CHAPTER ONE

FUNDAMENTALS OF MANA6EMENT

1.1 Introduction
From the beginning of the civilization and from the time people began to live in groups, the practice of
management had begun. As people started forming groups to achieve their goals, even be it say for hunting,
they quickly realized that managing is necessary toensure proper coordination of all the individuals in the
group. Today if you look at the society you would realize that the society stands on group effort
and hence theimportance of management. Ever since people begun forming groups to accomplish aims,
they could not achieve them as they intended as managing individuals has been important to ensure the
coordination of individual efforts. As society has come to rely increasingly on group efforts and as many
organized groups have become large, the taskof managers has been rising in importance.
Management is a stimulating course for it deals with seeking, testing, and reaching objectives. Even in the
ancient time, although it was not formalized people planned their work, organized their activities, assigned
workers to those positions, led their workers, and checked whether they have achieved their planned actions
or not and these activitieswere prevalent and apparent. This is to say management had existed in the past,
exists today and will continue to exist even with increasing importance as the world is changing rapidly
in every aspect. Had it not been for the utilization of management principles and practices, the marvelous
accomplishments like the obelisk of Axum, the temple of Lalibela, the pyramids of Egypt, the Great Wall
of China, and many others would not have been possible. It is also possible to see how much management
is essential for successful accomplishment of individual as well as organizational goals just by looking at
what takes place in our vicinity.
We are all managers of our lives and the practice of management is found in every face of the human
activities. It is not unique to business organizations but is common to all kinds of organizations with
certain objective to be achieved and resources to be deployed. Be the organization is a school, a church,
government unit, armed forces, charity organization, house hold, etc., management is crucial for it enables
an organization to achieve its objectives efficiently and effectively.
Management Key Concepts
⚫ Organizations: A group of people working together in a structured and coordinated fashion to achieve
a set of goals.
⚫ Goal: A desired future condition that the organization seeks to achieve.
⚫ Management: The process of using organizational resources to achieve the organizations goals by...
Planning, Organizing, staffing, Leading, and Controlling.
⚫ Organizational Performance: Measures how efficiently and effectively managers use resources to satisfy
customers and achieve goals.
⚫ Efficiency: A measure of how well resources is used to achieve a goal. It is getting high output or the
same amount of output at the same amount of inputor lower input, respectively.
• Maximizing the organization9s productivity by wise utilization of scarce resources.
• It is spending less & acquiring more by minimizing cost
• It is concerned with cost reduction
• It is doing things right
• Usually, managers must try to minimize the input of resources to attain the same goal. Technical
efficiency = Output quality / Input quantity
• Effectiveness: A measure of the appropriateness of the goals chosen (are these theright goals?), and the
degree to which they are achieved.
✓ It is providing the right product for the right person or customer.
✓ Determine the success of the organization b/c it is doing the right
✓ Management is the process of working with and through others.
✓ Organizations are more effective when managers choose thecorrect goals and then achieve them.
✓ Effectiveness = Enterprise objectives/Input Quantity
1.2 Definition of Management
There is no single, comprehensive and universally accepted definition of management.This holds true due
to the following major reasons among others:
 Different scholars view management from different perspectives.
 It has many areas of applications. It is applied in profit, not for profit, private, government, social and
business organizations.
 Management as a discipline is recent in origin and hence there are a number of theories being added
to the field.
 It is so broad that it is difficult to encompass all its aspects in a single definition
 It has undergone changes because of the developments in behavioral science and quantitative
techniques.
 There are different approaches to management, definitions change as the environment changes.
  The environment of an organization changes due to changesin the political, social, economic, ethical
and others factors.
Yet, a definition of management is necessary to improve the practice of management. The following are
among the most widely accepted definitions of management:
 Management is the art of getting things done through and with people in a formally organized group.
 It is the art of knowing what you want to do in the best and cheapest way
 It is a distinct process consisting of activities of planning, organizing, staffing, leading and controlling
performance to determine and accomplish stated objectives with the use of human and non - human
resources.
 It can also be defined as the art of securing maximum results with a minimum of efforts so as to secure
maximum prosperity and happiness for both the employer and employees and give the public the best
possible service.
For the sake of convenience, we can define management as a distinct process consistingof managerial
functions so as to design and maintain conducive environment in order toachieve common group goals in
organization.
NB Finally: the definitions are not contradicted or mutually exclusive. Management is the synthesis of all
the definitions given by different theorists.
1.2 Significance of Management
Management plays a unique role in modern society. Peter F. Drucker has summarised the essence of
management as “under developed countries are under managed, it denotes the multidimensional
significance of management. The significance of management can be broadly.
1. Advantages to the organization.
2. Advantages to the society.
Advantages to the Organisation:
(i) Determination of Objectives:
The success of various operations of an organisation mainly depends on the identification of its objectives.
Objectives are identified and laid down by the management. They should be the writing and communicated
to all others in the management.
(ii) Achieving of objectives: It is the management which directs the group effort towards the achievement
of various objectives. It brings the human and non- human resources together.
(iii) Meeting challenges:
All the policy decisions of an enterprise are taken by the management. It keeps in touch with the current
environment and predicts what is going to happen in future. Through better planning and control,
management steers a concern to meet the demands of the changing environment.
(iv) Provides innovation:
Management infuses an enterprise with new ideals, imaginations and vision.
(v) Smooth running of business:
Management helps in smooth running of business through better planning and control.
Advantages to the Society:
(i) Optimum utilisation of Resources:
It is the management which makes optimum utilisation of various resources such as land, labour, capital
and enterprise. “No ideology, no ism, no political theory can win greater output with less efforts, only
sound management”, says Urwick and Brech.
(ii) Social Benefits:
Management raises the standard of living of the people by providing good quality products at the lowest
prices. It also promotes peace and prosperity in the society through optimum use of scarce resources.
(iii) Role in national economic development:
“Management is the crucial factor in economic and social development”, says Peter
F.Druker. The development of a nation mainly depends on the quality of management of its resources. It
is all the truer in a developing country like India, were productivity is low and the resources are limited.
(iv) Employment:
The expansion and diversification activities of the managers in organisations create more employment to
the society. This is very essential for our country.
1.3 Characteristics of Management
❖ Management is a group activity:
It is a group activity. Nobody can satisfy all his desires himself. Therefore, he unites which his fellow-
beings and works in an organized group to achieve what he cannot achieve individually. Massie has rightly
called management as a “Co-operative group “.
 ❖ Management is Goal - oriented:
According to Theo Haiman “Effective management is always management by objectives." Group
efforts are directed towards the achievements of some predetermined goals. Management is concerned
with establishment and accomplishment of these objectives.
❖ Management is a factor of Production:
Management is not an end in itself. It is a means to achieve the group objectives. It is a factor of production
that is required the co-ordinate with the other factors of production for the accomplishment of
predetermined goals and objectives.
❖ It is a Universal Character:
Management is essential in all types of concerns. It somewhere there is some human activity, management
is must there. The basic principles of management are universal. These can be applied in all types of
concerns i.e. business, social, religious, cultural, sports, educational an international technology.
❖ Management is needed at all levels of the enterprise:
On the basis of the nature of work or target and the scope of authority, management is needed at all levels
of the organisations e.g., top level, middle level and supervisor level.
❖ It is a distinct function:
Management is a distinct function performed to fix and achieve stated objectives by the use of manpower
and other factors of production. Different from the activities, techniques and procedures, the process of
management consists of such functions as planning, organizing, staffing, directing, coordinating,
motivating and controlling.
❖ It is a Social Process:
Management is taken as a social process. It has a social responsibility to make reasonable use of scarce
resources keeping in view the benefit of the community as a whole.
❖ System of Authority:
Authority is the power to compel men to work in a specific manner. Management cannot work in the
absence of authority. There is a chain of authority and responsibility among people working at different
levels of the organization. There cannot be an efficient management without well-defined lives of
command a superior subordinate relationship at every level of decision making.
❖ Management is a coordinating force
➢ Orderly arrangement of activities to avoid duplication and overlapping.
 ➢ Integrates human and physical resources.
❖ Management is intangible
➢ Management cannot be touched and felt.
➢ It does not have physical presence (It is an unseen force).
❖ Management is multi-disciplinary
➢ Management has received rich contribution from various disciplines like psychology,
sociology, anthropology etc.
➢ Management is about creating synergy (Synergy means “the whole is greater than the sum of its
parts”).
❖ Management is dynamic
➢ Management is an ongoing process; it continues to operate as long as there is organized action for
the achievement of group goals.
❖ Management is a creative activity
➢ Management provides creative ideas and new imagination
❖ Management is decision making
➢ Management of an organization continuously takes decisions which decides the fate of the
organization.
❖ Management is a profession
➢ Individuals can be trained and turned to become a management professional.
1.4 Managerial Functions: An Overview
Management functions are the activities that managers are supposed to perform as resultof the position held
in the organization. Regardless of the type of firm, all managers havecertain basic functions-planning,
organizing, staffing, leading and controlling. The scope and nature of these functions vary from one
management level to another and from firmto firm. The order in which these functions are performed is
rarely as orderly as shown below even though all managers need to be concerned with them.
Below, thesefunctions are briefly described. Later, each of them will be discussed in greater detail in a
separate chapter.
1) Planning: is the process of selecting mission and objectives and the course of actionto attain them. It
is a decision-making process that determines what to do, how to do it, why it is done, when it is to be
done, by whom it is to be done and with what resources. It serves as a bridge that connects the present
with the future as in planning what should be done in the future is determined today.
2) Organizing: is the process of distributing the work among the group members and establishing the
relationships that are needed to ensure smooth accomplishment ofjobs. It involves identification of
activities to be carried out, grouping these activitiesinto working units, assignment of responsibilities
to each unit with corresponding authority.
3) Staffing: is the process of ensuring that employees are recruited, selected, trained, and developed, and
rewarded for successful accomplishment of goals. It is a continuous and vital function of management
which involves filling and keeping filled positions in a given organizational structure.
4) Leading/Directing: is about motivating individuals and groups to exert their effort towards
organizational goals. In short, it is concerned with influencing people to work hard. Leading
encompasses three essential elements: motivation, leadership and communication.
5) Controlling: is the process of setting standards, measuring actual performance results, comparing actual
versus plan, identifying deviations and finally taking remedial actions if the deviation between actual
and plan is significant. The main objective is to ensure that events conform to plans and if not, to bring
them back to the normal track.
1.5 Levels of Management and Types of Managers
Levels of Management
We can classify managers either on the basis of their levels in the organization or by the range of
organizational activities for which they are responsible- so called functional and general managers.
Although all managers may perform the same basicduties and play similar roles, the nature and scope of
their activities differ from level to level. Here level refers to hierarchical arrangements of managerial
positions in an organization. They are steps between subordinates and management organized to achieve
organizational goals. The number of managerial levels in an organization depends on the size of the
organization. The larger the size, the more will be the number of levels and the smaller the organization
in size, the fewer will be its levels. In most organizations, however, there are three distinct levels as depicted
in the figurebelow.
Figure1.1: Levels of Management
Top
Level
Middle
Level
First Line/lower level
1. Top Level Managers: this level is composed of a comparatively small number of executives and they
are responsible to the overall management of the organization. Theyestablish operating policies and
guide the organizations interactions with its environment. Typical titles include chief executive
officers (CEOs), president, senior vicepresident, general manager and the like. The major duties of top-
level managers are:
 Establishing broad objectives
 Designing major strategies and polices for the achievement of long- t e r m objectives
 Providing effective organizational structure that ensures integration
 Providing overall leadership and direction
 Making overall control of the organization
 Dealing with external parties such as the government, community, businessesby representing the
organization
 Analyzing the changes in the external environment and responding to them.
Note that as one moves from the lower level to the higher level, the number of managers become smaller
and smaller and this is the reason why the level of management have such a pyramidal shape.
2. Middle Level Managers: these are managers who direct the activities of lower-level managers and
sometimes extend to supervision of operating employees. The middle managers are known in many
organizations as plant managers, or directors of operations. Middle level managers include all
managers above the supervisory level but below the level where overall company policy is determined
and they have authority over other managers. The following are specific functions of middle level
managers:
 Acting as intermediary between top and first line managers
 Translating long term plans into medium term plans
 Developing specific targets in their areas of responsibility
 Coordinating inputs, outputs and productivity of operating level managers
 Developing specific schedules to guide action and facilitate control
3. First Line /Lower-Level Managers: are managers who are responsible for the work of operating
employees only and do not supervise other managers. They are the lowest level of management in the
organizational structure. Typical titles in this level include office managers, section chief,
superintendents, foremen, chief clerks, supervisors and the like. First line managers, often called
supervisors, are mainly concerned with:
  Planning of day-to-day activities
 Assigning operating employees to specific tasks
 Keeping a watch on workers performance
 Sending reports and statements to superiors
 Maintaining close and personal contact with workers
 Issuing instructions at the work place, following up, motivating and evaluatingworkers.
In the above discussion we noted that all managers perform the management functions of planning,
organizing, staffing, leading and controlling. However, the amount of time and effort devoted to each
function varies depending on the manager’s level. For example, front line managers usually spend less
time on long term planning than top level managers, but they spend much more time and effort in leading
their subordinates.At higher level, less time is spent on leading. The amount of time and effort devoted to
controlling are fairly equal at all levels of management. Moreover, top level and middle level exercise
staffing function more frequently than lower-level managers do.
Types of Managers
Managers are also classified based on the scope of the activity they manage in to functional and general
managers.
A, Functional Managers
Functional managers supervise with specialized skills in a single area of operations, suchas accounting,
personnel, finance, marketing and production.
B, General Managers
General Managers are responsible for the overall operations of more complex unit, such as accompanier
division. General managers hold functional managements accountable fortheir areas and usually coordinate
two or more departments.
Who are managers?
Manager - someone whose primary responsibility is to carry out the management process.
Specifically, a manager is someone who plans, makes decisions, organizes, leads,and controls human,
financial, physical, and information resources.
Managers are those who are responsible for achieving the organizational goals ni an effective and
efficient manner through proper scarce resource utilization
A good manager is
The one who feel sense of responsibility, belongingness, accountability…
 Who take initiative (innovator) for new things or discovery.
Who effectively & efficiently brings factors of production together
1.6 Managerial Roles and Skills
A) Managerial Roles
There are diverse activities that managers are expected to perform at various levels of the organization. Many
people consider managerial functions and managerial roles are synonyms. But there are basic differences
between the two.
Managerial functions are broad areas of activities that represent the ends for which management is
practiced. They are purposes that tell about what managers actually perform. They simply indicate the
objectives of managers when they do their work. There must be the means to successfully accomplish
managerial functions and these means are managerial roles. They are categories of actual managerial
behavior. Managerial roles represent specific tasks that managers undertake to ultimately accomplish the
various functions of management. They are organized set of activities belonging to an identified job that
give more realism and systematize managerial functions. One of the most frequently cited studies of
managerial roles was conducted byHenry Mintizberg. He stated that managers perform ten different but
closely related rolesand he categorized them into three broad groups.
1) Interpersonal Roles: the three interpersonal roles are figurehead, leader and liaison roles. These roles
grow from the managers formal authority and focus on interpersonal relationships. These roles require
interaction with others in regular basis.
➢ Figurehead Role: this role is played by managers who are required to perform duties of ceremonial
and symbolic in nature. It is the most basic and the simplest of all managerial roles. A president who
greets a touring dignitary, a mayor who presents a key of the city to a local hero, the supervisor who
attends the wedding of a machine operator, a sales manager who takes an important customer to lunch,
and a manager who presents certificates to out performing employees all are performing ceremonial
duties important to the organizations image and success.While these duties may not seem important,
they are expected of managers as theysignify managements concern for employees, customers and to the
society at large.
➢ Leadership Role: the leadership role involves responsibility for directing and coordinating the
activities of subordinates in order to accomplish organizational objectives. Some aspects of the
leadership role have to do with staffing-hiring, training, disciplining and promoting. Others aspects
involve motivating subordinateto meet the organizations goals. Still other aspects relate to creating a vision
 that a company’s employees identify with.
➢ Liaison Role: this role refers to dealing with people outside the organization such asclients, government
officials, customers and suppliers. It also refers to dealing with managers in other departments, staff
specialists, and other departments employees.In the liaison role, the manager seeks support from people
who can affect the organizations success.
2) Informational Role: effective managers build networks of contacts for sharing information. Because
of these contacts, managers emerge as the nerve center system of their organization. Many contacts made
while performing figurehead and liaison roles give managers access to a great deal of important
information. The following three roles describe the informational aspects of managerial work:
 Monitor Role: this role involves seeking out, receiving and screening information. Justas a radar unit
scans the environment, managers scan their environment for information that may affect their
organization. Since much of the information receivedis oral-gossip, hearsay, formal meetings-managers
must evaluate and decide whetherto use this information.
 Disseminator Role: here the manager shares information with subordinates and other pertinent
members. Sometimes the manager may pass along special or privileged information to certain
subordinates who would not originally have access to it and who can be trusted not to let it go further.
In practice, passing information along subordinates is often difficult and time consuming. Therefore, a
manager must decidewhich and how much information will be useful.
 Spokesperson Role: in the spokesperson role managers transmit information to others,especially those
outside the organization. The manager is a person who speaks for hisor her work unit/organization or to
people outside the work unit. Here the manager represents the unit to other people.
3) Decisional Role: managers use information to make decisions about when and how tocommit their
organization to new objectives and actions. Decisional roles are perhapsthe most important of the three
categories of roles. Managers are the core of the organizations decision making system as they play the
following four decisional roles:
 Entrepreneurial Role: this role involves designing and initiating planned changes in order to improve
the organizations position. Managers play this role when they initiate new projects, launch a survey, test
a new market, or enter into new business.
 Disturbance Handler Role: this role is played by managers when they deal with problems and
changes beyond their immediate control. Typical problems includelabor strikes, bankruptcy of
major suppliers, or breaking of contracts by customers. Sometimes disturbances may arise because a poor
 manager ignores the situation until it becomes a crisis. However, even good managers cannot possibly
anticipate all the consequences of their decisions or control the actions of others.
 Resource Allocator Role: this role is about choosing among competing demands for money,
equipment, personnel, and others demand on manager’s time. What portion of the budget should be
earmarked for advertising and what portion for improving anexisting product line? Should the firm add
a second shift or pay overtime to handle new orders? Whether to automate certain plants or close others
requires performing such a role.
 Negotiator Role: closely linked to the resource allocator role is the negotiator role. In this role
managers meet and discuss their differences with individuals or groups for thepurpose of reaching an
agreement. Negotiations are an integral part of a manager’s job. They are especially tough when a
manager must deal with others like unions andpolitical action groups who do not share the managers
objectives.
B). Managerial Skills
 Regardless of the level of management, managers ought to possess and seek to further develop many
critical skills. Skill is an ability or proficiency in performing particular task. Management skills are
learned and developed. Good management practices can also be learned and applied. Management
success depends both on a fundamental understanding of the principles of management and on the
application of technical, human and conceptual skills. Successful managers are indeed eclectic in that
they mustpossess and be skilled in the three skills.
1. Technical Skill: is the ability to use specific knowledge, techniques, and resources in performing works.
It is knowledge and proficiency in activities involving methods,processes, and procedures. Thus, it
involves working with tools and specific machines.
Normally technical skills are more important at lower level of management and itsimportance decreases as
we go up the ladder. This holds true because supervisorymanagers must train their subordinates in the
proper use of work-related tools, machines and equipment9s. This usually includes specialized knowledge
and the ability to perform with that specialty
2. Human skill: is the ability to work with people. It is cooperative effort, team workand creation of an
environment in which people feel secured and free to express their opinions. It is also the ability to
resolve conflict. 6enerally, human skill is theskill to motivate and create enthusiasm in the minds of
followers. Since managersmust accomplish much of their work through the efforts of other people,
their ability to work with, motivate, counsel and understand others is most important. Therefore, this
 skill is equally essential at all levels of management.
3. Conceptual skill: is the ability to see the <big picture=, to recognize significant element in a situation
and to understand the relationship among elements. Theseskills are the abilities needed to view the
organization from a broad perspective and to see the interrelationships among its components.
Conceptual skills are important in strategic planning. Therefore, they are more important to top level
executives than to middle managers and supervisors. To conceptualize requires imagination, broad
knowledge, and the mental capacity to conceive abstract ideas.
The relationship between management levels and skills of managers is illustrated inthe figure below.

Top Level conceptual skill

Middle level
Human Skill

Lower level
Technical skill

Figure 1.2 managerial levels vs. skills required

1.6. Universality of management
Although the type, objectives, problems and other organizational constraints, and nature of different
organizations vary widely, the functions performed by each manager are nearly the same. This means, to
successfully attain the objectives of any organization, managers must plan, organize, staff, lead, and
control. These are the basic managerial functions.
To be more specific, management is regarded as a universal activity because of the following factors:
❖ In all kinds of organizations, the basic managerial functions are used to make individuals contribute
to group objectives. Management thus, applies to any type of organization.
a) From small to large and complex
b) In profit making and non-profit making
c) In manufacturing and service giving
d) In all political systems, socialist, capitalist, mixed, etc.
❖ Management is important for any organization or entity regardless of objective(s) for which it is
 established to reach the stated goals or objectives.
❖ Any person who holds managerial position in an organization performs the five functions of
management. The first level, middle level, and top level managers perform the same functions. What
varies from level to level is that the various management levels require different amounts of time for
each function, and the points of emphasis in each function are different.
❖ The principles of management are universal. They are applicable to any kind of organization
wherever there is the coordinated effort of human beings. Thetype of enterprise is not significant.
The managerial principles are also transferable from department to department.
Therefore, since at higher levels of management the operating non-managerial component of the job is
fewer and the job is more purely managerial, there is great possibility of transferability of management
from organization to organization and from department to department.
1.7. Is Management an art, a science or a profession?
Basically, management is an art, a science as well as a profession.
The question whether management is science or art has been an issue of debate for a long period of time.
Science can be defined as a systematized body of knowledge derived from observation, study, and
experimentation carried out in order to determine the nature and principles of the subject under
investigation. It is universally true and applied throughout the globe. Besides, it exploits mathematical
models.
Since management has a structured body of knowledge with its own distinct concepts, theories, and
principles that are developed with reference to the general truths underlying its practice, it is a science.
As science, management is a systematized body of knowledge representing a core of principles or
fundamental truth that tends to be true in most management situations. These systematized bodies of
knowledge of management help the practicing manager make decisions rationally and objectively, rather
than using rule of thumb, intuition as some used to do in the past. Management science is not as
comprehensive or accurate as physical sciences such as physics and mathematics. This is true because
management deals with human beings having an ever changing, unpredictable and more complex behaviors.
Hence, the application of management principles alone may not yield the desired result. Therefore,
managers also need artistic skills to accomplish organizational objectives in the best way. That is, they
have to use judgment in additionto the principles of management.
Art is a system of doing a particular work in a way at a given time, place and condition tactfully, wisely
and creatively. It enables one to make decisions when there is insufficient data and information or when
there is a limit to use secondary sources of information. Art is characterized by using common sense,
personal feelings, beliefs and impulses. It tries to make adjustments based on the possibilities through
trial-and-error method. Management is one of the most creative arts as it requires a vast knowledge and
innovative skills to deal with new events. They should be able to make decisions even when there is
shortage of information. This leads us to the conclusion that the art of management begins from where the
science of management stops.
 If science teaches one to know, art teaches one to do. Managers have to know and do things effectively
and efficiently to be successful. So, management is indeed a unique scientific and artistic combination
in practice. In this context, science and art are not mutually exclusive, but they are complementary.
Management is a profession. To consider a given field is a profession, it must fulfill the following criteria:
❖ Specialized knowledge
❖ Competent application
❖ Community application
❖ Social responsibility
❖ Self - control
So, management is a profession because it fulfills the above criteria.
 CHAPTER Two
Evolution of Management Thought
2.1. Introduction
Management as a theory is the result of the twentieth century. But management as a practice is as old as the
human civilization. Current management theory and practice did not just eventuate. It evolved over many
years. The evolution of the discipline of management has helped to develop a body of knowledge about
the practice of management. The purpose of the chapter is to give a brief account of the evolution of
management knowledge.
What is Theory?
What does theory contribute to the practice of management? The theories and principles of management
make it easier for us to understand underlying processes and, on that basis, decide what we must do to
function most effectively as mangers. Without theories all we have are intuition, hunches, and hope - all
of which are of limited use in today's increasingly complex organizations.
In essence, a theory is a principle or set of principles that explains or accounts for the relationship between
two or more observable facts or events.
As managers, we will have at our disposal many ways of looking at organizations and the activities,
performance, and satisfaction of employees. Each of these ways may be more useful in dealing with some
problems than with others. For example, a management theory that emphasizes the importance of a good
work environment may be more useful in dealing with a high employee turnover rate than with production
delays. Because, there is no single, universally accepted management theory, we must be familiar with
each of the major theories that currently coexist.
2.2. Early Contributors
Management as a process was used from ancient times. Management functions have existed for
thousands of years since people began to work in group. Though the principles of management, as we
know them today, are nowhere to be found in the ancient literature, there are enough indications to show
that the importance of management and organization was well recognized even those days. Generally, had
there not been considerable skill in the various management functions, those monumental
accomplishments such as the pyramid of Egypt, the Great wall of China & Babylon, the monument in
Axum & the temple in Lalibela, and the castle of Gondar would not have been possible. During that period
the contribution given by religious and military groups to management thought were significant &
undeniable. For example:
• The bible /Exodus 18 /13-26/- This is the advice which was given by Jethro, the father-in-law of
Mosses, to Mosses. It includes the following.
(i) "Ordinances and Laws" should be taught to the people. In modern terms, organizations need to have
a statement of policies, rules, & procedures.
(ii) "Leaders be selected & assigned to be the rulers thousand's, hundred's, fifty's, and rulers of tens. In
modern terms it is the base for delegation of authority (Span of management)
(iii) "These rulers should administer all routine maters, & should bring only the important questions."
In modern terms it is related to the exception principle.
• Roman Catholic Church was one of the most effective formal organizations in the history of western
civilization. The church had a set of well-defined objectives and effective and efficient organizational
set up to achieve them. It introduces hierarchy of authority and staff concept
• Military organizations also contributed in their own simplistic way to the development of managerial
practices though there was little use of theory in it. Even so, their techniques of authority-relationships
between individuals and groups, direction, motivation, and communication underwent considerable
improvement over the years.
Until the mid of the 18 century management practices in business, government and church remained stable.
However, with the introduction of industrial revolution, there was a series of inventions like: steam engine
and then power engine: which resulted in change in economic system, mass production and factories
required large collection of capital. Because of this situation management would be expected to progress.
Despite all these, management was not developed as expected because
a) Low esteem to business in society (undermined by the society)
b) The different approaches by economists, political scientists and others towards business
organizations.
c) Treatment of managers as an art and not as a science.
d) The attitudes that successful managers are born not made (it cannot be transferred to others through
training)
In the 20th century there was a change in situations like scarcity of resources, saturations of market
(demand problem), organization of workers (labor union), and technological inventions etc. which require
systematic study of management. Rule of thumb could no longer exist. It had to be replaced by logical and
rational principles, scientific approach and psychological handling. To combat these complex situations,
managers of that time started to have scientific approach to management. The work of early contributors
is discussed below.
1. Robert Own (1771-1858)
He was a successful textile mill manager in Scotland from 1800-1828. During that time, he carried out
most of his experiments in the area of management. He recognized that human resources were as valuable
as financial & material resources to the production of goods. He believed that factory workers would be
more productive if they were motivated through rewards rather than punishments.
He experienced with several motivating techniques. Some of them were:
• He improved working conditions within the factory, i.e., providing meals, bath facilities,
• Housing & marketing facilities.
• Reducing the workday from 13 hrs to 10 ½ hrs. with no night work for children.
• Refused to hire children under the age of 10.
Because of his emphasis on the workers, he is regarded as the father of modern personnel management.
2. Charles Babbage (1792-1871)
He was a British professor of mathematics, Charles Babbage become convinced that the application of
scientific principles to work processes would both increase productivity and lower expenses. He was an
early advocator of division of labor, believing that each factory operation should be analyzed so that the
various skills involved in the operation could be isolated. He had also a strong understanding of
the importance of human resources as related to efficiency. He advocated profit- sharing plans & bonus
systems as ways to achieve better relations between management and labor. Babbage believed that each
factory operation should be analyzed so that the various skills involved in the operation could be isolated.
Each worker would then be trained in one particular skill and would be responsible only for that part of
the total operation. Division of labor Specialization/improve skills of workers. Reduce learning time
and other expenses. He said, “The relationship between management and workers is the reason for the
success or failure of the organization.” Babbage also had some innovative ideas in the area of reward
systems.
He devised a profit-sharing plan that had two parts,
➢ a bonus that was awarded for useful suggestions and
➢ a portion of wages that was dependent on factory profits.
He understood that a harmonious relation between management and labor could serve to benefit both.
He was devoted for the:
 ➢ Division of labor
➢ Economies of scale in manufacturing
➢ Incentive pays
➢ Profit sharing
➢ Application of mathematical concepts in production
➢ Harmonious relationship between management and workers
✓ Babbage laid the groundwork for much of the work that later became known as Scientific Management.
3. Adam Smith: Smith made an important contribution to the development of management thought
regarding the impact of division of labor on manufacturing in his book ‘The Wealth of Nations’ in
1976.
His conclusion was specialization could lead to increased efficiency. This is because:
✓ Specialization increases the dexterity in every particular work person.
✓ Specialization saves the time lost in passing from one species of work to another.
✓ Specialization helps to the invention of great number of machines, which facilitates and bridge and enable one
person to do the work of many.
Even though Robert Own and Charles Babbage has contributed their best for the development of
management, their idea was not propagated well in the world. Hence their contribution in the
development of management is not significantly recognized. The major development of management
started from classical Management Theory.
The historical development of management as a theory can be seen in three stages.
1. Classical management Theory
2. Neoclassical (Behavioral) Management Theory
3. Modern Management Theory
2.3. Classical Management Theory
Classical management theory is a theory that focused on finding the 'one best way' to operate (perform)
and manage tasks. Efficiency and productivity became a critical concern of the Managers at the turn of
the 20th century.
Classical management consists primarily of three streams of thought. Scientific management concentrated
on lower-level managers dealing with everyday problems of the workforce. Classical organization theory
concentrated on top-level managers dealing with the everyday problems of managing the entire
organization. Bureaucratic theory focuses on a formal system of organization and administration to
ensure effectiveness and efficiency. The classical management theory believes that employees are
strongly motivated by their physical needs and more specifically, monetary incentives. As such,
organizations that implement this management style often incorporate regular opportunities for employees
to be rewarded for their productivity with incentives. The classical approach emphasized rationality and
making organizations and workers as efficient as possible. Two major theories comprise the classical
approach: scientific management and general administrative.
2.3.1. Scientific Management
Scientific management theory addresses issues concerning the management of work. It is a systematic &
analytical study of work, which originated in the United States around 1900. Its objective was to find the
most efficient method for performing any task and to train workers in that method.
The most important contributors of scientific management theory are Fredrick Winslow Taylor, Henry L,
and Frank and Lillian Gilbreth. Among these F.W. Taylor is considered/regarded as the father of scientific
management. Frederic Winslow Taylor /1856-1915/ commonly known as ’Father of Scientific
Management’ started his career as an operator and rose to the position of chief engineer. He conducted
various experiments during this process which forms the basis of scientific management. It implies
application of scientific principles for studying & identifying management problems. According to Taylor,
“Scientific Management is an art of knowing exactly what you want your men to do and seeing that they
do it in the best and cheapest way”. In Taylors view, if a work is analysed scientifically, it will be possible
to find one best way to do it. Hence scientific management is a thoughtful, organized, dual approach
towards the job of management against hit or miss or Rule of Thumb. According to Drucker, “The cost of
scientific management is the organized study of work, the analysis of work into simplest element and
systematic management of workers.
He was an American Engineer and worked in the Midvale steel co. as an apprentice pattern maker, a
common laborer, a foreman, a master mechanic and then a chief engineer of the steel co. That gave him
ample opportunity to know at first hand the problems & attitudes of workers and to see the great
opportunities for improving the quality of management.
His major concern was to increase efficiency in production, not only to cover costs and raise profits but
also to make possible increase in pay for workers through their higher productivity, through one best of
doing a job. Taylor wanted to find the most effective way to use people and resources in the workplace.
He believed that there was one best way of performing every process and task in industry. He thought that,
to find the best way, workers' performance of a task should be examined scientifically, objectively, and in
great detail, using an empirical and experimental approach. Only then could a more productive way of
doing the job be found.
After finding one best way of doing a job, managers should then teach it to the workers. He thought that
an incentive system rewarding fast workers and penalizing slow workers would encourage them to adopt
the new system. Taylor caved his plan the differential rate system. Under this system, a man received on
piece rate if he produced below the standard number of pieces and another rate if he surpassed the
standards, and in the latter case, the higher rate would be applied to all the pieces he produced, not merely
to those over the standard. He believed that scientific methods would eventually replace intuition and rule-
of thumb, which had been used in organizations up until then.
Example: Standard of performance = 30 Piece rate = 0.5 Birr Differential rate = 1 Birr
Case 1: If the worker produced less than 30 Units, he/she would be paid on the basis of piece rate (0.5
Birr). Let say 29 units produced = 29x0.5 = 14.5 Birr
Case 2: If the worker produced more than 30 units, he would be paid on the basis of piece rate (1 Birr).
Let say 31 units produced= 31x1=31 Birr
Scientific management he testified, "required complete mental revolution", he believed that the mental
revolution must occur in the workers minds and in the minds of management as well. This is because he
believed that
• The first problem of labor-management was the issue of division of surplus created by the industry.
Here the mental revolution was important to avoid the quarrelling about how surplus should be divided
and unite to increase the size of surplus. Rather than quarrel over whatever profits there were, they
should both try to increase production and profits to be shared.
• The second aspect was to make the scientific method the sole basis for designing work methods and
production standards (how much each worker should produce). This is because management was
ignorant in setting 'fair days’ work' and 'fair days’ pay'.
Both in his testimony and in his two books, shop management and the principles of scientific management,
Taylor outlined his philosophy. It rested, he said, on five basic principles:
1. The development of a true science of management, so that the best method for performing each task
could be determined (avoiding rule of thumb).
2. The scientific selection of the workers, so that each worker would be given responsibility for the task
for which he or she is best suited.
3. The scientific education and development of the worker for their own and their company's higher
 prosperity.
4. Intimate, friendly co-operation between management and labor. Since there is mutual interest
(economic benefit) in the organization, in order to achieve it, it needs mutual cooperation.
5. Work should be divided almost equally between management and workers. Workers should not be
always claimed for all inefficiencies in the organization. Managers should first discharge their
responsibility of identifying one best way doing a work.
TECHNIQUES OF SCIENTIFIC MANAGEMENT
1. Method Study
The is to find out one strong way of performing the job. There are different ways of performing the job. Method
study is a scientific management technique that improves work processes by analyzing and developing
better ways to do a job:
Goal
The goal of method study is to maximize efficiency by using materials, machinery, manpower, and
capital more effectively.
Steps
The steps of method study include:
✓ Selecting a job to analyze
✓ Observing and recording the current process
✓ Examining the current process and developing an improved method
✓ Installing the improved method
✓ Maintaining the new method
2. Motion Study:
Motion study is the analysis of the movements involved in a task to identify and eliminate unnecessary
movements.
The goal is to improve the efficiency of the task by reducing the time it takes to complete it.
Here are some principles of motion study:
➢ Eliminate non-value-added motions: Remove movements that don't add value
➢ Simplify complex motions: Make complex motions easier to perform
➢ Reduce long motions: Minimize motions that take a long time
➢ Enhance difficult motions: Make it easier to perform difficult motions
➢ Coordinate interdependent motions: Synchronize motions that depend on each other
3. Time Study:
Time study is a technique used to determine the standard time it takes to complete a specific task. It's a
systematic process that involves:
➢ Observing and timing the activities performed by workers
➢ Using time measuring devices for each element of the task
➢ Taking multiple readings to set a standard time for the entire task
➢ The main objective of time study is to set a standard time limit for completing a job.
This helps with:
✓ Deciding how many workers to employ for a particular task
✓ Determining their wages
4. Fatigue Study:
A person is obliged to feel tired mentally and physically if she or he does not relax while working.
Fatigue study tries to define the amount and regularity of rest intervals in accomplishing a task.
A fatigue study in management is a scientific work study technique that analyzes the frequency and
duration of rest breaks to help improve employee health and operational efficiency:
Goal: Determine the best rest intervals for employees to complete tasks
Benefits: Can help to reduce stress, improve employee health, and maintain operational efficiency
Techniques: Often involves time-and-motion studies to break down tasks into parts, time each part, and
optimize the process
Purpose: To optimize the work environment and workload for individual workers
Followers of Taylor
Henry Gantt ((1861-1919)
Gantt was a contemporary and colleague of Taylor's at the Bethlehem steel company, and he strongly
supported the ideas of scientific management propounded by Taylor. He also emphasized the concept of
interest between management and workers. He stressed the need to appreciate that "in all problems of
management, the human element is the most important''.
Gantt made improvement in Taylor's incentive system, and developed what is known as the ''task and bonus
plan''. This is the foundation of many incentive plans in our times. Under this incentive plan, the worker
is paid a guaranteed daily wage whether or not he completes the standard work. But if he completes four
hours work in three hours, he is paid for four hours.
Gantt is perhaps best known for his development of graphic methods of describing plans and making
possible better managerial control. He emphasized the importance of time, as well as cost, in planning and
controlling work. This led eventually to the famous Gantt chart-a chart used for planning and following
up work progress against time. The Gantt chart is regarded by some social historians as the most important
social invention of the twentieth century.
Frank Gilbreth and Lillian (1868-1924)
Frank Gilbreth and Lillian Gilbreth, a husband-and-wife team, have been regarded as important
contributors to scientific management. Frank Gilbreth become interested in motion study and reduced the
number of movements in bricklaying from eighteen to five. This increased the productivity of bricklayers
from 120 to 250 bricks per hour. Frank emphasized the need of developing or discovering the ''one best way
of doing a given task'', whereas Lillian concerned herself with the human aspects of management. The
Gilbreths held that the most important cause of workers dissatisfaction was the lack of management's
interest in them. They emphasized that management should understand their needs and personality.
Frank Gilbreth's system becomes known as "speed work'' and the speed came not from rushing the workers
to work faster but from cutting down unnecessary motions.
Gilbreth and his wife Lillian developed recording techniques called "Therblings" and process-flow-
charting. Therbligs is Gilbreth spelt backwards. Therblings are the basic elements of on-the-job motions
and provide a standard basis for recording movements. They included such items as search, find, graph,
assemble and inspect. Flow-process-charts (process flow-charts) were devised to enable whole operation
or process to be scientifically analyzed as opposed to a single task or operation.
Criticisms of Scientific Management
Scientific management was successful in increasing productivity and consequently increasing the wealth
that improved the living standard of the workers. The proponents of scientific management believed that
workers are motivated primarily by a desire to earn money to satisfy their economic and physical needs.
However, they failed that workers have social needs and that working conditions and job satisfaction are
often equally important. Highly repetitive jobs often produce boredom and alienate employees from their
job.
Unemployment - Workers feel that management reduces employment opportunities from them through
replacement of men by machines.
Exploitation - Workers feel they are exploited as they are not given due share in increasing profits. Wage
payment creates uncertainty & insecurity (beyond a standard output, there is no increase in wage rate).
Monotony - Due to excessive specialization the workers are not able to take initiative on their own. It is
the psychological effect of repetitive work that can negatively impact employee morale, motivation, and
productivity.
Weakening of Trade Union - everything is fixed & predetermined by management. So it leaves no room
for trade unions to bargain as everything is standardized, standard output, standard working conditions,
standard time etc.
Over speeding - the scientific management lays standard output, time so they have to rush up and finish
the work in time. These have adverse effect on health of workers.
Expensive - Scientific management is a costly system and a huge investment is required in establishment
of standardization, work study, training of workers.
Time Consuming - Scientific management requires mental revision and complete reorganizing of
organization. A lot of time is required for work, study, standardization & specialization.

2.3.2. Administrative Management

Scientific management theory was aiming at improving the efficiency and productivity of workers;
consequently, it provided little guidance for managers above the supervisory level. But, realizing the
importance of efficiency of operations at all levels, theorists began to focus on organizations as a whole.
The theory focuses on the total organization and attempts to develop rules and principles that will direct
managers to more efficient activities. It is also known as classical administration theory. The single most
contributor of this theory is Henry Fayol.
Whereas scientific management focused on the productivity of the individual worker, the administrative
theory focused on the total organization. Among the well-known contributors to this theory were Lyndall
Urwick, Chester Barnard, Alvin Brown, Henry Dennison, Oliver Sheldon and Max Weber. However, the
most notable of all contributors was Henry Fayol. His book, General and Industrial Management, had
a major impact on the emerging field of management.
Henry Fayol (1841-1925)
Henry Fayol was a French industrialist who played a great role in developing this theory. The observation
of Henry Fayol on the principles of management was brought out in French language in 1916, later, it was
published in English language in 1949. The principles of management of Henry Fayol were known to the
world only after 1949 letter the publication of his management Thoughts in English.
Henry Fayol concentrated on top management. It is known from his book 'General and Industrial
management' management plays a very important part in the government undertaking; of all undertakings,
large or small, industrial, commercial, political, religious or any other.
Classifications of Business Activities
Henry Fayol classified all the business activities in to six functions:
The major types of activities involved in an industry or a business as
1. Technical - producing and managing products
2. Commercial - buying raw materials and selling products
3. Security: protecting employees and property
4. Financial – search for and optimum use of capital
5. Accounting - recording and taking stock of costs, profits, and liabilities, keeping balance sheets,
profit and loss statements, etc
6. Managerial – planning, organizing, commanding, coordinating and controlling
Elements of Management
Henry Fayol made a difference between principles of management and elements of management.
According to him the elements of management are. Planning, Organizing, Commanding, Co- ordination
and Control.
Qualities of a Manager
Henry Fayol identified the following qualities managers should possess to be effective on his job.
1. Physical (state of health)-good manager should be in good state of health
2. Mental-ability to understand, appreciate, learn, judge and decide
3. Moral (energy, firmness, willingness to accept responsibility, true to his words, loyalty, and dignity)
4. General Education (general acquaintance with matters not belonging exclusively to the function
performed)
5. Special knowledge (peculiar to the function, be it technical, commercial, financial, managerial etc.
6. Experience (knowledge arising from work performed)
Henry Fayol identified five management functions and 14 management principles
➢ Planning: Defining the organizational purpose and ways to achieve it
➢ Organizing: Arranging and structuring work to accomplish organizational goals
➢ Leading: Directing the work activities of others
➢ Controlling: Monitoring, comparing, and correcting work performance
➢ Evaluating: Assessing, Feedback & Improvement Strategies
Principles of Management
Based on his own experience in the field Henry Fayol developed fourteen principles of management which
are useful not only in business organizations, but also in military, religious, governmental and financial
institutions. But these principles are not commandments; they are used by modifying, or adjusting to fix
the prevailing realities. These principles are:
1. Division of labor -The more people specialize, the more efficiently they can perform their work.
2. Authority & responsibility - Managers must give orders so that they can get things done, this authority
rests on the job the manager holds. Responsibility, on the other hand, is the sense of obligation that
goes with authority. Authority should be delegated only to subordinates who are conscious to assume
commensurate responsibility.
3. Discipline - members of an organization need to respect the rules and agreements that govern the
organization.
4. Unity of Command - Each employee should receive instructions or orders from one superior; he
believed that it was fundamental to effective management of an organization violating this
principle undermines authority and jeopardizes discipline and stability.
5. Unity of Direction -Those operations within the organization that have the same objective should be
directed by one manager using one plan. Tasks of similar nature that are directed toward the same goal
should be grouped under one manager. It emphasizes that there should be "one head and one plan."
6. Subordination of individual interest to the general interest - the interests of any employee or group
of employees should not take precedence over the interests of the organization as a whole.
7. Remuneration - compensation for work done should be fair and afford satisfaction to both employees
and employers.
8. Centralization - This refers to the degree of involvement of subordinates in decision making.
Decreasing the role of subordinates or concentration of authority at the top can be referred as
centralization. When it is dispersed throughout levels/increasing the involvement of subordinates in
decision making is decentralization. Fayol believed that managers should retain final responsibility but
also need to give their subordinates enough authority to do their jobs properly. The question of
centralization and decentralization is the question of proportion. It is important to find optimal degree
of proportion.
9. Scalar Chain/The hierarchy) - The line of authority runs in order of rank from top management to
the lowest level of the enterprise. Communications should flow through this chain or line of authority.
However, if following the chain creates delays, cross communications can be allowed if agreed to by
all parties and superiors are kept informed.
10. Order - People and materials should be the right place at the right time. People particularly should be
in the jobs or positions most suited for them.
11. Equity - Managers should be kind and fair to their subordinates.
12. Stability of Tenure of personnel - high employee turnover results in inefficiently. Management
should provide orderly personnel planning and ensure replacements are available to fill vacancies.
13. Initiative - Subordinates should be given the freedom to conceive and carry out their plans, even
though some mistakes may result.
14. Esprit de corps - Promoting team spirit will build harmony and unite within the organization.
Fayol introduced the concept of Gang Plank in the principle of 'Scalar Chain' to overcome the problem
of delay in taking decisions for urgent matters. Gang plank refers to an arrangement in which two
managers working at the same level can communicate with each other directly for quick communication.
GANG-PLANK is the term used in concern with the scalar chain. Scalar chain refers to the chain of
superiors ranging from the ultimate authority to the lowest level in the organisation. In this figure if T
wants to communicate with Y, usually message will move from T to O via S, R, Q and P and from O it
will come down to Y through U, V, W and X. But if it is essential to communicate immediately a Gang-
Plank (dotted line) may be created between T and Y without weakening the chain of command.
Criticism of Fayol's principles
Fayol's principles were not meant to be exhaustive. Rather they attempt to provide managers with
necessary building blocks to serve as guidelines for managerial activities. In some the principles
emphasize efficiency, order, stability and fairness. Managers apply these principles today. The
problem with Fayol's principles of management was knowing when to apply them and how to adopt them
to new situations. Lack of empirical research is another limitation. The principles advocated by the classical
organization theory were based on personal experiences and limited observations. Administrative theory,
unfortunately, views workers as biological machines’, motivated by purely economic considerations.
2.3.3. Theory of Bureaucracy
This theory is concerned with the bureaucratic organization and is identified with a German author Max
Weber. (1864-1920).
Most of us may be familiar with the word bureaucracy to mean the lengthy work procedures in the
government organizations. It was associated with red tape and rigidity. Although this word now carries a
negative meaning, the basic idea was not to mean so. When max Weber, a German sociologist, formulated
the theory of bureaucracy, it refers to a system of administration of organizations through departments or
bureaus. Weber is often referred to as the father of organization theory. He defined bureaucracy as ''the
ideal or pure form of organization'' He was interested in improving organizational structures used in large-
scale organization and in designing a blue print of a structure that would help large organizations achieve
their objectives.
Features of Weber's ideal bureaucracy
1. Division of labor: - Jobs are broken down into simple, routine and well-defined tasks.
2. Authority Hierarchy: - Offices or positions are organized in a hierarchy so that power and authority
increase as one moves up through the levels of positions in the organization. /This is similar to scalar
chain/
3. Formal selection /technical competence: - All organizational members are to be selected on the basis
of technical qualifications demonstrated by training, education, or formal examination as opposed to
friendship, family this, or other forms of favoritism.
4. Formal Rules & Regulations: - To ensure uniformity and to regulate the action of employees there
is a heavy dependence on formal organizational rules. Rules and regulations governing decision
making and interpersonal behaviors are critical to bureaucratic organizations. He believed that
continuity in rules & regulations was necessary to maintain order and enhance organizational
achievement of goals. Where owners, managers and workers may come and go, the rules and
regulations provided organizational stability. Moreover, rules and regulation serve to restrict decision
makers who may feel compelled to act in their over interests of the organization.
5. Impersonality: - Rules & controls are applied uniformly avoiding involvement with personalities and
personal preference of employees.
6. Career Orientation /Separation from ownership/: - managers are professional officials rather than
owners of the units they manage. They work for fixed salaries and pursue their career with in the
organization. /This was because he believed that owners were the causes for inefficiency/. He believed
that societies are rational in performing their activities. Organizations, to be efficient, they shall have to
be arranged in rational way/structured in bureaucratic way.
The importance of Weber's contributions became evident when organizations around the world began to
grow in size and complexity in the 1940s and 1950s. As leaders began to search for way to improve their
organizations structures, Weber's ''ideal bureaucracy'' became the model. His formalized structure then led
to the examination of informal organizations, human relation organizational behavior, and other factors
that influence the formal blueprint of an organization.
➢ Bureaucratic organizations have strict rules that allow them to act with precision, and sometimes with
speed. The hierarchical arrangements and the rules and regulations of bureaucracies help them achieve
greater degree of efficiency. Bureaucratic organizations serve large numbers of persons in an orderly
and systematic way.
➢ Bureaucratic organizations have high degree of predictability of outcomes. The boundaries of each
position are clearly demarcated to prevent duplications of effort. Since bureaucracies operate on the
basic rules and policies, their decisions are predictable and free from arbitrariness.
➢ Bureaucratic organizations exhibit a high degree of impersonality. Both the employees and clients of
the organization are treated fairly.
Limitations
The organization ''depersonalizes'' relationships in the interest of efficiency. This means the organization
eliminated all purely persons and emotional elements from decision-making. Some later writers feel that
this is too rigid. They criticized Weber's theories for this weakness. The most pronounced deficiency of a
bureaucratic model is it's over all rigidity or inflexibility. Bureaucracies encourage conformity to
established rules. They do not deviate from established ways of doing things. Bureaucracies do not easily
adapt to changing conditions and special circumstances. The rules of bureaucratic organization, thus, may
prevent, rather than encourage the organization to cope adequately with change circumstances.
Contributions and Limitations of Classical Management Theory
Contributions
✓ The classical theory is the framework from which later theories evolved, and many of its insights still
hold true today. Ex. Job specialization techniques, scientific methods, bureaucratic procedures are
even applying in many companies.
✓ These early theorists were the first to focus attention on management as a meaningful field of study.
✓ Several aspects of the classical perspective are also relevant to our later discussions of planning,
organizing and controlling.
Limitations
The early writers dealt with stable, simple organizations; many organizations today, in contrast,
are changing and complex.
They also proposed universal guidelines that we now recognize do not fit every organization.
It slighted the role of the individual in organizations. They do not give enough concern for human
element, many viewed employees as tools rather than resources.
2.4. Neo-Classical Management Theories
This management theory is also referred to as the human relation/behavioral management theory, consists
of both the human relation and behavioral science movements. It is built on the basis of classical
management theories. It modified, unproved and extended the classical theory. Classical theory
concentrated on job content and management of physical resources. But neo-classical theory gave greater
emphasis to the man behind the machine and stressed on the importance of individual as well as group
relationships in the plant or the workplace.
2.4.1 Behavioral Management Theory
It emphasized on human relations. They used concepts from psychology, sociology and anthropology to
assist managers understand human behavior in the work place. They focused on motivation,
communication, work group formation and leadership. Behavioral management theory was stimulated by
a number of writers and theoretical movements. Among writers Elton Mayo was well-known.
One of the prominent contributor/writers of behavioral management theory is G.E. Mayo. He was known
of conducting an experiment at the Hawthorn plant at the Western Electric Co. in U.S.A. The human
relations movement was interdisciplinary in nature. It was founded on new knowledge developed in the
disciplines of psychology, group dynamics, sociology, political science and labor economics. The term
human relations refer to the manner in which managers interact with subordinates. To develop relations,
followers of this approach believed, managers must know why their subordinates behave as they do and
what psychological and social factors influence them. While scientific management concentrated on the
physical environment of the job, human relations concentrated on the social environment. The human
relations movement basically grew from the Hawthorne studies, which were popular for many years.
The Hawthorne Experiment
Elton Mayo is most usually associated with the Hawthorne experiments carried out at the Hawthorne plant
of the Western Electric co in Chicago, USA between 1927 and 1932. The Hawthorne studies is a series of
experiment consisted of four parts: the illumination experiments, experiments in the relay assembly test
room, the massive interview program and the bank wiring test room.
The Illumination Experiment: Illumination experiments were undertaken to find out how varying levels
of illumination (amount of light at the workplace, a physical factor) affected the productivity. The
hypothesis was that with higher illumination, productivity will increase. In 1924 a study of these factors
was commissioned by the national academy of sciences (NAS) at the Hawthorne works of the western
electric company near Cicero, on Chicago's west side. Two groups of workers were examined: a control
group, whose illumination would not be varied, and a test group, whose illumination would be varied. The
results were supervising. Regardless of the level of light, which in one case equaled moonlight,
productivity increased in both control and test groups unable to explain the results. Physical surroundings
did not have an impact on productivity but something else was interfering with the productivity.
Therefore, another phase of experiments was undertaken.
The Relay Assembly Test Room: Researchers began looking for other key variable, including pay, rest
periods, and refreshments yet, no matter how they manipulated the variables, productivity increased. Even
after canceling all the privileges that workers had recently earned, productivity still increased. Reinstating
rest pauses and refreshments led to yet another increase.
During the studies, which lasted until 1927, output increased from 2,400 relays to 3,000 relays per week
per worker. Just as researchers were considering abandoning their efforts, Elton mayo, a Harvard
professor, began to consult on the studies. Mayo believed strongly that "a remarkable change of mental
attitude in the group" explains the Hawthorne situation; workers would perform at higher levels if
managers seemed more concerned about them.
The Massive Interview Program: The Hawthorne experiments began to incorporate extensive
interviewing to determine worker attitude and sentiment. Based on the responses. They realized that the
individuals work performance, position and status in the organization were determined not only by the
person himself but by the group members as well. The lengthy interviews revealed that the supervisor
should show concern, establish open communication with employers, and be willing to listen to
employees. In order to study this more systematically, the research entered its fourth and final phase, that
is, the bank wiring observation room.
The Bank wiring Test Room: These experiments uncovered the existence of informal groups. These are
groups not officially designated as part of the formal organization. These informal groups were discovered
as researchers sought to explain group norms or ways of behaving to which most workers adhered.
Contributions of Hawthorne experiment
Workers were not so much driven by pay and working conditions as by psychological wants and
desires which could be satisfied by belonging to a workgroup.
The chance by workers to make decisions concerning the task, whether as individuals or in group, was
a stimulus to treat the task as more important.
Recognition by superiors made workers feel that they made a unique and important contribution to the
operation of the organization.
The rise in output was due to woke place factors related to the social relationships among the workers
themselves and between the workers their supervisors.
Employees would be viewed as members of informal groups of their own, with their own leadership
and codes of behavior, instead of just unrelated individual workers assigned to perform individual
tasks.
Limitations
➢ Human relations put all the emphasis on interpersonal relations and on the informal group. It lacks
adequate focus on work.
➢ Unethical behavior that is conducting experiment on human beings.
➢ Lacks of integrated management principles development.
➢ Maintaining the superiority of group decisions over individual decision. This is somewhat results in
delayed decisions.
Different theories forwarded by behavioral management theorists (Duglas McGrego and Abraham
Maslow) will be discussed more detail in chapter seven.
2.4.2 Human Relations Theory
Human relations (HR) research began in 1930s as a reaction to classical assumption about people in the
work environment. HR stresses on the Social & Emotional aspects of the organization i.e Employee
orientation. Focuses on small groups & social norms within them, and informal & unplanned pattern of
behavior. Accepts efficiency & productivity as the legitimate values of an organization. Seeks to maximize
efficiency & productivity through elimination of disfunctions caused by:
➢ Overspecialization
➢ Alienating hierarchical arrangements, and
➢ General dehumanization
Attracts attention from social scientists. HR theorists condemn the Evils of Structure & accepts
participative mgt. Replaces by organizational behavior in the 1960s.
2.4.2.1 Abraham Maslow’s Hierarchy of Needs.
The pyramid illustrates the hierarchy of needs. After one’s need is met, the individual will move on to the
next need. Five basic needs:
A. Physiological (for food, drink, shelter, sex and sleep).
B. Safety (security, stability, freedom from fear).
C. Belongingness & Love (social –relate to others; about friendship, love and members of the
community.
D. Esteem/self-respect (achievement, competence, independence, prestige, status)
E. Self-actualization (self-fulfillment, attaining ultimate goal in life, able to achieve full potential.
Maslow’s contention – no ‘best way’ to motivate workers. But management must be sensitive to the fact
that workers have variety of needs. Implication of the theory:
A. Needs change so motivation change.
B. What motivate people may also change.
C. Managers to be aware of the different needs & recognize the stage the individuals have reached.
D. Motivation is a reflection of individual’s role in the organization. People at the bottom just want to
satisfy their physiological needs, for instance.
E. Satisfaction of needs does not say anything about improved performance.
2.4.2.2 Douglas McGregor’s Theory X and Theory Y
He developed two contrasting approaches to management: Theory X and Theory Y. Theory X represents
management’s assumptions about employee's human nature. The theory leads to establishing a coercive,
authoritarian classical structure. Theory Y focuses on employees’ higher order needs. This leads to the
design of more human organizations. Specialization, close supervision and bureaucratic controls are
replaced by job enlargement, participative leadership and self-control.
Theory X assumes average worker as:
A. Lazy: Workers dislike works. All rational people will do as little as possible.
B. So, workers need to be persuaded or threatened in order to persuade them to work.
C. Lack of ambition.
D. Lack of creativity.
E. Largely indifferent to organizational needs, and
F. In favor of close and continuous supervision.
Theory Y assumes people:
A. Find work natural (as rest and recreation) and enjoyable. Work activities are great sources of
satisfaction. No threat needed.
B. Have high degree of creativity.
C. Will increase self-control and self-direction.
D. Highly motivated.
E. Have potential for development.
F. Have the capacity to assume responsibility (if given the right direction).
G. Have the readiness to direct behavior towards organizational goals (committed to organizational
objectives.
Frederick Herzberg's Motivation Theory
➢ Argued (1966) that we need to take into account:
(a) The environment where the workers work.
(b) Not only the needs and the motivation of the workers
➢ Developed a theory of 2 sets of factors at work
A. The motivation factor which includes:
i. The sense of achievement
ii. The sense of responsibility
iii. The sense of recognition
 iv. Advancement of work
v. the content of the job itself
➢ They are called motivation factor because of its highly positive effect on people’s feeling about their
job
B. Hygiene Factor
Argument: if job environment can be maintained at an acceptable level, then feelings of
dissatisfaction among workers can be avoided.
Hygiene factor includes:
➢ The level of salary
➢ The quality of supervision
➢ Working conditions
➢ Interpersonal relations with supervisors
➢ Company policy & administration

Herzberg's Presence of Absence of

Motivation- Motivation Factor Motivation Factor
Hygiene Theory
Presence of Situation 1 Situation 2
Hygiene Factor Happy & Happy &
Interested Not Interested
Absence of Hygiene Situation 3 Situation 4
Factor Interested but Not Not happy & Not
Happy Interested

2.5. Modern Management Theory

Modern management theories indicate further retirement, extension, and synthesis of all the classical and
neo-classical the basic economic needs of the organization and the society. Neo-classical approach is
trying to satisfy personal security, and social needs of workers. Both approaches must be suitably integrated
to emphasize the need not only for recognition of human values but also for recognition of productivity
simultaneously. Modern management must have the twin primary objectives of productivity (classical
approach) and satisfaction (neo-classical approach). Modern theory includes the following streams:
1) The management science approach
2) Decision Theory Approach
 3) the systems approach
4) The contingency approach
1. Management Science Approach
It uses rigorous quantitative techniques to maximize resources. Quantitative management: utilizes linear
programming, modeling, simulation systems. Operations management: techniques to analyze all aspects
of the production system. Total Quality Management (TQM): focuses on improved quality.
Management Information Systems (MIS): provides information about the organization.
2. The Decision Theory Approach
The decision theory approach to management is based on the idea that, since managers make decisions,
those studying management must concentrate on decision making. i.e the selection from among possible
alternatives of a course of action. Decision theorists concentrate primarily on the making of decisions.
Many theorists believe that, since managing is characterized by decision making, the central focus of
management theory is decision making and the rest of management thought can be built around it. This
argument has a degree of reasonableness. But it does seem to overlook the fact that there is much more to
managing than making decisions and that, for most managers, the actual making of a decision is a fairly
easy thing- if goals are clear, if adequate information is available, if the organization structure provides a
clear understanding of responsibility for decisions and if many of the other requirements of the managerial
task are present.
3. The system approach
During the 1940s and World War II, systems analysis emerged. This viewpoint uses systems concepts and
quantitative approaches from mathematics, statistics, engineering, and other related fields to solve
problems. Managers find optimal solutions to management problems by using scientific analysis which is
closely associated with the systems approach to management. A system is an interrelated and
interdependent set of elements functioning as a whole. It is an open system that interacts with its
environment.
It is composed of:
➢ Inputs from the environment (material or human resources),
➢ transformation processes of inputs to finished goods (technological and managerial processes),
➢ Outputs of those finished goods into the environment (products or services), and feedback (reactions
from the environment).
Subsystems are systems within a broader system.
Interdependent subsystems (such as production, finance, and human resources) work toward synergy in
an attempt to accomplish an organizational goal that could not otherwise be accomplished by a single
subsystem.
Systems develop synergy.
This is a condition in which the combined and coordinated actions of the parts of a system achieve more
than all the parts could have achieved acting independently.
Characteristics of systems
A system has several distinguishing features
i. A system can be open or closed
ii. System has boundary
iii. System has subsystems
iv. Failure in one subsystem can be considered as failure of the entire system
I. A system can be open or closed
Open system:
It is a system which interacts with its external environment to survive. It is 'dependent system as it must
obtain inputs from its environment to attain its objective.
Closed system:
It is a system which is self-contained and thus not affected by changes that occur in its external
environment. It doesn't interact with external environment or interacts much less thus it is 'independent.
II. A system has boundary
System's boundary is a set of activities with which the system is distinguished from other system. It is not
related with the physical landmark. A boundary of open system is permeable and flexible compared with
boundary of closed system (rigid).
III. A system has subsystems
Subsystem refers to set of related parts that make-up the whole system. A subsystem can be system and a
system can also be system and a system can also be subsystem.
IV. Failure in one subsystem leads failure of entire system.
As the subsystems of a system are highly interdependent failure in one may cause failure in other
subsystems which can result in total system failure.
✓ Entropy-Is system principle which justify that systems will die out unless they interact with their
 environment.
✓ Synergy_ Is principle which can be stated as the whole is greater than the sum of its parts.
In organization context, it means that organizational elements will be more productive if they work
together rather than working separately (or individually). Responsibility of management, according to
system theory, is to keep a balanced relationship between different parts of relationship and make its
organization have smooth relationship with the environment.
4. Contingency Theory
In the mid-1960s, the contingency view of management or situational approach emerged. This view
emphasizes the fit between organization processes and the characteristics of the situation. It calls for fitting
the structure of the organization to various possible or chance events. The contingency approach assumes
that managerial behavior is dependent on a wide variety of elements. It was built on premises- systems
theory which says that organization is an open and organic system. According to contingency theory, since
organization is an open system, it interacts with several external environment factors. Because these
factors in environment change rapidly, it is not right to insist on only one way of managing an organization.
Therefore, it rejected the idea of one best way of managing. Instead, it supported situational management
style. Contingency theory is also known as situational approach because it focused on the idea that
supports all methods of management could be good based on the situations in external environment and
there is no one method of management which is always right. Generally, it is more flexible, and needs
management to identify different techniques to be applied in different circumstances, at different time.
Perspectives of Future Management
The world is fast moving, with new technologies entering every day. The market trends are changing
rapidly. The only thing that doesn’t change is change itself. Gary Hamel, in his book ‘Future of
Management’ points out that despite the revolutionary changes in associated technologies, management
in most companies still follows the traditional philosophies formulated by pioneers of management in the
early 20th century. Many technologies that we enjoy today, or the trends and challenges of the present-day
environment weren’t even imagined back people then. In short, to thrive in the future, companies must
reinvent management. In the following slides, we will see how a future manager and employee should be.
According to Jacob Morgan of Forbes, the future of management is the combination of the features of: I.
Future Manager, II. Future Employee and III. Future Company
I. The Future Manager
1. Is a leader 6. Believes in sharing and collective intelligence
2. Follows from the front 7. Is a fire starter
3. Understands technology 8. Gives real-time recognition and feedback
4. Leads by example 9. Is conscientious of personal boundaries
5. Embraces vulnerability 10. Adapts to the future employee
1. Being a leader
Traditionally, managers have been considered as dictators and leaders as visionaries. In the future, the
manager must be a leader. Manager should earn followers and not command respect. A manager should
not be assigned that position simply because they bring in the most money or are they best at delegating.
Instead, the managers must be chosen on the basis of their leadership skills also.
2. Follows from the front
Traditionally, managers ‘lead from the front’. That means, whatever decisions the manager takes, the
others are supposed to follow. But in the future, a good manager must be ready to follow his employees
as well, i.e., he should be open to the suggestions and recommendations of his subordinates rather than
just commanding them. He should be in the front to remove the obstacles from the path of employees. The
purpose of the existence of the manager is to make his people more successful and not to have his or her
people serve them. When a manager follows from the front, he paves way and enables team members to
become successful.
3. Understands technology
Technology has become a crucial part of everyday life. Even though its not necessary for the managers to
be technology experts, the future manager should be able to grasp the technologies that have the potential
to benefit the organization as well as the technologies that may emerge in the future. Future manager must
keep a good pulse on technology.
4.Leads by example
Traditionally the manager used to lead by delegating and ordering. But the future manager can leady only
by demonstrating. A manager must be the first person to demonstrate a new behavior, to support a relevant
technology, or to embrace a new concept. The future managers will take themselves to the frontline, be
the guinea pigs and will be the ones who will help drive change.
5.Embraces vulnerability
The stereotype is that managers are the gods of the institution. They are the ‘know-it-alls’. It would be
uncommon for a manager to request help or admit that his lack of knowledge. The future manager must
be ready to embrace vulnerability- he should be ready to ask for help, he should be ready to accept his
lack of knowledge, he should be ready to accept his mistakes.
6.Believes in sharing and collective intelligence
A future manager understands and embraces the fact that they may not have all the answers or make the
best decisions nor should they want or expected to. A manager knows that it is far more effective to rely
on the collective intelligence of a team instead of the directions of one. This manager also acknowledges
the benefit and value in sharing information instead of hoarding it, something which is largely being made
possible with collaborative technologies.
7.Is a fire starter
Traditionally, managers are accustomed to maintaining the status quo i.e, they prefer continuing whatever
was happening in the company and are normally against major changes. In short, traditional managers are
credited with ‘putting out the fire’. The future manager should be the exact opposite. He should be the one
to start the fire, that is to a spark a new idea, to challenge the convention and to experiment new ideas.
8 Gives real time recognition and feedback
All companies traditionally rely on annual reviews to discuss the shortcomings and achievements. But this
is no longer a suitable option as the changes and its effects have become more spontaneous. Thus, the
future manager must focus on giving the team real time feedback and recognition through collaborative
technologies and platforms and through regular, short, periodic check-ins instead of once in a long time,
lengthy reviews.
9.Is conscientious of personal boundaries
Traditionally, there was no respect for the personal space of the employees. The meetings or official events
fixed were seldom flexible. Meetings or projects during the time of a personal event (marriage, hospital
etc) causes emotional burden on the employees. The future manager must be flexible enough to reasonably
accommodate the personal space of the employees. The personal space covers both physical space as well
as digital space. A manager must be aware of whether it’s okay to ‘friend’ someone through social
channels or is it okay to schedule a 10 PM meeting.
10.Adapts to the future employee
The future manager must be ready for the future employee.
II. The future employee
1. Flexible work environment
2. Customizable work
3. Shares information
4. Shift from knowledge worker to learning worker
5. Learns and teaches at will
1. Flexible work environment
Traditionally, employees worked on a rigid time frame. There will be uncompromised time schedules for
them to work on. However, with the technological advances, it would be possible for employees to have
a flexible work environment.
This has been put into effect in some sectors (IT). Instead of coming and working for a particular time
interval (eg-10 to 5) in a pre-assigned spot, some IT companies allow their employees to work flexibly to
fill their specified weekly work hour quota in anywhere they choose. With the advances in technology,
this will be expanded to many other fields in the future.
2. Customizable work
The general perspective is that, once an employee is hired, he will do basically the same job for the entire
length of his career. However, the future employee will be able to customize his work. He may choose
different career paths each time for achieving goals. The improved peer-to-peer cooperation coupled with
revolutionary improvements in communication will allow workers to try different sub-areas each time,
thereby improving his level of knowledge and avoiding boredom.
3. Sharing information
The traditional “knowledge is power” mentality encouraged employees to hoard information so that
nobody else take credit for their ideas. In the future, this has to change. The new mentality should be
“sharing is power”. The employees who share their ideas and information and use collaborative techniques
and internal social networks are going to be the ones who succeed.
4. Knowledge worker to learning worker
A traditional employee seldom learns anything new from his career- he is fully focused on using his
knowledge to do his job. A machine operator will continue using his knowledge on machine operation till
his retirement. But, in the future, each employee will be learning throughout his career. The machine
operator will constantly update himself on the changing technologies, various other related areas such as
machine maintenance etc. This will be mutually beneficial for the company as well as the employee. The
 employee will not find himself obsolete whereas the company can avoid employee layoffs.
5. Learns and teaches at will
The traditional way to learn and teach was largely guided and dictated by organizations who set out
training manuals, programs and courses. However, with the advances in technology, the future employee
is more connected, the learning and teaching takes place within peer groups and can happen at anytime,
anywhere.
III. The future company
➢ Instead of having a rigid hierarchy, there should be flexible lattice
➢ No bosses, but plenty of leaders
➢ Sponsors instead of bosses
➢ License to experiment
➢ Strong personal bonding
Future companies must do just one thing to strive in the future. That is:

Challenges
✓ How to involve everyone in the process of innovation?
✓ How to make sure that management’s beliefs doesn’t strangle innovation?
✓ How to create space and time for innovation?
✓ How to ensure steady flow of new options?
✓ How to retain discipline and focus?
The answers
Definite, ‘to-follow’ answers to these questions are yet to be found, as the futuristic management of
companies are highly unpopular. However, a handful of companies have already applied these techniques,
and have found out their own unique answers to these questions.
How to involve everyone in the process of innovation?
W.L.Gore tackles this challenge by
Removing hierarchy. Continually reinforcing that innovation can come from anyone. Collocate employees
with diverse skills to facilitate diverse products
How to make sure that management’s beliefs doesn’t strangle innovation?
W.L Gore: Management’s approval isn’t a prerequisite for initiating new projects. Minimal influence
from hierarchy. Peer-based process for allocating resources
How to create space and time for innovation?
W.L Gore: 10% of staff time utilized for ‘off-project’ activities. Allow plenty of percolation time for new
ideas
How to ensure steady flow of new options?
How Google tackles this challenge: Give employees plenty of time to experiment, minimize number of
approvals. “Test and Learn” instead of “Plan and Execute”. Give great rewards for individuals who come
up with game-changing ideas
How to retain discipline and focus?
✓ Whole Foods Markets: Accountability for results. Give employees a large amount of discretion.
Provide them with information they need to make a wise decision. Stringent recruitment processes
Conclusion
Management must constantly evolve to cater to the change in technologies, life styles and
aspirations. Companies which have innovates in their management has always been ahead
of its competitors. The examples of Kodak and Nokia are glaring examples of how neglect
towards innovation has caused downfall of companies. For companies to grow in future,
there should be steps to make the future manager, future employee and the future company
itself.
 CHAPTER ONE
Planning Function
3.1 Introduction
Planning is the most fundamental function of management. An organization can succeed in effective
utilization of its resources when its management decides in advance its objectives, and methods of
achieving them. Without this purpose and coordinated effort the results are chaos, confusion and wastage
of resources. For a manager and a group of employees one important thing to be decided or identified is
the objective to be accomplished and the next step is accomplishing them by devising a course of action.
This raises the question of what work needs to be done, when, how it will be done, what the necessary
work components should be, the contribution of each component, and the manner of accomplishing them.
Planning represents the expenditure of thought and time now for an investment in the future.It is true
that some goals are accomplished through little planning effort. But in this modern age where many tasks
have become quite complex-more technology is involved; more people want to be informed and
participate in what is going to be done and with the ever-increasing diversity of products and services-
planning has become a necessity.
Some of the most common definitions of planning are the following:
3.1.1 Planning is the process of establishing objectives and choosing the most suitable means for achieving
these objectives prior to taking action.
3.1.2 Planning is preparing for tomorrow today; it is the activity that allows managers to determine what they
want and how to get it.
3.1.3 It encompasses defining the organization’s objectives or goals, establishing an overall strategy, and
developing a comprehensive hierarchy of plans to integrate and coordinate. It is concerned with ends
(what is to be done) and means-how it is to be done.
From the above definitions one can infer that when planning, managers have five key responsibilities as
described below.
1. Construct, review, and/or rewrite their organization’s mission
2. Identify and analyze their opportunities
3. Establish the goals they wish to achieve
4. Identify, analyze and select the course or courses of action required to reach their goals
5. Determine resources they will need to achieve their goals.
3.2 Concepts and Need for Planning
3.2.1 Concepts of planning
Planning is the management of the organization's future in an uncertain environment.
➢ Planning - Is the process of setting objectives and determining the steps needed to attain them.
✓ It is systematic preparation for tomorrow, today
✓ It is an orderly process that allows managers to determine what they wantand how they get it.
✓ Deals with ends (what is to be done).
➢ Planning answers six basic questions in regard to any intended activity(objective). What, when,
where, who, why and how much in planning managers:
➢ Assess the future
✓ Determine objectives of the organization and develop the overallstrategies.
✓ Determine resources needed to achieve the objectives
Leaders are proactive. They make change happen instead of reacting to change. The future requires
corporate leadership with the skills to integrate many unexpected and seemingly diverse events into its
planning. Every organization must plan for change in order to reach its ultimate goal. Effective planning
helps an organization adopt to change by identifying opportunities and avoiding problems. It sets the
direction for the other functions of management and for teamwork. Planning improves decision-making.
All levels of management engage in planning.
3.2.2 Need for planning
We discussed in the first chapter that a need for management was felt as people started forming groups to
achieve their goals. They were quick to realize that managing is necessary to ensure proper coordination
of all the individuals in the group. If the group effort is to be successful, every member should know
exactly what is expected of him/her. This is the fundamental function of planning. This is a basic function
of the manager. Planning is the most crucial part of the functions of the manager. The importance of
planning cannot be over emphasized. It has been rightly said that failure to plan is planning to fail.
Most of the organizations very often fail due to poor planning. In spite of the entire resources one
mayhave, without planning one cannot move ahead.
Planning is determining the objectives and formulating the methods to achieve them. However, the
concept is simpler said than done. It is believed that a job well planned is halfdone.
Moreover, to better appreciate the needs for planning consider the following five essentialpoints:
i. Increasing time spans between present decisions and future results: The time span separating the
beginning of a project and its completion is increasing in most organizations. Obviously planning
becomes very critical in situations where the results will occur long after the decisions actually are
made.
ii. Increasing organizational complexity: as organizations become large and more complex, the manager’s
job also becomes bigger and more complicated due to the inter dependence among the organization’s
various parts. For instance, the more products a company offers and the more markets it competes in,
the greater the volume of planning and decision making. Planning enables each unit in the organization
to define the jobs that need to be done and the way to go about doing them.
iii. Increased external changes: the faster the pace of change becomes, the greater the necessity for
organized response at all levels in the organization and organizing responsesspring from well thought
out plans.
iv. Planning and other management function’s relation: the need to planning is evidenced by the
relationship between planning and other functions. Before a manager can organize, staff, lead and
control, he/she must have a plan. Otherwise, these activities have no purpose or direction. Clearly
defined objectives and well-developed strategies set the management function into motion.
v. If one is left with no alternatives, there is no scope for planning or choosing. It is essentially an
intellectual process requiring knowledge, experience and intelligence. Planning is needed to make
things happen or to cope up with the changes. Inother circumstances, one can simply be a spectator and
watch things in action.
3.3 Advantages of planning
Without planning, business decisions would become random, adhoc choices. Some of t h e concrete
reasons for the paramount importance of planning function are the following:
1) Minimizes risk and uncertainty: it provides more rational, fact-based procedure for making
decisions. It allows managers and organizations to minimize risk and uncertainty.
2) Helps focus attention on organizational objectives: planning helps managers focus attention on
organizational objectives and direction of action for achieving these objectives. This makes it easier to
apply and coordinate the resources of the organization more efficiently.
3) Facilitates control: in planning, the manager gets goals and develops plan to accomplish these goals.
These goals and plans then become standards or benchmarks against which performance can be
measured. The function of control is to ensure that the activities conform to the plans. Thus, controls
 can be exercised only when there are plans.
4) Leads to success: often things being equal, that companies which plan outperform not only the non -
planners but also outperform their own past result.
3.4 Limitations of planning
Planning is subject to certain limitations and a proper understanding of them will go away in improving
efficiency of planning.
1. Internal inflexibilities and procedural rigidities: Business enterprises operate under changing
environment. Industries and units working under dynamic conditions and confronting changed move
rapidly, face new problems and complications of instability. Internal inflexibilities dominant the
enterprises, management tend to become bureaucratic and rule-centered. The managers may be
negligent in revising plans, policies and procedures. All this makes planning job extremely difficult.
In order to overcome these difficulties, the managers must be properly directed. Initiative and
development can be aroused.
2. Time consuming and expensive: Planning is a time consuming and expensive process. Planning cost
goes up with every increase in its period. It should be remembered that the value expected of
planning should be more than the cost involved in it.
3. Philosophy of management and personnel: It can be a very serious limitation of planning.
Traditional concepts and beliefs are so deeply rooted in the minds of employees that planning outside,
their views of philosophy become extremely difficult.Psychologically people are not willing to
accept changing views. Therefore, efforts must be taken to convince the people about the value
of changes to overcome thisdifficulty.
Constraints of planning
1. Lack of reliable or dependable information: Perfect information is the basis of plans. If reliable and
accurate information or dependable data are not available, planning is sure tobe a failure. The period
of planning should also be short and the advanced forecasting techniques should used for good planning.
2. Planning premises may not be fully reliable: The basis and framework for future productions will
be provided by planning premises. Premising is always a subject to a margin of error and guess work,
which reflects in various plans based on them. Hence, to overcome this difficulty, there must be accurate
premises.
3. Other factors: There is very little scope for the management to control external limitations.
E.g. Government, policies, rules and regulations, taxation laws, competition and technological changes.
All these factors act as limitations to planning in differing degrees for different problems, situations and
different times.
3.5 . Types of Plans
Plan can be classified in to different types based on various criteria (basis): repetitiveness, time
dimension and scope or breadth dimension (organization level).
A. Classification of plans based on repetitiveness
On the basis of repetitiveness plans can be classified in to two:
i. Single use plans
ii. Standing plans
i. Single use plans
Single use plans are those plans which have no more use after objective is accomplished. Once activity
for which they have been made is over, single use plans have little or no use at all. They include: programs,
projects, Budgets, and schedule.
 Programs- defined as a comprehensive plan that includes future use of different resources in an
integrated pattern and establishes a sequence of required actions and time schedules for each in order
to achieve the stated objectives. Thus, a program includes objectives, policies, procedures, methods,
standards and budgets. For example, launching of a satellite will require programming.
 Project- is specific action plan formulated to complete various aspects of a program that can be
distinctly identified as a clear-cut grouping of activities with definite objectives and completion time.
Smaller in scale than programs or part of a program.
 Budget - is a statement of expected results expressed in numerical terms. Budget is a plan that shows
how money will be spent over a certain period of time. Even if budget is often thought as control
technique, it is also a plan since it sets forth objective to attain. Sometimes called as 'numerical plan'
as they are quantitative in nature.
 Schedule–arranges time for a given activity only.
ii. Standing Plans
Standing plans are type of plans that can be used again and again once they made. They remain useful for
long period in dealing with repetitive situations. Unlike single use plan, a standing plan specifies how to
handle continuing or recurring activities such as hiring, granting credit, maintaining equipment. Once
constructed, they continue to be useful over many years. Examples include policy, procedure, rule and
strategy.
  Strategy: is the process of determining the major objectives of an organization andthe policies. It
is a program that governs the acquisition, use and disposition of resourcesto achieve those objectives.
In other words, strategy is then general program of action and deployment of resources to attain
comprehensive objectives. Thus, an entrepreneur needs to decide what kind of business he/she is
going to do. A strategy may also involve designing a set of policies for the sales department of an
organization. Treatment of strategy as a type of plan is justified by its practical advantage and the
importance it is likely to have in giving guidance.
 Policy: is a general statement or understanding which guides or channel thinking in decision-making.
Policy defines an area within which a decision is to be made and ensures that the decision is consistent
with the objectives of an organization.
 Procedure: is a subdivision of policy. It states a series of related steps or tasks to be performed in a
sequence. Is a sequence of steps or operations describing how to carry out an activity and usually
involves a group. It is more specific than a policy and establishes a customary way of handling a
recurring activity
 Rule: is also a plan that prescribes a course of action and explicitly states what is to be done under a
given set of circumstances. Dictates actions that must or must not be taken ina given situation.
B. Classification of plans based on duration/ time dimension
Taking time in consideration a plan can be categorized in to three. Basically, planning deals with future
and the future is measured in time. Since, it is convenient and acceptable to think of different kinds of
planning in terms of the time periods for which the planning is intended.
I. Long range plans
Long range plans are those plans which have longer time horizon; they are concerned with distant future
than immediate future. Plan for five or more than five years E.g. Long-term plans on production or ware
house facilities.
II. Intermediate plans
Intermediate range plans are those plans with a time horizon between one and five years. They range
between long and short-term plans. E.g. development of new products and modernization of facilities etc.
III. Short range plans
The period is generally one year or less E.g. annual plan of sales, revenue, production material
requirement operating expenses budget.
C. Classification Based Scope/Organizational Level
Scope of plan refers to the range of activities covered by the plan.
 Strategic plan: is the process of analyzing and deciding on the organizational mission, objectives,
major courses of action/strategy and major resource allocation. Strategic planning is done by taking
into account environmental analysis-strengths, weaknesses, opportunities and threats (SWOT
analysis). Generally, strategic planningis performed by top level managers, mostly long range in its
time frame, expressed in relatively general nonspecific terms and provides general direction to the
organization.
 Tactical planning: strategic/long range planning answers the questions: where are we now? & where
we want to go? Tactical planning answers the question: how do weget there? In other words, tactical
plans refer to the processes of developing action plans through which strategies are executed. Tactical
plans are narrower in scope thanstrategic plans. Strategic plan is concerned with both the means and
ends whereas tactical planning is mainly concerned with the means. Middle level managers are
often involved in tactical planning.
 Operational Planning: is most specific and detailed. It is made at the operational level and is
concerned with the day to day and week to week activities of an organization. It is mainly of short
range, usually covering one year or less.
Strategic planning and tactical planning are highly complementary in that they are like two sides of the
same coin. Strategic planning provides the big picture; operational planning provides the detail without
which the big picture would remain in blank outline.
3.6 Planning process (Steps in Planning)
Planning is not something which is made all once at a time. The planning process is rational and amenable
to the scientific approach to problem solving. It consists of a logical andorderly series of steps. A
person involved in planning pass through number of steps to make effective plans. Process of planning
indicates the major steps taken place in planning. The steps generally involved in planning are:
Step-1 Establishing objectives
The first step in planning is to establish objectives for the enterprise and then for each subordinate work
unit. Objectives are the driver of planning processes. Objectives are established at all levels of the
structure, beginning at the top level and running down to first line managers. Strategic goals and objectives
are developed to bridge the gap between current capability and the mission. They are aligned with the
mission and form the basis for theaction plans. Objectives are sometimes referred to as performance
goals. Generally, organizations have long-term objectives for such factors as return on investment,
earnings per share, or size. Furthermore, they set minimum acceptable standards or common-sense
minimums. In addition, certain limitations, either explicit or implicit, such as "must provide jobs for
existing employees" may exist. Objectives elaborate on the mission statement and constitute a specific set
of policy, programmatic, or management objectives for the programs and operations covered in the
strategic plan. They are expressed in a manner that allows a future assessment of whether an objective has
been achieved.
Step 2. Environmental Analysis and forecasting
The next point for planning is an awareness of environment, both internally and externally. Organization
should maintain a continual assessment of the environment to determine its ownweaknesses and strengths
internally and to be aware of opportunities and threats in external environment. Based on this analysis
of internal and external environment forecasting (predicting) of different environmental factors such as
economics, technological, political etc can be made to assist real planning. Conduct a situation or SWOT
analysis by assessing strengths and weaknesses and identifying opportunities and threats. A situation
or SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is critical to the creation of any
strategic plan. The SWOT analysis begins with a scan of the external environment. Organizations must
examine their situation in order to seek opportunities and monitor threats. Sources of information include
customers (internal and external), suppliers, governments (local, state, federal, international), professional
or trade associations (conventions and exhibitions), journals and reports (scientific, professional, and
trade).
SWOT is the assumptions and facts on which a plan will be based. Analyzing strengths and weaknesses
comprises the internal assessment of the organization. Assess the strengths of the organization. What
makes the organization distinctive? (How efficient is our manufacturing? How skilled is our workforce?
What is our market share? What financing is available? Do we have a superior reputation?) Assess the
weaknesses of the organization. What are the vulnerable areas of the organization that could be exploited?
(Are our facilities outdated? Is research and development adequate? Are our technologies obsolete?) What
does the competition do well?
Analyzing opportunities and threats comprises the external assessment of the environment. Identify
opportunities. In which areas is the competition not meeting customer needs? (Whatare the possible new
markets? What is the strength of the economy? Are our rivals weak? What are the emerging technologies?
Is there a possibility of growth of existing market?) Identify threats. In which areas do the competition
meet customer needs more effectively? (Are there new competitors? Is there a shortage of resources? Are
market tastes changing? What are the new regulations? What substitute products exist?) The best strategy
is one that fits the organization's strengths to opportunities in the environment.
The SWOT analysis is used as a baseline for future improvement, as well as gap analysis. Comparing the
organization to external benchmarks (the best practices) is used to assess current capabilities.
Benchmarking systematically compares performance measures such as efficiency, effectiveness, or
outcomes of an organization against similar measures from other internal or external organizations. This
analysis helps uncover best practices that can be adopted for improvement. (See Camp, R. C.
Benchmarking: The search for industry best practices that lead to superior performance. Norcross, GA:
Industrial Engineering and Management Press, 1993.) Benchmarking with other organizations can help
identify a gap. Gap analysis identifies the progress required to move the organization from its current
capabilities to its desired future state. In this way, the organization can adapt to the best practices to
improve organizational performance.
Step 3. Determining alternative course of Action
Once objectives are set, the management must identify alternative ways for reaching them. When
developing alternatives. A manager should try to create as many roads to each objective as possible. In
fact, in most cases the challenging is not to find alternative ways but to decide which ones are best. To
decide on best ones, it requires evaluation.
Step 4. Evaluating the alternatives
Each alternative needs to be evaluated to determine which one best achieves the objectives.In evaluating
managers should assess cost (disadvantages) and benefits (advantages) of all alternatives. The assessment
may include both financial and non-financial considerations.
Step 5. Select the best alternatives
After evaluating all possible alternatives, managers will select alternative that remains better than others.
It may be an alternative with least disadvantages and most advantages.
Step 6. Implementing the plan
After the alternative course of action selected, it is important to develop an action plan to execute the plan.
In this step method for implementation will be suggested.
Step 7. Controlling and evaluating the results
Once the plan is implemented it needs monitoring. Managers should monitor the progress being made,
evaluate the reports made based on results, and make any necessary modifications, because factors in
environment are constantly changing, plans must be modified to cope up with changes.
3.7 PLANNING TECHNIQUES
Managers Can Improve the Quality of their planning by applying variety of Planning tools and
techniques. The important fantastic of planning is management by objectives (MBO).
Management by Objective (MBO)
MBO is a system in which specific performance objectives are jointly determined bysubordinates and
their superiors, progress toward objectives is periodically reviewed, and rewards are allocated on the
basis of this progress. An effective planning tool to help the supervisor set objectives is Management by
Objectives (MBO). MBO gained recognition in 1954 with the publication of Peter Drucker's book, The
Practice of Management. MBO is a collaborative process whereby the manager and each subordinate
jointly determine objectives for that subordinate. To be successful MBO programs should include
commitment and participation in the MBO process at all levels, from top management to the lowest
position in the organization.
MBO begins when the supervisor explains the goals for the department in a meeting. The subordinate
takes the goals and proposes objectives for his or her particular job. The supervisor meets with the
subordinate to approve and, if necessary, modify the individual objectives. Modification of the individual's
objectives is accomplished through negotiation since the supervisor has resources to help the subordinate
commit to the achievement of the objective. Thus, a set of verifiable objectives for each individual are
jointly determined, prioritized, and formalized.
The supervisor and the subordinate meet periodically to review the latter's progress. Communication is
the key factor in determining MBO's success or failure. The supervisor gives feedback and may authorize
modifications to the objectives or their timetables as circumstances dictate. Finally, the employee's
performance is measured against his or her objectives, and he or she is rewarded accordingly
Elements of Effective MBO
1. Top level goal setting: Effective MBO begins with the objective being set by top managers which is
open for discussion by managers and subordinates to reach up on the common objectives.
2. Individual targets- In an effective MBO each manager and subordinate has clearly defined
responsibilities or expected results.
3. Participation- Both managers and subordinates are participating in objective setting.
4. Autonomous of individuals- Once the objective is set, subordinates have a right to select methods of
attaining the objectives.
5. Performance review- managers and subordinates periodically meet to review progress toward the
objectives.
6. Reward- those individuals who meet the objectives in performance review are rewarded. The
rewards may be recognition, praise, pay increase, etc.
Shortly, MBO Principles are:
➢ Cascading of organizational goals and objectives
➢ Specific objectives for each member
➢ Participative decision making
➢ Performance evaluation and feedback.
Steps in MBO
Effective MBO passes through different steps:
1. Setting individual objectives and plans
With each subordinate the manager jointly set objectives the participation of subordinates in the objective
setting process is a way of strengthen theircommitment to achieve their goals.
2. Giving feedback and evaluating performance
Employees must know how much they are progressing toward their objectives. Thus, managers and
subordinates should meet frequently to reviewprogress and evaluate performance communication is key
factor in determining success of failure of MBO
3. Rewarding according to performance
Employees' performance should be measured against their objectives. Employees who meet their
objectives should be rewarded through recognitions, praises. Pay rises and so on.
Research has demonstrated that when top management is committed and personally involved in
implementing MBO programs, they significantly improve performance. This finding is not surprising
when one considers that during the MBO process employees determine what they will accomplish. After
all, who knows what a person is capable of doing better than the person does him or herself?
Benefits and limitations of MBO
Benefits
1. MBO uplifts workers motivation
2. MBO allows managers and subordinates share experience
Limitation
It consumes much time
Objective: An objective is simply a statement of what is to done and should be stated in terms of results.
Objectives is SMART (Specific, Measurable, Attainable, Result-oriented, Time-limited).
Characteristics of good (effective) objective (SMART)
There are some characteristics of effective objectives, so effective objectives are mostly:
Specific: Objectives should state the exact level of performance expected specifically. An objective must
be specific with a single key result. If more than one result is to be accomplished, more than one objective
should be written. Just knowing what is to be accomplished is a big step toward achieving it. What is
important to you? Once you clarify what you want to achieve, your attention will be focused on the
objective that you deliberately set. You will be doing something important to you.
Measurable: as much as possible objectives should be expressed quantitatively, therefore, it is possible
to easily determine whether or not goals have been achieved. An objective must be measurable. Only an
objective that affects behavior in a measurable way can be optimally effective. If possible, state the
objective as a quantity. Some objectives are more difficult to measure than others are. However, difficulty
does not mean that they cannot be measured. Treatment of salespeople might be measured by looking at
the absenteeism and turnover ratesamong the sales force. Also, salespeople could be asked to fill out a
behavioral questionnaire anonymously giving their observations of the supervision they receive. Customer
service could be measured by such indices as the number of complaints received, by the number of
customers lost, and by customer interviews or responses to questionnaires. Development of subordinates
could be measured by determining the number of tasks the subordinate has mastered. Cooperation with
other functions could be measured by length of delay in providing requested information, or by peer
ratings of degree of cooperation.
Avoid statements of objectives in generalities. Infinitives to avoid include to know, to understand, to
enjoy, and to believe. Action verbs are observable and better communicate the intent of what is to be
attempted. They include to write, to apply, to recite, to revise, to contrast, to install, to select, to assemble,
to compare, to investigate, and to develop. How willyou know you've progressed?
Appropriate: objectives should be prepared in suitable, acceptable and achievable manner.
Realistic and challenging- objectives should be attainable or real rather than fantasy. An objective must
be attainable with the resources that are available. It must be realistic. Many objectives are realistic. Yet,
the time it takes to achieve them may be unrealistic. For example, it is realistic to want to lose ten
pounds. However, it is unrealistic to want to loseten pounds in one week. What barriers stand between
you and your objective? How will each barrier be overcome and within what time frame? It also better to
have challenging objectivesas far as they could motivate workers if attained.
Time bound: objectives should be set with in specific time limits or target dates for their attainment. The
objective should be traceable. Specific objectives enable time priorities to be set and time to be used on
objectives that really matter. Are the time lines you have established realistic? Will other competing
demands cause delay? Will you be able to overcome those demands to accomplish the objective you've
set in the time frame you've established?
Write Meaningful Objectives
Although the rules are difficult to establish, the following may be useful when writing an objective.
1. Start with an action or accomplishment verb. (Use the infinitive form of the verb. Thismeans to
start the with "to.")
2. Identify a single key result for each objective.
3. Give the date of the estimated completion.
4. Be sure the objective is one you can control.
5. To test for validity of SMART objectives, ask yourself the following questions.
» S = Exactly what is my objective?
» M = What would a good job look like?
» A = Is my objective feasible?
» R = Is my objective meaningful?
» T = Is my objective traceable?
A mission is a broad definition of a business that differentiates it from all other organizations.It is the
justification for the organization's existence. The mission statement is the "touchstone" by which all
offerings are judged. In addition to the organization's purpose otherkey elements of the mission statement
should include whom it serves, how, and why.
A vision might be a picture, image, or description of the preferred future. A visionary has the ability to
foresee something and sees the need for change first. He or she challenges the statusquo and forces honest
assessments of where the industry is headed and how the company can best get there. A visionary is ready
with solutions before the problems arise.
3.8 Decision Making
Managers at all levels as well as non-managers are engaged in decision making, thus decision making is
indeed universal. Although decision making is part of everyone’s life, it is an important function of
managers because the quality of the decision made by them determines the success or failure of the
business and, managers are evaluated and rewarded on the bases of the importance, number, and results
of their decision. In management, the term decision making and problem solving are used interchangeably
because managers mostly make decisions to solve problems. But all decision makings are not aimed at
solving problems. Many decisions are made to seize opportunities. Managers see a chance, event or
breakthrough that requires a decision to be made.
Decision-making is a part of all managers’ jobs. A manager makes decisions constantly while performing
the functions of planning, organizing, staffing, directing, and controlling. Decision- making is not a
separate, isolated function of management but a common core to the other functions.
The decisions made by top management, dealing with the mission of the organization and strategies for
achieving it, have an impact on the total organization. Middle level managers, in turn focus their decision
making on implementing the strategies, as well as on budget and resources allocating. Finally, first levels
management deals with repetitive day to day operations.
3.9 Meaning of decision-making
Supervisors constantly make decisions that affect the work of others. Day-to-day situations involving
supervisory decisions include employee morale, the allocation of effort, the materials used on the job, and
the coordination of schedules and work areas. The supervisor must recognize problems, make a decision,
initiate an action, and evaluate the results. In order to makedecisions that are consistent with the overall
goals of the organization, supervisors use guidelines set by top management. Thus, it is difficult for
supervisors to make good decisions without good planning.
A decision is a solution chosen from among alternatives. Decisions must be made when the supervisor is
faced with a problem.
Decision making is defined as the process of selecting, based on some criteria, the best one of among a
number of alternatives. It is rational choice among alternatives. There should be options to choose from;
otherwise choosing is not possible and no decision.
Decision making is a process; not a single act like switching/opening light.
Decision-making is the process of selecting an alternative course of action that will solve a problem. The
first decision is whether or not to take corrective action. A simple solution might be to change the
objective. Yet, the job of the supervisor is to achieve objectives. Thus, supervisors will attempt to solve
most problems.
A problem exists whenever there is a difference between what actually happens and what the supervisor
wants to have happen. Some of the problems faced by the supervisor may occur frequently. The solutions
to these problems may be systematized by establishing policies that will provide a ready solution to them.
In these repetitive situations, the problem-solving process is used once and then the solution (decision)
can be used again in similar situations. Exceptions to established routines or policies become the more
difficult decisions that supervisors must make. When no previous policy exists, the supervisor must invent
a solution.
Problem solving is the process of taking corrective action in order to meet objectives. Some of the more
effective decisions involve creativity. To get better ideas, the supervisor follows the steps in the problem-
solving process. The steps are built on a logical analysis.
3.10 Rational decision-making process
Decision making process involves the following steps:
1. Identifying the Problems or Opportunities: the decision-making process begins with the
determination of a problem or opportunity that may exist. This is the most critical step as the accuracy
of this step affects all the steps that follow. Problem is the realization that discrepancy exists between
a desired state and current reality. Opportunities must also be clarified before any decision can be
made. Opportunity is a chance, occasion, event, breakthrough that requires a decision to be made.
2. Establishing Priorities: all problems are not equal in importance. As a result, it is necessary
establish priorities for problems by determining their significance level and resource requirements.
Based on this fact we can consider the following issues:
 Urgency: time is critical factor for success. For example, fighting a fire that broken outin the store
is more urgent problem than fixing a broken machine. On the other hand, the machine fixing is more
likely to be urgent than repairing a type writer.
 Impact: describes the seriousness of a problem. It may affect people, sales, equipment and any other
organizational resource. Impact also describes whether effects of the problem are short term or long term.
 Growth tendency: addresses future consideration even though a problem may currently be of low
urgency and have little impact if allowed to go unattended it may grow.
3. Developing Potential Alternative Solutions: at this point, it is necessary to look at, develop and list
as many possible alternative solutions to the problems as possible. These alternative solutions should
eliminate, correct or neutralize the problem. Note that doing nothing about a problem sometimes is a
proper alternative, until the situation has been thoroughly analyzed. Occasionally, just the passing of
time provides cure. Decision maker must always seek out alternatives to ensure that there are choices
to be made, and it is to be hoped that the best choice will result in the best decision. Feasible
 alternatives to the problem should be developed using one’s own creativity and brain storming
techniques and the possible consequences of each alternative should be evaluated.
4. Evaluating Alternative Solutions
Once alternative solutions have been developed, they may be evaluated and compared. In every decision
situation the purpose is to select the alternative that will produce the most favorable result. The purpose
of this step is to evaluate the relative merits and demerits of each alternative. To evaluate the alternatives,
decision criteria and weight to each criterion should be allocated so that rational/ proper selection will
result.
5. Selecting The Best Alternative Solution
After we evaluate the alternatives, the next logical step is to select the best alternative that suits to solve
the decision problem. After the alternatives have been listed along theircorresponding merits and demerits,
a decision maker selects the best one. In selecting an alternative or combination of alternatives, one must
find a solution that appears to offer the fewest serious disadvantages and the most advantage. Thus, this
is critical point of the decision making, the point where a decision is actually made.
6. Implementing The Best Alternative Solution
Any decision is little more than an abstraction if it is not implemented; and it must be implemented
effectively if it is to achieve the desired objective. It is entirely possible for a good decision to be hurt by
poor implementation. Therefore, a manager’s job is not only to choose sound course of action but also to
transform the choice into effective action. Everyone involved in carrying out the decision must know
what he/she must do, how to do it,why and when it must be done.
7. Establishing Evaluation and Control Systems:
Effective decision making involves periodic assessments of results of the chosen course of action. If actual
results are not conforming planned results, change must be made. On the other hand, once a course of
action has been decided upon, a manager cannot simply assume that its implementation will match with
the objectives; action must be monitored and their consequences assessed. This final step provides
feedback on how well the decision is being implemented, what the negative and positive results are and
what adjustments are necessary to get the results that were desired when the solution was chosen.
3.11 Types of Decision Making
Not all decision- m a k i n g situations are identical. The nature of the decision often dictates the
manager what approach to take. In this section, various types of decisions will be discussed.
a) Programmed and Non-Programmed Decisions
  Programmed decision: decisions are said to be programmed if they are repetitive and a definite
procedure or policy has been developed for determining when the decision should be made and what
actions should be taken.
 Non - programmed decision: decisions are non-programmed when they are novel, unique, one time
and unstructured. This calls for general problem-solving process, judgment, intuition and creative
problem-solving abilities of the manager. Ideally the mainconcern of top-level managers should be
non-programmed decisions while programmed decisions deserve attention of managers at the first level.
b) Proactive and Reactive Decisions
 Proactive decisions: decisions made in anticipation of external changes or other future conditions are
referred to as proactive decisions.
 Reactive decisions: a reactive decision is one made in response to changes that have already occurred.
c) Intuitive and Systematic Decisions
 Intuitive decision: it involves the use of estimates, guesses, or hunches to decide among alternative
courses of action. Sound intuition is developed primarily from experience andtraining.
 Systematic decision: in contrast to intuitive decision making, systematic decision requires a clear set
of objectives, relevant information and sharing of ideas among key managers and other employees.
3.12 Decision Making Conditions
Decisions can also be classified according to the level of risk and certainty associated with them. Based
on degree of certainty, there are three conditions of decision making-certainty, risk and uncertainty.
 Certainty: this is the condition in which the decision maker has full information about the problem,
the alternative solutions, complete knowledge of the probability of the outcomes of each alternative.
It is rare to find decisions made under certainty conditionin highly dynamic environment.
 Risk: in this situation, the manager knows what the problem is, knows the alternatives, but does not
know how each alternative will work out even though he/she has some estimate of the probability of
possible outcomes of each alternative. Decision making under risk is, probably, the most common
situation faced by managers.
 Uncertainty: in this situation, there may be limited information about the alternative solutions, but
the decision maker has absolutely no knowledge of the probability of the outcome of each alternative.
Confidence in decision making is low because decisions are made on educated guesses, relevant
experience, subjective judgment and intuition. Thus,decision making under uncertainty is mostly non
programmed decision.
 CHAPTER ONE
Organizing Function
4.1Meaning and Definition of Organization
Organizing is the process of identifying and grouping tasks to be performed, assigning responsibility and
delegating authority and establishing relationship for the purpose of enablingto work most effectively
together in the accomplishment of objectives.
The organizing functions have the following four distinct activities
1. It determines what work activities have to be done to accomplish organizationalobjectives
2. It classifies the type of work needed and groups the work in to manageable workunits.
3. It assigns the work to individuals and delegates the appropriate authority
4. It designs a hierarchy of decision –making relationship.
Organizing results in an organization structure that can be thought of as a frame work that holds the various
functions together according to the pattern determined by management. An organization structure is a tool
of management to achieve plans.
4.2 Formal and Informal Organizations
Formal Organization: - Is an organization that is deliberately and rationally designed andapproved by
management through the organizing process in order to achieve the objectives of thefirm
Informal organization: - Refers to people in grouping associations, but these associations are not
specified in the structure of the formal organization. The main point to be noted is that no conscious
attempt is made to create an informal organization. It simply appears in response to the social needs- the
need of people to associate with others.
Characteristics of Informal Organizations
1. Group norms: These are unwritten laws that govern the behavior of members of the informal
organizations.
2. Group cohesiveness: - Members of the informal organization stick together.
3. Group leadership: - The informal organization has a leader –the informal leader. This person is the
most active one from among the members.
4. Communication Network: the informal organization has a communication network i.e. called
grapevine.
 4.3 The Organizing Process
Step 1: Consider Plan and Goals: plan and their goals affect organizing and its result, the
organization.
Step 2: Determine the work activity necessary to accomplish objectives: what work activities are
necessary to accomplish the identified organization objective? Identify all activities necessary.
Step 3: Classify and group activities:
I. Examine each activity identified to determine its general nature (marketing, production, finance,
personnel etc.)
II. Group the activities in to these related areas.
III. Establish the basic department design for the organization structure
In practice, the first two activities occur simultaneously: example personnel related activities include
hiring. Developing, recruiting and compensating
The last work is departmentation: i.e. a decision is being made on the basic organizational format or
departmental structure for the company.
Step 4: Assigning Work and delegate appropriate authority: this step is critical in both the initial and
ongoing organization process. Principle of functional definition (in establishing departments, the nature,
purpose, tasks, and performance of the department) must first be determined as a basic for authority. It
means that the activity determines the type and quantity of authority necessary. Authority does not come
first; assignments of activities establish the basis for authority.
Step 5: Design a hierarchy of relationship: this step requires the determination of both vertical and
horizontal operating relationships of the organization as a whole.
4.4 Organization Chart
Organization Chart- is graphic illustration of the organization’s management hierarchy and departments
and their working relationships. Each box indicates position withi n the organization and each line
indicates reporting relationships and lines of communication.
The vertical structuring of the organization results in a decision – making hierarchy showing whois in
charge of each task of each specialty area, and of the organization as a whole. Level of management creates
the chain of command, or hierarchy of decision – making level, in the company.
The horizontal structuring has two important effects:
5. It defines the working relationships between operating departments.
6. It makes the final decision on the span of control (the number of subordinates underthe direction)
of each manager
The result of this step is a complete organization structure. This structure is shown visually by an
organization chart
Note: The organizing process like other managerial functions is an ongoing process.
➢ Organizational structure shows us:
✓ Who report to whom- the chain of command
✓ How many subordinates work for each manager (span of control)
✓ Channels of official communication through the solid lines that connect each job (box)
✓ How the company is structured – by function, customer, or product for example.
✓ The hierarchy of decision – making – where a decision maker for a problem is located
✓ How current the present organization structure (if date is on the chart)
Type of authority relationships.
4.5 Bases of Departmentalization
Definition: Departmentalization is a process of combining jobs in to groups. A manager must have a basis
or rationale for combining jobs. The most bases of departmentalization used by organizations are
✓ Functional departmentalization.
 ✓ Geographic/ territorial/ departmentalization.
✓ Product departmentalization.
✓ Customer departmentalization.
1. Functional Departmentalization
A function refers to the various responsibility areas of an organizational component. It is the process of
grouping the organization’s activities in to units in logical manner on the basis of essential functions that
must be performed to attain organizational objectives/ goals. Thesefunctions include marketing,
finance, operations, manufacturing, personnel, engineering etc.

Advantages
✓ It logical, scientific and time- tested method because its groups like or similar act i vi t i es together
facilitate specialization.
✓ Efficiency is fostered through specialization
✓ It makes supervision easier, since each manager is an expert in only a narrow range of skills.
✓ Tight control of all functional units is assured b/c the top managers are responsible for theend results.
✓ It simplifies training
Disadvantages
✓ People in functional department may lose sight of the overall operations of the business, it inturn
invites employees to de- emphasizes the overall company objectives.
✓ Workers may develop highly specialized skills, but not general managerial abilities.
✓ Although there is strong relationship with in a function, co- ordination b/n functions is reduced.
✓ Sometimes conflict develops among departments as each unit competes for resources.
2. Geographic / Territorial / Departmentalization
It groups business activities on the basis of geographic region or territory, enabling a firm to adopt to local
customs and laws and to survey customers more quickly. According to this kind ofdepartmentalization all
activities in a geographic area are assigned to particular manager. This individual is in charge of all
operations in that geographic area. It is especially attractive to large scale firms or other. Enterprises
whose activities are physical or geographically dispersed. Theterritorial basis frequently is used by firms
whose operations are similar from region to region.
Advantages
✓ Results in great saving in time and money. The enterprise can benefit from lower freight, lower rent
 and lower labor costs. Thus, it takes advantages of economics of local operations (places emphasis
on local markets and operations).
✓ Places responsibility at lower level (there will be quick decision).
✓ Places measurable training ground for general managers.
✓ Better face-to – face communication with local interests.
Disadvantages
✓ Requirement more persons with general manager abilities/ it is costly to implement
✓ Duplication problem of top management control. This is b/c of having flat span ofmanagement.
✓ Sometimes, the decision to set up geographic department is based on economic considerations;
such as transportation costs for raw materials, for distribution, etc.
3. Product Departmentalization
It is the grouping of activities on the basis of product or product line. It is adopted by (commonlyused)
manufactures that produce and sell a number of product lines made up of several different items: such as
drug, food, clothing, machines, automobiles, etc.
Advantages
✓ It enables the enterprise to focus attention on product lines, making it easier for management to see
the efficiency and effectiveness of production determining which product is profitable or not
✓ It improves co- ordination between function relating to a particular product.
✓ Furnishes measurable training ground for general managers.
✓ Facilitates use of specialized capital, facilities, skills and knowledge.
Disadvantages
✓ Requires more persons with general manger abilities
✓ There is an ever – present danger of duplication of activities.
✓ It presents increased problems of top management control.
4. Customer Departmentalization
It is the grouping of enterprise activities based on customer’s interests. Companies that must provide
special services to different groups set up department by types of customers, using customer
departmentalization. For example, a manufacturer may have both an industrial products division for its
industrial customers and consumer products division for other consumers.
 Fig 4.5. Customer departmentalization.

General Manager

Production Marketing Finance Personnel

Wholesale Retail Installment Export

Advantages
✓ Encourages Concentration on customer needs
✓ Giving customers feeling that they have an understanding supplier
✓ Developing expertise in customer area
Disadvantage
✓ May be difficult to coordinate operations b/n competing customer demands Require managers and
staff experts in customer problems
✓ It may result in underutilization of resources in some department
✓ Customer groups may not always be clearly defined.
✓ There may be duplication of activities.
4.6 Span of management (span of control)
Span of control refers to the number of employees reporting to manger, in other words, the number of
subordinates a manger directly supervises. No fixed number of subordinates is there to be supervised by
a single manger; the number depends on different actions which include perplexity (puzzlement).
1. Complexity and variety of subordinates’ job: - if subordinates are dealing with complexand many
jobs, they will contact with managers frequently to get more assistance, so for manger to give
assistance to subordinates they need to lead only few subordinates
2. Ability and competence of mangers: - if mangers are capable of grasping problems easily and
finding solutions for problems quickly then can supervise a greater number of subordinates.
3. Managers willingness to delegate authority: - if mangers are permissible or willing to delegate
authority, they can manage or supervise many numbers of subordinate
 4. The geographic location of organizational departments: - if the departments are located in one-
area mangers can control many numbers of subordinates otherwise few subordinates are advised.
Wide and narrow spans of control
Based on the numbers of subordinates supervised by mangers in organizational departments,span of
control can be classified in to wide and narrow span of control.
Wide span of control: -span of control in which as many as 10 or 15 people may report to thesame
person, results in a flat organization structure.
✓ If the number of subordinates is many it is called wide span of control.
A narrow span of control: - span of control in a tall organizational structure.
✓ If number of subordinates is few it is narrow span of control, but not always real, if number of
subordinates is <10, It is narrow span of control.

Fig 4.4 wide span of control

 Fig 4.5 narrow span of control
4.7 Authority and power and their sources
Organizational structure is a means of facilitating the achievement of organizational objectives. Such
structures are not static, but dynamic. They reorganize in response to changing conditions that occur in
the environment, new technology, or organizational growth. Organization structures are dependent upon
the employees whose activities they guide. Supervisors rely upon power and authority to ensure that
employees
Authority: - is the formal and legitimate right of a manger to make decisions, give orders, andallocate
resources, is the right to command.
The organizational structure provides the framework for the formal distribution of authority. Source of
authority-comes with the territory, “making that authority is legal right of managerbecause of the
position he or she occupies in the organization. Thus authority is defined in eachmangers job charter. The
person who occupies a position has his/her formal authority as long ashe or she remains in that position.
As the job changes in scope and complexity, the amount andkind of formal authority possessed should
be changed.
Types of authority
In an organization three different types of authorities are created by the relationships between individuals
and departments.
I. Line authority – defines the relationship between superior and subordinates. Any manager who
supervises operating employees or other manger has line authority. It allows mangers to give direct
orders, evaluate the actions, reward and punish employees. It is responsible to makedecisions and issue
orders down the chain of command.
II. Staff authority- is the authority to serve in an advisory capacity: - managers who provide advice or
technical assistance are granted advisory authority. This staff or advisory authority provides no basis
for direct control over the subordinates or activities of other departments. Staff authorities are
responsible to advise and assist other personnel.
III. Functional authority; is an authority which permits staff mangers make decision on specific activities
performed by employees with in other departments. Staff departments often use functional authority
to control their procedures in other departments.
✓ Is the right of staff personnel to issue orders to line personnel in established areas of responsibility?
 ✓ Ex. The maintenance department assists production by keeping the operating activity. If the
maintenance determines that a machine is unsafe, the department may issue an order to line manger
to use the machine, but it cannot suggest which products are produce
4.8 Responsibility and Accountability
Equally important to authority is the idea that when an employee is given responsibility for a job,he or she
must also be given the degree of authority necessary to carry it out. Thus, for effective delegation, the
authority granted to an employee must equal the assigned responsibility. Upon accepting the delegated
task, the employee has incurred an obligation to perform the assigned work and to properly utilize the
granted authority.
Responsibility is the obligation to do assignedtasks. The individual employee is responsible for being
proficient at his or her j
their personal, individual conduct.
Accountability is answering for the result of one's actions oromissions. It is the reckoning, wherein one
answers for his or her actions and accepts the consequences, good or bad
4.9 Power and Its Sources
Power is ability to exert influence in the organization. OR Power is the ability to exert influence in the
organization beyond authority, which is derived from position. In addition to authority; supervisors have
more personal sources of power to draw upon for getting things done. Everyonehas power in one form or
another and it is by exercising this power that organizations get things accomplished. - It is ability to
influence others’ behavior.
Power can be positional and personal.
Position power is derived from top management and is delegated down the chain of command.
Personal power is derived from the follower based on the individual behavior.
* A person does not need to be manager to have power. Some administrative assistants of top managers
have considerable power, but no authority. Manager can a acquire power from several different sources,
based on these sources power can be:
(i). Legitimate or position power – The power possessed by manger and derived from the positions they
occupy in the formal organization. . This position power is broader than the ability to reward and punish,
as members need to accept the authority of the position
(ii)Reward power- The power that comes from the ability to promise or grant rewards. Mangershave
the ability to decide on raises, promotion favorable performance appraisals, and preferredwork shifts.
Reward power results in people doing what is asked because they desire positivebenefits or rewards.
Rewards can be anything a person values (praise, raises, and promotions)
(iii) Coercive power – is a power which enables mangers to force individuals to attain their work
assignments or to punish those workers who failed to attain their job assignments. Coercive power
is the threat of sanctions. It is dependent on fear and includes, but is not limited to the ability to dismiss,
assign undesirable work, or restriction of movement. The punishment may include; demotion, terminating
employment etc.
(iv) Referent (charismatic) power – is the power that is based on the kind of personality or charisma an
individual has and how others perceive it. Referent power refers to a person who has desirable resources
or personal traits. It results in admiration and the desire to emulate. It is the power obtained from the
attitude of people toward someone or from idea that one has on himself.
(v) Expert Power- is power derived from an individual’s knowledge and expertise. Others listen to and
follow the person with expert power because she/he is regarded as capable and knows how to do things
right. Employees with expert power are often promoted to management.
Delegation, Centralization and Decentralization
Delegation is the process of assigning authority and creating obligation to accomplish objectives.
It is the down ward transfer of formal authority from one person to another
Process of Delegation
Delegation- involves some activities which include
1. Assignment of Tasks- identifying tasks to be performed and assign the tasks to subordinates. It is
a primary activity in delegation of authorities.
2. Delegation of Authority- Once tasks are assigned, employees should be given as much authority
as possible which enable them to make decision regarding their job assignments.
3. Creation of Obligation- Managers have to create accountability with subordinates for fair use of
authority and effective performances of activities.
4. Establishment of Control System- The fourth step in delegation process is establishing adequate
control system for evaluating the results of delegation. Since a manager is responsible for the
performance of such a large variety of tasks, activities and functions that s/he cannot perform them
all by himself/herself. S/he assigns a part of his/her work to his/her subordinates.
Merits of delegation
✓ It freed managers from routine activities and enables them to focus on critical ones.
 ✓ It acts as a tool of development and motivation of employees.
✓ It is means of pushing down decision to lower level so decisions are likely to be timelier aswell as
realistic.
Obstacles to Delegations
✓ Managers believe that they can do better decisions
✓ Managers are afraid of losing importance
✓ Some managers do not know how or what to delegate
✓ Subordinates lack confidence in their activities etc.
4.10 Centralization and decentralization
Centralization is a philosophy of management that focuses on systematical retaining of authority in the
hand of higher-level managers. I.e. it is the degree to which decision-making is concentrated in top
management's hands.
Decentralization is a philosophy of management that focuses on systematical delegation of authority
throughout the organization to middle and lower level managers. ; is the extent to which decision-making
authority is pushed down the organization structure and shared withmany lower-level employees.
If authority is decentralized:
✓ Greater number of decisions will be made at lower level
✓ Important decisions are made at lower level, and subordinates will refer less their superiors to make
decisions.
The reverse is true if authority is centralized.
In centralization decision making criteria are limited to top level management. But In decentralization
are delegated to lower level. Centralized organizations have more levels of management with narrow spans
of control. Employees are not free to make decisions. Decentralized organizations have fewer levels of
management with wide spans of control giving employees more freedom of action. All other things being
equal, a wide span of control is more efficient because it requires fewer managers. However, it is important
to recognize that, at some point, effectiveness will decline.
Generally; tall organization structures are more of centralized. Flat organizations Structures aremore of
decentralize.
Groups and committees
Group; -is a social unit consisting of two or more interdependent, interactive individuals who arestriving
to attain common goals.
 Types of groups
Formal groups are groups established by an organization, their membership and structure areformed
by the management of the organization
Formal groups are may be classified as follows
I. Task group/work group consists of people with different skill for performance of acommon
task.
II. Command group consists of managers and their employees formed due to authority and
responsibility relationship.
III. Mediating group a group formed to resolve conflict that may arise between departments and
individuals.
IV. Policy making group: - a group established to formulate operating policy.
Informal groups are groups created spontaneously when member join together voluntarilybecause of
similar interest.
Committees
Committee is a group of members that represents functional areas of expertise.It is best example of formal
group
The primary function of committee is to make or suggest decisions on problems requiringintegration
of different departments.
Types of committees
Generally, committees can be ad hoc or standing
1. Adhoc committees: - are those formed for a particular purpose. If the objectives are for which they
are established have been met, they are disbanded (dispersed). They are temporary.
2. Standing committee- are permanent in nature. They are not disbanded. In large organizations they
often take the form of finance committees and personnel committee and there is always enough work
to justify their existence.
 Chapter Five
Staffing
5.1 Introduction
The primary purposes of staffing are to attract, hire, train, develop, reward and retain the required number
of good people, helping them meet their needs while they help the organization meet its needs. Good
people are those with proven performance records or potential that demonstrates they will fit into the
organization’s culture and climate. Since most job applicants have some deficiencies, the key issue is the
employer’s willingness and ability to help applicants remedy their deficiencies. Providing needed
investment, for example training, makes good people even better, making them more confident, capable
and more valuable to their organizations.
Once good people are on board, organizations must retain them. Human resource is the only factor of
production that contributes more than its input. Human resources are considered as human assets. They
produce synergic effect. It is the only factor that can be motivated.
5.2 Meaning and Definition of Staffing
Staffing involves the proper and effective recruitment, selection, placement, training and development,
performance appraisal and retention of employees with appropriate qualification tofill positions created
by the manager. Staffing, this follows organizing, links people and processes. People create an
organization’s intellectual capital which makes the organization unique and separates it from its
competitors. Without dedicated, knowledgeable, and motivated employees, the best laid plans cannot bear
fruit.
Staffing is another name for managerial function of human resource management. The managerial
function of staffing is defined as filling, and keeping filled, positions in the organization structure. Without
competent people, organizations will either pursue inappropriate goals or find it difficult to achieve the
desired goals. Human dynamics play an important role in surmounting obstacles, defusing complex
situations and achieving organizational goals. It is because of this reason that some organizations succeed
in spite of major obstacles, environmental changes and challenges, while others crumble rather quickly
under external pressures.
5.3 Staffing processes
The staffing process involves the following eight basic activities:
1. Human Resources Planning
It is the process of translating overall organizational objectives, plans and programs to achieve specific
performance into workforce needs. It is the systematic and continuing process of analyzing an
organization’s human resource needs under changing conditions and developing personnel policies,
appropriate to the long-term effectiveness of the organization. It is an integral part of corporate planning.
2. Recruiting
It is defined as the activities of developing a pool of qualified candidates from which the organization may
choose the most appropriate employees. It can also be defined as announcing and advertising vacant
positions and developing sources of applicants and receiving applications. It is the process of locating and
soliciting a sufficient number of qualified candidates.
Recruitment takes place within a labor market. This includes a mass of available people whohave the
skills to fill open positions. In general, the sources of employment can be classified into the following two
types:
1. Internal source of Recruitment: Many organizations have a policy of recruiting or promoting from within
except in very exceptional circumstances. Filling a job opening from within the organization has the
following
Advantages:
 Individuals recruited from within are already familiar with the organization and itsmembers and this
knowledge increases the likelihood they will success
 A promotion from within fosters loyalty and inspires greater effort among organizationmembers
 It is usually less expensive to recruit or promote from within than to hire from outside theorganization
The disadvantages of the internal recruitment are as follows:
 The obvious limitations of available talents
 It may encourage complacency among the employees who assume promotions
 It reduces the chances of fresh viewpoints entering the organization
2. External source of Recruitment: The process of evaluating and deciding the best and qualifiedcandidates
out of the pool of applicants received in the recruitment process for job openings based on their
abilities, skills and performance. If human resource managers are to make good match between jobs
and candidates, they should use the job description and job specification before they decide on the
application.
3) Selection
Selection is the process of deciding which candidate out of the pool of applicants possesses the
qualifications for the job to be filled. Selection begins where recruitment ends. Once therecruiting effort
has developed a pool of candidates, the next step in the staffing process is to determine who is best
qualified for the job. This step is called the selection process. Selection involves mutual decision and
prediction. The enterprise decides whether to make a job offer and how attractive the offer should be. The
job candidate decides whether the enterprise and the job offer fit his or her needs and personal goals.
4) Orientation:
The new hire needs a warm welcome so he/she can begin contributing as soon as possible. The newcomer
needs to be introduced to his or her workstation, team, and coworkers. A newemployee’s first impressions
and early experiences should be realistic and as positive as possible. Orientation is the beginning of a
continuing socialization process that builds and cements employee’s relationships, attitudes, and
commitment to the company. Here, new employee learn about their working environment, meet their co-
worker and learn about the rules and regulations and benefits expected. Orientation should be thoroughly
planned and skillfully executed.
5) Training and Development
Training supplies the skills and knowledge needed by the individual to perform their present job.Training
programs are directed toward maintaining and improving current job performance. Training is mainly
given to non-managers to improve their technical skills. Development is training at present offered for
future upgrading to higher level positions. Developmental programs seek to develop skills for future jobs.
Managers receive assistance in developing the skills required in future jobs- conceptual and human
relations skills.
Training has many objectives which include:
 To provide the knowledge, skills and attitudes for individuals to undertake their current jobs more
effectively. Part of the process also is to assist employees at all levels to extend their untapped talents
and to understand the implications and significance of their roles.
 To help employees become capable of assuming other responsibilities within an organization either at
more senior or at their current levels.
 To help employees adapt to changing circumstances facing organizations such as new technologies,
new business environment, new products, etc.
 To reduce waste and increase efficiency, that is, to improve performance
 To relieve supervisors from close supervision for other duties.
 To orient new employees: while schools and training institutions provide general education in many
 skills, new employees require additional training to acquaint them with specific situations of the
organization and the job.
Training Methods
There are two different methods of training: on the job and off the job training
a) On-the-job training: involves learning methods and techniques by actually doing the job and
increasing the levels of skills of the employees. The employee usually learns under the supervision of
the immediate boss or coworker who has greater knowledge and skill about the job. It is widely used
because it is economical and convenient; no special facilities, equipment’s, and training places are
required and the employee produces and contributes to the organizational objectives and at the same
time he/she learns. Job rotation, coaching, and internship are some of the on the job techniques. It is
convenient for small number of trainees. Some of its disadvantages include:
i. It creates disinterest of employees as they have dual responsibility
ii. It is not convenient for large number of trainees.
b) Off-the-job Training: this technique involves participation of employees in a series ofevents
removed from the actual performance of the organization and the work situation.
Advantages of the off-training method include:
 It creates interest of employees as they are removed from their routine activities and aremoved to new
environment.
 It is convenient to large number of traineesIts disadvantages include:
 It is expensive: there are costs of trainers, facilities, and also the employee does notcontribute
while training
 There is a problem of transfer of knowledge from the training situation to the actualsituation of
the job.
6) Performance Appraisal
It is a formally structured system designed to measure the actual job performance of an employee with
designated performance standard. It is the evaluation of an employee’s job performance by his superiors.
These standards are introduced and reinforced in the selection and training processes.
7) Promotion, Demotion and Lateral Transfer
a) Promotion is movement of employee to a higher-level position that has more prestige, higher status,
pay and greater responsibility based on good performance. Promotion is job changes that lead to higher
pay and greater authority and that reward devoted, outstanding effort. It serves as incentive as well,
 offering the promise of greater personal growth and challenges to those who seek them. Employees
usually earn a promotion by exhibiting superior performance and going beyond what is expected.
Sometimes past performance is not the sole criteria for promotion. Affirmative action requires that
understanding groups such as women and minorities be better represented at all levels within an
organization. Advancement within an organization is ordinarily labeled as promotion. Ordinarily, the
change to the higher job is accompanied by increased payand privileges but not always. The term dry
promotion refers to an increase in responsibility and status without any increase in pay.
b) Demotion: is a reassignment to a lower rank in an organization’s hierarchy. In today’s business
climate, demotions are rarely used as punishment for ineffective performers are fired, not retained.
Demotions are used to retain employees who lose their positionsthrough no fault of their own. Some
people prefer taking a lower status, lower paying jobto the alternative of being laid off. Others choose
a demotion to decrease stress, allow themmore freedom to pursue outside interests, or meet challenges
such as having to care for children or an elderly parent.
c) Lateral Transfer: refers to the movement of an employee from one job to position to another without
involving any significant change in the employment status, salary, and responsibility. It is movement
of employees from one position to another at similar levels with same pay and responsibility within an
organization. For years, companies have used lateral moves in attempt to train and develop employees.
Job rotation is one way of exposing people to different aspects of an organization and helping them see
big corporate picture. Transfers can help people advance by moving from one area where few
opportunities exist to an area that offers a less congested career track.
8) Separation/Termination: separation is the termination of the relationship between the workers and
the organization due to various reasons such as retirement, resignation, lay off. Separation, a departure
of an employee from an organization, may be voluntary or involuntary. Voluntary separation includes
resignation and retirements. Involuntary separation includes firings, layoff and death. Employers
sometimes, encourage voluntary separation by offering incentives to encourage employees to retire
early. Layoffs due to declining business, personal performance, or company bankruptcies have cost
millions of employees their job.
5.4 Factors affecting staffing
The actual process of staffing is affected by many environmental factors and these factors can be
categorized into two broad categories as external and internal environmental factors.
a) External Environment: these influences can be grouped into educational, socio-cultural, and
 economic constraints, legal, equal employment opportunity and women management.
 Educational: the high technology used in many industries requires extensive and intensive education.
 Socio cultural: managers want to become active participants in decision making process. They have
to respond to public’s legitimate needs.
 Economic and competitive: determines the external supply of, and demand for managers.
 Legal and political: requires that firms follow law and guidelines issued by various governments.
 Equal Employment Opportunity (EEO): The law prohibits employment practices that discriminate
on the basis of race, color, religion, national origin, sex, or age. Equal Employment opportunity is based
on federal, state, and local laws and these laws have impact on staffing. Example, Equal employment
opportunity for ages 40-70, equal payfor equal work regardless of sex, EEO during pregnancy, and
reasonable affirmative action for handicapped people.
 Women in Management: Women have made significant progress in obtaining responsible positions
in organizations due to laws governing fair employment practices, changing societal attitudes towards
women in the work place and women’s
representation in top posts etc.
b) Internal environment: Internal factors that affect staffing include:
 Organizational goals
 Tasks and technology
 Organization structure and the kinds of people employed
 the demand for and supply of managers within the enterprise
 the reward system, and
 Various kinds of policies.
 CHAPTER SIX
LEADING/DIRECTING

6.1. Meaning and need for leadership

An organization has the greatest chance of being successful when all of the employees work toward
achieving its goals. Since leadership involves the exercise of influence by one person over others,the
quality of leadership exhibited by supervisors is a critical determinant of organizational success.Thus,
supervisors study leadership in order to influence the actions of employees toward the
A. Definition of Leadership
Leading is one of the functions of management. It is vital to the execution of the other four functions.
Leading people and their organizations requires the ability to do many activities. The principles governing
communication, decision making and motivation form the foundation of leading. At the top of any
organizations leading is most concerned with:
 Establishing values, cultures and climate
 Defining vision
 Identifying core competencies
 Scanning environments
 Sensing the need for change
 Creating a vision for the future
 Enlisting cooperation and support for the vision
 Keeping people and processes focused on satisfying various customers
 Unleashing the potential in and soliciting contributions from all the organization’s human
resources through training, development, and empowerment.
Leading is the process of integrating the people with the organization so as to obtain their willing and
enthusiastic cooperation for the achievement of its goals. This requires integration of organizational goals
with individual and group goals. Employees as individuals and as groupmembers contribute their abilities
and efforts for the achievement of organizational goals to the extent that they perceive that it
simultaneously results in advancement towards their own individual and group goals. People with the
ability to lead, however, must exist at all organizational levels and within each of its units and teams.
A traditional definition of leadership: Leadership is an interpersonal influence directed toward the
achievement of a goal or goals.
Three important parts of this definition are the terms interpersonal, influence, and goal. Interpersonal
means between persons. Thus, a leader has more than one person (group to lead. Influence is the power
to affect others.
Goal is the end one strives to attain.
LEADERSHIP is a dynamic relationship based on mutual influence and common purpose between
leaders and collaborators in which both are moved to higher levels of motivation and moral development
as they affect real, intended change. (Kevin Freiberg and Jackie Freiberg, 1996, p. 298)
Three important parts of this definition are the terms relationship, mutual, and collaborators.
Relationship is the connection between people.
Mutual: means shared in common.
Collaborators: cooperate or work together.
This definition of leadership says that the leader is influenced by the collaborators while they work
together to achieve an important goal.
Leadership-is the process of influencing employees to work toward the achievements of organizational
objectives.
✓ Is the process by which a person exerts influence over other people; and inspires, motivates,and
directs their activities to help achieve group or organizational goals.
✓ Is the process of influencing individuals to set and achieve goals.
The need for leadership
Leading is needed in an organization to influence, direct and guide activities of individuals and groups so
as to help the organization achieve its objectives.
Directing is a function that enables a manager to convert his/her decision into effective actions. In fact,
there is a high degree of correlation between directing and work performance. There is a dominant feeling
that directing is more of an art than it is a science since considerable amount of skill is required to
understand and work with people.
The importance of the directing function in an organization is;
 Directing initiates by giving directives and guidance to employees
 Directing integrates employees’ effort by coordinating actions of the members and leading
toward the objectives
 Directing attempts to get the maximum out of individuals by providing ways to fully utilizethe
 potentials and capabilities of employees.
 Directing facilitates changes by incorporating environmental and internal changes into the
organization
 Directing provides stability by balancing the different parts of the organization.
Managers should try to integrate both organizational and individual objectives in order to get the work
done by subordinates. Managers must be good leaders to guide, counsel and influence subordinates so as
to win their confidence and acceptance. To this end, managers should motivate their subordinates to
volunteer themselves for the accomplishment of organizational objectives.
❖ Management and Leadership
Management and leadership are not the same. A leader can be a manager, but a manager is not necessarily
a leader. The leader of the work group may emerge informally as the choice of thegroup. If a
manager is able to influence people to achieve the goals of the organization, without using his or her
formal authority to do so, then the manager is demonstrating leadership.
According to John P. Kotter in his book, A Force for Change: How Leadership Differs from Management
(The Free Press, 1990), managers must know how to lead as well as manage. Without leading as well as
managing, today's organizations face the threat of extinction.
Management is the process of setting and achieving the goals of the organization through the functions
of management: planning, organizing, directing (or leading), and controlling.
A manager is hired by the organization and is given formal authority to direct the activity of othersin
fulfilling organization goals. Thus, leading is a major part of a manager's job. Yet a manager must also
plan, organize, and control.
Generally speaking, leadership deals with the interpersonal aspects of a manager's job, whereas planning,
organizing, and controlling deal with the administrative aspects.
Leadership deals with change, inspiration, motivation, and influence. Management deals more with
carrying out the organization's goals and maintaining equilibrium.
The key point in differentiating between leadership and management is the idea that employees willingly
follow leaders because they want to, not because they have to. Leaders may not possessthe formal
power to reward or sanction performance. However, employees give the leader power by complying with
what he or she requests. On the other hand, managers may have to rely on formal authority to get
employees to accomplish goals.
Managers plan, organize, staff, lead, and control. They may or may not be effective in influencing their
subordinates or team members to set and achieve goals. Leaders, on the other hand are involved in single
function of management that is leading they are individuals who are able to exert influence over other
people to achieve organizational objectives.
Leadership involves creating and sharing of visions, generating strategies to bring visions torealize.
Therefore, leaders and managers are not necessarily the same; it is mainly because leading perform only
one aspect of management functions. Managers can be leader because they can perform leading
function. But may not be effective leaders since they may not have enough ability to influence others.
Features of Leadership
1. Leadership involves people: employees or followers by their willingness to accept directions from
the leader, group members help define the leader’s status and make the leadership process possible.
2. Leadership involves unequal distribution of power between leaders and group members. Group
members can shape group activities but leader will have usually more power.
3. Leadership has the ability to use the different forms of power to influence follower’s
behaviors in a number of ways.
4. Leadership constitutes values. It concerns values and requires that followers be given enough
knowledge of alternatives to make intelligent choices when it comes to respond to a leader’s proposal
to lead.
5. The ability to comprehend those human beings has different motivation forces at different times and
in different situations.
6.2 Theories of Leadership
Here, three important leadership theories are discussed.
i. Trait Theory of Leadership: traits are inborn and inherent personal qualities of individuals. This
theory believes leaders possess certain specific inborn traits, which are inherited rather than acquired. It
has its root from <the great man theory= dating back to the ancient Greeks and Romans time, holds that
leaders are born not made.
To sum up, according to this theory effective leaders must have the following traits
❖ Intelligence-helps managers understand complex issues and solve problem
❖ Self - confidence-contributes to managers effectively influencing subordinates and persisting when
faced with difficulties.
❖ Integrity and honesty-helps managers behave ethically and earn their subordinates trust and
confidence.
❖ Physical traits-such as height, appearances etc.
❖ Social traits such as cooperativeness skill etc.
The trait theory studies focused on the personal traits of leaders and attempted to identify a set of
individual characteristics that distinguish leaders from followers and also successful leaders from
unsuccessful ones. In general, trait theory hasn’t been fruitful approach to explain leadership.
Short coming of trait theory
➢ No single trait that differentiates leader from members
➢ Not all leaders possess all the traits, non-leaders may possess all the traits
➢ One set of traits might not be equally appropriate in all situations.
➢ It ignores situational factors
ii. The Behavioral Theory of Leadership: The behavioral theory of leadership focuses on what leaders
do rather than their traits. Studies showed that one set of traits/leadership styles might not be equally
appropriate in all situations. This theory suggested that there were two distinct typesof leadership
which are known as employee oriented/people oriented and task/production oriented.
i. Employee oriented; The leader focuses on the people, considering their feelings and the quality of their
mutual relationship. The employee-oriented leader is described as democratic, permissive, follower-
oriented, participative or considerate. The essence of this leader’s style is sensitivity to subordinates
as persons. They seek friendly, trusting and respectful relationships with employees. Research findings
on the effects of people centered leadership on productivity, employee satisfaction and group
cohesiveness can be summarized as follows:
 People centered leadership is not consistently related to productivity. There is no assurance that the
leader’s being more people centered can increase group productivity.
 People centered leadership does not tend to enhance employee satisfaction; it also tends to enhance
group cohesiveness.
ii. The task oriented; The leader focuses on the task to be performed, the progress being made,and the
means of accomplishing the work. The leader closely supervises employees to make sure the task is
performed satisfactorily. The emphasis is given on getting the job done, rather than employee’s growth
or personal satisfaction. The tasks’ centered leader is described variously as autocratic, restrictive,
socially distant, directive and structuring. The essence of thisleader’s style is overriding concern with
the task itself and not with workers as people. Research findings on the effects of task centered
leadership on productivity; satisfaction and group cohesiveness can be summarized as follows;
  Task centered leadership concentrates positively with productivity.
 Task centered leadership tends to depress satisfaction and cohesiveness. But structuring the
subordinate’s task, in the sense of letting them know what is expected of them, tends to increase their
satisfaction and cohesiveness.
iii. The Situational/Contingency Theory of leadership: According to this theory, leadership is strongly
affected by a situation from which a leader emerges and in which he/she works. It is a function of the
leader, the followers and the situation. It attempts to discover that the one unique set of leadership
traits were largely unsuccessful. Modern management theories are more prone to the belief that
leadership is more complex; that is, it cannot be represented by one set of traits or by single set of
behavior. Thus, effective leadership behavior depends on the environment or the situation.
6.3 Leadership Styles
Leadership style implies the way in which the leader exercises leadership; it is the way in which the
functions of leadership are carried out or the way how the leaders behave towards their subordinates in
the accomplishment of the work. These ways of behaving towards subordinates are influenced by
management philosophy towards work and people. Behind every managerial decision or action are
assumptions about human nature and human behavior. There are four common leadership styles.
1. Autocratic style/ “I” approach: a manager who uses autocratic style does not share decisionmaking
authority with subordinates. The manager makes the decision and then announces it. Autocratic
managers may ask for subordinates’ ideas and feedback about the decision, but input does not usually
change the decision unless it indicates that something vital has been overlooked. The hallmark of this
style is that the manager, who retains all the authority, executesthe entire process. Consequently, the
autocratic style is sometimes called the “I” approach.
✓ Managers, who tend to be heavily work-centered, placing most of their emphasis on task
accomplishment and little on the human elements.
➢ Autocratic leadership style is characterized by the following points:
❖ Managers’ emphasis on close control
❖ Managers’ willingness to delegate a very little decision-making authority.
❖ No flow of information from subordinates (Leader- subordinate relationshipis characterized by
order giving on the leader’s part)
❖ Sensitivity of managers about their authority.
❖ Leader’s assumption that payment is a just reward for working
 Under certain conditions, the autocratic style is appropriate. When a manager is training a
subordinate, for instance, the content, objective, pacing, and execution of decisions properly remain
in the hands of the trainer. However, the manager has to elicit feedback from the trainee. During a
crisis like a hazardous material spill or bomb threat, leaders are expected to take charge, issue orders
and make decisions. When a subordinate directly challenges a manager’s authority, an autocratic
response may be needed to preclude acts of insubordination. Some subordinates do not want to share
authority or become involved in any way beyond the performance of their routine duties. Managers
should respect these preferences but also make incentives and growth opportunities available. The
autocratic style is effective when managers face issues that they are best equipped to solve, create
solutions whose implementation do not depend on others and desire to communicate through orders
and instructions.
2. Participative/ Democratic/” We” approach: managers who use the participative style share decision
making authority with subordinates. The degree of sharing can range from the manager’s presenting
a tentative decision that is subject to change to letting the group orsubordinate participate in
making the decision. Sometimes called the <we= approaches, participative management style involves
others and lets them bring their unique viewpoints, talents, and experiences to bear on an issue. This
style is strongly emphasized today because of the trends toward downsizing, employee empowerment
and worker teams.
Managers who have high concern for both people and work practice it.In democratic leadership managers:
❖ are not much sensitive about their authority
❖ participate employees in decision making
❖ Appreciate suggestions from subordinates
❖ Exercise broad supervision
❖ Motivate subordinates with rewards
A consultative and democratic approach works best for resolving issues that affect more than just a
manager or decision maker. People affected by decisions support them more enthusiastically when they
participate in the decision making than when decisions are imposed on them. Also, if others in the
management’s unit know more than the manager does about the issue, common sense urges theirinclusion
in decisions concerning it.
Before subordinates can be brought into the process, mutual trust and respect must exist between them
and their managers. The subordinates must be willing to participate and be trained to do so. People need
 training in rational decision making. They must also possess the related skills and knowledge needed to
cope with the problems they are expected to solve. It takes time to give people the confidence and
competence needed to make decisions. Managers must have time, means and patience to prepare
subordinates to participate. When employees participate, they devise solutions they feel they own. This
sense of ownership increases their commitment to making solutions work.
Limits on subordinate’s participation must be clearly spelled our beforehand; there should be no
misunderstanding about who holds authority to do what. Mistakes will be made and some waste will occur,
but the power of the participative style to motivate and energize people is great
3. Laissez faire style/Free rein style/ “They” approach: often called <they= approach or the spectator
style, the free rein style empowers individuals or groups to function on theirown, without the
involvement from the managers to whom they report. The style relies heavily on delegation of authority
and works best when the parties have expert power, when participants have know how to use the tools
and techniques needed for their tasks. Under this style, managers set limits and remain available for
consultation. The managers also hold participants accountable for their actions by reviewing and
evaluating performance. Free rein leadership works particularly well with managers and experienced
professionals in engineering, design, research, and sales. Such people generally resist other kind of
supervision.
In most organizations managers must be able to use the decision-making style that circumstancesdictate.
As people and circumstances constantly change, managers should also switch from one style to another
depending on the situation they face at a time.
Laissez faire leaders are characterized by the following behavioral patterns:
 They make few attempts to increase productivity or to meet subordinates’ psychological
needs
 They use their power very little, if at all, giving subordinates a high degree ofindependence in
their operation.
 These leaders maintain hands off policy where each subordinate’s work is clearly defined.
 Such leaders depend on subordinates to set their own goals and the means of achievingthem, and
they see their role as one of aiding the operations of followers by furnishing them information
and acting primarily as a contact with the groups in the externalenvironment.
4. Situational Leadership style-is leadership approach in which managers utilize the combinationof
the above style depending on the situation in external environment.
6.4 Motivation
6.4.1 The concept of motivation
Motivation is the act of stimulating someone or oneself to take a desired course of action. It is the act or
process of furnishing with an incentive or inducement to action. It is an internal drive that pushes people
to do something. Management requires the creation and maintenance of an environment in which
individuals work together in groups towards the accomplishment of common objectives. To motivate
employees requires having knowledge about what motivates them.
The primary task of managers is to get people to contribute activities that help to achieve the
mission and goals of an organization. To guide people’s activities in desired directions requires knowing
what leads them to do things, i.e., what motivates them. The basic element of all human behavior is some
kind of activity whether physical or mental. Activities are goal oriented, i.e. people do things that lead
them to accomplish their goals. Human motives are based on needs felt.
Motivation plays a central role in shaping behavior and specifically in influencing work performance.
However, motivation is not the only thing that determines performance. There are various determinants
of job performance. Job performance can be viewed as a function of the capacity to perform, the
opportunity to perform and the willingness to perform. The capacity to perform is related to the degree to
which an individual possesses task related skills, abilities,knowledge and experience. Unless an employee
knows what is supposed to be performed and howto do it, high level of job performance is not possible.
The opportunity to perform refers to the availability of needed resources at the employee’s disposal.
Willingness to perform is related to the degree to which an individual both desires and is willing to exert
effort toward attaining job performance. The willingness to perform indicates motivation. No combination
of capacity and opportunity will result in high level of job performance in the absence of motivation.
6.4.2 Theories of Motivation
There are several theories of motivation. In general, these theories can be grouped into two as content
theories and process theories. Theories that belong to the former category include: Abraham Maslow’s
hierarchy of needs theory, Herzberg’s two factor theory, McClelland’s need for achievement theory and
Alderfer’s ERG theory. Theories that belong to the latter category include:
Vroom’s expectancy theory, B.F. Skinner’s reinforcement theory, equity theory and goal setting theory.
Below, some of these theories are discussed briefly while the rest theories are to be covered in advanced
courses.
a) Content Theories: these theories focus on the factors within the person that energize, direct,sustain,
and stop behavior. They attempt to determine the specific needs that motivate people.
Maslow's Need Hierarchy Theory
This is one of the most widely known theories of motivation. The critical part of this theory is that needs
are arranged in hierarchy. Since one need does not disappear when another emerges, all needs tend to be
partially satisfied in each area. According to Maslow, human needs can be categorized into five as:
physiological needs, safety needs, social needs, esteem needs and self-actualization needs.
 Physiological Weeds: The physiological needs are at the bottom of the hierarchy because they tend
to bear the highest strength until they are reasonably satisfied. Unless these needs are satisfied to the
degree necessary for the efficient operation of the body, the majority of a person’s activities will
probably be at this level. The other levels will provide him with little motivation. These needs include
the need for food, shelter, cloth, water, rest, air, sex, etc. They are survival needs without which
human being’s survival will be in danger.
 Safety Weeds: until the physiological needs of the human race are addressed to a reasonable degree,
safety needs will not be fully addressed. The degree of reasonableness is subjective. In this hierarchy
comes the need for safety- a need for being free of physical danger also referred to as self-
preservation. These needs show the need to live in an environment where there is no harm. In the
industrial society, safety needs may gain considerable importance in the contextof the dependent
relationship of employees to employers. As pointed out by McGregor, safety needs may serve as
motivators in such circumstances as arbitrary management actions, behavior which arouses
uncertainty with respect to continued unemployment and unpredictable administration of policy.
 Social Weeds: After the first two needs are satisfied, social needs become important in the need
hierarchy. This category includes the need for friendship, affection, acceptance, and interaction with
others. Since man is a social being, he has a need to belong and to be accepted by various groups.
When social needs become dominant, a person will strive for meaningful relations with others. If the
opportunity for association with other people is reduced, individuals often take vigorous action
against the obstacles to social interaction. In the organization, individuals form informal group
environments.
 Esteem Weeds: Esteem needs are concerned with self-respect, self-confidence, a feeling of personal
worth, feelings of being unique and a need to be recognized by one and all. Satisfaction of these needs
 produces feelings of self-confidence, prestige, power and control. The satisfaction of esteem needs
is not always obtained through mature or adaptive behavior.It is sometimes generated by disruptive
and irresponsible actions. Some of the social problemshave their roots in the frustration of esteem
needs
 Self-Actualization Weeds: includes self-fulfillment and realization of one’s potential. Self-
actualization is the need to maximize one’s potential, whatever it may be. This is related to the
development of intrinsic capabilities which lead individuals to seek situations which can utilize their
potential. This includes competence which implies control over environmental factors, both physical
and social, and achievement. An individual with high levels of achievement needs will be restless
unless he can find fulfillment in doing what he is trained to do best. As Maslow puts it, "this need
might be phrased as the desire to become more andmore what one is, to become everything that one is
capable of becoming."
The major assumptions upon which the need hierarchy theory is based are:
✓ A satisfied need ceases to motivate; i.e. it is no longer a motivator.
✓ Unsatisfied need can cause frustration, conflict, and stress. It is the unsatisfied need that motivates
an individual.
✓ A person should minimally satisfy a lower-level need before starting thinking about the
satisfaction of the next higher-level need.
✓ The needs are arranged in the order of importance; i.e. as one goes up the hierarchy, the
importance one attaches to the corresponding needs falls.
✓ A person redirects his effort to the already satisfied and passed level need upon the disturbance
of that need. Sudden unemployment or loss of loved one could lead a person to shift his/her
concern.
The main drawbacks of this theory include:
✓ There is no evidence that human needs are found arranged in such a hierarchy.
✓ There is also little evidence to support the idea that people must meet their needs in sequenceup
the hierarchy as outlined by Maslow.
However, the significance of this theory to management is to apply different motivators to different
employees found in the hierarchy.
Herzberg’s Two Factor Theory
The findings of the two-factor theory indicate that the work characteristics associated with satisfaction are
 quite different from those pertaining to dissatisfaction which prompted the notion that two factors
influence work motivation, namely hygiene factors and motivation factors. Hygiene factors include salary,
job security, status, company policies, quality of technical supervision and quality of interpersonal
relationships among peers, supervisors and subordinates. These are then primary elements involved
in job dissatisfaction. When present in sufficient amount, they have no effect; when absent, they lead to
job dissatisfaction. Motivation factors include achievement, recognition, responsibility, advancement, the
job itself and possibility of growth. These are the primary elements involved in job satisfaction. When
present, they can stimulate personal andpsychological growth.
b) Process Theories of Motivation: these theories provide a description and analysis of how behavior is
energized, directed, sustained and stopped. In other words, while the content theories are concerned
with what motivates people, the process theories are concerned with how people are motivated. Below,
three such theories are elaborated.
Vroom’s Expectancy Theory: this theory is based on the belief that people will act to maximize their
rewards. Vroom defines motivation as a process governing choice among alternative forms of
voluntary activities. Motivation-the spur to act- is a function of how badly we want something and
how likely we think we are to get it. Its intensity functions in direct proportion to perceived or expected
rewards. Expectancy theory includes three variables:
Effort-Performance link: will the effort achieve performance? How much effort willperformance
require? How probable is success?
Performance-reward link: what is the possibility that a certain performance will produce thedesired
reward or outcome?
Attractiveness/valence: how attractive is the reward? This factor relates to the strength orimportance of
the reward to the individual and deals with his or her unsatisfied needs.
Adam’s Equity Theory: this theory states that people’s behavior relates to their perception of the fairness
of treatment they receive. It also includes the fairness that an individual perceives in the relationship
between effort expended and reward. People calculate equity by calculating a simple ratio: the efforts
they are expected to invest on the job (their input) in relation to whatthey expect to receive after
investing that effort (their outcome). Equity exists when the ratios are equivalent. Inequity exists when,
in the employee’s mind, inputs exceed the relative or perceived values of the outcomes.
Skinner’s Reinforcement Theory: states that behaviors result in desirable consequences are likely to recur;
and those that result in undesirable consequences will be less likely to recur. There are various types of
reinforcement as mentioned below.
Positive reinforcement: is a type of reinforcement that strengthens behavior by providing a desirable
consequence when a desirable behavior occurs. Thus, it increases the likelihood that a desired behavior
will be repeated. Positive reinforcement can be praise, pay, or promotion.
Avoidance: this reinforcement attempts to increase the probability that a positive behavior will be
repeated by showing the consequences behavior the manager does not desire. The employee is allowed
to avoid those consequences by displaying the desired behavior. For example, a manager has a policy of
penalizing all employees who do not turn in reports in time.
Extinction: managers can ignore the behavior of subordinates in order to weaken the behavior. This
approach is most effective when behavior is temporary and not serious. The supervisor’s hope is that
behavior will go away or disappear soon if it is ignored. Say a manager and en employee have developed
the habit of talking during working hours about off –the- job topics. After the manager is promoted to
another job in another area, the employee continues to drop by, a practice that makes the manager
uncomfortable. If the manager continues to work while the employee is there, the employee will eventually
get the message and the behavior will be extinguished.
Punishment: managers might attempt to decrease the recurrence of a behavior by applying negative
consequences. The trouble with punishment as a response to behavior is that the person will learn what
not to do but will not necessarily learn the desired behavior.
Theory X and Theory Y
Douglas McGregor, a professor of industrial management, said that an individual’s management
philosophy reflects one of two assumptions about workers. He called the two sets theory X and theory Y.
Theory X is a philosophy of management with a negative perception of subordinates’ potential for work
and attitudes toward them. It assumes that subordinates dislike work, are poorly motivated, and require
close supervision. A manager with these beliefs tends to control the group, use negative motivation, and
refuse to delegate decision making.
Theory Y is philosophy of management with a positive perception of subordinates’ potential for attitudes
toward work. It assumes that subordinates can be self directing, seek responsibility and findwork as natural
as play or rest. The outcome of this belief is a manager who encourages people to seek responsibility,
involves people in decision making, and works with people to achieve their goals.
Theory X
 People basically dislike work and avoid it whenever possible
 Because most people dislike work, they have to be closely supervised &threatened withpunishment
 Most people prefer to be told what to do, have little ambition, want to avoid responsibility& want
security above all else
 Most people have little creativity; they are not capable of solving problems. Rather, they must be
directed.
 Most people have limited intellectual potential. Contribution above basic performance should not be
expected.
Theory Y
 Most people find work as natural as play or rest and develop an attitude toward it based on their
experience with it.
 People do not need to be threatened with punishment; they will work voluntarily towards
organizational objectives to which they are committed.
 The average person working in an environment with good human relations will accept and seek
responsibility.
 Most people possess a high degree of imagination, ingenuity, and creativity with which to solve
organizational problems.
 Although people have intellectual potential, modern industrial life utilizes only part of it.
6.5) Communication
Communication is the process through which people and organizations accomplish objectives. By
communicating with others, we share attitudes, values, emotions, ambitions, wants, and needs. Behind
every success, there is effective communication that is well planned and thoughtfully executed. Successful
managers effectively communicate their vision for a work unit or the company as a whole. The following
points show the importance of communication in organizations.
Communicate everything you possibly can to your partners. The more they know, the more they will
understand. The more they understand, the more they will care. Once they care, there is no stopping them.
If you don’t trust your associates to know what is going on, they will know you don’t really consider them
partners. Information is power and the gain you get from empowering your associates more than offsets
the risk of informing your competitors".
Listen to everyone in your company and figure out ways to get them talking. The folks on the front lines-
the ones who actually talk to the customer- are the only ones who really know what is going out there.
You would better find out what they know. This really is what total quality is all about. To push
responsibility down in your organization, and to force good ideas to bubble up within it, you must listen
to what your associates are trying to tell you=.
Communication Process
Communication is the transmission of information-data in a coherent, usable form-from one person to one
person or group to another. Rational communication strives to achieve a common understanding-
agreement about the meaning and intent of the message-among all parties to each communication.
Although much of the managerial information that managers rely on is in numeric form, the greatest
portion of managerial activity depends on verbal communication and competent use of language. Able
communicators respect the conventions of language-grammar, spelling and punctuations. They know
precisely what they wish to say and thoughtfully select thebest way to say it. In addition, the communicator
needs to be certain that the person who receivesthe information actually understands the message.
Communication is a process- a set of steps usually taken in a definite sequence. The communication
process is depicted in the following diagram.
Message
Sender/ Encoding Channel Decoding
Receiver
source

Noise
Feedback

Elements of communication
1. Sender: is the initiator or source of the information.
2. Receiver: is the person or group that gets the information
3. Encoding: it takes place when the sender translates the information to be transmitted into a series of
symbols. It is the mechanism through which one’s mental thoughts into understandable symbols.
4. Decoding: is the process by which the receiver interprets the message and translate it into meaningful
information.
5. Medium/Channel: is the means chosen by the sender to transmit the message
6. Message: is the information that the sender wants to transmit.
7. Feedback: is the mechanism that enables the sender and the receiver to assure if the intended
communication has taken place and mutual understanding has been achieved.
8. Noise: is any factor that disturbs, confuses or interferes with communication. Noise can arise along
 what is called the communication channel or method of communication.

Types of Communication
Communication can be classified into two broad categories as formal and informal communication.
a) Formal Communication: is communication that results from company’s organizational structure.
These designated pipelines for messages run in three directions: upward, downward and horizontally.
Managers are charged with the responsibility of creating, using, and keeping these channels open and
available to organization’s members. The channels act as connections between members and outsiders
and as paths through which official communication flows. One look at a company’s formal
organizational chart will reveal who is connected to whom and, therefore, in which direction
communication flows.
✓ Downward Communication: it takes place daily, in on-the-job conversation and interactions between
managers and team leaders and their subordinates. It conveys such information as CEO’s vision,
company mission, changes in rules and regulations, delegation of authority, job designs, performance
appraisal results, orders, etc. Typical devices used to carry downward communication include
company procedure manuals, newsletters, public relations announcements, annual statements, and
various types of memos, reports, letters, and directives.
✓ Upward communication: this provides the feedback required by downward communication. It allows
workers to request assistance in solving some problems, and it provides a means for workers to
recommend solutions to others. Workers also use upward communication to provide status reports
and inform higher authorities about employee complaints. It conveyssuch information as complaints,
feedback, recommended solutions, research results, etc. The tools of upward communication include
employee surveys, regular meetings between managers and their subordinates, suggestion systems,
team meetings and open-door policy which provides to employees’ access to managers.
✓ Horizontal communication: connects people of similar rank and status within an organization and outside
stakeholders with those insiders who can best meet their needs. Through horizontal channels,
workers and managers provide feedback, keep teammates informed, coordinate activities, seek
assistance, and stay in contact with customers.
b) Informal Communication: informal communication networks carry casual, social and personal
messages on a regular basis in or around the workplace. These channels are often called, collectively,
the grapevine. Informal communication channels disseminate rumors, gossip, accurate as well as
 inaccurate information and occasionally official messages. Anyone inside or outside an organization
can originate a grapevine message. Grapevine messages are transmitted in many ways; face to face, by
telephone, e-mail, etc.
Messages transmitted through informal channels usually result from incomplete information from official
sources, environmental influences in the organization or outside it, and the basic human needs to socialize
and stay informed. When changes occur, people like to speculate about what they will mean. When people
feel insecure or fearful because of cutbacks and layoffs, rumors fly about what will happen next. Grapevine
has the following characteristics:
 It can penetrate the tightest security
 It spreads in a higher speed like wildfire
 It tends to carry messages from anonymous sources
 Its messages are difficult to stop or counter once they get started
 It is accessible to every person in an organization
 It can be supportive or destructive to management efforts
 CHAPTER SEVEN
CONTROLLING
7.1 Meaning & need for Controlling Defined
Meaning OF CONTROLLING
 Controlling is the process of ensuring that actual activities conform to planned activities. Control is
more pervasive than planning. Control helps managers to monitor the effectiveness of their planning,
organizing and leading activities. An essential part of the control process is taking corrective actions
as needed.
 Controlling is the measurement and correction of performance in order to make sure that enterprise
objective and plans are accomplished.
 Controlling means the process of gathering and 8feeding back9 information about performance so
that decision makers can compare actual results and decide what to do about any apparent
discrepancies or problems=.
 Management control is systematic effort to set performance standards with planning objectives, to
design information feedback systems, to compare actual performance with these predetermined
standards, to determine whether there are any deviations and to measure their significance, and to
take any action required to assure that all organizational resources are being used in the most effective
and efficient way possible in achieving organizationalobjectives.
Controlling begins with the framework of expectations provided by the standards. From that point, control
consists of a series of steps intended to help ensure that actual performance conforms to expected
performance. Controlling is the management function in which managers set and communicate
performance standards for people, processes, and devices. A standard is any guideline or benchmark
established as the basis for the measurement of capacity, quantity, content, value, cost, quality, or
performance. Whether qualitative or quantitative, standards must be precise, explicit, and formal
statements of the expected result
Need for Controlling
Controlling is important in order to confirm the degree to which organization is efficient inusing
its resources and to ensure the degree to which organization is successful in attaining its objectives. A
controlling system contains the measures that allow managers to assess howeffectively the organization
is producing goods and services.
7.2 Controlling Processes
One can notice that the forth definition given above divides the controlling function into four steps: 1)
establishing performance standards, 2) measuring actual performance, 3) comparing actual performance
to established standards and 4) taking corrective action, if necessary. These steps of controlling are
discussed below:
1. Establishing Performance Standards: the controlling process begins with the establishment of standards
of performance to serve as a basis for determining whether organizational objectives are being
accomplished.
The goals and objectives established during the planning process should be stated in clear, measurable
terms. Plans are the yardsticks which managers devise controls. Standards are the criteria of performance.
Precisely, worded and measurable objectives are easy to communicate and to translate into standards and
methods that can be used to measureperformance.
2. Measuring Actual Performance: after standards are established, managers must measure actual
performance to determine variations from standards. The frequency of measurements depends on the
type of activity being measured. Measurement of performance should be done on a forward looking
basis so that deviations can be detected in advance of their occurrence, and avoided by appropriate
actions. Thus, feedback of performance measurements makes it possible to compare actual with
intended results.
3. Comparing Actual Performance with the Established Standards: It is a matter of comparing
measured results with established targets or standards previously set. It is nothingbut comparing the
actual results with the planned targets. If performance matches the standards, managers may assume
that 8everything is under control9. If deviations from the standards exist, the evaluator must decide if
they are significant-if they require corrective actions. If so, the evaluator must determine what is
causing the variance.
4. Taking Corrective Actions: When a controller/evaluator determines the cause or causes of asignificant
deviation from a standard, he or she must take corrective action to avoid repetition of the problem or
defect. Policies and procedures may prescribe the actions. Such guidelines help shorten the time
needed to react to deviations. The corrective action could involve a change in one or more activities
of the organization9s operations. This is an exercise of the principle of navigational change. Correction
of deviations is the point at which control can beseen as a part of the whole system of management.
 Managers may correct deviations by redrawing their plans or by modifying their goals.
Thus, controlling is a dynamic process. Unless managers go through the control process to its end, they
are merely monitoring performance rather than exercising control. The emphasis should always be on
devising constructive ways to bring performance up to standard, rather thanon merely identifying past
failures.

Take
Does corrective
Measure No
measuring
performance standards
Yes

Do Nothing

Basic steps in the control process

7.3 Types of Control
1. Feed Forward Control: This is a preliminary control that takes place before operations begin and
includes the development of policies, procedures and rules that are designed to ensure that planned
activities will be carried out properly. It is a future directed control method. Feed forward systems
monitor inputs into a process to ascertain whether the inputs are as planned. If not, the inputs are
changed in order to obtain desired results. Locks on doors and bars on windows, safety equipment9s
and guidelines, employee selection procedures, employee training programs, and budgets are all feed
forwardcontrols. McAfee and Norton antivirus computer software are other examples of feed forward
control.
2. Concurrent Control: Concurrent control is the heart of any operating control system. Concurrent
control takes place during the action phase of carrying out the plans and includes direction, monitoring
and adjusting the activities as they occur. Concurrent plan can assist in achieving that the plan will be
carried out at the specified time and under required conditions. Consider word processing software,
which allows a writer to change a document before storing or printing. The soft ware provides
 concurrent control. A word processor9s spelling checker also provides concurrent control. Some
concurrent controls are designed to provide readouts or audible warnings. Most photocopiers and
computer printers, for example, have display panels that alert their users to malfunctions during
operations. Many of the devices on the dashboard of an automobile are concurrentcontrols.
3. Feedback Control: feedback control measures outputs of a process and feed into the system or inputs
for corrective action to obtain desired outputs. Feedback system is similar to that which operates in
the usual household thermostat. Managers measure actual performance, compare the measurement
with actual standards, and identify and analyze deviations. They develop a progress for corrective
action and implement it to achieve the desired performance. At the end of a year, for example, a
manager should carefully review the budget control report. Which accounts were overdrawn? Which
accounts retained a surplus, etc.
7.4 Techniques of Control
Managers use a series of control methods and systems to deal with the different problems and elements of
their organizations. The methods and systems can take many forms and can be intended for various forms:
budgetary methods, non - budgetary control devices and modern methods.
a) Budgetary Methods: budgets are formal quantitative statements of the resources set asidefor carrying
out planned activities over given periods of time.
 Operating Budgets: The most common types of operating budgets are the expense, revenueand
profit budgets.
Expense Budgets: are of two types: engineered cost budgets and discretionary cost budgets. Engineering
cost budgets usually describe the material and labor costs involved in each production item as well as the
estimated overhead costs. Discretionary cost budgets are typically used for expense centers-
administrative, legal, accounting, research etc.
Revenue Budgets: are meant to measure marketing and sales effectiveness. It is the most critical part of
a profit budget. They consist of the expected quantity of sales multiplied bythe expected unit selling price
of each product.
Profit Budgets: combine cost and revenue budgets in one statement. They are also called master budget,
which consists of a set of projected financial statements and schedules for the coming year. They serve
as annual profit plans.
 Variable Budget: Variable budgets are cost schedules that show how each cost should vary as the level
of output varies. Variable budgets are used where operations are repetitive, where there are a large
 number of different expenses and where these expenses can be accurately estimated. Three types of
costs are considered when developing variable budgets: Fixed, Variable, and semi-variable costs.
Fixed costs: are those that are unaffected by the amount of work being done Example: monthly salaries,
insurance payments, rent etc.
Variable costs: are expenses that vary directly with the quantity of work being performed ex: raw
material.
Semi variable costs: are those that vary with the volume of work performed but not in adirectly
proportional way ex: short term labor costs.
 Zero Base Budgeting: The enterprise9s programs are divided into packages composed of goalsand
activities and then costs are calculated from the base. By starting the budget of each package from base
zero, costs are calculated afresh for each budget period, without referring the changes from the previous
period.
b) Non-Budgetary Control Methods:
 Statistical Data: Statistical analysis with wider application of tools and techniques, and the clear
presentation of statistical data, whether of a historical or a forecast nature, are important to control. It
is easy when data are presented in a graphical or chart form to highlight the trends and relationships.
 Special Reports and Analysis: For control purposes, special reports and analyses help in particular
problem areas. Although routine accounting and statistical reports furnish a good share of information,
there are areas in which they are inadequate. Reports should bereviewed periodically to be sure that
they are useful.
 Auditing: Auditing validates the honesty and fairness of financial statements to provide a critical basis
for management decisions. It is a process of appraisal. External audit is largelya verification process
involving the independent appraisal of the organization9s financial accounts and statements. The audit
is conducted by accounting personnel employed by an outside firm or by chartered accountants.
Internal audit or operational auditing is carried out by members of the organization. Its objectives are
to provide reasonable assurance that the assets of the organization are being properly safeguarded and
that financial reports are kept reliably and accurately enough for the preparation of financial statements.
Internal audits also assist managers in evaluating the organization9s operational efficiency and the
performance ofits control system.
 Personal Observation: Managers have the risk of seeing that enterprise9s objectives are accomplished
by people and go to the area of activities and taking notice of what is being done. This is nothing but
 “Management by Walking Around”.
c) Modern Methods of Control
 Program Evaluation and Review Technique (PERT): PERT is a refinement of the original Gantt
charts, which were designed to show in bar chart form, the various things that must be done, and when
in order to accomplish a program, using the sequence of events and the times required for each program,
one can determine the critical path.
 Management Information system (MIS): MIS is a formal system of gathering, integrating,
comparing, analyzing and dispersing information internal and external to the enterprise in an effective
and efficient manner.
 Computers: computers are extensively used and their impact on managers at various organizational
levels differs. Computer networks link work stations with each other.
7.5 Making Control Effective
Controls at every step focus on inputs, processes and outputs; but what characteristics make controls
effective? Effective controls are focused on critical points integrated into the organizational culture. They
are timely and accepted by those who use them or abide by them. In addition, controls are economically
feasible, accurate and comprehensive.
 Focus on critical points: critical control points are all the operations that directly affect the survival
of an organization and the success of its most essential activities. Critical control points exist in many
areas of business activity-production, sales, customer service, and finance, for example. Controls
should focus on those points at which failures cannot be tolerated and where time and money costs are
greatest. The objective is to apply controls to the essential aspects of a business, not the peripheral
ones.
 Integration: controls exhibit integration when the organizational culture supports and enforces them
and when they work in harmony, not at cross purposes. When controls and the need for them are
congruent with the organization9s values, the control will be effective. Coordinated controls do not
impede work; they function harmoniously to give people what they need to make informed judgments.
When managers and employees trust each other and workers at all levels believe that the controls are
necessary, employees can be relied on to implement the controls.
 Acceptability: people must agree that controls are necessary, that the particular kinds of controls in
use are appropriate, and that the controls will not have negative impacts on individuals or their efforts
to achieve personal goals. Controls that seem to be arbitrary, subjective or an invasion of privacy will
 not elicit the support of those they affect. Too many controls, confusing controls, and too few controls
create stress and resistance. Frustration, fear, and loss of motivation and initiative can result.
 Timeliness: controls must ensure that information reaches those who need it when they need it; only
then can a meaningful response follow. One reason for setting deadlines is to ensure that information
flows promptly. If deadlines are treated causally or unrealistically, people will soon come to ignore
them.
 Economic Feasibility: the costs of a control system must be weighed against its benefits. If the
resources expended on the controls do not return an equal or greater value, the controls are better
left unimplemented. Suppose a costly security system includes highly trained personnel, sophisticated electronic
surveillance equipment, and fingerprint scanning. Such a system is suitable for capital equipment and facilities,
but not the office supply cabinet.
 Accuracy: information is useful if it accurate. Accuracy relates to concurrent controls usedto diagnose
deviations from standards. Controls that offer inaccurate assessments feed decision makers the wrong
input, which causes them to give inappropriate responses.
 Comprehensibility: the more complex a control system becomes, the more likely it is to create
confusion. The simpler the control, the easier it will be to communicate and apply. Controls in the form
of instructions are often complex because more than one person created, implemented, or interpreted
them. Complexity can also result when control users lose sight of the purposes of the controls.
 Tailoring controls to plans and positions: All control techniques and systems should reflect the plans
they are designed to follow. Every plan and every kind and phase of an organization has unique
characteristics. Likewise, controls should be tailored to positions.A small business will need some
controls that differ from those in a large business. The very nature of control emphasizes the fact that
the more controls are designed to deal with and reflect the specific nature and structure of plans, the
more effectively they will serve managerial needs.
 Tailoring controls to individual managers: Control systems and information systems are intended to
help individual managers carry out their function of control. Adequate authority should be given.
Taking the proper corrective action necessitates sufficient authority to accomplish this task.