PART ONE

INTRODUCTION
CHAPTER I: MANAGEMENT AN OVERVIEW
1. Meaning And Definition of Management
There are several definitions of Management; but they all are fundamentally the same. Among
the many, some are:
a. Management is the process of coordinating all resources through the five major
functions of planning, organizing, staffing, directing /leading and controlling to
achieve organizational goals/desired objectives. That is, it is the process of
achieving organizational goals through engaging in the five major functions of
planning, organizing, staffing, directing/leading and controlling.
In the above definition there are three key concepts
i. Coordination of all resources – managers should coordinate the resources
of an organization. These resources may be human or non human.
ii. The five managerial functions – To coordinate the resources of an
organization a manager should employ/use the five managerial functions.
iii. Objectives – are the reason for the establishment of organizations and
management is useful for achieving these goals. Managing/management
is concerned with productivity: effectiveness and efficiency. There are
points to be meet, targets to be shot or places to be reached. All
organizations establish a variety of goals and direct their energies and
resources to achieve them.
 Profit oriented business → ROI goals
 Hospital → Patient care
 Educational institution → Teaching, research & community
service.
All organizations also have resources that can be used to meet these objectives. Such resources
can be classified into: human and non-human, and management is the force that unifies these
resources. It is the process of bringing them together and coordinating them to help accomplish
organizational goals.
b. Management is the art of getting things done through other people by making the
atmosphere conducive for others. It is the process of getting things done through

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 others, and this process puts emphasis on both the objectives to be attained and
the people who will be pursuing them.
→ an effective manager focuses on both work and people.
→ the job of every manager is to achieve organizational goals through the combined
efforts of people.
c. Management is the utilization of scientifically derived principles to examine and
improve collective efforts or production.
 Management applies to any kind of organization, to managers at all organizational
levels.
 Without management, virtually no business could survive.
 Management increases the values of our resources.
d) Management is the process of achieving organizational goals through engaging in the
five major functions of planning, organizing, leading, staffing and controlling. This
definition recognizes that:
 Management is an ongoing activity
 Entails reaching important goals, and
 Involves knowing how to perform the five major functions of
management.
Managers – are those persons in the position of authority who make decisions to
commit (use) their resources and the resources of others towards the achievement
of organizational objectives.
* Everybody is the manager of his/her time, energy and talents.
Organization – is a group of two or more people brought together to achieve
common stated objectives.
Organization – two or more persons engaged in a systematic effort to produce
goods and/or services.
2. Managerial Functions
Regardless of the type of firm and the organizational level, all managers perform certain basic
functions. These managerial functions are Planning, organizing, staffing, directing/leading/ and
controlling.
i. PLANNING: is making decisions today about future actions. It involves selecting missions
and objectives and the actions to achieve them; it requires decision making that is, choosing
future courses of action from among alternatives. No real plan exists until a decision – a

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commitment of human or material resources – has been made. Before a decision is made, all we
have is a planning study, an analysis or a proposal, but not a real plan.
 Planning bridges the gap between where we are to where we want to be in a desired
future.
 Planning identifies goals and alternatives. It maps out courses of action that will commit
individuals, departments and the entire organization for days, months and years to come.
 Planning is the first managerial function that all managers engaged in because it lays the
groundwork for other managerial functions. Even other managerial functions have to be
planned.
 ii. ORGANIZING: is concerned with assembling the resources necessary to achieve
organizations’ objectives and establishing the activity authority relationship.
 It is the management function that focuses on allocating and arranging human and non-
human resources so that plans can be carried out successfully. Resources are allocated
on the basis of major company goals.
 Planning has established the goals of the company and how they are to be achieved;
organizing develops the structure to reach these goals.
It is through organizing function that managers determine which tasks are to be done, how tasks
can best be combined into specific jobs, and how jobs can be grouped into various units that
make up the structure of the organization. It involves creating job positions with assigned duties
and responsibilities, arranging positions into hierarchy by establishing authority–reporting
relationship, determining the number of subordinates each manger should supervise, determining
the number of hierarchical levels etc and thereby create an organization. Organizing is not done
once and then forgotten. As the objectives of the company change, they will influence the
structure of managerial and organizational relationship.
iii. STAFFING: As it has been pointed out, organizing involves creating job positions with
assigned duties and responsibilities. Staffing involves filling and keeping filled the positions in
the organization structure. It is concerned with locating prospective employees to fill the jobs
created by the organizing process. It basically deals with inventorying the people available,
announcing vacancies, accepting, identifying the potential candidates for the job, recruiting,
selecting, placing, orienting, training and promoting both candidates and existing employees.
Staffing is concerned with human resource of the organization.
iv. Directing/LEADING: has been termed as motivating, influencing, guiding, stimulating,
actuating or directing. It is aimed at getting the members of an organization move in the direction

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that will achieve its objectives. Leading/leadership is the heart and soul of management. It
involves influencing others to engage in the work behavior necessary to reach organizational
goals; i.e., it is influencing people so that they will contribute to organization and group goals; it
has to do predominantly with the human/interpersonal aspect of management.
Leading is the most complex managerial function because it deals with complex human
behavior; and because most problems in organizations arise from people, their desire and
behavior. It includes communicating with others, helping to outline a vision of what can be
accomplished, providing direction, and motivating organization members to put forth the
substantial effort required.
v. CONTROLLING: is the measuring and correcting of activities of subordinates to ensure that
events conform to plans. It deals with establishing standards, measuring performances against
established standards and dealing with deviations from established standards.
 Controlling is the process through which mangers assure that actual activities conform to
planned activities.
 It is checking current performances against predetermined standards contained in the
plan. Control activities generally relate to the measurement of achievement.
3. Managerial Roles
Role is an organized set of behaviors that is associated with a particular office or position. It is a
pattern of behavior expected by others from a person occupying a certain position in an
organizational hierarchy.
A role is any one of several behaviors a manager displays as s/he functions in the organization
When a manager tries to carry out the management functions, s/he must behave in a certain way
– to fill certain role. Managerial roles represent specific tasks that managers undertake to
ultimately accomplish the five managerial functions. Factors which affect managerial roles are:
manager’s formal job description, and the values & expectations of other managers, subordinates
and peers.
Henry Mintzberg identified 10 managerial roles which are in turn grouped into three categories:
Interpersonal, Informational and Decisional Roles.
I. Interpersonal Roles involve developing and maintaining positive relationships with
significant others in the organization. It is communication oriented. It includes:
i. Figurehead Role: managers perform symbolic duties of a legal or social nature. The
manager is the head of his work unit, be it division, section or department. Because of this

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 “lead person” position the manager represents his work unit at ceremonial or symbolic
functions.
The top level managers represent the company legally and socially to those outside of the
organization. The superior represents the work group to higher management and higher
management to the work group.
E.g. Signing documents, presiding at a ceremonial event, greeting visitors, attending a
subordinate’s weeding, taking a customer to lunch, university president hands out a diploma
for graduates – in all these cases the manager is representing his/her organization.
ii. Leadership Role: The manager is the environment creator – s/he makes the environment
conducive for work by improving working conditions, reducing conflicts, providing
feedback for performance and encouraging growth. (Virtually all managerial operations
involving subordinates are examples for a leadership role). The leader builds relationship
and communicates with employees, motivates & coaches them. As a leader, the manager is
responsible for hiring, training, motivating and encouraging employees/subordinates.
→ The leadership role is evident in the interpersonal relationship between manager
and his/her subordinates.
iii. Liaison Role/Coordinator role: The liaison maintains a network of contacts outside the
work unit to obtain information. The manager serves as a link between the organization
and the informants who provide favors and information. S/he fulfills this role through
community service, conferences, social events, etc, participation is meetings with
representatives of other divisions.
Refers to dealing with the member of the organization superiors, subordinates, peer level
managers in other departments, staff specialists and outside contacts such as clients.
The top management uses this role to gain favors and information, while the superiors use it
to maintain the routine flow of work.
II. Informational Roles focuses on the transmission of important information to and from
internal and external sources. It involves the following activities:
i. Monitor role: is also called information gathering role. This role refers to seeking,
receiving, screening and getting information. The manager is constantly monitoring the
environment to determine what is going on. The monitor seeks internal and external
information about issues that can affect the organization. S/he seeks and receives wide
variety of special information to develop through understanding of the organization and the
environment.

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 Information is gathered from news reports, trade publications, magazines, clients,
associates, and a host of similar sources, attending seminars & exhibitions.
ii. Disseminator Role: what does the manager do with the information collected? As the
disseminator, the manager passes on to subordinates some of the information that would
not ordinarily be accessible to them. After the information has been gathered (by monitor
role), it has to be disseminated to superiors, subordinates, peers and other concerned
clients. The types of information to be forwarded to members could be facts, opinions,
interpretations, and influences.
iii. Spokesperson/representative Role: the spokesperson transmits information about the
organization to outsiders. The manger is the person who speaks for her/his work unit to
people outside the work unit.
One aspect of this role is to keep superiors well informed and a second aspect is to
communicate outside the organization like press, government agencies, customers and labor
unions. Although the roles of spokesperson and figurehead are similar, there is one basic
difference between them. When a manager acts as a figurehead, the manager’s presence is
as a symbol of the organization, whereas, in the spokesman role, the manager carries
information and communicates it to others in a formal sense.
Thus, the manager seeks information in the monitor role, communicates it internally in the
disseminator role and transmits it externally in the spokesperson role. The three
informational roles, then, combine to provide important information required in the
decisional roles.
III. Decisional Roles: involve making significant decisions that affect the organization.
i. Entrepreneur Role: (initiator of change) the manager acting as an entrepreneur
recognizes problems and opportunities and initiates actions that will move the organization
in the desired direction. In the role of entrepreneur, the manager tries to improve the unit.
Often s/he creates new projects, change organizational structure, and institutes other
important programs for improving the company’s performance. The entrepreneur acts as an
initiator, designer, and encourager of change and innovation.
ii. Disturbance Handler Role: solution seeking role. In the role of disturbance handler, the
manager responds to situations over which s/he has little control, i.e. that are beyond
his/her control and expectation such as conflict between people or groups, strikes,
preachment of contract or unexpected events outside the organization that may affect the

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 firm’s performance. The disturbance handler is responsible for taking corrective action
when the organization faces important, unexpected difficulties.
iii. Resource Allocator Role: deciding on the allocation of the organization’s physical,
financial and human resources. As a resource allocator, the manager is responsible for
deciding how and to whom the resources of the organization and the manager’s own
time will be allocated. This involves assigning work to subordinates, scheduling
meetings, approving budgets, deciding on pay increases, making purchasing decisions
and other matters related to the firm’s human, financial, and material resources. The
resource allocator distributes resources of all types, including time, funding (finance),
equipment and human resources.
iv. The Negotiator Role: representing the organization in all important/major negotiations.
Managers spend a great deal of their time as negotiators, because only they have the
information and authority that negotiators require.
E.g. negotiations to buy firms, to get credit, with government, with suppliers, etc.
The Ten Managerial Roles
Category Role Activity
Interpersonal Figurehead Perform ceremonial and symbolic duties such as greeting
visitors, signing legal documents
Leader Direct and motivate subordinates; training, counseling, and
communicating with subordinates.
Liaison Maintain information links both inside and outside
organization; use mail, phone calls, meetings.
Informational Monitor Seek and receive information, scan periodicals and reports,
maintain personal contacts.
Disseminator Forward information to other organization members; send
memos and reports, make phone calls.
Spokesperson Transmit information to outsiders through speeches, reports,
memos.
Decisional Entrepreneur Initiate improvement projects; identify new ideas, delegate
ideas, delegate responsibility to others.
Disturbance Take corrective action during disputes or crises; resolve
handler conflicts among subordinates; adapt to environmental

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 crises.
Resource Decide who gets resources; scheduling, budgeting, setting
allocator priorities
Negotiator Represent department during negotiation of union contracts,
sales, purchases, budgets; represent departmental interests.

3.1. Significance of Management

Why do we study management?
There are different reasons to study management. These are:
 It is important for personal life.
 Managers are universal: managers work in all types of organizations, at all levels, and in
all functional areas. These managers are responsible fo0r the success or failure of the
organizations.
 Societies depend on organizations/institutions for the provision of goods
and services. These institutions are guided by the decision of few
individuals /one or two/ designated as Managers.
 It affects the accomplishment of social, economic, political and organizational goals.
Management is the force that determines whether business organizations and social
institutions will serve us or waste our talents and resources.
 Ever since people began forming groups to accomplish aims they could
not achieve as individuals, managing has been essential to ensure the
coordination of individual efforts.
 People currently not trained by management get themselves in managerial positions and
earn their livelihood, and the most common path to become successful manager
involves a combination of education and experience.
 Management is needed to coordinate and direct the efforts of individuals, groups and the
entire organization to achieve desired objectives. Management is responsible for the
success or failure of an organization. That is, when an organization fails it is because of
poor management, and when an organization succeeds it is because of good
management. Whenever and wherever there is a group work having stated objectives,
management is needed to direct and coordinate their efforts. Without management effort
will be wasted.
4. Levels of Management and Types of Managers
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Is management the same throughout an organization? Yes and No
Yes: because all managers perform the five managerial functions.
No: because despite the fact that they perform all managerial functions, they perform it with
different emphasis and scope.
Managers all perform the same management functions but with different emphases because of
their position in the organization. Although all managers may perform the same basic duties and
play similar roles, the nature and scope of their activities differ. These differences are the base
for the classification of managers.
Managers can be divided based on two criteria. These are:
1) Levels of management (vertical difference)
2) Scope of responsibilities (horizontal difference
I. Types of Managers based on levels of management
An important determinant of a manager’s job is hierarchical level. Levels refer to hierarchical
arrangement of managerial positions or persons in an organization. The number of managerial
levels in an organization depends on the size of the organization. In most organizations,
however, there are three distinct levels. How these levels are distinguished? What functions are
performed at each level? And the reporting relationships are some of the issues to be addressed.
Based on levels of management or hierarchy we do have three types of managers. A manager’s
assigned duties and the authority needed to fulfill those duties are what determine management
level.
i. Top Level Managers
Top-level managers are managers who are at the top of the organizational hierarchy and are
responsible for the entire organization. They are usually few in number and include the
organization’s most important managers - the CEO or the president and his/her immediate
subordinates usually called vice-presidents. But the actual title may vary from organization to
organization. They are few in number because of the nature of the work they perform and
economic problem. They deal with the big picture, not with the nitty gritty. They are responsible
for the overall management of the organization. They establish company wide objectives or goals
& organizational policies. Furthermore, top management:
 Develop overall structure of the organization.
 Direct the organization in accordance with the environment.
 Develop policy in areas of Equal Employment Opportunity & employee
development.

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  Represent the organization in community affairs, business deals, and government
negotiations.
 Spent much of their time in planning and dealing with middle level managers and
other subordinates.
 Work long hours and spend much of their time in meetings and on telephone.
 Are persons who are responsible for making decisions and formulating policies
that affect all aspects of the firm’s operations?
 Provide overall leadership of the organization towards accomplishment of its
objectives.
 They are responsible for the organization because objectives are established and policies
are formulated at the top.
 Top-level managers take the credit or blame for organizational success and failures
respectively.
ii. Middle Level Managers
Middle level managers occupy a position in an organization that is above first-line management
and below top management. They interpret and implement top management directives and
forward messages to and from first-line management.
 Regardless of their title, their subordinates are managers.
 Often coordinate and supervise the activities of lower level managers.
 Receive broad/overall strategies from top managers and translate it into specific
objectives and plans for First-Line Mangers/operating managers.
 Are responsible for the proper implementation of policies and strategies defined by top
level managers. They interpret and implement top management directives and forward
messages to and from first-line management.
 Their principal responsibility is to direct the activity that implement the policies of the
organization.
E.g. Academic deans, Division Head, Plant managers, Army captain
iii. First Level Managers/Supervisory Level managers
- Are those at the operating level or at the last level of management?
- Their subordinates are non managers.
- They are responsible for overseeing and coordinating the work of operating
employees.
- Assign operating employees to specific tasks.

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 - Are managers on which management depends for the execution of its plan since their
job is to deal with employees who actually produce the organization’s goods and
services to fulfill the plan.
- Are directly responsible for the production of goods and services.
- Motivate subordinates to change or improve their performance.
- Serve as a bridge between managers and non-managers.
- Spent much of their time in leading and little in planning.
- Are in charge of carrying out the day-to-day activities within the various departments
to ensure that short-term goals are met.
E.g. Department Heads, supervisory personnel, Sales managers, Loan
officers, Foreman.
- Are often neither fish nor fowl – neither management nor labor because they feel
great deal of empathy for their subordinates (which stems from close personal contact
and the fact that most supervisors have come up from the ranks of labor) and they are
there to reflect the company’s point of view to their subordinates. And that is why
First-Line Mangers are called “People in the Middle”.
All managers carry out managerial functions. However, the time spent for each function varies
according to their managerial hierarchy. Top-level managers spend more time on planning and
organizing than lower-level managers. Leading, on the other hand, takes a great deal of time for
first-line managers. The difference in time spent on staffing and controlling varies only slightly
for managers at various levels.
Organizational Hierarchy Time spent on
carrying out managerial functions

Fig. 1.1 The relative importance of the managerial functions at different levels
II. Types of Managers based on scope of responsibility
Based on the scope of responsibility/activities they manage, managers are divided into two:
i. Functional Managers
Functional managers are managers who are responsible for a department that performs a single
functional task and has employees with similar training and skills.
Supervise employees (managers + workers) with specialized skills in specific areas of operations
such as accounting, payroll, finance, marketing, production, or sales etc. They are responsible for

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only one organizational activity; i.e. their responsibility is limited to their
specialization/specification.
ii. General Managers
General Managers are managers who are responsible for several departments that perform
different functions. They are responsible for the entire operations of the organization without
being specific.
Oversee a complex unit, such as a company, a subsidiary, or an independent operating division.
S/he will be responsible for all activities of that unit, such as its production, marketing, sales and
finance.
A small company may have only one general manager – its president or executive vice president
– but a large organization may have several, each at the head of a relatively independent division.
5. Managerial Skills And Their Relative Importance
A manager’s job is diverse and complex and it requires a range of skills. Skills are specific
abilities that result from knowledge, information, practice, and aptitude.
 Effective managers are essential to the performance of all organizations, whether they
have the ability to plan, organize, staff, lead and control business operations effectively
can determine a firm’s ultimate success or failure.
 Management success depends both on: a fundamental understanding of the principles of
management and the application of technical, human and conceptual skills.
 Modern businesses are dynamic and complex, and competition in the market place is
fierce. Consequently, managers must be highly skilled to succeed. The skills managers
need can be classified as:
 Technical skill
 Human Relations skill
 Conceptual skill
1. Technical Skills – involve process or technique, knowledge and proficiency. It is the ability to
use the tools, procedures, or techniques of a specialized field. It includes mastery of the methods,
techniques, and equipment involved in specific functions, such as engineering, manufacturing, or
finance. Technical skill also includes specialized knowledge, analytical ability, and the
competent use of tools and techniques to solve problems in that specific discipline.

 Is specialized knowledge and ability that can be applied to specific tasks.

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  Is a skill that reflects both an understanding of and a proficiency in a specialized
field.
 Technical skills are most important at the lower levels of management. It becomes
less important as we move up the chain of command because when they
supervise the others (workers), they have to show how to do the work.
E.g. A surgeon, an engineer, a musician, a quality controller or an accountant all have
technical skill in their respective areas.
2. Human Relations /Interpersonal Skill – the ability to interact effectively with people. It
is the ability to work with, understand and motivate other people, either as individuals or
as groups. Managers need enough of human relationships skill to be able to participate
effectively and lead groups. These skills are demonstrated in the way a manager relates
to other people, including the way s/he motivates, facilitates, coordinates, leads,
communicates, and resolves conflicts. A manager with human skills allows subordinates
to express themselves without fear of ridicule and encourages participation. A manager
with human skills likes other people and is liked by them. This skill is a reflection of the
manager’s leadership ability.
Managers who lack human skills often are abrupt, critical, and unsympathetic toward others. The
results are often abrupt, critical, and unsympathetic response from workers to management.
Because all work is done when people work together, human relation skills are equally important
at all levels of management.
3. Conceptual skills – involve the formulation of ideas. It refers to the ability to see the big
picture – to view the organization from a broad perspective and to see the interrelations
among its components. It includes recognizing how the various jobs in an organization
depend on one another and how a change in any one part affects all the others. It also
involves the manager’s ability to understand how a change in any given part can affect
the whole organization, ability to understand abstract relationships, solve problems
creatively, and develop ideas.
Conceptual skills are more important in strategic (long range) planning; therefore, they are more
important to top-executives than middle managers and supervisors.
Although all three of these skills are essential to effective management, their relative importance
to specific manager depends on his/her rank in the organization. Technical skill is of greatest
importance at supervisory level; it becomes less important as we move up the chain of command.
Even though human skill is equally important at every level of the organization, it is probably

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most important at the lower level, where the greatest number of management–subordinate
interactions is likely to take place.
On the Other hand, the importance of conceptual skill increases as we rise in the rank of
management. The higher the manager is in the hierarchy, the more s/he will be involved in the
broad, long term decisions that affect large parts of the organization. For top management, which
is responsible for the entire organization, conceptual skill is probably the most important skill of
all.
 Technical skill deals with things, human skill concerns people and conceptual
skill has to do with ideas.
Managerial Levels Managerial Skills

Fig. 1.2 Variation of skills necessary at different management levels

4. Management: Science or Art?
Science is characterized by making conclusions based on actual facts and verifies knowledge
through cause-effect relationship. It can be generally learnt, thought, and researched to know the
universal truth. Managers can work better by using the organized knowledge about management,
and it is this knowledge that constitutes a science.
Art is characterized by using common sense, personal feeling, beliefs, impulses, etc.
Management/Managing, like all other practices-music composition, engineering, accountancy or
baseball- is an art. It is know-how, skill or how to accomplish the desired objectives with
insufficient data and information or when there is limited use of secondary sources of
information. It is doing things in the light of realities of a situation. Thus, management as a
practice is an art; the organized knowledge underlying the practice may be referred to as a
science. In this sense/context science and art are not mutually exclusive but are complementary.
Therefore, management in actual sense is neither an art nor science, but it requires both to be
successful, i.e., it is not pure art because it uses scientific methods e.g. computer and it is not
pure science because it uses intuition, judgment, and creativity. Management is one of the most
creative arts as it requires a vast knowledge and the innovative skills to apply. Managers should
develop new ideas, techniques and strategies and be able to communicate them effectively in the
work environment. They should be able to make decisions even when there is shortage of data.
This leads us to the conclusion that ‘the art of management begins where the science of

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management stops’. This underlines the importance of making managerial decisions in the
absence of sufficient data and information by using the decision maker’s common sense.
5. Universality Of Management
Regardless of title, position, or management level, all managers do the same job. They execute
the five managerial functions and work through and with others to set and achieve organizational
goals. Managers are the same whether the organization is private or public, profit making or non-
profit making, manufacturing or service giving, and industrial or small firms. Hence,
management is universal for the following reasons.
1. All managers perform the five managerial
functions even if with different emphasis.
2. It is applicable for all human efforts; be it
business, non-business, governmental,
private. It is useful from individual to
institutional efforts.
3. Management utilizes scientifically derived
operational principles.
4. All managers operate in organizations with
specific objectives.
5. Management, in all organizations, helps to
achieve organizational objectives.

In sum, management theories and principles have universal application in all kinds of organized
and purposeful activity and at all levels of management.

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 CHAPTER TWO

THE EMERGENCE AND DEVELOPMENT OF MANAGEMENT THOUGHT

A. Management in Antiquity and Pioneer Contributors

Management in Antiquity: - Management thought has been shaped over a period of centuries
by three major sets of forces. These forces are: Social, economical and political in nature,
and they continue to affect management theory even today.

Despite the inexactness and the relative crudity of management theory and science, the
development of management thought dates back to the days when people first attempted to
accomplish goals by working together in groups. Since pre-historic times people have been
managed in groups and organizations. Even the simplest of hunting and gathering bands
generally recognized rules and obeyed a leader or a group of decision makers responsible for
welfare of the band. As societies grew larger and more complex, the need for organizations
and managers became increasingly apparent.

Attempts to develop theories and principles of management, however, are relatively recent.
In particular, the industrial revolution of the 19 th century gave rise to the need for a
systematic approach to management. Some examples in ancient times where management
was effectively used include the following:

 Egypt - The construction of the Egyptian pyramid (5000-525 BC) is a testimony of the
ancient Egyptian organization and managerial abilities. The ancient Egyptians
constructed the pyramid by 100,000 labor forces for 20 years on 13 hectares of land
using 2,300,000 stones. This construction is equivalent with managing a city with a
population of 100,000 for 20 years.

This construction shows how extensively Egyptians used the management functions of
planning, organizing, staffing, directing and controlling.

“Comparing the technology and information we have today, managers of those

days exceed managers of today.” Sisk

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 “The best managers in history are the ones who managed the building of the
pyramids." Peter Drucker

 Romans - the ancient Romans also provided numerous illustrations of effective

management. Perhaps the most famous is the Emperor Diocletian's reorganization of his
empire. Assuming his position in A.D. 284, Diocletian soon realized that the empire had
acquired an unmanageable form. There were far too many people and matters of
importance for the emperor to handle individually. Abandoning the old structure, in
which all provincial governors reported directly to him, Diocletian established more
levels in the hierarchy. He reorganized the Roman Empire as: Empire into 100
provinces with 13 dioceses and 4 major geographical areas. By doing so he ruled Rome
to its best time. The governors were pushed farther down the structure and, with the help
of other administrators; the emperor was able to more effectively manage this vast
empire. Here the levels of a management are shown clearly: 4 geographical areas -----
13 dioceses --- 100 provinces

After he divided Rome as such, he appointed 3 people on the divisions and the rest for
himself - Delegation of authority.

 Roman Catholic Church - was the most successful formal institution in the western
civilization. Rome achieved greater colonies using the Catholic Church.

Roman Catholic Church also made important contributions to early management thought.
One was the church's wide use of job descriptions for its priests, presbyters, and other
religious workers. Everyone's duties were clear, and the chain of command (hierarchy of
authority) that extended from the pope to the laity was created. A second Roman Catholic
Church contribution was that of compulsory staff service, the requirement that certain
members of the church hierarchy seek the advice of the other hierarchs before making
particular decisions. A third was the use of staff independence, the assignment of certain
advisors to key church officials. Since these advisors were not removable by the official
they could give advice they considered best, without fear of reprisals from superiors.

In short, the most important contributions of Roman Catholic Church for the development
of management are on the areas of:

17
 Hierarchy of authority: there was a hierarchical structure from Pope - Bishop - priest -
laity.
 Specialization of activities: there was a training to be Pope, Bishop, Priest and Laity.
 Use of staff managers:
 Compulsory staff service
 Staff independence

 Greece - Exhibited a real skill and capacity for management in the

operation of trading companies. They recognized the means to
maximize output through the use of uniform methods and motion
study.

 Bible - Exodus 18:13-26; this passage tells how Jethro, Moses',

father in-law, observed Moses spending an entire day listening to
the complaints and problems of his people. Then Jethro advised
Moses that he was doing more than one man should and
suggested specific steps to relief him of his burden. He first
recommended that ''ordinances and laws'' should be taught to the
people. In modern terms, the origination needed a statement of
policies, rules and procedures. Second, he commended that
leaders be "selected and assigned” to be rulers to thousands, and
rulers of hundreds, and rulers of fifties and rulers of tens. That
was recommending delegation of authority. Jethro’s third point,
that these rulers should administer all routine matters and
should “bring to Moses the important questions,” forms the
basis of a well known control procedure: the principle of
exception.

 In Ethiopia, the construction of obelisks of Axum, Castle of Gondar, Rock Hewn

Churches of Lalibela, the Wall of Harrar etc. are good examples that modern
management was practiced in ancient time.

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Early Management Pioneers (Contributors)

Although examples of management practices go back several thousand years, the development of
management as a field of knowledge is much more recent. Much of the impetus for developing
management theories and principles grew out of the industrial revolution, which spawned the
growth of factories in the early 1800s. With the proliferation of factories came the widespread
need to coordinate the efforts of large numbers of people in the continual production of goods.

The challenge posed by the factories brought forth a number of individuals who began to think in
terms of innovative ways to run factories more effectively. This group, known as the preclassical
contributors to management focused largely on particular techniques that might be applied to
solve specific problems. They were followed by individuals who began to develop broader
principles and theories that make up major view points, or schools of management: classical,
behavioral, quantitative and contemporary. Each of these major viewpoints encompasses several
approaches that have contributed to the development of the particular viewpoint.

PRE CLASSICAL CONTRIBUTORS

MAJOR CONTRIBUTORS

A number of individuals in the preclassical period of the middle and late 1800s began to offer
ideas that laid the groundwork for broader inquiries into the nature of management that followed.
Among the principal preclassical contributors are Robert Owen, Adam Smith, Henery Poor, and
Charles Babbage.

1. Robert Owen (1771 - 1858) - was a British industrialist and an owner-manager of several
successful cotton mills in Scotland.

At that period in history, working and living conditions for employees were very poor. Child
workers were common and the standard working day was 13 hrs long. Workers were treated in
much the same terms as tools and machines.

Owen was called industrialist and reformer because he was one of the first managers to
recognize the importance of human resource in an organization. Because of this he was
considered as ‘father of modern personnel management.’ His ideas laid the groundwork for

19
human relations movement. Owen was well ahead of his time in recognizing the importance of
human resources. He was particularly interested in the working and living conditions of his
employees. He said that workers in organizations need special attention and dignity or respect.
As a result, he introduced in his organization the following:

 Reduce working hrs from 13 hrs to 10½ hrs a day,

 Set a minimum hiring age (10 year) to protect children from the abuses of employers,
 Provide meal, housing, and shopping facilities for employees,
 Improved working conditions in the factory

He argued, "Improving the condition of employees would inevitability lead to increased

production and profits".

2. Charles Babbage (Prof.) Built the first practical mechanical calculator and a prototype of
modern computers. Although English mathematician, Charles Babbage (1792-1871) is widely
known as "the father of modern computing". He also made direct contributions to thinking about
management. His management interest stemmed from his difficulties with directing his various
projects. He became convinced that the application of scientific principles to work processes
would both increase productivity and lower expenses. Like the 18 th century economist Adam
smith, Babbage was particularly enthralled with the idea of work specialization. Work
specialization is the degree to which work is divided into various jobs. Smith had concentrated
mainly on ways to divide jobs involving physical labor into more specialized tasks, but Babbage
carried the specialization idea a step further by recognizing that not only physical work but also
mental work could be specialized. Furthermore, he was an early advocator of division of labor
principle and the application of mathematics as the efficient use of facilities and materials in
production.

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 (rather than for the whole
task). In this way, expensive training time could be reduced, and the constant repetition of each
operation would improve the skills of workers and enhance their efficiency.

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Division of labor Specialization/improve skills of workers. Reduce learning time and other
expenses.

Emphasizing on efficiency of production, however, Babbage didn’t overlook the human element
of an organization. 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. His
ideas foreshadowed some modern day group incentive plans, such as the Scanlon plan in which
workers actively participate in offering suggestions to improve productivity and then share in the
profits from resulting gains. He understood that a harmonious relation between management and
labor could serve to benefit both.

He was an avid proponent of:

 Division of labor
 Economies of scale in manufacturing
 Incentive pay
 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.

21
Thus, managers were more interested in the mechanical side of the job. That is, division of labor,
coordination of activities, and control of operations.

B. CLASSICAL MANAGEMENT THEORY

The classical management theory emerged during the early years of this century; i.e., it had its
foundation during the Industrial Revolution, which began in England with the invention of
reliable steam powered machinery and its early applications. This new technology, combined
with the concentration of vast amounts of raw material and labor, created a need for
management. Its ideas represent the first well-developed framework of management.

The classical viewpoint is a perspective on management that emphasizes finding ways to manage
work and organizations more efficiently. It is made up of two/three different approaches:
scientific management, administrative management (Classical Organization) theory, and
bureaucratic management. This viewpoint is labeled as "classical" because it encompasses early
works and related contributions that have formed the main roots of the field of management.

There were two factors that had contributed for the emergence of classical management theory.
These are: the research or writings of pioneers such as Charles Babbage, and the evolution of
large-scale business management and practices.

The classical approach to management cab be better understood by examining it from two
perspectives. These two perspectives are based on the problems each examined. One perspective
concentrated on the problems of lower level managers dealing with the everyday problems of
managing the work force. This perspective is known as scientific management. The other
perspective concentrated on the problems of top managers dealing with the everyday problems of
managing the entire organization. This perspective is known as classical organization theory.

1. SCIENTIFIC MANAGEMENT THEORY

Scientific management is an approach within classical management theory that emphasizes the
scientific study of work methods in order to improve worker efficiency. It is a systematic study
of work which originated in the USA in 1900s i.e., it emphasizes on improving worker efficiency
through the scientific study of work. Its objective was to find the most efficient method for
performing any task and to train workers in that method.

22
The emergence of industrial revolution gave rise to factory production system and it in turn
caused management to focus on developing the most rational principles for handling its people,
machines, materials and money. This challenge took two forms: (1) how to increase productivity
(output/input) by making the work easier to perform, and (2) how to motivate workers to take
advantage of new methods and techniques. The individuals who developed approaches for
meeting these challenges helped lay the foundation for what is known as scientific management.

Scientific management grew up from the research of 5 pioneers. They are Frederick W. Taylor,
Frank and Lillian Gilbreth, Henry Gantt and H. Emerson. Since Taylor played the major role, he
is called the father of scientific management.

Frederick W. Taylor (1856-1915) is known as "the father of scientific management." Born to

a relatively wealthy Philadelphia family, Taylor became an apprentice pattern maker and
machinist for a local firm before moving on to Medial steel. At Midvale, his meteoric rise from
laborer to chief engineer in 6 years gave him an opportunity to tackle a serious problem that he
had observed- soldiering by workers.

At the beginning of 20th century business was expanding, resources were readily available but
labor was in short supply. The primary goal of management during that time was to use the
existing labor force efficiently, but there was no skilled manpower. It is at this time that Taylor
saw how to use the available resource efficiently. He didn’t start new research rather he started
to study the problems of the factory production system. The following were some of the
problems of the factory system production as he called them:

1. Management had no clear concept of worker - management responsibility.

2. Virtually no effective work standards were applied
3. No incentive was used to improve labor’s performance
4. Managerial decisions were made based on intuition, rule of thumb methods or past
experience.

He was angry or he was impressed with the degree of “soldiering” - systematic, deliberate delay
in performance i.e., deliberately working at less than full capacity and producing less rather than
more, due primarily to (1) the workers’ fear that they might work themselves out of a job if they

23
produce more, (2) faulty wage systems set up by management encouraged workers to operate at a
slow pace. For example, pay by the hour or the day mainly encouraged attendance rather than
output. On the other hand, companies that cut incentive pay when workers began to exceed
standards also made workers reluctant to excel, and (3) rule of thumb method permitted by
managers. These factors led Taylor to conclude that managers, not workers, were responsible for
the soldiering because it was up to the management to design jobs and wage systems that could
encourage productivity.

To counter the problem of soldiering and solve the problems of factory production system, he
timed each element of the work and standardized how much each workman has to produce given
the required resources per day or per month. After timing each element of the work he said “the
most efficient may of doing the overall work” and came up with the “piece-rate pay system” -
the differential rate system - instead of paying similar amount of wage. He began increasing the
wage (pay) of each worker who met and exceeded standards or target level of output set for
his/her job.

The interest target of Taylor was to utilize human and material resources efficiently and
effectively. In other words Taylor was very much obsessed with the idea of maximizing
efficiency in an organization in order to maximize profits.

The following are some of the studies he conducted.

1. Time and motion study

Objective: to standardize activities for workers/determine a full-day’s work

Time and motion study involves breaking down the task into various elements, or motions,
eliminating unnecessary motions, determining the best way to do the job, and timing each motion
to determine the amount of production that could be expected per day (without allowances for
delays).

In this study he wished to know how long it would and should take a machine or workman to
perform a given process to produce a part using specified materials and methods under controlled
stations. He used stop - watch system to start and finish the test. This study permitted the
determination of practical, relatively precise and reliable standards of output. That is, the study

24
enabled him to set feasible standards per man or machinery usually higher than the average of
current performance of that time.

2. Uniform method of routine tasks

Objective: to adjust worker with work.

It is intended to prepare and direct the effort of those responsible for establishing the conditions
under which these standards could be set and met. With this objective in mind he worked out
such techniques as: instruction cards, order of work cards, material specialization, inventory
control systems, material handling standards.

3. Functional foremanship study - which man for which work.

Objective: to scientifically select the best worker for a given job

It was concerned with assuring which man will be best for which job, considering his initial skill
and the potential for learning.

4. Individual Incentive

Objective: to determine the appropriate wage or salary

In order to solve the problem of wage systems that encouraged soldiering, Taylor also advocated
the use of wage incentive plans. His study reached higher pay would serve as an incentive for
workers that would result from the increased productivity. During his (Taylor’s) time there was a
reduction of rates if the workers earn beyond an acceptable limit. But his view was that, having
scientifically measured the worker’s jobs and set rates accordingly, then efficient workers should
be rewarded for their productivity without limit.

After Taylor conducted the above studies in 1911 he wrote a book called principles of scientific
management. In his book he outlined four principles, the scope of which represented a
combination of mechanical, conceptual, and philosophical ideas:

1. Develop a science for each element of a job, which replaces the old rule-of-thumb 1
method.

25
 2. Heartily cooperate with the workers so as to insure all of the work being done in
accordance with the principles of the science which has been developed.

3. Scientifically select and then train, teach and develop the worker, whereas in the past a
worker chose his/her own work and trained themselves as best he could for their own
and the company's -prosperity.

4. There is an almost equal division of work and responsibly between management and
workers. The management takes over all work for which they are better fitted than
workers, while in the past almost all of the work and the greater part of the
responsibility were thrown upon the workers.

Taylor testified, however, that in order for these principles to be successful “a complete mental
revolution” on the part of management and labor was required. Rather than quarrel over
whatever profits they were, they should both try to increase production. By so doing, profits
would be increased to such an extent that labor and management would no longer have to
compete for them. In short, Taylor believed that management and labor had a common interest
in increasing productivity.

Frank and Lillian Gilbreth (The first dual career couple) 1868-1972

The Gilbreths were contemporaries of Taylor and part of the original scientific management
pioneers. Their accomplishments still stand out for their devotion to a single goal: the
elimination of waste and the discovery of the ‘one best way’ of doing work.

Frank started as a bricklayer and then achieved a considerable success as an independent

contractor and later as a management consultant. He was determined to learn to lay bricks the
‘right’ way. He began developing his own ideas and work methods. In the end, he was able to
develop a method which cut the motions required to lay bricks. In so doing, he identified 17 on-
the-job motions and called them ‘THERBLIGS’. (Therbligs is Gilbreth spelt backwards with the
transposition of one letter). The on-the-job motions are: search, find, select, grasp, position,
assemble, use, disassemble, inspect, load/transport, pre-position, release load, transport empty,
wait when avoidable, avoidable delay, rest for overcoming fatigue, and plan and hold. For his
work, Frank was named as ‘The Father of Motion Study’.

26
In undertaking his work, Frank was greatly aided and supported by his wife, Lillian. After he
died, Lillian was determined to continue his work. She pioneered the field of personnel
administration. She argued that the purpose of scientific management is to help people reach
their maximum potential by developing their skills and abilities. For her contribution to the field
of management, Lillian was known as ‘The First Lady of Management’.

Henry L. Gantt (1861-1919)

Gantt worked with Taylor at the Midvale Steel Company and was early proponent of scientific
management. If it wasn’t for him, scientific management might have been lost in a storm of
criticism. Gantt took every opportunity to humanize scientific management such as, inventing a
task and bonus system that offered foremen a bonus for every worker who succeeded, which
motivates foreman to show interest in their employees and help them achieve as much as they
could.

Gantt is perhaps known for his development of ‘Gantt Chart’ - a simple graph method of
scheduling work according to the amount of time required instead of the quantity of work to be
performed.

Contributions of Scientific Management

1. Specialization of activities increases productivity.

2. The methods of scientific management can be applied to a variety of organizational

activity, besides those of industrial organizations.

3. The efficiency techniques of scientific management, such as time and motion studies,
have made us aware that the tools and physical movements involved in a task can be
made more efficient.

4. The stress it placed on scientific selection and development of workers has made us
recognize the importance of both ability and training in increasing worker effectiveness.

Limitations of Scientific Management

1. Taylor misread the human element

27
He equated people (worker) with machine; he said workers are extensions of machines, cogs of
machines.

2. Taylor saw only money as a motivator.

He failed to recognize the complex nature of human behavior.

The notions of human behaviors that were prevalent in Taylor's time hampered proponents of
scientific management. The then popular model of human behavior was that people were
“rational” and thus motivated primarily by a desire for material gain. This rationality meant that
they would therefore act in a manner best suited to satisfy their economic and physical needs.
Thus, Taylor and his followers overlooked the social needs of workers as members of a group
and never considered the tensions created when these needs were frustrated. They assumed one
had only to tell people exactly what to do to increase their earnings and they would go right
ahead and do it, as “rational” people should. Financial gain, while significant, is not the only
thing that matters to workers.

3. The human desire for job satisfaction was overlooked. Workers usually are more willing
to go out for strike over job conditions rather than salary and to leave a job if they were
unhappy with it.

4. The application of scientific principles was not smooth.

Give money to workers and then work. If they don't work, penalize if not fire them out.

5. Taylor didn’t consider the organization as a whole but the production or the technical
level.

6. Too often, increase in productivity lead to lay-offs or changes in piece rates which leave
workers producing more output for the same income. The higher wages and better working
conditions enjoyed by today’s workers don’t result solely from the voluntary redistribution
of increased profits by management instead because of the tremendous growth of unionism.

2. Classical Organization Theory

28
Scientific management was concerned with increasing the productivity of the shop and the
individual worker. The other branch of classical management- classical organization theory-grew
out of the need to find guidelines for managing complex organizations. That is, the classical
organization theory focused on the management of the entire organization unlike the scientific
management theory, which focused on production. Classical organization theory had two major
purposes: (a) develop basic principles that could guide the design, creation and maintenance of
large corporations, and (b) identify the basic functions of managing organizations. Henri Fayol,
Lyndell Urwick, Chester Bernard, Max Weber and others contributed towards the development
of classical organization theory. Henri Fayol’s work will be discussed here because his ideas
clearly explain classical organization theory.

Henri Fayol (1841-1925)

A French industrialist and a well-known contributor to the administrative management theory,

was born to a middle class family near Lyon-France. He is acknowledged as the prominent
contributor and founder of the classical organization theory.

On the basis of his experience as a top-level manager, Fayol was convinced that it should be
possible to develop theories about management that could then be taught to individuals with
administrative responsibilities. To him management (administration) was not a personal talent
but a skill that could be taught. His efforts toward developing such theories were published in
General and Industrial Management, which originally appeared in monograph from in 1916 but
attained prominence in the United States after a second translation appeared in 1940.

Henri Fayol is the one who identified:

A. The major types of activities involved in an industry or a business as:

 Technical - producing and manning products

 Commercial - buying raw materials and selling products
 Security: protecting employees and property
 Financial – search for and optimum use of capital
 Accounting - recording and taking stock of costs, profits, and liabilities, keeping
balance sheets, profit and loss statements, etc
 Managerial – planning, organizing, commanding, coordinating and controlling

29
These six elements, he said, will be found regardless of whether the undertaking is simple or
complex, big or small.

Fayol’s primary focus was the managerial activity, because he put managerial skill had been the
most neglected, least understood but the most crucial aspect of business operations. He defined
managing in terms of the five functions: planning, organizing, commanding, coordinating and
controlling which all are similar to the present-day five managerial functions of Planning,
Organizing, Staffing, Directing, and Controlling.

B. Management as a separate field of study

Fayol said management is a discipline worth studying because he believed that managerial
ability could be applied to the home, the church, the military, the politics, and industry. Adding
he said there is a need for the introduction of formal managerial training schools.

C. General management principles

In his managerial experience Fayol attempted to systematize the practice of management to

provide guidelines and directions to other managers. Part of his thinking was expressed in the 14
principles of effective management. Noting that the administrative function was concerned only
with the human part of an undertaking, Fayol hastened to explain in his monograph that he
employed the word principles, not laws or rules, because of the flexibility required in applying
such concepts to people. In his words, he said,

“I prefer the word principles in order to avoid any idea of rigidity, as there is nothing
rigid or absolute in administrative matters; everything is a question of degree. The same
principle is hardly ever applied twice in exactly the same way, because we have to allow
for different and changing circumstances, for human beings who are equally different
and changeable, and for many other variable elements. The principles, too, are flexible,
and can be adopted to meet every need; it is just a question of knowing how to use
them.”

The 14 principles that Fayol felt he had occasion to use most frequently were:

1. Division of labor

30
Division of work (labor) encompasses three basic concepts:

1. Breaking down a task into its components.

2. Training workers to become specialist in specific duties, and
3. Putting activities in sequence so one person’s efforts build on another’s

The theory is that the fewer the tasks a person does in his job, the more efficient, skilled and
effective he becomes. Yet there are limitations to how much that work should be divided.

2. Authority and responsibility

Authority is the right to give orders, to exact obedience. Responsibility, on the other hand, is a
sense of obligation that goes with authority or a reward or penalty accompanying the use of this
power. Authority should be delegated only to subordinates who are willing to assume
commensurate responsibility. In later years this principle would be called parity of authority and
responsibility, indicating that the two should always be equal.

3. Discipline

Members in an organization need to respect the rules and agreements that govern the
organization. To Fayol, discipline will result from good leadership at all levels of the
organization, fair agreements (such as provision for rewarding superior performance), and
judiciously enforced penalties for infractions. Fayol saw the necessity for discipline and precise
and exact obedience at all levels for the smooth running of a business.

4. Unity of Command

An employee should receive directives from only one superior. One person should have one
boss. S/he should receive orders from one boss and resort to the same boss.

Fayol believed that when an employee reported to more than one superior, conflicts in
instructions and confusion of authority would result, i.e., violating this principle undermines
authority and jeopardizes discipline and stability.

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 5. Unity of Direction

Where there are a group of activities with the same basic objective there must be one coordinated
plan to accomplish the coordination of effort, and one person at the head of such coordination:
ONE HEAD, ONE PLAN, ONE SET OF OBJECTIVES. This improves coordination and
ensures that energies are channeled in the proper direction. Unity of command is related to
personnel whereas unity of direction relates to the organization of the 'body corporate' and
asserts that all operations that have the same objective move in the same direction under one
unified plan and under the command of one superior.

6. Subordination of individual interest to general interest/common good

In any undertaking, the goals and interests of an organization must take precedence over those of
individuals or groups of employees. The overall interest of the firm is more important than the
interest of any person or group of people who work for it.

7. Centralization

Centralization and its counter part, decentralization, mean how much authority is concentrated at
the top of the organization or dispersed throughout the management hierarchy. Fayol believed
that managers should retain final responsibility but also need to give their subordinates enough
authority to do their jobs properly. The problem is to find the optimal amount of centralization.
The appropriate degree of decentralization or centralization depends on the situation and includes
such factors as the nature of the task and the abilities of subordinates.

8. Remuneration of personnel

Compensation or wages for the work done should be fair and equitable to both to workers and
the organization. Payment plans shouldn't lead to over payment but the amount and method of
payment should be fair to reflect the cost of living, general economic condition, the demand for
labor, the economic state of business and the value of employees.

9. Scalar Chain (Chain of Command)

Scalar chain is the line of authority that extends from the top to the bottom of an organization
and defines the communication path. All organizational requests and directives must follow this
32
chain. This must be the route to be followed by all communications via every link in the chain
that starts from the bottom level of the organization to the ultimate authority. This preserves the
integrity of the hierarchy, and ensures the unity of command.

The only time departure from the chain of command can be tolerated is when the welfare of the
organization is at stake. However, Fayol recognized the problem of red tape in a large
organization and the resulting inadvisability of always taking the long formal route. To overcome
this problem, Fayol prescribed the gangplank principle. People at the same level of the hierarchy
should be allowed to communicate directly, provided that they have the permission from their
superiors to do so and that they tell their respective chiefs afterward what they have agreed to do.

10. Order

Order is best defined as “a place for everything (everyone) and everything (everyone) in its/his
place. Materials and people should be in the right place at the right time. People in particular
should be in the job or positions most suited for them.

11. Equity

In dealing with subordinates, managers should be friendly, fair, kind and lawful. Kindness and
justice on the part of managers will help employees to be loyal and devoted workers.

12. Stability of tenure of personnel

Trained and experienced workforce and management are crucial for organizational success. Both
managers and workers need time to learn and master their jobs. The longer these people stay in
the organization or on their jobs, the higher their belongingness to the organization or/and the
greater their effectiveness will be. If they leave or are removed within a short time, the
organization will lose the belongingness that it could accrue and the learning time incurred.
Therefore, labor turnover should be minimized and stability nurtured. Note, however that some
turnover is expected and is desirable. Factors like retirement, death, dismissal or demotion
because of incompetence could lead to turnover.

13. Initiative

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Members of an organization should be given the opportunity to demonstrate their creativity,
exercise their judgment, chart out their own plans of discharging their responsibility within the
bound of due respect for authority and discipline. To Fayol, the keenest interest for an intelligent
executive is to be able to scarify his personal vanity and instill those under him with the attribute
to bake initiative. This will provide organizational members with a platform for realizing their
capabilities to the fullest and appreciate the active part they are playing. The organization in turn
will enjoy high quality and forward-looking decisions and better performance.

14. Esprit de corps

The gist of this principle is that ' in union there is strength.' Hence, workers, management as well
as employers should work as a team. It is the responsibility of management to promote the spirit
of cooperation rather than the spirit of divide and conquer. Fayol made the point that it would be
wise to divide the enemy forces but to apply the same strategy on ones own team is a folly and
calamitous. Fayol also said that oral communications should be preferred to written directives
and explanations whenever possible for written communications could lack speed or clarity and
breed dubiety and reservation rather than trust and cooperation.

Contributions of Classical Organization Theory

1. The position Fayol took in distinguishing management as a discipline was worth

studying.
2. The fourteen basic management principles he developed.
3. The five elements of administration, which with minor modifications today, are called
functions of management
4. Limitations of Classical Organization Theory

1. Some of the principles are rigid- e.g. chain of command, unity of command.
2. The 14 principles are applicable in a relatively stable and predictable environment and
hence they are less appropriate in today's turbulent environment.
3. The principles of classical organization theorists are too general for today's complex
organizations. It doesn't provide guidance for deciding which principle should take
precedence over the other. E.g. unity of command principle seems to contradict the

34
 principle of division of labor (specialization), which states efficiency will be increased
if one task is divided among the members of a group.

Contribution and Limitation of Classical Management Theory

Contributions

1. Classical management theory had laid the foundation for later developments in
management theory. It laid the groundwork for modern management theory.

2. It identified key management processes, functions, principles and skills that are
recognized as such today.
3. It focused attention on management as a valid subject of scientific enquiry, i.e., as a
separate field of study.
4. It was the first attempt to study management from scientific perspective.

Limitations

1. The theory is more appropriate for stable, simple organizations than for the
today's dynamic and complex organizations.
2. It often prescribes universal principles that are not really appropriate in some
settings. E.g. chain of command
3. Many writers viewed organizations from mechanistic point of view than from
social point of view.
4. Many writers viewed employees as tools than human beings. E.g. Taylor
5. Economic motivation was seen as the only means to motivate workers to produce
more.

Similarities and differences between scientific management theory and classical

organization theory

Similarities Fayol- division of labor

1. Both of them focused on division of labor.

Taylor- Functional

35
 Foremanship

Stud

Fayol- remuneration of personnel

2. Economic (job) security motive only.

Taylor- differential pay system

Fayol- order

2. People must be adjusted for work

3. Taylor- uniform method of routine tasks

Fayol- division of labor, order

4. Efficiency the sole criterion.

Taylor- all the concept

Differences

Classical organization theory focused on the management of the entire organization and on the
problem of the top level management whereas scientific management theory focused on
production level/shop level/ technical level and on the problem of the lower-level management.
Frederick W. Dedicated to the refinement of scientific principles and their applications
Taylor to production efforts. Taylor was an early pioneer in time and motion
study, whose objective was to remove fatigue and improve efficiency and
(1856-1915)
output. He advocated a system of pay based on output by an individual
worker (piece-rate pay). Taylor is often called the Father of Scientific
Classic
Management.
Scientific
Henry L. Gantt Promoted concern for workers and a movement away from authoritarian
management. He introduced a task and bonus system of paying wages that
(1861-1919)
paid a fixed for below standard work, a bonus if standards were met, and
an additional amount when standards were exceed. Gantt asserted that

36
 methods improvements are best when they are willingly adopted by the
Classic
people who must apply them. He was the inventor of the Gantt chart for
Scientific
programming production.
Henri Fayol Applied the scientific management concepts to top management and
administration. Fayol developed the fourteen basic principles of
(1841-1925)
management that underline all managerial tasks. He identified five basic
management functions: planning, organizing, commanding (directing),
Classical
coordinating, and controlling.
Administrative

3. Bureaucratic management theory

Bureaucratic management is an approach that emphasizes on the need for

organizations to operate in a rational manner rather than relying on the arbitrary whims
of owners or managers.

It is a form of organization that is characterized by division of labor, a clearly defined

hierarchy, detailed rules and regulations and impersonal relationships. The major
contributor to this theory was Max Weber (1864-1920), a German sociologist,
consultant professor, and author.

Max Weber:

 Reacted to the prevailing norms of class consciousness and nepotism

 Believed that the running organizations on the basis of whom one knows rather
than what one knows and engaging in nepotism tended to interfere with
organizational effectiveness.
 He formulated the characteristics of an ideal bureaucracy. He coined the term
Bureaucracy to identify large organizations that operated on rational basis.

Major characteristics of Weber’s Ideal bureaucracy:

 Specialization: jobs are broken into routine, well-defined tasks so that members
know what is expected of them and can become extremely competent at their
particular subset of tasks.

37
  Formal rules and procedures: written rules and procedures specifying the
behaviors desired from members facilitate coordination and ensure uniformity.
 Impersonality: rules, procedures, and sanctions are applied uniformly regardless
of individual personalities and personal considerations
 Well-defined hierarchy: multiple levels of positions, which carefully determined
reporting relationships among levels, provide supervision of lower offices by
higher ones, a means of handling exceptions, and the ability to establish
accountability of actions
 Career advancement based on merit: selection and promotion is based on
qualification and performance of members.

Fig. Weber’s Ideal Bureaucracy

4. Behavioral Management Theory

The behavioral management theory emerged partly because practicing managers found the
classical management approach/theory didn't achieve complete production and work place
harmony; because classical management theory viewed organizations from the mechanistic view
point and considered workers as cogs.

Classical management theorists focused on controlling and standardizing the individual behavior,
but it is difficult to standardize group or individual human behavior. Practicing managers got
problems in managing organizations because subordinates and workers weren't behaving as
expected by scientific/classical management theory. As a result behavioral management theory
merged opposing the ideas of classical management theory, and emphasized on human relations-
a general term used to describe the ways in which managers interact with their subordinates-
based on social environment of work, individual and group behavior and interpersonal
relationships.

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 Abraham Maslow, Douglas Mc Gregor and Elton Mayo were well-

38
known. Of these Elton Mayo was the most prominent one. The behavioral school of management
had its origins in industrial psychology and sociology. It emphasizes the interactions of people in
an organization in order to understand the practice of management.

The human relation movement marked the daybreak of behavioral science theory and historically
it represented a reaction to the dehumanization aspects of scientific management theory. While
the former emphasized human relationships in organization, the later (task management) focused
on the management of work (the task) and aimed to achieve total efficiency and work place
harmony: but in actuality disorder and animus instead of agreement and friendliness continued.
Despite then adoption of scientific management, management as well as labor still encountered
serious problems because one seldom behaved as the other wanted to be. In short, scientific
management stood far from success in accomplishing its mission of achieving a mental
revolution in the minds of both the employers and the employees. Consequently, since the human
problem grew as crucial as the machine problems it appeared essential to find a means that could
help managers become effective in dealing with people and thereby increasing people's
productivity. To this end a series of experiments were conducted in 1920s and early 1930s and
these experiments pointed the way to new approach to the problem of productivity.

The Hawthorne studies

The Hawthorne studies (1924-1932) had their roots in the logic of scientific management. The
initial purpose of these experiments was to study the effect of physical factors such as
illumination, rest periods, length of working days, and the payment schemes up on productivity;
because classical management theorists believed that physical factors are determinants of
workers productivity. The studies were conducted at the Hawthorne plant of Western Electric
Company in Illinois, USA. The Hawthorne studies consist of four major experiments.

1. Illumination Experiments

The intention of this experiment was to learn if there was any correlation between intensity of
light and productivity. To this effect two groups of women were taken: the experiment group -
one subjected to variety in the intensity of light and the other a controlled group which was
exposed to constant illumination intensity. But in the end the researchers were bewildered by
their experiment since productivity not only constantly increased in both the experimental and

39
controlled groups following the increase in the intensity of illumination in only the experimental
room but also kept on ascending in both rooms though the light was diminished so that it was
barely enough to see. After seeing this puzzle researchers concluded that illumination has little or
no effect on productivity.

2. Relay Assembly Test Room Experiment

In the relay assembly test room experiment, Mayo and his associates placed two groups of six
women (five assemblers and a layout operator) with an observer who was to record everything
that happened and to maintain a friendly atmosphere in separate rooms. The six workers were
told that the experiment was not designed to boost production but merely to study various types
of working conditions so that the most suitable environment could be ascertained. They were
instructed to keep working at the regular pace. Researchers allowed the groups to choose their
own rest periods (were allowed to leave their work station without permission) and to have a say
in other suggested changes.

A number of variables were tried: salaries, coffee breaks (rest periods), refreshments, workday
and workweek, temperature, and noise. In one room job conditions were varied and in the other
they were not. Output went up in both the test room and controlled room regardless of how the
factors under consideration were manipulated.

However, when these changes were later terminated and original conditions reestablished, output
still remained high, indicating that the change in conditions was not the only reason for the
increase in output. Some investigators hypothesized that the increases were related not to the rest
pauses or shorter working hours but to the improved outlook that the workers had toward their
work.

Mayo and his associates concluded that such physical changes have no significant effect on
productivity, and said the change in supervisory management was the major reason for the
increase in productivity in the relay assembly test room study. That is, assemblers were
exercising relative self-direction and control, were subjected to the observation of a single
man, were allowed to talk freely among themselves and as a result close relationship was
maintained and a new social environment was created. In order to gather information on this

40
idea, the management decided to investigate employee attitudes and the factors to which they
could be traced. The result was the massive interviewing program.

3. The Massive Interviewing Program

After the first two phases, the researchers concluded that their attempt to relate physical
conditions of the job to productivity did not produce any significant results. So they postulated
that the human element in the work environment apparently had a significantly greater impact on
productivity than the technical and physical aspects of the job. On the basis of their extensive
interview program, the researchers proposed that the work group as a whole determined the
production output of individual group members by enforcing an informal norm of what a fair
day's work should be.

Over 20,000 interviews were conducted in the third phase of the studies. The interviews begun
by asking employees direct questions about supervision and the work environment in general.
Although the interviews made it clear that answers would be kept in strict confidence, the
responses to questions were often guarded and stereotyped. The approach was therefore changed
from direct to indirect questioning. The employees were free to choose their own topics. A
wealth of information about employee attitudes resulted. The researchers realized that an
individual's work performance, position and status in the organization were determined not by
that person alone but also by the group members. Peers had an effect on individual performance.
In order to study this more systematically, the research entered its fourth and final phase: The
Bank Wiring Observation Room Study.

4. The Bank Wiring Observation Room Study

To test the premise formulated at the conclusion of the interview program, the researchers
conducted a final experiment. The procedure in this part of the study was similar to that used in
the relay assembly test room, except that nine males who assembled terminal banks for telephone
exchanges were selected.

This experiment focused on the effect of a group piecework incentive pay. The assumption was
that the workers would seek their own economic interests by maximizing their productivity and
that faster workers would pressure the slower ones to improve their efficiency. However, the
researchers found that pressure was actually a form of social behavior. In order to be accepted in

41
the work group, the worker had to act in accordance with group norms and be a "rate buster" by
overproducing or a "chiseler" by under producing. The group defined what constituted a day's
work, and as soon as they knew that they could reach this output level, they slacked off. This
process was more marked among the faster workers than the slower ones.

The researchers concluded that the work group set the fair rates for each of its members. They
found no relationship between productivity and intelligence, dexterity, and other skills. They
concluded that the wage incentive plan was less important in determining an individual worker's
output than was group acceptance and security.

Findings and implications of Hawthorne

The Hawthorne studies constituted the single most important foundation for the behavioral
approach to management. The conclusions drawn from them were many and varied.

1. Physical working conditions did not seem to explain the changes that were related in
productivity.
2. There are other factors other than physical factors and monetary incentives, which affect
productivity. These factors are social and psychological in nature.

 Social environment:

- Ability to talk to each other.

- The right to choose their rest periods.

 The right to leave the workstation without permission.

 The right to have a say in suggested changes.
 Psychological conditions
 Since they were selected as a member of the study group they felt social
acceptance, recognition, and social importance.

From this we can understand that human beings are social beings rather than rational,
economic beings. In addition we can understand that to be successful managers should
understand people along with the reward systems, machines and tools (socio-technical
aspect). That is, Human aspect must match with social aspect.
42
 3. Workers are not motivated by the bodily needs only but also by social and psychological
needs.

4. A kind of managerial leadership capable of understanding individual and group behavior

and that would serve them through such skills as motivation and communication is
necessary.

5. Hawthorne Effect: a second finding, and probably the most widely cited, is the
Hawthorne effect, which is simply the observation that when people know that they are
being watched, they will act differently than when they are not aware of being observed.
The Hawthorne effect refers to the possibility that individuals singled out for a study
may improve their performance simply because of the added attention they receive from
researchers, rather than because of any specific factor being tested in the study.
Applying this concept to the increase in productivity in the relay room, many modern
psychologists contend that it was not the changes in the rest pauses that led to increased
output but the fact that the workers liked the new situation, in which they were
considered to be of some significance. The attention given them led them to increase
their output. The Hawthorne effect thus seemed to lead to the decline in revery, but
further investigation indicated that it was apparently not the only factor involved.

Contributions and Limitations of Behavioral Management Theory

Contributions

1. It has changed managerial thinking. Managers are now more likely to recognize the
importance of people and to view workers as valuable resources than mere tools. Mayo
had rediscovered Owen's century old dictum.

2. It has provided important insights into motivation, group dynamics and other
interpersonal processes in organizations.

Limitations

1. The complexity of individual behavior makes prediction of that behavior difficult

43
 2. Contemporary research findings by behavioral scientists are not often communicated to
practicing managers in an understandable form.

Modern approaches to management

Traditional organizational theories used a highly structured closed system approach. But modern
theories have moved towards the open system approach. That is, the classical and neo classical
approaches focused on the internal management of the organization. They didn't take into
consideration the effect of the external environment on the organization and vice versa.

While the classical and behavioral approaches continue to make contributions to management,
other viewpoints also have emerged. These are contemporary in the sense that they represent
recent major innovations in thinking about management. Two of the most important
contemporary viewpoints are the systems and contingency theories.

1. Systems Theory

The systems theory approach is based on the notion that organizations can be visualized as
systems. A System is a set of interrelated parts that operate as a whole in pursuit of common
goals. The systems approach to management views organizations and the environment within
which they operate as sets of interrelated parts to be managed as a whole in order to achieve a
common goal.

According to the systems approach, an organizational system has four major components.

a. Inputs - are the various human, financial, equipment and informational resources
required to produce goods and services.
b. Transformation process - are the organization's managerial and technological
abilities that are applied to convert inputs in to outputs.
c. Outputs - are the products, services and other outcomes produced by the
organization.
d. Feedback - is information about results and organizational status relative to the
environment. It is a key to system control.

44
Contemporary systems theory finds it helpful to analyze the effectiveness of organizations
according to the degree to which they are open or closed. There are two types of systems: open
and closed

Open system

It is one that continually interacts with its environment and therefore is well informed about
changes within its surroundings and its position relative to these changes. The open system
engages in such interactions in order to take in new inputs and learn about how its outputs are
received by various important outside elements.

It is a system which interacts with external environment and is dynamic and adaptive with the
change in the environment. It has permeable boundary between itself and the broader supra
system. E.g. social systems, biological systems

Organizations that operate closer to the open end of the system share certain characteristics that
help them survive and prosper. Some are: negative entropy, differentiation, and synergy.

Entropy - refers to the tendency of systems to decay over time. Or, it states that systems will
decay overtime if they don't interact with the environment. It is a natural process by which all
things tend to breakdown or die. If a system does not bring in or receive inputs and energy from
its environment, it will eventually cease to exist.

In contrast, negative entropy is the ability of open systems to bring in new energy in the form of
inputs and feedback from the environment in order to delay or arrest entropy, the decaying
process. Organizations must monitor their environment, adjust to changes, continuously bring in
new inputs in order to survive and prosper.

Differentiation - is the tendency of open systems to become more complex. The increased
complexity usually stems from the addition of specialized units to handle particularly
troublesome or challenging parts of an environment.

Synergy - the main gist of this concept is "the whole is greater than the sum of its parts." This
means that an organization ought to be able to achieve its goals more effectively and efficiently
than would be possible if parts are operated separately. It emphasizes on the importance of

45
working together in a cooperative and coordinated fashion. The simultaneous action of different
parts of an open system functioning in a harmonious and integrated manner produces more total
effect than the sum of the separated effort of individual parts.

Steady state - the balance to be maintained between inputs flowing in from the external
environment and the corresponding outputs returning to it. Organizations should adapt to
environmental changes. Steady state is the tendency of maintaining equilibrium condition by
making constant and proportional adjustment in response to changes in its environment. An
organization in steady state is not static, but in dynamic form of equilibrium.

Closed system

A closed system is a system that does little or no interaction with its environment and receives
little feedback. It has rigid boundary.

E.g. physical systems, mechanical systems.

Subsystems - the parts that make up the whole of the system. Each system may be a subsystem
of a still larger whole until we reach the larger supra system.

Department, plant, industry, national economy, the world system sequential relationship can
show us the system-subsystem formation.

 According to the systems viewpoint, managers are likely to be more successful if they
attempt to operate their units and organizations as open systems that are carefully
attuned to the factors in the environment that could significantly affect them. Hence, the
system approach views organizations as open systems having interdependence and
interactions between the organization and its environment and among various
subsystems to exchange information and energy.

CONTINGENCY THEORY

The classical theorists like Taylor and Fayol, were attempting to identify " the one best way" for
managers to operate in a variety of situations. If universal principles could be found, then
becoming a good manager would essentially involve learning the principles and how to apply
them. Unfortunately, things were not simple. Researchers soon found that some classical
46
principles such as Fayol's unity of command could sometimes be violated with positive results.
Consequently, contingency theory began to develop. Contingency theory is a viewpoint that
argues that appropriate managerial action depends on the particular parameters of the
situation. Hence, rather than seeking universal principles that apply to every situation,
contingency theory attempts to identify contingency principles that prescribe actions to take
depending on the characteristics of the situation. Contingency theory suggests that appropriate
managerial behavior in a given situation depends on or is contingent on a wide variety of
elements. Managerial decisions must be specific for specific situations by recognizing the
uniqueness of the environment. It states, "Nothing is best for all situations."

The basic idea of contingency theory was that there is no one best way of managing. Every
organization is unique, exciting in a unique environment, with unique employees and unique
goals. Managerial practices and technique that are appropriate in one area might not be
appropriate in another. This is because the world is too complex to be managed by a single
approach in all situations.

INTEGRATIVE APPROACH

The objective of the integrative approach is to have integration between different management
theories. It states that classical, behavioral and other schools of management are supplementary
and the systems and contingency approaches can help to integrate the various schools of thought.
The initial premise of the integrative approach is that before attempting to apply any concepts or
ideas from the various schools of management thought we must recognize the interdependence
of units within the organization, the effects of environmental influences, and the need to respond
to the unique characteristics of the situation that arises in terms of its unique characteristics.

1
Rule of thumb is the usual practice at work organizational level, leaving workers to work
according to the initiative of them by managers.

47
 CHAPTER THREE

THE PLANNING FUNCTION

I. THE MEANING OF PLANNING

 Planning – is the dynamic process of making decisions today about future actions; and it
is a selection or choice among alternatives as to: What missions or objectives be
achieved, What actions should be taken, What organizational positions be assigned,
How the end can be achieved, When to achieve it, Who is to do it, Where to do it. It
bridges the gap between where we are now and where we want to be.

 Planning - is preparing today for tomorrow; it is the activity that allows managers to
determine what they want and how to get it: They set goals and decide how to reach
them. Planning focuses on the future: what is to be accomplished and how.

Answers six basic questions in regard to any intended activity:

 What (the goal or goals).

 When (the time frame in which it will be accomplished)
 Where (the place or places where the plans or planning will reach its
conclusion).
 Who (which people will perform the tasks).
 How (the specific steps or methods to reach the goals).
 What resources (resources necessary to reach the goals).

 Planning is a process of deciding what to do and how to do it before action is required.

Planning involves selecting missions and objectives and the actions to achieve to them; it
requires decision-making that is, choosing from among alternative future courses of actions.
Managers who develop plans but do not commit themselves to action are simply wasting time.

48
The outcome of the planning function is a plan, a written document that specifies the courses of
action a firm will take.

Nature of Planning

Discussing the following points can highlight the nature of planning.

1. The contribution of planning to purpose and objectives

Every organization is established (exists) for the accomplishment of group purpose or objective.
So, the purpose of any plan and its derivatives or supporting plans is to facilitate the
accomplishment of organizational objectives.

2. The primacy of planning

All the five managerial functions - planning, organizing, staffing, directing and controlling- are
designed to support the accomplishment of organizational objectives. However, planning
precedes the execution of all other managerial functions, because all other managerial functions
must be planned if they are to be effective. This does not mean that planning is the most
important of all other managerial functions, because to be important or useful all other functions
have to accompany it.

Although in practice all the functions mesh as a system of action, planning is unique in that it
involves establishing the objectives necessary for all group effort. The entire gist of initiating,
exercising, and activating the managerial functions of organizing, staffing, directing and
controlling is to bring the objectives formulated during planning into fruition. In fact, the concept
of especially control would be unthinkable without planning because any attempt to control
without plans is meaningless, since there is no way for people to tell whether they are going
where they want to go (the result of the task of control) unless they first know where they want
to go (part of task of planning). Plans thus furnish the standards of control. Since planning and
controlling are so much inseparable, they are treated as the Siamese twins of management.

3. The pervasiveness /Universality of planning

Planning is a function of all managers, although the character and breadth of planning varies with
each manager’s authority and with the nature of policies and plans outlined by superiors. That is,
49
all managers-from presidents to first-level supervisors plan. Even for personal life we plan. “It is
difficult to call a person a manager if he or she doesn't plan “Koontz

4. Planning and information

Basically no plan exists without information. To plan managers have to gather relevant
information from around the environment. Information is one of the valuable resources for
planning to exist.

5. Planning is a continuous process

Planning deals with the future and the future is full of uncertainties. Hence, planning is subject to
revision. It needs frequent revision in response to changes in the internal and external
environments of the organization. Therefore, so for as the organization is in operation, planning
is in continuous process. The more continuous the planning is, the higher its efficiency is.

6. Planning is a means to an end

Planning is not an end by itself. It is a means to an end (meeting objectives). Planning is an

instrument that pushes people towards the achievement of objectives.

7. Plans are arranged in a hierarchy

Plans are first set for the entire organization. The corporate plan then provides the framework for
the formulation of divisional, departmental, and sectional goals. Each of these organizational
components sets its plans, programs, projects, budgets, resource requirements, etc.

As shown in the figure below, unit plans are summed up to form sectional plans and these in turn
form departmental plans. Finally, the different divisional plans when summarized at corporate
level, form corporate plan.

Fig. Hierarchy of plans Corporate plans

Departmental/divisional plans

Sectional plans

50
The Importance of Planning

1. It provides direction and sense of purpose

It is through planning that we can establish our objectives. Plans focus attention on specific
targets and direct employees effort toward important outcomes. Once organizations known what
they can do and can't do over the future, they began to set objectives based on their capacity and
the order of activities needed to accomplish their objectives. It provides direction and a common
sense of purpose. This shared purpose enables both employees and managers to coordinate,
unite, and guide their actions.

2. It reduces uncertainties and anticipates the future/ preparing for change

Planning is based on systematic and careful forecasts of future states of the economy, markets,
technology, etc to reduce uncertainties to the extent they occur according to expectation. Thus, it
is while planning that the manager should consider the potential areas for changes in the future;
rather than merely reacting to it. Managers should cope with changes in their own organizations
and functions in their environment through planning. Anticipating and preparing for possible
future changes enables managers to control their environment. In so doing, planning answers
“what-if” questions. In planning, managers develop several "what if" questions in order to
reduce the risk of unpredictable future, so far as we plan for the future. By asking what if
questions managers develop alternatives.

3. It provides basis for controlling

Standards /controlling mechanisms/ are developed during planning. It specifies what is to be

accomplished and provides a standard for measuring progress.

4. It forces managers to see the organization as a system

While planning managers have to consider parts because the plan of one part (department)
affects the operation of the whole organization so far as parts of an organization are
interdependent.

5. It promotes efficiency

51
Planning provides the opportunity for a greater utilization of the available organizational
resources - because in planning we determine how many resources are necessary to reach the
goals, and how to use these resources.

6. It provides the base for cooperative and coordinated efforts

Management exists because the work of individuals and groups in organizations must be
coordinated, and planning is one important technique for achieving coordinated effort. Planning
provides the basis for organized and coordinated effort by defining the objectives of the
organization and the means for their achievement.

7. Developing managers

The act of planning involves high level of intellectual activity. Those who plan must be able to
deal with abstract and uncertain ideas and information. Planners must think systematically about
the present and the future. Through planning, the future state of the organization can be
improved if its managers take an active role in moving the organization toward that future.
Planning then implies that managers should be proactive and make things happen rather than
reactive and let things happen. Through act of planning, managers not only develop their ability
to think futuristically but, to the extent that their plans are effective, their motivation to plan is
reinforced. Also, the act of planning sharpens manager's ability to think as they consider abstract
ideas and possibilities for the future. Thus, both the result and the act of planning benefit both the
organization and its managers.

8. It provides guideline for decision making

Decisions in an organization will be made in alignment with the plans and in accordance with
desired outcomes. Managers make decisions on problems of recurring nature based on strategies
and policies of the organization. Through specifying the actions necessary to accomplish the
goals of the organization, planning serves as a framework for decision-making. It forces
managers to make analytical thinking and evaluate alternatives through improved decisions.

Limitations of Planning

a. Planning is risky

52
This is because of uncertainties in the future and absence of accurate and adequate data.

b. It is a difficult and complicated task

Planning involves complex and interdependent decisions. Thus requires patience and
commitment from those who are involved in the planning process. In addition to this, rapid
changes in technology and customers’ tastes and preferences will also make planning difficult
and exceptionally complex.

c. It is expensive and time consuming

Planning requires financial, physical, human, and time resources. The collection of the necessary
data from various sources, the analysis, organizing and interpreting data consume time and
requires a huge amount of financial outlay.

d. It is affected by external factors

External factors can put strain on the success of planning. These factors could be external
impositions, government intervention, natural calamities, import-export policies, taxation and
labor laws that can limit the success of planning.

II. ORGANIZATIONAL OBJECTIVES

 Objectives are the important ends of planning toward which organizing, staffing, leading
and controlling are aimed.
 Objectives are the important ends toward which organizational and individual efforts or
activities are directed.
 Objectives are essential starting points in planning because they provide direction for all
other managerial activities.
 While enterprise objectives are the basic plan of the firm, department may also have its
own objectives. Its objectives naturally contribute to the attainment of enterprise
objectives, but the two sets of objectives may be entirely different.

E.g. Objective of Business – To make a certain profit by producing a given line of home
entertainment equipment.

53
Objective of manufacturing department - To produce the required number of TV sets of given
design and quality at a given cost.

These two objectives are consistent, but they differ in that the manufacturing department alone
cannot ensure accomplishing the company’s objectives.

Goals and objectives can be used interchangeably.

 Mission/Purpose - denotes the reason for the existence of an organization.

- denotes the organizations fundamental reason for existence.

Purpose and mission can be used interchangeably.

 Target – identifies specific qualitative or quantitative ends (points).

In short Mission/ purposes, objective, goals/ Targets differ in scope.

Purpose/missions  objective  Targets/goals

Nature of Objectives

1. Goals are predetermined or stated in advance.

2. Goals describe future desired results toward which present efforts are directed.
3. Goals should be specific and measurable. If possible, goals should be expressed in
quantitative terms.
4. Goals should have defined time period. They should specify the time period over which
goals will be achieved and measured. However, the long-range objectives should
provide the direction for short-range objectives.
5. Objectives should be continually adjusted in light of environmental changes.
However, too frequent changes and adjustments may cause confusion and disruption of
plans, strategies, policies, budgets, etc.
6. Goals should be challenging but realistic. If a goal is too difficult employees may give
up. If too easy, and routine type they may not feel motivated. Therefore, goals should be
set within the existing resource base and not beyond the department’s time, equipment,
labor, and financial resources. This gives workers job satisfaction and a great desire to

54
 work hard. A difficult job is something beyond the resource capacity of the organization
and the individual employee. It ends up with failure to achieve the stated goals.
7. Objectives have hierarchy

In planning, broader and more comprehensive objective with long time frame will be
formulated at the very top. These top-level objectives must successfully be broken down to
more specific and shortsighted sub-objectives because moving the organization to goal
attainment calls for achieving these sub-objectives which are the means by which objectives
are attained. Each level of objective stand as ends relative to the levels below it and as a
means relative to the level above it.

In short, like all management activities objectives have hierarchy. It ranges from the broadest
organizational objectives to specific /individual objectives. Organizations typically have
three levels of goals: strategic, tactical, and operational.

Strategic goals - are broadly defined targets or future end results set by top-level
management. Such goals typically address issues relating to the organization as a whole
rather than specific divisions or departments and may sometimes be stated in fairly general
terms. Strategic goals are sometimes called official goals because they are formally stated by
top management.

Tactical goals - are targets or future end results usually set by middle management for
specific departments or units. Goals at this level spell out what must be done by various
departments to achieve the results outlined in the strategic goals. Tactical goals tend to be
stated in more measurable terms than is sometimes true of strategic goals.

Operational goals - are targets or future end results set by lower management that address
specific, measurable outcomes required from lower levels.

The three levels of goals can be thought of as forming a hierarchy of goals. With a hierarchy,
goals at each level need to be synchronized so that efforts at the various levels are channeled
ultimately toward achieving the major goals of the organization. In this way, the various
levels of goals form a means-end chain, in which the goals at the operational level (means)
must be achieved in order to reach the goals at the tactical level (end). Likewise, the goals at

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 the tactical level (means) must be reached in order to achieve the goals at the strategic level
(end)

8. Multiplicity of objectives

Even though there is only one broad and overall organizational objective, there are other
multiple (many) objectives that are under the umbrella of the overall plan which are directed
to attain the overall plan. It would have been relatively easy to achieve an objective and its
sub-objective had an organization had only a single basic objective. But in reality
organizations do have a multitude of objectives and any attempt to disregard this fact can
invite failure to organizations.

E.g. Organizational (Broad) objective: profit maximization

Satisfaction of customers

Other objectives Research & development

Employee development

9. Integrating character

In order to achieve the broad organizational objective there should be harmony or

integration among objectives.

Multiple  Integration  Network of

Objectives objectives

10. Network of objectives

Objectives of an organization form network, that is, objectives are interrelated and
interdependent. The union of the individual objectives to form an overall objective makes
network of objectives. If there were no network of objectives, it would be very difficult to
achieve organizational objectives because people with their individual objective will pursue their
activity as right and coordination can never be possible.

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 11. Primacy of objectives

Objectives are primary to organization because they are the very reason for the existence of an
organization.

Benefits of Objectives

i. Objectives provide basis for the performance of all managerial functions. They serve as a
benchmark for the formulation of plan, policies, strategies, rules, budgets, procedures,
etc. Organizing exists when there are objectives and courses of action required for
implementing plans, organizing signifies the need for staffing by creating jobs and
positions and coordinating all organizational efforts to desired results.

ii. Objectives provide guidelines for action. They help clarify expectations. When goals are
set, organization members are more likely to have a clear idea of the major outcomes
that they are expected to achieve. Without goals, organization members can all be
working very hard but may collectively accomplish very little as if they were rowers
independently rowing the same boat in different directions and together making very
little progress. Goals direct and channel employees’ efforts by describing future desired
results. They provide focus and direction for employees by prescribing what ‘should be’
done. And, they also help to allocate resources and tell employee how and where to
direct their strongest efforts. Goals are basic for cooperative and organized effort.

iii. Objectives can limit employee activities. They serve to prescribe what ‘should be done’
and ‘what should not be done’ by the employees.

iv. Objectives provide a unique identity for organizations. Organizations have unique
characteristics. They have their own values and identities that help one to differentiate
them from others in the industry.

v. An organization’s goal can serve as a source of employee motivation. It helps to uplift

their morale. By presenting a challenge, goals tell what characterizes success and how to
achieve it. Accomplishment of organizational goals provides employees a sense of
achievement and satisfaction. The added motivation develops from meeting goals,
feeling a sense of accomplishment, and receiving recognition and other rewards for

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 reaching targeted outcomes. On the other hand, managing employees based on the
accomplishment of objectives rather than on the tasks and activities of every worker
(management by objectives-MBO) can serve as an incentive to employees.

vi. Objectives provide performance standards and bases for control. Control is the function
of measuring, comparing and evaluating performance against predetermined standards.
Thus, control will be meaningless in the absence of standards provided by objectives.

How Goals Facilitate Performance

In order to make use of goals, managers need to understand just how goals can facilitate
performance. Goals facilitate performance if they have the following components: goal content,
goal commitment, work behavior, and feedback.

Goal Content: Goals that are effective in channeling effort toward achievement at the strategic,
tactical, and operational levels have a content that reflects five major characteristics. Goals
should be challenging, attainable, specific and measurable, time limited, and relevant.

Goal commitment: A critical element in using goals effectively is getting individuals and/or
work groups to be committed to the goals they must carry out. Goal commitment is one's
attachment to, or determination to reach, a goal. Without commitment, setting specific,
challenging goals will have little impact on performance. Research indicates that five major
factors positively influence goal commitment: supervisory authority, peer and group pressure,
public display of commitment, expectations of success, and incentives and rewards.

Work Behavior: Given goals and commitment, how does the goal-setting process ultimately
influence behavior? Research so far suggests that goal content and goal commitment affect an
individual's actual work behavior by influencing four work behavior factors: direction, effort,
persistence and planning.

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Direction: Goals provide direction by channeling attention and action toward activities related to
those goals, rather than to other activities. Thus goals to which we are committed can help us
make better choices about the activities that we will undertake.

Effort: In addition to channeling activities, goals to which we are committed boost effort by
mobilizing energy. As indicated by the research on goal setting, individuals are likely to put forth
more effort when goals are difficult than when they are easy.

Persistence: Persistence involves maintaining direction and effort on behalf of a goal until it is
reached, a requirement that may involve an extended period of time. Commitment to goals
makes it more likely that we will persist in attempting to reach them.

Planning: In addition to the relatively direct efforts on direction, effort and persistence, goals
also have an important indirect effect on work behavior by influencing planning. Goal setting
affects planning because individuals who have committed themselves to achieving difficult goals
are likely to develop plans or methods that can be used to attain those goals. With easy goals,
however, little planning may be necessary.

Feedback: feedback to employees as to their performance will let them know if they have worker
as to the expectation. By comparing their performance with the set goals, managers should give
feedback on employees’ performance that will help them evaluate themselves and direct their
effort towards achievement.

III. THE PLANNING PROCESS

Like other managerial activities planning has its own processes or series of steps. These steps are
interrelated and there is no rigid boundary between or among these steps, and one is the base for
the other.

1. Establishing objectives

As objectives provide the direction for all other managerial functions, especially planning,
objective setting is an important first step in the planning process. Objectives specify the
expected results and indicate the end points of what is to be done, where the primary emphasis is
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t be placed, and what is to be accomplished by the network of strategies, policies, procedures,
rules, budgets, and programs. They provide the direction necessary for achievement and without
them there is little to keep a manager from simply wandering in all directions. Objectives are
then, the ‘guiding light’ for the entire management process.

Objective setting is a three steps process, which involves assessing the present situation,
anticipating future conditions, and then setting the objectives. It is only after the managers have
at least the rudimentary knowledge about their capabilities and available opportunities that
objective setting does make sense.

Organizations do not have one set of objectives, which each manager attempts to achieve.
Rather, setting objectives involves establishing objectives for the entire organization, each
subordinate work unit, and the long range as well as the short range. The hierarchy of objectives
starts at the top of the organization with overall organizational objectives and proceeds
downwards with narrower and more specific objectives for each level managers, derived from
the objectives at the level

Objectives developed by organizational levels and peer managers should be compatible with one
another. Top-level management should set the stage for goal setting by lower level management,
thereby ensuring maximum use of resources. Enterprise objectives give direction to the major
plans which define the objective of every major department. Major department objectives, in
turn, control the objectives of subordinate departments and so down the line.

2. Developing premises

Planning premises are assumptions about the environment within which the plan is to be carried
out. Once objectives are established managers have to investigate the company's environment to
know factors that facilitate or block the attainment of these objectives. This involves examining
the external and internal factors which affect the performance of the organization: the external
environment (for Treats and Opportunities) through PEST analysis and internal environment (for
Strengths and Weaknesses) through Self-Audit.

 Strengths are internal competencies possessed by the organization in comparison with the
competitors. These include structure and policies of the organization, location, financial
soundness, knowledge of personnel, qualities of facilities, and so on.

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  Weaknesses are attributes of the organization which tend to decrease its competence in
comparison to its competitors.
 Threat is reasonably probable events which if it were to occur, would produce significant
damage to the organization.
 Opportunity is a combination of circumstances, time, and place which if accompanied by
a certain course of action on the part of the organization, is likely to produce significant
benefits.

The key element of planning at this stage is forecasting. It is based on the forecasts made in
different areas that premises are made.

Because the future is so complex, it would not be profitable or realistic to make assumptions
about every detail of the future environment of a plan. Therefore, premises are, as a practical
matter, limited to assumptions that are critical, or strategic, to a plan, that is, those that most
influence its operation.

3. Determining alternative courses of actions

Alternatives are courses of actions that are available to a manager to reach a goal. In developing
alternatives, a manager should try to create as many roads to the objective as possible. Usually
the most common problem is not finding alternatives but reducing number of alternatives so that
the most promising may be analyzed

4. Evaluating alternative courses of action

Having sought out alternative courses, managers evaluate the benefits, costs and effects of
alternative courses in light of their weight to goals and premises. Because there are so many
alternative courses in most situations and there are numerous variables and limitations to be
considered, evaluation can be exceedingly difficult. This is a step in planning process that
operations research and mathematical as well as computing techniques have their primary
application to the field of management.

5. Selecting a course of action

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This is the point at which the plan to be adopted is chosen or selected. It is the real point of
decision-making. The analysis of each alternative’s disadvantages, benefits, costs and effects
should result in determining one course of action that appears better than the others. If no one
alternative emerges as clearly the best, consideration should be given to combining parts or the
entire content of two or more alternatives. Whatever the course chosen, it should be one that
gives you the most advantages and the fewest serious disadvantages.

6. Formulating derivative plans

At step 5 planning is ended. Formulating derivative plans means formulating other plans based
on one major plan.

7. Numberizing plans by budgeting

Numberizing plans is converting them into budgets. Plans will have meaning when they are
changed into numbers. Budgeting is the means of adding various plans together and set
important standards against which planning process can be measured.

8. Implementing the plan

After the optimum alternative has been selected, the manager needs to develop an action plan to
implement it. This is a step where by the entire organization will be in motion or real operation.
All the planning in the world will not help an organization realize objectives if plans cannot be
implemented. Implementation involves determining who will be involved, what resources will be
assigned, how the plan will be evaluated, and the reporting procedure.

9. Controlling and evaluating the results

Once the plan is implemented, the manager must monitor the progress that is being made,
evaluate the reported results, and make any modifications necessary. The environment that a plan
is constructed in is constantly changing, so the plans may have to be modified. Or modification
may be needed because a plan was not quite “perfect” when it was implemented. Hence,
managers need to make certain that the plan is going according to expectations and making
necessary adjustments.

IV. Types of Plans

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Plans can be classified on different bases or dimensions. These are:

 Scope/breadth dimension,
 Time dimension, and
 Use/repetitiveness

i. Scope/Breadth Dimension

Scope refers to the comprehensiveness of the plan, or it refers to the level of management where
plans are formulated. This dimension creates hierarchy of plans. Based on scope/breadth we can
classify plans into: Strategic, Tactical and Operational.

Strategic Plan: is organization wide plan that is formulated or developed by top-level

management in consultation with the board of directors and middle level management. It applies
to the entire organization.

 Looks ahead over the next two, three, five or more years.
 Develops the direction for the entire organization.
 Is primarily concerned with solving long-term problems associated with external
environmental influences.
 Establishes overall objectives and positions for an organization in terms of its
environment.

The following are distinguishing characteristics of strategic plan.

1. It requires looking outside the organization for threats and opportunities.

2. It requires looking inside the organization for strengths and weaknesses
3. It takes a longer view, i.e. it covers a relatively long time horizon > 5 years.
4. It tends to be top management responsibility, but it reflects a mentality useful at
all levels.
5. It is expressed in relatively general non-specific terms.

Strategic plans address such questions as:

 What business are we in?

 What business should we be in?
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  Where will we be in ten years if we continue doing what we are now doing?

The difference between a firm would like to be (where we want to be) and where it will be if it
does nothing is called the Planning gap. Strategic planning is primarily concerned with closing
that gap.

 The success or failure of an organization depends up on the success or failure of strategic

plans. It makes premises for tactical plans.

Tactical Plan: refers to the implementation of activities and the allocation of resources
necessary for the achievement of the organization’s objectives.

- is an intermediate plan that helps to reduce long range planning into intermediate one by
increasing the amount of specificity and making the actions goal oriented. Tactical plans are
specific and more goal oriented than strategic plans. Middle level management in
consultation with lower level management develops them.

 Tactical plans are the means charted to support the implementation of the strategic plans
and achievement of tactical goals. They are concerned with shorter time frames and
cover a narrower scope (narrower range of activities).
 Structures a firm’s resources to achieve maximum performance.
 Concerned with what the lower level units within each division must do, how they must
do it, and who will have the responsibilities for doing it.
 Tactical plans make premises for operational plans.
 is narrower in scope than strategic plan and wider than operation plan; but more detailed
than strategic plan and less detailed than operational plan

E.g. what is the best pricing policy?

Which city or town is suitable for marketing our products?

Operational Plan: is concerned with the day to day activities of the organization and is made at
the lower level management in consultation with middle level management. Operational plans
spell out specifically what must be accomplished to achieve specific/operational goals. It is

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concerned with the efficient, day-to-day use of resources allocated to a department manager’s
area of responsibility.

- Operational plans have relatively short time frame (< 1 yr). It is the most detailed (more
specific) and narrowest plan compared to the above two; because it is to be implemented day-
to-day.

E.g. –What production technique is best?

 What materials are needed for operation?

 Unless operational goals are achieved in organizations, tactical and strategic plans will
not be successful and goals at those levels will not be achieved.

ii. Time Dimension

Time dimension refers to the time periods for which the planning is intended. Based on the
length of time a plan covers, we do have three types of plans: Long-range (five years or more),
medium-range (between one and five years) and short-range plans (one year or less).

 Time dimension and scope dimension are the same except the former is about the length
of time that the plan covers and the later about the level of management where the plan
is formulated.

All strategic plans are long-range plans.

All tactical plans are medium-range plans.

All operational plans are short-range plans.

iii. Use Dimension

Use dimension refers to the extent to which plans will be used on a recurring basis, i.e. based on
how repeatedly/frequently a given plan is used. Based on this dimension we do have two types of
plans: standing plans and single use plans.

Standing Plans: are plans that provide an ongoing guidance for performing recurring activities.

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  They are plans which are formulated to be used again and again for the day-to-day
operation of the organization. That is, repetitive situations or actions require the
development of such plans. They become necessary when the same kinds of actions are
to be taken over and over again. Standing plans become valuable under relatively stable
situations.

Once established, standing plans allow managers to conserve time used for planning and
decision-making because similar situations are handled in a predetermined, consistent manner.

E.g. A bank can more easily approve or reject loan requests if criteria are established in advance
to evaluate credit ratings, collateral assets, and related applicant information.

The major types of standing plans are policies, rules and procedures.

a. Policies: is a general guide that specifies the broad parameters within which organization
members are expected to operate in pursuit of organizational goals.

 Policies are general statements or understandings which guide or channel thinking and
actions in decision-making to achieve organizational objectives.

Not all policies are “statements”, they are often merely implied from the actions of managers.

Policies have the following characteristics:

1. Policies define an area within which a decision is to be made and ensure that the decision
will be consistent with and contribute to an objective.
2. Policies help to decide issues before they become problems; make it unnecessary to
analyze the same situation every time it comes up and unify other plans.
3. Policies tell us what to do in a general sort of way.
4. Policies provide discretion within limits since they are guides to decision-making.
Policy is a means of encouraging discretion and initiative, but within limits. The amount
of freedom will naturally depend up on the policy and in turn will reflect position and
authority in the organization.
5. Policies must be flexible.

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  Policies are usually established formally and deliberately by top managers of the
organization. They can also emerge informally and at lower levels in the organization
from a seemingly consistent set of decisions on the same subject made over a period of
time.

Policies are established at the top because:

a. They feel it will improve the effectiveness of an organization.

b. They want some aspect of the organization to reflect their personal values (E.g.
Dress codes)
c. They need to clear up some conflict or confusion that has occurred at a lower
level in the organization.

Examples of policy:

1. Except for token gifts of purely nominal or advertising value, no employee shall
accept any gift from any supplier at any time.
2. Hiring university trained engineers
3. To promote from within
4. We accept returned merchandise

b. Rules: spell out specific required action or non-actions, i.e., actions that must be or must not
be taken, allowing no discretion, in a given situation.

E.g. No smoking, cheating is prohibited.

 A rule is an ongoing, specific plan for controlling human behavior and conduct at work.
 The purpose of policies is to guide decision-making by marking off areas in which
managers can use their discretion. Although rules also serve as guides, they allow no
discretion in their application.
 Rules are the most explicit of standing plans and are not guides for thinking or decision-
making. Rather, they are substitutes for them. The only choice a rule leaves is whether
or not to apply it to a particular set of circumstances.

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c. Procedures: are statements that detail the exact manner in which certain activities must be
accomplished. They put the precise order of activities to be carried out to do a task and thus,
procedures are chronological sequences of required actions. They provide detailed step-by-step
instructions as to what should be done. Procedures prescribe exactly what actions are to be taken
in a specific situation and specify the chronological sequence of activities. For example, material
procurement, university admission, bidding, etc.

When we compare the above three, policies, procedures and rules, we can understand that all are
alike in the sense that they are directives to guide people’s behavior to the desired ends and they
are plans which are to be followed in the future. Conversely, procedures and rules are different
from policies in that the formers are guides to actions while the latter are guides to thinking. So,
procedures and rules render no freedom and hence should be used when we want to discourage
initiative or repress thinking. But, policies must permit freedom within limits and hence are used
when people’s involvement, participation or initiative is desired.

Though both rules and procedures repress thinking, they are different. Unlike procedures, rules
(1) guide actions without specifying a time sequence (2) spell out that a certain action must or
must not be taken. Procedures, however, specify a time sequence. In fact a procedure may be
looked upon as a sequence of rules. A rule, however, may or may not be part of a procedure.

Single use plans: are plans aimed at achieving a specific goal that, once reached, will most
likely not recur in the future and dissolved when these have been accomplished.

 Are designed to accomplish a specific objective usually in a relatively

shorter period of time and it is non repetitive.
 They are detailed courses of action that probably will not be repeated in
the same form in the future.

The major types of single use plans are programs, projects, and budgets.

E.g. A firm planning to build a new warehouse-location, construction costs, labor

availability, zoning restrictions.

a. Programs: is a comprehensive plan that coordinates a complex set of activities related to a

major non-recurring goal.

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  Are a complex of goals, policies, procedures, rules, task assignments, steps to be taken,
resources to be employed and other elements necessary to carryout a given course of
action
 Single use plans may use standing plans and other single use plans to be effective.

Single use plan = Standing plans + Single use plans

 A program may be as large in scope as placing a person on the moon or as comparatively

small as improving the reading level of fourth grade students in a school district.
Whatever its scope, it will specify many activities and allocations of resources within an
overall scheme that may include such other single use plans as projects and budgets.

* A program may be repeated with modification but not as it is.

b. Projects: is a plan that coordinates a set of limited scope activities that do not need to be
divided into several major projects in order to reach a major non-recurring goal.

 Projects are the smaller and separate portions of programs. Each project
has limited scope and distinct directives concerning assignments and
time. Each project will become the responsibility of designated personnel
who will be given specific resources and deadlines.

E.g. Building a warehouse can be taken as a program. In the warehouse example, typical
projects might include the preparation of layout drawings, a report on labor availability,
and recommendations for transferring stock from existing facilities to the new
installation.

c. Budgets: are statements of expected results expressed in numerical terms.

 Are statements of financial resources set aside for specific activities in a given period of
time.

- Budget is a single use plan that commits resources to an activity over a given period. It
may be expressed in Birr, labor hours, units of product, machine hrs, or any other
numerically measurable term.

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  It may be referred to as a “numberize” program.

Budgets are also control devices. However, making a budget is clearly planning.

Characteristics of a Good Plan

Every sound business plan must have these characteristics:

 Objectivity

Planning should, first all, be based on objective thinking. It should be factual, logical
and realistic. It should be directed to achieving organizational goals rather than personal
objectives.

 Futurity

Since a plan is a forecast of some future action, it must have the quality of futurity;
otherwise, it has little value as a basis for future action. If a plan is to be effective, it must
foresee with reasonable accuracy the nature of future events affecting the industry and the
firm. The inability to foresee future events, a human limitation that we cannot overcome, is
the weak link in planning process.

 Flexibility

Because no one can foresee the future, plans must have flexibility. They must adjust
smoothly and quickly to changing conditions without seriously losing their effectiveness.
The more difficult it is to predict the future, the more flexible the plans must be.

 Stability

Stability is related to flexibility. A stable plan will not have to be abandoned because of
long-term changes in the company’s situation. It may be affected by long-range
developments, but it should not be changed materially from day to day.

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  Comprehensive

A plan must be comprehensive enough to provide adequate guidance, but not so detailed as
to be unduly restrictive. It should cover everything required of people, but not in such detail
that it inhibits initiative.

 Simplicity and clarity

Although a good plan must be comprehensive, it should also be simple. A simple plan seeks
to attain its objective with the fewest components, forces, effects and relationships. A plan
should not be ambiguous. Lack of clarity makes understanding and implementation
difficult.

 Contingency planning is the development of alternative plans for use in the event that
environmental conditions evolve differently than anticipated, rendering original plans
unwise or unfeasible.

 Planning staff- is a small group of individuals who assist top-level

managers in developing the various components of the planning process.

V. MANAGERIAL DECISION-MAKING

Meaning:

 Decision-making is a rational choice or selection of one alternative from among a set of

alternatives; i.e. it is the act of choosing one alternative from among a set of alternatives.
 Decision-making is the management function that consists of choosing one course of
action from all the available alternatives.

Decision-making is part of every aspect of the manager’s duties, which include planning,
organizing, staffing, leading and controlling, i.e. decision-making is universal. In all managerial
functions decision-making is involved. All managerial functions have to be decided. For
example, managers can formulate planning objectives only after making decisions about the
organization’s basic mission. Even though in all managerial functions decision-making is
involved, the critical decision-making is during planning because planning identifies the
objectives of the organization; i.e. decision must be made to identify the objectives/missions of
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an organization. In the planning process, managers decide such matters as what goals or
opportunities their organization will pursue, what resources will be used, who will perform each
required task etc. The entire planning process involves managers in a continual series of
decision-making situations.

Decision-making has three elements (parts)

1. When managers make decisions; they are choosing or selecting from among alternatives.
2. When managers make decisions, they have available alternatives. When there are no
alternatives, there is no decision-making, rather it become mandatory.
3. When managers make decisions, they have purpose in mind. The purpose in mind is
organizational objectives

THE DECISION-MAKING PROCESS

Decisions are organizational responses to problems. Every decision is the outcome of a dynamic
process that is influenced by multitude of forces. So decision-making has its own processes /
series of steps. The process is a sequential process rather then a series of steps.

1. Identifying problems

A necessary condition for a decision to exist is a problem - the discrepancy between an actual
and desired state; a gap between where one is and where one wants to be. If problems do not
exist, there will be no need for decisions; i.e. problems are prerequisites for decisions. How
critical a problem for the organization is measured by the gap between levels of performance
specified in the organization’s goals and objectives and the level of performance attained; i.e. it
is measured by the gap between level of performance specified (standards set) and level of
performance attained. The problem is very critical when the gap between the standard set and
actual performance attained is very high. To locate problems, managers rely on several different
indicators:

 Deviations from past performance. A sudden change in some established pattern of

performance often indicates that a problem has developed. When employee turnover
increases, sales decline, selling expenses increase, or more defective units are produced,
a problem usually exists.

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  Deviation from plan. When results do not meet planned objectives, a problem is likely.
For example, a new product fails to meet its market share objective, profit levels are
lower than planned, the production department is exceeding its budgets. These
occurrences signal that some plan is off course.
 Out side criticism. The actions of outsiders may indicate problems. Customers may be
dissatisfied with a new product or with their delivery schedules; a labor union may
present a grievance; investment firms may not recommend the organization as a good
investment opportunity; alumni may withdraw their support from an athletic program.

Decision makers face three types of problems:

 A crisis problem is a serious difficulty requiring immediate action. An example of a crisis

is a severe cash flow deficiency that has a high potential of evolving into serious losses,
and a customer protest against the quality of a product.
 A non-crisis problem is an issue that requires resolutions but does not simultaneously
have the importance and immediacy characteristics of a crisis. Many of the decisions
that managers make center on non-crisis problems. Example of such problems is a
factory that needs to be brought into conformity with new state antipollution standards
during the next three years and an employee who frequently is late for work.
 An opportunity problem is a situation that offers strong potential for significant
organizational gain if appropriate actions are taken. Opportunities typically involve new
ideas and novel directions that could be used, rather than difficulties that must be
resolved. Non-innovative managers tend to focus on problems rather than opportunities.

Confusions are common in problem definition because the events or issues that attract the
manager’s attention may be symptoms of another more fundamental and pervasive difficulty
than the problem itself. That is, there may exist confusion on the identification of a problem and
its symptoms. The accurate definition of a problem affects all the steps that follow. Managers
once they have identified problems, they have to try to diagnose the cause of the problem.
Causes unlike symptoms are seldom apparent.

This step has three general stages: scanning, categorization, and diagnosis.

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Scanning stage: involves monitoring the work situation for changing circumstances that may
signal the emergence of a problem. At this point the manager may be only vaguely aware that an
environmental change could lead to a problem or that an existing situation constitutes a problem.

Categorization stage: entails attempting to understand and verify signs that there is some type
of discrepancy between the current state and the desired state. At this point the manager attempts
to categorize the situation as a problem and a no problem, even though it may be difficult to
specify the exact nature of the problem, if one exists.

Diagnosis stage: involves gathering additional information and specifying both the nature and
the causes of the problem. Without appropriate diagnosis, it is difficult to experience success in
the rest of the decision-making process. At the diagnosis stage, the problem should be stated in
terms of the discrepancy between current conditions and what is desired; the cause of the
discrepancy should be specified.

2. Developing Alternatives

Before a decision is made feasible alternatives should be developed. This is a search process in
which relevant internal and external environment of the organization are investigated to provide
information that can be developed into possible alternatives. At this point it is necessary to list as
many possible alternatives solutions to the problem as you can. No major decision should be
made until several alternative solutions have been developed. Decision-making at this stage
requires finding creative and imaginative alternatives using full mental faculty. The manager
needs help in this situation through brainstorming or Delphi technique.

3. Evaluating Alternatives

Once managers have developed a set of alternatives, they must evaluate them to see how
effective each would be. Each alternative must be judged in light of the goals and resources of
the organization and how well the alternative will help solve the problem. In addition, each
alternative must be judged in terms of its consequences for the organization. Will any problems
arise when a particular course of action is followed? Such factors as worker’s willingness

4. Choosing an Alternative

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Based on the evaluation made managers select the best alternative. In trying to select an
alternative or combination of alternatives, managers find a solution that appears to offer the
fewest serious disadvantages and the most advantages. The purpose of selecting an alternative is
to solve the problem so as to achieve a predetermined objective. Managers should take care not
to solve one problem and create another with their choice.

A decision is not an end by itself but only a means to an end. This means the factors that lead to
implementation and follow –up should follow solution selection.

5. Implementing and Monitoring the Chosen Solution

For the entire decision-making process to be successful, considerable thought must be given to
implementing and monitoring the chosen solution. It is possible to make a "good' decision in
terms of the first five steps and still have the process fail because of difficulties at this final step.

Implementing the Solution: A decision that is not implemented is little more than an
abstraction. In other words, any decision must be effectively implemented to achieve the
objectives for which it was made. Implementing a decision involves more than giving orders.
Resources must be acquired and allocated. Decisions are not ends by themselves they are means
to an end; so proper implementation is necessary to achieve that end.

Monitoring the solution: Monitoring is necessary to ensure that things are progressing as
planned and that the problem that triggered the decision process has been resolved. Effective
management involves periodic measurements of results. Actual results are compared with
planned results (the objective); if deviations exist, changes must be made. Here again we see the
importance of measurable objectives. If such objectives do not exist, then there is no way to
judge performance. If actual results do not much planned results, then the changes must be made
in the solution chosen, in its implementation, or in the original objective if it deemed
unattainable. The various actions taken to implement a decision must be monitored. The more
important the problem, the greater the effort that needs to be expended on appropriate follow up
mechanisms. Are things working according to plan? What is happening in the internal and
external environments as a result of the decision? Are subordinates performing according to
expectations? ……. must be closely monitored.

Decision-Making Conditions

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When managers make decisions, the amount of information available to them or the degree of
knowledge they have about the likelihood of the occurrence of each alternative vary from
managers to managers or/and from situation to situation. To put it in other way, decisions are
made under three basic conditions. These are condition of certainty, condition of risk, and
condition of uncertainty.

1. Decision-making under Certainty

When managers know with certainty what their alternatives are and what conditions are
associated with each alternative, a state of certainty exists. Decisions under certainty are those in
which the external conditions are identified and very predictable; i.e. we are reasonably sure
what will happen when we make a decision. The information is available and is considered to be
reliable, and we know the cause and effect relationships. In decision-making under certainty
there is a little ambiguity and relatively low chance of making poor/bad decisions. Decision-
making under certainty seldom occurs, however, because external conditions seldom are
perfectly predictable and because it is impossible to try to account for all possible influences on
any given outcome it is very rare.

2. Decision-making under Risk

A more common decision-making situation is under risk. Under the state of risk, the availability
of each alternative, the likelihood of its occurrence and its potential payoffs and costs are
associated with probability estimates; i.e. decisions under risk are those in which probabilities
can be assigned to the expected outcomes of each alternative. In a risk situation, managers may
have factual information, but it may be incomplete. There is moderate ambiguity and moderate
chance of making bad decision.

E.g. tossing a coin, metrology

3. Decision-making under Uncertainty

Under this condition the decision maker does not know what all the alternatives are, what the
probability of each will occur is or what consequences each is likely to have. This uncertainty

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comes from the dynamism of contemporary organizations and their environment. Big multi-
national corporations assume these kinds of decisions. Decision-making under uncertainty is the
most ambiguous and there is high chance of making poor decisions. In decision-making under
uncertainty, probabilities cannot be assigned to surrounding conditions such as competition,
government regulations, technological advances, the over all economy, etc. Uncertainty is
associated with the consequences of alternatives, not the alternatives themselves. The decision-
making is like being a pioneer. Reliance on experience, judgment, and other people's experiences
can assist the manager is assessing the value of alternatives.

E.g. Innovation of new machine, journey of discoverers.

Types of Decisions

Decisions can be classified in to: programmed and non programmed

1. Programmed Decisions

Programmed decisions are those made in routine, repetitive, well-structured situations through
the use of predetermined decision rules. The decision rules may be based on habit, computational
techniques, or established policies and procedures. Such rules usually stem from prior experience
or technical knowledge about what works in the particular type of situation. Most of the
decisions made by first line managers and many of those made by middle managers are the
programmed type, but very few of the decisions made by top-level managers are the
programmed type. Managers can usually handle programmed decisions through rules,
procedures, and policies.

E.g. Establishing a re-order point, Decide if students meet graduation requirements,

Determination of employee pay rates

2. Non-programmed Decisions

Non-programmed decisions are used to solve non-recurring, novel, and unstructured problems.
No well-established procedure exists for handling them, because it has not occurred before
managers do not have experience to draw up on, or problems are complex or completely new.
Because of their nature non-programmed decisions usually involve significant amounts of

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uncertainty. They are treated through farsightedness. Most of the highly significant decisions
that managers make fall into the non-programmed category. Non-programmed decisions are
commonly found at the middle and top levels of management and are often related to an
organization’s policy-making activities.

E.g. To add a product to the existing product line, to reorganize a company, to acquire
another firm

Types of Managerial Decisions

Type of Type of Procedures Examples
decisions problem
Programmed Repetitive, Rules, standard operating Business: processing payroll
routine procedures, policies vouchers

College: processing admission

applicants

Hospital: preparing patient for

surgery.

Government: using state

owned motor vehicle.
Non- Complex, Creative problem solving Business: introducing a new
programmed novel product.

College: constructing new

classroom facilities

Hospital: reacting to regional

disease epidemic

Government: solving spiraling

inflation problem

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In reality most decisions fall between the two; i.e. a continuum of decision situations exists
ranging from those that are highly structured to those that are unstructured. Situations between
the two extremes are partially structured. As the name suggests, in a partially structured
situation, only a part is well structured. Typically, although the manager has a great deal of data
available, the final choice is not obvious. Many intangibles are involved in the final choice.
Therefore, the manager must base the ultimate decision on the data and supplementary factors,
using judgment and experience.

E.g. A hospital wishing to improve patient care may adjust its patient-staff ratio (programmable
situation), reorganize its staff (a non programmable situation).

Continuum of Decision situation

WELL STRUCTURED PARTIALLY ILL-STRUCTURED

(PROGRAMMED) STRUCTURED (NON PROGRAMMED)

1. Specification of 1. Only a part of 1. Decision procedure

decision procedure decision process can not be completely

agreed in advance can be completely structured in advance

of resolution. specified and of resolution.

structured.

2. Little managerial 2. Manager makes 2. Individuals resolve

involvement at time final resolution each situation on the

of each resolution from structured basis of experience

portion of his/her and judgment.

experience and from

intuition.
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 3. Repeated resolutions 3. Different managers may 3. Different managers may

with same data yield agree on certain data reach different conclusions.

same results.

Why Do Managers Make Poor Decisions?

All managers recognize the importance of making sound decisions. Yet most managers readily
admit having made poor decisions that hurt their company or their own effectiveness. Why do
managers make mistakes? Why don’t decisions always result in achieving some desired goal?
Making the wrong decision can result from any one of these decision-making errors:

 Lack of adequate time

Waiting until the last minute to make a decision often prevents considering all alternatives. It
also hampers thorough analyses of the alternatives.

 Failure to define goals

Objectives cannot be attained unless they are clearly defined. They should be explicitly
stated so that the manager can see the relationship between a decision and a desired
result.

 Using unreliable sources of information

A decision is only as good as the information on which it is based. Poor sources of

information always result in poor decisions.

 Fear of consequences

Managers often are reluctant to make bold, comprehensive decisions because they fear
disastrous results. A “play it safe” attitude sometimes limits a manager’s effectiveness.

 Focusing on symptoms rather than causes

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 Addressing the symptoms of a problem will not solve it. Taking aspirin for a toothache
may provide temporary relief, but if an abscess causes the pain, the problem will persist.
Business managers too often foul on the results of problems instead of the causes.

 Reliance on Hunch and Intuition

Intuition, judgment and ‘feel’ are important assets to the decision maker. But a manager
who permits intuition to outweigh scientific evidence is likely to make a poor decision.

Sometimes a manager’s decision is not exactly “poor”, but it still doesn’t produce optimal
results. Less than optimal decisions can have three causes:

1. Bounded rationality imposes limits on a decision, such as that it should be

economical or logistically practical. This limit serves as a screening device,
eliminating some of the alternatives. The manager must choose from the options
that have filtered through the restrictions. The overall optimal decision may no
longer be a valid option when using this method. The decision maker simply
selects the best alternative, given various specifications that must be met.

2. Sub optimization is a manager’s tendency to operate solely in the interests of

his/her department rather than in the interests of the company as a whole. In
making a decision, the department manager cannot be so self-centered as to
ignore the effects of the action on other areas. The key is to improve the
company’s performance, not just the performance of one department.
3. Unforeseen changes in the business environment also cause less than optimal
decisions.
CHAPTER FOUR

THE ORGANIZING FUNCTION

In planning, managers set their objectives and determine exactly what to do to attain these
objectives. Of course, no one person can implement all the plans of a modern organization or
one person can not do everything necessary to meet the goals set forth in those plans. Planning,
consequently, requires organizing the efforts of many people. It forces us to address several
basic questions:

 What specific tasks are required to implement our plans?

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  How many organizational positions are needed to perform all the required tasks?
 How should these positions be grouped?
 How many layers of management (Organizational levels) are needed to coordinate
them?
 How many people should a manager supervise directly?

The answers to these and other questions enable us to create an organizational arrangement, a
structure, for putting plans into action.

Organizing - is a management function that involves arranging human and non-human

(physical) resources to help attain organizational objectives. It is the management function that
establishes relationship between activity and authority. The end result of an organizing process is
an organization.

Organization - is the total system of social and cultural relationship among peoples who are
joined together to achieve some specific common objectives. It is a whole consisting of unified
parts (a system) acting in harmony to execute tasks to achieve goals effectively and efficiently.

The Organizing Process

The organizing process has the following steps.

1. Identification of objectives

This is to understand clearly the objectives of the organization, i.e. to reconsider the objectives
established during planning and identify the specific objectives to be pursued.

2. Identification of the specific activities needed to accomplish objectives

Knowing the objectives clearly makes the identification of activities needed clear and simple.
Here we ask what work activities are necessary to accomplish the identified organizational
objectives. Creating a list of tasks to be accomplished begins if we identify clearly what
objective is to be accomplished or met. This identification of specific activities needed is called
division of labor.

3. Grouping of activities necessary to attain objectives

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The series number of activities listed and/or identified must be grouped together. That is, this
involves grouping together of activities in accordance with similarities (homogeneity) of the
activities, interdependence, job characteristics or any other grouping criteria, and this result in
departments and the process is called Departmentalization. Groping of similar activities is based
on the concept of division of labor and specialization.

4. Assigning group of activities (work) and delegate the appropriate authority

Management has identified activities necessary to achieve objectives, has classified and grouped
these activities into major operational areas and has selected a departmental structure. The
activities now must be assigned to individuals who are simultaneously given the appropriate
authority to accomplish task.

5. Provision for coordination/Design a hierarchy of relationships

This step requires the determination of both vertical and horizontal operating relationships of the
organization as a whole. The vertical structuring of the organization results in a decision-making
hierarchy showing who is in charge of each task, of each specialty area, and the organization as a
whole. Levels of management are established from bottom to top in the organization. These
levels create the chain of command, or hierarchy of decision-making levels, in the company.

The horizontal structuring has two important effects.

i. It defines the working relationships between operating departments

ii. It makes the final decision on the span of control (the number of subordinates under the
direction of each manager).

The result of this step is a complete organization structure. This structure is shown visually by
an organization chart.

Importance of Organizing

a. Organizing promotes collaboration and negotiation among individuals in a group. Thus, it

improves communication within the organization.

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 b. Organizing sets clear-cut lines of authority and responsibility for each individuals or
department’s. It helps employees to know their responsibilities and concentrate on the
key tasks at hand. It specifies who is responsible for what.
c. Organizing improves the directing and controlling functions of managers. It enables
management to effectively control the work and workers.
d. Organizing develops maximum use of time, human, and material resources. It also
enables for proper work assignment for individuals in pursuit of common goal.
e. Organizing enables the organization to maintain its activities coordinated so that the
efforts of managers and employees can be well integrated and directed towards an end;
i.e. to accomplish organizational goal.

Types of Organizations: These are two types of organizations: Formal and informal

Formal organization - is the intentional, deliberate or rational structures of roles in a formally

organized enterprise. It is characterized by well-defined authority - reporting relationships, job
titles, policies, procedures, specific job duties and a host of other factors necessary to accomplish
its respective goals.

It is represented by a printed chart that appears in organizational manuals and other formal
company documents called organization chart. Organization chart is a diagram of formal
relationship which shows how departments are tied together along the principal lines of
authority. Formal organization has consciously designed durable and inflexible structure. Formal
organization may have legal personality.

Informal organization - is a network of personal and social relationships that arises

spontaneously as people associate with one another in a work environment. It is an unofficial
network of personal and social relations developed as a result of association or working together.
E.g. the Chess group, the Morning Coffee group, the Bowling team, etc. It operates outside
formal authority relationships. It doesn’t have legal personality. Informal organization develops
within the formal organization. It is composed of all the informal groupings of people with in a
formal organization (it is not only the domain of workers; managers form informal groups that
cut across departmental lines). Informal organization has a structure which is loosely designed,
highly flexible and spontaneous. In such an organization, the pattern of information flow, the
exact nature of relationships among the members, and the goals of the organization are

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unspecified. However, to identify the existence of informal organizations and their composition
we can use two tools: a Sociogram and an Interaction Chart.

A Sociogram is a diagram of group attraction. The Sociogram is developed through a process

asking members whom they like or dislike and with whom they wish to work or not to work. It is
based on the belief that group interactions are the result of people's feelings of like and dislike
for another.

An Interaction Chart is a diagram that shows the informal interactions people have with one
another. For any specific person, the chart can show with whom the person spends the most time
and with whom the person communicates informally.

Members in most informal organizations change with time, i.e. when people highly vary in
income level, educational background, status, etc they tend to leave the original group and join
the new one. Members are bonded together through the need for one another’s company and the
fact that they find their memberships beneficial to them in one way or another, i.e. mutual benefit
is the bondage between or among members.

The informal organization presents a challenge for a manager because it consists of actual
operating relationships not prescribed by the formal organization and, therefore, not shown on
the company’s organizational chart.

Types of Groups in the Informal Organization

The informal organization is often looked at as groups of people. Informal groups may be
described as horizontal, vertical, or mixed. These titles indicate whether the group members
come from the same or different levels of formal organization.

Horizontal Groups:

 Include persons whose positions are on the same level of the organization i.e. they are
groups that are formed by peers.
 The groups can consist of all the members in the same work areas or membership
developed across departmental lines.
 Members may be all management or non-management personnel.

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  Horizontal groups are the common kind of informal groups by virtue of the ease of
accessibility.
 Membership in a horizontal group is usually mutually beneficial to individuals - “You
help me and I will help you”. People in the same or related work areas often share the
same problems, interests, and concerns

Vertical Groups:

 Include people on different levels of the formal organization’s hierarchy.

 These people always come together within the same department (work areas).
 A vertical group can consist of a supervisor and one or more of his/her employees. It
may also be formed through skip - level relationships - a top-level manager may
associate with a first level manager.
 Their relationships can be the result of outside interests or various employment
relationships.

Mixed Group:

 It is a combination of two or more persons whose positions are on different levels of the
formal organization and in different work areas.

E.g. A Vice-President may develop a close relationship with the director of computer services in
order to get preferential treatment.

A production manager may cultivate an informal, social relationship with the director of
maintenance for the same reason.

 Mixed groups often form because of common bonds outside work.

Why people form informal groups?

Informal groups are formed for different reasons

1. Need for satisfaction

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People have needs that in some cases are not met through the formal organization. The
opportunity to fulfill security, affiliation, esteem, and sometimes self-actualization needs can
encourage people to look out and join others in an informal group. They provide the opportunity
to satisfy needs.

2. Proximity and interaction

A common reason people join groups is that they work near one another. This can be either
through working in close proximity physically or because of frequent interaction. Horizontal
informal groups are prime examples of this.

3. Similarity

People may join informal groups because they are attracted to other people who are similar to
themselves. Several persons with the same attitudes or beliefs may join one group. Other factors
or similarity can be personality, race, sex, economic position, age, educational background etc.

* In informal group/organization one is not limited to one informal organization because there
may exist still unsatisfied needs by involving in one/two informal organization.

Why informal groups exist?

Informal groups remain in existence because they serve four major functions:

1. They maintain the social and cultural values of the group members.

Individuals in the group are likely to share the same beliefs and values as a result of background,
education, or cultural heritage. The many areas about which the group may have beliefs are
reinforced and maintained by the group environment. Such belief areas are, for example, the
work ethic.

2. They provide group members the opportunity for status fulfillment and social interaction.

Individuals can receive what the formal organization cannot or has not chosen to provide. “I am
just another figure” feeling (identity crisis) may be avoided by informal group. E.g. an individual
whose post is a technician may assume a position of head for a volleyball team.

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 3. They provide information for their members

The informal group develops its own system and channels of communication parallel to
management’s formal channels. The ability to acquire access to information for members is a
major function of informal groups. Crucial information can be obtained through informal
communications.

4. They influence the work environment

Informal groups regulate or influence the behavior, dress, or work standards of their members
through positive means-acceptance, support, and affiliation or through negative methods –
threats of ostracizing non-complying members. The informal group can also regulate or
influence the actions of management and other informal groups.

The Impact of Informal Organization on the Formal Organization

The groups that compose the informal organization can affect the formal organization negatively
and positively.

The Negative Impacts

i. Resistance to change: The informal organization can resist change. In an effort to

protect its values and beliefs, the informal group can place roadblocks in the path to any
modifications in the work environment. The informal group shows its resistance through
hampering its implementation.

ii. Conflict: The informal group can create two “masters” for an employee. In an attempt to
satisfy the informal group, the employee may come in conflict with the formal
organization.

E.g. The Company may allow 10 minutes for coffee break; however, the informal group may
extend it to 30 minutes for the employee’s social satisfaction. There, the employee’s social
satisfaction is in conflict with the employer’s need for productivity.

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 iii. Rumor: The informal communication system - the grapevine - can create and process
false information or rumors. The creation of rumors can upset the balance of the work
environment.

iv. Pressure to conform: The norms that the informal groups develop act as a strong
inducement toward conformity. The more cohesive the group, the more accepted are
the behavioral standards. Non-conforming in the person’s reference group can result in
gentle verbal reminders from the group but can escheat to harassment – ostracism.

The Positive Impacts

Despite the possibility of these problems, informal groups do have the potential to be helpful to
managers.

i. Makes the total system effective: If the informal organization blends well with the
formal system, the organization can function more effectively. The ability of the
informal group to provide flexibility and instantaneous reactions will polish the plans
and procedures developed through the formal organization.

ii. Provides support to management: The informal organization can provide support to the
individual manager. It can fill in gaps in the manger’s knowledge through advice or
through performing the work, for example, budgeting and scheduling. By performing
effectively and positively, it can build a cooperative environment. This, in turn, can
mean more delegation to the employees and less time spent by the manager controlling
employee behavior.

iii. Provides a useful communication channel: The informal organization provides

employees with the opportunity for social information, for discussing their work, and for
understanding what is happening in the work environment.

iv. Encourages better management: Managers should be aware of the power of the
informal organization in what is actually a check and balance system. Planned changes

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 should be made with an awareness of the ability of the informal group to make the plan
successful or unsuccessful.

v. Provides stability in the environment: The informal organization can provide

acceptance and belonging. This feeling of being wanted by the group can encourage
employees to remain into environment, thus reducing turnover. Additionally, the
informal organization provides a place for a person to vent frustrations. Being able to
discuss them in a supportive environment may receive emotional pressures.

Major Elements of the Organizing Function

Division of Labor

When joint accomplishment of a grand task is the goal of many people, this overall task must be
split into its component jobs and apportioned among the people involved. It is only after these
jobs are correctly done that the grand task can be achieved. The degree to which the grand task
of the organization is broken down and divided into smaller component parts is referred to as
division of labor. Division of labor is performed in light of organizational objectives. It begins by
determining (sub tasks) called jobs that are necessary to accomplish the identified objectives.
These sub tasks could include ongoing tasks which are part of the regular routine for running any
business such as hiring and record keeping or tasks unique to the nature of the business; such as
assembling, machining, storing, inspecting, selling, advertising, computer programming.

After determining the sub-tasks, sub-tasks will be defined by enumerating the activities that each
individual sub-tasks would entail in terms of what the incipient sub task performer is expected to
do. This is called job description. Job description is an account of activities what the sub-task
performer is expected to perform and the associated authority and responsibility relationships
among jobs. The sub-task assigned to the sub task performer is called job. Thus by doing so
individuals specialize in doing part of the task rather than the entire task, i.e. division of labor in
effect is the assignment of various portion of a particular task among organizational members.

In short, division of labor involves:

 Breaking down a task into its most basic elements

 Training workers in performing specific duties

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  Sequencing activities so that one person's efforts build on another's

Advantages of Division of Labor

1. It enables a person performing a task to become highly proficient in a relatively

short time; as result efficiency and productivity increases.
2. Decreased transfer time. It saves the time that is always lost in changing from one
job to another.
3. Less wastage of materials in the learning process including time.
4. Ease of supervision. When employees are performing similar simplified tasks it
will require the superior to have a narrow range of skills to effectively oversee
subordinates.
5. Training is easier with specialization and takes shorter period. Plus, it decreases
training cost.

Disadvantages of Division of Labor

6. Boredom and fatigue caused by monotonous, repetitive tasks because the work
becomes less challenging.
7. Specialization would result in workers' having limited knowledge.
8. Creates communication barriers. Specialists develop their own language and
customs, which can hamper communication across departments.
9. Specialization sometimes causes workers to think more in terms of their
department or function instead of the company. Becoming engrossed in their
own tasks, they lose sight of the company's mission.
10. Specialization leads to time-oriented confusion. Production department, for
instance, are commonly short-run oriented; research and development
departments are concerned with the long term. Consequently, production
departments typically evaluate their performance in the short run, where as R&D
efforts may go unrecognized for several years.
11. Different specialties often formulate rules, policies, and procedures that conflict
with those of other operational units.

Departmentalization: Meaning and Bases

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Departmentalization - All organizations, regardless of their size or mission, divide their overall
operations into sub-activities and then combine these sub-activities into working groups. This
process of grouping specialized activities in a logical manner is called Departmentalization.

Department - is a distinct area, division, or branch of an organization over which a manager has
authority for the performance of specified activities. It is a unit formulated as a result of the
Departmentalization process.

The physical and mental limitations of individual managers to effectively oversee and coordinate
activities beyond a given limit partly justify the need for departmentalization.

Departmentalization is not an end in it self but is simply a method of arranging activities to

facilitate the accomplishment of objectives.

Bases for Departmentalization

Since organizations are different in their activities, objectives and areas in which they operate,
there are different bases for departmentalization. The most common bases are function, territory,
product, customer, and process

I. Departmentalization by Function

It is the grouping together of activities in accordance with the functions of an enterprise - on the
basis of similarity of expertise, skills or work activities. In other words, jobs that call for certain
skills or the use of similar working methods will be put together. It is probably the most common
base for departmentalization and is present in almost every enterprise at some level in the
organization structure. It asks the question “what does the enterprise/organization do” what kind
of activities.

E.g. Human resources, production, marketing, finance, etc.

It is the responsibility of top management to identify the activities needed for the attainment of
organizational goals and then groups these activities into distinctive units, each one dealing with
functionally similar activities and then assign them to people who can perform them efficiently
and effectively.

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Advantages:

1. It is a logical reflection of functions.

2. It maintains power and prestige of major functions of the organizations. Assigns
responsibility of each function to the head of that function by providing individual status
and prestige to major functional areas.
3. It follows principle of occupational specialization, thereby promoting efficiency in the
utilization of people. Simplifies to fill vacant positions.
4. It simplifies training. Train functional specialists by indicating special abilities required.
5. Provides unity of command for closely related activities.
6. Managers have an easier time coordinating and planning because all the jobs that report
to them are similar in content.
7. Promotes specialization and operational efficiency. Because closely related activities and
employees are grouped together, functional departmentation permits effective
economies of scale.

Disadvantages

1. De-emphasis of overall company objectives - narrow minuends may develop.

Identification with the department and its objective is often stronger than identification
with the organization and its objectives.
2. Over specializes and narrow viewpoints of key personnel.
3. Reduce coordination and communication between (among) functions.
4. Decisions are concentrated at the top management, creating delay.
5. Limits development of general managers.

II. Departmentalization by Territory/ Geography

 Groups activities on the basis of geographic region or territory.

 Is common in enterprises that operate over wide geographic areas i.e. it is attractive to
large-scale firms or other enterprises whose activities are physically or geographically
dispersed. The logic is that all activities in a particular area or region should be assigned
to a manager. This individual would be in charge of all operations in that geographic
area.

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  Can be used by business, government, NGOs, or other enterprises.

Geographic departmentalization works best when different laws, currencies, languages and
traditions exist and have a direct impact on the ways in which business activities must be
conducted.

Advantages

1. Places emphasis on local markets and problems; better face to face communication with
local interests or allows the company to address needs or characteristics of consumers
that are particular to that area.
2. Encourages local participation in decision-making
3. Improves coordination of activities in a region
4. Takes advantage of economies of local operations
5. Furnishes measurable training ground for general managers. Managers are responsible for
the activities in that geographic area. Decision concerning that region will be made of
that level and not forwarded up the chain of command.
6. Encourages decentralized decision-making.

Disadvantages

1. Requires more persons with general manager abilities

2. Duplicates staffs, services, or effort.
3. Tends to make maintenance of economical central services difficult and may require
services such as personnel or purchasing at the regional level
4. Increases problem of top management control

III. Departmentalization by Product (Line)

It is the grouping and arrangement of activities around products or product groups.

Departmentalization by product should be considered when attention, energy and efforts need to
be focused on an organization’s particular products. This can be true if each product requires a
unique strategy or product process or distribution system or capital sources.

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  This approach works well for an enterprise which engaged in very different types of
products.

E.g. Textile products - Nylon products, woolen products, silk products,

cotton products

Petroleum refining - kerosene, diesel,

Electronics - Radios, TVs, Computers

Advantages

1. Places attention and effort on product line

2. Facilitates use of specialized skill, capital facilities and knowledge
3. Permits growth and diversity of products and services
4. Places responsibility for profits at the division level
5. Furnishes measurable training ground for general managers

Disadvantages

1. Requires more persons with general manager abilities

2. Tends to make maintenance of economical central services difficult - duplication of
business functions within each product line. Each needs marketing, personnel, finance,
and production operations, which may be so specialized they are unable to serve more
than one product line or division.
3. Presents increased problem of top management control

IV. Departmentalization by Customer

It is a grouping of activities around customers. This grouping reflects a primary interest in

customers. Customers are the key to the way activities are grouped when each of the different
things an enterprise does for them is managed by one department head. This makes economic
sense when the customers are distinct enough in their demands, preferences, and needs. It helps
organizations meet the special and widely varying needs of customers. It can be used in medical
institutions such as hospitals and clinics - emergency services, out patient services, inpatient
services, x-rays; retail stores- men's clothing, women's clothing, children's clothing.
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Advantages

1. Encourages concentration on customer needs

2. Gives customers the feeling that they have an understanding supplier
3. Develops expertness in customer area

Disadvantages

1. May be difficult to coordinate operation between competing customer demands

2. Requires managers and experts in customers’ problems
3. Customer groups may not always be clearly defined
4. The possibility of underemployment of facilities and labor specialized workers in
customer groups

V. Departmentalization by Process

Manufacturing firms often group activities around a process or type of equipment. This is when
special skill is needed to operate different machines. Making plywood, for example, involves
several sequential processes: poling (removing bark from logs); sawing logs in to 8’ lengths,
heating; veneer stripping and stamping veneer sheets in to 4' segments; drying and grading
according to quality; gluing plies together; finishing and bundling.

Advantages

1. Achieves economic advantage

2. Uses specialized technology
3. Simplifies training

Disadvantages

1. Coordination of departments is difficult

2. Responsibility for profit is at the top
3. Is unsuitable for developing general mangers

VI. Departmentalization on Combined Base

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It is a base in which multiple bases are used at different organizational levels of a particular
organization.

Delegation of Authority

Authority - is the right to commit resources (that is, to make decisions that commit an
organization’s resources), or the legal (legitimate) right to give orders (to tell someone to do or
not to do something)

- is the right to make decisions, carry out actions, and direct others in matters related to the duties
and goals of a position

-is the formal right of a superior to command and compel his subordinates to perform a certain
act. All managers in an organization have authority. It provides the means of command.

Generally, level of authority varies with levels of management. Higher-level managers have
greater authority, with ultimate power resting at the top. Authority decreases all the way to the
bottom of the chart, where positions have little or none. Authority is vested in a manager
because of the position he/she occupies in the organization, that is why we say, “authority comes
with the territory.”

When an organization gives one of its member’s authority, or the legitimate right to use power
over others, it carries with it the burden of responsibility. Responsibility means being held
accountable for attainment of the organization’s goal. Authority is derived from the person’s
official position in the organization. The person who occupies the position has its formal
authority as long as he/she remains in the position. As the job changes in scope and complexity,
so should the amount and kind of formal authority possessed. Even though a manager has formal
or legitimate authority, it is wise to remember that the willingness of employees to accept the
legitimate authority is a key to effective management. Chester Bernard called this Acceptance
Theory of Authority.

Delegation of Authority - is the downward pushing of authority from superiors to subordinates

to make decision within their area of responsibilities. It is the process of allocating tasks to
subordinates, giving them adequate authority to carry out those assignments, and making them
obligated to complete the tasks satisfactory. Delegation is a concept describing the passing of

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formal authority to another person. It is the assignment of part of a manager’s work to others,
along with both the responsibility and authority necessary to achieve expected results.

Delegation is necessary for an organization to exist. Just no one person in an enterprise can do all
the tasks necessary for accomplishing a group purpose, so is it impossible, as an enterprise
grows, for one person exercise all the authority for making decisions.

In delegating authority a manager doesn’t surrender his power because he does not permanently
dispose of it; delegated authority can always be regained. This is called recovery of delegated
authority. Reorganization inevitably involves some recovery and re-delegation of authority. In
a shuffle in an organization, rights are recovered by the responsive head of the firm or a
department and then re-delegated to managers of new or modified departments.

The Process of Delegation

Delegation of authority has the following steps:

1. Assignment of tasks

Specific tasks or duties that are to be undertaken are identified by the manager for assignment to
the subordinate. The subordinate is then approached with the assignment (task).

2. Delegation of authority

In order for the subordinate to complete the duties or tasks, the authority necessary to do them
should be delegated by the manager to the subordinate. A guideline for authority is that it be
adequate to complete the task - no more and no less.

3. Acceptance of responsibility

Dispensability is the obligation to carryout one’s assigned duties to the best of one’s ability. It is
the obligation created when someone accepts task assignments together with the appropriate
authority. Responsibility is not delegated by a manager to an employee, but the employee
becomes obligated when the assignment is accepted. The employee is the receiver of the
assigned duties and the delegated authority; these confer responsibility as well.

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 4. Creation of accountability

Accountability has to answer to someone for your results or actions. It means taking the
consequences - either credit or blame. It is the requirement to provide satisfactory reasons for
significant deviations from duties or expected results. When the subordinate accepts the
assignment and the authority, s/he will be held accountable or answerable for actions taken. A
manager is accountable for the use of his/her authority and performance. The manager is also
accountable for the performance and actions of subordinates.

The manager should take the time to think through what is being assigned and to confer the
authority necessary to achieve results. The subordinate, in accepting the assignment becomes
obligated (responsible) to perform, knowing that s/he is accountable (answerable) for the results.

Importance of Delegation

1. It relieves the manager from his/her heavy workload: Delegation frees a manager from
some time consuming duties that can be adequately handled by subordinates and lets the
manager devote more time to problems requiring his/her full attention (lets the manager
concentrate on strategic issues). Enables managers to perform higher level work.
2. It leads to better decisions: Since subordinates are closer to real “firing line” activities
and problems than superiors, they have more realistic information and better
understanding. The realistic information that subordinates have may lead them to make
better decisions.
3. It speedup decision-making: Decisions made by lower level managers usually are timelier
than those that go through several layers of management.
4. It helps subordinates to train and builds moral: Subordinate managers can reach their full
potential only if given the chance to make decisions and to assume responsibility for
them.
5. It encourages the development of professional managers: Had there not been any
delegation, professional managers wouldn’t have been produced.

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 6. It helps to create the organization structure: If there were no delegation of authority is an
organization, there would exist only the president/CEO/ top-level manager. And an
individual cannot create an organization.

Factors Determining Delegation

Managers cannot ordinarily be for or against decentralization of authority. They may prefer to
delegate authority, or they may like to make all the decisions. Some factors that affect the
degree of centralization or decentralization- delegation of authority- are:

1. The history and culture of the organization: Whether authority will be decentralized
frequently depends upon the way the business (organization) has been built. Those
enterprises that, in the main, expand from within show a marked tendency to keep
authority centralized. On the other hand, enterprises that result from mergers and
consolidations are likely to show, at least first, a definite tendency to retain
decentralized authority. In other words, organizations which were centralized or
decentralized at their establishment tend to centralize and decentralize authority to
repeat what they have done before. When centralized organization is changed into
decentralization and the vice versa people feel discomfort.

2. The nature of the decision: The costlier and the riskier the decision is, the more
centralized the authority will be. Cost may be reckoned directly in birr and cents or in
such intangibles as the company’s reputation, its competitive position or employee
morale. The fact that the cost of mistake affects the decentralization isn’t necessarily
based on the assumption that top managers make fewer mistakes than subordinates.
They may make fewer mistakes, since they are probably better trained and in possession
of more facts, but the controlling reason is the weight of responsibility. Delegating
authority is not delegating responsibility; therefore, managers typically prefer not to
delegate authority for crucial decisions.

3. Availability and ability of managers (Lower level managers): A real shortage of

managers would limit decentralization of authority, since in order to delegate, superiors
must have quantified managers to whom to give authority. In addition to the availability
of lower level managers, the quality of the existing lower level managers (subordinates)

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 has impact on centralization or decentralization. Hence, the competency to carry out and
exercise the delegated authority has some effects. Some managers lack confidence in
their subordinate or fear the consequences or criticism of having subordinates make bad
decisions.

4. Management philosophy: The willingness of managers to delegate authority and limit the
degree of decentralization or the desire to do the job by herself/himself. The character
and philosophy of top executives have an important influence on the extent to which
authority is decentralized. Sometimes top managers are despotic, tolerating no
interference with the authority they jealously hoard. At other times, top managers keep
authority not merry to gratify a desire for status or power but because they simply
cannot give up the activities and authorities they enjoyed.

5. Size and character of the organization: The larger the organization, the more decisions to
be made, and the more places in which they must be made, the more difficult it is to
coordinate them. These complexities of organization may require policy questions to be
passed up the line and discussed not only with many managers in the chain of command
but also with many managers at each level, since horizontal agreement may be as
necessary as vertical clearance.

Slow decisions - show because of the number of specialists and managers who must be consulted
- are costly. To minimize the cost, authority should be decentralized wherever feasible. Also
important in determining size is the character of a unit. For decentralization to be thoroughly
effective, a unit must possess a certain economic and managerial self-sufficiency.

6. Geographic dispersion of operations: Geographic dispersion of operations makes

decentralization more necessary because top executives frequently find it impossible to
keep abreast of the details of what is going on at various locations. Moreover, managers
on site may be in a better position to assess local situations and make appropriate
decisions

7. Environmental uncertainty: Environmental uncertainty tends to produce a need for more

decentralization. In this case, the fast pace of change interferes with top management’s
ability to assess situations with the speed necessary to make timely decisions.

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Problems in Effective Delegation

Despite of the advantages, many managers are reluctant to delegate authority and many
subordinates are reluctant to accept it. Both these barriers hinder effective delegation.

Reluctance to delegate/Problems from Managers

There are a number of reasons that managers commonly offer to explain why they do not
delegate. Some are:

1. Fear of loss of power - Some managers fear when they delegate authority because they
expect that they will be substituted/replaced by their subordinates if subordinates have
got the experience and skill of decision-making.

2. “I can do it better myself” fallacy: Some managers have an inflated worth of themselves
and think that they do everything better than their subordinates.

3. Lack of confidence in subordinates: The perception of managers that my subordinates just

are not capable enough. When managers delegate authority to their subordinates they do
also delegate responsibility. That is, managers are accountable for the actions of their
subordinates and may fear the blame if subordinates fail, if subordinates lack knowledge
and skill.

4. Fear of being exposed: Some managers fear that their subordinates do too good job as
compared with themselves i.e. feel threatened that competent subordinates may perform
too well and possibly make the manager look poor by comparison.

5. Difficulty in briefing: Many times managers are reluctant to delegate authority if they
conclude that the time for briefing is more than the time for decision-making or if they
believe they lack the time to train subordinates. “It takes too much time to explain what
I want done”.

Reluctance to Accept Delegation/problems from subordinates

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 1. Fear of failure and criticism: Subordinates who fear criticism or dissemble for mistake
are frequently reactant to accept delegation. The solution for this problem can be
teaching subordinates when they make mistakes than criticizing or dismissing.

2. Subordinate may believe that the delegation increases the risk of making mistakes but
doesn’t provide adequate rewards for assuming greater responsibility: Lack of
incentive or reward for assuming a greater workload. Accepting delegation frequently
means that they will have to work harder under greater pressure. Without appropriate
compensation subordinates may be unwilling to do so.

3. Lack of adequate information and resources: If subordinate managers think that they
don’t have enough factual information on which to base a decision or other resources
necessary to carry out the assigned duties, they tend to decline/reject accepting authority
delegated.

4. If subordinates are already overworked

5. Lack of self-confidence
6. Believing / Thinking that decision-making is the boss’s job.

Overcoming the barriers in effective delegation

The most basic prerequisite to effective delegation is the willingness of managers to give their
subordinates real freedom to accomplish delegated tasks. Managers have to accept the fact that
there are usually several ways to solve a problem and that subordinates may legitimately choose
a path differently from their own. And, subordinates will make errors in carrying out their tasks.
But they must be allowed to develop their own solutions to problems and learn from their
mistakes. The solution to subordinates mistake is not for the manager to delegate less, but to
train or otherwise support subordinate more.

Improved communication between managers and subordinates will increase mutual

understanding and thus help to make delegation more effective. Managers who know the abilities
of their subordinates can more realistically decide which tasks can be delegated to whom.

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Subordinates who are encouraged to use their abilities and who feel their managers will “back
them up” will in turn be more accepting of responsibility

Centralization and Decentralization

The terms centralization and decentralization refer to a philosophy of organization and

management that focuses on either the selective concentration (centralization) or the dispersal
(decentralization) of authority within an organization structure. Centralization or decentralization
is a relative concept when applied to organizations. They are tendencies of delegation of
authority.

Centralization - is the extent to which power and authority are systematically retained by top
managers.

If an organization is centralized:

- Decision-making power remains at the top

- The participation of lower-level managers in decision-making is very low

Decentralization - is the extent to which power and authority are systematically dispersed /
delegated throughout the organization to middle and lower level managers. It is the tendency to
disperse decision-making authority in an organized structure.

 In a decentralized organization decision-making power is pushed downwards and lower-

level managers actively participate in decision-making process. That is, they are not
only called for implementation but also for decision-making.

Centralization and decentralization are not opposites rather they are tendencies/proportions in
delegation of authority. If they were opposites, there could be absolute centralization or absolute
decentralization, but there is no absolute centralization or absolute decentralization. There could
be absolute centralization of authority in one person. But that implies no subordinate managers
and therefore no structured organization. Some decentralization exists in all organization, on the
other hand, there cannot be absolute decentralization, for if managers should delegate all their
authority, their status as mangers would cease, their position would be eliminated, and there

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would, again, be no organization. Centralization and decentralization are tendencies; they are
qualities like “hot” and “cold”.

 Centralization and decentralization form a continuum with many possible degrees of

delegation of power and authority in between.

When decentralization is greater:

 The greater is the number of decisions made at lower level of the organization
 The more functions are affected by decisions made at lower levels
 The less a subordinate has to refer to his/her manager prior to a decision and the less
checking required as decisions are made at the lower level.

Authority Relations in Organization (Line, Staff, Functional)

In an organization different types of authority are created by the relationships between

individuals and between departments. There are three types of authority.

i. Line Authority

Line authority defines the relationship between superior and subordinate. It is a direct
supervisory relationship. It exists in all organizations as an uninterrupted score or series of steps.

In line authority a superior exercises direct command over a subordinate. Line authority is
represented by the standard chain of command that starts with the most superiors and extends
down through the various levels in the hierarchy to the point where basic activities of the
organization are carried out.

ii. Staff Authority - is advisory in nature.

The function of people in a pure staff capacity is to give advice, expertise, technical assistance,
and support to help line managers to work more effectively in accomplishing objectives.
Advisory authority doesn’t provide any basis for direct control over the subordinates or activities
of other departments with whom they consult (Within the staff manager’s own department, s/he
exercises line authority over the department’s subordinates).

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E.g. Personnel, research and development, legal, plant maintenance, compost quality control, etc.

 Staff authority is advisory and normally flows upward.

Line and Staff Departments: line and staff authority are concepts that describe the authority
granted to managers. Line and staff departments have different roles or positions within the
organization structure. Line departments, headed by line managers, are the departments
established to meet the major objectives of the organization. Departments normally designated as
line departments include production, marketing, and finance. In functioning with employees and
departments under their control, line managers exercise line authority.

Staff departments provide assistance to the line departments and to each other. They can be
viewed as making money indirectly for the company through advice, service and assistance.
Staff departments are created on the basis of the special needs of the organization. As an
organization develops, its need for expert, timely, ongoing advice becomes critical. Examples
could be legal, personnel, computer service, etc.

iii. Functional Authority

It is the right which is delegated to an individual or a department to control specified process,

practices, or provinces or other matters relating to activities undertaken by persons in other
departments. If the principle of unity of command were followed without exception, authority
over these activities would be exercised only by their line superiors, but numerous reasons -
including a lack of specialized knowledge, lack of abilities to supervise processes, and danger of
diverse interpretations of policies - explain why they occasionally are not allowed to exercise this
authority. It is delegated by their common superior to a staff specialist or to a manager in
another department.

Functional authority is not restricted to managers of a particular type of department. It may be

exercised by line, derive or staff department heads, more often the latter two, because they are
usually composed of specialists whose knowledge becomes the basis for functional controls.

Example:

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 1. The Finance Manager can give direct command to the marketing manager of the same
level about financial affairs.
2. The Legal Advisor can give direct command to others concerning the legal affairs of the
organization.
3. The Personnel Manager can give direct command to others regarding recruitment,
selection, performance appraisal systems

Benefits of Staff

1. Staff managers provide advice for line managers, i.e. the advice of well-qualified
specialists in various areas of an organization’s operations can scarcely be
overestimated, especially as operations become more complex.
2. These specialists may be allowed to the time to think, to gather data, and analyze, when
their superiors, busy managing operations, cannot do so.

 As problems become more complex, staff analysis and advice becomes an urgent
necessity.

Conflict between Staff and Line Managers

For several reasons there is a conflict between line and staff managers. Some are:

1. Demographic factor: There is a general premise that staff mangers are younger, well
educated, firmly attached to their profession than their organization and want more
money, power and prestige. The older line officers dislike or receiving what they
regarded as instructions from someone so much younger than themselves.
2. Threats to Authority: Line managers consider staff managers as potential threats to their
authority, particularly if staff managers exercise functional authority.
3. Dependence on knowledge: Line managers feel discomfort and get frustrated when they
progressively depend on the advice of staff managers; i.e. they fell that they are less
important to the organization.
4. Staff managers may exceed their authority and attempt to give direct command to the line
managers.
5. Staff managers may attempt to take credit for ideas implemented by line managers;
conversely, line managers may not acknowledge the role of staff managers.

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 6. Staff departments are organizationally placed in a relatively high position to top
management.

Resolving Conflict

The line - staff problem is not only one of the most difficult that organizations face but also the
source of an extra ordinarily large amount of inefficiency, solving this problem requires great
managerial skill, careful attention to principles and patient teaching of personal. Some ways of
resolving the conflict include:

1. Understanding authority relationships: Managers must understand the nature of authority

relationships if they want to solve the problems of line and staff. Line means making
decisions and acting on them. Staff relationship, on the other hand, implies the right to
assist and counsel. In short the line may “tell”, but the staff must “sell” (its
recommendations).
2. Making line listen to staff: Although line-staff friction may stem from ineptness or
overzealousness on the part of staff people, trouble also arises when line executives too
carefully guard their authority and resent the very assistance they need. Line manager
should be encouraged or required to consult with staff. Enterprises would do well to
adopt the practice of compulsory staff assistance where in the line must listen to staff.
3. Keeping staff informed: Common criticisms of staff are that specialists operate in a
vacuum, fail to appreciate the complexity of the line manager’s job, or overlook
important facts in making recommendations. Specialists should take care that their
recommendations deal only with part of a problem. Many critics arise because staff
assistants are not kept informed on matters in their field. Even the best assistant cannot
advise properly in such cases. If line managers fail to inform their staff of decisions
affecting its work or if they don’t pave the way through announcements and requests for
cooperation - for staff to obtain the requisite information on specific problems the staff
cannot function as intended.
4. Requiring completed staff work: Completed staff work implies presentation of a
recommendation based up on full consideration of a problem, clearance with persons
importantly affected, suggestions about avoiding any difficulties involved, and often,
preparation of the paper work - letters, directives, job descriptions, job specifications so

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 that a manager can accept or reject a proposal without further study, long conferences,
or unnecessary work.
5. Clear areas of responsibility and accountability for results.

Span of Management

Meaning: The term span of management is also referred to as a span of control, span of
supervision, span of authority or span of responsibility.

Span of management - refers to the number of subordinates who report

directly to a manger, or the number of subordinates who will be directly
supervised by a manager.

This varies from one situation to another. There is no magical number for the span of control.
There are various factors affecting the span of management. Based on the number of
subordinates who should report to a manager or the number of subordinates that a superior
should supervise, we can have Wide span of management and Narrow span of management.

i. Narrow Span of Management

This means superior controls few numbers of subordinates or few subordinates report to a
superior. When there is narrow span of management in an organization, we get:

 Tall organization structure with many levels of supervision between top management and
the lowest organizational level.
 More communication between superiors and subordinates.
 Managers are underutilized and their subordinates are over controlled.
 More trained managerial personnel and centralized authority.

Advantages

1. Close supervision and control

2. Fast communication between subordinates and superiors.
3. Easy to coordinate and control activities.

Disadvantages

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 1. Superiors tend to get too involved in the subordinates work
2. The problem of setting more trained managerial personnel
3. Excessive distance between lowest level and top level management. This kills intuitive
for top-level positions.
4. High costs due to many levels

ii. Wide Span of Management

This means many subordinates report to a superior or a superior supervises many subordinates.

If the span of management is wide, we get:

 A flat organization structure with fewer management levels between top and lower level
 Many number of subordinates and decentralized authority
 Managers are overstrained and their subordinates receive too little guidance and control
 Fewer hierarchal level

Advantages

1. Superiors are forced to delegate

2. It initiates the development of clear polices

Disadvantages

1. Tendency of overloaded superiors to become decision bottle necks

2. Danger of superior’s loss of control
3. Require exceptional quality of mangers

Span of Control Vs Levels of Management: If one wants to reduce the number of hierarchical
levels in an organization, the only way to do so without reducing the number of employees at the
bottom is to increase spans of control.

Relationship of centralization to span of control

The company’s philosophy of centralization or decentralization in decision-making can influence

the span of control of subordinate managers. A philosophy of decentralized decision-making

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generally means that the span of management should be wider for each manager. This is so
because decision-making is forced down to subordinates, thus feeling up a manager’s time
commitments. This situation also generally means fewer level of management in an organization.

Conversely, a philosophy of centralized decision-making should result in a narrower span of

control and more levels of management. If it is the philosophy of the company to have managers
make the majority of decisions, the mangers will closely supervise their subordinates and
delegate little. Contacts with subordinates should increase in number and in length, thus
narrowing the span of control.

Factors Determining an Effective Span of Management

The principle of span of a management states that there is no any specific number of
subordinates to be supervised by a manager. Rather, it states, there are factors that affect the
span of management. Some are:

1. Ability of the manger: The ability of the manager (supervisor) who is responsible for
supervising subordinates affects the span of a management. If the manager is well
trained and highly capable, receives assistance in performing her/his supervisory
activities, doesn’t have many additional non-supervisory activities to perform, and if
that manager defines tasks and responsibilities to subordinates clearly, the appropriate
span can be relatively broad (wide).
2. Manager’s personality: if managers strongly need to share power, they may prefer a
wider span of control. Some managers develop reputation as empire builders and
attempt to increase their spans.
3. The abilities of subordinates: The amount of training, experience, and ability that
subordinates have is directly related to a manager’s span of control. Knowledgeable
subordinates who work well on their own require less supervision than inexperienced,
poorly trained workers do. Well - trained subordinates require not only less of their
manager’s time but also fewer contracts with them.
4. Motivation and commitment: motivated employees take initiative and responsibility,
utilize and develop their skills committed to their job, devote more time and effort and
needs less of their supervisor’s time.

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5. Need for autonomy: subordinates with high need for autonomy prefer to make decisions
by themselves (wider span) and vise versa is true for those who take every problem to
their superior for decision-making.
6. Type of work: Routines and simplicity of work. Managers supervising people with
simple and repetitive jobs are able to manage more immediate subordinates than are
those who supervise people with complex, non-repetitive tasks.
7. Geographic dispersion of subordinates: Normally, there is an inverse relationship
between a manager’s span of control and the geographic dispersion of his/her
subordinates. For example, a sales manager whose sales people are scattered over a
wide geographic region cannot supervise as many subordinates as a manager can whose
subordinates are in one building. This is especially true when the manger and
subordinates must meet on a regular basis.

8. The availability of information and control systems: If there are sophisticated

information and control systems, well-defined policies and plans, the manager can
supervise many subordinates and hence the span will be wide.
9. Levels of management: The size of the most effective span differs by organizational
level.

 At the top level of management the span is wide, because

 The communication and conceptual skill that top level managers have.
 The nature of their work they deal with: general/broad policy control rather than direct
supervision.
 Their subordinates are relatively skillful.
 At the middle level of management the span is narrow, because they involve in policy
supervision and much more direct, personal contract with subordinates than top-level
managers.
 At the lower level of management the span is wide, because as managers of operating
employees, supervisors frequently supervise work that is not complex and that rarely
requires policy decisions. Instead, they will usually rely on rules and procedures to help
them solve the daily problems that arise.

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7. Economic Factor: Narrow spans of management require not only more supervisors (and their
services) but also the added expense of executive offices, secretaries and fringe benefits.
However, the wide spans of a management require few supervisors with their accessories. So,
organizations should take cost into consideration.

There are two major reasons why the choice of appropriate span is important.

1. Span of management affects the efficient utilization of

managers and the effective performance of their
subordinates. Too wide a span may mean that managers
are overextending themselves and that their subordinates
are receiving too little guidance or control. Too narrow a
span of management may mean that managers are under
utilized.
2. There is a relationship between span of management
throughout the organization and the organization
structure. A narrow span of management results in a "tall"
organizational structure with many supervisory levels
between top management and the lowest level. A wide
span for the same number of employees means fewer
management levels between the top and bottom

The concept of an "optimal" span of management is the one that is neither too broad nor too
narrow. The concept of an optimal span of management suggested that spans could be too broad
or too narrow in specific instances.

The wider the span of management, the less direct supervision there is; the narrower the span, the
greater the number of managers and, therefore, the higher the cost in salaries.

Organizational Structure

Meaning

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  Organization structure is the structural framework for carrying out the functions of
planning, decision-making, controlling, communication, motivation, etc.
 Organization structure is the formal pattern of interactions and coordination designed by
a manager to link the tasks of individuals and groups in achieving organizational goals.
The word “formal” in this content refers to the fact that organization structures typically
are created by management for specific purposes related to achieving organizational
goals, and, hence, are official, or formal outcomes of the organizing function.
 Organization structure is the arrangement and interrelationship of the component parts,
and positions of an organization.

The process of developing an organization structure is sometimes referred to as organization

design.

The formal structure of an organization is of two-dimensional: The horizontal dimension and

vertical dimension.

The horizontal dimension identifies departments, units, and divisions on the same level of a
management. Whereas the vertical dimension refers to the authority relationships between
superiors and subordinates and it also identifies who is responsible and accountable for whom.

One aid to visualizing organization structure is the organization charts.

Organizational Chart

 It is the means through which we depict the organization structure. Organization chart is
a line diagram that depicts the broad outlines of an organization’s structure. It shows the
flow of authority, responsibility, and communication among the various departments
which are located at different levels of the hierarchy. An organization chart is a visual
representation of the way in which an entire organization and each of its components fit
together

Organization charts vary in detail, but they typically show in visual form the various major
positions or departments in the organization, the way the various positions are grouped into
specific units, reporting relationships from lower to higher levels, and official channels for
communicating information.

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Because organization charts facilitate understanding the overall structure of organizations, many
organizations have found them useful. Such charts are particularly helpful in providing a visual
map of the chain of command.

The organization chart can tell us:

 Who reports to whom (chain of command)

 The number of managerial levels
 How many subordinates work for each manager (the span of control)
 Channel of official communication through the solid lines that connect each job (box)
 How the organization is structured-by function, territory, customer, etc.
 The work being done in each job- the labels on the boxes
 The hierarchy of decision making- where a decision maker for a problem is located
 How current the present organization is (if a date is on the chart)
 Type of authority relationships- line authority, staff authority, and functional authority

Example of an organization structure

 In addition, the chart is a trouble-shooting tool. It can help managers locate duplications
and conflicts as a result of awkward arrangements. What the chart does not show are the
degree of authority, the informal communication channels (grapevine), and the informal
relationships.

CHAPTER V

THE STAFFING FUNCTION

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 CHAPTER VI

THE DIRECTING / LEADING FUNCTION

1. MEANING AND THE NEED FOR LEADERSHIP

MEANING:

Leadership can be defined in different ways according to different writers. Some are:

1. Leadership is the process of influencing others toward the achievement of organizational

objectives. This definition recognizes that leadership is typically an on going activity, is oriented
toward having an impact on the behaviors of others, and is ultimately focused on realizing the
specific aims of the organization.

2. Leadership is the process of influencing a group or individual to set a goal or achieve a goal. It
is a process involving the leader, the led (group or individual), and a practical goal or a situation.
It is behavioral in nature and involves personal interaction.

3. Leadership is the art or process of influencing people so that they will strive willingly and
enthusiastically toward the achievement of organizational or group goals.

4. Leadership is the ability to secure desirable actions from a group of followers voluntarily
without the use of coercion or force.

As we can see from the above definitions, leadership has three ingredients: leader, led (follower)
and goal (situation) – organizational Environment.

Leader- the one with the ability/capacity to understand others’ motivation and to inspire them
with the ability to create a climate for motivation.

Follower (led) - the individuals being led or influenced

Environment- the working environment in which the leader interacts with the followers.

Leading is the management function aimed at setting the members of an organization move in
the direction that will achieve its objectives. Directing builds a climate, provides leadership and

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arranges the opportunity for motivation. Leading is not deriving or pushing from behind; it is
placing oneself before the group and facilitating progress and inspires followers to accomplish
organizational (group) objectives.

Leadership versus Management

Management is a broad subject that encompasses activities such as planning, organizing,

staffing, directing, and controlling. Leadership, on the other hand, focuses almost exclusively on
the ‘people’ aspects of getting a job done-inspiring, motivating, directing, and gaining
commitment to organizational activities and goals. Leadership accompanies and complements
the management functions. In short, management influences brain, while leadership encourages
the heart and the spirit.

THE NEED FOR LEADERSHIP

The need for leadership can be explained by the fact that organizations will never be successful
unless they have effective and efficient leaders. The effectiveness and efficiency of leaders is
nothing but to create conducive environment in the organization. Whatever amount of capital
invested and technology an organization has, without effective leadership the organization will
not be successful.
The importance of the directing function in the organization can be presented as follows:

• Directing initiates actions 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 output of individuals by providing ways to fully utilize
the potentials and capabilities of employees.

• Directing facilitates changes by incorporating (adopting) environmental and internal changes

into the organization

• Directing provides stability by balancing the different parts of the organization so that it exists
for a long period and its parts work in a harmonious ways.

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The directing function enables subordinates to contribute their best to attain the goal of the
organization. Thus, managers should try to integrate both organizational and individual
objectives in order to get the work done by subordinates. Managers must be good leaders (by
providing effective leadership) to guide, counsel, and influence subordinates so as to win their
confidence and acceptance.

How leaders influence others?

Why do people accept the influence of a leader? One major reason is that leaders have power.
Power is the capacity to affect the behavior of others, in other words, power is the ability of
individuals or groups to induce or influence the beliefs or actions of other persons or groups. It is
a resource or patronage an individual has at his/her disposal to stage-manage others towards a
wanted behavior. Having power can increase the effectiveness of a manager by enabling the
manager to influence people to what is wanted. Leaders in organizations typically rely on some
or all of five major types of power: legitimate, reward, coercive, expert and referent

1. Legitimate power/position power refers to the power a leader possesses as a result of

occupying a particular position or role in the organization, i.e. it is a power that stems
from a position’s placement in the managerial hierarchy. It corresponds to authority.
Legitimate power exists when a subordinate or the influenced acknowledges that the
influencer has a “right” or is lawfully entitled to influence within certain bounds. It is
related to the position, rather than to the person personality, so it is clearly a function of
the leader's position in the organization and is completely independent of any of the
leader's personal characteristics. Thus, the higher a manager is in the organizational
hierarchy, the greater is the “perceived power” thought by subordinates.

2. Reward Power refers to the leader's capacity to give or withhold rewards for followers.
It is based on the capacity to control and provide valued rewards to others. Rewards that
may be under the control of individual manager include salary increases /pay raises,
bonus, interesting projects, promotion recommendations, a better office, support for
training programs, assignments with high responsibility in the organization, recognition,
positive feedback etc. Purchasing agents, with little position power; might be able to
exercise considerable influence by their ability to expedite or delay a much-needed
spare part. Or University professors have considerable reward power; they can grant or

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 withhold high grades. The greater a managers control over valued rewards, the greater
the manager's reward power and the more power to influence.

3. Coercive Power is a power based on fear. It is the negative side of reward power. Coercive
power is the ability to coerce or punish the influences/followers when they do not engage in
desired behaviors. Forms of coercion or punishment include criticisms, terminations, reprimands,
suspensions, warning letters that go into an individual’s personnel file, negative performance
appraisals, demotions and withheld pay raises; (punishment may range from loss of a minor
privilege to loss of one's job). Coercive power is usually used to maintain a minimum standard
performance or conformity among subordinates. The greater the freedom to punish others, the
greater a manager’s coercive power. And the more coercive power a manager uses, the more
resentment and opposition s/he faces from subordinates.

4. Expert Power refers to power that a leader possesses as a result of his or her knowledge and
expertise regarding the tasks to be performed by subordinates. It is power based on the
possession of expertise, knowledge, skill or information. To the extent that a leader possesses
expertise and information that is needed or desired by others, the leader has expert power.
Physicians, lawyers, and university professors may have considerable influence on others
because they are respected for their special knowledge. A manger who is capable of achieving an
important methodological break through that no other companies dreamed of and a secretary
who knows how to unravel or reveal bureaucratic red tape all have expert power over any one
who needs that information.

5. Referent Power / Charismatic Power is power that results from being admired, personally
identified with or liked by others. When we admire people, want to be like them, or feel
friendship toward them, we more willingly follow their directions and exhibit loyalty toward
them. For example, a Movie Star, a Great Athlete, a Great Football Player, a Musician or a
Military Hero might possess considerable referent power.

 The strength of referent power is directly related to such factors as the amount of prestige
and admiration the influence confers up on the influencer.

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  The more that a leader is able to cultivate the liking, identification, and admiration of
others, the greater the referent power.

 The more power a leader has at his/her disposal, the more likely that s/he will be
successful in influencing followers to do the work assigned to them except coercive
power.

Although all five types of power are potential means of influencing others, in actual usage they
may engender somewhat different levels of subordinate motivation. Subordinates can react to a
leader’s direction with commitment, compliance, or resistance. With commitment, employees
respond enthusiastically and exert a high level of effort toward organizational goals. With
compliance, employees exert at least minimal efforts to complete directives but are likely to
deliver average, rather than stellar, performance. With resistance, employees may appear to
comply but actually do the absolute minimum, possibly even attempting to sabotage the
attainment of organizational goals.
Types of outcome
Source of Basis for Commitment Compliance Resistance
Leader power
influences
Referent Admiration and Likely* Possible Possible
power liking by others.
If request is believed to If request is perceived to If request is something
be important to leader be unimportant to leader that will harm leader
Expert power Possession of Likely* Possible Possible
valued expertise
If request is persuasive If request is persuasive If leader is arrogant and
and subordinates share but subordinates are insulting or subordinates
leader’s task goals apathetic about task goal oppose task goals
Legitimate Hierarchical Possible Likely* Possible
power position and
If request is polite and If request or order is seen If arrogant demands are
authority
very appropriate as legitimate made or request does not
appear proper
Reward power Capacity to Possible Likely* Possible

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 provide valued
If used in a subtle, very If used in a mechanical, If used in a manipulative,
rewards
personal way impersonal way arrogant way
Coercive Ability to punish Very unlikely Possible Likely*
power
If used in a helpful, non If used in a hostile or
punitive way manipulative way

* Indicates most common outcome

Major sources of leader power and likely subordinate reactions

Authority versus Power

Authority Power

1. It is positional – it will be there 1. It is personal-it exists because

when the incumbent leaves. of the person.

2. Narrower – it is one type of power 2. Broader

3. It changes with changes in position. 3. Some types of power do not change

(Expert, referent) but some change

legitimate, reward, coercive.

4. Authority is delegated to an individual 4. Not all power types can be (Expert and
referent).

delegated by superiors.

2. LEADERSHIP THEORIES

A. Trait Theory

Traits are distinctive internal/personal qualities or characteristics of an individual, such as

physical (height, weight, appearance, health, etc), personal (self-confidence, dominance,

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adaptable, extroversion/sociability, originality etc) and mental (intelligence, creativity,
knowledge, technical competence etc). A leader trait is a physical or personality characteristic
that can be used to differentiate leaders from followers.

Trait theory attempts to find traits that make a leader. That is, it is a theory, the old approach,
which focused on identifying the personal traits that differentiated leaders from followers. Trait
theory originated from an ancient theory called “Great Man” theory that assumes that “leaders
are born not made”-a belief dating back to the ancient Greeks and Romans.

The idea in trait theory was to see whether certain traits would predict the individuals who would
emerge (be identified by members of the group) as leaders.

In searching for measurable leadership traits, researchers took two approaches:

1. They attempted to compare the traits of those who emerged as leaders with the traits of
those who did not.
2. They attempted to compare the traits of effective leaders with those of ineffective leaders.

Studies that were conducted on the first category have failed to distinguish/uncover any traits
that clearly and consistently distinguish leaders from followers. Leaders as a group have been
found to be somewhat taller, brighter, more extroverted, persistent and more self-confident than
non-leaders. However, millions of people have these traits, but most of them obviously will
never attain a leadership position. In addition, many established leaders did not and do not have
these traits. (Napoleon, for example, was quite short, and Lincoln was moody and introverted.)
Interestingly enough, studies have also found that people who are too intelligent compared with
other group members do not emerge as leaders-perhaps because they are too different or too far
removed from the group.

Studies that were conducted on the second category have generally failed to isolate traits that are
strongly associated with successful leadership.

Generally, the efforts to identify universal leadership traits ran into difficulties for the following
reasons:

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 1. Not all leaders possess all the traits and many non-leaders may possess most of the traits.
2. It gives no guidance as to the magnitude of each trait for a person to be a leader.
3. No agreement has been reached as to what their relationships are to the actual instances
of leadership.
4. Traits tend to be a chicken-and-egg proposition i.e. Successful leaders may display traits
such as good vocabulary, education and self-confidence after they have assumed
leadership positions.

B. Behavioral Theories

When it became evident that effective leaders did not seem to have any distinguishing traits or
characteristics, researchers tried to isolate the behaviors that made leaders effective. In other
words, rather than try to figure out what effective leaders were, researchers tried to determine
what effective leaders did, how they delegated tasks, how they communicated with and tried to
motivate their subordinates, how they carried out their tasks, and so no. This tries to answer the
questions “What do effective leaders do? What ineffective leaders don't do? How do subordinate
react emotionally and behaviorally (performance) to what the leader does?"

Two major dimensions of leader behavior emerged from this body of research; one deals with
how leaders get the job done and the other deals with how leaders treat and interact with their
subordinates.

i. The University of Michigan Studies

Through interviewing leaders and followers, researchers at the University of Michigan identified
two distinct styles of leadership, referred to as .job-centered and employee - centered.

The job-centered leader practices close supervision on the subordinates’ performance. This
leader relies on coercion, reward, and legitimate power to influence the behavior and
performance of followers.

The employee-centered leader believes in delegating authority and supporting followers in

satisfying their needs by creating a supportive work environment. The employee centered leader
is concerned with followers', their personal advancement, growth and achievement.

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ii. The Ohio State Studies

These studies isolated two leadership factors, referred to as initiating structure and
consideration.

Initiating structure involves behavior in which the leader organizes and defines the relationship
in the group, tends to establish well-defined patterns and channels of communication, and spells
out ways of getting the job done.

Consideration involves behavior indicating sensitiveness to subordinates, respect their ideas and
feelings, establishes mutual trust and friendship between the leader and the followers.

In short, the behavioral theory attempted to identify effective leader behaviors that would work
in every situation. But researchers found that leader behaviors that worked best in one situation
were not often as effective in other situations.

C. The Contingency /Situational Leadership Theory

Situational leadership theory grows out of an attempt to explain the inconsistent findings about
traits and styles /behaviors. Situational theory proposes that the effectiveness of a particular style
of leader behavior depends on the situation. As situations change, different styles become
appropriate. This directly changes the idea of one best style of leadership. In other words, the
contingency/situational theory holds that appropriate leader traits or behaviors are contingent or
dependent on relevant situational characteristics. More specifically, the contingency leadership
theory states that, leadership is the result of the interaction of:

a. Leaders: behavior and competence

b. Followers: behavior and competence
c. Situations: situational variables such as job characteristics, organizational policies,
leaders member relations (the extent to which a leader has the support of group
members), position power (the amount of power that the organization gives the leader to
accomplish necessary tasks).

Theory X and Theory Y Assumptions about People

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A manager’s philosophy about work and the people who perform the work will influence his/her
approach to leadership. Douglas McGregor has hypothesized two sets of assumptions about
people that serve as a philosophical base for leadership action. These are Theory X and Theory Y
Assumptions.

Theory X – pessimistic and negative

A manager basing an operating philosophy on Theory X would impose a directive leadership

style on the individual or work group s/he is supervising. Coercion, negative motivation, and
refusal to allow employee participate in decision-making would probably be the actions of the
manager.

Why? Because the manager assumes:

 The average human being has an inherent dislike of work and will avoid it if s/he can-
workers are lazy.
 Because of this dislike, most people must be coerced, controlled, directed, and threatened
with punishment to get them to put forth adequate effort toward the achievement of
organizational objectives.
 The average human being prefers to be directed, wishes to avoid responsibility, has
relatively little ambition and wants security above all.

McGregor’s Theory X view of human nature holds that the dislike of work is so great that even
the promise of rewards will not overcome it. “People will accept the rewards and demand
continually higher ones, but these alone will not produce the necessary effort. Only the threat of
punishment will do the trick.

Theory Y- adopts a developmental approach/ modern + positive set of assumptions

A manager with Theory Y assumption will prepare him/herself to work with people as
individuals, to involve people in the process of decision-making, to openly encourage people to
seek responsibility and to work with people achieve their goals.

Why? Because the manager assumes:

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  The average human being does not inherently dislike work; the physical and mental effort
involved is as natural as play or rest.
 External control and threat of punishment are not the only means for bringing about effort
toward organizational objectives. A person will exercise self-direction and self control
in the service of objectives to which s/he is committed.
 People generally become committed to organizational objectives if they are rewarded for
doing so.
 The average human being learns, under proper conditions, not only to accept, but also
they seek responsibility.
 Many people have a relatively high degree of imagination, ingenuity, and creativity in the
solution of organizational problems.
 The average person’s intellectual potential is only partially utilized under the conditions
of modern industrial life.

The assumptions in Theory Y have remarkably different implications for managers than do those
of Theory X. Instead of blaming poor performance on basic human nature, Theory Y places
squarely on management the responsibility for tapping the reservoir of creativity, hard work, and
imagination. The worker’s performance is limited only by management’s ability to use human
resources effectively. Theory Y also has implications for decision-making. Because it recognizes
worker’s intellectual potential, this philosophy suggests that organizational goals are best
achieved if workers have voice in decisions. Participatory decisions making is especially
important as it relates to a person’s job. In addition, Theory Y vie of human nature implies that a
manager’s role is not to manipulate workers; rather, it is to create an atmosphere in which
workers can use their commitment and involvement to satisfy their personal needs as well as
those of the organization.

3. LEADERSHIP STYLES

The focus on finding leadership style (behavior patterns of leaders) is on the relationship
between leaders’ action and the reaction of subordinates emotionally and behaviorally. A
manager’s leadership style is composed of three parts:

i. How the manager chooses to motivate subordinates

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Motivation approach

Positive Negative

Responsibility Threats

Recognition Coercion

Praise Fines

Security Suspensions

Monetary Rewards Termination

ii. His/her decision-making style: the degree of decision-making authority the manager grants to
subordinates.

iii. His/her areas of emphasis (orientation) in the work environment: Task orientation, employee
orientation

Based on the above points there are three types of leadership styles: Autocratic, Democratic, and
Laissez-faire.

1. Authoritarian/Autocratic Leadership Style

It is closely associated with the classical approach to management. The manager who follows
this style is dogmatic and leads by the ability to withhold or give rewards and punishment, i.e.
motivation is through incentives and fear. In this style, decision-making is solely by the manager,
in other words, the leader retains all authority and responsibility. In the extreme case, the
manager makes the decision and announces it to the work group. There is no opportunity for
input into the decision-making process by the subordinates and communication is primarily
downward. Variations of this approach find the manager making the decision and then “Selling”
it to employees or making the decision and allowing the group the opportunity to ask questions.
The autocratic leader is task-oriented and places little value on showing consideration to
subordinations as a leadership technique. The Autocratic manager uses Theory X assumption as
his philosophical base for leadership.

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There are situations where managers are compelled/ forced to use this leadership style. Some are:

a. When there is a need to influence subordinates in favor of organizational objectives

which has an effect on individuals.
b. When subordinates are new, they need to be directed.
c. When the situation calls for unilateral decision-making – perhaps there is no enough time
for quality input from subordinates or the subordinates may lack information.

Limitations

 Employees’/subordinates’ ideas will not be used to solve organizational problems,

which in some cases subordinates may have better ideas than the superior about
a particular problem.
 Subordinates would be de motivated, i.e. It may suppress individual initiative
 Poor implementation of decisions

2. Democratic/Participative Leadership Style

In this leadership style, the manager involves subordinates in making organizational decisions,
shares problems with them and shares authority to reach a decision. Subordinates take part in the
decision-making process through consultation. The leader delegates a great deal of authority
while retaining ultimate responsibility. Active two-way communication (upward and downward)
exists. The democrat leader uses Theory Y assumption as his/her philosophical base for
leadership.

Limitations

1. Subordinates may be too involved to influence the manager even when there is no need.
2. The manager may not be able to influence the subordinates to the extent needed.

However, the major advantage of this leadership style is that, it enhances personal commitment
through participation.

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The advantages of democratic leadership style are the disadvantages of the autocratic leadership
style after we make them opposite.

3. Laissez-Faire/Free-Rein Leadership Style

In this leadership style, leaders generally give the group complete freedom, provide the
necessary materials, participate only to answer questions, and avoid decision-making whenever
possible. The leader either sets limits and the followers work out their own problems, or the
individuals set their own goals. In this style, leaders depend largely on subordinates to set their
own goals and the means of achieving them, 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 external environment, i.e. the leader’s role is to serve as a logistics specialist or
representative of the group to outside groups. The leader denies responsibility and abdicates
authority to the group.

The application of Laissez-Faire style can be found with individuals or groups that the manager
views as being knowledgeable, independent, or motivated. Additionally, if the work group is
composed of high achievers, or is highly research oriented, this style has potential benefits.

Primarily horizontal communication among peers exists.

Limitations

 Group may drift aimlessly in the absence of direction from leader.

 It may make things out of control.

Advantages

 It gives quite freedom for subordinates

 It gives much responsibility and self guidance for subordinates
 It permits self-starters to do things as they see fit without leader

4. Situational Leadership style

The situational leadership style states that for a manager to be democrat, autocratic or laissez-
faire, situations force him/her.

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4. MOTIVATION

The Concept of Motivation

The term motivation derived from the Latin word movere meaning “to move.” In the present
context, motivation represents “those psychological processes that cause arousal, direction, and
persistence of voluntary actions that are goal oriented. Managers need to understand these
psychological processes if they are to successfully guide employees toward accomplishing
organizational objectives.

 Motivation is an internal force that energizes behavior, gives direction to behavior, and
underlies the tendency to persist. This definition of motivation recognizes that in order
to achieve goals, individuals must be sufficiently stimulated and energetic, must have a
clear focus or end in mind, and must be willing and able to commit their energy for a
long enough period of time to realize their aim. Since the leading function of
management involves influencing others to work toward organizational goals,
motivation is an important aspect of that function.

Because motivation is an internal force, we cannot measure the motivation of others directly.
Instead, we typically infer whether or not other individuals are motivated by watching their
behavior. As managers analyze their workforces, they can always see some people who
outperform others of equal skill. A closer look might reveal instances in which a person with
outstanding talents is consistently outperformed by someone having lesser talents. Why? These
latter employees appear willing to exert more effort, to try harder, to accomplish their goals,
often these hard workers are described by their bosses as “motivated employees.” Motivated
individuals work hard, persist and are goal oriented.

Motivators

Motivators are things, which induce an individual to perform. While motivation reflects wants,
motivators are the identified rewards, or incentives that sharpen the derive to satisfy these wants.
They are also the means by which conflicting needs may be reconciled or one need heightened so
that it will be given priority over another. A motivator is something that influences an
individual’s behavior. It makes a difference in what a person will do.

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The Motivation Cycle

The starting point in this cycle is a need or a deficiency or a state of felt deprivation an individual
experiences at a particular time. This deficiency causes tension (physiological or psychological
in balance), which will be modified by one’s culture and personality to cause certain wants
leading /motivating the individual to some kind of goal directed behavior. This leads to
satisfaction and one cycle of motivation will be completed.

The Motivation Process

From this we can understand that deficiency triggers drive for need satisfaction, which causes an
individual to take a certain course of action that will alleviate a need and reduce a drive. The
need for food for example will result in hunger and hunger will drive or motivate the individual
to take action (eating food), which will achieve the goal. This goal attainment will restore the
physiological or psychological balance and reduce or cutoff the drive for food.

Motivation Vs Satisfaction

Motivation refers to the drive and effort to satisfy a want or a goal. Satisfaction refers to the
contentment experienced when a want is satisfied. In other words, motivation implies a drive
toward an outcome, and satisfaction is the outcome already experienced.

Motivation Results

Motivation and Performance

All too often, motivation and performance are assumed to be one and the same. This faulty
assumption can lead to poor managerial decisions. The following formula for performance helps
put motivation into proper perspective:

Performance = Ability x Motivation x Environmental conditions

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Thus, we see motivation is a necessary but insufficient contributor to job performance. The
multiplication sign is used to emphasize how a weakness in one factor can negate the other. The
above relationship between performance and motivation clearly shows us that managers should
hire individuals who have the ability to do what is required. After that, the management
challenge is providing environmental conditions that nurture and support individual motivation
to work toward organizational goals. Keeping other variables constant, motivation and
performance have neither positive nor negative relationship. As motivation increases, job
performance increases, reaches its maximum and the decreases.

Optimal/maximum

* After the optimal point further motivation brings about anxiety, tenseness,
fretfulness, and the anxiety eventually decreases performance.

Theories of Motivation

A.Carrot and Stick Approach

This metaphor relates the use of rewards and penalties in order to induce desired human
behavior. It comes from the old story that to make a donkey move one must put a carrot in front
of it and if it does not move beat it with stick from behind.

Despite all the researches and theories of motivation that have come to the fore in recent years,
reward and punishment are still recognized/considered by strong motivators. For centuries,
however, they were too often thought of as the only forces that could motivate people.

Carrot - money in the form of pay or bonuses.

Stick – fear such as fear of loss of job, loss of income, reduction of bonuses demotion or some
other penalty.

Failures of carrot and stick approach

1. Carrot can be obtained by any member of the organization without differentiation in

performance – through such practices as salary increases and promotion by seniority, automatic
“merit” increases, and executive bonuses not based on individual manager performance. It is as

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simple as this: If a person put a donkey in a pen full of carrots and then stood outside with a
carrot, would the donkey be encouraged to come out of the pen?

2. Stick in the form of fear is not the best kind of motivating factor. It often gives rise to
defensive or refectory behavior, such as union organization, poor quality work, executive
indifference, failure of a manager to take any risk in decision-making, or even dishonesty.

B.Money as a Motivator

Even if under the carrot and stick approach money as a sole motivator has been criticized, it is
used as a motivator (motivating factor) but not the only one. Money can be used as a motivator
under the following conditions.

 For people who have low-level standards of living and who badly need it for their life.
 When the amount is so significant that the organization uses it for competitive purposes.
 When the payment is so differentiated that even at equal position discriminatory payment
is made for people with different levels of performance.

C.Maslow’s Need Hierarchy

One of the most widely mentioned theories of motivation is the hierarchy of needs theory put
forth by psychologist Abraham Maslow. Maslow proposed that motivation is a function of
needs, and he also proposed that human needs are arranged hierarchically (in a form of
hierarchy). The hierarchy of needs is based on four premises:

1. Only an unsatisfied need can influence behavior; a satisfied need is not a motivator. What
motivates a person is what s/he does not have but not what s/he has.

2. A person’s needs are arranged in a priority order of importance. Thus, the priorities
(hierarchy) go from the most basic needs to the most complex.

3. As the person’s needs are met on one level, the person advances to the next level of needs.
S/he will focus on the first level need until it is minimally satisfied before moving to the next
level.

4. If satisfaction is not maintained for a once-satisfied need, it will become a priority need again.

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Based on the above premises, Maslow proposed that human needs form a five-level hierarchy.

1. Physiological Needs

These are the basic needs for sustaining human life itself, such as food, water, air, shelter, sleep,
etc. Maslow took the position that until these needs are satisfied to the degree necessary to
maintain life, other needs will not motivate people. In other words, As Maslow points out, a
person lacking food, love and esteem wants food more than he/she wants acceptance or prestige.
These other needs would be unimportant. In the working environment, management tries to
satisfy these needs primarily through salary and by eliminating threats to physical safety.

2. Safety /Security Needs

When physiological needs are satisfied, safety needs become a priority as a motivator. Safety
needs include freedom from fear and anxiety, job security, desires for retirement and insurance
programs and so on. As with physiological needs, management attempts to satisfy safety needs
primarily through salary.

3. Social/ Love/ Affiliation Needs

Once we feel reasonably safe and secure, we turn our attention to relationships with others in
order to fulfill our belongingness needs, which involve the desire to affiliate with and be
accepted by others i.e. the need for friendship, companionship, and a place in a group. Love
needs include both giving and receiving. These needs are met by frequent interaction with fellow
workers and acceptance by others.

4. Esteem Needs

Esteem needs include the desire for both self-esteem (self respect) and public esteem, and
recognition by others. These needs take two different forms. First, we have a need for
competency, confidence and independence. We also want the prestige, status, recognition and
appreciation that others bestow on us. Satisfying esteem needs produces self-worth-pride, self-

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confidence, and true sense of importance; not satisfying them produces feelings of inability and
inadequacy- feeling of inferiority, weakness and helplessness. Esteem needs can be met in an
organization through recognition by peers and superiors of the person’s work, by acquiring
organizational titles and by the accomplishment of work projects.

5. Self-Actualization/Realization Needs

Refers to the need for fulfillment, the desire to become what one is capable of becoming-to
maximize one’s potential and to accomplish something. For the athlete, it may be breaking a
world’s record; for the research scientist, it may be finding a cure for HIV/AIDS; and for the
physical therapist, it may be the satisfaction of helping a child walk or laugh for the first time. In
other words, these needs differ greatly from person to person.

Maslow’s theory suggested that people must satisfy lower-level (physiological needs) before
working toward higher-level needs. Only when physiological, security, and social needs have
been more or less satisfied do people seek esteem. This theory also suggests that if a lower-level
need is suddenly reactivated, the individual will try to satisfy that need rather than higher-level
needs.

Maslow’s hierarchy, although intuitively appealing and frequently used in management training,
has not found widespread support from management researchers. Beyond the first two basic
needs, people vary in their need emphasis. Some may seek social-need satisfaction, while others
may emphasize esteem needs or self-actualization needs. Thus, each individual may respond
differently to organizational characteristics. Moreover, the steps in Maslow’s hierarchy may not
be necessarily experienced in a sequential manner. People may have more than one need at the
same time. Situations detect which needs are most important at a given point in time.

D.Herzberg’s Two Factor Theory

Herzberg developed a theory known as the two-factor theory of motivation. The initial
framework for the two-factor was derived from interviews with accountants and engineers using
what is known as the critical-incident method. The accountants and engineers were asked to
provide interviewers with examples of time they felt exceptionally good or exceptionally bad
about their jobs or job related issues that made them feel good or bad.

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According to the analysis, although an unpleasant work environment might be a reason given for
job dissatisfaction, a pleasant work environment is rarely cited as a reason for job satisfaction.
This suggested that job satisfaction and job dissatisfaction are not simple opposites.
Traditionally, managers viewed job satisfaction and job dissatisfaction as opposite ends. In
contrast, Herzberg's findings suggested the opposite of satisfaction is not dissatisfaction, but
rather ‘no satisfaction’. Herzberg believed that two entirely separate sets of factors contribute to
an employee’s behavior at work.

Herzberg labeled the factors that produced job satisfaction as motivators. His analysis
indicated these factors are directly related to job content. The absence of motivational factors
may not result in dissatisfaction, but their presence is likely to motivate employees to excel.
When motivators are absent, workers are neutral toward work, but when motivators are
present, workers are highly motivated and satisfied. Herzberg labeled the factors that led to job
dissatisfaction as hygienes and found they are related more to the work setting, or job context,
than to job content. These factors do not necessarily motivate employees to excel, but their
absence may be a potential source of dissatisfaction, low morale, and high turnover. When
hygiene factors are poor, work is dissatisfying. However, good hygiene factors simply remove
the dissatisfaction; they do not by themselves cause people to become highly satisfied and
motivated in their work.

Herzberg's Motivators and Hygiene's

Motivators Leading to Job Hygienes Leading to
satisfaction Dissatisfaction
• Achievement • Policies and administration
• Recognition • Supervision
• Work it self • Relations with peers
• Responsibility • Working Condition
• Advancement • Pay
• Personal growth • Job Security

Thus, to the degree that motivators are present in a job, satisfaction will occur, when absent,
motivators do not lead to dissatisfaction. And, to the degree that hygienes are absent from a job,

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dissatisfaction will occur, when present hygienes prevent dissatisfaction but do not lead to
satisfaction.

CHAPTER VII

THE CONTROLLIGN FUNCTION

MEANING

 Controlling is the process through which managers assure that actual activities conform
to planned activities.
 Controlling is the process of regulating organizational activities so that actual
performance conforms to expected organizational standards and goals.
 It is checking current performance against predetermined standards contained in the
plans.

IMPORTANCE OF CONTROLLING

All the good planning efforts and brilliant ideas in the world do little good if a firm has no
system of managing control. Control, therefore, is an essential part of effective organizational
management. Specifically, control helps an organization adapt to changing conditions, limit
magnification of errors and provide the means to monitor performance.

Adapting to changing conditions: in today’s dynamic and unpredictable business environment,

control plays a crucial role than ever. A properly designed control system allows managers to
effectively anticipate, monitor, and respond to often constantly changing conditions.

Limiting the magnification of errors: generally, a small error or mistake does not adversely affect
organizational operation. However, a small error/mistake left uncorrected (perhaps one
undetected as a result of a lack of control) may be magnified with the progress of time,
eventually harming the whole organization.

Another purpose of controlling is to determine whether people and the various parts of an
organization are on target, achieving the progress toward their objectives that they planned to

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achieve. Planning chooses goals and maps out the necessary strategy and tactics. Controlling
attempts to prevent failure (and to promote success) by providing the means to monitor the
performances of individuals, departments, divisions, and the entire organization.

The controlling process is closely associated with the other three functions of management:
planning, organizing and leading. It builds most directly on the planning function by providing
the means for monitoring and making adjustment in performance so that plan can be realized.
Still, controlling also supports the organizing and leading functions by helping ensure those
resources are channeled toward organizational objectives. A combination of well-planned
objectives, strong organization, capable direction and motivation has little probability of success
unless there exists an adequate system of control. Planning, organizing, staffing and directing
must be monitored to maintain their effectiveness and efficiency.

THE CONTROLLING PROCESS

Although control systems must be tailored to specific situations, such systems generally follow
the same basic process. The controlling process has five major steps

1. Determine Areas to Control

The first major step in the control process is determining the major areas to control, i.e. identify
critical control points. Critical control points include all the areas of an organization's operations
that directly affect the success of its key operations, areas where failures can not be tolerated, and
costs in time and money are greatest. Managers must make choices because it is expensive and
virtually impossible to control every aspect of an organization’s activities. In addition,
employees often resent having their every move controlled. Managers usually base their major
controls on the organizational goals and objectives developed during the planning process.

2. Establishing Standards

Standards are units of measurements established by management to serve as benchmarks for

comparing performance levels. They spell out specific criteria for evaluating performance and
related employee behaviors. The exact nature of the standards to be used depends on what is
being monitored.

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Standards, if possible, must be

 Specific and quantitative as much as possible.

 Flexible to adopt the changes that may occur over the future.
 Challenging and should aim for improvement over past performance.

Generally, standards serve three major purposes related to employee behavior. For one thing,
standards enable employees to understand what is expected and how their work will be
evaluated. This helps employees do an effective job. For another, standards provide a basis for
detecting job difficulties related to personal limitations of organization members. Such limitation
can be based on a lack of ability, training, or experience or on any other job-related deficiency
that prevents an individual from performing properly on the job. Timely identification of
deficiencies makes it possible to take corrective action before the difficulties become serious and
possibly irresolvable. Finally, standards help reduce the potential negative effects of goal
incongruence. Goal incongruence is a condition in which there are major incompatibilities
between goals of an organization member and those of the organization. Such incompatibilities
can occur for a variety of reasons, such as lack of support for organizational objectives (e.g. an
employee views the job as temporary and attempts to do the minimum), and often result in
behaviors that are incompatible with reaching organizational goals. One common manifestation
of goal incongruence is employee theft, which includes wasting an organization's resources, as
well as taking equipment, materials and money.

There are three types of standards: performance standards, corollary standards and standards of
conduct.

Performance standards deal with quality, quantity, cost and time.

Corollary standards support a given level of performance. These include minimum personnel
requirements and adequate physical resources, such as when a company knows it will need at
least five hundred workers and well-equipped factory to produce a certain number of terminals.

Standards of conduct are moral and ethical criteria that shape the behavioral climate of the work
place. They originate from law, custom and religious beliefs.

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Examples of standards: Producing 800,000 units per year, increasing market share by 20%,
cutting costs by 15%, answering all customer complaints within 24 hours.

3. Measuring Actual Performance

Once standards are determined, the next step is measuring performance. For a given standard, a
manager must decide both how to1 measure actual performance and how often2 to do so.

4. Comparing Performance against Standards

This is a step where comparison is made between the “what is” and the “what should be.”
Managers often base their comparisons on information provided in reports (oral and written) that
summarize planned versus actual results, and by working around work areas and observing
conditions, a practice sometimes referred to as Management by Wondering Around (MBWA).
The purpose of comparing actual performance against intended performance is, of course, to
determine if corrective action is needed.

Consequently, the comparison result may show that the actual performance exceeds (positive
deviation), meets (zero deviation), or falls below (negative deviation) expectations (standards).
Accordingly, if performance fulfills expectations (meets standards), no control problem exists.
However, if performance exceeds or fails to meet expectations, further investigation is required
to determine the cause. Performance that exceeds expectations may mean either superior talent or
inappropriately set standards. Performance that fails to meet expectation may likely mean
inappropriately set standards, poor talent or improper use of resources. The key question in both
cases will be, “How much variation from standards is acceptable before action is taken?” The
answer to this question will lead to the development of ranges defining upper and lower limits.
And performance outside of acceptable range servers as a red flag calling for taking the
necessary corrective action.

The managerial principle of exception states that control is enhanced by concentrating on

exceptions, or significant deviations from the expected result or standard. Therefore, in

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comparing performance with standards managers need to direct attention to the exception, and by
doing so, managers can save time and effort.

5. Taking Corrective Action (on time)

The corrective action to be taken depends up on the type of deviation that exists. When
performance exactly meets (deviation of zero) or exceeds (positive deviation) the standards set,
usually no corrective action is necessary. However, managers do need to consider recognizing
the positive performance. The type of recognition given can vary from a verbal “well done” for a
routine achievement to more substantial rewards, such as bonuses, training opportunities, or pay
raises, for major achievements or consistently good work. Yet, favorable deviations should be
examined to understand such success. When standards are not meet, managers must carefully
assess the reason why and take corrective action. During this evaluation, managers often
personally check the standards and the related performance measures to determine whether these
are still realistic. Sometimes, managers may conclude that the standards are, in fact,
inappropriate-usually because of changing conditions-and that corrective action to meet
standards is therefore not desirable. More often, though, corrective actions are needed to reach
standards. The standards may have been based on historical data which may be inappropriate to
current conditions. In such instances, the past is a poor basis on which to predict the future.
Similarly, the use of comparative standards may prove to be problematic since no two
organizations are alike.

In taking corrective actions, managers must carefully avoid two types of errors: taking corrective
action when no action is warranted and failing to take corrective action when it is clearly needed

TYPES OF CONTROLLING

In addition to determining the areas they want to control, managers need to consider the types of
controls that they wish to use. Based on the time period in which control is applied in relation to
the operation being performed, or the stage of productive cycle in which controlling is carried
out, there are three basic types of controls: preventive, concurrent, and feedback. Thus, an
organization’s performance can be monitored and controlled at three points: before, during, or
after an activity is completed.

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1. Preventive/Steering/ Preliminary / Input Control

Preventive control focuses on the regulation of inputs to ensure that they meet the standards
necessary for the transformation process. It attempts to monitor the quality and/or quantity of
resources (financial, physical, human and information) before they become part of the system.
Preventive control is future oriented and takes place before the operation begins. It focuses on
prevention in order to preclude later serious difficulties in the production process - its aim is to
prevent problems before they arise. Nevertheless, since preventive control can’t cover every
possible contingency, other type of controls may also be needed.

E.g. Entrance exams for colleges and universities, policies, rules, procedures, proper selection
and training of employees, inspecting raw materials, the implementation of induction and
orientation programs-save trial and error cost, frustration of employee. Preventive control comes
from an old saying “A gram of prevention is worth a kg of cure.”

2. Concurrent/Screening/ Yes-No/Checking Control

Concurrent control involves the regulation of ongoing activities that are part of the
transformational process to ensure that they conform to organizational standards. It is designed to
detect and anticipate deviations from standards at various points throughout the processes, i.e.
the controlling is carried out during the actual transformation process. The emphasis here is on
identifying difficulties in the productive process that could result in faulty outputs.

Because concurrent controls involve the monitoring of ongoing activities, they are the only
controls that can cope with contingencies (unexpected events) that cannot be anticipated. When
contingencies arise involving activities in a transformation process, a yes/no decision is required.
That is, decision must be made whether to continue as before or follow an alternative course, or
take corrective action, or stop work altogether. In this way, concurrent controls allow
adjustments to be made while work is being done.

E.g. On the job training, on the spot observation, exams, tests, quizzes

3. Feedback/Post-Action/ Output Control

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As the name indicates post action control focuses on the end results of the process. It is
regulation exercised after the product (goods or services) has been completed in order to ensure
that the final output meets organizational goals and standards. The information derived is not
used for corrective action on a project because it has been completed.

The feedback control provides information for a manager to examine and apply to future
activities that are similar to the present one. That is why it is called “historical results guide
future actions.” The purpose of feedback control is to help prevent mistakes in the future and
also it can be used as a base for reward; and in cases where other (preliminary & concurrent)
controls are too costly.

E.g. Performance evaluation, financial statement analysis, final exams

Fig 6.2 Major Control Types by Timing

Cybernetic and Non-cybernetic Controls

A basic control process can be either cybernetic or non-cybernetic, depending on the degree to
which human discretion is part of the system. A cybernetic control system is a self-regulating
control system that, once it is put into operation, can automatically monitor the situation and take
corrective action when necessary. E.g. computerized inventory system, a heating system
controlled by a thermostat

A non-cybernetic control system is a control system that relies on human discretion as a basic
part of its process.

CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM

Controls may have many different characteristics, but some of the most important are:

Future–Oriented

To be effective, control systems need to help regulate future events, rather than fix blame for past
events. A well designed control system focuses on letting managers know how work is
progressing toward unit objectives, pinpointing unforeseen opportunities that might be developed
– all aids to future action

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Multidimensional

In most cases, control systems need to be multidimensional in order to capture the major relevant
performance factors, such as, quality, quantity, overhead, etc.

Economically Realistic/ Cost Effective

The cost of implementing a control system should be less, or at most, equal to the benefits
derived from the control system. The benefits received from controls should off-set their
expenses.

Accurate

Since control systems provide the basis for future actions, accuracy is vital. Control data that are
inaccurate may be worse than no control at all, since managers may make poor decisions on the
basis of faulty data they believe to be accurate. An inaccurate data from a control system can
cause the organization to take action that will either fail to correct a problem or create a problem
when none existent. Evaluating the accuracy of the information they receive is one of the most
important control tasks that managers face.

Acceptable to Organization Members

Control systems operate best when they are accepted by the organization members who are
affected by them. Otherwise, members may take actions to override and undermine controls; i.e.
controls will not work unless people want them to. Too many, arbitrary, too few and too rigid
controls often cause the satisfaction and motivation of employees to decline.

Timely

Control systems are designed to provide data on the state of a given production cycle or process
as of a specific time. In order for managers and employees to respond promptly to irregularities,
control systems must provide relevant information soon enough to allow corrective action before
there are serious repercussions or consequences.

Reliability and Validity

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Controls not only must be dependable (reliable), but also must measure what they intend to
measure (must be valid). When controls can’t be relied on and are invalid, they are unlikely to be
trusted and can lead to very bad consequences.

Monitor able

Another desirable characteristic of control system is that they can be monitored to ensure that
they are performing as expected. One way of checking a control system is to deliberately insert
an imperfection, such as a defective part, and then observe how long it takes the system to detect
and report it to the correct individual.

Organizationally Realistic

The control system has to be compatible with organizational realities. All standards for
performance must be realistic. Status differences between individuals have to be recognized.
Individuals have to be able to see a relationship between performance levels they are asked to
achieve and rewards that will follow.

Flexible

Just as organizations must be flexible to respond rapidly to changing environments, control

systems need to be flexible enough to meet new or revised requirements. Accordingly, they
should be designed so that they can be changed quickly to measure and report new information
and track new endeavors.

Focus on Critical Control Points

Critical control points include all the areas of an organization’s operations that directly affect the
success of its key operations. The focus should be on those areas where failures cannot be
tolerated and where that costs in time and money are the greatest.

Easy to Understand

Complexity often means lack of understanding. The simpler the control, the easier it will be to
understand and apply. Controls often become complex because more than one person is
responsible for creating, implementing or interpreting them.

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Emphasis on Exception

A good system of control should work on the exception principle, so that only important
deviations are brought to the attention of management. In other words management does not
have to bother with activities that are running smoothly. This will ensure that managerial
attention is directed towards error and not towards conformity. This would eliminate unnecessary
and uneconomic supervision, marginally beneficial reporting and waste of managerial time.

Over control versus under control

Since excessive amount of control can make the occurrence of dysfunctional aspects of control
systems more likely, managers need to avoid over control. Over control is the limiting of
individual job autonomy to such a point that it seriously inhibits effective job performance. At
the same time, managers need to avoid going too far in the other direction, which results in a
situation of under control. Under control is the granting of autonomy to an employee to such a
point that the organization loses its ability to direct the individual's efforts toward achieving
organizational goals.

Determining the appropriate amount of control that should exist in organizations is a significant
management decision. With the appropriate amount of control, a manager can be reasonably
certain that no major unpleasant surprises will occur and that employees will achieve
organizational goals.

1 .The means of measuring performance will depend on the standards that have been set.

2 .The period of measurement generally depends upon the importance of the goal to the
organization, how quickly the situation is likely to change, and the difficulty and expense of
rectifying a problem if one were to occur.

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