory is developed to fill up the gaps and deficiencies in the classical theory. It is concerned with human relations movement. In this way, the study of organisation is Teased on human behaviour such as how people behave and why they do so in a particular situation. The Neo-classical scholars used classical theory as the basis for their study and modified some of the principles for the study. The Neo-classical have only given new insights rather than new techniques.

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The scholars also pointed out the practical difficulties of the working of scalar and functional processes. The main contribution of this theory highlights the importance of the committee management and better communication. Besides, this theory emphasized that the workers should be encouraged and motivated to evince active participation in the production process. The feelings and sentiments of the workers should be taken into account and respected before any change is introduced in the organisation.

The classical theory was production-oriented while Neo-classical theory was people-oriented. CO�TRIBUTIO�S OF �EO-CLASSICAL THEORY

1. Person should be the basis of an organisation.

2. Organisation should be viewed as a total unity.

3. Individual goals and organisation goals should be integrated.

4. Communication should be moved from bottom to top and from top to bottom.

5. People should be allowed to participate in fixing work standards and decision-making.

6. The employee should be given more power, responsibility, authority and control.

7. Members usually belong to formal and informal groups and interact with others within each group or sub-group.

8. The management should recognise the existence of informal organisation.

9. The members of sub-groups are attached with common objectives.

CRITICISM OF �EO-CLASSICAL THEORY

A survey conducted by American Management Association indicates that most of the companies reported found little or nothing useful in behavioural theory. According to Ernest Dale, neither classical theory nor neo-classical theory provides clear guidelines for the actual structuring of jobs and provision for co-ordination.

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3. MODER� THEORY

The other name of Modern Theory is Modern Organisation Theory. According to one authority it was organised in the early 1950s. This theory composed of the ideas of different approaches to the management development. The approach is fully based on the empirical research data and has integrating nature. The approach reflects the formal and informal structures of the organisation and due weightage is given to the status and roles of personnel in an organisation.

Like the general system theory, modern organisation theory studies:

1. The parts (individual) in aggregates and the movement of individuals and

out of the system. 2. The interaction of individual with the environment found in the system. 3. The interaction among individual in the system.

ESSE�TIALS OF MODER� THEORY

The following are some of the essentials of Modern Theory.

1. It views the organisations as a whole.

2. It is based on systems analysis.

3. The findings of this theory are based on empirical research.

4. It is integrating in nature.

5. It gives importance to inter-disciplinary approach to organisational analysis.

6. It concentrates on both quantitatives and behavioural science.

7. It is not a unified body of knowledge.

CRITICISM OF MODER� THEORY

The Modem Theory has the following criticism:

1. This theory puts old wine into a new pot.

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2. It does not represent a unified body of knowledge. There is nothing new in this theory because it is based on past empirical studies.

3. This theory forms only the questions and not the answers. 4. It is based on behavioural, social and mathematical theories. These are

management theories in themselves.

4. MOTIVATIO� THEORY

It is concerned with the study or work motivation of employees of the organisation. The works are performed effectively if proper motivation is given to employees. The motivation may be in monetary and non-monetary terms. The inner talents of any person can be identified after giving adequate motivation to employees. Maslow's hierarchy of needs theory and Honberg’s two factor theory are some of the examples of motivation theory.

5. DECISIO� THEORY

The other name of decision theory is decision-making theory. This theory was given by Herbert A. Simon. He was awarded Nobel Prize in the year 1978 for this theory. He regarded organisation as a structure of decision-makers. The decisions were taken at all levels of organisation and important decisions (policy decisions) are taken at higher levels of organisation. Simon suggested that the organisational structure be designed through an examination of the points at which decisions must be made and the persons from whom information is required if decisions should be satisfactory.

REVIEW QUESTIO�S

1. What is meant by division of work? 2. What is meant by Unity of Command? 3. Explain “The scalar principles”. 4. What is “Formal organisation?” 5. What is “Informal organisation?” 6. Explain the term “Formal organisation”. 7. Discuss some of the problems and benefits of informal organisation. 8. State what advantages does planning confer to the organisation. 9. What are the three types of informal groups in the informal

organisation? What is the composition of each group?

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CASE STUDY

In 1928 Soichiro Honda opened a branch of a Tokyo automotive repair shop in Hamamatsu. He repaired and raced cars, and that passion led to his developing metal spokes to replace the wooden ones usually used in the wheels. In 1937 he formed another company to manufacture piston rings. After bombs and an earthquake destroyed most of his factory, he sold it to Toyota Motor Corp. in 1945. Then in 1946 he founded the Honda Technical Research Institute to motorize bicycles. Soon he was manufacturing engines, and in 1948 he renamed the company Honda Motor Co., Ltd., and began to make motorcycles. In the 1960s Honda began to make lightweight trucks, sports cars, and small cars. In the 1970s, thanks to extremely high oil prices, Honda's small cars became tremendously successful. Honda expanded its line and even opened a production facility in the United States. Soichiro Honda developed organizational processes that were highly egalitarian. Known as the Honda Way, ideas and decisions began at the bottom of the organization and slowly made their way through numerous committees to various levels of directors at the top. Numerous waigaya or bull sessions were needed to hammer out agreements among those involved. With the tremendous competition facing Honda Motor as a large company, however, this bottom-up approach seemed less effective. Large numbers of people were involved in lengthy discussions, and frequently they made compromises that ended up lowering the marketability of the cars. Indeed, Honda's Accord fell from first place among sales in the United States to fourth. In 1990 Nobuhiko Kawamoto became Honda's president. A former engineer, he decided that a large, international organization necessitated a more top-down organizational structure. Middle-level managers draft their job guidelines, and their pay is based in part on the extent to which they accomplish the goals specified in those guidelines. Clear chains of command have been established, and the number of approvals needed for most projects has been reduced substantially. Kawamoto is clearly in charge, although he still meets with directors and engages in at least limited waigaya as part of the managerial process, Kawamoto divided the organization by product lines so that the strong performance in motorcycles and power equipment would not hide the weak performance in automobiles. He established cost-cutting efforts, particularly

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sharing components across car lines to reduce both the cost of manufacture (because different plants could use the same technology and tools) and the cost of supplies (because larger batches could be ordered at lower costs). The first big test of how well the new structure was to function was the 1994 Accord, the first car to be designed, manufactured, and sold under the new structure. The idea underlying the 1994 Accord was simple: design a single basic Accord to satisfy American tastes. Nearly one hundred U.S. engineers moved to Japan for two to three years to participate in the design of this car. Honda learned how to make the same car in both Japan and the United States without expensive retooling, an important step in keeping costs under control, in late 1993 the 1994 models reached showrooms, and the real test of the restructuring began.

QUESTIO�S

1. Describe the structural changes Kawamoto made at Honda Motor. What basic organizing concepts can you identify?

2. Do you believe that the restructuring undertaken by Kawamoto will be successful? Why or why not?

3. What new skills would a manager need to' be successful in the organization as structured by Kawamoto as opposed to those needed in the previous structure?

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U�IT – III

LESSON - 10

DEPARTME�TATIO�

One.of the key factors in designing an organisation structure is allocation of duties on the principle of specialisation. But the criterian of specialisation can be adopted in the narrow range of functions. For this the working of an undertaking has to be split into different units for the purpose of smoothly conducting the affairs with an eye on efficiency, economy and profitability. The splitting of the working of an undertaking into various units is called as departmentation.

Departmentation refers to the organisational device of classifying the activities or operation of an undertaking into functionalised categories. Modern enterprises tend to be larger in size and complex technological operations. All the activities cannot be managed by a single individual or the Board in a common sweep. Therefore, departments or sections are created for all major activities of the undertaking to bring the administrative and operational functions within compact compass of specialisation and the range of managerial convenience. The size of an undertaking may be large but departmentalising the big sized undertaking into manageable units based on functions, area, product or process. Hence the departmentation enables Large firms also to derwe the benefits of small functional organisation and at the same time softening the disadvantages that normally arise due to increasing size and diversity. Departmentation limits the number of persons to be managed by inducting them into different departmentation. Thus, it ensures suitable span of control. It makes direction and control effective by confining the managerial focus to well-knit and functionally conceived units product-wise, process-wise, or area-wise. Costs and revenues can be determined only if the enterprise is parcelled out into departments for administrative convenience. Allocation of duties selection of specialised staff fixation of responsibility will have decisive character under departmentalised organisational set up. Sharing of authority and spreading of responsibility are the underlying factors of departmentation subject to coordinating authority of top management.

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Process of deparmentation

1. Departmentation is done through the following process:

2. Identification of tasks or duties;

3. Analysis of details of each task;

4. Description of the functions;

5. Entrusting the groups of functions to separate specialist heads and providing them with suitable stafi

6. Delineation of scope of authority and responsibility of departmental heads.

Types of departmentation

Work of an undertaking is divided into departments in the following five ways

1. By functions;

2. By process;

3. Byproducts;

4. By location or area or territary; and

5. By customers.

I. Functional departmentation

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This is perhaps the most logical and basic form of departmentation. Functional departmentation is the process of dividing the organisation into units on the basis of the firm’s major activities. It involves grouping employees according to broad tasks they perform. Normally separate departments are created for all the key activities of the business. For example, in a manufacturing company the activities essential to the existence of the company are production, marketing and finance. However, in non-manufacturing concern these functions differ. In a transport company, the key areas may be operations, sales and finance. Thus, public utility concerns like electricity, transport, banking, insurance and hospitals have their own distinct key functional areas. In all these cases, under functional departmentation, major or primary departments are created along the key functional areas of the respective businesses.

If the organisation or given department is large, or in other words, as the organisation grows, major departments can be subdivided. These subdivisions are called derivative departments. The essential idea is to make increased use of specialisation. A typical functional organisation with major functions and derivative functions are shown in the following figure.

Functional departmentation

The following are the advantages and disadvantages of functional departmentation.

Advantages

1. It is the most logical and simple form of departmentation;

2. It makes supervision easier, since each manager has to be an expert in only his functional area of operation.

3. It makes efficient use of specialised resources and skills.

4. It fosters development of expertise in specialise

Disadvantages

1. Functional departmentation is often found to be inadequate to meet the growing needs of the business, particularly as the organisation expands or diversifies activities;

2. Further, decision-making becomes slow as the functional managers have to get the approval of the headquarters;

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3. It is also difficult to determine accountability in a functional structure. If a product fails, the question as to who is responsible cannot be easily answered; and

4. Functional managers tend to develop narrow perspective and loose sight of the bigger picture, Members of each department feel isolated from those in other departments. For example, manufacturing department may be obsessed with cost reduction and meeting the delivery dates neglecting the quality control. As a result, marketing department may be flooded with complaints.

2. Process Departmentation

The manufacturing activities may be sub-divided on the basis of their process of production. Similar machines are grouped into separate sections that are utilised for a distinct operation of the job. For example, lathe machines, drill machines, grinding machines, and so on are placed in each distinct unit. Cost and economy considerations urge the use of electronic office equipments and other costly machines on the basic of this sub-division. It is however, not a suitable method to be utilised in any mass production arrangement.

3. Products Departmentation

One of the most common ways in which businesses grow is by increasing the number of products they make and sell. If the organisation is successful, several product lines may attain such high sales that they require a separate division. Large organisations like shaw wallace, kirloskar, voltas, ITC, Hindustan lever, have coped with the expansion of their product lines by creating separate departments or divisions for the various products they make. Under product departmentation, a single manager, often referred to as the brand or product manager, is a delegated authority over all activities required to produce and market that product. As against the functions in the functional departmentation, basic products or services become the primary or major departments in the product departmentation, as shown in the following figure.

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Product Departmentation

Advantages

1. Product departmentation paces attention and effort on the basic products, the success of which is critical to the survival of the organisation.

2. Since the revenues and costs are assigned to a particular product, cost centres can be established, high profit areas can be encouraged and unprofitable product lines can be dropped. Thus, responsibility for cost reduction and profits can be established at the division level;

3. Proper coordination of all functional areas can be achieved as all the functional managers work as a team under close supervision of the product manager. Since the department or division is multi-functional, it often operates like a complete company.

4. Enables quick response to changes in environment as compared with functionally organised firm.

5. Provides managers a training ground in general management which is useflul in overcoming narrowness of interest; and

6. Expansion and diversification of activities is made easy by creating new departments for the new products that are added to the existing one’s.

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Disadvantages

1. Requires more persons with general management abilities as more and more departments are for the various products.

2. The product departments may try to become too antonomous, thereby presenting top management with a control problem.

3. It is also common to find product departments engaged in the duplication of efforts. Each product units has its own functional departments. They may not be sufficiently large to make maximum use of facilities. Thus product departmentation becomes an expensive organisational form.

4. Territorial Departmentation

When an organisation operates in different geographical areas, each with distinct needs, it is desirable to create the departments along geographical lines. The process of creating departments along the geographical lines is termed territorial departmentation This type of organisation makes it easier for the organisation to cope with variations in laws, local customs and customer needs. Public utilities like transport companies, insurance companies etc. adopt territorial departmentation. Similarly, a large scale organisation operating both in domestic and international markets may have separate departments or divisions may be created for different region of the world. Many multinational companies organise their global activities with regional headquarters in different regions of the world.

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Chairman

Advantages

1. Territorial departmentation makes possible concentration on markets and marketing channels in different geographical areas.

2. Develops opportunities for more efficient marketing activities because of better face-to-face communication with local interests; and

3. Makes possible effective utilization of locally available resources besides being able to cater to the region-specific variations in terms of preferences and sentiments of the people.

Disadvantages

1. In this type of departmentation, there are problems in training people to think in terms of markets rather than products.

2. Requires more persons with general management abilities; and

3. Increases problem of top management control because of the distance between the corporate headquarters and the regional offices.

5. Customer Departmentation

Some organisations sell a wide variety of goods or services that appeal to different groups of customers, each of which has distinguished needs. In such a case, departments are created around customer groups. Customers are the key to the way activities are grouped. For example, commercial banks organise their

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activities around customer groups to cater to their specific needs. As such there are separate departments or divisions for agricultural, industrial and merchant banking operation. Similarly, we find Blue Star Company organising its air-conditioning business around domestic and industrial air-conditioning units.

Advantages

1. Customer departmentation facilitates concentration on customer needs. This is almost in line with the customer orientation professed by any organisations these days.

2. Customers feel that they have an understanding supplier. For example, the manufactures may sell to wholesalers and industrial buyers. Wholesalers requires a product of dependable quality plus a service that includes installation and repair of the product and the specific training of employees.

3. Helps the organisation to set the correct feel of the market dynamics in terms of preferences of the customers, competitors’ strategies, etc.

Disadvantages

1. Difficult to coordinate operations between competing customers’ demands;

2. Requires considerable expertise on the part of managers in understanding customers’ problems and specific needs;

3. There is a possibility of under utilisation of facilities and employees specialised in terms of customer groups. Small organisations particularly can not afford the expenditure involved because some amount of duplication of the facilities is inevitable.

Conclusion

Span of management is one of the important principle of organising has been analysed in detail. It refers to the number of subordinates that a superior can effectively manage The principle suggests that there is a limit on the number of subordinates that can be managed by superior This limitation gives rise to the levels in the organisation. if the span is wide, it would result in a flat structure. if

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it s narrow. the result would be tall structure. Both types have merits and demerits

The process of a Creation of departments within the organisation is known as departmentation. It results in the design of a structure in organisation. Different patterns of departmentation are used by organisations depending on their specif requirements say functional, product, process, territorial and customer. These method of departmentation are analysed with the merits and demerits of each type.

Review questions

1. What do you mean by span of management? What are the factors affecting the effective span? -

2. What does Graicunas formula for a manager’s choice of span What are the limitations of Graicunas approach?

3. What is meant by departmentation ? Suggest suitable bases for departmentation with merits and demerits.

4. What are the basic characteristics of functional departmentation? Analyse its merits and demerits.

CASE: CO�FUSIO� I� AUTO PARTS LIMITED

Auto parts Limited, a medium-size company engaged in the manufacture of automobile components was started by Mr.Reddy, a technocrat in 1988. Things went on well for a couple of years. Problems began to surface in the early nineties because of the recession, in general, in the automobile industry. Since the demand for the company’s products is a derived one, the company could not insulate itself from the fluctuating fortunes of the automobile industry. As the parent industry began to cross the recession, happy days are once again here for the Auto parts Limited. Because of the quality products that the company is known for, several internationally reputed automobile companies are also eager to source their requirements for components with Auto parts Limited.

All these developments should naturally make Mr.Reddy, a happy man these days. But he is ‘concerned with certain organisational problems and is

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wondering as to how to organise the company in the light of tremendous potential for growth. He is particularly tired of being the only one in the company responsible for profits. The company, since Inception has been organised on functional lines. He has good managers heading the functions departments like manufacturing, finance, sales, advertising and product research, but none of them could be held responsible for profits. He often finds it difficult even to hold them responsible for the contribution of their respective areas to company profits. Besides, each manager began to complain against the other. For instance, sales manager, the other day, complained that he could not be fully responsible for sales when advertising was ineffective, when the products wanted in the market were not readily available from manufacturing. He further complained that the manufacturing department did not heed to their suggestions regarding certain modifications in the products. In turn, the manager in charge of manufacturing argued that financial controls did not allow his department to carry a large inventory of everything and he was obsessed with cutting down the costs.

Mr.Reddy is really sick of these internal squabbles among the functional heads and is seriously considering the idea of, breaking the company down into six or seven product divisions with a manager for each with complete responsibility over the product Including the profit. But he feels that this would not be economical since many of the products are produced with the same equipment and raw materials. Further, a sales person calling on a customer (the automobile company or the spare parts dealers in the market) could far more economically handle a number of related products than one or a few.

Confronted with the above dilemma, Mr. Reddy came to the conclusion that the best thing to do Is to set up six product managers reporting to a product marketing manager. Each product manager would be given responsibility for one or a few products and would oversee all aspects of manufacturing, product research, sales and advertising. Thus, In essence each product manager would be responsible for the performance and profits of the products assigned to him.

Mr.Reddy is bent on reorganising the company on the lines presented above and to hope for the best. But still he is not clear in his thinking and has some confusion about the new reporting relationships that would emerge after the proposed reorganisation exercise is over.

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Questions

1. What Is the exact problem in the case? Do you view the problem very serious? or, is Mr. Reddy over reacting?

2. What are your comments on the scheme of things that Mr. Reddy proposes to reorganise?

3. What would you do to avoid any confusion and to help the company achieve its ambitious go of emerging as a leader In the auto components industry?

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U�IT - III

Lesson - 11

SPA� OF CO�TROL

The term ‘span of control’ is also known as 'span of authority’ ‘span of supervision’ and ‘span of management’. In modem organisation, the term “span of management” is gaining currency because span is related more of management than of control and supervision. Modem executives believes that control and supervision nearly constitute an integral part of management process.

No single executive can control and supervise all the activities of a large sized company. Every executive needs the assistance of several subordinates in sharing the work. The top executive, irrespective of his education and experience, takes the support of others since he is incapacited by human limitations. This gives rise to the need for others assistance in controlling the activities.

Meaning

Span of control implies the limitation on the number of subordinates that one manager can effectively supervise at a particular time. The quality of supervision becomes poor and coordination becomes weak when large number of subordinates work under a single executive. On the other hand. If the number of subordinates la too small, the abilities of the executives may not be used fully. A balance between these two extremes must be maintained in order to use full potentialities of the executive. The problem of span of control arises because an executive has limited time knowledge and capacity. No one can effectively supervise an infinite number of subordinates. A manager can pay attention only on a limited number of subordinates. Deciding the optimum number of subordinates that a manager can effectively supervise at a particular time is not an easy job. May be it is varying from manager to manager. Hence, span of control is a person to person concept.

According to Peter F. Drucker, span of control refers to the limit of number of subordinates reporting directly to a superior. Koontz and O Donnell used this term to represent the limit on the number of persons that an Individual can effectively manage. Opinions are divided on what should be the appropriate limit/span. Different authorities have suggest different levels for effective

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supervision. For example, Lyndal F.Urwick suggested that no executive can effectively supervise the work of more than five subordinates. J.C. Worthy suggested the number of 20. These suggestions given by various experts reveal the fact that there is no one Ideal number that can be universally applied. In real life, spans differ from situation to situation. In a research survey of hundred large companies conducted by the America management Association, the number of executives reporting to the top executives varied from 1 to 24. While 26 top executives had 6 or less than 6 subordinates. In respect of others it was 9. A similar study conducted on 41 smaller companies reveals some interesting points. Top executives of 25 companies supervised 7 or more subordinates. Smaller type of studies revealed comparable results.

Problems of levels (Span)

1. Existence of too many levels is expensive because the organisation has to bare the burden.

2. Too many levels (span) complicate the free flow of communication. Omissions and mis-interpretations. Increase with wide spans. That is why it has been rightly said that levels are "filters" of communications.

3. Existence of too many levels and numerous departments create problems even in planning and control process. A well defined plan looses clarity and coordination as it passed on to the lower and lower levels. In a similar way control becomes difficult with too many managers.

4. Handling of superior - subordinate relationships on smooth lines is a must for the success of any enterprise. Larger spans and too many managers may complicate the harmonious relationships between workers and management

5. Division of activities among various departments and creation of hierarchical levels are not completely desirable as departmentalisation is not an end for achieving effectiveness in organisation.

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Graicunas Theory

V.A.Graicunas a French management consultant explains, with the Help of mathematical calculations, that as the number of subordinates increased arithmetically, the number of relationships among them increased geometrically. Graicunas has identified three types of superior - subordinate relationships - direct, cross and group relationships. The direct single relationship arises from the direct contacts of the superior with his subordinates. The cross relationships refer to the mutual relationships among subordinates working under a common superior. The direct group relationships arise between the superior and subordinates in all possible combinations.

Ex :- ‘B' is a supervisor and he" has two subordinates

‘X’ and ‘Y’. Graicunas calculated the possible number of relationships as follows:

(i) Direct relationships = B – X 2 B – Y (ii) Group relationship = B X& Y 2 B Y & X

When a third subordinate ‘Z’ reports to ‘B’, several new relationships arise by taking the total number of relationship to 18. The number of various relationships in a particular case can be calculated with the help of the following formula:

r = n (2n-1 + n-1)

Where ‘r’ refers to the total number of relationships, and ‘n’ stands for number of subordinates on the basis of the above formula; the number of possible relationships with different number of subordinates are summarised below:

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�o. of subordinates �o. of relationships

1 1

2 6

3 18

4 44

5 100

6 222

7 490

8 1,080

9 2,376

10 5,210

11 1,04,86,154

The above table illustrates how arithmetical increase in the number of subordinates results in increase in the number of relationships in a geometric proportion. Graicunas has prescribed a maximum of six subordinates as the most desirable span of control. But in reality, relationships as per Graicunas formula do not occur dally. One thing is clear that it throws sufficient light on the fact that every subordinate adds pressure on the superior's work of maintaining relationship at the spot. To summarise the findings and principles of this theory:

• There is a limit to the number of subordinates that an individual manager can effectively control.

• The exact number of such span depends upon the situation and its underlying variables like pressure of work-load, energy, knowledge and attention of the superior, degree of team-work.

Criticism

(i) The span of control cannot be rigid arid universal. The actual span of control is determined by a number of factors which have not been covered by Graicunas Theory.

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(ii) This theory ignores the frequency and severity of relationships that have not been dealt within this theory.

(iii) The Graicunas’ theory has left out certain possible cross relationships like ‘B’ to XV, X to YB and Y to XB etc.

(iv) This theory only explains one side of the coin ie., superior relationships with subordinates. It grossly ignores the superior's side ways and upward relationships.

Span of Control and Levels of organisation

Organisation levels exist because there is a limit to the number of persons a manager can supervise effectively. Ever growing organisation must add new levels to its structure. Determination of appropriate span of control to suit the levels of organisation is very important for two reasons. Firstly, the span of control effects the efficient use of superior and subordinate relationships for obtaining better performance. Narrow span results in under-utilisation of manager's services and over-controlling of subordinates. On the other hand, too wide span may lead to over-straining of manager and lack of effective control over subordinates.

Secondly, span of control has an important bearing on the shape of organisation structure. While a narrow span results in a "tall" organisation, a wide span leads to a 'flat' structure. This can be effectively depicted through diagrams (A and B).

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DIAGRAM - A

ORGA�ISATIO� WITH �ARROW SPA�S

(i)

(ii)

(iii)

(iv)

Spans : 2 Levels of Authority : 12

DIAGRAM - B

ORGA�ISATIO� WITH WIDE SPA�S

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Spans : 9

Narrow span refers to the existence of too many levels in the organisation. The main advantage of narrow span is that effective leadership and control can be directly exercised on subordinates. Superior can easily communicate and effectively coordinate the efforts of his subordinates since their number is small. Direct contact, close supervision and tight control can help improve the performance pattern. Organisations with narrow spans suffer from several limitations. Too may levels hinder two way communication when a message has to pass through different levels. Its effectiveness may be reduced. Large number of managers is required which results in additional salaries and high cost of management. Thirdly, a tall structure may have its adverse impact over morale because of the absence of close link between top executive and bottom worker.

To overcome these difficulties of narrow span (tall structure), some of the modern companies have adopted wide span structures. Wide span prevails in flat Organisations. Here, one can find fewer levels of authority. It indicates that the chain of command is short. Because of this, communication tends to be quicker and more effective. Employees also develop morale because they feel that they are nearer to the top executive. This system allows delegation of authority and development of subordinates. It is common that subordinates feel more autonomous and independent in wide span organisational structures. Despite these advantages, flat organisations are subject to many disadvantages. Firstly, supervision and control tend to be loose and less effective because a single executive may not have enough time and energy to supervise all subordinates. Secondly, the problem of co-ordination gets magnified with 'wide spans. Due to this, the performance of subordinates is likely to be pruned. Flat structure with wide span is not at all suitable to large manufacturing organisations that have developed business vertically.

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Decking the best span is not that much easy. The span of control must be arrived at by proper balancing of two important factors such as organisational levels and supervisory load. Not only that, this span of control is directly affected by another two important variables such as capacity of the top executive to manage his work and capacity of subordinates in carrying out the work. Apart from these factors, there are many other factors which help us in determining the actual size of span of control. They are explained briefly in the following paragraphs:

� Management Policies

They have a great bearing on span of control. If the policies are clear and comprehensive, it results in Increase in span of control. Clarity in plans, definiteness in fixing up responsibility and use of standing plans reduce the pressure of decision making by the top executive. Hence, span control will increase.

� �ature of work

If the nature of work is routine, uniform, typical and mundane, it can be effectively monitored and regulated through programmed decisions. It leads to increase in the span of control. In contrast to this, volatile and complex work together with high risk-decisions are usually found at the top management. That is why at top level, one can find limited span of control.

� Line and Staff relationships

If a line manager receives adequate staff help, he can bear high level of work-load and can have a larger span of control. Existence of good superior and subordinate relationships based on faith and mutual confidence is an essential pre-requisite to widen the span of control. On the other hand, if the superior is tactless in handling the relationships with subordinates, he will have limited span of control.

� Quality of subordinate

If subordinates are experienced and well-trained In challenges through self-confidence and control, they will need minimum supervision from the boss. It will certainly improve the span of control.

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� Other Factors

The span of control in practice is affected by a good number of factors. For eg: Time availability, degree of decentralisation, control practices. They are bound to have impact over the size of span. We may come across limited span when the work is to be supervised through personal observation. Similarly, wider span of control may prevail when the work of the subordinates can be controlled through written reports.

CO�CLUSIO�

Span of control or supervision has assumed unique importance at present. The modem business has grown in size complexity, diversity and coverage. Problems of the top executives have increased considerably. The biggest task before the chief executive is how to reduce the work-load of less important nature in order to keep close control over important and critical activities. The modem managements are trying to obtain better results through practising different techniques. Span of control comes handy in easing out his work-load.

REVIEW QUESTIO�S

(1) What do you understand by ‘span of control’? How would you' determine the optimum span of control in a given situation?

(2) Discuss critically the theory propounded by V.A. Graicunas.

(3) Explain the factors that help to determine the actual span of control in any business.

(4) How does the span of control influence the organisation structure? Discuss in brief the comparative merits and demerits of narrow and wide spans.

CASE STUDY (1)

Planning and Control at Kitplay Ltd.

Kitplay Ltd. has been very successful since 1977 in selling Toys in India. The success of this Company is attributable to two person - Mr. Dilip - technical expert, Mr. Parimal the marketing genius. However, the success did not last for a

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very long time partly because of the introduction of the LEO Toys and Personal Computers. The Company is fast losing its market. Kitplay Company thought of exercising tight control and professional approach in management, Mr. Arjun was lured from Plastics India Ltd to give Kitplay a new direction.

To bring the Company under control, Mr. Arjun employed cost cutting measuring to improve its profitability. Spending on Research has been increased so that new products may be developed to retain its market share. Efforts were made to reduce duplication and friction among the departments. A new reporting procedure is evolved for improving effectiveness in communication. All efforts are made to control the inventory level which was hither to a serious problem. These measures combined with a successful strategy of launching new products have helped the Company in achieving tremendous success. As a result, out put is increased by 200 per cent and profit by 150 per cent with in two years.

QUESTIO�S

1) What is relationship between planning and controlling.

2) How coordination is helpful in this case?

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U�IT - III

Lesson - 12

DELEGATIO� OF AUTHORITY

A�D DECE�TRALIZATIO�

I�TRODUCTIO�

Authority is the power to make decisions which guide the action of others. Delegation of authority contributes to the creation of Organisation. No single person is in a position to discharge all the duties in an organisation. In order to finish the work in time, there is a need to delegate authority and follow the principle of division of labour. Delegation permits a person to extend his influence beyond the limits of his own personal time, energy and knowledge.

DEFI�ITIO� OF AUTHORITY

Henry Fayol, Authority is the right to give orders and the power to exact obedience.

Konntz and O’Donnell, “Authority is the power to command others to act or not to act in a manner deemed by the possessor of the authority to further enterprises or departmental purposes.”

Terry, “Authority is the power to exact others to take actions considered appropriate for the achievement of a predetermined objective.”

According to Barnard, “Authority is the character of a communication (order) in a formal organisation by virtue of which it is accepted by a contributor to or member of the organisation as governing the action he contributes; that is, as governing or determining what he does or is not to do so far as the organisation is concerned.”

Daris defines authority as the right of decision and command.

Louis Alien, “The sum of the powers and rights entrusted to make possible the performance of the work delegated.”

Simon, “The power to make decisions which guide the actions of another. It is a relationship between two individuals — one superior, the other subordinate. The superior frames and transmits decisions with the expectation

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that they will be accepted by the subordinates. The subordinate expects such decisions and his conduct is determined by them.”

Dr. Paterson defines, “The right to command and expect and enforce obedience.”

Strong says, “Authority is the right to command.”

Massie defines, “The formal right to exercise control.”

Tannenbau defines, “The concept authority describes an interpersonal relationship in which one individual, the subordinate, accepts a decision made by another individual the superior, permitting that decision directly to affect his behaviour.”

CHARACTERISTICS OF AUTHORITY

The characteristics of authority are briefly explained below:

Basis of getting things done

Authority gives a right to do things in an organisation and affect the behaviour of other workers of the organisation. It leads to the performance of certain activities for the accomplishment of the denned objectives automatically.

Legitimacy

Authority implies a legal right (within the organisation itself) available to superiors. This type of right arises due to the tradition followed in an organisation, custom or accepted standards of authenticity.

The right of a manager to affect the behaviour of his sub-ordinates is given to him on the basis of an organisational hierarchy.

Decision-making

Decision-making is a pre-requisite of an authority. The manager can command his sub-ordinates to act or not to act. This type of decision is taken by the manager regarding the functioning of an office.

Implementation

Implementation influences the personality factors of the manager who is empowered to use authority. The subordinates or group of subordinates should

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follow the instructions of the manager regarding the implementation of decision. The personality factor of one manager may differ from another manager.

SOURCES OF AUTHORITY

There are broadly three theories regarding the sources from which authority originates. They are:

� The formal authority theory

� The acceptance of authority theory

� The competence theory

Brief explanations of the above three theories are given below:

THE FORMAL AUTHORITY THEORY

According to this theory, the authority flows from top to bottom through the structure of an organisation. In other words, the authority flows from the General Manager to his departmental manager and in turn, from the departmental manager to his superintendent and the like. This is explained in the following diagram.

BOARD OF DIRECTORS

GENERAL MANAGER

SALES MANAGER

SALES REPRESENTATIVES

WORKERS

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The Formal Authority Theory is otherwise called Traditional Authority Theory and Top Down Authority Theory.

In the case of public limited company, the authority is in the hands of shareholders and they delegate their authority to top management and in turn, a part of this authority is delegated to the middle management.

THE ACCEPTA�CE OF AUTHORITY THEORY

Chester Bannard gave this theory.

According to this theory, the authority flows from the superior to the subordinates whenever there is an acceptance on the part of the subordinates. The subordinates should accept the authority but there is no compulsion made by the superior- If the subordinates do not accept the command of their superior, then the superior cannot be said to have any authority over them.

According to Bannard, “An individual will accept the exercise of authority if the advantages accruing to him from accepting plus the disadvantages accruing to him from not accepting exceed the advantages accruing to him from not accepting plus the disadvantages accruing to him for accepting and conversely, he will not accept the exercise of authority if the latter factors exceed the former”.

The authority of a superior will be effective only when there is willingness on the part of the subordinate to accept authority and ineffective when there is lack of readiness to accept the authority on the part of the subordinate. The subordinate will not analyse each and every order of the superior to accept it or not. In fact, certain orders of the superior are accepted by the subordinate without a second thought. If an order of the superior is accepted by the subordinate without any hesitation it is known as zone of acceptance.

Zone of acceptance will be determined by a number of factors.

1. The subordinate believes that rewards will be given him in appreciation of his efforts and skills.

2. Sincere services of subordinate to the organisation will be rewarded.

3. A subordinate thinks that he has to accept the authority in a particular situation.

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4. The non-acceptance of authority will result in dismissal a the subordinate from organisation.

5. It is also accepted on account of special knowledge that man may possess.

6. It is accepted because a subordinate is aware of his status in the organisation.

7. There is no other way available than to accept authority.

8. It is the duty of the subordinate or it may be the policy of the organisation to impose the authority.

9. People have confidence in the person giving orders.

COMPETE�CE THEORY

This type of authority is invested with the persons by virtue of the office held by them. The personal power of this type of persons is based on the leadership qualities of the person concerned. In an organisation, only one person gets a higher position than others in course of time on the basis of leadership qualities possessed by him.

DELEGATIO�

It is impossible for any person to execute all the work in an organisation to achieve the objectives of the organisation. Similarly, in a growing concern also, a single person could not be vested with entire decision-making authority. So, the superior assigns duties or responsibilities to his subordinates and also delegates necessary authority to them.

MEA�I�G

Delegation is a process which enables a person to assign a work to others and delegate them with adequate authority to do it.

DEFI�ITIO�

Louis A. Alien, "Delegation is the dynamic of management, it 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 organisational

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placement, can perform effectively and so that he can get other to help them with what remains."

McFarland, "Delegation is the primary formal mechanism by which the net work of authority relationship is established."

E.F.L. Brech, "Delegation means, in brief, the passing to others of a share in the four elements of the management process that is to say, in the command of the activities other people and in the responsibility for the decision that will determine the planning, co-ordination and control of the activities of such other people."

Terry, "Conferring authority from the executive or organisational unit to another in order to accomplish particular assignments."

Hodge and Johnson, "A process whereby a superior divides his total work assignment between himself and subordinate managers or operative personnel in order to achieve both operative and management specialisation.

Dougcas C. Basil, "Delegation consists of granting authority or the right to decision-making in certain defined areas and charging the subordinate with responsibility for carrying through an assigned task."

IMPORTA�CE OF DELEGATIO�

Delegation is considered to be one of the most important methods of training subordinates-and building morals. The delegation of authority helps the manager to concentrate on the important work of planning, organising and controlling.

Delegation is a universal process, wherever human beings work in groups, one or the other form of delegation is practised by them. In our democratic India, the people delegate their authority to the members of the legislatures. The members of legislatures delegate their authority to any one of the elected leaders who in turn delegates some of his authority to the cabinet ministers chosen by him.

An individual can accomplish several simple and complex works. Delegation enables a person not only to discharge his responsibility but also to discharge it effectively and economically. To a business unit which has different branches situated at different places, there is no alternative except delegation. It

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is acknowledged that delegation of authority is one of the surest and the best methods of getting better results. A very good superior can use the delegation of authority as a tool for motivating and eliminating cumbersome information system.

ELEME�TS OF DELEGATIO�

The following are the three elements of delegation:

Assignment of duties or responsibilities

This work is being done only at the time, when a superior has no time to accomplish all the work. The superior automatically assigns the work of responsibility to his immediate subordinate.

Delegation of authority

If the work is assigned to any subordinate, there will be a need for authority to accomplish it. |

After the delegation of authority, the subordinate can get powers to accomplish the tasks in a specified time and in order.

Accountability

Accountability means that the subordinate is answerable to his immediate senior. If there is any mistake or fault committed by the subordinate, the subordinate should accept responsibility for it. In certain cases, the assignment may be made to the subordinate if the work is not accomplished as per the instructions issued by the superior. The superior (one who delegates authority) is answerable to the management but not the subordinate (to whom authority is delegated).

PRI�CIPLES OF DELEGATIO�

Delegation to go by results expected

The nature of duty has equal rank with the extent of delegation of authority. It should be noted that the objectives of the organisation are to be accomplished in time. The superior should clearly know what he expects from the subordinate before the delegation of authority.

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�on-delegation of responsibility

A superior can delegate authority but not responsibility. Assigning duties does not mean delegation of responsibility. The superior should be in touch with the subordinates to know whether duties are performed and the authority exercised properly. The ultimate responsibility for the performance of duties remains with the superior.

Authority and responsibility should commensurate with each other

A subordinate can discharge his duties effectively and efficiently if there is proper delegation of authority otherwise, a subordinate cannot succeed in accomplishing the assigned tasks.

Authority without responsibility will make the subordinate a careless person. Likewise responsibility without authority will make the subordinate an inefficient person. So there should be a proper balance between authority and responsibility.

Unity of command

The principle of unity of command insists that a subordinate should get instruction from only one superior. In other words, a subordinate should be assigned duties and responsibilities by only one superior and he is accountable only to the concerned superior.

If a subordinate gets orders, instructions and directions from more than one superior, it will create uncertainty and confusion in the organisation. In such a situation, the subordinate will find it very difficult to determine whose instructions, orders or directions he should carry out first.

Well definition of limitations of authority

A person knows well that an authority alone can delegate the authority properly. There should be .written manuals which help person to understand the authority in right direction. This will avoid confusion regarding the delegation of authority and enable effective functioning of the concerned person.

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TYPES OF DELEGATIO�

A brief explanation of the different types of delegation is given below:

• General

• Specific

• Written

• Unwritten

• Formal

• Informal

• Downward

• Accrued

• Sideward

General Delegation

General delegation means granting authority to the subordinate to perform various managerial functions and exercise control over his subordinates. At the same time, the same persons are regulated and supervised by the top management.

Specific Delegation

Under specific delegation, the orders, instructions or directions are delegated to particular person specifically. For example, the Personnel manager may be delegated authority for selection of personnel, training of personnel, placement of personnel and the like. .

Written Delegation

This type of delegation is made by written orders, instructions etc. The proper usage of words is essential to this type of delegation.

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Unwritten Delegation

Unwritten delegation means the authority is delegated on the basis of custom, conversion or usage. Here, there is no evidence available for future reference.

Formal Delegation

The duties and authority are shown in the organisational structure of the enterprise. For example, the production manager is assigned the responsibility and accompanying authority to maintain and increase the production.

Informal Delegation

In certain cases, a person has to use the authority without getting it from top management. The reason is that he can perform his assigned duties effectively in time-

Downward Delegation

Downward delegation states when a superior could delegate duties and authority to his immediate subordinate. This type of delegation is followed in most of the organisations.

Accrued Delegation

Under this type of delegation, a subordinate can delegate his authority to his immediate superiors. It occurs seldom in an organisation.

Sideward Delegation

A person delegates authority to another person who is also in the same rank as he is in the organisation.

ADVA�TAGES OF DELEGATIO�

The delegation of authority gives several advantages to the organisation. The important advantages of the delegation of the authority are given below:

Basis of effective functioning

Delegation lays the basis for effective functioning of an organisation. It creates the relationship with others and achieves various objectives of the organisation.

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Saving of time

Delegation of authority enables the superior to allot more time to important matters like planning, organising, staffing, directing, co-ordinating, controlling and decision-making.

Reduction of work

Delegation relieves the superior from attending to the routine matters. Normally the routine matters are allocated to subordinates. It helps the superior to carry out more responsible work alone.

Opportunity for Development

Delegation of authority gives a very good opportunity to the subordinate to grow.4t helps in identifying the best person among the various subordinates for development.

Benefit of specialised service

Delegation helps the superior to get the benefit of specialized knowledge of various persons at lower levels. For example, production is delegated to the production manager, sales to the sales manager, legal matters to the lawyer and the like.

Efficient running of branches

If the business has any branch, the branch affairs or activities are looked after by a separate person. He is supposed to be incharge of this branch. When he can get adequate authority with responsibility he could work for the smooth and effective functioning of the particular branch.

Interest and initiative

Whenever the delegation of authority takes place, the subordinate may do the work with interest. In certain cases the subordinate by himself takes initiative to do the work properly.

Satisfaction to subordinates

Delegation of authority will satisfy the self-actualization need of the individuals.

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Expansion and diversification of business activity

The subordinates are fully trained in decision-making in various fields of the business by using the delegation of authority.

This type of talents of subordinates can be used by the top management in the expansion and diversification of the business activities.

PROBLEMS OF DELEGATIO�

Every superior is expected to delegate part of his duties and responsibility to his subordinates. A single person cannot perform all the work. So, delegation is a very important characteristic of the organisation.

The proper delegation of authority is made only at the time of a proper balance between feelings of superior and subordinates.

I. HESITATIO� O� THE PART OF SUPERIOR

The following are the reasons for the lack of willingness on the part of the superior to delegate authority.

Perfectionism

Many superiors think that he is better than others- This is true to some extent. The reason is that the superior may have had experience in doing and developed a degree of skill. If such a practice is followed by a superior, he is not a loyal employee of the organisation. He should open the door to this subordinate to develop his abilities by delegating authority.

Autocratic attitude

Some superiors prefer to retain the powers in their hands. These persons don't have belief in the delegation of authority and they interfere with the limited authority of their subordinates.

Directions

Many superiors have lack of ability to direct the subordinates. Subordinates may misinterpret the instructions which the superior gives. Then the superiors cannot get the expected efficiency from the subordinate.

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Confidence

Superiors have lack of confidence in subordinates. Without confidence nobody can delegate anything to others. In the society life cannot he lived without reposing in the ability of others so, each superior is expected to delegate his powers, to his subordinates. If the delegation is not made, the superior has no chance to gain experience from delegation of authority. Confidence is developed gradually on the basis of the success of the delegation of authority.

Control

The superior has control over his subordinates. He wants to retain the control over his subordinates and keep up the importance of his role. Hence he hesitates to delegate his authority. Besides, the superior feels that he might be dominated if he delegates his authority.

Avoidance of risk

Risk may arise through the delegation of authority to a subordinate. Whatever may be the risk, the superior will have to take the responsibility for it. But only few managers are ready to run the risk.

Competition

Subordinates learn much than the superior by taking advantage of delegation of authority. This results in the emergence of more talented persons than the superior. This is not liked by the superior and he avoids competition in future.

Inability of the subordinate

The subordinates does not have any ability to accept any new work. The superior, who knows this fact, hesitates to delegate powers.

Inability of the superior

If the superior is an inefficient person, the work method and procedures designed by him are likely to be faulty. So, the superior wants to keep all the authority with himself.

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II. HESITATIO� O� THE PART OF SUBORDI�ATES

Sometimes the subordinates are not willing to accept delegation eventhough the superiors are very much interested in delegation. The reasons for not accepting the authority by the subordinates are given below:

Love of spoon-feeding

If a subordinate has been given a chance to take a decision he may not like to decide things himself.

Easier to ask

Subordinates often find it easy to ask their superiors for an answer than to find it out for themselves. Some superiors will accept only one solution to a problem and allow the subordinates to find out other solutions by themselves. In such a situation, a subordinate does the work effectively and goes to his superior for an answer.

Fear of criticism

Sometimes, a subordinate may fear that even for a silly mistake in a decision, his superior may criticise his subordinate. This suppresses the initiatives of the subordinate and destroys his self confidence.

Lack of information (or) resources

A subordinate may hesitate to-accept any new work due to lack of information or resources to do the work effectively.

Lack of self confidence

Lack of self confidence in a subordinate is also one of the reasons for not accepting any authority.

Other work

Subordinate may feel that they will not be able to finish any additional work along with the existing work. Subordinates think that if they accept authority, they may be forced to accept more work in the future.

Inadequate incentives

A subordinate may not come forward to accept any authority if there is no personal gain in doing so.

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Fear of failure

Some subordinates feel that they may fail and so they do not want to accept additional responsibilities.

EFFECTIVE DELEGATIO�

The superior has the aim to practice and encourage delegation for the efficient accomplishment of the organisational objectives. Hence, it is necessary that the nature and content of each job should be scientifically analysed to pinpoint the job that can be entrusted to subordinates.

Normally minor and routine types of jobs are entrusted to the subordinates. The superior is not ready to perform even the ordinary routine jobs but at the same time there are certain jobs which cannot entrusted then; for example, the preparation of budget, formulation of policies and framing rules and regulations.

STEPS I�VOLVED I� SUCCESSFUL DELEGATIO�

The following steps will aid more successful delegations of authority.

Establishment of definite goals

The purpose of delegation is to enable efficient accomplishment of organisational objectives. But delegations will be meaningless if the objectives are not properly defined. Subordinates may hesitate to accept the authority, if they do not know exactly what is expected of them.

Developing personal discipline for supervision

Superior should have faith in the ability of his subordinates and tolerate the mistakes committed by them. Then, every subordinate will be ready to accept the authority for efficient performance.

Establishment of definite responsibility

The authority and responsibility of each subordinate should be in clear terms. This will avoid the duplication of delegation.

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Motivation

Subordinates are ready to accept the responsibility if proper motivation is available to them. Motivation may be by means of increased wages and the like.

Determining what to delegate

This will necessitate the appraisal of the capacity of the people and needs of the jobs. Only delegatable authority alone will be delegated.

Training

Subordinates should be properly trained in handling delegated work. Technical and non-technical training should be given to the subordinates. The non-technical training includes the development of the morale self confidence and leadership qualities of the subordinates.

Report

After delegation of any authority, the subordinate is expected to submit a report on it. Only in this way the superior will be freed from authority jobs to concentrate on other important functions.

Control

The superior is held responsible to the top management even after the delegation of authority. So it is necessary to establish a suitable control system to keep a careful watch over the performance of subordinates. If the superior finds a deviation from the predetermined procedures he should take corrective action in time.

PRE-REQUISITES FOR EFFECTIVE DELEGATIO� OF AUTHORITY

A supervisor can delegate his authority after acquiring knowledge of the following pre-requisites of effective delegation:

� The supervisor must understand the authority and responsibility of their own.

� The supervisors must decide the portion of his authority that he wants to delegate to subordinates.

� The supervisor should have thorough knowledge of the abilities and inabilities of subordinates.

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� The supervisor must ensure that the subordinates have understood the delegated work in right direction.

� The supervisor should delegate only the routine functions to subordinates.

� The supervisor must understand the need, importance and value of delegation.

� The supervisor should delegate the work which can be performed independently.

� The supervisor must dissuade the subordinate from being tempted to take decision by themselves.

� The supervisor must release the decision-making powers to his subordinates.

� There should be adequate communication network within the organisation.

� There should be a clear definition of standard of accountability.

� Delegation must be done in accordance with overall plan for the completion of the work.

� The delegation of authority should be confined to the organisational structure.

COMMO� FAULTS I� DELEGATIO�

Close supervision

The supervisor has to supervise his subordinates even after delegation of authority. The advantages of delegation of authority will not be available to the organisation if there is no close supervision and if the subordinates are not made to act independently.

Lack of direction

The supervisor fails to provide adequate direction to his subordinates. It places the subordinates in a position in which they do not know what is expected of them.

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Lack of accountability

The efficient use of delegated work cannot be checked by a supervisor. This is a great handicap to the superior. As a result of this a sense of irresponsibility infuses the subordinates.

DECE�TRALISATIO�

Decentralisation means that each section has its own workers to perform activities within the department. There will be no general office to provide these services. Under the decentralisation, separate staffs are allocated to each department for performing those activities which cannot be centralized.

ADVA�TAGES OF DECE�TRALISATIO�

A brief explanation of the advantages of decentralisation is presented below:

Savings of time

All paper work relating to the basic operations of the business originates from the departmental officers. Decentralisation enables the department staff members to complete the work early.

Greater efficiency and output

The workers of a particular department are well versed in the technology followed in that department. Hence, there is a possibility of increasing their efficiency. The greater efficiency leads to increase in output and minimising the cost.

Maintenance of secrecy

If the secrecy of the business is disclosed, it may make the organisation realise a loss. Next, if a separate department is put incharge of the maintenance of secrecy under decentralisation, the loss may be avoided and the secrecy maintained.

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Departmental loyalty

The staff attached to a particular department for a number of years develops a sense of loyalty to the department. It results in the increase of output and improvement of the performance of the individual.

DISADVA�TAGES OF DECE�TRALISATIO�

The disadvantages of decentralisation are explained below.

�o proper division of work

The work load of the organisation cannot be evenly divided to be given to each department.

Duplication of work

If the same type of work is performed in more than one departments, i.e., duplication of work, separate machines and equipments are used to perform the duplication of work.

�o standardization

There is no possibility of adopting a standard procedure to perform the same type of work in all departments. Besides, it brings about difficulties in selection and training in each department.

Heavy expenditure

A large number of staff members and supervisors are required under this arrangement. It leads to increase in the cost of operation.

RESPO�SIBILITY

Responsibility always arises from the superior-subordinate relationship. The essence of responsibilities is obligation. If a person is entrusted with any work, he should, be held responsible for the work that he completes.

MEA�I�G

Responsibility is the obligation to do something. In other words, responsibility is the obligation to perform the tasks, functions or assignments of the organisation.

198

DEFI�ITIO�

Theo Haimann, "Responsibility is the obligation of a subordinate to perform the duty as required by his superior."

Davis, "Responsibility is an obligation of the individual to perform the assigned duties to the best of his ability under the direction of his executive leader."

Strong, "Responsibility is an obligation to perform certain functions and achieve certain results."

McFarland, "Responsibility is the duties and activities assigned to a position or to an executive."

ELEME�TS OF RESPO�SIBILITY

The following are the basic elements of responsibility:

1. It arises from superior-subordinates relationship.

2. It results from contractual agreement.

3. The responsibility cannot be transferred to anybody.

4. It is created by acceptance of authority.

5. There is an essence of obligation.

6. The responsibility may be general or specific.

7. Responsibility is a continuing process by nature.

Delegation of authority and responsibility is necessary for an effective functioning of an organisation. Responsibility without authority is an empty vessel. Authority without responsibility is very dangerous one. Both, authority and responsibility are necessary to an individual.

REVIEW QUESTIO�S

1. What is decentralisation?

2. What are the sources of authority?

3. What is meant by delegation?

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4. State and explain the difficulties in delegation.

5. Compare and contrast centralisation with decentralisation.

6. What are the types of delegation?

7. What are the different advantages of decentralisation?

8. Explain the various differences between the concept of centralization and decentralisation.

9. What are the merits and demerits of decentralisation?

10. What are the advantages of centralisation?

11. Describe the term “Delegation.”

CASE STUDY

Reorganisation of a large Corporation

You are head of a large corporation that has grown by acquisition of other companies, each of which produces a different product. The practice has been to leave each acquisition under its original managers and simply make it a subsidiary of the corporation.

Each company has its own board of directors, which has all the powers that the board of an independent company possesses. The only change has been that your corporation has acquired a majority of the shares outstanding, and it can therefore influence the board, even overrule it. Your company has gained by the acquisitions simply because, as a stockholder, it receives dividends on its shares.

But some difficulties have developed. The subsidiaries are, in some cases, setting their prices too high, with the result that their sales are falling off. In other instances, some subsidiaries have been introducing products that compete with those of other subsidiaries, which seems to be a waste. In addition, there seems to be duplication of facilities that might well be handled centrally.

You decide to reorganize the whole corporation. What are some of the steps you might take?

200

U�IT – III

LESSON - 13

COMMITTEES

Committee Organisation

Committees are very extensively used in the modern organisations at various levels. The committees are also called variously as board, commission, task force, team etc. Committee is a group of persons to whom, as a group, some matter is committed: It is appointed by an authority with some delegated powers. It brings into decision making the experience and expertise of two or more persons.

Types of committees

be broadly classified into advisory committees and executive committees. When committees are entrusted with staff authority, they are known as advisory committees. They play only an advisory role and cannot enforce implementation of their advice or recommendation. Works committee, new product development committee, finance committee, marketing committees etc. are the some of the examples for advisory committees. On the other hand whenever committees are vested with authority (power) they are called executive committee. Executive committees not only take decisions, but also have the authority to implement them. The board of directors is an example of executive committee.

Committees may be either permanent or temporary (adhoc). They may also be formal or informal. A formal committee .which finds a place in the organisation chart with specific authority and responsibility. In general, formal committees are permanent in nature whereas informal committees may be temporary or permanent. They may also be classified into adhoc committee and standing committees. The former is constituted for a specific purpose and then disbanded after it has performed the assigned task. The latter is more permanent and exists as long as there is need for it in the organisation.

Reasons for the use of committee

The committees are widely used in modern organisation. The following are some major factors responsible for the popularity of committee form of organisation.

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Group participation

Committee facilitates the involvement and participation of more than one. Two heads are better than one. Many of the inadequancies or limitations of an individual are compensated by collective wisdom and thinking. The Committee meetings become the forum for cross-examination and fertilisation of ideas. The exchange of information, view points, beliefs and experience, help in examining the issues involved more thoroughly which may not be possible in an individual judgement

Diffusion of authority

The fear of concentration of authority in one individual is another reason for the constitution of committees. No single member of the committee can have absolute authority. Whatever the decision of the committee, it has to be approved by atleast majority members.

Consolidation of authority

In committee form of organisations, the authority of all the members will be pooled up. The authority of different individuals which is otherwise splintered is consolidated in the committee form, The collective authority thus pooled up enables the committee to decide on matters which are beyond the scope authority.

Representation of interested groups

A committee must be appointed with representation to all those who are affected by a particular decision. It provides not only an opportunity for participation but also satisfies the ego of individual members. The members naturally feel that they are also a party to decision and therefore they tend to be loyal to the decision.

Co-ordination becomes easy

In Committee facilitate inter-departmental coordination. The interaction that takes place among the members and the way how the information is shared by them, contribute for better co-ordination of the plans and thereby inter-departmental activities.

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A tool of Management development

Committee can also be used as a tool of management development. It widen the manager’s perspective and knowledge about some important tasks in the organisation. His participation in the committee meetings and the exposure thus gained enable him to understand the larger picture. Valuable learning takes place where individuals can take an integrated view to solve the problems.

Avoidance of action

More often committees are used to avoid action on a problem. At times, a manager may be unwilling to take action, but he cannot afford to avoid action also. The best option open to him is to refer the matter to a committee. A committee can be used to smoothen the tempers and pasSions of people. It is also used as a means to overcome resistance, pressure, or opposition from parties involved in an issue.

Limitations of committee’s

The committee form of organisations are not free from Certain limitations. Committees are subject to mismanagement and misuse. The following statements on committee reflects the darker side of the use of committees.

“a place where the loneliness of thought. is replaced by the togetherness of nothingness”.

“a committee is made up of the unfit selected by the unwilling to do the unnecessary”.

The following are the limitations of committees.

High cost in tune and money

The constitution of a committee is an expensive affair, The time and money involved are quite considerable. The executive time has got opportunity cost. After a series of meetings, if no decision is taken or the outcome is insignificant the expenditure of resources and the executive time spent will become waste and the exercise is meaningless. It will be still ridiculous if a committee is assigned a problem that could be solved by a single individual.

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�o prompt decisions

Committee is not conducive for quick decisions. Arriving decisions in a committee after following the necessary formalities is a time consuming process.

Indecision

Quite often committee meeting end up in no decision. Meetings get adjourned for want of quorum and time for thorough discussions. Besides, many .decisions may be taken on the basis of compromise.

Minority Tyranny

Committees normally tend to seek unanimous or near unanimous decisions. Minority members who hold a different view are therefore in a strong position. Similarly, majority can also put pressure on minority members to force them to arrive at the decision.

Splitting of Responsibility

Since many members are involved in the decision making process of the committee, no individual is held responsible if the outcome of the decision in adverse So, no member feels the responsibility for group action.

Effective use of committees

As the emphasis on the group decision making and participation increases, so also the use of committees in the company’s affairs. If adequate care is exercised in respect of the following factors, the committees can be effectively used for better decision making.

1. Authority and scope of the committee must be clearly defined.

2. The size of the committee must be optimum.

3. Utmost care must be exercised in selection of members for the committee.

4. Careflul setection of the subject matter to be entrusted to the committee.

5. Effectiveness of the role played by the chair person or leader of the committee must be taken care of.

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Summary

Line position may be defined as those directly responsible for achieving the organisation’s goals. Staff positions provide expert advice and service to the line Staff authofity ranges from being limited to advising on request, to compulsory consultation, to concurrent authority, to functional authority. ‘The characteristics, advantages and disadvantages of line and staff relationship have been discussed in the first part.

In the second part of the lesson functional authority, its advantages and disadvantages, committee form and major issues related to committees etc., have been dealt with.

REVIEW QUESTIO�S

1. What are the merits and demerits of management by committees?

2. “A Committee is made up of the unfit selected by the unwilling to do the unnecessary” – comment.

3. “Good committee management is through adherence to the basic precepts of the human relations approach to organization.

4. Give suggestions to make committees more effective.

CASE :

Supermarket Organisation

The XYZ supermarket was originally organized by a grocer who persuaded a butcher, a delicatessen owner, and a produce specialist to join the venture. The store flourished and soon became a chain.

For a long time, the heads of the various departments were directly responsible for the purchasing, warehousing, advertising, marketing, merchandising, sales promotion, and sales of their products. Each department manager had his own organization. For example, directly under the meat manager was a chain meat merchandiser who supervised branch meat managers, who in turn supervised district meat managers, and the store meat manager reported to the meat merchandiser in charge of his district.

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Those in charge of the other departments each had a similar organization, and all the executives were chosen either because they had owned their own stores or had worked in food stores specializing in one of the various products. Graphically a product department’s organization was:

or less in a staff capacity. This was made up of the vice president of operations, branch managers, district managers, and store managers. The last was generally the grocery department manager, whose responsibilities included supervision of the “front end,” i.e., cashiers and baggers. He was also responsible for bookkeeping, personnel, housekeeping and sanitation, customer relations, the handling of money, and liaison with the maintenance department. Graphically:

Chain

Merchandiser

Branch

merchandiser

District

Merchandiser

Store Department

manager

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The relationship between the two management group may be shown as follows:

As the growth of this chain (and others) continued, competition became greater and fiercer. Predictably, the downward pressure on everyone’s profits became heavier and heavier, and top management ca about for ways to contain costs; predictably, it began to direct attention t the number of people employed. It also began to consider maintenance costs, fuel and energy usage, excess inventories, costs of warehousing I and costs of store deliveries, among others. I

Vice president Operations

Branch

merchandiser

District

Manager

Store

Manager

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Effectively Staff Effectively Line

For the purpose of this case, however, discussion will be limited to the personnel question, although the others should be kept in mind. The flow of authority was forced to go in the opposite direction, from the entrepreneurial group to the operations group.

Whereas the district delicatessen merchandiser, for example, had authority to staff the store delicatessen departments as he thought they should be staffed to attain maximum customer response, under the new concept he was forced either to negotiate with the district manager on hiring, or to accept the number of people arbitrarily set by the latter.

Chain

Merchandiser

Branch

merchandiser

District

Merchandiser

Store Department

manager

Vice President

operations

Branch

Manager

District

Manager

Store

Manager

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Effectively Line Effectively Staff

The operations group gradually assumed more and more authority. Eventually, the constraints and restraints imposed on the departmental executives brought them completely under the control of the other group. In fact, it became necessary to write job descriptions that delineated the authority of each executive in the departmental group side by side with that of his operations group counterpart. Then, when a matter of authority or responsibility arose, it was necessary to choose column A or column B.

Questions

1. Which form of organization do you think worked best? Why?

2. Which form of organization was closer to a behavioral form? Explain.

3. Which form of organization was most likely to encourage innovation Why?

��

Chain

Merchandiser

Branch

merchandiser

District

Merchandiser

Store Department

manager

Vice President

operations

Branch

Manager

District

Manager

Store

Manager

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U�IT - IV

Lesson - 14

STAFFI�G

I�TRODUCTIO�

In the new enterprise, the staffing function follows the planning and organising function. In the case of running an enterprise, the staffing function is a continuous process. So, the manager should perform the staffing function at all times. The staffing function includes the recruitment, selection, training, development, transfer, promotion and compensation of personnel.

It is obvious that the management must ensure a constant availability of sufficient number of efficient executives in an enterprise for the efficient functioning of the enterprise. The selected personnel should be physically, mentally and temperamentally fit for the job.

DEFI�ITIO�

According to Koontz and O'Donnell, "The managerial function of staffing involves managing the organisation structure through proper and effective selection, appraisal and development of personnel to fill the roles designed into the structure."

S. Benjamin has defined staffing as, “The process involved in identifying, assessing, placing, evaluating and directing individuals at work.”

According to Theo Hainmann, "Staffing function is concerned with the placement, growth and development of all those members of the organisation whose function is to get things done through the efforts of other individuals."

ELEME�TS OF STAFFI�G

While performing the staffing function, the manager has to see that men are fit for jobs and jobs are not altered for men. The major elements of staffing are given below:

� Effective recruitment and selection

� Proper classification of personnel and pay fixed for them

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� Proper placement

� Adequate and appropriate training for development

� Satisfactory and fair transfer and promotion

� Sound relationship between management and workers

� Adequate provision for retirement

FU�CTIO�S OF STAFFI�G

Manpower planning

Manpower may be planned for short-term and long-term. The short-term manpower planning may achieve the objectives of the company at present conditions. The long-term manpower planning should be concerned with the estimation of staff members required in future.

Development

Development is concerned with the development of staff members through adequate and appropriate training programme. The training is given only to the needy persons.

Fixing the employment standards

It involves the job specification and job description. These enable the management to select the personnel and train them scientifically. Job description is a systematic and organised written statement of the duties and responsibilities in a specific job. Job specification is a statement of personal qualities that an individual must possess if he is to successfully perform the job.

Sources

It is concerned with the method by which the staff members are selected. The sources may be internal and external sources. Internal source means that a vacancy is filled up by the company out of the staff members available within the company. The external source means that a vacancy is filled up by the company from outside the company. The person selected may be unemployed or working in any other company.

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Selection and placement

It includes the process of selection of the staff members. The placement includes giving a job to a person on the basis of his ability, education, experience and the like.

Training

The training may be arranged by the company itself. In certain cases, the staff members may be sent out by the company to get the training. The expense is borne by the company. The training may be required not only by the new staff members but also by the existing staff members.

Other functions

The other functions of staffing includes co-ordination, promotion, transfer, record maintenance regarding employees, rating of employees, motivation etc.

PROCESSI�G OF STAFFI�G

The selection and placement of personnel involves the following processes. They are briefly discussed below:

Planning

The term planning of staff members includes estimation of the number of staff members required to the company in various grades. It is based upon the size of the company and the policy followed by the company.

Requirement and selection

It deals with the selection of qualified applicants to fill the jobs in the organisation. A standard procedure may be followed while selecting the staff members. The procedure may be valid for different types of personnel.

Training of developments

It is concerned with providing training to new staff members as well as the existing staff members. The working efficiency of the staff members may be developed through the training programmes.

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Performance operation

It deals with assessment of the work performed by the staff members in an organisation. A standard may be fixed in order to evaluate the efficiency of the staff members.

PROPER STAFFI�G

Proper staffing means providing adequate qualified staff members for the purpose of effective functioning of office. The chief executives or the general manager undertakes this function. Identifying appropriate staff members is a difficult task. So, some of the staffing functions may be assigned to a separate department in the large concern.

ADVA�TAGES OF PROPER STAFFI�G

♦ It helps in the recruitment of efficient staff members.

♦ It helps the proper placement of staff members according to their ability.

♦ Proper selection, training and development of staff members, will result in the maximum production in an organisation.

♦ Increasing the efficiency of the workers will increase the earning capacity of the workers.

RECRUITME�T

Recruitment is the process of finding the apt candidates and inducing them to apply for the job in an organisation. The recruitment should be a sound one. If it is not so, the morale of the staff will be vary low and the image of the company will be tarnished.

The success of any recruitment depends upon the procedure followed by the company while recruiting the members. Jobs with low salary or uninteresting jobs or difficult jobs cannot be filled up by the company very easily. Every company has to recruit its staff members but the quantum of recruitment may vary from one company to another company. The variation may be due to the

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size of the company, recruitment policy of the company, nature of the job and the like.

MEA�I�G

Recruitment means the discovery of the staff members for the present and future jobs in an organisation.

DEFI�ITIO�

According to Dalton E. McFarland, "The term recruitment applies to the process of attracting potential employees of the company."

Edwin B. Flippo, "Recruitment is the process of searching for prospective employees and stimulating them to apply for the jobs in the organisation."

SOURCES OF RECRUITME�T

The source of recruitment is based on the policy followed by the company. The job can be filled up out of the employees of the company or from outside the company.

If the job is filled up out of the present employees of the company it is said to be the internal source of the company.

If the same job is filled up from out of the candidates available in the society it is said to be the external source. A clear picture of the internal sources and the external sources is given below.

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SOURCES OF RECRUITME�T

Internal External

Transfer Promotion

I�TER�AL SOURCES

Whenever a job falls vacant, it can be filled up by giving a promotion to the present employee of the company. It is based on the promotion policy followed by the company. In certain cases, a same cadre staff member is deputed to the job by the company. This is called a transfer. This is also based on the transfer policy followed by the company.

ADVA�TAGES

� It increases the morale among the staff members of the company.

� Giving promotion keeps the employee happy.

� It attracts efficient staff members.

� The training expenses may be reduced to some extent.

� A person who has got a promotion, inspires the staff members to acquire a thorough knowledge of his job.

� Internal promotion helps the staff members to derive job satisfaction.

Leasin

g

Field

Trip

s

Jobbers an

d Contracto

rs

Unsolicited

Applicatio

ns

Waitin

g List

Educatio

nal In

stitutio

ns

Perso

nal C

onsultan

ts

Employment Exchange

(Govt. &

Priv

ate)

Gate A

pplican

ts

Reco

mmendatio

ns

Advertisem

ent

(Company In

vitatio

ns an

d

Walk

-in-In

terview

)

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� A promoted staff member may make use of his past experience in the new post.

� It increases the security of the job of the staff member.

� A new responsibility can be entrusted safely to the promoted staff members on the basis of the contents of Service Register,

� It ensures the continuity of job to the staff members and stability of the organisation.

� It induces the staff members to work hard to get promotion.

� Such expenses as on advertisement, recruitment, test and interview are avoided.

DISADVA�TAGES

� If the higher post is filled internally, the company will not be able to get fresh and original ideas and initiative from the staff members.

� The outsiders do not have a scope to show their ability in the performance of the work.

� An under qualified person may be appointed in the higher post.

� If the promotion is a guarantee to the internal staff members after the expiry of a specific period, the concerned staff member does not care to work efficiently.

EXTER�AL SOURCES

There are various external sources of recruitment. They are briefly explained below:

Advertisement

When a company wants to inform the public that it has a vacancy, it puts up an advertisement. The details of the job and the qualification of the candidates are briefly given. The company may receive the applications in response to the advertisement. After that, an interview will be conducted. In certain cases, walk-in-interview method may be adopted by the company. In the

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walk-in-interview method, the applications are not received from the candidates. The date and time and place of the interview are mentioned in the advertisement. In this way a person can be recruited through an advertisement.

Recommendations

Here, recommendation means appointment of a person on getting a recommendation letter from a person reliable and well known to the company. In certain cases, an employee of the company may bring the candidates to the company for the purpose being appointed, when the company does not conduct an interview for selection.

Gate applicants

The educated unemployed youth may contact the company to get employment. These candidates may not have any recommendations. Even the company might not have issued any advertisement for the Post. The candidate personally approaches the appointing authority of the company. If such candidate is found fit for any one of the posts which are vacant at that time, the candidate is appointed.

Employment exchange

The job seekers register their names with their qualification with the employment exchange. The company can get a list of candidates who have requisite qualifications to fit in a job. Out of the listed candidates, any one of them can be selected. The employment exchange is of two kinds, i.e., public employment exchange and private employment exchange. The public employment exchange is run by the government. The private employment exchange is run by a private party. The private can get a commission both from the job seekers and the company. But the public employment exchange does not demand any such commission both from the job seekers and the company.

Personnel consultants

Private consultant is a separate specified agency doing the function of recruitment of the personnel on behalf of the company. In other words, the functions of personnel department of any company are performed by the personal consultants. It receives the applications from the candidates, verifies the applications, conducts interviews and selects the candidates. The Personnel consultant receives fees from the company for its service.

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Educational institutions

Universities, colleges and institution are formed to offer specific courses. The education institutions make an arrangement for campus interview. The business concerns come to the campus of educational institutions to recruit the students for various posts. The selected students are requested to join the post after completing the course.

Waiting list

The business concern prepares a waiting list of candidates who have already been interviewed. But, they are not appointed for lack of vacancy. Whenever a vacancy arises, the vacancy may be filled up by the company out of the waiting list.

Unsolicited applicants

Unsolicited application means the application received through mail from the candidate. The applications brings the information regarding the name and address of the candidate, his age, educational qualification, experience, area of interest etc. If there is any vacancy at that time, the candidate will be recruited for the specified post. Normally, this type of applications is considered for the posts at the lower level.

Jobbers and contractors

The casual vacancy may be filled up by the company through the jobbers and contractors. Normally unskilled candidates are appointed in this way. They are available at short notice and for a small salary. This type of candidates is brought by the jobbers and contractors to the place of work and they receive some wages from the company for this service.

Field trips

A company may send a group of experts to the towns and the cities where the various kinds of candidates required by the company are available. In this case, a prior advertisement may be issued in newspapers. The advertisement contains information regarding the date, venue and time of the interview. The interview is conducted in different places. This is the procedure followed to recruit the candidates under field trips.

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Leasing

This type of source of recruitment is followed by the public sector organisation. The reason is that the organisation wants to manage the problems particularly at higher level. Before recruiting the staff members, the period of service is fixed by the company and it is conveyed to the staff members.

MERITS

There are some advantages to the company if the appointment is made through external sources. These advantages or merits are discussed below:

• Choice

A company can recruit a person out of a large number of applicants. Each and every candidate's plus points and minus points are taken into consideration for the purpose of recruitment. Then, the best candidate can be selected by the company.

• �ew outlook

If a new person is recruited by the company, a new way of approach may dawn to solve the problem. A new way of approach will give maximum benefits to the company.

• Wide experience

If the recruited new candidate has experience in various fields, the company can get the benefit of the candidate's experience.

DEMERITS

The external sources also have some demerits. They are listed below:

• Grudging of old employees

If a candidate is recruited from external sources the existing staff may have a grudge against him. It results in demoralisation of the staff members.

• Lack of co-operation

The existing staff members do not extend their co-operation to the person who is selected from out of external sources. In addition to this, the existing staff members make the new man count difficulties and try to cast slur on his name.

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• Expensive

Recruitment of a person from outside the company requires a lot of formalities. The formalities include issuing advertisement, receiving the applications, screening the applications, dispatching the interview letters, fixation of interview date, time and place, formation of an interview committee etc. Completing all the above said procedures involves a lot of expenditure.

• Trade union

If the trade union of the company is very strong, it is very difficult to convince the trade union and recruit a person outside a company.

• Danger of non-adjustment

If a newly recruited person fails to adjust himself to the working conditions of the company, it leads to more expenditure in looking for his replacement. Besides, it causes to irritation and quarrel between the recruited person and the existing staff members.

SELECTIO�

Selection is the device used in an organisation to select a suitable person who has required educational qualifications, skills, abilities, personality and the like. When an organisation gets more number of applications than needed, the application in excess are rejected. In other words, a screening test may be conducted through which unsuitable candidates may be rejected. Selection procedure starts with the end of recruitment.

MEA�I�G

Selection is the process adopted by an organisation to select adequate number of persons who are fit for the job.

IMPORTA�CE OF SELECTIO�

Selection is a tough task at present. The reason is that the available candidates are more qualified than what is required. They have higher education qualifications and experience. So, more care is needed in the selection of proper personnel.

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� Manager is informed about the complexities of selection and weakness and limitations of various selection techniques. Managers know the probabilities of error.

� The high degrees of education and employment opportunities have made the labour market or buyers' market. The economic security has made it a sellers' market.

� The inexperienced candidates cannot meet the requirement of today's job. Now, education is developed in such a way that training is given within the study. A person with adequate and desired experience gets selected for the job.

� Managers know the techniques used to discover the deficiencies in candidates.

� Today's public policy has imposed many new restrictions with respect to those who can and should be hired and what kind of selections are acceptable.

� If the job specifications are not clearly described, it makes the selection procedure a difficult one.

� Selection requires high cost but results in a very high rate of return.

STAGES OF SELECTIO� PROCEDURE

It may be said that recruitment is a positive function of the management. But selection is a negative function of management. The reason is that eliminating applications is more difficult than selecting them.

Normally, the selection procedure has the following stages:

1. Receiving and screening of applications

Prospective employees are requested to submit the applications in white paper or in a prescribed form. In both the cases, full particulars of the employees should be given. Any omission may disqualify the particular candidate. The information relates to the name of the candidate, age, educational qualification, date of birth, experience, parents' name and occupation, address for communication and the like. The same information is kept as a permanent record

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in the organisation. If the number of applicants exceeds the actual requirement, the organisation may select more candidates than required.

2. Initial interview

It is otherwise called preliminary interview. The object of conducting this interview is to know whether the applicant is physically and mentally fit for the job. Questions are put to the candidate for evaluation. These questions are relating to his qualifications, experience, interest, age, nativity and the like. Only a minimum time is spent for this interview. Candidates who have passed in initial interview are called for the next selection procedure.

3. Application blank

A specific format is followed by an organisation for this selection process. The nature of the format varies for each job. The same form is not used for all jobs in an organisation. The reason is that different qualifications and skills are required for different jobs. Care should be taken to ensure that the candidates provide brief and pointed answers for queries raised in the form. Besides, irrelevant answers should be avoided and all relevant information should be given in the form.

The advantages of application blank in the selection procedure are explained below:

� Acts as an Urgent test device

The applicants have to find precise answers for the queries raised in the form. This test is used to find the quick understanding capacity and problem-solving capacity of the candidate.

� Shy candidate

Some candidates may find it difficult to give answer in the face to face meeting with the employer. They may give answers through this form. Shy candidates and slow candidates may use this process.

� Aid to build trust among applicants

Whenever the applications are issued to applicants for filling up, there is a confidence among the applicants as they are for the job in question.

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� Basis for final interview

The answers given in application form are used as basic things to frame questions for the final interview.

� Aid to preparing waiting list

Candidates may be found fit for the job but they cannot be absorbed immediately. These candidates are placed under waiting list. The information provided in the form is used for the preparation of waiting list.

4. Test

The test is conducted by the organisation for the purpose of knowing more about the applicants to select or reject. Normally, many organisations ask the applicants questions to know more about their aptitude, interest, general awareness etc.

Tests can be classified into two kinds. They are Proficiency Test and Aptitude Test. Proficiency Test refers to the testing of the skills and abilities possessed by the candidate. Aptitude test refers to measuring of the skills and abilities which may be developed by the applicant to perform the job in future.

KI�DS OF TEST

Proficiency Test Aptitude Test

Temperament Achievement Interest

Test Test Test

(a) Temperament tests are used to measure the likes, dislikes and habits of an individual. It is helpful to find out whether a particular individual can put up himself in a society or not.

Intellig

ence

Perso

nality

Situ

ational

Judgem

ent

Efficien

cy

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(b) Achievement test is used to measure the level of knowledge for performing the work assigned to an individual. It is otherwise called performance test or trade test. Sometimes, achievement test is conducted theoretically, i.e., answers are received by putting questions to the individual. For example, an accounting test may measure the accounting performance of an Accountant in terms of accuracy and neatness.

(c) Efficiency test is used to know how quickly and efficiently an individual uses his hands to accomplish the work assigned to him. It is otherwise called dexterity test.

(d) Interest test is used to discover the individual's interest in doing the work assigned to him/her. It is assumed that an individual who is interested in one type of work does better than the one who is not interested. Interest of an individual may be relating to outdoor activities, accounting, clerical, social service etc. It is otherwise called Vocational Test.

(e) Intelligence Test is used to measure the mental ability, capacity and general awareness of the individual. The most common intelligence tests used for management purposes are group tests, individual tests, self-evaluation test, self-administered tests, performance tests, verbal comprehension, word fluency, memory, inductive reasoning, test of reasoning, number facility, speed of perception and the like. The Intelligence Test is conducted agewise. If the management selects the highly intelligent people, its training process is easy and training expenses are low.

(f) Personality Test is conducted to measure courage, initiative, emotion, confidence, reaction, ability to mix with others, ability to motivate, general behaviour of individual, cheerfulness, leadership, patience and domination of character.

(g) Situational Test is conducted to measure the reactions of applicants to a particular situation. Besides, the applicant's ability to succeed in his job in this situation is also measured.

(h) Judgement Test is conducted to measure the ability of an individual in applying the knowledge, intelligence and experience to solve the problems presented before him.

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ADVA�TAGES OF TEST

(a) Tests help the employer to find whether a candidate is fit for the job or not.

(b) Besides, tests help in checking candidates claims in respect of his qualification, experience etc.

(c) Tests avoid the scope for personal preference of a particular candidate.

(d) Standards of job performance can be established with the help of this test.

(e) Labour turnover can be reduced.

(f) Applicant is also satisfied with the method of selection, eventhough he is not selected.

(g) Tests reduce the cost of selection and placement.

(h) Tests highlight the hidden talents and overlooking of these can be avoided.

(i) Test may be conducted for transfer and promotion.

(j) Administrative expenses regarding training may be reduced to some extent.

(k) Failure in performing the job is reduced.

DISADVA�TAGES OF TEST

(a) Hundred percent best selection is not possible through test. So, test is used as a supplementary method of selection.

(b) Test is more suitable to an organisation to which for limited number of jobs more number of candidates have applied.

(c) If the number of applicants is small, it is desirable to adopt interview rather than the test.

(d) Test is not able to measure the combination of characteristics required for various jobs.

(e) Some candidates do not reveal their talents through test.

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(f) The actual performance of a candidate cannot be found out through the test.

(g) Test does not provide any basis for motivation.

Test has some advantages and limitations or disadvantages. But it may be stated that more accurate selection is possible through test. According to Felix M. Lopez, “When test are used properly, they can help substantially in selection, particularly and most especially in selection for managerial positions. All tests provide clues about an applicant which, when confirmed by other information, enable the assessor to make fairly accurate predictions of job effectiveness. They suggest hypothesis about the applicant's intellectual capacities, aptitudes, vocational attitudes or personality dynamics, each of which must be confirmed or rejected by data drawn from other areas of the applicant's background.”

PRE-REQUISITES OF EFFECTIVE TEST

The limitations of the test can be avoided if the management takes the following precautions while conducting tests:

(a) Validity

An effective test has validity. The validity of the tests depends upon the degree of prediction of the job performance successfully. Thus, a test should accurately predict the criteria of job success.

(b) Reliability

Reliability of a test refers to getting the same result from any candidate tested for any number of times. So, it is the duty of the management to bear in mind the reliability of a test.

(c) �orms

The management should fix the norms for selection. Some companies prescribe minimum marks for selection and some companies prescribe cut off marks for selection. But, these should be pre-determined.

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(d) �o partiality

Management should ensure that tests have validity. Proper weightage should be given to the scores obtained in tests and personal biases should be avoided.

(e) Specialisation

Test administration, scoring and interpretation require technical competence and training in testing. These should be handled by properly trained and competent persons. If not, results may be horrible.

(f) Supplementary

A candidate cannot be selected or rejected on the basis of performance in test. The test should be considered as a supplementary in the selection process. The final selection of any candidate should be based on the information given in application, performance in interview, if any conducted, in addition to the test performance.

5. Checking References

Sometimes, the applicants are requested to furnish references. References are in a high status in society. Applicants may include the name and address of parent educational institutions and present employer. The information furnished in the applications are checked from these persons. If the referee is a present employer, the applicant's job performance, salary drawn particulars, reasons for leaving the job etc. are checked.

A letter of recommendation may also be treated as a reference. The prospective employer can collect information about the applicant regarding his character, conduct ability etc. from the referee. Some managements do not take much interest in this regard. The verification of references might give correct information about the applicant. Some applicants may give incorrect information regarding experience, past salary drawn and reasons for leaving the job. But these are identified with the help of checking references.

Many managements which do not hold good opinion about the applicant are not ready to give references. At the same time, some applicants have some

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well-wishers who are referred as reference, and no negative answer is received from those references.

6. Interview

Interview is considered as a method of personal appraisal through face to face conversation and observation. The management selects a candidate through interview by one or more persons. The interviewing persons are experts in the interview technique and they have a thorough knowledge in their respective fields. Interview helps the employer to evaluate the candidate regarding the personality, smartness, intelligence, attitude etc.

In any interview, the interviewer has dominant position over the interviewee. The interview is divided into two, i.e., preliminary interview and final interview. The preliminary interview has been discussed already. Here, the final interview is discussed. The final interview is conducted only for candidates who succeed in the preliminary interview. The candidate should succeed in two stages of final interview. In the first stage the personnel department makes a thorough evaluation of a candidate. In the second Stage, the successful candidates from the first stage are sent to the functional department where additional hands are required- The candidate who has successfully passed the second stage is selected.

KI�DS OF I�TERVIEW

There are a number of kinds or types of interviews conducted by the management. Some of the interviews are briefly explained below.

(a) Direct interview

Under this type of interview, straight-away questions are put before the applicant to get answers for them. Face to face conversation is going on during the interview. The in-depth knowledge of applicant is not observed under this type of interview. But, the skills, character, area of interest and attitudes of the applicant can be identified to some extent.

(b) Indirect interview

Questions are not raised directly by the interviewer before interviewee. The particular applicant is requested to express his views on any topics as he

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likes. The interviewer carefully listens to what the applicant expresses. The interviewer does not interpret the applicants’ views. The applicant has full freedom of expression. The personality of the applicant is easily assessed by the management.

(c) Patterned interview

A number of standard questions are framed well in advance which are to be put before the applicant. The answers for these questions are found while framing the questions and answers are written near the questions. These are used for verification purpose when answers are given by the applicant during the interview. This is the procedure adopted under this type of interview to evaluate the suitability of the applicant.

(d) Stress interview

Irritating questions are put before the applicant by the interviewer. If any applicant gets angry when these type of questions are put to him, the particular applicant is evaluated as unfit for the job. For example, the Interviewer may ask, "How many legs does an eight legged insect have?" or "Dear Mr. Ramesh, what is your name?" These are some questions which irritate anybody in normal conditions. If an applicant gets angry over these questions he/she is rejected as unfit for the job.

(e) Systematic in-depth interview

Under this type of interview, the interviewer asks any one of the questions initially. Then, he proceeds step-by-step to get an integrated view of the skills and personality of the applicants.

(f) Board or panel interview

A group of persons called interviewers ask the applicant questions in the area of interest of the applicants. Immediately after the interview, they evaluate the performance of an applicant based on the answers given by the applicant.

(g) Group interview

It may be otherwise called group discussion or house party technique. A number of applicants are interviewed simultaneously. A common topic is presented before the group. One group consists of six to eight members. Each applicant is allotted a number. They may call other members of the group by

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calling concerned member's number. They are restricted to use their names. The applicants are selected or rejected on the basis of performance in group discussion.

PRI�CIPLES OF I�TERVIEW

The interview technique should be an effective one. The following principles are adopted by the management in order to make an interview effective.

� The management should define the specific objectives of an interview.

� Next, the management has to prepare the procedure followed to achieve the specified objectives.

� The interviewers should ask the questions which are related to the job to be filled.

� The interviewer must create a rapport with the interviewee before starting the interview.

� The interviewees are requested to express their opinions or views freely without any hesitation.

� The tension or nervousness of the applicants are removed by the interviewer.

� The interviewer should listen to the answers given by the applicants carefully.

� The evaluation of the performance of the applicant is done immediately after the interview is over.

� The interviewer may say "thanks" to the applicants while closing the interview. This carries much better impression about the interview and interviewer.

PROCESS OF I�TERVIEW

The following procedure may be adopted for an interview:

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Review of background information

The interviewer has to collect the information regarding the applicant's biodata and the job for which he has applied. This process is known as review of background information.

Preparation of questions

The interviewer has to prepare the questions in the area in which the applicant is interested. The question is presented by the interviewer in an understandable way. The answers are received from the applicant one by one. The next question is raised only after getting full answer to the first question. The sub-questions may be raised by the interviewer during the interview, if need arises.

Putting the applicant at ease

There is a mental and emotional strain to the applicants. These may be removed by the interviewer. These are possible through proper understanding of applicants and sympathy with the applicants by the interviewer during the interview.

Outsiders except interviewers and the applicants are not allowed to be present in the interview room. All the necessary facilities and comforts are arranged by the management in order to put the applicant at ease. Some mannerism like causing interruptions through raising number of sub-questions unnecessarily or raising eyebrows or pouting lips frequently are avoided by the interviewer.

Drawing out the best applicant

Some set of questions are not asked in an interview. So, it is a very difficult task to draw the best applicant out of the interview performance. The interviewer has to follow acceptable norms to select an applicant for appointment. But, the norms should be correct and they should provide a basis to select a suitable person.

Concluding the interview

The applicant has left the room after the interview is over. The interviewer immediately assesses the applicant's performance in the interview. Some interviewers have taken notes during the interview. These notes may be

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used to assess the applicant. The next applicant is called for an interview after the process is over.

Final Selection

Finally, a suitable applicant is selected on the basis of performance in the above-mentioned test and interview. Only the required number of applicants are selected by the management. The competent authority has to approve the selection of the applicants.

In the case of big organisations, a separate department known as personnel department is incharge of selection. The personnel department manager selects the applicant and approves it. The appointment order will be sent to the applicant without delay. Normally the applicants are selected provisionally.

Medical Examination

It is otherwise called physical examination. This is carried out for the purpose of finding physical fitness of the prospective employee. Many organisations do not follow the process of medical examination. The reason is that there is no need for medical examination to certain jobs. Medical certificate is received from the doctor after medical examination is over. This certificate is attached to the joining report of the new employee. Some applicants may be educationally qualified for the job but physically unfit for the job. For certain jobs minimum physical fitness is required according to the nature of the job.

Placement

The applicants are placed on probation basis only after completing all the formalities. The probation period may vary from one job to another job according to the nature of the job. The maximum probation period for any job is two years. It may be extended to three years in extraordinary circumstances. The new employees are observed keenly over the probation period. These new employees are regularised on the completion of probation period successfully.

Orientation

Orientation refers to providing the information regarding the organisation briefly to new employees. The term information includes co-workers of new employees, superior, sub-ordinates, location of work place, duties, authorities, responsibilities, canteen, lavatory, entrance, exit gate and the like.

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The orientation programme is carried out through lectures or films. The new employees are taken round the offices and plant and the new employees are introduced to the existing employees. A printed literature may also be used to the orientation programme. The orientation programmer helps the new employee to acquire a knowledge of the organisation functioning without any delay. It facilitates to effective performance of a job by the new employee.

PROMOTIO�

Meaning

Promotion may be defined as the placement of an employee to a better job which results in the increasing of prestige, salary, powers, duties, responsibilities and it requires more knowledge and skills to perform the job.

Every employee has the aspiration to get promotion and is ready for acquiring the additional qualification and experience fit for the job. Higher posts and key posts are filled up by the management through promotion policy. This promotion policy persuades the employees to be loyal to the management.

Basis for promotion

The promotion is given to any employee on a widely acceptable basis. The basis may be seniority or competence. Seniority refers to the possession of more number of years of service in the same organisation than those of the other employees. Competence refers to the accomplishment of a particular job effectively than the other employees.

Senior employee prefers seniority to competence for promotion. Senior people argue that they have more experience in the job than others. So, they demand seniority as the basis for promotion. The juniors and management people are in favour of competence.

Whenever the management fixes competence as the basis for promotion, all the employees including senior people are ready to increase their knowledge and skills to get promotion. If promotion is denied to senior people, they do not devote their full attention to perform the job. The younger ones may command the old people if the competence is the basis for promotion. It will be just like a son commanding his father.

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Unfit persons may also be eligible to get promotion if the management prescribes seniority as the basis for promotion. Besides, senior people are not ready to acquire additional knowledge and skills which are necessary for the jobs to which they seek promotion.

Hence, it is concluded that the same management may follow both criteria for promotion. Seniority is the basis for promotion to a job which does not require much competence. Competence is the basis for promotion to a job which requires much competence.

QUALITIES OF GOOD PROMOTIO� POLICY

A promotion policy followed by any management should have the following qualities or characteristics:

(a) Whatever the promotion policy followed by the management that should be widely published and strictly adhered to.

(b) Each and every employee should work in all jobs in an organisation to get thorough knowledge and experience.

(c) A detailed and accurate job description should be prepared in each job. The employees can know the qualifications and experiences required for each job through job description.

(d) The promotion is given to any employee through widest publicity.

(e) Employees are permitted to acquire qualifications and experience through job training, vocational courses and the like.

(f) Each and every promotion is recommended by line officers and approved by the top executive of the management.

(g) An employee has a right to represent his views and opinions regarding promotion if promotion is denied to that employee.

(h) The promotion is given to an employee who gives his consent for promotion.

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REVIEW QUESTIO�S

1. What do you know about proficiency test?

2. What is meant by indirect interview?

3. What are the sources of recruitment? What factors are to be considered while giving promotion?

4. Which is the right basis — seniority or merit for promotion?

5. Describe the steps in recruitment and selection. What should be the features of sound promotion policy?

6. What are the different methods of selection?

CASE STUDY

Mr. Shesian, the Managing Director of M/s. Vinay Chemicals Ltd., is an intelligent and dynamic individual, ever aggressive in making a success of whatever he undertook. For some time he was disturbed over report that many senior and junior personnel of the company had been making a bee-line for a newly-established firm of competitors. Apparently, the offers made by the competing firm were too lucrative and tempting for his employees to be declined off hand.

On investigation, it was found that many competing firms had no training department of their own. For this reason, they had found in Venny Chemicals, which operated a full-fledged training department to provide an intensive training to employees of all ranks, a good place to fish for trained personnel.

No doubt, the desire to hook the workers of Vinny Chemicals was noticeable in all competitors. But the newly established firm had broken all canons of good business behaviour by an open declaration of its desire that all those who had served Vinny Chemicals for more than two years would be straightway recruited by it on a 25% increase in their present salary plus all other matching perks.

Questions

1. Is establishment of a training department inadvisable?

2. Is it safe to employ trained workers from other similar organisations?

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U�IT - IV

Lesson - 15

THEORIES OF MOTIVATIO�

Several theories have been propounded by eminent personalities explaining the reasons and process of motivation. Understanding these theories acts as a foundation for understanding the work behaviour of the people. Some of the significant theories have been explained in the following paragraphs.

THEORY 'X’ A�D THEORY ‘Y’

Douglas McGregor proposed two different theories namely Theory 'X' and Theory Y' in 1960. Basically, these two theories explain about the human nature. While theory 'X' deals with the negative aspect, theory T dealing with positive aspect of the human behaviour. Theory 'X' involves traditional approach and based upon the following four assumptions held by the managers about the workers.

� Workers dislike work and are lazy.

� Since workers dislike work, they must be controlled with punishment to achieve the goals.

� They don't want to take up responsibilities for themselves and seek formal direction from the boss whenever possible.

� Workers place security of their job above all other factors associated with work and display little ambition.

As against these negative views about the human behaviour and its nature, McGregor listed out four different assumptions under theory Y. They are:

� Workers can view the work as natural as rest or play ;

� Workers can exercise self - direction and self-control given the proper environment;

� An average worker can accept responsibility and learn to grow;

� Workers are creative, imaginative and resourceful.

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Frankly speaking, the above two theories have nothing to do with motivation. They explain about the nature of human behaviour under two sets of different assumptions-

The assumption under theory 'X' that workers must be coerced and regulated for accomplishing objectives is akin to the characteristic policy which has become obsolete method in managing people. However, these theories enable us to understand how the manager should mould his behaviour under two sets of situations for getting things done.

�EED HIERARCHY THEORY

The most well known theory of motivation is Abraham Maslow's hierarchy of needs. He proposed that in every human being there exists a hierarchy of five needs. They are:

� Physiological or basic needs (eg. food. water, clothing, shelter etc.);

� Safety and Security needs (eg. security of job, protection from harm etc.);

� Love needs (eg. affection, friendship, belongingness, etc.);

� Esteem needs (eg. self respect, status, recognition, achievement etc.);

� Self-actualization needs (eg. growth, fulfilment of ambition. bringing out the real potential etc.).

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Self actuali-zation

Esteem Needs

Social or Love

Needs

Safety Needs

Basic Needs

HIERARCHY OF �EEDS

According to Maslow, if lower need is satisfied, the person moves up the ladder to the next higher order need. It means that if basic needs are satisfied, workers can be motivated by fulfilling the next higher order needs i.e. safety needs. This theory implies that workers are motivated by fulfilling unsatisfied

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needs rather than by satisfied need. Maslow separated the five needs into low (basic and safety needs) and higher (love, status and self actualisation) order needs. While lower order needs are predominantly satisfied externally, higher order needs are satisfied internally. This theory has received wide recognition among the practising managers because of its logical link. This does not mean that this theory is free from criticism. The first criticism is that this theory has not specifically mentioned about work related needs.

Secondly, the strength of each need varies from Individual to individual. Hence, strict ordering of human needs in the above hierarchy could not be proved empirically. Thirdly it is criticised that it only deals with the content of motivation rather than the process of motivation.

Two - Factor Theory

Frederik Herzberg and his associates conducted a research study and have identified two sets of factors. According to this study, motivation depends upon satisfaction. The two sets of factors affect satisfaction or dissatisfaction of workers. The first set of factors are termed as maintenance factors. They are salary, job security, working conditions, quality of supervision, interpersonal relationships, company's policy and administration. These factors are related to job environment Presence of these factors is necessary to avoid dissatisfaction among workers. These factors ought to be maintained as a matter of compulsion in every work situation.

The second set of factors are related to the content of the job. They include growth, advancement, recognition, achievement, accepting; increased responsibility etc. According to Herzberg, these factors are motivational factors which stimulate the worker to better levels of families. Hence, these factors are termed as satisfiers. To sum up, while the first set of factors have to be maintained as a matter of compulsion in order to remove dissatisfaction the second set of factors alone are responsible for motivating people.

This theory is also not free from criticism. Firstly, there is too much botheration about satisfaction, dis-satisfaction and the point of no satisfaction. There is no guarantee that satisfaction leads to productivity in all cases. Secondly, the concept of satisfaction is influenced by a good number of off the job and on the job" factors. Thirdly, the impact of situational variables have been

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ignored in this theory. Fourthly, like need hierarchy theory, it is also concerned with the content of motivation and not with the process of motivation.

Vroom's Expectancy theory: Victor Vroom proposed this theory as an alternative to the content models explained in the earlier paragraphs. It is the most widely known theory of motivation for the purpose of understanding the process of motivation. According to this theory, a person's desire to work at any time can be conditioned by two factors.

a) Existence of one or more personal goals on the part of the employee; and

b) His expectation as to the relative worth of his performance for the attainment of such goals. When the worker believes that his performance will lead to the fulfillment of personal goals, he tends to become a high producing worker and vice-versa.

It has been stated by Vroom as given below:

Force (Motivation) = Valence x Expectancy

Here the term Valence' stands for the strength of an individual's inference for an outcome and expectancy to the probability that a particular action will lead to a desired outcome. This theory establishes four important links in the process of motivation.

Efforts -Performance —Rewards/Awards "Goals.

This theory has three important Implications to managers. Firstly, It is necessary to provide appropriate rewards to satisfy the individual needs. Secondly, managers are required to establish a close link between efforts and performance between performance and rewards and finally between rewards and personal goals. Thirdly, this theory recognises the fact that there is no universally acceptable method for motivating people because of the influence of contingency factors from time to time.

Achievement Theory

David Me Clelland has identified three basic motivating needs such as need for power, need for affiliation, and need for achievement Though all these three needs are important to management in understanding the process of motivation, to Mc Clelland need for achievement is of paramount importance. It

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is concerned with predicting the behaviour of workers who have either high or low needs for achievement.

Need for power has a great concern for exercising control and influence. People with this need tend to be forceful, outspoken and demanding in obtaining the work. People with need for affiliation are likely to be concerned with maintaining pleasant relationships. People with a high need for achievement have a strong desire for success. They love challenges.

Achievement motivated people are blessed with some special characteristics. They are not gamblers and they dislike succeeding by chance. They like job situations. They like moderately challenging goals. They can influence their efforts through continuous feedback of their performance. They tend to become task-oriented people since they are vitally concerned with their personal achievements.

The findings of this theory proved that achievement motivated people mainly come from middle-class families. This study further reveals that the need for achievement would be stimulated through class-room instructions and training programmes. This theory urges people to act on the basis of internally driven stimulus to improve their performance. This theory has received wide recognition.

E R G Theory

It is an improved model over Maslow's and Herzberg's theory on motivation. Clayton Alderfer identified three groups of basic needs – Existence, Relatedness and Growth. The existence needs are concerned with physical well being and survival (food, clothing, shelter, good-working environment etc). The relatedness needs emphasise the Importance of interpersonal and group relationships. The growth needs are concerned with individual's inner desire for his personal development. This theory does not see the needs as a hierarchy as stated by Maslow. It does not contend that a lower level need has to be fulfilled before satisfying a higher level need. Under this theory, a person's background may dictate that the relatedness needs will take precedence over unfulfilled existence needs. It further assumes that the more the growth needs are satisfied, the more they will increase their intensity. In other words, this theory suggests

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that one class of needs might remain strong Irrespective of the fact whether the other class of needs has been satisfied or not.

Having discussed some of the important theories of motivation, a brief attempt is made to discuss the Management techniques that can be tried to increase motivation in work situations. Management generally uses financial and non-financial techniques to motivate employees.

Financial Motivators

The commonly accepted belief is that Motivation is directly or indirectly connected with money. It is true that money acts as a vehicle through which most of the higher order needs can be fulfilled. That is the reason why most of the organisations use money incentive as a means of offering satisfaction among staff. Productivity linked wages, bonus, profit-sharing, leave with pay, medical reimbursement, leave travel concession are included under this type of motivation. Experience proved that money is a most reliable motivator. Money as a reward for accomplishment is now accepted as a base for designing compensation methods.

Besides money, there are some other motivators which deal either 'with personal development or with the environment of the employees. Date Yoder has identified that workers who set their own goals are capable of motivating. Therefore, goal Identification and participative management also have a great role to play in motivating the people.

�on-Financial Motivators

As the heading above states, they are not at all connected with money. In turn, they are connected with the position, work- culture and psychological mood of the employees. Some of the most commonly used measures under this heading are:

♦ Praise and recognition;

♦ Status and pride;

♦ Job enlargement;

♦ Job enrichment;

♦ Job security:

♦ Quality of work life.

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Recognition of the services of one employee may be shown in the form of praise. It may be in the form of patting on the back of the employee, recommending him for promotion or for entrusting confidential work etc. Similarly, provision of costly furniture, wall-decoration, personal assistance will certainly enable the employees to feel proud which in turn would stimulate them for better results. Enlarged jobs may be entrusted to work group so as to make them more responsive from planning phase to implementation stage. It makes the Job less monotonous. Another method of motivating the people is job enrichment. Through this, job is made more interesting and challenging. It provides an opportunity for psychological growth of an employee. Job security is equally important. It implies that the employee will be continued with all economic and social security measures within the same plant. This kind of arrangement, no doubt, encourages the worker to deliver better performance.

Another concept gaining currency in modem organisations for motivating people is the quality of work life. Though this concept connotes different meanings to different people, it refers to all aspects of worker's life w1th special reference to his personal and work environment. It includes fair compensation, good working conditions, security, growth, protection, identity etc.

Summary

The concept motivation cannot be studied in isolation. Motivating the work force is a complex and challenging assignment. A good number of factors Influence motivation in a variety of ways. Hence, it should be viewed from systems analysis. After all, motivation is purely a psychological process. The basic process of motivation involves understanding about the needs, drives, action, and satisfaction of the people at work. The above theories propose different approaches to work motivation. While some of those theories are rigid, some of them are dynamic. Understanding all these theories is important for effective management of human resource. It is the primary responsibility of every manager to create favourable climate either by offering financial or non-financial Incentives for motivating the work force in a desired way.

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REVIEW QUESTIO�S

1. Define the concept 'Motivation'? Bring out the significance of motivation in a modem organisation.

2. Compare and contrast Maslow's Hierarchy of Needs Theory and Herzberg's Two Factor Theory.

3. Explain the salient features of Vroom's Expectancy Theory of Motivation.

4. What is need for achievement? Explain how Me Clelland was successful in explaining the process of motivation through his theory.

5. "Theory X and Theory Y" are not theories of motivation, instead they explain the nature of human behaviour with some basic assumptions - Comment.

6. Explain the role played by financial and non-financial Incentives In motivating the work force.

CASE STUDY (1)

You are in-charge of a small departmental store and have three subordinates - Ram, Ravi and Gowtham. The key to the success of your departmental store is to keep these employees as motivated as possible. Here is a brief summary profile on each of these subordinates.

Ram is the type of employee who is hard to figure out. His absenteeism record is much higher than average. He greatly loves his family (a wife and three small children) and thinks they should be central to his life. The best way to describe Ram is to say that he is kind of a throwback to the hippie generation and believes deeply in the values of that culture. As a result the things that a Company can offer him realty inspire him very little. He feels that the job is simply a means of financing his family's basic needs and little else. Overall, Ram does an adequate Job and is very conscientious, but all attempts to get him to do more have failed. He has charm and is friendly, but he is Just not "gung - ho" for the Company. He is pretty much allowed to "do his own thing" as long as he meets the minimal standards of performance.

Ravi is in many respects opposite to Ram. Ravi is a likable guy, but unlike Ram. Ravi responds well to the Company's rules and compensation schemes and has a high degree of personal loyalty to the Company. The problem

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with Ravi is that he will not do very much independently. He does well with what is assigned to him, but he is not very creative or even dependable when he is on his own. He is also a relatively shy person and not very assertive when dealing with people outside the department. This hurts his performance to some degree because he cannot immediately sell himself or the department to other departments in the Company or to top management.

Gowtham, on the other hand, is a very assertive person. He will work for money and would readily change jobs for more money. He really works hard for the Company but expects the company also to work for him. In his present job, he feels no qualms about working a sixty hour week, If the money is there. Even though the company did not give him a raise on the precurse that he was already making too much, he is quite a driver.

A manager at his last place of employment indicated that, while Gowtham did do an excellent job for the Company, his personality was so strong that they were glad to get rid of him. His former boss noted that Gowtham just seemed to -be pushing all the time. If it was not for more money, it was for better fringe benefits; he never seemed satisfied.

Question:

1. Can you explain Ram's, Ravi's and Gowtham's motivation by one or more of the work motivation models discussed in this chapter?

��

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U�IT - IV

Lesson - 16

DIRECTI�G

While planning, organising and staffing can be considered as preparatory managerial functions, controlling is intended for checking the things in a way as we desire. The connecting link between these functions is directing. It is the live link that establishes meaningful interaction among superiors and subordinates through proper directions and guidelines. It is ‘Directing’ which initiates organised action with the purpose of fulfilling the corporate objectives. It thus creates appropriate work environment that facilitates efficient discharge of duties by the human beings. Thus it has become one of the important functions of Management to achieve organisational goals through proper instructions and guidelines.

In order to clearly understand the direction function of Management, the following definitions are helpful:

DEFI�ITIO�

Haimann, “Directing consists of the process and techniques utilised in issuing instructions and making certain that operations are carried on as originally planned.”

Koontz and O’Donnel, “Direction is the interpersonal aspect of managing by which subordinates are led to understand and contribute effectively to the attainment of enterprise objective.”

Urwick and Breach, "Directing is the guidance, the inspiration, the leadership of those men and women that constitute the real core of the responsibilities of management."

J.L. Massie, "Directing concerns the total manner in which a manager influences the actions of his subordinates. It is the final action of a manager in getting others to act after all preparations have been completed."

Earnest Dole, "Direction is telling people what to do and seeing that they do it to the best of their ability. It includes making assignments, corresponding procedures, seeing that mistakes are corrected, provided on-the-job instruction and of course, issuing orders."

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A review of the above definitions reveal that the direction function consists of issuing instructions, exercising supervision, providing leadership and securing motivation from the workers. Some of the important features of Direction function, to sum up, have been listed below :

• It indicates scalar chain. It means that the top management directs the middle management which in turn influences the operations people.

• It encourages the Supervisor to act as a guide, interpreter, teacher and co-ordinator.

• The direction function is not a static function but it is a living function. In other words, it deals with guiding, training and motivating the subordinates in a desired manner.

• The most Important characteristic of direction function is that it deals with the human factor.

• Direction function mainly deals with use and development of human factor.

Failing to understand the role of the human factor in the realization of organisational goals, leads to inefficiency and closure of the organisation. Hence, Direction function makes the executives to think in terms of (a) issuing instructions (b) proper supervision (c) motivation (d) leadership and (e) communication. It is a well known fact that without paying proper attention to the above points, no manager can succeed in obtaining the goals.

PRI�CIPLES OF DIRECTIO�

Generally, the manager should understand the needs, motives and attitudes of his subordinates. He should change his strategies according to the people and situation. However, the following principles of direction may be useful to the manager.

1. Harmony of objectives

Individuals have their own objectives. Organisation has its own objectives. The management should co-ordinate the individual objectives with organisation objectives. Direction should be in such a way that the individuals can integrate their objectives with organisation objectives.

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2. Maximum individual contribution

Every member's contribution is necessary for organisation's development. Hence, the management should adopt a technique of direction which enables maximum contribution by members.

3. Unity of direction or command

An employee should receive orders and instructions only from one superior. If not so, there may be indiscipline and confusion among subordinates and disorder will ensue.

4. Efficiency

Subordinates are requested to participate in decision-making process. Then, they would have a sense of commitment. This will ensure implementation of decisions. It will increase the efficiency of subordinates.

5. Direct supervision

Managers should have direct relationship with their sub-ordinates. Face to face communication and personal touch with sub-ordinates will ensure successful direction.

6. Feedback information

Direction does not end with issuing orders and instructions to the subordinates. Sometimes, suggestions given by the sub-ordinates are necessary for the development of the management. So, the development of feedback system furnishes reliable ideas to the management.

7. Effective communication

The superior must ensure that plans, policies and responsibilities are fully understood by the subordinates in right direction.

8. Appropriateness of direction techniques

There are three direction techniques available to the management. They are authoritarian, consultative and free-rein. But, the direction techniques should be selected according to the situation.

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9. Efficient control

The management should monitor the behaviour and performance of subordinates to exercise efficient control over the sub-ordinates. Effective control ensures effective direction.

10. Comprehension

The extent of understanding by subordinates is more important than what and how orders are communicated to them. This is very useful in proper direction of subordinates.

11. Follow through

Direction is a continuous process. Mere issuing orders or instruction is not an end itself. Direction is necessary; so, the management should watch whether the subordinates follow the orders and whether they face difficulties in carrying out the orders or instructions.

ISSUI�G ORDERS OR I�STRUCTIO�S

An order is used by the management as a tool for direction. An order can be issued only by a supervisor. The supervisor has right to enforce his order over his subordinates. In the words of Koontz and O'Donnel, "As a directional technique, an instruction is understood to be a charge by a superior requiring a subordinate to act or refrain from acting in a given circumstance."

CHARACTERISTICS OF A GOOD ORDER

1. An order should be reasonable and enforceable over sub-ordinates.

2. A clearly defined order should be easily understandable.

3. An order should be such a one as to facilitate the achievement of the objectives of an organisation.

4. An order should be complete in all respects.

5. An order should exhort willingness and acceptance from the subordinates.

6. A written order is preferable to an oral order.

7. Appropriate tone is used by the superior while issuing an order.

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8. An order should specify the time within which a job should be completed.

9. An order should be intelligible.

TECH�IQUES OF DIRECTIO�

There are three techniques of direction followed by the management. They are briefly explained below:

1. Consultative direction

The supervisor or superior has consultation with his sub-ordinates before issuing a direction. The consultation is made to find out the feasibility, enforceability and nature of problem. It does not mean that superior is not capable of acting independently. Ultimately, the superior has right to take any decision and give direction. The co-operation of subordinates is necessary for successful implementation of any direction. Better motivation is available to the sub-ordinates under this direction technique. The supervisor could instill high morale into the subordinates.

2. Free-Rein direction

The subordinate is encouraged to solve the problem independently under this direction technique. The superior assigns the task generally. The subordinates should take initiative to solve the problem. Only highly educated, efficient and sincere subordinates are required to apply these direction techniques.

3. Autocratic direction

This direction is just opposite to free-rein direction technique. Here, the supervisor commands his subordinates and has close supervision. The supervisor gives clear and precise orders to his sub-ordinates and acts accordingly. There is no way left to the sub- ordinates to show their initiatives.

IMPORTA�CE OF DIRECTIO�

Direction is also one of the important functions of the management. Direction is necessary to implement the administrative policies and decisions effectively. The subordinates are properly motivated through direction. Direction

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provides a leadership in a business. Direction is also concerned with getting co-operation among subordinates. Direction is the essence of management and also regarded as a continuous function of management.

• Direction initiates action.

• Direction co-ordinates the group efforts.

• Direction ensures maximum individual contribution.

• Direction reduces the reluctance to put up with changes in the organisation.

• Direction provides stability and balance in the organisation.

• Direction helps to achieve the objectives of an organisation.

CHARACTERISTICS OF DIRECTIO�

The characteristics of direction are discussed below:

♦ Direction is also one of the managerial functions and so performed by all levels of executives in an organisation.

♦ Management initiates action through direction.

♦ Direction is continuous throughout the life of the organisation.

♦ Initially, direction is started at top level management. In other words, the subordinates are directed only by superiors.

♦ Subordinates do the things as per the original plan.

♦ Direction creates link between preparatory functions and control function of management. The term preparatory function includes planning, organising and staffing.

LEADERSHIP

Management and Leadership are often confused as the same. No doubt, leading is an essential function of management. But, that does not mean that management is just leading. It involves many things like planning, organising, staffing and controlling people. All these managerial functions become stale if

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managers do not know how to lead people. Particularly in modern organisations, somebody should show the way to others for attaining the goals. This characteristic feature is termed as 'leadership'. It is neither mere direction nor motivation. It is a live wire between plan and action. Ability to lead effectively is one of the keys for successful management. The leader must basically and clearly understand the attitudes, the values, the flow of authority and the purpose of organisation. It means that the essence of leadership is followership. Without followers there can not be a leader.

The concept of leadership has been defined by many authors in different ways, Koontz and O’Donnell have defined this concept as "the art of influencing people so that they will strive willingly and enthusiastically towards the achievement of group goals." It emphasises the fact that the leaders help the groups in understanding the objectives of the organisation. Thus leadership is an endless process of influencing people so that they will strive willingly and enthusiastically towards the achievement of group goals.

FU�CTIO�S OF LEADERSHIP

1) Every leader, as a superior, has to delegate a part of his authority to the subordinates.

2) Once authority is delegated, the leader must try to motivate the people to better levels of performance.

3) The leader must try to create good climate, for achieving maximum operational efficiency.

4) Promoting and protecting new novel areas.

5) A leader must always try to develop his own people from within.

Hence leadership is not bossing. The functions of a leader includes, apart from ordering, "teaching, inspiring, guiding, interacting, initiating and solving problems". It is an endless personal process. This personal ability to lead effectively is one of the keys to become a successful manager. In other words, people have to follow the manager in order to make him a leader. Hence, the essence of leadership is followership. Motivation and leadership are closely related with each other as the leader tries to understand the reasons for why people act as they do.

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I�GREDIE�TS OF LEADERSHIP

(i) Power : A leader must know the nature and source of power besides its effective use in a responsible way.

(ii) Understanding people: A leader must have the ability to comprehend the needs, feelings, beliefs, values of subordinates and different motivational forces.

(iii) Inspiring followers : It is a rare ability. A leader must always try to

induce and inspire his subordinates. He may have all personal qualities like charm and appeal that may encourage the people to do what the leader wants.

(iv) Style of leadership : The manner in which the leader adopts his

capabilities to suit the situation conducive to goal realisation.

Leadership is an important aspect of managing. This ability varies from individual to Individual that all depends upon the leader's explicit and implicit pattern of behaviour of influencing his subordinates. Considerable amount of research has been done on this aspect. It is difficult to summarise the whole quantum of theory in this chapter. However a brief attempt is made to identify some major theories which form the base for different leadership styles.

TRAIT THEORY

This theory derives this belief from the philosophy of ancient Greeks and Romans that leaders are born and not made. But the acknowledged leaders like Napolean, Hitler, Lincoln, Ceasar, Kennedy, Mahatma Gandhi, Martin Luther King have no uniform intellectual. social, physical and psychological characteristics. To prove the concept of trait theory as valid, one has to identify specific characteristics that all leaders possess. To sum up, Stogdil has identified some of the important traits as follows:

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a) Physical traits (appearance, energy, height etc.)

b) Intelligence traits (understanding, comprehending, decision making etc.)

c) Personality traits (adjustability, aggressiveness, enthusiasm, will power, self confidence etc.)

d) Task related traits (initiative, perseverance, achievement, etc.)

e) Social traits (co-operation, Interpersonal relationship, group cohesion etc.)

In addition to the above traits some more characteristics like ambition, honesty, creativity and charisma have been identified as key traits. It is true that all leaders need not possess all the traits. And sometimes even non-leaders may possess either most or all of them. The trait approach to leadership has been blessed with the following limitations.

1) It neglects the needs of the followers.

2) It fails to recognise the relative importance of various traits under changing conditions.

3) It doesnot separate the cause and the effect (whether leaders invariably possess self-confidence or success makes the leaders to build confidence).

Different authors have propounded different theories explaining the leadership behaviour and styles. The following section details the various styles of leadership.

STYLES OF LEADERSHIP

For the purpose of easy understanding, leadership styles may be conveniently studied as follows:

(a) Styles based on the use of authority

(b) Styles based on behaviour

(c) Other miscellaneous styles

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Each of these styles is explained below :

Styles based on the use of authority

Depending upon how a leader uses his authority one can identify three basic styles. (i) autocratic, (ii) democratic/participative, and (iii) free-rein type.

(i) Autocratic leader believes in power. He passes orders unilaterally and expects ready compliance. He believes that he is able to control people through rewards and punishment.

(ii) Democratic leader believes in sharing Ideas and opinions. He consults subordinates In the process of decision making. He encourages two-way communication and participation of subordinates in all types of decisions.

(iii) Free-rein leadership is no leadership at all. The leader uses no or little power. He gives complete freedom to subordinates. People are encouraged to set their goals and means of achieving them. They are given high degree of independence in manning their operations.

Real time situations vary from company to company and from manager to manager. There is no single uniform style of managing people in organisations. A manager may be autocratic at one instance (enforcing the rule regarding safety devices) and democratic at the other (consulting the followers regarding change of time at work schedule).

Styles baaed on behaviour

Circumstances change constantly creating new situations and challenges. The behaviour of the leader is moulded by the changing patterns of group attitudes and experiences. Different dimensions of a leader's behaviour have been thoroughly probed through Ohio studies.

According to these studies a leader's behaviour is influenced by two aspects initiating structure and consideration.

(i) Initiating structure and consideration

Initiating structure refers to the extent to which a leader defines and organises his own role as well as the roles of his subordinates. It spells out the task behaviour of a leader. On the other hand consideration refers to the degree by which the leader's behaviour is characterised by mutual trust, respect for

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subordinates and regard for their feeling. It indicates relationship behaviour. As initiating structure and consideration are two distinct features, existence of one does not; mean the absence of the other. Actual behaviour of a leader in a given situation may consist of, combination of these two aspects. The following diagram (A) gives the gist of the findings of the Ohio state studies on leadership:

The above four quadrants have been representing various combination of task and relationship behaviour that a leader can exhibit at a particular point of time. Actual behaviour varies among these four alternative combinations depending upon the situation.

(ii) Managerial Grid

Robbert R. Black and James S. Mouton have developed five different styles of leadership through this concept of Managerial Grid. This concept has been exclusively used for training the managers through enabling them by identifying the various skills of leadership styles. This concept has been mainly based upon two important factors - (a) concern for production (Task orientation) and (b) concern for people (Relationship orientation). The essence of this theory is presented in the following diagram (B).

In the diagram, concern for production is shown on the horizontal axis and concern for people is identified on the verticle axis. The scale recorded varies from 1-9. It indicates that the concern for production/people becomes more important to the leader as his ranking advances from 1-9 gradually. The five styles of leadership are briefly explained in the following lines.

(a) Impoverished (1-1)

As the rating indicates, this styles involves little concern for both people and production. Leaders under this style have minimum Involvement in their jobs and mostly act as messengers, passing information from supervisor to subordinates.

(b) Country-club (1-9)

A sort of informal environment is .created wherein everyone can coordinate the effort and accomplish the objectives in a relaxed and friendly atmosphere which is putting emphasis more on the needs of the people, bothering little about production.

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Diagram (A)

OHIO STUDIES : LEADERSHIP

HIGH

HIGH CONSIDERATION

AND

LOW

STRUCTRUE

HIGH CONSIDERATION

AND

HIGH

STRUCTRUE

LOW CONSIDERATION

AND

LOW

STRUCTRUE

LOW CONSIDERATION

AND

HIGH

STRUCTRUE

LOW INITIATING STRUCTURE (TASK BEHAVIOUR) HIGH

CONSID

ERATIO

N (RELATIO

NSHIP

BEHAVIO

UR)

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5-5 MIDDLE ROAD

Diagram (B)

MA�AGERIAL GRID

1-9

COUNTRY CLUB

9-9

TEAM

IMPOVERISHED

1-1

TASK

9-1

0 1 2 3 4 5 6 7 8 9

CONCERN FOR PRODUCTION (HIGH)

(c) Task

It is another extreme style of leadership commonly referred to as Autocratic Style. Here leaders are concerned only with developing efficient operations by arranging a tight structure and conditions of work. They have little or no concern for people.

CONCERN FOR PEOPLE (HIG

H)

1 2 3

4

5 6 7 8

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(d) Team

It is also an extreme style of leadership. Here, the leaders display a rare quality or ability inter-wooven with the production needs of the enterprise with the needs of the Individuals. In other words, these leaders believe that the highest concern for production as well as people alone can accomplish the organisational objectives.

(e) Middle of the Road (5-5)

In reality, a leader may fall under any one of the above four styles. Sometimes, he may have a typical style which can be placed somewhere on the grid. Some leaders may have maximum concern for production as well as for people. They set the objectives at moderate levels considering the feelings of the people. Adequate level of production and satisfaction can be reaped through this style.

The Managerial Grid is a useful tool for identifying different leadership styles. The answer to the question what kind of leader he is depends upon the personality, characteristics, enterprising ability, environment and other situations.

(iii) Tri-dimensional leadership style

While the managerial grid and Ohio State studies have based upon two factors - Task oriented and relationship oriented for explaining the styles of leadership. Prof.W.J.Reddin has suggested effectiveness as the third factor in deciding the style of leadership. The term 'effectiveness' refers to how the leader's personality interrelated with the situation to which he is subjected to-operate his activities. In this Tri-dimensional leadership style theory, how effective or ineffective are the leaders in a given situation can be understood very easily. When one's style is appropriate to a given situation, he is termed as effective and vice-versa.

The basic styles are integrated with the concept of effectiveness and/or summarised below:

a) High task and low relationship behaviour is termed as "dedicated" style.

b) High task and high relationship is viewed as "Integrated" style.

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c) Low task and high relationship behaviour Is considered as related style; and

d) Low task and low relationship behaviour Is known as "separated style".

Depending upon the effectiveness or ineffectiveness of the leader in a given situation, 3-D style identifies the following real time challenging situations.

Basic styles Effective styles Ineffective styles

a) Dedicated Benevolent Autocrat Autocrat

b) Integrated Executive Compromiser

c) Related Developer Missionary

d) Separated Bureaucrat Deserter

(C) Other styles

None can succeed in explaining the best style of leadership because it depends upon various factors. No leader can be rigid or free all the time. He has to adopt different behaviour in different situations- Since all the existing theories have been proved to be inadequate, the situation is set for the development of contingency theories.

Some of the important contingency theories have been explained in the following paragraphs.

1) Fielder's Contingency Model

Fred E. Fielder and his associates of the University of Illinois have suggested a contingency approach to leadership. According to this approach, people become leaders not only by virtue of their personality attributes but also by virtue of various situational factors including leader's ability to interact with group members. This theory holds that three major situational factors determine the success or otherwiseness of a given leader. They are:

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(a) Position power

This indicates the degree of power of a position which permits a leader to secure group members' compliance with his direction. In other words, a leader with clear position in power can obtain good followership more easily.

(b) Task-structure

Here, the leader's success depends upon how clearly he spells and sells assigned tasks through his people so that subordinates are made more responsible and accountable for their performance.

(c) Leader-members relationships

This is the most important dimension. While the power of a position and task structure are largely under the control of an organisation, developing effective relationships depends upon the liking and willingness on the part of subordinates to a given leader.

To sum up, a particular situation appears to be most favourable to the leader when he is liked by his followers, when he gives clear-cut direction about the job, and when he is blessed with appropriate position.

On the other hand, the situation becomes unfavourable to the leader when he is disliked, faces vague and unstructural jobs and has little power. Fielder's research has proved that task-oriented leaders would be more effective under "unfavourable" or "favourable" situations. In contrast, relationships oriented leaders tend to exhibit better performance under situations that are moderately suitable to leaders.

(2) Path-Goal theory of Leadership

This theory is based upon the findings of various motivational as well as leadership theories already proposed by various authors. Robbert House, who suggested the "Path Goal Theory", believes that the main function of a leader is to (a) clarify and set goals; (b) help subordinates find the best way for achieving the set-goals; and (c) remove obstacles, if any.

This theory is not suggesting any particular style. On the other hand, ft is only suggesting the applicability of a relevant leadership style under different situations. The success of a leader depends upon how well h& can set the goals for his subordinates and help them in attaining the same with minimum

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difficulty. Well established Path-Goal relationship leads to high rate of success through greater satisfaction among subordinates. When jobs are unclear and difficult to achieve, subordinates are frustrated. They look forward for directions from the leader. The key to this approach is that the leader can influence the paths via behaviour in goals.

(3) Leadership Continuum

Real time leadership styles vary between the two extreme varieties Authoritarian and Democratic. Evolving different styles suitable to different situations has been well explained by Robbert Tannenbaum and Warren H.Schmidt through "Leadership Continuum Model". This model suggests a range of styles that can be adopted to different situations. According to this theory, leadership effectiveness is the function of the leader, the follower and the situational variables. As per this theory, the following are the most important elements that may influence a leader's style.

a) Forces operating in the leader's personality such as confidence, judgement, value systems, feeling of security, preference to a particular style etc.,

b) Forces operating in subordinates including their knowledge, experience, tolerance, willingness to accept responsibility etc.

c) Forces of a given situation: The work situation is made up of a number of forces like team spirit, pressure of time, behaviour of workers during emergency situations. They also exert lot of pressures on leaders.

d) Forces of the organisational environment: Elements like planning, organising, directing and controlling have a definite influence on the organisational environment. They also influence the subordinate's motives, expectations, rewards and relationships.

e) Influence of the social environment via Labour Unions. Government Regulations. Consumer Courts and other outside parties may significantly affect the leader's behaviour.

Function of Leadership style

Whatever might be the style, every leader has to perform some functions. Since leadership is the process of Influencing people, it has to perform multi-

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dimensional functions in obtaining the willing contributions of the subordinates. Some of the significant functions of leadership are briefly explained below:

1) Planning and organsing the organisational activities In a desired manner.

2) Influencing the subordinates to accomplish the goals through reward and punishment.

3) Motivating and directing the subordinates to better levels of performance through proper guidance from time to time.

4) Understanding the subordinates' expectations and aspirations and obtaining their willing cooperation in the realisation of organisational goals.

5) Remove ambiguities and issue clarifications In order to make them more responsible on the job.

6) Creating a favourable organisational climate so as to retain and develop human resource.

7) Understanding the macro economic influence over the organisation and steer the Company on the path of success.

CO�CLUSIO�

There is no one best way of leading the people. Various theories propounded by eminent authors have only suggested the varieties of ways that are available for leaders in different situations. One has to grasp the knowledge to understand the total theory on the subject. Every leader has to adopt his own style depending upon the situation. How the leader Influences the people Is not important. What Is Important is how a leader helps subordinates in accomplishing organisational as well as personal goals.

REVIEW QUESTIO�S

1) What is Direction? Explain the scope and role of the direction function in modem organisations?

2) What arc-the principles of direction? Comment on the various aspects relating to the direction function.

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3) Define the concept of Leadership. Mention some of the important qualities of a good leader.

4) Comment on the five main Leadership positions depicted in managerial grid’. Which one would you advocate?

CASE STUDY 1

Problem of Leadership at the Top

The Board of Directors of Ferrow Alloys Company has been searching for a right person to become president of its 'Metals Division'. The Board of Directors has appointed a "Search Committee" to look after this issue. Since the search committee has failed to locate a proper person for this post, it has asked the Directors to recommend the name of any known person with suitable background. At last, the Board has received the nomination of Mr. Stanley, a nephew of Mr. Joseph, the largest shareholder in the Company. The search Committee has decided to recommend Mr. Stanley's name for presidentship. They have accepted this proposal and Mr. Stanley was made president. In his first meeting with his executives, he put his mind like this....

"Let us work together in improving the efficiency of the operations. Each one of you will be given an opportunity to comment on the standards that will be set for you; it would be nice, if you could think individually. It I would be too nice, if you could think the point from the group's perspective. Let us stand unitedly and surpass the old records. The success of this Company will depend upon the ability of leadership and willingness on the part of employees in carrying out the decisions.

I solicit your support from all angles".

QUESTIO�S

1) What do you think of Mr. Stanley's leadership style?

2) Describe Mr. Stanley's perception of the best leadership styles using the 'Situational Theory of Leadership"?

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CASE STUDY 2

Choice of a Leader

Mr. Rajesh is the Managing Director of a Paints Manufacturing Company. To increase sales, the Board of Directors wanted to start a full-fledged marketing department. Mr. Rajesh is entrusted with the task of finding a suitable candidate to head the proposed marketing department. After considering a number of candidates, he has narrowed down his choice to two persons: Venkat and Rajesh.

Mr. Venkat has an excellent trackrecord in the company. During his fruitful association with the company, to be precise, ten years, he has always shown a high degree of enthusiasm and Initiative in his work. He is still young (35 years) dynamic and aggressive. He is result-oriented and is, naturally, more interested in ends rather than means. One of the workers, testifying his leadership qualities, remarked thus: "Though he is harsh at times, you will know where you stand when you work with him. When you have done a good job, he lets you know it". Mr. Venkat is willing to shoulder additional responsibilities. He decides things quickly and when action is required, he is 'always on his toes'.

During his 15 years tenure in the Company, Mr. Rajesh has endeared himself to all his colleagues by his superior workmanship and pleasing manners. He always believes in the principle of employee participation in the decision making process. Unlike Mr. Venkat, he encourages his subordinates to come out with innovative ideas and useful suggestions. Before arriving at a decision he always makes it a point to consult his subordinates. Not surprisingly, all his subordinates are very pleased to work under him and. praise his leadership qualities. Company records also bear evidence for the Increase In the production soon after Rajesh became the head of his department.

QUESTIO�S

1) Analyse the leadership qualities and styles of Mr. Venkat and Mr. Rajesh.

2) Between the two people, whom would you recommend for the position of a marketing manager.

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U�IT – V

Lesson - 17

CO�TROL

I�TRODUCTIO�

Controlling is an important element of management process. It is mainly concerned with measurement and correction of performance in order to attain pre-determined goals. Planning and controlling are closely inter-connected with each other. Plans cannot be carried out automatically. The managers have to regulate the activities, review the progress and steer the operations to conform to plan. Hence, control is concerned with the attainment of organisational objectives through regulating Individual performance. It is not an exaggeration to state that the success or failure of any organisation depends upon the control process. It touches every facet of the managerial activity.

Control process in the organisation can be compared with that of a thermostat which regulates the room temperature. Controlling is the function of every manager. It Is mainly concerned with the execution of plans in a desired way so as to obtain better results, in the words of Henry Fayol: “Control consists in verifying whether everything occurs in conformity with the plans adopted, the instructions received and principles established”. Its object is to point out weaknesses in order to rectify them and prevent recurrence". In a way, it is acting as a facilitating function.

Definition

According to EFL Brech. "Control is checking performance against pre-determined standards contained in the plans with a view to ensure adequate progress and satisfactory performance". As per this definition, control guides actions towards some pre-determined goals.

In the words of George R. Terry, "Controlling Is determining what is being accomplished, that is evaluating the performance takes place according to plans". This definition emphasised the fact that the managerial activity of controlling compels the events to conform to plans through appropriate corrective measures.

To understand the real meaning of control, the definition given by T. Halman is useful. To him, "Control is the process of checking to determine

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whether or not plans are being adhered to, whether or not proper progress is being made towards the objectives and goals and acting if necessary, to correct any deviations". This definition summarises the purpose of control. As per this definition, control involves measurement of performance against standards set for the purpose of initiating corrective action. The above definitions give rise to the following characteristics for control concept.

Last Function of Management

Control follows other managerial functions like planning, staffing, organisation and directing. Hence, it is considered as the last function.

All Pervasive

Control ensures consistency in action in a desired way; Control affects other managerial functions and. In turn, affected by them. Hence, it is termed as all pervasive.

Continuous Process

There is a wrong notion that control is needed when something is going wrong. It is a dynamic process of measuring, checking and regulating the managerial activities in an un-interrupted manner. As the process of management is incomplete without controlling, controlling is considered, as an unending process.

Forward Looking

Past activities can neither be Improved nor controlled. Control does not only deal with the "post-mortem of what has happened but also regulates the activities for improved performance in the near future. Thus, control is looking at future through the eyes of the past.

Objectivity

Control is not an end in itself. It is only a means for accomplishing pre-determined objectives. Control without objective lacks sense and proves to be unworthy of its existence.

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Delegation

Control becomes meaningless without proper: authority. When authority is delegated, control compels the delegator to discharge his duties in a proper way.

Feed back

It refers to efficient system of reporting back for effective control. Continuous monitoring and review of operations are essential for effective control in any organisation.

Information

Information is key to success. Control depends upon the information regarding the actual performance. Accurate and timely availability of feedback is the basis for the success of control

Planning Vs Control

There is a close relationship between planning and control. These two are supplement to each other. While planning is looking ahead, control makes use of standards for improving future on the basis of the past experience.

BASIC CO�TROL PROCESS

The basic control process involves three steps: (i) Establishing standards; (ii) Measuring performance; and (iii) Compare the results with standards and correcting deviations. The details of these three steps are given below.

Establishment of Standards

The term standard refers to 'norm’ or some criteria of, performance. Standards are either qualitative or quantitative goals to be' attained. To illustrate some of the standards, we may consider the following verifiable goals, performance, productivity, profitability, etc., are the best examples of quantitative standards. Innovations, social responsibility and morale are the examples of qualitative standard. The management may establish standards on the basis of past experience. These standards are helpful to management either for measuring the performance or Judging the success or failure of the organisation.

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Measurement of Performance

It is essentially a comparison process wherein the actuals are measured against standards for the purpose of detecting the deviations but measurement is not always practicable. Yet, a forward looking manager has to work it out to prevent reoccurrence of mistake committed by the management The purpose of the measurement of performance is to alert the management about the probable departures from the established path appropriate actions.

Correction of Deviation

Control does not end with the measurement of performance and its comparison with standards. Appropriate corrective action is to be taken on the basis of feedback obtained. Taking corrective action seems to be more appropriate while the work is in progress. When the actuals differ from that of standards, reasons for such variances are analysed to identify the root causes.

Once reasons are known, it is easy to take corrective action at an appropriate time. For this purpose, the management needs control information.

FIGURE

CO�TROL PROCESS

The basic control process is shown in above figure. It illustrates that the desired performance in the form of standards are laid down from plans. Actual performance is the result of management operations like Organising, Staffing & Directing. Measurement and comparison of actual performance gives rise to

STANDARDS OPERATIONS ACTUALS

CORRECTIVE ACTION FEED - BACK

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identification of deviations. Corrective action is initiated on the basis of analysis of causes for the occurrence of deviations. All appropriate measures must be launched to correct deviations which form the basis of future desired performance.

That is why effective control system should try to overcome the weaknesses of traditional feedback system of getting communication to be modified as feed forward system. The main difference between these two systems lies with the flow of information, while Information to the end product of feedback, it to the Input of the control system in feed forward tie. It to an innovative way of monitoring real time information to adopt the functioning of the organisation to suit the dynamic conditions.

Feedback Control

The term 'Feedback' refers to tile process of adjusting future actions on the basis of information about post performance. It to vital to the management because it guides corrective actions. A good control system always depends upon effective feedback of information. But feedback always consumes time. Management control cannot be instantaneous because of this time lag. The traditional view la that planning to a forward looking exercise, controlling is a backward looking exercise. But a good control system should be futuristic. That to why Harrold Koontz observed that: since past can not be changed, effective control should be aimed at preventing present and future deviations from plans. The present age of computerisation comes handy to obtaining feedback on a real time baste. It means that it inculcates "act now" philosophy in control process.

Importance of Control

The importance of control in an organisation need not be over emphasized. Many benefits accrue out of effective control system. To highlight the importance of control, the benefits of control are summarised in the following paragraphs.

Facilitate Decision Making

The purpose of control is to take corrective actions. Corrective measures involve right decisions so as to bring the actual performance to that of a desired level. Majority of the executive decisions are centering around control points. Hence, control facilitates decision making process in. any organisation,

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Checks on Delegated Authority

No single manager can obtain the total things in the organisation. He has to delegate authority for the purpose of getting things done through his subordinates. Control enables the manager to check whether or not the delegated authority is being properly used by the subordinates.

Basis for Future Action

Through the evaluation of final results control helps in spotting mistakes and weaknesses in the process of implementation of plans. Control supplies useful information for future planning and organizing. A good control system enables the manager to correct the shortcomings in order to pave a smooth route for future activities. Such a system of control guides and directs action towards the organisational objectives.

Improves Employees Morale

Effective control system enables the management to identify changes that are effecting the organisation so that subordinates can take advance action to cope-up with threats and opportunities created by such change. It allows timely feedback of information to the subordinates for taking appropriate measures to protect their positions. This ensures a sense of security and comfort among employees which in turn, contributes to higher degree Of motivation and morale.

Promotes Efficiency in Operations

Control enables the manager to take note of the activities, to detect deviations arid to make adjustments in operations. It ensures him that the enterprise moves in a way as planned. It tells the manager whether the objectives are being achieved or riot. If not, it helps the manager to revise the plans for achieving goals. Thus control contributes to organisational efficiency.

Basic of Co-ordination

Control tells the managers what to do and what not to do for the purpose of establishing harmony among various divisions. Control provides unity of direction and tries to establish equilibrium between means and ends. Thus control promotes co- ordination between different units of the organisation.

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Exerts Psychological Pressures

Control influences the behaviour of the employees in a positive way. Workers become cautious in their duties because their performance is subject to evaluation and control. A good control system brings necessary pressure on the employees to become good doers. Not only that control makes the people to act promptly for minimising the wastages and losses.

Limitations of control

Establishing a control system it self is not a panacea for all the Ills of organisation.

Absence of Proper Standards

The success of an organisation depends upon both tangible and intangible factors. While tangible factors are easily controllable, Intangible aspects like quality of supervision, inter personal relationships, public relations, brand loyalty etc., cannot be quantified for establishing standards.

Limitations of Corrective Action

Operating conditions of a business are highly dynamic and volatile. It is not possible to take corrective actions all the time. No business enterprise would have incurred losses had the corrective action been proved to be corrective or productive. It means that there are several limitations in taking corrective actions.

Human Reaction

Controls Invite opposition from the subordinates because they interfere in their freedom. Controls will not work unless people accept them. People oppose controls when they are biased, unreliable and subjective.

Coat of Control

Establishing a good control system is not so easy. It needs elaborate effort, time and money. In modem organisations where man-machine systems go hand in hand, establishing a control system is a complicated process. This may result in excessive cost than the benefits of control.

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Pre-requisites of Control

An effective and adequate system of controlling must fulfil the following requisites.

Plan

There is a close inter-relationship between planning and controlling. They are not substitutes but supplement to each other. Plans without control are worthless and control without plans are meaningless. Controls must be always based on plans.

Proper Organisation Structure

Any control process yields good results only when the responsibility for detecting the deviations and initiating corrective actions is clearly defined and identified along the lines of hierarchy throughout the organisation. Controls, to be effective, must be supported by a good organisational structure.

Suitability

A sound control system must suit the needs of the enterprise. Control points designed for a manager are Inappropriate for a supervisor. Controls must be tailored to the needs of an organisation.

Promptness

A good control system should detect and report the mistakes before the matter becomes serious. It should allow prompt action by the management at correct time.

Forward Looking

Controls should be forward looking character. They should be directed towards future. Since past to dead things can be improved through control system In future control becomes useless if it falls to predict future.

Flexibility

Control should not be static. They should remain workable under dynamic business conditions. Since controlling is a continuous activity, it should be flexible enough to be adopted to changing conditions of an organisation.

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Objectivity

As far as possible, control should serve a specific purpose. They should develop impartial standards for the purpose of minimising friction.

Economical

The benefits from control should be greater than cost. Controls are feasible and desirable when their expected benefits exceed costs. Expensive and Inappropriate control should be avoided.

Simple

A good control system should be easy to understand and simple to administer. Too elaborate and complicated control system, quite often, fells to deliver the goods.

Acceptable

Controls will not work unless people accept the same. They should be acceptable to those to whom they are applicable. Since control is for people, it must be acceptable to the people.

Integrated Control System

Control touches each and every activity of the organisation. Whether the activities are strategic or routine, the control should strive to obtain effectiveness. Control covers all levels of managers from top to bottom. They affect other managerial functions in a great way. But some controls may be disliked by subordinates on the pica that they are unreasonable and unacceptable. This type of dislike among employees about control process should be removed by creating a favourable environment. Lest, the effectiveness of control is destroyed through the resistance of employees. To overcome the above difficulties and to obtain cooperation and participation of employees in the matters of control, the management has to develop an integrated system of control. Any control that is Intimately interconnected and intertwined with other managerial functions is termed as an Integrated Control System. It is of vital Importance to modern management in view of their operation in complex environment. The details of such an integrated system are summarised below:

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Control and Planning

Since control refers to the use of activity for compelling events to conform to plans. It is evident that these two functions arc inter-related. Planning, involves setting the activities and controlling keeps them on the right track. Planning is meaningless without control and control is blind without proper plans. The planning function contributes to the smooth discharge of control by way of providing control standards through programs and budgets. Control function contributes to the adoption of new and revised plans.

Control and Organising

The term organising refers to a formal grouping of activities for the purpose of achieving organisational objectives. It ensures that objectives are achieved through optimum utilisation of resources in an orderly manner and that too in the shortest possible time. Resources like money, material, machinery and skilled manpower are limited. These resources must be effectively used and controlled. It may no longer be possible for one man to control all the operations. That is why it is necessary to delegate some responsibility and authority to the subordinates. Control becomes easy when authority is delegated. Control receives negative response and becomes Ineffective when authority is centralised. Not only that effectiveness of control directly depends upon the method of grouping of activities and level of delegation of authority.

Control and Directing

It is the heart of administration. Since it tells the people what to do how to do, Where to do and when to do. Activities like leadership and communication play an important rote in influencing the behaviour of subordinates in securing desired performance. This aspect is closely related with control function. While leadership guides action, control compels these actions to adhere plans. Communication ensures free flow of timely and relevant Information. Control uses this Information as a feedback for taking corrective action. Information is backbone for regulating the activities in any organisation.

CO�CLUSIO�

In order to make the control process as an effective tool in the hands management, it should be integrated with other managerial functions. All Important and critical aspects should be brought under the purview of control process for obtaining better results. Control should not be isolated from the main

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stream of managerial functions. Control function becomes effective when it is Integrated with other managerial functions. Control is not a perfect substitute for sound managerial practices and cannot ensure business success on its own merit. For obtaining results, the management has to develop an integrated approach.

REVIEW QUESTIO�S

1. What is control? Discuss the basic steps in the control process.

2. "Planning is looking ahead and control is looking back" Comment.

3. Discuss the nature and characteristics of control process.

4. Examine the 'Pros and Cons' of Controlling.

5. Briefly explain the basic requirements of a good control system.

6. Explain the need for integrated control system in modem business organisations.

CASE STUDY (1)

The Chairman of the Reliance Finance Corporation Mr. Aditya was too critical about the on going things of the company. He invited his Executive Vice-president Mr. George and Controller of Finance Mr. Merchant for discussions. While all of them were in deliberations, Mr. Aditya complained that he was not informed about the Inner details of the operations of the company on time and he was getting information only when small and controllable issues become crises. Mr. Aditya was under the impression that he was kept in dark by his team of executives and was further isolated by non-receipt of important Information. He suggested to his senior executives to design a system within 15 days which can inform everything to him in time. But Mr. George Is surprised to hear the comments of his Boss Mr.Aditya. After the closure of the meeting Mr.George wondered: "While everything lies in the periodical reports submitted by him to the Chairman, why still he is craving for a system?".

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QUESTIO�S

(1) Whether the Chairman was getting needy information or not?

(2) If you are Mr.George what you would do to keep the Chairman happy through effective control?

CASE STUDY (2)

HI�DUSTA� CORPORATIO�

Hindustan Corporation is a leading consumer product manufacturing concern. It is a multi-product and multi-unit organisation. Though its products are enjoying good brand loyalty, the entry of competitive products from 'Asian Tigers' (Countries like Thailand, Taiwan, Singapore etc.) has caused alarming situation. The Chairman and Managing Director of the Hindustan Corporation Mr. Abhlman reviewed the situation and came to the conclusion that the company can withstand the pressures of close competition only when its scare resources are optimally used with effective cost control. Mr. Abhiman summoned all of his plant Managers and informed about the precarious situation. He further ordered each one of them to install an effective control system within 10 days. The Plant Manager, in turn, called the Asst. Manager and passed on the order to him. The Asst. Manager then assigned the task to his Foreman to attend the same.

After 10 days, the Foreman informed to the Asst. Manager that he could not find a control system suitable to the company's need despite his review of current literature from reputed journals.

QUESTIO�S

(1) Do you think that the Foreman should have worked little hard in tracing a suitable system of control through books and journals?

(2) Suggest ways and means open for developing effective control system?

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U�IT - V

Lesson - 18

COORDI�ATIO�

Harmonious relationships between the various divisions and departments of an organisation is a must for its smooth functioning. The activities of the various divisions have to he blended and unified so as to give them a commonness of the purpose. Hitherto, the concept coordination was viewed as one of the functions of management. Now, it is regarded as the essence of the management process. It helps in achieving harmony among individual efforts towards the accomplishment of group goals. Group goals can not be achieved automatically. Individual efforts must be integrated and synchronized in order to attain common objectives. It is a dynamic concept. It implies an orderly arrangement of group efforts to ensure unity of action. According to Henry Fayol. “to co-ordinate is to harmonize all the activities of a concern so as to facilitate its functioning on the path of success. Probably in smaller organisation, there is no need for coordination where all activities are performed by one person. With the increasing growth and complexity of modern organisations, the need for coordination becomes Inevitable. Lack of proper coordination results in inefficient operations, delays, frustrated feelings and waste of time.

Meaning

According to E. F. L. Brech. "Coordination is balancing and keeping together the team by ensuring suitable allocation of task to the various members and seeing that tasks are performed with due harmony among the members themselves."

According to Me Farland, "Coordination is the process whereby an executive develops an orderly pattern of group efforts and secures unity of action in the pursuit of common purpose." This definition views coordination as the task of-integrating the individual needs with that of the organizational goals through proper linking.

Characteristics

The above observations reveal the following features of coordination.

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• Coordination is not a distinct function. But, represents the essence of management.

• The outcome of the coordination is to attain the common purpose.

• Coordination is essential in all work situations where people work together.

• Coordination is a continuous and an on going process.

• Coordination does not arise spontaneously or by force. It is the result of concerted action.

• Coordination is required in group efforts but not in individual efforts.

�eed for Coordination

Existence of disintegrating forces emphasises the need for greater coordination among various divisions of an enterprise. These disintegrating forces may act as barriers to effective coordination. They are summarized below:

Increasing Specialisation

Coordination becomes essential when the principle of specialisation has been practised in work situation. The activities of the unit may be divided on the basis of product, function, region or some other form. The greater the number of units, the larger the number of specialisations. Every executive is mostly worried about his unit's performance. It results In conflicting Interests within the same organisation. A good coordination paves the way for effective integration of efforts of all people for the accomplishment of a common goal.

Empire building motive

As stated above, each executive is deeply motivated by the performance of his own unit in question. This kind of attitude may well fulfil his personal ego but isolates him from others. Organisational goals can not be accomplished with this kind of tendency. Coordination is essential to ease out this situation.

Personal conflicts between employees

Employees are human beings. Personal rivalries, jealousies and politics in the work situation are bound to create problems to the management. For

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example, conflicts between line and staff and differences between production and sales personnel create problems in the smooth functioning of an organisation. Coordination helps in harmonizing group efforts.

Subordination of individual interest to that of organisational interest

Individual interests are Important for developing loyalty, Integrity, hard work, Initiation and motivation. Organisational Interests are much more important than individual interests. For achieving this, subordination of Individual needs to that of organisational goals is a must. The purpose of coordination is to attain this desired end.

The importance of coordination need not be over emphasised. The primary task of management is to coordinate effectively all the activities. It is the end result of managerial process. It is a creative force through which members of the organisation are encouraged to contribute to group goals voluntarily, willingly and enthusiastically. It emphasizes system's approach to management. The various functions of management can not be viewed in Isolation, but has to be viewed in totality. Coordination allows personal satisfaction on one hand and social satisfaction on the other hand. It, thus, promotes efficiency and tones up the general level of employee morale.

Types of Coordination

Depending upon the nature and coverage, coordination may be studied under different types. On the basis of its coverage, coordination may be divided into two types, such as, internal and external. Another type of classification is possible on the basis of its flow under two headings, mainly, vertical and horizontal coordination.

Internal and External Coordination

Coordination between units of the same organisation is termed as internal coordination. It summarises the activities of different units so as to make the organisation store effective. Organisations are not free from the influence of eternal environment. Hence, establishing a close link between organisations and external environment is a must either to survive or surpass the growing competition. External environment includes technology, competition, market forces, customers, Government policy etc.. External co-ordination tries to coordinate all these forces upto the advantage of an organisation.

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Vertical and Horizontal Coordination

Coordination between different levels of hierarchy down the line is termed as "vertical coordination". It ensures that all levels of people, from top to the bottom, work in harmony. It is greatly facilitated by a technique like delegation of authority to the lower levels of hierarchy. Coordination between people of the same cadre and between different departments at the same level is termed as "Horizontal Coordination".

Another classification depending upon its content views co-ordination from a different angle.

Procedural and Substantive Coordination

Procedural coordination implies the specifications of different units in the same organisation. On the other hand, substantive coordination is concerned with the content of organisational activities.

Principle of Coordination

Mary Parker Follet has laid down the following four principles for effective coordination. These principles help every manager in discharging his functions.

• Early Start

Thinking function of the management precedes the doing function. The task of coordination becomes relatively easy if it starts at the planning stage. Free exchange of ideas helps in clearing doubts and remove misunderstanding. Hence, plans must be prepared in consultation with all people. Plans become successful if coordination is practised at initial stage. Securing coordination becomes impossible at later stages like execution of work.

• Direct Personal Contact

It stresses the importance of direct contact in removing conflicts and misunderstanding. Effective coordination is best achieved through direct personal contact. Direct communication is the most effective way to convey real feelings to facilitate greater coordination.

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• Continuity

Coordination is an unending process. It cannot be left to chance. The management has to continuously strive hard to maintain perfect balance among different units/people. Continuous coordination helps the manager in adjusting and re- adjusting the range of activities so as to minimise wastages, misunderstanding and apathy.

• Integration

The fourth principle of coordination calls for integration of efforts for achieving a common purpose. For this purpose, coordination demands reciprocal relationship among all the concerned.

• Independence and Coordination

Coordination influences all functional activities of management. In a similar way, all other activities influence coordination. This is termed as "Interdependence". Such as “interdependence” is imperative for the success of any organisation. Such interdependence of work units has been categorically classified under three heads by James D Thompson. They are

(a) Pooled interdependence;

(b) Sequential interdependence; and

(c) Reciprocal interdependence.

(a) Pooled Interdependence

When departments/units/divisions are not directly dependent on each other, but indirectly responsible for over all performance of the enterprise, it is termed as "Pooled interdependence". It represents a situation where failure of one unit/division leads to the failure of the entire enterprise. Each unit/department makes its own contribution and supports the main system in its own way,

(b) Sequential interdependence

It refers to a situation where the output of one department become the input of the other. This type of interdependence usually exists in process industry.

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(c) Reciprocal Interdependence

It refers to two way interdependence. Here, the output of one becomes input of the other and vice a versa.

Approaches for Achieving Effective Coordination

Different organisations adopt different mechanisms for achieving effective coordination. There is no single method of coordinating the managerial activities that can be universally acceptable. J.D. Thomson has identified three important categories of approaches for achieving effective coordination. All of them are Integrative mechanisms. Each one of them is explained below.

1. Integration through standardization: It involves the development of standard rules and procedures through which the job holders/ departments have to direct their activities in order to ensure consistency in operations.

2. Plans and Schedules: Separate plans and schedules may be prepared for each departments or units. At corporate level, all plans are merged and integrated so as to obtain optimum results. Coordination becomes easy since departmental plans are flexible than standards.

3. Mutual adjustments: Activities of company are coordinated through mutual adjustments among the sister units/departments on contingency basis. Here cooperation is assured between the needy units for the purpose of getting the things done.

In traditional organisations coordination is sought to be achieved through standardisation and planning. The usual methods followed by the traditional and bureaucratic organisations for achieving effective coordination are listed below,

1. Developing elaborate system of rules and procedure for sorting out recurring problems.

2. Non-routine problems arc to be referred to higher-ups.

3. Where decisions relating to new policy matters have to be taken up, they may be referred to special committees.

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Traditional organisations could able to reap advantages through following the above mechanisms for obtaining higher degree of coordination among sister units. This traditional approach is best suitable to normal and predictable conditions. But this kind of approach is inadequate to meet the requirements of a modern organisation under a dynamic environment. More sophisticated methods have been developed by the researchers for the purpose of improving coordination. John Child suggested the following forms of coordination for improved functioning of the organisations.

1. For understanding business problems and offering solutions, direct contact between managers and employees facilitates greater coordination.

2. While too much rapport is required between employees and departments, better coordination may be obtained through the appointment of liaison officers.

3. While there are inter departmental conflicts which cannot be solved immediately, coordination may be attained through special task forces which would deal special situations.

4. Special committees may be appointed to deal with the recurring problems of inter departmental conflicts.

5. An organisation which is too big with several divisions may find it difficult to coordinate the total range of activities a systematic manner. To ease out this problem, a coordinating department may be created within the organisation on par with other departments to perform this special function.

6. If things are too complicated, matrix type of organisation may be developed for establishing effective coordination- Under this method, functions of some of the personnel may be integrated with the functions of other departments, this kind of arrangement encourages effective understanding between various divisions/departments. This facilitates higher degree of coordination among the member units of organisation.

Van de Ven and others proposed three approaches as basis for coordination. They are summarized below.

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Impersonal mode

This model envisages designing of rules procedures and programmes suitable for smooth functioning of, the organisation.

Personal mode

Here, human beings are encouraged to find out how things are going on and to discriminate what to do and what to do through effective feed back. Personal Involvement surely contributes to effective coordination.

Group mode

When operations are large, a single individual cannot coordinate properly. This model suggests establishment of committees, task forces, meetings etc. The logic behind this approach to that "two brains can think better than one brain."

As stated earlier, no single approach to coordination is proved to be useful to all organisations. The suitability of a particular approach to coordination depends upon factors like size of the organisation, complexity of its work, nature of work force, certainty and uncertainty conditions delegation of authority etc. The process of coordination becomes useful and meaningful only with the delegation of appropriate authority

In order to minimise the problems of over riding departmental interest for the cause of the organisational objective effective coordination is needed. For example, a finance manager may issue's direction that no overtime allowance be paid to workers. At the same time, production manager is worried about realising production target. He may issue another direction that production workers are entitled to overtime allowance. This might have been done in his anxiety to realise production target. This situation results in misunderstanding and conflicts, solution for this type of problem lies with effective coordination among member departments.

Coordination process is essential to make unified whole out of diversified functions on smooth lines. It pervades all the managerial activities from planning to controls. Big organisations are now creating separate departments for coordination among departments. New rules and procedures may be developed to minimise problems like red-tapism overriding goals, blind loyalty and friction.

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Co-ordination Vs Co-operation

The term co-operation refers to collective efforts of people who associate themselves voluntarily to achieve some predetermined objective It indicates about the .willingness of individual to help each other. It is the result of voluntary attitudes of people in organisation. However it cannot be a, substitute, for coordination. While co-operation facilitates coordination, coordination is all inclusive including, cooperation. Coordination involves deliberate effort, on the part of management to bring together the activities of various individuals/divisions/units In order to provide unity of action. Coordination does not arise automatically. It requires conscious efforts, whereas cooperation is the results of voluntary efforts put by file people. Thus this scope of coordination among wider than cooperation.

Summary

The term coordination refers to orderly arrangement of group efforts for the purpose of accomplishment of objectives. It is the basic responsibility of every manager. It is a continuous process. Unlike previously it is not viewed as a distinct activity but considered as the quint essence of management. The problem of coordination comes into picture when management is dealing with group efforts but not with Individual efforts. The term coordination should not be confused with cooperation. The significance of coordination results in efficiency, morale and optimum use of resources. On the basis of scope and coverage, coordination may be divided into different types. Namely internal Vs external, vertical Vs. Horizontal, procedural Vs. substantive. Different techniques are, available for achieving higher degree of coordination. Similarly different managements deal the problem of coordination through different approaches. Whatever the approach, it has to clarify the role, of manager regarding his authority and responsibility, for the purpose of attaining optimum use of resources to the common cause of the organisation.

REVIEW QUESTIO�S

1. "Coordination is the very essence of management" Do you agree? Give reasons.

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2. What is Coordination? Discuss the essential characteristics.

3. Describe the Importance of coordination. Discuss the techniques of achieving effective coordination.

4. Write short notes on the following:

a) Types of Coordination b) Principles of Coordination c) Approaches to Coordination

CASE STUDY (1)

Modern Foods

Modern Foods has been facing the twin problems of productivity and morale at Delhi Plant. A new plant at Kanpur has been set-up by taking all precautions to overcome the problems of Delhi Plant. The work activities together with pay norms have been entrusted to a "coach" instead of to a "supervisor" at Kanpur Plant. At new Plant, workers organised themselves as a ‘team’ and decided what to do, when to do and how to do? This approach facilitates wider span of management and greater clarity in goal pursuit Costs and labour turnover have come down. In fact, Modern Food accepted the new plant as a model unit

After five years, many executives resented this system and they were under the Impression that their authority and expertise were ignored. Competition between teams and team leaders developed and this has created the problem of coordination. Workers felt uncomfortable about deciding pay rates of their fellow-workers. Due to pressure of changing scene, some aspects of the plant system have been changed. Supervision is made stiff and more management positions are created. This created an impression that the management is not happy with the experiments of Kanpur Plant.

QUESTIO�S

1. Why did Modern Foods try a new way of getting things done at Kanpur Plant?

2. Identify the Coordination problems witnessed in this case.

3. Suggest ways of maintaining morale through better coordinated efforts.

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U�IT – VI

LESSON – 19

RECE�T TRE�DS A�D �EW PERSPECTIVES I�

MA�AGEME�T

1. CORE COMPETE�CE

In the 1980s, top executives were assessed on their ability to reorganize their corporations; in the 1990s top executive will be ‘judged on their ability to identify, cultivate, and exploit core competencies that make growth possible.

Core competence is defined by the following three criteria:

1. It provides potential access to a wide variety of markets.

2. It makes a significant contribution to the perceived customer benefit of the end product.

3. It is difficult for competitors to imitate.

Few companies are likely to build world leadership in more than five or six fundamental competencies. In the long run, if the organization is to be competitive in the global market place, it will derive its competitiveness from its ability to bring high – quality, low-cost products to market faster than its competitors. In order to do this, an organization will need to consist of “a portfolio of competencies rather than a portfolio of business”.

Many companies have the technical resources to build competencies but key executives lack the vision to do so. The concept challenges executives to rethink the concept of the corporation itself. If you accept the notion of a company as a set of core competencies, the task of management “is to build competencies and the administrative means for assembling resources spread across multiple business”.

FIRMS ACQUIRE HIGHER DEGREE OF COMPETITIVE ADVA�TAGE

O�LY BY BUILDI�G CORE COMPETE�CES

We have seen in the foregoing sections that firms develop competitive advantage by working with one or more of the various competitive advantage factors. Analysis shows that in many cases, companies and competition soon

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coverage on product – price – differentiation – attributes. They reach a stage where there is little scope left to different further, whether on product, service or any other conceivable attributes. At such a stage where there is a saturation, only corporations who enjoy core competencies in the root technology/process/expertise keep gaining. And, in today’s technology driven world, technology is one main source of core competency. Through command over technologies and processes firms bring out proprietary products which lend competitive advantage to them.

Prof. C.K. Prahalad in his HBR article on The Core Competence of the Corporation knowledgeably discusses the concept of core competencies and its role in building long-term competitive advantage. Through an examination of a large bunch of internationally successful companies and their world famous products, Prof. Prahalad drives home the point that it is not a particular product as such that lends these corporations a world dominance. Behind the product, there is the core competency the interwoven technology/process/expertise. For example, Sony has a core competence in miniaturisation; it can make any product tiny. Philip’s has optical media expertise. It has achieved its competence in this field as a result of a decade long research and development. Honda has a core competence in engines which gives it a competitive advantage in diverse products like car, motorcycle, lawn mower and generator. Canon’s core competence lie in optics, imaging and microprocessor controls that together lend Canon distinct competitive advantage in products as diverse as copiers, laser printers, cameras and image scanners. JVC built up core competence in video recording/video tape technology which finally gave JVC unique and novel products in these fields. Yamaha introduced the digital piano, Komatsu developed the underwater remote-controlled bulldozer and Casio brought the small-screen colour LCD television. Behind every one of these inventions, there lie the distinct core competencies of these corporations, which are built out of the corporations’ command over several technologies.

Building core competence becomes essential to competitive advantage building because, advantages emanating from the product-price- performance-trade offs are almost always short term. Especially in an era where technologies are altering existing boundaries of businesses, advantage can last only through competence enjoyed at the very roots of products. And only through expertise over several technologies and a complete command in their infinite variety of uses, a company can occupy a highly advantageous position. DuPont’s core

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competence in chemical technology, I core competence in electronics and NEC’s core competence in telecommunications, semiconductors and mainframes will see them through any exacting competitive situations.

To build core competencies, it is not necessary for companies to invest heavily in fundamental research. What is required is a corporation’s commitment to look for relevant technologies in its field, harness them, develop the human expertise to understand them and work on them like building blocks, so that the corporation has the basic strength to push out any product based on demands of changing times and patterns. In fact, companies who always make it a policy to manufacture the crucial components of their products instead of outsourcing them quite often enjoy the scope for core competence building, while those who as a policy decide to source their crucial components from outside suppliers deny themselves the opportunity to build core competencies in their business. The latter, may enjoy some cost advantage, which may ultimately give them a competing edge in the price-marketing factors. But, in the long term, such a corporation could be foregoing an opportunity for core competence building in its chosen business. When the manufacture of crucial components are just seen as a cost centre, the chances of éore competence building are getting lost. For example, the American Auto giant Chrysler tends to view engines as just one more component for its car assembly. But in the case of Honda, it would never give up the responsibility of manufacturing its engines. Honda has also centralised all its critical engine-related R&D in Japan, while it does not mind out- sourcing body parts overseas and sharing responsibility for body-design with its affiliates worldwide. No wonder, Honda could build up a core competence in engines, arid use it as the back up for gaining competitive advantage in several product categories.

In the changed context of India today, the crucial task before corporate managements is just not to build some short term competitive advantage but to endow the organisation with a portfolio of core competencies. The batttle for global leadership is being waged on the strength of core competence and not on some brands as is being perceived by many. Behind the visible and apparent battle of the brands, there lies a substantive war between core competencies of corporations. The latter is always behind the scene.

Only by looking at the global corporations, can Indian companies get an idea of core competence building. Because, in the historic evolution of business,

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Indian business is only now reaching a stage where they can put into practice such an advanced concept. And the economic liberalisation has made the ground conducive to such an effort. Indian Companies must set themselves the task of core competence building.

2. TOTAL QUALITY MA�AGEME�T

The last few years have seen unprecedented growth in the quality profession ISO 9000 Series has just been a step towards TQM. There is a great deal of profit by quality improvements in products and services. Indian Companies have realised that improvements in products and services, business processes and people is inescapable. In business terms it has been realised that quality is the single greatest factor in achieving market success for any company. Instead of trying to increase sales to gain profit, which route also increases operating cost, quality improvement becomes a shortcut to improved profits.

Quality improvement itself enhances sales indirectly by generating customer demand and this will have its own momentum in the market. The heart of TQM philosophy is the conviction that error free work is possible to achieve. It is also phrased as doing right the first time, working smarter and zero defects. Perhaps one may not achieve the target but the mind is set for a perfect work. The founder of IBM Thomas J. Watson once said that “it is better to aim at perfection and miss than to aim at imperfection and hit it”.

The idea of prevention is therefore pivotal to TQM Programme. it may be difficult to find practical support for this but this is the aim of all quality assurance. The diligent use of measurement, process controls, data driven elimination of waste and error is the emphasis. Documentation of work process, quality audits and quality assurances prevents quality problems. Fundamentally this is about developing a strong value in everybody so as not to pass something on which we know is wrong.

The let out clause for poor performance is “to err is human”. The conventional work-practices seem to have an anticipation of failure built in them. Then for managers & employees, TQM preoccupation with prevention involves a 360 degrees shift from the normal attitude towards the work performance. They normally set up a dual standard one for their own expecting quality service and good products and the other for their work life expecting safety nets to catch the mistakes. They attempt to set right the shoddy work.

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An acceptable quality level (AQL) sets up a dual standard. This then offers a diametrically opposite mindset to total quality. The company instead of focusing on zero defects, encourages defects by setting AQLs. A classic example is in the paper manufacturing industry. The fibre loss and the finishing losses are conveniently accepted between 5% and 11%. The impact on the environment by the letting of the fibre to escape into the effluent and the loss of the precious forest based raw material bamboo and wood, becomes nobody’s concern. Ultimately in a monthly review meeting an explanation is tabled attributing the situation to some reason and it is accepted. The production is less to that extent, though there is an input of the precious resource. This is a testimony to the need to p errors from occurring rather than fixing them after the fact.

THE ZERO DEFECT ISSUE

Some see a conflict between zero defects, doing things right the first time and risk taking. Philip B. Crosby holds the opinion that the real risk takers, like people who go into space, make sure that they do the things right first time and they do it before going. Risk taking involves time to lay out the requirements, and to get clear on everything that is known. Things which are not known are to be planned for.

When the rest of the operation is well based, the unknown becomes something that can be dealt with. The risk aspect comes up only when people are too lazy or preoccupied to work out the requirements. Requirements need thought. Everyone has to know the charter of the organisation, and they have to understand their personal role in making it all happen.

Zero defects is doing what we agreed to do when something has been agreed with the customer. This implies clear requirements, training, a positive attitude and a plan. It is not leaping off into the unknown. Zero defect is a reality and is a goal too. It is a result of thinking things out. According to Philip B. Crosby discrepancies occur only because they are expected to happen. They just fix rather than prevent.

Error prevention should be more than a rhetoric for making TQM progress. Doing right the first time should become a standard performance. It should virtually mean surpassing old standards. The preventive action guards against compounding of errors and passing them on to the customers. For this purpose everyone will have to be his own inspector. The people employed know

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more about the operational side and they should be encouraged to come out with suggestions. Implementing many of them would do the trick.

In addition improving procedures and documents would help the service side. Therefore in a way doing right things first must become a personal standard. Perhaps a change overnight by implementing TQM may be impossible. Further telling people why and when the “old ways” will stop, gains more credibility. At this point a word about perfectionism may be appropriate. It is orientated towards meeting the customer needs. Failure to train, communicate and manage TQ on a day to day basis will prevent from becoming a standard operating procedure and attaining perfection.

Human resources are considered the most vital and valuable resources of an organisation, as the productivity and quality outputs of an organisation are directly linked to people working for it. Further, the organisational performance is assessed in terms of its employees’ performance. At the same time, it is also observed that human resources are very difficult to manage considering the variation present in the individuals in terms of their skills, background, education, culture, and attitudes. However, it is natural to demand that the individuals perform according to the expectations and needs of the organisation. Thus there is a need to ascertain employees’ performance in the light of organisational requirements, and ensure quality in the products and services delivered. According to Moss (1989) the traditional performance appraisal (PA) process has been accepted as a legitimate means of assessing and evaluating individual effort in the work-place. This kind of measurement of performance gains further importance due to the fact that all employees are responsible as individuals, and as a team for ensuring quality in the products and services which an organisation delivers. Wilkinson (1992) comments that involvement of all employees in monitoring their own work with the aim of constantly maintaining and improving quality leads to total quality management (TQM). Thus any organization aiming for TQM must ascertain its employees’ involvement and commitment to quality, which can be determined through the PA process. In this paper, first the concepts of PA are discussed, and a critical view of PA is made to expose its limitations. Next, the modifications required are highlighted, followed by the development of a link between performance appraisal and TQM in a logical form. The article concludes emphasizing the transformation of PA process into TQM process.

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TRA�SFORMI�G PA TO TQM

Total Quality Management (TQM) an approach to management that focuses on quality as the key to success. According to Saunders and Graham (1992), TQM requires teamwork, wherein all employees of an organisation work towards a common goal. It is imperative that every employee of the organisation understands the objectives, and synchronises his or her effort with others, accomplishing the intended objectives. Wilkinson (1992) states that TQM attempts to emphasize that all employees are ultimately involved in serving the final customer, so that quality matters at all stages, while teamwork and cooperation are essential. Furthermore, everyone should strive for continuous improvement rather than relaxing when targets are achieved. Every person has a common focus, so that people with different jobs, abilities, and priorities are able to communicate with each other in pursuit of a common organisational purpose. Since TQM strongly advocates continuous improvement, it becomes necessary to identify the strengths and weaknesses of all employees. This is where PA can lend a helping hand to find out the areas that call for improvement. This means the outcome of PA process is used not for punitive action when deficiencies exist, but to identify the action to bring in improvement so that a weak performer is converted to a ‘star’ performer. Such a constructive application PA is what is desperately needed to achieve TQM.

TQM which insists on continuous improvement and emphasizes the role of people, can definitely thrive when PA is used as a diagnostic tool. This is because PA identifies the deficiencies in an individual, and TQM advocates employee quality improvement through education and training to overcome those deficiencies. Once the employees realise the benefits of PA to them and to the organisation, they would be more willing to participate in PA process. Such a voluntary involvement ensures improvement of quality products and services delivered by the system.

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3. BE�CH MARKI�G

Besides the popular reengineering technique associated with TQM, other techniques, such as benchmarking, are also receiving attention. Benchmarking is the process of comparing work and service methods against the best practices and outcomes for the purpose of identifying changes that will result in higher- quality output. Benchmarking incorporates the use of organizational behavior techniques. Although it should not be equated with goal setting benchmark metrics can be used to set targets that are pursued, identified. And then used as a basis for future action. The benchmarking process involves looking both inside and outside the organization for ways of improving the operation.

Benchmarking offers a number of benefits to organizations. First, this technique helps organizations compare themselves against successful companies for the purpose of identifying improvement strategies. Second, benchmarking enables organizations to learn from others. Third, it helps create a need for change by showing the organization how procedures and work assignments should be altered and resources reallocated. There are a wide variety of examples in which benchmarking has helped organizations improve their total quality.

Benchmarking is a continuous management process that helps 1irn identify the benchmark, compare themselves to the benchmark and to use that knowledge in designing a practical plan to achieve superiority in the market place. The measurement of relative performance lakes place along the three components of a total quality programme - products and services, business processes and procedures and people. This brings about changes that lead to quantum and continuous improvements in products, processes and services that result in total customer satisfaction and competitive advantage. The strategy consultants McKinsay & Co viewed benchmarking as a skill, an attitude and a practice that ensure an organisation always has its sights set on excellence, not merely on improvement.

Benchmarking involves observing competition for companies in other industries that exemplify best practice in some activity, function and process and then comparing one’s own performance to theirs. This externally oriented approach makes people aware of improvements that are orders of magnitude beyond what they would have thought possible. In contrast, internal yardsticks that measure current performance in relation to prior period results, current

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budget or the results of the other units within the company rarely have such an eye-opening effect. Moreover, these internally focused comparisons have the disadvantage of breeding complacency through a false sense of security and of stirring up more energy for intramural rivalry than for competition in the market place.

Benchmarking emerged as a management tool in 1979 when Xerox Manufacturing Operations decided to compare the unit manufacturing cost and the features of their copying machines to those of the competition from Japanese Photocopier companies. In the early days of benchmarking, the emphasis was on measurement per se and on straightforward comparisons of performance parameters like productivity and efficiency measures within and between companies whether in a manufacturing or service environment. Subsequently competitive benchmarking became more prominent with a gradual shift in attention to business processes within a more diverse range of business functions which had a key influence on overall performance. The main locus of benchmarking activity, at present, is on best practices, information on which is obtained by active collaboration with best in class companies having comparable business processes irrespective of the industry they belong to. Benchmarking identifies and quantifies performance gaps and determines how much a company needs to improve to be at the highest possible levels of functional performance and helps ensure continuing sustained competitive advantage at all management levels.

Some organization use benchmarking at the very start of projects so that all planning and organizing efforts are conducted in light of state-of-the art developments in the industry. This strategy typically begins with the formation of a team that defines the project’s goals and carefully identifies the areas in which benchmarking will be used. In the case of new-product development, for example, IBM Rochester gathered a team of technical and marketing people to create anew minicomputer, the AS/400. During this process, the IBM Rochester group looked both in house and at a verity of outside firms in order to gain insights into how to build the highest quality minicomputer in the shortest amount of time. In house they examined IBM Raleigh, which had a world-class defect-prevention process, and IBM Manassas, which had outstanding hardware process documentation. The outside companies it benchmarked were (1) Xerox, from which it learned about the benchmarking process in general; (2) Motorola, which proceeded information on reducing quality defects; (3) 3M, which

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provided information that helped IBM Rochester’s resource manufacturing planning capability; (4) Hewlett-Packard, which provided insights into the effective use of service representatives; and (5) Japanese firms, from which the company learned a great deal about just-in-time inventory. As a result of its benchmarking efforts, IBM Rochaster was able to produce that exceeded all expectations.

Other organizations use benchmarking in carrying out their day-to-day activities. Common examples include developing benchmarking strategies to reduce manufacturing setup time, increase the number of customers served per hour, and cut delivery time. Benchmarking is also being used in training and development to create programs that are cost effective and ensure that personnel are performing their jobs as well as anyone else in the industry. This human resources focus is a new twist in benchmarking, but one that will be receiving increased attention during the years ahead. A good example is provided by Magnavox.

All division managers at Magnavox were asked to provide annual training cost data to the corporate human resources (HR) department. The HR department quickly realized that there was no uniform thinking among the division regarding how to define training costs. Some divisions counted only direct costs, such as labor, materials, and outside consulting fees. Others included the wages of all participants and support personnel. The HR people then set about determining how to measure thesis costs uniformly and how to use this information to benchmark against other firms. In all, there were fourteen training measures or what are now commonly called metrics (see table 2.1). In each case the company identifies the specific metric, how it was to be calculated, and an example of how other firms were doing in this area.

The company examined data for the United States at large as well as for Baldrige winners in particular. The latter data were obtained from a survey questionnaire, a common method of benchmarking. As a result of this project, Magnavox is now able to track (1) the percent of payroll that is spent on training; (2) the percent of the work force that receives training; (3) the average percent of improvement in on-the-job performance as a result of training; (4) the amount of money that training saves the organization; and (5) the productivity and efficiency of its human resource development staff.

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There are four types of benchmarking activity - internal, functional, competitive and generic. Internal benchmarking is done with an organisation and typically between closely related divisions, similar plants or operations or equivalent business units, using common or shared performance parameters as a basis for comparison. Because of the relative case of starting a new activity internally, the lowest resources implication and the greater assurance of gaining co-operation, this is the area in which many organisations choose to start bench- marking activities. Functional benchmarking is a comparison of performance and procedures, between similar business functions, but in different organisations and industries. Being externally focused, it is a more positive approach than internal benchmarking.

Encouraging innovation

One way to excite customers is through innovations. Competitive benchmarking encourages innovation throughout an organization. It is the process of continually comparing a company’s performance on critical customer requirements against the best in the industry (direct competitors) in order to determine which areas should be targeted for improvement. Competitive benchmarking focuses on direct competitors within the same industry with specific comparable business operations or an indirect competitors in related industries having complementory business operations. Generic benchmarking can be undertaken with external companies in different industries which represent the best- in-class’ for particular aspect of the selected business operations. Benchmarking is undertaken in almost any area of business endeavour. The key performance variables for measurement, analysis and comparisons can be found in operational areas such as production, distribution, installation and field service. The key is to be clear about the needs and what is important to improve.

An effective benchmarking process has the following five steps:

- Determine the key performance areas to be benchmarked. They may include product and services, customers, business processes in all departments and the organisation, business culture and the calibre and training of employees

- Identify the most relevant competitors and, best-in-class companies.

- Set the key standards and variables to measure.

- Measure regularly and objectively

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- Develop an action plan to gain or maintain superiority.

Specify programmes and actions to close the gap, implement and monitor ongoing performance.

The key task in benchmarking is to select the areas of a business in which it would be most beneficial and practical to attempt to benchmark and the specific parameters to use. The parameters should cover the significant cost, time and quality measures that affect the key customer deliverables, the existing and potential competitive pressure points, anticipated trends in new technology, the critical business processes involved and the identification of possible new areas of competitive advantage. The 5 Ps approach developed by McKinsay & Co. for evaluating the parameters involves the partners (suppliers and customers), people, procedures and systems, product and process design and physical configuration. The best practices benchmarking process can be seen as one of encouraging people to stand back from established practices and to look above the fence. This facilitates taking a critical look outside the company and learning from what others are doing in comparable business activities.

Benchmarking is essentially a team activity. A team approach should be encouraged by seeking ideas, suggestions and cooperation through a process of external consultation. New ways of working can be introduced which utilise the talents and abilities of employees more effectively. The internal teams used in obtaining and analyzing benchmarking data will make recommendations to change, improve or remove processes, systems and practices. The active involvement of employees at all levels ensures their continuing interest and commitment. Benchmarking thus acts as a powerful agent for change and motivation. Once the benchmarking habit has been seen to provide benefits, it can then be institutionalised on a gradual basis, either as a part of a routine reporting system or as part of a broader continuing improvement process. Care should be taken with target setting. The targets should not only be clear, achievable and realistic, but equally demanding and providing tangible benefits to the, company, together with a sense of achievement for the participant

DESCRIPTIO� OF WORKI�G GROUP:

The major goal of the Benchmarking Methodology Working Group is to make a series of recommendations concerning the measurement of the performance characteristics of various internetworking technologies; further,

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these recommendations may focus on the systems or services that are built from these technologies.

Each recommendation will describe the class of equipment, system, or service being addressed; discuss the performance characteristics that are pertinent to that class; clearly identify a set of metrics that aid in the description of those characteristics; specify the methodologies required to collect said metrics; and lastly, present the requirements for the common, unambiguous reporting of benchmarking results.

Because the demands of a class may vary from deployment to deployment, a specific non-goal of the Working Group is to define acceptance criteria or performance requirements.

An ongoing task is to provide a forum for discussion regarding the advancement of measurements designed to provide insight on the operation internetworking technologies.

If you’re serious about improving company’s performance and achieving an industry-leading position, there’s simply no substitute for a quality benchmark report.

Three strategic reasons for using benchmark ratios:

1. Set Goals and Action Programs. Know where you are, and know where you’re going. Benchmark ratios are inherently measurable and comparable, which makes them ideally suited for management-by-objective incentive programs. They help you focus your attention on the most controllable aspects of your business. Success and failure can be clearly evaluated.

2. Monitor Performance. Keep your eye on the ball. Benchmark ratios provide an objective standard by which to measure performance. By tracking key measurements at regular intervals, busy executives can pay closer attention to those key factors that affect a company’s performance. Follow the numbers, and the numbers will set you free.

3. Share the Results. Tell the world about your great results. Benchmark ratios enable your current and future stakeholders to objectively evaluate your company’s condition. Lenders, creditors, investors, and employees will use them to better understand your strengths and weaknesses. Use

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your ratios to get a loan, negotiate better payables/receivables rates, attract investors, and retain employees.

4. E�TERPRISES RESOURCE PLA��I�G (ERP )

• In this age of competition for survival it is essential for any industrial organisation or business enterprise to evolve ways and means to keep its operational efficiency at the peak. With the advent of information technology there have been efforts to utilise its gifts for the purpose of improving all kinds of industrial and commercial activities. But the latest trends involve the total integration of information technology with operational domains. Enterprise Resource Planning (ERP) is an excellent exercise which achieves such an integration with remarkable results in terms of productivity.

• ERP aims at definite competitive advantage in manufacturing, marketing, accounting, human resources and other areas in industrial organisations. It cuts across the interdepartmental boundaries in an enterprise. It is said that ERP links information islands. We often find that in several organisations there is a tendency for the various departments to function as if they were independent empires main training unhealthy rivalries.

• The fact that the functions carried Out by them are complementary may be forgotten. ERP however effectively integrates islands of information within the organisation ensuring total transparency, information sharing, healthy dialogue, a uniform system, elimination of wastage caused by misunderstandings and improvement in overall productivity. ERP is sometimes defined as an integrated suite of application software modules which will provide adequate information for the enhancement of productivity and competitiveness. This is achieved by optimising the use of 4M resources: Men, Machines, Materials and Money.

• Success in business depends on the timely and effective gathering of vital information, disseminating it as quickly as possible, and making decisions based on it. ERP software provides the essential infrastructure for the speedy dissemination of information across the diverse functions and locations.

• The traditional system of software development envisages separate style for each function such as inventory, production and marketing. The focus

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being on functions, decisions at the top managerial level involve delays owing to constraints in accessing information. Any reform in the style of business is a slow process, since each individual department would raise its problems. ERP, the new business computing paradigm, on the other hand addresses the entire organisation in one stroke. A continuous improvement as in total quality management can easily be planned and implemented. Quick response to new customer needs or market trends is effected. Updating the comprehensive data warehouse at the top managerial level is carried out online. Legacy systems which demand expensive support are eliminated. ERP solutions have spread not only to manufacturing industries, but to businesses such as communication, banking, insurance, financing and healthcare.

• Traditional inventory control dictated the style of software packages in the Sixties. The Seventies saw the emergence of MRP (Material Requirement Planning), which moved about the fulcrum of a master schedule; this again operated primarily in the area of inventory. The next decade witnessed the evolution of MRP II (Manufacturing Resource Planning), which embraces other functions such as processing, manufacture and distribution. The efficacy of the system naturally made it attractive to other functions, and so it gradually spread its tentacles to finance, human resources. and project management. MRP II was found to be a misnomer since it covered extensive domains and therefore ERP was found to be a meaningful term as replacement.

An effective ERP system should necessarily fulfil various requirements. We have to realise that the system implementation involves substantial financial inputs and the end results should invariably justify the investment. The system should not be rigid; it should permit easy customisation, adaptation to new environments and periodical upgradation. It has to be tailor-made to suit to the requirements of the organisation. Its client/server capabilities and security arc significant concerns. Initial investment as well as maintenance cost should be within affordable limits. Most importantly it should give early results.

5. STRATEGIC ALLIA�CES

Business Management today involves more than anything else the ‘ of an organisation with its environment. Environment provides opportunities and wields threats. An organisation should try to exploit opportunities and overcome

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threats. Strategic alliance with the environment helps exploiting opportunities and overcoming threats. In the process organisation strengths are multiplied and weaknesses are reduced. Strategic alliance with the environment needs to be carefully planned and tactfully executed. Strategic management involves effecting the strategic alliance of the organisation with the environment by formulating and implementing strategies directed at effecting the alliance. Formulation of strategies and implementation of the same thus constitute the core functions of strategic management.

The term strategy refers to the art or knack of commanding and maneuvering resources to attain a decisive advantage through fruitful exploitation of opportunities provided by the environment or keeping at bay certain threats wielded by the environment. Liberalisation and globalisation are changes in the business environment with new found opportunities and expected and unexpected threats. For instance, businesses now can tap foreign capital resources an opportunity. At the same time in the domestic product market competition builds up a threat. Through strategic alliances competitive forces are converted into collaborative efforts for common benefits. Thus strategic alliances among competing businesses are strategic responses of businesses to the changing environment.

According to management expert Griffin, a strategy has essentially four basic areas. Scope, resource, uniqueness and synergy are these four areas. The scope of a strategy defines its functional, geographical, product service and relational limits. Functional limits refer to marketing, production etc. geographical limits are concerned with markets covered. Product limits define product lines and range. An4 relational limits deal with whether the dealings are internal to the organisation or are external to the organisation or both. Scope of a strategy thus prescribes the level of concentration or spread of the span of activities of the organisation.

The resources of a strategy refer to what and how much of resources the organisation will employ across various areas. Domestic or foreign private capital, fresh equity or accumulated reserves, senior or mid-level executives, in-house R&D or outsourced R&D, etc be used is to be decided.

Uniqueness of a strategy refers to the distinctive competence of the organisation on the strength of which the strategy is built to attain leverage over its competitors as well as other strategic alternatives. Close to consumers

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through own retail establishment, speed of action, technological edge, etc may be the distinct advantages.

Finally synergy of a strategy comes. Synergy is a system concept meaning that the output of the whole system is greater than the outputs of the individual sub sytems working independently of each other. The advantage of being a system is the synergy. Should there be no synergy, there need be no system. The scope, resources and uniqueness of the strategy should give synergistic result. While designing a strategy the management must see that all the four constituents of a strategy are present.

STRATEGIC MIX A�D STRATEGY FORMULATIO�

The strategic-mix has three levels. At the top is corporate strategy, at one level below is the business strategy and at the bottom is the functional strategy. There is a hierarchy of strategies.

Corporate strategy is about the course charted for the whole of the organisation. It deals with the “what” aspect. It is also known as the “grand” strategy. Corporate strategy depends on the corporate goal. And corporate goals could range from on the one end, a curtailment goal to on the other a diversification goal with status-quo and growth goals in between.

The curtailment goal calls for a retrenchment strategy. It is a bold attempt to do away with excess fat, units that are causing entropy, divisions that are not pro-synergistic and functions that have lost strategic significance. In a way it is about turn-around or downsize of an organisation. Most public sector units need this strategy at present. The status-quo goal calls for a stability strategy. Here the organisation is pretty happy with the present. It neither wants to add on a few wings nor shed some feathers. It is a consolidation-oriented goal. And hence adopted after retrenchment or after hectic growth phase or so. Mature companies adopt this strategy. The expansion goal calls for growth strategy, wherein scale advances through more geographical coverage are attempted. there is “geographical” spread and rise in market share. Market coverage is being mastered here.

Finally, backward and forward expansion goal comes with a diversification strategy. Related and unrelated diversification are possible. It should be noted that competitive distinctiveness and synergy are not lost. It is quite possible with unrelated diversification strategic management may call for

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division of the business into strategic business units (SBUs), each with own mission, vision and strategic initiatives. Then with respect to each such SBU, suitable corporate level strategy may have to be drawn up. Corporate level strategic alternatives for “stars,” “cash cows,” “question marks” and “dogs” may have to be formulated.

In formulating corporate strategy, indepth environmental analysis and organisational analysis need to be made to know how the strengths and weaknesses of the organisation can be matched with the opportunities and threats of the environment.

“Business Strategies” are concerned with the ‘how;. How should the organisation approach its aligning with the environment? There are four approaches here. Griffin puts up them as follows. Defender, Reactor, Analyser and Prospector strategies are these. These strategic alternatives emerge from certainty-uncertainty conditions of the environment and the firm’s response.

Defender strategy is of the most unassuming form. It is pro status-quo. The firm is satisfied with the present. This is suitable in a certainty environment. The firm perhaps has a narrow niche market. The firm has no big ambitions. But when discontinuous changes take place in the environment, the firm adopting defender strategy might have no territory to defend. It can, however, work if distinct and core competences are the bases on which the firm’s plans and actions are founded. Analyser strategy is one where the firm is not silent, but steadily modifying its course in tune with the changing environment and competitors’ strategies. It suits the risk-type environment, where, which way the environment is changing, can be known by adopting probabilistic forecasting models. New products and markets are scouted for in a moderate way. Laggards are gently given up, while cash-cows receive the full thrust. A mix of diversification, expansion and retrenchment goals are thus found here.

Prospector strategy looks out for new opportunities and learns about the same. In an uncertain environment discontinuous changes are the reality. So prospector strategy suits such environment. Excep tional ability to give up old customs and imbibe new cultures is the backbone of the prospector strategy.

Finally the Reactor strategy has found favour with a few. It is ill- conceived one and as such is not tuned to environment. No opportunity is reaped but quite a number of threats are faced. In the end, instead of strengthening

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strengths, weaknesses get strengthened. A visious cycle perhaps results here to the detriment of the firm.

Functional strategies address the operative functional areas like production, marketing, finance, personnel and R&D. Production strategy addresses choice of plant, location, scale of production, etc. Marketing strategy deals with the 5 Ps product, place, price, promotion and public relations. Finance strategy governs capital structure, assets portfolio, risk-return trade-off, working capital management, etc. Personnel strategy is concerned with recruitment, selection, compensation, development and separation of human resources. And R&D strategy deals with R&D base, support, competitiveness, etc.

6. BUSI�ESS PROCESS REE�GI�EERI�G (BPR):

Business Process Reengineering means not only change -- but dramatic change. What constitutes dramatic change is the overhaul of organizational structures, management systems, employee responsibilities and erlon11ance measurements, incentive systems, skills development, and the use of information technology. Business Process Reengineering, (BPR) can potentially impact every aspect of how we conduct business today. Change on this scale can cause results ranging from enviable success to complete failure.

Successful BPR can result in enormous reductions in cost or cycle time. It can also potentially create substantial improvements in quality, customer service, or other business objectives. The promise of BPR is not empty -- it can actually produce revolutionary improvements for business operations. Reengineering can help an aggressive company to stay on top, or transform an organization on the verge of bankruptcy into an effective competitor. The successes have spawned international interest, and major reengineering efforts are now being conducted around the world.

On the other hand, BPR projects can fail to meet the inherently high expectations of reengineering. Recent surveys estimate the percentage of BPR failures to be as high as 70%. Some organizations have put forth extensive BPR efforts only to achieve marginal, or even negligible, benefits. Others have succeeded only in destroying the morale and momentum built up over the lifetime of the organization. These failures indicate that reengineering involves a great deal of risk. Even so, many companies are willing to take that risk because the rewards can be astounding.

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“Business Reengineering is the fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements in critical, contemporary

measures of per fbrmance, such as cost, quality, service, and speed.”

-- Dr. Michael Hammer

Today, many organizations have acquired extensive experience in performing BPR. Many of these experts are still not in agreement on every activity necessary for performing BPR; yet, the core activities have remained stable during the continuous debate. The disagreements may be, in part, due to the uniqueness of each organization. Because organizations differ, the activities necessary to successfully perform BPR may also differ.

WHAT IS PROCESS REE�GI�EERI�G?

Work process reengineering as developed by corporate America refers to the major redesign and restructuring of core business processes. It is most effective when a particular process is identified that is impeding the growth or competitiveness of an organization, or when a particular process is only minimally meeting a business need. Reengineering is defined by the “bounded” process that is the target of the reengineering initiative. The reengineering process should:

• be applied across multiple functions within an organization;

• have the support of upper management; and leverages information technologies to overhaul, support, and

• dramatically improve work processes.

Many corporations have found that over time core processes within their organization become inefficient, bureaucratic, cumbersome and lose their intended focus. Routine practices often add tasks and steps that do not add value to the core business goal. These inefficiencies slow down the organization, detracting from the intended goals.

The process reengineering model used by EPA’s Office of Reinvention was designed to bring about meaningful, lasting change to the XL Process. It employs a structured change process to meet the identified business needs in an effective and efficient manner. This effort will result in a more user friendly, reengineered process that is quicker, more cost effective, produces a consistently

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superior result, and provides more focused stakeholder involvement and information exchange.

REE�GI�EERJ�G BUSI�ESS PROCESS

One of the most important competitive strategies today is business process reengineering(BPR),most often simply called reengineering. We 1 that reengineering is more than automating business processes to make modest improvements in the efficiency of business operations. We defined reengineering as a fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service also BPR combines a strategy of promoting business innovation with a strategy of making major improvements to business processes so that a company can become a much stronger and more successful competitor in the marketplace.

However figure points out that while the potential payback of reengineering is high, so is its risk of failure and level of disruption to the organizational environment Making radical changes to business processes to dramatically improve efficiency and effectiveness is not an easy task. While many companies have reported impressive gains, many other have failed to achieve major improvements they sought throught reengineering projects. That’s why organizational redesign approaches are an important enabler of reengineering, along with the use of information technology. For example, one common approach is the use of self directed cross Junctional or multidisciplinary process team & Employees from several departments or specialties including engineering, marketing, customer service, and manufacturing may work as a team on the product development process. Another example is the use of case manager, who handle almost all task in a business process, instead of splitting tasks among many different specialists..

COMMO� STEPS WHE� PERFORMI�G BPR

Project Phases Required For Successful BPR

Phase I: Begin Organizational Change

Phase 2: Build the Reengineering Organization

Phase 3: Identify BPR Opportunities

Phase 4: Understand the Existing Process

Phase 5: Reengineer the Process

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Phase 6: Blueprint the New Business System

Phase 7: Perform the Transformation

The tasks experts agree upon to successfully perform BPR can be grouped into seven steps, or phases. All successful BPR projects begin with the critical requirement of communication throughout the organization.

CO�CLUSIO�

Business Process Reengineering (BPR) is that the fundamental rethinking and radical redesign of business process to achieve dramatic improvement in critical contemporary measures of performance such as cost, quality, service and speed.

That it indicates three points

1. Be applied across multiple functions within an organisation.

2. Have the support of upper management and leverages information technologies to overhaul, support, and

3. Dramatically improve work processes.

It is very much useful for every business.

REVIEW QUESTIO�S

1. Discuss the recent trends in management.

2. What is core competence? How it is useful for an organization?

3. Discuss the advantage of strategic alliances

4. What is TQM? Why is it so important today?

5. Write a note on

a. Business Process reengineering.

b. Bench Marking

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CASE

One argument that surrounded the NAFTA debate before its passage was that many U.S. plants would be to Medco simply because labor coats were lower there That argument is proving simplistic. Quality Coils, with home offices in Bristol, Connecticut, manufactures electronic coils used in refrigerators and washing machines. With sales approaching $9 million, it began to feel the pinch of rising labor casts So in 1985 it began to relocate some of its assembly operations to Juarez, Mexico Late in 1992 the company transferred the abs back to Connecticut. Lower wage rates in Mexico were a primary reason for the move to Mexico, but labor was also the reason for moving back to Connecticut.

The jobs involved are very labor intensive. U S. workers produced about three times as much as Mexican workers and the wages were not sufficiently low to offset the differential in productivity. When officials from Connecticut visited the plant. productivity would rise to match U.S. levels, but when they left it would fall back to lower levels. Lo cal managers could not seem to sustain the desired higher levels of conduct In additional Qualification Coils needed to have very flexible arid short manufacturing cycles to match its customers’ orders, but the Mexican plant could produce only long runs of the simplest products Quality Coils learned that there is more to relocating to Mexico than simply lower wages

Locating production facilities in Mexico can be desirable, but companies must to their homework be fore making such a decision. That homework must include more variables than Jet labor costs. Cultural differences and the business climate must be studied, too. The Mexican Foundation total Quality. MFTQ was started to promote a culture and consciousness of quality in Mexico. Using their unique skills and reforming their weaknesses., Mexican businesses are successful in developing a special form of total quality management MFTO is providing training or managers and leaders who can bong people together for common goals. If Mexico can successfully develop a quality culture to accompany its lower wages, it should he able to compete much more successfully for manufacturing facilities from around the world.

One example of its success is that of Melitta North America. Melitta NA is the $100 million U.S. subsidiary of Germany’s Melitta Group. The automatic drop coffeemakers with which it supplies the U S. market used to be mane o’ Costa. Recently, however’, it moved those facilities to Mexico. A maquiladora contractor’ assembles 18,000 coffee makers a week with quality that matches

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that from China. With lower transportation and logistics costs, the Mexican plant is clearly the better choice.

One should no simply, conclude, however, that proximity to the U.S. market means that transportation and logistic costs will automatically he lower. Mexico’s uneven geography can present problems for efficient transportation. The country has no naviable rivers, and airports are a relatively recent development. Highways and the railroad system are the most viable modes of transport, but they may require significant government outlays to keep them maintained.

Discussion Questions

1. What are the advantages and disadvantages of locating production facilities in Mexico?

2. What variables would you argue that a company should use when making a decision to locate or relocate a manufacturing facility? Why?

3. On balance, does it appear that NAFIA has helped or hurt the Mexican effort to get plants to relocate there? Why?

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MODEL QUESTIO� PAPER

PAPER 1.1 : MA�AGEME�T CO�CEPTS Time: 3 hours Maximum Marks : 100

PART – A (5 x 8 = 40) Answer any Five Questions

1. Write about F.W. Taylor’s Time & Motivation Study. 2. What is Strategic planning? 3. Distinguish between formal and informal organisation. 4. Distinguish between line and Staff authority 5. What is informal communication? 6. Examine the need for co-ordination. 7. What do you mean by feed forward control? 8. Write in brief about Management by exception?

PART – B (4 x 15 = 60)

Answer any Four Questions

Question �o.15 is Compulsory

9. Compare and contrast F.W. Taylar’s Contribution and Henry Fayol’s to

the Modern Management. 10. Explain the process planning. What precautions do you take while

planning for an uncertain future? 11. In the present day Indian business context, what factors mostly influence

the design of organisation structure? Which type of structure do you prefer, for a fast growing software unit in the IT sector?

12. Explain the process of delegation of authority. What measures do you suggest to make delegation effective?

13. Explain how conflicts are managed in organisations. 14. What are the steps in the staffing process? Describe each step. 15. Attend the following Case and answer the questions:

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LIST OF REFERE�CE BOOKS

1. Koontz and O’Donnel “Management : A Systems approach”, Tata McGraw Hill.

2. Griffin, “Management”, A.I.T.B.S. Publishers & Distributors.

3. Stoner, et.al, “Management” Prentice Hall.

4. W. Haynes, “Principles and Practice of Management” New Central book agency.

5. S.C. Saksena, “Principles and Practice of Management” Sahitya Bhavan.

6. Weihrich & Harold Koontz, “Management – A Global Perspective”, McGraw Hill.

OTHER REFERE�CES

7. The Hindu

8. India Today

9. Business Today

10. Business World

11. Economic Times

12. Business Line

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UNIT - 6

BUSI�ESS PROCESS OUTSOURCI�G

Essentially outsourcing is about delivering lower-cost, better-quality

services and flexibility that businesses would not otherwise be able to achieve. It can be a complex activity at times.

There is a principle in economics that says companies should focus on what they are good at and this makes perfect sense. Companies have to focus on many business critical, but non-core, and hygiene activities on a continual basis, such as keeping IT services functioning, processing accounts and managing customer relationships. Following the economic principle, outsourcing it that it allows businesses to do what they are best at, transferring non-core activities to outsourcing companies that specialise in delivering such services.

Outsourcing can be used either tactically to fill gaps and cut costs, or strategically to underpin greater business transformation. Where point solutions are the most appropriate, it can avoid the need for more drastic measures by lowering cost through efficiency improvements. Similarly businesses under organisational strain, with few resources or little time to implement new practices, can use outsourcing to achieve their aims quickly and effectively.

Outsourcing is almost always linked to reducing cost, and cost is a key lever in deciding to outsource, but it is not the whole story. Outsourcing can enable strategic business goals by removing the need to focus on non-core activities and reduce organisational and technological strain. It provides access to world-class capabilities and technologies and access to volume flexibility while giving management a sharper focus on core activities.

Traditionally, outsourcing has been about doing the same things, but better, cheaper and faster. The motivation has been cost reduction rather than paradigm change. But, transformational outsourcing has changed all that, delivering a step change in an organisation's speed, agility and flexibility.

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Transformational outsourcing combines consulting, technology and outsourcing to stimulate and facilitate business change. Where traditional outsourcing was about doing the same things, transformational outsourcing is about creating a new business model - a step change in performance on the key dimensions of speed, agility and flexibility.

Choosing what and where to outsource

The decision of what to outsource and where to deliver services from is

critical. In terms of what to outsource, it is about transferring non-core, repeatable and technology-driven activities to better-equipped specialist service providers. But the line between what is core and non-core has blurred. Finance and accounting, for example, used to be thought of as central to business and while it is a critical process, it is not normally what the business is selling.

If a specialist service provider can perform core business activities faster, for less money and improve quality along the way, this could be a valid option. Ultimately, what to outsource is a judgement based on the right outsourcer for the right service.

Once considered bad practice, today it is feasible to outsource problems.

Conventional wisdom said only well-run operations should be outsourced and problems should be fixed in-house. The logic was based on the argument that it was too complex to use third parties to fix and run problems. That logic is misplaced, and outsourcers are geared up for and have many years experience of problem solving. By investing in often expensive skilled resources, processes and tools, they can resolve problems for multiple clients by sharing the investments as necessary. Outsourcers also have substantial experience in rapid operational performance improvement. Effectively leveraging an outsourcer's core competence and investments can help to solve problems and achieve a shorter time to benefits.

Challenging the suggestion that maintaining service quality through outsourcing is difficult enough without having other cultures and methods involved, outsourcers are setting up operations in locations where there are high

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volumes of qualified and skilled graduates, very capable of delivering business and IT services. India, Poland and China are exemplary. The fact that their costs are lower than those in the Western world should not cloud the issue of quality.

Additionally, governance and measurement frameworks monitor and manage the service delivery, and with commercial models based on risk and reward, services more often improve than remain static.

Moving to an outsourced environment

As theoretical decisions become practical activities, the move to an

outsourced environment involves transferring people, assets, knowledge and processes – all part of the enterprise. It is natural for concerns to arise about how smoothly the transfer will go and what the implications will be to the business. Here management is key and any misconceptions need to be corrected before they create obstacles to success.

In taking on and delivering a service, outsourcers rely on staff, knowledge and processes to execute it effectively. Therefore it is not in the interests of the outsourcer to lose any of the skills or knowledge required to deliver the service. In many cases staff transfer with the services, retaining embedded skills and knowledge in the service. Additionally, where staff do not transfer, joint transition teams capture and document both processes and tacit knowledge as part of the transfer, embedding these into the outsourced environment.

Perceptions about the implications of outsourcing for employees are also close to many people’s hearts and minds. Of course, some outsourcing arrangements require relocation or reduced staff levels and this must to be managed sensitively, balancing the needs of all stakeholders in the context of external competitive pressures. More often however, staff are transferred with the service, creating a positive effect.

For the employees, joining an outsourcing company can result in a broader choice of career paths with greater opportunities.

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In successful transition, culture is key. Changes mean an unsettling time and the more established the company considering outsourcing the greater the impact of cultural change. The bottom line is that culture is not lost, but evolved. In part, governance and the relationship between two companies drive culture. But many outsourcing companies’ cultures are never static. As the companies grow through large influxes of staff following outsourcing contracts, new employees have a strong influence on ensuring that their new culture is reinvigorated on a regular basis.

Beyond people issues is the erroneous concern that outsourcing means

losing control. The logic for this assertion goes something like this: "If we own and manage all our assets and resources in-house, then we have the freedom to make whatever resource allocation decisions we want to target whatever outcomes we want". This is true, but misses the bigger picture. Control is about governance and in this context the adage ‘what gets measured, gets managed’ is pivotal. Well-structured governance allows companies to influence the things that matter, chiefly business outcomes.

Typically, outsourcing relationships have tighter targets for outcomes than in-house operations and measurement tends to be more rigorous. So, perhaps counter-intuitively, outsourcing can mean tightening control rather than losing it. In practice, for many organisations the freedom to make choices is limited by, for example, the availability of the right skills or too great a focus on fire-fighting. In contrast, an outsourcing relationship offers access to a wider pool of skills and resources, making choice real.

It is impossible to plan and contract for all eventualities in outsourcing, especially in longterm agreements. The contract is the start of a relationship and it is the relationship that drives success in outsourcing. The deal and the contract are about setting the framework of top-down, aligned and mutually beneficial goals within which the relationship operates. Experience of implementing and fine-tuning outsourcing arrangements suggests that success is generated more by the quality of the relationships than by the fine details of the contract.

Relationships of this nature need to be managed effectively with appropriate measures of success, clear procedures for addressing the unforeseen and effective governance structures and procedures. There needs to be built-in

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room for manoeuvre so that both parties can ensure the partnership is as appropriate to their circumstances and business imperatives at the end of year five as it was on day one.

Manage the service

After transition and go-live, the ongoing management of outsourced

services initially creates a nervous tension. Services that have been managed and delivered in-house for many years are in the hands of an external party. The concern is that these services will be out of reach in terms of control and change.

This is not the case. Good outsourcing arrangements are based on

partnerships and clear guiding principles that support the long-term goals of the business. Service level agreements (SLAs) are one part of a good governance structure, designed to scope and agree on how services are delivered. They are not, however, a sufficient base for the ongoing management of services. As a business becomes more adaptive and volatile, the more flexibility it needs and the less critical SLAs become.

In essence, SLAs are a means of helping to control and manage the relationship between the client and supplier. They are not a substitute for the relationship and the misconception that regular interaction and involvement is not needed in light of some service agreements is potentially disastrous.

Indeed, regular interaction flies in the face of the notion that outsourcing decreases flexibility. The thinking behind the assertion goes like this: “Once we outsource services to a tightly-defined delivery agreement, there is no scope for flexibility”. This argument bypasses the fact that outsourcing is about supporting business outcomes and highlights the fact that flexibility means different things to different organisations.

When the daily management of in-house services is about trying to maintain control and fire-fighting, the degree of flexibility is quite high. Resources, time and money can be directed to problem areas at will. In an outsourcing arrangement, that level of flexibility will indeed decrease, as the delivery of services and management of resources is performed externally.

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By moving into a more efficient, effective and controlled outsourced

environment, degrees of freedom actually increase. It is in the interests of service providers to find ways of removing recurring problems to deliver smooth services that are easily managed. It lowers their costs and enables the freedom to proactively forecast demand and be better prepared to deliver the right service at the right time.

This is a prerequisite to being able to adapt and change services. By providing a service delivery environment that can change with volatility, strategic flexibility increases and demand from new business initiatives can be met. The commercial framework with the service provider will be key in governing how quickly this can be achieved, but planning for strategic growth early in outsourcing commercial negotiations does help to create flexibility.

BUSI�ESS PROCESS REE�GI�EERI�G

The Business Process Reengineering method (BPR) is defined by Hammer and Champy as 'the fundamental reconsideration and radical redesign of organizational processes, in order to achieve drastic improvement of current performance in cost, service and speed'. Value creation for the customer is the leading factor for BPR and information technology often plays an important enabling role. Davenport (1992) prescribes a five-step approach to the Business Process Reengineering model: 1. Develop the business vision and process objectives: The BPR method is

driven by a business vision which implies specific business objectives such as cost reduction, time reduction, output quality improvement.

2. Identify the business processes to be redesigned: most firms use the 'High-

Impact' approach which focuses on the most important processes or those that conflict most with the business vision. Lesser number of firms use the 'Exhaustive approach' that attempts to identify all the processes within an organization and then prioritize them in order of redesign urgency.

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3. Understand and measure the existing processes: for avoiding the repeating of

old mistakes and for providing a baseline for future improvements. 4. Identify IT levers: awareness of IT capabilities can and should influence

BPR. 5. Design and build a prototype of the new process: the actual design should not

be viewed as the end of the BPR process. Rather, it should be viewed as a prototype, with successive iterations. The metaphor of prototype aligns the Business Process Reengineering approach with quick delivery of results, and the involvement and satisfaction of customers.

As a 6th step of the BPR method some mention to adapt the

organizational structure and governance model towards the newly designed primary process.

When should BPR be used? Although it is difficult to give generic advice on this, some factors that can be considered are:

• is the competition outperforming the company by factors?

• are there many conflicts in the organization?

• is there an extremely high frequency of meetings?

• excessive use of non-structured communication? (memos, emails, etc)

• is it possible to consider a more continuous approach of incremental improvements?

Critics of the BPR approach

Reengineering has earned a bad reputation because such projects have often resulted in massive layoffs. In spite of the hype that surrounded the introduction of Business Process Reengineering, partially due to the fact that the authors of Reengineering the Corporation reportedly bought huge numbers of

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copies to reach the top of the bestseller lists, the method has not entirely lived up to its expectations.

The main reasons seem to be that:

� BPR assumes that the factor that limits organization's performance is the ineffectiveness of its processes. This may or may not always be true. Also BPR offers no means to validate this assumption.

� BPR assumes the need to start the process of performance improvement

with a "clean slate", i.e. totally disregard the status quo.

� BPR does not provide an effective way to focus the improvement efforts on the organization's constraints.

� Sometimes, or maybe quite often, a gradual and incremental change may

be a better approach.

� BPR is culturally biased towards the way of thinking of nations.

E�TERPRISE RESOURCE PLA��I�G (ERP)

Enterprise resource planning is a term derived from material resource planning. ERP are management information systems that integrate and automate many of the business practices associated with the operations or production aspects of an organisation. ERP systems typically handle different functions of an organisation such as planning, manufacturing, logistics, distribution, inventory, shipping, invoicing and accounting. It is a system that integrates all of these functions into a single system, designed to serve the needs of each different department within the enterprise. It is more of a methodology than a

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piece of software, although it does incorporate several software applications, brought together under a single, integrated interface.

Enterprise Resource Planning software can aid in the control of many business activities, like sales, delivery, billing, production, inventory management and human resources management.

ERPs are often called back office systems indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management systems that deal directly with the customers or supplier relationship management (SRM) systems that deal with the suppliers.

ERPs are cross-functional and enterprise wide. All functional departments that are involved in operations or production are integrated in one system. In addition to manufacturing, warehousing and shipping, this would include accounting human resources, marketing and strategic management.

In the early days of business computing, organisations used to write their own software to control their business processes. This is an expensive approach. Since many of these processes occur in common across various types of businesses, common reusable software may provide cost-effective alternatives to custom software. Thus some ERP software caters to a wide range of industries from service sectors like software vendors and hospitals to manufacturing industries and even to government departments.

Because of their wide scope of application within the firm, ERP software systems rely on some of the largest bodies of software ever written. Implementing such a complex and huge software system in an organisation usually involves an army of analysts, programmers, and users, and often comprises a very expensive project in itself for bigger organisations, especially transnationals.

Enterprise resource planning systems are often closely tied to supply chain management and logistics automation systems. Supply chain management software can extend the ERP system to include links with suppliers.

To implement ERP systems, organisations often seek the help of an ERP vendor or of their-party consulting organisations. Consulting in ERP involves two levels, namely business consulting and technical consulting. A business consultant studies an organisation’s needs. Technical consulting often involves

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programming. Most ERP vendors allow changing their software to suit the business needs of their customer.

Some risks to watch out for in implementing an ERP system include:

� Incompatibility of the ERP system with the operational level legacy systems (existing/ old information systems).

� User Resistance/ Revolt – Users who fear being downsized may sabotage the system.

� Mismatch between ERP system and organisational culture – If a system attempts to implement best practices inappropriate to the organisation, the system may suffer from “culture clash” consequences.

� Inability to control technology.

� Illogical processing.

� Inability to stop processing quickly.

� Cascading errors.

� Repetition of errors.

� Concentration of data.

� Inability to substantive processing.

� Concentration of responsibility.

ADVA�TAGES

The benefits from enterprise resource planning are claimed to include:

• Facilitates macro level decision making by having access to consolidated data/information.

• Transparency across entire organisation.

• Integration of all standard business process (human resources, financials, operation).

• Lower inventory carrying costs.

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• Lower ordering costs.

• Lower accounting and record keeping costs.

• Lower investment in equipment.

• Lower investment in plant.

• Reduced assembly line down-times.

• More flexible production processes.

• Reduced errors due to better coordination.

• The cost and efficiency improvements (mentioned above) could increase profitability or increase market share (at a lower price).

• Reduced number of stock-outs.

• Reduced fulfillment times.

• Increase process transparency for the customer.

• Allow greater product customization, and thereby better match the exact needs of the customer.

• The customer satisfaction improvements (mentioned above) could increase sales volume, increase sales revenue (due to a higher effective price, i.e. no discounts), increase market share, and increase profitability.

DISADVA�TAGES

The limitations and pitfalls of the enterprise resource planning are claimed to be:

• The systems can be very expensive to install and maintain.

• ERP are often seen as too rigid and difficult to adapt to the specific workflow and business process of some organisations, this is cited as one of the main cause of their failure.

• Some systems can be difficult to use.

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• The system is no better than the weakest link in the chain – a problem in one department or at one of the partners will affect all the other participants.

Regardless of how an organisation approaches it, ERP is sure to bring significant changes to how an organisation does business. It tinkers with the workflows, and alters long-standing processes. Organisations often meet with resistance on the part of employees who are reluctant to let go of their proven methods. Employees may also fear for their jobs; since ERP makes such radical changes to business processes. It’s not unusual for job descriptions to change or be eliminated altogether.

Once implemented however, the ERP system brings tremendous advantages. Because all systems are joined together, all departments can more easily share information. The workflow that takes place between departments can become much more automated, and ultimately, customers are better served because the individual using the customer-facing applications will have access to every bit of information regarding each relevant process. For example, someone in sales would easily be able to log into a single system to determine the status of a customer order that it still in manufacturing. All this comes at a cost though; training costs are high because employees must not only learn how to use new software, they must also learn new processes.

SUPPLY CHAI� MA�AGEME�T

Supply chain management is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service, manufactures that product or service and delivers it to customers.

The following are five basic components for supply chain management.

� Plan: This is the strategic portion of supply chain management. A strategy is required for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

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� Source: Choose the suppliers that will deliver the goods and services the organisation need to create a product or service. A set of pricing, delivery and payment processes with suppliers are to be developed and metrics for monitoring and improving the relationships need to be created. The processes for managing the inventory of goods and services received from suppliers, including receiving shipments, verifying them, transferring them to the manufacturing facilities and authorizing supplier payments need to be put together.

� Make: This is the manufacturing step. The activities necessary for production, testing, packaging and preparation for delivery are to be scheduled. As the most metric-intensive portion of the supply chain, quality levels, production output and worker productivity are to be measured.

� Deliver: This is the part that many insiders refer to as "logistics". The receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments need to be coordinated.

� Return: The problem part of the supply chain. A network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products need to be created.

Supply Chain Management Software

Supply chain management software is possibly the most fractured group of software applications on the planet. Each of the five major supply chain steps previously outlined composes dozens of specific tasks, many of which have their own specific software. There are some large vendors that have attempted to assemble many of these different chunks of software together under a single roof, but no one has a complete package. Integrating the different software pieces together can be a nightmare.

Perhaps the best way to think about supply chain software is to separate it into software that helps plan the supply chain and software that helps to execute the supply chain steps themselves.

Supply Chain Planning (SCP) Software uses fancy math algorithms to help improve the flow and efficiency of the supply chain and reduce inventory. SCP is entirely dependent upon information for its accuracy. In case of a

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manufacturer of consumer packaged goods for example, don't expect planning applications to be very accurate if the organisation cannot feed them accurate, up-to-date information about customer orders from retail customers, sales data from retailer customers' stores, manufacturing capacity and delivery capability. There are planning applications available for all five of the major supply chain steps previously listed. The most valuable (and complex and prone to error) is demand planning, which determines how much product the organisation will make to satisfy different customers' demands.

Supply Chain Execution (SCE) Software is intended to automate the different steps of the supply chain. This could be as simple as electronically routing orders from manufacturing plants to suppliers for the stuff the organisation need to make its products.

Is ERP Software Required to Install Supply Chain Software?

This is a very controversial subject. ERP is needed to install SCP applications because they are reliant upon the kind of information that is stored in the most quantity inside ERP software. Theoretically the information could be assembled to feed the SCP applications from legacy systems (for most companies this means Excel spreadsheets spread out all over the place), but it can be nightmarish to try to get that information flowing on a fast, reliable basis from all the areas of the company. ERP is the battering ram that integrates all that information together in a single application, and SCP applications benefit from having a single major source to go to for up-to-date information. Most chief executives who have tried to install SCP applications say they are glad they did ERP first. They call the ERP projects "putting your information house in order." Of course, ERP is expensive and difficult, hence the organisation want to explore ways to feed SCP applications the information they need without doing ERP first.

SCE applications are less dependent upon gathering information from around the company, so they tend to be independent of the ERP decision. But chances are that, SCE applications communicate with ERP in some fashion. It's important to pay attention to SCE software's ability to integrate with the Internet and with ERP or SCP applications because the Internet will drive demand for integrated information. For example, to build a private website for communicating with the customers and suppliers, the organisation has to pull

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information from SCE, SCP and ERP applications together to present updated information about orders, payments, manufacturing status and delivery.

Goal of Installing Supply Chain Management Software

Before the Internet came along, the aspirations of supply chain software devotees were limited to improving their ability to predict demand from customers and make their own supply chains run more smoothly. But the cheap, ubiquitous nature of the Internet, along with its simple, universally accepted communication standards have thrown things wide open. Now, theoretically anyway, the organisation can connect the supply chain with the supply chains of their suppliers and customers together in a single vast network that optimizes costs and opportunities for everyone involved. This was the reason for the B2B explosion; the idea that everyone you do business with could be connected together into one big happy, cooperative family.

Of course, the reality behind this vision is that it will take years to come to fruition. But considering that B2B has only been around for a few years, some industries have already made great progress, most notably consumer-packaged goods (the companies that make products that go to supermarkets and drug stores), high technology and autos.

When the customers ask the people on the front lines in these industries what they hope to gain from their supply chain efforts in the near term, they will all respond with a single word: visibility. The supply chain in most industries is like a big card game. The players don't want to show their cards because they don't trust anyone else with the information. But if they showed their hands they could all benefit. Suppliers wouldn't have to guess how much raw materials to order, and manufacturers wouldn't have to order more than they need from suppliers to make sure they have enough on hand if demand for their products unexpectedly goes up. And retailers would have fewer empty shelves if they shared the information they had about sales of a manufacturer's product in all their stores with the manufacturer.

Supply Chain Collaboration

Take consumer packaged goods as an example of collaboration. If there are two companies that have made supply chain a household word, they are Wal-Mart and Procter & Gamble. Before these two companies started collaborating back in the '80s, retailers shared very little information with manufacturers. But

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then the two giants built a software system that hooked P&G up to Wal-Mart's distribution centers. When P&G's products run low at the distribution centers, the system sends an automatic alert to P&G to ship more products. In some cases, the system goes all the way to the individual Wal-Mart store. It lets P&G monitor the shelves through real-time satellite link-ups that send messages to the factory whenever a P&G item swoops past a scanner at the register.

With this kind of minute-to-minute information, P&G knows when to make, ship and display more products at the Wal-Mart stores. No need to keep products piled up in warehouses awaiting Wal-Mart's call. Invoicing and payments happen automatically too. The system saves P&G so much in time, reduced inventory and lower order-processing costs that it can afford to give Wal-Mart "low, everyday prices" without putting itself out of business.

Cisco Systems, which makes equipment to hook up to the Internet, is also famous for its supply chain collaboration. Cisco has a network of component suppliers, distributors and contract manufacturers that are linked through Cisco's extranet to form a virtual, just-in-time supply chain. When a customer orders a typical Cisco product-for example, a router that directs Internet traffic over a company network-through Cisco's website, the order triggers a flurry of messages to contract manufacturers of printed circuit board assemblies. Distributors, meanwhile, are alerted to supply the generic components of the router, such as a power supply. Cisco's contract manufacturers, some of whom make subassemblies like the router chassis and others who assemble the finished product, already know what's coming down the order pipe because they've logged on to Cisco's extranet and linked in to Cisco's own manufacturing execution systems.

Soon after the contract manufacturers reach into Cisco's extranet, the extranet starts poking around the contractor's assembly line to make sure everything is kosher. Factory assemblers slap a bar code on the router, scan it and plug in cables that simulate those of a typical corporate network. One of those cables is a fire hose for Cisco's automated testing software. It looks up the bar code, matches it to a customer's order and then probes the nascent router to see if it has all the ports and memory that the customer wanted. If everything checks out-and only then-Cisco's software releases the customer name and shipping information so that the subcontractor can get it off the shop floor.

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And there you have it. No warehouses, no inventory, no paper invoices, just a very nosy software program that monitors Cisco's supply chain automatically, in real-time, everywhere, simultaneously. The chain runs itself until there's a problem, in which case the system alerts some poor human to get off his duff and fix something. Supply chain software junkies call this "management by exception." You don't need to do anything unless there is something wrong.

If there's a weakness to these collaborative systems, it's that they haven't been tested in tough times-until recently. Cisco's network was designed to handle the company's huge growth. Distributed decision making is great if the decisions have mostly to do with making and selling more things. But Cisco and its network were caught completely off guard by the recent tumble in the economy. It took awhile to turn all the spigots off in its complex network when demand for its products plummeted and Cisco and its supply chain partners got stuck with a lot of excess inventory-as did most other big manufacturers in high technology. Cisco was forced to take a hard look at its supply chain planning capability. SCP software is much better at managing growth than it is at monitoring a decline and correcting it.

Barriers in Installing Supply Chain Software

Gaining trust from suppliers and partners:

Supply chain automation is uniquely difficult because its complexity extends beyond the company's walls. The employees of the organisation will need to change the way they work and so will the people from each supplier that you deal with. Only the largest and most powerful manufacturers can force such radical changes down suppliers' throats. Most companies have to sell outsiders on the system. Moreover, the organisation’s goals in installing the system may be threatening to those suppliers, to say the least. To get supply chain partners to agree to collaborate with the organisation, it has to compromise and help the partners to achieve their own goals.

Internal resistance to change:

If selling supply chain systems is difficult on the outside, it isn't much easier inside. Operations people are accustomed to dealing with phone calls, faxes and hunches scrawled on paper, and will most likely want to keep it that way. If people are not convinced that using the software will be worth their time,

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they will easily find ways to work around it. They cannot disconnect the telephones and fax machines just because they have supply chain software in place.

Many mistakes at first.

There is a diabolical twist to the quest for supply chain software acceptance among the employees. New supply chain systems process data as they are programmed to do, but the technology cannot absorb a company's history and processes in the first few months after an implementation. Forecasters and planners need to understand that the first bits of information they get from a system might need some tweaking. If they are not warned about the system's initial naiveté, they will think it is useless. Once employees understood that they would be merging their expertise with the system's increasing accuracy, they began to accept and use the new technology.

Readymade Supply Chain Software Vs Own Software

Public (many-to-many) B2B exchanges and private (you to everyone else in your supply chain) exchanges began with grand promises of auctions and procurement savings for members, but few suppliers were tempted. Since then, most of these websites have morphed into becoming online hosts for supply chain software. For small companies that can't afford to buy the software on their own, the public exchanges will probably be their source. But for now many of the offerings are immature and aren't getting much use. Companies that can afford to are building their own private connections with their trading partners online rather than going through public exchanges. But even these companies will eventually use the public exchanges when they can. Building and maintaining software just is not a great deal if there is someone out there willing to do it.

The ambitious public exchanges, with their independence and neutrality, hold out the hope of attracting more buyers and suppliers together in one place, but the level of specificity of a public exchange's supply chain software will probably never reach the depth that a company could build with a select few suppliers in a private exchange. So most decision makers are saying they will use public exchanges for the generic supply chain connections they make, and build their own for the really strategic deep, supply chain relationships they have.

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REVIEW QUESTIO�S:

1. Critically comment Business Process Outsourcing.

2. What is Business Process Reengineering? What are the approaches to Business Process Reengineering model?

3. What is ERP? What are its advantages and disadvantages?

4. What is Supply Chain Management? What are its objectives?

References:

TONY KELLY, THE MYTHS OF OUTSOURCING: ADDI-G CLARITY

A-D REALITY TO MARKET MISCO-CEPTIO-S, CAPGEMINI

Christopher Koch, Executive Editor, Investigations can be reached at ckoch@cio.com.