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Business Management Notes
Meaning of Management
Consider a business enterprise, it may be an industry or it may be a trading concern. In both the cases, to
start and run the business some amount of money is needed, some materials, few machines and some men
are required, and some processes are involved. All these are considered the inputs for a business that
result in output in terms of products or services. However, with same amount of money, raw materials,
machines and men, and following the same processes, the output may not be same in all cases. For
example, with same amount of money, men, machines and materials, if you and Ramesh start a similar
business independently, the result may not be the same for both of you. You may do well whereas
Ramesh may not. But this is because the inputs do not become output by themselves. Various activities
are required and these need to be properly directed, coordinated and integrated so that the inputs produce
good results. This process of using various resources (inputs) to produce some results (outputs) is known
as management, and the degree of success varies according to the efficiency with which the resources are
managed. Thus, management refers to the process of using men, money, machines, material and processes
through proper direction, coordination and integration of several activities so as to produce desired results
and attain predetermined goals. In other words, management consists of a series of activities classified
into various functions like planning, organising, staffing, directing and controlling.
CHARACTERISTICS OF MANAGEMENT
The various characteristics of management are:
(a) Management is universal: It means that management is required for every type of organisation. It
may be a business organisation or social or political. It may be a small firm or a large one. Management is
required by a school or a college or university or a hospital or a big firm like Reliance Industries Limited
or a small variety store in your locality. Thus, it is a universal phenomenon and is common and essential
element in all organisations.
(b) Management is goal directed: Every organisation is created to achieve certain goals. For example,
for a business firm it may be to make maximum profit and/or to provide quality products and services.
Management of an organisation is always aimed at achievement of the organisational goals. Success of
management is determined by the extent to which these goals are achieved.
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(c) Management is a continuous process: Management is an ongoing process. It continues as long as the
organisation exists. No activity can take place without management. To perform all activities like
production, sale, storage, operation etc. management is required. So, as long as these activities continue
the process of management also continues to operate.
(d) Management is an integrating process: All the functions, activities, processes and operations are
intermixed among themselves. It is the task of management to bring them together and proceed in a
coordinated manner to achieve desired result. In fact, without integration of men, machine and material
and coordination of individual efforts to contribute successfully as a team, it will be difficult to achieve
organisational goals.
(e) Management is intangible: Management is not a place like a graphic showing Board meeting or a
graphic showing a school Principal at her office desk which can be seen. It is an unseen force and you can
feel its presence in the form of rules, regulation, output, work climate, etc.
(f) Management is multi-disciplinary: Management of an organisation requires wide knowledge about

various disciplines as it covers handling of man, machine, material and looking after production,
distribution, accounting and many other functions. Thus, we find the principles and techniques of
management are mostly drawn from almost all fields of study like – Engineering, Economics, Sociology,
Psychology, Anthropology, Mathematics, Statistics etc.
(g) Management is a social process: The most important aspect of management is handling people
organised in work groups. This involves developing and motivating people at work and taking care of
their satisfaction as social beings. All managerial actions are primarily concerned with relations between
people and so it is treated as a social process.
(h) Management is situational: The success of management depends on, and varies from, situation to
situation. There is no best way of managing. The techniques and principles of management are relative,
and do not hold good for all situations to come.
NATURE OF MANAGEMENT
The nature of management can be better appreciated by looking at it
• as a process
• as a discipline
• as a group of individuals
• as a profession, and
• as a science as well as an art
LEVELS OF MANAGEMENT
As stated earlier, there are certain levels of management with varying degree of authority and
responsibilities. Some managers decide about the objectives of the business as a whole; some managers
perform functions to achieve these objectives in different departments, like production, sales, etc, and
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some of the managers are concerned with the supervision of day-to-day activities of workers. Managers
performing different types of duties may, thus, be divided into three categories:
• Top-Level Management
• Middle-Level Management
• Lower-Level Management
The following diagram will give you an idea about the functions, positions and relations of different
levels of management.
FUNCTIONS OF MANAGEMENT
In every organisation, the managers perform certain basic functions. These are broadly divided into six
categories viz., planning, organising, staffing, directing, coordinating and controlling. These are discussed
basically hereunder. You will learn about all these functions in detail in the lessons to follow.
(a) Planning: Planning is deciding in advance what is to be done, when it is to be done, how it is to
be done. It is basically concerned with the selection of goals to be achieved and determining the
effective course of action from among the various alternatives. This involves forecasting,
establishing targets, developing the policies and programming and scheduling the action,
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procedure, etc., Thus, planning requires decisions to be made on what should be done, how it
should be done, who will do it, where it will be done, and why it is to be done. The essential part
of planning consists of setting goals and programmes of activities.
(b) Organising: After the plans have been drawn, management has to organise the activities, and
physical resources of the firm to carry out the selected programmes successfully. It also involves
determining the authority and responsibility relationships among functions, departments and
personnel at various levels to ensure smooth and effective function together in accomplishing the
objective. Thus, the organising function of management is primarily concerned with identifying
the tasks involved and grouping them into units and departments, and defining the duties and
responsibilities of people in different positions within each department for well coordinated and
cooperative effort in the organisation.
(c) Staffing: Staffing is concerned with employing people for the various activities to be performed.
The objective of staffing is to ensure that suitable people have been appointed for different
positions. It includes the functions of recruitment, training and development, placement and
remuneration, and performance appraisal of the employees.
(d) Directing: The directing function of management includes guiding the subordinates, supervising
their performance, communicating effectively and motivating them. A manager should be a good
leader. He should be able to command and issue instruction without arousing any resentment
among the subordinates. He should keep a watch on the performance of his subordinates and help
them out whenever they come across any difficulty. The communication system, i.e., exchange of
information should take place regularly for building common understanding and clarity. The
managers should also understand the needs of subordinates and inspire them to do their best and
encourage initiative and creativity.
(e) Controlling: This function of management consists of the steps taken to ensure that the
performance of work is in accordance with the plans. It involves establishing performance
standards and measuring the actual performance with the standards set. If differences are noticed,
corrective steps are taken which may include revision of standards, regulate operations, remove
deficiencies and improve performance.
(f) Co-ordinating: Management has to ensure that all the activities contribute to the achievement of
the objectives of the business as a whole. This requires integration of activities and
synchronisation of efforts. The heads of different departments should not treat each other as
competitors but should work as organs of one body. As the proper functioning of every organ of a
human body is important for a healthy body, the work of every department is important for the
organisation as a whole. Managers should, therefore, see that everybody in the organisation
understands its objectives and works in co-operation with others to achieve these objectives. This
function of management is called co-ordination. It consists of harmonising group effort so as to
achieve common objectives.
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(Important Note: POSDCORB is an acronym which means Planning, Organizing, Staffing,

Directing, Coordinating, Reporting and Budgeting which was first coined in a paper on
administrative management that was written for the Brownlow Committee by Luther Gulick and
Lyndall Urwick). (Often being asked in NTA NET Commerce & Management)
Evolution of Management Thought

Development of Management Thought Over Time
Management Thought Time Period
• Pre-scientific Management Upto 19th century

• Scientific Management 1900-1930
• Administrative Management 1916-1940
• Human Relation Aprroach 1930-1950
• Behavioural Approach 1950-1966
• Quantitative Approach 1950-1960
• System Approach 1960-1970
• Contingency Approach 1970 onwards
Management Approaches:
• Classical Approach- Main features of this approach as follows:

1. Management is viewed as a systematic network (process) of interrelated functions.
2. On the basis of experiences of practicing managers, principles are developed.
3. Functions, principles and skills of management are universal.
4. Formal education and training is emphasized for developing managerial skills.
5. Emphasis is placed on economic efficiency and the formal organization structure.
6. People are motivated by economic gains.
• Behavioural (Neo-classical) Approach-Main features of this approach as follows:

1. An organization is a socio-technical system.
2. A wide range of factors influence interpersonal and group behavior of people in the
organization.
3. Fusion between organizational goals and needs.
4. Several differences in the attitudes, perceptions and values of employees exist and
influence their behavior and performance.
5. Some degree of conflict may be inevitable and desirable.
(Note: Classical approach focused on the jobs, the behavioural approach stressed the individuals
performing these jobs, Elton Mayo is the father of human relation approach or behavioural
approach).
Hawthorne Experiment by Elton Mayo:-
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In 1927, a group of researchers led by Elton Mayo and Fritz Roethlisberger of the Harvard Business
School were invited to join in the studies at the Hawthorne Works of Western Electric Company,
Chicago. The experiment lasted up to 1932. The Hawthorne Experiment brought out that the productivity
of the employees is not the function of only physical conditions of work and money wages paid to
them. Productivity of employees depends heavily upon the satisfaction of the employees in their work
situation. Mayo’s idea was that logical factors were far less important than emotional factors in
determining productivity efficiency. Furthermore, of all the human factors influencing employee
behavior, the most powerful were those emanating from the worker’s participation in social groups. Thus,
Mayo concluded that work arrangements in addition to meeting the objective requirements of production
must at the same time satisfy the employee’s subjective requirement of social satisfaction at his work
place.
1. Illumination Experiment.
2. Relay Assembly Test Room Experiment.
3. Interviewing Programme.
4. Bank Wiring Test Room Experiment.
1. Illumination Experiment:
This experiment was conducted to establish relationship between output and illumination. When the
intensity of light was increased, the output also increased. The output showed an upward trend even when
the illumination was gradually brought down to the normal level. Therefore, it was concluded that there is
no consistent relationship between output of workers and illumination in the factory. There must be some
other factor which affected productivity.
2. Relay Assembly Test Room Experiment:
This phase aimed at knowing not only the impact of illumination on production but also other factors like
length of the working day, rest hours, and other physical conditions. In this experiment, a small
homogeneous work-group of six girls was constituted. These girls were friendly to each other and were
asked to work in a very informal atmosphere under the supervision of a researcher. Productivity and
morale increased considerably during the period of the experiment. Productivity went on increasing and
stabilized at a high level even when all the improvements were taken away and the pre-test conditions
were reintroduced. The researchers concluded that socio-psychological factors such as feeling of being
important, recognition, attention, participation, cohesive work-group, and non-directive supervision held
the key for higher productivity.
3. Mass Interview Programme:
The objective of this programme was to make a systematic study of the employees attitudes which would
reveal the meaning which their “working situation” has for them. The researchers interviewed a large
number of workers with regard to their opinions on work, working conditions and supervision. Initially, a
direct approach was used whereby interviews asked questions considered important by managers and
researchers. The researchers observed that the replies of the workmen were guarded. Therefore, this
approach was replaced by an indirect technique, where the interviewer simply listened to what the
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workmen had to say. The findings confirmed the importance of social factors at work in the total work
environment.
4. Bank Wiring Test Room Experiment:
This experiment was conducted by Roethlisberger and Dickson with a view to develop a new method of
observation and obtaining more exact information about social groups within a company and also finding
out the causes which restrict output. The experiment was conducted to study a group of workers under
conditions which were as close as possible to normal. This group comprised of 14 workers. After the
experiment, the production records of this group were compared with their earlier production records. It
was observed that the group evolved its own production norms for each individual worker, which was
made lower than those set by the management. Because of this, workers would produce only that much,
thereby defeating the incentive system. Those workers who tried to produce more than the group norms
were isolated, harassed or punished by the group. The findings of the study are:-
• Each individual was restricting output.

• The group had its own “unofficial” standards of performance.
• Individual output remained fairly constant over a period of time.
• Informal groups play an important role in the working of an organization.
Difference between Human Relations and Behavioural Approach
Basis of Distinction Human Relations Behavioural Approach
1. Focus Focus on interpersonal skills Focus on group relation

2. Study Study of individual, his needsStudy of groups and group
and behavior. behavior.
3. Main Concepts Job Satisfaction and Motivation
Group dynamics and informal
organization.
4. Origin From Hawthrone Experiments Improved and wider vision of
human relations.
5. Pioneers Elton Mayo and his associates Keith Davis, Rensis Likert and
others
6. View of conflict Conflicts are avoidable and Conflicts are unavoidable and
harmful sometimes useful.
7. View of Organisation Social system Technical system.
8. Assumptions Individuals have same needs. Individuals have different needs

and attitudes.
9. Satisfaction and Satisfied employees are always Satisfied employees are not
Productivity productive. always productive.
10. Scope Narrow Wide
• Quantitative Approach: Main features of it-

1. Management is a series of decision making.
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2. Variables can be presented in the form of mathematical model.

3. If model is properly formulated and the equations are correctly solved, one can secure the
best solutions to the model.
4. Organisation exist for the achievement of specific and measurable goal.
5. Decisions should be made through scientific reasoning backed by quantification.
Summary of Quantitative Techniques:
1. Decision Theory- Determination of objectives of firm, assessment of group conflicts and

interactions, job performance estimates, organization analysis.
2. Experimental Design- Application of this is basic to the construction of any predictive model.
3. Game Theory- Set of concepts aimed at decision making in situations of competition and
conflict (as well as of cooperation and interdependence) under specified rules. Game theory
employs games of strategy (such as chess) but not of chance (such as rolling a dice). A strategic
game represents a situation where two or more participants are faced with choices of action, by
which each may gain or lose, depending on what others choose to do or not to do. The final
outcome of a game, therefore, is determined jointly by the strategies chosen by all participants.
These are also situations of uncertainty because no participant knows for sure what the other
participants are going to decide.
4. Linear Programing- Linear programming deals with problems such as maximising profits,
minimising costs or ensuring you make the best use of available resources. From an applications
perspective, mathematical (and therefore, linear) programming is an optimisation tool, which
allows the rationalisation of many managerial and/or technological decisions. An important factor
for the applicability of the mathematical programming methodology in various contexts, is the
computational difficulty of the analytical models. With the advent of modern computing
technology, effective and efficient algorithmic procedures can provide a systematic and fast
solution to these models.
5. Probability Theory- Future events are far from certain in the business world. This is especially
true for smaller businesses, which tend to have more volatility than larger organizations, or newer
businesses without a proven track record of sales and costs. For this reason, probability
distributions can be a great tool for estimating future returns and profitability.
6. Queuing theory- It is the mathematical study of the congestion and delays of waiting in line.
Queuing theory (or "queueing theory") examines every component of waiting in line to be served,
including the arrival process, service process, number of servers, number of system places, and
the number of customers—which might be people, data packets, cars, etc.
• System Approach- Main features of it:

1. Organization is an open system consisting of several sub-system.
2. Position and function of each sub-system can be analysed only in relation to other sub-
system.
3. Organisation system has boundaries which separates it from other system.
4. An organization is a dynamic system.
• Contingency (Situational) Approach- Main features of it-
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1. Management is entirely situational.

2. Management should match or fit its approach to the requirement of the particular
situation.
3. Principles and techniques are not universal.
Henry Fayol 14 Principles of Management

Fayol's principles are listed below:
1. Division of Work – When employees are specialized, output can increase because they become
increasingly skilled and efficient.
2. Authority – Managers must have the authority to give orders, but they must also keep in mind that
with authority comes responsibility.
3. Discipline – Discipline must be upheld in organizations, but methods for doing so can vary.
4. Unity of Command – Employees should have only one direct supervisor.
5. Unity of Direction – Teams with the same objective should be working under the direction of one
manager, using one plan. This will ensure that action is properly coordinated.
6. Subordination of Individual Interests to the General Interest – The interests of one employee
should not be allowed to become more important than those of the group. This includes
managers.
7. Remuneration – Employee satisfaction depends on fair remuneration for everyone. This includes
financial and non-financial compensation.
8. Centralization – This principle refers to how close employees are to the decision-making process.
It is important to aim for an appropriate balance.
9. Scalar Chain – Employees should be aware of where they stand in the organization's hierarchy, or
chain of command.
10. Order – The workplace facilities must be clean, tidy and safe for employees. Everything should
have its place.
11. Equity – Managers should be fair to staff at all times, both maintaining discipline as necessary
and acting with kindness where appropriate.
12. Stability of Tenure of Personnel – Managers should strive to minimize employee turnover.
Personnel planning should be a priority.
13. Initiative – Employees should be given the necessary level of freedom to create and carry out
plans.
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14. Esprit de Corps – Organizations should strive to promote team spirit and unity.
Four Principles of Scientific Management

Taylor's four principles are as follows:
1. Replace working by "rule of thumb," or simple habit and common sense, and instead use the
scientific method to study work and determine the most efficient way to perform specific tasks.
2. Rather than simply assign workers to just any job, match workers to their jobs based on capability
and motivation, and train them to work at maximum efficiency.
3. Monitor worker performance, and provide instructions and supervision to ensure that they're
using the most efficient ways of working.
4. Allocate the work between managers and workers so that the managers spend their time planning
and training, allowing the workers to perform their tasks efficiently.
Taylor Advocated the following elements of scientific management. : 1. Work Study, 2. Standardisation
of Tools and Equipment, 3. Scientific Selection, Placement and Training, 4. Development of Functional
Foremanship, 5. Introducing Costing System, 6. Mental Revolution!
1. Work Study:
According to International Labour Office “Work study is a term used to embrace the techniques of
method study and work measurement which are employed to ensure the best possible use of human and
material resources in carrying out specified activity.
2. Standardization of Tools and Equipment:
Standardization of tools and equipment was an important element of scientific management. Taylor
wanted to use only ‘the best way of doing the work. Proper tools and equipment are essential for
increasing the efficiency and speed of work.
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3. Scientific Selection, Placement and Training:
The efficiency and quality of work is linked to the kind of persons selected for taking up different jobs.
Taylor wanted a radical change in the methods and procedures of selecting workers. Workers should be
selected by considering their education, experience and attitude towards work.
The placement of workers should be such that only the most suitable persons are assigned the work.
Placement should be on the basis of merit rating which indirectly implies, ‘round pegs in round holes’.
Workers should be given training to make them suitable for the jobs. Orientation training should also be
imparted to prepare them to meet new challenges.
4. Development of Functional Foremanship:
Taylor pleaded the concept of functional foremanship. He felt that workers and factory executives should
be freed from the burden of planning and designing. Functional foremanship is the extension of the
principle of specialisation or division of labour to the sphere of management.
According to Taylor the two functions of planning and doing should be separated. The planning section
should concentrate on planning the task and issuing instructions to the workers for implementing them.
Taylor suggested eight functional specialists, the first four attached with planning work and the next four
with actual implementation or execution of the plan.
These Involved in Planning are:
(i) Route Clerk – to lay down the sequence of operations (ii) Instruction Card – Clerk lay down
the exact method of doing the work (iii) Time and Cost Clerk – to keep records of time spent
by different workers on different jobs and prepare the cost sheets (iv) Shop Disciplinarian-to
deal with cases of breach of discipline and absenteeism.
The foremen involved in actual implementation of work are:
(ii) Gang Boss – to assemble and set up various equipments and tools, (ii) Speed boss – to ensure
that machines are run at optimum desired speed, (iii) Repairs boss-ensure regular cleaning,
servicing and repair of machines (iv) Inspector-to ensure that the workers perform their work
as per desired quality.
5. Introducing Costing System:

Another important element of scientific management is the introduction of efficient system of
cost accounting. It is a technique used to calculate cost per unit and total cost of production.
6. Mental Revolution:
Simply stated mental revolution is concerned with bringing basic change in the mental attitude of
workers and the management towards each other. Scientific approach means radical changes in
the approach to solve problems regarding work and managerial control.
Modern Management Gurus and Their Contribution:
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Michael E. Porter
Porter’s five-force analysis model has a global and profound impact on corporate strategy formulation.
Applying it to the analysis of competitive strategy can effectively analyze the customer’s competitive
environment. Its application range from the initial manufacturing industry gradually covers almost all
industries such as financial services, high technology and so on.
The Potter Five Forces model identified five main sources of competition, namely:
• Bargaining power of suppliers

• Bargaining power of Buyers
• Threats of New Entrants
• Threats of Substitutes
• Competition of existing competitors in the industry
(A) The bargaining power of suppliers
When the input elements provided by the supplier constitute a large proportion of the total cost of the
product to the buyer, the potential bargaining power of the supplier is greatly increased. In general,
suppliers who meet the following conditions will have stronger bargaining power.
• The supply-side industry is for some companies that have a relatively stable market position and
are not plagued by fierce competition in the market.
• Supply-side products have certain characteristics, buyers are difficult to convert, or conversion
costs are too high
• The supplier facilitates forward integration, or otherwise impose an additional cost to the
production process
(B) The bargaining power of buyers
Buyers mainly influence the profitability of existing companies in the industry through their ability to
lower prices and requirements to provide higher product or service quality. In general, buyers who meet
the following conditions have strong bargaining power:
The total number of buyers is small, and each buyer purchases a large amount and accounts for a large
percentage of the seller’s sales
The seller’s industry consists of a large number of relatively small companies
The purchaser purchases a standardized product, and it is economically feasible to purchase the product
from multiple vendors at the same time.
Suppliers facilitate forward integration, while buyers find it difficult to combine or integrate backward.
(C) Threats of new entrants
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New entrants, while bringing new production capacity and new resources to the industry, hope to win a
place in the market that has already been divided by existing companies. This may cause competition with
existing companies in raw materials and market share, resulting in the existing industry. The level of
corporate profits is reduced, even threatening survival.
The severity of competitive entry threats depends on two factors: the size of the barriers to entry into new
areas and the expected response of existing businesses to entrants.
Barriers to entry mainly include the following factors:
• Economies of scale
With the expansion of business scale, the industrial characteristics of the decline in unit
product costs, the higher the industry’s lowest effective scale, the greater the barriers to
entry.
• Differentiation degree
Differentiation refers to the unique targeting of products and services to customer needs.
The higher the difference, the greater the barrier to entry.
• Conversion cost
The conversion cost of a customer or buyer refers to the extra cost that the customer must
pay to change the supplier.
• Technical obstacles
Includes patented technology, proprietary technology, and learning curve.
• Control of sales channels
The Company’s self-built distribution channels, good partnerships, and reputation,
brands, etc.
• Policy and Law
National policies protect certain industries, such as the financial industry.
(D) Threats of Substitutes
Two companies in different industries may generate competing products because of the products they
produce are alternative products.
• Increased selling price and profitability of existing products will be limited due to the existence of
alternatives that can be easily accepted by users.
• Due to the intrusion of alternatives, existing companies must improve product quality or reduce
costs.
• The intensity of competition from producers of alternative products is affected by the cost of the
conversion of product buyers.
(E) Competition among existing competitors in the industry
Enterprises in most industries are closely linked to each other’s interests. As part of their overall
strategy, their goal is to make their own companies more competitive than their competitors. There are
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conflicts and confrontations, often manifested in prices, advertising, product introductions, and after-sales
services.
Porter’s Generic Strategies

These three approaches are examples of "generic strategies," because they can be applied to products or
services in all industries, and to organizations of all sizes. They were first set out by Michael Porter in
1985 in his book, "Competitive Advantage: Creating and Sustaining Superior Performance."
Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely
desirable products and services) and "Focus" (offering a specialized service in a niche market). He then
subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus." These are shown
in figure 1 below.
The Cost Leadership Strategy
Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the
"edge" that gets you the sale and takes it away from your competitors. There are two main ways of
achieving this within a Cost Leadership strategy:
• Increasing profits by reducing costs, while charging industry-average prices.
• Increasing market share by charging lower prices, while still making a reasonable profit on each
sale because you've reduced costs.
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The Differentiation Strategy
Differentiation involves making your products or services different from and more attractive than those of
your competitors. How you do this depends on the exact nature of your industry and of the products and
services themselves, but will typically involve features, functionality, durability, support, and also brand
image that your customers value.
• To make a success of a Differentiation strategy, organizations need:

• Good research, development and innovation.
• The ability to deliver high-quality products or services.
• Effective sales and marketing, so that the market understands the benefits offered by the
differentiated offerings.
The Focus Strategy
Companies that use Focus strategies concentrate on particular niche markets and, by understanding the
dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-
specified products for the market. Because they serve customers in their market uniquely well, they tend
to build strong brand loyalty amongst their customers. This makes their particular market segment less
attractive to competitors.
Porter’s Value Chain Analysis

The value chain also known as Porter’s Value Chain Analysis is a business management concept that was
developed by Michael Porter. In his book Competitive Advantage (1985), Michael Porter explains Value
Chain Analysis; that a value chain is a collection of activities that are performed by a company to create
value for its customers. Value Creation creates added value which leads to competitive advantage.
Ultimately, added value also creates a higher profitability for an organization.
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The Value Chain activities
Porter’s Value Chain Analysis consists of a number of activities, namely primary activities and support
activities. Primary activities have an immediate effect on the production, maintenance, sales and support
of the products or services to be supplied. These activities consist of the following elements:
Inbound Logistics
These are all processes that are involved in the receiving, storing, and internal distribution of the raw
materials or basic ingredients of a product or service. The relationship with the suppliers is essential to the
creation of value in this matter.
Production
These are all the activities (for example production floor or production line) that convert inputs of
products or services into semi-finished or finished products. Operational systems are the guiding principle
for the creation of value.
Outbound logistics
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These are all activities that are related to delivering the products and services to the customer. These
include, for instance, storage, distribution (systems) and transport.
Marketing and Sales
These are all processes related to putting the products and services in the markets including managing and
generating customer relationships. The guiding principles are setting oneself apart from the competition
and creating advantages for the customer.
Service
This includes all activities that maintain the value of the products or service to customers as soon as a
relationship has developed based on the procurement of services and products. The Service Profit Chain
Model is an alternative model, specific designed for service management and organizational growth.
Support activities of the Value Chain Analysis
Support activities within the Porter’s Value Chain Analysis assist the primary activities and they form the
basis of any organization. In the figure dotted lines represent linkages between a support activity and a
primary activity. A support activity such as human resource management for example is of importance
within the primary activity operation but also supports other activities such as service and outbound
logistics.
Firm infrastructure
This concerns the support activities within the organization that enable the organization to maintain its
daily operations. Line management, administrative handling, financial management are examples of
activities that create value for the organization.
Human resource management
This includes the support activities in which the development of the workforce within an organization is
the key element. Examples of activities are recruiting staff, training and coaching of staff and
compensating and retaining staff.
Technology development
These activities relate to the development of the products and services of the organization, both internally
and externally. Examples are IT, technological innovations and improvements and the development of
new products based on new technologies. These activities create value using innovation and optimization.
Procurement
These are all the support activities related to procurement to service the customer from the organization.
Examples of activities are entering into and managing relationships with suppliers, negotiating to arrive at
the best prices, making product purchase agreements with suppliers and outsourcing agreements.
Organizations use primary and support activities as building blocks to create valuable products, services
and distinctiveness.
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Ansoff Matrix
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to analyze and
plan their strategies for growth. The matrix shows four strategies that can be used to help a firm grow and
also analyzes the risk associated with each strategy.
Understanding the Ansoff Matrix
The matrix was developed by applied mathematician and business manager H. Igor Ansoff and was
published in the Harvard Business Review in 1957. The Ansoff Matrix’s helped many marketers and
leaders understand the risks of growing their business.
The four strategies of the Ansoff Matrix are:
1. Market Penetration: It focuses on increasing sales of existing products to an existing market.
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2. Product Development: It focuses on introducing new products to an existing market.
3. Market Development: Its strategy focuses on entering a new market using existing products.
4. Diversification: It focuses on entering a new market with the introduction of new products.
Of the four strategies, market penetration is the least risky while diversification is the riskiest.
The Ansoff Matrix: Market Penetration
In a market penetration strategy, the firm uses its products in the existing market. In other words, a firm is
aiming to increase its market share with a market penetration strategy.
The market penetration strategy can be done in a number of ways:
1. Decreasing prices to attract existing or new customers
2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace
For example, telecommunication companies all cater to the same market and employ a market penetration
strategy by offering introductory prices and increasing their promotion and distribution efforts.
The Ansoff Matrix: Product Development
In a product development strategy, the firm develops a new product to cater to the existing market. The
move typically involves extensive research and development and expansion of the product range. The
product strategy development strategy is employed when firms have a strong understanding of their
current market and are able to provide innovative solutions to meet the needs of the existing market.
The product development strategy can be done in a number of ways:
1. Investing in R&D to develop new products to cater to the existing market
2. Acquiring a competitor’s product and merging resources to create a new product that better meets
the need of the existing market
3. Strategic partnerships with other firms to gain access to each partner’s distribution channels or
brand
For example, automotive companies are creating electric cars to meet the changing needs of their existing
market. Current market consumers in the automobile market are becoming more environmentally
conscious.
The Ansoff Matrix: Market Development
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In a market development strategy, the firm enters a new market with their existing product(s). In this
context, expanding into new markets may mean expanding into new geographies, customer segments,
regions, etc. The market development strategy is most successful if (1) the firm owns proprietary
technology that it can leverage into new markets, (2) consumers in the new market are profitable (i.e.,
they possess disposable income), and (3) consumer behavior in the new markets does not deviate too far
from the existing markets.
The market development strategy can be done in a number of ways:
1. Catering to a different customer segment
2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)
For example, sporting companies such as Nike and Adidas recently entered the Chinese market for
expansion. The two firms are offering the same products to a new demographic.
The Ansoff Matrix: Diversification
In a market development strategy, the firm enters a new market with a new product. Although such a
strategy is the riskiest, as market and product development is required, the risk can be mitigated through
related diversification.
There are two types of diversification a firm can employ:
1. Related diversification: There are potential synergies to be realized between the existing business and
the new product/market.
For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a
related diversification strategy.
2. Unrelated diversification: There are no potential synergies to be realized between the existing
business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is pursuing an unrelated
diversification strategy.
BCG Matrix
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BOSTON CONSULTING GROUP BOX. Using the Boston Consulting Group (BCG) approach, a
company classifies all its SBUs according to the growth-share matrix shown in Figure 3.3. On the
vertical axis,.market growth rate provides a measure of market attractiveness. On the horizontal axis,
relative market share serves as a measure of company strength in the market. By dividing the
growthshare matrix as indicated, four types of SBU can be distinguished:
1. Stars. Stars are high-growth, high-share businesses or products. They often need heavy investment to
finance their rapid growth. Eventually their growth will slow down, and they will turn into cash cows,
2. Cash cows. Cash cows are low-growth, high-share businesses or products. These established and
successful SBUs need less investment to hold their market share. Thus they produce cash that the
company uses to pay its bills and to support other SBUs that need investment.
3. Question marks. Question marks are low-share business unite in highgrowth markets. They require
cash to hold their share, let alone increase it. Management has to think hard about question marks - which
ones they should buikl into stars and which ones they should phase out.
4. Dogs. Dogs are low-growth, low-share businesses and products. They may generate enough cash to
maintain themselves, but do not promise to be large sources of cash.
BCG Matrix : Strategic choices
Operational management can be determined from the BCG matrix. For a company it entails a lot of risk to
fully aim at one of the four categories and from a strategic point of view it is better to distribute the
assortment over all four categories. Some strategic choices that are in conformity with the BCG matrix
could be:
1. Build strategy: Create a new brand and a new target audience by means of a Question Mark.
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2. Hold strategy: Maintain this success and benefit from market growth by means of a Star.
3. Harvest strategy: Make as much money as possible with the product by means of the Cash Cow. This
can be achieved by improving or renewing the product or by manufacturing by-products.
4. Divest Strategy: Abandon the investment in the product by means of Dog.
PLANNING
Planning is the most fundamental function of management (Coordination is the essence of management,
don’t get confused). It is the basic to all other management functions. It provides the foundation upon
which organizing, staffing, directing and controlling functions can be carried out.
Lines for assertion & reasoning type questions:
• Planning is the process of deciding and a plan is the outcome of this process.
• Planning is the process of deciding how the organization can get where it wants to go and what it
will do to get there.
Nature of Planning:
1. Planning is Goal-oriented.
2. Primary Function.
3. Planning is All-Pervasive (function of each and every manager irrespective of the level).
4. Intellectual or Rational Process.
5. Continuous Process.
6. Forward looking.
7. Planning involves choice.
8. Integrated Process.
9. Directed towards efficiency.
Types of Planning:-
1. Group or Sectional Planning- Planning for specific groups or sections within a department or
division. For example: the advertising section may prepare a sectional plan to execute the sales
plan of the company.
2. Departmental or Divisional Planning- includes the plans formulated for various departments or
division of an enterprise. For example: Sales budget, production budget etc.
3. Corporate Planning- Planning for the company as a whole. It is less detailed and specific than
sectional planning and divisional planning. It lays down objectives, strategies and policies for the
entire organization. Foe example: Increasing the company’s market share by 10%.
According to time span
1. Long-range Planning- Period of 5, 10 and 15 years or more.
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2. Medium term or intermediary planning- Period of more than 1 year but less than 5 years.
3. Short Term Operational Planning- Upto 1 year.
Steps in Planning Process
Identify Goals
Develop Planning Premises
Determine Alternative Courses of Action
Evaluate the alternatives
Select a course of Action
Formulate Derivative Plans
Forecasting:
Forecasting is the process of predicting future conditions that will influence and guide the activities,
behavior and performance of the organization.
Techniques of forecasting
1. Time Series Analysis

2. Extrapolation
3. Regression Analysis
4. Input-Output Analysis
5. Econometric Models
6. Historical Analogy
7. Business Barometers
8. Panel Consensus Method
9. Delphi Technique (Panel of experts probe the area systematically but no face to face interaction)
10. Morphological Analysis
Management by Objectives
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The process of setting objectives in the organization to give a sense of direction to the employees
is called as Management by Objectives.
It refers to the process of setting goals for the employees so that they know what they are supposed to
do at the workplace.
Management by Objectives defines roles and responsibilities for the employees and help them chalk
out their future course of action in the organization.
Management by objectives guides the employees to deliver their level best and achieve the targets
within the stipulated time frame.
Need for Management by Objectives (MBO)
• The Management by Objectives process helps the employees to understand their duties at
the workplace.
• KRAs are designed for each employee as per their interest, specialization and educational
qualification.
• The employees are clear as to what is expected out of them.
• Management by Objectives process leads to satisfied employees. It avoids job mismatch
and unnecessary confusions later on.
• Employees in their own way contribute to the achievement of the goals and objectives of
the organization. Every employee has his own role at the workplace. Each one feels
indispensable for the organization and eventually develops a feeling of loyalty towards
the organization. They tend to stick to the organization for a longer span of time and
contribute effectively. They enjoy at the workplace and do not treat work as a burden.
• Management by Objectives ensures effective communication amongst the employees. It
leads to a positive ambience at the workplace.
• Management by Objectives leads to well defined hierarchies at the workplace. It ensures
transparency at all levels. A supervisor of any organization would never directly interact
with the Managing Director in case of queries. He would first meet his reporting boss
who would then pass on the message to his senior and so on. Every one is clear about his
position in the organization.
• The MBO Process leads to highly motivated and committed employees.
• The MBO Process sets a benchmark for every employee. The superiors set targets for
each of the team members. Each employee is given a list of specific tasks.
Limitations of Management by objectives Process
• It sometimes ignores the prevailing culture and working conditions of the organization.
• More emphasis is being laid on targets and objectives. It just expects the employees to
achieve their targets and meet the objectives of the organization without bothering much
about the existing circumstances at the workplace. Employees are just expected to
perform and meet the deadlines. The MBO Process sometimes do treat individuals as
mere machines.
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• The MBO process increases comparisons between individuals at the workplace.

Employees tend to depend on nasty politics and other unproductive tasks to outshine their
fellow workers. Employees do only what their superiors ask them to do. Their work lacks
innovation, creativity and sometimes also becomes monotonous.
The 6 steps of the MBO process are;

1. Define organizational goals
2. Define employees objectives
3. Continuous monitoring performance and progress
4. Performance evaluation
5. Providing feedback
6. Performance appraisal
DECISION MAKING:
It is the process of choosing a course of action from among alternatives to achieve a desired goal.
Decision-making is an integral part of modern management. Essentially, Rational or sound
decision making is taken as primary function of management. Every manager takes hundreds and
hundreds of decisions subconsciously or consciously making it as the key component in the role
of a manager. Decisions play important roles as they determine both organizational and
managerial activities. A decision can be defined as a course of action purposely chosen from a set
of alternatives to achieve organizational or managerial objectives or goals. Decision making
process is continuous and indispensable component of managing any organization or business
activities. Decisions are made to sustain the activities of all business activities and organizational
functioning.
Steps in Decision Making Process
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Group Dynamics- Group dynamics deals with the attitudes and behavioral patterns of a group. It
can be used as a means for problem-solving, teamwork, and to become more innovative and
productive as an organization. The concept of group dynamics will also provide you with the
strengths, success factors and measures along with other professional tools.
Creativity Techniques
1.Attribute Listing- Attribute listing is a great technique for ensuring all possible aspects of a problem
have been examined. Attribute listing is breaking the problem down into smaller and smaller bits and
seeing what you discover when you do.
Let's say you are in the business of making torches. You are under pressure from your competition and
need to improve the quality of your product. By breaking the torch down into its component parts -
casing, switch, battery, bulb and the weight - the attributes of each one - you can develop a list of ideas to
improve each one.
Attribute Listing - Improving a torch
Feature Attribute Ideas
Casing Plastic Metal
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Switch On/Off On/Off low beam
Battery Power Rechargable
Bulb Blass Plastic
Weight Heavy Light
Attribute listing is a very useful technique for quality improvement of complicated products, procedures
for services. It is a good technique to use in conjunction with some other creative techniques, especially
idea-generating ones like brainstorming. This allows you to focus on one specific part of a product or
process before generating a whole lot of ideas.
2.Brain Storming- Brainstorming is a group creativity technique by which efforts are made to find a
conclusion for a specific problem by gathering a list of ideas spontaneously contributed by its members.
In other words, brainstorming is a situation where a group of people meet to generate new ideas and
solutions around a specific domain of interest by removing inhibitions. People are able to think more
freely and they suggest as many spontaneous new ideas as possible. All the ideas are noted down without
criticism and after the brainstorming session the ideas are evaluated. The term was popularized by Alex
Faickney Osborn in the 1953 book Applied Imagination.
3.Gordon Technique (Synectics)- The Gordon method involves developing new ideas when the
individuals are unaware of the problem. This implies that group members do not know the exact nature of
the problem.
The entrepreneur begins by mentioning a general concept associated with the problem. The group
thereafter responds by expressing a number of ideas. This can then lead to a concept being developed,
followed by related concept through guidance by the entrepreneur.
At last the actual problem is revealed, enabling the group to make suggestion for the implementation or
refinement of the final solution.
4.Delphi Technique- The Delphi method is a forecasting process framework based on the results of
multiple rounds of questionnaires sent to a panel of experts. Several rounds of questionnaires are sent out
to the group of experts, and the anonymous responses are aggregated and shared with the group after each
round. The experts are allowed to adjust their answers in subsequent rounds, based on how they interpret
the "group response" that has been provided to them. Since multiple rounds of questions are asked and the
panel is told what the group thinks as a whole, the Delphi method seeks to reach the correct response
through consensus.
5.Nominal Group Technique- Nominal group technique (NGT) is defined as a structured method for
group brainstorming that encourages contributions from everyone and facilitates quick agreement on the
relative importance of issues, problems, or solutions. Team members begin by writing down their ideas,
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then selecting which idea they feel is best. Once team members are ready, everyone presents their favorite
idea, and the suggestions are then discussed and prioritized by the entire group using a point system. NGT
combines the importance ratings of individual group members into the final weighted priorities of the
group.
Span of Management:
Meaning of Span of Management:
Depending upon the complexity of organisational activities and relationships amongst superiors and
subordinates, it becomes important the superiors manage an optimum number of subordinates that result
in optimum organisational output. All the subordinates cannot be managed by one superior. There has to
be a limit on the number of subordinates who can be effectively managed by one superior.
The number of subordinates that a superior can effectively supervise is known as span of management or
span of control. In the 19th and middle of 20th century, management writers determined 5 or 6 as the
optimum number that a manager could effectively manage at the upper level.
Depending on the number of employees that can be supervised or controlled by managers, there
can be two kinds of structures in the organisation:
I. Tall structures, and
II. Flat structures.
Tall structures:
These structures are found in classical bureaucratic organisations. In this structure, a manager can
supervise less number of subordinates. He can, therefore, exercise tight control over their activities. This
creates large number of levels in the organisation. This is also known as narrow span of control. A tall
structure or a narrow span of control appears like this.
Flat Structures:
These structures have a wide span of control. When superior supervises a larger number of subordinates,
flat structure is created with lesser number of hierarchical levels.
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Graicunas Theory on Span of Management:

A French management consultant, V.A. Graicunas, introduced a theory on span of management which
explains three kinds of relationships that a superior can have with subordinates. He formulated a theory
and suggested the number of subordinates under one superior based on mathematical calculations.
Superior-subordinate relationships are based on mathematical formulae.
The kind of relationships and the formulae for arriving at the number of relationships is as follows:
Graicunas identified three types of relationships:
1. Direct single relationships,
2. Direct group relationships, and
3. Cross relationships.
1. Direct single relationship:
This is the relationship between the superior and his immediate subordinates. It represents direct contact
of the superior with his subordinates. If there are 3 subordinates (A, B and C) under one superior (X),
there will be three direct single relationships, represented by the formula n. These are relationships
between X and A, X and B, and X and C.
2. Direct group relationships:
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This is the relationship of superior with subordinates in the presence of other subordinates. All possible
combinations of superior and subordinate relationship-exist in group relationships. It represents contact of
the superior with one or more subordinates while others (one or more) assist the relationships.
For one superior (X) and three subordinates (A, B, C), there will be 9 direct group relationships as
follows:
1. X and A with B providing assistance
2. X and A with C providing assistance
3. X and B with C providing assistance
4. X and A with BC providing assistance
5. X and B with AC providing assistance
6. X and C with AB providing assistance
7. X and AB with C providing assistance
8. X and AC with B providing assistance
9. X and BC with A providing assistance
The number of relationship (9) is represented by the formula:
3. Cross relationships:
While the subordinates work under the same superior, they also interact amongst themselves. These are
the relationships amongst subordinates. As interaction with B and B’s interaction with A will be different
as viewed by the managers and, therefore, this relationship will also be different. Based on the formula n
(n -1), with 3 subordinates, 6 such relationships will be formed.
These are between:
A and B
Band A
A and C
C and A
B and C
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C and B
With every increase in the number of subordinates by one, increase in the number of relationships is by
more than one. While, with 2 subordinates, the total number of relationships is 6, with 3 subordinates, it is
18.
Delegation and Decentralization
Basis Delegation Decentralization
Managers delegate some of their

Right to take decisions is shared by top
Meaning function and authority to their
management and other level of management.
subordinates.
Scope of delegation is limited as

Scope is wide as the decision making is
Scope superior delegates the powers to the
shared by the subordinates also.
subordinates on individual bases.
Responsibility remains of the Responsibility is also delegated to

Responsibility
managers and cannot be delegated subordinates.
Freedom is not given to the

Freedom to work can be maintained by
Freedom of subordinates as they have to work
subordinates as they are free to take decision
Work as per the instructions of their
and to implement it.
superiors.
Nature It is a routine function It is an important decision of an enterprise.
Delegation is important in all Decentralization becomes more important in

Need on concerns whether big or small. No large concerns and it depends upon the
purpose enterprises can work without decision made by the enterprise, it is not
delegation. compulsory.
Grant of The authority is granted by one It is a systematic act which takes place at all
Authority individual to another. levels and at all functions in a concern.
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Grant of Authority with responsibility is delegated to

Responsibility cannot be delegated
Responsibility subordinates.
Degree of delegation varies from Decentralization is total by nature. It spreads

Degree concern to concern and department throughout the organization i.e. at all levels
to department. and all functions
Delegation is a process which It is an outcome which explains relationship

Process explains superior subordinates between top management and all other
relationship departments.
Delegation is essential of all kinds Decentralization is a decisions function by

Essentiality
of concerns nature.
Delegation is essential for creating Decentralization is an optional policy at the

Significance
the organization discretion of top management.
It is considered as a general policy of top

Delegated authority can be taken
Withdrawal management and is applicable to all
back.
departments.
Freedom of Very little freedom to the

Considerable freedom
Action subordinates
Decentralization can be called as extension of delegation. When delegation of authority is done to the
fullest possible extent, it gives use to decentralization.
Organization Structure:
An organizational structure defines how jobs and tasks are formally divided, grouped and coordinated.
The type of organizational structure would depend upon the type of organization itself and its philosophy
of operations. Basically the structure can be mechanistic or organic in nature or a combination of thereof.
However, most organizational structures are still designed along mechanistic or classical lines.
Key Elements for Proper Organizational Structure
• Work Specialization: To what degree are articles subdivided into separate jobs?
• Departmentalization: On what basis jobs will be grouped?
• Chain of Command: To whom will individuals and groups report?
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• Span of Control: Up to how many individuals can a manager efficiently direct?

• Centralization vs Decentralization: Who will be the sole maker of decisions?
• Formalization: To what degree will there be rules and regulations to direct employees
and managers?
Some of the most common organization structures are:
Line Organization
Line organization is the simplest form of organization and is most common among small companies. The
authority is embedded in the hierarchical structure and it flows in a direct line from the top of the
managerial hierarchy down to different levels of managers and subordinates and further down to the
operative levels of workers. It clearly identifies authority, responsibility and accountability at each level.
These relationships in the hierarchy connect the position and tasks of each level with those above and
below it. There is clear unity of command so that the person at each level is reasonably independent of
any other person at the same level and is responsible only to the person above him. The line personnel are
directly involved in achieving the objectives of the company.
Line and Staff Organization
In this type of organization, the functional specialists are added to the line, thus giving the line the
advantages of specialists. This type of organization is most common in our business economy and
especially among large enterprises. Staff is basically advisory in nature and usually does not possess and
command authority over line mangers. The staff consists of two types:
General Staff: This group has a general background that is usually similar to executives and serves as
assistants to top management. They are not specialists and generally have no authority or responsibility of
their own. They may be known as special assistants, assistant managers or in a college setting as deputy
chairpersons.
Specialized Staff: Unlike the general staff who generally assist only one line executive, the specialized
staff provides expert staff advice and service to all employees on a company wide basis.
Functional Organization
One of the disadvantages of the line organization is that the line executives lack specialization.
Additionally, a line manager cannot be a specialist in all areas. In the line and staff type of organization,
the staff specialist does not have the authority to enforce his recommendations. The functional
organizational concept, originated with Fredrick W. Taylor and it permits a specialist in a given area to
enforce his directive within the clearly defined scope of his authority.
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Divisional Organization
The divisional or departmental organization involves grouping of people or activities with similar
characteristics into a single department or unit. Also known as self-contained structures, these
departments operate as if these were small organizations under a large organizational umbrella, meeting
divisional goals as prescribed by organizational policies and plans.
Project Organization
These are temporary organizational structures formed for specific projects for a specific period of time
and once the goal is achieved, these are dismantled. For example, the goal of an organization may be to
develop a new automobile. For this project, the specialists from different functional departments will be
drawn to work together.
These functional departments are production, engineering, quality control marketing research, etc. When
the project is completed, these specialists go back to their respective duties. These specialists are basically
selected on the basis of task related skills and technical expertise rather than decision-making experience
or planning ability.
Matrix Organization
A matrix structure is, in a sense, a combination and interaction of project and functional structures and is
suggested to overcome the problems associated with project and functional structures individually. The
key features of a matrix structure are that the functional and project lines of authority are super-imposed
with each other and are shared by both functional and project managers.
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The project managers are generally responsible for overall direction and integration of activities and
resources related to the project. They are responsible for accomplishing work on schedule and within the
prescribed budget. They are also responsible for integrating the efforts of all functional managers to
accomplish the project and directing and evaluating project activity. The functional managers are
concerned with the operational aspects of the project.
Management of Change
Kurt Lewin’s Three Stages model or the Planned Approach to Organizational is one of the cornerstone
models which is relevant in the present scenario even. Lewin, a social scientist and a physicist, during
early 1950s propounded a simple framework for understanding the process of organizational change
known as the Three-Stage Theory which he referred as Unfreeze, Change (Transition) and Freeze
(Refreeze).
According to Lewin, Change for any individual or an organization is a complicated journey which may
not be very simple and mostly involves several stages of transitions or misunderstandings before attaining
the stage of equilibrium or stability.
For explaining the process of organizational change, he used the analogy of how an ice block changes its
shape to transform into a cone of ice through the process of unfreezing.
Source: www.strategies-for-managing-change.com
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Stage 1 - Unfreezing: This is the first stage of transition and one of the most critical stages in the entire
process of change management. It involves improving the readiness as well as the willingness of people
to change by fostering a realization for moving from the existing comfort zone to a transformed situation.
It involves making people aware of the need for change and improving their motivation for accepting the
new ways of working for better results. During this stage, effective communication plays a vital role in
getting the desired support and involvement of the people in the change process.
Stage 2 - Change: This stage can also be regarded as the stage of Transition or the stage of actual
implementation of change. It involves the acceptance of the new ways of doing things. This is the stage in
which the people are unfrozen, and the actual change is implemented. During this stage, careful planning,
effective communication and encouraging the involvement of individuals for endorsing the change is
necessary. It is believed that this stage of transition is not that easy due to the uncertainties or people are
fearful of the consequences of adopting a change process.
Stage 3 - Freeze (Refreezing): During this stage, the people move from the stage of transition (change)
to a much more stable state which we can regard as the state of equilibrium. The stage of Refreezing is
the ultimate stage in which people accept or internalize the new ways of working or change, accept it as a
part of their life and establish new relationships. For strengthening and reinforcing the new behaviour or
changes in the way of working, the employees should be rewarded, recognized and provided positive
reinforcements, supporting policies or structures can help in reinforcing the transformed ways of working.
Directing:
DIRECTING is said to be a process in which the managers instruct, guide and oversee the performance
of the workers to achieve predetermined goals. Directing is said to be the heart of management
process. Planning, organizing, staffing have got no importance if direction function does not take place.
Direction has got following characteristics:
1. Pervasive Function - Directing is required at all levels of organization. Every manager provides
guidance and inspiration to his subordinates.
2. Continuous Activity - Direction is a continuous activity as it continuous throughout the life of

organization.
3. Human Factor - Directing function is related to subordinates and therefore it is related to human
factor. Since human factor is complex and behaviour is unpredictable, direction function becomes
important.
4. Creative Activity - Direction function helps in converting plans into performance. Without this
function, people become inactive and physical resources are meaningless.
5. Executive Function - Direction function is carried out by all managers and executives at all
levels throughout the working of an enterprise, a subordinate receives instructions from his
superior only.
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6. Delegate Function - Direction is supposed to be a function dealing with human beings. Human
behaviour is unpredictable by nature and conditioning the people’s behaviour towards the goals
of the enterprise is what the executive does in this function. Therefore, it is termed as having
delicacy in it to tackle human behaviour.
Theories of Motivation:
Maslow’s Need Hierarchy Model:
A.H. Maslow developed a conceptual framework for understanding human motivation which has been
widely acclaimed. He defined a person’s effectiveness as a function of matching man’s opportunity with
the appropriate position of hierarchy of needs. Process of motivation begins with an assumption that
behaviour, at least in part, is directed towards the achievement of satisfaction of needs. Maslow proposed
that human needs can be arranged in a particular order from the lower to the higher.
The need hierarchy is as follows:
1. Basic Physiological Needs – The needs that are taken as the starting point for motivation theory are the
so-called physiological needs. These needs relate to the survival and maintenance of human life. They
include such things as food, clothing, shelter, air, water and other necessities of life.
2. Safety and Security Needs – After satisfying the physiological needs, people want the assurance of
maintaining a given economic level. They want job security, personal bodily security, security of source
of income, provision for old age, insurance against risks, etc.
3. Social Needs – Man is social being. He is, therefore, interested in conversation, sociability, exchange of
feelings and grievances, companionship, recognition, belongingness, etc.
4. Esteem and Status Needs – These needs embrace such things as self-confidence, independence,
achievement, competence, knowledge, and success. They are also known as egoistic needs. They are
concerned with prestige and status of the individual.
5. Self-fulfilment Needs – The final step under the need priority model is the need for self- fulfilment or
the need to fulfil what a person considers to be his mission in life. It involves realising one’s potentialities
for continued self-development and for being creative in the broadest sense of the word. After his other
needs are fulfilled, a man has the desire for personal achievement. He wants to do something which is
challenging and since this challenge gives him enough dash and initiative to work, it is beneficial to him
in particular and to the society in general. The sense of achievement gives him psychological satisfaction.
Herzberg’s Motivation-Hygiene Model:
Some job conditions operate primarily to dissatisfy employees when they are absent, but their presence
does not motivate employees in a strong way. Many of these factors are traditionally perceived by
management as motivators, but the factors are really more potent as dissatisfiers. They are called
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maintenance factors in job because they are necessary to maintain a reasonable level of satisfaction
among the employees.
Their absence proves to be a strong dissatisfier. They are also known as dissatisfiers or ‘hygiene factors’
because they support employees’ mental health. Another set of job conditions operates primarily to build
strong motivation and high job satisfaction among the employees. These conditions are ‘motivational
factors’.
Maintenance and Motivational Factors:
Maintenance or Hygiene Factors:
i. Company Policy and Administration
ii. Technical Supervision
iii. Inter-personal relations with Supervisor
iv. Inter-personal relations with Peers
v. Inter-personal relations with Subordinates
vi. Salary
vii. Job Security
viii. Personal life
ix. Working Conditions
x. Status.
Motivational Factors:
i. Achievement
ii. Recognition
iii. Advancement
iv. Work itself
v. Possibility of growth
vi. Responsibility.
McClelland’s Theory:
Another motivational model stressing higher-level needs is that of David McClelland who described
people in terms of three needs – Power, achievement, and affiliation.
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These are discussed below:
(i) Need for Power (nPow):
The need for power is expressed as a desire to influence others. In relation to Maslow’s hierarchy, power
would fall somewhere between the needs for esteem and self actualisation. People with a need for power
tend to exhibit behaviours such as outspokenness, forcefulness, willingness to engage in confrontation,
and a tendency to stand by their original position.
They often are persuasive speakers and demand a great deal from others. Management often attracts
people with a need for power because of the many opportunities it offers to exercise and increase power.
Managers who are motivated by the need for power are not necessarily “power hungry” in the sense in
which the expression is often used.
(ii) Need for Achievement (nAch):
The need for achievement would fall between those for esteem and self-actualisation. This need is
satisfied not by the manifestations of success, which confer status, but with the process of carrying work
to its successful completion.
Individuals with a high need for achievement generally will take moderate risks, like situations in which
they can take personal responsibility for finding solutions to problems, and want concrete feedback on
their performance. As McClelland points out, “No matter how high a person’s need to achieve may be, he
cannot succeed if he has no opportunities, if the organisation keeps him away from taking initiative, or
does not reward him if he does.”
Thus, if management wishes to motivate individuals operating on the achievement level, it should assign
them tasks that involve a moderate degree of risk of failure, delegate to them enough authority, to take
initiative in completing their tasks, and give them periodic, specific feedback on their performance.
(iii) Need for Affiliation (nAff):
McClelland’s affiliative motive is similar to Maslow’s. The person is concerned with forming friendly
relations with others, desire for companionship, and the desire to help others. People dominated by the
affiliative need would be attracted to jobs that allow considerable social interactions. Managers of such
individuals should create a climate that does not constrain interpersonal relations. A manager could also
facilitate their need satisfaction by spending more time with such individuals and periodically bringing
them together as a group.
Porter and Lawler Expectancy Model:
Porter and Lawler Mode is an improvement over Vroom’s Expectancy Mode.
It is based on four assumptions about behaviour in organisations:
1. Expectancy (Effort-Performance Probability):
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It refers to the extent to which the person perceives or believes that his efforts would lead to the
completion of a task. Expectancy is stated as a probability, i.e., an individual’s estimate of the probability
of an outcome from an action.
2. Instrumentality (Performance-Reward Probability):
It refers to the probability to which the performance (first level outcome) would lead to the desired reward
(second level outcome). For instance, an individual wants a promotion and feels that superior
performance is very important in achieving promotion. Superior performance is the first level outcome
and promotion is the second level outcome. The first-level outcome of high performance acquires a
positive valence by virtue of its expected relationship to the preferred second level outcome of promotion.
In other words, superior performance (first-level outcome) will be instrumental in obtaining promotion
(second level outcome). The value of instrumentality also ranges from 0 to 1 as it is the probability of
achieving the desired outcome.
Motivation is the product of valence, expectancy and instrumentality. These three factors in the
expectancy model may exist in an infinite number of combinations depending upon the range of valence
and the degrees of expectancy and instrumentality
McGregor’s Theory X’ and Theory Y’:
Theory X:
Theory X indicates the traditional approach to managerial motivation and control. It represents old
stereotyped and authoritarian management style of motivation.
The underlying assumptions of this theory are as follows:
(i) The average human being is basically lazy and has an inherent dislike to work. He will avoid work, if
he can.
(ii) Most people lack ambition. They are not interested in achievement. They like to be directed.
(iii) Most people have little capacity for creativity in solving organisational problems.
(iv) Most people are indifferent to the organisational goals.
(v) Most people must be closely controlled and often threatened to achieve organisational goals.
(vi) Motivation of average human beings occurs at the physiological (food, clothing, shelter, etc.) and
safety levels.
Theory Y:
After challenging the validity of Theory X, McGregor developed an alternative theory of human
behaviour which is known as Theory Y. This theory assumes that people are not unreliable and lazy by
nature. It they are properly motivated, they could really be creative. The main task of the management is
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to unleash the potential in the employees. An employee who is properly motivated can achieve his goals
by directing his own efforts and, thus, he can help in accomplishing the organisational goals.
The assumptions of McGregor’s Theory Y are as follows:
(i) Work is as natural as play, if the conditions are favourable. The average person does not inherently
dislike work.
(ii) External control and threat of punishment are not the only means for bringing about efforts towards
organisational objectives. The average human being will exercise self-direction and self-control in the
service of objectives to which he is committed.
(iii) Commitment to objectives is a function of the rewards associated with their achievement. The most
significant of such rewards, e.g., the satisfaction of ego and self-actualisation needs can be direct products
of efforts towards organisation objectives.
(iv) The average human being learns under proper conditions, not only to accept but also to seek
responsibility. Avoidance of responsibility, lack of ambition and emphasis on security are generally the
consequences of experience, not inherent in human characteristics.
(v) The capacity to exercise a relatively high degree of imagination, ingenuity and creativity in the
solution of organisational problems is widely, not narrowly, distributed in the population.
(vi) The intellectual potentialities of the average human being are only partially utilised under the
conditions of modern industrial life.
Ouchi’s Theory Z:
International attention is being focused on the outstanding performance of the Japanese economy and the
success of management practices being adopted by Japanese firms. Interest in Japanese management has
rapidly increased in America and other countries. William Ouchi made a comparative study of American
and Japanese management practices. He came to the conclusion that many of the Japanese management
practices can be adopted in American context.
He suggested the adoption of Theory Z. It may be noted that Theory Z is not a theory in the true sense. It
is merely a label interchangeable with type Z. It describes human behaviour as in the case of theories X
and Y. The expression ‘Theory Z’ was adopted not for analytical purpose but for promotional purpose. It
may be noted that the label Z has been used by Urwick, Rangnekar and Ouchi. But Ouchi’s views have
got much publicity in the business world.
Alderfer’s ERG Theory of Motivation:
Taking Maslow’s theory as the starting point, Clayton Alderfer (1969) built a theory which he claims has
realistic application to a work organization. According to him, Maslow’s five levels of needs can be
amalgamated into three—existence, relatedness, and growth—resulting in his approach being termed as
the ERG Theory.
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i. Existence Needs – These include all forms of physiological and safety needs or the first two levels of
Maslow’s hierarchy.
ii. Related needs – These include relationship with other people (social needs of Maslow’s third level) and
the need for recognition and respect that forms the part of Maslow’s fourth level (esteem needs).
iii. Growth needs – Similar to Maslow’s notion of self-actualization, these are concerned with the desire
to be creative and to achieve full potential in the existing environment.
The novelty of Alderfer’s theory lies not in the regrouping of the needs but in doing away with the
hierarchy of human needs. He conceived the ERG theory, thereby avoiding the implication that the higher
up an individual is in the hierarchy, the better he is.
According to him, different types of needs can operate simultaneously, and if a particular path towards
satisfaction is blocked, the individual will both persist along that path and at the same time regress
towards more easily satisfied needs. In this way, he distinguishes between chronic needs which persist
over a period and episode needs which are situational and can change according to the environment.
Management Information System

MIS is the use of information technology, people, and business processes to record, store and process data
to produce information that decision makers can use to make day to day decisions.
MIS is the acronym for Management Information Systems. In a nutshell, MIS is a collection of
systems, hardware, procedures and people that all work together to process, store, and produce
information that is useful to the organization.
The need for MIS
The following are some of the justifications for having an MIS system
• Decision makers need information to make effective decisions. Management Information

Systems (MIS) make this possible.
• MIS systems facilitate communication within and outside the organization – employees
within the organization are able to easily access the required information for the day to day
operations. Facilitates such as Short Message Service (SMS) & Email make it possible to
communicate with customers and suppliers from within the MIS system that an organization is
using.
• Record keeping – management information systems record all business transactions of an

organization and provide a reference point for the transactions.
Leadership Theories
Blake and Mouton’s Managerial Grid
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Robert Blake and Jane Mouton (1960s) proposed a graphic portrayal of leadership styles through
a managerial grid (sometimes called leadership grid). The grid depicted two dimensions of leader
behavior, concern for people (accommodating people’s needs and giving them priority) on y-axis
and concern for production (keeping tight schedules) on x-axis, with each dimension ranging from low (1)
to high (9), thus creating 81 different positions in which the leader’s style may fall. (See figure)
The five resulting leadership styles are as follows:
1. Impoverished Management (1, 1): Managers with this approach are low on both the dimensions
and exercise minimum effort to get the work done from subordinates. The leader has low concern
for employee satisfaction and work deadlines and as a result disharmony and disorganization
prevail within the organization. The leaders are termed ineffective wherein their action is merely
aimed at preserving job and seniority.
2. Task management (9, 1): Also called dictatorial or perish style. Here leaders are more concerned
about production and have less concern for people. The style is based on theory X of McGregor.
The employees’ needs are not taken care of and they are simply a means to an end. The leader
believes that efficiency can result only through proper organization of work systems and through
elimination of people wherever possible. Such a style can definitely increase the output of
organization in short run but due to the strict policies and procedures, high labour turnover is
inevitable.
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3. Middle-of-the-Road (5, 5): This is basically a compromising style wherein the leader tries to
maintain a balance between goals of company and the needs of people. The leader does not push
the boundaries of achievement resulting in average performance for organization. Here neither
employee nor production needs are fully met.
4. Country Club (1, 9): This is a collegial style characterized by low task and high people
orientation where the leader gives thoughtful attention to the needs of people thus providing them
with a friendly and comfortable environment. The leader feels that such a treatment with
employees will lead to self-motivation and will find people working hard on their own. However,
a low focus on tasks can hamper production and lead to questionable results.
5. Team Management (9, 9): Characterized by high people and task focus, the style is based on the
theory Y of McGregor and has been termed as most effective style according to Blake and
Mouton. The leader feels that empowerment, commitment, trust, and respect are the key elements
in creating a team atmosphere which will automatically result in high employee satisfaction and
production.
House’s Path Goal Theory
The theory was developed by Robert House and has its roots in the expectancy theory of motivation. The
theory is based on the premise that an employee’s perception of expectancies between his effort and
performance is greatly affected by a leader’s behavior.
House’s theory advocates servant leadership. As per servant leadership theory, leadership is not viewed
as a position of power. Rather, leaders act as coaches and facilitators to their subordinates. According to
House’s path-goal theory, a leader’s effectiveness depends on several employee and environmental
contingent factors and certain leadership styles. All these are explained in the figure:
Leadership Styles
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The four leadership styles are:
• Directive: Here the leader provides guidelines, lets subordinates know what is expected of them,
sets performance standards for them, and controls behavior when performance standards are not
met. He makes judicious use of rewards and disciplinary action. The style is the same as task-
oriented one.
• Supportive: The leader is friendly towards subordinates and displays personal concern for their
needs, welfare, and well-being. This style is the same as people-oriented leadership.
• Participative: The leader believes in group decision-making and shares information with
subordinates. He consults his subordinates on important decisions related to work, task goals, and
paths to resolve goals.
• Achievement-oriented: The leader sets challenging goals and encourages employees to reach
their peak performance. The leader believes that employees are responsible enough to accomplish
challenging goals. This is the same as goal-setting theory.
According to the theory, these leadership styles are not mutually excusive and leaders are capable of
selecting more than one kind of a style suited for a particular situation.
Great Man Theory of Leadership
Are some people born to lead? If we look at the great leaders of the past such as Alexander the Great,
Julius Caesar, Napoleon, Queen Elizabeth I, and Abraham Lincoln, we will find that they do seem to
differ from ordinary human beings in several aspects. The same applies to the contemporary leaders like
George W. Bush and Mahatma Gandhi. They definitely possess high levels of ambition coupled with
clear visions of precisely where they want to go. These leaders are cited as naturally great leaders, born
with a set of personal qualities that made them effective leaders. Even today, the belief that truly great
leaders are born is common.
Top executives, sports personalities, and even politicians often seem to possess an aura that sets them
apart from others. According to the contemporary theorists, leaders are not like other people. They do not
need to be intellectually genius or omniscient prophets to succeed, but they definitely should have the
right stuff which is not equally present in all people. This orientation expresses an approach to the study
of leadership known as the great man theory.
Assumptions
• The leaders are born and not made and posses certain traits which were inherited
• Great leaders can arise when there is a great need.
Trait Theory of Leadership
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The trait model of leadership is based on the characteristics of many leaders - both successful and
unsuccessful - and is used to predict leadership effectiveness. The resulting lists of traits are then
compared to those of potential leaders to assess their likelihood of success or failure.
Among the core traits identified are:
• Achievement drive: High level of effort, high levels of ambition, energy and initiative
• Leadership motivation: an intense desire to lead others to reach shared goals
• Honesty and integrity: trustworthy, reliable, and open
• Self-confidence: Belief in one’s self, ideas, and ability
• Cognitive ability: Capable of exercising good judgment, strong analytical abilities, and
conceptually skilled
• Knowledge of business: Knowledge of industry and other technical matters
• Emotional Maturity: well adjusted, does not suffer from severe psychological disorders.
• Others: charisma, creativity and flexibility
Transformational Leadership Theory:
Transformational leadership may be found at all levels of the organization: teams, departments, divisions,
and organization as a whole. Such leaders are visionary, inspiring, daring, risk-takers, and thoughtful
thinkers. They have a charismatic appeal. But charisma alone is insufficient for changing the way an
organization operates. For bringing major changes, transformational leaders must exhibit the following
four factors:
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Transactional Leadership Theory:
Transactional leadership involves motivating and directing followers primarily through appealing to their
own self-interest. The power of transactional leaders comes from their formal authority and responsibility
in the organization. The main goal of the follower is to obey the instructions of the leader. The style can
also be mentioned as a ‘telling style’.
The leader believes in motivating through a system of rewards and punishment. If a subordinate does
what is desired, a reward will follow, and if he does not go as per the wishes of the leader, a punishment
will follow. Here, the exchange between leader and follower takes place to achieve routine performance
goals.
These exchanges involve four dimensions:
Contingent Rewards: Transactional leaders link the goal to rewards, clarify expectations,
provide necessary resources, set mutually agreed upon goals, and provide various kinds of rewards for
successful performance. They set SMART (specific, measurable, attainable, realistic, and timely) goals
for their subordinates.
Active Management by Exception: Transactional leaders actively monitor the work of their
subordinates, watch for deviations from rules and standards and taking corrective action to prevent
mistakes.
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Passive Management by Exception: Transactional leaders intervene only when standards are
not met or when the performance is not as per the expectations. They may even use punishment as a
response to unacceptable performance.
Laissez-faire: The leader provides an environment where the subordinates get many
opportunities to make decisions. The leader himself abdicates responsibilities and avoids making
decisions and therefore the group often lacks direction.
Continuum of Leadership Behaviour:
The leadership continuum was originally written in 1958 by Tannenbaum and Schmidt and was later
updated in the year 1973. Their work suggests a continuum of possible leadership behavior available to a
manager and along which many leadership styles may be placed. The continuum presents a range of
action related to the degree of authority used by the manager and to the area of freedom available to non-
managers in arriving at decisions. A broad range of leadership styles have been depicted on the
continuum between two extremes of autocratic and free rein (See figure)
A manager is characterized according to degree of control that is maintained by him. According to this
approach, four main styles of leadership have been identified:
• Tells: The manager identifies a problem, chooses a decision, and announces this to subordinates.
The subordinates are not a party to the decision making process and the manager expects them to
implement his decisions as soon as possible.
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• Sells: The decision is chosen by the manager only but he understands that there will be some
amount of resistance from those faced with the decision and therefore makes efforts to persuade
them to accept it.
• Consults: Though the problem is identified by the manager, he does not take a final decision. The
problem is presented to the subordinates and the solutions are suggested by the subordinates.
• Joins: The manager defines the limits within which the decision can be taken by the subordinates
and then makes the final decision along with the subordinates.
Hersey and Blanchard Situational Theory:
The theory, developed by Paul Hersey and Kenneth Blanchard, is based on the ’readiness’ level of the
people the leader is attempting to influence. Readiness is the extent to which followers have the ability
and willingness to accomplish a specific task. Ability is the knowledge, experience, and skill that an
individual possesses to do the job and is called job readiness. Willingness is the motivation and
commitment required to accomplish a given task.
Interpretation of Hersey and Blanchard basic structure
Follower Leadership style H & B

Quick description Continuum
'situation' emphasis terminology
Unable and high task - low instruction, direction,

Telling (S1) M1
Unwilling relationship autocratic
Unable but high task - high persuasion,

Selling (S2) M2
Willing relationship encouragement, incentive
Able but low task - high Participating involvement, consultation,

M3
Unwilling relationship (S3) teamwork
Able and low task - low trust, empowerment,

Delegating (S4) M4
Willing relationship responsibility
Fiedler Contingency Theory:
According to Fiedler, a leader’s behavior is dependent upon the favorability of the leadership situation.
Three factors work together to determine how favorable a situation is to a leader. These are:
• Leader-member relations - The degree to which the leaders is trusted and liked by the group
members, and the willingness of the group members to follow the leader’s guidance
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• Task structure - The degree to which the group’s task has been described as structured or
unstructured, has been clearly defined and the extent to which it can be carried out by detailed
instructions
• Position power - The power of the leader by virtue of the organizational position and the degree
to which the leader can exercise authority on group members in order to comply with and accept
his direction and leadership
With the help of these three variables, eight combinations of group-task situations were constructed by
Fiedler. These combinations were used to identify the style of the leader.
Figure : Correlation between leader’s LPC scores and group effectiveness
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Knowledge Arena

KNOWLEDGE ARENA FOR

Business Management Notes

The various characteristics of management are:

(f) Management is multi-disciplinary: Management of an organisation requires wide knowledge about

The nature of management can be better appreciated by looking at it

(Important Note: POSDCORB is an acronym which means Planning, Organizing, Staffing,

Evolution of Management Thought

Management Thought Time Period

• Pre-scientific Management Upto 19th century

• Classical Approach- Main features of this approach as follows:

• Behavioural (Neo-classical) Approach-Main features of this approach as follows:

Hawthorne Experiment by Elton Mayo:-

2. Relay Assembly Test Room Experiment:

3. Mass Interview Programme:

4. Bank Wiring Test Room Experiment:

• Each individual was restricting output.

Difference between Human Relations and Behavioural Approach

Basis of Distinction Human Relations Behavioural Approach

1. Focus Focus on interpersonal skills Focus on group relation

8. Assumptions Individuals have same needs. Individuals have different needs

10. Scope Narrow Wide

• Quantitative Approach: Main features of it-

2. Variables can be presented in the form of mathematical model.

Summary of Quantitative Techniques:

1. Decision Theory- Determination of objectives of firm, assessment of group conflicts and

• System Approach- Main features of it:

• Contingency (Situational) Approach- Main features of it-

1. Management is entirely situational.

Henry Fayol 14 Principles of Management

4. Unity of Command – Employees should have only one direct supervisor.

Four Principles of Scientific Management

2. Standardization of Tools and Equipment:

3. Scientific Selection, Placement and Training:

4. Development of Functional Foremanship:

These Involved in Planning are:

The foremen involved in actual implementation of work are:

5. Introducing Costing System:

Modern Management Gurus and Their Contribution:

• Bargaining power of suppliers

(A) The bargaining power of suppliers

(B) The bargaining power of buyers

The seller’s industry consists of a large number of relatively small companies

(C) Threats of new entrants

Barriers to entry mainly include the following factors:

(D) Threats of Substitutes

(E) Competition among existing competitors in the industry

Porter’s Generic Strategies

The Cost Leadership Strategy

• Increasing profits by reducing costs, while charging industry-average prices.

The Differentiation Strategy

• To make a success of a Differentiation strategy, organizations need:

The Focus Strategy

Porter’s Value Chain Analysis

The Value Chain activities

Marketing and Sales

Support activities of the Value Chain Analysis

Human resource management

Understanding the Ansoff Matrix