BA 5102 -PRINCIPLES OF MANAGEMENT

UNIT I – INTRODUCTION TO MANAGEMENT

Organizations abound in today's society. Groups of individuals function as groups to
accomplish common goals. Sometimes the goals of these organizations are for profit and
sometimes the goals are to render services to the society. As organizations deal with today’s
challenges—the worldwide economic climate, changing technology, ever increasing
globalization, and so forth—managers play an important role in identifying critical issues and
crafting responses. Moreover managers are important to organizations since they’re critical in
getting things done. Managers get things done through other people. They make decisions,
allocate resources, and direct the activities of others to attain goals.

Management is a universal phenomenon. It is a very popular and widely used term. All
organizations - business, political, cultural or social are involved in management because it is
only because of management the various efforts are directed towards a definite purpose.
According to Harold Koontz, “Management is an art of getting things done through and with
the people in formally organized groups. It is an art of creating an environment in which
people can perform and individuals and can co-operate towards attainment of group goals”.
According to F.W. Taylor, “Management is an art of knowing what to do, when to do and see
that it is done in the best and cheapest way”.

Management is a purposive activity. It is something that directs group efforts towards the
attainment of certain pre - determined goals. It is the process of working with and through
others to effectively achieve the goals of the organization, by efficiently using limited
resources in the changing world. Of course, these goals may vary from one enterprise to
another. E.g.: For one enterprise it may be launching of new products by conducting market
surveys and for other it may be profit maximization by minimizing cost.

DEFINITION OF ORGANIZATION
According to Gary Johns, "Organisations are social inventions for accomplishing goals
through group efforts". This definition covers wide variety-of groups such as businesses,
schools, hospitals, fraternal groups, religious bodies, government agencies and so on. There
are three significant aspects in the above definition, which require further analysis. They are
as follows:

 Social Inventions: The word "social" as a derivative of society basically means

gathering of people. It is the people that primarily make up an organisation.
 Accomplishing Goals: All organisations have reasons for their existence. These
reasons are the goals towards which all organisational efforts are directed. While the
primary goal .of any commercial organisation is to make money for its owners, this
goal is inter-related with many other goals. Accordingly, any organisational goal must
integrate in itself the personal goals of all individuals associated with the organisation.
 Group Effort: People, both as members of the society at large and as a part of an
organisation interact with each other and are inter-dependent. Individuals in
themselves have physical and intellectual limitations and these limitations can only be
overcome by group efforts.

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FEATURES OF ORGANISATION

 IDENTIFIABLE AGGREGATION OF HUMAN BEINGS – Organisation is an

identifiable aggregation of human beings. The identification is possible because
human group is not merely a number of persons collected at random, but it is a group
of persons who are interrelated. The identifiable group of individuals determine the
boundary of the organization.
 DELIBERATE AND CONSCIOUS CREATION – Organisation is deliberately and
consciously created human group. It implies that the relationship between the
organization and its members is contractual. The organisation can also recombine its
personnel through promotion , demotion and transfer.
 PURPOSIVE CREATION - Organisation is a purposive creation because all the
organizations have a set of goals or objectives to be accomplished. The objectives are
mutually agreed upon by the members of the group. An organisational objective is the
desired state of affairs which the organization attempts to realize.
 COORDINATION OF ACTIVITIES – In the organisation there is the coordination
or the closely relevant activities of its members. Coordination is necessary because all
the members contribute to commonly agreed goals.
 STRUCTURE – The coordination of human activities requires a structure wherein
various individuals are fitted. The structure provides for power centres which
coordinate and control efforts of the organisation and direct them towards its goals.
The very idea of coordination implies that each individual submits to some kind of
authority for the sake of achievement of common objective.
 RATIONALITY – There is a rationality in the coordination of objectives and
behaviour. Every organization has some specified norms and standards of behaviour
and the behaviour is governed by the reward and punishment system of the
organisation which acts as a binding force on its members. The desirable behaviour is
rewarded and the undesirable is punished.

MANAGEMENT
Management is commonly defined as "Getting work done through other people". This simple
definition explains the significance of the role of people. The work will not be done unless
"people" want to do the work and if the work is not done then there will be no organisation.
Hence, the cooperation of the workers is crucial to the success or failure of the organisation.

DEFINITIONS OF MANAGMENT

 According to Harold Koontz, “Management is an art of getting things done through

and with the people in formally organized groups. It is an art of creating an
environment in which people can perform and individuals can co-operate towards
attainment of group goals”.
 According to Peter F Drucker , "Management is a multi-purpose organ that manages
a business, manages managers and manages worker and work".

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ROLE OF MANAGERS
 INTERPERSONAL ROLES - In every organization managers spend a considerable
amount of time in interacting with other people both within their own organizations as
well as outside. These people include peers, subordinates, superiors, suppliers,
customers, government officials and community leaders. These interactions involve
the following three major interpersonal roles:

 Figure/lead Role: Managers act as symbolic figureheads performing social or legal

obligations. These duties include greeting visitors, signing legal documents, taking
important customers to lunch, attending a subordinate's wedding and speaking at
functions in schools and churches. All these, primarily, are duties of a ceremonial
nature but are important for the smooth functioning of an organization.
 Leadership Role: Since the manager is responsible for the activities of his
subordinates he must lead and coordinate their activities in meeting task-related goals
and motivate them to perform better. He must be an ideal leader so that his
subordinates follow his directions and guidelines with respect and dedication.
 Liaison Role: The managers must maintain a network of outside contacts. In addition,
they need to have a constant contact with their own subordinates, peers and superiors
in order to assess the external environment of competition, social changes or changes
in governmental rules and regulations. This can be achieved by attending meetings
and professional conferences, personal phone calls, trade journals and informal
personal contacts with outside agencies.

 INFORMATION ROLES - A manager, by virtue of his interpersonal contacts,

emerges as a source of information about a variety of issues concerning an
organization. In this capacity of information processing, a manager executes the
following three roles.
 Monitor Role: The managers constantly monitor and scan their internal and external
environment, collect and study information regarding their organization. This can be
done by reading reports and periodicals, interrogating their liaison contacts and
through gossip, hearsay and speculation.
 Information Disseminator Role: The managers must transmit the information
regarding changes in policies or other matters to their subordinates, their peers
and to other members of an organization. This can be done through memos, phone
calls, individual meetings and group meetings.
 Spokesman Role: A manager has to be a spokesman for his unit and represent his
unit in either sending relevant information to people outside his unit or making some
demands on behalf of his unit.

 DECISION ROLES - A manager must make decisions and solve organizational

problems on the basis of the environmental information received. In that respect, a
manager plays four important roles.
 Entrepreneur Role: Managers, as entrepreneurs are constantly involved in improving
their units and facing the dynamic technological challenges. They are constantly on
the lookout for new ideas for product improvement or product addition.
 Conflict Handling Role: The managers are constantly involved as judge in solving
conflicts among the employees and between employees and management. Mangers
must anticipate such problems and take preventive action and take corrective action

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 once the problem arises. These problems may involve labour disputes, customer
complaints, employee grievances, machine breakdowns, cash flow shortages and
interpersonal conflicts.
 Resource Allocation Role: The managers establish priorities among various projects
or programs and make budgetary allocations to different activities of an organization
based on these priorities.
 Negotiator Role: The managers in their negotiator role represent their organization in
negotiating deals and agreements within and outside an organization. They negotiate
contracts with the unions. Sales managers may negotiate prices with prime customers.
Purchasing managers may negotiate prices with vendors.
All these ten roles are important in a manager's job and are interrelated, even though some
roles may be more influential than others depending upon the managerial position. For
example, sales manager gives more importance to interpersonal roles, while the production
manager may give more importance to decisional roles.

MANAGERIAL FUNCTIONS

Managers need to perform certain activities or functions while they efficiently and effectively
coordinate the work of others. In the early part of the twentieth century it was propounded
that managers need to perform five important managerial functions. They are planning,
organizing, staffing, directing and controlling.
Luther Gullick has used a keyword in this regard by name ‘POSDCORB’ where P stands
for Planning, O for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for
reporting & B for Budgeting. But the most widely accepted are functions of management
given by KOONTZ and O’DONNEL i.e. Planning, Organizing, Staffing, Directing and
Controlling.

 PLANNING - Planning is a predetermined course of action. It is the process of

determining the organizational goals and formulation of policies and programmes for
achieving them. Planning can therefore be considered as future oriented which is
concerned with clearly charting out the desired direction of business activities in
future. It is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc. Forecasting is one of the important elements in the
planning process.

Functions of Management

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  ORGANIZING - Organizing is a process by which the structure and allocation of
jobs are determined. Thus, Organizing involves giving each subordinate a specific
task, establishing departments, delegating authority to subordinates, establishing
channels of authority and communication, coordinating the work of the subordinates
etc.
 STAFFING - This is a process by which managers select, train, promote and retire
their subordinates. This involves deciding what type of people should be hired,
recruiting prospective employees, selecting employees, setting performance standard,
compensating employees, evaluating performance, counselling, training and
developing employees etc . It is the function of manning the organization structure
and keeping it manned. The main purpose of staffing is to place the right man in the
right job.
 DIRECTING - It is the process of activating group efforts to achieve the desired
goals. It includes activities like getting subordinates to get the job done, maintaining
morale, motivating subordinates etc for achieving the goals of the Organization. It
includes three major areas – leadership. Motivation and communication
 CONTROLLING - It is the process for setting standards of performance, checking to
see how actual performance compares with these set of standards and taking
corrective actions as needed. The purpose of controlling is to ensure that everything
occurs in conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur.

LEVELS OF MANAGEMENT

Managerial Levels in Organizations

 TOP LEVEL MANAGEMENT:- This level comprises of Chief executive,

Chairman, Directors, Managing directors, General managers etc and they mainly
control the overall business of the organization. Top managers are responsible for the
overall direction and operations of an organization. They are responsible for
determining policies, procedures, rules, objectives for the firm and also formulate
strategies to achieve these objectives.
 MIDDLE LEVEL MANAGEMENT: Managers at this level are responsible for
business units and major departments. Examples of middle managers are department
heads, division head, and director of research, branch managers etc. They are
responsible to the top management for the functioning of their department. They

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 mainly execute the plans of the organization in accordance with the policies and
directives of the top management.
 LOWER LEVEL MANAGEMENT: Lower level is also known as supervisory /
operative level management. They are directly responsible for the production of
goods and services. Particularly, they are responsible for directing non supervisory
employees. First-line managers are variously termed as office managers, section chief,
line manager, supervisor etc.

MANAGERIAL SKILLS

Managers, upon joining the managerial ranks of an organization, must possess certain skills
that will enable them to perform their tasks successfully. In many ways, the skills that
managers possess in the organization are the most valued resources of the organization.

Managerial Skills

 TECHNICAL SKILLS -Technical skills are those abilities that are necessary to
carry out a specific task. Examples of technical skills are writing computer programs,
completing accounting statements, analyzing marketing statistics, writing legal
documents, or drafting a design for a new airfoil on an airplane. Technical skills are
usually obtained through training programs that an organization may offer its
managers or employees or may be obtained by way of a college degree.
 HUMAN SKILLS- Human skills involve the ability to work with, motivate, and
direct individuals or groups in the organization whether they are subordinates, peers,
or superiors. Human skills, therefore, relate to the individual's expertise in interacting
with others in a way that will enhance the successful completion of the task at hand.
Some human skills that are often necessary for managers to display are effective
communication (writing and speaking), creation of a positive attitude towards others
etc.
 CONCEPTUAL SKILLS-Conceptual skills require an ability to understand the
degree of complexity in a given situation and to reduce that complexity to a level at
which specific courses of action can be derived. Examples of situations that require
conceptual skills include the passage of laws that affect hiring patterns in an
organization, a competitor's change in marketing strategy etc

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MANAGEMENT – SCIENCE OR ART?

This is an age old question that has drawn widespread attention . But the question still
remains unanswered for many. Management has got the qualities of both science as well as
art.

 MANAGEMENT IS A SCIENCE : Science is a systematic body of knowledge

pertaining to a specific field of study that contains general facts which explains a
phenomenon. It establishes cause and effect relationship between two or more
variables and underlines the principles governing their relationship. Science is
characterized by following main features:

 Universally acceptance principles - Scientific principles represents basic truth about

a particular field of enquiry. These principles may be applied in all situations, at all
time & at all places. Management also contains some fundamental principles which
can be applied universally like the Principle of Unity of Command
 Cause & Effect Relationship – Scientific Principles emphasises on laying down
cause and effect relationship between various variables. The same is true for
management. For eg, if workers are given bonuses and adequate wages they will work
hard and if they are not compensated adequately, productivity will tend to get
reduced. Therefore it also establishes cause and effect relationship.
 Experimentation & Observation - Scientific principles are based on logic.
Management principles are based on experimentation and observation and not on the
opinion of few management thinkers. They have been developed through experiments
& practical experiences of large no. of managers.
It cannot be denied that management has the necessary elements of science but it is not as
exact as that of other physical sciences like biology, physics, and chemistry etc.

 MANAGEMENT AS AN ART: Art implies application of knowledge & skill to

trying about desired results. An art may be defined as personalized application of
general theoretical principles for achieving best possible results. The following
variables explain the artistic attribute of management.

 Practical Application of Knowledge: Art requires practical application of

knowledge and therefore it is very important to know how to practically apply
theoretical principles. A manager can never be successful just by having a degree in
management. He must also be well versed regarding application of various
managerial principles in real situation .
 Creativity and Innovation: Management needs a combination of intelligence &
imagination. Management is also creative in nature like any other art. It combines
human and non-human resources in such a way so that it yields the desired results.
 Perfection through practice: Constant and rigorous practice alone leads to
perfection. Managers too learn the art of managing through trial and error method.
Application of management principles over the years makes them perfect in the job of
managing.
 Goal Focussed : Art is always result oriented . In the same manner, management is
also directed towards accomplishment of pre-determined goals. Managers use various
resources like men, money, material, machinery & methods to promote growth of an
organization.

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MANAGEMENT Vs ADMINISTRATION
Though Administration and Management are used synonymously in day to day life both these
terms are different.

BASIS ADMINISTRATION MANAGEMENT

Meaning It is concerned with formulation of It is the art of getting things done through
broad objectives, plans & policies. and with people in formally organized
groups.
Nature It is a decision making function It is an executing function
Skills Conceptual Skills and Human Technical and Human Skills
Skills
Level Top level function Middle and Lower Level Function
Function Administration is a Reasoning Management is a doing function because
function because plans & policies managers get work done under their
are determined under it. supervision.
Status Administration represents owners Management constitutes the employees of
of the enterprise the organization who are paid
remuneration

EFFICIENCY AND EFFECTIVENESS

In order to accomplish the Organizational objectives managers need to be both efficient and
effective. Efficiency and Effectiveness are the two words which are most commonly
juxtaposed by the people and they are often used as synonyms. But they are different.
Efficiency focuses on the state of attaining the maximum productivity with least effort spent
whereas effectiveness is the extent to which something is successful in providing the desired
result.

EVOLUTION OF MANAGEMENT
The origin of management in an organized is as old as the origin of human beings. In the
early ages , human beings earned their livelihood by hunting that was carried out in groups.
Later conflict between the groups arose as possession of land became important. Local
conflicts were resolved by power using primitive weapon system. Management practices
were undertaken in a scientific way in the early 18th century when industrial revolution took
place. But management as a distinctive field of study where managers are focused on
accomplishing results started to gain prominence only from the beginning of the twentieth
century.

CLASSICAL APPROACH

 SCIENTIFIC MANAGEMENT APPROACH

Scientific management approach was developed by F.W. Taylor at the beginning of the 20th
century. This theory supported the use of certain steps in scientifically studying each element

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of a job, selecting and training the best workers for the job arid making sure that the workers
follow the prescribed method of doing the job. It provided a scientific rationale for job
specialization and mass production. His assumption was that employees are motivated largely
by money. To increase the output, Taylor advised managers to pay monetary incentives to
efficient workers.

TECHNIQUES OF SCIENTIFIC MANAGEMENT

 Separation of Planning from Doing – Taylor stressed more on the separation of planning
from doing aspect of work. Before Taylor’s scientific Management a worker has to plan
regarding how he had to work as well as the instruments that are necessary to carry out the
work. Supervisor’s job is just to monitor whether the work is properly carried out. Taylor
emphasized that the supervisor’s job is to plan the work and the worker’s task is just to do
the work
 Functional Foremanship -Taylor advocated functional foremanship for achieving
ultimate specification. This technique was developed to improve the quality of work
as single supervisor may not be an expert in all the aspects of the work. Therefore
workers are to be supervised by specialist foreman. The scheme of functional
foremanship is an extension of principle of specialization at the supervisory level.
 Job analysis – Job Analysis is undertaken to find out the one best way of doing the job.
The best way of doing the job is that which requires least time –motion-fatigue studies.
 Time Study - It is a technique which enables the manager to ascertain standard time
taken for performing a specified job. Every job or every part of it is studied in detail.
Taylor maintained that Fair day’s work should be determined through observations,
experiment and analysis by keeping in view an average worker.
 Motion Study - In this study, movement of body and limbs required to perform a job
are closely observed. In other words, it refers to the study of movement of an
operator on machine involved in a particular task. The purpose of motion study is to
eliminate useless motions and determine the best way of doing the job in order to
increase the efficiency and productivity of workers .
 Fatigue Study - If, a standard task is set without providing for measures to eliminate
fatigue, it may either be beyond the workers or the workers may over strain
themselves to attain it. It is necessary, therefore, to regulate the working hours and
provide for rest pauses at scientifically determined intervals.
 Standardization: Taylor advocated that tools & equipments as well as working
conditions should be standardized to achieve standard output from workers.
Standardization is a means of achieving economics of production. Standardization
may be introduced in respect of tools and equipment, speed, conditions of work,
materials etc.
 Scientific Selection and Development of Workers- Scientific Management requires
a radical change in the methods and procedures of selecting workers. It is therefore
necessary to entrust the task of selection to a central personnel department.
 Financial Incentives – Monetary Incentives can encourage individuals to put in their
highest efforts. Taylor personally utilized the technique of differential piece rate
system which is found to be highly motivating.
 Economy - Scientific and technical elements need to be considered while applying
scientific management. Furthermore, enough thought should be given to economy and
profit. To achieve economy, methods of cost estimates and control must be adopted.

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  Mental Revolution - The workers and managers should have a complete change of
outlook towards their mutual relation and work effort. It requires that management
should create suitable working condition and solve all problems scientifically.
Similarly workers should attend their jobs with utmost attention, devotion and
carefulness. They should not waste the resources of enterprise.

PRINCIPLES OF SCIENTIFIC MANAGEMENT

 Replacing Rule of Thumb with Science - This principle suggests that work assigned
to any employee should be observed, analyzed with respect to each and every element
taking into consideration the part and time involved in it. This means replacing the
rule of thumb by the use of method of enquiry, investigation, data collection, analysis
and framing of rules.
 Workers - There should be scientifically designed procedure for the selection of
workers. Physical, mental & other requirements should be specified for each and
every job. Workers should be selected and trained to make them fit for the job.
 Cooperation between Management and Workers - Taylor believed in co-operation
and not individualism. It is only through co-operation that the goals of the enterprise
can be achieved efficiently. There should be no conflict between managers &
workers.
 Division of Responsibility - This principle determines the concrete nature of roles to
be played by different level of managers & workers. The management should assume
the responsibility of planning the work whereas workers should be concerned with
execution of task. Thus planning is to be separated from execution.
 Maximum Prosperity for Employers and Employees - The aim of scientific
management is to see maximum prosperity for employer and employees. Maximum
output & optimum utilization of resources will bring higher profits for the employer
& better wages for the workers.

ADMINISTRATIVE MANAGEMENT

Administrative management basically focuses on how a business should be organized and

the practices an effective manager should follow. The main focus of administrative school or
general management theory is on finding "the best way " to run organizations. Administrative
management school is also called "traditional principles of management. Henry Fayol ,a
French industrialist, is the chief architect and the father of the administrative management
theory.
The 14 Management Principles from Henri Fayol (1841-1925) are:

 Division of Work: Specialization allows the individual to build up experience, and to

continuously improve his skills. Thereby he can be more productive.
 Authority: Authority refers to the right of superiors to get exactness from their sub-
ordinates whereas responsibility means obligation for the performance of the job
assigned. Authority & responsibility are supposed to be co-existing. If the right to
issue commands, along with which must go the balanced responsibility for its
function.
 Discipline: According to Fayol, “Discipline means sincerity, obedience, respect of
authority & observance of rules and regulations of the enterprise”. This principle
applies that subordinate should respect their superiors and obey their order.

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 Unity of Command: Each worker should have only one boss with no other
conflicting lines of command.
 Unity of Direction: This principle implies that each group of activities having the
some objectives must have one head and one plan. As distinguished from the principle
of unity of command, Fayol perceives unity of direction as related to the functioning
of personnel.
 Subordination of individual interest to general interest: The interest of the group
should supersede that of the individual. When the interests differ, it is the function of
the management to reconcile them. Management must see that the goals of the firms
are always paramount.
 Remuneration. Payment is an important motivator although by analyzing a number
of possibilities. Fayol perceives that remuneration and methods of payment should be
fair and also should be able to afford the maximum satisfaction to employee and
employer.
 Centralization : Fayol defined centralization as lowering the importance of the
subordinate role. Decentralization is increasing the importance. The degree to which
centralization or decentralization should be adopted depends on the specific
organization in which the manager is working.
 Scalar chain: It refers to a formal line of authority which moves from highest to the
lowest ranks in a straight line This chain must be followed in a strict manner. It means
each communication must move from top to bottom and vice versa in a straight line.
The important condition here is that no step should be overlooked during
communication. Fayol has explained this principle with the help of a ladder. For
example, in a company the employee ‘F’ wants to have contact with the employee ‘P’.
According to the principle of scalar chain ‘F’ shall have to reach ‘A’ through the
medium of E,D,C,B and then having contact with L,M,N,0 shall reach ‘P’. Thus ‘F’
shall have to take the help of all the nine steps (posts) to have business contact with
‘P’.

But the Scalar chain can be cut short under special circumstances through Gang
Plank. This concept was developed to establish a direct contact with the employee of
equal rank in case of emergency to avoid delay in communication. For example, as
shown in the diagram employee ‘F’ can have direct contact with employee ‘P’. But
for doing so employees ‘F’ and ‘P’ shall have to seek the prior permission of their
immediate bosses ‘E’ and ‘O’. The details of their talk also shall have to be given to
them.
 Order: According to the principle of order, a right person should be placed at the
right job and a right thing should be placed at the right place. Order may be both
material order and social order. It refers to the arrangement of things and persons in

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 an organization. Material order minimizes lost time and useless handling of
materials. The latter is achieved through organization and selection.
 Equity: In running a business a ‘combination of kindliness and justice’ is needed.
Treating employees well is important to achieve equity.
 Stability of Tenure of Personnel: Employees work better if job security and career
progress are assured to them. An insecure tenure and a high rate of employee turnover
will affect the organization adversely. This principle emphasizes on the job security of
employees.
 Initiative: Allowing all personnel to show their initiative in some way is a source of
strength for the organization. Initiative is conceived as the process of thinking out and
executing a plan. Fayol exhorts managers to sacrifice personal vanity in order to
permit subordinates to exercise it.
 Esprit de Corps: This principle implies that union is strength and an extension of the
principle of unity of command. Fayol here emphasizes on the need for teamwork and
the importance of communication in obtaining it. Management must foster the morale
of its employees.

(ii) BUREAUCRATIC APPROACH

While scientific management was focusing on the interaction between workers and the task,
researchers were studying how to structure the organization more effectively. Instead of
trying to make each worker more efficient, classical organization theory sought the most
effective overall organizational structure for workers and managers.
The theory's most prominent advocate, Max Weber, proposed a 'bureaucratic form' of
structure, which he thought would work for all organizations. Weber's idea! bureaucracy was
, logical, rational and efficient. He made the naive assumption that one structure would work
best for all organizations.
Henry Ford, Henry Fayol and Frederick W. Taylor, the early management pioneers,
recognized the behavioral side of management. However, they did not emphasize the human
dimensions. Although there were varied and complex reasons for the emerging importance of
behavioral approach to management, it is generally recognized that the Hawthorne studies
mark the historical roots for the field of organizational behaviour.

NEO CLASSICAL APPROACH

(i) HUMAN RELATIONS APPROACH:

HAWTHORNE STUDIES

Even, as Taylor and Weber brought attention with their rational, logical approaches to more
efficient productivity, their views were criticized on the ground that both approaches ignored
worker's humanity. The real beginning of applied research in the area of organizational
behaviour started with Hawthorne Experiments. In 1924, a group of professors began an
enquiry into the human aspects of work and working conditions at the Hawthorne plant of
Western Electric Company, Chicago. The findings of these studies were given a new name
'human relations' the studies brought out a number of findings relevant to understanding
human behaviour at work. The Human element in the workplace was considerably more
important. The workers are influenced by social factors and the behaviour of the individual
worker is determined by the group.

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  ILLUMINATION EXPERIMENTS: (1924-27)

In the early 1920s Chicago's Western Electric Hawthorne Works employed 12,000 workers.
The basic idea was to vary and record levels of illumination in a test room with the
expectation that as lighting was increased, productivity would too. In another test room,
illumination was decreased, with the correlating expectation that efficiency would decrease.
The electric power industry provided an additional impetus for these tests, hoping to
encourage industries to use artificial lighting in place of natural light. From the fall of 1924 to
the spring of 1927, three series of tests were conducted and carefully monitored. Three
departments at the Hawthorne plant were involved—relay assembling, coil winding, and
inspection. Workers were notified of the tests in order to attempt to control interference from
human factors. When production increased in each test period, researchers looked to other
factors such as increased and a sense of competition that developed between the test and
control groups. But the one conclusion the impressive team of industrial specialists and
academics discovered was the lack of a consistent correlation between lighting levels and
product output. No further tests were planned originally, but researchers were surprised at the
unanticipated results.

 RELAY ASSEMBLY EXPERIMENTS (1927-29)

Experimenters chose two women as test subjects and asked them to choose four other
workers to join the test group. Together the women worked in a separate room over the
course of five years (1927–1932) assembling telephone relays.

Output was measured mechanically by counting how many finished relays each worker
dropped down a chute. This measuring began in secret two weeks before moving the women
to an experiment room and continued throughout the study. In the experiment room, they had
a supervisor who discussed changes with them and at times used their suggestions. Then the
researchers spent five years measuring how different variables impacted the group's and
individuals' productivity. Some of the variables were:

 giving two 5-minute breaks (after a discussion with them on the best length of time),
and then changing to two 10-minute breaks (not their preference). Productivity
increased, but when they received six 5-minute rests, they disliked it and reduced
output.
 providing food during the breaks
 shortening the day by 30 minutes (output went up); shortening it more (output per
hour went up, but overall output decreased); returning to the first condition (where
output peaked).

Changing a variable usually increased productivity, even if the variable was just a change
back to the original condition. However it is said that this is the natural process of the human
being to adapt to the environment without knowing the objective of the experiment occurring.
Researchers concluded that the workers worked harder because they thought that they were
being monitored individually. Researchers hypothesized that choosing one's own coworkers,
working as a group, being treated as special (as evidenced by working in a separate room),
and having a sympathetic supervisor were the real reasons for the productivity increase. One
interpretation, mainly due to was that "the six individuals became a team and the team gave
itself wholeheartedly and spontaneously to cooperation in the experiment."

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  MASS INTERVIEWING PROGRAMME: (1928-1930)

21,000 employees were interviewed over a period of three years to find out reasons for
increased productivity. It was concluded that productivity can be increased if workers are
allowed to talk freely about matters that are important to them.

 BANK WIRING ROOM EXPERIMENTS (1932)

The purpose of the next study was to find out how payment incentives would affect
productivity. The surprising result was that productivity actually decreased. Workers
apparently had become suspicious that their productivity may have been boosted to justify
firing some of the workers later on. The study was conducted by Mayo and between 1931 and
1932 on a group of fourteen men who put together telephone switching equipment. The
researchers found that although the workers were paid according to individual productivity,
productivity decreased because the men were afraid that the company would lower the base
rate. Detailed observation between the men revealed the existence of informal groups or
"cliques" within the formal groups. These cliques developed informal rules of behaviour as
well as mechanisms to enforce them. The cliques served to control group members and to
manage bosses; when bosses asked questions, clique members gave the same responses, even
if they were untrue. These results show that workers were more responsive to the social force
of their peer groups than to the control and incentives of management
Hawthorne studies have been criticized for their research methods and conclusions drawn.
But their impact on the emerging field of organizational behaviour was dramatic. They
helped usher in a more humanity centered approach to work.

CONCLUSIONS OF HAWTHORNE STUDIES:

The conclusions derived from the Hawthorne Studies were as follows :-

1. The social and psychological factors are responsible for workers' productivity and job
satisfaction. Only good physical working conditions are not enough to increase
productivity.
2. The informal relations among workers influence the workers' behaviour and
performance more than the formal relations in the organisation.
3. Employees will perform better if they are allowed to participate in decision-making
affecting their interests.
4. Employees will also work more efficiently, when they believe that the management is
interested in their welfare.
5. When employees are treated with respect and dignity, their performance will improve.
6. Financial incentives alone cannot increase the performance. Social and Psychological
needs must also be satisfied in order to increase productivity.
7. Good communication between the superiors and subordinates can improve the
relations and the productivity of the subordinates.

(ii) SOCIAL SYSTEMS APPROACH:

Social Systems approach of management has extended the implications of human relations
approach further. According to this approach, an organization is essentially a cultural system
composed of people who work in cooperation. For accomplishing organizational goals ,

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cooperative systems can be developed by understanding the behaviour of people in groups.
The major features of this approach are as follows:

 Organisation is a social system, a system of cultural relationships.

 Relationships exist among the external and internal environment of the organisation
 Cooperation among group members is necessary for the accomplishment of
organizational objectives
 Efforts should be made for establishing harmony between the goals of the
organisation and the various groups.

(iii)HUMAN BEHAVIOUR APPROACH

The human resources approach is concerned with the growth and development of people
towards higher levels of competency, creativity and fulfillment, because people are the
central resource in any organization. This approach help employees become better in terms of
work and responsibility and then it tries to create a climate in which they can contribute to the
best of their improved abilities. This approach is also known as 'supportive approach' because
the manager's primary role changes from control of employees to providing an active support
for their growth and performance.

MODERN APPROACH

(i) CONTINGENCY APPROACH

A contingency approach to organizational behaviour implies that different situations require

different behavioral practices for effectiveness instead of following a traditional approach for
all situations. Each situation must be analyzed carefully to determine the significant variables
that exist in order to establish the more effective practices. The strength of this approach is
that it encourages analysis of each situation prior to action. Thus, it helps to use all the
current knowledge about people in the organization in the most appropriate manner.

(ii)PRODUCTIVITY APPROACH

Productivity is a ratio that compares units of output with units of input. It is often measured in
terms of economic inputs and outputs. Productivity is considered to be improved, if more
outputs can be produced from the same amount of inputs. But besides economic inputs and
outputs, human and social inputs and outputs also arc important.

(iii)SYSTEMS APPROACH

A system is an interrelated part of an organization or a society that interacts with everyone

related to that organization or society and functions as a whole. Within the organization
'people' employ 'technology' in performing the 'task' that they are responsible for, while the
'structure' of the organization serves as a basis for co-ordinating all their different activities.
The systems view emphasizes the interdependence of each of these elements within the
organization, if the organization as a whole is to function effectively. The other key aspect of

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the systems view of organization is its emphasis on the interaction between the organization
and its broader environment,, which consists of social, economic, cultural and political
environment within which they operate.

Organizations arc dependent upon their surrounding environment in two main ways:
First, the organization requires 'inputs' from the environment in the form of raw material,
people, money, ideas and so on. The organization itself can be thought of as performing
certain 'transformation' processes, on its inputs in order to create outputs in the form of
products or services. Secondly, the organization depends on environment such as, public to
accept its output. The systems view of organization thus emphasizes on the key
interdependencies that organizations must manage. Within themselves the organizations must
trade off the interdependencies among people, tasks, technology and structure in order to
perform their transformation processes effectively and efficiently. Organizations must also
recognize their interdependence with the broader environments within which they exist.

FORMS OF BUSINESS ORGANIZATION

BUSINESS ORGANISATION - A business entity is an organization that uses economic
resources or inputs to provide goods or services to customers in exchange for money or other
goods and services. While establishing a business the most important task is to select a proper
form of organization. This is because the conduct of business, its control, acquisition of
capital, extent of risk, distribution of profit, legal formalities, etc. all depends on the form of
organization. Business organizations come in different types and different forms of
ownership.

The most important forms of business organization are as follows:

 SOLE PROPRIETORSHIP
 PARTNERSHIP
 CORPORATION / JOINT STOCK COMPANY
 CO-OPERATIVE SOCIETY

 SOLE PROPRIETORSHIP - When the ownership and management of business

are in control of one individual, it is known as sole proprietorship or sole
tradership. The volume of activities of such a business unit may be quite large.
However, since it is owned and managed by one single individual, often the size of
business remains small.

The business enterprise is owned by one single individual, that is the individual has got
legal title to the assets and properties of the business. The entire profit arising out of business
goes to the sole proprietor. Similarly, he also bears the entire risk or loss of the firm. The
owner of the enterprise is generally the manager of the business. He has got absolute right to
plan for the business and execute them without any interference from anywhere. He is the
sole decision maker. The entire capital of the business is provided by the owner. The
proprietor and the business enterprise are one and the same in the eyes of law. The liability
of the sole proprietor is unlimited.

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Advantages :
 Easy Formation
 Better Control
 Prompt Decision Making
 Flexibility in Operations
 Retention of Business Secrets
.
Disadvantages :

 Unlimited Liability
 Limited Financial Resources
 Limited Capacity of Individual

 PARTNERSHIP

A partnership form of organisation is one where two or more persons are associated to run a
business with a view to earn profit. Persons from similar background or persons of different
ability and skills, may join together to carry on a business. Each member of such a group is
individually known as ‘partner’ and collectively the members are known as a ‘partnership
firm’. These firms are governed by the Indian Partnership Act, 1932.

A minimum of two persons are required to start a partnership business. The maximum
membership limit is 10 in case of banking business and 20 in case of all other types of
business.The relation between the partners of a partnership firm is created by contract. The
partners enter into partnership through an agreement which may be verbal, written or implied.
If the agreement is in writing it is known as a ‘Partnership Deed’. The partners can share
profit in any ratio as agreed. In the absence of an agreement, they share it equally. The
partners have unlimited liability. They are liable jointly and separately for the debts and
obligations of the firm. The business in a partnership firm may be carried on by all the
partners or any one of them acting for all. Registration of partnership is not compulsory.
Dissolution of partnership implies not only a complete closure or termination of partnership
business, but it also includes any change in the existing agreement among the partners due to
a change in the number of partners.
Advantages :
 Easy Formation
 Larger Resources
 Flexibility in operation
 Better Management
 Sharing of Risk
Disadvantages :

 Instability
 Unlimited Liability
 Lack of Harmony
 Limited Capital

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  CORPORATION / JOINT STOCK COMPANY

A corporation can be a company, an association, a government corporation, certain types of

charities etc. But the most common type of corporation is a Joint Stock company . A
corporation is a legal entity doing business, and is distinct from the individuals within the
entity. Public corporations are owned by shareholders who elect a board of directors to
oversee primary responsibilities. Along with standard, for-profit corporations, there are
charitable, not-for-profit corporations. A Corporation, is considered by law to be a unique
entity, separate and apart from those who own it. A Corporation can be taxed sued and it can
enter into contractual agreements. The owners of a corporation are its shareholders. The
shareholders elect the board of directors to oversee the major policies and decisions. The
corporation has a life of its own and does not dissolve when ownership changes.

A Joint Stock Company is an artificial person in the sense that it is created by law and it has
an existence independent of its members. The liability of a member of a Joint Stock Company
is limited by guarantee or the shares he owns. In other words, in case of payment of debts by
the company, a shareholder is held liable only to the extent of his share. The members of a
company are free to transfer the shares held by them to anyone else. A company comes into
existence only when it has been registered after completing the formalities prescribed under
the Indian Companies Act 1956. A company having a minimum membership of two persons
and maximum fifty is known as a Private Limited Company. But in case of a Public
Limited Company, the minimum is seven and the maximum membership is unlimited. Joint
Stock Companies have democratic management and control. The company is managed by the
elected representatives of shareholders known as Directors.

Advantages :
 Limited Liability
 Continuity of existence
 Benefits of large scale operation
 Professional Management
 Social Benefit

Disadvantages :
 Formation is not easy
 Control by a Group
 Excessive government control
 Delay in Policy Decisions

 CO-OPERATIVE SOCIETY

Any ten persons can form a co-operative society. It functions under the Cooperative Societies
Act, 1912 and other State Co-operative Societies Acts. A co-operative society is entirely
different from all other forms of organizations in terms of its objective. The co-operatives are
formed primarily to render services to its members. Generally it also provides some service to
the society. The main objectives of co-operative society are: (a) rendering service rather than
earning profit, (b) mutual help instead of competition, and (c) self help in place of
dependence. On the basis of objectives, various types of co-operatives are formed :

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  Consumer co-operatives : These are formed to protect the interests of ordinary
consumers of society by making consumer goods available at reasonable prices.
 Producers co-operatives : These societies are set up to benefit small producers who
face problems in collecting inputs and marketing their products. The Weavers co-
operative society, the Handloom owners cooperative society are examples of such co-
operatives.
 Marketing co-operatives : These are formed by producers and manufactures to
eliminate exploitation by the middlemen while marketing their products. Kashmir
Arts Emporium, J&K Handicrafts, Utkalika etc. are examples of marketing co-
operatives.
 Housing Co-operatives : These are formed to provide housing facilities to its
members. They are called co-operative group housing societies.
 Credit Co-operatives : These societies are formed to provide financial help to its
members. The rural credit societies, the credit and thrift societies, the urban co-
operative banks etc. come under this category.
 Forming Co-operatives : These are formed by small farmers to carry on work
jointly and thereby share the benefits of large scale farming.

Individuals having common interest can come together to form a co-operative society. Any
person can become a member of such an organisation and leave the same. The minimum
membership required to form a co-operative society is ten and the maximum number is
unlimited. At times the cooperatives after their formation fix a maximum membership limit.
The primary objective of any co-operative organization is to render services to its members in
particular and to the society in general. Every member has a right to take part in the
management of the society. Each member has one vote. A co-operative organisation starts
with a fund contributed by its members in the form of units called shares. It can also raise
loans and secure grants from the government easily. The return on capital subscribed by the
members is in the form of a fixed rate of dividend after deduction from the profit.

Advantages

 Easy Formation
 Limited Liability
 State Assistance
 Middleman’s Profit Eliminated

Disadvantages of Co-operatives :

 Limited Capital
 Problems in Management
 Lack of Motivation
 Lack of Co-operation
 Lack of Secrecy

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