CBSE Class 12 Business Studies
Revision Notes
CHAPTER – 2
PRINCIPLES OF MANAGEMENT
Principle
A principle is a fundamental statement of truth that provides guidance to thought and action.
Principles of Management
Principles of management are broad and general guidelines for managerial decision making and behavior (i.e. they
guide the practice of management).
Nature of Principles of Management
The nature of principles of management can be described in the following points:
1. Universal applicability i.e. they can be applied in all types of organizations, business as well as non-business,
small as well as large enterprises.
2. General Guidelines: They are general guidelines to action and decision making however they do not provide
readymade solutions as the business environment is ever changing or dynamic.
3. Formed by practice and experimentation: They are developed after thorough research work on the basis of
experiences of managers.
4. Flexible: Which can be adapted and modified by the practicing managers as per the demands of the situations as
they are man-made principles.
5. Mainly Behavioural: Since the principles aim at influencing complex human behaviour they are behavioural in
nature.
6. Cause and Effect relationship: They intend to establish relationship between cause & effect so that they can be
used in similar situations.
7. Contingent: Their applicability depends upon the prevailing situation at a particular point of time. According to
Terry, “Management principles are ‘capsules’ of selected management wisdom to be used carefully and
discretely”.
Significance of the Principles of Management
The significance of principles of management can be derived from their utility which can be understood from the
following points:
1. Providing managers with useful insights into reality: Management principles guide managers to take right
decision at right time by improving their knowledge, ability and understanding of various managerial situations and
circumstances.
2. Optimum utilization of resources and effective administration: Management principles facilitate optimum use
of resources by coordinating
the physical, financial and human resources. They also help in better administration by discouraging personal
prejudices and adopting an objective approach.
3. Scientific decisions: Decisions based on management principles tend to be more realistic, balanced and free
from personal bias.
4. Meeting the changing environmental requirements: Management principles provide an effective and dynamic
leadership and help the organization to implement the changes.
5. Fulfilling social responsibility: Principles of management not only help in achieving organizational goals but also
guide managers in performing social responsibilities. Example : “Equity” and “Fair” remuneration.
6. Management training, education and research: Management principles are helpful in identifying the areas in
which existing and future managers should be trained. They also provide the basis for future research.
Fayol’s Principles of Management
About Henry Fayol: Henry Fayol (1841-1925) got degree in Mining Engineering and joined French Mining Company
in 1860 as an Engineer. He rose to the position of Managing Director in 1988. When the company was on the verge
of bankruptcy. He accepted the challenge and by using rich and broad administrative experience, he turned the
fortune of the company. For his contributions, he is well known as the “Father of General Management”.
Principles of Management developed by Fayol
1. Division of work: Work is divided in small tasks/job and each work is done by a trained specialist which leads to
greater efficiency, specialization, increased productivity and reduction of unnecessary wastage and movements.
2. Authority and Responsibility: Authority means power to take decisions and responsibility means obligation to
complete the job assigned on time. Authority and responsibility should go hand in hand. Mere responsibility
without authority, makes an executive less interested in discharging his duties. Similarly giving authority without
assigning responsibility makes him arrogant and there is fear of misuse of power.
3. Discipline: t is the obedience to organizational rules by the subordinates. Discipline requires good supervisors at
all levels, clear and fair agreements and judicious application of penalties.
4. Unity of Command: t implies that every worker should receive orders and instructions from one superior only,
otherwise it will create confusion, conflict, disturbance and overlapping of activities.
5. Unity of Direction: Each group of activities having the same objective must have one head and one plan. This
ensures unity of action and coordination.
Difference between Unity of Command and Unity of Direction
Basis Unity of Command Unity of Direction
It advocates ‘one head, and one plan‘ for a group of
It means that a subordinate should receive
1.Meaning activities having the same objectives. The activities should
orders and instructions from one boss only.
be directed towards the common goals.
This principle is related to the functioning of This principle is related to the functioning of a department
2.Scope
personnel or the organization as a whole
The main purpose of unity of command is to The purpose of unity of direction is to direct the efforts of
3.Purpose avoid confusion and fix up the responsibility employees of one department in achieving the main
of the employee. objective of that department.
Systematic working and improved efficiency
4.Results Co-ordination within a particular department and overall;
by removing confusion and chaotic
in by preventing overlapping of various activities.
conditions
7. Remuneration of Employees: The overall pay and compensation should be, fair to both employees and the
organization. The wages should encourage the workers to work more and better.6. Subordination of Individual
Interest to General Interest: The interest of an organization should take priority over the interest of any one
individual employee.
8. Centralization and Decentralization: Centralization means concentration of decisions making authority in few
hands at top level. Decentralization means evenly distribution of power at every level of management. Both should
be balanced as no organization can be completely centralized or completely decentralized.
9. Scalar Chain: The formal lines of authority between superiors and subordinates from the highest to the lowest
ranks is known as scalar chain. This chain should not be violated but in emergency employees at same level can
contact through Gang Plank by informing their immediate superiors.
10. Order: A place for everything and everyone and everything and everyone should be in its designated place.
People & material must be in suitable places at appropriate time for maximum efficiency.
11. Equity: The working environment of any organization should be free from all forms of discrimination (religion,
language, caste, sex, belief or Basis Unity of Command Unity of Direction nationality) and principles of justice and
fair play should be followed. No worker should be unduly favoured or punished.
12. Stability of Personnel: After being selected and appointed by rigorous procedure, the selected person should
be kept at the post for a minimum period decided to show results.
13. Initiative: Workers should be encouraged to develop and carry out their plan for improvements. Initiative
means taking the first step with self-motivation. It is thinking out and executing the plan.
14. Espirit De Corps: Management should promote team spirit, unity and harmony among employees.
Management should promote a team work.
Taylor’s Scientific Management
Fredrick Winslow Taylor (1856-1915) was a person who within a very short duration (1878-1884) rose from ranks
of an ordinary apprentice to chief engineer in Midvale Steel Company, U.S.A. Taylor conducted a number of
experiments and came to conclusion that workers were producing much less than the targeted standard task. Also,
both the parties - Management and workers are hostile towards each other. He gave a number of suggestions to
solve this problem and correctly propounded the theory of scientific management to emphasize the use of
scientific approach in managing an enterprise instead of hit and trial method. For his contributions, he is well
known as the “Father of the Scientific Management”. Scientific Management attempts to eliminate wastes to
ensure maximum production at minimum cost.
Principles of Scientific Management
(1) Science, not rule of Thumb: There should be scientific study and analysis of each element of a job in order to
replace the old rule of thumb approach or hit and miss method. We should be constantly experimenting to
develop new techniques which make the work much simpler, easier and quicker.
(2) Harmony, Not discord: It implies that there should be mental revolution on part of managers and workers in
order to respect each other’s role and eliminate any class conflict to realize organizational objectives.
(3) Cooperation not individualism: It is an extension of the Principle of Harmony not discord whereby constructive
suggestions of workers should be adopted and they should not go on strike as both management and workers
share responsibility and perform together.
(4) Development of each and every person to his or her greatest Efficiency and Prosperity: It implies
development of competencies of all persons of an organization after their scientific selection and assigning work
suited to their temperament and abilities. This will increase the productivity by utilizing the skills of the workers to
the fullest possible extent.
1. Functional Foreman-ship: Functional foreman-ship is a technique in which planning and execution are
separated. There are eight types of specialized, professionals, four each under planning and execution who keep a
watch on all workers to extract optimum performance.
Planning Incharges:
1. Route Clerk to specify the exact sequence and route of production.
2. Instruction card clerk is responsible for drafting instructions for the workers.
3. Time and cost clerk to prepare time and cost sheet for the job.
4. Shop Disciplinarian to ensure discipline and enforcement of rules and regulations among the workers.
Production Incharges:
1. Gang boss is responsible for keeping tools and machines ready for operation.
2. Speed boss is responsible for timely and accurate completion of job.
3. Repair boss to ensure proper working conditions of tools and machines.
4. Inspector to check quality of work.
2. Standardization and Simplification of work: Standardization refers to developing standards for every business
activity whereas Simplification refers to eliminating superfluous varieties of product or service. It results in savings
of cost of labour, machines and tools. It leads to fuller utilization of equipment and increase in turnover.
3. Method Study: The objective of method study is to find out one best way of doing the job to maximize efficiency
in the use of materials, machinery, manpower and capital.
(1) Which technique of scientific management is being violated here?
(Hint: Functional Foreman ship.)
(2) Write one consequence of this violation.
4. Motion Study: It is the science of eliminating wastefulness resulting from using unnecessary, ill-directed and
inefficient motions by workers and machines to identify best method of work.
5 Time study: It determines the standard time taken to perform a well-defined job. The objective of time study is
to determine the number of workers to be employed, frame suitable incentive schemes & determine labour costs.
6. Fatigue study: Fatigue study seeks to determine time and frequency of rest intervals in completing a task. The
rest interval will enable workers to regain their lost stamina thereby avoiding accidents, rejections and industrial
sickness.
7. Differential piece wage system: This system links wages and productivity. The standard output per day is
established and two piece rates are used: higher for those who achieve upto and more than standard output i.e.
efficient workers and lower for inefficient and slow workers. Thus, efficient workers will be rewarded & inefficient
will be motivated to improve their performance.
For example: Standard task is 10 units. Rates are: Rs 50 per unit for producing 10 units or more and Rs 40 per unit
for producing less than 10 units
Worker A produces 11 Units; he gets Rs 550 (11 units x 50 per unit)
Worker B produces 09 units; he gets Rs 360 (9 units x 40 per unit)
This difference of Rs 190 will motivate B to perform better.
Basis Fayol Taylor
1. Nature of He developed the theory of Functional He developed the concept of Scientific
Research management or Management process. management.
His principles are concerned with management His principle and techniques are concerned
2. Concern
efficiency. with workers efficiency.
He designed principles for top level of He designed principles for lower level of
3. Level
management. management.
Improving overall administration by observing For him increasing productivity through work
4. Focus
certain principles was his main focus. simplification was main focus.
He developed the personality of a researcher and
He developed the personality of scientist and
5. Personality practioner and was called as ‘father of general
was called as ‘father of scientific management
management.
Hid main contribution was to produce a systematic He provided a basis on accomplishment on
6. Major
theory of management with the help of fourteen production line with the help of scientific
contribution
principles of general management. techniques and management.
He gave due emphasis to human elements by
7. Human He ignored the human element and
suggesting principles like equality, initiative, fair
element emphasized more on increasing productivity.
renumeration etc.
He was rigid in his approach and he felt that
8. Rigidity and
His principles were flexible. there should be no deviation from fixed
flexibility
standards.
His principles are applicable to business as well as His principles are applicable to production and
9. Applicability non-business organizations i.e. are applicable manufacturing i.e. are applicable to specific
universally. situations.
10. Unity of He strictly follow this principles i.e. one boss for one He did not follow this principle instead he
command employee. insisted on minimum eight bosses.
8. Mental Revolution: It involves a complete change in mental outlook and attitude of workers and management
towards one another from competition to cooperation. The management should create pleasant working
conditions & workers should work with devotion and loyalty. Instead of fighting over distribution of profits, they
must focus attention on increasing it
