UNIT I

INTRODUCTION TO MANAGEMENT AND ORGANIZATIONS

According to Harold Koontz, ―Management is an art of getting things done through and with the people
in formally organized groups. It is an art of creating an environment in which people can perform and
individuals and can co-operate towards attainment of group goals‖.
IMPORTANCE OF MANAGEMENT
Encourages Initiative Optimum use of resources
Encourages Innovation Reduces wastage
Facilitates growth and expansion Increases efficiency
Improves life of workers Improves relations
Improves corporate image Encourages Team Work
CHARACTERISTICS OF MANAGEMENT
Continuous and never ending process. Situational in nature.
Getting things done through people. Need not be an ownership.
Result oriented science and art. Both an art and science.
Multidisciplinary in nature. Management is all pervasive.
A group and not an individual activity. Management is intangible.
Follows established principles or rules. Uses a professional approach in work.
Aided but not replaced by computers. Dynamic in nature.

Management Vs Administration

Basis Management Administration

Meaning Management is an art of getting things done It is concerned with formulation of broad
through others by directing their efforts towards objectives, plans & policies
achievement of pre-determined goals.
Nature Management is an executing function. Administration is a decision-making
function.
Process Management decides who should as it & how Administration decides what is to be
should he do it. done & when it is to be done
Function Management is a doing function because Administration is a thinking function
managers get work done under their supervision. because plans & policies are determined
under it
Skills Technical and Human skills Conceptual and Human skills
Level Middle & lower level function Top level function
LEVELS OF MANAGEMENT
The Top Management: It consists of board of directors, chief executive or managing director. The top
management is the ultimate source of authority and it manages goals and policies for an enterprise. It
devotes more time on planning and coordinating functions. The role of the top management can be
summarized as follows –
1. Top management lays down the objectives and broad policies of enterprise. It appoints the
executive DM for middle level
2. It issues necessary instructions for preparation of department budgets, procedures, schedules etc.
3. It prepares strategic plans & policies for the enterprise. It controls & coordinates the activities of all
the departments.
4. It is also responsible for maintaining a contact with the outside world. It provides guidance and
direction.
5. The top management is also responsible towards the shareholders for the performance of the
enterprise.

Middle Level Management: The branch managers and departmental managers constitute middle level.
They are responsible to the top management for the functioning of their department. They devote more
time to organizational and directional functions. In small organization, there is only one layer of middle
level of management but in big enterprises, there may be senior and junior middle level management. Their
role can be emphasized as –
1. They execute the plans of the organization in accordance with the policies and directives of the top
management.
2. They participate in employment & training of lower level management. They make plans for the
sub-units of the organizat
3. They interpret and explain policies from top level management to lower level.
4. They are responsible for coordinating the activities within the division or department.
5. It sends important reports, other important data to top level management. They evaluate
performance of junior managers.

Lower Level Management: Lower level is also known as supervisory / operative level of management. It
consists of supervisors, foreman, section officers, superintendent etc. Supervisory management refers to
those executives whose work has to be largely with personal oversight and direction of operative
employees. Their activities include
1. Assigning of jobs and tasks to various workers. They guide and instruct workers for day to day
activities.
2. They are responsible for the quality as well as quantity of production. They supervise & guide the
sub-ordinates.
3. They are also entrusted with the responsibility of maintaining good relation in the organization.
They motivate workers.
4. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher
level and higher level goals and objectives to the workers. They prepare periodical reports about the
performance of the workers.
 5. They help to solve the grievances of the workers. They are responsible for providing training to the
workers.
6. They arrange necessary materials, machines, tools etc for getting the things done.

FUNCTIONS OF MANAGEMENT
Management has been described as a social process involving responsibility for economical and
effective planning & regulation of operation of an enterprise in the fulfillment of given purposes. It is a
dynamic process consisting of various elements and activities. These activities are different from operative
functions like marketing, finance, purchase etc. Rather these activities are common to each and every
manger irrespective of his level or status. Different experts have classified functions of management.
According to George & Jerry, ―There are four fundamental functions of management i.e. planning,
organizing, actuating and controlling‖. According to Henry Fayol, ―To manage is to forecast and plan, to
organize, to command, & to control‖. Whereas Luther Gullick has given a keyword ‗POSDCORB‘ where
P stands for Planning, O for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for
reporting & B for Budgeting. But the most widely accepted are functions of management given by
KOONTZ and O‘DONNEL i.e. Planning, Organizing, Staffing, Directing and Controlling.

1. Planning: It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-determined goals.
According to KOONTZ, ―Planning is deciding in advance – what to do, when to do & how to do. It bridges
the gap from where we are & where we want to be‖. It is all pervasive, it is an intellectual activity and it
also helps in avoiding confusion, uncertainties, risks, wastages etc.

2. Organizing: It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational goals. According to
Henry Fayol, To organize a business is to provide it with everything useful or its functioning i.e. raw
material, tools, capital and personnel‘s. Organizing as a process involves:
Identification of activities, Classification of grouping of activities. Assignment of duties.
Delegation of authority and creation of responsibility. Coordinating authority and responsibility
relationships.

3. Staffing: Staffing has assumed greater importance in the recent years due to advancement of technology,
increase in size of business, complexity of human behavior etc. The main purpose of staffing is to put right
man on right job i.e. square pegs in square holes and round pegs in round holes. Staffing involves:
Manpower Planning (estimating man power in terms of searching, choose the person and giving
the right place).
Recruitment, selection & placement. Training & development. Remuneration. Performance
appraisal. Promotions & transfer.

4. Directing: It is considered life-spark of the enterprise which sets it in motion the action of people
because planning, organizing and staffing are the mere preparations for doing the work. Direction is that
inert-personnel aspect of management which deals directly with influencing, guiding, supervising,
motivating sub-ordinate for the achievement of organizational goals. Supervision overseeing the work of
subordinates by their superiors. It is the act of watching & directing work & workers. Motivation- means
inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative. Monetary.
Leadership- a process by which manager guides and influences the work of subordinates in desired
direction. Communications is the process of passing information, experience, opinion etc from one person
to another. It is a bridge of understanding.

5. Controlling: Controlling is the measurement & correction of performance activities of subordinates in

order to make sure that the enterprise objectives and plans desired to obtain them as being accomplished‖.
Therefore controlling has following steps:
(i) Establishment of standard performance. Measurement of actual performance.
(ii) Comparison of actual performance with the standards and finding out deviation if any.
Corrective action.

ROLES OF MANAGER
Henry Mintzberg identified ten different roles, separated into three categories. The categories he defined
are as follows
a) Interpersonal Roles: Involve people and other ceremonial duties. It can be further classified as follows
• Leader – Responsible for staffing, training, and associated duties.
• Figurehead – The symbolic head of the organization.
• Liaison – Maintains the communication between all contacts and informers that compose the
organizational network.
b) Informational Roles: Related to collecting, receiving, and disseminating information.
• Monitor – Personally seek and receive information, to be able to understand the organization.
• Disseminator – Transmits all import information received from outsiders to the members of the
organization.
• Spokesperson – On the contrary to the above role, here the manager transmits the organization‘s
plans, policies and actions to outsiders.
c) Decisional Roles: Roles that revolve around making choices.
• Entrepreneur – Seeks opportunities. Basically they search for change, respond to it, and exploit it.
• Negotiator – Represents the organization at major negotiations.
• Resource Allocator – Makes or approves all significant decisions related to the allocation of
resources.
• Disturbance Handler – Responsible for corrective action when the organization faces disturbances.

Management as a Science
Management is a systematic body of knowledge consists of principles, generalizations, approaches
and concepts to be applied in practical situation. The manager can manage the situation or
organization in a systematic and scientific manner only if he posses the adequate knowledge of
management and its principles.
The principles generalization and concepts of management have been developed and formulated on
the basis of observation research and analysis and experimentation, as is the case with the
principles of other sciences.
Like other sciences management principles are also based on relationship of cause and effect.
Example if workers are paid more, they will produce more.
 Management knowledge and its principles are codified and a systematized and can be transferred
from one manager to another and can be taught.
Management principles are universally applicable to all types of organizations they are generalized
in nature. Forming general guidelines for managers to practice.
Law of science have universal application example; formula for water or law of gravity is
applicable everywhere same in the case with management. Management process has universal
applicability. Example: high motivation leads to high efficiency in employees.

Management as an Art Art means application of knowledge & skill to get the desired results. An art may
be defined as personalized application of general theoretical principles for achieving best possible results.
Art has the following characters –
Practical Knowledge: Every art requires practical knowledge therefore learning of theory is not
sufficient. It is very important to know practical application of theoretical principles.
Personal Skill: Although theoretical base may be same for every artist, but each one has his own
style and approach towards his job. That is why the level of success and quality of performance
differs from one person to another.
Creativity: Every artist has an element of creativity in line. That is why he aims at producing
something that has never existed before which requires combination of intelligence & imagination.
Perfection through practice: Practice makes a man perfect. Goal-Oriented: Every art is result
oriented as it seeks to achieve concrete results.

Management as both Science and Art

To be successful manger, a person requires the knowledge of management principles and also skills how
the knowledge can be utilized. Absence of either will result in inefficiency. So management use both
scientific knowledge and art in managing the organization. According to Dr. Terry ―if sciences teaches one
to know, art teaches one to do.‖
Management as Science Management as Art
Advances by knowledge Advances by practices
Proves Feels
Predicts Guesses
Defines Describes
Measures Opiness
Impresses Expresses
Basis for
Entrepreneur Manager
Comparison
Entrepreneur refers to a person who Manager is an individual who takes the
Meaning creates an enterprise, by taking financial responsibility of controlling and
risk in order to get profit. administering the organization.
Focus Business startup Ongoing operations
Primary motivation Achievement Power
Approach to task Informal Formal
Status Owner Employee

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Reward Profit Salary
Decision making Intuitive Calculative
Driving force Creativity and Innovation Preserving status quo
Risk orientation Risk taker Risk averse

CONTRIBUTION OF FAYOL AND TAYLOR

F.W. Taylor and Henry Fayol are generally regarded as the founders of scientific management
and administrative management and both provided the bases for science and art of management.

Taylor's Scientific Management

Frederick Winslow Taylor well-known as the founder of scientific management was the first to recognize
and emphasis the need for adopting a scientific approach to the task of managing an enterprise.
He tried to diagnose the causes of low efficiency in industry and came to the conclusion that much of
waste and inefficiency is due to the lack of order and system in the methods of management.
He found that the management was usually ignorant of the amount of work that could be done by a
worker in a day as also the best method of doing the job. As a result, it remained largely at the mercy of
the workers who deliberately shirked work.
He therefore, suggested that those responsible for management should adopt a scientific approach in their
work, and make use of "scientific method" for achieving higher efficiency. The scientific method consists
essentially of
Observation Experimentation and
Measurement Inference

He advocated a thorough planning of the job by the management and emphasized the necessity of perfect
understanding and co-operation between the management and the workers both for the enlargement of
profits and the use of scientific investigation and knowledge in industrial work. He summed up his
approach in these words:
• Science, not rule of thumb • Maximum output, in place of restricted
• Harmony, not discord output
• Co-operation, not individualism • The development of each man to his greatest
efficiency and prosperity
Elements of Scientific Management:
The techniques which Taylor regarded as its essential elements or features may be classified as under:
1. Scientific Task and Rate-Setting (work study): Work study may be defined as the systematic,
objective and critical examination of all the factors governing the operational efficiency of any specified
activity in order to effect improvement. Work study includes.
Methods Study: The management should try to ensure that the plant is laid out in the best
manner and is equipped with the best tools and machinery. The possibilities of eliminating or
combining certain operations may be studied.
Motion Study: It is a study of the movement, of an operator (or even of a machine) in
performing an operation with the purpose of eliminating useless motions.
Time Study (work measurement): The basic purpose of time study is to determine the proper
time for performing the operation. Such study may be conducted after the motion study. Both
 time study and motion study help in determining the best method of doing a job and the standard
time allowed for it.
Fatigue Study: If, a standard task is set without providing for measures to eliminate fatigue, it
may either be beyond the workers or the workers may over strain themselves to attain it. It is
necessary, therefore, to regulate the working hours and provide for rest pauses at scientifically
determined intervals.
Rate-setting: Taylor recommended the differential piece wage system, under which workers
performing the standard task within prescribed time are paid a much higher rate per unit than
inefficient workers who are not able to come up to the standard set.

2. Planning the Task: Having set the task which an average worker must strive to perform to get wages
at the higher piece-rate, necessary steps have to be taken to plan the production thoroughly so that there
are no bottlenecks and the work goes on systematically.

3. Selection and Training: Scientific Management requires a radical change in the methods and
procedures of selecting workers. It is therefore necessary to entrust the task of selection to a central
personnel department. The procedure of selection will also have to be systematized. Proper attention has
also to be devoted to the training of the workers in the correct methods of work.

4. Standardization: Standardization may be introduced in respect of the following.

Tools and equipment: By standardization is meant the process of bringing about uniformity. The
management must select and store standard tools and implements which will be nearly the best or
the best of their kind.
Speed: There is usually an optimum speed for every machine. If it is exceeded, it is likely to result
in damage to machinery.
Conditions of Work: To attain standard performance, the maintenance of standard conditions of
ventilation, heating, cooling, humidity, floor space, safety etc., is very essential.
Materials: The efficiency of a worker depends on the quality of materials and the method of
handling materials.

5. Specialization: Scientific management will not be complete without the introduction of specialization.
Under this plan, the two functions of 'planning' and 'doing' are separated in the organization of the plant.
The `functional foremen' are specialists who join their heads to give thought to the planning of the
performance of operations in the workshop. Taylor suggested eight functional foremen under his scheme
of functional foremanship.
The Route Clerk: To lay down the sequence of operations and instruct the workers concerned
about it.
The Instruction Card Clerk: To prepare detailed instructions regarding different aspects of work.
The Time and Cost Clerk: To send all information relating to their pay to the workers and to
secure proper returns of work from them.
The Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism.
The Gang Boss: To assemble and set up tools and machines and to teach the workers to make all
their personal motions in the quickest and best way.
The Speed Boss: To ensure that machines are run at their best speeds and proper tools are used by
the workers.

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 The Repair Boss: To ensure that each worker keeps his machine in good order and maintains
cleanliness around him and his machines.
The Inspector: To show to the worker how to do the work.

6. Mental Revolution: At present, industry is divided into two groups – management and labour. The
major problem between these two groups is the division of surplus. The management wants the maximum
possible share of the surplus as profit; the workers want, as large share in the form of wages. Taylor has in
mind the enormous gain that arises from higher productivity. Such gains can be shared both by the
management and workers in the form of increased profits and increased wages.

Henry Fayol's 14 Principles of Management:

The principles of management are given below:
1. Division of work: Division of work or specialization alone can give maximum productivity and
efficiency. Both technical and managerial activities can be performed in the best manner only
through division of labour and specialization.
2. Authority and Responsibility: The right to give order is called authority. The obligation to
accomplish is called responsibility. Authority and Responsibility are the two sides of the
management coin. They exist together. They are complementary and mutually interdependent.
3. Discipline: The objectives, rules and regulations, the policies and procedures must be honoured
by each member of an organization. There must be clear and fair agreement on the rules and
objectives, on the policies and procedures. There must be penalties (punishment) for non-
obedience or indiscipline. No organization can work smoothly without discipline - preferably
voluntary discipline.
4. Unity of Command: In order to avoid any possible confusion and conflict, each member of an
organization must received orders and instructions only from one superior (boss).
5. Unity of Direction: All members of an organization must work together to accomplish common
objectives.
6. Emphasis on Subordination of Personal Interest to General or Common Interest: This is
also called principle of co-operation. Each shall work for all and all for each. General or common
interest must be supreme in any joint enterprise.
7. Remuneration: Fair pay with non-financial rewards can act as the best incentive or motivator for
good performance. Exploitation of employees in any manner must be eliminated. Sound scheme
of remuneration includes adequate financial and nonfinancial incentives.
8. Centralization: There must be a good balance between centralization and decentralization of
authority and power. Extreme centralization and decentralization must be avoided.
9. Scalar Chain: The unity of command brings about a chain or hierarchy of command linking all
members of the organization from the top to the bottom. Scalar denotes steps.
10. Order: Fayol suggested that there is a place for everything. Order or system alone can create a
sound organization and efficient management.
11. Equity: An organization consists of a group of people involved in joint effort. Hence, equity (i.e.,
justice) must be there. Without equity, we cannot have sustained and adequate joint collaboration.
12. Stability of Tenure: A person needs time to adjust himself with the new work and demonstrate
efficiency in due course. Hence, employees and managers must have job security. Security of
income and employment is a pre-requisite of sound organization and management.

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 13. Esprit of Co-operation: Esprit de corps is the foundation of a sound organization. Union is
strength. But unity demands co-operation. Pride, loyalty and sense of belonging are responsible
for good performance.
14. Initiative: Creative thinking and capacity to take initiative can give us sound managerial
planning and execution of predetermined plans.

EVOLUTION OF MANAGEMENT THOUGHT

th
The origin of management as a discipline was developed in the late 19 century. Over time, management
thinkers have sought ways to organize and classify the voluminous information about management that
has been collected and disseminated. These attempts at classification have resulted in the identification of
management approaches. The approaches of management are theoretical frameworks for the study of
management. Each of the approaches of management is based on somewhat different assumptions about
human beings and the organizations for which they work. The different approaches of management are.

a) THE CLASSICAL APPROACH:

The classical approach is the oldest formal approach of management thought. Its roots pre-date the
twentieth century. The classical approach of thought generally concerns ways to manage work and
organizations more efficiently. Three areas of study that can be grouped under the classical approach are
scientific management, administrative management, and bureaucratic management.
(i) Scientific Management: Frederick Winslow Taylor is known as the father of scientific management.
Scientific management (also called Taylorism or the Taylor system) is a theory of management that
analyzes and synthesizes workflows, with the objective of improving labor productivity. In other words,
Traditional rules of thumb are replaced by precise procedures developed after careful study of an
individual at work.
(ii) Administrative Management: focuses on the management process and principles of management.
In contrast to scientific management, which deals largely with jobs and work at the individual level of
analysis, it provides a more general theory of management. Henri Fayol is the major contributor to this
approach of management thought.
(iii) Bureaucratic Management: focuses on the ideal form of organization. Max Weber was the major
contributor to it. Based on observation, Weber concluded that many early organizations were inefficiently
managed, with decisions based on personal relationships and loyalty. He proposed that a form of
organization, called a bureaucracy, characterized by division of labor, hierarchy, formalized rules,
impersonality, and the selection and promotion of employees based on ability, would lead to more
efficient management. Weber also contended that managers' authority in an organization should be based
not on tradition or charisma but on the position held by managers in the organizational hierarchy.

b) THE BEHAVIORAL APPROACH:

The behavioral approach of management thought developed, in part, because of perceived weaknesses in
the assumptions of the classical approach. The classical approach emphasized efficiency, process, and
principles. Some felt that this emphasis disregarded important aspects of organizational life, particularly as
it related to human behavior. Thus, the behavioral approach focused on trying to understand the factors
that affect human behavior at work.
(i) Human Relations: The Hawthorne Experiments began in 1924 and continued through the early
1930s. A variety of researchers participated in the studies, including Elton Mayo. One of the major
conclusions of the Hawthorne studies was that workers' attitudes are associated with productivity. Another

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was that the workplace is a social system and informal group influence could exert a powerful effect on
individual behavior. A third was that the style of supervision is an important factor in increasing workers'
job satisfaction.
(ii) Behavioral Science: Behavioral science and the study of organizational behavior emerged in the
1950s and 1960s. The behavioral science approach was a natural progression of the human relations
movement. It focused on applying conceptual and analytical tools to the problem of understanding and
predicting behavior in the workplace.
The behavioral science approach has contributed to the study of management through its focus on
personality, attitudes, values, motivation, group behavior, leadership, communication, and conflict, among
other issues.

c) THE QUANTITATIVE APPROACH:

The quantitative approach focuses on improving decision making via the application of quantitative
techniques. Its roots can be traced back to scientific management.
(i) Management Science (Operations Research): uses mathematical and statistical approaches to solve
management problems. It developed during World War II as strategists tried to apply scientific knowledge
and methods to the complex problems of war. Industry began to apply management science after the war.
The advent of the computer made many management science tools and concepts more practical for
industry
(ii) Production and Operations Management: This approach focuses on the operation and control of
the production process that transforms resources into finished goods and services. It has its roots in
scientific management but became an identifiable area of management study after World War II. It uses
many of the tools of management science. Operations management emphasizes productivity and quality of
both manufacturing and service organizations. W. Edwards Deming exerted a tremendous influence in
shaping modern ideas about improving productivity and quality. Major areas of study within operations
management include capacity planning, facilities location, facilities layout, materials requirement
planning, scheduling, purchasing and inventory control, quality control, computer integrated
manufacturing, just-in-time inventory systems, and flexible manufacturing systems.

d) SYSTEMS APPROACH:

The systems approach focuses on understanding the organization as an open system that transforms
inputs into outputs. The systems approach began to have a strong impact on management thought in the
1960s as a way of thinking about managing techniques that would allow managers to relate different
specialties and parts of the company to one another, as well as to external environmental factors. The
systems approach focuses on the organization as a whole, its interaction with the environment, and its
need to achieve equilibrium

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e) CONTINGENCY APPROACH:
The contingency approach focuses on applying management principles and processes as dictated by the
unique characteristics of each situation. It emphasizes that there is no one best way to manage and that it
depends on various situational factors, such as the external environment, technology, organizational
characteristics, characteristics of the manager, and characteristics of the subordinates. Contingency
theorists often implicitly or explicitly criticize the classical approach for its emphasis on the universality
of management principles; however, most classical writers recognized the need to consider aspects of the
situation when applying management principles.
Approaches B Dates Emphasis
CLASSICAL APPROACH
Scientific 1880s Traditional rules of thumb are replaced by precise procedures
developed after careful study of an individual at work
Administrative 1940s Given ideas about the primary functions of management and 14
principles of an administration
Bureaucratic 1920s Replaces traditional leadership and charismatic leadership with legal
leadership
BEHAVIORAL APPROACH
HRelations 1930s workers' attitudes are associated with productivity
B Science 1950s Gives idea to understand human behavior in the organization
QUANTITATIVE APPROACH
OR 1940s Uses mathematical and statistical approaches to solve management
problems.
POM 1940s This approach focuses on the operation and control of the production
process that transforms resources into finished goods and services
RECENT DEVELOPMENTS
Systems 1950s Considers the organization as a systems that transforms inputs into
outputs while in interaction with its environment
Contingency 1960s Applies management principles and processes as dictated by the unique
characteristics of each situation.

TYPES OF BUSINESS ORGANIZATIONS

a) Sole Proprietorships: The vast majority of small business starts out as sole proprietorships . . . very
dangerous. These firms are owned by one person, usually the individual who has day-to-day responsibility
for running the business. Sole proprietors own all the assets of the business and the profits generated by it.
They also assume "complete personal" responsibility for all of its liabilities or debts. In the eyes of the
law, you are one in the same with the business.
Merits:
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, within the law, to make all decisions.
• Sole proprietors receive all income generated by the business to keep or reinvest.
• Profits from the business flow-through directly to the owner's personal tax return.
• The business is easy to dissolve, if desired.
Demerits:
• Unlimited liability and are legally responsible for all debts against the business.
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• Their business and personal assets are 100% at risk.
• Has almost been ability to raise investment funds.
• Are limited to using funds from personal savings or consumer loans.

b) Partnerships: In a Partnership, two or more people share ownership of a single business. Like
proprietorships, the law does not distinguish between the business and its owners. The Partners should
have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be
resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what
steps will be taken to dissolve the partnership when needed. They also must decide up front how much
time and capital each will contribute, etc.

Merits:
• Partnerships are relatively easy to establish; however time should be invested in developing the
partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners' personal taxes.
• Prospective employees may be attracted to the business if given the incentive to become a partner.
Demerits:
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnerships have a limited life; it may end upon a partner withdrawal or death.

c) Corporations: A corporation, chartered by the state in which it is headquartered, is considered by law

to be a unique "entity", separate and apart from those who own it. A corporation can be taxed; it can be
sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The
shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a
life of its own and does not dissolve when ownership changes.
Merits:
• Shareholders have limited liability for the corporation's debts or judgments against the corporations.
• Generally, shareholders can only be held accountable for their investment in stock of the company.
(Note however, that officers can be held personally liable for their actions, such as the failure to
withhold and pay employment taxes.)
• Corporations can raise additional funds through the sale of stock.
• A corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S corporation status if certain requirements are met. This election enables company to be
taxed similar to a partnership.
Demerits:
• The process of incorporation requires more time and money than other forms of organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may have more
paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible
form business income, thus this income can be taxed twice.

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 d) Joint Stock Company:
Limited financial resources & heavy burden of risk involved in both of the previous forms of
organization has led to the formation of joint stock companies these have limited dilutives. The capital is
raised by selling shares of different values. Persons who purchase the shares are called shareholder. The
managing body known as; Board of Directors; is responsible for policy making important financial &
technical decisions. There are two main types of joint stock Companies.
(i) Private limited company: This type company can be formed by two or more persons. The maximum
number of member ship is limited to 50. In this transfer of shares is limited to members only. The
government also does not interfere in the working of the company.
(ii) Public Limited Company: It is one whose membership is open to general public. The minimum
number required to form such company is seven, but there is no upper limit. Such companies can advertise
to offer its share to genera public through a prospectus. These public limited companies are subjected to
greater control & supervision of control.
Merits:
• The liability being limited the shareholder bear no Rick& therefore more as make persons are
encouraged to invest capital.
• Because of large numbers of investors, the risk of loss is divided.
• Joint stock companies are not affected by the death or the retirement of the shareholders.
Disadvantages:
• It is difficult to preserve secrecy in these companies.
• It requires a large number of legal formalities to be observed.
• Lack of personal interest.

e) Public Corporations: A public corporation is wholly owned by the Government centre to state. It is
established usually by a Special Act of the parliament. Special statute also prescribes its management
pattern power duties & jurisdictions. Though the total capital is provided by the Government, they have
separate entity & enjoy independence in matters related to appointments, promotions etc.
Merits:
• These are expected to provide better working conditions to the employees & supported to be better
managed.
• Quick decisions can be possible, because of absence of bureaucratic control.
• More flexibility as compared to departmental organization.
• Since the management is in the hands of experienced & capable directors & managers, these ate
managed more efficiently than that of government departments.
Demerits:
• Any alteration in the power & Constitution of Corporation requires an amendment in the particular
Act, which is difficult & time consuming.
• Public Corporations possess monopoly & in the absence of competition, these are not interested in
adopting new techniques & in making improvement in their working.

f) Government Companies: A state enterprise can also be organized in the form of a Joint stock
company; A government company is any company in which of the share capital is held by the central
government or partly by central government & party by one to more state governments. It is managed by
the elected board of directors which may include private individuals. These are accountable for its
working to the concerned ministry or department & its annual report is required to be placed ever year on

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the table of the parliament or state legislatures along with the comments of the government to concerned
department.
Merits:
• It is easy to form.
• The directors of a government company are free to take decisions & are not bound by certain rigid
rules & regulations.
Demerits:
• Misuse of excessive freedom cannot be ruled out.
• The directors are appointed by the government so they spend more time in pleasing their political
masters & top government officials, which results in inefficient management.

THE ORGANIZATION’S CULTURE

Just as individuals have a personality, so, too, do organizations. We refer to an organization‘s personality
as its culture.

Organizational culture is the shared values, principles, traditions, and ways of doing things that
influence the way organizational members act. This implies:
Individuals perceive organizational culture based on what they see, hear, or experience within the
organization.
Organizational culture is shared by individuals within the organization.
Organizational culture is a descriptive term. It describes, rather than evaluates.
Seven dimensions of an organization‘s culture have been proposed
Innovation and risk taking (the degree to which employees are encouraged to be innovative and
take risks)
Attention to detail (the degree to which employees are expected to exhibit precision, analysis, and
attention to detail)
Outcome orientation (degree to which managers focus on results rather than techniques and
processes used to achieve those outcomes)
People orientation (the degree to which management decisions take into consideration the effect on
people within the organization)
Team orientation (the degree to which work activities are organized around teams rather than
individuals)
Aggressiveness (the degree to which people are aggressive and competitive rather than easygoing
and cooperative)
Stability (the degree to which organizational activities emphasize maintaining the status quo in
contrast to growth)

Strong versus Weak Cultures

Strong cultures are found in organizations where key values are intensely held and widely shared.
Whether a company‘s culture is strong, weak, or somewhere in between depends on organizational factors
such as size, age, employee turnover rate, and intensity of original culture. A culture has increasing impact
on what managers do as the culture becomes stronger. Most organizations have moderate-to-strong
cultures. In these organizations, high agreement exists about what is important and what defines ―good‖
employee behavior. Culture is transmitted and learned by employees principally through stories, rituals,
material symbols, and language. An innovative culture should have these characteristics:Challenge &

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involvement, Freedom, Trust and openness, Idea time, Playfulness/humor, Conflict resolution, Debates,
Risk taking

CLASSIFICATION OF ENVIRONMENTAL FACTORS

1) INTERNAL ENVIRONMENTAL FACTORS

The internal environment is the environment that has a direct impact on the business. The internal
factors are generally controllable because the company has control over these factors. It can alter or
modify these factors. The internal environmental factors are resources, capabilities and culture.

i) Resources: A good starting point to identify company resources is to look at tangible, intangible and
human resources. Tangible resources are the easiest to identify and evaluate: financial resources and
physical assets are identifies and valued in the firm‗s financial statements.

Intangible resources are largely invisible, but over time become more important to the firm than
tangible assets because they can be a main source for a competitive advantage. Such intangible recourses
include reputational assets (brands, image, etc.) and technological assets
(Proprietary technology and know-how).

Human resources or human capital are the productive services human beings offer the firm in terms of
their skills, knowledge, reasoning, and decision-making abilities.

ii) Capabilities: Resources are not productive on their own. The most productive tasks require that
resources collaborate closely together within teams. The term organizational capabilities are used to refer
to a firm‗s capacity for undertaking a particular productive activity. Our interest is not in capabilities per
se, but in capabilities relative to other firms. To identify the firm‗s capabilities we will use the functional
classification approach. A functional classification identifies organizational capabilities in relation to each
of the principal functional areas.

iii) Culture: It is the specific collection of values and norms that are shared by people and groups in an
organization and that helps in achieving the organizational goals.

2) EXTERNAL ENVIRONMENT FACTORS

It refers to the environment that has an indirect influence on the business. The factors are
uncontrollable by the business. The two types of external environment are micro environment and macro
environment.

a) MICRO ENVIRONMENTAL FACTORS

These are external factors close to the company that have a direct impact on the organizations
process. These factors include:

i) Shareholders: Any person or company that owns at least one share (a percentage of ownership) in a
company is known as shareholder. A shareholder may also be referred to as a "stockholder". As
organization requires greater inward investment for growth they face increasing pressure to move from

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private ownership to public. However this movement unleashes the forces of shareholder pressure on the
strategy of organizations.

ii) Suppliers: An individual or an organization involved in the process of making a product or service
available for use or consumption by a consumer or business user is known as supplier. Increase in raw
material prices will have a knock on affect on the marketing mix strategy of an organization. Prices may
be forced up as a result. A closer supplier relationship is one way of ensuring competitive and quality
products for an organization.

iii) Distributors: Entity that buys non-competing products or product-lines, warehouses them, and resells
them to retailers or direct to the end users or customers is known as distributor. Most distributors provide
strong manpower and cash support to the supplier or manufacturer's promotional efforts. They usually also
provide a range of services (such as product information, estimates, technical support, after-sales services,
credit) to their customers. Often getting products to the end customers can be a major issue for firms. The
distributors used will determine the final price of the product and how it is presented to the end customer.
W hen selling via retailers, for example, the retailer has control over where the products are displayed,
how they are priced and how much they are promoted in-store. You can also gain a competitive advantage
by using changing distribution channels.

iv) Customers: A person, company, or other entity which buys goods and services produced by another
person, company, or other entity is known as customer. Organizations survive on the basis of meeting the
needs, wants and providing benefits for their customers. Failure to do so will result in a failed business
strategy.

v) Competitors: A company in the same industry or a similar industry which offers a similar product or
service is known as competitor. The presence of one or more competitors can reduce the prices of goods
and services as the companies attempt to gain a larger market share. Competition also requires companies
to become more efficient in order to reduce costs. Fast-food restaurants McDonald's and Burger King are
competitors, as are Coca-Cola and Pepsi, and W al-Mart and Target.

vi) Media: Positive or adverse media attention on an organisations product or service can in some cases
make or break an organisation.. Consumer programmes with a wider and more direct audience can also
have a very powerful and positive impact, hforcing organisations to change their tactics.

b) MACRO ENVIRONMENTAL FACTORS

An organization's macro environment consists of nonspecific aspects in the organization's
surroundings that have the potential to affect the organization's strategies. W hen compared to a firm's task
environment, the impact of macro environmental variables is less direct and the organization has a more
limited impact on these elements of the environment.

The macro environment consists of forces that originate outside of an organization and generally
cannot be altered by actions of the organization. In other words, a firm may be influenced by changes
within this element of its environment, but cannot itself influence the environment. The curved lines in
Figure 1 indicate the indirect influence of the environment on the organization.

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 Macro environment includes political, economic, social and technological factors. A firm
considers these as part of its environmental scanning to better understand the threats and opportunities
created by the variables and how strategic plans need to be adjusted so the firm can obtain and retain
competitive advantage.

i) Political Factors: Political factors include government regulations and legal issues and define both
formal and informal rules under which the firm must operate. Some examples include:
• tax policy • trade restrictions and tariffs
• employment laws • political stability
• environmental regulations

ii) Economic Factors: Economic factors affect the purchasing power of potential customers and the firm's
cost of capital. The following are examples of factors in the macro economy:
• economic growth • exchange rates
• interest rates • inflation rate

iii) Social Factors: Social factors include the demographic and cultural aspects of the external macro
environment. These factors affect customer needs and the size of potential markets. Some social
factors include:
• health consciousness • career attitudes
• population growth rate • emphasis on safety
• age distribution

iv) Technological Factors: Technological factors can lower barriers to entry, reduce minimum efficient
production levels, and influence outsourcing decisions. Some technological factors include:
• R&D activity • technology incentives
• automation • rate of technological change

T HE ORGANIZATIO N’S E NVIRONME NT

The general environment includes these broad external conditions that may affect the organization:
Economic conditions include interest rates, inflation rates, changes in disposable income, stock
market fluctuations, and the general business cycle.
Political/legal conditions include the general political stability of countries in which an
organization does business and the specific attitudes that elected officials have toward business.
Sociocultural conditions include the changing expectations of society. Societal values, customs,
and tastes can change, and managers must be aware of these changes.
Demographic conditions, including physical characteristics of a population (e.g., gender, age, level
of education, geographic location, income, composition of family) can change, and managers must
adapt to these changes.
Technological conditions, which have changed more rapidly than any other element of the general
environment.
Global factors include global competitors and global consumer markets.
Environments differ in their amount of environmental uncertainty, which relates to

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 (1) The degree of change in an organization’s environment: Degree of change is
characterized as being dynamic or stable. In a dynamic environment, components of the
environment change frequently. If change is minimal, the environment is called a stable
environment.

(2) The degree of complexity in that environment: The degree of environmental

complexity is the number of components in an organization‘s environment and the extent
of an organization‘s knowledge about those components. If the number of components and
the need for sophisticated knowledge is minimal, the environment is classified as simple.
If a number of dissimilar components and a high need for sophisticated knowledge exist,
the environment is complex. As uncertainty is a threat to organizational effectiveness,
managers try to minimize environmental uncertainty

CURRENT TRENDS AND ISSUES

Globalization: Organizational operations are no longer limited by national borders.
Managers throughout the world must deal with new opportunities and challenges inherent
in the globalization of business. Ethics: Cases of corporate lying, misrepresentations, and
financial manipulations have been widespread in recent years
Workforce diversity: It refers to a workforce that is heterogeneous in terms of gender,
race, ethnicity, age, and other characteristics that reflect differences. Accommodating
diverse groups of people by addressing different lifestyles, family needs, and work
styles is a major challenge for today‘s managers. Entrepreneurship: It is the process
whereby an individual or group of individuals use organized efforts to pursue
opportunities to create value and grow by fulfilling wants and needs through innovation
and uniqueness, no matter what resources the entrepreneur currently has.
Three important themes stand out in this definition:
a. The pursuit
of
opportunities
b. Innovation
c. Growth Entrepreneurship will continue to be important to societies around the world.
Managing in an E-Business World: E-business is a comprehensive term describing the
way an organization does its work by using electronic (Internet-based) linkages with its
key constituencies in order to efficiently and effectively achieve its goals.
Knowledge Management and Learning Organizations: Change is occurring at an
unprecedented rate. To be successful, today‘s organization must become a learning
organization —one that has developed the capacity to continuously learn, adapt, and
change. It involves cultivating a learning culture where organizational members
systematically gather knowledge and share it with others in the organization so as to
achieve better performance.
Quality Management: It is a philosophy of management that is driven by continual
improvement and response to customer needs and expectations. The objective of
quality management is to create an organization committed to continuous improvement
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in work.
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