STUDY MODULES

2.1.1. Scientific Management Approach

The scientific management theory by F.W. Taylor (1856-1915) rested his
philosophy on the following basic principles;
a. Development of a true science management, so that the method
for performing each task could be determined.
b. The scientific selection of workers so that each worker would be
given responsibility for the task for which he or she was best suited.
c. The scientific education and development of the workers.
d. Intimate, friendly cooperation between management and labour.

Instead of relying on traditional work methods, he analysed and timed steel

workers movement on series of jobs. Using time study as his base, he
achieved increment in productivity through differential rate system.

2.1.2. The Behavioural Approach

The behavioural approach or the human relations approach is based upon the
premise of increase in production and managerial
efficiency through an understanding of the
people. The growth and popularity of this
approach is attributable to Elton Mayo (1880-
1949) and his Hawthorne experiments.

2.2.3. The Quantitative Approach

This approach emphasises the use of mathematical techniques and models in
solving many complex management problems. These quantitative tools and
methodologies, known as Operations Research techniques are designed to aid in
decision making relating to operations and production. The basic contention of this
approach is the premise that if managerial and organisational operations and
decisions are based on a logical process, then it can be expressed in terms of
mathematical symbols and relationships

2.2. Other School of Management

Whether we consider management an art or a science, there is no single approach
that is applicable to all situations, even if the situations are similar in nature.
Accordingly, there are a number of different approaches, some of them uniquely
defined, creating a jungle of confusion in which not only the management
practitioners get involved but also professionals of many other disciplines. The
growing importance of management in all areas of life has a far-reaching effect on
our society. Hence, it has attracted serious attention of sociologists, psychologists,
economists, econometricians, mathematicians, biologists, anthropologists,
physicists, political scientists and a host of scholars from various other fields.
All these scholars have defined and interpreted management from their own angle
and in their own conceptual thinking. Prof Harold Koontz has described the present
state of management as a “jungle”. These different schools presented here, are
based upon the writings of Prof. Koontz.

2.2.1. The Empirical School

The empirical school, as the name suggests, is based upon learning from past
experience, either your own or that of other people in the form of case studies. A
study is conducted as to how a problem was solved in the past so that some
methods can be used in the present to solve a similar problem. The proponents of
this school hold that management is an art and can only be learned by experience.
Accordingly, case examples of successes and failures of practicing managers are
collected, analysed and some generalisations are drawn from it, which give insights
into management challenges, opportunities, problems and errors. Earnest Dale calls
it “The operational approach”. According to him, “Past operations are studied to
determine facts, then theories are developed to explain the facts and lastly, the facts
and theories are used to make predictions about future operations”.

This approach suffers from two pitfalls. First, the dynamics and volatility of
environment make the situations in the future exactly comparable to the past
extremely unlikely, hence the applications of techniques used in the past will not
be adequate in the future. Secondly, when the manager chooses a particular
technique for an action, he cannot compare the results of his action with the results
of any other alternative he might have chosen. This closes the door on innovation
and experimentation.

2.2.2. The Social System School

Based on the human relations concept and proposed by Chester Barnard, this
school looks upon management as a social system or a system of cultural inter-
relationships which is conceived as the cooperative interaction of ideas, forces,
desires and thinking of a group of people. This concept has been attributable to the
theory of cooperation whereby an individual tries to satisfy his biological, physical,
and social needs through cooperation with others. Barnard calls this set of inter-
relationships as a – “formal organisation” which, unlike the authority activated
concept of management, is any cooperative system, which is a system of
consciously coordinated activities towards a common goal. This group interaction
really means that we work together and we share the rewards together or in other
words, it is like “scratching each other’s back”.

This approach is similar to behavioural approach, except that it is more formal in

nature. As in behavioural school, it criticises the concept of “economic man”, but
instead dwells on the organisation as a social organism, subject to all the pressures
and conflicts of the cultural environment. It is a study and analysis of the concept
of the individual social behaviour and the group behaviour as it affects the field of
management.

2.2.3. The Sodo technical Systems Approach

This is one of the recent approach. It is based on the studies conducted by E.L.
Trist and his associates in 1951 at the Tavi stock Institute in England. It was found
that there was a definite inter-relationship between men and machines. The
technology of operations (machines and methods) have a strong influence on the
individual attitudes as well as group behaviour. It does not require exhaustive study
and analysis to conclude that the newer working equipment and modern methods
of operation induce a highly positive response from the workers. Accordingly, the
management must consider the social and technical systems together and make
sure that they both operate in harmony.

2.2.4. The Decision Theory School

This school believes that management is simply a decision making process, which
is a selection of a course of action from several available alternatives. Hence, the
central focus of management theory should be the analysis of the decision itself.
The basic emphasis of this school is not on people or environment variables
influencing behaviour but on the process of decision making and that all
management thought can be built around it. However, even though the process of
decision making is an essential skill, it is not the only skill required for effective
management.

There are two major drawbacks with this approach. First, most decision models do
not and cannot include soft variables or intangible variables such as human attitude
and behaviour, evaluation of political trends and the effects of some decisions on
the customers or community. Secondly, the actual decision making can be quite
easy and straightforward, provided the goals are clearly defined, adequate
information is available for decision making, the environment in which the
decision will be applicable is accurately predictable and if the decision makers are
competent and experienced. Hence, management cannot be limited to simply
making decisions. The principal contribution of this school to the management
process is in those problem areas where the relationships of variables are
quantifiable and clear and where the parameters can be either directly measured or
reliably estimated.

2.2.5. Contingency or Situational Approach

This approach primarily deals with the managerial ability to adopt policies that
deal with a given situation and some particular circumstances that an enterprise
may encounter. Unlike Taylor and Gilbreth who were interested in finding the
“best way” to do a task or solve a problem, this approach does not suggest that
there is a "best approach" which will work in all situations. The situational
approach requires that managers diagnose a given situation and make decisions
relative to the conditions present.

2.2.6. Managerial Roles Approach

1. This approach was popularized by Henry Mintzberg, who proposed that
managerial activity (or roles), could be established simply by observing
what the managers do. His study concluded that managers are not always
involved in the traditional managerial functions of planning, organising,
coordinating and controlling. Additionally, the study found only
inadequate evidence of such executive activities as organisational
structures, goal setting, strategy formulation and implementation,
executive development, etc. Instead, he found that managers have three
dominant roles.
 Interpersonal: As a figurehead performing ceremonial duties on behalf

of the organisation, as a leader and as a liaison link with outsiders.

Informational: He receives information about the operations of the

organisation, passes on the information to subordinates and transmits
information to outside concerned parties.

Decision making: He acts as an entrepreneur for new ideas, as a

resource allocator, like allocating funds for different activities, as an
arbitrator in case of a conflict among the workers or between workers
and management and he negotiates contracts.

Even though these studies cannot be considered comprehensive, they do provide

a checklist of what managerial roles are so that the activities of other managers
can be compared with this checklist.

2.2.7. The Operational Approach

This approach, based upon the works of P.W. Bridgman, indicates that the
foundations for management science and theory are drawn from a number of other
schools and areas. While the central core of knowledge about managing, such as
line and staff organisation, departmentation, span of control, managerial appraisal,
etc. is unique to management, it also draws pertinent knowledge from other fields
such as sociology, psychology, political science, applied mathematics, economics,
decision theory, industrial engineering, cultural anthropology, and individual and
group behaviour theories. The operational approach only draws that portion of
knowledge from these areas that are pertinent and useful to management.

2.2.8. The Comparative Management Approach:

This approach seeks to develop generalisation from a study of management systems in
diverse cultures29, taking into consideration the external and environmental
differences. It is a study to classify the different management characteristics in
different countries and cultures and to explain why they exist. This would enable us

to identify why particular situations and actions occur and to anticipate the
outcome of different decisions.
The proponents of this school believe that management is culture bound and is
regionalised and hence it may not be possible to find a common set of
“management principles” that are universally applicable. Benjamin Prasad defines
this approach as “a study and analysis of management as a process and as a
philosophy in all managerial situations and in all countries where further
industrialisation is pursued as an integral part of economic development”. This will
provide an insight into operations of large scale multi-national corporations and
form a foundation for some management techniques in different countries but with
similar cultural background, as in many countries of the Middle East.

2.3. Towards a Unified General Theory of Management

So many different theories and schools and approaches to management make one
wonder whether they have solved the problem of defining management in one
universal language. Koontz calls it a jungle warfare- a kind of confused and
“destructive jungle warfare”, in which every academic and practitioner is trying to
bring out a “better theory” of management, while attacking the one that existed.
If the management must have a universal application, then this confusion must be
removed and this jungle must be disentangled. Perhaps, it is time to realise that all
these different theories may not be different at all and may have ideas and
processes that are more common than different. Herbert Simon, while chiding his
fellow scholars for creating confusion, suggested, “It is important that we think of
ourselves and all the management theorists as participants in the same enterprise
and not as representatives of competing or contradictory approaches”.

22
Recently, attempts have been made to bring some unification in these various
theories. The first approximation of a general theory was presented by Litchfield as
early as 1956, the idea got a national attention during a symposium held on this
subject by Harold Koontz, even though no consensus came out of these
discussions. However, an evolvement of the symposium was that a general theory
of administration may be achieved through interdisciplinary approach. This
approach was supported by John F. Mee.
According to Ericson, the interdisciplinary general theory will be inter-contextual
in nature, in which all the different disciplines are analytically compared and
eventually integrated and synthesised.
According to Greenwood, it may be the development of a completely new and all-
embracing “general management systems” theory, evolving from “general
systems” theory or the traditional management process theory may continue to be
refined by voluntary integration of theories of other disciplines.

STUDY SESSION 2
Human Relation and Social Psychological Theories

2.0 Main Content

2.1. Human Relation and Social Psychological Theories

The human relations approach or behavioral approach is based upon the premise of
increase in production and managerial efficiency through an understanding of the
people. The growth and popularity of this approach is attributable to Elton Mayo
(1880-1949) and his Hawthorne experiments. Hawthorne studies (1924-1932) were
conducted to determine the effect of better physical facilities on workers output.
These studies showed that better physical environment or increased economic
benefits in itself were not sufficient motivators in increasing productivity. In effect
the emphasis shifted to psychological and social forces, in addition to economic
forces. Mayo discovered that when workers are given special attention by
management, the productivity is likely to increase irrespective of actual
changes in the working conditions.
Even though Mayo’s conclusions are not necessarily accepted today, the
Hawthorne studies were primarily responsible for consideration of non-financial
incentives in improving productivity.

Central to this approach was an increased understanding of the individual worker

with emphasis on motivation, needs, interpersonal relationships and group
dynamics. These experiments suggested that an office or a factory is not only a
work place but also a social environment in which the employees interact with
each other. This gave rise to the concept of the “social man” whose interaction
with others would determine the quality and quantity of the work produced. It must
be understood, however, that in spite of the fact that this social environment is an
important factor in improving the quality and output, it does not replace economic

benefits for low level salaries and it may increase turnover of employees, even if
the working conditions are satisfactory.
Human relations theory deals with the importance and potential of behavioural
processes in organisations. The basic assumptions of the human relations theory
was that, managers concern for workers would lead to increased satisfaction, which
consequently improved performance.
2.2. Culture
The concept of culture is perceived as a collective programming of the mind
(Hofstede, 1984), Kelly (2009) contended that culture is a shared way of
thinking and behaving (uniformity) within a group of people. Culture could be
classified into the following:
Person Culture: is where the individual is the central focus and
any structure existing to serve the individuals within it.
Power Culture: is a culture that depends on a central power source
that exerts influence throughout the organisation.
Task Culture: is a form of culture which is job oriented and seeks to bring
together the right resources and people and utilises the unifying power of
the group.
Role Culture: is based on logic and rationality and relies on the strength
of the functions of specialist. For instance, interactions between
departments are normally controlled by procedures and rules.

STUDY SESSION 3
Theories of Leadership

2.1. Leadership
Leadership is a dynamic process in a group whereby one individual, over a
particular period of time, and in a particular organisational context, influences the
other group members to commit themselves freely or administratively to the
achievement of group activities or goals.

It is basically a question of achieving the best between the leader’s personal

attributes, the expectation and needs of the subordinates, the need of the job and
the environment in which the events take place. Leadership is the ability to build
man’s personality beyond its normal limitations. In other words, it is the lifting
of a man’s vision to higher sights as stressed by Drucker (1974).

The fundamental process of leadership is to make conscious what lies

unconscious among subordinates. Leadership is many things as Peters &
Waterman (1982) once put it. It is patient, usually boring coalition building. It is
meticulously shifting the attention of the institution through the mundane language
of management systems. It is altering (or obliterating; as Hammer (1990) would
put it) agenda so that new priorities get attention. It is about building a loyal team
at the top that speaks more or less with one voice. It is being tough when
necessary, and it is the occasional naked use of power. It is being visible when
things are going wrong and invisible when they are working well.

2.2. The Concept of Leadership Skill

Kotter (1988) states that, the word leadership is used in two basic ways in
everyday conversation. To refer to:

1. The process of moving a group of people in some direction through

non-coercive means.
2. People who are in the roles where leadership is expected.
Although we agree with the first definition, we would like to define leadership as a
temporary acquisition of authority granted by a group or organisation to a person
(or group of persons) who is considered by the group or organisation as being most
capable of satisfying their needs.

According to Hellreigel et al (1989), there are four kinds of leadership skills:

2.2.1. Visionary Skills
People are willing to follow leaders because of their visionary skills. The led
become committed to the leader’s vision which involves and is in itself
confidence-giving.
2.2.2. Communication Skills
Successful leaders clearly have the skill to communicate the vision that
evokes enthusiasm and commitment.

2.2.3. Sensitivity Skills

Leaders are both powerful and sensitive to the needs of others and so, they
allow their followers to share in developing goals and the satisfaction derived
from reaching these goals.

2.2.4. Self-Awareness Skills

Leaders welcome feedback on their performance and continually take inventory of
themselves.

2.3. Theories of leadership

Leadership is an art of influencing and inspiring subordinates to perform their
duties willingly, competently and enthusiastically for a group objective realisation.
It could also be perceived as a process of influencing the activities of an individual
or a group in effort towards your achievement over a given time and situation.

The various theories of leadership style have been used to evaluate different
leadership characteristics that affect the achievement of organisational goals.
Most of these theories rely on the assumption that the power of being an effective
leader reside in the leader, and thus a combination of a good leader and leadership
style will produce managerial effectiveness. On the contrary, leadership style is
only a means to an end – managerial effectiveness – which cannot be achieved
without the support of the subordinates.

Managerial effectiveness depends on more than leadership style. It depends on a

leader who is capable of persuading his subordinates to act enthusiastically
towards the achievement of group and overall organisational objectives with
the most prudent and economic use of man, material and machinery. On the
other hand, leadership effectiveness can be defined as leadership that produces
movement in the long-term best interest. That is why Kotter (1988) says that Adolf
Hitler displayed strong leadership at times, but obviously not effective leadership.
Leadership theories include:
The trait theory
The behaviour theory
The contingency theory

The path-goal theory

The Vroom Yetton Jago model/theory

The managerial grid theory

 Traits theory: It emphasises that leaders are born and not made. These
traits include intelligence, understanding, perception, high motivation, socio-
economic status, maturity, initiative, need for self-actualisation, self-
assurance and understanding of inter-personal human relations.
 Behaviour theory: It studies leadership by focusing on what leaders do.
That is to say, leaders’ effectiveness is being judged by the outcome of the
individual subordinates.
 Contingency theory: The theory suggests that, an analysis of leadership
involves not only the individual trait and behaviour but a focus on the
situation. That is, the effectiveness of the behaviour of a leader is contingent
upon the demands imposed by the situation.
 Path-goal theory: Emphasises that, the leaders behaviour be such as to
complement the group work setting and aspiration. This is based upon
the expectancy theory of motivation and reflects the workers beliefs that
efforts will lead to successful results.
  Vroom Yetton-Jago theory: The theory is normative because it simply tells
the leaders how they should behave in decision making. The proponents of
this theory contended that, different problems have different characteristics; as
such, they should be address by different decision techniques.
 Managerial grid: This is built on two axis, one representing the “people’
while the other representing the “task”. It pals an important part in
managerial behaviour in organisational development.

2.4. Leadership and Management

To many, the word leadership and management can be used interchangeably.
However, they are very different and the differences help to define the essential
ingredient of effective leaders. Kotter (1988) puts the difference between
leadership and management this way:

Leadership is different from management, but not for the reasons most people
think. Leadership is not mystical and mysterious. It has nothing to do with having
“charisma” or other exotic personality traits. It is not the province of a chosen few.
Nor is leadership necessarily better than management or a replacement of it.
Rather, leadership and management are two distinctive and complementary
systems; each has its own function and characteristic activities. Both are necessary
for success in an increasingly complex business environment.

Management is about coping with complexity. Without good management, complex

organisations tend to become chaotic. Good management brings a degree of order

and consistency to key dimensions like the quality of products. Leadership on the
other hand, is about coping with change.

Leaders are supposed to cope with changes such as faster technological change,
greater international competition, the deregulation of markets, globalisation,
overcapacity in capital-intensive industries, unstable oil market, the changing
demographics of the workforce etc.

Managing companies means managing complexity, first, by planning and

budgeting, establishing detailed steps for achieving those targets, and then,
allocating resources to accomplish those plans. By contrast, leading a company to
constructive change begins by setting a direction (vision) along with strategies for
producing the changes needed to achieve that vision. Management develops the
capacity to achieve its plan by organising and staffing – creating an organisational
structure and jobs to achieve plan requirement, staffing the jobs with qualified
individuals, communicating the plan to those people, delegating responsibility for
carrying out the plan, and devising systems to monitor implementation. The
equivalent leadership activity is aligning people. The leader has to communicate
the new direction (vision) to those who can create coalition (knowledge
management) that understand the vision and are committed to its achievement.
Management ensures plan accomplishment by organising, controlling and
problem-solving. However, for leadership, achieving a vision requires motivating
and inspiring. The leader keeps people moving in the right direction by appealing
to their basic human needs, values and sometimes emotions. In contrast, Birch
(1999) says that:

- the role of a manager is often to organise resources to get something done.

People are one of those resources and many of the worst managers treat
people as just another interchangeable item. In sum, management controls
people by pushing them in the right direction; leadership motivates them by
satisfying their basic human needs.

While improving their ability to lead, companies should remember that strong
leadership with weak management is an invitation to disaster and is sometimes
actually worse than the reverse. The real change is to combine strong leadership
and management and use each to balance the other. Visionary companies try to
develop leader-managers.

STUDY SESSION 4
System and Contingency Approaches to Management Theory

2.0 Main Content

2.1. System and Contingency Approaches to Management Theory
A system is an interrelated set of elements functioning as a whole

There are four essential elements to be identified in a system of an organisation,

they are as follows:
• Inputs: These are the materials, financial, human and informational
resources, which the organisation obtains from its environment.
• Conversion device: is where the technological and managerial processes take
place by transforming inputs into outputs.
• Outputs: Are results, of the transformation process. It includes products,
services, dividends, losses, employee behaviour and information.
• Feedback: Is an environmental reaction to this output which could be favourable
or unfavourable.

However, system could either be an open system or closed system.

A contingency approach to management theory suggests that appropriate
managerial behaviour in a given situation depends on, or is contingent on
unique elements in that situation. That is to say effective managerial behaviour
in one situation cannot always be generalised to other situations.

This approach (Contingency or Situational Approach) primarily deals with the

managerial ability to adopt policies that deal with a given situation and some
particular circumstances that an enterprise may encounter. Unlike Taylor and
Gilbreth who were interested in finding the “best way” to do a task or solve a
problem, this approach does not suggest that there is a “best approach” which will
work in all situations. The situational approach requires that managers diagnose a
given situation and make decisions relative to the conditions present.

2.0 MODULE 2
Management Practice

2.1. Management Practice

This deals with the practical aspects of theories in management. It involves
how the various management functions are being practiced by organisations.
The concept of management is as old as the human race itself. Management is not
only an essential element of organized society, but also an integral part of life.
Management is a problem solving process of effectively achieving organisational
objectives through the efficient use of scarce resources in a changing environment.

Skills Necessary for Managers

Some of the essential skills are:
1. Technical skills
2. Human skills
3. Analytical skills
4. Conceptual skills

2.2. Managerial Levels

There are basically three levels of management relative to standing in

an organisation's hierarchy of authority. These levels are:

2.2.1- Top management

The top level of management includes top executives such as chief executive
officer, chief operating officer, president, executive vice-presidents and various
vice-presidents. These managers are primarily involved in broad organisational
matters such as policy formulation, long range planning, goal setting and
development of organisational strategies. In general, the top management
effectively deals with all elements and forces that affect the survival, stability, and
growth of an organisation.

2.2.2. Middle management

The middle management level generally consists of divisional and departmental
heads such as plant manager, production manager, marketing manager, personnel
directors etc. Their job is to interpret policies and directions set by the top level
management into specific plans and guidelines for action. Their responsibility is to
co-ordinate the working of their departments so that the set objectives can be
achieved.

2.2.3. First level supervisory management

1. This level of management consists of supervisors, superintendents, unit
heads, foremen, chief clerks etc. Their primary concern is with the
mechanics of the job and they are responsible for co-coordinating the work
of their employees. They must possess technical skills so that they can assist
their subordinates when necessary. They plan day-to-day operations, assign
personnel to specific jobs, oversee their activities, evaluate their
performances, and become a link between the workers and the middle level
management.

Managerial Roles
These areas are:
 1. Interpersonal relationships
2. Information processing and disseminating, and
3. Decision making

Characteristics of a Good Manager

Some of the more important personality traits of a successful manager are:
1. Knowledge
2. Decisiveness
3. Ability to handle conflict
4. Emotional stability

Managerial Responsibilities
The management is responsible and answerable to many groups. Sometimes the
interests of these groups conflict with each other. Hence, management must
conduct its affairs in a manner so as to be fair and equitable to all parties who have
a vested interest and claim on management. These interested parties are:
1. The stockholders and other investors
2. Employees
3. Consumers
4. Inter-related businesses
5. The government

6. The community

2.3. Management Functions

There are basically five primary functions of management. These are:
 1. Planning
2. Organising
3. Staffing
4. Directing
5. Controlling
The controlling function comprises of coordinating, reporting and budgeting, and
hence the controlling function can be broken into these three separate functions.
Based upon these seven functions, Luther Guelick coined the word
“POSDCORB”, which generally represents the initials of these seven functions.
AH the primary functions are explained and discussed fully in the following pages
and only a brief introduction to these functions is given here.
1. Planning: Planning is future oriented and determines an organisation's
direction. It is a rational and systematic way of making decisions today
that will affect the future of the company. It is a kind of organised
foresight as well as corrective hindsight. It involves the predicting of the
future as well as attempting to control the events. It involves the ability to
foresee the effects of current actions in the long run in the future. Peter
Drucker has defined planning as follows :

Planning is the continuous process of making present entrepreneurial decisions

systematically and with best possible knowledge of their futurity, organising
systematically the efforts needed to carry out these decisions and measuring
the results of these decisions against the expectations through organized and
systematic feedback.

An effective planning program incorporates the effect of both external as well as

internal factors. The external factors are shortages of resources, both capital and
material, general economic trend as far as interest rates and inflation are
concerned, dynamic technological advancements, increased governmental
regulation regarding community interests, unstable international political
environments etc. The internal factors that affect planning are limited growth
opportunities due to saturation requiring diversification, changing patterns of work
force, more complex organisational structures, decentralisation etc.

2. Organising: Organising requires a formal structure of authority and the

direction and flow of such authority through which work sub-divisions are
defined, arranged and coordinated so that each part relates to each other part in
a united and coherent manner so as to attain the prescribed objectives. Thus
the function of organising involves the determination of activities that
need to be done in order to reach the company goals, assigning these
activities to the proper personnel, and delegating the necessary authority
to carry out these activities in a coordinated and cohesive manner. It
follows, therefore, that the function of organising r is concerned with:
Identifying the tasks that must be performed and grouping them
whenever necessary.
Assigning these tasks to the personnel while defining their authority and
responsibility.
Delegating this authority to these employees.
Establishing a relationship between authority and
responsibility. Co-coordinating these activities.

3. Staffing: Staffing is the function of hiring and retaining a suitable work-

force for the enterprise both at managerial as well as non-managerial
levels. It involves the process of recruiting, training, developing,
compensating and evaluating employees, and maintaining this work-force
with proper incentives and motivations. Since the human element is the
most vital factor in the process of management, it is important to recruit the
 right personnel. This function is even more critically important since people
differ in their intelligence, knowledge, skills, experience, physical condition,
age and attitudes, and this complicates the function. Hence, management
must understand, in addition to the technical and operational competence,
the sociological and psychological structure of the workforce.

4. Directing: The directing function is concerned with leadership,

communication, motivation and supervision so that the employees
perform their activities in the most efficient manner possible, in order
to achieve the desired goals. The leadership element involves issuing of
instructions and guiding the subordinates about procedures and methods.
The communication must be open both ways so that the information can be
passed on to the subordinates and the feedback received from them.
Motivation is very important, since highly motivated people show excellent
performance with less direction from superiors. Supervising subordinates
would give continuous progress reports as well as assure the superiors that
the directions are being properly carried out.

5. Controlling: The function of control consists of those activities that are

undertaken to ensure that the events do not deviate from the pre-arranged
plans. The activities consist of establishing standards for work performance,
measuring performance and comparing it to these set standards and taking
corrective actions as and when needed, to correct any deviations.

All these five functions of management are closely inter-rebated. However, these
functions are highly indistinguishable and virtually unrecognisable on the job. It is
necessary, though, to put each function separately into focus and deal with
accordingly.
 STUDY SESSION 2
Management Planning in Practice
2.0 Main Content
2.1. Management Planning
Planning has been defined previously as one of the five major functions of
management. However, since planning is a bridge between the present and the
future, it has been called the primary management function. Planning is
particularly important because of scarce resources and uncertain
environment with a fierce competition for these resources.

Planning is a decision making activity requiring the process of ascertaining

objectives and deciding on activities to- attain these objectives. It is also a process
of preparing for change and coping with uncertainty by formulating future courses
of action. The basic purpose of planning is to reduce the risk of uncertainties and to
initiate a coordinated effort within the Organisation for the purpose of
organisational success.

2.2. The Six P’s of Planning

1. Purpose: An effective planning system requires a clear understanding
of the organisation's purpose.
2. Philosophy: Philosophy incorporates the fundamental beliefs as to how
the organisation's purpose is to be achieved.
3. Premise: This involves the strengths and weaknesses of the
organisation and its knowledge and assumptions about its environment.
4. Policies: Policies are general guidelines or constraints that aid in
managerial thinking and action. In a typical organisation, there are
production policies, financial policies, accounting policies,
marketing policies, personnel policies, etc
 5. Plan: Plans represent specific objectives and action statements.
Objectives are the goals to be met and the action statements are the means
to achieve these ends.
6. Priorities: A particular organisational goal must be given a
particular priority. Limited resources of time, finances, materials,
etc. must be proportionally allotted to goals of priority

2.3. Characteristics of Good Planning

A good plan can be identified by certain characteristics. Some of these
characteristics are given below:
1. A good plan is based upon clear, well-defined and easily understood
objectives. General objectives like improving morale or increasing profits
are ambiguous in nature and do not lend to specific steps and plans. If
possible, objectives must be quantified for sake of simplicity.
2. A good plan must be simple and comprehensive. It should be simple so that
all employees can grasp its significance and it can\be easily put into
operation. It should be detailed enough so that it covers all aspects of the
operations that are necessary to achieve objectives.
3. It should be well-balanced, but flexible. A good plan should be well-
balanced so that the existing resources are properly utilized for all functions
and that short-term gains are not at the cost of long-term gains and vice-
versa. Similarly, it should be flexible enough to incorporate any changes in
these resources, if necessary. Additionally, it should be responsive to
changed conditions so that if future events do not follow the anticipation, the
same plan can be modified and adopted to the altered situation.
4. Every plan should be time-bound. Even though planning is an attempt to
anticipate the future, the time period allowed for achieving goals should be
 reasonable. Long-range planning has more uncertainties built into it due to
difficulty in correctly anticipating events for a longer period of time. Hence
the time period covered should be reasonable and reasonably stable

2.4. Steps in Formal Planning

Planning can be considered as a series of sequential steps. These steps are:
STEP (1): Establish and define clearly the central and overall objectives of the
organisation. A well-defined objective can make the difference between success
and failure of an enterprise. It clearly defines the product or service as well as the
purpose of the company. Along with the overall mission of the company, it is also
necessary to establish the specific objectives and goals. For example, the overall
objective of a hospital is to provide quality health care.
STEP (2): Determine your current position relative to your objectives. Make an
assessment of your strengths and weaknesses. This will show the distance the
company has to cover before reaching its goals. The analysis of current strengths
and weaknesses would determine if the goals are realistic and achievable and
whether they need to be re-evaluated and modified.
STEP (3): Develop forecasts and future conditions. In order to effectively plan, it
is important and necessary to forecast as accurately as possible, the future trends
that will affect the company's standing and operations. The factors of forecast will
include general economic conditions, changes in consumer attitudes, new techno-
logical and product developments, possible competitive strategies and any adverse
legal developments.
STEP (4): Preparation of derivative plans. Once an overall plan has been adopted,
it is necessary to develop other derivative plans for each segment of the company,
to support the formal plan. Derivative or sectional plans are developed in each area
of the business, but within the framework of the primary plan in order to
coordinate and integrate programmes and policies of all sections of the enterprise.
STEP (5): Implement the plan and evaluate its results. The success of the plan
would depend upon how effectively the plan is implemented. This implementation
is going to require a combination of all skills and coordination of all factors. Also
in this ever-changing dynamic environment, it is necessary to keep the plan open to
evaluation and modification. The plans should be periodically re-evaluated to
measure its progress and effectiveness so that any deviations can be corrected and
any adjustments can be made.

2.5. Problems and Limitations in Planning

There are situations in which sometimes even well-designed plans fail to bring
the desired results. There are some established reasons as to why plans fail. Some
of these reasons are:
1. Corporate planning is not integrated into the total management system.
2. There is a lack of understanding of the different steps of the
planning process
3. Management at different levels in the organisation has not properly
contributed to planning activities
4. In starting formal planning, too much is attempted at once
5. The management is not always willing to cancel or modify poor plans.
6. Management fails to operate by the plans.
7. Resistance to change by organisational members.
8. Lack of contingency plans.

2.6. Levels of Planning

There are basically three levels of planning associated with the different
managerial levels. These levels are:
1. Strategic planning: The strategic planning is conducted by the top
management which includes Chief Executive Officer, President, Vice-
Presidents, General Managers, etc. and is the process of determining
overall objectives of the organisation and the policies and strategies
adopted to achieve those objectives. It is a long-range planning and may
cover a time period of up to 10 years, it basically deals with the total
assessment of the organisation's capabilities, its strengths and its
weaknesses and an objective evaluation of the dynamic environment. The
planning also determines the direction the company will be taking in
achieving these goals.
2. Intermediate planning: This planning covers a time frame of about 6
months to 2 years and is contemplated by middle management which
includes functional managers, department heads and product-line
managers. They also have the task of polishing the top management's
strategic plans. The middle management will have a critical look at the
resources available and they will determine the most effective and efficient
mix of human, financial, and material factors. They refine the broad
strategic plans into more workable and realistic plans.
3. Operational planning: These plans are the responsibility of lower
management and are conducted by unit supervisors, foremen, etc. These
are short-range plans covering a time span from one week to one year.
These are more specific and they determine how a specific job is to be
completed in the best possible way. Most operational plans are divided
into functional areas such as production, finance, marketing, personnel,
etc. For example, the production plans would require an analysis and
decisions covering inventory levels of raw materials as
 STUDY SESSION 3
Organising for Management Practice
2.0 Main Content
2.1. Organising
The organising function of management is concerned with developing a framework
where the total work is divided into manageable components in order to facilitate
the accomplishments of objectives. The organisation can be defined as two or more
people working together in a coordinated manner to achieve the common goals.
The organisation has set objectives, the relative arrangements of people and
physical resources, a set of rules and regulations and a hierarchical structure of
authority with formal lines of communication.

Steps in Organisation
1. Determination, identification and enumeration of activities
2. Grouping and assigning of activities
3. Delegation of authority

2.2. Principles of Organisation

These principles are:
1. The lines of authority should be clearly stated and should run from the top
to the bottom of the organisation.
2. Each person in the organisation should report to only one boss.
3. The responsibility and authority of each supervisor should be I clearly and in
writing
4. The authority and responsibility should be delegated as far down
the hierarchical line as objectively possible
5. The number of levels' of authority should be as few as possible
6. The principles of specialisation should be applied wherever possible

7. The line functions and the staff functions should be kept separate
 8. The span of control should be reasonable and well established

2.3. Benefits of a Good Organisation

The application of principles described in the previous section can be highly
beneficial in controlling the organisational efforts and achievements. Some of
the beneficial outcomes are:
1. A good organisation facilitates attainment of objectives through proper
coordination of all activities
2. In a good organisation, the conflicts between individuals over jurisdiction are
kept to minimum.
3. It eliminates overlapping and duplication of work.
4. It decreases likelihood of run-arounds
5. It facilitates promotions.
6. Aids in wage and salary administration.
7. Communication is easier at all levels of the organisational hierarchy.
8. Increased cooperation and a sense of pride.
9. It encourages creativity.
 STUDY SESSION 4
Control in Management Practice
2.0 Main Content
2.1. Control
Control is very important both in organised living as well as "living" organisation.
When things go smoothly and as planned, they are under control. “Self-control” is
a word we are all very familiar with which simply means that we discipline
ourselves in such a manner that we strictly adhere to our plans for our lives and do
not deviate from it. “Diet control” means controlling our input of food to a
prescribed level in order to achieve a goal of physical fitness. Any deviations
would make the process out of control affecting the goal achievement.

Controlling or control implies ensuring plans are properly executed as

planned, in accordance with the function of the organisation. Control could
be divided into behavioural control and output control (Cole & Kelly, 2011).
Behavioural control is based on direct person supervision which is responsive to
the particular needs of the tasks, manager’s abilities and norms of an
organisation. While output controls is concern with achievement of result for
output measurement.
The following are the basic elements of control:
Establishment of performance
standard. Performance measurement.
Comparison between actual results
against the expected standard.
Effecting corrective action where necessary.

In-text Questions 1. What is Controlling

2.2. Requirements and Characteristics for an Effective Control System
Effective controls have certain common characteristics. Some of these
requirements and characteristics are discussed below.
1. Controls must provide useful and understandable information.
Misunderstood controls will not be applied properly. The control system
format must be simple, clear and unambiguous so that irrelevant information
is excluded and only useful and necessary data is utilized.
2. Controls should report deviations quickly so as to minimise the ill effects of
these deviations. A well designed control system should be capable of
identifying potential problem areas before they arise so that corrective action
can be taken before the problem becomes serious and unmanageable. The
system should be sufficiently efficient, so that any deviations or control
information is relayed to the management immediately after any significant
event occurs, so that decisions on this information can be taken without
delay.
3. Controls must be designed so that the right people monitor the activities of
their own fields. The sales manager, for example, should be concerned with
only sales activities including output of sales representatives, product sales
by territories, any price changes that would affect sales and any new
products introduced. Similarly, the production manager must control the
output as well as the quality of the output etc.

However, the total control system of the organisation must be delicately balanced.
The control program must be set up by individuals who have a total view of the
organisation so that the programme does not reflect the biases of one group over
the other. For example, the financial reports may be excellent but still the company

78
may be facing a strike because the feedback about personnel satisfaction was
inadequate.
4. The focus should be on strategic control points. The control system must
reflect and support the organisation’s established overall priorities so that the
activities of strategic significance where deviations would lead to greatest
harm, receive the immediate corrective action and minor activities get lower
priority for control purposes.
5. Control should focus on results. The ultimate aim of the control process is to
attain objectives. Gathering information, setting standards, identifying
problems, measuring deviations and reports are simply means to the end.
The controls must not fail to work. Whether it is the fault of measuring
mechanisms or the .authority structure it must be modified and corrected.
6. Controls should be economically realistic. A control system must be worth
the expense. The cost of implementing the control system must be less than
the benefits derived from the control system. A control is not desirable, if an
increment in improvement involves a disproportionate increase in cost and
effort.

2.3. The Control Process

Control is a process that measures current performance on a continuous basis and
ensures that the performance leads to some pre-determined goal. The desired
results are established through the planning process and the performance is
measured by established standards.

The elements of the control system are universal in nature. These elements
basically fall under four distinct steps. These are:
1. Predetermined goals
79
 2. Measuring performance
3. Comparing actual performance with expected performance, and
4. Taking corrective action.

Types of Control Methods

Most methods of control can be grouped into four basic types which may be
applied individually or in combination with each other. These are:
1. Pre-controls
2. Steering controls
3. Yes/No controls
4. Post-action controls

2.4. Symptoms of Inadequate Control

Some of the symptoms of inadequate control are:
1. An unexplained decline in revenues or profits.
2. A degradation of service and customer complaints.
3. Employee dissatisfaction.
4. Unnecessary working capital shortages.
5. Idle facilities or personnel.
6. Disorganized operations.
7. Evidence of waste, .inefficiency and excessive costs

All these symptoms signify a deviation from what the system should be and
all efforts should be directed to the creation of a work environment in which
these symptoms should, disappear.

80
 3.0 MODULE 3
Functional Management

2.0 Main Content

2.1. Production/Operations Management
Operations Management is the management of activities specifically related either
directly or indirectly to the organisation’s production of goods and services. Goods
are in the form of physical units such as soap, candy bar etc. while services are
meant to provide some form of assistance, such as dry cleaning service, medical
service, check processing etc. Both the products and services involve a process of
conversion from inputs to outputs. In the case of material output, it is the
technology that converts raw materials into finished useable goods and in the case
of services it is the managerial knowledge and facility that assist the conversion.
Operations management is used in both types of these businesses.

According to Johnson, Newell and Vergin, “Operations Management is the

design and operations of systems”. The production of goods and services is a
system since the organisation components interact with each other as well as with
outside environment. In other words, operations management is the performance of
activities entailed in selecting, designing, operating, controlling and updating
production systems. For example, a hospital as a system would use operations
management techniques to facilitate checking in of patients, efficient scheduling of
operating rooms and diagnostic equipment, billing of patients etc. It is really an
efficient tool of managing the transformation process from input of people,
materials, tools and money to output of goods and services.

2.2. Production Process

Production process simply implies the way product and services are created by
business organisations. This requirement or needs of the customers could only be
met if correct number of goods or services can be produce at a low price with high
quality standard at the shortest possible time. The following are types of
production process:
• Jobbing and product raised production
• Batch production
• Mass and continuous production.

2.3. Steps in Operations Management

The management of operations must be integrated with that of the organisation as a
whole and contribute to its overall objectives. Specifically, however, based upon
Chase and Acquilano, the major phases of operations management are as follows:
1. Selecting: This phase involves the selection of specific processes
by which the desired goods are to be produced or services to be
perfor-med.

2. Designing: This phase includes the design of jobs as well as the

design of facilities that will use the technology and the selected
pro-cesses mere effectively.
3. Operating: This step involves scheduling work operations-and
allocating workers in such a manner as to meet short-term as well
as long-term levels of output which is consistent with forecasted
demand.
4. Controlling: The controlling mechanism is to be developed at
the same time as the designing of operating systems and must be
integrated with the system.
5. Updating: Updating means continuous revision of operating
methods and systems in order to meet the ever-changing
and dynamic social and technological environment.
2.4. Steps in Production Planning and Control
The production function comes into operation as a combined result of materials,
machines, human resources and other factors. While managing the individual
factors in isolation are significant m themselves, the efforts must also be directed
towards their combined results.
The work of production planning
and control consists of five phases.
These are:
1. Routing
2. Scheduling

3. Dispatching
4. Inspection
5. Expediting or Follow-up.

2.5. Functions of Production/Operations Management

The process of transformation from inputs to outputs requires certain functions to
be performed. Some of these functions are discussed below in detail.
1. Design and Development
2. Capital Equipment
3. Site Selection
4. Facilities Layout
5. Work Design and Measurement
6. Purchasing/Materials Management
7. Inventory Management
 STUDY SESSION 2
Personnel or Human Resource Management
2.0 Main Content

2.1. Personnel Management

The effective management of personnel play a significant role toward the success or
failure of a business. The role of personnel function is to improve the productive
contribution of individuals and teams to enhance organisational performance. The
goal of personnel function is to help organisation meet strategic goals by
attracting and retaining employees and also manage them effectively.

2.2. Key Areas of Personnel Policy and Practices

Recruitment and
selection Training
Pay and benefits (like pension scheme etc)
Relations with staff association or trade
unions Career development
Safety and health
Employment legislation
 An Illustration of Personnel Function
Director of Personnel

Personnel Employee Relation Training & Devt.

Service Manager Manager Manager

Recruitment Job Evaluation Training Officer Manpower Personnel Officer

Officer Officer Planning Officer

Organization Line Personnel

Planning Manager Manager
Personnel Industrial Instructors Organization Personnel Clerk
Administrator Relation Research Analyst

Source: Cole and Kelly, (2011:459)

2.3. Human Resource Planning

Human resource planning involves objective and systematic assessment of
present staffing needs of an organisation, identifying the available personnel to
satisfy the current needs, forecasting the future demand and supply of employees,
formulating staffing strategies with a view to both short range as well as long range
strategic plans and continuously monitoring, evaluating and updating these needs
and resources of supply.
Human Resources Requirements and Decisions

•Recruitment
•Seclection
New Recruits •Induction

•Work Allocation
•Employee Redeployment
•Promotion of Personnels
Employees
•On-the- job & Off-the-job training
•Wages & Salaries
•Workers Productivity

•Employees Resignations
Leavers
• Employees Retirement
• Employees Redundancies

94
 Human Resource Planning Circle

Corporate
Reviewed Objectives
Outcomes
Immediate
Recruitment /short term
Training and needs.
Development Perational Plans for Demand for Medium
Promotion and Meeting HR Requirement Personnel term needs
Career Planning Long term
Pay and Assess requirement
Personnel
Productivity Supply

Existing Staff Future Prospects

Staff Categories Leavers
Staff Number Recruitment
Readiness for Promotion State of Labour Market
Trainability Trends in education

Source: Cole and Kelly, (2011:222)

STUDY SESSION 3
Marketing Management
2.0 Main Content
2.1. Marketing
Marketing is everywhere. Formally or informally, people and organisations engage
in a vast number of activities that we could call marketing. Good marketing has
become an increasingly vital ingredient for business success. And marketing
profoundly affects our day-today lives. It is embedded in everything we do-from
the clothes we wear, to the Web sites we click on, to the ads we see.

Marketing centers’ on a set of processes for creating, communicating and

delivering value to customers; for managing customer relationships; and, for
providing direction to an organisation based on market insights. Marketing
consists of individual and organisational activities that facilitate and expedite
satisfying exchange relationships in a dynamic environment through the creation,
distribution, promotion and pricing of goods, services and ideas.

The simple premise of marketing is that to be successful, any organisation must

understand its customers’ requirements and satisfy them in a manner that gives the
organisation an edge over its competitors, and by staying abreast of changing
market dynamics it will continue to offer compelling propositions to these targeted
customers. This involves offering the ‘right’ marketing mix of product, people,
service, pricing, promotion and distribution channel. Marketing depends,
therefore, on constant updating of ideas and market knowledge. Customers are
often surprisingly fickle and modify their needs and wants; rivals alter their
strategies; and, forces in the marketplace regularly change. There is, though, much
more to marketing than serving customers through marketing programmes.

Marketing’s core focus is indeed the understanding and ongoing satisfaction of

targeted customers, but marketers must provide much more for their organisations.
Effective marketing should analyse markets in order to be able to maintain
customer interest and satisfaction, combat competitors, identify opportunities and
recognize threats. Marketers should be the ‘eyes and ears’ for their organisations
regarding market dynamics. Having determined which opportunities to pursue and
having agreed the mix of target markets to prioritise, marketing should create
target customer engagement strategies, establish the ‘wow factor’ and ensure there
is a robust basis for competing. Marketing programmes should be developed
appropriate for the successful execution of this strategy.

2.2. The Marketing Concept

The marketing concept could be seen to be a common sense managerial orientation
that understands the needs and wants of customers in the market, and adopts the
operations of the organisation to deliver the right goods and services more
effectively and efficiently than company’s competitors. Kotler (1991) puts this into
two practical perspectives namely; “company management remaining sensitive to
market needs and company management operating the enterprise in a market-
oriented manner”. These constitute the two main areas of responsibility for the
management in an organisation. This is so, where the organisation concerned is a
service oriented one.

2.3. Making the Marketing Concept Work

In spite of the difficulties inherent in implementing the marketing concept,
Rosenberg (1977) believes that where there is a will to use the marketing concept,
there will be a way to implement it. The proper method of implementation may
vary with each organisation’s size, product, market and management style. To
make the marketing concept work, there must be customer orientation. This
orientation must be top down. That is, it has to start with the head of the
organisation. The executive must have a thorough understanding of the concept
and its application to the organisation. In fact he must adopt a marketing frame of
mind. Rosenberg argues that, this commitment to the marketing concept must also
be shared by key members of the executive staff. There must be a unity of purpose
and outlook. The “prima donna syndrome” in which a particular person or unit
within the organisation perceives himself (or itself) as the heart of the company,
with other persons or unit performing only peripheral functions should be avoided.
Also there should be a marketing department with a marketing executive,
integration of marketing functions and a marketing staff. This is the phenomenon,
which makes the marketing concept and process possible.
2.4. Benefits of the Marketing Concept
Rosenberg (1977) provides the following benefits of implementing the
marketing concept:
Reduce business risk as a result of systematic market research, the scientific
acquisition and analysis of market data relevant to the decision making and
better market and sales forecasting.
Improves business planning as a result of earlier identification and assessment

of future market trends and opportunities and the acceptance of a planning

discipline based on defined objectives with which all departments must gear
their programmes.
Greater competitiveness based on marketing skills. As more and more of our
competitors achieve technological and manufacturing efficiency, the
differences in the products from companies will tend to narrow.

2.5. The Marketing Management

This involves analysis, planning, implementation and control of
programmes designed to create, build and maintain beneficial,
exchanges with target buyers for the purpose
of achieving organisational objectives. In
essence, marketing management involves
managing demand which is turn involves
managing customer relationship (Kotler and
Armstrong, 2001:14).
 STUDY SESSION 4
Financial Management
2.0 Main Content
2.1. Financial Management
Financial management has to do with the responsibility of obtaining and
effective utilisation of funds necessary for efficient operation of an enterprise.
The function of finance centre on the management of funds, raising and using them
effectively. (Akinsulire, 2006) Financial management is concerned with the use of
accounting knowledge, economic models, mathematical rules, systematic analysis
and behavioural science for the specific purpose of assisting management in its
function of financial planning and control. It is also perceived as a managerial
activity that is concerned with planning and controlling of firm’s financial
resources (Pandey, 2008).

2.2. Relationship between Financial management, Accounting and Economics

Financial management has a close relationship with economics on one hand and
accounting on the other hand. In economics, there are two important ties that bind
economics to finance. First, the macroeconomic factors like the growth rate in the
economy, the domestic savings rate, the role of the government in economic
affairs, the tax environment, the availability of funds to the corporate sector, the
rate of inflation, the real rate of interest, and the terms on which the firm can raise
finances define the environment in which the firm operates. Therefore, a basic
knowledge of macroeconomics is necessary for you to understand the environment
in which the firm operates by the financial manager. On the micro-economic
environment however, relevant theories and concepts of micro economic provide
the conceptual framework on the basis of which financial tools and models are
developed.
The knowledge of the principles and concepts of micro economics can sharpen
greatly the analysis of decision alternatives in finance.
Financial management, in essence, can be regarded as
applied micro economics. For example, the principle of
marginal analysis which is a key principle of micro
economics for decision making is also applicable to a number
of managerial decisions in finance.

In terms of the relationship between Finance and Accounting,

it is the accounting functions that provide the necessary input which the finance
manager relies on in the discharge of his responsibilities. The functions of the
financial manager should not be misunderstood with those performed by the
Accountant. The financial Manager relies mostly on the processed information
supplied by the Accountant. In practice, the basic knowledge of accounting is
required by the financial manager in order to appreciate and interpret financial
statements and to make reports from them.

2.3. Role of Managerial Finance

Finance plays a central role to the growth and survival of business organisations. A
business entity is likely to thrive more rapidly if a sound financial structure which
aims at maximising shareholders return and minimizing risk is created for it. The
role of Managerial Finance in an organisation is therefore to provide the basic
framework on which financial principles and concepts can be deployed to make the
right financial decisions for the firm. These decisions are in three core areas:
Financing decision, Investment decision and Dividend decision. The three
decision areas which the financial manager makes are explained below:

108
 i. Financing decision: Financing decision is a vital function which the
financial manager must perform for the organisation. He should be able to
make decisions about when, where and how the organisation should acquire
funds, and decide also on the appropriate channels of utilising such funds.
Funds can be generated for the business through many ways either by equity
contribution from the stockholders or through borrowing. In general, a good
ratio of equity to debt has to be maintained for the organisation; the mix of
equity capital and debt is known as a firm’s capital structure. A firm tends to
benefit most when the market value of its shares is maximised; this not only
is a sign of growth for the organisation but also a way of maximising
shareholder’s wealth.

ii. Investment decision: Another essential area where the financial manager
must take decision is in the identification of viable projects in which the firm
should invest its funds in. This decision relates to careful selection of assets
in which funds will be invested by the firm. A firm has many options to
invest its funds but firm has to select the most appropriate investment which
will bring maximum benefit for the firm and deciding or selecting the most
appropriate proposal is an aspect of investment decision. The firm invests its
funds in acquiring fixed assets as well as current assets. When decision
regarding fixed assets is taken, such is regarded as capital budgeting
decision.
iii. Dividend Decision: Businesses are generally operated for profit motive.
Earning profit or generating a positive return on investment for the
stockholders is a major concern of all business entities. It is therefore the key
function of the financial manger to decide whether to distribute all the
profits generated by the business to the shareholders or retain all of it, or
distribute part to the shareholders and retain other part in the business. To do
 this effectively, the financial manager decides on an optimum dividend
policy which maximises the market value of the firm. Hence an optimum
dividend payout ratio will be calculated for the firm.

It is however worthy of note that the role of Financial Manager has significantly
shifted from the traditional functions of fund
raising and fund management of his company to
those of investment decision, Financing decisions
and asset management decisions. The shift
became necessary due to external environmental
factors that are negatively impacting on the ability
of the financial manager to perform his
managerial finance functions. These external factors may include worldwide
economic uncertainties, fluctuations in exchange rates, rapid technological
changes, heightened competitions in the market place, business ethic issues,
changes in tax laws, inflation volatilities and so on.

2.4. Functions of the Financial Manager

The important functions of the financial manager in modern businesses shall
include, but not limited, to the following:

i. Raising of capital: to arrange and execute programmes that will facilitate

the provision of capital required by the business.
ii. Investor relations: to establish and maintain adequate information
with respect to company’s securities and to maintain a liaison with
investors, bankers, financial analysts and shareholders.
iii. Sourcing Short term finance: to maintain adequate sources for company’s
current borrowing from commercial banks and other lending institutions.
iv. Financial Custody: to maintain banking arrangement for receiving
and banking funds in the accounts of the business.
 v. Credit collections: to direct the granting of credit and the collection
of accounts due to the company as at when due.
vi. Investments: to invest the company’s funds as required and to establish
and co-ordinate policies for investment in pension and other similar
trusts.
vii. Insurance: to comprehensively provide insurance cover on the assets of
the business as required.
viii. Financial Planning and control: to establish, co-ordinate and administer
an adequate financial plan for the control of operations.
ix. Reporting and interpreting: to compare information with operating
standards and to report and interpret the results of operations to all levels
of management and to the owners of the business.
x. Evaluating and consulting: to consult with all the segments of
management responsible for policy or action concerning any phase of the
operation of the business as it relates to the attainment of objectives and
the effectiveness of policies, organisational structure and procedures.
xi. Tax administration: to establish and administer tax policies and procedures.
xii. Government reporting: to supervise and co-ordinate the
preparation of reports to government agencies.
xiii. Protection of assets: To ensure protection of assets of the business
through internal control, internal auditing, etc.

In summary, the entire functions and responsibilities of the Financial

Manager in an organisation can be grouped into the following headings:
i. Development Of Financial Strategy
(a) Determination of financial objectives.
(b) Planning of capital structure
(c) Short and long-term planning
 ii. Treasury Management
(a) Forex management
(b) Cash forecasting
(c) Insurance
(d) Working capital
(e) Credit policy
(f) Raising of funds

iii. Long-Term Planning

(a) Mergers and Acquisitions
(b) Capital budgeting

STUDY SESSION 5
Modern Approaches to Management
2.0 Main Content
2.1. Modern Approaches to Management
Modern approaches to management arose because of the need for more
sophisticated techniques of managing organisations. Organisations become more
complex both in organisational
structure and operations.
Conglomerates by mergers, acquisition
or expansion become sufficiently
complicated for the traditional
methods of management to withstand
the current challenges. That is how the more modern concept of participative
management evolved. This type of management is known as “Management by
Objectives” or MBO.
2.2. Management by Objectives (MBO)
MBO is a process by which managers and subordinates work together in
identifying goals and setting up objectives and make plans together in order to
achieve these objectives. These objectives and goals are consistent with the
organisational goals. George Odiorne has explained the concept as follows:
The system of management by objectives can be described as a process whereby
the superior and subordinate managers of an organisation jointly identify its
common goals, define each individual’s major areas of responsibility in terms of
results expected of him and use these measures as guides for operating the unit
and assessing the contribution of each of its members.

MBO then can also be referred as Management by Results or Goal Management

and is based on the assumption that involvement leads to commitment and if an
employee participates in goal setting as well as setting standards for measurement
of performance towards that goal, then the employee will be motivated to perform
better and in a mariner that directly contributes to the achievement of
organisational objectives.

MBO by definition is a goal-oriented process and not a work-oriented process. Just

being busy and doing work is not important, if it does not effectively lead to
achievement. It is both an aid to planning as well as a motivating factor for
employees. By its proper use, some of the planning errors can be eliminated or
minimised. It is a comprehensive system based upon set objectives in which all
members participate. These objectives are common objectives for all participants
and the extent or rewards for each member would be determined by the degree of
achievement. This leads to a fair appraisal system. Additionally, a good MBO plan
involves regular and face-to-face superior-subordinate communication and hence it
improves the communication network.
2.3. The MBO Process
Some of the elements in the MBO process can be described as follows:
1. Central goal setting.
2. Manager-subordinate involvement.
3. Matching goals and resources.
4. Freedom of implementation.
5. Review and appraisal of performance.

Advantages of MBO
Henri Tosi and Stephen Carroll have done extensive work in this area and described
some of the pros and cons of MBO. Some of the advantages of MBO are:
1. Since MBO is a result-oriented process and focusses on setting/ and
controlling goals, it encourages managers to do detailed planning.
2. Both the manager and the subordinates know what is expected - of them and
hence there is no role ambiguity or confusion.
3. The managers are required to establish measurable targets and standards of
performance and priorities for these targets.
4. MBO often highlights the area in which the employees need further training

Disadvantages of MBO
1. In a classical established structure of our organisations, the authority flows
from top to bottom. This creates discipline and better performance.
2. MBO may be resented by subordinates. They may be under pressure to get
along with the management when setting goals and objectives and these
goals may be set unrealistically high.
3. The emphasis in MBO system is on quantifying the goals and objectives. It
does not leave any ground for subjective goals
 4. The integration of MBO system with other systems such as forecasting and
budgeting etc. is very poor. This makes the overall functioning of all
systems more difficult.

2.4. Suggestions for improving the Effectiveness of MBO

1. It is important to secure top management support and commitment. Without

this commitment, MBO can never really be a success. The top managers
and their subordinates’ should all consider themselves as players of the
same team. This means that the superiors must be willing to relinquish and
share the necessary authority with subordinates.
2. The objectives should be clearly formulated, should be realistic and
achievable. For example, it is not realistic for the R&D department of an
organisation to set a goal of, say, 10 inventions per year. These goals
should be set with the participation of the subordinates. They must be
properly communicated, clearly understood and accepted' by all. MBO
works best when goals are accepted.
3. The goals must be continuously reviewed and modified as the changed
conditions require. The review technique should be such that any
deviations are caught early and corrected.
4. All personnel involved should be given formal training in understanding
the basics as well as the contents of the programme. Such education should
include as to how to set goals, the methods to achieve these goals, methods
of reviews and evaluation of performance and provisions to include any
feedback that may be given.
5. MBO system is a major undertaking based upon sound organisational and
psychological principles. Hence it should be totally accepted as a style of
managing arid should be totally synthesized with the organisational
climate. All personnel involved must have a clear understanding of' their
role authority and their expectations. The system should be absorbed
totally by all members of the organisation.